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Business Intelligence

and Analytics
Systems for Decision Support
TENTH EDITION

Ramesh Sharda • Dursun Delen • EfraimTurban

ALWAYS LEARNING
PEARSON
T e n t h E d i t i o n

B u s in e s s I n t e l l ig e n c e
and A n a l y t ic s :
S y s te m s f o r D e c i s i o n S u p p o r t

Global Edition

Ramesh Sharda
Oklahoma State University
Dursun Delen
Oklahoma State University
Efraim Turban
University o f Hawaii
With contributions by

J . E. Aronson
The University o f Georgia

Ting-Peng Liang
National Sun Yat-sen University

David King
JDA Software Group, Inc.

PEARSON
B o s to n C o lu m b u s In d ia n a p o lis N e w Y o r k S a n F r a n c is c o U p p e r S a d d le R iv er
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BRIEF CONTENTS
Preface 21
A b o u t th e A u th o rs 29

PA RT I D e cisio n M a k in g a n d A n a ly tic s : A n O v e rv ie w 31
C h a p te r 1 A n O v e r v ie w o f Business In te llig e n c e , A n a ly tic s ,
a n d D ecisio n S u p p o rt 32
C h a p te r 2 F o u n d a tio n s a n d T e c h n o lo g ie s f o r D e cisio n M a k in g 67

PA RT II D e s c rip tiv e A n a ly tic s 107


C h a p te r 3 D a ta W a r e h o u s in g 108
C h a p te r 4 Bu sin ess R e p o rtin g , V is u a l A n a ly tic s , a n d Business
P e r fo r m a n c e M a n a g e m e n t 165

PART III P re d ictiv e A n a ly tic s 215


C h a p te r 5 D a ta M in in g 216

C h a p te r 6 T e c h n iq u e s f o r P re d ic tiv e M o d e lin g 273


C h a p te r 7 T e x t A n a ly tic s , T e x t M in in g , a n d S e n t im e n t A n a lys is 318
C h a p te r 8 W e b A n a ly tic s , W e b M in in g , a n d S o c ia l A n a ly tic s 368

PA RT IV P re scrip tiv e A n a ly tic s 421


C h a p te r 9 M o d e l- B a se d D e cisio n M a k in g : O p tim iz a tio n a n d M ulti-
C rite ria System s 422
C h a p te r 10 M o d e lin g a n d A n alysis: H e u ristic S e a rch M e th o d s a n d
S im u la tio n 465
C h a p te r 11 A u t o m a t e d D ecisio n System s a n d E x p e rt S ystem s 499
C h a p te r 12 K n o w le d g e M a n a g e m e n t a n d C o lla b o r a tiv e System s 537

PA RT V B ig D a ta a n d F u tu re D ire ctio n s fo r B u sin e ss


A n a ly tic s 571
C h a p te r 13 B ig D a ta a n d A n a ly tic s 572
C h a p te r 14 Business A n a ly tic s : E m e rg in g T re n d s a n d F u tu re
Im p a c ts 622

Glossary 664
Index 678
CONTENTS
Preface 21
A b o u t the Authors 29

P a rt I D e c isio n M a k in g a n d A n a ly tic s : A n O v e rv ie w 31
C h a p te r 1 An O verview of Business Intelligence, Analytics, and
Decision Support 32
1.1 O p e n in g V ig n e tte : M a g p ie S e n s in g E m p lo y s A n a ly tic s
M a n a g e a V a c c in e S u p p ly C h a in E ffe c tiv e ly a n d S a fe ly

1.2 C h a n g in g Business E n v ir o n m e n ts a n d C o m p u te riz e d


D e cisio n S u p p o rt 35
The Business Pressures-Responses-Support Model 35
1.3 M a n a g e r ia l D e cisio n M a k in g 37
The Nature of Managers' Work 37
The Decision-Making Process 38
1.4 In fo r m a tio n System s S u p p o rt f o r D e cisio n M a k in g 3
1.5 A n E a rly F r a m e w o r k f o r C o m p u te riz e d D ecision
S u p p o rt 41
The Gorry and Scott-Morton Classical Framework 41
Computer Support for Structured Decisions 42

Computer Support for Unstructured Decisions 43


Computer Support for Semistructured Problems 43

1.6 T h e C o n c e p t o f D e cisio n S u p p o r t S ystem s (D S S ) 43


DSS as an Umbrella Term 43
Evolution of DSS into Business Intelligence 44
1.7 A F r a m e w o r k f o r Bu sin ess In te llig e n c e (B l) 44
Definitions of Bl 44
A Brief History of Bl 44
The Architecture of Bl 45
Styles of Bl 45
The Origins and Drivers of Bl 46
A Multimedia Exercise in Business Intelligence 46
► APPLICATION CASE 1.1 Sabre Helps Its Clients Through
and Analytics 47
The DSS-BI Connection 48
1.8 Bu sin ess A n a ly tic s O v e r v ie w 49
Descriptive Analytics 50
► APPLICATION CASE 1.2 Eliminating Inefficiencies at Seattle
Children's Hospital 51
► APPLICATION CASE 1.3 Analysis at the Speed of Thought 53
Predictive Analytics 52
Contents 5

► APPLICATION CASE 1.4 Moneyball: Analytics in Sports and Movies 53


► APPLICATION CASE 1.5 Analyzing Athletic Injuries 54
Prescriptive Analytics 54
► APPLICATION CASE 1.6 Industrial and Commercial Bank of China
(ICBC) Employs Models to Reconfigure Its Branch Network 55
Analytics Applied to Different Domains 56
Analytics or Data Science? 56
1.9 B r ie f In tr o d u c tio n t o B ig D a ta A n a ly tic s 57

What Is Big Data? 57


► APPLICATION CASE 1.7 Gilt Groupe's Flash Sales Streamlined by Big
Data Analytics 59
1.10 P la n o f t h e B o o k 59
Part I: Business Analytics: An Overview 59
Part II: Descriptive Analytics 60
Part III: Predictive Analytics 60
Part IV: Prescriptive Analytics 61
Part V: Big Data and Future Directions for Business Analytics 61
1.11 R esou rces, Links, a n d t h e T e r a d a ta U n iv e rs ity N e tw o r k
C o n n e c tio n 61
Resources and Links 61
Vendors, Products, and Demos 61
Periodicals 61
The Teradata University Network Connection 62
The Book's Web Site 62
Chapter Highlights 62 • Key Terms 63
Questions for Discussion 63 • Exercises 63
► END-OF-CHAPTER APPLICATION CASE Nationwide Insurance Used Bl
to Enhance Customer Service 64
References 65

C h a p te r 2 Foundations and Technologies for Decision M aking 67


2.1 O p e n in g V ig n e tte : D e c is io n M o d e lin g a t H P U sing
S p re a d s h e e ts 68
2.2 D ecisio n M a k in g : In tro d u c tio n a n d D e fin itio n s 70
Characteristics of Decision Making 70
A Working Definition of Decision Making 71
Decision-Making Disciplines 71
Decision Style and Decision Makers 71
2.3 P h ases o f t h e D e c is io n - M a k in g Process 72

2.4 D e cisio n M a k in g : T h e In te llig e n c e P h a se 74


Problem (or Opportunity) Identification 75
► APPLICATION CASE 2.1 Making Elevators Go Faster! 75

Problem Classification 76
Problem Decomposition 76
Problem Ownership 76
2.5 D e cisio n M a k in g : T h e D e sig n P h a s e 77

Models 77
Mathematical (Quantitative) Models 77
The Benefits of Models 77
Selection of a Principle of Choice 78
Normative Models 79
Suboptimization 79
Descriptive Models 80
Good Enough, or Satisficing 81
Developing (Generating) Alternatives 82
Measuring Outcomes 83

Risk 83
Scenarios 84
Possible Scenarios 84
Errors in Decision Making 84
2.6 D e cisio n M a k in g : T h e C h o ic e P h a s e 85
2.7 D ecisio n M a k in g : T h e Im p le m e n ta tio n P h a se 85

2.8 H o w D ecisions A r e S u p p o rte d 86


Support for the Intelligence Phase 86
Support for the Design Phase 87
Support for the Choice Phase 88
Support for the Implementation Phase 88
2.9 D e cisio n S u p p o rt System s: C a p a b ilitie s 89

A DSS Application 89
2.10 DSS C la ss ific a tio n s 91
The AIS SIGDSS Classification for DSS 91

Other DSS Categories 93


Custom-Made. S'fste.ccvs,Vex'.us Read^-Wlade Systems 93
2.11 C o m p o n e n ts o f D e cisio n S u p p o r t S ystem s 94
The Data Management Subsystem 95
The Model Management Subsystem 95
► APPLICATION CASE 2.2 Station Casinos Wins by Building Customer
Relationships Using Its Data 96
► APPLICATION CASE 2.3 SNAP DSS Helps OneNet Make
Telecommunications Rate Decisions 98

The User Interface Subsystem 98


The Knowledge-Based Management Subsystem 99
► APPLICATION CASE 2.4 From a Game Winner to a Doctor! 100
Chapter Highlights 102 • K ey Terms 103
Questions fo r Discussion 103 • Exercises 104
► END-OF-CHAPTER APPLICATION CASE Logistics Optimization in a
Major Shipping Company (CSAV) 104
References 105
P art II D e s c rip tiv e A n a ly tic s 107
Chapter 3 Data W arehousing 108
3.1 O p e n in g V ig n e tte : Isle o f C a p ri C asin os Is W in n in g w ith
E n te rp ris e D a ta W a r e h o u s e 109
3.2 D a ta W a r e h o u s in g D e fin itio n s a n d C o n c e p ts 111
What Is a Data Warehouse? 111

A Historical Perspective to Data Warehousing 111


Characteristic of Data Warehousing 113
Data Marts 114
Operational Data Stores 114
Enterprise Data Warehouses (EDW) 115
Metadata 115
► APPLICATION CASE 3.1 A Better Data Plan: Well-Established TELCOs
Leverage Data Warehousing and Analytics to Stay on Top in a
Competitive Industry 115

3.3 D a ta W a r e h o u s in g Process O v e r v ie w 117


► APPLICATION CASE 3.2 Data Warehousing Helps MultiCare Save
More Lives 118

3.4 D a ta W a r e h o u s in g A r c h ite c tu re s 120


Alternative Data Warehousing Architectures 123
Which Architecture Is the Best? 126

3.5 D a ta In te g ra tio n a n d t h e E x tra c tio n , T ra n s fo rm a tio n , a n d


L o a d (E T L ) Processes 127
Data Integration 128
► APPLICATION CASE 3.3 BP Lubricants Achieves BIGS Success 128
Extraction, Transformation, and Load 130

3.6 D a ta W a r e h o u s e D e v e lo p m e n t 132
► APPLICATION CASE 3.4 Things Go Better with Coke's Data
Warehouse 133

Data Warehouse Development Approaches 133


► APPLICATION CASE 3.5 Starwood Hotels & Resorts Manages Hotel
Profitability with Data Warehousing 136

Additional Data Warehouse Development Considerations 137


Representation of Data in Data Warehouse 138
Analysis of Data in the Data Warehouse 139
OLAP Versus OLTP 140
0LAP Operations 140

3.7 D a ta W a r e h o u s in g Im p le m e n ta tio n Issues 143


► APPLICATION CASE 3.6 EDW Helps Connect State Agencies in
Michigan 145

Massive Data Warehouses and Scalability 146

3.8 R eal-T im e D a ta W a r e h o u s in g 147


► APPLICATION CASE 3.7 Egg Pic Fries the Competition in Near Real
Time 148
3.9 D a ta W a r e h o u s e A d m in is tr a tio n , S e c u r ity Issues, a n d Fut_-~
T re n d s 151
The Future of Data Warehousing 153
3.10 R esou rces, Links, a n d t h e T e r a d a ta U n iv e rs ity N e tw o r k
C o n n e c tio n 156

Resources and Links 156


Cases 156
Vendors, Products, and Demos 157
Periodicals 157
Additional References 157
The Teradata University Network (TUN) Connection 157
Chapter Highlights 158 • K ey Terms 158
Questions for Discussion 158 • Exercises 159
► END-OF-CHAPTER APPLICATION CASE Continental Airlines Flies High
with Its Real-Time Data Warehouse 161
References 162

C h a p te r 4 Business Reporting, Visual Analytics, and Business


Perform ance M anagem ent 165
4.1 O p e n in g V ig n e tte :S e lf- S e rv ic e R e p o rtin g E n v ir o n m e n t
S a ve s M illio n s f o r C o r p o r a te C u sto m e rs 166
4.2 Business R e p o rtin g D e fin itio n s a n d C o n c e p ts 169
What Is a Business Report? 170
► APPLICATION CASE 4.1 Delta Lloyd Group Ensures Accuracy and
Efficiency in Financial Reporting 171
Components of the Business Reporting System 173
► APPLICATION CASE 4.2 Flood of Paper Ends at FEMA 174
4.3 D a ta a n d In fo rm a tio n V is u a liz a tio n 175
► APPLICATION CASE 4.3 Tableau Saves Blastrac Thousands of Dollars
with Simplified Information Sharing 176
A Brief History of Data Visualization 177
► APPLICATION CASE 4.4 TIBCO Spotfire Provides Dana-Farber Cancer
Institute with Unprecedented Insight into Cancer Vaccine Clinical
Trials 179
4.4 D iffe r e n t T yp es o f C h a rts a n d G ra p h s 180
Basic Charts and Graphs 180

Spedalized Charts and Graphs 181


4.5 T h e E m e rg e n c e o f D a ta V is u a liz a tio n a n d V is u a l
A n a ly tic s 184
Visual Analytics 186
High-Powered Visual Analytics Environments 188
4.6 P e r fo r m a n c e D a s h b o a rd s 190
► APPLICATION CASE 4.5 Dallas Cowboys Score Big with Tableau and
Teknion 191
Dashboard Design 192
► APPLICATION CASE 4.6 Saudi Telecom Company Excels with
Information Visualization 193

What to Look For in a Dashboard 194

Best Practices in Dashboard Design 195


Benchmark Key Performance Indicators with Industry Standards 195

Wrap the Dashboard Metrics with Contextual Metadata 195

Validate the Dashboard Design by a Usability Specialist 195

Prioritize and Rank Alerts/Exceptions Streamed to the Dashboard 195

Enrich Dashboard with Business Users' Comments 195

Present Information in Three Different Levels 196


Pick the Right Visual Construct Using Dashboard Design Principles 196

Provide for Guided Analytics 196


4.7 Business P e r fo r m a n c e M a n a g e m e n t 196

Closed-Loop BPM Cycle 197


► APPLICATION CASE 4.7 IBM Cognos Express Helps Mace for Faster
and Better Business Reporting 199

4.8 P e r fo r m a n c e M e a s u r e m e n t 200

Key Performance Indicator (KPI) 201

Performance Measurement System 202


4.9 B a la n c e d S c o re c a rd s 202

The Four Perspectives 203

The Meaning of Balance in BSC 204

Dashboards Versus Scorecards 204


4.10 Six S ig m a as a P e r fo r m a n c e M e a s u r e m e n t S ys te m 205

The DMAIC Performance Model 206

Balanced Scorecard Versus Six Sigma 206

Effective Performance Measurement 207


► APPLICATION CASE 4.8 Expedia.com 's Customer Satisfaction
Scorecard 208
Chapter Highlights 209 • Key Terms 210
Questions for Discussion 211 • Exercises 211
► END-OF-CHAPTER APPLICATION CASE Smart Business Reporting
Helps Healthcare Providers Deliver Better Care 212
References 214

P art III P re d ic tiv e A n a ly tic s 215


Chapter 5 Data M ining 216
5.1 O p e n in g V ig n e tte : C a b e la 's R ee ls in M o r e C u sto m e rs w ith
A d v a n c e d A n a ly tic s a n d D a ta M in in g 217
5.2 D a ta M in in g C o n c e p ts a n d A p p lic a tio n s 219
► APPLICATION CASE 5.1 Smarter Insurance: Infinity P&C Improves
Customer Service and Combats Fraud with Predictive Analytics 221
10 Contents

Definitions, Characteristics, and Benefits 222


► APPLICATION CASE 5.2 Harnessing Analytics to Combat Crime:
Predictive Analytics Helps Memphis Police Department Pinpoint Crime
and Focus Police Resources 226
How Data Mining Works 227
Data Mining Versus Statistics 230
5.3 D a ta M in in g A p p lic a tio n s 231
► APPLICATION CASE 5.3 A Mine on Terrorist Funding 233
5.4 D a ta M in in g Process 234
Step 1: Business Understanding 235
Step 2: Data Understanding 235
Step 3: Data Preparation 236
Step 4: Model Building 238
► APPLICATION CASE 5.4 Data Mining in Cancer Research 240
Step 5: Testing and Evaluation 241
Step 6: Deployment 241
Other Data Mining Standardized Processes and Methodologies 242
5.5 D a ta M in in g M e th o d s 244
Classification 244
Estimating the True Accuracy of Classification Models 245
Cluster Analysis for Data Mining 250
► APPLICATION CASE 5.5 2degrees Gets a 1275 Percent Boost in Churn
Identification 251
Association Rule Mining 254
5.6 D a ta M in in g S o f t w a r e T o o ls 258
► APPLICATION CASE 5.6 Data Mining Goes to Hollywood: Predicting
Financial Success of Movies 261
5.7 D a ta M in in g P riv a c y Issues, M y th s , a n d B lu n d e rs 264
Data Mining and Privacy Issues 264
► APPLICATION CASE 5.7 Predicting Customer Buying Patterns— The
Target Story 265
Data Mining Myths and Blunders 266
Chapter Highlights 267 • Key Terms 268
Questions for Discussion 268 • Exercises 269
► END-OF-CHAPTER APPLICATION CASE Macys.com Enhances Its
Customers' Shopping Experience with Analytics 271
References 271

Chapter 6 Techniques fo r Predictive M odeling 273


6.1 O p e n in g V ig n e t t e : P re d ic tiv e M o d e lin g H e lp s B e tte r
U n d e rs ta n d a n d M a n a g e C o m p le x M e d ic a l
P ro c e d u re s 274
6.2 Basic C o n c e p ts o f N e u ra l N e tw o r k s 277
Biological and Artificial Neural Networks 278
► APPLICATION CASE 6.1 Neural Networks Are Helping to Save Lives in
the Mining Industry 280
Elements of ANN 281
Contents 11

Network Information Processing 282


Neural Network Architectures 284
► APPLICATION CASE 6.2 Predictive Modeling Is Powering the Power
Generators 286
6.3 D e v e lo p in g N e u ra l N e tw o r k - B a s e d System s 288
The General ANN Learning Process 289
Backpropagation 290
6.4 Illu m in a tin g t h e B la c k B o x o f A N N w it h S e n s itiv ity
A n a ly s is 292
► APPLICATION CASE 6.3 Sensitivity Analysis Reveals Injury Severity
Factors in Traffic Accidents 294

6.5 S u p p o r t V e c t o r M a c h in e s 295
► APPLICATION CASE 6.4 Managing Student Retention with Predictive
Modeling 296
Mathematical Formulation of SVMs 300
Primal Form 301
Dual Form 301
Soft Margin 301
Nonlinear Classification 302
Kernel Trick 302
6.6 A Process-Based A p p r o a c h t o t h e U se o f S V M 303
Support Vector Machines Versus Artificial Neural Networks 304
6.7 N e a re s t N e ig h b o r M e t h o d fo r P re d ic tio n 305
Similarity Measure: The Distance Metric 306
Parameter Selection 307
► APPLICATION CASE 6.5 Efficient Image Recognition and
Categorization with kNN 308
Chapter Highlights 310 • Key Terms 310
Questions fo r Discussion 311 • Exercises 311
► END-OF-CHAPTER APPLICATION CASE Coors Improves Beer Flavors
with Neural Networks 314
References 315

Chapter 7 Text Analytics, Text M ining, and Sentim ent Analysis 318
7.1 O p e n in g V ig n e tte : M a c h in e V e rsu s M e n o n Jeopardy 7: T h e
S to ry o f W a t s o n 319
7.2 T e x t A n a ly tic s a n d T e x t M in in g C o n c e p ts a n d
D e fin itio n s 321
► APPLICATION CASE 7.1 Text Mining for Patent Analysis 325

7.3 N a tu ra l L a n g u a g e Pro ce ssin g 326


► APPLICATION CASE 7.2 Text Mining Improves Hong Kong
Government's Ability to Anticipate and Address Public Complaints 328

7.4 T ex t M in in g A p p lic a tio n s 330


Marketing Applications 331
Security Applications 331
► APPLICATION CASE 7.3 Mining for Lies 332

Biomedical Applications 334


12 Contents

Academic Applications 335


► APPLICATION CASE 7.4 Text Mining and Sentiment Analysis Help
Improve Customer Service Performance 336
7.5 T e x t M in in g Process 337
Task 1: Establish the Corpus 338

Task 2; Create the Term-Document Matrix 339

. Task 3: Extract the Knowledge 342


► APPLICATION CASE 7.5 Research Literature Survey with Text
Mining 344
7.6 T e x t M in in g T o o ls 347
Commercial Software Tools 347

Free Software Tools 347


► APPLICATION CASE 7.6 A Potpourri of Text Mining Case Synopses 348
7.7 S e n t im e n t A n a ly s is O v e r v ie w 349
► APPLICATION CASE 7.7 Whirlpool Achieves Customer Loyalty and
Product Success with Text Analytics 351
7.8 S e n t im e n t A n a ly s is A p p lic a tio n s 353
7.9 S e n t im e n t A n a ly s is Process 355
Methods for Polarity Identification 356

Using a Lexicon 357

Using a Collection of Training Documents 358


Identifying Semantic Orientation of Sentences and Phrases 358

Identifying Semantic Orientation of Document 358

7.10 S e n t im e n t A n a lys is a n d S p e e c h A n a ly tic s 359


How Is It Done? 359
► APPLICATION CASE 7.8 Cutting Through the Confusion: Blue Cross
Blue Shield of North Carolina Uses Nexidia's Speech Analytics to Ease
Member Experience in Healthcare 361
Chapter Highlights 363 • K ey Terms 363
Questions for Discussion 364 • Exercises 364
► END-OF-CHAPTER APPLICATION CASE BBVA Seamlessly Monitors
and Improves Its Online Reputation 365
References 366

Chapter 8 W eb Analytics, W eb M ining, and Social Analytics 368


8.1 O p e n in g V ig n e tte : S e c u rity F irst In s u ra n c e D e e p e n s
C o n n e c tio n w it h P o lic y h o ld e rs 369
8.2 W e b M in in g O v e r v ie w 371
8.3 W e b C o n te n t a n d W e b S tr u c tu r e M in in g 374
► APPLICATION CASE 8.1 Identifying Extremist Groups with Web Link
and Content Analysis 376
8.4 S e a rc h E n g in e s 377

Anatomy of a Search Engine 377


1. Development Cycle 378
Web Crawler 378
Document Indexer 378
2. Response Cycle 379
Query Analyzer 379
Document Matcher/Ranker 379
How Does Google Do It? 381
► APPLICATION CASE 8.2 IGN Increases Search Traffic by 1500 Percent 383

8.5 S e a rch E n g in e O p tim iz a tio n 384


Methods for Search Engine Optimization 385
► APPLICATION CASE 8.3 Understanding Why Customers Abandon
Shopping Carts Results in $10 Million Sales Increase 387

8.6 W e b U s a g e M in in g ( W e b A n a ly tic s ) 388


Web Analytics Technologies 389
► APPLICATION CASE 8.4 Allegro Boosts Online Click-Through Rates by
500 Percent with Web Analysis 390
Web Analytics Metrics 392
Web Site Usability 392
Traffic Sources 393
Visitor Profiles 394
Conversion Statistics 394

8.7 W e b A n a ly tic s M a t u r it y M o d e l a n d W e b A n a ly tic s T o o ls 396

Web Analytics Tools 398


Putting It All Together— A Web Site Optimization Ecosystem 400
A Framework for Voice of the Customer Strategy 402

8.8 S o c ia l A n a ly tic s a n d S o c ia l N e tw o r k A n a ly s is 403


Social Network Analysis 404
Social Network Analysis Metrics 405
► APPLICATION CASE 8.5 Social Network Analysis Helps
Telecommunication Firms 405
Connections 406
Distributions 406
Segmentation 407

8.9 S o cia l M e d ia D e fin itio n s a n d C o n c e p ts 407


How Do People Use Social Media? 408
► APPLICATION CASE 8.6 Measuring the Impact of Social Media at
Lollapalooza 409

8.10 S o cia l M e d ia A n a ly tic s 410


Measuring the Social Media Impact 411
Best Practices in Social Media Analytics 411
► APPLICATION CASE 8.7 eHarmony Uses Social Media to Help Take the
Mystery Out of Online Dating 413
Social Media Analytics Tools and Vendors 414
Chapter Highlights 416 • Key Terms 417
Questions for Discussion 417 • Exercises 418
► END-OF-CHAPTER APPLICATION CASE Keeping Students on Track with
Web and Predictive Analytics 418
References 420
P a rt IV P re s c rip tiv e A n a ly tic s 421
C h a p te r 9 Model-Based Decision M aking: O ptim ization and
Multi-Criteria System s 422
9.1 O p e n in g V ig n e tte : M id w e s t IS O S a ve s B illio n s b y B e tte r
P la n n in g o f P o w e r P la n t O p e ra tio n s a n d C a p a c ity
P la n n in g 423

9.2 D e cisio n S u p p o rt System s M o d e lin g 424


► APPLICATION CASE 9.1 Optimal Transport for ExxonMobil
Downstream Through a DSS 425
Current Modeling Issues 426
► APPLICATION CASE 9.2 Forecasting/Predictive Analytics Proves to Be
a Good Gamble for Harrah's Cherokee Casino and Hotel 427

9.3 S tru c tu re o f M a th e m a tic a l M o d e ls f o r D ecision S u p p o rt 429


The Components of Decision Support Mathematical Models 429
The Structure of Mathematical Models 431

9.4 C e rta in ty , U n c e r ta in ty , a n d Risk 431


Decision Making Linder Certainty 432
Decision Making Under Uncertainty 432
Decision Making Under Risk (Risk Analysis) 432
► APPLICATION CASE 9.3 American Airlines Uses
Should-Cost Modeling to Assess the Uncertainty of Bids
for Shipment Routes 433

9.5 D e cisio n M o d e lin g w it h S p re a d s h e e ts 434


► APPLICATION CASE 9.4 Showcase Scheduling at Fred Astaire East
Side Dance Studio 434

9.6 M a th e m a tic a l P ro g ra m m in g O p tim iz a tio n 437


► APPLICATION CASE 9.5 Spreadsheet Model Helps Assign Medical
Residents 437

Mathematical Programming 438


Linear Programming 438
Modeling in LP: An Example 439
Implementation 444

9.7 M u ltip le G o als, S e n s itiv ity A n a lys is, W h a t - lf A n alysis,


a n d G o a l S e e k in g 446
Multiple Goals 446
Sensitivity Analysis 447
What-lf Analysis 448
Goal Seeking 448

9.8 D ecisio n A n a ly s is w it h D e cisio n T a b le s a n d D ecisio n


T re e s 450
Decision Tables 450
Decision Trees 452
9.9 M u lti- C rite ria D e cisio n M a k in g W i t h P a irw is e
C o m p a riso n s 453
The Analytic Hierarchy Process 453
► APPLICATION CASE 9.6 U.S. HUD Saves the House by Using
AHP for Selecting IT Projects 453
Tutorial on Applying Analytic Hierarchy Process Using Web-HIPRE 455
Chapter Highlights 459 • Key Terms 460
Questions for Discussion 460 • Exercises 460
► END-OF-CHAPTER APPLICATION CASE Pre-Positioning of Emergency
Items for CARE International 463
References 464

Chapter 10 M odeling and Analysis: Heuristic Search M ethods and


Sim ulation 465
10.1 O p e n in g V ig n e tte : S ystem D y n a m ic s A llo w s F lu o r
C o rp o ra tio n t o B e tte r P la n f o r P ro je c t a n d C h a n g e
M anagem ent 466
10.2 P ro b le m - S o lv in g S e a rc h M e th o d s 467
Analytical Techniques 468
Algorithms 468
Blind Searching 469

Heuristic Searching 469


► APPLICATION CASE 10.1 Chilean Government Uses Heuristics to
Make Decisions on School Lunch Providers 469
10.3 G e n e tic A lg o rith m s a n d D e v e lo p in g G A A p p lic a tio n s 471
Example: The Vector Game 471
Terminology of Genetic Algorithms 473
How Do Genetic Algorithms Work? 473
Limitations of Genetic Algorithms 475

Genetic Algorithm Applications 475


10.4 S im u la tio n 476
► APPLICATION CASE 10.2 Improving Maintenance Decision Making in
the Finnish Air Force Through Simulation 476
► APPLICATION CASE 10.3 Simulating Effects of Hepatitis B
Interventions 477
Major Characteristics of Simulation 478
Advantages of Simulation 479
Disadvantages of Simulation 480
The Methodology of Simulation 480
Simulation Types 481
Monte Carlo Simulation 482
Discrete Event Simulation 483
10.5 V is u a l In te ra c tiv e S im u la tio n 483
Conventional Simulation Inadequacies 483
Visual Interactive Simulation 483
Visual Interactive Models and DSS 484
► APPLICATION CASE 10.4 Improving Job-Shop Scheduling Decisions
Through RFID: A Simulation-Based Assessment 484
Simulation Software 487
10.6 S ystem D y n a m ic s M o d e lin g 488
10.7 A g e n t- B a s e d M o d e lin g 491
► APPLICATION CASE 10.5 Agent-Based Simulation Helps Analyze
Spread of a Pandemic Outbreak 493
Chapter Highlights 494 • K ey Terms 494
Questions for Discussion 495 • Exercises 495
► END-OF-CHAPTER APPLICATION CASE HP Applies Management
Science Modeling to Optimize Its Supply Chain and Wins a Major
Award 495
References 497

C h a p te r 11 Autom ated Decision System s and Expert System s 499


11.1 O p e n in g V ig n e tte : In te rC o n tin e n ta l H o te l G r o u p Uses
D e cisio n R ules f o r O p tim a l H o te l R o o m R a te s 500
11.2 A u to m a te d D e cisio n S ys te m s 501
► APPLICATION CASE 11.1 Giant Food Stores Prices the Entire
Store 502
11.3 T h e A r tific ia l In te llig e n c e F ie ld 505
11.4 Basic C o n c e p ts o f E x p e rt S ys te m s 507
Experts 507
Expertise 508
Features of ES 508
► APPLICATION CASE 11.2 Expert System Helps in Identifying Sport
Talents 510
11.5 Applications of Expert Systems 510
► APPLICATION CASE 11.3 Expert System Aids in Identification of
Chemical, Biological, and Radiological Agents 511
Classical Applications of ES 511
Newer Applications of ES 512
Areas for ES Applications 513
11.6 S tru c tu re o f E x p e rt System s 514
Knowledge Acquisition Subsystem 514
Knowledge Base 515
Inference Engine 515
User Interface 515
Blackboard (Workplace) 515
Explanation Subsystem (Justifier) 516
Knowledge-Refining System 516
► APPLICATION CASE 11.4 Diagnosing Heart Diseases by Signal
Processing 516

11.7 K n o w le d g e E n g in e e rin g 517


Knowledge Acquisition 518
Knowledge Verification and Validation 520
Knowledge Representation 520
Inferencing 521
Explanation and Justification 526
Contents 17

11.8 P ro b le m A r e a s S u ita b le fo r E x p e rt S ystem s 527


11.9 D e v e lo p m e n t o f E x p e rt System s 528
Defining the Nature and Scope of the Problem 529
Identifying Proper Experts 529
Acquiring Knowledge 529
Selecting the Building Tools 529
Coding the System 531
Evaluating the System 531
► APPLICATION CASE 11.5 Clinical Decision Support System for Tendon
Injuries 531
11.10 C o n c lu d in g R e m a rk s 532
Chapter Highlights 533 • Key Terms 533
Questions for Discussion 534 • Exercises 534
► END-OF-CHAPTER APPLICATION CASE Tax Collections Optimization
for New York State 534
References 535

C h ap ter 12 Know ledge M anagem ent and Collaborative System s 537


12.1 O p e n in g V ig n e tte : E x p e rtis e T ra n s fe r S ystem t o T ra in
F u tu re A r m y P e rs o n n e l 538
12.2 Introduction to Knowledge Management 542
Knowledge Management Concepts and Definitions 543

Knowledge 543
Explicit and Tacit Knowledge 545
12.3 A p p r o a c h e s t o K n o w le d g e M a n a g e m e n t 546
The Process Approach to Knowledge Management 547
The Practice Approach to Knowledge Management 547
Hybrid Approaches to Knowledge Management 548
Knowledge Repositories 548
12.4 In fo r m a tio n T e c h n o lo g y (IT ) in K n o w le d g e
M anagem ent 550
The KMS Cycle 550
Components of KMS 551
Technologies That Support Knowledge Management 551
12.5 M a k in g D e cisio n s in G ro u p s : C h a ra cteristics, Process,
B e n e fits , a n d D y s fu n c tio n s 553
Characteristics of Groupwork 553
The Group Decision-Making Process 554
The Benefits and Limitations of Groupwork 554
12.6 S u p p o rtin g G r o u p w o r k w it h C o m p u te riz e d S ystem s 556
An Overview of Group Support Systems (GSS) 556
Groupware 557
Time/Place Framework 557
12.7 T o o ls f o r In d ire c t S u p p o r t o f D e cisio n M a k in g 558

Groupware Tools 558


Contents

Groupware 560
Collaborative Workflow 560
Web 2.0 560
Wikis 561
Collaborative Networks 561
12.8 D ire c t C o m p u te riz e d S u p p o r t f o r D e cisio n M a k in g :
Fro m G r o u p D e cisio n S u p p o r t S ystem s t o G r o u p S u p p o rt
S ystem s 562
Group Decision Support Systems (GDSS) 562
Group Support Systems 563
How GDSS (or GSS) Improve Groupwork 563
Facilities for GDSS 564
Chapter Highlights 565 • Key Terms 566
Questions for Discussion 566 • Exercises 566
► END-OF-CHAPTER APPLICATION CASE Solving Crimes by Sharing
Digital Forensic Knowledge 567
References 569

P a rt V B ig D a ta a n d F u tu re D ire c tio n s f o r B u sin e ss


A n a ly tic s 571
C h a p te r 13 Big Data and Analytics 572
13.1 O p e n in g V ig n e tte : B ig D a ta M e e ts B ig S c ie n ce a t C ER N 573
13.2 D e fin itio n o f B ig D a ta 576
The Vs That Define Big Data 577
► APPLICATION CASE 13.1 Big Data Analytics Helps Luxottica Improve
Its Marketing Effectiveness 580
13.3 F u n d a m e n ta ls o f B ig D a ta A n a ly tic s 581
Business Problems Addressed by Big Data Analytics 584
► APPLICATION CASE 13.2 Top 5 Investment Bank Achieves Single
Source of Truth 585
13.4 B ig D a ta T e c h n o lo g ie s 586
MapReduce 587
Why Use MapReduce? 588
Hadoop 588
How Does Hadoop Work? 588
Hadoop Technical Components 589
Hadoop: The Pros and Cons 590
NoSQL 592
► APPLICATION CASE 13.3 eBay's Big Data Solution 593
13.5 D a ta S c ie n tis t 595
Where Do Data Scientists Come From? 595
► APPLICATION CASE 13.4 Big Data and Analytics in Politics 598
13.6 B ig D a ta a n d D a ta W a r e h o u s in g 599
Use Case(s) for Hadoop 600
Use Case(s) for Data Warehousing 601
The Gray Areas (Any One of the Two Would Do the Job) 602
Coexistence of Hadoop and Data Warehouse 602
13.7 B ig D a ta V e n d o r s 604
► APPLICATION CASE 13.5 Dublin City Council Is Leveraging Big Data
to Reduce Traffic Congestion 605
► APPLICATION CASE 13.6 Creditreform Boosts Credit Rating Quality
with Big Data Visual Analytics 610
13.8 B ig D a ta a n d S tre a m A n a ly tic s 611
Stream Analytics Versus Perpetual Analytics 612
Critical Event Processing 612
Data Stream Mining 613
13.9 A p p lic a tio n s o f S tre a m A n a ly tic s 614
e-Commerce 614
Telecommunications 614
► APPLICATION CASE 13.7 Turning Machine-Generated Streaming Data
into Valuable Business Insights 615
Law Enforcement and Cyber Security 616
Power Industry 617
Financial Services 617
Health Sciences 617
Government 617
Chapter Highlights 618 • Key Terms 618
Questions for Discussion 618 • Exercises 619
► END-OF-CHAPTER APPLICATION CASE Discovery Health Turns Big
Data into Better Healthcare 619
References 621

C h ap ter 14 Business Analytics: Em erging Trends and Future


Impacts 622
14.1 O p e n in g V ig n e tte : O k la h o m a G a s a n d E le c tric E m p lo y s
A n a ly tic s t o P ro m o te S m a rt E n e rg y U se 623
14.2 Lo c a tio n - B a s e d A n a ly tic s f o r O rg a n iz a tio n s 624
Geospatial Analytics 624
► APPLICATION CASE 14.1 Great Clips Employs Spatial Analytics to
Shave Time in Location Decisions 626
A Multimedia Exercise in Analytics Employing Geospatial Analytics 627
Real-Time Location Intelligence 628
► APPLICATION CASE 14.2 Quiznos Targets Customers for Its
Sandwiches 629
14.3 A n a ly tic s A p p lic a tio n s f o r C o n su m ers 630
► APPLICATION CASE 14.3 A Life Coach in Your Pocket 631
14.4 R e c o m m e n d a tio n E n g in e s 633
14.5 W e b 2.0 a n d O n lin e S o c ia l N e tw o r k in g 634
Representative Characteristics of Web 2.0 635
Social Networking 635
A Definition and Basic Information 636
Implications of Business and Enterprise Social Networks 636
14.6 C lo u d C o m p u tin g a n d B l 637
Service-Oriented DSS 638
Data-as-a-Service (DaaS) 638
Information-as-a-Service (Information on Demand) (laaS) 641
Analytics-as-a-Service (AaaS) 641
14.7 Im p a c ts o f A n a ly tic s in O rg a n iz a tio n s : A n O v e r v ie w 643
New Organizational Units 643
Restructuring Business Processes and Virtual Teams 644
The Impacts of ADS Systems 644
Job Satisfaction 644
Job Stress and Anxiety 644
Analytics' Impact on Managers' Activities and Their Performance 645
14.8 Issues o f L e g a lity , Priva cy, a n d Ethics 646
Legal Issues 646
Privacy 647
Recent Technology Issues in Privacy and Analytics 648
Ethics in Decision Making and Support 649
14.9 A n O v e r v ie w o f t h e A n a ly tic s Eco system 650
Analytics Industry Clusters 650
Data Infrastructure Providers 650
Data Warehouse Industry 651
Middleware Industry 652
Data Aggregators/Distributors 652
Analytics-Focused Software Developers 652
Reporting/Analytics 652
Predictive Analytics 653
Prescriptive Analytics 653
Application Developers or System Integrators: Industry Specific or General 654
Analytics User Organizations 655
Analytics Industry Analysts and Influences 657
Academic Providers and Certification Agencies 658
Chapter Highlights 659 • Key Terms 659
Questions for Discussion 659 • Exercises 660
► END-OF-CHAPTER APPLICATION CASE Southern States Cooperative
Optimizes Its Catalog Campaign 660
References 662
Glossary 664
Index 678
Overview of Business Intelligence,
Analytics, and Decision Support

LEARNING OBJECTIVES
■ U nderstand today’s turbulent business ■ Learn th e con cep tu al foundations o f
environm ent and d escribe h ow the d ecisio n supp ort system s (D SS1)
organizations survive and e v e n e x ce l in m ethodology
su ch a n environm ent (solving problem s ■ D escrib e the busin ess intelligence (B I)
and exploiting opportunities) m ethodology and co n cep ts and relate
H U nderstand th e n eed for com puterized them to DSS
support o f m anagerial d ecisio n m aking ■ Understand the various types o f analytics
* U nderstand an early fram ew ork for ■ List th e m ajor tools o f com puterized
m anagerial d ecisio n m aking d ecisio n support

T
h e busin ess environm ent (clim ate) is constan tly changing, and it is b eco m in g m ore
and m ore com p lex. O rganizations, private and public, are under pressures that
force them to respond quickly to ch anging conditions and to b e innovative in the
w ay they op erate. Su ch activities require organizations to b e agile and to m ake frequent
and q u ick strategic, tactical, and op erational decisions, som e o f w h ich are very com plex.
M aking such d ecisions m ay require con sid erab le am ounts o f relevant data, inform ation,
and know led ge. P rocessin g th ese, in the fram ew ork o f the n e ed ed decisions, m ust be
d on e quickly, frequently in real tim e, and usually requires som e com puterized support.
T h is b o o k is a b o u t using b u sin ess analytics as com p u terized su p p ort for m anage­
rial d ecisio n m aking. It co n cen tra tes o n b o th th e th eo retica l and co n c ep tu al found a­
tion s o f d ecisio n support, as w ell as o n th e com m ercial to o ls and tech n iq u es that are
available. T h is introductory ch a p ter provid es m ore details o f th e se to p ics as w ell as an
ov erview o f th e b o o k . T h is ch a p ter h as th e fo llow in g sectio n s:

1 .1 O p e n in g V ig n e tte : M agpie S e n sin g E m p loy s A n aly tics to M anag e a V a ccin e


Su p p ly C h ain E ffe ctiv e ly a n d Safely 33
1 .2 C h an g in g B u s in e s s E n v iro n m en ts an d C o m p u terized D e c is io n S u p p o rt 35

‘The acronym DSS is treated as both singular and plural throughout this book. Similarly, other acronyms, such
as MIS and GSS, designate both plural and singular forms. This is also true of the word analytics.
Chapter 1 • An Overview o f Business Intelligence, Analytics, and Decision Support 33

1 .3 M an agerial D e c is io n M aking 37
1 .4 In fo rm a tio n Sy stem s Su p p o rt fo r D e c is io n M aking 39
1 .5 A n E arly F ram ew ork fo r C o m p u terized D e c is io n S u p p o rt 41
1 .6 T h e C o n ce p t o f D e c is io n S u p p o rt System s (D S S ) 43
1 .7 A F ram ew o rk fo r B u s in e s s In te llig e n c e (B I ) 44
1 .8 B u s in e s s A n alytics O v e rv ie w 4 9
1 .9 B r ie f In tro d u ctio n to B ig D ata A n alytics 57
1 .1 0 P lan o f th e B o o k 5 9
1 .1 1 R e so u rce s, L inks, an d th e T e ra d a ta U niversity N etw ork C o n n e c tio n 61

1.1 OPENING VIGNETTE: Magpie Sensing Employs


Analytics to Manage a Vaccine Supply Chain
Effectively and Safely
Cold ch ain in healthcare is d efined as th e tem perature-controlled supply chain involving a
system o f transporting and storing vaccin es and pharm aceutical drugs. It consists o f three
m ajor com ponents— transport and storage equipm ent, trained p erson n el, and efficien t
m anagem ent proced u res. T h e m ajority o f the vaccin es in the cold ch ain are typically m ain­
tained at a tem perature o f 3 5 -4 6 d egrees Fahrenheit [2 -8 d egrees Centigrade]. M aintaining
cold chain integrity is extrem ely im portant for healthcare product m anufacturers.
E specially fo r th e v accin es, im proper storage and handling p ractices that com prom ise
v accine viability prove a costly, tim e-consu m ing affair. V accines m ust b e stored properly
from m anufacture until they are available for use. Any extrem e tem peratures o f h eat o r
cold will red uce v accin e po ten cy ; such v accin es, if adm inistered, might not yield effective
results o r could cau se ad verse effects.
Effectively m aintaining the tem peratures o f storage units throughout th e healthcare
supply chain in real tim e— i.e., b eginn in g from the gathering o f th e resources, m anu fac­
turing, distribution, and dispensing o f th e products— is the m ost effective solution desired
in th e co ld chain. Also, the location-tagged real-tim e environm ental data ab ou t the storage
units helps in m onitoring th e cold chain for sp oiled products. T h e chain o f custody can
b e easily identified to assign produ ct liability.
A study cond u cted b y th e Centers for D isease Control and P revention (CD C) lo o k ed at
the handling o f cold chain v a ccin es b y 45 healthcare providers around U nited States and
reported that three-quarters o f the providers exp erien ced serious cold ch ain violations.

A WAY TOWARD A POSSIBLE SOLUTION


M agpie Sensing, a start-up p ro ject under Ebers Sm ith and D ouglas A ssociated LLC, p ro ­
vides a suite o f c o ld chain m onitoring and analysis tech n olog ies for th e healthcare indus­
try. It is a shippable, w ireless tem perature and humidity m onitor that provides real-tim e,
location-aw are tracking o f c o ld chain products during shipm ent. M agpie Sensin g’s so lu ­
tions rely o n rich analytics algorithm s that leverage the data gathered from th e m onitor­
ing d evices to im prove th e efficien cy o f cold chain p ro cesses and pred ict cold storage
p roblem s b efo re they occu r.
M agpie sensing ap p lies all three types o f analytical techniqu es— descriptive, p red ic­
tive, and prescriptive analytics— to turn the raw data returned from th e m onitoring devices
into action ab le recom m end ations and warnings.
T h e properties o f the co ld storage system , w h ich include the set point o f th e storage
system ’s therm ostat, th e typical range o f tem perature values in th e storage system , an d
34 Part I • D ecision Making and Analytics: An Overview

the duty cy cle o f the system ’s com pressor, are m onitored and reported in real time. This
inform ation help s trained p ersonnel to ensure that th e storage unit is properly configured
to store a particular product. All th e tem perature inform ation is displayed o n a W eb dash­
board that show s a graph o f the tem perature inside the sp ecific storage unit.
B ased on inform ation derived from the m onitoring d evices, M agpie’s predictive ana­
lytic algorithm s ca n d eterm ine the set p oint o f th e storag e unit’s therm ostat and alert the
system s users if the system is incorrectly configured, d ep end ing u p on th e various types
o f products stored. Th is offers a solution to th e users o f consu m er refrigerators w h ere
the therm ostat is n o t tem perature graded. M agpie’s system also sends alerts ab ou t p o s­
sible tem perature violations b ased o n the storage u n it’s average tem perature and su b se­
quent com p resso r cy cle runs, w h ich m ay drop th e tem perature b elo w the freezin g point.
M agpie s predictive analytics further report p ossible hum an errors, su ch as failure to shut
the storage unit doors o r the p resen ce o f an in com p lete seal, b y analyzing th e tem pera­
ture trend and alerting users via W eb interface, text m essag e, o r audible alert b efo re the
tem perature bound s are actually violated. In a sim ilar w ay, a com p resso r or a p o w er
failure ca n b e d etected; the estim ated time b efo re the storage unit reaches a n unsafe tem ­
perature also is reported, w h ich prepares the users to lo o k for back u p solutions su ch as
using dry ice to restore pow er.
In addition to predictive analytics, M agpie S en sin g ’s analytics system s can provide
prescriptive recom m end ations fo r im proving the co ld storage p ro cesses and business
decision m aking. Prescriptive analytics help users dial in th e optim al tem perature setting,
which h elp s to achiev e th e right b alan ce b etw een freezing and sp oilage risk; this, in turn,
provides a cu shion-tim e to react to the situation b efo re th e products spoil. Its prescriptive
analytics also gather useful m eta-inform ation o n cold storage units, including th e tim es o f
day that are busiest and period s w h ere the system ’s doors are op en ed , w h ich ca n b e used
to provide additional d esign plans and institutional p o licies that ensure that th e system is
b ein g properly m aintained and n o t overused.
Furtherm ore, prescriptive analytics ca n b e used to guide equ ip m ent pu rchase d eci­
sions b y constantly analyzing the perform ance o f current storage units. B ased o n the
storage system ’s efficiency, d ecisions o n distributing th e products across available storage
units ca n b e m ade b ased o n the produ ct’s sensitivity.
Using M agpie Sen sing’s cold ch ain analytics, additional m anufacturing tim e and
expend iture ca n b e elim inated by ensuring that produ ct safety ca n b e secu red throughout
th e supply ch ain and effective products can b e adm inistered to the patients. C om pliance
w ith state and federal safety regulations ca n b e better achiev ed through autom atic data
gathering and reporting ab ou t the products involved in the cold chain.

QUESTIONS FO R THE OPENING VIGNETTE

1 . W hat inform ation is provided b y the descriptive analytics em ployed at M agpie


Sensing?
2 . W hat type o f supp ort is provided by th e predictive analytics em ployed at M agpie
Sensing?
3 . H ow d oes prescriptive analytics h elp in business d ecisio n making?
4 . In w h at ways ca n action ab le inform ation b e rep orted in real tim e to co n cern ed
users o f the system?
5 . In w hat oth er situations m ight real-tim e m onitoring applications b e needed?

WHAT WE CAN LEARN FROM THIS VIGNETTE

I his vignette illustrates h ow data from a busin ess p ro cess can b e used to generate insights
at various levels. First, the graphical analysis o f the data (term ed reporting an alytics) allow s
Chapter 1 • An Overview o f Business Intelligence, Analytics, and Decision Support

users to g et a g o o d feel for the situation. Th en, additional analysis using data mining
.echniques can b e u sed to estim ate w hat future behavior w ould b e like. T his is the dom ain
o f predictive analytics. Such analysis ca n then b e taken to create specific recom m endations
ror operators. This is an exam p le o f w hat w e call prescriptive analytics. Finally, this o p en ­
ing vignette also suggests that innovative applications o f analytics can create new business
ventures. Identifying opportunities fo r applications o f analytics and assisting w ith decision
making in sp ecific dom ains is an em erging entrepreneurial opportunity.

Sources: Magpiesensing.com, "Magpie Sensing Cold Chain Analytics and Monitoring," magpiesensing.com/
wp-content:/upload.s/2013/01/ColdChainAnalyticsMagpieSensing-Whitepaper.pdf (accessed July 2013);
Centers for Disease Control and Prevention, Vaccine Storage and Handling, http://www.cdc.gov/vaccines/pubs/
pinkbook/vac-storage.htmI*storage (accessed July 2013); A. Zaleski, “Magpie Analytics System Tracks Cold-
-iafti Products to Keep Vaccines, Reagents Fresh ’ (2012). technicallybaltimore.com/profiles/startups/magpie-
analytics-system-tracks-cold-chain-products-to-keep-vaccines-reagents-fresh (accessed February 2013).

1.2 CHANGING BUSINESS ENVIRONMENTS AND COMPUTERIZED


DECISION SUPPORT
T he op ening vignette illustrates h ow a com pany can em ploy tech n olog ies to m ake sen se
o f data and m ak e better decisions. C om panies are m oving aggressively to com puterized
support o f th eir operations. T o understand w hy com p an ies are em bracin g com puter­
ized support, including b u sin ess intelligence, w e d ev eloped a m odel called the Business
Pressures-R esponses-Support M odel, w h ich is show n in Figure 1.1.

The Business Pressures-Responses-Support M odel


The B u sin ess P ressu res-R e sp o n se s-S u p p o rt M odel, as its n am e ind icates, h as th ree co m ­
ponents: b u sin ess p ressu res that result from to d ay ’s b u sin ess clim ate, resp o n se s (actio n s
taken ) b y co m p a n ie s to co u n te r th e p ressures (o r to tak e ad vantage o f th e op portu nities
available in th e en viron m en t), and com p u terized supp ort that facilitates th e m onitoring
o f the en viron m en t and en h a n ces the resp o n se action s tak en b y organization s.

Decisions and
Support

FIGURE 1.1 The Business Pressures-Responses-Support Model.


36 P a r ti • Decision M aking and Analytics: An Overview

5SS5 i ^ s S * = ^ KSS
sssa&rss* •“*"T ^ iE is s E
* * * * / . T h e se categories a r i s ^ S b ^ " 0f i K * “ *

S w iS a ^ s s s
Ltd (Krivda, 2008), fo r exam p le turned to B l T ^ 6 preSSUreS' V od afone N ew Zealand

Em ploy strategic planning.


• U se n e w and innovative busin ess m odels.
Restructure business processes.
Participate in business alliances.
• Im prove corporate inform ation system s.
• Im prove partnership relationships.

JA B L E 1.1 B usiness Environm ent Factors That Create Pressures on Organizations

Factor __________ Description ~ "---- “ — —

Markets Strong competition


Expanding global markets
Booming electronic markets on the Internet
Innovative marketing methods
Opportunities for outsourcing with IT support
Need for real-time, on-demand transactions
Consumer demands Desire for customization

Desire for quality, diversity of products, and speed of delivery


Customers getting powerful and less loyal
Technology More innovationS/ new productSi and new servjcfis

Increasing obsolescence rate


Increasing information overload
Social networking, Web 2.0 and beyond
Societal
Growing government regulations and deregulation
Workforce more diversified, older, and composed of more women
Prime concerns of homeland security and terrorist attacks
Necessity of Sarbanes-Oxley Act and other reporting-related legislation
Increasing social responsibility of companies
Greater emphasis on sustainability
Chapter 1 • An Overview o f Business Intelligence, Analytics, and Decision Support 37

• E ncou rage innovation and creativity.


• Im prove cu stom er service and relationships.
• Em ploy so cia l m edia and m o bile platform s for e-com m erce and beyond.
• M ove to m ak e-to -ord er production and on-dem an d m anufacturing an d services.
• U se new IT to im prove com m unication, data a cce ss (discovery o f inform ation), and
collaboration.
• R esp ond quickly to com petitors’ actions (e .g ., in pricing, prom otions, n e w products
and services).
• Autom ate m any tasks o f w h ite-collar em ployees.
• A utom ate certain d ecisio n p rocesses, esp ecially those dealing with custom ers.
• Im prove d ecisio n m aking by em ploying analytics.

