Chapter 2: Decision Making, Systems, Modeling, and Support
Chapter 2: Decision Making, Systems, Modeling, and Support
Chapter 2: Decision Making, Systems, Modeling, and Support
Systems,
Modeling, and Support
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
2.2 Introduction and
Definitions
Typical Business Decision Aspects
Decision may be made by a group
Several, possibly contradictory objectives
Hundreds or thousands of alternatives
Results can occur in the future
Attitudes towards risk
“What-if” scenarios
Trial-and-error experimentation with the real system:
may result in a loss
Experimentation with the real system can only be
done once
Changes in the environment can occur continuously
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
How are decisions made???
DSS
Decision
Support
Systems
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Decision Making
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Decision Making versus
Problem Solving
Simon’s 4 Phases of Decision
Making
1. Intelligence
2. Design
3. Choice
4. Implementation
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
The Structure of a System
Three Distinct Parts of Systems (Figure
2.1)
Inputs
Processes
Outputs
Systems
Are surrounded by an environment
Frequently include a feedback mechanism
Input(s) Output(s)
Processes
Feedback
Boundary 8
Inputs are elements that enter the system
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
How to Identify the
Environment?
Answer Two Questions (Churchman [1975])
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Closed and Open Systems
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TABLE 2.1 A Closed Versus an Open Inventory System
Management
Science, EOQ Inventory DSS
Factors (Closed (Open System)
System)
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
An Information System
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
System Effectiveness and
Efficiency
Two Major Classes of
Performance Measurement
Effectiveness is the degree to which goals are
achieved
Doing the right thing!
(Least to Most)
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.
Intelligence
Design
Choice
Implementation
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Problem Classification
Nonprogrammed Programmed
Problems Problems
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Problem Decomposition: Divide a complex
problem into (easier to solve) subproblems
Sometimes called Chunking - (Salami
Approach)
Problem Ownership
Includes
Understanding the problem
Testing solutions for feasibility
A model is constructed, tested, and validated
Modeling
Conceptualization of the problem
Abstraction to quantitative and/or qualitative
forms
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Mathematical Model
Identify Variables
Establish Equations describing their
Relationships
Simplifications through Assumptions
Balance Model Simplification and the
Accurate Representation of Reality
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Quantitative Modeling Topics
Model Components
Model Structure
Selection of a Principle of Choice
(Criteria for Evaluation)
Developing (Generating) Alternatives
Predicting Outcomes
Measuring Outcomes
Scenarios
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Components of
Quantitative Models
(Figure 2.3)
Decision Variables
Uncontrollable Variables (and/or Parameters)
Result (Outcome) Variables
Mathematical Relationships
or
Symbolic or Qualitative Relationships
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Results of Decisions are Determined by
the
Decision
Uncontrollable Factors
Relationships among Variables
Result Variables
Reflect the level of effectiveness of the
system
Dependent variables
– Examples - Table 2.2
Decision Variables
Describe alternative courses of action
The decision maker controls them
Examples - Table 2.2
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
TABLE 2.2 Examples of the Components of Models.
Uncontrollable
Decision Result Variables and
Area Variables Variables Parameters
Financial investment Investment Total profit Inflation rate
alternatives and Rate of return (ROI) Prime rate
amounts Earnings per share Competition
How long to invest Liquidity level
When to invest
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Uncontrollable Variables or
Parameters
Factors that affect the result variables
Not under the control of the decision maker
Generally part of the environment
Some constrain the decision maker and are
called constraints
Examples - Table 2.2
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The Structure of Quantitative
Models
Present-value model
P = F / (1+i)n
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Example
The Product-Mix Linear Programming Model
MBI Corporation
Decision: How many computers to build next month?
Two types of computers
Labor limit
Materials limit
Marketing lower limits
Components
Decision variables
Result variable
Uncontrollable variables (constraints)
Solution
X1 = 333.33
X2 = 200
Profit = $5,066,667
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
DSS I n Focus 2.2: Optimization M odels
Assignment (best matching of objects)
Dynamic programming
Goal programming
I nvestment (maximizing rate of return)
Linear programming
Network models for planning and scheduling
Nonlinear programming
Replacement (capital budgeting)
Simple inventory models (such as, economic order
quantity)
Transportation (minimize cost of shipments)
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
The Principle of Choice
What criteria to use?
Best solution?
Good enough solution?
Selection of a Principle of
Choice
Normative
Descriptive 36
Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Normative Models
The chosen alternative is demonstrably the best of all
Optimization process
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Descriptive Models
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
DSS I n Focus 2.3: Descriptive M odels
I nformation flow
Scenario analysis
Financial planning
Complex inventory decisions
M arkov analysis (predictions)
Environmental impact analysis
Simulation (different types)
Technological forecasting
Waiting line (queueing) management
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Satisficing (Good Enough)
(Simon [1977])
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Why Satisfice?
