Enhancing Decision Making

Lecture – 8

Presented by
M.M. Rakibul Hasan
Faculty, CSE, IUBAT CSC - 451
November 2001
Business Pressures–Responses–Support
Model

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 Decision making is difficult, because

 Technology, information systems, advanced search

engines, and globalization result in more and more
alternatives from which to choose
 Government regulations and the need for compliance,
political instability and terrorism, competition, and
changing consumer demands produce more uncertainty,
making it more difficult to predict consequences and the
future
 Other factors are the need to make rapid decisions, the
frequent and unpredictable changes that make trial-and-
error learning difficult, and the potential costs of making
mistakes
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Why Use Computerized DSS?
1. Speedy computations
2. Improved communication and collaboration
3. Increased productivity of group members
4. Improved data management
5. Manage giant data warehouse
6. Quality support;
7. agility support
8. Overcoming cognitive limits in processing and storing
information
9. Using Web;
10. anywhere, anytime support
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Concept of Decision Support Systems

1. Interactive computer-based systems, which help decision

makers utilize data and models to solve unstructured
problems" - Gorry and Scott-Morton, 1971

2. Decision support systems couple the intellectual

resources of individuals with the capabilities of the
computer to improve the quality of decisions. It is a
computer-based support system for management
decision makers who deal with semistructured problems
- Keen and Scott-Morton, 1978

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Concept of Decision Support Systems
3. A Decision Support System is an interactive computer-
based system or subsystem that helps people use
computer, communications, data, documents, knowledge
and models to identify and solve problems, complete
decision process tasks, and make decisions.

4. “DSS comprise a class of information system that draws

on transaction processing systems and interacts with the
other parts of the overall information system to support
the decision-making activities of managers and other
knowledge workers in organizations" (Sprague and
Carlson, 1982, p. 9).
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Components of the DSS Architecture

 Data, Model,
Knowledge/Intelligence,
User, Interface (user
interface)

 DSS often is created by

putting together loosely
coupled instances of
these components

Figure: High-Level Architecture of a DSS

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DSS Working Process

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Types of DSS

1. Model-oriented DSS
quantitative models used to generate a recommended
solution to a problem

2. Data-oriented DSS
support ad-hoc reporting and queries

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Degree of Structuredness (Simon, 1977)

Decision are classified as:

1. Highly structured ( programmed)
2. Semi-structured
3. Highly unstructured (i.e., non-programmed)

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Types of Control (Anthony, 1965)

1. Strategic planning (top-level, long-range)

2. Management control (tactical planning, Mid-level)
3. Operational control (low-level)

Types of control in all managerial activities

• Strategic planning
Defining long range of goals and policies for resource
allocation
• Management control
Acquisition and efficient use of resources for organizational
goal
• Operational control
Efficient and effective execution of specific task.
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An Early Framework for Computerized Decision Support
(The Gorry and Scott-Morton Classical Framework)

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Four-phase decision making process
1. Intelligence:
searching for conditions that call for
decision
2. Design:
Inventing, developing and analyzing
possible alternative actions
(solutions)
3. Choice:
selecting a course of action among
those available
4. Implementation:
Adapting the selected course of
Figure: Steps of Decision Support
action in decision situation
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Automated Decision Making
• A relatively new approach to supporting decision
making
• Applies to highly structures decisions
• Automated decision systems (ADS)
(or decision automation systems)
• An ADS is a rule-based system that provides a solution
to a repetitive managerial problem in a specific area
e.g., simple-loan approval system
• ADS initially appeared in the airline industry called
revenue (or yield) management (or revenue
optimization) systems
dynamically price tickets based on actual demand
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Automated Decision-Making Framework

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Definition of Business Intelligence (BI)

• BI is an umbrella term that combines architectures,

tools, databases, analytical tools, applications, and
methodologies
• Like DSS, BI a content-free expression, so it means
different things to different people
• BI's major objective is to enable easy access to data
(and models) to provide business managers with the
ability to conduct analysis
• BI helps transform data, to information (and
knowledge), to decisions and finally to action