Many, if n ot all, o f th ese actions require som e com puterized support. T h e se and other
response action s are frequently facilitated b y com puterized d ecisio n supp ort (D SS).

CLO SIN G THE ST R A TE G Y GAP O n e o f the m ajor o b jectiv es o f com puterized d ecisio n
support is to facilitate closing th e gap b etw een the cu rrent p erfo rm an ce o f an organi­
zation and its d esired p erform an ce, as exp ressed in its m ission, o b jectiv es, and goals,
and the strategy to ach iev e them . In ord er to understand w h y com p u terized support
is n e ed ed an d h ow it is provided, esp ecially fo r d ecision -m aking support, let’s lo o k at
m anagerial d ecisio n m aking.

SECTION 1 .2 REVIEW QUESTIONS


1 . List the co m p o n en ts o f and exp lain the B u sin ess P ressu res-R esp o n ses-S u p p o rt
M odel.
2 . W hat are so m e o f th e m ajor factors in today’s busin ess environm ent?
3 . W hat are so m e o f th e m ajor resp on se activities that organizations take?

1.3 M ANAGERIAL DECISION MAKING


M anagem ent is a p ro ce ss b y w h ich o rg an ization al g oals are a c h ie v e d by using
reso u rces. T h e re so u rces are c o n sid ere d inputs, an d attainm ent o f g o a ls is v iew ed as
the ou tp u t o f th e p ro cess. T h e d eg ree o f s u c c e ss o f th e org anization an d th e m an ag er
is often m easu red b y th e ratio o f outputs to inputs. T h is ratio is an in d ica tio n o f the
org an ization ’s produ ctivity, w h ich is a re flectio n o f th e o rg a n iz a tio n a l a n d m a n a g eria l
p erfo rm a n ce.
T h e lev el o f productivity o r th e su cce ss o f m an ag em en t d ep en d s o n the p erfor­
m an ce o f m anagerial function s, su ch as planning, organizing, d irecting, and con trol­
ling. T o p erfo rm th eir fu nctions, m anagers en g ag e in a con tin u o u s p ro c e ss o f m aking
d ecisio ns. M aking a d ecisio n m ean s selectin g th e b e st alternative from tw o o r m ore
solutions.

The Nature of M anagers' W ork


M intzberg’s (2 0 0 8 ) classic study o f top m anagers and several replicated studies suggest
that m anagers perform 10 m ajor roles that ca n b e classified into three m ajor categoiies.
interpersonal, in form ation al, and d ecisio n a l (.se e la b le 1.2).
T o perform th ese roles, m anagers n e e d inform ation that is d elivered efficiently and
in a tim ely m an n er to personal com puters (P C s) o n their desktops and to m o bile devices.
This inform ation is delivered b y netw orks, generally via W eb technolog ies.
In addition to obtaining inform ation necessary to b etter perform th eir roles, m anag­
ers use com puters directly to support and im prove d ecisio n m aking, w h ich is a key task
D ecision Making and Analytics: An Overview

T A B L E 1.2 M intzberg's 10 M anagerial Roles

Role Description
Interpersonal
Figurehead Is symbolic head; obliged to perform a number of routine duties of a
legal or social nature
Leader Is responsible for the motivation and activation of subordinates;
responsible for staffing, training, and associated duties
Liaison Maintains self-developed network of outside contacts and informers
who provide favors and information
Informational
Monitor Seeks and receives a wide variety of special information (much of it
current) to develop a thorough understanding of the organization
and environment; emerges as the nerve center of the organization's
internal and external information
Disseminator Transmits information received from outsiders or from subordinates to
members of the organization; some of this information is factual,
and some involves interpretation and integration
Spokesperson Transmits information to outsiders about the organization's plans,
policies, actions, results, and so forth; serves as an expert on the
organization's industry
Decisional
Entrepreneur Searches the organization and its environment for opportunities and
initiates improvement projects to bring about change; supervises
design of certain projects
Disturbance handler Is responsible for corrective action when the organization faces
important, unexpected disturbances
Resource allocator Is responsible for the allocation of organizational resources of all
kinds; in effect, is responsible for the making or approval of all
significant organizational decisions
Negotiator Is responsible for representing the organization at major negotiations

Sources: Compiled from H. A. Mintzberg, The Nature o f M anagerial Work. Prentice Hall, Englewood Cliffs,
NJ, 1980; and H. A. Mintzberg, The Rise a n d Fall o f Strategic Planning. The Free Press, New York, 1993.

that is part o f m ost o f th ese roles. M any m anagerial activities in all roles revolve around
decision m aking. M anagers, especially those a t high m an a g eria l levels, a re p rim arily d eci­
sion m akers. W e review the d ecision-m aking p ro cess n e x t but will study it in m ore detail
in th e n e x t chapter.

The Decision-Making Process


For years, m anagers con sid ered decision m aking pu rely an art— a talent acquired ov er a
lon g period through e xp erien ce (i.e., learning b y trial-and-error) and by using intuition.
M anagem ent w as con sid ered an art b ecau se a variety o f individual styles cou ld b e used
in approach in g and successfully solving th e sam e types o f m anagerial problem s. T h ese
styles w ere often b ased o n creativity, judgm ent, intuition, and exp e rien ce rather than
o n system atic quantitative m ethods ground ed in a scien tific approach . H ow ever, recent
research suggests that com p an ies w ith top m anagers w h o are m ore fo cu sed o n persistent
w ork (alm ost dullness) ten d to outperform th o se w ith leaders w h ose m ain strengths are
interpersonal com m unication skills (K ap lan e t al., 2 0 0 8 ; B roo k s, 2009). It is m ore im por­
tant to em phasize m ethodical, thoughtful, analytical d ecisio n m aking rather than flashi­
n ess and interpersonal com m unication skills.
Chapter 1 • An Overview o f Business Intelligence, Analytics, and D ecision Support 39

M anagers usually m ak e d ecision s b y follow ing a four-step p ro cess (w e learn m ore


ab ou t th ese in C hapter 2):

1 . D efine the p ro blem (i.e ., a d ecisio n situation that m ay d eal w ith so m e difficulty or
w ith a n opportunity).
2. C onstruct a m odel that d escribes the real-w orld problem .
3- Identify p ossible solutions to th e m odeled problem and evaluate th e solutions.
4 . Com pare, ch o o se, and recom m end a potential solution to the problem .
T o fo llow this p ro cess, o n e m ust m ak e sure that sufficient alternative solutions are
being consid ered , that the co n seq u en ces o f using th ese alternatives ca n b e reasonably
predicted, an d that com parisons are d on e properly. H ow ever, the environm ental factors
listed in T a b le 1.1 m ake su ch an evaluation p ro cess difficult for the follow ing reasons:

• T ech n olog y , inform ation system s, advanced search eng ines, and globalization result
in m o re and m ore alternatives from w h ich to ch oose.
• G ov ernm en t regulations and the n eed fo r com pliance, political instability and ter­
rorism, com petition, and changing consu m er dem ands produ ce m ore uncertainty,
m aking it m o re difficult to predict co n se q u e n ces and th e future.
• O ther facto rs are the n eed to m ake rapid decisions, the frequent and unpredictable
ch an g es that m ake trial-and-error learning difficult, and the potential costs o f m aking
m istakes.
• T h e se environm ents are grow ing m ore co m p lex every day. T h erefore, m aking d eci­
sions today is ind eed a com p lex task.

B e ca u se o f th ese trends and changes, it is nearly im possible to rely on a trial-and-


error ap p roach to m anagem ent, esp ecially for d ecisions for w h ich the facto rs show n in
T ab le 1.1 are strong influences. M anagers m ust b e m ore sophisticated; th ey must u se the
n ew tools an d tech n iqu es o f their fields. Most o f those tools and tech n iq u es are discussed
in this b o o k . Using them to support d ecisio n m aking can b e extrem ely rew arding in
m aking effective decisions. In the follow ing section, w e lo o k at w hy w e n eed com puter
support and h o w it is provided.

SECTION 1 .3 REVIEW QUESTIONS


1 . D escribe the three m ajor managerial roles, and list som e o f the specific activities in each.
2. W hy have so m e argued that m anagem ent is the sam e as decision making?
3. D escrib e the four steps m anagers tak e in m aking a decision.

1.4 INFORMATION SYSTEM S SUPPORT FOR DECISION MAKING


From traditional u ses in payroll and b o o k k e ep in g functions, com puterized system s have
penetrated co m p le x m anagerial areas ranging from th e d esign and m an agem ent o f auto­
m ated factories to the application o f analytical m ethods for the evaluation o f p rop osed
m ergers and acquisitions. N early all execu tiv es k n o w that inform ation tech n olog y is vital
to their b u sin ess and extensively use inform ation technologies.
Com puter applications have m oved from transaction processing and m onitoring
activities to p ro b lem analysis and solution applications, and m u ch o f th e activity is d one
with W e b -b ased techn olog ies, in m any ca ses accessed through m o bile d evices. Analytics
and B I tools su ch as data w arehousing, data m ining, online analytical p ro cessin g (OLAP),
dashboards, and the use o f the W eb for decision support are th e corn erston es o f today’s
m odern m anagem ent. M anagers must have high-speed , netw orked inform ation sys­
tem s (w ireline o r w ireless) to assist them w ith their m ost im portant task: m aking d eci­
sions. B esid es the obviou s grow th in hardw are, softw are, and netw ork cap acities, som e
40 Part I • D ecision Making and Analytics: An Overview

developm ents have clearly contributed to facilitating grow th o f d ecisio n support and
analytics in a n u m ber o f w ays, including the follow ing:

• Group com m unication a n d collaboration. Many decisions are made today by


groups w hose m em bers m ay b e in different locations. Groups can collaborate and
com m unicate readily b y using W eb-based tools as w ell as the ubiquitous smartphones.
Collaboration is especially important along the supply chain, w here partners— all the
w ay from vendors to customers— must share information. Assembling a group o f
decision m akers, especially experts, in o n e place can b e costly. Infom iation systems
can im prove the collaboration process o f a group and enable its m em bers to b e at dif­
ferent locations (saving travel costs). W e will study som e applications in Chapter 12.
• Im prov ed data m a nagem ent. Many d ecisions involve co m p lex com putations.
D ata for th ese ca n b e stored in different d atabases anyw here in the organization
and ev en p ossibly at W eb sites outside the organization. T h e data m ay include text,
sound, graphics, and v id eo, and they ca n b e in different languages. It m ay b e n e ces­
sary to transm it data quickly from distant locations. System s today ca n search, store,
and transm it n eed ed data quickly, econ om ically , securely, and transparently.
• M a n a g in g g ia n t data w arehouses a n d B ig D ata. Large data w arehouses, like
the on es op erated b y W alm art, contain terabytes and even petabytes o f data. Special
m ethods, including parallel com puting, are available to organize, search, and m ine
th e data. T h e costs related to data w arehousing are declining. T ech n o lo g ies that fall
u nder th e broad category o f B ig Data have en a b led m assive data com in g from a
variety o f sou rces and in m any different form s, w hich allow s a very different view
into organizational p erform ance that w as n o t p o ssible in the past.
• A n a ly tica l support. W ith m ore data and analysis tech n o lo g ies, m ore alterna­
tives ca n b e evaluated, forecasts ca n b e im proved, risk analysis ca n b e perform ed
q uickly, and th e view s o f exp erts (so m e o f w h o m m ay b e in rem ote lo ca tio n s) can
b e co lle cte d quickly and at a red u ced cost. E xp ertise ca n ev en b e derived directly
from analytical system s. W ith su ch tools, d ecisio n m akers can perform co m p lex
sim ulations, ch e c k m any p o ssible scen arios, an d assess diverse im pacts q u ick ly and
econ om ically . This, o f cou rse, is th e fo cu s o f sev eral chapters in th e b o o k .
• O vercoming cognitive limits in processing a n d storing inform ation. According
to Simon (1977), the hum an mind has only a limited ability to process and store infor­
mation. People som etim es find it difficult to recall and use information in an error-free
fashion due to their cognitive limits. T h e term cognitive lim its indicates that an indi­
vidual’s problem -solving capability is limited w h en a wide range o f diverse information
and know ledge is required. Computerized system s enable people to overcom e their
cognitive limits b y quickly accessing and processing vast amounts o f stored information
(see Chapter 2).
• K now ledge m a n a gem en t. O rganizations have gathered vast stores o f inform a­
tion a b o u t their ow n op eration s, cu stom ers, internal p ro ced u res, em p lo y ee interac­
tions, and so forth through th e unstructured an d structured com m unications taking
p lace am ong the various stakeholders. K now led ge m anagem ent system s (KMS,
C h apter 12) have b e c o m e sou rces o f form al and inform al supp ort fo r d ecisio n
m aking to m anagers, althou gh som etim es they m ay n o t e v e n b e called KMS.
• A nyw here, a n y tim e support. Using w ireless tech n olog y , m anagers ca n access
inform ation anytim e and from any p lace, analyze and interpret it, and com m unicate
w ith th o se involved. T his perhaps is the biggest ch an g e that has occu rred in th e last
few years. T h e sp e ed at w h ich inform ation n e ed s to b e p ro cessed and converted
into d ecisions has truly chang ed exp ectation s fo r b o th consum ers and businesses.

T h ese and oth er capabilities have b e e n driving the u se o f com puterized decision support
since the late 1960s, but especially since the m id-1990s. T h e growth o f m obile technologies,
Chapter 1 • An Overview o f Business Intelligence, Analytics, and D ecision Support 41

social m edia platforms, and analytical tools has enabled a m uch higher level o f inform ation
systems support for managers. In th e next sections w e study a historical classification o f
decision support tasks. This leads us to b e introduced to decision support systems. W e will
th en study a n overview o f technologies that have b e e n broadly referred to as business intel­
ligence. From there w e will broaden ou r horizons to introduce various types o f analytics.

SECTION 1 .4 REVIEW QUESTIONS


1 . W hat are som e o f the k ey system -oriented trends that have fo stered IS-supported
d ecisio n m aking to a n e w level?
2 . List som e capabilities o f inform ation system s that ca n facilitate m anagerial decision
m aking.
3 . H ow ca n a com p u ter help overcom e the cognitive limits o f humans?

1.5 A N E A R L Y F R A M E W O R K FO R C O M PU T ER IZED
D EC ISIO N SU PPO RT
An early fram ew ork for com puterized d ecisio n support includes several m ajor con cep ts
that are u sed in forthcom ing sections and chapters o f this b o o k . G orry and Scott-M orton
created and u sed this fram ew ork in th e early 1970s, and the fram ew ork then evolved into
a new tech n o lo g y called DSS.

The G orry and Scott-M orton Classical Fram ework


Gorry and Scott-M orton (1 9 7 1 ) p ro p osed a fram ew ork that is a 3-b y -3 matrix, as show n in
Figure 1.2. T h e tw o d im ensions are th e degree o f structuredness an d the types o f control.

Type of Control

Operational Managerial Strategic


Type of Decision Control Control Planning

Accounts receivable Budget analysis Financial management


Structured Accounts payable Short-term forecasting Investment portfolio
Order entry Personnel reports Warehouse location
Make-or-buy Distribution systems

Production scheduling Credit evaluation Building a new plant


Inventory control Budget preparation Mergers & acquisitions
Sem istructured Plant layout New product planning
Project scheduling Compensation planning
Reward system design Quality assurance
Inventory HR policies
categorization Inventory planning
8

Buying software Negotiating R S .D planning


Unstructured Approving loans Recruiting an executive New tech development
Operating a help desk Buying hardware Social responsibility
Selecting a cover for Lobbying planning
a magazine

FIGURE 1.2 Decision Support Frameworks.


42 Part I • D ecision Making and Analytics: An Overview

D EG R EE OF STRUC TU RED N ESS T h e left sid e o f Figure 1.2 is based o n Sim on’s (1 9 7 7 ) idea
that d ecision-m aking p ro cesses fall along a continu um that ranges from highly structured
(som etim es called program m ed) to highly unstructured (i.e., n onprogram m ed) decisions.
Structured p ro cesses are routine and typically repetitive problem s fo r w h ich standard
solution m ethods exist. U nstm ctured p rocesses are fuzzy, com p lex problem s for w h ich
there are n o cut-and-dried solution m ethods.
An unstructured problem is o n e w h ere the articulation o f the p ro blem o r the solu­
tion ap p roach m ay b e unstructured in itself. In a structured problem, the proced ures
for obtaining the b est (o r at least a g o o d en ou g h ) solution are know n. W h eth er the prob­
lem involves finding an appropriate inventory lev el or ch oo sin g an optim al investm ent
strategy, the ob jectives are clearly defined. Com m on ob jectives are cost m inim ization and
profit m axim ization.
Sem istructured problems fall b etw een structured and unstructured problem s, hav­
ing som e structured elem ents and som e unstructured elem ents. K een and Scott-M oiton
(1 9 7 8 ) m ention ed trading bond s, setting m arketing budgets for consu m er products, and
perform ing capital acquisition analysis as sem istructured problem s.

T Y P E S OF CONTROL T h e s e c o n d h a lf o f th e G orry and S cott-M orton fram ew ork


(re fe r to Figure 1 .2 ) is b a se d o n A nthony’s (1 9 6 5 ) tax on o m y , w h ich d efin es three
b ro a d ca teg o ries that e n co m p a ss all m an agerial activities: strateg ic p la n n in g , w h ich
in volves d efining lo n g -ra n g e g oals an d p o licie s fo r re so u rce a llo ca tio n ; m an ag e­
m en t con trol, th e a cq u isitio n and e fficie n t u se o f re so u rces in th e a cco m p lish m en t o f
org an ization al g o als; and o p era tio n a l con trol, th e efficie n t and effe ctiv e e x e c u tio n o f
sp e cific tasks.

THE D ECISIO N SU PPO RT M A T R IX A nthony’s and Sim o n ’s taxonom ies are com bined in the
n in e-cell d ecisio n support m atrix show n in Figure 1.2. T h e initial pu rp ose o f this matrix
w as to suggest different types o f com puterized supp ort to different cells in the matrix.
G orry and Scott-M orton suggested, fo r exam p le, that for sem istructured d ecision s and
unstructured d ecision s , conventional m anagem ent inform ation system s (M IS) and m an­
agem ent scie n ce (M S) tools are insufficient. H um an intellect and a different ap p roach to
com p u ter tech n olog ies are necessary. T h ey p ro p osed the use o f a supportive inform ation
system , w h ich they called a DSS.
N ote th at th e m o re stru ctured an d o p era tio n a l co n tro l-o rie n te d tasks (su c h as
th o se in cells 1, 2, and 4 ) are usu ally p erfo rm ed b y lo w er-lev el m anag ers, w h ereas
th e task s in c e lls 6, 8, and 9 are th e resp o n sib ility o f to p e x e cu tiv es o r h ig hly trained
sp ecialists.

Com puter Support fo r Structured Decisions


Com puters have historically supported structured and som e sem istructured decisions,
esp ecially th o se that involve operational and m anagerial control, sin ce th e 1960s.
O perational and m anagerial control d ecisions are m ad e in all fu nctional areas, esp ecially
in finance and production (i.e., op eration s) m anagem ent.
Staictu red problem s, w h ich are encou n tered repeated ly, have a h igh lev el o f struc­
ture. It is th erefore p o ssib le to abstract, analyze, an d classify th em into sp e cific ca teg o ­
ries. For exam p le, a m ak e-o r-b u y d ecisio n is o n e category. O ther exam p les o f categories
are capital budgeting, allocation o f resou rces, distribution, procurem en t, planning, and
inventory control decisions. F o r e a ch categ ory o f d ecisio n , an easy-to-apply prescribed
m odel and solution ap p roach have b e e n d ev elop ed , g enerally as quantitative formulas.
T h erefore, it is p o ssible to use a scien tific ap p roach for autom ating portions o f m anage­
rial d ecisio n m aking.
Chapter 1 • An Overview o f Business Intelligence, Analytics, and D ecision Support 43

Com puter Support fo r Unstructured Decisions


Unstructured p roblem s ca n b e only partially supported by standard com puterized quan ­
titative m ethods. It is usually n ecessary to d ev elop custom ized solutions. H ow ever, such
solutions m ay b en efit from data and inform ation generated from corp orate or external
data sources. Intuition and judgm ent m ay play a large role in th ese types o f decisions, as
may com puterized com m unication and collaboration techn olog ies, as w ell as kn ow led ge
m anagem ent (s e e C hapter 12).

Com puter Support fo r Sem istructured Problem s


Solving sem istructured problem s m ay involve a com bination o f standard solution pro­
cedures and hu m an judgm ent. M anagem ent scie n ce ca n provide m odels fo r the portion
o f a decision-m akin g problem that is structured. For the unstructured portion, a D SS can
improve the quality o f the inform ation o n w h ich the decision is b ased b y providing, for
exam p le, n ot only a single solution b u t also a range o f alternative solutions, along with
their potential im pacts. T h e se capabilities h elp m anagers to b etter understand the nature
o f problem s and , thus, to m ake b etter decisions.

SECTION 1 .5 REVIEW QUESTIONS


1 . W hat are structured, unstructured, and sem istructured decisions? Provide tw o exam ­
p les o f each .
2. D efine o p eration al control, m an ag erial control, and strategic p lan n in g . Provide tw o
exam p les o f each.
3. W hat are th e n ine cells o f the decision fram ew ork? E xplain w hat ea ch is for.
4 . H ow can com puters provide support for m aking structured decisions?
5. H ow can com puters provide support to sem istructured and unstructured decisions?

1.6 THE CONCEPT OF DECISION SUPPORT SYSTEM S (DSS)


In the early 1970s, Scott-M orton first articulated the m ajor co n cep ts o f D SS. H e defined
decision support system s (DSS) as “interactive com puter-based system s, w h ich help
decision m akers utilize d a ta and m odels to solve unstructured p ro blem s” (G orry and
Scott-M orton, 1971). T h e follow ing is an oth er classic D SS definition, provided by K een
and Scott-M orton (1 9 7 8 ):

D ecisio n support system s cou p le the intellectual resources o f individuals with


th e capabilities o f the com puter to im prove th e quality o f decisions. It is a
com p u ter-based support system fo r m anagem ent d ecisio n m akers w h o deal
w ith sem istructured problem s.

N ote that the term d ecision support system , like m an agem en t in form ation system (MIS)
and oth er term s in the field o f IT, is a con ten t-free exp ressio n (i.e ., it m eans different
things to different p eo p le). T h erefore, th ere is n o universally accep ted definition o f DSS.
(W e presen t additional definitions in C hapter 2 .) Actually, DSS ca n b e v iew ed as a con ­
ceptu al m ethodology — that is, a broad , um brella term. H ow ever, som e v iew DSS as a nar­
row er, sp ecific d ecisio n support application.

DSS as an Um brella Term


T h e term DSS c a n b e used as an um brella term to d escribe any com puterized system that
supports d ecisio n m aking in an organization. An organization m ay have a know led ge
44 Part I * D ecision Making and Analytics: An Overview

m anagem ent system to guide all its p erson nel in their p ro b lem solving. A nother organiza­
tion m ay have separate support system s for m arketing, fin ance, and accounting; a sup­
ply ch ain m anagem ent (SCM ) system for production; a n d several ru le-based system s for
product repair diagnostics and help desks. D SS en co m p asses them all.

Evolution of DSS into Business intelligence


In th e early days o f D SS, m anagers le t th eir staff d o so m e su p p ortiv e analysis by using
DSS to o ls. As PC te ch n o lo g y ad van ced , a n ew g e n era tio n o f m an ag ers ev olv ed — o n e
that w as co m fo rta b le w ith com p u tin g an d k n ew th a t te ch n o lo g y c a n d irectly help
m ak e intellig ent b u sin ess d ecisio n s faster. N ew to o ls su ch as OLAP, data w areh o u sin g,
data m ining, an d in tellig en t system s, d eliv ered via W e b te ch n o lo g y , ad d ed p ro m ised
cap ab ilities and easy a c c e ss to to o ls, m o d els, an d d ata fo r com p u ter-aid ed d ecisio n
m aking. T h e s e to o ls started to a p p e a r u n d er th e n a m e s B I and bu sin ess a n a ly tics in
th e m id -1990s. W e in trod u ce th e se c o n c e p ts n ext, a n d relate th e DSS and B I co n cep ts
in th e fo llow in g sectio n s.

SECTION 1 .6 REVIEW QUESTIONS


1 . Provide tw o definitions o f DSS.
2 . D escrib e DSS a s an um brella term.

1.7 A FRAMEWORK FOR BUSINESS INTELLIGENCE (BI)


T h e d ecisio n support co n cep ts presen ted in Sections 1.5 and 1.6 have b e e n im plem ented
increm entally, un der different nam es, b y m any vendors that have created tools and m eth­
od olog ies for d ecisio n support. As the enterprise-w id e system s grew , m anagers w ere
ab le to access user-friendly reports that en a b led them to m ake d ecisions quickly. T h e se
system s, w h ich w ere generally called execu tive in form ation system s (E IS), th en b eg a n to
offer additional visualization, alerts, and perform ance m easurem ent capabilities. B y 2006,
the m ajor com m ercial products and services ap p eared under the um brella term business
in telligen ce (B I).

D efinitions of BI
Business intelligence (BI) is an um brella term that co m b in es architectures, tools, data­
b ases, analytical tools, applications, and m ethodologies. It is, like DSS, a content-free
exp ression , so it m eans different things to different p eo p le. Part o f th e confusion about
B I lies in the flurry o f acronym s and buzzw ords that are associated with it (e .g ., busin ess
p erform ance m an agem ent [BPM]). B I’s m ajor o b jectiv e is to en a b le interactive access
(som etim es in real tim e) to data, to en a b le m anipulation o f data, and to give business
m anagers and analysts the ability to con d u ct appropriate analyses. B y analyzing historical
and current data, situations, and perform ances, d ecisio n m akers get valuable insights that
en a b le them to m ake m ore inform ed and b etter d ecisio ns. T h e p ro cess o f B I is based on
the tran sform ation o f data to inform ation, th en to decisions, and finally to actions.

A Brief History o f BI
T h e term B I w as co in ed b y the G artner G roup in th e m id-1990s. H ow ever, th e co n cep t is
m u ch older; it has its roots in the MIS reporting system s o f the 1970s. D uring that period,
reporting system s w ere static, tw o d im ensional, and had n o analytical capabilities. In the
early 1980s, the co n cep t o f execu tive in form ation system s (E IS) em erged. This co n cep t
exp an d ed th e com puterized support to top-level m anagers and executives. Som e o f the
Chapter 1 • An Overview o f Business Intelligence, Analytics, and Decision Support

RGURE 1.3 Evolution of Business Intelligence (Bl).

capabilities introduced w ere dynam ic m ultidim ensional (ad h o c or on -d em an d ) reporting,


forecasting and prediction, trend analysis, drill-down to details, status access, and criti­
ca l su ccess factors. T h e se featu res appeared in d ozens o f com m ercial products until the
m id-1990s. T h e n the sam e capabilities and som e n ew o n e s ap p eared u n d er the n am e B I.
7 odav. a g o o d B l-b a se d enterprise inform ation system contains all the inform ation e x e cu ­
t e s need . So, the original co n cep t o f EIS w as transform ed into B I. B y 2005, B I system s
seined to inclu de a rtificia l in telligen ce capabilities as w ell as pow erful analytical capabili­
ties. Figure 1.3 illustrates the various tools and tech n iqu es that m ay b e included in a BI
svstem. It illustrates the evolution o f B I as w ell. T h e tools show n in Figure 1.3 provide the
capabilities o f B I. T h e m ost soph isticated B I products inclu de m o st o f th ese capabilities;
others specialize in on ly som e o f them . W e will study several o f th ese capabilities in m ore
detail in Chapters 5 through 9.

The Architecture o f BI
A B I system has four m ajor com ponents: a d ata w arehouse, with its sou rce data; business
analytics, a collection o f tools for manipulating, mining, and analyzing the data in the data
w arehouse; business p erform an ce m anagem ent (BPM) for monitoring an d analyzing perfor­
m ance; and a user in terface (e.g., a dashboard). T h e relationship am ong these com ponents is
illustrated in Figure 1.4. W e will discuss these com ponents in detail in Chapters 3 through 9-

Styles o f BS
T he architecture o f B I d ep end s o n its applications. M icroStrategy Corp. distinguishes five
styles o f B I and offers sp ecial to o ls fo r each . T h e five styles are report delivery and alert­
ing; enterprise reporting (using dashboards and scorecard s); cu b e analysis (also know n as
slice-and -d ice analysis); ad h o c queries; and statistics and data mining.
46 Part I • D ecision Making and Analytics: An Overview

FIGURE 1.4 A High-Level Architecture of Bl. Source: Based on W. Eckerson, Smart Companies in the
21st Century: The Secrets o f Creating Successful Business Intelligent Solutions. The Data Warehousing
Institute, Seattle, WA, 2003, p. 32, Illustration 5.

The Origins and Drivers o f Bl


W here did m odern ap p roach es to data w arehousing (D W ) and B l co m e from? W hat are
their roots, and h ow do th o se roots affect th e w ay organizations are m anaging th ese initia­
tives today? T od ay ’s investm ents in inform ation tech n olog y are under increased scrutiny
in term s o f their bottom -line im pact and potential. T h e sam e is true o f D W and the B l
applications that m ake th ese initiatives possible.
O rganizations are b ein g com pelled to capture, understand, and harness their data
to support d ecisio n m aking in order to im prove busin ess operations. Legislation and
regulation (e .g ., the Sarb anes-O xley Act o f 20 0 2 ) n ow require busin ess leaders to d ocu ­
m ent their busin ess p ro cesses and to sign o ff on the legitim acy o f th e inform ation they
rely o n and report to stakeholders. M oreover, b u sin ess cy cle tim es are n ow extrem ely
com pressed ; faster, m ore inform ed, and b etter d ecisio n m aking is therefore a com petitive
im perative. M anagers n eed the right in form ation at th e right tim e and in the right p la ce.
This is the mantra for m odern approaches to B l.
O rganizations have to w ork smart. Paying careful attention to the m anagem ent o f B l
initiatives is a necessary asp ect o f doing business. It is n o surprise, then, that oiganizations
are increasingly cham pioning B l. Y o u will h ear about m ore B l su ccesses and the funda­
m entals o f those su ccesses in Chapters 3 through 9. Exam ples o f m any applications o f B l
are provided in T ab le 1.3. Application Case 1.1 illustrates o n e such application o f B l that
has help ed m any airlines, as w ell as the com panies offering such services to the airlines.

A M ultim edia Exercise in Business Intelligence


Teradata University N etwork (TUN) includes som e vid eos along the lines o f the televi­
sion show CSI to illustrate concepts o f analytics in different industries. T h ese are called
“BSI V ideos (B u siness Scenario Investigations).” N ot only these are entertaining, but
they also provide the class with som e questions for discussion. For starters, please g o to
teradatauniversitynetwork.com/teach-and-leam/library-item/?LibraryItemId=889
W atch the video that appears o n Y ou Tube. Essentially, you have to assum e the role o f a
custom er service center professional. An incom ing flight is running late, and several pas­
sengers are likely to miss their conn ecting flights. T h ere are seats o n o n e outgoing flight
that ca n accom m odate tw o o f the four passengers. W hich tw o passengers should b e given
Chapter 1 • An Overview o f Business Intelligence, Analytics, and D ecision Support 47

u -11 i 11111i | i 111§ 11 ;


T A B L E 1.3 Business V alu e of BI Analytical Applications

Analytic Application Business Question Business V alue

Customer segmentation What market segments do my customers fall Personalize customer relationships for higher
into, and what are their characteristics? satisfaction and retention.

Which customers are most likely to respond Target customers based on their need to
Propensity to buy
to my promotion? increase their loyalty to your product line.
Also, increase campaign profitability by focusing
on the most likely to buy.

W hat is the lifetime profitability of my Make individual business interaction decisions


Customer profitability
customer? based on the overall profitability of
customers.

How can I tell which transactions are likely Quickly determine fraud and take immediate
Fraud detection
to be fraudulent? action to minimize cost.

Which customer is at risk of leaving? Prevent loss of high-value customers and let go
Customer attrition
of lower-value customers.

What is the best channel to reach my cus­ Interact with customers based on their
Channel optimization
tomer in each segment? preference and your need to manage cost.

Source: A. Ziama and J. Kasher, Data Mining Primer f o r the Data Warehousing Professional. Teradata, Dayton, OH, 2004.

Application Case 1.1


Sabre Helps Its Clients Through Dashboards and Analytics
Sabre is o n e o f the w orld leaders in the travel indus­ data from all o f Sabre’s businesses. Sabre uses its
try, providing b oth business-to-consum er services as ETDW to create Sabre Executive D ashboards that pro­
well as business-to-business services. It serves travel­ vide near-real-tim e executive insights using a Cognos
ers, travel agents, corporations, and travel suppliers 8 BI platform w ith O racle Data Integrator and O racle
through its four m ain com panies: Travelocity, Sabre G oldengate technolog y infrastructure. T he Executive
Travel Network, Sabre Airline Solutions, and Sabre D ashboards o ffer their client airlines’ top-level m an­
Hospitality Solutions. T h e current volatile global e c o ­ agers and decision m akers a timely, autom ated, user-
nom ic environm ent p oses significant com petitive chal­ friendly solution, aggregating critical perform ance
lenges to the airline industry. T o stay ahead o f the metrics in a succinct w ay and providing at a glance
com petition, Sabre Airline Solutions recognized that a 360-degree v iew o f the overall health o f the airline.
airline executives needed enhanced tools for m anag­ At o n e airline, Sabre’s Executive D ashboards provide
ing their business decisions b y eliminating the tradi­ senior m anagem ent with a daily and intra-day snap­
tional, manual, tim e-consum ing process o f collect­ sh ot o f key perform ance indicators in a single appli­
ing and aggregating financial and other information cation, replacing the once-a-w eek, 8-h our process o f
needed fo r actionable initiatives. This e nables real-time generating th e sam e report from various data sources.
decision .support at airlines throughout the world that T he use o f dashboards is not limited to the external
maxim ize their (and, in turn, Sabre’s) return on infor­ custom ers; Sabre also uses them for their assessm ent
mation b y driving insights, actionable intelligence, and o f internal operational perform ance.
value for custom ers from the growing data. T he dashboards help Sabre's custom ers to have
Sabre developed an Enterprise Travel Data a clear understanding o f the data through die visual
W arehouse (ETD W ) using Teradata to hold its mas­ displays that incorporate interactive drill-down capa­
sive reservations data. ETDW is updated in near-real bilities. It replaces flat presentations and allows for
time w ith batches that run every 15 minutes, gathering m ore focused review o f the data with less effort and
('C ontinued )
48 Part I • D ecision Making and Analytics: An Overview

Application Case 1.1 (Continued)


time. This facilitates team dialog by m aking the data/ W h a t W e C an L e a m fro m T h is A p p licatio n
m etrics pertaining to sales perform ance, including C ase
ticketing, seats sold and flown, operational perfor­
m ance such as data o n flight m ovem ent and track­ T h is A p p lication C ase sh ow s that organizations
ing, custom er reservations, inventory, and revenue that ea rlie r u se d rep ortin g o n ly fo r track in g th eir
across an airline’s multiple distribution channels, avail­ internal b u sin ess activities an d m eetin g co m p lian ce
able to m any stakeholders. T h e dashboard systems req u irem en ts s e t ou t by th e g o v ern m en t are n o w
provide scalable infrastructure, graphical user interface m oving tow ard g en era tin g a ctio n a b le in tellig en ce
(G U I) support, data integration, and data aggregation from th eir tran sactio n al b u sin ess data. R eporting
that em p ow er airline executives to b e m ore proactive h as b e co m e b ro a d e r as o rg an ization s are n o w try­
in taking actions that lead to positive impacts on the in g to an aly ze a rch iv ed tran saction al data to u n d er­
overall health o f their airline. stand u n d erly in g h id d en tren d s and p attern s that
W ith its ETDW , Sabre could also d evelop other w ould e n a b le th em to m a k e b e tte r d ecisio n s by
W eb-b ased analytical and reporting solutions that lev­ g ain in g insights in to p ro b lem atic areas an d resolv­
erage data to gain custom er insights through analysis ing them to p u rsu e cu rrent and future m arket
Of cu stom er profiles and their sales interactions to cal­ o p p ortu n ities. R ep ortin g has ad v an ced to in terac­
culate cu stom er value. This enables better custom er tive o n lin e rep o rts that e n a b le u sers to pull and
segm entation and insights for value-added services. q u ick ly bu ild cu sto m rep orts as req u ired and even
p resen t the rep orts aid ed b y visualization to ols
Q u e s t io n s f o r D is c u s s io n that have th e a b ility to c o n n e c t to th e d atabase,
p rovid ing th e ca p a b ilitie s o f digging d ee p into
1. W hat is traditional reporting? H ow is it used in
sum m arized data.
organizations?
2. H ow c a n analytics b e used to transform tradi­
tional reporting? Source: Teradata.com, “Sabre Airline Solutions/'teradata.eom/t/
case-studies/Sabre-A ir!ine-Solutions-EB6281 (accessed
3- H ow ca n interactive reporting assist organiza­ February 2013).
tions in d ecisio n making?

priority? Y ou are given inform ation about custom ers’ profiles and relationship with the air­
line. Y ou r decisions might change as you learn m ore about those custom ers’ profiles.
W atch the vid eo, pause it as appropriate, and answ er th e questions o n w h ich pas­
sen gers should b e given priority. I h en resum e the vid eo to g et m ore inform ation. After
the v id eo is com p lete, you can se e the slides related to this vid eo and h ow th e analysis
w as prepared o n a slide set at teradatauniversitynetwork.com/templates/Download.
aspx?ContentItemId=891. Please note that access to this content requires initial registration.
This m ultim edia excu rsion provides an exam p le o f h ow additional inform ation m ade
available through an enterprise data w arehou se c a n assist in decision m aking.

The DSS-BI Connection


B y now , you should b e a b le to se e som e o f the sim ilarities and d ifferences b etw een DSS
and B I. First, their architectures are very sim ilar b e ca u se B I evolved from DSS. H ow ever,
B I im plies th e u se o f a data w arehou se, w h ereas D SS m ay or m ay n o t have such a feature.
B I is, therefore, m ore appropriate for large organizations (b eca u se data w arehouses are
e xp en siv e to build and m aintain), but DSS can b e appropriate to an y type o f organization.
S econ d , m ost DSS are constructed to directly support sp ecific decision m aking. BI
system s, in general, are geared to provide accurate and tim ely inform ation, and th ey sup­
port d ecisio n support indirectly. This situation is changing, how ever, as m ore and m ore
d ecisio n support tools are b ein g added to BI softw are packages.
Chapter 1 • An Overview o f Business Intelligence, Analytics, and D ecision Support 49

Third, B I has an execu tiv e and strategy orientation, esp ecially in its BPM and dash­
board com p on en ts. DSS, in contrast, is oriented tow ard analysts.
Fourth, m o st B I system s are constructed w ith com m ercially available to o ls and co m ­
ponents that are fitted to th e n eed s o f organizations. In building DSS, th e interest m ay
b e in constructing solutions to very unstructured problem s. In su ch situations, m ore pro­
gram m ing (e .g ., using tools such as E xcel) m ay b e need ed to custom ize th e solutions.
Fifth, D SS m ethodologies and ev e n som e to ols w ere d ev elop ed m ostly in the aca­
d em ic w orld. B I m eth od ologies and to o ls w ere d ev eloped m ostly b y softw are com panies.
(See Zam an, 2 00 5 , for inform ation o n h ow B I h as evolved.)
Sixth, m an y o f the tools that BI uses are also con sid ered D SS tools. F o r exam ple,
data m ining an d predictive analysis are co re to ols in b oth areas.
A lthough som e p eo p le equ ate DSS w ith B I, th ese system s are not, a t present, the
sam e. It is interesting to n ote that som e p eo p le b eliev e that DSS is a part o f B I— o n e o f its
analytical tools. O thers think that B I is a sp ecial case o f D SS that deals m ostly w ith report­
ing, com m unication, and collaboration (a form o f data-oriented D SS). A nother explana­
tion (W atson, 2 0 0 5 ) is that B I is a result o f a continuous revolution and, as such, D SS is
o n e o f B I’s original elem ents. In this b o o k , w e separate D SS from B I. H ow ever, w e point
to th e D S S -B I co n n ectio n frequently. Further, as n oted in th e n ext sectio n onw ard, in
m any circlcs B I has b e e n subsum ed b y the n ew term an alytics o r d a ta scien ce.

SECTION 1 .7 REVIEW QUESTIONS

1 . D efine BI.
2 . List and d escrib e the m ajor com p on en ts o f BI.
3. W hat are th e m ajor sim ilarities and d ifferences o f D SS and BI?

1,8 BUSINESS AN ALYTICS OVERVIEW


T he w ord “analytics” has replaced the previous individual com ponents o f com puterized
decision support technologies that have b ee n available under various labels in the past.
Indeed, m any practitioners and academ ics n ow use the w ord an alytics in place o f BI.
Although m any authors and consultants have defined it slightly differently, o n e can view
analytics as th e p rocess o f d eveloping actionable d ecisions or recom m end ation for actions
based up on insights generated from historical data. T h e Institute for O perations R esearch
and M anagem ent S cien ce (INFORMS) has created a m ajor initiative to organize and pro­
m ote analytics. A ccording to INFORMS, analytics represents th e com bination o f com puter
technology, m anagem ent scien ce techniques, and statistics to solve real problem s. O f
course, m any oth er organizations have proposed their ow n interpretations an d m otivation
for analytics. F o r exam ple, SAS Institute Inc. p rop osed eight levels o f analytics that begin
with standardized reports from a com puter system . T h ese reports essentially provide a
sen se o f w h at is happening with an organization. Additional tech n olog ies have en abled
us to create m ore custom ized reports that can b e generated on a n ad h o c basis. T h e n ext
extension o f reporting takes us to online analytical processing (O LA P )-type queries that
allow a user to dig d eep er and determ ine the specific sou rce o f con cern o r opportuni­
ties. T ech n olog ies available today ca n also autom atically issue alerts for a d ecisio n m aker
w h en perform ance issues warrant su ch alerts. At a consu m er level w e s e e su ch alerts for
w eather o r oth er issues. B ut similar alerts can also b e generated in sp ecific settings w h en
sales fall ab ov e or b elo w a certain level w ithin a certain tim e period or w h e n the inventoiy
for a sp ecific product is running low . All o f these applications are m ade p ossible through
analysis and q u eries o n data b ein g collected b y an organization. T h e n ext lev el o f analysis
might entail statistical analysis to b etter understand patterns. T h ese ca n th en b e tak en a
step further to develop forecasts o r m odels for predicting h ow custom ers m ight respond to
50 Part I * D ecision Making and Analytics: An Overview

P redictive
Statistical Analysis and
Data Mining

Reporting
Visualization P rescrip tiv e
Periodic, ad hoc Management Science
Reporting Trend Analysis Models and Solution

Management Science
Predictiue
Models and
Statistical Analysis Solution
Reporting and
Visualization Data Mining
Periodic,
ad hoc Reporting
Trend Analysis

FIGURE 1.5 Three Types of Analytics.

L T a t o o d a^ w mSf ° r ° n80ing Service/Product « « * * * * ■ an organization


oth er r!ch ^ !! h,appem n« and w hat is lUcely » happen, it can also em ploy
er techniqu es to m ake the b est d ecisions un der the circum stances. T hese eight levels o f

:2Z“LZ'X " “ -• * '


This idea o f looking at all the data to understand w h at is h appen in g w hat will
happen , and h ow to m ak e the b est o f it has also b e e n encap su lated b y INFORMS in
proposing three levels o f analytics. T h ese th ree levels a re identified (inform s.or^
Community/Analytics) as descriptive, predictive, and prescriptive. Figure 1.5 p r e s e n t
o graphical view s o f these three levels o f analytics. O n e v iew suggests that th ese three

tT a ” T h e lderPendCnt ST (1 3 Iadder) ^ ° ne ^ ° f:analytlCS application leads


another. T h e interconnected circles v iew suggests that there is actually som e overlap

* * * ? ° f analytlCS, In CaSe’ the in tercon n ected nature o f different


types o f analytics applications is evident. W e n ext introduce th e se three levels o f analytics.

D escriptive A nalytics

Descriptive or reporting analytics refers to k n ow in g w h at is h a p p e n in g in the


o rg a n iz a tio n an d u n d erstand ing so m e u n d erly ing trend s an d ca u ses o f su ch o c c u r­
re n c e s. T h is involves, first o f all, c o n so lid a tio n o f data so u rces an d availability o f
Chapter 1 • An Overview o f Business Intelligence, Analytics, and D ecision Support 51

a ll relevan t d ata in a fo rm that e n a b le s ap p rop riate rep ortin g an d analysis. U sually


developm en t o f this data infrastru ctu re is p art o f data w a reh o u se s, w h ich w e study in
Chapter 3. F ro m this data infrastru ctu re w e ca n d ev elo p ap p rop riate rep orts, q u eries,
-i.erts, an d trend s u sing various rep ortin g to o ls and te ch n iq u es. W e stud y th ese in
C hapter 4.
A significant tech n o lo g y that has b eco m e a k e y player in this area is visualization.
Using the latest visualization tools in the m arketplace, w e ca n n ow d ev elop pow erful
insights into the op erations o f our organization. A pplication C ases 1.2 and 1.3 highlight
fo m e such applications in th e healthcare dom ain. Color renderings o f su ch applications
are available o n th e com p anio n W e b site and also o n T a b lea u ’s W e b site. C hapter 4
covers visualization in m ore detail.

Application Case 1.2


Eliminating Inefficiencies at Seattle Children's Hospital
Seattle C hildren’s w as the seventh highest ranked fo r patient waiting. T h ey found that early delays
children’s hospital in 2011, according to U.S. News cascad ed during th e day. T hey fo cu sed o n on-tim e
& W orld Report. For any organization that is co m ­ appointm ents o f patien t services as o n e o f the solu ­
m itted to saving lives, identifying and rem oving the tions to im proving patient overall w aiting tim e and
inefficiencies from system s and p ro cesses so that increasing the availability o f beds. Seattle Children's
m ore resou rces b eco m e available to cater to patient saved ab o u t $3 m illion from the supply chain, and
care b eco m e very important. At Seattle Children’s, w ith the help o f to ols lik e Tableau, they are find­
m anagem ent is continuously looking fo r n e w w ays ing new w ays to in crease savings w h ile treating as
to im prove th e quality, safety, and p ro cesses from m any patients as p o ssible b y m aking the existing
the tim e a patien t is admitted to the tim e th ey are p ro cesses m ore efficient.
discharged. T o this end, they spend a lot o f tim e in
analyzing the data associated w ith th e patient visits. Q u e s t io n s f o r D is c u s s io n
T o quickly a im patient and hospital data into 1. W ho are the users o f the tool?
insights, Seattle Children’s im plem ented T ableau 2. W hat is a dashboard?
Softw are’s busin ess intelligence application. It pro­
3. H ow d oes visualization help in d ecisio n making?
vides a b row ser based o n easy-to-use analytics to the
4. W hat are the significant results achiev ed by the
stakeholders; this m akes it intuitive for individuals to use o f Tableau?
create visualizations and to understand w hat th e data
has to offer. T h e data analysts, busin ess m anagers, W h a t W e C an L e a rn fro m T h is A p p licatio n
and financial analysts as w ell as clinicians, doctors, C ase
and researchers are all using descriptive analytics
This A pplication C ase show s that reporting analyt­
to solve different problem s in a m uch faster way.
ics involving visualizations su ch as dashboards can
They are d eveloping visual system s o n their ow n,
offer m ajor insights in to existing data and show how
resulting in dashboards and scorecards that help
a variety o f users in different dom ains and depart­
in defining th e standards, the current perform ance
m ents ca n contribute tow ard p ro cess and qual­
achieved m easured against the standards, and how
ity im provem ents in an organization. Furtherm ore,
these system s will grow into the future. Through the
exploring th e data visually can help in identifying
use o f m onthly and daily dashboards, day-to-day
the ro ot cau ses o f problem s and provide a basis for
decision m aking at Seattle Children’s has im proved
w orking tow ard p o ssib le solutions.
significantly.
Seattle Children’s m easures patient wait-tim es
Source: Tableausoftware.com, “Eliminating Waste at Seattle
and analyzes them w ith the h elp o f visualizations Children’s, ” tableausoftware.com/ eliminating-waste-at-seattle-
to discover th e ro ot cau ses and contributing factors childrens (accessed Febmaiy 2013).
52 Part I • D ecision Making and Analytics: An Overview

Application Case 1.3


Analysis at the Speed of Thought
K aleida H ealth, the largest healthcare provider in oth er hospitals acro ss the country. C om parisons are
w estern N ew Y ork , has m ore than 1 0,000 em ploy­ m ade o n various aspects, su ch as length o f patient
ees, five hospitals, a nu m ber o f clinics and nursing stay, hospital practices, m arket share, and partner­
hom es, an d a visiting-nurse association that deals ships w ith doctors.
w ith m illions o f p atient records. K aleida’s traditional
reporting to o ls w ere inadequate to hand le the grow ­ Q u e s t io n s f o r D is c u s s io n
ing data, and th ey w ere fa ced w ith the ch allen ge o f
1. W hat are the desired functionalities o f a report­
finding a busin ess intelligence tool that cou ld handle
ing tool?
large data sets effortlessly, quickly, and w ith a m uch
2. W hat advantages w ere derived b y using a report­
d eep er analytic capability.
ing to o l in th e case?
At K aleida, m any o f the calculations are now
d o n e in T ab leau , prim arily pulling the data from
O racle d atabases into E xcel and im porting the W h a t W e C an L e a rn fro m T h is A p p licatio n
data into T ab leau . For m any o f the m onthly ana­ C ase
lytic reports, data is directly extracted into Tableau C orrect sele ctio n o f a reporting to o l is extrem ely
from the data w arehou se; m any o f the data queries im portant, esp ecially if an organization w ants to
are saved an d rerun, resulting in tim e savings w h en derive value from reporting. T h e generated reports
dealing w ith m illions o f records— ea ch having m ore and visualizations should b e easily d iscernible; they
than 4 0 fields p e r record. B esid es speed , Kaleida should help p e o p le in different sectors m ake sen se
also u ses T a b lea u to m erge different tables for g en ­ out o f the reports, identify the problem atic areas,
erating extracts. and contribute tow ard im proving them . Many future
U sing T ab leau , Kaleida can analyze em ergency organizations w ill require reporting analytic tools
ro om data to d eterm ine th e n u m ber o f patients w h o that are fast and ca p a b le o f handling huge am ounts
visit m ore than 10 tim es a year. T h e data often reveal o f data efficiently to g enerate desired reports with­
that p e o p le frequently use em erg en cy ro om and out the n eed for third-party consultants and service
am b u lance services inappropriately fo r stom ach ­ providers. A truly useful reporting tool ca n exem pt
ach es, h ead ach es, and fevers. Kaleida ca n m anage organizations from u n necessary expenditure.
resource utilizations— the use and cost o f supplies—
w h ich will ultim ately lead to efficien cy and standard­
Source: TabIeau.software.com, “Kaleida Health Finds Efficiencies,
ization o f supp lies m anagem ent across the system . Stays Competitive,” tableausoftware.com/leam/stories/user-
K aleida n o w has its ow n business in telligence experience-speed-thought-kaleida-health (accessed February
departm ent and uses T ableau to com pare itself to 2013).

Predictive Analytics
Predictive analytics aim s to d eterm ine w hat is likely to h ap p en in the future. This analy­
sis is b ased o n statistical tech n iqu es as w ell as o th er m ore recently d eveloped tech niqu es
that fall under the general category o f data m ining. T h e goal o f th ese techniqu es is to b e
a b le to pred ict if the cu stom er is likely to sw itch to a com petitor ( “churn”), w h at th e cus­
tom er is likely to bu y n e x t and h ow m uch, w hat p ro m otion a cu stom er w ould respond
to, o r w h eth er this cu stom er is a creditw orthy risk. A nu m ber o f techn iqu es are u sed in
d ev eloping predictive analytical applications, including various classification algorithm s.
F o r exam p le, as d escribed in Chapters 5 and 6, w e ca n u se classification tech n iqu es such
a s decision tree m odels and neural netw orks to pred ict h o w w ell a m otion picture will
d o at the b o x office. W e can also use clustering algorithm s fo r segm enting custom ers
into different clusters to b e a b le to target sp ecific p rom otion s to them . Finally, w e can
Chapter 1 • An Overview o f Business Intelligence, Analytics, and D ecision Support 53

use association m ining tech n iqu es to estim ate relationships b etw ee n different purchasing
behaviors. T h at is, if a cu stom er buys o n e product, w h at else is the cu stom er likely to pur­
chase? Su ch analysis ca n assist a retailer in recom m en d ing or prom oting related products.
For exam p le, any product search o n A m azon.com results in the retailer also suggesting
other sim ilar products that m ay interest a custom er. W e will study th ese tech n iqu es and
their applications in Chapters 6 through 9- A pplication Cases 1.4 and 1.5 highlight som e
similar applications. A pplication Case 1.4 introduces a m ovie you m ay have heard of:
M oneyball. It is perhaps o n e o f th e b est exam p les o f applications o f predictive analysis
in sports.

