Business Analytics and Decision

Making
Decision Support System

Dr. Mahmoud Beshr

 Learning Objectives
2

1. Identify the changes taking place in the form

and use of decision support in business.
2. Identify the role and reporting alternatives of
management information systems.
3. Explain the decision support system concept
and how it differs from traditional
management information systems.
 Learning Objectives
3

4. Explain how the following information systems can support the

information needs of executives, managers, and business
professionals:
• Executive information systems
• Enterprise information portals
• Knowledge management systems
 Information required at different management levels
4
 Information Requirements of Key
Decision-Making Groups in a Firm

Senior managers,
middle managers,
operational managers,
and employees have
different types of
decisions and
information
requirements.

5
 Decision Structure
6

 Structured – situations where the procedures to follow when a decision is needed

can be specified in advance. For example, inventory reorder decisions.
 Semistructured – decision procedures that can be prespecified, but not enough to
lead to a definite recommended decision. For example, decisions involved in starting a
new line of e-commerce services or making major changes to employee benefits
would probably range from unstructured to semistructured.
 Unstructured - decision situations where it is not possible to specify in advance most
of the decision procedures to follow. Most decisions related to long-term strategy can
be thought as unstructured. Many sources of information must be accessed, and the
decision often rests on experience and "gut feeling. For example, ("What product lines
should we develop over the next years?")
 Examples of Business Intelligence Pre-
Defined Reports
Business Functional Area Production Reports

Sales Sales forecasts, sales team performance, cross selling, sales cycle
times

Service/Call Center Customer satisfaction, service cost, resolution rates, churn rates

Marketing Campaign effectiveness, loyalty and attrition, market basket analysis

Procurement and Direct and indirect spending, off-contract purchases, supplier

Support performance

Supply Chain Backlog, fulfillment status, order cycle time, bill of materials analysis

Financials General ledger, accounts receivable and payable, cash flow,

profitability

Human Resources Employee productivity, compensation, workforce demographics,

7 retention
 Information Quality
8

 Information that is outdated, inaccurate, or hard understand is not

very meaningful, useful, or valuable to you or other business
professionals.
 Information has 3 dimensions:
 Time
 Content
 Form
 Information Quality
9
 MIS Vs. DSS
10

 Using a decision support system involves an interactive analytical

modeling process. For example, using a DSS software package for
decision support may result in a series of displays in response to
alternative what-if changes entered by a manager. This differs from the
demand responses of management information systems, since decision
makers are not demanding prespecified information.
 Rather, they are exploring possible alternatives. Thus, they do not have
to specify their information needs in advance. Instead, they use the DSS
to find the information they need to help them make a decision. That is
the essence of the decision support system concept.
 MIS Vs. DSS
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Management Decision
Information Support Systems
Systems
Decision Provide information about Provide information and
support the performance of the techniques to analyze
provided organization specific problems
Information Periodic, exception, Interactive inquiries and
form and demand, and push reports responses
frequency and responses
Information Prespecified, fixed format Ad hoc, flexible, and
format adaptable format

Information Information produced by Information produced by

processing extraction and manipulation analytical modeling of
methodology of business data business data
 Management Information Systems
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 MIS Produces information products that support many of the day-to-day

decision-making needs of managers and business professionals
 Such predefined information products satisfy the information needs of
makers at the operational and tactical levels of the organization more
structured types of decision situations.
 For example, sales managers rely heavily on sales analysis reports to
evaluate differences in performance among salespeople who sell the
same types of products to the same types of customers.
 They have pretty good idea of the kinds of information about sales
results (by product line, territory, customer, salesperson, and so on).
 MIS Reporting Alternatives
13

 Periodic Scheduled Reports

 Uses a prespecified format designed to provide managers with information on a
regular basis.
 Typical examples of such periodic scheduled reports are daily or weekly sales
analysis reports and monthly financial statements.
 Exception Reports
 Reports are produced only when exceptional conditions occur. In other cases,
reports are produced periodically but contain information only about these
exceptional conditions.
 For example, a credit manager can be provided with a report that contains only
information on customers who have exceeded their credit limits.
 Exception reporting reduces information overload, instead of overload decision
makers with periodic detailed reports of business activity.
 MIS Reporting Alternatives
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 Demand Reports and Responses

 Information is available whenever a manager demands it.
 For example, Web browsers and DBMS query languages and report generators
enable managers at PC workstations to get immediate responses or to find and
obtain customized reports as a result of their requests for the information they need.
 Thus, managers do not have to wait for periodic reports to arrive as scheduled.