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The Architecture of BI

• A BI system has four major components

• a data warehouse, with its source data
• business analytics, a collection of tools for
manipulating, mining, and analyzing the data in the
data warehouse;
• business performance management (BPM) for
monitoring and analyzing performance
• a user interface (e.g., dashboard)

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A High-Level Architecture of BI

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Components in a BI Architecture
The data warehouse is a large repository of well-
organized historical data
Business analytics are the tools that allow
transformation of data into information and
knowledge
Business performance management (BPM) allows
monitoring, measuring, and comparing key
performance indicators
User interface (e.g., dashboards) allows access
and easy manipulation of other BI components
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The Benefits of BI
The ability to provide accurate information
when needed, including a real-time view of
the corporate performance and its parts
A survey by Thompson (2004)
Faster, more accurate reporting (81%)
Improved decision making (78%)
Improved customer service (56%)
Increased revenue (49%)

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The DSS–BI Connection
First, their architectures are very similar
because BI evolved from DSS
Second, DSS directly support specific
decision making, while BI provides accurate
and timely information, and indirectly support
decision making
Third, BI has an executive and strategy
orientation, especially in its BPM and
dashboard components, while DSS, in
contrast, is oriented toward analysts
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The DSS–BI Connection
Fourth, most BI systems are constructed with
commercially available tools and components,
while DSS is often built from scratch
Fifth, DSS methodologies and even some tools
were developed mostly in the academic world,
while BI methodologies and tools were developed
mostly by software companies
Sixth, many of the tools that BI uses are also
considered DSS tools (e.g., data mining and
predictive analysis are core tools in both)
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Decision Making
A process of choosing among two or more
alternative courses of action for the purpose
of attaining a goal(s)
Managerial decision making is synonymous
with the entire management process - Simon (1977)
e.g., Planning
What should be done? When? Where? Why?
How? By whom?

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Decision Making
problem occurs when a system
does not meet its established goals
does not yield the predicted results, or
does not work as planned
Problem is the difference between the
desired and actual outcome
Problem solving also involves identification
of new opportunities

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Decision Makers
Small organizations
Individuals
Conflicting objectives

Medium-to-large organizations
Groups
Conflicting objectives
Different styles, backgrounds, expectations, personality types
Consensus is often difficult to reach
Help: Computer support, GSS, …

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Model
A significant part of many DSS and BI systems
A model is a simplified representation (or
abstraction) of reality
Often, reality is too complex to describe
Much of the complexity is actually irrelevant in
solving a specific problem
Models can represent systems/problems at
various degrees of abstraction

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Types of Models
Models can be classified based on their
degree of abstraction
Less
Iconic models (scale models)
Degree of abstraction

Analog models

Mental Models

Mathematical (quantitative) models

More

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Types of Models
Iconic model
Also called scale model
Least abstract type of model
A physical replica of a system, on a different scale from
original.
may be 3D: model of airplane, a car, a bridge
2D iconic model: photographs
Analog model
An abstract, symbolic model of a system that behaves like the
system but does not look like it
More abstract than an iconic model and symbolic
representation of reality

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Types of Models
Analog model
2D charts and diagrams, physical
model
Examples:
Organization charts: depicts structure, authority, responsibility
relationship
Maps: different colour represents different objects, such as bodies
of water or mountains.
Stock Market Charts: represents the price movements of stocks
Blueprint of a machine or house
Animations, videos, and movies
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Types of Models
Mental model
Are descriptive representation of decision making
situations that people form in their head and think
about.
The mechanisms or images through which a
human mind performs sense-making in decision
making
Thought process work through scenario to
consider the utility & risks of each potential
alternative
When mostly qualitative factors are in decision
making

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Types of Models
Mathematical (quantitative) model
A system of symbols and expressions that
represent a real situation
The complexity of relationships in many
organization can’t be represented by icons or
analogically.(cumbersome and time consuming).
More abstract models are described
mathematically.

