Decision Support and

Business Intelligence
Systems
(9th Ed., Prentice Hall)

Chapter 2:
Decision Making, Systems,
Modeling, and Support
 Learning Objectives
 Understand the conceptual foundations of
decision making
 Understand the need for and the nature of
models in decision making
 Understand Simon's four phases of decision
making:
 intelligence,
 design,
 choice, and
 implementation

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 Learning Objectives
 Recognize the concepts of rationality and
bounded rationality and how they relate to
decision making
 Differentiate between the concepts of making
a choice and establishing a principle of choice
 Learn how DSS provide support for decision
making in practice
 Understand the systems approach

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 Opening Vignette:
“Decision Modeling at HP Using
Spreadsheets”
 Company background

 Problem

 Proposed solution

 Results

 Answer and discuss the case questions

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 Decision Support Systems (DSS)

Dissecting DSS into

its main concepts

Building successful DSS

requires a through
understanding of these
concepts

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 Characteristics of Decision Making
 Groupthink
 Evaluating what-if scenarios
 Experimentation with a real system!
 Changes in the decision-making
environment may occur continuously
 Time pressure on the decision maker
 Analyzing a problem takes time/money
 Insufficient or too much information
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 Characteristics of Decision Making
 Better decisions
 Tradeoff: accuracy versus speed
 Fast decision may be detrimental
 Areas suffering most from fast decisions
 personnel/human resources (27%)
 budgeting/finance (24%)
 organizational structuring (22%)
 quality/productivity (20%)
 IT selection and installation (17%)
 process improvement (17%)
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 Decision Making
 A process of choosing among two or
more alternative courses of action for
the purpose of attaining a goal(s)
 Managerial decision making is
synonymous with the entire
management process - Simon (1977)
 e.g., Planning
 What should be done? When? Where?
Why? How? By whom?
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 Decision Making and Problem Solving
 A problem occurs when a system
 does not meet its established goals
 does not yield the predicted results, or
 does not work as planned
 Problem is the difference between the
desired and actual outcome
 Problem solving also involves
identification of new opportunities

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 Decision Making and Problem Solving
 Are problem solving and decision making
different? Or, are they the same thing?
 Consider phases of the decision process
Phase (1) Intelligence
Phase (2) Design
Phase (3) Choice, and
Phase (4) Implementation
 (1)-(4): problem solving; (3): decision making

 (1)-(3): decision making; (4): problem solving

 This book: decision making  problem solving

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 Decision-Making Disciplines
 Behavioral: anthropology, law, philosophy,
political science, psychology, social
psychology, and sociology
 Scientific: computer science, decision
analysis, economics, engineering, the hard
sciences (e.g., biology, chemistry, physics),
management science/operations research,
mathematics, and statistics
 Each discipline has its own set of assumptions
and each contributes a unique, valid view of
how people make decisions
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 Decision Style
 The manner by which decision makers
think and react to problems
 perceive a problem
 cognitive response
 values and beliefs
 When making decisions, people…
 follow different steps/sequence
 give different emphasis, time allotment,
and priority to each steps
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 Decision Style
 Personality temperament tests are often
used to determine decision styles
 There are many such tests
 Meyers/Briggs,
 True Colors (Birkman),
 Keirsey Temperament Theory, …
 Various tests measure somewhat
different aspects of personality
 They cannot be equated!
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 Decision Style
 Decision-making styles
 Heuristic versus Analytic‫ا الستدال لمقابلا لتحليلي‬
 Autocratic versus Democratic
 Consultative (with individuals or groups)
 A successful computerized system
should fit the decision style and the
decision situation
 Should be flexible and adaptable to
different users (individuals vs. groups)
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 Decision Makers
 Small organizations
 Individuals
 Conflicting objectives
 Medium-to-large organizations
 Groups
 Different styles, backgrounds, expectations
 Conflicting objectives
 Consensus ‫ إجماع‬is often difficult to reach
 Help: Computer support, GSS, ERP,ERM,…
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 Review Questions
1. What are the various aspects of decision
making?
2. Why is decision making is so complex today’s
business environment?
3. Identify similarities and differences between
individual and group decision making?
4. Compare decision making and problem
solving.
5. Define decision style and describe why it is
important to consider in the decision making
process
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 Model
 A significant part of many DSS and BI
systems
 A model is a simplified representation
(or abstraction) of reality
 Often, reality is too complex to describe
 Much of the complexity is actually
irrelevant in solving a specific problem
 Models can represent systems/problems
at various degrees of abstraction
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 Types of Models
 Models can be classified based on their
degree of abstraction
Less
 Iconic models (scale models)
Degree of abstraction

