Business Intelligence [21AI641]

Computerized Decision Support

Introduction
To determine how real decision makers make decisions, we must first understand the
process and the important issues involved in decision making. Then we can understand
appropriate methodologies for assisting decision makers and the contributions information
systems can make. Only then can we develop DSS to help decision makers.
This chapter is organized based on the three key words that form the term DSS: decision,
support, and systems. A decision maker should not simply apply IT tools blindly. Rather, the
decision maker gets support through a rational approach that simplifies reality and provides
a relatively quick and inexpensive means of considering various alternative courses of action
to arrive at the best (or at least a ve1y good) solution to the problem.

A Working Definition of Decision Making

 Decision making is a process of choosing among two or more alternative courses of
action for the purpose of attaining one or more goals.
 Consider the important managerial function of planning. Planning involves a series of
decisions: What should be done? When? Where? Why? How? By whom? Managers
set goals, or plan; hence, planning implies decision making.
 Other managerial functions, such as organizing and controlling, also involve decision
making.
Models
 A model is a simplified representation or abstraction of reality.
 Iconic (Scale) Model: Physical replica of a system.

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 Analog Model behaves like the real system but does not look like it (symbolic
representation)
 Mathematical (Quantitative) Models use mathematical relationships to represent
complexity. Used in most DSS analyses
 Benefits of Models
1. Time compression
2. Easy model manipulation
3. Low cost of construction
4. Low cost of execution (especially that of errors)
5. Can model risk and uncertainty
6. Can model large and extremely complex systems with possibly infinite solutions
7. Enhance and reinforce learning, and enhance training.

Phases of the Decision-Making Process

 Systematic decision making involves four major phases followed by the
implementation phase:
1. Intelligence or Information gathering,
2. Design,
3. Choice,
4. Implementation

 Decision making process starts with the intelligence or information gathering phase,
where reality is examined and the problem is identified.
 In the design phase, a model that represents the system is constructed.
 The choice phase includes selection of a proposed solution to the model.
 Once the proposed solution seems to be reasonable, we are ready for the last phase:
implementation.

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Fig: Decision making/modeling process

Decision Making: Intelligence Phase Intelligence or information gathering

 Includes several activities aimed at identifying problem situations or opportunities.
1. Problem or opportunity identification
2. Problem classification
3. Programmed versus non-programmed problems
4. Problem decomposition
5. Problem ownership

1. Problem or Opportunity Identification:

- The intelligence or information gathering phase begins with the identification
of organizational goals and objectives related to an issue of concern (e.g.
inventory management, job selection).
- Problems occur because of dissatisfaction with the status quo. Dissatisfaction
is the result of a difference between what we desire (or expect) and what is
occurring.
- In this first phase, a decision maker attempts to determine whether a problem
exists, identify its symptoms, determine its magnitude, and explicitly define it

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- The existence of a problem can be determined by monitoring and

analyzing the organization’s productivity level. This is based on real data.

2. Problem Classification:
- Problem classification is the placement of a problem in a definable category. This
leads to a standard solution approach.
- An important classification is according to the degree of structuredness evident
in the problem. This ranges from totally structured to totally unstructured

3. Problem Decomposition:
- Many complex problems can be divided into sub-problems.
- Solving the simpler sub-problems may help in solving the complex problem.
- Some unstructured problems may have some highly structure sub-problems
Decomposition also facilitates communication among decision makers

4. Problem Ownership:
- In the intelligence phase, it is important to establish problem ownership. A
problem exists in an organization only if someone or some group takes on the
responsibility of attacking it and if the organization has the ability to solve it. The
assignment of authority to solve the problem is called problem ownership.
- For example, a manager may feel that he or she has a problem because interest
rates are too high. Because interest rate levels are determined at the national
and international levels, and most managers can do nothing about them, high
interest rates are the problem of the government, not a problem for a specific
company to solve. The problem companies actually face is how to operate in a

