Decision Making, Systems, Modeling, and

Support
Lecture 5
Learning Objectives
 Understand the design phase
❑ Differentiate between the concepts of making a choice and establishing a
principle of choice
❑ Learn how DSS and BI provide support for decision making in practice
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Decision-Making: The Design Phase
❑ Finding/developing and analyzing possible courses of actions
❑ A model of the decision-making problem is constructed, tested, and
validated
❑ Modeling: conceptualizing a problem and abstracting it into a
quantitative and/or qualitative form (i.e., using symbols/variables)
▪ Abstraction: making assumptions for simplification
▪ Tradeoff (cost/benefit): more or less abstraction
❑ Mathematical Model
▪ Identify variables
▪ Establish equations describing their mutual relationships
▪ Simplifications through assumptions
▪ For example, a relationship between two variables may be
assumed to be linear even though in reality there may be some
non-linear effects.
▪ An optimization model can be linear or nonlinear, depending on the
form of the mathematical relationships used to model the objective
and constraints. illustrates linear and nonlinear relationships. In a
linear relationship, all terms in the formulas only contain a single
variable multiplied by a constant. For example, 3x - 1.2y is a linear
relationship since both the first and second term only involve a
constant multiplied by a variable. Terms such as x2, xy, 1/x, or 3.1x
make nonlinear relationships. Any models that contain such terms in
either the objective or a constraint are classified as nonlinear.
❑ Balance model simplification and the accurate representation of reality
▪ A simpler model leads to lower development costs, easier
manipulation, and a faster solution but is less representative of the
real problem and can produce inaccurate results.
▪ On the other hand, a simpler model generally requires fewer data,
or the data are aggregated and easier to obtain.
❑ Modeling: both an art and a science
▪ As a science, there are many standard model classes available, and
with practice the analyst can determine which one is applicable to
a given situation.
▪ As an art, a level of creativity and finesse is required when
determining what simplifying assumptions can work, how to
combine appropriate features of a model classes, and how to
integrate models to obtain valid solution.

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❑ Selection of a Principle of Choice
▪ It is a criterion that describes the acceptability of a solution
approach
▪ Reflection of decision-making objective(s)
▪ In a model, it is the result variable
▪ Choosing and validating against
▪ High-risk versus low-risk
▪ Optimize versus satisfice
▪ Criterion is not a constraint: Criteria are rules or directions that
must be followed; they are the requirements that must be met.
Constraints are restrictions that keep something from being the
best that it can be.
❑ Normative models (= optimization)
▪ The chosen alternative is demonstrably the best of all possible
alternatives
❑ Heuristic models (= suboptimization)
▪ Heuristics is an approach to problem-solving in which the
objective is to produce a working solution within a reasonable time
frame. Instead of looking for a perfect solution, heuristic strategies
look for a quick solution that falls within an acceptable range of
accuracy.
▪ the chosen alternative is the best of only a subset of possible
alternatives
▪ Often, it is not feasible to optimize realistic (size/complexity)
problems
▪ Suboptimization may also help relax unrealistic assumptions in
models
▪ Help reach a good enough solution faster
What is a satisficing model?
▪ Satisficing is a decision-making strategy that aims for a satisfactory
or adequate result, rather than the optimal solution.
▪ Instead of putting maximum exertion toward attaining the ideal
outcome, satisficing focuses on pragmatic effort when confronted
with tasks.
▪ Simon's satisficing model is an example of a "heuristic."
❑ Descriptive models
▪ describe things as they are or as they are believed to be
(mathematically based)
▪ They do not provide a solution but information that may lead to a
solution
▪ Simulation - most common descriptive modeling method
(mathematical depiction of systems in a computer environment)
▪ Allows experimentation with the descriptive model of a system

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❑ Developing (Generating) Alternatives
▪ Good solutions are not possible without good alternatives.
▪ A significant part of the process of model building is generating
alternatives.
▪ In optimization models (such as linear programming), the
alternatives may be generated automatically by the model.
▪ In most decision situations, however, it is necessary to generate
alternatives manually. This can be lengthy process that involves
searching and creativity. It takes time and costs money.
▪ The generating of alternatives from either individuals or groups
can be supported by electronic brainstorming software in a web
based GSS.
▪ Note that the search of alternatives usually comes after the criteria
for evaluating the alternatives are determined.
▪ This sequence can reduce the search for alternatives and the effort
involved in evaluating them, but identifying potential alternatives
that sometimes aid in identifying criteria.
▪ Decision making = f (alternatives, criteria)