Application Case 1.4


Moneyball: Analytics in Sports and Movies
M oneyball, a biographical, sports, drama film, was m o d el to h e lp the O ak lan d A thletics s e le c t p lay ­
released in 2011 and directed by B en n ett Miller. T he ers b a se d o n th e ir “o n -b a se p e rc e n ta g e ” (O B P ), a
film w as b a se d o n M ichael Lew is’s b o o k , M oneyball. statistic that m easu red h o w o ften a batter re a ch e d
The m ovie gave a d etailed acco u n t o f th e O akland b a se fo r any re a s o n o th e r th an field ing error, field ­
A thletics b aseb all team during the 2002 sea so n and e r’s c h o ic e , d rop p ed / u n cau ght third strike, field er’s
the O akland general m anager’s efforts to assem ble a o b stru ctio n , o r c a tc h e r’s in te rfe ren ce. R ather than
com petitive team. relying o n th e s c o u t’s e x p e rie n c e and intuition, th e
T h e O akland Athletics suffered a big loss to the assistant g e n era l m a n a g er s e le c te d players b ased
Newr Y ork: Y a n k ees in 2001 postseason. As a result, a lm ost e x clu siv e ly o n O B P .
O akland lost m any o f its star players to free ag en cy Spoiler Alert: T h e n ew team b e a t all odds, w o n
and en d ed up w ith a w ea k team w ith unfavorable 20 consecutiv e gam es, and set a n A m erican League
financial prospects. T h e general m anager’s efforts to record.
reassem ble a com petitive team w ere d enied b ecau se
O akland h ad limited payroll. T h e scouts for the Q u e s t io n s f o r D is c u s s io n
O akland Athletics fo llow ed the old b aseball custom 1. H ow is pred ictive analytics applied in M oneyball?
o f m aking su bjective d ecision s w hen selectin g the 2. W hat is the d ifference b etw een ob jective and
team m em bers. T h e general m anager th en m et a subjective a p p roach es in d ecisio n making?
young, com p u ter w hiz with an e co n o m ics degree
from Y ale. T h e general m anager d ecid ed to appoint
W h a t W e C an L e a m fro m T h is A p p licatio n
him as the n ew assistant general m anager. C ase
T h e assistant general m anager had a d eep pas­
sion fo r b a se b a ll and had the expertise to cm n ch Analytics finds its u se in a variety o f industries. It
the nu m bers fo r th e gam e. His love for th e gam e h elp s o rg an ization s rethink th eir traditional p ro b ­
m ade him d ev elop a radical w ay o f understanding lem -solv in g abilities, w h ich are m o st o ften s u b je c­
b aseball statistics. H e w as a d isciple o f Bill Ja m es, a tive, relying o n th e sam e old p ro cesse s to find a
marginal figure w h o offered rationalized techn iqu es solution. A nalytics tak es th e radical ap p ro a ch o f
io analyze baseball. Ja m e s lo o k ed at b aseb all statis­ u sing historical data to find fact-b ased solutions
tics in a different w ay, cru nching the num bers purely that w ill rem ain ap p rop riate for m aking even future
on facts an d elim inating subjectivity. Ja m e s p io­ d ecisio ns.
neered the nontraditional analysis m ethod called th e
Saberm etric approach, w h ich derived from SABR— Source: Wikipedia, “On-Base Percentage,” en.wikipedia.org/
Society for A m erican B aseb all Research. wiki/On_base_percentage (accessed January 2013); Wikipedia,
T h e assistan t g en eral m an ag er fo llow ed the “Saberrnetricsm,” wikipedia.org/wiki/Sabermetfics (accessed
S ab erm etric a p p ro a ch b y b u ild in g a p red iction January 2013).
Part I • D ecision Making and Analytics: An Overview

Application Case 1.5


Analyzing Athletic Injuries
Any ath letic activity is p ro n e to injuries. I f th e inju­ Neural netw ork m odels w ere built to pre­
ries are n o t han d led properly, th en the team suf­ dict e a c h o f the healing categories using IBM SPSS
fers. U sing an aly tics to understand inju ries ca n help M odeler. Som e o f th e predictor variables w ere cur­
in d eriving v a lu a b le insights that w o u ld en a b le rent status o f injury, severity, b od y part, b od y site,
th e c o a c h e s an d team d octo rs to m anage th e team type o f injury, activity, ev en t location, action taken,
com p o sitio n , understand p lay er profiles, an d ulti­ and position played. T h e su ccess o f classifying the
m ately aid in b etter d ecisio n m aking co n cern in g healing category w as quite good: A ccuracy w as 79-6
w h ich p lay ers m ight b e available to play at any percent. B a sed o n th e analysis, m any busin ess rec­
g iven tim e. om m endation s w ere suggested, including em ploy­
In a n exploratory study, O klahom a State ing m ore specialists’ input from injuiy on set instead
University analyzed Am erican football-related sport o f letting the training room staff screen th e injured
injuries b y using reporting and predictive analytics. players; training players at d efensive positions to
T h e p ro ject follow ed the CRISP-DM m ethodol­ avoid b ein g injured; and holding practice to thor­
og y to understand the p ro blem o f m aking recom ­ oughly safety -ch eck m echanism s.
m endations o n m anaging injuries, understanding
the various data elem ents collected ab ou t injuries, Q u e s t io n s f o r D is c u s s io n
clean in g the data, d eveloping visualizations to draw
1. W hat types o f analytics are applied in the injury
various in feren ces, building predictive m odels to
analysis?
analyze th e injury- healing tim e period, and draw ing
2. H ow d o visualizations aid in understanding the
seq u en ce rules to predict th e relationship am ong the
data and delivering insights into th e data?
injuries and th e various b od y part parts afflicted w ith
3. W hat is a classification problem ?
injuries.
4. W hat ca n b e d erived by perform ing seq u en ce
T h e injury data set consisted o f m ore than
analysis?
560 football injury record s, w h ich w ere categorized
into injury-specific variables— b o d y part/site/later-
W h a t W e C an L e a rn fro m T h is A p p licatio n
ality, action tak en , severity, injury type, injury start
C ase
and healing dates— and player/sport-specific varia­
b les— player ID, position played, activity, onset, and For any analytics project, it is alw ays im portant
g am e location . H ealing tim e w as calculated fo r each to understand th e busin ess d om ain and th e cur­
record , w h ich w as classified into different sets o f ren t state o f the busin ess p ro blem through exten ­
tim e period s: 0 - 1 m onth, 1 -2 m onths, 2 - 4 m onths, sive analysis o f th e only resource— historical data.
4 - 6 m onths, and 6 -2 4 m onths. V isualizations o ften provide a great to o l fo r gaining
V arious visualizations w ere built to draw the initial insights into data, w h ich ca n b e further
in feren ces from injury data set inform ation depict­ refined b ased o n exp e rt op inions to identify th e rela­
ing the healing tim e period associated w ith players’ tive im portance o f th e data elem ents related to the
positions, severity o f injuries and the healing tim e problem . V isualizations also aid in generating ideas
period, treatm ent offered and the associated healing fo r ob scu re b u sin ess problem s, w h ich can b e pur­
tim e period, m ajor injuries afflicting b od y parts, and sued in building predictive m odels that cou ld help
so forth. organizations in d ecisio n m aking.

Prescriptive Analytics
T h e third category o f analytics is term ed prescriptive analytics. T h e g oal o f prescriptive
analytics is to recog nize w h at is g oin g o n as w ell as th e likely fo recast and m ake d ecisions
to ach iev e th e b est perform ance possible. T his group o f tech n iqu es has historically b ee n
studied under the um brella o f op erations research o r m an agem ent scien ces and has gen­
erally b ee n aim ed at optim izing th e perform ance o f a system . T h e g oal h ere is to provide
Chapter 1 • An Overview o f Business Intelligence, Analytics, and Decision Support 55

2 decision o r a recom m en d ation for a sp ecific action. T h e se recom m end ations ca n b e in


ih e form s o f a sp ecific yes/no decision for a problem , a sp ecific am ount (say, p rice for a
soecific item o r airfare to charge), or a com p lete set o f production plans. T h e d ecisions
m ay b e presen ted to a d ecisio n m aker in a report o r m ay directly b e u sed in an autom ated
decision rules system (e .g ., in airline pricing system s). Thus, th ese types o f analytics can
u o b e term ed decision o r norm ative analytics. A pplication Case 1.6 gives a n exam p le
r f su ch prescriptive analytic applications. W e w ill learn ab ou t som e o f th e se tech n iqu es
irid several additional applications in Chapters 10 through 12.

Application Case 1.6


Industrial and Commercial Bank of China (ICBC) Employs Models
to Reconfigure Its Branch Network
The Industrial and Com m ercial B an k o f China T h ese three inputs h elp ed generate accurate cus­
(IC BC ) has m ore than 1.6,000 b ran ch es and serves tom er distribution fo r ea ch area and, h en ce, h elp ed
over 230 m illion individual custom ers and 3.6 mil­ th e b ank optim ize its b ran ch netw ork. T h e B R system
lion corporate clients. Its daily financial transactions consisted o f a m arket potential calculation m odel, a
total ab ou t $180 million. It is also th e largest pub­ branch netw ork optim ization m odel, and a branch
licly traded b an k in the w orld in term s o f m arket site evaluation m odel. In the m arket potential m odel,
capitalization, d ep osit volum e, and profitability. T o the custom er volu m e and value is m easured based
stay com petitive and increase profitability, ICBC was o n input data and exp ert know ledge. For instance,
faced with the challenge to quickly adapt to th e fast- exp ert know led ge w ould h elp determ ine if per­
paced eco n o m ic grow th, urbanization, and increase sonal incom e should b e w eighted m ore than gross
in personal w ealth o f the Chinese. Changes had to b e dom estic product (G D P ). T h e geographic areas are
im plem ented in ov er 3 00 cities w ith high variability also dem arcated into cells, and th e preferen ce o f o ne
in custom er behav ior and financial status. O bviously, cell ov er th e other is determ ined. In the branch net­
the nature o f th e challenges in such a huge econ om y w o rk optim ization m odel, m ixed integer program ­
m eant that a large-scale optim ization solution had to ming is used to locate branches in candidate cells
b e d ev eloped to locate bran ch es in the right places, so that they cov er th e largest m arket potential areas.
with right services, to serve the right custom ers. In the branch site evaluation m odel, the value for
W ith their existing m ethod, ICBC used to decide establishing b ank b ran ch es at specific locations is
w here to o p en n ew branches through a scoring m odel determ ined.
in w hich different variables with varying weight w ere S in ce 2 0 0 6 , th e d ev elo p m en t o f th e B R has
used as inputs. Som e o f the variables w ere custom er b e e n im proved th rou g h an iterative p ro cess. IC B C ’s
flow, num ber o f residential households, and num ber b ra n ch reco n fig u ra tio n to o l has in cre a se d d ep osits
o f com petitors in the intended geographic region. This b y $ 2 1 .2 b illion s in c e its in cep tio n . T h is in crease
method w as d eficient in determining the custom er dis­ in d ep o sit is b e c a u se th e b a n k c a n n o w reach
tribution o f a geographic area. T he existing m ethod m o re cu stom ers w ith the right serv ices b y u se o f
was also unable to optim ize the distribution o f bank its op tim ization to o l. In a sp e cific ex a m p le , w h e n
branches in th e branch network. W ith support from B R w as im p lem en ted in Suzhou in 2 0 1 0 , d ep osits
IBM, a branch reconfiguration (B R ) tool w as devel­ in crea sed to $13-67 b illio n from an initial lev el o f
oped. Inputs for the BR system are in three parts: $ 7 .5 6 b illio n in 2 0 0 7 . H e n ce , th e B R to o l assisted
in a n in cre a se o f d ep o sits to th e tu ne o f $6.11
a. G eog rap h ic data w ith 8 3 different categories
b illio n b etw ee n 2 0 0 7 an d 2 0 1 0 . T h is p ro je ct w as
b. D em ograph ic and e co n o m ic data w ith 22 dif­ se le c te d as a fin alist in th e E d elm an C om p etition
feren t categories 2 0 1 1 , w h ich is ru n b y INFORMS to p ro m o te actual
c. B ran ch transactions and p erform ance data that ap p licatio n s o f m a n a g em en t scien ce/ op eration s
consisted o f m ore than 60 m illion transaction
research m odels.
records e a ch day
0C ontinued )
Part I • D ecision Making and Analytics: An Overview

Application Case 1.6 (Continued)


Q u e s t io n s f o r D is c u s s io n con su ltin g so lu tio n s to th e b u sin esses in em p loy­
1. H ow can analytical tech n iqu es help organiza­ ing p rescrip tive analytical solu tion s. It is equ ally
tions to retain com petitive advantage? im portant to h av e p ro activ e d ecisio n m akers in the
2. H ow can descriptive an d predictive analytics org an ization s w h o are aw are o f th e ch a n g in g e c o ­
h elp in pursuing prescriptive analytics? n o m ic en v iro n m en t as w ell as th e a d v an cem en ts
3. W hat kinds o f prescriptive analytic techniqu es in th e field o f an aly tics to e n su re that appropriate
are em p loy ed in the ca se saidy? m o d els are em p lo y ed . T h is c a s e sh ow s an e x am p le
4. Are th e prescriptive m odels o n ce built g oo d o f g e o g ra p h ic m a rk et seg m en ta tio n an d cu sto m er
forever? b eh a v io ra l seg m en ta tio n te ch n iq u e s to iso late the
profitability o f cu sto m ers an d em p lo y op tim ization
te ch n iq u es to lo c a te th e b ra n ch e s th at d eliver high
W h a t W e C an L e a rn fro m T h is A p p licatio n
profitability in e a c h g e o g ra p h ic seg m ent.
C ase
Source: X. Wang et al., “Branch Reconfiguration Practice Through
M any o rg an izatio n s in th e w orld are n o w e m b ra c­
Operations Research in Industrial and Commercial Bank of China,”
ing an alytical te c h n iq u e s to stay com p etitiv e Interfaces, January/February 2012, Vol. 42, No. 1, pp. 33-44: DOI:
an d a ch iev e grow th. M any o rg an ization s provide 10.1287/inte.1110.0614.

A nalytics Applied to D ifferent Domains


A pplications o f analytics in various industry sectors have spaw ned m any related areas or
at least buzzw ords. It is alm ost fash ion ab le to attach the w ord an alytics to any specific
industry o r type o f data. B esid es the gen eral category o f text analytics— aim ed at getting
value out o f text (to b e studied in Chapter 6 )— or W eb analytics— analyzing W e b data
stream s (C hapter 7 )— m any industry- or p ro blem -sp ecific analytics professions/stream s
have com e up. Exam ples o f su ch areas are m arketing analytics, retail analytics, fraud ana­
lytics, transportation analytics, health analytics, sports analytics, talent analytics, b eh av ­
ioral analytics, and so forth. For exam p le, A pplication Case 1.1 could also b e term ed as
a case study in airline analytics. A pplication Cases 1.2 and 1.3 w ould b elo n g to health
analytics; A pplication Cases 1.4 and 1.5 to sports analytics; A pplication Case 1.6 to bank
analytics; and A pplication Case 1.7 to retail analytics. T h e End-of-Chapter A pplication
Case cou ld b e term ed insurance analytics. Literally, any system atic analysis o f data in a
sp ecific sector is b ein g labeled as “(fill-in-blanks)” Analytics. Although this m ay result in
overselling the co n cep ts o f analytics, the b en efit is that m ore p eo p le in sp ecific industries
are aw are o f the p o w er and potential o f analytics. It also provides a focus to professionals
d eveloping and applying th e co n cep ts o f analytics in a vertical sector. Although m any o f
the tech niqu es to d evelop analytics applications m ay b e com m on, there are un iq u e issues
w ithin ea ch vertical segm ent that influ ence h ow th e data m ay b e collected , processed,
analyzed, and th e applications im plem ented. Thus, the differentiation o f analytics based
o n a vertical fo cu s is goo d fo r the overall grow th o f th e discipline.

Analytics or Data Science?


Even as the co n cep t o f analytics is getting popular am ong industry and acad em ic circles,
an oth er term has already b ee n introduced and is b eco m in g popular. T h e new term is d a ta
scien ce. Thus the practitioners o f data scie n ce are data scientists. Mr. D. J . Patil o f Linkedln
is som etim es credited w ith creating the term d a ta scien ce. T h ere have b e e n so m e attem pts
to d escribe th e d ifferences b etw ee n data analysts and data scientists (e.g ., s e e this study at
em c.com /collateral/about/new s/em c-data-science-study-w p.pdf). O n e view is that
Chapter 1 • An Overview o f Business Intelligence, Analytics, and Decision Support 57

ia ia an alyst is ju st an oth er term for p rofession als w h o w ere doing busin ess in tellig en ce in
iie form o f data com pilation, cleaning, reporting, and perh aps so m e visualization. Their
s i l l sets inclu ded E xcel, som e SQL k n ow led ge, and reporting. A read er o f Section 1.8
srould recognize that as descriptive or reporting analytics. In contrast, a data scientist is
responsible fo r predictive analysis, statistical analysis, and m ore ad vanced analytical tools
and algorithm s. T h e y m ay have a d eep er kn ow led ge o f algorithm s and m ay recognize
*bem under various labels— data m ining, kn ow led ge discover)7, m achine learning, and
forth. Som e o f th ese professionals m ay also n eed d ee p e r program m ing k n ow led g e to
be ab le to w rite co d e fo r data clean in g and analysis in current W eb-orien ted languages
5-ich as Jav a and Python. Again, our readers should recog nize th ese as falling under the
predictive and prescriptive analytics um brella. O ur v iew is that the distinction b etw een
analytics and data scie n ce is m ore o f a d eg ree o f tech nical know led ge and skill sets than
d ie functions. It m ay also b e m ore o f a distinction across disciplines. Com puter scien ce,
statistics, and ap p lied m athem atics program s appear to p refer the data sc ie n c e label,
reserving the analytics label fo r m ore business-oriented professionals. As an o th er exam p le
this, applied physics professionals have prop osed using netw ork scien ce as the term
for describing analytics that relate to a group o f p eop le— social netw orks, supp ly chain
netw orks, and so forth. See barabasilab.neu.edu/netw orksciencebook/dow nlPD F.
fcdnl for an evolving textb o o k o n this topic.
Aside from a clear difference in the skill sets o f professionals w h o only have to do
iescriptive/reporting analytics versus th ose w h o engage in all three types o f analytics, the
distinction is fuzzy b etw een th e tw o labels, at best. W e observe that graduates o f our
analytics program s tend to b e responsible for tasks m ore in line with data scie n ce profes­
sionals (as defined b y som e circles) than just reporting analytics. This b o o k is clearly aim ed
i : introducing the capabilities and functionality o f all analytics (w hich includes data sci­
ence), not just reporting analytics. From now on , w e will use these terms interchangeably.

SECTION 1 .8 REVIEW QUESTIONS


1 . D efine an alytics.
2 . W hat is descriptive analytics? W hat various tools are em ployed in descriptive analytics?
3. H ow is d escriptive analytics different from traditional reporting?
4. W hat is a d ata w areh o u se? H ow c a n data w a reh o u sin g te ch n o lo g y h e lp in e n a ­
b lin g analytics?
5. W hat is predictive analytics? H ow can organizations em ploy predictive analytics?
6. W h at is p rescrip tiv e analytics? W h at kin ds o f p ro b lem s c a n b e solved b y p rescrip ­
tive analytics?
7. D efine m odeling from the analytics perspective.
8 . Is it a g o o d id ea to follow a hierarchy o f descriptive and predictive analytics b efo re
applying prescriptive analytics?
9. H ow can analytics aid in ob jective d ecisio n making?

1.9 B R IE F IN TRO D UCTIO N TO B IG D A TA A N A LY T IC S


W hat Is Big D ata?
O ur brains w o rk e xtrem ely q u ick ly and are efficien t and versatile in p ro cessin g large
am ounts o f all kinds o f data: im ages, text, sou nd s, sm ells, and vid eo. W e p ro c e ss all
different form s o f d ata relatively easily. C om puters, o n th e o th er hand , are still find ing it
hard to k e e p up w ith th e p a c e at w h ich data is gen erated — let a lo n e an alyze it quickly.
W e have th e p ro b lem o f B ig D ata. So w h at is B ig Data? Sim ply put, it is data th at can n o t
Making and Analytics: An Overview

b e sto red in a sin gle storag e unit. B ig D ata typically refers to data that is arriving in
m any different form s, b e th ey structured, unstructured , o r in a stream . M ajor sou rces
o f such data are click stream s from W eb sites, p o stin g s o n social m ed ia sites such as
F a ce b o o k , o r data from traffic, sen so rs, o r w eath er. A W e b sea rch e n g in e lik e G o o g le
n eed s to search and in d ex b illion s o f W e b p ag es in o rd er to give y ou relevan t search
results in a fractio n o f a seco n d . A lthough this is n o t d o n e in real tim e, g en eratin g an
in d ex o f all th e W eb p a g es o n th e In tern et is n o t an e a sy task. Luckily for G o o g le, it
w as a b le to solve this p ro blem . A m ong o th er tools, it h as e m p lo y ed B ig D ata analytical
tech n iqu es.
T h ere are tw o aspects to m anaging data o n this scale: storing and processing. If w e
could pu rchase an extrem ely exp en siv e storage solu tion to store all th e data at o n e place
o n o n e unit, m aking this unit fault toleran t w ould involve m ajor exp en se. An ingenious
solution w as p rop osed that involved storing this data in chu nks o n different m achines
co n n ecte d by a netw ork, putting a co p y or tw o o f this ch u nk in different locations on
the netw ork, b oth logically and physically. It w as originally used at G oo g le (th en called
G oogle F ile System ) and later d ev elop ed and released as an A p ache p ro ject as the H adoop
D istributed File System (H D FS).
H ow ever, storing this data is only h alf the problem . Data is w orthless if it d oes
n o t provide busin ess value, and fo r it to provide b u sin ess value, it has to b e analyzed.
H ow are such vast am ounts o f data analyzed? P assing all com putation to o n e pow erful
com p u ter d oes n ot w ork; this scale w ould create a h u g e ov erh ead o n su ch a pow er­
ful com puter. A nother ingenious solution w as proposed: Push com putation to the data,
instead o f pushing data to a com puting nod e. This w as a new paradigm , and it gave rise
to a w h ole n ew w ay o f p ro cessin g data. This is w hat w e k n ow today as the M apReduce
program m ing paradigm , w h ich m ade processin g B ig D ata a reality. M apReduce w as origi­
nally d ev eloped at G oogle, and a su b seq u en t version w as released b y the A p ache p roject
called H adoop M apReduce.
Today, w h en w e talk ab ou t storing, processing, o r analyzing B ig Data, HDFS and
M apReduce are involved at som e level. O ther relevant standards and softw are solutions
have b e e n proposed. Although th e m ajor toolkit is available as o p en sou rce, several
com p an ies have b e e n lau n ch ed to provide training o r sp ecialized analytical hardw are or
softw are services in this sp ace. Som e exam p les are H ortonW orks, Cloudera, and Teradata
Aster.
O v er the p ast fe w y ears, w h at w as called B ig D ata ch an g ed m o re and m ore as B ig
D ata ap p licatio n s ap p eared . T h e n e e d to p ro cess data co m in g in at a rapid rate added
v elo city to th e equ atio n . O n e e x a m p le o f fast data p ro cessin g is algorithm ic trading. It
is the u se o f e le ctro n ic platform s b a se d o n algorithm s fo r trading sh ares o n th e financial
m arket, w h ich o p erates in th e ord er o f m icro seco n d s. T h e n eed to p ro cess different
k inds o f data ad d ed variety to th e equ atio n . A n other e x a m p le o f th e w id e variety o f
data is sen tim en t analysis, w h ich u ses various form s o f d ata from so cia l m edia platform s
a n d cu sto m er resp o n se s to gauge sentim ents. T o d ay B ig D ata is asso ciated w ith alm ost
any k ind o f large data that h as th e ch aracteristics o f v o lu m e, velocity, and variety.
A p plication Case 1.7 illustrates o n e e x a m p le o f B ig D ata analytics. W e w ill study B ig
D ata ch aracteristics in m o re detail in Chapters 3 and 13.

SECTION 1 .9 REVIEW QUESTIONS


1 . W hat is B ig D ata analytics?
2 . W hat are th e sou rces o f B ig Data?
3 . W hat are th e characteristics o f B ig Data?
4 . W hat processing tech n iqu e is applied to p ro cess B i ta?
Chapter 1 * An Overview o f Business Intelligence, Analytics, and D ecision Support 59

Application Case 1.7


G ilt Groupe's Flash Sales Streamlined by Big Data Analytics
Gilt G roupe is an onlin e destination offering flash softw are k eep s track o f resp on ses to offers and sends
sjdes for m ajor brands b y selling their clothing and the sam e offer 3 days later to th o se custom ers w h o
accessories. It offers its m em bers exclusive discounts haven’t responded. Gilt also k e ep s track o f w hat
on high-end clothing and other apparel. After regis- custom ers are saying in general ab ou t Gilt’s prod­
lering with Gilt, custom ers are sen t e-m ails containing ucts by analyzing Tw itter feeds to analyze sentim ent.
i variety o f offers. Customers are given a 36-48 hour Gilt’s recom m endation softw are is b ased o n Teradata
w indow to m ake purchases using these offers. Th ere Aster’s technolog y solution that includes B ig Data
are about 30 different sales each day. W hile a typical analytics technologies.
departm ent store turns over its inventory tw o o r three
rimes a year, Gilt d oes it eight to 10 tim es a year. Thus, Q u e s t io n s f o r D is c u s s io n

they have to m anage their inventory extrem ely w ell 1. W hat m akes this ca se study an exam p le o f B ig
: r they could incur extrem ely high inventory costs. D ata analytics?
In order to d o this, analytics softw are developed at 2. W hat types o f d ecisio n s d oes Gilt G rou p e have
Gilt keeps track o f every custom er click— ranging to make?
from w hat brands th e custom ers click on, w hat colors
ih ey ch oose, w h at styles they pick, and w hat they W h a t W e C an L e a m F ro m th is A p p licatio n
end up buying. T h e n Gilt tries to predict w hat these C ase
custom ers are m ore likely to buy and stocks inven-
Th ere is continuous grow th in the am ount o f struc­
:oiy according to these predictions. Customers are
tured and unstructured data, and m any organiza­
<ent custom ized alerts to sale offers depending o n the
tions are n ow tapping th ese data to m ake actionable
rjg g estion s b y th e analytics software.
decisions. B ig Data analytics is n ow enabled b y the
That, how ever, is not the w h ole process. T h e
advancem ents in tech nologies that aid in storage and
software also m onitors w hat offers the custom ers
processing o f vast am ounts o f rapidly grow ing data.
ch oo se from the recom m en d ed offers to m ake m ore
accurate predictions and to increase the effectiveness Source-. Asterdata.com, “Gilt Groupe Speaks on Digital Marketing
o f its personalized recom m endations. Som e custom ­ Optimization," asterdata.com/gilt_groupe_video.php (accessed
ers do not ch eck e-m ail that often. Gilt’s analytics February 2013).

1.10 PLAN OF THE BOOK


T h e previous sectio n s h ave given y ou an understanding o f the n eed for using inform a­
n t tech n ology in d ecisio n m aking; an IT -o rien ted v iew o f various types o f d ecisio ns;
i o d the evolution o f d ecisio n supp ort system s into b u sin ess intellig ence, and n o w into
m alytics. In th e last tw o sectio n s w e have se e n an overview o f various types o f analyt­
i c and their application s. N ow w e are ready for a m ore d etailed m anagerial excu rsio n
e e o these to p ics, alo n g w ith so m e potentially d eep h an d s-on e x p e rien ce in so m e o f the
Technical topics. T h e 14 ch ap ters o f this b o o k are organized into five parts, as sh o w n in
fig u re 1.6.

=art l: Business Analytics: An O verview


fc. Chapter 1, w e provided an introduction, definitions, and an overview o f d ecisio n sup-
r c t t system s, b u sin ess intelligence, and analytics, including B ig D ata analytics. C hapter 2
rvers the b asic p h ases o f th e d ecision-m aking p ro cess an d introduces d ecisio n support
553cems in m ore detail.
60 Part I • D ecision Making and Analytics: An Overview

P a rt I
D ecision M aking and A n alytics: A n Overview

C h a p te r 1
An Overview of Business
Intelligence, Analytics, and
Decision Support

C h a p te r 2
Foundations and Technologies for
Decision Making

P a r t III P a r t IV
P redictive A n alytics P re scrip tive A n alytics

C h a p te r 9
C h a p te r 5 Model-Based Decision Making:
Data Mining Optimization and Multi-Criteria
Systems

C h a p te r 1 0 P a rt V
C h a p te r 6 Modeling and Analysis: B ig D a ta and Fu tu re Directions
P a r t II Techniques for Predictive
D e scrip tive Analytic Heuristic Search Methods and fo r B u sin e ss A nalytics
Modeling Simulation

C h a p te r 3 C h a p te r 11 C h a p te r 1 3
Ch a p te r 7
Data Warehousing Automated Decision Systems and Big Data and Analytics
Text Analytics, Text Mining, and Expert Systems
Sentiment Analysis

C h a p te r 4 C h a p te r S Ch a p te r 1 2 C h a p te r 1 4
Business Reporting. Visual Web Analytics, Web Mining, and Knowledge Management and Business Analytics: Emerging
Analytics, and Business Social Analytics Collaborative Systems Trends and Future Impacts
Performance Management

P a rt VI
Online Supplem ents

FIGURE 1.6 Plan of the Book.

Part II: Descriptive Analytics


Part II b eg in s w ith an introduction to data w areh ousing issues, applications, and te ch n o lo ­
g ies in C hapter 3. Data represen t the fundam ental b a ck b o n e o f any d ecisio n support and
analytics application. Chapter 4 d escribes b u sin ess reporting, visualization technologies,
and applications. It also includes a b rief overview o f b usin ess perform ance m anagem ent
techniqu es and applications, a topic that has b e e n a k ey part o f traditional BI.

Part III: Predictive Analytics


Part III com prises a large part o f th e b o o k . It b eg in s w ith an introduction to predictive
analytics applications in Chapter 5- It includes m any o f th e com m on application tech­
niques: classification, clustering, association m ining, and so forth. C hapter 6 includes a
technical description o f selected data m ining techn iqu es, esp ecially neural netw ork m od­
els. C hapter 7 fo cu ses o n text m ining applications. Similarly, C hapter 8 fo cu ses o n W eb
analytics, including social m edia analytics, sentim ent analysis, and o th er related topics.
Chapter 1 * An Overview o f Business Intelligence, Analytics, and D ecision Support 61

Part IV: Prescriptive Analytics


Part IV introd u ces d ecisio n analytic techniqu es, w h ich are also called prescriptive analyt­
ics. Specifically, C hapter 9 covers selected m odels that m ay b e im plem ented in spread­
sheet environm ents. It also cov ers a popular m u lti-objective decision tech n iq u e analytic
hierarchy p rocesses.
C hapter 10 th en introduces other m odel-based d ecision-m aking tech n iqu es, esp e­
cially heuristic m od els and sim ulation. C hapter 11 introduces autom ated d ecisio n system s
including exp ert system s. T his p a n con clu d es w ith a b rie f discussion o f know led ge
m anagem ent and group support system s in C hapter 12.

Part V: Big Data and Future Directions fo r Business Analytics


Part V b egin s w ith a m ore d etailed coverage o f B ig Data and analytics in C h apter 13-
C h ap ter 14 attem pts to in teg rate all th e m aterial co v ered in this b o o k and
co n clu d e s w ith a d iscu ssion o f em erg in g trend s, su ch as h ow th e u b iq u ity o f w ire­
less and GPS d e v ic e s and o th er sen so rs is resu ltin g in th e c re a tio n o f m assive new
d atabases an d u n iq u e ap p licatio n s. A n ew b re e d o f data m ining and BI c o m p a n ie s is
em ergin g to an aly ze th e se n e w d a ta b a ses an d cre a te a m u ch b etter an d d e e p e r u n d er­
standing o f c u sto m e rs’ b eh av io rs and m o vem en ts. T h e ch a p ter a lso c o v ers clo u d -b a sed
analytics, re co m m en d a tio n system s, an d a b rie f d iscu ssion o f security/privacy d im en ­
sio ns o f an aly tics. It co n c lu d e s the b o o k by a lso p resen tin g a d iscu ssion o f th e analytics
ecosy stem . An u n d erstan d in g o f th e e co sy stem an d th e various players in th e analytics
industry h igh ligh ts th e various ca re e r op p ortu n ities fo r stud ents and p ractitio n ers o f
analytics.

1.11 RESOURCES, LINKS, AND THE TERADATA UNIVERSITY


NETWORK CONNECTION
T h e u se o f this ch a p ter and m ost other chapters in this b o o k can b e e n h a n ced b y the tools
d escribed in the follow ing sections.

Resources and Links


W e recom m end th e follow ing m ajor resources and links:

• T h e D ata W arehou sing Institute (tdwi.org)


• Inform ation M anagem ent (rnformation-management.com)
• D SS R eso u rces (dssresources.com )
• M icrosoft Enterprise Consortium ( e n t e r p r i s e .w a l t o n c o l l e g e .u a r k .e d u / m e c .a s p )

Vendors, Products, and Demos


Most vendors provide softw are dem os o f their products and applications. Inform ation
ab ou t products, architecture, and softw are is available at dssresources.com .

Periodicals
W e recom m end the follow ing periodicals:

• D ecision Support Systems


• CIO Insight (cioinsight.com )
• T echnology E valu ation (technologyevaluation.com)
• B aselin e M agazin e (baselinemag.com)
62 Part I • D ecision Making and Analytics: An Overview

The Teradata U niversity N etw ork Connection


T h is b o o k is tightly c o n n e c te d w ith th e fre e re so u rc e s provid ed b y T erad ata University
N etw ork (TU N ; s e e teradatauniversitynetw ork.com ). T h e TUN portal is divided
in to tw o m a jo r parts: o n e fo r stud ents an d o n e fo r facu lty. T h is b o o k is c o n n e c te d to
th e TUN p o rtal via a sp e cia l sectio n at th e en d o f e a c h ch ap ter. T h a t sectio n inclu des
ap p rop riate links fo r th e sp e c ific ch a p ter, p o in tin g to relevan t reso u rces. In addition,
w e provide h a n d s-o n e x e rc ise s, using softw are an d o th er m aterial (e .g ., c a s e s ) avail­
a b le at TUN.

The Book's W eb Site


T his b o o k ’s W eb site, pearsonglobaleditions.com /turban, contains supplem ental tex ­
tual material organized as W eb chapters that corresp o n d to th e printed b o o k ’s chapters.
T h e topics o f th ese chapters are listed in the on lin e chapter tab le o f contents. O th er co n ­
tent is also available o n an ind ep end en t W eb site (dssbibook.com ).2

Chapter Highlights
• T h e b u sin ess environm ent is b eco m in g com p lex • B I architecture inclu des a data w arehouse, busi­
and is rapidly changing, m aking d ecisio n m aking ness analytics tools u sed by end users, and a user
m ore difficult. interface (su ch as a dashboard).
• B u sin esses m ust respond and adapt to th e chang­ • M any organizations em ploy d escriptive analytics
ing environm ent rapidly by m aking faster and to rep lace their traditional flat reporting with inter­
b etter decisions. active reporting that provides insights, trends, and
• T h e tim e fram e for m aking d ecisions is shrinking, patterns in the transactional data.
w h ereas the global nature o f decision m aking is • Predictive analytics e n a b le organizations to estab­
expan din g, necessitating the developm en t and lish predictive rules that drive the busin ess out­
u se o f com puterized DSS. co m es through historical data analysis o f the
• Com puterized support for m anagers is often existing b eh av io r o f the custom ers.
essential for th e survival o f an organization. • Prescriptive analytics help in building m odels that
• An early decision support fram ew ork divides involve forecastin g and optim ization techniques
d ecisio n situations into nine categories, depending b a se d o n the principles o f op eration s research
on the degree o f structuredness and m anagerial and m anagem en t scie n ce to h elp organizations to
activities. E ach categ oiy is supported differently. m ake b etter decisions.
• Structured repetitive decisions are supported by • B ig Data analytics fo cu ses o n unstructured, large
standard quantitative analysis m ethods, such as MS, data sets that m ay also include vastly different
MIS, and rule-based autom ated decision support. types o f data for analysis.
• DSS u se data, m odels, and som etim es know led ge • Analytics as a field is also k n ow n b y industry-
m anagem ent to find solutions fo r sem istm ctured sp ecific ap p lication nam es such as sports analytics.
and so m e unstructured problem s. It is also k n o w n by oth er related nam es such as
• B I m ethods utilize a central repository called a data sc ie n ce or netw ork science.
data w arehou se that enables efficient data mining,
OLAP, BPM , and data visualization.

1As this book went to press, we verified that all the cited Web sites were active and valid. However, URLs are
dynamic. Web sites to which we refer in the text sometimes change or are discontinued because companies
change names, are bought or sold, merge, or fail. Sometimes Web sites are down for maintenance, repair, or
redesign. Many organizations have dropped the initial “www” designation for their sites, but some still use it. If
you have a problem connecting to a Web site that we mention, please be patient and simply run a Web search
to try to identify the possible new site. Most times, you can quickly find the new site through one of the popular
search engines. We apologize in advance for this inconvenience.
Chapter 1 • An Overview o f Business Intelligence, Analytics, and D ecision Support 63

Key Terms
d ecisio n (o r norm ative) d escriptive (o r reporting) sem istructured
business intelligence
analytics problem
(B l) analytics
predictive analytics structured problem
dashboard d ecisio n support system
prescriptive analytics unstructured problem
data m ining (D SS)

Questions for Discussion


from it. Provide an example o f each and outline their
1 . Distinguish betw een strategic and tactical planning?
2 . What is data mining and why is it classified under predictive differences.
analytics? Search the W eb for an example o f data mining in 4 . Provide a definition o f B l.
5 . Define managerial decision making. Discuss this concept in
an organization o f your choice and illustrate the way it is
the context o f the four-step approach to decision making.
currently in use.
3 . Prescriptive analytics is considered to b e a step further
ahead o f predictive analysis and substantially different

Exercises
Analytics— Saving Lives and Lowering Medical Bills.”
T erad ata U n iv ersity N etw o rk (TU N ) an d O th er
Answer the following questions:
H ands-O n E x e rc is e s
a. W hat is the problem that is being addressed by apply­
1. G o to te ra d a ta u n iv e rsity n e tw o rk .co m . Using the reg­
ing predictive analytics?
istration your instructor provides, log on and learn the
b . W hat is the FICO Medication Adherence Score?
content o f the site. Y ou will receive assignments related
c. How is a prediction m odel trained to predict the FICO
to this site. Prepare a list o f 20 items in the site that you M edication Adherence Score? Did the prediction
think could be beneficial to you. m odel classify FICO Medication Adherence Score?
2 . Enter the TUN site and select “cases, projects and assign­ d. Zoom in on Figure 4 and explain what kind o f tech­
m ents.” Then select the case study: “Harrah’s High Payoff
nique is applied o n the generated results.
from Customer Information.” Answer the following ques­
e . List som e o f the actionable decisions that w ere based
tions about this case: on the results o f the predictions.
a. W hat information does the data mining generate? 5 . Visit h ttp ://w w w .ib m .co m /an aly tics/u s/en /w h at-is-
b . H ow is this information helpful to management in sm arter-analytics/b ig-d ata-analysis.h tm l. Read the sec­
decision making? (B e specific.) tion “Gain actionable insights from big data analysis,” and
c. List the types o f data that are mined. w atch the video “See how analytics can help organizations
d . Is this a DSS or B l application? Why?
in all industries use big data to achieve significant outcomes”
? . G o to terad atau niversitynetw ork .com and find the paper
under Case Studies to answer the following questions:
titled “Data Warehousing Supports Corporate Strategy at First
a. Explain b ig d a t a and its importance in decision mak­
American Corporation” (by Watson, Wixom, and Goodhue).
ing w ith examples.
Read the paper and answer the following questions: b . Appraise the maxim “without analytics, big data is just
a . W hat w ere the drivers for the DW/BI project in the
noise.”
company? c. In w hich sectors and areas might big data analytics be
b . W hat strategic advantages w ere realized?
m ost useful? Give examples.
c. What operational and tactical advantages were achieved?
d . W hat are the suggested solutions to managing risks?
d . W hat w ere the critical success factors (CSF) for the e . Review and analyze a case study from IBM’s W eb site
implementation? and explain how big data analytics provided solutions.
-i, G o to analytics-m ag azine.org / issu es/ d igital-ed itions
6 . Business analytics and com puterized data processing
and find the January/February 2012 edition titled “Special
support managers and decision making. Keeping current
Issue: T he Future o f Healthcare.” Read the article “Predictive
64 Part I • D ecision Making and Analytics: An Overview

business environm ent challenges in mind, along with 8 . Search the W eb for a com pany that uses the four major
Mintzberg’s 10 managerial roles ( s e e T a b le 1 .2 ), identify com ponents o f a standard B I system.
five such roles in companies/government’s press release 9 . In the com pany identified in the previous question, illus­
and com munications. trate their main products and style o f B I and discuss the
7- G o to oracle.com , a leading com pany in BI. Make a map main tools used. Refer to the tools mentioned in this
o f their W eb site illustrating their products and communi­ chapter.
cation styles with available resources for business.

End-of-Chapter Application Case


Nationwide Insurance Used BI to Enhance Customer Service
Nationwide Mutual Insurance Company, headquartered in than 48 sources into a single custom er data mart to deliver a
Columbus, Ohio, is o n e o f the largest insurance and financial holistic view o f custom ers. This data mart was coupled with
services companies, with $23 billion in revenues and more Teradata’s custom er relationship m anagem ent application to
than $160 billion in statutory assets. It offers a comprehensive create and m anage effective custom er m arketing campaigns
range o f products through its family o f 100-plus companies with that u se behavioral analysis o f custom er interactions to drive
insurance products for auto, motorcycle, boat, life, hom eown­ custom er m anagem ent actions (CMAs) for target segments.
ers, and farms. It also offers financial products and services Nationwide added m ore sophisticated custom er analytics
including annuities, mortgages, mutual funds, pensions, and that looked at custom er portfolios and the effectiveness
investment management. o f various marketing cam paigns. This data analysis helped
Nationwide strives to achieve greater efficiency in all Nationwide to initiate proactive custom er com m unications
operations by managing its expenses along with its ability to around custom er lifetim e events like marriage, birth o f child,
grow its revenue. It recognizes the use o f its strategic asset o f or hom e purchase and had significant im pact on improv­
information com bined with analytics to outpace competitors ing custom er satisfaction. Also, by integrating custom er
in strategic and operational decision making even in com plex contact history, product ow nership, and paym ent informa­
and unpredictable environments. tion, Nationwide’s behavioral analytics team s further created
Historically, Nationwide’s business units worked inde­ prioritized m odels that could identify w hich specific cus­
pendently and with a lot of autonomy. This led to duplication tom er interaction w as im portant for a custom er at any given
o f efforts, widely dissimilar data processing environments, and time. This resulted in o n e percentage point im provem ent
extrem e data redundancy, resulting in higher expenses. The in custom er retention rates and significant improvement
situation got com plicated when Nationwide pursued any merg­ in custom er enthusiasm scores. Nationwide also achieved
ers or acquisitions. 3 percent annual growth in increm ental sales by using CKS.
Nationwide, using enterprise data warehouse technology There are other uses o f the custom er database. In one o f
from Teradata, set out to create, from the ground up, a single, the initiatives, by integrating custom er telep h one data from
authoritative environment for clean, consistent, and complete m ultiple system s into CKS, the relationship m anagers at
data that can be effectively used for best-practice analytics to Nationwide tiy to b e proactives in contacting custom ers in
make strategic and tactical business decisions in the areas of advance o f a possible w eather catastrophe, such as a hur­
customer growth, retention, product profitability, cost contain­ ricane o r flood, to provide the prim aiy policyholder infor­
ment, and productivity improvements. Nationwide transformed mation and explain the claim s processes. T h ese and other
its siloed business units, which w ere supported by stove-piped analytic insights now drive Nationwide to provide extrem ely
data environments, into integrated units by using cutting-edge personal custom er service.
analytics that work with clear, consolidated data from all of
its business units. The Teradata data warehouse at Nationwide F in a n cia l O p e ra tio n s
has grown from 400 gigabytes to more than 100 terabytes and
A similar performance payoff from integrated information was
supports 85 percent o f Nationwide’s business with more than also noted in financial operations. Nationwide’s decentralized
2,500 users. management style resulted in a fragmented financial report­
ing environment that included more than 14 general ledgers,
I n te g r a te d C u s to m e r K n o w le d g e 20 charts o f accounts, 17 separate data repositories, 12 different
Nationwide’s Custom er K now ledge Store (CKS) initiative reporting tools, and hundreds o f thousands o f spreadsheets.
developed a custom er-centric database that integrated cus­ There was no com m on central view o f the business, which
tom er, product, and externally acquired data from m ore resulted in labor-intensive slow and inaccurate reporting.
Chapter 1 * An Overview o f Business Intelligence, Analytics, and Decision Support 65

About 75 percent o f the effort was spent on acquiring, clean­ single data w arehouse approach and, after careful assessment
ing, and consolidating and validating the data, and very7 little o f the needs o f sales management and individual agents,
time was spent o n meaningful analysis o f the data. selected a business intelligence platform that would integrate
The Financial Perform ance Management initiative dynamic enterprise dashboards into its reporting systems,
implemented a n ew operating approach that w orked o n a making it easy for the agents and associates to view policy
single data and technology architecture with a com m on set information at a glance. The n ew reporting system , dubbed
o f system s standardizing the process o f reporting. It enabled Revenue Connection, also enabled users to analyze the infor­
Nationwide to operate analytical centers o f excellence with mation with a lot o f interactive and drill-down-to-details capa­
world-class planning, capital management, risk assessment, bilities at various levels that eliminated the need to generate
ttA other decision support capabilities that delivered timely, custom ad hoc reports. Revenue Connection virtually elimi­
accurate, and efficient accounting, reporting, and analytical nated requests for manual policy audits, resulting in huge
services. savings in time and m oney for the business and technology
The data from m ore than 200 operational system s was teams. The reports w ere produced in 4 to 45 seconds, rather
sent to the enterprise-w ide data w arehouse and then distrib­ than days or w eeks, and productivity in som e units improved
uted to various applications and analytics. This resulted in by 20 to 30 percent.
a 50 p ercent im provem ent in the monthly closing process
with closing intervals reduced from 14 days to 7 days. Q u e s t io n s f o r D is c u s s io n

1 . W hy did Nationwide need an enterprise-wide data


P o s tm e rg e r D a ta In te g ra tio n warehouse?
N ationw ide’s G oal State Rate M anagem ent initiative en a­ 2 . H ow did integrated data drive the business value?
bled the c o m p a n y to m erge A llied Insu rance’s autom obile 3 . W hat fo r m s o f analytics a re employed af Nationwide?
co iicv system into its existing system . B oth Nationw ide and 4 . With integrated data available in an enterprise data
Allied source system s w ere custom -built applications that w arehouse, what other applications could Nationwide
■did not share any com m on values o r process data in the potentially develop?
v.rnp m anner. N ationw ide’s IT departm ent decided to bring
ill the data from sou rce system s into a centralized data W h a t W e C an L e a rn fro m T h is A p p licatio n
«^rehou se, organized in an integrated fashion that resulted
C ase
ia standard dim ensional reporting and helped Nationwide
perform ing w hat-if analyses. The data analysis team T h e proper use o f integrated inform ation in organiza­
tions can help achiev e better business o utcom es. Many
could identify previously u n know n potential differences
m the data environm ent w here prem iums rates w ere cal­ organizations now rely o n data w arehousing technologies
culated differently b etw een Nationw ide and Allied sides. to perform the onlin e analytical p rocesses o n the data to
derive valuable insights. T h e insights are used to develop
Correcting all o f th ese b en efited Nationw ide’s policyhold­
predictive m odels that further enab le the grow th o f the
ers b ecau se they w ere safeguarded from experiencing wide
organizations by m ore precisely assessing custom er needs.
premium rate swings.
Increasingly, organizations are m oving toward deriving
value from analytical applications in real time w ith the
E n h an ced R e p o rtin g help o f integrated data from real-tim e data w arehousing
,*2C«3nwide’s legacy reporting system, w hich catered to the technologies.
c c e c s o f property and casualty business units, took w eeks
D com pile and deliver the needed reports to the agents. Source: Teradata.com, “Nationwide, Delivering an On Your Side
X eronw ide determined that it needed better access to sales Experience," t e r a d a t a .c o m / W o r k A r e a / l i n k i t .a s p x P L i n k I d e n t i f i e
n-k-T policy information to reach its sales targets. It chose a r= id & Item ID = l47l4 (accessed February 2013).

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66 Part I • D ecision Making and Analytics: An Overview

Tableausoftware.com . “Eliminating W aste at Seattle Chil­


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Foundations and Technolog
for Decision Making

LEARNING OBJECTIVES
■ U nderstand the con cep tu al foundations ■ Understand important DSS classifications
o f d ecisio n m aking * Learn h o w D SS supp ort fo r decision
■ U nderstand Sim on’s four p h ases o f m aking can b e provided in practice
d ecisio n m aking: intelligence, design, * U nderstand DSS com p on en ts and how
ch o ice, an d im plem entation they integrate
■ U nderstand the essential definition
o f DSS

O
ur m ajor focu s in this b o o k is the support o f d ecisio n m aking through
com p u ter-based inform ation system s. T h e purpose o f this ch a p ter is to describe
th e con cep tu al foundations o f decision m aking and h ow d ecisio n support is
provided. This chapter inclu des th e follow ing sections:

2 .1 O p e n in g V ig n ette: D e c is io n M o d elin g a t H P U sin g S p re a d sh e e ts 68


2 .2 D e c is io n M aking: In tro d u ctio n an d D efin itio n s 70
2 .3 P h a s e s o f th e D ecisio n -M a k in g P ro c e ss 72
2 .4 D e c is io n M aking: T h e In te llig e n c e P h a se 74
2 .5 D e c is io n M aking: T h e D esig n P h a se 77
2 .6 D e c is io n M aking: T h e C h o ice P h a se 85
2 .7 D e c is io n M aking: T h e Im p le m e n ta tio n P h a se 85
2 .8 H o w D e c is io n s Are Su p p o rted 86
2 .9 D e c is io n S u p p o rt Sy stem s: C a p a b ilities 89
2 .1 0 D SS C la ssifica tio n s 91
2 .1 1 C o m p o n en ts o f D e c is io n S u p p o rt S y stem s 94
68 Part I • D ecision Making and Analytics: An Overview

2.1 OPENING VIGNETTE: Decision Modeling at HP Using


Spreadsheets
HP is a m ajor m anufacturer o f com puters, printers, an d m any industrial products. Its vast
product line leads to m any d ecisio n problem s. O lav son and Fry (2 0 0 8 ) have w orked on
m any spread sheet m odels for assisting d ecisio n m akers at HP and have identified several
lesson s from b o th th eir su ccesses and their failures w h en it com es to constructing and
applying sp read sh eet-based tools. T h ey d efine a to o l as ‘ a reusable, analytical solution
d esigned to b e handed o ff to n on tech nical end u sers to assist them in solving a repeated
busin ess p ro blem .”
W h en trying to solve a problem , HP d ev elop ers con sid er the three phases in devel­
op in g a m odel. T h e first phase is p ro blem fram ing, w h ere th ey con sid er the follow ing
questions in ord er to d ev elop th e b e s t solution for the problem :

• W ill analytics solve the problem ?


• Can an existing solution b e leveraged?
• Is a tool needed?

