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Chapter 2: Decision Making, Systems, Modeling, and Support

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Chapter 2: Decision Making,

Systems,
Modeling, and Support

 Conceptual Foundations of Decision


Making
 The Systems Approach
 How Support is Provided

2.1 Opening Vignette:


How to Invest $1,000,000

1
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

2
Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
 How are decisions made???

 What methodologies can be applied?

 What is the role of information systems


in supporting decision making?

DSS
 Decision
 Support
 Systems

3
Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Decision Making

 Decision Making: a process of choosing


among alternative courses of action for the
purpose of attaining a goal or goals

 Managerial Decision Making is


synonymous with the whole process of
management (Simon [1977])

4
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

Decision making and problem solving


are interchangeable
5
Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
2.3 Systems

 A SYSTEM is a collection of objects such as


people, resources, concepts, and
procedures intended to perform an
identifiable function or to serve a goal

 System Levels (Hierarchy): All systems are


subsystems interconnected through
interfaces

6
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

A human, the decision maker, is usually


considered part of the system
Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
7
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
System
Environment

Input(s) Output(s)
Processes

Feedback

Boundary 8
 Inputs are elements that enter the system

 Processes convert or transform the inputs into


outputs

 Outputs describe the finished products or the


consequences of being in the system

 Feedback is the flow of information from the


output to the decision maker, who may modify
the inputs or the processes (closed loop)

 The Environment contains the elements that lie


outside but impact the system's performance

9
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])

1. Does the element matter relative to the system's


goals? [YES]
2. Is it possible for the decision maker to significantly
manipulate this element? [NO]

Environmental Elements Can Be


 Social
 Political
 Legal
 Physical
 Economical
 Often Other Systems 10
Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
The Boundary Separates a
System From Its
Environment
Boundaries may be physical or nonphysical (by
definition of scope or time frame)

Information System Boundaries are Usually


Directly Defined!

11
Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Closed and Open Systems

Defining manageable boundaries is closing the


system

 A Closed System is totally independent of other


systems and subsystems

 An Open System is very dependent on its


environment

12
TABLE 2.1 A Closed Versus an Open Inventory System

Management
Science, EOQ Inventory DSS
Factors (Closed (Open System)
System)

Demand Constant Variable, influenced by


many factors

Unit cost Constant May change daily

Lead time Constant Variable, difficult to


predict

Vendors and users Excluded from May be included in


analysis analysis

Weather and other Ignored May influence demand


environmental and lead time
factors

13
Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
An Information System

 Collects, processes, stores, analyzes, and


disseminates information for a specific purpose

 Is often at the heart of many organizations

 Accepts inputs and processes data to provide


information to decision makers and helps
decision makers communicate their results

14
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!

 Efficiency is a measure of the use of inputs (or


resources) to achieve outputs
Doing the thing right!

 MSS emphasize effectiveness


Often: several non-quantifiable, conflicting
goals
Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
15
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
2.4 Models
 Major Component of DSS
 Use Models instead of experimenting on the
real system

 A model is a simplified representation or


abstraction of reality.
 Reality is generally too complex to copy
exactly
 Much of the complexity is actually irrelevant
in problem solving
16
Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Degrees of Model Abstraction

(Least to Most)

 Iconic (Scale) Model: Physical replica of a


system
 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
17
Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Benefits of Models
An MSS employs models because

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.

Computer graphics advances: more iconic 18


andDecision
analog
Copyright models
1998, Prentice Hall, Upper Saddle(visual
River, NJ simulation)
Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
2.5 The Modeling Process--
A Preview
Example: How Much to Order for the Ma-Pa
Grocery?
 The Owners: Bob and Jan

 The Question: How much bread to stock each


day?

Several Solution Approaches


 Trial-and-Error
 Simulation
 Optimization
19
 Heuristics
Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
The Decision-Making
Process
Systematic Decision-Making Process (Simon
[1977])

 Intelligence
 Design
 Choice
 Implementation

(See Figure 2.2)

Modeling is Essential to the Process 20


Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
 Intelligence phase
– Reality is examined
– The problem is identified and defined
 Design phase
– Representative model is constructed
– The model is validated and evaluation criteria
are set
 Choice phase
– Includes a proposed solution to the model
– If reasonable, move on to the
 Implementation phase
– Solution to the original problem

Failure: Return to the modeling process

Often Backtrack / Cycle Throughout the Process


21
Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
2.6 The Intelligence Phase
Scan the environment to identify problem
situations or opportunities

Find the Problem


 Identify organizational goals and objectives
 Determine whether they are being met
 Explicitly define the problem

22
Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Problem Classification

According to the Degree of Structuredness

Programmed versus Nonprogrammed Problems


Simon [1977])

