Capitulo 2

Managerial decision-making challenges:

 Analyze large amounts of information
 Apply sophisticated analysis techniques
 Make decisions quickly
The six-step decision-making process:
1. Problem identification
2. Data collection
3. Solution generation
4. Solution test
5. Solution selection
6. Solution implementation
DECISION-MAKING ESSENTIALS:
 STRATEGIC
 MANAGERIAL
 OPERATIONAL
Operational decision making - Employees develop, control, and maintain core
business activities required to run the day-to-day operations
Managerial decision making – Employees evaluate company operations to identify,
adapt to, and leverage change
Semistructured decisions – Occur in situations in which a few established
processes help to evaluate potential solutions, but not enough to lead to a definite
recommended decision
Strategic decision making – Managers develop overall strategies, goals, and
objectives
Unstructured decisions – Occurs in situations in which no procedures or rules exist
to guide decision makers toward the correct choice
MEASURING ORGANIZATIONAL BUSINESS DECISIONS
Project – A temporary activity a company undertakes to create a unique product,
service, or result
Metrics – Measurements that evaluate results to determine whether a project is
meeting its goals
Critical success factors (CSFs) – The crucial steps companies make to perform to
achieve their goals and objectives and implement strategies
 Create high-quality products
 Retain competitive advantages
 Reduce product costs
 Increase customer satisfaction
 Hire and retain the best professionals
Key performance indicators (KPIs) – The quantifiable metrics a company uses to
evaluate progress toward critical success factors
 Turnover rates of employees
 Number of product returns
 Number of new customers
 Average customer spending
External KPI
 Market share – The portion of the market that a firm capture (external)
Internal KPI
 Return on investment (ROI) – Indicates the earning power of a
project
Efficiency MIS metrics – Measure the performance of MIS itself, such as
throughput, transaction speed, and system availability
Effectiveness MIS metrics – Measures the impact MIS has on business processes
and activities, including customer satisfaction and customer conversation rates
Benchmark – Baseline values the system seeks to attain
Benchmarking – A process of continuously measuring system results, comparing
those results to optimal system performance (benchmark values), and identifying
steps and procedures to improve system performance
Model – A simplified representation or abstraction of reality
Models help managers to
 Calculate risks
 Understand uncertainty
 Change variables
 Manipulate time to make decisions
Transaction processing system (TPS) – Basic business system that serves the
operational level and assists in making structured decisions
Online transaction processing (OLTP) - Capturing of transaction and event
information using technology to process, store, and update
Source document – The original transaction record
Transaction processing system (TPS) – Basic business system that serves the
operational level and assists in making structured decisions
Online transaction processing (OLTP) - Capturing of transaction and event
information using technology to process, store, and update
Source document – The original transaction record
Four quantitative models used by DSSs include
7. What-if analysis
8. Sensitivity analysis
9. Goal-seeking analysis
10. Optimization analysis
Executive information system (EIS) – A specialized DSS that supports senior level
executives within the organization
 Granularity
 Visualization
 Digital dashboard
Most EISs offering the following capabilities
 Consolidation
 Drill-down
 Slice-and-dice
  Pivot
Artificial intelligence (AI) – Simulates human intelligence such as the ability to
reason and learn
Weak AI - Machines can still make their own decisions based on reasoning and past
sets of data. Most of the AI systems on the market today are weak AI.
Strong AI - The field of artificial intelligence that works toward providing brainlike
powers to AI machines; in effect, it works to make machines as intelligent as
humans.
Expert Systems - Computerized advisory programs that imitate the reasoning
processes of experts in solving difficult problems
Genetic Algorithm – An artificial intelligent system that mimics the evolutionary,
survival-of-the-fittest process to generate increasingly better solutions to a problem
Case-Based Reasoning - A method whereby new problems are solved based on
the solutions from similar cases solved in the past
Mutation - The process within a genetic algorithm of randomly trying combinations
and evaluating the success (or failure) of the outcome
AI is building robots that can operate
Automation similar to humans.
With massive amounts of data
Complex Analytics available, humans need help
analyzing to find patterns.
Credit card companies use AI to
determine if the purchase was made
Fraud Detection by the customer by analyzing and
identifying unfamiliar spending
patterns.
From hospitals to airports, AI can
Resource schedule the use of resources to
Scheduling maximize efficiency.

