Business Intelligence

&
Decision Support Systems

A S S O C . P R O F. D R . A H M E D B A H G AT E L S E D D AW Y

Computer Science and Information Systems

Vi c e D e a n o f E d u c a t i o n a l A f f a i r s
He a d o f B I S D e p a r t me n t – S ma r t Vi l l a g e
A r a b A c a d e m y f o r S c i e n c e , Te c h n o l o g y a n d M a r i t i m e

[email protected]
 Chapter 2

DECISION MAKING,
SYSTEMS, MODELING, AND
SUPPORT
 Learning Objectives

 Understand the conceptual foundations of decision

making

 Understand Simon’s four phases of decision making:

intelligence, design, choice, and implementation

 Recognize the concepts of rationality and bounded

rationality, and how they relate to decision making
 Learning Objectives

 Differentiate between the concepts of making a

choice and establishing a principle of choice

 Learn how DSS support for decision making can be

provided in practice

 Understand the systems approach

 Decision Making: Introduction and Definitions

 Characteristics of decision making

 Groupthink
 Decision makers are interested in evaluating (what-if
scenarios)
 Experimentation with the real system may result in
failure
 Experimentation with the real system is possible only for
one set of conditions at a time and can be disastrous
 Changes in the decision making environment may occur
continuously, leading to invalidating assumptions about
the situation
 Decision Making: Introduction and Definitions

 Characteristics of decision making

 Changes in the decision making environment may affect
decision quality by imposing time pressure on the
decision maker
 Collecting information and analyzing a problem takes
time and can be expensive. It is difficult to determine
when to stop and make a decision
 There may not be enough information to make an
intelligent decision
 Information overload
 Decision Making: Introduction and Definitions

 Decision making
The action of selecting among alternatives

 Phases of the decision process

1. Intelligence
2. Design
3. Choice
4. Implementation
 Decision Making: Introduction and Definitions

 Decision making disciplines

 Behavioral
 Scientific

 Successful decision
 Effectiveness

The degree of goal achievement. Doing the right things

 Efficiency
The ratio of (output to input). Appropriate use of resources.
Doing the things right
 Decision Making: Introduction and Definitions

Decision style and decision makers

1. Decision style
The manner in which a decision maker thinks and reacts
to problems. It includes (perceptions, cognitive
responses, values, and beliefs)
 Autocratic
 Democratic
 Consultative
 Different decision styles require different types of
support
 Individual decision makers need access to data and to experts who
can provide advice
 Groups need collaboration tools
 Models

 Iconic model
A scaled physical replica

 Analog model
An abstract, symbolic model of a system that
behaves like the system but looks different
 Models

 Mental model
The mechanisms or images through which a
human mind performs sense-making in decision
making

 Mathematical (quantitative) model

A system of symbols and expressions that
represent a real situation
 Models

 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.
 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
 Many Java applets are available to readily solve models.
 Phases of the
Decision-Making Process
 Phases of the
Decision-Making Process

 Intelligence phase
The initial phase of problem definition in decision
making
 Design phase
The second decision-making phase, which involves
finding possible alternatives in decision making and
assessing their contributions
 Phases of the
Decision-Making Process

 Choice phase
The third phase in decision making, in which an
alternative is selected
 Implementation phase
The fourth decision-making phase, involving actually
putting a recommended solution to work
 Decision Making:
1. The Intelligence Phase

 Problem (or opportunity) identification: some issues

that may arise during data collection
 Data are not available
 Obtaining data may be expensive
 Data may not be accurate or precise enough
 Data estimation is often subjective
 Data may be insecure
 Important data that influence the results may be qualitative.
 Information overload
 Outcomes (or results) may occur over an extended period
 If future data is not consistent with historical data, the nature of the
change has to be predicted and included in the analysis
 Decision Making:
The Intelligence Phase

 Problem classification
The conceptualization of a problem in an attempt to place it in
a definable category, possibly leading to a standard solution
approach
 Problem decomposition
Dividing complex problems into simpler subproblems may
help in solving the complex problem
 Problem ownership
The jurisdiction (authority) to solve a problem
 Decision Making:
2. The Design Phase

 The design phase involves finding or developing and

analyzing possible courses of action
 Understanding the problem
 Testing solutions for feasibility
 A model of the decision-making problem is constructed, tested, and
validated.
 Modeling involves conceptualizing a problem and abstracting
it to quantitative and/or qualitative form
 Models have:
 Decision variables
 Principle of choice
 Decision Making:
The Design Phase

 Decision variables
 A variable in a model that can be changed and manipulated by the decision
maker.
 Decision variables correspond to the decisions to be made,
such as quantity to produce, amounts of resources to
allocate, and so on

 Principle of choice
The criterion for making a choice among alternatives
 Decision Making:
The Design Phase

 Normative models
Models in which the chosen alternative is
demonstrably the best of all possible alternatives

 Optimization
The process of examining all the alternatives and proving that the
one selected is the best

 Suboptimization
An optimization-based procedure that does not consider all the
alternatives for or impacts on an organization
 Decision Making:
The Design Phase

 Descriptive model
A model that describes things as they are

 Simulation
An imitation of reality
 Narrative is a story that helps a decision maker uncover the
important aspects of the situation and leads to better
understanding and framing
 Decision Making:
The Design Phase

 Good enough or satisficing

 Satisficing
A process by which one seeks a solution that will satisfy a set of
constraints. In contrast to optimization, which seeks the best
possible solution, satisficing simply seeks a solution that will
work well enough.