Nonprogrammed Programmed
Problems Problems

23
 Problem Decomposition: Divide a complex
problem into (easier to solve) subproblems
Sometimes called Chunking - (Salami
Approach)

 Some seemingly poorly structured problems


may have some highly structured
subproblems

 Problem Ownership

Outcome: Problem Statement 24


Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
2.7 The Design Phase
 Generating, developing, and analyzing
possible courses of action

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
25
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

Modeling: An Art and Science

26
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

27
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

28
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
29
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

Marketing Advertising budget Market share Customers' income


Where to advertise Customer satisfaction Competitors' actions

Manufacturing What and how much Total cost Machine capacity


to produce Quality level Technology
Inventory levels Employee satisfaction Materials prices
Compensation
programs

Accounting Use of computers Data processing cost Computer technology


Audit schedule Error rate Tax rates
Legal requirements

Transportation Shipments schedule Total transport cost Delivery distance


Regulations

Services Staffing levels Customer satisfaction Demand for services

30
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

Intermediate Result Variables


 Reflect intermediate outcomes

31
The Structure of Quantitative
Models

 Mathematical expressions (e.g., equations


or inequalities) connect the components

 Simple financial-type model


P=R-C

 Present-value model
P = F / (1+i)n

32
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

Constraint CC7 CC8 Rel Limit


Labor (days) 300 500 <= 200,000 / mo
Materials $ 10,000 15,000 <= 8,000,000/mo
Units 1 >= 100
Units 1 >= 200
Profit $ 8,000 12,000 Max

Objective: Maximize Total Profit / Month


33
Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Linear Programming Model
(DSS In Focus 2.1)

 Components
Decision variables
Result variable
Uncontrollable variables (constraints)

 Solution
X1 = 333.33
X2 = 200
Profit = $5,066,667

34
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)

35
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

A decision regarding the acceptability


of a solution approach

 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

 Normative decision theory is based


on rational decision makers

 Humans are economic beings whose objective is to


maximize the attainment of goals; that is, the decision
maker is rational
 In a given decision situation, all viable alternative
courses of action and their consequences, or at least
the probability and the values of the consequences, are
known
 Decision makers have an order or preference that
enables them to rank the desirability of all
consequences of the analysis 37
Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Suboptimization

 Narrow the boundaries of a system


 Consider a part of a complete system
 Leads to (possibly very good, but) non-
optimal solutions
 Viable method

38
Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Descriptive Models

 Describe things as they are, or as they are


believed to be
 Extremely useful in DSS for evaluating the
consequences of decisions and scenarios
 No guarantee a solution is optimal
 Often a solution will be "good enough”
 Simulation: Well-known descriptive modeling
technique

39
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

40
Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Satisficing (Good Enough)

 Most human decision makers will settle for a


good enough solution
 There is a tradeoff between the time and cost
of searching for an optimum versus the value
of obtaining one
 A good enough or satisficing solution may be
found if a certain goal level is attained

(Simon [1977])

41
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

 In Optimization Models: Automatically by


the Model!

Not Always So!

 Issue: When to Stop?

43
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

 Must predict the future outcome of each


proposed alternative
 Consider what the decision maker knows (or
believes) about the forecasted results

 Classify Each Situation as Under


– Certainty
– Risk
– Uncertainty

44
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

 Typically for structured problems with short


time horizons
 Sometimes DSS approach is needed for
certainty situations

45
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

 Decision maker can assess the degree of risk


associated with each alternative (calculated
risk)

46
Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Risk Analysis

 Calculate the expected value of each


alternative
 Selecting the alternative with the best
expected value.
 Example: Poker game with some cards face
up (7 card game - 2 down, 4 up, 1 down)

47
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

 More difficult - insufficient information


 Modeling involves assessing the decision
maker's (and/or the organizational) attitude
toward risk
 Example: Poker game with no cards face up (5
card stud or draw)
48
Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Measuring Outcomes

 Goal attainment
 Maximize profit
 Minimize cost
 Customer satisfaction level (Minimize
number of complaints)
 Maximize quality or satisfaction ratings
(found by surveys)

49
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

50
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

51
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)

 The scenario sets the stage for the analysis

52
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

The problem is considered solved after the


recommended solution to the model is
successfully implemented

Search Approaches
 Analytical Techniques
 Algorithms (Optimization)
 Blind and Heuristic Search Techniques
53
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.

Purchase stocks I f a price-to-earnings ratio


exceeds 10, then do not buy
the stocks.

Travel Do not use the freeway


between 8 and 9 a.m.

Capital investment in high- Consider only those projects


tech projects whose estimated payback
period is less than two years.

Purchase of a house Buy only in a good


neighborhood, but buy only
in the lower price range.