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❑ Predicting the Outcome of Each Alternative
▪ The value of an alternative is evaluated in terms of goal
attainment.
▪ Sometimes an outcome is expressed directly in terms of a goal.
o For example, profit is an outcome
o Profit maximization is a goal
▪ outcome such as customer satisfaction may be measured
o by number of complaints,
o By the level of loyalty to a product,
o By ratings found by surveys.
▪ Ideally, one wants to deal with a single goal, but in practice it is not
unusual to have multiple goals.
▪ When groups make decisions, each group participant may have a
different agenda.
o For example, executives may want to maximize profit,
o Marketing may want to maximize market penetration,
o Operations may want to minimize costs
▪ Typically, these goals conflict, so special multiple criteria
methodologies have been developed to handle this.
▪ Classify Each Situation as Under
o Certainty
o Risk
o Uncertainty
▪ Scenario (what-if case)
o A statement of assumptions about the operating
environment (variables) of a particular system at a given
time. A scenario describes the decision and uncontrollable
variables and parameters for a specific modeling situation .
It may also provide the procedures and constraints for the
modeling. Scenario describes the system's configurations.
By changing scenarios and measuring the goal attainment
level, it is possible to compare alternatives under different
sets of conditions.
o Possible scenarios: best, worst, most likely, average.
❑ Errors in Decision Making
▪ You must do the following to avoid errors in model:
1. Validate the model before it’s used.
2. Gathering the right amount of information, with the right level
of precision and accuracy, to incorporate into the decision-
making process.

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 Accuracy is the proximity of measurement results to the accepted value;
precision is the degree to which repeated measurements under unchanged
conditions show the same results.
Decision-Making: The Choice Phase
❑ Choice is the critical act of decision making.
❑ The actual decision and the commitment to follow a certain course of
action are made here.
❑ The boundary between the design and choice is often unclear (partially
overlapping phases)
▪ Generate alternatives while performing evaluations
❑ Includes the search, evaluation, and recommendation of an appropriate
solution to the model.
❑ A solution to a model is a specific set of values for the decision variables in
a selected alternative.
❑ The problem is considered solved only after the recommended solution to
the model is successfully implemented

❑ Search Approaches
▪ Analytical Techniques
▪ Algorithms (Optimization)
▪ Blind and Heuristic Search Techniques
❑ Evaluation (with the search process) leads to a recommended solution.
❑ Evaluation: Multiple Goals, Sensitivity Analysis, What-If, and Goal
Seeking
❑ Complex systems have multiple goals some may conflict.
❑ Typically, quantitative models have a single goal.
❑ Can transform a multiple-goal problem into a single-goal problem.
❑ 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.
❑ Goal Seeking: Asking a computer what values certain variables must
have in order to attain desired goals.
Decision-Making: The Implementation Phase
▪ After implementing the previous phases, we find the outcome.
▪ If the outcome is a failure then we have to start the procedure
again or just go to the previous phase and check for any mistake or
error.
▪ And if the outcome is a success then we will compare it with the
reality of situation to check whether the decision is required one or
not.
❑ There is nothing more difficult to carry out, nor more doubtful of success,
nor more dangerous to handle, than to initiate a new order of things
(Machiavelli, 1500s)
❑ Implementation is defined as the initiation of a new order of things, the
introduction of change; putting a recommended solution to work.
❑ Important Issues
▪ Resistance to change
▪ Degree of top management support
▪ Users’ roles and involvement in system development

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 ▪ Users’ training
 A DSS supports the implementation of a decision through
communication, explanation, and justification.
Decision-Making phases and Knowledge
❑ All these phases produce new knowledge to be combined with previous
knowledge about the domain of the problem.
❑ This new knowledge will provide feedback to power the Big Data so that
it can be used as necessary, thus fulfilling its role in the organizational
learning process.

How Decisions Are Supported

How decisions are supported

❑ Support for the Intelligence Phase
▪ Enabling continuous scanning of external and internal information
sources to identify problems and/or opportunities
▪ Resources/technologies: Web; ES, OLAP, data warehousing,
data/text/Web mining, EIS/Dashboards, KMS, GSS, GIS,…
▪ Business Activity Monitoring (BAM)
▪ Business Process Management (BPM)
▪ Product Life-cycle Management (PLM)
❑ Support for the Design Phase
▪ Enabling generating alternative courses of action, determining the
criteria for choice
▪ Generating alternatives
o Structured/simple problems: standard and/or special
models
o Unstructured/complex problems: human experts, ES, KMS,
brainstorming/GSS, OLAP, data/text mining
❑ A good “criteria for choice” is critical!
❑ Support for the Choice Phase
▪ Enabling selection of the best alternative given a complex
constraint structure
▪ Use sensitivity analyses, what-if analyses, goal seeking
▪ Resources