 Push Reporting
 Information pushed to manager's networked workstation.
 Thus, many companies are using web casting software to selectively broadcast
reports and other information to the networked PCs of managers and specialists
over their corporate intranets
 An example of marketing intelligence system that used to push information. See the
next figure
15
 Decision Support Systems
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 DSS Provide interactive information support to managers and

business professionals during the decision-making process
 DSS use:
 Analytical models
 Specialized databases
 A decision maker’s own insights and judgments
 Interactive computer-based modeling
 To support semistructured business decisions
 Decision Support Systems
17

 For example, sales managers typically rely on management information systems to

produce sales analysis reports. These reports contain sales performance figures by
product line, salesperson, sales region, and so on. A decision support system, on the
other hand, would also interactively show a sales manager the effects on sales
performance of changes in a variety of factors (such as promotion expense and
salesperson compensation).

 The DSS could then use several criteria (such as expected gross margin and market
share) to evaluate and rank alternative combinations of sales performance factors.
Therefore, DSS systems are designed to be ad hoc, quick response systems that are
initiated and controlled by business decision makers.
 DSS Components
18

 Unlike management information systems, decision support systems rely on model

bases as well as databases as vital system resources.
 Model base
 A software component that consists of models used in computational and analytical
routines that mathematically express relations among variables
 Examples:
 Linear programming models,

 Multiple regression forecasting models

 Capital budgeting present value models

• Such models may be stored in the form of spreadsheet models or templates, or
statistical and mathematical programs and program modules. See next figure.
 DSS components
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 Using DSS
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Using a decision support system involves four basic types of analytical modeling activities: (1) what-if analysis,
(2) sensitivity analysis, (3) goal-seeking analysis, and (4) optimization analysis. Let's briefly look at each type of
analytical modeling that can be used for decision support.

 What-if Analysis
 End user makes changes to variables, or relationships among
variables, and observes the resulting changes in the values of other
variables.
 For example, you might change a revenue amount (a variable) or a tax
rate formula (a relationship among variables) in a simple financial
spreadsheet model. Then, you could command the spreadsheet
program to instantly recalculate all affected variables in the
spreadsheets.
 What-If Analysis
21

This What-if analysis

involves the evaluation of
probability distributions of
net income and net present
value (NPV) generated by
changes to values for
sales, competitors, product
development, and capital
expenses.
 Using DSS
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 Sensitivity Analysis
 Sensitivity analysis is a special case of what-if analysis.
 The value of only one variable is changed repeatedly, and the resulting
changes on other variables are observed.
 It is used when decision makers are uncertain about the assumptions made
in estimating the value of certain key variables.
 In our previous spreadsheet example, the value of revenue could be
changed repeatedly in small increments, and the effects on other
spreadsheet variables observed and evaluated.
 This would help a manager understand the impact of various revenue levels
on other factors involved in decisions being considered
 Using DSS
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 Goal-Seeking
 Instead of observing how changes in a variable affect other variables, goal-
seeking analysis sets a target value (a goal) for a variable and then repeatedly
changes other variables until the target value is achieved.
 For example, you could specify a target value (goal) of $2 million for net profit
after taxes for a business venture. Then you could repeatedly change the value of
revenue or expenses until the result is achieved.
 Thus, you would discover what amount of revenue or level of expenses the
business venture needs to achieve to reach the goal of $2 million in after-tax
profits.
 Therefore, this form of analytical helps to answer the question, "How can we
achieve $2 million in net profit after taxes?" instead of the question, "What
happens if we change revenue or expenses?".
 Using DSS
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 Optimization
 Analysis is a more complex extension of goal-seeking analysis. Instead of setting
a specific target value for a variable, the goal is to find the optimum value for one
or more target variables, given certain constraints.