 Analog models

 Mental Models

More
 Mathematical (quantitative) models
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 The Benefits of Models
 Ease of manipulation
 Compression of time
 Lower cost of analysis on models
 Cost of making mistakes on experiments
 Inclusion of risk/uncertainty
 Evaluation of many alternatives
 Reinforce learning and training
 Models and solution methods are available
on the web
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 Review Questions
1. Describe the different categories of models

2. How can mathematical models provide the

benefits?

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 Phases of Decision-Making Process
 Humans consciously or sub consciously
‫ ب وعيأو ا لالوعي‬follow a systematic
decision-making process
- Simon (1977)
1) Intelligence
2) Design
3) Choice
4) Implementation
5) (?) Monitoring (a part of intelligence?)
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 Simon’s Decision-Making Process

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 Decision-Making: Intelligence Phase
 Scan the environment, either intermittently or
continuously
 Identify problem situations or opportunities
 Monitor the results of the implementation
 Problem (opportunity) identification
 Problem is the difference between what people
desire (or expect) and what is actually occurring
 Symptom versus Problem
 Timely identification of opportunities is as
important as identification of problems

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 Decision-Making: Intelligence Phase
 Potential issues in data/information
collection and estimation
 Lack of data
 Cost of data collection
 Inaccurate and/or imprecise data
 Data estimation is often subjective
 Data may be insecure
 Key data may be qualitative
 Data change over time (time-dependence)
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 Decision-Making: Intelligence Phase
 Problem Classification
 Classification of problems according to the degree
of structuredness
 Problem Decomposition
 Often solving the simpler subproblems may help
in solving a complex problem
 Information/data can improve the structuredness
of a problem situation
 Problem Ownership A Formal
 Outcome of intelligence phase: Problem
Statement
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 Decision-Making: The Design Phase
 Finding/developing and analyzing possible
courses of actions
 A model of the decision-making problem is
constructed, tested, and validated
 Modeling: conceptualizing a problem and
abstracting it into a quantitative and/or
qualitative form (i.e., using symbols/variables)
 Abstraction: making assumptions for simplification
 Tradeoff (cost/benefit): more or less abstraction
 Modeling: both an art and a science

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 Decision-Making: The Design Phase
 Selection of a Principle of Choice
 It is a criterion that describes the
acceptability of a solution approach
 Reflection of decision-making objective(s)
 In a model, it is the result variable
 Choosing and validating against
 High-risk versus low-risk
 Optimize versus satisfice
 Criterion is not a constraint

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 Decision-Making: The Design Phase
 Normative models (= optimization)
 the chosen alternative is demonstrably the
best of all possible alternatives
 Assumptions of rational decision makers
 Humans are economic beings whose objective is
to maximize the attainment of goals
 For a decision-making situation, all alternative
courses of action and consequences are known
 Decision makers have an order or preference
that enables them to rank the desirability of all
consequences
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 Decision-Making: The Design Phase
 Heuristic models (= suboptimization)
‫ن ماذج ت جريبية‬
 the chosen alternative is the best of only a
subset of possible alternatives
 Often, it is not feasible to optimize realistic
(size/complexity) problems
 Sub optimization may also help relax
unrealistic assumptions in models
 Help reach a good enough solution faster

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 Decision-Making: The Design Phase
 Descriptive models
 describe things as they are or as they are
believed to be (mathematically based)
 They do not provide a solution but
information that may lead to a solution
 Simulation - most common descriptive
modeling method (mathematical depiction of
systems in a computer environment)
 Allows experimentation with the descriptive
model of a system
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 Decision-Making: The Design Phase
 Good Enough, or Satisficing
“something less than the best”
 A form of suboptimization

