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 4

MODELING AND ANALYSIS

 Learning Objectives

 Understand the basic concepts of management support system (MSS) modeling

 Describe how MSS models interact with data and the user
 Understand some different, well-known model classes
 Understand how to structure decision making with a few alternatives
 Describe how spreadsheets can be used for MSS modeling and solution
 Explain the basic concepts of optimization, simulation, and heuristics, and
when to use them
 Describe how to structure a linear programming model
 Understand how search methods are used to solve MSS models
 Explain the differences among algorithms, blind search, and heuristics
 Describe how to handle multiple goals
 Explain what is meant by sensitivity analysis, what-if analysis, and goal seeking
 Describe the key issues of model management.
 1. MSS Modeling

 Lessons from additional modeling applications

 Mathematical (quantitative) model
A system of symbols and expressions that represent a real situation
 Applying models to real-world situations can save millions of dollars or generate
millions of dollars in revenue
 Current modeling issues
 Identification of the (problem and environmental analysis)
 Environmental (scanning and analysis)
 A process that involves conducting a search for and an analysis of information in
external databases and flows of information
 Variable identification
 Forecasting Predicting the future
 Predictive analytics systems attempt to predict the most profitable customers, the
worst customers, and focus on identifying products and services at appropriate prices
to appeal to them
 MSS Modeling

 Multiple models: A DSS can include several models, each of which represents a
different part of the decision-making problem
 Model categories
 Optimization of problems with few alternatives
 Optimization via algorithm
 Optimization via an analytic formula
 Simulation
 Predictive models
 Other models
 Model management
 Knowledge-based modeling
 Current trends
 Model libraries and solution technique libraries
 Development and use of Web tools
 Multidimensional analysis (modeling)
A modeling method that involves data analysis in several dimensions
 MSS Modeling

 Current trends
 Multidimensional analysis (modeling)

A modeling method that involves data analysis in several dimensions

 Influence diagram

A diagram that shows the various types of variables in a problem

(e.g., decision, independent, result) and how they are related to each
other
 2. Static and Dynamic Models

 Static models
Models that describe a single break of a situation
 Dynamic models
Models whose input data are changed over time (e.g., a
five-year profit or loss projection)
 3. Certainty, Uncertainty, and Risk

 Certainty
A condition under which it is assumed that future values are known for sure and only
one result is associated with an action
 Uncertainty
In expert systems, a value that cannot be determined during a consultation. Many
expert systems can accommodate uncertainty; that is, they allow the user to indicate
whether he or she does not know the answer
 Risk
A probabilistic or stochastic decision situation
 Risk analysis
A decision-making method that analyzes the risk (based on assumed known
probabilities) associated with different alternatives. Also known as calculated risk
 A. MSS Modeling with Spreadsheets

 Models can be developed and implemented in a variety of

programming languages and systems
 The spreadsheet is clearly the most popular end-user
modeling tool because it includes many powerful
(financial, statistical, mathematical, and other functions)

 Other important spreadsheet features include

what-if analysis, goal seeking, data management,
and programmability
 Most spreadsheet packages provide fairly
seamless integration because they read and write
common file structures and easily interface with
databases and other tools
 Static or dynamic models can be built in a
spreadsheet
 B. Decision Analysis
with Decision Tables and Decision Trees

 Decision analysis
Methods for determining the solution to a problem, typically when it is
inappropriate to use iterative algorithms
 Decision table
A table used to represent knowledge and prepare it for analysis in:
 Treating uncertainty
 Treating risk
 Decision tree
A graphical presentation of a sequence of interrelated decisions to be made
under assumed risk
 Multiple goals
Refers to a decision situation in which alternatives are evaluated with several,
sometimes conflicting, goals
 C. The Structure of Mathematical Models
for Decision Support

 Components of decision support mathematical models

 Result (outcome) variable
A variable that expresses the result of a decision (e.g., one concerning profit),
usually one of the goals of a decision-making problem
 Decision variable
A variable of a model that can be changed and manipulated by a decision maker.
The decision variables correspond to the decisions to be made, such as quantity to
produce and amounts of resources to allocate.
 Uncontrollable variable (parameter)
A factor that affects the result of a decision but is not under the control of the
decision maker. These variables can be internal (e.g., related to technology or to
policies) or external (e.g., related to legal issues or to climate)
 Intermediate result variable
A variable that contains the values of intermediate outcomes in mathematical
models
 D. Mathematical
Programming Optimization

 Mathematical programming
A family of tools designed to help solve managerial problems in which the
decision maker must allocate scarce resources among competing activities to
optimize a measurable goal
 Optimal solution
A best possible solution to a modeled problem
 Linear programming (LP)
A mathematical model for the optimal solution of resource allocation
problems. All the relationships among the variables in this type of model are
linear  Every LP problem is composed of:
 Decision variables
 Objective function
 Objective function coefficients
 Constraints
 Capacities
 Input/output (technology) coefficients
 E. Multiple Goals, Sensitivity Analysis,
What-If Analysis, and Goal Seeking