 Then one or more other variables are changed repeatedly, subject to the specified
constraints, until the best values for the target variables are discovered.

 For example, you could try to determine the highest possible level of profits that
could be achieved by varying the values for selected revenue sources and expense
categories.

 Changes to such variables could be subject to constraints such as the limited

capacity of a production process or limits to available financing.
 Executive Information Systems
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 EIS Combine many features of MIS and DSS.

 It Provides top executives with immediate and easy access to information
About the factors that are critical to accomplishing an organization’s
strategic objectives (Critical success factors).
 Some executives prefer more detail, so EIS designers build in flexibility so
their systems fit the preferences of all executives, whatever they are.
 One approach is to provide a drill-down capability, giving executives the
ability to bring up a summary display and then display successively great
levels of detail
 EIS Model

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 Drill Down Technique

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 Enterprise Interface Portals
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 EIP is a Web-based interface and integration of MIS, DSS, EIS, and oilier technologies
that gives all intranet users and selected extranet users access to a variety of internal
and external business applications and services.

 For example, internal applications might include access to e-mail, project websites,
and discussion groups; human resources Web self-services; customer, inventory, and
other corporate databases; decision support systems; and knowledge management
systems. External applications might include industry, financial, and oilier Internet
news services; links to industry discussion groups; and links to customer and
supplier Internet and extranet websites.
 Enterprise information portals are typically tailored or personalized to utilize needs
of individual business users or groups of users, giving them a personalized digital
dashboard of information sources and applications. See the next figure
 EIP Dashboard
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 Enterprise Interface Portals
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 The business benefits of enterprise information portals include

 Providing more specific and selective information to business users
 Providing easy access to key corporate intranet website resources
 Delivering
industry and business news, and providing better access to
company data for selected customers, suppliers, or business partners
 Can also help avoid excessive surfing by employees across company
and Internet websites by making it easier for Them to receive or find the
information and services they need, thus improving the productivity of
a company's workforce.
 Intelligent techniques for enhancing
decision making
• Many based on artificial intelligence (AI)
• Computer-based systems (hardware and software) that attempt to emulate human
behavior and thought patterns
• Include:
• Expert systems
• Case-based reasoning
• Fuzzy logic
• Neural networks

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 Intelligent techniques for enhancing
decision making
• Expert systems
• Model human knowledge as a set of rules that are collectively
called the knowledge base

• From 200 to 10,000 rules, depending on complexity

• The system’s inference engine searches through the rules and

“fires” those rules that are triggered by facts gathered and
entered by the user.

• Useful for dealing with problems of classification in which there

are relatively few alternative outcomes and in which these
possible outcomes are all known in advance
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 Intelligent techniques for enhancing
decision making
Rules in an Expert System

An expert system contains a set of

rules to be followed when used. The
rules are interconnected; the number
of outcomes is known in advance and
is limited; there are multiple paths to
the same outcome; and the system
can consider multiple rules at a single
time. The rules illustrated are for a
simple credit-granting expert system.

33
 Intelligent techniques for enhancing
decision making
• Case-based reasoning
• Knowledge and past experiences of human specialists are
represented as cases and stored in a database for later retrieval.

• System searches for stored cases with problem characteristics

similar to new one, finds closest fit, and applies solutions of old
case to new case.

• Successful and unsuccessful applications are tagged and linked in

database.

• Used in medical diagnostic systems, customer support.

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 Intelligent techniques for enhancing
decision making
How Case-Based Reasoning Works

Case-based reasoning
represents knowledge as a
database of past cases and
their solutions. The system
uses a six-step process to
generate solutions to new
problems encountered by the
user.