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The Benefits of Models
Model manipulation is much easier than
manipulating a real system
Models enable the compression of time
The cost of modeling analysis is much lower
The cost of making mistakes during a trial-
and-error experiment is much lower when
models are used than with real systems

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The Benefits of Models
With modeling, a manager can estimate the risks
resulting from specific actions within the
uncertainty of the business environment
Mathematical models enable the analysis of a
very large number of possible solutions
Models enhance and reinforce learning and
training
Models and solution methods are readily
available on the Web

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Simon’s Decision-Making Process

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Decision-Making: Intelligence Phase
Scan the environment, either intermittently or
continuously
Identify problem situations or opportunities
Monitor the results of the implementation
Problem ( or opportunity ) identification:
Problem is the difference between what people
desire (or expect) and what is actually occurring
Symptom versus Problem
Determine existence and magnitude of problem and define
it
Timely identification of opportunities is as important as
identification of problems
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Decision-Making: Intelligence Phase
Potential issues in data/information
collection and estimation
Lack of data
Cost of data collection
Inaccurate and/or imprecise data
Data estimation is often subjective
Data may be insecure
Key data may be qualitative
Data change over time (time-dependence)
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Decision-Making: Intelligence Phase
Problem Classification
Classification of problems according to the degree of
structuredness
Place it in definable category
Problem Decomposition
Dividing complex problems into simpler sub-
problems may help in solving the complex problem
Information/data can improve the structuredness of a
problem situation

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Decision-Making: Intelligence Phase
Problem Ownership
Assignment of authority to solve a problem is
called “problem ownership”
Example: high-interest rate, what is the
managerial role?
Outcome of intelligence phase:
A Formal Problem Statement

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Decision-Making: The Design Phase
Finding/developing and analyzing
possible courses of actions
Understanding the problem
Testing solutions for feasibility
A model of the decision-making problem
is constructed, tested, and validated

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Decision-Making: The Design Phase
Risk
Unstable environment (unpredictable event)
Attribute a level of risk to the outcome associated
with each potential alternative being considered
Scenario (what-if case)
A statement of assumptions about the operating
environment (variables) of a particular system at a
given time
Change the scenario of problem and examine the
result
Possible scenarios for decision situation: best, worst,
most likely, average scenario
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Decision-Making: The Choice Phase
The actual decision is made and the
commitment to follow a certain course of action
are made here
The boundary between the design and choice
is often unclear
Generate alternatives while performing evaluations
Includes the search, evaluation, and
recommendation of an appropriate solution to
the model

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Decision-Making: The Choice Phase
Search approaches
Analytic techniques (solving with a formula)
Algorithms (step-by-step procedures)
Heuristics (rule of thumb, problem solving aid)
Blind search (truly random search)
Additional activities
Sensitivity analysis (effect of change in one on
others)
What-if analysis ( explore major change in
parameter )
Goal seeking ( determine value of decision variable
to meet objective) 40
M.M. Rakibul Hasan CSC-451
Decision-Making: The Choice Phase
Analytical techniques
Methods that use mathematical formulas to
derive an optimal solution directly or to predict a
certain result, mainly in solving structured
problems
Algorithm
A step-by-step search in which improvement is
made at every step until the best solution is
found

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Decision-Making: The Choice Phase
Heuristics
Informal, judgmental knowledge of an application area that
constitutes the rules of good judgment in the field. Heuristics also
encompasses the knowledge of how to solve problems efficiently
and effectively, how to plan steps in solving a complex problem,
how to improve performance, and so forth
Sensitivity analysis
A study of the effect of a change in one or more input variables on
a proposed solution
What-if analysis
A process that involves asking a computer what the effect of
changing some of the input data or parameters would be

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Decision-Making: The Implementation
Phase
“Nothing more difficult to carry out, nor
more doubtful of success, nor more
dangerous to handle, than to initiate a
new order of things.”
- The Prince, Machiavelli 1500s
• Solution to a problem = Change
• Change management?
• Implementation: putting a recommended
solution to work
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Thank You