 Multiple goals
Refers to a decision situation in which alternatives are evaluated with
several, sometimes conflicting, goals
 Sensitivity analysis
A study of the effect of a change in one or more input variables on a
proposed solution
 Sensitivity analysis tests relationships such as:
 The impact of changes in external (uncontrollable) variables and parameters on
the outcome variable(s)
 The impact of changes in decision variables on the outcome variable(s)
 The effect of uncertainty in estimating external variables
 The effects of different dependent interactions among variables
 The robustness of decisions under changing conditions
 Multiple Goals, Sensitivity Analysis,
What-If Analysis, and Goal Seeking

 Sensitivity analyses are used for:

 Revising models to eliminate too-large sensitivities
 Adding details about sensitive variables or scenarios
 Obtaining better estimates of sensitive external variables
 Altering a real-world system to reduce actual sensitivities
 Accepting and using the sensitive (and hence vulnerable) real world, leading to the continuous and close
monitoring of actual results
 The two types of sensitivity analyses are automatic and trial-and-error

 Automatic sensitivity analysis

 Automatic sensitivity analysis is performed in standard quantitative model implementations such as LP

 Trial-and-error sensitivity analysis

 The impact of changes in any variable, or in several variables, can be determined through a simple trial-and-
error approach
 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
 Computing a break-even point by using goal seeking
 Involves determining the value of the decision variables that generate zero profit .
 F. Problem-Solving Search Methods

 Analytical techniques use mathematical formulas to

derive an optimal solution directly or to predict a certain
result
 An algorithm is a step-by-step search process for
obtaining an optimal solution
 Problem-Solving Search Methods

 A goal is a description of a desired solution to a problem

 The search steps are a set of possible steps leading from initial conditions to the goal
 Problem solving is done by searching through the possible solutions
 Blind search techniques are arbitrary search approaches that are not
guided
 In a complete enumeration all the alternatives are considered and therefore an
optimal solution is discovered
 In an incomplete enumeration (partial search) continues until a good-enough
solution is found (a form of sub-optimization)
 Heuristic searching
 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
 Heuristic programming
The use of heuristics in problem solving
 G. Simulation

 Simulation
An imitation of reality

 Major characteristics of simulation

 Simulation is a technique for conducting experiments
 Simulation is a descriptive rather than a normative method
 Simulation is normally used only when a problem is too complex to be
treated using numerical optimization techniques

 Complexity
A measure of how difficult a problem is in terms of its formulation for
optimization, its required optimization effort, or its stochastic nature
 Simulation
 Advantages of simulation
 The theory is fairly straightforward.
 A great amount of time compression can be attained
 A manager can experiment with different alternatives
 The MSS builder must constantly interact with the manager
 The model is built from the manager’s perspective.
 The simulation model is built for one particular problem

 Advantages of simulation
 Simulation can handle an extremely wide variety of problem types
 Simulation can include the real complexities of problems
 Simulation automatically produces many important performance measures
 Simulation can readily handle relatively unstructured problems
 There are easy-to-use simulation packages
 An optimal solution cannot be guaranteed
 Simulation model construction can be a slow and costly process
 Solutions and inferences from a simulation study are usually not transferable to other problems
 Simulation is sometimes so easy to explain to managers that analytic methods are often overlooked
 Simulation software sometimes requires special skills.
Simulation
 Simulation

 Methodology of simulation
1. Define the problem
2. Construct the simulation model
3. Test and validate the model
4. Design the experiment
5. Conduct the experiment
6. Evaluate the results
7. Implement the results
 Simulation types
 Probabilistic simulation
 Discrete distributions
 Continuous distributions
 Time-dependent versus time-independent simulation
 Object-oriented simulation
 Visual simulation
 Simulation software
 H. Visual Interactive Simulation

 Conventional simulation inadequacies

 Simulation reports statistical results at the end of a set of experiments
 Decision makers are not an integral part of simulation development and
experimentation
 Decision makers’ experience and judgment cannot be used directly
 Confidence gap occurs if the simulation results do not match the intuition
or judgment of the decision maker
 Visual interactive simulation or visual interactive modeling
(VIM)
A simulation approach used in the decision-making process that
shows graphical animation in which systems and processes are
presented dynamically to the decision maker. It enables visualization
of the results of different potential actions
 Visual Interactive Simulation

 Visual Interactive models and DSS

 Waiting-line management (queuing) is a good example of VIM
 The VIM approach can also be used in conjunction with artificial
intelligence
 General-purpose commercial dynamic VIS software is readily
available
 Quantitative Software Packages and Model
Base Management

 Quantitative software packages

A preprogrammed (sometimes called ready-made) model or
optimization system. These packages sometimes serve as building
blocks for other quantitative models

 Model base management

 Model base management system (MBMS)
Software for establishing, updating, combining, and so on (e.g.,
managing) a DSS model base
 Relational model base management system (RMBMS)
A relational approach (as in relational databases) to the design and
development of a model base management system
 Object-oriented model base management system (OOMBMS)
An MBMS constructed in an object-oriented environment