Machine learning - A type of artificial intelligence that enables computers to both

understand concepts in the environment, and also to learn
 Supervised machine learning
 Unsupervised machine learning
 Transfer machine learning
Data augmentation - Occurs when adding additional training examples by
transforming existing examples
Two additional learning problems:
 Overfitting - Occurs when a machine learning model matches the
training data so closely that the model fails to make correct predictions
on new data
 Underfitting - Occurs when a machine learning model has poor
predictive abilities because it did not learn the complexity in the training
data
The four type of bias in machine learning include:
 Sample bias
  Prejudice bias
 Measurement bias
 Variance bias
Neural Network – Attempts to emulate the way the human brain works
 Fuzzy logic – A mathematical method of handling imprecise or
subjective information
 Deep learning – A process that employs specialized algorithms
to model and study complex datasets; the method is also used
to establish relationships among data and datasets
 Reinforcement learning - The training of machine learning
models to make a sequence of decisions
Virtual reality - A computer-simulated environment that can be a simulation of the
real world or an imaginary world
 Augmented reality – the viewing of the physical world with computer-
generated layers of information added to it
 Google Glass – A wearable computer with an optical head-mounted
display
 Virtual workplace – a work environment that is not located in any one
physical space
 Haptic interface – uses technology allowing humans to interact with a
computer though bodily sensations and movements
Customer facing process - Results in a product or service that is received by an
organization’s external customer
Business facing process - Invisible to the external customer but essential to the
effective management of the business
Business process modeling (or mapping) - The activity of creating a detailed flow
chart or process map of a work process showing its inputs, tasks, and activities, in a
structured sequence
Business process model - A graphic description of a process, showing the
sequence of process tasks, which is developed for a specific
 As-Is process model
 To-Be process model
Workflow – Includes the tasks, activities, and responsibilities required to execute
each step in a business process
Workflow control systems - Monitor processes to ensure tasks, activities, and
responsibilities are executed as specified
Digitization - The automation of existing manual and paper-based processes and
workflows to a digital format
Operational business processes - Static, routine, daily business processes such
as stocking inventory, checking out customers, or daily opening and closing
processes
Operationalized analytics - Makes analytics part of a business process
Business process improvement – Attempts to understand and measure the
current process and make performance improvements accordingly
Automation – The process of computerizing manual tasks
Robotic process automation - The use of software with artificial intelligence (AI)
and machine learning capabilities to handle high-volume, repeatable tasks that
previously required a human to perform
Machine vision – The ability of a computer to “see: by digitizing an image,
processing the data it contains, and taking some kind of action
Machine vision sensitivity - The ability of a machine to see in dim light or to detect
weak impulses at invisible wavelengths
Machine vision resolution - The extent to which a machine can differentiate
between objects. In general, the better the resolution, the more confined the field of
vision
Streamlining – Improves business process efficiencies by simplifying or eliminating
unnecessary steps
Bottleneck – Occur when resources reach full capacity and cannot handle any
additional demands
Redundancy – Occurs when a task or activity is unnecessarily repeated
Business process reengineering (BPR) - Analysis and redesign of workflow within
and between enterprises
Data mining - The process of analyzing data to extract information not offered by
the raw data alone
The three elements of data mining include:
11. Data: Foundation for data-directed decision making
12. Discovery: Process of identifying new patterns, trends, and insights
13. Deployment: Process of implementing discoveries to drive success
Data profiling - The process of collecting statistics and information about data in an
existing source
Data replication - The process of sharing information to ensure consistency
between multiple data sources
Recommendation engine - A data mining algorithm that analyzes a customer's
purchases and actions on a website and then uses the data to recommend
complementary products
Common data mining techniques
 Affinity grouping analysis
 Classification analysis
 Cluster analysis
 Estimation analysis
Prediction - A statement about what will happen or might happen in the future; for
example, predicting future sales or employee turnover. Prediction modeling
techniques include:
 Optimization modeling
 Forecasting modeling
 Regression modeling

MANAGERIAL