T h e first q u estio n is im portant b e ca u se the p ro blem m ay n ot b e o f an analytic nature,


and therefore, a sp read sh eet tool m ay n o t b e o f m u ch help in th e lon g run w ithout fixing
the nonanalytical part o f th e p ro blem first. For exam p le, m any inventory-related issues
arise b eca u se o f th e inherent d ifferences b e tw e e n the goals o f m arketing and supply
ch ain groups. M arketing lik es to have th e m axim um variety in the produ ct line, w hereas
supply chain m anagem ent fo cu ses o n reducing th e inventory costs. This difference is par­
tially outside th e sc o p e o f any m odel. Com ing up w ith nonm od eling solutions is im por­
tant as well. I f the p ro blem arises due to “m isalignm ent” o f incentives o r u n clear lines
o f authority o r plans, n o m odel ca n help. Thus, it is im portant to identify the root issue.
T h e seco n d q u estio n is im portant b eca u se som etim es an existing tool m ay solve a
p ro blem that then saves tim e and m oney. Som etim es m odifying an existing tool m ay solve
the problem , again saving som e tim e and m oney, but som etim es a custom tool is n eces­
sary to solve the problem . This is clearly w orthw hile to explore.
•T h e third q u estio n is im portant b e ca u se som etim es a n e w co m p u ter-b ased system
is n o t requ ired to so lv e th e problem . T h e d ev elo p ers have fo u n d that they o ften use
analytically derived d ecisio n g u id elines in stead o f a to ol. T h is solu tion requ ires less tim e
fo r d ev elop m en t and training, h as lo w e r m a in ten a n ce requ irem en ts, an d also provides
sim pler and m ore intuitive results. T h a t is, after th ey h ave e x p lo red th e p ro b lem d eep er,
th e d ev elo p ers m ay d eterm ine th at it is b etter to p resen t d ecisio n rules that c a n b e e a s­
ily im p lem ented as g u id elines fo r d ecisio n m ak in g rath er th an askin g the m anagers to
run so m e type o f a com p u ter m odel. T his results in e a sie r training, b etter understanding
o f th e rules b ein g p ro p osed , and in crea sed a cc e p ta n c e . It also typically lead s to low er
d ev elo p m en t co sts an d red u ced tim e fo r d ep loym ent.
If a m odel has to b e built, the developers m ove o n to the seco n d p h ase the actual
d esign and developm en t o f the tools. Adhering to five guidelines tends to in crease the
probability that the n ew tool w ill b e successful. T h e first guid eline is to d ev elop a proto­
type as quickly as possible. This allow s the d ev elop ers to test th e designs, dem onstrate
various featu res and ideas for the new tools, g e t early fe e d b a ck from th e end users to
s e e w h at w orks for them and w h at n eed s to b e ch an g ed , and test adoption. D evelop ing
a prototype also prevents the developers from overbuilding th e tool and yet allow s them
to construct m ore scalab le and standardized softw are applications later. Additionally, b y
d eveloping a prototype, developers ca n stop th e p ro cess o n c e th e tool is “g oo d en ou g h ,”
rather than building a standardized solu tion that w o u ld take lon g er to build and b e m ore
expensive.
Chapter 2 • Foundations and Technologies for Decision Making

T h e se c o n d g u id elin e is to “bu ild insight, n o t b la c k b o x e s .” T h e HP sp rea d sh eet


a o d e l d ev elo p e rs b elie v e th at this is im portant, b e c a u se o ften ju st e n te rin g so m e data
2nd receiv in g a calcu lated ou tp u t is n o t en o u g h . T h e users n e e d to b e a b le to think
o f alternative scen a rio s, and th e to o l d o e s n o t su p p ort this if it is a '‘b la c k b o x ” that
provides o n ly o n e reco m m en d a tio n . T h e y arg u e that a to o l is b e s t only i f it provides
in form ation to h e lp m ak e an d su p p ort d ecisio n s rath er th an just give th e an sw ers. T h ey
lis o b e lie v e th at a n in teractiv e tool h e lp s th e users to un d erstand th e p ro b le m b etter,
—e refo re lead in g to m ore in form ed d ecisio n s.
T he third guid eline is to “rem ov e u n n eed ed com plexity b efo re han d off.” This is
important, b e ca u se as a to o l b eco m es m ore co m p lex it requires m ore training and exper-
^se. m ore data, and m ore recalibrations. T h e risk o f bugs and m isuse also increases.
Som etim es it is b e st to study the problem , b eg in m odeling and analysis, an d th en start
shaping the program into a sim ple-to-u se tool for th e en d user.
T he fourth guid eline is to “partner w ith end users in discovery and d esig n.” B y w ork­
ing w ith the e n d users the developers g et a b etter feel o f the problem and a better idea
o f w hat th e end users want. It also increases the en d u sers’ ability to use analytic tools.
The end users also gain a b etter understanding o f the p ro blem and h ow it is solved using
th e n ew tool. Additionally, including th e end users in the developm en t p ro cess en h an ces
d i l decision m ak ers’ analytical know led ge and capabilities. B y w orking to g ether, their
know ledge and skills com p lem ent ea ch other in the final solution.
T h e fifth guid eline is to “d ev elop an O perations R esearch (O R ) ch am p ion .” B y involv­
ing end users in th e developm en t p ro cess, the d evelopers create cham p ions for th e new
tools w h o th en g o b a ck to their departm ents or com panies and en cou rag e th eir cow ork ­
ers to acce p t and u se them . T h e cham pion s are then the experts o n the tools in their areas
and can th en h e lp those b ein g introduced to th e n ew tools. Having ch am p ion s increases
the possibility that the tools w ill b e ad opted into the b u sin esses successfully.
T h e final stag e is the handoff, w h en the final tools that provide com p lete solutions
are given to the businesses. W h en planning the handoff, it is im portant to an sw er the fo l­
low ing questions:

• W ho will u se the tool?


• W ho ow n s the d ecisions that the tool will support?
• W ho else m ust b e involved?
• W ho is resp on sible fo r m aintenance and en h an cem en t o f th e tool?
• W h en will th e tool b e used?
• H ow will th e use o f the tool fit in with oth er processes?
• D oes it ch a n g e th e processes?
• D o es it g en erate input into th ose processes?
• H ow w ill th e tool im pact b u sin ess perform ance?
• Are the existing m etrics sufficient to rew ard this asp ect o f perform ance?
• H ow should th e m etrics and incentives b e chan g ed to m axim ize im pact to the busi­
n ess from the to o l and process?

B y k eep ing th ese lessons in m ind, developers and proponen ts o f com puterized d eci­
sion support in general and sp read sh eet-based m odels in particular are lik ely to enjoy
g reater success.

QUESTIONS FO R THE OPENING VIGNETTE


1 . W hat are som e o f the k ey questions to b e asked in suppoiting decision m aking
through DSS?
2 . W hat guidelines can b e learn ed from this vignette ab ou t d eveloping DSS?
3. W hat lesson s should b e k ep t in m ind fo r successful m odel im plem entation?
70 Part I • D ecision Making and Analytics: An Overview

WHAT WE CAN LEARN FROM THIS VIGNETTE


T his vignette relates to providing decision support in a large organization:

• B efo re building a m odel, d ecisio n m akers shou ld d evelop a good understanding o f


th e p ro blem that n eed s to b e addressed.
• A m odel m ay n ot b e n ecessary to address th e problem .
• Before developing a new tool, decision makers should explore reuse o f existing tools.
• T h e goal o f m odel building is to gain better insight into the problem , not just to
g en erate m ore num bers.
• Im plem entation plans should b e d ev eloped alon g w ith the m odel.

Source: Based on T. Olavson and C. Fry, “Spreadsheet Decision-Support Tools: Lessons Learned at Hewlett-
Packard,” Interfaces, Vol. 38, No. 4, July/August 2008, pp. 300-310.

2.2 DECISION MAKING: INTRODUCTION AND DEFINITIONS


W e are ab ou t to exa m in e h ow d ecisio n m aking is p racticed and so m e o f the underlying
th eo ries and m odels o f d ecisio n m aking. Y ou will a lso learn a b o u t th e various traits o f
d ecisio n m akers, inclu ding w h at characterizes a g o o d d ecisio n m aker. K now ing this can
h elp y ou to understand th e types o f d ecisio n su p p ort tools that m anagers ca n u se to
m ake m ore effective decision s. In the follow in g sectio n s, w e discuss various asp ects o f
d ecisio n m aking.

Characteristics of Decision M aking


In addition to th e characteristics presen ted in the op en in g vignette, decision making
m ay involve th e follow ing:

• G roupthink (i.e ., group m em bers a ccep t the solution w ithout thinking for them ­
selves) ca n lead to b ad decisions.
• D ecisio n m akers are interested in evaluating w h at-if scenarios.
• Experim entation with a real system (e .g ., d ev elop a sched u le, try it, and s e e how
w ell it w orks) m ay result in failure.
• Experim entation with a real system is p o ssible only for o n e set o f conditions at a
tim e and ca n b e disastrous.
• C hanges in the decision -m akin g environm ent m ay occu r continuously, leading to
invalidating assum ptions ab ou t a situation (e.g ., deliveries around holiday tim es may
increase, requiring a different view o f the problem ).
• Changes in the d ecision-m aking environm ent m ay affect d ecisio n quality by im pos­
ing tim e pressure on the d ecisio n m aker.
• C ollecting inform ation and analyzing a p ro blem takes tim e and ca n b e expensive. It
is difficult to d eterm ine w h en to stop and m ake a decision.
• T h ere m ay n ot b e sufficient inform ation to m ak e an intelligent decision.
• T o o m u ch inform ation m ay b e available (i.e., inform ation overload).

T o determ ine h ow real decision m akers m ake decisions, w e must first understand the
process and the im portant issues involved in d ecisio n m aking. T h e n w e ca n understand
appropriate m ethodologies for assisting decision m akers and the contributions inform ation
system s ca n m ake. O nly then can w e d ev elop DSS to h elp d ecisio n makers.
T h is ch a p ter is org an ized b a se d o n th e th ree k e y w ord s that form the term DSS:
d e c i s i o n , s u p p o r t , and s y s te m s . A d ecisio n m ak er sh ou ld n o t sim ply apply IT tools
blind ly. Rather, the d ecisio n m ak er g ets su p p ort through a rational ap p ro a ch that
Chapter 2 • Foundations and T echnologies for D ecision Making

sim plifies reality an d provides a relativ ely q u ick an d in ex p en siv e m ean s o f con sid erin g
various alternative co u rses o f action to arrive at th e b e s t (o r at lea st a very g o o d ) so lu ­
tion to th e p ro blem .

A W orking D efinition of Decision M aking


D ecision m akin g is a p ro cess o f ch oo sin g am ong m o or m ore alternative cou rses o f
action fo r th e pu rp ose o f attaining o n e o r m ore goals. A ccording to Sim on (1 9 7 7 ), m ana­
gerial d ecisio n m aking is synonym ous w ith the entire m anagem ent p ro cess. Consider
the im portant m anagerial function o f planning. Planning involves a series o f decisions:
W hat should b e done? W hen? W here? W hy? How? B y whom ? M anagers set goals, o r plan;
hence, planning im plies decision m aking. O ther m anagerial functions, su ch as organizing
and controlling, also involve d ecisio n m aking.

Decision-Making Disciplines
D ecision m aking is directly influenced b y several m ajor disciplines, so m e o f w h ich are
behavioral and so m e o f w h ich are scientific in nature. W e m ust b e aw are o f h ow their
philosophies can affect our ability to m ake d ecision s and provide support. B ehavioral
disciplines in clu d e anthropology, law, philosophy, political scien ce, psychology, social
psychology, and sociology. Scientific disciplines include com puter scie n ce , decision
analysis, e co n o m ics, engineering, th e hard scien ces (e.g ., biology, chem istry, physics),
m anagem ent science/ operations research, m athem atics, and statistics.
An im portant characteristic o f m anagem en t supp ort system s (M SS) is th eir em pha­
sis o n th e effectiveness, o r “g o o d n ess,” o f the d ecisio n prod u ced rather th an on the
com putational e fficien cy o f obtaining it; this is usually a m ajor c o n c ern o f a transaction
processing system . M ost W eb -b a sed DSS are fo cu sed o n im proving d ecisio n effectiveness.
Efficiency m ay b e a by-product.

Decision Style and Decision M akers


In the follow ing sectio n s, w e exam ine the notion o f d ecisio n style and sp ecific aspects
about d ecisio n m akers.

DECISION STYLE D ecision style is th e m anner b y w h ich decision m akers think and react
to problem s. T h is includes th e w ay th ey p erceiv e a problem , their cognitive responses,
in d h ow values and b eliefs vary from individual to individual and from situation to
situation. As a result, p eo p le m ake d ecision s in different w ays. Although there is a general
process o f d ecisio n m aking, it is far from linear. P eo p le d o n o t follow the sam e steps
of the p ro cess in the sam e seq u en ce, n o r d o they use all the steps. Furtherm ore, the
em phasis, tim e allotm ent, and priorities given to e a ch step vary significantly, n ot only
from o n e person to another, but also from o n e situation to the next. T h e m ann er in w h ich
m anagers m ake d ecisio n s (a n d the w ay they interact w ith other p e o p le ) d escribes their
decision style. B eca u se d ecisio n styles d ep en d o n the factors d escribed earlier, there are
many d ecisio n styles. Personality tem peram ent tests are o ften used to d eterm in e decision
sqdes. B eca u se there are m any such tests, it is im portant to try to equ ate th em in d eter­
mining d ecisio n style. H ow ever, the various tests m easure som ew h at different asp ects o f
personality, so th e y ca n n o t b e equated.
R esearchers h ave identified a nu m ber o f d ecision-m aking styles. T h e se inclu de heu­
ristic and analytic styles. O n e ca n also distinguish b etw ee n autocratic versus d em ocratic
styles. A nother style is consultative (w ith individuals o r groups). O f cou rse, there are
many com binations and variations o f styles. For exam p le, a p erson ca n b e analytic and
autocratic, o r consultative (w ith individuals) and heuristic.
72 Part I • D ecision Making and Analytics: An Overview

For a com puterized system to successfully su p p ort a m anager, it should fit the
d ecisio n situation as w ell as th e d ecisio n style. T h erefo re, the system shou ld b e flexible
and ad ap table to different users. T h e ability to ask w h at-if and g o a l-seek in g q u estions
provides flexibility in this d irection. A W e b -b a sed in terface using graphics is a d esirable
featu re in supp orting certain d ecisio n styles. I f a D SS is to su p p ort varying styles, skills,
and k n ow led g e, it should n ot attem pt to en fo rce a sp e cific p ro cess. Rather, it shou ld help
d ecisio n m akers use and d ev elop th eir ow n styles, skills, and know led ge.
D ifferent d ecisio n styles require different types o f support. A m ajor factor that deter­
m ines the type o f support required is w h eth er the d ecisio n m ak er is an individual o r a
group. Individual d ecisio n m akers n eed a cce ss to data and to experts w h o can provide
advice, w h ereas groups additionally n eed collaboration tools. W eb -b ased D SS ca n pro­
vid e support to both.
A lot o f inform ation is available o n the W eb a b o u t cognitive styles and decision
styles (e.g ., s e e B irkm an International, Inc., birkman.com; K eirsey T em peram ent Sorter
and K eirsey Tem peram en t Theory-II, keirsey.com). M any personality/tem peram ent tests
are available to h elp m anagers identify their ow n styles and th o se o f their em ployees.
Identifying an individual’s style ca n help establish the m ost effective com m unication
patterns and ideal tasks for w h ich the person is suited.

DECISIO N M AKERS D ecisions are often m ade b y individuals, especially at low er m anage­
rial levels and in small organizations. There may b e conflicting objectives ev en for a sole
decision maker. For exam ple, w h en m aking an investment decision, an individual investor
m ay consider the rate o f return o n the investment, liquidity, and safety as objectives. Finally,
decisions m ay b e fully automated (but only after a hum an decision m aker decides to d o so!).
This discussion o f decision m aking focuses in large part o n an individual decision
m aker. M ost m ajor d ecisions in m edium -sized and large organizations are m ade by groups.
Obviously, there are often conflicting objectives in a group decision-m aking setting. Groups
ca n b e o f variable size and m ay include p eo p le from different departm ents o r from differ­
ent organizations. Collaborating individuals m ay have different cognitive styles, personality
types, and decision styles. Som e clash, w hereas others are mutually enhancing. Consensus
can b e a difficult political problem . T herefore, the p ro cess o f d ecisio n m aking by a group
ca n b e very com plicated. Com puterized support ca n greatly e n h a n ce group decision
making. Com puter support can b e provided at a broad level, enablin g m em bers o f w hole
departm ents, divisions, or even entire organizations to collaborate online. Such support
has evolved ov er the past few years into enterprise inform ation system s (EIS) and includes
group support system s (G SS), enterprise resource m anagem ent (ERM)/enterprise resource
planning (ERP), supply chain m anagem ent (SCM), k n ow led g e m anagem ent system s (KMS),
and custom er relationship m anagem ent (CRM) system s.

SECTION 2 .2 REVIEW QUESTIONS


1 . W hat are the various asp ects o f decision making?
2. Identify sim ilarities and differences b e tw e e n individual and group decision m aking.
3 - D efine d ecision style and d escribe w hy it is im portant to con sid er in the d ecisio n ­
m aking process.
4 . W hat are the benefits o f m athem atical models?

2.3 PHASES OF THE DECISION-M AKING PROCESS


It is advisable to follow a system atic decision-m aking process. Sim on (1 9 7 7 ) said that this
involves three m ajor phases: intelligence, design, and ch o ice. H e later added a fourth phase,
im plem entation. M onitoring c a n b e considered a fifth phase— a form o f feedback. However.
Chapter 2 • Foundations and T echnologies for D ecision Making

Organization objectives
Search and scanning procedures
| Simplification Data collection
Assumptions Problem identification
Problem ownership
Problem classification
Problem statement
Problem Statem ent

Formulate a model
Validation of the model Set criteria for choice
Search for alternatives
Predict and measure outcomes

S u ccess
V
Verification, testing of Solution to the model
proposed solution Sensitivity analysis
Selection of the best [good]
alternative^)
Plan for implementation

Implementation
of solution
Failure

FIGURE 2.1 The Decisior-Making/Modeling Process.

w e view m onitoring as the intelligence p h a se applied to the implementation phase. Sim on's
model is the m ost con cise and y et com plete characterization o f rational decision making.
A conceptual picture o f the decision-m aking process is show n in Figure 2.1.
T h ere is a continu ou s flow o f activity from intelligence to design to ch o ice (s e e the
bold lines in Figure 2 .1 ), but at an y phase, th ere m ay b e a return to a previous phase
feed b ack ). M odeling is an essential part o f this process. T h e seem ingly ch aotic natu re o f
follow ing a haphazard path from p ro blem discovery to solution via d ecisio n m aking can
b e exp lained b y th ese feed b ack loops.
The decision-m aking process starts w ith the intelligence phase; in this phase, the
decision m aker exam ines reality and identifies and defines the problem . Problem ownership
s established as well. In the design phase, a m odel that represents the system is constructed.
This is d one b y m aking assumptions that simplify reality and writing dow n the relationships
im o n g all the variables. T he m odel is then validated, and criteria are determ ined in a princi­
ple o f choice for evaluation o f the alternative courses o f action that are identified. Often, the
process o f m odel developm ent identifies alternative solutions and vice versa.
T h e choice phase inclu des selectio n o f a p ro p osed solution to th e m o d el (not
necessarily to the p ro blem it represents). This solution is tested to d eterm ine its viability.
W hen the p rop osed solution seem s reason ab le, w e are ready for th e last phase: im ple­
m entation o f the d ecisio n (n o t necessarily o f a system ). Successfu l im plem entation results
m solving th e real p ro blem . Failure leads to a return to an earlier p h ase o f th e p ro cess. In
fact, w e can return to an earlier p h ase during any o f th e latter three phases. T h e d ecisio n ­
m aking situations d escribed in th e op en in g vignette follow Sim on’s four-phase m odel, as
do alm ost all oth er decision-m akin g situations. W eb im pacts o n the four phases, an d vice
versa, are show n in T a b le 2.1.
74 Part I • D ecision Making and Analytics: An Overview

T A B L E 2.1 Sim on's Four Phases o f Decision M aking a nd th e W e b

Phase W e b Impacts Impacts on th e W e b

Intelligence Access to information to identify Identification of opportunities for


problems and opportunities from e-commerce, W eb infrastructure,
internal and external data sources hardware and software tools, etc.
Access to analytics methods to Intelligent agents, which reduce the
identify opportunities burden of information overload
Collaboration through group support Smart search engines
systems (GSS) and knowledge
management systems (KMS)
Design Access to data, models, and solution Brainstorming methods (e.g., GSS)
methods to collaborate in Web
Use of online analytical processing infrastructure design
(OLAP), data mining, and data Models and solutions of W eb
warehouses infrastructure issues
Collaboration through GSS and KMS
Similar solutions available from KMS
Choice Access to methods to evaluate the Decision support system (DSS) tools,
impacts of proposed solutions which examine and establish crite-a
from models to determine Web,
intranet, and extranet infrastructure
DSS tools, which determine how
to route messages
Implementation Web-based collaboration tools (e.g., Decisions implemented on browse'
GSS) and KMS, which can assist in and server design and access,
implementing decisions which ultimately determined ho* j
to set up the various component "
that have evolved into the Internet
Tools, which monitor the performance
of e-commerce and other sites,
including intranets, extranets, and
the Internet

N ote that there are m any oth er d ecision-m aking p ro cesses. N otable am ong th e n 3
the K ep ner-T reg oe m ethod (K ep n er and T reg oe, 1998), w h ich has b ee n adopted by man
firms b eca u se its tools are readily available from K ep ner-T reg oe, Inc. (kepner-tregc»±.
com). W e have found that th ese alternative m odels, including the K epner-Tregoe m e ::. a
readily m ap into Sim on’s four-phase m odel.
W e n ext turn to a d etailed d iscussion o f the fo u r p hases identified b y Simon.

SECTION 2 .3 REVIEW QUESTIONS


1 . List and briefly d escribe Sim on’s four p hases o f d ecisio n m aking.
2. W hat are the im pacts o f th e W eb 011 th e phases o f decision making?

2.4 DECISION MAKING: THE INTELLIGENCE PHASE


In telligen ce in d ecisio n m aking involves scann in g th e environm ent, eith er in term itten t
o r continuously. It inclu des several activities aim ed at identifying p ro blem situation' 1
opportunities. It may a lso inclu de m onitoring th e results o f the im plem entation pha>r o
a d ecision-m aking process.
Chapter 2 • Foundations and T echnologies for D ecision Making 75

Problem (or Opportunity) Identification


TEir intelligence phase begins with the identification o f organizational goals and objectives
e acrd to an issue o f con cern (e.g., inventory m anagem ent, jo b selection, lack o f or incorrect
W er oresence) and determ ination o f w hether they are being met. Problem s occu r b ecau se o f
fa s a s fa c tio n with th e status quo. Dissatisfaction is the result o f a difference betw een what
sien-cie desire (o r exp ect) and w hat is occurring. In this first phase, a decision m aker attempts
i determine w hether a problem exists, identify its symptoms, determ ine its magnitude, and
E m i l y define it. Often, w hat is described as a problem (e.g., excessive costs) m ay be
iv 2 symptom (i.e., m easure) o f a problem (e.g., im proper inventory levels). B ecau se real-
Eadd problem s are usually com plicated b y m any interrelated factors, it is som etim es difficult
D ifd n g u ish betw een the symptoms and th e real problem . New opportunities and prob-
t - s certainly m ay b e uncovered w hile investigating the causes o f symptoms. For exam ple,

pciieation Case 2.1 describes a classic story o f recognizing th e correct problem .


T he existen ce o f a problem can b e determ ined by m onitoring and analyzing the
e ssm iz a tio n ’s productivity level. T h e m easurem ent o f productivity and the construction
r f a m odel are b ased o n real data. T h e collection o f data and the estim ation o f future data
s -e am ong the m ost difficult steps in th e analysis. T h e follow ing are som e issues that m ay
during data co lle ctio n and estim ation and thus plague decision m akers:

• Data are n ot available. As a result, th e m odel is m ade with, and relies on, potentially
inaccurate estim ates.
• O btaining data m ay b e expensive.
• D ata m ay n o t b e accu rate o r p recise enough.
• Data estim ation is often subjective.
• Data m ay b e insecure.
• Im portant data that influ ence th e results m ay b e qualitative (soft).
• T h ere m ay b e to o m any data (i.e., inform ation overload).

Application Case 2.1


Making Elevators Go Faster!
This story has b e e n reported in num erous places Cam eron (1 9 9 6 ) give several oth er exam p les o f dis­
and has alm ost b e co m e a classic exam p le to explain tractions, including lighting, displays, and so on , that
d ie n eed for p ro b lem identification. A ck o ff (a s cited organizations u se to red u ce p erceiv ed waiting time.
in Larson, 1987) d escribed the p ro blem o f m anaging If the real problem is identified as p erceiv ed waiting
com plaints ab ou t slow elevators in a tall hotel tow er. tim e, it ca n m ake a b ig difference in the p rop osed
After trying m an y solutions fo r reducing the co m ­ solutions and their co sts. F o r exam p le, full-length
plaint: staggering elevators to g o to different floors, mirrors probably co st a w h o le lot less th an adding
adding operators, and so o n , th e m anagem ent deter­ an elevator!
m ined that the real p roblem w as n ot a b o u t th e actu al
waiting tim e b u t rather the p erceiv ed w aiting time. Sources: Based on J. Baker and M. Cameron, “The Effects of
So the solution w as to install full-length mirrors on the Service Environment on Affect and Consumer Perception of
elevator doors o n e a c h floor. As H esse and W oo lsey Waiting Time: An Integrative Review and Research Propositions,”
Jo u rn al o f the A cadem y o f M arketing Science, Vol. 24, September
(1975) put it, “th e w o m en w ould lo o k at them selves
1996, pp. 338-349; R. Hesse and G. Woolsey, A pplied M anagem ent
in the m irrors an d m ake adjustm ents, w hile the m en Science: A Q uick a n d Dirty A pproach, SRA Inc., Chicago, 1975;
would lo o k at th e w om en, and b efo re they kn ew it, R. C. Larson. “Perspectives on Queues: Social Justice and the
the elevator w as th e re .” B y reducing the perceived Psychology of Queuing,” O perations R esearch, Vol. 35, No. 6,
waiting tim e, th e problem w en t away. B a k er and November/December 1987, pp. 895-905.
76 Part I • D ecision Making and Analytics: An Overview

• O u tco m es (o r resu lts) m ay o c c u r o v er a n e x te n d e d p eriod . As a result, rev­


e n u e s, e x p e n s e s, an d profits w ill b e re co rd e d a t d ifferen t p o in ts in tim e. T o
o v erco m e this difficulty, a p resen t-v alu e a p p ro a ch c a n b e u se d if th e results are
q u an tifiable.
• It is assum ed that future data will b e sim ilar to historical data. If this is not the case,
th e nature o f the ch an g e has to b e pred icted an d included in the analysis.

W hen the prelim inary investigation is com p leted , it is p ossible to d eterm ine w heth er
a p ro blem really exists, w h ere it is located, and h ow significant it is. A key issue is w heth er
an inform ation system is reporting a p ro blem o r o n ly th e sym ptom s o f a problem . For
exam p le, if reports indicate that sales are dow n, th ere is a problem , b u t the situation, no
doubt, is’ sym ptom atic o f the problem . It is critical to k n o w the real problem . Som etim es
it m ay b e a p ro blem o f p erception, incentive m ism atch, o r organizational p ro cesses rather
than a p o o r d ecisio n m odel.

Problem Classification
Problem classification is the conceptualization o f a problem in an attem pt to p lace it in
a definable category, possibly leading to a standard solution approach. An im portant
ap p roach classifies problem s according to the d eg ree o f structuredness evident in them .
Th is ranges from totally structured (i.e ., program m ed ) to totally u n staictu red (i.e ., unpro­
gram m ed), as d escribed in C hapter 1.

Problem Decomposition
M any co m p lex p roblem s ca n b e divided into su bp roblem s. Solving the sim pler su b p rob ­
lem s m ay help in solving a co m p lex problem . Also, seem ingly poorly structured problem s
som etim es have highly structured subproblem s. Ju s t as a sem istructured p ro blem results
w h en som e phases o f d ecisio n m aking are structured w h ereas oth er phases are unstruc­
tured, so w h en som e subproblem s o f a d ecision-m aking p ro blem are structured with
others unstructured, the p ro blem itself is sem istructured. As a DSS is d ev eloped and the
d ecisio n m ak er and developm en t staff learn m ore ab ou t th e problem , it gains structure.
D eco m p o sition also facilitates com m unication am o n g d ecisio n m akers. D ecom p osition is
o n e o f the m ost im portant asp ects o f th e analytical hierarchy process. (AHP is discussed
in C hapter 11, w hich help s d ecisio n m akers incorporate b o th qualitative and quantitative
factors into their decision-m aking m odels.)

Problem Ownership
In th e in tellig en ce p h a se , it is im portant to e sta b lish p ro b lem ow n ersh ip . A p ro b lem
ex ists in an org anization only if so m e o n e o r so m e gro u p tak es o n th e resp o n sib ility o
attack in g it and if th e org an izatio n has th e ability to so lv e it. T h e assig n m en t o f author­
ity to so lv e th e p ro b lem is ca lled problem ow nership. F o r e x a m p le , a m an ag er m ay
fe e l th at h e o r sh e h as a p ro b lem b e c a u se in te rest rates are to o h ig h. B e c a u s e interest
rate lev els a re d eterm in ed at th e n ation al an d in tern ation al lev els, an d m o st m anagers
c a n d o n oth in g a b o u t th em , high in terest rates a re th e p ro b lem o f the g ov ern m en t, n ot
a p ro b lem for a sp e c ific co m p a n y to so lv e. T h e p ro b lem co m p a n ie s actu ally fa ce is
h o w to o p era te in a h ig h -in te rest-ra te en v iron m en t. F o r an individual com p an y, th e
in terest rate lev el shou ld b e h an d led as a n u n co n tro lla b le (e n v iro n m e n ta l) fa cto r to b e
p red icted . , .
W hen problem ow nership is n ot established , eith er so m eo n e is n o t doing his or
h e r jo b o r the problem at hand has y et to b e identified as b elon g in g to anyone. It is then
im portant for so m e o n e to eith er vo lu n teer to ow n it o r assign it to som eon e.
T h e intelligence p h ase end s w ith a form al p ro b lem statem ent.
Chapter 2 * Foundations and Technologies for D ecision Making 77

f ZCTION 2 .4 REVIEW QUESTIONS


1 . W hat is the d ifferen ce b etw ee n a p ro blem an d its symptoms?
2 . W hy is it im portant to classify a problem ?
3 . W hat is m ean t b y p roblem decom position ?
-L W hy is establishing p ro blem ow nership so im portant in the d ecision-m aking process?

2.5 DECISION MAKING: THE DESIGN PHASE


The design p h ase involves finding o r d eveloping and analyzing p o ssible cou rses o f action
These include understanding the problem and testing solutions fo r feasibility A m odel
rr the decision-m aking p ro blem is constructed, tested , and validated. Let u s first define
i model.

Models1
A m ajor characteristic o f a DSS and m any B l tools (notably those o f business analytics) is the
inclusion o f at least o n e m odel. T h e b asic idea is to perform the DSS analysis on a m odel
o f reality rather than o n the real system . A m odel is a simplified representation or abstrac­
tion o f reality. It is usually simplified becau se reality is to o com p lex to describe exactly and
because m uch o f the com plexity is actually irrelevant in solving a specific problem .

Mathematical (Quantitative) Models


The com plexity o f relationships in m any organizational system s is d escribed m athemati­
cally. Most DSS analyses are perform ed numerically with m athem atical or oth er quantitative
models.

The Benefits of Models


We use m odels for the follow ing reasons:
• M anipulating a m odel (chan g ing d ecisio n variables o r th e en vironm ent) is m uch
easier th an m anipulating a real system . Experim entation is easier and d oes not
interfere w ith the organization’s daily operations.
• Models e n a b le the com p ression o f tim e. Y ears o f op erations ca n b e sim ulated in
m inutes o r seco n d s o f com puter time.
• T h e co st o f m odeling analysis is m u ch low er than the co st o f a sim ilar exp erim ent
cond u cted o n a real system .
• T h e co st o f m aking m istakes during a trial-and-error exp erim ent is m uch low er
w h en m od els are u sed than w ith real system s.
• T h e b u sin ess environm ent involves con sid erab le uncertainty. W ith m odeling, a
m anager ca n estimate the risks resulting from sp ecific actions.
• M athem atical m odels en a b le the analysis o f a very large, som etim es infinite, nu m ber
o f p o ssible solutions. Even in sim ple problem s, m anagers o ften have a large num ber
o f alternatives from w h ich to ch oose.
• M odels e n h a n ce and reinforce learning and training.
• M odels an d solution m ethods are readily available.

M odeling involves con cep tu alizin g a p ro b lem and abstractin g it to quantitative


and/or qualitativ e form (s e e C hapter 9 ). F o r a m ath em atical m odel, th e v ariab les are

-Caution- Many students and professionals view models strictly as those of “data modeling’ in the context of
S te rn s a n a " ! and design. Here, we consider analytical models such as those of linear programmmg, s t a ­
tion, and forecasting.
78 Part I • D ecision Making and Analytics-. An Overview

identified , an d their m utual relationsh ip s are establish ed . Sim plifications are m ade,
w h en e v e r n ecessary , through assum p tions. F o r e x a m p le , a relatio n sh ip b e tw e e n tw o
variab les m ay b e assum ed to b e linear e v e n thou g h in reality th ere m ay b e so m e n o n ­
linear e ffects. A p ro p er b a la n c e b e tw e e n th e lev el o f m odel sim p lification and th e rep ­
resen tatio n o f reality m ust b e o b ta in ed b e c a u se o f th e cost—b en e fit trad e-off. A sim pler
m o d el leads to low er d ev elop m en t costs, ea sie r m anipu lation, and a faster solu tion but
is less rep resen tativ e o f th e real p ro b lem and ca n p ro d u ce in accu rate results. H ow ever,
a sim p ler m odel g enerally requ ires fe w e r data, or th e data are aggregated and easier
to ob tain.
T h e p ro cess o f m od eling is a com bin ation o f art and scie n ce . As a scie n ce , there
are m any standard m odel classes available, and, w ith p ractice, an analyst ca n d eteim in e
w h ich o n e is ap p licab le to a given situation. As an art, creativity and fin esse are required
w h en d eterm ining w hat sim plifying assum ptions ca n w ork, h o w to co m b in e appropri­
ate featu res o f th e m odel classes, and h o w to integrate m odels to ob tain valid solutions.
M odels have decision variables that d escrib e th e alternatives from am ong w h ich a
m an ag er m ust ch o o se (e .g ., h ow m any cars to deliver to a sp e cific rental agency, h ow to
advertise at sp e cific tim es, w h ich W eb server to bu y o r lea se ), a result variable o r a set
o f result variables (e .g ., profit, revenue, sa les) that d escrib e s the o b je ctiv e o r g oal o f the
d ecision-m aking p ro blem , and u n con tro llable variables o r param eters (e .g ., eco n o m ic
con d ition s) that d escribe th e environm ent. T h e p ro cess o f m odeling involves determ in­
ing th e (usually m athem atical, som etim es sy m b olic) relationsh ip s am on g the variables.
T h e se to p ics are d iscu ssed in C hapter 9-

Selection o f a Principle of Choice


A principle o f choice is a criterio n that d escrib e s th e accep tab ility o f a solution
a p p roach. In a m odel, it is a result variable. S electin g a principle o f ch o ice is n ot part
o f th e c h o ic e p h ase but involves h o w a p e rso n establish es d ecision-m aking o b jectiv e(s)
and incorp o rates the o b je ctiv e (s) into th e m o d el(s). Are w e w illing to assum e high
risk, o r d o w e p refer a low -risk approach? Are w e attem pting to optim ize o r satisfice?
It is a lso im portant to reco g n iz e th e d ifferen ce b e tw e e n a criterion and a constraint
(s e e T e ch n o lo g y Insights 2.1). A m ong the m any princip les o f c h o ic e , norm ative and
d escriptive are o f prim e im portance.

T EC H N O LO G Y IN SIGH TS 2 .1 T h e D iffe re n ce B e tw e e n a C riterio n


a n d a C o n stra in t

Many people new to the formal study o f decision making inadvertently confuse the concepts of
criterion and constraint. Often, this is because a criterion may imply a constraint, either implicit
or explicit, thereby adding to the confusion. For example, there may be a distance criterion that
the decision maker does not want to travel too far from home. However, there is an implicit
constraint that the alternatives from which he selects must be within a certain distance from his
home. This constraint effectively says that if the distance from home is greater than a certain
amount, then the alternative is not feasible— or, rather, the distance to an alternative must be less
than or equal to a certain number (this would be a formal relationship in some models; in the
model in this case, it reduces the search, considering fewer alternatives). This is similar to what
happens in some cases when selecting a university, where schools beyond a single days diiv-
ing distance would not be considered by most people, and, in fact, the utility function (criterion
value) o f distance can start out low close to home, peak at about 70 miles (about 100 km)— say,
the distance between Atlanta (home) and Athens, Georgia— and sharply drop off thereafter.
Chapter 2 • Foundations and Technologies for D ecision Making 79

Normative Models
Normative m odels are m odels in w h ich th e ch o se n alternative is dem onstrably the b est
o f all possible alternatives. T o find it, the d ecisio n m aker should exam in e all th e alterna­
t e s and prove that the o n e selected is indeed the b est, w h ich is w h at th e p e rso n w ould
nonnally w ant. T h is p ro cess is basically optimization. Th is is typically the g o a l o f w hat
w e call prescriptive analytics (Part IV). In operational term s, optim ization ca n b e achieved
in one o f three w ays:
1 . G et the highest level o f goal attainm ent from a given set o f resources. For exam ple,
w hich alternative will yield the m axim um profit from an investm ent o f $ 10 million?
2 . Find the alternative w ith the highest ratio o f goal attainm ent to co st (e .g ., profit per
dollar invested ) or m axim ize productivity.
3 . Find the alternative w ith th e low est co st (o r sm allest am ount o f oth er resou rces) that
will m eet an acce p ta b le level o f goals. For exam p le, if you r task is to select hardw are
fo r an intranet with a m inim um bandw idth, w h ich alternative w ill accom p lish this
goal at the least cost?

Normative d ecisio n theory is b a se d o n the follow ing assum ptions o f rational


decision makers:
• Humans are e co n o m ic b ein g s w h ose ob jective is to m axim ize th e attainm ent o f
goals; that is, the d ecisio n m aker is rational. (M ore o f a g oo d thing [revenue, fun] is
b etter than less; less o f a b ad thing [cost, pain] is b etter than m o re.)
• For a decision-m aking situation, all viable alternative cou rses o f action and their
co n seq u en ces, or at least the probability and the values o f the c o n se q u e n ces, are
know n.
• D ecisio n m akers have an ord er o r p referen ce that en ab les th em to rank the desir­
ability o f all co n se q u e n ces o f the analysis (b e st to w orst).

Are decision makers really rational? Though there m ay b e m ajor anom alies in the pre­
sumed rationality o f financial and econ om ic behavior, w e take the view that they could b e
caused b y incom petence, lack o f know ledge, multiple goals being fram ed inadequately, mis­
understanding o f a decision maker’s true exp ected utility, and time-pressure impacts. There
axe other anom alies, often caused by time pressure. For exam ple, Stewart (2 0 0 2 ) described
i. num ber o f researchers w orking with intuitive decision making. I he idea o f thinking with
vour gut” is obviously a heuristic approach to decision making. It w orks w ell for firefighters
m d military personnel on the battlefield. O n e critical aspect o f decision m aking in this m ode
is that many scenarios have b ee n thought through in advance. Even w h en a situation is new .
i can quickly b e m atched to an existing o n e on-the-fly, and a reasonable solution can b e
obtained (through pattern recognition). Luce et al. (2004) described h ow em otions affect
decision making, and Pauly (2 0 0 4 ) discussed inconsistencies in decision making.
W e b eliev e that irrationality is cau sed b y th e factors listed previously. For exam ­
ple, Tversky et al. (1 9 9 0 ) investigated the p h en o m en o n o f preferen ce reversal, w h ich is
a know n p ro blem in applying th e AHP to problem s. Also, som e criterion or preferen ce
may b e om itted from th e analysis. Ratner et al. (1 9 9 9 ) investigated h o w variety ca n cause
individuals to ch o o se less-preferred op tions, ev en though th ey will en jo y them less. But
w e m aintain that variety clearly has value, is part o f a d ecisio n m aker’s utility, and is a
criterion and/or constraint that should b e consid ered in d ecisio n m aking.

Suboptimization
B y definition, optim ization requires a d ecisio n m ak er to consid er the im pact o f e a ch alter­
native cou rse o f actio n on th e entire organization b eca u se a d ecisio n m ade in o n e area
may have significant effects (positive o r n egative) o n oth er areas. Consider, for exam p le, a
80 Part I • D ecision Making and Analytics: An Overview

m arketing departm ent that im plem ents an electro n ic com m erce (e-co m m e rce ) site. W ithin
hours, orders far e x c e e d produ ction capacity. T h e produ ction departm ent, w h ich plans
its ow n schedu le, can n o t m eet dem and. It m ay g ea r up fo r as high d em and as possi­
b le. Ideally and independently, th e departm ent shou ld produ ce only a few products in
extrem ely large quantities to m inim ize m anufacturing costs. H ow ever, su ch a p lan m ight
result in large, costly inventories and m arketing difficulties cau sed b y the la ck o f a variety
o f products, esp ecially if custom ers start to ca n ce l orders that are n o t m et in a tim ely way.
This situation illustrates th e sequential nature o f d ecisio n m aking.
A system s p oint o f view assesses the im pact o f every d ecisio n o n the entire sys­
tem . Thus, the m arketing departm ent should m ake its plans in conjun ction with other
departm ents. H ow ever, such an ap p roach m ay requ ire a com plicated, exp en sive, tim e-
consu m ing analysis. In practice, the MSS build er m ay clo se the system within narrow
boundaries, consid ering only the part o f the organization under study (th e m arketing and/
o r p roduction departm ent, in this case). B y sim plifying, the m odel then d oes not incorpo­
rate certain com p licated relationships that d escribe interactions with and am ong th e other
departm ents. T h e oth er departm ents ca n b e aggregated into sim ple m odel com ponents.
Su ch an ap p roach is called suboptimization.
If a suboptim al d ecisio n is m ade in o n e part o f th e organization w ithout considering
the details o f the rest o f the organization, then an optim al solution from th e p oin t o f view
o f that part m ay b e inferior fo r the w h ole. H ow ever, suboptim ization m ay still b e a very
practical ap p roach to decision m aking, and m any p ro blem s are first ap p roach ed from this
perspective. It is p ossible to reach tentative con clu sion s (an d generally u sab le results) b y
analyzing on ly a portion o f a system , w ithout getting b og g ed d ow n in to o m any details.
After a solution is proposed, its potential effects o n th e rem aining departm ents o f the
organization can b e tested. If n o significant negative effects are found, th e solution can
b e im plem ented.
Suboptim ization m ay also apply w h en sim plifying assum ptions are u sed in m od­
eling a sp ecific problem . T h ere m ay b e to o m any details o r too m any data to incorporate
into a sp ecific d ecision-m aking situation, and so n o t all o f them are u sed in the m odel.
I f th e solution to th e m odel seem s reasonable, it m ay b e valid for the p ro blem and thus
b e adopted. For exam p le, in a production departm ent, parts are often partitioned into
A/B/C inventory categories. G enerally, A item s (e .g ., large gears, w h o le assem blies) are
exp en siv e (say, $ 3 ,0 0 0 o r m o re e a ch ), built to ord er in sm all b atch es, and inventoried in
low quantities; C item s (e.g ., nuts, bolts, screw s) are very inexpensiv e (say, less than $2)
and ordered and used in very large quantities; and B item s fall in b etw een . All A items
can b e hand led by a detailed scheduling m odel and physically m onitored closely b y m an­
agem ent; B item s are generally som ew h at aggregated, their groupings are scheduled, and
m anagem ent review s th ese parts less frequently; an d C item s are n o t sch edu led b u t are
sim ply acquired o r built based o n a policy d efined b y m anagem ent with a sim ple e c o ­
nom ic order quantity (E O Q ) ordering system that assum es constan t annual dem and. T he
policy m ight b e review ed o n ce a year. T his situation applies w h en determ ining all criteria
o r m odeling th e entire p ro blem b eco m es prohibitively tim e-consu m ing o r expensive.
Suboptim ization m ay a lso involve sim ply bou nd in g the search for an optim um
(e.g ., by a heuristic) b y consid erin g few er criteria o r alternatives or b y elim inating large
portions o f the p ro blem from evaluation. I f it takes too long to solve a problem , a good-
en ou g h solution found already m ay b e u sed and th e optim ization effort term inated.

Descriptive Models
Descriptive models d escribe things as they are o r as th ey are b elieved to b e. T h ese
m odels are typically m athem atically based . D escriptive m od els are extrem ely useful in
DSS for investigating th e co n se q u e n ces o f various alternative cou rses o f action under
Chapter 2 • Foundations and Technologies for D ecision Making 81

different configurations o f inputs and p rocesses. H ow ever, b eca u se a d escriptive analysis


ch ecks the p erfo rm an ce o f th e system fo r a given set o f alternatives (rather than for all
alternatives), there is n o guarantee that an alternative selected w ith th e aid o f descriptive
analysis is optim al. In m any ca ses, it is only satisfactory.
Sim ulation is probably th e m ost com m on descriptive m odeling m ethod. Sim ulation
is the im itation o f reality an d has b e e n applied to m any areas o f d ecisio n making.
C om puter and v id eo gam es are a form o f sim ulation: An artificial reality is created, and
the gam e player lives w ithin it. Virtual reality is also a form o f sim ulation b e ca u se th e envi­
ronm ent is sim ulated, n ot real. A com m on u se o f sim ulation is in m anufacturing. Again,
consid er the produ ction departm ent o f a firm w ith com plications cau sed b y th e m arketing
departm ent. T h e characteristics o f ea ch m achine in a jo b shop alon g th e supply chain
can b e d escrib ed m athem atically. Relationships ca n b e established b ased o n h o w ea ch
m achine physically runs and relates to others. G iven a trial sch ed u le o f b atch es o f parts,
ir is p ossible to m easure h o w b atch es flow through the system and to u se the statistics
from e a ch m achine. Alternative schedu les m ay then b e tried and th e statistics recorded
until a reaso n ab le sched u le is found. M arketing ca n exam in e access and pu rchase pat­
terns o n its W eb site. Sim ulation ca n b e used to d eterm ine h ow to structure a W e b site for
im proved perform ance and to estim ate future purchases. B oth departm ents c a n therefore
use primarily experim en tal m odeling m ethods.
Classes o f d escriptive m odels include the follow ing:

• C om plex inventory d ecisions


• Environm ental im pact analysis
• Financial planning
• Inform ation flow
• Markov analysis (predictions)
• Scenario analysis
• Sim ulation (alternative types)
• T ech n olog ical forecasting
• W aiting-line (q u eu in g ) m anagem ent

A nu m ber o f nonm athem atical descriptive m odels are available for d ecisio n m ak­
ing. O n e is th e cognitive m ap (se e Eden and A ckerm ann, 2002; and Je n k in s, 2002). A
cognitive m ap c a n help a d ecisio n m aker sk etch ou t th e im portant qualitative factors and
iheir causal relationsh ips in a m essy d ecision-m aking situation. This helps th e decision
m aker (o r d ecision-m aking group) fo cu s o n w hat is relevant and w h at is not, and the
map evolves as m ore is learned ab ou t the problem . T h e m ap can help th e d ecisio n m aker
understand issues better, fo cu s better, and reach closure. O n e interesting softw are tool
for cognitive m app ing is D ecisio n E xplorer from B an xia Softw are Ltd. (banxia.com ; try
the dem o).
A nother d escriptive decision-m aking m odel is the u se o f narratives to d escribe a
decision-m aking situation. A n arrative is a story that help s a d ecisio n m ak er u n cov er the
important asp ects o f th e situation and leads to b etter understanding and fram ing. T his is
extrem ely effective w h en a group is m aking a d ecision , and it ca n lead to a m o re co m ­
m on view point, also called a fra m e. Ju ries in court trials typically u se narrative-based
approaches in reaching verdicts (s e e Allan, Fram e, and Turney, 2003; B e a c h , 2005; and
D enning, 2000).

Good Enough, or Satisficing


A ccording to Sim on (1 9 7 7 ), m ost hum an d ecisio n m aking, w h eth er organizational o r indi­
vidual, involves a w illingness to settle fo r a satisfactory solution, “som ething less than the
b est.” W h en satisficing, the d ecisio n m aker sets up an aspiration, a goal, o r a desired
82 Part I • D ecision Making and Analytics: An Overview

level o f perform ance and th en search es th e alternatives until o n e is fou nd that achieves
this level. T h e usual reasons for satisficing are tim e pressures (e.g ., d ecisions m ay lose
value ov er tim e), the ability to achiev e optim ization (e .g ., solving som e m odels could
take a really lo n g tim e, and recognition that th e m arginal b en efit o f a b etter solution is
not w orth the m arginal co st to obtain it (e.g ., in search in g the Internet, you can lo o k at
only so m any W e b sites b efo re you run out o f tim e an d energy). In su ch a situation, the
d ecisio n m aker is behaving rationally, though in reality h e or sh e is satisficing. Essentially,
satisficing is a form o f suboptim ization. T h ere m ay b e a b est solution, an optim um , but it
w ould b e difficult, if n ot im possible, to attain it. W ith a norm ative m odel, to o m u ch com ­
putation m ay b e involved; w ith a d escriptive m odel, it m ay n ot b e p ossible to evaluate all
th e sets o f alternatives.
R elated to satisficin g is Sim o n ’s id ea o f b o u n d ed rationality. H um ans h av e a
lim ited cap acity fo r ration al th in k ing ; th ey g e n era lly co n stru ct an d an aly ze a sim ­
p lified m o d el o f a real situation b y co n sid erin g fe w e r altern ativ es, criteria, and/or
con strain ts th an actu ally exist. T h e ir b eh a v io r w ith re sp e c t to the sim p lified m odel
m ay b e rational. H ow ever, th e rational solu tion fo r th e sim p lified m o d el m ay n o t b e
ration al fo r th e real-w orld p ro b lem . R ationality is b o u n d e d n o t on ly b y lim itations o n
h u m an p ro cessin g ca p acities, b u t a lso b y individual d iffe ren ce s, su ch as a g e, e d u ca ­
tion , k n o w le d g e, and attitudes. B o u n d e d ration ality is a lso w h y m any m o d els are
d escrip tive rath er th an norm ative. T h is m ay a lso e x p la in w h y so m any g o o d m anagers
rely o n intuition, a n im portan t a sp e c t o f g o o d d ecisio n m ak in g (s e e Stew art, 2 0 0 2 ; and
Pauly, 2 0 0 4 ).
B e c a u se rationality an d th e u se o f norm ative m o d els lea d to g o o d d ecisio n s, it is
natural to ask w h y so m any b a d d ecisio n s are m ad e in p ractice. Intuition is a critical
fa cto r that d ecisio n m akers u se in solving un structured an d sem istructured p roblem s.
T h e b e s t d ecisio n m akers reco g n iz e th e tra d e-o ff b e tw e e n th e m arginal c o s t o f ob tain ­
ing fu rther inform ation an d analysis versu s the b e n e fit o f m aking a b etter d ecisio n . B ut
som etim es d ecisio n s m ust b e m ad e quickly, and, ideally, th e intuition o f a seaso n ed ,
e x c e lle n t d ecisio n m ak er is called for. W h en ad eq u a te planning, funding, o r inform a­
tion is n o t available, o r w h e n a d ecisio n m ak er is in ex p e rie n ce d or ill trained, disaster
c a n strike.

Developing (Generating) Alternatives


A significant part o f the m odel-building p rocess is generating alternatives. In optim ization
m odels (su ch as linear program m ing), the alternatives m ay b e generated autom atically by
the m odel. In m ost decision situations, how ever, it is n ecessary to generate alternatives
manually. This can b e a lengthy p rocess that involves searching and creativity, perhaps
utilizing electronic brainstorm ing in a GSS. It takes tim e and costs m oney. Issues such as
w h en to stop generating alternatives can b e very important. T o o m any alternatives ca n b e
detrim ental to the process o f decision making. A d ecisio n m aker m ay suffer from inform a­
tion overload.
G enerating alternatives is heavily d ep en d en t o n the availability and co st o f inform a­
tion and requires expertise in th e p ro blem area. This is the least form al asp ect o f problem
solving. Alternatives ca n b e gen erated and evaluated using heuristics. T h e generation o f
alternatives from either individuals o r groups can b e supp orted by electro n ic brainstorm ­
ing softw are in a W eb -b a sed GSS.
N ote that th e search for alternatives usually occu rs after the criteria fo r evaluating the
alternatives are determ ined. This seq u en ce ca n ease th e search fo r alternatives and red uce
the effort involved in evaluating them , but identifying potential alternatives can som etim es
aid in identifying criteria.
Chapter 2 • Foundations and T echnologies for D ecision Making

T h e o u tco m e o f every p rop osed alternative m ust b e established. D ep en d in g o n


w heth er the decision-m aking p ro blem is classified as o n e o l certainty, risk, o r uncertainty,
different m odeling approaches m ay b e used (se e D rum m ond, 2001; and K oller, 2000).
These are d iscu ssed in C hapter 9.

