946-349/457 DSS

Introduction to
Decision Modelling

What is a Decision?
A choice made between alternative
courses of action in a situation of
uncertainty.

Decisions Everywhere
Personal Decisions
What to eat?
What movie to watch?
Whether or not to go to graduate school?

Business Decisions
How many quantity of product A to
produce?
Where to advertise?
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Decision Making: Introduction

and Definitions
Decision making
The process of choosing among 2 or more
alternative courses of actions for the
purpose of attaining one or more goals.

Decision making is a part of Problem

Solving.

What is DSS?
DSS is
an interactive software-based system to
help decision makers compile useful
information (from raw data, documents,
personal knowledge, and/or business
models)
to identify and solve problems and make
decisions.

Advantages of DSS
1. Improved data management
Many decisions involves data. Computers can search,
store (inside organization or in the website outside
organization) and transmit need data quickly,
economically and securely.

2. Speedy computation
A computer enables the decision makers to perform
computation quickly and at a low cost.
Thousands of alternatives can be evaluated in seconds.

3. Quality support
Computers can improve the quality of decision made. For
example: more data can be accessed, more alternatives
can be evaluated, forecasts can be improved. etc.
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General purpose of DSS

4. Overcoming cognitive limits in processing and
storing information
The human mind has only a limited ability to process and
store information.
Cognitive limits: an individuals problem solving capability
is limited when a wide range of diverse information and
knowledge is required.
Computerized system enable people to overcome their
cognitive limits by quickly accessing and processing vast
amounts of stored information.

Disadvantages of DSS
1. Computer can only take the data
that is inputted, but human can see
from many perspective.
2. Difficult to give solutions for
subjective problems.
3. Limited data types for input.

What is Decision Modeling?

A scientific approach to managerial decision
making.
The development of a (mathematical) model of a
real-world scenario.
The model provides insight into the solution of
the managerial problem.

Types Of Decson Models

(by purpose of the model)
Decision
Models

Optimization
Models

Predictive
Models

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Optimization Models

Optimization Models seek to

maximize a quantity (eg. profit) or
minimize a quantity (eg. cost, time, etc.)
that may be restricted by a set of constraints
(limitations on the availability of capital,
workers, supplies, machines etc.)

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Predictive Models
At times however, the function of a model is not
to maximize or minimize any particular quantity,
but to describe or predict events given certain
conditions These models are known as Predictive
Models.
These techniques do not generate an answer or
a recommended decision.
Instead they provide descriptive results: results
that describe the system being modeled.
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Types Of Decson Models

(by the degree of certainty of the data)
Decision
Models

Deterministic
Models

Probabilistic
Models

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Determnstc models
Deterministic models assume:
Complete certainty.
All information needed is available with fixed
and known values.
Most commonly used deterministic modeling
technique is Linear Programming.

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Probabilistic Models
Probabilistic models are also called stochastic
models.
Probabilistic models
assume some of data is not known with
certainty.
take into account that information will be
available after the decision is made.

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Spreadsheets in Decision
Making
Computers are used to create and solve models.
Spreadsheets are a convenient alternative to
specialized software.
Microsoft Excel has extensive modeling
capability via the use add-ins.

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Steps in Decision Modeling

1. Formulation
Translating a problem scenario from words to
a mathematical model.
2. Solution
Solving the model to obtain the optimal
solution.
3. Interpretation and Sensitivity Analysis
Analyzing results and implementing a
solution.
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Steps in
Decision
Modeling

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Example
Lisa has an online jewelry shop where she sells earrings
and necklaces.
She sells earrings for $30 and necklaces for $40.
It takes 30 minutes to make a pair of earrings and 1 hour
to make a necklace,
She only has 10 hours a week to make jewelry.
She only has enough materials to make 15 total jewelry
items per week.
She makes a profit of $15 on each pair of earrings and $20
on each necklace.
How many pairs of earrings and necklaces should
Lisa make each week in order to maximize her
profit, assuming she sells all her jewelry?
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Example

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Possible Problems in
Developing Decision Models
Defining the Problem
Conflicting viewpoints
Impact on other departments
Beginning assumptions
Developing a Model
Fitting the textbook models
Understanding the model
Acquiring Input Data
Using accounting data
Validity of data
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Possible Problems in
Developing Decision Models
Developing a Solution
Hard to understand mathematics
Testing the Solution
Analyzing the Results
Implementation

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