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 o KMS
o CRM, ERP, and SCM
o Simulation and other descriptive models
❑ Support for the Implementation Phase
▪ Enabling implementation/deployment of the selected solution to
the system
▪ Decision communication, explanation and justification to reduce
resistance to change
▪ Resources
o Corporate portals, Web 2.0/Wikis (Wiki is a piece of server
software that allows users to freely create and edit Web
page content using any Web browser.) , web 3.0, web 4.0
o Brainstorming/GSS
o KMS , ES
❑ Additional Technologies to Support Decision Making
o mobile-Commerce
o Analytics and big data
o GSS with visual/immersive presence (Immersive (of a computer
display or system) generating a three-dimensional image that
appears to surround the user.
o Competing on Analytics
o Faster computers, better algorithms, to process “huge” amounts of
heterogeneous/distributed data
Review Questions
1. What is the difference between linear and nonlinear relationship?
2. Is modeling an art and a science? clarify.
3. How can you avoid errors in the model?
4. Explain the difference between a principle of choice and the actual choice
phase of decision making.
5. What are the differences between normative, heuristic and descriptive
models?
6. Describe the concept of selection of a principle of choice.
7. What is the difference between accuracy and precision?
8. What is the difference between criteria and constraints?
9. What is the difference between what if analysis, sensitivity analysis and
goal seeking analysis?
10. How can a DSS support the implementation of a decision?
11. Describe how DSS/BI technologies and tools can aid in each phase of
decision making.
12. Describe the additional technologies that can support the decision-making
process.
13. T/F Question:
1) Good enough or satisficing is a form of suboptimization.
2) In the design phase, it is important to establish problem ownership.
3) In the intelligence phase a model of the decision-making problem is
constructed, tested, and validated.
4) Abstraction in modeling means making assumptions for simplification.

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5) A simpler model leads to lower development costs, easier manipulation,
and a faster solution but is less representative of the real problem and
can produce accurate results.
6) Criteria are rules or directions that must be followed; they are the
requirements that must be met.
7) Constraints represent rules that keep something from being the best
that it can be.
8) Descriptive models choose the alternative that is demonstrably the best
of all possible alternatives.
9) In normative models the chosen alternative is demonstrably the best of
all possible problems
10) Suboptimization may also help relax unrealistic assumptions in
models.
11) Descriptive models describe things as they are or as they are believed
to be.
12) Linear programming is the most common descriptive modeling
method.
13) A significant part of the process of model building is generating
opportunities.
14) In most DSS situations it is necessary to generate alternatives
manually.
15) The generating of alternatives from either individuals or groups can
be supported by electronic brainstorming software in a web-based GIS.
16) The search of alternatives usually comes after the criteria for
evaluating the alternatives are determined.
17) Identifying potential alternatives sometimes aid in identifying
criteria.
18) Decision making = f (alternatives, models)
19) The value of an alternative is evaluated in terms of goal requirement.
20) Ideally, one wants to deal with a single model, but in practice it is not
unusual to have multiple models.
21) When groups make decisions, each group participant may have a
different agenda.
22) Scenario is a statement of assumptions about the strategic
environment (variables) of a particular system at a given time.
23) Scenario describes the system's configurations.
24) By changing scenarios and measuring the goal attainment level, it is
possible to compare goals under different sets of conditions.
25) Possible scenarios are best, worst, most likely and average.
26) It is important to gather the right amount of information with the
right amount of precision and comprehensive to incorporate into the
decision-making process.
27) Design is the critical act of decision making.

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28) The actual decision and the commitment to follow a certain course of
action are made in the implementation phase.
29) The boundary between the design and choice is often unclear.
30) Choice phase includes the search, evaluation, and recommendation of
an appropriate solution to the problem.
31) A solution to a model is a specific set of values for the decision
variables in a selected alternative.
32) The problem is considered solved only after the recommended
solution to the model is successfully implemented.
33) The following techniques multiple goals, sensitivity analysis, what-if,
and goal seeking represent search techniques.
34) It is important to all systems to have single goal.
35) Typically, quantitative models have a single goal.
36) What if scenario is the effect of a change in one or more input
variables on a proposed solution.
37) What if analysis is a process that involves asking a computer what
effect of changing some of the input data or parameters would be.
38) Goal seeking means asking a computer what values certain variables
must have in order to attain desired goals.
39) Implementation is defined as the initiation of a new input of things,
the introduction of change; putting a recommended solution to work.
40) A DSS supports the implementation of a decision through
communication, explanation, and justification.
41) Implementation of a decision requires degree of middle management
support.
42) Decision communication, explanation and justification represent
implementation activities.
43) Databases, data marts, and especially data warehouses are important
technologies in supporting all phases of decision making, particularly
when accessed via web-based interfaces.
44) PLM stands for Problem Language Modulation.

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