 Reasons for satisficing:

 Time pressures
 Ability to achieve optimization
 Recognition that the marginal benefit of a better solution is not worth the
marginal cost to obtain it
 Decision Making:
The Design Phase

 Developing (generating) alternatives

 In optimization models the alternatives may be generated automatically by the
model
 In most MSS situations it is necessary to generate alternatives manually (a
lengthy, costly process); issues such as when to stop generating alternatives are
very important
 The search for alternatives usually occurs after the criteria for evaluating the
alternatives are determined
 The outcome of every proposed alternative must be established
 Decision Making:
The Design Phase

 Measuring outcomes
 The value of an alternative is evaluated in terms of goal attainment
 Risk
 One important task of a decision maker is to attribute a level of risk to
the outcome associated with each potential alternative being
considered.
 Scenario
A statement of assumptions about the operating environment of a
particular system at a given time; a narrative description of the decision-
situation setting
 Scenarios are especially helpful in simulations and what-if analyses .
 Decision Making:
The Design Phase

 Scenarios play an important role in MSS because they:

 Help identify opportunities and problem areas
 Provide flexibility in planning
 Identify the leading edges of changes that management should monitor
 Help validate major modeling assumptions
 Allow the decision maker to explore the behavior of a system through a
model
 Help to check the sensitivity of proposed solutions to changes in the
environment
 Decision Making:
The Design Phase

 Possible scenarios
 The worst possible scenario
 The best possible scenario
 The most likely scenario
 The average scenario
 Decision Making:
The Design Phase

 Errors in decision making

 The model is a critical component in the decision-making process

 A decision maker may make a number of errors in its

development and use
 Validating the model before it is used is critical

 Gathering the right amount of information, with the right level of

precision and accuracy is also critical
 Decision Making:
The Choice Phase

 Solving a decision-making model involves searching

for an appropriate course of action
1. Analytical techniques (solving a formula)
2. Algorithms (step-by-step procedures)
3. Heuristics (rules of thumb)
4. Blind searches
 Decision Making:
The Choice Phase

1. Analytical techniques
Methods that use mathematical formulas to derive an optimal
solution directly or to predict a certain result, mainly in
solving structured problems

2. Algorithm
A step-by-step search in which improvement is made at every
step until the best solution is found
 Decision Making:
The Choice Phase

3. 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.
4. Sensitivity analysis
A study of the effect of a change in one or more input variables on a
proposed solution
5. What-if analysis
A process that involves asking a computer what the effect of changing some
of the input data or parameters would be
 Decision Making:
The Implementation Phase

 Generic implementation issues important in dealing

with MSS include:
 Resistance to change
 Degree of support of top management
 User training
 How Decisions Are Supported

 Support for the intelligence phase

 The ability to scan external and internal information sources for
opportunities and problems and to interpret what the scanning
discovers
 Web tools and sources are extremely useful for environmental
scanning
 Web browsers provide useful front ends for a variety of tools (OLAP,
data mining, data warehouses)
 Internal data sources may be accessible via a corporate intranet
 External sources are many and varied
 How Decisions Are Supported

 Support for the design phase

 The generation of alternatives for complex problems requires
expertise that can be provided only by a human, brainstorming
software, or an ES
 How Decisions Are Supported

 Support for the choice phase

 DSS can support the choice phase through what-if and goal-
seeking analyses
 Different scenarios can be tested for the selected option to
reinforce the final decision
 KMS helps identify similar past experiences
 CRM, ERP, and SCM systems are used to test the impacts of
decisions in establishing their value, leading to an
intelligent choice
 An ES can be used to assess the desirability of certain
solutions and to recommend an appropriate solution
 A GSS can provide support to lead to consensus in a group
 How Decisions Are Supported

 Support for the implementation phase

 DSS can be used in implementation activities such as decision
communication, explanation, and justification
 DSS benefits are partly due to the vividness and detail of analyses
and reports
 How Decisions Are Supported

 New technology support for decision making

 Mobile commerce (m-commerce)

 Personal devices
 Personal digital assistants [PDAs]
 Cell phones
 Tablet computers
 laptop computers