54
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

 Typical quantitative models have a single goal

 Can transform a multiple-goal problem into a


single-goal problem
55
Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Common Methods

 Utility theory
 Goal programming
 Expression of goals as constraints, using
linear programming
 Point system

 Computerized models can support


multiple goal decision making

56
Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Sensitivity Analysis

 Change inputs or parameters, look at


model results

Sensitivity analysis checks relationships

Types of Sensitivity Analyses


 Automatic
 Trial and error

57
Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Trial and Error

 Change input data and re-solve the


problem
 Better and better solutions can be
discovered
 How to do? Easy in spreadsheets (Excel)
– what-if
– goal seeking

58
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?

 In a DSS the what-if and the goal-seeking


options must be easy to perform
59
Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
2.10 The Implementation Phase
There is nothing more difficult to carry out, nor
more doubtful of success, nor more dangerous
to handle, than to initiate a new order of things
(Machiavelli [1500s])
*** The Introduction of a Change ***

Important Issues
 Resistance to change
 Degree of top management support
 Users’ roles and involvement in system
development
 Users’ training
60
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

Specific MSS technologies relationship to the


decision making process (see Figure 2.10)

 Intelligence: DSS, ES, ANN, MIS, Data Mining,


OLAP, EIS, GDSS
 Design and Choice: DSS, ES, GDSS,
Management Science, ANN
 Implementation: DSS, ES, GDSS

61
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

 Cognitive models are attempts to explain or


understand various human cognitive
processes
62
Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Cognitive Style
 The subjective process through which individuals
perceive, organize, and change information during the
decision-making process
 Often determines people's preference for human-
machine interface
 Impacts on preferences for qualitative versus
quantitative analysis and preferences for decision-
making aids

Cognitive style research impacts on the design of


management information systems

 Analytic decision maker


 Heuristic decision maker
(See Table 2.4)
63
Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
TABLE 2.4 Cognitive-style Decision Approaches.

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.

(Source: G. B. Davis. Management Information Systems: Conceptual Foundations,


Structure, and Development. New York: McGraw-Hill, 1974, p. 150. Reproduced with
permission of McGraw-Hill, Inc.)

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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

 Varies from individual to individual and from situation


to situation
 Decision making is a nonlinear process

The manner in which managers make decisions (and


the way they interact with other people) describes their
decision style

 There are dozens 65


Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Some Decision Styles
 Heuristic
 Analytic
 Autocratic
 Democratic
 Consultative (with individuals or groups)
 Combinations and variations

 For successful decision making support, an


MSS must fit the
– Decision situation
– Decision style

66
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

 Different decision styles require different


types of support
 Major factor: individual or group decision
maker

67
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

68
Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Individuals

 May still have conflicting objectives


 Decisions may be fully automated

69
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)

 Organizational DSS can help in enterprise-wide decision


making situations
70
Summary
 Managerial decision making is synonymous
with the whole process of management
 Problem solving also refers to opportunity's
evaluation
 A system is a collection of objects such as
people, resources, concepts, and procedures
intended to perform an identifiable function or
to serve a goal
 DSS deals primarily with open systems
 A model is a simplified representation or
abstraction of reality
 Models enable fast and inexpensive
experimentation with systems
71
Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Summary (cont.)
 Modeling can employ optimization, heuristic, or
simulation techniques
 Decision making involves four major phases:
intelligence, design, choice, and
implementation
 What-if and goal seeking are the two most
common sensitivity analysis approaches
 Computers can support all phases of decision
making by automating many of the required
tasks
 Human cognitive styles may influence human-
machine interaction
 Human decision styles need to be recognized 72
in Decision
designing MSS
Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ
Questions for the Opening
Vignette
1. Identify the conflicting objectives
2. Identify the uncertainties
3. Identify the alternative courses of action
(can they be combined?)
4. What are the possible results of the
decision?
Why may the results be difficult to
predict?
5. What kind of risk is associated with the
decision?
6. What were the decision-makers different
“attitudes” toward risk? How could this
influence the decision?
Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
73

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:

1. The scope of the problem being solved


2. The individuals involved in the decision
(explicitly identify the problem owner(s))
3. Simon’s phases (you may have to ask the
individual specific questions such as how he
or she identified the problem, etc.)
4. The alternatives (choices) and the
decision chosen
5. How the decision was implemented
6. How computers were used or why they 74
were
Copyrightnot used
Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
1998, Prentice Hall, Upper Saddle River, NJ
Produce a detailed report
describing an analysis of the
above and clearly state how
closely the real-world decision
making process compares to
Simon’s suggested process.
Also, clearly identify how
computers were used or why
they were not used.

75
Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson
Copyright 1998, Prentice Hall, Upper Saddle River, NJ

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