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high-interest-rate environment. For an individual company, the interest rate level

should be handled as an uncontrollable (environmental) factor to be predicted
 The intelligence phase ends with a formal problem statement.
Decision Making: Design Phase
 The design phase involves finding (or developing) and analyzing possible courses of
action. These include understanding the problem and testing solutions for feasibility.
 A model of the decision making problem is constructed, tested, and validated
 Modeling involves abstracting the problem to quantitative and/or qualitative forms.
 For a mathematical model, the variables are identified and the relationships among
them are established.
 Components of Quantitative Models:
- All models are made up of three basic components:
1. decision variables
2. uncontrollable variables
3. result (outcome) variables
- Mathematical relationships link these components together
- In a non-quantitative model, the relationships are symbolic or qualitative.
- Result Variables Result variables are outputs. They reflect the level of
effectiveness of the system. These are dependent variables.
- Decision Variables Decision variables describe alternative courses of
action. Example: For an investment problem, the amount to invest in
bonds is a decision variable. In a scheduling problem, the decision
variables are people, times, and schedules.
- Uncontrollable Variables In any decision making situation, there are
factors that affect the result variables but are not under the control of the
decision maker. Either these factors are fixed (called parameters) or they
can vary. Examples: Prime interest rate, a city’s building code, tax
regulations
- Intermediate Results Variables Intermediate result variables reflect
intermediate outcomes.

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- Example: Employee’s salaries is a decision variable, It determines

employee’s satisfaction (intermediate variable), which determines
productivity level (final outcome)
- Structure of Quantitative Models: The components (i.e. decision variables,
result variables, etc.) of a quantitative model are linked together by
mathematical expressions.
Example: Profit = Revenue – Cost
- Selection of a Principle of Choice: A principle of choice is a criterion that
describes the acceptability of a solution approach. Two types: normative
and descriptive models. Normative implies that the chosen alternative is
demonstrably the best of all possible alternatives. To find it, one should
examine all alternatives and prove that the one selected is indeed the
best. The process is basically optimization. Descriptive models: They
investigate alternate courses of action under different configurations of
inputs and processes. Al the alternatives are not checked, only a given set
of alternatives are checked.
Decision Making: Choice Phase
 Choice is the critical act of decision making.
 The choice phase is the one in which the actual decision is made and where the
commitment to follow a certain course of action is made.
 The choice phase includes search for, evaluation of, and recommendation of an
appropriate solution to the model (problem).
 The boundary between the design and choice phases is often unclear

Decision Making: Implementation Phase

 Implementation means putting a recommended solution to work.
 It does not stop at implementing a computer system.
 There are many issues involved, such as user expectations, resistance to change, and
user training

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How decisions are supported

 Databases, data marts, and especially data warehouses are important technologies
in supporting all phases of decision making.
 They provide the data that drive decision making.

Fig: DSS Support

 Support for Intelligence Phase
- The primary requirement of decision support for the intelligence phase is
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.
- Data warehouse can support the intelligence phase by continuously
monitoring both internal and external information, looking for early signs
of problems and opportunities through a Web-based enterprise
information portal (also called a dashboard)
- data mining and OLAP also support the intelligence phase by identifying
relationships among activities and other factors.
- Expert systems (ES), in contrast, can render advice regarding the nature of
a problem, its classification, its seriousness, and the like.
- ES can advise on the suitability of a solution approach and the likelihood
of successfully solving the problem.
- One of the primary areas of ES success is interpreting information and
diagnosing problems. This capability can be exploited in the intelligence
phase.

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 Support for Design Phase

- The design phase involves generating alternate courses of actions,
discussing the criteria for choices and their relative importance, and
forecasting the future consequences of using various alternatives
- Several of these activities can use standard models provided by a DSS (e.g.
financial and forecasting models)
- Alternatives for structured problems can be generated through the use of
either standard or special models.
- However, the generation of alternatives for complex problems requires
expertise that can be provided only by a human, brainstorming software,
or an ES.
- CRM systems, revenue management systems, ERP, and SCM systems
software are useful in that they provide models of business processes
that can test assumptions and scenarios.
 Support for Choice Phase
- In addition to providing models that rapidly identify a best or good-
enough alternative, a 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
- a 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 as well as
to recommend an appropriate solution.
 Support for Implementation Phase
- This is where "making the decision happen" occurs.
- The DSS benefits provided during implementation may be as important as
or even more important than those in the earlier phases.
- DSS can be used in implementation activities such as decision
communication, explanation, and justification.

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- Reporting systems and other tools variously labeled as BAM, BPM, KMS,
EIS, ERP, CRM, and SCM are all useful in tracking how well an
implementation is working.
- GSS is useful for a team to collaborate in establishing implementation
effectiveness.
- For example, a decision might be made to get rid of unprofitable
customers. An effective CRM can identify classes of customers to get rid
of, identify the impact of doing so, and then verify that it really worked
that way.
 All phases of the decision-making process can be supported by improved
communication through collaborative computing via GSS and KMS.
 Computerized systems can facilitate communication by helping people explain and
justify their suggestions and opinions.

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