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 Intelligent techniques for enhancing
decision making
• Fuzzy logic
• Rule-based technology that represents imprecision in categories
(e.g., “cold” versus “cool”) by creating rules that use
approximate or subjective values
• Describes a particular phenomenon or process linguistically and
then represents that description in a small number of flexible
rules
• Provides solutions to problems requiring expertise that is difficult
to represent in the form of IF-THEN rules
• E.g., Sendai, Japan subway system uses fuzzy logic controls
to accelerate so smoothly that standing passengers need not
hold on
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 Intelligent techniques for enhancing
decision making
Fuzzy Logic for Temperature Control

The membership functions for the input called temperature are in the logic of the thermostat
to control the room temperature. Membership functions help translate linguistic expressions,
such as warm, into numbers that the computer can manipulate

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 Intelligent techniques for enhancing
decision making
• Neural networks
• Use hardware and software that parallel the processing patterns of a
biological brain.

• “Learn” patterns from large quantities of data by searching for

relationships, building models, and correcting over and over again
the model’s own mistakes.

• Humans “train” the network by feeding it data for which the inputs
produce a known set of outputs or conclusions.

• Machine learning

• Useful for solving complex, poorly understood problems for which

large amounts of data have been collected.
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 Intelligent techniques for enhancing
decision making
How a Neural Network Works

A neural network uses rules it “learns” from patterns in data to construct a hidden
layer of logic. The hidden layer then processes inputs, classifying them based on
the experience of the model. In this example, the neural network has been trained
39 to distinguish between valid and fraudulent credit card purchases.
 Knowledge Creation
 In an economy where the only certainty is uncertainty, the one sure
40
source of lasting competitive advantage is knowledge. When markets
shift, technologies proliferate, competitors multiply, and products
become obsolete almost overnight.

 Successful companies are those that consistently create new

knowledge, disseminate it widely throughout the organization, and
quickly embody it in new technologies and products.

 These activities define the "knowledge-creating" company, whose

sole business is continuous innovation
 Two kinds of knowledge
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 Explicit knowledge
• Structured: structured text documents
• Semistructured: e-mail, voice mail, digital pictures, etc.
 Tacit knowledge
 (unstructured): The “how-to” knowledge residing in heads of
employees, rarely written down

 A knowledge-creating company makes such tacit knowledge

available to others
 Knowledge issues
42
 What is the problem with organizational knowledge
being tacit? And, Why are incentives to share this
knowledge needed?
 longtime employees of a company "know" many things
about how to manufacture a product, deliver the service, deal
with a particular vendor, or operate an essential piece of
equipment.
 This tacit knowledge is not recorded or codified anywhere
because it has evolved in the employee's mind through years
of experience.
 Further, much of this tacit knowledge is never shared with
anyone who might be in a position to record it in a more
formal way because there is often little incentive to do so or
simply, "Nobody ever asked."
 Knowledge management systems (KMS)
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 Many companies are building knowledge management systems
(KMS) to manage organizational learning and business know-
how.
 The goal of such systems is to help knowledge workers create,
organize, and make available important business knowledge,
wherever and whenever it's needed in an organization.
 This includes processes, procedures, reference works, formulas,
"best practices," forecasts, and fixes.
 Internet and intranet websites, groupware, data mining,
knowledge bases, and online discussion groups are some of the
key technologies that may be used by a KMS.
 Knowledge Management Systems in
44 the Enterprise
Role of Knowledge Management Systems :

 Acquire knowledge
 Store knowledge
 Distribute knowledge
 Apply knowledge
 KMS Improve Business Performance
45

 KMS are designed to improve business performance.

 As the organizational learning process continues and its

knowledge base expands, the knowledge-creating
company works to integrate its knowledge into its
business processes, products, and services.

 This helps the company become a more innovative and

agile provider of high-quality products and customer
services, and a formidable competitor in the marketplace
 Enterprise Knowledge Portals
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 EIPs that are the entry to corporate intranets that

serve as knowledge management systems.

 The next figure is an example of the capabilities

and components of an enterprise knowledge portal
emphasizes its use as a web-based knowledge
management systems.
 Enterprise Knowledge Portals
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