Measuring Outcomes
T he value o f a n alternative is evaluated in term s o f g oal attainm ent. Som etim es an
o u tcom e is e x p resse d d irectly in term s o f a goal. F o r exam p le, profit is a n ou tcom e,
profit m axim ization is a g oal, an d b o th are e x p ressed in d ollar term s. An o u tco m e such
as cu stom er satisfaction m ay b e m easured b y the n u m b er o f com plaints, b y the level
o f loyalty to a produ ct, o r b y ratings found through surveys. Id eally, a d ecisio n m aker
w ould w an t to d ea l w ith a sin gle goal, b u t in practice, it is n ot unusual to have m ultiple
goals (s e e B arba-R om ero, 2 0 0 1 ; and K oksalan and Zionts, 2 0 0 1 ). W h en grou p s m ake
decisions, e a c h g ro u p participant m ay have a different agenda. F o r exam p le, execu tiv es
m ight w an t to m axim ize profit, m arketing m ight w an t to m axim ize m arket p enetration ,
op erations m ight w an t to m inim ize costs, and stock h o ld ers m ight w an t to m axim ize the
b otto m line. Typically, th ese goals con flict, so sp ecial m ultiple-criteria m eth o d o lo g ies
have b e e n d ev elo p ed to h and le this. O n e su ch m eth o d is th e AHP. W e w ill study AHP
in C hapter 9-

Risk
All d ecisions are m ad e in an inherently unstable environm ent. Th is is due to the m any
u npredictable events in b oth th e e co n o m ic and physical environm ents. Som e risk (m eas­
ured as probability) m ay b e d ue to internal organizational events, su ch as a valued
em p loyee quitting o r b eco m in g ill, w h ereas others m ay b e d ue to natural disasters, such
as a hurricane. Aside from th e hum an toll, o n e e co n o m ic a sp ect o f H urricane Katrina w as
that the price o f a gallon o f gasoline d ou bled overnight due to uncertainty in the port
capabilities, refining, and pipelines o f the southern U nited States. W hat c a n a decision
m aker d o in the fa c e o f su ch instability?
In g en eral, p e o p le have a te n d e n cy to m easu re u n certainty and risk badly. Purdy
(2 0 0 5 ) said that p e o p le tend to b e o v erco n fid en t and have a n illusion o f co n tro l in
d ecisio n m akin g . T h e resu lts o f exp erim en ts b y A dam G o o d ie at th e U niversity o f
G eorgia in d icate that m o st p e o p le are o v erco n fid en t m o st o f th e tim e (G o o d ie , 2 0 0 4 ).
This m ay e x p la in w h y p e o p le o ften fe e l that o n e m o re pull o f a slo t m a ch in e will
d efinitely p ay off.
H ow ever, m ethod ologies for handling extrem e uncertainty d o exist. F o r exam ple,
Y akov (2 0 0 1 ) d escribed a w ay to m ake g oo d d ecisions b ased o n very little inform ation,
using an inform ation gap theory and m ethodology approach. Aside from estim ating the
potential utility o r value o f a particular d ecisio n ’s ou tcom e, the b est d ecisio n m akers are
cap ab le o f accu rately estim ating the risk associated w ith the ou tcom es that result from
m aking e a ch d ecision. Thus, o n e im portant task o f a d ecisio n m aker is to attribute a level
o f risk to th e o u tcom e associated w ith ea ch potential alternative b ein g consid ered . Som e
decisions m ay lead to u n accep table risks in term s o f su ccess an d ca n th erefore b e dis­
carded or d iscou nted immediately.
In so m e ca s e s , so m e d ecisio n s are assum ed to b e m ad e u n d er co n d itio n s o f c e r­
tainty sim ply b e ca u se th e en viron m en t is assum ed to b e stab le. O th er d ecisio n s are
m ade u n d er co n d itio n s o f uncertainty, w h ere risk is u n k n ow n . Still, a g o o d d ecisio n
m ak er c a n m ak e w orking estim ates o f risk. Also, the p ro cess o f d ev elo p in g BI/DSS
involves learn in g m o re ab o u t th e situation, w h ich lead s to a m o re a ccu ra te assessm en t
o f th e risks.
84 Part I • D ecision Making and Analytics: An Overview

Scenarios
A scenario is a statem ent o f assum ptions ab ou t th e op erating en vironm ent o f a particu­
lar system at a given tim e; that is, it is a narrative d escrip tion o f th e decision-situation
setting. A scen ario d escribes the d ecisio n and u n con tro llable variables and paiam eters
fo r a sp e cific m odeling situation. It m ay also provide th e p ro ced u res an d constraints for
the m odeling. .
Scenarios originated in the theater, and th e term w as borrow ed for w ar gam ing and
large-scale sim ulations. Scenario planning and analysis is a D SS tool that can capture a
w h ole range o f possibilities. A m anager ca n construct a series o f scen arios (i.e., what-ir
cases), perform com puterized analyses, and learn m ore about the system and decision­
m aking problem w hile analyzing it. Ideally, the m anager can identify an excellen t, possibly
optim al, solution to the m odel o f the problem .
Scenarios are esp ecially helpful in sim ulations an d w h at-if analyses. In b o th cases,
w e ch a n g e scen arios and exam ine the results. For e xam p le, w e ca n ch an g e th e anticipated
dem and for hospitalization (an input variable for planning), thus creating a n ew scenario.
T h en w e ca n m easure the anticipated cash flow o f th e hospital for e a ch scenario.
Scenarios play an im portant role in d ecisio n m aking b e ca u se they:

• H elp identify opportunities and p ro blem areas


• Provide flexibility in planning
• Identify the leading edges o f chang es that m anagem ent should m onitor
• H elp validate m ajor m odeling assum ptions
• Allow the d ecisio n m aker to exp lore th e b eh av io r o f a system through a m odel
• H elp to ch e c k th e sensitivity o f p rop osed solutions to ch an g es in the environm ent,
as d escribed b y th e scen ario

Possible Scenarios
T h ere m ay b e thousands o f p ossible scen arios for e v e iy d ecisio n situation. H ow ever, the
follow ing are esp ecially useful in practice:

• The w orst p ossible scenario


• The b est p o ssible scenario
• The m ost likely scenario
• The average scen ario

T h e scen ario determ ines the co n tex t o f th e analysis to b e perform ed.

Errors in Decision Making


T h e m odel is a critical co m p o n en t in the d ecision-m aking p ro cess, b u t a d ecisio n m aker
m ay m ake a nu m ber o f errors in its developm en t an d use. Validating the m odel b efore it
is u sed is critical. G athering th e right am ount o f inform ation, w ith the right level o f preci­
sio n and accu racy, to incorporate into the decision-m aking p ro cess is also critical. Saw yer
(1 9 9 9 ) d escribed “th e sev en deadly sins o f d ecisio n m aking,” m ost o f w h ich are behavior
o r inform ation related.

SECTION 2 .5 REVIEW QUESTIONS


1 . D efine optim ization and contrast it w ith suboptim ization.
2 . C om pare th e norm ative an d descriptive ap p roach es to d ecisio n m aking.
3 . D efine ration al decision m aking. W hat d oes it really m ean to b e a rational decision
maker?
4 . W h y d o p eo p le exhibit bou nd ed rationality w h e n solving problem s?
Chapter 2 • Foundations and T echnologies for D ecision Making 85

5 . D e fin e scenario. H o w is a s c e n a r io u s e d in d e c is io n m aking?


6 Som e “errors” in d ecisio n m aking ca n b e attributed to the notion o f d ecisio n m aking
from the gut. E xplain w hat is m eant b y this and h ow such errors can happen.

2.6 DECISION MAKING: THE CHOICE PHASE


In o ic e is the critical a ct o f d ecisio n m aking. T h e ch o ice p h ase is the o n e in w h ich the
actual decision an d the com m itm ent to fo llow a certain cou rse o f action are m ade. T h e
-vDundary b etw ee n the design and ch o ice p h ases is often un clear b ecau se certain activi­
ties can b e perform ed during b o th o f th em and b ecau se the d ecisio n m aker ca n return
frequently from ch o ic e activities to design activities (e .g ., g enerate n ew alternatives w hile
perform ing a n evaluation o f existing o n e s). T h e ch o ice p h ase includes th e search for,
evaluation of, and recom m end ation o f a n appropriate solution to a m odel. A solu tion to a
m odel is a sp ecific set o f values for the d ecisio n variables in a selected alternative. C hoices
can b e evaluated as to their viability and profitability.
Note that solving a m odel is not the sam e as solving the problem the m odel represents.
The solution to th e m odel yields a recom m end ed solution to the problem . T h e p ro blem is
considered solved only if the recom m en d ed solution is successfully im plem ented.
Solving a d ecision-m aking m odel involves searching for an appropriate cou rse
o f action. Search ap proaches include an alytical tech n iq u es (i.e ., s o l v i n g a form ula)
algorith m s (i.e ., step-by-step proced u res), heuristics (i.e., rules o f thum b), and blind
searches (i.e ., sh oo tin g in the dark, ideally in a logical w ay). T h e se ap p roach es are
exam ined in C hapter 9- . ,
E ach alternativ e m ust b e evaluated. I f an alternative has m ultiple g oals, th ey m ust
all b e exam in ed an d b a la n ce d a g ain st e a c h other. Sensitivity analysis is u se d to d eter­
m ine the ro b u stn ess o f an y g iv en alternative; slight ch an g es in th e param eters should
ideally lead to slight or n o ch a n g es in the alternative ch osen . What-if analysis is
used to e x p lo re m a jo r ch a n g es in the param eters. G oal see k in g h elp s a m an ag er d eter­
m ine valu es o f th e d ecisio n v ariab les to m eet a sp e cific o b jectiv e. All this is d iscu ssed
in C hapter 9.

SECTION 2 .6 REVIEW QUESTIONS


1 . E xplain the d ifference b etw ee n a principle o f ch o ice and the actual c h o ic e phase o f
decision m aking.
2. W hy d o so m e p eo p le claim that the ch o ice p h ase is th e p oint in tim e w h en a decision
is really made?
3. H ow can sensitivity analysis help in the ch o ic e phase?

2.7 DECISION MAKING: THE IMPLEMENTATION PHASE


In The Prince, M achiavelli astutely noted som e 500 years ag o that there w a s ‘ nothing m ore
difficult to carry out, nor m ore doubtful o f success, nor m ore dangerous to handle than to
initiate a new order o f things.” T h e im plem entation o f a proposed solution to a problem is,
in effect the initiation o f a new order o f things o r the introduction o f change. And change
must b e'm an ag ed . U ser expectations must b e m anaged as part o f change m anagem ent.
T h e d efinition o f im plem entation is som ew h at com p licated b e ca u se im plem entation
is a long involved p rocess w ith vag u e bound aries. Sim plistically, th e implem entation
p h ase involves putting a recom m en d ed solu tion to w ork, n ot n ecessarily im plem enting
a com p u ter system . Many g en eric im plem entation issu es, such as resistan ce to change^
d egree o f su p p ort o f to p m an agem en t, and u ser training, are im portant in d ealin g with
86 Part I • D ecision Making and Analytics: An Overview

inform ation system supp orted d ecisio n m aking. In d eed , m any previou s technolog y -
related w aves (e .g ., busin ess p ro cess reen g in eerin g (B P R ), know led g e m anagem ent,
e tc .) h av e fa ced m ixed results m ainly b e ca u se o f ch a n g e m anagem ent ch allen g es and
issues. M anagem ent o f ch a n g e is alm ost an entire d iscip line in itself, so w e reco g n iz e its
im portance and en co u rag e the readers to fo cu s o n it independ ently. Im plem entation also
inclu des a thorou gh understanding o f p ro je ct m anagem ent. Im p ortance o f p ro ject m an­
agem ent g o es far b ey o n d analytics, so the last few y ears have w itnessed a m ajor grow th
in certification program s fo r p ro ject m anagers. A very p o p u lar certification n ow is Project
M anagem ent P rofessio n al (PM P). S e e p m i . o r g for m ore details.
Im plem entation m ust also involve collectin g and analyzing data to learn from the
previous d ecisions and im prove the n ext d ecision. A lthough analysis o f data is usually
cond u cted to identify the p ro blem and/or th e solution, analytics should also b e em ployed
in th e fe e d b a ck process. This is esp ecially ta ie for any pu blic p o licy decisions. W e n eed
to b e sure that th e data b ein g u sed fo r problem identification is valid. Som etim es p eo p le
find this out only after the im plem entation phase.
T h e d ecision-m aking p ro cess, though cond u cted by p eo p le, ca n b e im proved with
com p u ter support, w h ich is the su b ject o f th e next section.

SECTION 2 .7 REVIEW QUESTIONS


1 . D efin e implem entation.
2 . H ow can DSS support the im plem entation o f a decision?

2.8 H O W D EC ISIO N S A R E SU PPO RTED


In C h apter 1, w e d iscu ssed th e n e e d fo r com p u terized d ecisio n su p p ort and briefly
d escrib ed so m e d ecisio n aids. H ere w e relate sp e cific te ch n o lo g ie s to th e d ecisio n ­
m aking p ro cess (s e e Figure 2 .2 ). D atab ases, data m arts, and esp ecially data w areh o u ses
are im portant te ch n o lo g ie s in supp orting all p h ases o f d ecisio n m aking. T h e y provide
th e data that drive d ecisio n m aking.

Support for the Intelligence Phase


T he primary requirem ent o f decision support for th e intelligence phase is the ability to scan
external and internal inform ation sources for opportunities and problem s and to interpret
w hat the scanning discovers. W eb tools and sources are extrem ely useful for environm ental

Phase
ANN
MIS
Data Mining, OLAP
ES, ERP

E SS, ES, SCM


CRM, ERP, KVS D SS
Management ES
Science
ANN

E SS, E S CRM
KMS, ERP SCM

FIGURE 2.2 DSS Support.


Chapter 2 • Foundations and T echnologies for D ecision Making

scanning. W eb brow sers provide useful front ends for a variety o f tools, from OLAP to data
m ining and data w arehouses. Data sources ca n b e internal o r external. Internal sou rces may
b e accessible via a corporate intranet. External sources are m any and varied.
D ecisio n support/BI te ch n o lo g ies ca n b e very helpful. F o r exam p le, a data w are­
hou se can supp ort th e in tellig en ce p h ase b y con tinu ou sly m onitoring b oth internal and
external inform ation, look in g fo r early signs o f p roblem s and op portu nities through
a W eb -b ased enterp rise inform ation portal (also called a d ashboard). Similarly, (au tom atic)
data (an d W eb ) m ining (w h ich m ay inclu de exp ert system s [ES], CRM, g e n etic algorithm s,
neural netw orks, an d oth er analytics system s) and (m anu al) OLAP a lso supp ort th e intel­
ligence p h ase b y identifying relationsh ips am on g activities and oth er factors. G eog rap h ic
inform ation system s (G IS ) can b e utilized eith er as stand -alone system s or integrated with
these system s so th at a d ecisio n m ak er ca n determ ine opportunities and p ro blem s in a
spatial sen se. T h e se relationships can b e exp lo ited for com petitive advantage (e .g ., CRM
identifies classes o f cu stom ers to ap p ro a ch w ith sp e cific produ cts and serv ices). A KMS
can b e u sed to identify sim ilar past situations and h o w th ey w ere handled. G SS ca n b e
used to share inform ation and fo r brainstorm ing. As s e e n in C hapter 14, ev en ce ll p hone
and GPS data can b e captu red to create a m icro-view o f custom ers and their habits.
Another asp ect o f identifying internal problem s and capabilities involves m onitoring
d ie current status o f operation s. W h en som ething g o es w rong, it can b e identified quickly
and the problem c a n b e solved. T o o ls su ch as busin ess activity m onitoring (BA M ), busi­
ness p rocess m anagem ent (B P M ), and product life-cy cle m anagem ent (PLM) provide such
capability to d ecisio n m akers. B o th routine and ad h o c reports ca n aid in the intelligence
phase. F o r exam p le, regular reports ca n b e designed to assist in the problem -finding
activity b y com paring exp ectation s w ith current and pro jected perform ance. W eb-b ased
OLAP tools are e x ce lle n t at this task. So are visualization tools and electro n ic d ocu m en t
m anagem ent system s.
Expert system s (ES), in contrast, ca n rend er advice regarding the nature o f a prob­
lem , its classification, its seriousness, and th e like. ES ca n advise o n the suitability o f a
solution ap p roach an d the likelihood o f successfully solving the problem . O n e o f the
primary areas o f ES su ccess is interpreting inform ation and diagnosing problem s. This
capability can b e exp loited in the intelligence ph ase. Even intelligent agents c a n b e used
10 identify opportunities.
M uch o f the inform ation u sed in seek in g new' opportunities is qualitative, or soft.
This indicates a high level o f unstructuredness in th e problem s, thus m aking D SS quite
useful in the intelligence phase.
T h e Internet an d ad vanced d atabase tech n olog ies have created a glut o f data and
inform ation available to d ecisio n m akers— so m uch that it ca n detract from the quality
and sp eed o f d ecisio n m aking. It is im portant to recog nize so m e issues in using data and
analytics to ols for d ecisio n m aking. First, to paraphrase b aseb all great V in Scully, “data
should b e used th e w ay a drunk u ses a lam ppost. F o r support, n o t for illum ination.” It
^ esp ecially true w h en the focus is o n understanding the problem . W e should recognize
tftat n ot all th e data that m ay help understand the p ro blem is available. T o q u ote Einstein,
■“Not everything that counts can b e cou nted , and n o t everything that can b e counted
counts.” T h ere m ight b e oth er issues that have to b e recognized as well.

Support fo r the Design Phase


H ie design p h ase involves generating alternative cou rses o f action, discussing th e criteria
far ch oices and th eir relative im portance, and forecasting th e future co n se q u e n ces o f
■«ang various alternatives. Several o f th ese activities can u se standard m odels provided by
a D SS (e.g ., financial and forecasting m odels, available as applets). Alternatives fo r struc-
c_red problem s c a n b e gen erated through the u se o f eith er standard o r sp ecia l m odels.
D ecision Making and Analytics: An Overview

H ow ever the gen eration o f alternatives fo r co m p le x p roblem s requires expertise that can
b e provided only b y a hum an, brainstorm ing softw are, o r an ES. OLAP and data mmmg
softw are are quite useful in identifying relationships that ca n b e used m m odels. Most DSS
have quantitative analysis capabilities, and an internal ES can assist w ‘th qUal‘ta” e "
ods as w ell as w ith th e expertise required in selectin g quantitative analysis and forecasting
m odels A KMS should certainly b e consu lted to d eterm ine w h eth er su ch a problem has
b e e n encou n tered b efo re or w heth er there are experts o n hand w h o can
understanding and answ ers. CRM system s, revenue m anagem ent system s, ERP, and K ,
system s softw are a r e useful in that they provide m odels o f b u s i n e s s p ro cesses that can^es
assum ptions and scenarios. I f a p ro blem requires brainstorm ing to help identify im portant
issues and options, a GSS m ay prove helpful. T o o ls that provide cognitive mapping; can
also help C ohen et al. (2 0 0 1 ) d escribed several W e b -b a sed tools that provide decision
support, m ainly in the design ph ase, b y providing m od els and reporting o f alternative
results E ach o f their cases has saved m illions o f dollars annually b y utilizing th ese tools.
Such DSS are help ing engineers in product design as w e ll as d ecisio n m akers solving
busin ess problem s.

Support for the Choice Phase


In addition to providing m odels that rapidly identify a b est or good-enough alternative
a DSS can support the choice phase through w hat-if and goal-seekm g analyses. Different
scenarios can b e tested for the selected option to reinforce the final decision. Again, a KMS
helps identify similar past experien ces; CRM, ERP, and SCM systems are used to test the
im pacts o f decisions in establishing their value, leading to an intelligent choice. An ES can
b e used to assess the desirability o f certain solutions as w ell as to recom m end an appropn-
ate solution. If a group m akes a decision, a GSS ca n provide support to lead to consensus.

Support fo r the Im plem entation Phase


This is w h ere “m aking th e d ecisio n h ap p en ” occu rs. T h e DSS b en efits provided during
im plem entation m ay b e as im portant as or ev e n m ore im portant than th o se in th e ear i
phases. DSS c a n b e u sed in im plem entation activities su ch as d ecisio n com m unication,
explanation, and justification. f
Im plem en tation-phase D SS b en efits are partly d u e to the vividness and detail o f
analyses and reports. For exam p le, o n e ch ief execu tiv e officer (C EO ) gives em ployees
and external parties n ot only the aggregate financial goals and cash n eed s for the near
term but also the calculations, interm ediate results, and statistics used m determ in g
the aggregate figures. In addition to com m unicating th e financial goals unam biguously
the CEO signals other m essages. Em ployees k n ow th at th e CEO has thoug ro“ 8 .
assum ptions b eh in d the financial goals and is serious ab o u t their im portance and attain­
ability B ankers and directors are show n that th e CEO w as personally in v o k e d m ana­
lyzing cash n eed s and is aw are o f and resp on sible fo r th e im plications o f the financing
requests prepared by the finance departm ent. E ach o f these m essages im proves d ecision
im plem entation in som e w ay. . , ,
As m ention ed earlier, reporting system s and o th er tools variously labeled as B
BPM KMS EIS, ERP, CRM, and SCM are all useful in tracking h ow w ell an im plem entatio
is w orking. GSS is useful for a team to collab orate in establishing im plem entation effe c­
tiveness. For exam p le, a d ecisio n m ight b e m ad e to g et rid o f unprofitable cu stom eis. An
effective CRM ca n identify classes o f custom ers to g et rid of, identify the im pact o f doing
so and th en verify that it really w o rk ed that way.
All phases o f the decision-m aking process can b e supported by improved com m unica­
tion through collaborative com puting via GSS and KMS. Computerized systems can facilitate
com m unication b y helping p eop le explain and justify their suggestions and opinions.
Chapter 2 • Foundations and T echnologies for Decision Making

D ecision im plem entation ca n also b e supp orted b y ES. An ES ca n b e u sed a s an advi­


sory system regarding im plem entation problem s (su ch as handling resistance to ch ange).
Finally, a n ES can provide training that m ay sm ooth the cou rse o f im plem entation.
Im pacts along th e value chain, though reported b y an EIS through a W eb-b ased
enterprise inform ation portal, are typically identified b y BAM, BPM , SCM, and ERP systems.
CRM system s report and update internal records, based o n the im pacts o f th e im plem enta-
oon. T h ese inputs are then u sed to identify n ew problem s and opportunities— a return to
die intelligence phase.

SECTION 2 .8 REVIEW QUESTIONS


1. D escribe how DSS/BI technologies and tools can aid in each phase o f decision making.
2. D escrib e h ow n e w tech n olog ies can provide d ecision-m aking support.
Now that w e have studied h ow tech n olog y ca n assist in decision m aking, w e study som e
details o f d ecisio n supp ort system s (D SS) in the n e x t tw o sections.

2,9 D EC ISIO N SU PPO RT S Y S T E M S : C A P A B IL IT IE S


The early definitions o f a DSS identified it as a system intended to support m anagerial
decision m akers in sem istructured and unstructured d ecisio n situations. DSS w ere m eant
: b e adjuncts to d ecisio n m akers, extend in g their capabilities b u t n ot replacing their judg­
ment. T h ey w ere aim ed at d ecisions that required judgm ent o r at d ecisions that cou ld not
r e com pletely supp orted by algorithm s. Not specifically stated but im plied in the early
definitions w as th e n o tio n that th e system w ould b e com puter based , w ould op erate inter-
online, an d preferably w ould have graphical output capabilities, n ow sim plified
~rz. brow sers and m o b ile devices.

- DSS Application
DSS is typically built to support the solution o f a certain p ro blem or to evaluate an
icportunity. This is a k ey difference b etw ee n DSS and B I applications. In a v ery strict
ease, business intelligence (B I) system s m onitor situations and identify p roblem s and/
opportunities, using analytic m ethods. R eporting plays a m ajor role in B I; th e user
generally must identify w h eth er a particular situation warrants attention, and th en analyti-
i m ethods can b e applied. Again, although m odels and data a cce ss (g enerally through
d iia w arehouse) are inclu ded in B I, DSS typically have their ow n d atabases and are
E '-d op ed to so lv e a sp ecific p ro blem or set o f problem s. T h ey are th erefore called
3SS applications.
Form ally, a D SS is an ap p ro ach (o r m eth o d o lo g y ) fo r su p p ortin g d ecisio n m aking.
k ^ 5 e s a n in teractiv e, fle x ib le , a d ap tab le co m p u ter-b a sed in form ation sy stem (C B IS )
sp e cia lly d e v e lo p e d fo r su p p ortin g th e solu tion to a sp e c ific u n stru ctu red m anag e-
m=-- p ro blem . It u se s data, provid es an e a sy u ser in terface, an d c a n in co rp o ra te the
aosion m ak er’s o w n insights. In ad dition, a DSS in clu d es m o d els an d is d ev elo p e d
possibly b y en d u se rs) th rou g h an interactiv e an d iterative p ro cess. It c a n su p p o rt all
o f d ecisio n m aking an d m ay in clu d e a k n o w le d g e c o m p o n e n t. Finally, a D SS
i b e u sed b y a sin g le u ser o r c a n b e W e b b a se d fo r u se by m any p e o p le a t several
(h c E lO O S .
B ecau se there is n o con sen su s o n exactly w hat a DSS is, there is obviously n o agree-
y - r on the standard characteristics and capabilities o f DSS. T h e capabilities in Figure 2.3
in s titu te an ideal set, som e m em bers o f w h ich are d escribed in th e definitions o f D SS
jo d illustrated in th e application cases.
T he key characteristics and capabilities o f DSS (as show n in Figure 2 .3 ) are:
90 Part I • D ecision Making and Analytics: An Overview

Stand-alone, Semistructured
integration, and or unstructured Support
Web-based problems managers at
all levels

Data access
Support
individuals
and groups

Modeling
and analysis Interdependent
or sequential
Decision S u p p o rt decisions
S y s te m s (DSS}
Ease of
development
Support
by end users intelligence
design, choice, and
implementation
Humans control
the process Support variety
of decision
processes and styles
Effectiveness
and efficiency Interactive, Adaptable
ease of use and flexible

FIGURE 2.3 Key Characteristics and Capabilities of DSS.

1 . Support for d ecisio n m akers, mainly in sem istructured and unstructured situations,
b y bringing together hum an judgm ent and com puterized inform ation. Su ch prob­
lem s can not b e solved (o r can n o t b e solved conv en iently ) b y oth er com puterized
system s o r through u se o f standard quantitative m ethods o r tools. G enerally, these
problem s gain structure as the DSS is d ev elop ed . Even som e structured problem s
have b e e n solved by DSS.
2 . Support for all m anagerial levels, ranging from top execu tiv es to line m anagers.
3 Support for individuals as w ell as groups. Less-structured problem s often require the
involvem ent o f individuals from different departm ents and organizational levels or
even from different organizations. D SS supp ort virtual team s through collaborative
W eb tools. D SS have b e e n d ev elop ed to supp ort individual and group w ork, as well
as to support individual d ecisio n m aking and groups o f d ecisio n m akers w orking
som ew h at independently.
4 . Support for interdepend en t and/or sequ ential decisions. T h e d ecisions m ay b e made
o n ce , several tim es, o r repeatedly.
5 . Support in all p hases o f th e d ecision-m aking process: intelligen ce, design, ch oice,
and im plem entation.
6 . Support for a variety o f d ecision-m aking p ro cesses and styles.
7 . T h e d ecisio n m aker should b e reactive, ab le to confront changing cond itions q u ick y,
and ab le to adapt the D SS to m eet th ese changes. DSS are flexible, so users ca n add,
d elete, com bin e, chan ge, o r rearrange b a sic elem ents. T h e y are a lso flex ible in that
they ca n b e readily m odified to solve other, sim ilar problem s.
Chapter 2 • Foundations and Technologies for D ecision Making

8 . U ser-friendliness, strong graphical capabilities, and a natural language interactive


h u m an -m a ch in e interface ca n greatly in crease the effectiveness o f DSS. M ost n ew
DSS applications u se W eb -b ased interfaces or m o bile platform interfaces.
9. Im provem ent o f the effectiveness o f d ecisio n m aking (e.g ., accu racy, tim eliness,
quality) rather than its efficiency (e .g ., the co st o f m aking d ecisio n s). W hen D SS are
d ep loyed , decision m aking often takes longer, but the d ecisions are better.
10. T h e d ecisio n m ak er has com p lete control ov er all steps o f the d ecision-m aking
p ro cess in solving a problem . A DSS specifically aim s to support, n o t to replace, the
d ecisio n m aker.
1 1. E nd users are a b le to d evelop and m odify sim ple system s by them selves. Larger
system s ca n b e built w ith assistance from inform ation system (IS ) specialists.
Sp read sheet p ack ag es have b e e n utilized in d eveloping sim pler system s. OLAP and
data m ining softw are, in con ju n ctio n w ith data w arehouses, en a b le users to build
fairly large, com p lex DSS.
12. M odels are generally utilized to analyze d ecision-m aking situations. T h e m od­
eling capability en ab les experim entation w ith different strategies under different
configu rations.
13. A ccess is provided to a variety o f data sou rces, form ats, and types, including GIS,
m ultim edia, and o b ject-o rien ted data.
14. T h e D SS can b e em ployed as a stand-alone tool used b y an individual decision m aker
in o n e location or distributed throughout an organization and in several organizations
along the supply chain. It can b e integrated w ith other DSS and/or applications, and it
can b e distributed internally and externally, using netw orking and W eb technologies.

T h e se k e y DSS characteristics and capabilities allow d ecisio n m akers to m ake


better, m ore consistent d ecisions in a tim ely m anner, and th ey are provided by the m ajor
DSS com p on en ts, w h ich w e will describe after discussing various w ays o f classifying
DSS (n ext).

SECTION 2 .9 REVIEW QUESTIONS


1 . List the k e y characteristics and capabilities o f DSS.
2 . D escrib e h ow providing support to a w orkgroup is different from providing support
to group w ork. E xplain w h y it is im portant to differentiate th ese con cep ts.
3 . W hat kinds o f DSS ca n end users d evelop in spreadsheets?
4. W hy is it so im portant to inclu de a m odel in a DSS?

2.10 D S S C LA SSIFIC A T IO N S
DSS applications have b ee n classified in several different ways (see Pow er, 2002; Pow er
and Sharda, 2009). T he design process, as w ell as the operation and im plem entation o f DSS,
depends in m any cases on the type o f DSS involved. H ow ever, rem em ber that n ot every
DSS fits neatly into o n e category. Most fit into the classification provided by the Association
for Inform ation Systems Special Interest G roup o n D ecision Support Systems (AIS SIGDSS).
W e discuss this classification b u t also point out a few other attempts at classifying DSS.

The AIS SIGDSS Classification for DSS


T h e AIS SIG D SS (ais.site-ym .com /group/SIGDSS) has ad opted a co n c ise classification
sch em e fo r D SS that w as p ro p osed b y P ow er (2 0 0 2 ). It inclu des the follow ing categories:

• Com m unications-driven and group DSS (G SS)


• D ata-driven DSS
92 Part I • D ecision Making and Analytics: An Overview

• D ocum ent-driven DSS


• K now ledge-driven D SS, data m ining, and m anagem ent ES applications
• M odel-driven DSS

T h ere m ay a lso b e hybrids that co m b in e tw o or m o re categories. T h ese are called


com p ou n d DSS. W e discuss the m ajor categories next.

CO M M U N ICATIO N S-D RIV EN A N D GROUP D SS C om m u nications-d riven and group DSS


(G S S ) in clu d e DSS that use com p u ter, collab o ratio n , and com m u n ication tech n o lo g ie s
to su p p ort groups in task s that m ay o r m ay n o t in clu d e d ecisio n m aking. Essentially,
all DSS that su p p ort any k ind o f group w o rk fall into this categ ory . T h e y inclu de
th o se that su p p ort m eeting s, d esign collab oratio n , an d e v e n supply ch ain m anagem ent.
K n o w led g e m an ag em en t system s (KM S) that are d ev elo p e d around com m un ities that
p ractice collab orativ e w o rk also fall into this categ ory . W e d iscu ss th ese in m ore detail
in later chapters.

D ATA-D RIVEN D SS D ata-driven D SS are primarily involved w ith data and processing
them into inform ation and presen ting th e inform ation to a d ecisio n m aker. M any DSS
d ev elop ed in OLAP and reporting analytics softw are system s fall into this category. T h ere
is m inim al em phasis o n th e use o f m athem atical m odels.
In this ty p e o f D SS, th e d atab ase org an ization , o fte n in a data w a reh o u se , plays
a m a jo r ro le in th e DSS structure. Early g en eratio n s o f d a ta b a se-o rien ted D SS m ainly
u sed th e rela tio n a l d atab ase con fig u ration. T h e inform ation han d led b y relational
d atabases tend s to b e vo lu m in ou s, d escriptive, an d rigidly structured. A d atab ase-
o rien ted D SS featu res stron g rep ort g en era tio n a n d q u ery cap ab ilities. In d eed , this
is prim arily th e cu rren t ap p licatio n o f th e to o ls m ark ed u n d er th e B I um brella or
un d er th e la b el o f reporting/ business analytics. T h e ch a p ters o n data w areh o u sin g and
b u sin ess p erfo rm an ce m a n a g em en t (B P M ) d escrib e sev eral ex a m p le s o f this categ ory
o f DSS.

DOCUM ENT-DRIVEN D SS D ocum ent-driven DSS rely o n know led ge coding, analysis,
search, and retrieval for decision support. T hey essentially include all DSS that are text
b ased . M ost KMS fall into this category. T h ese DSS also have m inim al em phasis o n utiliz­
ing m athem atical m odels. For exam ple, a system that w e built for the U.S. Army s D efense
Am munitions C enter falls in this category. T h e m ain ob jective o f docum ent-driven DSS is
to provide support for decision m aking using d ocum ents in various forms: oral, written,
and multimedia.

KNO W LEDGE-DRIVEN D SS, DA TA M INING, A N D M AN AGEM ENT EXPERT SYSTEM S


APPLICATIO N S T h ese DSS involve the application o f know led ge technologies to address
specific d ecisio n support need s. Essentially, all artificial in tellig en ce-b ased DSS fall into
this category. W h en sym bolic storage is utilized in a D SS, it is generally in this category.
ANN and ES are included here. B eca u se the benefits o f th ese intelligent DSS o r knowledge-
based DSS can b e large, organizations have invested in them. T h ese D SS are utilized in the
creation o f au tom ated decision-m aking systems, as d escribed in Chapter 12. T h e basic idea
is that rules are used to autom ate the decision-m aking process. T h e se rules are basically
either a n ES o r structured like on e. This is im portant w h en d ecisions must b e m ade quickly,
as in m any e-com m erce situations.

M O DEL-DRIVEN D SS T h e m ajor em p h ases o f DSS th at are primarily d ev eloped around


o n e o r m ore (large-scale/com plex) optim ization o r sim ulation m odels typically include
significant activities in m odel form ulation, m odel m aintenance, m odel m anagem ent
Chapter 2 • Foundations and T echnologies for D ecision Making

in distributed com puting environm ents, and w h at-if analyses. Many large-scale ap p lica­
tions fall into this category. N otable exam p les include th o se used b y P rocter & G am ble
(Farasyn e t al., 2 0 0 8 ), HP (O lavson and Fiy, 2008), and m any others.
T h e fo cu s o f s u ch system s is o n using th e m o d el(s) to optim ize o n e or m ore o b je c ­
tives (e .g ., profit). T h e m ost com m on end -user to o l fo r DSS developm en t is M icrosoft
Excel. E xcel inclu d es d ozens o f statistical packages, a linear program m ing pack ag e
(Solver), and m any financial and m anagem ent scie n ce m odels. W e will study th ese in
m ore detail in C hapter 9- T h ese DSS typically ca n b e grouped under the new label o f
prescriptive analytics.

COMPOUND D SS A com p ou nd , o r hybrid, DSS inclu d es tw o o r m o re o f the m ajor cat­


egories d escribed earlier. O ften, an ES ca n b en e fit b y utilizing so m e optim ization, and
clearly a data-driven DSS ca n fe e d a large-scale op tim ization m odel. Som etim es d o cu ­
m ents are critical in understanding h ow to interpret the results o f visualizing data from
a data-driven DSS.
An em ergin g e x a m p le o f a co m p o u n d D SS is a produ ct o ffered by W olfram A lpha
(w olfram alpha.com ). It co m p iles k n ow led g e from ou tsid e d atabases, m o d els, a lg o ­
rithm s, d ocu m en ts, an d so o n to provide an sw ers to sp e cific q u estio n s. F o r e x a m p le , it
can find and an aly ze cu rren t data fo r a s to ck and co m p a re it w ith o th er sto ck s. It ca n
also tell you h o w m an y calo ries you w ill burn w h e n perform ing a sp e cific e x e rc ise or
th e sid e e ffe cts o f a particu lar m ed icin e. A lthough it is in early stag es as a c o lle ctio n o f
k n ow led g e co m p o n e n ts from m any different areas, it is a g o o d e x a m p le o f a co m p o u n d
D SS in getting its k n o w le d g e fro m m any d iverse so u rces and attem pting to sy n th esiz e it.

Other DSS Categories


Many oth er p ro p osals have b e e n m ade to classify DSS. Perhaps the first form al attem pt
w as b y Alter (1 9 8 0 ). Several oth er im portant categories o f D SS include (1 ) institutional
and ad h o c D SS; (2 ) personal, group, and organizational support; (3 ) individual support
system versus GSS; an d (4 ) custom -m ade system s versus ready-m ade system s. W e discuss
som e o f th ese next.

INSTITUTIO NAL A N D A D HOC D SS Institutional DSS (se e D on ovan and M adnick, 1977)
d eal w ith d ecisions o f a recurring nature. A typical exam p le is a portfolio m anagem ent
system (PM S), w h ich has b e e n used b y several large b an k s for supporting investm ent
decisions. An institutionalized DSS ca n b e d ev elop ed and refined as it evolves ov er a
nu m ber o f years, b e ca u se the DSS is u sed repeatedly to solve identical o r sim ilar p ro b ­
lem s. It is im portant to rem em ber that an institutional D SS m ay n ot b e u sed b y every on e
in an organization; it is the recurring natu re o f the decision-m aking problem that deter­
m ines w h eth er a D SS is institutional versus ad h oc.
Ad h oc DSS d eal w ith sp ecific problem s that are usually neither anticipated n o r recur­
ring. Ad h o c d ecisions often involve strategic planning issues and som etim es m anagem ent
control problem s. Ju stifyin g a DSS that w ill b e u sed only o n ce or tw ice is a m ajor issue
in D SS d evelopm ent. Countless ad h o c DSS applications have evolved into institutional
DSS. E ither th e p ro blem recurs and the system is reu sed or others in the organization have
sim ilar n eed s that can b e hand led b y th e form erly ad h o c DSS.

Custom-Made System s Versus Ready-Made Systems


M any DSS are cu sto m m ad e fo r individual users and organizations. H ow ever, a co m ­
p arab le p ro b lem m ay e xist in sim ilar organization s. F o r ex a m p le , hosp itals, b an k s,
an d un iv ersities sh are m any sim ilar p roblem s. Sim ilarly, certain n on rou tin e p ro b lem s in
a fu nctional area (e .g ., fin a n ce, acco u n tin g ) ca n rep eat th em selv es in th e sam e fu n ction al
94 Part I • D ecision Making and Analytics: An Overview

area o f d ifferent a rea s o r organ izations. T h e re fo re , it m akes sen se to bu ild g e n eric DSS
that c a n b e u sed (so m etim es w ith m o d ification s) in several organizations. S u ch DSS
are called read y -m ad e and are so ld by various v end ors (e .g ., C o g n os, M icroStrategy,
T erad ata). Essentially, th e d atabase, m odels, in terface, an d o th er supp ort featu res are
bu ilt in: Ju s t ad d an org anization’s data and lo g o . T h e m ajor OLAP an d analytics vend ors
provide DSS tem p lates for a variety o f fu n ction al areas, inclu ding fin a n ce, real estate,
m arketing, and accou nting . T h e n u m b er o f read y -m ad e DSS co n tin u es to in crease
b e c a u se o f their flexibility an d low cost. T h e y a re typically d ev elo p e d using Internet
tech n o lo g ie s fo r d atabase a c c e ss and com m u n ication s, and W e b b row sers fo r interfaces.
T h e y also read ily in corp o rate OLAP and o th er ea sy -to -u se DSS generators.
O n e com p lication in term inology results w h en an organization d ev elop s an
institutional system but, b eca u se o f its structure, u ses it in an ad h o c m anner. An organi­
zation ca n build a large data w areh o u se b u t th en u se OLAP tools to query it and perform
ad h o c analysis to solve non recu rring problem s. T h e D SS exh ibits the traits o f ad hoc
and institutional system s an d also o f cu stom and read y-m ad e system s. Several ERP, CRM,
k n ow led g e m anagem ent (KM ), a n d SCM co m p a n ies o ffer DSS ap p lications on lin e. T h ese
kinds o f system s ca n b e view ed as ready-m ade, althou gh typically th ey require m odifica­
tions (som etim es m ajor) b efo re they c a n b e u sed effectively.

SECTION 2 .1 0 REVIEW QUESTIONS


1 . List the D SS classifications o f the A1S SIGDSS.
2 . D efine docum ent-driven DSS.
3 . List the capabilities o f institutional DSS and ad h o c DSS.
4 . D efin e the term ready-m ade DSS.

2.11 C O M PO N EN T S OF D EC ISIO N SU PPO R T S Y S T E M S


A DSS application can b e co m p o sed o f a data m an agem en t subsystem , a m odel man­
agem ent subsystem , a user interface subsystem , and a k now led g e-based m anagem ent
subsystem . W e show th ese in Figure 2.4.

FIGURE 2.4 Schematic View of DSS.


Chapter 2 • Foundations and Technologies for Decision Making 95

FIGURE 2.5 Structure of the Data Management Subsystem.

The Data M anagem ent Subsystem


T he data m anagem ent subsystem includes a d atabase that contains relevan t data for
the situation and is m anaged by softw are called the database m anagem ent system
(DBMS).2 T h e data m anagem ent subsystem ca n b e interconn ected w ith th e corporate
data w arehouse, a repository for corporate relevant d ecision-m aking data. Usually, the
data are stored o r accessed via a d atabase W e b server. T h e data m anagem ent subsystem
is co m p o sed o f th e follow ing elem ents:

• D SS d atabase
• D atabase m anagem ent system
• D ata directory
• Q uery facility
These elem en ts are show n schem atically in Figure 2.5 (in th e sh ad ed a re a ). T h e figure
ilso show s th e in teraction o f th e data m an agem en t subsystem w ith th e o th e r parts o f the
DSS, as w ell as its interaction w ith several data sou rces. M any o f the B l o r descriptive
analytics ap p lications derive their strength from th e data m anagem ent side o f th e subsys­
tems. A pplication Case 2.2 provides an exam p le o f a DSS that fo cu ses o n data.

The Model M anagem ent Subsystem


T he m o d el m anagem ent subsystem is the co m p o n en t that includes financial, statistical,
m anagem ent scie n c e , o r oth er quantitative m odels that provide the system ’s analytical
capabilities an d appropriate softw are m anagem ent. M odeling languages fo r building cu s­
tom m odels are also included. T his softw are is often called a model base m anagem ent

2DBMS is used as both singular and plural (system and systems), as are many other acronyms in this text.
96 Part I • D ecision Making and Analytics: An Overview

Application Case 2.2


Station Casinos Wins by Building Customer Relationships Using Its Data
Station Casinos is a m ajor provider o f gam ing for • Slot prom otion costs w ere reduced b y $1 million
Las V eg a s-a re a residents. It ow ns ab ou t 20 proper­ (from $13 m illion per m onth) b y b etter targeting
ties in N evada an d oth er states, em ploys o v er 12,000 the custom er segm ents.
p eop le, and h as reven u e o f ov er $1 billion. • A 14 p ercen t im provem en t in guest retention.
Station C asinos w an ted to d ev elop an in-depth • In creased n ew -m em b er acquisition by 160
view o f e a ch custom er/guest w h o visited Casino percent.
Station properties. T his w ould perm it them to b et­ • R eduction in data error rates from as high as
ter understand cu stom er trends as w ell as en h an ce 8 0 p ercen t to less th an 1 percent.
th eir o n e-to -o n e m arketing for e a ch guest. T h e co m ­ • Reduced the tim e to analyze a cam paign’s effec­
p any em p loyed th e Teradata w arehou se to d evelop tiveness from alm ost 2 w eeks to just a few hours.
th e “T otal G u est W orth” solution. T h e p ro ject used
used A prim o R elationship M anager, Inform atica, and Q u e s t io n s f o r D is c u s s io n

C ognos to captu re, analyze, and seg m ent custom ers. 1. W hy is this d ecisio n support system classified as
Alm ost 500 different data sou rces w ere integrated to a data-focused DSS?
d ev elop the full view o f a custom er. As a result, the 2. W hat w ere som e o f the b en efits from im plem ent­
com pany w as a b le to realize th e follow ing benefits: ing this solution?
• Custom er segm ents w ere expanded from 14
Source: Teradata.com, “No Limits: Station Casinos Breaks the
(originally) to 160 segm ents so as to b e ab le to Mold on Customer Relationships,” teradata.com/case-studies/
target m ore specific prom otions to e ach segment. S ta t i o n - C a s i n o s - N o - L i m i t s - S t a t i o n - C a s i n o s - B r e a k s - t h e - M o l d -
• A 4 p ercen t to 6 p e rce n t increase in m onthly o n-C u stom er-R elationships-E xecutive-Su m m ary-eb64lO
slo t profit. (accessed February 2013)-

system (MBMS). This co m p o n en t ca n b e co n n ecte d to corporate or external storage


o f m odels. M odel solution m ethods and m anagem ent system s are im plem ented in W eb
developm en t system s (su ch as Ja v a ) to run o n application servers. T h e m odel m anage­
m ent subsystem o f a DSS is co m p o sed o f th e follow ing elem ents;

• M odel b ase
• MBMS
• M odeling language
• M odel directory
• M odel execu tion , integration, and com m and p ro cessor

T h ese elem ents and their interfaces w ith oth er DSS co m p o n en ts are show n in Figure 2.6.
At a higher level than building blocks, it is im portant to consid er the different types o f
m odels and solution m ethods n eed ed in the DSS. O ften at the start o f developm ent, there is
som e sen se o f the m odel types to b e incorporated, b u t this m ay chan ge as m ore is learned
about the decision problem . Som e D SS developm ent system s include a w ide variety o f com ­
ponents (e.g., Analytica from Lumina D ecision System s), w hereas others have a single one
(e.g., Lindo). Often, the results o f o n e type o f m odel com p onen t (e.g ., forecasting) are used
as input to another (e.g ., production scheduling). In som e cases, a m odeling language is a
com p onen t that generates input to a solver, w hereas in other cases, the tw o are com bined.
B eca u se DSS deal with sem istrucaired or unstructured problem s, it is often necessary
to custom ize m odels, using programming tools and languages. Som e exam p les o f these are
.NET Fram ew ork languages, C++, and Java. OLAP softw are m ay also b e used to w ork with
m odels in data analysis. Even languages for sim ulation su ch as Arena and statistical pack­
ages su ch as those o f SPSS offer m odeling tools d ev eloped through the u se o f a proprietary
Chapter 2 • Foundations and Technologies for Decision Making

FIGURE 2.6 Structure of the Model Management Subsystem.

programming language. For small and m edium -sized DSS or for less com p lex o n es, a spread­
sheet (e.g., E xcel) is usually used. W e will use Excel for m any k ey exam p les in this b ook .
Application Case 2.3 describes a spreadsheet-based DSS. H ow ever, using a spreadsheet
for m odeling a problem o f any significant size presents problem s with docum entation and
error diagnosis. It is v eiy difficult to determ ine o r understand nested, com p lex relationships
in spreadsheets created b y som eon e else. This m akes it difficult to m odify a m odel built by
som eone else. A related issue is the increased likelihood o f errors creeping into the form u­
las. With all the equations appearing in the form o f cell references, it is challenging to figure
out w here an error might b e. T h ese issues w ere addressed in an early generation o f DSS
developm ent softw are that w as available o n m ainfram e com puters in th e 1980s. O n e such
product w as called Interactive Financial Planning System (IFPS). Its developer. Dr. Gerald
W agner, then released a desktop softw are called Planners Lab. Planners Lab includes the
following com ponents: (1 ) an easy-to-use algebraically oriented m odel-building language
and (2 ) an easy-to-use state-of-the-art op tion for visualizing m odel output, such as answers
to w hat-if and g o a l seek questions to analyze results o f changes in assum ptions. T he com ­
bination o f th ese com ponents enables business m anagers and analysts to build, review, and
challenge the assum ptions that underlie decision-m aking scenarios.
Planners Lab m akes it p ossible for the d ecisio n m akers to “play” w ith assum ptions
to reflect alternative view s o f the future. Every P lanners Lab m odel is an assem blag e o f
assum ptions ab o u t the future. Assum ptions m ay com e from d atabases o f historical per­
form ance, m arket research, and the d ecisio n m akers’ m inds, to nam e a few sou rces. M ost
assum ptions a b o u t the future co m e from the d ecisio n m akers’ accu m ulated exp erien ces
in the form o f opinions.
T h e resulting collection o f equ ations is a P lanners Lab m odel that tells a read able
story f o r a p a rticu la r scenario. P lanners Lab lets d ecisio n m akers d escrib e their plans
in their ow n w ord s and w ith their ow n assum ptions. T h e product’s raison d ’etre is that
a sim ulator shou ld facilitate a conversation w ith the d ecisio n m aker in th e p ro cess o f
Part I • D ecision Making and Analytics: An Overview

Application Case 2.3


S N A P DSS Helps O neN et M ake Telecom m unications Rate Decisions
Telecom m unications netw ork services to educational and future d evelopm ents; and leverage o f th e shared
institutions and governm ent entities are typically infrastructure to en a b le further e co n o m ic d ev elop ­
provided b y a m ix o f private and pu blic organiza­ m ent and collaborative w o rk across the state that
tions. Many states in the United States have o n e or leads to innovative u ses o f O neN et.
m ore state ag en cies that are responsible for providing T h e se consid erations led to the d ev elop m en t o f
netw ork services to sch oo ls, colleges, and other state a sp read sh eet-based m odel. T h e system , SNAP-DSS,
agencies. O n e exam p le o f su ch an ag en cy is O neN et o r Service N etw ork A pplication and Pricing (SNAP)-
in O klahom a. O n eN et is a division o f the O klahom a based DSS, w as d ev eloped in M icrosoft E xcel 2007
State R egents for H igher Education and op erated in and used the VBA program m ing language.
coop eration w ith the O ffice o f State Finance. T he SNAP-DSS offers O neN et the ability to select
Usually a g en cies such as O neN et op erate as the rate card options that b est fit the preferred pric­
a n enterprise-type fund. T h e y must recov er their ing strategies b y providing a real-tim e, user-friendly,
costs through billing their clients and/or by justifying graphical user interface (G U I). In addition, the SNAP-
appropriations directly from the state legislatures. DSS n o t only illustrates the influence o f the changes in
This co st recov ery should o ccu r through a pricing the pricing factors o n each rate card option, but also
m echanism that is efficient, sim ple to im plem ent, allow s the user to analyze various rate card options
and equ itable. This pricing m odel typically n eed s to in different scenarios using different param eters. This
recognize m any factors: co n v erg en ce o f v o ice, data, m odel has b ee n used by O neN et financial planners to
and vid eo traffic o n th e sam e infrastructure; diver­ gain insights into their custom ers and analyze many
sity o f u ser b a se in term s o f edu cational institutions, w hat-if scenarios o f different rate plan options.
state agen cies, an d so on; diversity o f applications
in u se by state clients, from e-m ail to v id eo confer­ Source: Based on J. Chongwatpol and R. Sharda, “SNAP: A DSS
e n ce s, IP telep h o n in g , and distance learning; recov­ to Analyze Network Service Pricing for State Networks,” D ecision
ery o f current costs, as well as planning for upgrades Support Systems, Vol. 50, No. 1, December 2010, pp. 347-359.

d escribing busin ess assum ptions. All assum ptions are d escribed in English equ ations (o r
the user’s native language).
T h e b est w ay to learn h ow to use Planners Lab is to launch the softw are and follow
the tutorials. T h e softw are can b e d ow nloaded at p l a n n e r s l a b .c o m .

The User Interface Subsystem


T h e u ser com m u n icates w ith an d com m and s th e D SS through the u s e r i n t e r f a c e su b ­
system . T h e u ser is co n sid ered part o f th e system . R esearch ers assert that som e o f the
u n iq u e con trib u tio n s o f D SS are d erived from th e in ten siv e in teractio n b e tw e e n the
com p u ter and th e d ecisio n m aker. T h e W e b b ro w se r provid es a fam iliar, con sisten t
graphical u ser in terface (G U I) structure fo r m ost D SS. F o r lo ca lly u sed D SS, a sp read ­
sh e e t a lso provides a fam iliar u ser in terface. A d ifficult u ser in terface is o n e o f the
m ajor reason s m anagers d o n o t u se com p u ters and quantitative analy ses as m u ch as
th ey co u ld , g iv en th e availability o f th e se te ch n o lo g ie s. T h e W e b b ro w se r h as b e e n
re co g n iz ed as an e ffectiv e D SS G U I b e c a u se it is flex ib le, u ser friendly, and a gatew ay
to alm ost all so u rces o f n ecessa ry inform ation and data. Essentially, W eb b row sers h ave
led to th e d ev elop m en t o f portals and d ashboard s, w h ich front en d m any DSS.
Explosive grow th in portable devices including sm artphones and tablets has changed
the D SS user interfaces as w ell. T h ese devices allow eith er handwritten input or typed input
from internal o r external keyboards. Som e DSS user interfaces utilize natural-language input
Chapter 2 • Foundations and T echnologies for Decision Making 99

- r.. text in a hum an language) so that th e users can easily express them selves in a m ean-
mgful way. B ecau se o f the fuzzy nature o f hum an language, it is fairly difficult to develop
software to interpret it. H ow ever, these packages increase in accuracy every year, and they
will ultimately lead to accurate input, output, and language translators.
Cell p h o n e inputs through SMS are b eco m in g m ore com m on for a t least so m e co n ­
sum er D SS-type applications. F o r exam p le, o n e ca n send an SMS req u est fo r search on
any to p ic to G O O G L (4 6 6 4 5 ). It is m ost useful in locating nearby b u sin esses, addresses,
or p hone nu m bers, b u t it can also b e used fo r m any other d ecisio n supp ort tasks. For
exam ple, users ca n find definitions o f w ords by entering the w ord “d efin e” fo llow ed b y a
word, su ch as “d efine exten u ate.” Som e o f the oth er capabilities include:

• Translations: “Translate thanks in Spanish.”


• Price look u p s: “Price 32 G B iP h o n e.”
• Calculator: Although you w ould probably just w ant to u se you r p h o n e ’s built-in
calculator function, y ou ca n send a m ath exp ressio n as an SMS for an answer.
• C urrency conversions: “10 usd in eu ro s.”
• Sports scores and gam e times: Ju st enter the nam e o f a team ( “NYC Giants”), and G oogle
SMS will send the m ost recent gam e’s score and the date and time o f the next match.