 Seeking to achieving a desired level of

performance as opposed to the “best”

 Benefit: time saving

 Simon’s idea of bounded rationality

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 Decision-Making: The Design Phase
 Developing (Generating) Alternatives
 In optimization models (such as linear
programming), the alternatives may be
generated automatically
 In most MSS situations, however, it is
necessary to generate alternatives manually
 Use of GSS helps generating alternatives
 Measuring/ranking the outcomes
 Using the principle of choice

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 Decision-Making: The Design Phase
 Risk
 Lack of precise knowledge (uncertainty)
 Risk can be measured with probability
 Scenario (what-if case)
 A statement of assumptions about the
operating environment (variables) of a
particular system at a given time
 Possible scenarios: best, worst, most likely,
average (and custom intervals)

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 Decision-Making: The Choice Phase
 The actual decision and the commitment to
follow a certain course of action are made here
 The boundary between the design and choice
is often unclear (partially overlapping phases)
 Generate alternatives while performing evaluations
 Includes the search, evaluation, and
recommendation of an appropriate solution to
the model
 Solving the model versus solving the problem!

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 Decision-Making: The Choice Phase
 Search approaches
 Analytic techniques (solving with a formula)
 Algorithms (step-by-step procedures)
 Heuristics (rule of thumb) )‫ا الستدال ل(ا لقاعدة‬
 Blind search (truly random search)
 Additional activities
 Sensitivity analysis
 What-if analysis
 Goal seeking
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 Decision-Making:
The Implementation Phase
“Nothing more difficult to carry out, nor
more doubtful of success, nor more
dangerous to handle, than to initiate a
new order of things.”
- The Prince, Machiavelli 1500s
 Solution to a problem = Change
 Change management?
 Implementation: putting a recommended
solution to work
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 How Decisions Are Supported

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 How Decisions Are Supported
 Support for the Intelligence Phase
 Enabling continuous scanning of external
and internal information sources to identify
problems and/or opportunities
 Resources/technologies: Web; ES, OLAP,
data warehousing, data/text/Web mining,
EIS/Dashboards, KMS, GSS, GIS,…
 Business activity monitoring (BAM)
 Business process management (BPM)
 Product life-cycle management (PLM)
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 How Decisions Are Supported
 Support for the Design Phase
 Enabling generating alternative courses of
action, determining the criteria for choice
 Generating alternatives
 Structured/simple problems: standard and/or
special models
 Unstructured/complex problems: human
experts, ES, KMS, brainstorming/GSS, OLAP,
data/text mining
 A good “criteria for choice” is critical!
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 How Decisions Are Supported
 Support for the Choice Phase
 Enabling selection of the best alternative
given a complex constraint structure
 Use sensitivity analyses, what-if analyses,
goal seeking
 Resources
 KMS
 CRM, ERP, and SCM
 Simulation and other descriptive models

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 How Decisions Are Supported
 Support for the Implementation Phase
 Enabling implementation/deployment of
the selected solution to the system
 Decision communication, explanation and
justification to reduce resistance to change
 Resources
 Corporate portals, Web 2.0/Wikis
 Brainstorming/GSS
 KMS , ES

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 New Technologies
to Support Decision Making
 Web-based systems
 Mobile commerce(m-Commerce)
 PDA, Cell phones, Tablet PCs
 GSS with visual/immersive presence
 RFID (Radio Frequency Identification) and
other wireless technologies
 Faster computers, better algorithms, to
process “huge” amounts of
heterogeneous/distributed data
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 Review Questions
1. List and briefly describe Simon's four phases of
decision making
2. Why it is important to classify a problem
3. What is meant by problem decomposition
4. Why is establishing problem ownership so
important in the decision making process?
5. Define implementation
6. Describe how DSS/BI technologies and tools
can aid in each phase of decision making
7. List some of new technologies to support
decision making
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 End of the Chapter

 Questions / Comments…

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Copyright © 2011 Pearson Education, Inc.  

Publishing as Prentice Hall

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