Bounded Rationality (Simon)
Humans have a limited capacity for rational
thinking
They generally construct and analyze a simplified
model
Their behavior with respect to the simplified model
may be rational
But, the rational solution for the simplified model
may NOT BE rational in the real-world situation
Rationality is bounded not only by limitations on
human processing capacities, but also by
individual differences
Bounded rationality is why many models are 42
descriptive, not normative
Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Developing (Generating)
Alternatives
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Predicting the Outcome of Each
Alternative
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Decision Making Under
Certainty
Assumes that complete knowledge is
available (deterministic environment)
Example: U.S. Treasury bill investment
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Decision Making Under Risk
(Risk Analysis)
(Probabilistic or stochastic decision situation)
Decision maker must consider several possible
outcomes for each alternative, each with a
given probability of occurrence
Long-run probabilities of the occurrences of
the given outcomes are assumed known or can
be estimated
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Risk Analysis
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Decision Making Under
Uncertainty
Situations in which several outcomes are
possible for each course of action
BUT the decision maker does not know, or
cannot estimate, the probability of occurrence
of the possible outcomes
Goal attainment
Maximize profit
Minimize cost
Customer satisfaction level (Minimize
number of complaints)
Maximize quality or satisfaction ratings
(found by surveys)
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Scenarios
Useful in
Simulation
What-if analysis
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Importance of Scenarios in
MSS
Help identify potential opportunities and/or
problem areas
Provide flexibility in planning
Identify leading edges of changes that
management should monitor
Help validate major assumptions used in
modeling
Help check the sensitivity of proposed
solutions to changes in scenarios
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Possible Scenarios
Many, but …
– Worst possible (Low demand, High costs)
– Best possible (High demand, High Revenue, Low
Costs)
– Most likely (Typical or average values)
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
2.8 The Choice Phase
Search, evaluation, and recommending an
appropriate solution to the model
Specific set of values for the decision
variables in a selected alternative
Search Approaches
Analytical Techniques
Algorithms (Optimization)
Blind and Heuristic Search Techniques
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
TABLE 2.3 Examples of Heuristics
Sequence jobs through a Do the jobs that require the
machine least time first.
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
2.9 Evaluation: Multiple Goals,
Sensitivity Analysis, "What-If,"
and Goal Seeking
Evaluation (coupled with the search process)
leads to a recommended solution
Multiple Goals
Complex systems have multiple goals
Some may conflict
Utility theory
Goal programming
Expression of goals as constraints, using
linear programming
Point system
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Sensitivity Analysis
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Trial and Error
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
What-If Analysis
Figure 2.8 - SSpreadsheet example of a what-if
query for a cash flow problem
Goal Seeking
Backward solution approach
Example: Figure 2.9
Example: What interest rate causes an the net
present value of an investment to break even?
Important Issues
Resistance to change
Degree of top management support
Users’ roles and involvement in system
development
Users’ training
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
2.11 How Decisions Are
Supported
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
2.12 Human Cognition and
Decision Styles
Cognition Theory
Cognition: Activities by which an individual
resolves differences between an internalized
view of the environment and what actually
exists in that same environment
Ability to perceive and understand information
Problem-solving
Dimension Heuristic Analytic
Approach to learning Learns more by acting than Employs a planned sequential
by analyzing the situation and approach to problem solving;
places more emphasis on learns more by analyzing the
feedback. situation than by acting and
places less emphasis on
feedback.
Search Uses trial and error and Uses formal rational analysis.
spontaneous action.
Approach to analysis Uses common sense, Develops explicit, often
intuition, and feelings. quantitative, models of the
situation.
Scope of analysis Views the totality of the Reduces the problem
situation as an organic whole situation to a set of underlying
rather than as a structure causal functions.
constructed from specific
parts.
Basis for inferences Looks for highly visible Locates similarities or
situational differences that commonalities by comparing
vary with time. objects.
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Decision Styles
The manner in which decision makers
Think and react to problems
Perceive
– Their cognitive response
– Their values and beliefs
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
The system
– should be flexible and adaptable to different users
– have what-if and goal-seeking
– have graphics
– have process flexibility
An MSS should help decision makers use
and develop their own styles, skills, and
knowledge
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
2.13 The Decision Makers
Individuals
Groups
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Individuals
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Groups
Most major decisions in medium and large organizations
are made by groups
Conflicting objectives are common
Variable size
People from different departments
People from different organizations
The group decision making process can be very
complicated
Consider Group Support Systems (GSS)
7. What would
Copyright 1998, Prentice Hall, you do
Upper Saddle River,and
NJ why?
Group Project
Interview an individual who was recently
involved in making a business decision. Try
to identify:
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Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