This type o f SM S-based search capability is also available for oth er search en g in es, includ­
ing Y ah oo ! an d M icrosoft’s n ew search en g in e Bing.
W ith th e e m e rg en c e o f sm artp h on es su ch as A pple’s iP h o n e an d A ndroid sm art­
p h o n es from m any ven d ors, m an y co m p a n ies are d ev elop in g ap p licatio n s (co m m o n ly
called apps) to p ro vid e p u rch asin g -d ecision support. F o r exam p le, A m azon .co m ’s app
allow s a u se r to ta k e a picture o f an y item in a store (o r w h erever) and sen d it to A m azon,
com . A m azo n .co m ’s graphics-u nd erstand in g algorithm tries to m atch th e im age to a real
product in its d atabases and sen d s th e u ser a p ag e sim ilar to A m azo n .co m ’s product
info p ag es, allow in g users to p erfo rm p rice com p ariso n s in real tim e. T h o u san d s o f
oth er ap p s h a v e b e e n d ev elo p ed that provide con su m ers supp ort for d ecisio n m aking
o n finding an d selectin g stores/restaurants/service providers o n th e b a sis o f location ,
recom m en d ation s from oth ers, and e sp ecia lly from you r ow n social circles.
V o ice input fo r th ese d evices and PCs is com m on and fairly accu rate (b u t not per­
fect). W hen v o ice input with accom panyin g sp eech -recog n itio n softw are (and readily
available text-to -sp eech softw are) is used , verb al instructions w ith a ccom p an ied actions
and outputs ca n b e invoked. T h ese are readily available for DSS and are incorporated into
the portable d evices d escribed earlier. An exam p le o f v o ice inputs that can b e used for
a general-p urpose DSS is A pple’s Siri application and G o o g le’s G o o g le N ow service. For
exam ple, a u se r can give h e r zip co d e and say “pizza d elivery.” T h ese d ev ices provide the
search results and can e v e n p lace a call to a business.
R ecen t efforts in busin ess p ro cess m anagem ent (B PM ) have led to inputs directly
from physical devices for analysis via DSS. For exam p le, rad io-freq u ency identification
(R FID ) ch ip s ca n record data from sensors in railcars or in -process produ cts in a factory.
D ata from th ese sen sors (e .g ., record ing an item ’s status) ca n b e d ow nload ed at k e y lo ca ­
tions and im m ediately transm itted to a d atabase or data w arehouse, w h ere they ca n b e
analyzed an d d ecisions can b e m ade concerning th e status o f the item s b ein g m onitored.
W alm art an d B est B uy are d eveloping this tech n olog y in their SCM, and such sensor
networks are also b ein g u sed effectively b y oth er firms.

The Knowledge-Based Managem ent Subsystem


The kn ow ledge-based m anagem ent subsystem can support any o f the oth er subsystem s or
act as an independent com ponent. It provides intelligence to augm ent th e decision mak­
er’s own. It ca n b e interconnected with the organization’s know ledge repository (part o f
0 Part I • D ecision Making and Analytics: An Overview

a know ledge m anagem ent system [K M S D , w hich is som etim es called t h e o r g a n i z a ti o n a l


k n o w le d g e b a s e . Know ledge m ay b e provided via W eb servers. M any artificial m telligence
m ethods have b ee n im plem ented in W eb developm ent system s such as Jav a and are easy
to integrate into the other D S S com ponents. O ne o f th e m o s t w i d e l y publicized know ledge-
based DSS is IBM’s W atson com puter system. It is described in Application Case 2^ .
W e con clu d e the sectio n s o n the th ree m ajor DSS com p on en ts ^
o n som e recen t tech n olog y and m ethodology d evelopm ents that affect D SS and . t e : -
sio n m aking. T ech n olog y Insights 2 .2 sum m arizes som e em erging developm ents in u ser

Application Case 2.4


From a G am e W in n e r to a Doctor!
M emorial Sloan-Kettering Cancer Center
T h e television sh o w Jeo p a rd y ! inspired an IBM
(MSKCC), New' Y ork, an d W ellPoint, a m ajor insur­
research team to build a supercom pu ter nam ed
a n ce provider, have b eg u n using W atson as a treat­
W atson that successfully to o k o n the ch allenge o f
m ent advisor in oncology diagnosis. W atson learned
playing Jeop ard y ! and b ea t the oth er hum an co m ­
the process o f diagnosis and treatm ent through its
petitors. Sin ce th en , W atson has evolved into a
natural-language processing capabilities, w hich ena­
question-answ ering com puting platform that is now
b led it to leverage the unstructured data w ith a n enor­
b ein g used com m ercially in th e m ed ical field and
m ous am ount o f clinical expertise data, m olecular
is e x p e cte d to find its u se in m any oth er areas.
and gen om ic data from existing can cer case histo­
W atson is a cognitive system built o n clus­
ries, journal articles, physicians’ notes, and guidelines
ters o f pow erful p ro cessors supported b y IBM ’s
and b est practices from the National Com prehensive
D eepQ A ® softw are. W atson em ploys a com bina­
Cancer Network. It w as th en trained b y oncologists to
tion o f tech n iq u es like natural-language processing,
apply the know ledge gained in com paring an individ­
hypothesis gen eratio n and evaluation, and evidence-
ual patient’s m edical inform ation against a wide vari­
b a se d learning to o v ercom e th e constraints im posed
ety o f treatm ent guidelines, published research, and
b y program m atic com puting. This en ab les W atson
other insights to provide individualized, confid ence-
to w ork o n m assive am ounts o f real-w orld, unstruc-
scored recom m endations to the physicians.
tured B ig D ata efficiently. At MSKCC, W atson facilitates evidence-based
In the m edical field, it is estim ated that the
support for every suggestion it m akes while analyz­
am ount o f m ed ical inform ation d oubles every
ing an individual case b y bringing out the facts from
5 years. This m assive growth limits a p h y sician s
medical literature that point to a particular sugges­
decision-m aking ability in diagnosis and treatm ent o f
tion. It also provides a platform for the physicians to
illness using an evid ence-b ased approach. W ith the
look at the case from multiple directions b y doing fur­
advancem ents b ein g m ade in the m edical field every­
ther analysis relevant to the individual case. Its voice
day, physicians d o n ot have en ou gh tim e to read
recognition capabilities allow physicians to speak to
every journal that ca n help them in k eep in g up-to-
W atson, enabling it to b e a perfect assistant that helps
date with the latest advancem ents. Patient histories
physicians in critical evidence-based decision making.
and electronic m ed ical records contain lots o f data. If
W ellPoint also trained W atson w ith a vast his­
this inform ation can b e analyzed in com bination with
tory o f m ed ical ca ses and n ow relies o n W atson’s
vast am ounts o f existing m ed ical know led ge, m any
hypothesis generation and evid en ce-b ased learning
useful clues can b e provided to the physicians to
to g enerate recom m en d ations in providing approval
help them identify diagnostic and treatm ent options.
fo r m edical treatm ents b ased o n th e clinical and
W atson, d u b bed Dr. W atson, with its advanced
patient data. W atson also assists the insurance pro­
m achine learning capabilities, n ow finds a n ew role
viders in d etecting fraudulent claim s and protecting
as a com puter com p an io n that assists physicians by
physicians from m alpractice claim s.
providing relevant real-tim e inform ation for critical
W atson provides an e x cellen t exam p le o f
decision m aking in ch oo sin g the right diagnostic and
a know led ge-based DSS that em ploys multiple
treatm ent proced u res. (A lso see the op ening vignette
ad vanced technolog ies.
for Chapter 7 .)
Chapter 2 • Foundations and Technologies for Decision Making 101

Q u e s t io n s fo r D is c u s s io n impacting th e decision-m aking process radically by


shifting them from an opinion-based process to a
1. W hat is a cognitive system? H ow can it assist in
real-tim e d ecisio n making? m ore real-tim e, evidence-based p rocess, thereby turn­
ing available inform ation intelligence into actionable
2. W hat is evid en ce-b ased d ecisio n making?
w isdom that ca n b e readily em ployed across many
3. W hat is the role played b y W atson in the industrial sectors.
discussion?
4. D o es W atson elim inate th e n e e d for hum an d eci­ Sources-. Ibm.com, “IBM Watson: Ushering In a New Era of
sion making? Computing," www-03-ibm.com/innovation/us/watson (accessed
February 2013); Ibm.com, “IBM Watson Helps Fight Cancer with
Evidence-Based Diagnosis and Treatment Suggestions,” www-
W h a t W e C an L e a rn fro m T h is A p p licatio n 03.ibm.com/innovation/us/watson/pdf/MSK_Case_Study_
C ase IM C l4794.pdf (accessed February 2013); Ibm.com, “IBM Watson
Enables More Effective Healthcare Preapproval Decisions Using
Advancem ents in technology now enable the build­ Evidence-Based Learning,” www-03.ibm.com/innovation/us/
ing o f pow erful, cognitive com puting platform s com ­ watson/pdf/WellPoint_Case_Study_IMC14792.pdf (accessed
bined w ith com p lex analytics. T h ese system s are Febmary 2013).

T EC H N O L O G Y IN S IG H T S 2 .2

Next Generation of Input Devices


The last few years have seen exciting developments in user interfaces. Perhaps the most com ­
m on exam ple o f the new user interfaces is the iPhone’s multi-touch interface that allows a user
to zoom, pan, and scroll through a screen just with the use o f a finger. The success o f iPhone has
spawned developments o f similar user interfaces from many other providers including Blackberry,
HTC, LG, Motorola (a part o f G oogle), Microsoft, Nokia, Samsung, and others. Mobile platform
has becom e the major access mechanism for all decision support applications.
In th e last few years, gam ing devices have evolved significantly to b e ab le to receive and
process gesture-based inputs. In 2007, Nintendo introduced the Wii gam e platform , w hich is
able to process m otions and gestures. M icrosoft’s K inect is able to recognize im age m ovem ents
and use that to discern inputs. T he n ext generation o f these technologies is in the form o f
m ind-reading platforms. A com pany called Emotiv (e n .w ik ip e d ia .o rg / w ik i/ E m o tiv ) made
big new s in early 2008 with a prom ise to deliver a gam e controller that a u ser w ould be able
to control b y thinking about it. T hese technologies are to b e based on e le c tr o e n c e p h a lo g r a ­
p h y (EEG ), the technique o f reading and processing the electrical activity at the scalp level
as a result o f sp ecific thoughts in the brain. T h e technical details are available on W ikipedia
(e n .w ik ip e d ia .o rg / w ik i/ E le c tro e n c e p h a lo g ra p h y ) and the W eb. Although EEG has not
yet b e e n kn ow n to b e used as a DSS user interface (at least to the authors), its potential is
significant fo r m any other DSS-type applications. Many other com panies are developing similar
te c h n o lo g ie s .
I t is a ls o p o s s ib le to s p e c u la te o n o th e r d e v e lo p m en ts o n t h e h o riz o n . O n e m a jo r g ro w th
a rea is lik e ly to b e in w e a r a b le d ev ic e s. G o o g le ’s w e a r a b le g la s s e s th at a re labeled “augmented
reality” glasses will likely em erge as a new user interface for decision support in both consum er
a n d c o r p o r a te d e c is io n settin g s. Sim ilarly, A p p le is s u p p o s e d to b e w o rk in g o n iO S -b a sed w rist -
watch-type com puters. T hese devices will significantly impact how w e interact with a system and
use the system for decision support. So it is a safe bet that user interfaces are going to change
significantly in the next few years. Their first use will probably be in gaming and consum er
applications, but the business and DSS applications w on’t b e far behind.

Sources: Various Wikipedia sites and the company Web sites provided in the feature.
102 Part I • D ecision Making and Analytics: An Overview

interfaces. Many developm ents in D SS com p on en ts are th e result o f new d evelopm en ts


in hardw are and softw are com puter technology, data w arehousing, data m ining, OLAP,
W e b tech n olog ies, integration o f tech n olog ies, and DSS application to various and new
fu nctional areas. T h ere is also a clear link b etw ee n hardw are and softw are capabilities
and im provem ents in DSS. Hardw are continu es to shrink in size w hile increasing in sp eed
and oth er capabilities. T h e sizes o f d atabases and data w areh o u ses have increased dra­
m atically. Data w areh o u ses n o w provide hundreds o f petabytes o f sales data for retail
organizations and con ten t for m ajor new s netw orks.
W e e x p e ct to s e e m ore seam less integration o f DSS com p on en ts as they ad opt W eb
techn olog ies, esp ecially XML. T h ese W e b -b a sed tech n olog ies have b eco m e th e cen ter o f
activity in d eveloping DSS. W e b -b a sed D SS have red uced tech n olog ical barriers and have
m ade it easier and less costly to m ak e decision-relevant inform ation and m odel-driven
DSS available to m anagers and staff users in geographically distributed locations, e sp e ­
cially through m o bile devices.
D SS b eco m in g m ore em bed d ed in other systems. Similarly, a m ajor area to expect
im provem ents in DSS is in GSS in supporting collaboration at the enterprise level. This is
true even in the educational arena. Almost eveiy n ew area o f inform ation system s involves
som e level o f decision-m aking support. Thus, DSS, either directly or indirectly, has impacts
on CRM, SCM, ERP, KM, PLM, BAM, BPM , and other EIS. As these systems evolve, the
active decision-m aking com ponent that utilizes m athem atical, statistical, or even descriptive
m odels increases in size and capability, although it m ay b e buried d eep within the system.
Finally, different types o f D SS com ponents are b ein g integrated m ore frequently. For
exam p le, G IS are readily integrated with other, m ore traditional, DSS com p on en ts and
to o ls for im proved d ecisio n m aking. ,
B y definition, a D SS must include the three m ajor com p on en ts— DBM S, MBMS, and
user interface. T h e know led g e-based m anagem ent subsystem is optional, but it can pro­
vid e m any b en efits b y providing intelligence in and to th e th ree m ajor com ponents. As in
an y oth er MIS, the user m ay b e consid ered a co m p o n en t o f D SS.

Chapter Highlights
• In th e ch o ice phase, alternatives are com pared, and
• M anagerial d ecisio n m aking is synonym ous with
a search for the b e st (o r a good-enough) solution is
the w h o le p ro cess o f m anagem ent.
launched. M any search techniques are available.
• H um an d ecisio n styles n e e d to b e recog n ized in
• In im plem enting alternatives, a d ecision m aker
d esigning system s.
should con sid er multiple goals and sensitivity-
• Individual an d group d ecision m aking ca n b oth
analysis issues.
b e supp orted b y system s.
• Satisficing is a w illingness to settle fo r a satis­
• P rob lem solving is also opportunity evaluation.
factory solution. In effect, satisficing is subopti-
• A m odel is a sim plified rep resentation or abstrac­
m izing. B o u n d ed rationality results in d ecisio n
tion o f reality.
• D ecisio n m akin g involves four m ajor phases: m akers satisficing.
• Com puter system s can supp ort all p hases o f d eci­
intelligence, d esign, ch o ice , and im plem entation.
sio n m aking b y autom ating m any o f the required
• In th e in te llig e n ce p h ase, th e p ro b lem (o p p o r­
tasks or b y applying artificial intelligence.
tunity) is id en tified , classified , an d d e c o m ­
• A DSS is d esig n ed to supp ort co m p lex m anage­
p o se d (if n e e d e d ), an d p ro b lem ow n ersh ip is
rial p roblem s th at other com puterized techniqu es
establish ed .
cannot. DSS is user oriented, and it u ses data and
• In th e d esign phase, a m odel o f th e system is
built, criteria for selectio n are agreed on , alterna­ m odels.
• DSS are generally developed to solve specific
tives are generated , results are predicted, and a
managerial problem s, w hereas B I systems typically
d ecisio n m ethod ology is created.
Chapter 2 • Foundations and T echnologies for D ecision Making 103

report status, and, w h en a problem is discovered, • T h e m ajor com ponents o f a DSS are a database
their analysis tools are utilized by decision makers. and its m anagem ent, a m odel b ase and its m an­
• D S S ca n provide support in all p hases o f the deci- agem ent, and a user-friendly interface. An intelli­
sion-m akin g p ro cess and to all m anagerial levels gent (know led ge-based ) com p on ent ca n also b e
fo r individuals, groups, and organizations. included. T h e user is also considered to b e a com ­
• D SS is a u ser-o rien ted to o l. M any a p p lica­ p o n en t o f a DSS.
tio n s ca n b e d ev elo p e d b y e n d users, o ften in • Data w arehouses, data mining, and OLAP have
sp read sh eets. m ade it p ossible to d evelop D SS quickly and easily.
• DSS ca n im prove the effectiveness o f decision • T h e data m anagem ent subsystem usually includes
m aking, d ecrease the n eed for training, im prove a DSS d atabase, a DBM S, a data directory, and a
m anagem ent control, facilitate com m unication, query facility.
save effort b y the users, red uce costs, and allow • T h e m o d el b a se includes standard m odels and
fo r m o re ob jective d ecisio n making. m odels specifically w ritten fo r the DSS.
• T h e AIS SIGD SS classification o f DSS includes • Custom -m ade m odels can b e written in program­
com m unications-driven and group DSS (G SS), m ing languages, in special modeling languages,
data-driven DSS, docum ent-driven DSS, know l­ and in W eb-based developm ent systems (e.g., Java,
edge-d riven D SS, data m ining and m anagem ent the .NET Framework).
ES applications, and m odel-driven DSS. Several • T he user interface (o r dialog) is o f utmost impor­
o th er classifications m ap into this one. tance. It is m anaged b y software that provides the
• Several usefu l classifications o f DSS are b ased need ed capabilities. W eb brow sers and smart­
o n w h y th ey are d ev elo p ed (institutional versus phones/tablets com m only provide a friendly, con­
ad h o c ), w hat level w ithin the organization they sistent D SS GUI.
su p p ort (p erson al, group, or organizational), • T h e u ser interface capabilities o f D SS have m oved
w h eth er they supp ort individual w o rk o r group into sm all, portable d evices, including sm art­
w o rk (individual DSS versus G SS), and h ow they p h o n es, tablets, and so forth.
are d ev elo p ed (cu sto m versus ready-m ade).

Key Terms
ad h o c D SS d ecisio n m aking institutional D SS p ro blem ow nership
algorithm d ecisio n style intelligence p h ase p ro blem solving
analytical tech n iqu es d ecisio n variable m odel b a se m anagem ent satisficing
busin ess intelligence descriptive m odel system (M BM S) scenario
(B I) d esign phase norm ative m odel sensitivity analysis
ch o ice p h ase DSS application optim ization sim ulation
data w arehou se effectiveness organizational suboptim ization
database m anagem ent efficien cy k n ow led g e base user interface
system (D BM S) im plem entation phase principle o f ch o ice w hat-if analysis

Questions for Discussion


1 . Discuss the need to have decision support systems between 5 . Apply Simon’s four-phase model to the elevator application
behavioral and scientific methods. case (see Application Case 2.1).
2 . Discuss the com plexity in including behavioral patterns 6 . Examine why the decomposition o f a problem is one of
into com puterized systems. the most important steps in decision making.
3 . Explain w hy decision m akers using the sam e decision­ 7. Appraise the maxim: “All models are wrong, som e are
making process might end up with two different decisions. useful.”
4 . Present sim ilarities and differences betw een Sim on’s and 8 . Develop an exam ple illustrating satisficing and explain
K epner-T regoe m ethods. why this m ethod is suboptimal yet very useful.
104 Part I * Decision Making and Analytics: An Overview

9 . Exam ine w hy change is difficult to implement. 1 3 . Exam ine the difficulties to implement a new DSS over
1 0 . “The more data the better.” Assess the need to have qual­ legacy systems.
ity data to feed decision-m aking systems. 1 4 . Examine why decision-m aking processes need to b e
1 1 . Discuss the difference betw een data and information. w ell understood in order to create a sound data manage­
1 2 . Identify the type o f DSS your organization/university is m ent subsystem.
using and discuss the need to make it evolve towards
another DSS.

Exercises
3 . Com ment o n Simon’s (1 977) philosophy that managerial
T e ra d a ta U n iv e rsity N e tw o rk TU N )
decision making is synonymous w ith the w hole process
a n d O th e r H an d s-O n E x e r c is e s
o f management. D oes this make sense? Explain. Use a
1. Choose a case at TUN o r use the case that your instruc­
real-world exam ple in your explanation.
tor chooses. D escribe in detail what decisions w ere to be
4 . Consider a situation in w hich you have a preference
made in the case and w hat process was actually followed.
about w here you g o to college: Y ou want to be not too
B e sure to describe how technology' assisted o r hindered
far away from hom e and not too close. W hy might this
the decision-m aking process and what the decision’s
situation arise? Explain how this situation fits with rational
impacts were.
decision-making behavior.
2 . Most com panies and organizations have downloadable
5 . Explore te ra d a ta u n iv e rsity n e tw o rk .c o m . In a report,
dem os or trial versions o f their software products on the
describe at least three interesting DSS applications and
W eb so that you can copy and try them out on your own
three interesting DSS areas (e.g., CRM, SCM) that you
com puter. Others have online dem os. Find one that pro­
have discovered there.
vides decision support, try it out, and write a short report
6 . Explain the con cep t o f bounded-rationality and how
about it. Include details about the intended purpose of
decision support system s attempt to overcom e that
the software, how it works, and how it supports decision
limitation.
making.

End-of-Chapter Application Case


Logistics O ptim ization in a M ajo r Shipping Com pany (CSAV)

onward transport to the destination. Typically, there are trans­


In tro d u c tio n
shipments along the way where a container may be moved
Comparna Sud Americana de Vapores (CSAV) is a shipping from one vessel to another until it gets to its destination. At the
com pany headquartered in Chile, South America, and is the
destination, the container is transported to the consignee. After
sixth largest shipping com pany in the world. Its operations emptying the container, it is sent to the nearest CSAV depot,
in over 100 countries worldwide are managed from seven
where maintenance is done on the container.
regional offices. CSAV operates 700,000 containers valued at
T h e r e w e re fo u r m a in c h a lle n g e s re c o g n iz e d b y
$2 billion. Less than 10 percent o f these containers are owned
C SA V to its e m p ty c o n ta in e r lo g istics p ro b le m :
by CSAV. The rest are acquired from other third-party com ­
panies o n lease. At the heart o f CSAV’s business operations
is their container fleet, which is only second to vessel fuel in • I m b a la n c e . Some geographic regions are net exporters
terms o f cost. As part o f their strategic planning, the company while others are n et ivmporters. Places like China are
recognized that addressing the problem o f empty container net exporters; hence, there are always shortages o f con­
logistics would help reduce operational cost. In a typical cycle tainers. North America is a net importer; it always has a
o f a cargo container, a shipper first acquires an empty con­ surplus o f containers. This creates an imbalance o f con­
tainer from a container depot. The container is then loaded tainers as a result o f uneven flow o f containers.
onto a taick and sent to the merchant, w ho then fills it with his • U n c e rta in ty . Factors like demand, date o f return of
products. Finally, the container is sent by truck to the ship for empty containers, travel times, and the ship’s capacity
Chapter 2 • Foundations and Technologies for Decision Making 105

for empty containers create uncertainty in the location increased from a record low o f 3.8 cycles in 2009 to 4.8 cycles
and availability o f containers. in 2010. M oreover, w hen the ECO system was implemented in
♦ Inform ation handling a n d sharing. Huge loads of 2010, the excess cost per full voyage becam e §35 cheaper than
data n eed to b e processed every day. CSAV processes the average cost for the period betw een 2006 and 2009. This
400,000 container transactions every day. Tim ely deci­ resulted in cost savings o f $101 million on all voyages in 2010.
sions based on accurate information had to be gener­ It was estimated that ECO’s direct contribution to this cost
ated in order to help reduce safety stocks o f empty reduction was about 80 percent ($81 million). CSAV projected
containers. that ECO will help generate $200 million profits over the next
• Coordination o f interrelated decisions worldwide. 2 years since its implementation in 2010.
Previously, d ecisions w ere m ade at the lo cal level.
Consequently, in order to alleviate the empty container C a se Q u e s t io n s
problem , decisions regarding movem ent o f empty con­ 1. Explain w hy solving the empty container logistics
tainers at various locations had to b e coordinated. problem contributes to cost savings for CSAV.
2 . W hat are som e o f the qualitative benefits o f the optim i­
M e th o d o lo g y /S o lu tio n zation m od el for the em pty con tain er movements?
CSAV developed an integrated system called Empty Container 3 . What are som e o f the key benefits o f the forecasting
Logistics Optimization (ECO ) using moving average, trended m odel in the ECO system implemented by CSAV?
and seasonal time series, and sales force forecast (CFM) meth­ 4 . Perform an online search to determine how' other ship­
ods. The ECO system com prises a forecasting model, inven­ ping com panies handle the empty container problem.
tory model, multi-commodity (MC) network flow model, and Do you think the ECO system would directly benefit
a W eb interface. T he forecasting model draws data from the those companies?
regional offices, processes it, and feeds the resultant informa­ 5 . Besides shipping logistics, can you think o f any other
tion to the inventory model. Some o f the information the fore­ domain w here such a system would b e useful in reduc­
casting model generates are the space in the vessel for empty ing cost?
containers and container demand. T h e forecasting module
also helps reduce forecast error and, hence, allows CSAV’s W h a t W e C an L e a rn fro m T h is End-of-
depot to maintain lower safety stocks. The inventory model C h a p te r A p p lica tio n C ase
calculates the safety stocks and feeds it to the MC Network
The empty container problem is faced by most shipping
Flow model. T h e MC Network Flow model is the core o f the
com panies. T he problem is partly caused by an imbalance
ECO system. It provides information for optimal decisions
in the demand o f empty containers betw een different geo­
to b e m ade regarding inventory levels, container reposition­
graphic areas. CSAV used an optimization system to solve
ing flows, and the leasing and return o f empty containers.
the em pty co n ta in er p ro b lem . T h e c a s e d em o n stra tes a situ­
The objective function is to minimize empty container logis­
ation where a business problem is solved n o t just by one
tics cost, w hich is mostly a result o f leasing, repositioning,
m ethod or m odel, but by a com bination o f different opera­
storage, loading, and discharge operations.
tions research and analytics methods. For instance, w e realize
that the optimization m odel used by CSAV consisted o f differ­
R e s u lts /B e n e fits ent submodels such as the forecasting and inventory models.
The ECO system activities in all regional centers are well coor­ The shipping industry is only one sector among a myriad of
dinated while still maintaining flexibility and creativity in their sectors where optimization models are used to decrease the
operations. T h e system resulted in a 50 percent reduction cost o f business operations. T he lessons learned in this case
in inventory stock. The generation o f intelligent information could b e explored in other domains such as manufacturing
from historical transactional data helped increase efficiency and supply chain.
o f operation. For instance, the empty time per container cycle
decreased from a high o f 47.2 days in 2009 to only 27.3 days Source: R. Epstein et al., "A Strategic Empty Container Logistics
the following year, resulting in an increase o f 60 percent o f Optimization in a Major Shipping Company,” Interfaces, Vol. 42, No.
the average empty container turnover. Also, container cycles 1, January-February 2012, pp. 5—16.

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Descriptive Analytics

LEARNING OBJECTIVES FOR PART II


■ Learn the role o f descriptive analytics (DA) in * Learn the im portance o f inform ation
solving busin ess problem s visualization in m anagerial decision support

■ Learn the basic definitions, concepts, and ■ Learn the foundations o f the em erging field
architectures o f data warehousing (DW ) o f visual analytics

■ Learn the role o f data w areh o u ses in m anagerial ■ Learn the capabilities and limitations
decision support o f dashboards and scorecard s

■ Learn the capabilities o f business reporting and ■ Learn the fundam entals o f business
visualization as en ab lers o f DA perform ance m anagem ent (BPM )

Descriptive analytics, often referred to as business intelligence, uses data and models to answer
the “what happened?” and “why did it happen?” questions in business settings. It is perhaps
” 9 most fundamental echelon in the three-step analytics continuum upon which predictive and
prescriptive analytics capabilities are built. As you will see in th© following chapters, the key enablers
of descriptive analytics include data warehousing, business reporting, decision dashboard/
scorecards, and visual analytics.
Data Warehousing

LEARNING OBJECTIVES
* Understand the b asic definitions and * E xplain the role o f data w arehouses in
co n cep ts o f data w arehouses d ecisio n support
■ U nderstand data w arehousing * E xplain data integration and the
architectures extraction, transform ation, and load
■ D escrib e the p ro cesses u sed in (ETL) p ro cesses
d ev eloping and m anaging data ■ D escrib e real-tim e (active) data
w arehouses w arehousing
■ E xplain data w arehousing operation s 11 U nderstand data w arehouse
adm inistration and security issues

T
h e co n cep t o f data w arehousin g h as b e e n around sin ce th e late 1980s. T his chapter
provides the foundation for an im portant ty p e o f database, called a data w are­
house, w h ich is primarily u sed for d ecisio n support and provides im proved analyti­
cal capabilities. W e discuss data w arehousing in th e follow ing sections:

3 .1 O p e n in g V ig n ette: Isle o f C apri C a sin o s Is W in n in g w ith E n terp rise D ata


W a re h o u se 109
3 .2 D ata W a re h o u sin g D efin itio n s an d C o n c e p ts 111
3 .3 D ata W a re h o u sin g P ro c e ss O v e rv ie w 11 7
3 .4 D ata W a re h o u sin g A rch itectu res 120
3 .5 D ata In te g ra tio n an d th e E x tra ctio n , T ra n sfo rm a tio n , an d L oad (ETL)
P ro c e s se s 127
3 .6 D ata W a re h o u se D e v e lo p m e n t 132
3 .7 D a ta W a re h o u sin g Im p le m en ta tio n Issu e s 143
3 .8 R ea l-T im e D ata W a re h o u sin g 147
3 .9 D ata W a re h o u se A dm inistration, S ecu rity Is s u e s, and F u tu re T re n d s 151
3 .1 0 R e so u rc e s, L inks, an d th e T e ra d a ta U n iv ersity N etw o rk C o n n e c tio n 156
Chapter 3 • Data W arehousing 109

3.1 OPENING VIGNETTE: Isle of Capri Casinos Is Winning


with Enterprise Data Warehouse
Isle o f Capri is a unique and innovative player in th e gam ing industry. After entering the
market in B ilox i, M ississippi, in 1992, Isle has grow n into o n e o f the country s largest
publicly traded gam ing com panies, m ostly b y establishing properties in th e sou theastern
United States and in th e country’s heartland. Isle o f Capri C asinos, In c., is currently operat­
ing 18 casin os in sev en states, serving nearly 2 m illion visitors ea ch year.

CHALLENGE
Even though they seem to have a differentiating edge, com pared to others in the highly
competitive gaming industry, Isle is not entirely unique. Like any gaming com pany, Is le s
success depends largely on its relationship with its custom ers— its ability to create a gaming,
entertainment, and hospitality atm osphere that anticipates custom ers’ need s and exceed s
iheir expectations. M eeting such a goal is im possible w ithout tw o important com ponents:
2 com pany culture that is laser-focused o n m aking the custom er exp erien ce an enjoyable
one, and a data and tech nolog y architecture that enables Isle to constantly d eep en its under­
standing o f its custom ers, as w ell as the various w ays custom er needs can b e efficiently met.

SOLUTION
After an initial data w areh o u se im plem entation w as derailed in 2005, in part b y H urricane
Katrina, Isle d ecid ed to re b o o t th e p ro ject w ith entirely n e w com p on en ts and Teradata
as the co re solution and key partner, alon g w ith IBM C ognos for B u sin ess Intelligence.
Shortly after that ch o ic e w as m ade, Isle brought o n a m anagem ent team that clearly
understood h o w th e Teradata and C ognos solution cou ld en a b le k ey d ecisio n m akers
Throughout th e o p eration to easily fram e th eir ow n initial queries, as w ell as tim ely follow -
up questions, thus op en in g up a w ealth o f possibilities to e n h a n ce the business.

RESULTS
Thanks to its su ccessfu l im plem entation o f a com prehen sive data w arehousing and busi­
ness intelligence solution, Isle has achiev ed som e d eeply satisfying results. T h e com pany
has dram atically accelerated and exp an d ed th e p ro cess o f inform ation gathering and
dispersal, producing ab ou t 150 reports o n a daily basis, 100 w eek ly , and 50 m onthly, in
addition to ad h o c q u eries, com p leted w ithin m inutes, all day every day. Prior to an enter­
prise data w areh o u se (E D W ) from Teradata, Isle produ ced ab ou t 5 m onthly reports per
property, but b e ca u se they to o k a w e e k or m ore to produce, properties could n o t b eg in to
analyze m onthly activity until th e seco n d w e e k o f the follow ing m onth. M oreover, n o n e
of the reports analyzed anything less than an entire m onth at a tim e; today, reports using
up-to-the m inute data o n sp ecific cu stom er segm ents at particular properties are available,
often the sam e day, enablin g the com pany to react m uch m ore quickly to a w id e range
o f cu stom er needs.
Isle has cu t th e tim e in h a lf n e ed ed to construct its co re m onthly direct-m ail cam ­
paigns an d can gen erate less involved cam paigns practically o n th e spot. In addition to
m oving faster, Isle has h o n ed the p ro cess o f segm entation and n o w can cro ss-referen ce
a w ide range o f attributes, such as overall cu stom er value, gam ing behaviors, an d hotel
preferences. This e n a b les them to p rod u ce m ore targeted cam paigns aim ed at particular
cu stom er segm ents and particular behaviors.
Isle also has e n a b led its m anagem ent and em p loy ees to further d eep en th eir under­
standing o f cu stom er beh aviors b y con n ectin g data from its h otel system s and data from
110 Part II • Descriptive Analytics

its custom er-tracking system s— and to act o n that understanding through im proved
m arketing cam paigns and heig h ten ed levels o f cu stom er service. For exam p le, the addi­
tion o f h otel data offered n ew insights ab ou t the in creased gam ing local patrons d o w hen
they stay at a hotel. T his, in turn, en ab led new incen tive program s (su ch as a free hotel
night) that have p leased locals and increased Isle’s cu stom er loyalty.
T h e h otel data also has en h a n ced Isle’s cu stom er hosting program. B y autom atically
notifying hosts w h en a high-value gu est arrives at a hotel, h osts have forged d ee p e r rela­
tionships w ith their m ost im portant clients. “This is b y far the b est tool w e ’ve had since
I’ve b e e n at the com p an y ,” w rote o n e o f th e hosts.
Isle o f Capri ca n n o w d o m ore a ccu ra te p ro p erty -to -p ro p erty co m p a riso n s and
an aly ses, largely b e c a u se Teraclata co n so lid a ted d isp arate data h o u sed at individual
p ro p erties an d cen tralized it in o n e lo catio n . O n e result: A cen tra liz ed in tran et site
p o sts daily figures fo r e a c h individual property, s o th ey c a n co m p a re su ch things as
p erfo rm an ce o f rev en u e from slo t m a ch in es an d ta b le g am es, as w ell as com plim entary
red em p tio n v alu es. In ad dition, th e IBM C o g n o s B u sin ess In te llig en ce to o l en ab les
ad d itional co m p a riso n s, su ch as d irect-m ail red em p tio n v a lu es, sp e cific d irect-m ail
p rogram resp o n se rates, d irect-m a il-in ce n te d g am in g rev en u e, h o tel-in cen ted gam ing
rev en u e, n on com p lim en tary (c a s h ) rev en u e fro m h o te l ro o m reservation s, an d h otel
ro o m o ccu p a n cy . O n e cle a r b e n e fit is that it h o ld s individual p ro p erties a cco u n tab le
fo r con stan tly raising th e bar.
B eg inning w ith an im portant ch an g e in m arketing strategy that shifted the focu s to
cu stom er days, tim e and again the Teradata/IBM C ognos BI im plem entation has dem ­
onstrated the value o f extend in g the po w er o f data throughout Isle’s enterprise. This
inclu des im m ediate analysis o f resp on se rates to m arketing cam paigns and the addition
o f profit and loss data that has successfully co n n ecte d cu stom er value and total property
value. O n e exam p le o f the p o w er o f this integration: B y jo ining cu stom er value and total
property value, Isle gains a b etter understanding o f its retail custom ers— a population
invisible to them b efo re— enabling them to m ore effectively target m arketing efforts, such
as radio ads.
P erh ap s m o st significantly, Isle h as b eg u n to ad d slo t m a ch in e data to th e mix.
T h e m o st im portant an d im m ediate im p act w ill b e th e w ay in w h ich cu sto m er value
w ill inform p u rch asin g o f n e w m a ch in es an d p ro d u ct p la cem en t o n th e cu sto m e r floor.
D o w n th e ro ad , th e ad d ition o f this data a lso m ig ht p o sitio n Isle to ta k e advantage
o f serv e r-b a sed gam ing, w h ere slo t m ach in es o n th e ca sin o flo o r w ill essen tially b e
co m p u te r term inals that e n a b le th e ca sin o to sw itch a g am e to a n e w o n e in a m atter
o f seco n d s.
In short, as Isle constructs its solutions fo r regularly funneling slot m achine data into
the w arehouse, its ability to use data to re-im agine the floo r and forge ev er d ee p e r and
m ore lasting relationships will e x ce e d anything it m ight have e x p e cte d w h en it em barked
o n this project.

QUESTIONS FO R THE OPENING VIGNETTE


1 . W hy is it im portant for Isle to have an EDW?
2 . W hat w ere the busin ess challenges o r op portu nities that Isle w as facing?
3 . W hat w as the p ro cess Isle follow ed to realize EDW? C om m ent o n the potential
challenges Isle m ight have had going through th e p rocess o f ED W developm ent.
4 . W hat w ere the benefits o f im plem enting an ED W at Isle? Can you think o f other
potential ben efits that w ere not listed in the case?
5. W hy d o you think large enterprises like Isle in the gam ing industry can su cceed
w ithout having a cap ab le data w arehouse/business intelligence infrastructure?
Chapter 3 • Data W arehousing 111

WHAT WE CAN LEARN FROM THIS VIGNETTE


The o p en in g v ig n ette illustrates th e strateg ic valu e o f im p lem enting an e n terp rise data
w areh o u se, a lo n g w ith its su p p ortin g B l m eth o d s. Isle o f Capri C asin os w as a b le to
leverage its data assets sp re a d th rou g h o u t th e e n terp rise to b e u sed b y k n o w le d g e
w orkers (w h erev er and w h e n e v e r th ey are n e e d e d ) to m ak e accu ra te and tim ely d e c i­
sions. T h e data w a reh o u se integrated various d a ta b ases throu ghou t th e org an ization
into a sin gle, in -h o u se e n terp rise u n it to g e n era te a sin g le v ersio n o f th e truth fo r the
com pany, pu tting all d ecisio n m ak ers, fro m p lan n in g to m arketing, o n th e sa m e page.
Furtherm ore, b y regularly fu n n elin g slo t m a ch in e data into th e w a re h o u se , co m b in ed
w ith cu sto m e r-sp e cific rich data that c o m es from variety o f so u rce s, Isle significantly
im proved its ab ility to d isco v er p attern s to re-im agine/ reinvent th e gam ing flo o r o p era ­
tions an d fo rg e e v e r d e e p e r an d m o re lasting relatio n sh ip s w ith its cu stom ers. T h e key
lesso n h e re is th at a n e n te rp rise-lev el data w a reh o u se co m b in ed w ith a strateg y fo r its
use in d ecisio n su p p ort ca n result in sig n ifican t b en e fits (fin a n cia l and o th erw ise ) for
an organization.

Sources: Teradata, Customer Success Stones, teradata.com/t/case-studies/Isle-of-Capri-Casinos-Executive-


Summary-EB6277 (accessed February' 2013); www-01.ibm.com/software/analytics/cognos.

3.2 D A T A W A R E H O U S IN G D EFIN IT IO N S A N D CONCEPTS


Using real-tim e data w arehousing in conju n ction w ith DSS and B l tools is an im portant way
to cond u ct b u sin ess p rocesses. T h e op en in g vignette dem onstrates a scen ario in w h ich a
real-tim e active data w arehou se supported decision m aking by analyzing large am ounts o f
data from various sou rces to provide rapid results to support critical p ro cesses. T h e single
version o f the truth stored in th e data w areh o u se and provided in a n easily digestible form
expands th e b ound aries o f Isle o f Capri’s innovative business p rocesses. W ith real-tim e
data flow s, Isle c a n v iew the current state o f its business and quickly identify problem s,
w hich is th e first and forem ost step tow ard solving them analytically.
D ecisio n m akers require con cise, d ep en d ab le inform ation ab ou t current operations,
trends, and ch an g es. D ata are often fragm ented in distinct op erational system s, so m anag­
ers often m ake d ecisio n s w ith partial inform ation, at best. Data w arehousing cu ts through
this ob stacle b y accessin g , integrating, and organizing k ey operational data in a form that
is consistent, reliable, timely, and readily available, w h erever and w h en ev er n eed ed .

W hat Is a D ata W areho use?


In sim ple term s, a data w arehouse (DW) is a p o o l o f data produced to supp ort decision
m aking; it is also a repository o f current and historical data o f potential interest to m an­
agers throughout th e organization. D ata are usually structured to b e available in a form
ready fo r analytical p ro cessin g activities (i.e ., online analytical p ro cessin g [OLAP], data
mining, querying, reporting, and other d ecisio n support applications). A data w arehouse
is a subject-oriented , integrated, tim e-variant, nonvolatile co llectio n o f data in support o f
m anagem ent’s decision -m akin g process.

A H istorical Perspective to D ata W arehousing


Even though data w arehousing is a relatively n ew term in inform ation tech n olog y , its
roots can b e traced w ay b a ck in time, even b e fo re com puters w ere w idely used . In the
early 1900s, p e o p le w ere using data (th ough m ostly via m anual m ethod s) to form ulate
trends to help b u sin ess users m ake inform ed decisions, w h ich is the m ost prevailing pur­
p ose o f data w arehousing.
112 Part II • Descriptive Analytics

T h e m otivations that led to d eveloping data w arehousing tech n olog ies g o b a c k to


the 1970s, w h en the com puting w od d w as d om inated by the m ainfram es. Real business
d ata-processing applications, th e o n e s run o n the corporate m ainfram es, had com plicated
file structures using early-generation d atabases (n o t the table-oriented relational databases
m ost applications use today) in w h ich they stored data. Although th ese applications did
a d ecen t jo b o f perform ing routine transaction al d ata-processing functions, the data cre­
ated as a result o f th ese fu nctions (su ch as inform ation ab o u t custom ers, the products
they ordered, and h ow m u ch m o ney they sp en t) w as lo ck ed aw ay in th e depths o f the
files and databases. W h en aggregated inform ation such as sales trends b y region and by
product type w as n eed ed , o n e had to form ally requ est it from the d ata-processing depart­
m ent, w h ere it w as put o n a w aiting list w ith a co u p le hundred other report requests
(H am m ergren an d Sim on, 2 0 0 9 ). E v en th ou g h the n e e d for inform ation and the data that
cou ld b e u sed to g enerate it existed, the d atabase tech n olog y w as n ot there to satisfy it.
Figure 3.1 show s a tim eline w h ere som e o f th e significant events that led to the d evelop­
m ent o f data w arehousing are show n.
Later in this d ecad e, com m ercial hardw are an d softw are com p anies b eg a n to em erge
with solutions to this problem . B etw e en 19 76 and 1979, th e co n cep t for a n ew com pany,
Teradata, grew ou t o f research at the California Institute o f T ech n o lo g y (C altech), driven
from discussions with Citibank’s ad vanced tech n olog y group. Founders w o rk ed to design
a d atabase m anagem ent system for parallel processing w ith m ultiple m icroprocessors,
targeted specifically for d ecisio n support. Teradata w as incorporated o n Ju ly 13, 1979, and
started in a garage in B ren tw ood , California. T h e nam e Teradata w as ch o sen to sym bolize
the ability to m anage terabytes (trillions o f b y tes) o f data.
T h e 1980s w ere the d ecad e o f person al com puters and m inicom puters. B efo re any­
on e k n ew it, real com p u ter applications w e re n o longer only o n m ainfram es; they w ere
all ov er the place— everyw here you lo o k e d in an organization. T hat led to a portentous
problem called islands o f data. T h e solu tion to this p ro blem led to a n e w type o f soft­
w are, called a distributed d a ta b a se m an agem en t system, w h ich w ould m agically pull the
requ ested data from d atabases across the organization, bring all the data b a c k to th e sam e
p lace, and th en consolid ate it, s o n it, and d o w h atever else w as n ecessary to answ er the
user’s question. Although the co n cep t w as a goo d o n e and early results from research
w ere prom ising, the results w ere plain and sim ple: T h ey just didn’t w o rk efficiently in the
real w orld, and the islands-of-data problem still existed.

■/ Mainframe computers v' Centralized data storage ^ Big Data analytics


✓ Simple data entry s Data warehousing was born ^ Social media analytics
■/ Routine reporting ■/ Inmon, Building the Data Warehouse •/ Text and Web analytics
V Primitive database structures ■/ Kimball, The Data Warehouse Toolkit S Hadoop, MapReduce, NoSQL
/ Teradata incorporated______ •/ EDW architecture design__________ ^ In-memory, in-database_____

-1 9 8 0 s - -1 9 9 0 s - -2 0 0 0 s 2010s-
-1 9 7 0 s

•/ Mini/personal computers (PCs] s Exponentially growing data Web data


V Business applications for PCs ✓ Consolidation of DW /BI industry
■/ Distributer DBMS v' Data warehouse appliances emerged
/ Relational DBMS s Business intelligence popularized
S Teradata ships commercial DBs •/ Data mining and predictive modeling
s Business Data Warehouse coined v'- Open source software
v' SaaS, PaaS, Cloud computing

FIGURE 3.1 A List of Events That Led to Data W arehousing Development.


Chapter 3 * Data W arehousing 113

M eanw hile, Terad ata b eg a n shipping com m ercial products to solve this p ro b ­
lem. W ells Fargo B an k received the first Teradata test system in 1983, a parallel RDBM S
■relational d atabase m anagem ent system ) for d ecisio n support— the w orld’s first. B y 1984,
Teradata released a production version o f their product, and in 1986, Fortune m agazine
named Teradata Product o f th e Y ear. Teradata, still in existen ce today, built the first data
w arehousing appliance— a com bination o f hardw are and softw are to solve the data w are­
housing need s o f m any. O ther com p anies b eg an to form ulate their strategies, as w ell.
D uring this d ecad e several oth er events happened , collectively m aking it the d ecad e
: : data w arehousing innovation. For instance, Ralph Kim ball founded Red B rick System s
m 1986. Red B rick b eg a n to em erge as a vision aiy softw are com pan y b y discussing how
io im prove data a ccess; in 1988, Barry D evlin and Paul Murphy o f IBM Ireland introduced
the term business d a ta w arehouse as a k e y co m p o n en t o f b usin ess inform ation system s.
In the 1990s a n ew ap p roach to solving the islands-of-data p ro blem surfaced. If the
1980s ap p roach o f reaching out and accessin g data directly from the files and d atabases
didn’t w ork, the 1990s p hilosop hy involved going b a ck to the 1970s m ethod, in w h ich
data from those p laces w as cop ied to an oth er location— only doing it right this tim e;
hence, data w arehousing w as born. In 1993, Bill Inm on w rote the sem inal b o o k Building
tbe D ata W arehouse. M any p eo p le recog n ize Bill as the father o f data w arehousing.
Additional publications em erged , including the 1996 b o o k b y Ralph Kim ball, The D ata
W arehouse Toolkit , w h ich discussed general-p urpose dim ensional d esign tech n iqu es to
improve the data architecture fo r query-centered d ecisio n support system s.
In the 2000s, in th e w orld o f data w arehousing, b o th popularity and the am ount o f
data continued to grow . T h e ven d or com m unity and op tions have b eg u n to consolidate.
Ln 2006, M icrosoft acq u ired ProClarity, jum ping into the data w arehousing m arket. In
2007, O racle pu rchased H yperion, SAP acquired B u siness O b jects, and IBM m erged with
Cognos. T h e data w arehousin g leaders o f the 1990s have b e e n sw allow ed by so m e o f
the largest providers o f inform ation system solutions in the w orld. During this tim e, other
innovations have em erged , including data w arehou se applian ces from vendors su ch as
Netezza (acquired b y IB M ), G reenplum (acq u ired b y EMC), DATAllegro (acquired by
M icrosoft), and perform ance m anagem ent applian ces that e n a b le real-tim e perform ance
monitoring. T h ese innovative solutions provided cost savings b eca u se they w ere plug-
com patible to legacy data w arehou se solutions.
In the 2010s the b ig buzz has b e e n B ig D ata. M any b eliev e that B ig D ata is g o in g to
m ake an im pact o n data w arehousing as w e know- it. Either they will find a w ay to c o e x ­
ist (w hich seem s to b e the m ost likely ca se, at least fo r several years) o r B ig D ata (and
-Jie technologies that co m e w ith it) w ill m ake traditional data w arehousing ob solete. T he
technologies that cam e w ith B ig D ata include H adoop, M apReduce, NoSQL, Hive, an d so
forth. M aybe w e will s e e a new term coin ed in the w orld o f data that com bin es the need s
and capabilities o f traditional data w arehousing and th e B ig Data p hen om enon.

C haracteristics o f D ata W arehousing


A com m on w ay o f introducing data w arehousing is to refer to its fundam ental character­
istics (s e e Inm on, 2005):

• S u b ject o rien ted . Data are organized by detailed subject, such as sales, products, or
customers, containing only information relevant for decision support. Subject orienta­
tion enables users to determ ine not only how their business is performing, but w hy. A
data w arehouse differs from an operational database in that m ost operational databases
have a product orientation and are tuned to handle transactions that update th e dam-
base. Subject orientation provides a m ore com prehensive view o f the organization.
• In te g ra te d . Integration is closely related to su b ject orientation. D ata w arehouses
m ust p lace data from different sou rces into a consistent format. T o d o so, th ey must
Descriptive Analytics

deal w ith nam ing conflicts and d iscrep ancies am ong units o f m easure. A data w are­
h o u se is presum ed to b e totally integrated.
• Tim e v a ria n t (tim e series). A w arehouse m aintains historical data. T he data
d o not necessarily provide current status (e x cep t in real-tim e system s). T h ey detect
trends, deviations, and long-term relationships for forecasting and com parisons, lead­
ing to decision m aking. Every data w areh ou se has a tem poral quality. T im e is the one
im portant d im ension that all data w arehouses must support. Data for analysis from
multiple sources contains multiple tim e points (e.g ., daily, w eekly, m onthly view s).
Nonvolatile. After data are entered into a data w arehouse, users cannot change or
update the data. O bsolete data are discarded, and changes are recorded as n e w data.

T h e se characteristics en a b le data w areh o u ses to b e tuned alm ost exclusively fo r data


access. Som e additional characteristics m ay inclu de the follow ing:

• Web based. Data w arehouses are typically d esigned to provide an efficient


com puting environm ent fo r W eb -b a sed applications.
• R ela tional/m ultidim ensional. A data w arehou se u ses either a relational struc­
ture or a m ultidim ensional structure. A recent survey o n m ultidim ensional structures
ca n b e found in R om ero and A b ello (2009).
• Client/server. A data w arehou se uses the client/server architecture to provide
easy a cce ss for end users.
• R ea l time. N ew er data w areho u ses provide real-tim e, o r active, d ata-access and
analysis capabilities (se e B asu, 2003; and B o n d e and K uckuk, 2004).
• In c lu d e m etadata. A data w areh o u se contains m etadata (data ab ou t data) about
h ow the data are organized and h o w to effectively u se them.

W hereas a data w areh o u se is a repository o f data, data w arehousing is literally the


entire p ro cess (se e W atson, 2002). Data w arehousing is a discipline that results in appli­
cations that provide d ecisio n supp ort capability, allow s ready access to busin ess infor­
m ation, and creates business insight. T h e three m ain types o f data w areh ouses are data
marts, operation al data stores (O D S), and enterprise data w arehouses (ED W ). In addition
to discussing th ese three types o f w areh o u ses next, w e also discuss m etadata.

Data M arts
W hereas a data w arehouse com bin es d atabases acro ss an entire enterprise, a data m art
is usually sm aller and fo cu ses o n a particular su b ject o r departm ent. A data m art is a
su b set o f a data w arehouse, typically consistin g o f a single su b ject area (e.g ., m arketing,
op eration s). A data mart can b e eith er d ep en d en t o r independent. A dependent data
m art is a su b set that is created directly from the data w areh ouse. It has the advantages
o f using a consistent data m odel and providing quality data. D ep en d en t data marts sup­
port th e co n c ep t o f a single enterprise-w id e data m odel, but the data w arehouse m ust b e
constructed first. A d ep end ent data m art en su res that the end user is view ing the sam e
version o f the data that is acce sse d b y all oth er data w arehou se users. T h e high co st o f
data w arehouses limits th eir u se to large com panies. As an alternative, m any firm s u se a
low er-cost, scaled -d ow n version o f a data w arehouse referred to as an independent d ata
mart. An independent data m art is a sm all w areh o u se d esigned for a strategic business
unit (S B U ) o r a departm ent, but its sou rce is n ot an EDW.

O perational D ata Stores


An operational data store (ODS) provides a fairly recent form o f custom er information
file (CIF). This type o f database is often u sed as an interim staging area for a data ware­
house. Unlike the static contents o f a data w arehouse, the contents o f an O D S are updated
throughout the course o f business operations. An O D S is used for short-term decisions
Chapter 3 • Data W arehousing 115

involving m ission-critical applications rather than for the m edium - and long-term decisions
associated with an EDW. An O D S is similar to short-term m em ory in that it stores only very
recent information. In com parison, a data w arehouse is like long-tenn m em ory b ecau se it
stores perm anent information. An O D S consolidates data from multiple source system s and
provides a near-real-tim e, integrated view o f volatile, current data. T he exchange transfer,
and load (ETL) processes (discussed later in this chapter) for an ODS are identical to those
for a data w arehouse. Finally, oper marts (see Imhoff, 2001) are created w hen operational
data need s to b e analyzed m ultidim ensional^. T he data for an op er mart com e from an ODS.

Enterprise D ata W arehouses (EDW)


\n enterprise data w arehouse (EDW) is a large-scale data w areh ou se that is used
across the enterprise for decision support. It is th e type o f data w arehou se that Isle of
Capri developed , as d escrib ed in the op en in g vignette. T h e large-scale nature provides
integration o f data from m any sou rces into a standard form at for effective B I and decision
support applications. ED W are u sed to provide data for m any types o f ^ i n c l u d i n g
CRM supply chain m anagem ent (SCM), busin ess perform ance m anagem ent (B P M ), busi­
ness activity m onitoring (BAM ), product life-cycle m anagem ent (PLM), revenue m an ag e­
m ent and som etim es even know led ge m anagem ent system s (KM S). A pplication C ase 3.1
show s the variety o f b en efits that telecom m u n ication com p an ies leverage from im ple­
m enting data w areh o u se driven analytics solutions.

M etadata
Metadata are data ab ou t data (e .g ., se e Sen, 2004; and Zhao, 2005). M etadata d escribe
the structure o f and so m e m eaning ab ou t data, th ereby contributing to th en effective or

Application Case 3.1


A Better Data Plan: Well-Established TELCOs Leverage Data Warehousing and Analytics
to Stay on Top in a Competitive Industry
M obile service providers (i.e ., Telecom m unication C u sto m e r R e te n tio n
Com panies, o r TELCO s in short) that h elp ed trigger It’s n o secret that the sp eed and su ccess w ith w h ich
the exp losive grow th o f the industry in the m id- to a provider handles service requests directly affects
later 1990s have long reaped the b en efits o f b ein g first cu stom er satisfaction and , in turn, the propensity to
to m arket. B u t to stay com petitive, th ese com panies churn. B ut getting d ow n to w h ich factors have the
must continu ou sly refine everything from custom er greatest im pact is a challen ge.
service to p lan pricing. In fact, veteran carriers face “If w e could trace the steps involved w ith ea ch
m any o f the sam e ch allenges that up-and-com ing pro cess, w e cou ld understand points o f failure and
carriers do: retaining custom ers, decreasing costs, a cceleration ,” n otes R oxan n e G arcia, m anager o f
fine-tuning pricing m odels, im proving cu stom er sat­ the Com m ercial O perations C enter for T elefo n ica
isfaction, acquiring n e w custom ers and understand­ d e Argentina. “W e cou ld m easure w orkflow s b oth
ing the role o f social m edia in cu stom er loyalty w ithin and across fun ctions, anticipate rather than
Highly targeted data analytics play an ever- react to perform ance indicators, and im prove the
m ore-critical role in help ing carriers secu re or overall satisfaction w ith onboarding n ew cu stom ers.”
im prove their standing in an increasingly com p eti­ T he com pany’s solution w as its traceability pro­
tive m arketplace. H ere’s h ow som e o f the w o rld s ject, w hich b eg a n w ith 10 dashboards in 2009- It has
leading providers are creating a strong future based since realized U S$2.4 m illion in annualized revenues
o n solid b u sin ess and cu stom er intelligence. ( C ontinued )
116 Part II • Descriptive Analytics

Application Case 3.1 (Continued)


and cost savings, shortened custom er provisioning S o cial N e tw o rk in g
times and reduced custom er defections by 30%. T h e ex p a n d in g u se o f social netw orks is ch an g ­
ing h ow m an y organizations ap p ro a ch everything
C o st R e d u ctio n from cu sto m er service to sales an d m arketing. M ore
carriers a re turning their attention to social n et­
Staying ah ea d o f th e gam e in any industry d epends,
w orks to b e tte r understand and in flu en ce cu stom er
in large part, o n k eeping costs in line. For F ran ce’s
behavior.
B ou ygu es T elecom , cost red uction cam e in th e form
M o bilink has initiated a so cial n etw ork analy­
o f autom ation. Aladin, the com pany’s Teradata-based
sis p ro ject that will e n a b le th e co m p an y to exp lore
m arketing op eration s m anagem ent system , auto­
the c o n c e p t o f viral m arketin g and identify key
m ates m arketing/com m unications collateral produ c­
in flu encers w h o ca n a ct as b ran d am bassad ors to
tion. It delivered m o re than US$1 m illion in savings
cro ss-sell produ cts. V elco m is lo o k in g fo r sim ilar
in a sin gle y ear w hile tripling em ail cam paign and
k e y in flu en cers as w ell as low -value cu stom ers
co n ten t production.
w h o se so cia l value c a n b e lev erag ed to im prove
“T h e goal is to b e m ore productive and respon­
existin g relationsh ip s. M eanw hile, Sw isscom is
sive, to simplify team w ork, [and] to standardize and
lo o k in g to co m b in e th e so cia l n etw o rk asp ect o f
protect o u r expertise,” notes Catherine Corrado, the
cu stom er b eh a v io r w ith th e rest o f its analysis ov er
com pany’s project lead and retail com m unications
th e n ext several m onths.
m anager. “[Aladin lets] team m em bers focus o n value-
added w o rk b y reducing low-value tasks. T h e end
R ise to th e C h allen ge
result is m ore quality and m ore creative [output].”
An unintended b u t very' w elcom e benefit o f W h ile e a c h m arket p resen ts its ow n un iq u e ch al­
Aladin is that other departm ents have b e e n inspired to len g es, m o st m o b ile carriers sp en d a great d eal o f
b eg in deploying similar projects for everything from tim e and reso u rces creating, d ep loy in g an d refining
call cen ter support to product/offer launch processes. plans to ad dress e a ch o f th e ch a llen g es outlined
here. T h e g o o d n ew s is that just as th e industry and
m o bile te ch n o lo g y have exp a n d ed and im proved
C u s to m e r A cq u isitio n
o v er the years, so also have th e data analytics so lu ­
W ith m arket penetration n ear o r above 100% in tions that h ave b e e n created to m e e t th e se ch al­
m any countries, thanks to consu m ers w h o ow n len g es h e a d on.
m ultiple d evices, th e issue o f n ew cu stom er acquisi­ Sound data analysis uses existing custom er,
tion is n o small challenge. P akistan’s largest carrier, business and m arket intelligence to predict and influ­
M obilink, also faces the difficulty o f op erating in a en ce future behaviors and outcom es. T h e end result
m arket w h ere 98% o f users have a pre-paid plan that is a smarter, m ore agile and m ore successful approach
requ ires regular purchases o f additional minutes. to gaining m arket share and improving profitability.
“Topping up, in particular, keep s the revenues
strong and is critical to our com pany’s growth,” says Q u e s t io n s f o r D is c u s s io n

Um er Afzal, senior manager, B I. “Previously w e 1. W hat are th e m ain challen ges for TELCOs?
lacked the ability to enhance this aspect o f increm en­ 2. H ow c a n data w arehousin g and data analytics
tal growth. O ur sales information m odel gave us that help TELCOs in overcom ing their challenges?
ability b ecau se it helped the distribution team plan
3. W hy d o y ou think TELCOs are w ell suited to take
sales tactics based o n smarter data-driven strategies
full advantage o f data analytics?
that k eep our suppliers [of SIM cards, scratch cards
and electronic top-up capability] fully stocked. Source: Teradata Magazine, Case Study by Colleen Marble, “A
As a result, Mobilink has n ot only grow n sub­ Better Data Plan: Well-Established Telcos Leverage Analytics
scriber recharges b y 2% but also expanded newr cus­ to Stay on Top in a Competitive Industry" h ttp :/ / w w w .
tom er acquisition b y 4% and improved the profitability terad atam agazine.com / vl3n01/ Featu res/ A -Better-D ata-
Plan/ (accessed September 2013).
o f those sales b y 4%.
Chapter 3 • Data W arehousing 117

ineffective use. M ehra (2 0 0 5 ) indicated that few organizations really understand m etadata,
and few er understand how to design and im plem ent a m etadata strategy. M etadata are
generally d efined in term s o f usage as technical o r busin ess m etadata. Pattern is another
way to view m etadata. A ccording to th e pattern view, w e ca n differentiate b etw ee n syn­
tactic m etadata (i.e ., data d escribing the syntax o f data), structural m etadata (i e ., data
describing the structure o f the data), and sem antic m etadata (i.e ., data d escribing the
m eaning o f the data in a sp ecific dom ain).
W e next explain traditional metadata patterns and insights into how to implement
an effective metadata strategy via a holistic approach to enterprise metadata integration.
The approach includes ontology and metadata registries; enterprise information integration
Eli); extraction, transformation, and load (E H ); and service-oriented architectures (SOA).
Effectiveness, extensibility, reusability, interoperability, efficiency and perform ance, evolution,
entitlement, flexibility, segregation, user interface, versioning, versatility, and low m aintenance
cost are som e o f the k ey requirements for building a successful metadata-driven enterprise.
A ccording to K assam (2 0 0 2 ), business m etadata com p rise inform ation that increases
our understanding o f traditional (i.e., structured) data. T h e primary pu rp ose o f m etadata
should b e to provide con text to the reported data; that is, it provides enriching inform a-
tion that leads to th e creation o f know led ge. B u siness m etadata, though difficult to pro­
vide efficiently, release m ore o f the potential o f structured data. T h e co n tex t n eed not
b e the sam e for all users. In m any w ays, m etadata assist in the con v ersion o f data and
inform ation into know ledge. M etadata form a foundation for a m etabusiness architecture
(see B ell, 2001). T an n en b au m (2 0 0 2 ) d escribed h ow to identify m etadata requirem ents.
Vaduva and V etterli (2 0 0 1 ) provided an overview o f m etadata m anagem ent fo r data w are­
housing Zhao (2 0 0 5 ) d escribed five levels o f m etadata m anagem ent maturity: (1 ) ad
hoc, (2 ) d iscovered , (3 ) m anaged, (4 ) optim ized, and (5 ) autom ated. T h ese levels help in
understanding w h ere an organization is in terms o f how and h ow w ell it uses its m etadata.
T h e d esign, creation, and u se o f m etadata— descriptive o r sum m ary data ab ou t
data— and its accom panyin g standards m ay involve ethical issues. T h ere are ethical
considerations involved in the co llectio n and ow nership o f the inform ation contained
in m etadata, including privacy and intellectual property issues that arise in the design,
collection, and dissem in ation stages (fo r m ore, s e e B rod y, 2003).

SECTION 3-2 REVIEW QUESTIONS

1 . W hat is a data w arehouse?


2 . H ow d oes a data w arehou se differ from a database?
3. W hat is an ODS?
4. D ifferentiate am ong a data mart, an O D S, and an EDW.
5. E xplain the im portance o f m etadata.

3.3 D A T A W A R E H O U S IN G PR O C ES S O V E R V IE W
O rganizations, private and pu blic, contin u ou sly co lle ct data, inform ation, an d know led ge
at an increasingly accelerated rate and store th em in com puterized system s. M aintaining
and using th e se data and inform ation b eco m es extrem ely co m p lex , esp ecially as
scalability issu es arise. In addition, the n u m ber o f users n eed in g to a cce ss th e inform a­
tion continu es to in crease as a result o f im proved reliability an d availability o f netw ork
access esp ecially the Internet. W orking with m ultiple d atabases, e ith er integrated in a
data w areh o u se o r not, has b eco m e a n extrem ely difficult task requiring con sid erab le
exp ertise, b u t it ca n provide im m ense b en efits far e x ce e d in g its cost. As a n illustrative
exam p le,’ Figure 3.2 sh ow s b u sin ess b en efits o f th e enterprise data w areh o u se bu ilt by
Teradata fo r a m a jo r au tom obile m anufacturer.
11 8 Part II • Descriptive Analytics

E n terp rise D a ta W areh o u se


One management and analytical platform
for product configuration, warranty,
___ and diagnostic readout data ______

IT A r c h it e c t u r e
S t a n d a rd iz a tio n
One strategic platform for
business intelligence and
compliance reporting

FIGURE 3.2 Data-Driven Decision Making—Business Benefits of an Enterprise Data Warehouse.

Application Case 3.2


Data Warehousing Helps MultiCare Save More Lives
In the spring o f 2012, leadership at MultiCare Health leaders and to drive accountability for perform ance
System (M ultiCare)— a T acom a, W ash in g ton -based im provem ent.
health system — realized th e results o f a 12-m onth B e c a u se it proved difficult to d efine sep sis due
journ ey to red u ce septicem ia. to th e co m p le x com orbidity factors leading to sep ­
T h e effort w as supp orted b y the system ’s ticem ia, MultiCare partnered w ith H ealth Catalyst
to p lead ership, w h o participated in a data-driven to refine th e clinical definition o f sepsis. Health
ap p ro a ch to prioritize care im provem ent b ased o n Catalyst’s data w ork allow ed MultiCare to exp lore
an analysis o f resources con su m ed and variation in around the b ound aries o f the definition and to ulti­
care ou tcom es. R educing sep ticem ia (m ortality rates) m ately settle o n an algorithm that d efined a sep tic
w as a to p priority for MultiCare as a result o f three patient. T h e iterative w o rk resulted in increased co n ­
hospitals perform ing below , and o n e that w as per­ fid en ce in th e sev ere sepsis cohort.
form ing w ell b elow , national m ortality averages.
In S ep tem ber 2010, MultiCare im plem ented S ystem -W id e C ritical C are C o llab o rativ e
H ealth Catalyst’s Adaptive Data W arehou se, a
T h e establish m en t and collaborative efforts o f p er­
h ealth care-sp ecific data m odel, and su b seq u en t clin­
m anent, integrated team s consisting o f clinicians,
ical and p rocess im provem ent services to m easure
technologists, analysts, and quality p ersonnel w ere
and e ffe c t care through organizational and p rocess
essential fo r accelerating MultiCare’s efforts to
im provem ents. T w o m ajor factors contributed to the
red u ce sep ticem ia mortality. T og eth er th e collabora­
rapid red uction in septicem ia mortality.
tive ad dressed three k ey b od ies o f work— standard
o f care definition, early identification, and efficient
C lin ical D a ta t o D rive Im p ro v e m e n t delivery o f d efined -care standard.

T h e Adaptive D ata W arehouse™ organized and sim ­


S ta n d a rd o f C are: S ev e re S ep sis
plified data from m ultiple data sou rces across the
O rd e r S et
continu um o f care. It b eca m e the single sou rce o f
truth requ isite to s e e care im provem ent opportuni­ T h e Critical Care Collaborative stream lined several
ties and to m easure change. It also proved to b e an sep sis o rd er sets from across th e organization into
im portant m eans to unify clinical, IT, and financial o n e system -w ide standard fo r th e care o f severely
Chapter 3 • Data W arehousing 119

co d e neuro, co d e STEM I), co d e sepsis at MultiCare


septic patients. Adult patients presenting with sepsis
is d esigned to bring to g eth er essential caregivers in
receive th e sam e care, n o m atter at w h ich MultiCare
ord er to efficiently deliver tim e-sensitive, life-saving
hospital they present.
treatm ents to the patient presenting with severe

E a rly Id e n tific a tio n : M od ified E a rly sepsis.


In ju st 12 m o n th s, M ultiCare w as a b le to
W a rn in g S y ste m (M EW S)
red u ce sep ticem ia m ortality rates b y a n average o f
MultiCare d ev elo p ed a m odified early w arning sys­ 22 p ercen t, lead ing to m ore th an $1 .3 m illion in
tem (M EW S) d ashboard that leveraged the cohort validated c o s t savings during that sam e period . T h e
definition and th e clinical EMR to quickly identify sep sis c o s t red uctions and quality o f ca re im p rove­
patients w h o w ere trending tow ard a sudden d ow n­ m ents h av e raised th e e x p e cta tio n that sim ilar
turn. H ospital staff constantly m onitor MEWS, w h ich results ca n b e realized in o th er a rea s o f M ultiCare,
serves as an early d etection tool for caregivers to inclu ding heart failu re, em erg en cy d ep artm ent
provide preem ptive interventions. p erfo rm an ce, and in p atient throughput.

E fficie n t D eliv e ry : C od e S ep sis Q u e s t io n s f o r D is c u s s io n


( “T im e Is T is s u e ”) 1. W hat d o you think is the role o f data w areh ou s­
T h e final k e y p ie ce o f clinical w o rk undertaken by ing in h ealthcare systems?
the Collaborative w as to ensure tim ely im plem enta­ 2. H ow did MultiCare use data w arehousing to
tion o f th e d efined standard o f care to patients w h o im prove health outcom es?
are m ore efficiently identified. Th at m odel already
Source: healthcatalyst.com/success_stories/multicare-2 (ac­
exists in health care and is k n ow n as the ‘‘co d e ” pro­
cess. Similar to oth er “co d e ” p ro cesses (co d e trauma, cessed February 2013)-

Manv organizations n eed to create data w arehouses— m assive data stores o f tim e-
series data for d ecisio n support. D ata are im ported from various external an d internal
resources and are clea n se d and organized in a m anner consistent w ith the organization s
needs. After the data are populated in the data w arehou se, data marts can b e load ed lo r a
specific area o r departm ent. Alternatively, data marts ca n b e created first, as n eed ed , and
then integrated into an EDW . O ften, though, data marts are not developed , b u t data are
simply load ed o n to PCs o r left in their original state fo r d irect m anipulation using B I tools.
In Figure 3-3, w e show the data w arehou se con cep t. T h e follow ing are the m ajor
com ponents o f th e data w arehousing process:
• D ata sou rces. D ata are sou rced from m ultiple ind ep end en t op eration al legacy
system s and possibly from external data providers (su ch as th e U.S. C ensus). Data
m ay also co m e from an OLTP o r ERP system . W eb data in th e form o f W e b logs m ay
also feed a data w arehouse.
• D ata extra ctio n a n d tra nsfo rm a tio n . Data are extracted and properly trans­
form ed using custom -w ritten or com m ercial softw are called ETL.
• D ata lo a ding. D ata are load ed into a staging area, w h ere they are transform ed
and cleansed . T h e data are then ready to load into the data w areh ou se and/or data
marts. „ ,
. Com prehensive database. Essentially, this is the ED W to support all decision
analysis b y providing relevant sum m arized and d etailed inform ation originating
from m any different sources.
• M etadata. M etadata are m aintained so that they ca n b e a ssessed b y IT p ersonne
and users. M etadata include softw are program s ab ou t data and rules fo r organizing
data sum m aries that are easy to in d ex and search, esp ecially w ith W e b tools.
12 0 Pari II • Descriptive Analytics

No data marts option


Applications
Data (Visualization)
Sources' — A cce ss■ n

business
Data mart L reports
[MarketingjJ 4
Select m
CD Data/text
Data mart JJ2 ll^l mining

Transform k □LAR
Data mart a. Dashboard,
(Finance)-^] <
Integrate H I Web
\
rrr~f" A
H Data mart
L 1
yll 1Custom-built
j applications

F IG U R E 3 .3 A Data W arehouse Fram ew ork and View s.

M iddlew are tools. M i d d l e w a r e o t h f t ^ m T y em p lo y a man-


users su ch as analysts m ay O bjeTK to a ^ e s s d a tt T ta o e are many
ag ed query environm ent, su ch as Bus' - > ^ w ith data stored in the
front-end applications that b u sin es - ^reporting tools, and data visualiza-
data repositories, including data m m m g, OLAP, reporting
tion tools.

SECTION 3 .3 REVIEW QUESTIONS


1 . D escrib e the data w arehousing process.
2 D escrib e the m ajor com ponents o f a data w areh ouse.
3 . Identify and discuss the role o f m iddlew are tools.

3 4 DATA WAREHOUSING ARCHITECTURES

T h ere are several b asic inform ation


housing. G enerally speaking, th ese arc i ^ architectures are the m ost com m on
n-tier architectures, o f w h ich tw o-tier a q{
(se e Figures 3.4 and 3 .5 ), b u t som etim es th ere is sim ply o n e tier, i n yp

3.4 Architecture of a Three-Tier Data Warehouse.


FIGURE
Chapter 3 • Data W arehousing 121

(ft

^ j v _ )

Tier 1: Tier 2:
Client workstation Application and
database server

FIG U RE 3 .5 Architecture o f a Tw o -Tier Data W arehouse.

architectures are k n o w n to b e cap ab le o f serving th e need s o f large-scale, perform ance-


dem anding inform ation system s such as data w areh ouses. Referring to the use o f n-tiered
architectures for data w arehousing, H offer et al. (2 0 0 7 ) distinguished am on g these archi­
tectures b y dividing th e data w arehouse into three parts:

1 . T h e data w areh o u se itself, w h ich contains the data and associated softw are
2 . Data acquisition (b a ck -e n d ) softw are, w h ich extracts data from leg acy system s and
external sou rces, consolid ates and sum m arizes them , and loads them into th e data
w arehouse
3 . Client (fron t-en d ) softw are, w h ich allow s users to a cce ss and analyze data from the
w arehou se (a DSS/BI/business analytics [BA] engine)

In a three-tier architecture, op eration al system s contain the data and the softw are for
-data acquisition in o n e tier (i.e., the server), th e data w arehou se is another tier, an d the
third tier includes the DSS/BI/BA engine (i.e ., the application server) and the clien t (see
Figure 3.4). Data from th e w arehou se are p ro cessed tw ice and d ep osited in an additional
multidim ensional d atabase, organized fo r easy m ultidim ensional analysis and p resen ta­
tion, o r replicated in data marts. T h e advantage o f the three-tier architecture is its sep ara­
tion o f th e functions o f th e data w arehouse, w h ich elim inates resource constraints and
m akes it p ossible to easily create data marts.
In a tw o-tier architecture, th e DSS eng ine physically runs o n the sam e hardw are
platform as the data w areh o u se (s e e Figure 3-5). T h erefore, it is m ore eco n o m ica l than
d ie three-tier structure. T h e tw o-tier architecture ca n have perform ance problem s fo r large
data w arehouses that w o rk w ith data-intensive applications for decision support.
M uch o f the co m m o n w isdom assum es an absolutist approach, m aintaining that
one solution is b etter than the other, despite the organization’s circum stances and unique
r.eeds. T o further com p licate th ese architectural decisions, m any consultants and softw are
vendors focus o n o n e portion o f the architecture, therefore limiting their capacity and
m otivation to assist a n organization through the op tions b ased on its need s. B u t these
aspects are b ein g q u estio ned and analyzed. For exam p le, B all (2 0 0 5 ) provided d eci­
sion criteria for organizations that plan to im plem ent a B I application and have already
determined their n e e d for m ultidim ensional data marts but n eed help determ ining the
appropriate tiered architecture. His criteria revolve around forecasting need s for sp ace
and sp eed o f acce ss (s e e Ball, 2 00 5 , fo r details).
Data w arehousing and the Internet are tw o k e y tech n olog ies that offer im portant
solutions for m anaging corporate data. T h e integration o f th e se tw o tech n olog ies pro­
duces W eb -b ased data w arehousing. In Figure 3.6, w e show the architecture o f W eb-
Dised data w arehousing. T h e architecture is three tiered and includes the PC client, W eb
server, and application server. O n the client side, the user need s an Internet co n n ectio n
and a W eb brow ser (p referab ly Ja v a en ab led ) through the fam iliar graphical u se r inter­
face (G U I). T h e Internet/intranet/extranet is the com m unication m edium b e tw e e n client
122 Part II • Descriptive Analytics

FIGURE 3.6 Architecture of Web-Based Data Warehousing.

and servers. O n the server side, a W eb server is used to m anage th e inflow and outflow
o f inform ation b etw ee n client and server. It is b a ck ed by b oth a data w areh o u se and an
application server. W eb -b a sed data w arehou sing offers several com pelling advantages,
including e a se o f access, platform in d ep en d en ce, and low er cost.
T h e Vanguard G roup m oved to a W eb -b ased , three-tier architecture fo r its enterprise
architecture to integrate all its data and provide custom ers w ith th e sam e view s o f data
as internal users (D ragoon, 2 0 0 3 ). Likew ise, H ilton m igrated all its independ ent client/
server system s to a three-tier data w arehou se, using a W eb design enterprise system . This
ch an g e involved an investm ent o f $3-8 m illion (exclu ding labor) and affected 1,500 users.
It increased processing efficiency (sp e e d ) b y a factor o f six. W h en it w as deployed, Hilton
e x p e cte d to save $4.5 to $5 m illion annually. Finally, H ilton exp erim ented w ith D ell’s clus­
tering (i.e ., parallel com puting) technolog y to e n h a n ce scalability and sp eed (s e e Anthes,
2003).
W e b architectures for data w arehousing are sim ilar in structure to other data w are­
housing architectures, requiring a design c h o ic e for hou sing the W eb data w arehouse
w ith th e tran saction server o r as a sep arate server(s). Page-loading sp eed is a n important
consid eration in designing W eb-b ased applications; therefore, server capacity m ust be
planned carefully.
Several issues m ust b e consid ered w h en decid ing w h ich architecture to use. Among
them are the follow ing:

• Which datab ase m a n a gem en t system (DBMS) sh o u ld b e u sed ? M ost data


w areh o u ses are built using relational d atabase m anagem ent system s (RD BM S). O racle
(O racle Corporation, o ra cle .co m ), SQ L Server (M icrosoft Corporation, m icrosoft.
co m /sq l), and D B 2 (IBM Corporation, h ttp ://w w w -0 1 .ib m .c o m /so ftw a re /d a ta /
d b 2 /) are th e o n e s m ost com m on ly used . E ach o f th ese products supports both
client/server and W eb -b ased architectures.
• Will p a ra lle l p ro cessin g a n d /o r p a rtitio n in g b e u sed ? Parallel processing
en ab les m ultiple CPUs to p ro cess data w arehou se q u e iy requests sim ultaneously
and provides scalability. D ata w areh o u se designers need to d ecid e w h eth er th e data­
b a se tables w ill b e partitioned (i.e ., split into sm aller tab les) fo r a cce ss efficien cy and
w h at th e criteria will b e . T his is an im portant consid eration that is n ecessitated by
Chapter 3 * Data W arehousing 123

the large am ounts o f data contain ed in a typical data w areh ouse. A re ce n t survey o n
parallel and distributed data w areh o u ses ca n b e found in Furtado (2 0 0 9 ). Teradata
(teradata.com) has successfully ad opted and o ften com m en d ed o n its n ovel im ple­
m entation o f this approach.
• Will data m ig ra tio n tools b e u s e d to load the data w arehouse? M oving
data from an existing system into a data w areh o u se is a tedious and laborious task.
D ep end ing o n th e diversity and th e location o f the data assets, m igration m ay b e
a relatively sim ple proced u re or (in contrast) a m onths-long p roject. T h e results
o f a thorou gh assessm ent o f th e existing data assets should b e used to d eterm ine
w h eth er to u se m igration tools and, if so, w h at capabilities to s e e k in th ose com ­
m ercial tools.
• What tools w ill b e u s e d to su pp o rt data retrieval a n d analysis? O ften it
is n ecessary to u se sp ecialized tools to periodically locate, access, analyze, extract,
transform , and load necessary data into a data w arehouse. A d ecisio n has to b e
m ade o n (1 ) d ev eloping the m igration tools in-hou se, (2 ) purchasing th em from a
third-party provider, or (3 ) using the on es provided w ith the data w arehouse system .
O verly com p lex, real-tim e m igrations w arrant sp ecialized third-part ETL tools.

A ltern ative Data W areho usin g A rchitectures


At the highest level, data w areh o u se architecture design view points ca n b e categorized
into enterprise-w ide data w arehou se (E D W ) design and data mart (D M ) design (G olfarelli
and Rizzi, 2009). In Figure 3.7 (parts a -e ). w e show som e alternatives to the b asic archi­
tectural design types that are neither pure ED W n or pure DM, but in b etw ee n o r bey on d
the traditional architectural structures. N otable new o n e s inclu de h u b-an d -sp ok e and
federated architectures. T h e five architectures show n in Figure 3-7 (parts a - e ) are pro­
p o sed b y Ariyachandra and W atson (2 0 0 5 , 2 006a, and 20 0 6 b ). Previously, in a n exten sive
study, Sen and Sinha (2 0 0 5 ) identified 15 different data w arehousing m eth odologies. The
sources o f th ese m ethod ologies are classified into th ree broad categories: core-tech n olo g y
vendors, infrastructure vendors, and inform ation-m odeling com panies.

a. In d e p e n d e n t d a ta m arts.
T his is arguably the sim plest and the least costly archi­
tecture alternative. T h e data marts are d ev eloped to op erate independen tly o f each
another to serve the n eed s o f individual organizational units. B eca u se o f th eir inde­
p en d en ce, they m ay have inconsistent data definitions and different d im ensions and
m easures, m aking it difficult to analyze data across the data marts (i.e., it is difficult,
if n ot im possible, to g et to the “o n e version o f the truth”).
b. D ata m a rt b u s arch itectu re. T his architecture is a viable alternative to th e inde­
p en d en t data m arts w h ere the individual marts are linked to ea ch oth er via som e
kind o f m iddlew are. B eca u se the data are linked am ong the individual marts, there
is a b etter ch a n ce o f m aintaining data consisten cy across the enterprise (at least at
the m etadata level). Even though it allow s for co m p lex data queries acro ss data
marts, the perform ance o f th ese types o f analysis m ay n o t b e at a satisfactory level.
c. H ub-and-spoke arch itectu re. This is perhaps the m ost fam ous data w arehou s­
ing architecture today. H ere the attention is fo cu sed o n building a scalab le and
m aintainable infrastructure (o ften d ev elop ed in an iterative w ay, su b ject area by
subject area) that includes a centralized data w areh o u se and several d ep en d en t data
marts (e a c h for a n organizational unit). This architecture allow s for easy custom iza­
tion o f user interfaces and reports. O n the negative side, this architecture lack s the
holistic enterprise view, an d m ay lead to data redundancy and data latency.
d. C entralized d a ta w arehouse. T h e centralized data w arehouse architecture is
sim ilar to the h u b-an d -sp ok e architecture e x ce p t that there are n o d ep en d en t data
marts; instead, th ere is a gigantic enterprise data w areh o u se that serves th e needs
Part II • Descriptive Analytics

(a) Independent Data Marts Architecture

End-user
Source Staging Independent data marts access and
systems area (atomic/summarized data) applications

(b) Data Mart Bus Architecture with Linked Dimensional Data Marts

Dimensionalized ^ S l End-user
Source Staging data marts linked by access and
systems area conformed dimensions applications
(atomic/summarized data]

[c] Hub-and-Spoke Architecture (Corporate Information Factory)

End-user
Source Staging Normalized relational access and
systems area warehouse (atomic data) applications

Dependent data marts


(summarized/some atomic data)

(d) Centralized Data Warehouse Architecture

Normalized relational End-user


Source Staging access and
warehouse [atomic/some
systems area applications
summarized data]

(e) Federated Architecture

Data mapping/metadata
Existing data warehouses End-user
Logical/physical integration
Data marts and access and
of common data elements
legacy systems applications

FIGURE 3.7 Alternative Data Warehouse Architectures. Source: Adapted from T. Ariyachandra and
H. Watson, "Which Data Warehouse Architecture Is Most Successful?" Business Intelligence Journal,
Vol. 11, No. 1, First Quarter, 2006, pp. 4-6.

o f all organizational units. This centralized ap p roach provides users w ith a cce ss to
all data in the data w arehouse instead o f lim iting them to data marts. In addition,
it red uces the am ount o f data th e techn ical team has to transfer o r ch ange, there­
fo re sim plifying data m anagem ent and adm inistration. If d esigned and im plem ented
properly, this architecture provides a tim ely an d holistic view o f the enterprise to
Chapter 3 * Data W arehousing 125

Transactional Users

Transactional Data

Data Transformation

Operational Data Store [ODS]

"Enterprise” Data Warehouse

Data Replication

Data Marts

Decision Users

Strategic Tactical Reporting Data Event-driven/


U se rs U se rs OLAP U sers Miners Closed Loop

FIGURE 3.8 Teradata Corporation's Enterprise Data Warehouse. Source: Teradata Corporation (teradata.com). Used with
cermission.

w hom ever, w h en ev er, and w h erever they m ay b e w ithin the organization. T he


central data w areh o u ses architecture, w h ich is advocated m ainly b y Teradata Corp.,
advises using data w arehouses w ithout an y data marts (s e e Figure 3.8).
e. F e d e r a t e d d a t a w a r e h o u s e . T h e federated ap p roach is a co n c essio n to th e natu­
ral fo rces that underm ine the b est plans fo r d eveloping a p erfect system . It uses
all p ossible m eans to integrate analytical resources from m ultiple sou rces to m eet
changing need s o r b usin ess conditions. Essentially, the fed erated ap p roach involves
integrating disparate system s. In a fed erated architecture, existing d ecisio n supp ort
structures are left in p lace, and data are accessed from th o se sou rces as n eed ed . T he
federated ap p roach is supp orted b y m iddlew are vendors that p ro p o se distributed
query and jo in capabilities. T h e se e x te n sib le Markup Language (X M L )-based tools
offer users a g lobal view o f distributed data sou rces, including data w arehouses, data
marts, W eb sites, d ocum ents, and operational system s. W hen users ch o o se query
ob jects from this view and press the subm it button, th e tool autom atically queries
the distributed sou rces, joins the results, and presents th em to th e user. B e c a u se o f
p erform ance and data quality issues, m ost experts agree that fed erated ap p roach es
w ork w ell to supp lem ent data w arehouses, n ot rep lace them (se e E ckerson, 2 0 0 5 ).

Ariyachandra an d W atson (2 0 0 5 ) identified 10 factors that potentially a ffect the


ireh itectu re selectio n d ecision:

1 . Inform ation in terd ep en d en ce b etw een organizational units


2 . U pper m anagem ent’s inform ation need s
3 . U rgency o f n eed for a data w arehou se
126 Part II • Descriptive Analytics

4 . Nature o f end -user tasks


5. Constraints o n resources
6. Strategic view o f the data w arehou se p rior to im plem entation

7. Compatibility w ith existing system s


8 . P erceived ability o f th e in-hou se IT staff
9. T e ch n ica l issues
1 0 . Social/political factors
T h e se factors are similar to m any su cce ss factors d escribed in th e literature for
inform ation system s pro jects B S S m d B l protects. T ech n ical issues, fe y o n d ^ p ro v M j
in s tech n olog y that is feasibly ready for u se, are im portant, b u t often n ot as m Porta
as beh avioral issues, su ch as m eeting u p p er m anagem ent's inform ation need s and use
involvem ent in the d ev elop m en t p rocess (a social/political factor). E ach d^ ar* ° US“ «
architecture has sp ecific applications for w h ich it is m ost (an d l e a s t ) effective and thus
provides m axim al b en efits to th e organization. H ow ever o v e ra lL th e data m art structu^
seem s to b e the least effective in practice. S e e Ariyachandra and W atson (20 0 6a)
additional details.

W hich A rch itecture Is the Best?


Ever sin ce data w arehousin g b eca m e a critical part o f m o d em
o f w h ich data w arehou se architecture is th e b est has b e e n a topic o f regular dlscu
Sion T h e tw o gurus o f the data w arehousing field, B ill Inm on and Ralph Kim ball, are at
the heart o f this discussion. Inm o n ad vocates the hu b-an d -sp oke architecture (e.g. , th
C orporate Inform ation F a c to ^ ), w h ereas K im ball prom otes the data mart bus architectu e
w ith conform ed dim ensions. O ther architectures are p o ssible, but
fundam entally different ap p roach es, and e a c h has strong advocates. T o shed light ori t a s
c o n t r o v e r s i a l question, Ariyachandra and W atson (2 0 0 6 b ) con d u cted a n em p.nea study^

T o collect th e data, they u sed a W eb -b a sed survey targeted at individuals in v o lv e d m


data w arehou se im plem entations. T h eir survey inclu ded questions
the respond en t's com pany, the com pany’s data w areh ouse, and th e su ccess o f the data

W arelInUt^ ^ 4 5 4 respondents provided usable information. Surveyed com panies ranged


from small (less than $10 million in revenue) to large (in excess o f »10 billion). Most ot the
com panies w ere located in the United States (60% ) and represented a vanety o f industnes
w ith the financial services industry (15% ) providing th e m ost responses. T he Predo“ “ “
architecture was the hub-and-spoke architecture (39% X
P 6 % ) the centralized architecture (17% ), independent data marts (12% ), and th e federated
architecture (4% ). T he m ost com m on platform for hosting the data w arehouses w as Orac
(41% ) follow ed by M icrosoft (19% ), and IBM (18% ). T he average (m ean ) gross revenue var­
ied from $3.7 billion for independent data marts to $6 billion for the federated architecture.
T hey used four m easures to assess th e su ccess o f the architectures: (1) inform ation
quality (2 ) system quality, (3 ) individual im pacts, and (4 ) organizational im pacts. e
questions u sed a seven -point scale, w ith th e higher score indicating a m ore successful
architecture. T ab le 3.1 show s th e average sco res for th e m easures across
As the results o f the study indicate, independ en t data marts scored th e low est on
all m easures. This finding confirm s the conv en tional w isdom that independ ent data ma s
are a p o o r architectural solution. Next lo w e st o n all m easures w as th e fed erated architec
ture Firms som etim es have: disparate d ecisio n support platform s resulting f r o m m ergers
and acquisitions, and they m ay ch o o se a fed erated approach, at least in the short: ru n
T h e findings suggest that th e fed erated architecture is n o t an optim al long-term solution.
W hat is interesting, how ever, is the sim ilarity o f the averages fo r the bus, hub-and-spoke,
and centralized architectures. T h e d ifferences are sufficiently small that n o claim s can
C h a p te rs * Data W arehousing 127

T A B L E 3.1 A v e ra g e Assessm ent Scores fo r th e Success o f th e Architectures

Centralized
Hub-and Architecture
Independent Bus Spoke (N o D ependent Federated
Data M arts Architecture Architecture Data M arts) Architecture
Information Quality 4.42 5.16 5.35 5.23 4.73
System Quality 4.59 5.60 5.56 5.41 4.69
Individual Impacts 5.08 5.80 5.62 5.64 5.15
Organizational Impacts 4.66 5.34 5.24 5.30 4.77

m ade for a particular architecture’s superiority over th e others, at least b ased o n a sim ple
com parison o f th ese su ccess m easures.
T h ey also co llected data o n the d om ain (e.g ., varying from a subunit to com pany-
w ide) and the size (i.e ., am ount o f data stored ) o f the w arehouses. T h ey found that the
h ub-and-spoke architecture is typically u sed with m o re enterprise-w ide im plem entations
and larger w arehouses. T h ey also investigated the co st and tim e required to im plem ent
the different architectures. O verall, th e h u b-an d -sp oke architecture w as th e m ost e x p e n ­
sive and tim e-consu m ing to im plem ent.

SECTION 3 .4 REVIEW QUESTIONS

1 . W hat are th e key sim ilarities and d ifferences b etw een a tw o-tiered architecture and a
three-tiered architecture?
2. H ow has the W eb in flu enced data w areh o u se design?
3. List the alternative data w arehousing architectures discussed in this section.
4 . W hat issues shou ld b e consid ered w h en decid ing w h ich architecture to use in devel­
op ing a data w arehouse? List the 10 m ost im portant factors.
5. W hich data w arehousing architecture is the best? Why?

3.5 D AT A IN TEG RA TIO N A N D THE EXTRACTION , TRA N SFO R M A T IO N ,


A N D LO AD (ETL) P R O C ES SES
G lobal com petitive p ressures, dem and for return o n investm ent (R O I), m anagem ent and
investor inquiry, and governm ent regulations are forcing busin ess m anagers to rethink
how they integrate and m anage their businesses. A d ecisio n m ak er typically n eed s access
ro m ultiple sou rces o f data that m ust b e integrated. B efo re data w areh ouses, data marts,
and B I softw are, providing access to data sou rces w as a major, laborious p ro cess. Even
with m odern W e b -b ased data m anagem ent tools, recognizing w hat data to a c c e ss and
providing them to the d ecisio n m ak er is a nontrivial task that requires d atabase specialists.
As data w arehouses g ro w in size, the issues o f integrating data grow as well.
T h e busin ess analysis need s continu e to evolve. M ergers and acquisitions, regula­
tory requirem ents, and the introduction o f n e w channels can drive ch ang es in B I requ ire­
ments. In addition to historical, cleansed , consolid ated , and point-in-tim e data, busin ess
users increasingly d em and access to real-tim e, unstructured, and/or rem ote data. And
everything must b e integrated w ith the contents o f an existing data w arehouse. M oreover,
access via PDAs and through sp e e c h recognition and synthesis is b eco m in g m ore co m ­
m onplace, further com plicating integration issues (Edw ards, 2003). M any integration p ro ­
jects involve enterprise-w id e system s. O rovic (2 0 0 3 ) provided a ch eck list o f w hat w orks
and w hat d oes n o t w o rk w h en attem pting su ch a project. Properly integrating data from
128 Part II • Descriptive Analytics

various d atabases and other disparate sou rces is difficult. B u t w h en it is n o t d on e prop­


erly, it ca n lead to disaster in enterprise-w ide system s such as CRM, ERP, and supply chain
projects (N ash, 2002).

Data Integratio n
Data integration com prises three m ajor p ro cesse s that, w h en correctly im plem ented,
perm it data to b e acce sse d and m ade accessib le to an array o f ETL and analysis tools and
th e data w arehousing environm ent: data a cce ss (i.e ., th e ability to access and extract data
from any data sou rce), data fed eration (i.e., th e integration o f b usin ess view s across mul­
tiple data stores), and ch an g e captu re (b ased o n the identification, capture, and delivery
o f the chang es m ad e to enterprise data sou rces). S e e A pplication Case 3-3 fo r an exam ple
o f h o w B P Lubricant benefits from im plem enting a data w arehou se that integrates data

Application Case 3.3


BP Lubricants Achieves BIGS Success
B P Lubricants established the B IG S program follow ­ strategic initiative for m anagem ent inform ation and
ing recen t m erger activity to deliver globally c o n ­ business intelligence. At th e h eait o f BIG S is Kalido,
sistent an d transparent m anagem ent inform ation. As an adaptive enterprise data w areh ousing solution for
w ell as tim ely busin ess intelligence, BIG S provides preparing, im plem enting, operating, and m anaging
detailed, consistent view s o f perform an ce across data w arehouses.
functions su ch as fin an ce, m arketing, sales, and sup­ K alid o’s fed erated enterp rise data w areh o u s­
ply and logistics. ing solu tion su p p orted th e pilot p rogram ’s co m ­
BP is o n e o f the w orld’s largest oil and pet­ p le x data in teg ratio n an d d iverse rep orting requ ire­
rochem icals groups. Part o f the BP p ic group, BP m ents. T o ad ap t to the p rogram ’s evolving reporting
Lubricants is an established leader in the global requ irem en ts, th e softw are also en ab led th e under­
autom otive lubricants market. Perhaps best know n lying in form ation arch itectu re to b e easily m odi­
for its Castrol brand o f oils, the business operates fied at high sp e ed w h ile preserving all inform ation.
in over 100 countries and em ploys 10,000 people. T h e system in tegrates an d stores inform ation from
Strategically, B P Lubricants is concentrating on fur­ m ultiple so u rc e system s to provide consolid ated
ther im proving its custom er focus and increasing its view s for:
effectiveness in autom otive markets. Follow ing recent
• M a r k e tin g . Custom er p ro ceed s and mar­
m erger activity, the com pany is undergoing transfor­
gins for m arket segm ents w ith drill dow n to
m ation to b eco m e m ore effective and agile and to
invoice-level detail
seize opportunities for rapid growth.
• S a les. S ales invoice reporting augm ented
with b o th detailed tariff costs and actual
Challenge
paym ents
Follow ing recent m erger activity, BP Lubricants • F in a n c e . G lobally standard profit and loss,
w anted to im prove th e consistency, transparency, and b alan ce sh e et, and cash flow statem ents— with
accessibility o f m anagem ent inform ation and business audit ability; cu stom er d eb t m anagem ent sup­
intelligence. In order to d o so, it need ed to integrate ply and logistics; consolidated view o f order
data held in disparate source system s, without the and m ovem ent processin g across m ultiple ERP
delay o f introducing a standardized ERP system. platform s

S o lu tio n B en efits
BP Lubricants im plem ented the pilot fo r its B usiness B y im proving th e visibility o f con sisten t, timely
In telligen ce and G lobal Standards (B IG S ) program , a data, B IG S provid es th e inform ation n e ed e d to
Chapter 3 * Data W arehousing 129

• Identifies data quality issues and en cou rag es


assist th e b u sin ess in identifying a m ultitude o f
b u sin ess op p ortu nities to m axim ize m argins and/or their resolution
• Im proved ability to resp ond intelligently to
m anage asso ciated c o sts. Typical resp o n ses to th e
n ew busin ess opportunities
b en efits o f co n siste n t data resulting from the B IG S
pilot include:
Q u e st io n s f o r D isc u s s io n
1. W hat is B IG S at B P Lubricants?
• Im proved con sisten cy and tran sparency of
2. W hat w ere the ch alleng es, the p rop osed solu­
b usin ess data
• Easier, faster, an d m ore flex ib le reporting tion, and the ob tain ed results with BIGS?
• A ccom m odation o f b o th global and local
Sources: Kalido, “BP Lubricants Achieves BIGS, Key IT Solutions,"
standards http://www .kalido.com /custom er-stories/bp-plc.htm
• Fast, cost-effectiv e, and flexible im plem enta­ (accessed on August 2013). Kalido, “BP Lubricants Achieves
tion cycle BIGS Success," kalido.com/collateral/Documents/English-US/
• Minimal disruption o f existing busin ess pro­ CS-BP%20BIGS.pdf (accessed August 2013); and BP Lubricant
homepage, bp.com/lubricanthome.do (accessed August 2013).
ce sse s and th e day-to-day busin ess

from m any sou rces. Som e vendors, such as SAS Institute, Inc., have d ev elop ed strong
data integration tools. T h e SAS enterprise data integration server i n c l u d e s cu stom er data
integration tools that im prove data quality in the integration p ro cess. T h e O racle B u sin ess
In telligence Suite assists in integrating data as well.
A m ajor pu rp ose o f a data w areh o u se is to integrate data from m ultiple system s.
V arious integration tech n olog ies en a b le data and m etadata integration:

• Enterprise application integration (EAI)


• Service-oriented architecture (SO A )
• Enterprise inform ation integration (E li)
• Extraction, transform ation, and load (ETL)
E n t e r p r i s e a p p l i c a t i o n i n t e g r a t i o n ( E A I ) provides a v eh icle for pushing data
from sou rce system s into th e data w arehouse. It involves integrating application function­
ality and is fo cu sed o n sharing functionality (rather than data) across system s, thereby
enabling flexibility and reuse. Traditionally, EAI solutions have fo cu sed o n enabling
application reuse at th e application program m ing interface (A PI) level. R ecently, EAI
accom plished b y u sing SO A coarse-grained serv ices (a co llectio n o f busin ess
or fu nctions) that are w ell d efined and d ocum en ted. Using W eb services is a specialized
w ay o f im plem enting an SOA. EAI ca n b e u sed to facilitate data acquisition directly into
a near-real-tim e d ata w a reh o u se o r to deliver d ecisio n s to th e OLTF system s. T h ere are
m any different ap p roach es to and to o ls for EAI im plem entation.
E n t e r p r i s e i n f o r m a t i o n i n t e g r a t i o n ( E l i ) is an evolving tool sp ace that prom ises
real-tim e data integration from a variety o f sou rces, such as relational databases, W eb
services and m ultidim ensional databases. It is a m echanism for pulling data from source
system s to satisfy a req u est for inform ation. E li tools u se pred efin ed m etadata to pop u late
views that m ake integrated data appear relational to en d u se rs XML m ay b e th e m ost
important asp ect o f E li b ecau se XML allow s data to b e tagged eith er at creation time
or later. T h ese tags c a n b e exten d ed and m odified to accom m od ate alm ost a n y area o f
know led ge (s e e Kay, 2005)- . .• ,
Physical data integration has conventionally b e e n the mam m echanism fo r creating
an integrated view w ith data w arehouses and data marts. W ith the advent o f E li to o ls (se e
Kay, 2 005), n e w virtual data integration patterns are feasible. Manglik and M ehra (2 0 0 5 )
130 Part II • Descriptive Analytics

d iscussed the benefits and constraints o f n ew data integration patterns that ca n expan d
traditional physical m ethod ologies to presen t a com preh en sive view for the enterprise.
W e n ext turn to th e ap p roach fo r loading data into the w arehouse: ETL.

Extraction, Transform ation , and Load


At the heart o f the technical side o f the data w arehousing process is extraction, trans­
formation, and load (ETL). ETL technologies, w h ich have existed for som e tim e, are
instrumental in the process and u se o f data w arehouses. T h e ETL p rocess is an integral
com ponent in any data-centric project. IT m anagers are often faced with challenges becau se
the ETL process typically consum es 70 percent o f the tim e in a data-centric project.
T h e ETL p ro cess consists o f extraction (i.e ., read ing data from o n e o r m ore data­
b a ses), transform ation (i.e., convertin g the extracted data from its previous form into the
form in w h ich it n eed s to b e so that it ca n b e p laced into a data w arehou se or simply
another d atabase), and load (i.e ., putting th e data into the data w areh ou se). Transform ation
occu rs b y using rules o r looku p tables or b y com bin in g the data w ith oth er data. T h e three
d atabase functions are integrated into o n e tool to pull data out o f o n e o r m ore d atabases
and p lace them into another, consolid ated d atabase o r a data w arehouse.
ETL tools also transport data b etw een sou rces and targets, d ocu m ent how' data
elem ents (e.g ., m etadata) ch an g e as they m ove b e tw e e n sou rce and target, exch an g e
m etadata w ith other applications as n eed ed , and adm inister all runtim e p ro cesses and
operations (e .g ., scheduling, error m anagem ent, audit logs, statistics). ETL is extrem ely
im portant fo r data integration as w ell as for data w arehousing. T h e pu rp ose o f the ETL
p ro cess is to load the w arehou se with integrated and clean sed data. T h e data used in ETL
p ro cesses ca n co m e from any sou rce: a m ainfram e application, an ERP application, a CRM
tool, a flat file, an E xcel spread sheet, or ev e n a m essag e q u eu e. In Figure 3.9, w e outline
the ETL process.
T h e p ro cess o f m igrating data to a data w areh o u se involves the extraction o f data
from all relevant sou rces. D ata sou rces m ay consist o f files extracted from OLTP databases,
spreadsh eets, personal d atabases (e .g ., M icrosoft A ccess), or external files. Typically, all
the input files are w ritten to a set o f staging tables, w hich are d esigned to facilitate the
load process. A data w arehouse contains num erous busin ess rules that define su ch things
as h o w the data w ill b e used, sum m arization rules, standardization o f en cod ed attributes,
and calculation rules. Any data quality issues pertaining to th e sou rce files n eed to b e
corrected b efo re the data are load ed into the data w arehou se. O n e o f the ben efits o f a

FIGURE 3.9 The ETL Process.


Chapter 3 * Di

w ell-designed data w areh o u se is that th ese rules can b e stored in a m etadata repository
and applied to the data w areh o u se centrally. This differs from an OLTP approach, w h ich
typically has data and busin ess rules scattered throughout th e system . T h e p ro cess of
loading data into a data w arehou se can b e perform ed either through data transform ation
-ools that provide a G U I to aid in the developm en t and m aintenance o f b u sin ess rules
o r through m ore traditional m ethods, su ch as d eveloping program s or utilities to load
the data w arehouse, u sing program m ing languages su ch as PL/SQL, C++, Ja v a , o r .NET
Fram ew ork languages. This d ecisio n is n ot easy for organizations. Several issues attect
w hether an organization w ill purchase data transform ation tools o r build the tiansform a-
iion p rocess itself:

• D ata transform ation tools are expensive.


• D ata transform ation tools m ay have a long learning curve.
• It is difficult to m easu re h ow the IT organization is doing until it has learn ed to use
the data transform ation tools.
In the long run, a transform ation-tool ap p roach should sim plify th e m aintenance o f
i n organization’s data w areh ouse. T ransform ation tools ca n also b e effective m d etecting
m d scrubbing (i.e ., rem oving any anom alies in th e data). OLAP and data m ining tools rely
on how w ell the data are transform ed.
As an exam p le o f effective ETL, M otorola, Inc., u ses ETL to feed its data w arehouses.
Motorola collects inform ation from 30 different procurem ent system s and sen d s it to
irs g lobal SCM data w areh o u se for analysis o f aggregate com p an y spending (se e Songim ,

i 2004). u■ • . j
Solom on (2 0 0 5 ) classified ETL technologies into four categories: sophisticated , ena-
bier. sim ple, and rudim entary. It is generally acknow led ged that tools in the sophisticated
category will result in th e ETL p rocess b ein g b etter d ocu m ented and m ore accu rately
asanaged as the data w areh o u se project evolves. ............................
Even though it is p o ssible for program m ers to d evelop softw are for ETL, it is sim pler
Ld use an existing ETL tool. T h e follow ing are som e o f the im portant criteria in selectin g
an ETL tool (se e B row n , 2004):
• Ability to read from and w rite to a n unlimited num ber o f data sou rce architectures
• Autom atic capturing and delivery o f m etadata
• A history o f conform ing to o p en standards
• An easy-to-use interface for the d ev elop er and the fu nctional user

P erform ing e x te n siv e ETL m ay b e a sig n o f p o o rly m anaged data and a


^ndam ental lack o f a c o h e re n t data m an ag em en t strategy. K aracso n y (2 0 0 6 ) indi­
cated that there is a d irect co rrela tio n b e tw e e n the e x te n t o f red und ant data an d the
-u m b e r o f ETL p ro ce sse s. W h e n data a re m an ag ed correctly as an e n terp rise asset,
ETL efforts are sign ifican tly red u ced , and red u nd ant data are co m p le te ly elim inated .
Ibis leads to h u g e savings in m a in ten a n ce an d g rea ter e ffic ie n cy in n e w d ev elo p ­
m ent w h ile also im provin g data quality. P oorly d esig n ed ETL p ro c e sse s are co stly to
C i n t a i n , ch an g e, an d u p d ate. C o n seq u en tly , it is cru cial to m ak e th e p ro p e r c h o ice s
n :erm s o f the te ch n o lo g y an d to o ls to u se fo r d ev elo p in g and m aintainin g th e ETL

^ A num ber o f p ackaged ETL tools are available. D atabase vendors currently o ffe r ETL
capabilities that b o th e n h a n ce and com p ete w ith independ en t ETL tools. SAS ack n ow l­
edges the im portance o f data quality and offers the industry’s first fully integrated solu-
n that m erges ETL and data quality to transform data into strategic valu ab le assets,
fcher ETL softw are providers include M icrosoft, O racle, IBM , Inform atica, Em barcadero,
■ r l Tibco. For additional inform ation o n ETL, s e e G olfarelli and Rizzi (2 0 0 9 ), K araksony
2006), and Songini (2 0 0 4 ).
132 Part II • Descriptive Analytics

SECTION 3 .5 REVIEW QUESTIONS


1 . D escrib e data integration.
2 . D escrib e the th ree steps o f th e ETL process.
3 . W hy is th e ETL p rocess so im portant fo r data w arehousing efforts?

3.6 D ATA W A R E H O U S E D EV EL O P M EN T
A data w arehousing project is a m ajor undertaking for any organization and is m ore
com plicated than a sim ple, m ainfram e selectio n and im plem entation p ro ject b e ca u se it
com prises and influences m any departm ents an d m any input and output interfaces and it
can b e part o f a CRM busin ess strategy. A data w areh o u se provides several benefits that
can b e classified as direct and indirect. D irect b e n e fits inclu de th e ioWowmg-.

• End users ca n perform exten sive analysis in num erous ways.


• A con solid ated view o f corporate data (i.e ., a single version o f the truth) is possible.
• B etter and m ore tim ely inform ation is p o ssib le. A data w areh o u se perm its inform a­
tion processing to b e relieved from costly operation al system s on to low -cost serv­
ers; therefore, m any m ore end -u ser inform ation requests can b e p ro cessed m ore
quickly.
• E n h an ced sy stem p e rfo rm a n ce c a n result. A d ata w a reh o u se frees p ro d u ction
p ro cessin g b e c a u se so m e op eratio n al sy stem rep ortin g requ irem ents are m oved
to D SS.
• Data access is sim plified
Indirect b enefits result from en d users using th ese direct b enefits. O n the w hole,
th ese benefits e n h a n ce business know led ge, p resen t com petitive advantage, im prove cus­
tom er service and satisfaction, facilitate d ecisio n m aking, and help in reform ing business
p rocesses; therefore, they are the strongest contributions to com petitive advantage. (For
a d iscussion o f how to create a com petitive advantage through data w arehousing, see
P arzinger and Frolick, 2 0 0 1 .) F o r a d etailed d iscu ssion o f h ow organizations can obtain
excep tion al levels o f payoffs, se e W atson et al. (2 0 0 2 ). G iven the potential benefits that a
data w arehou se ca n provide and the substantial investm ents in tim e and m o ney that such
a project requires, it is critical that an organization structure its data w arehou se project
to m axim ize th e ch an ces o f su ccess. In addition, the organization must, obviously, take
costs into consideration. K elly (2 0 0 1 ) d escribed a ROI ap p roach that considers benefits
in the categories o f k eep ers (i.e ., m o n ey saved b y im proving traditional decision support
fu nctions); gatherers (i.e., m o ney saved due to autom ated collection and dissem ination
o f inform ation); and users (i.e ., m oney saved o r gained from d ecision s m ade using the
data w areho u se). Costs include th o se related to hardw are, softw are, n etw ork bandw idth,
internal developm ent, internal support, training, and external consulting. The net pre­
sen t value (NPV) is calculated ov er the e x p e cte d life o f the data w arehouse. B ecau se
the b en efits are b ro k en d ow n approxim ately as 20 p ercen t fo r k eep ers, 30 p ercent for
gatherers, and 50 p ercen t fo r users, K elly indicated that users should b e involved in the
d ev elop m en t p ro cess, a su ccess factor typically m entioned as critical fo r system s that
imply ch an g e in a n organization.
A pplication Case 3 .4 provides an exam p le o f a data w arehouse that w as d ev eloped
and delivered intense com petitive advantage for th e H okuriku (Jap an ) Coca-C ola Bottling
Com pany. T h e system w as so successful that plans are u n d e w a y to expan d it to e n co m ­
pass the m ore than 1 m illion Coca-C ola ven d in g m achines in Jap an .
Clearly d efining the b u sin ess ob jectiv e, gathering p ro ject support from m anage­
m ent en d users, setting rea so n a b le tim e fram es and bud gets, and m anaging exp ectation s
are critical to a su ccessfu l data w arehousing p roject. A data w areh ousing strategy is a
Chapter 3 * Data W arehousing 133

Application Case 3.4


Things Go Better with Coke's Data Warehouse
In the face o f com petitive pressures and consu m er increased 10 percent. In addition, due to th e m ore
dem and, h ow d o e s a su ccessfu l bottling com pany accu rate m achine servicing, overtim e and other costs
ensure that its vending m achines are profitable? T he d ecreased 4 6 percent. In addition, ea ch salesperson
answ er for H okuriku Coca-C ola Bottling Com pany w as able to service up to 42 p ercent m ore vending
(H CCBC) is a data w arehou se and analytical soft­ m achines.
w are im plem ented b y Teradata Corp. HCCBC built T h e test w as so su ccessfu l that planning began
the system in resp on se to a data w arehousing system to expan d it to en co m p ass th e entire enterprise
d eveloped b y its rival, Mikuni. T h e data w arehouse (6 0 ,0 0 0 m ach in es), using an active data w arehouse.
collects not only historical data b u t also n e a r-re a l­ Eventually, the data w arehousing solution will ide­
tim e data from e a c h vending m ach in e (view ed as ally exp an d across corp orate boundaries into the
a store) that co u ld b e transm itted via w ireless c o n ­ entire Coca-C ola B ottlers netw ork so that th e m ore
nection to headquarters. T h e initial p h ase o f the than 1 m illion ven d in g m ach in es in Ja p a n will be
p ro ject w as d ep loy ed in 2001. T h e data w arehou se netw orked, leading to im m ense cost savings and
approach provides detailed produ ct inform ation, high er revenue.
such as tim e and d ate o f ea ch sale, w h en a prod­
uct sells out, w h eth er so m eo n e w as short-changed, Q u e st io n s f o r D isc u s s io n
and w h eth er the m achine is m alfunctioning. In each
1. H ow did Coca-C ola in Ja p a n u se data w arehou s­
case, an alert is triggered, and the vending m achine
ing to im prove its b u sin ess processes?
im m ediately reports it to the data cen ter over a w ire­
2. W hat w ere the results o f their enterprise active
less transm ission system . (N ote that Coca-C ola in
data w arehou se im plem entation?
the United States h as used m odem s to link vending
m achines to distributors for ov er a d ecad e.)
Sources: Adapted from K. D. Schwartz, “Decisions at the Touch of
In 2002, HCCBC cond u cted a pilot test and put a Button,” T eradata M agazine, teradata.com/t/page/117774/
all its N agano vending m achin es o n a w ireless net­ index.htm l (accessed June 2009); K. D. Schwartz, “Decisions at
w o rk to gather n ear-real-tim e point o f sale (P O S) the Touch of a Button," DSS Resources, March 2004, pp. 28-31,
data from each o n e . T h e results w ere astounding d si5 re s o u rc e s.c o m / c a s e s / c o c a -c o la ja p a n / in d e x .h tm l
(accessed April 2006); and Teradata Corp., “Coca-Cola Japan
b ecau se they accu rately forecasted dem and and
Puts the Fizz Back in Vending Machine Sales," teradata.eom/t/
identified p roblem s quickly. Total sales im m ediately page/118866/index.httnI (accessed June 2009).

blueprint fo r the su ccessfu l introduction o f the data w arehou se. T h e strategy should
d escribe w h ere the co m p an y w ants to g o , w hy it w ants to g o there, and w h at it will d o
w h en it gets there. It n e ed s to ta k e into con sid eratio n the organ ization’s vision, structure,
and culture. Se e M atney (2 0 0 3 ) fo r the step s that can h elp in d evelopin g a flex ib le and
efficient supp ort strategy. W h en th e plan and support for a data w areh o u se are estab ­
lished, the organization need s to exam in e data w areh o u se vend ors. (S e e T a b le 3.2 for
a sam ple list o f ven d ors; also s e e T h e D ata W arehou sing Institute [twdi.org] an d DM
Review [information-management.com].) M any vend ors provide softw are d em os o f
their data w arehou sing and B I products.

D ata W arehouse D evelop m ent Approaches


M any organizations n e e d to create the data w areh ouses used fo r d ecisio n support. T w o
com peting ap p roach es are em ployed. T h e first ap p roach is that o f Bill Inm on, w h o is
often called ‘ the fath er o f data w arehousing.” Inm on supports a top-d ow n developm en t
approach that adapts traditional relational d atabase to ols to th e developm en t n eed s o f an
134 Part II • Descriptive Analytics

T A B L E 3.2 Sam ple List o f Data W arehousing Vendors

Vendor Product O fferings

Business Objects (businessobjects.com) A comprehensive set of business intelligence and data visuali­
zation software (now owned by SAP)

Computer Associates (cai.com) Comprehensive set of data warehouse (DW) tools and products

DataMirror (datamirror.com) D W administration, management, and performance products

Data Advantage Group (dataadvantagegroup.com ) Metadata software

Dell (dell.com) D W servers

Embarcadero Technologies (embarcadero.com) D W administration, management, and performance products

Greenplum (greenplum.com) Data warehousing and data appliance solution provider (now
owned by EMC)

Harte-Hanks (harte-hanks.com) Customer relationship management (CRM) products and services

HP (hp.com) D W servers

Hummingbird Ltd. (hummingbird.com, now is a D W engines and exploration warehouses


subsidiary of Open Text.)
Hyperion Solutions (hyperion.com, now an Oracle Comprehensive set of D W tools, products, and applications
company)
IBM InfoSphere (w w w - 01 .ibm.com/software/data/ Data integration, DW, master data management, big data
infosphere/) products

Informatica (informatica.com) D W administration, management, and performance products

Microsoft (microsoft.com) D W tools and products

Netezza D W software and hardware (DW appliance) provider (now


owned by IBM)

Oracle (including PeopleSoft and Siebel) (oracle.com) DW, ERP, and CRM tools, products, and applications

SAS Institute (sas.com) D W tools, products, and applications

Siemens (siemens.com) D W servers

Sybase (sybase.com) Comprehensive set of D W tools and applications

Teradata (teradata.com) D W tools, D W appliances, DW consultancy, and applications

enterprise-w ide data w arehou se, also k n o w n as the ED W approach. T h e seco n d approach
is that o f Ralph Kim ball, w h o p rop oses a bottom -up ap p roach that em ploys dim ensional
m odeling, also k n ow n as the data mart approach.
Know ing h ow th ese tw o m odels are alike and h ow they differ h elp s us understand
the b asic data w arehouse co n cep ts (e .g ., s e e B reslin, 2004). T a b le 3 3 com p ares th e tw o
ap p roach es. W e d escribe th ese ap p roach es in detail next.

THE INMON M ODEL: THE EDW A PPRO ACH Inm o n’S ap p roach em phasizes top-dow n
d evelopm en t, em ploying established d atabase developm en t m ethodologies and tools,
su ch as entity-relationship diagram s (E R D ), and an adjustm ent o f the spiral d evelopm ent
approach. T h e ED W approach d oes n ot p reclu d e the creation o f data marts. T h e ED W is
the ideal in this ap p roach b eca u se it provides a consistent and com preh en sive v iew o f the
enterprise. Murtaza (1 9 9 8 ) presen ted a fram ew ork for d eveloping EDW.

THE K IM B A LL M ODEL: THE D A TA M ART A PPRO A CH Kim ball’s data m art strategy is a “plan
big, build sm all” approach. A data m art is a su b ject-oriented o r departm ent-oriented data
w arehouse. It is a scaled -d ow n version o f a data w areh ouse that fo cu ses on the requests
Chapter 3 • Data Warehousing 135

T A B L E 3.3 Contrasts B e tw ee n th e Data M a rt and E D W D evelopm ent Approaches

Data M art Approach E D W Approach


Effort

Scope One subject area Several subject areas

Development time Months Years

Development cost $10,000 to $100,000+ $1,000,0004-

Development difficulty Low to medium High

Data prerequisite for sharing Common (within business area) Common (across enterprise)

Only some operational and external systems Many operational and external systems
Sources
Size Megabytes to several gigabytes Gigabytes to petabytes

Time horizon Near-current and historical data Historical data

Data transformations Low to medium High

Update frequency Hourly, daily, weekly Weekly, monthly

Technology
Workstations and departmental servers Enterprise servers and mainframe computers
Hardware
Operating system Windows and Linux Unix, Z/OS, OS/390

Workgroup or standard database servers Enterprise database servers


Databases

Usage
Number of simultaneous 10s 100s to 1,000s
users
Business area analysts and managers Enterprise analysts and senior executives
User types
Optimizing activities within Cross-functional optimization and decision
Business spotlight
the business area making

■urces: Adapted from J. Van den Hoven, "Data Marts: Plan Big, Build Small," in IS M anagem ent H andbook. Sth ed.. CRC Press, Boca
taton, FL, 2003; and T. Ariyachandra and H. Watson, “Which Data Warehouse Architecture Is Most Successful?” Business Intelligence
'm m al, Vol. 11, No. 1, First Quarter 2006, pp. 4-6.

o f a specific departm ent, su ch as m arketing or sales. T his m odel applies dim ensional data
modeling, w h ich starts w ith tables. Kim ball advocated a developm en t m ethodology that
t r a i l s a bottom -up ap p roach, w h ich in th e case o f data w areh o u ses m eans building one
data m art at a time.

WHICH M ODEL IS BEST? T h ere is no one-size-fits-all strategy to data w arehousing. An


e n e rp rise ’s data w arehousing strategy ca n evolve from a sim ple data m art to a co m p lex
tfaro w arehouse in resp on se to u ser dem ands, the enterprise’s busin ess requirem ents, and
fe e enterprise’s m aturity in m anaging its data resources. For m any enterprises, a data mart
b frequently a con v en ien t first step to acquiring exp e rien ce in constructing and m anag­
ing a data w arehou se w hile presenting busin ess users w ith th e b en efits o f b etter access
: their data; in addition, a data m art com m only indicates th e busin ess value o f data
m ^rehousing. Ultimately, engineerin g an ED W that consolid ates old data marts an d data
• ^rehouses is th e ideal solution (s e e A pplication Case 3-5). H ow ever, the developm en t
of individual data m arts ca n often provide m any b en efits alon g th e w ay toward d ev elop -
w g an ED W , esp ecially if the organization is unable or unw illing to invest in a large-scale
reject. D ata marts ca n also dem onstrate feasibility and su ccess in providing benefits.
I K s could potentially lead to an investm ent in an EDW. T a b le 3 .4 sum m arizes th e m ost
essential characteristic d ifferences b etw ee n th e tw o m odels.
136 Part II • Descriptive Analytics

Application Case 3.5


Starwood Hotels & Resorts Manages Hotel Profitability with Data Warehousing
Starw ood H otels & Resorts W orldw ide, In c., is o n e o f basis, since central reservation system (CRS) reports
the lead ing hotel and leisure com panies in the world could take as long as 18 hours,” said Richard Chung,
w ith 1,112 properties in nearly 100 countries and Starw ood H otels’ director o f data integration. Chung
154,000 em p loy ees at its ow ned and m anaged prop­ added that h otel m anagers w ould receive the tran­
erties. Starw ood is a fully integrated ow ner, operator sient pace report—-which presents m arket-segm ented
and fran chisor o f hotels, resorts, and resid ences with inform ation o n reservations— 5 hours later than it
th e follow ing internationally renow ned brands: St. w as needed. Such delays prevented m anagers from
R egis® , T h e Luxury C ollection ® , W ® , W estin® , Le adjusting rates appropriately, w hich could result in
M eridien® , Sheraton® , Fou r P oints® b y Sheraton, lost revenue.
A loft®, an d Elem entSM . T h e Com pany boasts one
o f th e industry’s lead ing loyalty program s, Starw ood S o lu tio n a n d R e su lts
Preferred G u est (SP G ), allow ing m em bers to earn After review ing several ven d or offerings, Starw ood
and red eem points for ro o m stays, ro o m upgrades, H otels sele cte d O racle Exadata D atab ase M achine
and flights, w ith n o b la ck o u t dates. Starw ood also X 2 -2 HC Full R ack and O racle Exadata D atabase
ow ns Starw ood V acation O w nership In c., a pre­ M achine X 2 -2 HP Full Rack, running o n O racle Linux.
m ier provider o f w orld-class vacation exp erien ces “W ith the im plem entation o f Exadata, Starw ood
th rou gh villa-style resorts and privileged a cce ss to H otels can com p lete extract, transform , and load
Starw ood brands. (ETL) op eration s for operational reports in 4 to 6
hours, as op p o sed to 18 to 24 hours previously, a
C h a lle n g e six-fold im provem en t,” Chung said. Real-tim e feeds,
Starw ood H otels has significantly increased the num ­ w h ich w ere n o t p ossible b efo re, n ow allow transac­
b er o f hotels it op erates ov er the past few years tions to b e posted im m ediately to the data w are­
through global corporate expan sion, particularly in hou se, and users ca n a cce ss the chang es in 5 to 10
the Asia/Pacific region. This has resulted in a dra­ m inutes instead o f 24 hours, m aking the p ro cess up
m atic rise in the n eed for business critical inform a­ to 2 88 tim es faster.
tion ab o u t Starw ood’s hotels and custom ers. All A ccelerated data a cce ss allow s all Starwood
Starw ood hotels globally u se a single enterprise data properties to g et th e sam e, up-to-date data need ed
w arehou se to retrieve inform ation critical to efficient for their reports, globally. Previously, h otel m anagers
h otel m anagem ent, such an that regarding revenue, in som e areas cou ld n ot d o sam e-day or next-day
central reservations, and rate plan reports. In addi­ analyses. T h ere w ere som e locations that g o t fresh
tion, Starw ood H otels’ m anagem ent runs im portant data and others that got old er data. Hotel m anagers,
daily operating reports from the data w arehouse for worldw ide, n o w have up-to-date data for their hotels,
a w id e range o f business functions. Starw ood’s enter­ increasing efficiency and profitability, improving cus­
prise data w arehouse spans alm ost all areas within tom er service b y m aking sure room s are available
the com pany, so it is essential not only for central- for prem ier custom ers, and improving the com pany s
reservation and consum ption inform ation, b u t also to ability to m anage room occu p ancy rates. Additional
Starw ood’s loyalty program , w h ich relies o n all guest reporting tools, such as th o se u sed for CRM and sales
inform ation, sales inform ation, corporate sales infor­ and catering, also b en efited from the im proved pro­
m ation, cu stom er service, and other data that m an­ cessing. O ther critical reporting has b en efited as w ell.
agers, analysts, and executives d epend o n to m ake M arketing cam paign m anagem ent is also m ore effi­
cien t now that m anagers ca n analyze results in days
operational decisions.
T h e com pany is com m itted to know ing and ser­ or w eek s instead o f m onths.
“O racle Exadata D atabase M achine en ables
vicing its guests, yet, “as data growth and dem ands
us to m o ve forw ard w ith an environm ent that pro­
grew too great for the com pany’s legacy system , it
vid es our hotel m anagers and corporate executives
was falling short in delivering th e inform ation hotel
w ith n e a r-re a l4 im e inform ation to m ake optim al
m anagers and administrators required on a daily
Chapter 3 • Data W arehousing 137

busin ess d ecisio n s and provide ideal am enities for 2. H ow did Starw ood H otels & Resorts u se data
our guests." — G ordon Light, B u siness Relationship w arehousing fo r b etter profitability?
M anager, Starw ood H otels & Resorts W orldw ide, 3. W hat w ere th e challeng es, the p ro p osed solu ­
Inc. tion, and th e ob tain ed results?

Q u e st io n s f o r D isc u ssio n Source: Oracle customer success story, www.oracle.com/us/


corporate/custom ers/custom ersearch/starw ood-hotels-1-
1. H ow b ig and co m p lex are th e busin ess op era­ exadata-sl-1855106.htm l; Starwood Hotels and Resorts,
tions o f Starw ood H otels & Resorts? starwoodhotels.com (accessed Ju ly 2013).

Additional Data Warehouse Development Considerations


Som e org an ization s w an t to co m p le te ly o u tso u rce th e ir data w areh o u sin g efforts. T h ey
sim ply d o n o t w an t to d eal w ith softw are and hard w are acq u isition s, an d th ey do
not w an t to m an a g e th eir in form ation system s. O n e alternativ e is to u se h o sted data
w areh o u ses. In this scen a rio , a n o th er firm — ideally, o n e that has a lo t o f e x p e rie n c e

T A B L E 3.4 Essential Differences B e tw ee n Inm on's and Kim ball's Approaches

Characteristic Inmon Kimball

M e th od ology a n d
Architecture
Overall approach Top-down Bottom-up
Architecture structure Enterprise-wide (atomic) data Data marts model a single business process,
warehouse "feeds" departmental and enterprise consistency is achieved through
databases a data bus and conformed dimensions
Complexity of the method Quite complex Fairly simple
Comparison with established Derived from the spiral methodology Four-step process; a departure from relational
development methodologies database management system (RDBMS)
methods
Discussion of physical design Fairly thorough Fairly light

Data M o deling
Data orientation Subject or data driven Process oriented
Tools Traditional (entity-relationship diagrams Dimensional modeling; a departure from
[ERD], data flow diagrams [DFD]) relational modeling
End-user accessibility Low High

Philosophy
Primary audience IT professionals End users
Place in the organization Integral part of the corporate Transformer and retainer of operational data
information factory
Objective Deliver a sound technical solution Deliver a solution that makes it easy for end
based on proven database methods users to directly query the data and still get
and technologies reasonable response times

Sources: Adapted from M. Breslin, “Data Warehousing Battle o f the Giants: Comparing the Basics o f Kimball and Inmon Models," Business
Intelligence Jo u rn a l Vol. 9, No. 1, Winter 2004, pp. 6-20; and T. Ariyachandra and FT. Watson, “Which Data Warehouse Architecture Is
Most Successful?” B usiness Intelligence Jou rn al, Vol. 11, No. 1, First Quarter 2006.
138 Part II • Descriptive Analytics

TEC H N O LO G Y IN SIG H TS 3 .1 H o s te d D ata W are h o u se s

A hosted data w arehouse has nearly the same, if n o t m ore, functionality as an on-site data ware­
house, but it d oes not consum e com puter resources o n client premises. A hosted data w arehouse
offers the benefits o f BI minus the cost o f com puter upgrades, network upgrades, software
licenses, in-house development, and in-house support and maintenance.
A hosted data w arehouse offers the follow ing benefits:

• R equ ires m inim al in vestm en t in infrastructure


• Frees up capacity on in-house systems
• F rees u p c a sh flow
• Makes powerful solutions affordable
• E n ab les pow erfu l so lu tio n s that provid e fo r g row th
• Offers better quality equipm ent and software
• P rovid es faster co n n e ctio n s
• Enables users to access data from rem ote locations
• Allows a com pany to focus o n core business
• Meets storage needs for large volumes o f data

Despite its benefits, a hosted data w arehouse is not necessarily a good fit for every organi­
zation. Large com panies with revenue upwards o f $500 million could lose m oney if they already
have underused internal infrastructure and IT staff. Furthermore, com panies that see the para­
digm shift o f outsourcing applications as loss o f control o f their data are not likely to use a
business intelligence service provider (BISP). Finally, the most significant and com m on argument
against implementing a hosted data w arehouse is that it may b e unwise to outsource sensitive
applications for reasons o f security and privacy.
Sources: Compiled from M. Thornton and M. Lampa, “Hosted Data Warehouse,’'Jou rn al o f D ata W arehousing,
Vol. 7. No. 2, 2002, pp. 27-34; and M. Thornton, “What About Security? The Most Common, but Unwarranted,
Objection to Hosted Data Warehouses,” DM Review, Vol. 12, No. 3, March 18, 2002, pp. 30-43.

and exp e rtise — d ev elo p s and m aintains th e data w a reh o u se. H ow ever, th ere are
secu rity and p rivacy c o n c e rn s w ith this a p p ro a ch . S e e T e ch n o lo g y In sigh ts 3.1 for
so m e details.

Representation of Data in Data Warehouse


A typical data w arehou se structure is show n in Figure 3-3. M any variations o f data w are­
h ou se architecture are p ossible (s e e Figure 3-7). No m atter w hat th e architecture was,
the design o f data representation in th e data w areh o u se has alw ays b e e n b ased o n the
co n cep t o f dim ensional m odeling. Dimensional modeling is a retrieval-based system
that supports high-volum e q u ery access. R epresentation and storage o f data in a data
w areh ou se should b e d esigned in such a w ay that n o t only accom m od ates but also
b o o sts the processin g o f com p lex m ultidim ensional queries. O ften, th e star schem a and
the snow flakes schem a are the m eans b y w h ich dim ensional m odeling is im plem ented in
data w arehouses.
T h e star schema (som etim es referen ced as star jo in schem a) is the m ost com m only
used and the sim plest style o f dim ensional m odeling. A star schem a contains a central fact
table surrounded b y and co n n ecte d to several dimension tables (A dam son, 2009). T he
fact table contains a large num ber o f row s th at corresp ond to observed facts and external
links (i.e., foreign keys). A fact table contains th e descriptive attributes n e ed ed to perform
d ecisio n analysis and query reporting, and fo reig n keys are u sed to link to dim ension
Chapter 3 • Data W arehousing 139

tables. T h e d ecisio n analysis attributes con sist o f p erform ance m easures, operation al m et­
rics, aggregated m easures (e.g ., sales volum es, cu stom er retention rates, profit margins,
production costs, crap rates, and so forth), and all the other m etrics n eed ed to analyze the
organization’s perform ance. In oth er w ords, the fact table primarily addresses w hat the
data w arehou se supports for d ecisio n analysis.
Surrounding th e central fact tables (an d linked via foreign k ey s) are d im ension
tables. T h e d im ension tables contain classification and aggregation inform ation ab o u t the
central fact rows. D im ension tables con tain attributes that d escribe the data contained
w ithin the fact table; th ey address h o w data will b e analyzed and sum m arized. D im ension
tables have a one-to-m an y relationship w ith row s in the central fact table. In querying,
the d im ensions are used to slice and d ice th e num erical values in the fact table to address
the requirem ents o f an ad h o c inform ation need . T h e star schem a is d esigned to provide
fast qu ery-resp on se tim e, sim plicity, and e a se o f m aintenance fo r read -only database
structures. A sim ple star schem a is show n in Figure 3.10a. T h e star schem a is con sid ered
a sp ecial case o f th e snow flake schem a.
T h e snowflake schema is a logical arrangem ent o f tables in a m ultidim ensional
database in su ch a w ay that the entity-relationship diagram resem bles a sn ow flak e in
shape. C losely related to the star schem a, the snow flake schem a is rep resented b y central­
ized fact tables (usually only o n e ) that are co n n ected to m ultiple dim ensions. In th e snow ­
flake schem a, how ever, d im ensions are norm alized into m ultiple related tables w h ereas
the star sch em a’s d im ensions are d enorm alized w ith ea ch dim ension b ein g represented
by a single table. A sim ple snow flake sch em a is show n in Figure 3.10b.

Analysis of Data in the Data Warehouse


O n ce the data is properly stored in a data w arehou se, it can b e u sed in various w ays to
support organizational decision m aking. OLAP (o n lin e analytical processing) is arguably
the m ost com m only u sed data analysis techniqu e in data w arehouses, and it has b een
grow ing in popularity due to the exp o n en tial in crease in data volu m es and the recogni­
tion o f the business value o f data-driven analytics. Simply, OLAP is an approach to quickly
answ er ad h o c q u estion s b y execu tin g m ultidim ensional analytical queries against organi­
zational data repositories (i.e., data w arehouses, data marts).

FIGURE 3.10 (a) The Star Schema, and (b) the Snowflake Schema.
14 0 Part II • Descriptive Analytics

OLAP Versus OLTP


OLTP (o n lin e transaction processing system ) is a term u sed for a tran saction system ,
w h ich is primarily resp onsible for capturing and storing data related to day-to-day busi­
ness functions such as ERP, CRM, SCM, p oint o f sale, and so forth. T h e OLTP system
addresses a critical busin ess need , autom ating daily busin ess transactions and running
real-tim e reports and routine analyses. B u t th ese system s are not d esigned for ad h o c
analysis and com p lex queries that deal w ith a n u m ber o f data item s. OLAP, o n th e other
hand, is d esigned to address this n eed b y providing ad h o c analysis o f organizational data
m u ch m ore effectively and efficiently. OLAP and OLTP rely heavily o n ea ch other: OLAP
u ses the data captures b y OLTP, and OLTP autom ates the business p ro cesses that are
m anaged b y d ecisions supp orted b y OLAP. T ab le 3-5 provides a multi-criteria com parison
b etw ee n OLTP and OLAP.

OLAP Operations
T h e m ain operational structure in OLAP is b a se d o n a co n cep t called cube. A c u b e in
OLAP is a m ultidim ensional data structure (actual or virtual) that allow s fast analysis o f
data. It can also b e d efined as the capability o f efficiently manipulating and analyzing data
from multiple perspectives. T h e arrangem ent o f data into cu bes aims to overcom e a limita­
tion o f relational databases: Relational databases are n ot w ell suited for near instantaneous
analysis o f large am ounts o f data. Instead, they are b etter suited for manipulating records
(adding, deleting, and updating data) that represent a series o f transactions. Although
m any report-writing tools exist for relational databases, these tools are slow w h en a multi­
dim ensional query that en com p asses m any d atabase tables need s to b e executed .
Using OLAP, an analyst ca n navigate through the d atabase and screen fo r a par­
ticular subset o f th e data (and its progression o v er tim e) b y changing th e data’s orienta­
tions and defining analytical calculations. T h e se types o f user-initiated navigation o f data
through the sp ecification o f slices (via rotations) and drill down/up (via aggregation and
disaggregation) is som etim es called “slice and d ic e .” Com m only u sed OLAP operations
include slice and d ice, drill dow n, roll up, and pivot.

• S lice. A slice is a subset o f a m ultidim ensional array (usually a tw o-dim ensional


representation) correspond ing to a single value set fo r o n e (o r m o re) o f the dim en­
sions n ot in the subset. A sim ple slicing o p eration o n a three-dim ensional cu b e is
sh ow n in Figure 3.11.

T A B L E 3.5 A Comparison B e tw ee n OLTP and O LAP

Criteria OLTP OLAP


Purpose To carry out day-to-day business functions To support decision making and provide answers
to business and management queries
Data source Transaction database (a normalized data Data warehouse or data mart (a nonnormalized
repository primarily focused on efficiency data repository primarily focused on accuracy
and consistency) and completeness)
Reporting Routine, periodic, narrowly focused reports Ad hoc, multidimensional, broadly focused
reports and queries
Resource Ordinary relational databases Multiprocessor, large-capacity, specialized
requirements databases
Execution speed Fast (recording of business transactions Slow (resource intensive, complex, large-scale
and routine reports) queries)
Chapter 3 * Data W arehousing 141

A three-dimensional
□LAP cube with Sales volumes of
slicing a specific product
operations on variable time
and region

Cells are filled


Sales volumes of
with numbers
a specific region
representing
CD on variable time
sales volumes
and products

Sales volumes of
a specific time on
variable region
and products

FIG U R E 3.11 Slicing O perations on a Sim ple Three-D im ensional Data Cube.

• D ice. T h e d ice op eration is a slice o n m ore than tw o d im ensions o f a data cube.


• D r ill D ow n /U p Drilling d ow n o r up is a sp ecific OLAP tech n iqu e w h ereb y the
u ser navigates am o n g levels o f data ranging from the m ost sum m arized (u p ) to the
m ost d etailed (d ow n ).
• R o ll-u p . A roll-up involves com puting all o f th e data relationships for o n e o r m ore
dim ensions. T o d o this, a com putational relationship or form ula m ight b e defined.
• P iv o t: A pivot is a m eans o f changing the dim ensional orientation o f a rep ort or
ad h o c query-page display.

VARIATIO NS OF O LA P OLAP has a few variations; am ong them ROLAP, MOLAP, and
HOLAP are the m ost com m on ones.
ROLAP stands fo r R elational O nline Analytical P rocessing. ROLAP is an alternative
to the MOLAP (M ultidim ensional OLAP) technology. Although b o th ROLAP and MOLAP
analytic to ols are d esig n ed to allow analysis o f data through the use o f a m ultidim ensional
data m odel, ROLAP differs significantly in that it d oes n o t require the precom putation
. nd storage o f inform ation. Instead, ROLAP tools a cce ss the data in a relational d atabase
and generate SQL q u eries to calculate inform ation at the appropriate level w h e n an end
user requests it. W ith ROLAP, it is p ossible to create additional d atabase tables (sum m ary
tables o r aggregations) that sum m arize the data at any desired com bination o f dim ensions.
W hile ROLAP uses a relational d atabase sou rce, generally the d atabase m ust b e carefully
designed fo r ROLAP use. A d atabase that w as designed for OLTP will n ot function w ell as
a ROLAP database. T h erefore, ROLAP still involves creating an additional c o p y o f th e data.
142 Part II • Descriptive Analytics

MOLAP is an alternative to the ROLAP technology. MOLAP differs from ROLAP


significantly in that it requires the precom putation and storage o f inform ation in the
cu b e— th e op eration know n as p reprocessing. MOLAP stores this data in an optim ized
m ultidim ensional array storage, rather than in a relational d atabase (w h ich is often the
ca se fo r ROLAP).
T h e undesirable trad e-off b etw een ROLAP and MOLAP w ith regards to the addi­
tional ETL (extract, transform , and load ) cost and slow query perform ance has led to
inquiries for b etter approaches w h ere the p ros and co n s o f th ese tw o ap p roach es are
optim ized. T h ese inquiries resulted in HOLAP (H ybrid O nline Analytical Processing),
w h ich is a com bination o f ROLAP and MOLAP. HOLAP allow s storing part o f the data in
a MOLAP store and another part o f the data in a ROLAP store. T h e degree o f control that
th e cu b e designer has ov er this partitioning varies from product to product. T ech n ology
Insights 3-2 provides an opportunity fo r cond u ctin g a sim ple han d s-on analysis w ith the
M icroStrategy B I tool.

T EC H N O LO G Y IN SIG HTS 3 .2 H an d s-O n D a ta W are h o u sin g


w ith M icro S tra te g y

MicroStrategy is the leading independent provider of business intelligence, data warehousing


performance management, and business reporting solutions. The other big players in this market
were recently acquired by large IT firms: Hyperion was acquired by Oracle; Cognos was acquired
by IBM; and Business Objects was acquired by SAP. Despite these recent acquisitions, the busi­
ness intelligence and data warehousing market remains active, vibrant, and full of opportunities.
Following is a step-by-step approach to using MicroStrategy software to analyze a hypo­
thetical business situation. A more comprehensive version o f this hands-on exercise can be
found at the TUN Web site. According to this hypothetical scenario, you (the vice president of
sales at a global telecommunications company) are planning a business visit to the European
region. Before, meeting with the regional salespeople on Monday, yon want to know the sale
representatives' activities for the last quarter (Quarter 4 of 2004). You are to create such an
ad hoc report using MicroStrategy’s Web access. In order to create this and many other OLAP
reports, you will need the access code for the T e ra d a ta U n iv e rs ity N e tw o rk .c o m Web site. It
is free of charge for educational use and only your professor will be able to get die necessary
access code for you to utilize not only MicroStrategy software but also a large collection o f other
business intelligence resources at this site.
Once you are in TeradataLiniversityNetwork, you need to go to ' APPLY & DO” and select
“MicroStrategy BI” from the “Software” section. On the “MicroStrategy/BI” Web page, follow
these steps:

1. Click on the link for “MicroStrategy Application Modules.” This will lead you to a page that
shows a list o f previously built MicroStrategy applications.
2. Select the “Sales Force Analysis Module.” This module is designed to provide you with in-
depth insight into the entire sales process. This insight in turn allows you to increase lead
conversions, optimize product lines, take advantage o f your organization’s most successful
sales practices, and improve your sales organization’s effectiveness.
3. In the “Sales Force Analysis Module” site you will see three sections: View, Create, and
Tolls. In the View section, click on the link for “Shared Reports.” This link will take you to
a place where a number o f previously created sales reports are listed for everybody’s use.
4. In the “Shared Reports” page, click on the folder named “Pipeline Analysis.” Pipeline
Analysis reports provide insight into all open opportunities and deals in the sales pipeline.
These reports measure the current status of the sales pipeline, detect changing trends and
key events, and identify key open opportunities. You want to review what is in the pipe­
line for each sales rep, as well as whether or not they hit their sales quota last quarter.
5- In the “Pipeline Analysis" page, click on the report named “Current Pipeline vs. Quota by
Sales Region and District.” This report presents the current pipeline status for each sales
Chapter 3 • Data W arehousing 14 3

district within a sales region. It also projects whether target quotas can be achieved for the
current quarter.
6. In the “Current Pipeline vs. Quota by Sales Region and District” page, select (with single
click) “2004 Q4” as the report parameter, indicating that you want to see how the repre­
sentatives performed against their quotas for the last quarter.
7- Run the report by clicking on the “Run Report” button at the bottom o f the page. This will
lead you to a sales report page where the values for each Metric are calculated for all three
European sales regions. In this interactive report, you can easily change the region from
Europe to United States or Canada using the pull-down combo box, or you can drill-in
one o f the three European regions by simply clicking on the appropriate region’s heading
to see more detailed analysis o f the selected region.

SECTION 3 .6 REVIEW QUESTIONS


1 . List the b en efits o f data w arehouses.
2 . List several criteria for selectin g a data w arehou se vendor, and describe w h y they are
im poitant.
3 . W hat is OLAP and how d oes it differ from OLTP?
4 . W hat is a cube? W hat d o drill dow n, roll up, and slice and d ice mean?
5 . W hat are ROLAP, MOLAP, and HOLAP? H ow do they differ from OLAP?

3.7 DATA WAREHOUSING IMPLEMENTATION ISSUES


Im plem enting a data w areh o u se is generally a m assive effort that m ust b e planned and
execu ted accord in g to established m ethods. H ow ever, the p roject life cy cle has m any
facets, and n o single person ca n b e an exp ert in ea ch area. H ere w e discuss sp ecific ideas
and issues as th ey relate to data w arehousing.
P eo p le w an t to know h o w successful their B I and data w arehousin g initiatives
are in com p arison to th o se o f oth er com panies. Ariyachandra and W atson (2 0 0 6 a ) pro­
p o sed som e b enchm arks fo r B I and data w arehousing su ccess. W atson e t al. (1 9 9 9 )
researched data w arehouse failures. T h eir results sh ow ed that p e o p le defin e a “failure” in
different w ays, an d this w as confirm ed by Ariyachandra and W atson (2 0 0 6 a ). T h e Data
W arehousing Institute (td w i.o rg ) has d ev eloped a data w arehousing m aturity m odel
that an enterprise can apply in order to b en ch m ark its evolution. T h e m odel offers a fast
m eans to gauge w h ere the organization’s data w arehousing initiative is n o w and w h ere
it need s to g o n ext. T h e m aturity m odel consists o f six stages: prenatal, infant, child,
teenager, adult, and sage. B u sin ess value rises as the data w areh o u se p rog resses through
e ach su cceed in g stage. T h e stages are identified by a n u m ber o f characteristics, including
sco p e, analytic structure, execu tiv e perceptions, types o f analytics, stew ardship, funding,
technolog y platform , ch an g e m anagem ent, and adm inistration. S e e E ckerson e t al. (2 0 0 9 )
and E ck erso n (2 0 0 3 ) for m o re details.
D ata w areh o u se projects have m any risks. M ost o f them are also fou nd in oth er IT
projects, but data w arehousing risks are m ore serious b eca u se data w areh o u ses are e x p e n ­
sive, tim e-and -resou rce dem anding, large-scale projects. E ach risk should b e assessed at
the incep tion o f the project. W h en d ev eloping a successful data w arehouse, it is im portant
to carefully co n sid er various risks and avoid th e follow ing issues:

• S ta r tin g w ith th e w r o n g s p o n s o r s h ip c h a in . Y ou n eed an execu tiv e sponsor


w h o has in flu en ce ov er the n ecessary resou rces to support and invest in th e data
w areh o u se. Y ou also n e e d an execu tiv e p ro ject driver, so m eo n e w h o has earned
144 Part II • Descriptive Analytics

the resp ect o f oth er execu tiv es, has a healthy skepticism ab ou t technology, and is
decisive but flexible. Y o u also n eed an IS/IT m anager to h ead up the project.
• Setting expectations that y o u ca n n o t m eet. Y o u d o not w ant to frustrate e x e c ­
utives at th e m om en t o f truth. Every data w arehousing p ro ject has tw o phases:
P h ase 1 is th e selling phase, in w h ich y ou internally m arket the project b y selling
the ben efits to th o se w h o have a cce ss to n e ed ed resources. P hase 2 is the struggle to
m e e t th e exp ectation s d escribed in P h a se 1. F o r a m ere $1 to $7 million, hopefully,
you ca n deliver.
• E n g a g in g in politically n a iv e behavior. D o n ot sim ply state that a data w are­
h ou se w ill help m anagers m ake b etter d ecisio ns. T his m ay im ply that y ou feel they
have b e e n m aking bad d ecisions until now . Sell th e idea that th ey will b e ab le to get
th e inform ation they n e e d to help in d ecisio n m aking.
• L o a d in g the w arehouse with in fo rm a tio n ju s t b eca u se it is available. D o
n ot let the data w arehou se b eco m e a data landfill. This w ould unnecessarily slow
th e use o f th e system . T h ere is a trend tow ard real-tim e com puting and analysis.
D ata w areho u ses m ust b e shut d ow n to load data in a tim ely way.
• B eliev in g that data w a reh o u sin g datab ase d esign is the sa m e as tra n sa c­
tional database design. In general, it is not. T h e goal o f data w arehousing is to
a cce ss aggregates rather th an a single o r a few record s, as in transaction-processing
system s. C ontent is also different, as is evid en t in h ow data are organized. DBMS
tend to b e nonredundant, norm alized, an d relational, w hereas data w arehouses are
redundant, n ot norm alized, and m ultidim ensional.
9 Choosing a data w arehouse m a n a g e r who is technology o rien ted ra th er
th a n u s e r oriented. O n e k e y to data w areh o u se su ccess is to understand that the
users m ust g et w h at they need , n o t ad vanced tech nolog y for tech n olog y ’s sake.
• F o cu sin g o n traditiona l in te rn a l record-oriented d a ta a n d ig n o rin g the
v a lu e o f ex tern a l data a n d o f text, im ages, a n d , p erh a p s, s o u n d a n d
video. Data co m e in m any form ats an d must b e m ade accessib le to the right p e o ­
ple at the right tim e and in the right form at. T h ey must b e cataloged properly.
• D eliv erin g data with overlapping a n d co n fu s in g d efin itio n s. D ata clean s­
ing is a critical asp ect o f data w arehousing. It includes recon cilin g conflicting data
definitions and form ats organization-w ide. Politically, this m ay b e difficult b ecau se
it involves chan ge, typically at the execu tiv e level.
• B elieving pro m ises o f p erfo rm a n ce, capacity, a n d scalability. Data w are­
h ou ses generally require m ore capacity and sp eed than is originally bud geted for.
Plan ahead to scale up.
• B elieving that y o u r problem s a re over w hen the data w arehouse is u p a n d
r u n n in g .DSS/BI projects tend to evolve continually. Each deploym ent is an iteration
o f the prototyping process. There will always b e a n eed to add m ore and different data
sets to the data w arehouse, as well as additional analytic tools for existing and addi­
tional groups o f decision makers. High energy and annual budgets must b e planned for
b ecau se success breeds success. Data w arehousing is a continuous process.
• F o cu sin g o n a d hoc data m in in g a n d p erio d ic rep o rtin g in stea d o f
alerts. T h e natural progression o f inform ation in a data w arehou se is (D extract
the data from leg acy system s, clean se them , and feed them to th e w arehouse; (2)
support ad h o c reporting until you learn w hat p eo p le w ant; and (3 ) convert the ad
h o c reports into regularly schedu led reports. This p ro cess o f learning w h at p eo p le
w an t in order to provide it seem s natural, b u t it is n ot optim al o r ev en practical.
M anagers are busy and n eed tim e to read reports. Alert system s are b etter than
period ic reporting system s and can m ake a data w arehou se m ission critical. Alert
system s m onitor the data flow ing into th e w arehou se and inform all k ey p eo p le w h o
have a n eed to k n o w as so o n as a critical event occurs.
Chapter 3 • Data W arehousing 145

In m any organizations, a data w areh ouse will b e successful only if there is strong
sen ior m anagem ent su p p ort fo r its d evelopm en t and if th ere is a project ch am p ion w ho
is high up in the organizational chart. Although this w ould likely b e true lor an y large-
scale IT project, it is esp ecially im portant for a data w areh ou se realization. T h e successful
im plem entation o f a data w areh o u se results in the establishm ent o f an architectural fram e­
w ork that m ay allowr fo r d ecisio n analysis throughout an organization and in so m e cases
also provides com p reh en sive SCM b y granting a cce ss to inform ation o n an organization s
custom ers and suppliers. T h e im plem entation o f W e b -b a sed data w areh o u ses (som etim es
called W ebhousing ) h as facilitated e a se o f access to vast am ounts o f data, but it is dif­
ficult to d eterm ine th e hard benefits associated with a data w arehouse. Hard b en efits are
d efined as benefits to an organization that ca n b e exp ressed in m onetary term s. Many
organizations have lim ited IT resources and m ust prioritize projects. M anagem ent support
and a strong p ro ject ch am p ion ca n h elp ensure that a data w arehouse project w ill receive
the resources necessary for successful im plem entation. D ata w areh ouse resou rces can
b e a significant cost, in som e ca ses requiring high-end p ro cessors and large in creases in
d irect-access storage d evices (DA SD). W eb -b a sed data w areho u ses m ay also have special
security requirem ents to ensure that only authorized users have a cce ss to the data.
U ser participation in the developm en t o f data and access m odeling is a critical suc­
cess facto r in data w arehouse developm ent. During data m odeling, expertise is required
ro determ ine w hat data are n eed ed , d efine busin ess rules associated with the data, and
decide w hat aggregations and oth er calculations m ay b e necessary. A ccess m od elin g is
n eed ed to d eterm ine h o w data are to b e retrieved from a data w arehouse, and it assists in
± e physical definition o f the w arehou se b y helping to define w h ich data require index­
ing. It m ay also indicate w h eth er d ep en d en t data m arts are n eed ed to facilitate inform a­
tion retrieval. T h e team skills n e ed ed to d evelop and im plem ent a data w areh o u se include
in-depth know led ge o f th e d atabase technolog y and developm en t to o ls used. Sou rce sys­
tems and d ev elop m en t tech n olog y , as m en tioned previously, referen ce the m any inputs
and the p ro cesses u sed to load and m aintain a data w arehouse.
A pplication C ase 3.6 presen ts an exce lle n t exam p le for a large-scale im plem entation
o f an integrated data w areh ou se b y a state governm ent.

Application Case 3.6


E D W Helps C onnect S tate Agencies in M ichigan
T hrough cu stom er service, resource optim ization, p er y ear w ithin the D ep artm ent o f H um an Services
and the innovative use o f inform ation and tech ­ (D H S). T h e se savings in clu d e program integrity b e n ­
nology, th e M ichigan D epartm ent o f T ech nology, efits, co st avoid ance due to im proved ou tcom es,
M anagem ent & B ud get (D T M B ) im pacts every sanction avoid ance, op eration al efficien cies, and
area o f governm ent. N early 10,000 users in five the recov ery o f inappropriate paym ents w ithin its
m ajor departm ents, 2 0 ag en cies, and m ore than M edicaid program.
100 bureaus rely on th e ED W to d o their jo b s m ore T h e M ichigan DH S data w areh ouse (D W ) pro­
effectively and b etter serve M ichigan residents. T h e vides unique and innovative inform ation critical to
EDW ach iev es $1 m illion p er busin ess day in fin an­ th e efficien t op eration o f th e agency from b oth a
cial benefits. strategic an d tactical level. O ver the last 10 years,
T h e ED W h elp ed M ichigan ach iev e $ 200 m illion the DW has yielded a 15:1 cost-effectiv eness ratio.
in annual financial benefits w ithin the D epartm ent o f C onsolidated inform ation from th e D W n ow co n ­
Community H ealth a lon e, plus another $75 m illion tributes to nearly every fu nction o f DHS, including
( C ontinued )
14 6 Part II • Descriptive Analytics

Application Case 3.6 (Continued)


accu rate delivery o f and accou nting for benefits Q u e s t io n s f o r D is c u s s io n
d elivered to alm ost 2.5 m illion DHS pu blic assis­ 1. W hy w ould a state invest in a large and ex p e n ­
tan ce clients. sive IT infrastructure (su ch as an EDW)?
M ichigan has b ee n am bitious in its attem pts to 2. W hat are the size and com plexity o f ED W used
solve real-life problem s through the innovative shar­ by state a g en cies in Michigan?
ing and com prehen sive analyses o f data. Its approach
3. W hat w ere the challen g es, the proposed solu ­
to BI/DW has alw ays b e e n “enterprise” (statew ide) in
tion, and th e ob tain ed results o f th e EDW?
nature, rather than having separate BI/DW platforms
for each busin ess area or state agency. B y rem ov­ Source: Compiled from TDWI Best Practices Awards 2012 Winner,
ing barriers to sharing enterprise data across business Enterprise Data Warehousing, Government and Non-Profit:
units, M ichigan has leveraged m assive am ounts o f Category, “Michigan Departments of Technology, Management
data to create innovative approaches to the use o f & Budget (DTMB), Community Health (DCH), and Human
Services (DHS),’’ featured in TDWI What Works, Vol. 34, p. 22;
BI/DW, delivering efficient, reliable enterprise solu­
and michigan.michigan.gov.
tions using m ultiple channels.

M assive Data W arehouses and S c a la b ility


In addition to flexibility, a data w arehou se need s to support scalability. T h e m ain issues
pertaining to scalability are the am ount o f data in th e w areh ou se, h ow quickly the w are­
h o u se is exp ected to grow , th e nu m ber o f con cu rren t users, and the com plexity o f user
queries. A data w arehou se must scale b o th horizontally and vertically. T h e w areh ou se will
grow as a function o f data grow th and th e n eed to e x p a n d the w areh o u se to support new
b u sin ess functionality. Data grow th m ay b e a result o f th e addition o f current cy cle data
(e .g ., this m onth’s results) and/or historical data.
H icks (2 0 0 1 ) d escribed hu ge d atabases and data w arehouses. W alm art is continually
increasing the size o f its m assive data w arehouse. W alm art is b eliev ed to u se a w arehouse
w ith hundreds o f terabytes o f data to study sales trends, track inventoiy, and perform
oth er tasks. IBM recently pu blicized its 50-terabyte w areh o u se benchm ark (IBM , 2009).
T h e U.S. D epartm ent o f D efen se is using a 5-petabyte data w arehouse and repository to
hold m edical records for 9 m illion military person nel. B eca u se o f the storage required to
archive its new s footage, CNN also has a petabyte-sized data w arehouse.
G iven that the size o f data w arehouses is expan ding at an exp o n en tial rate, scalabil­
ity is an im portant issue. G oo d scalability m eans that q u eries and oth er d ata-access func­
tions will grow (ideally) linearly w ith the size o f the w arehouse. S e e R osen berg (2 0 0 6 ) for
approaches to im prove q uery perform ance. In practice, sp ecialized m ethods have b ee n
d eveloped to create scalab le data w arehouses. Scalability is difficult w h en m anaging hun­
dreds o f terabytes or m ore. T erabytes o f data have con sid erab le inertia, o ccu p y a lot o f
physical sp ace, and require pow erful com puters. Som e firms u se parallel processing, and
others use clev er indexing and search sch em es to m an age their data. Som e spread their
data across different physical data stores. As m ore data w areh ouses approach the petabyte
size, b etter and b etter solutions to scalability con tin u e to b e developed.
Hall (2 0 0 2 ) also addressed scalability issues. AT&T is an industry lead er in deploy­
ing and using m assive data w arehouses. W ith its 26-terabyte data w arehouse, AT&T can
d etect fraudulent u se o f calling cards and investigate calls related to kidnappings and
other crim es. It ca n also com pute m illions o f call-in votes from television view ers select­
ing the next A m erican Idol.
Chapter 3 * Data W arehousing 14 7

F o r a sam ple o f su ccessfu l data w arehousing im plem entation s, s e e Edw ards (2 0 0 3 ).


Ju k ic and Lang (2 0 0 4 ) exam ined the trends and sp ecific issues related to th e use o f off­
shore resou rces in the d ev elop m en t and supp ort o f data w areho u sing an d B I applica­
tions. D avison (2 0 0 3 ) indicated that IT-related offsh ore ou tsou rcin g had b e e n grow ing
at 20 to 25 p e rce n t p e r year. W hen consid ering offshoring data w areh o u sin g projects,
careful con sid eratio n must b e given to culture and security (fo r details, s e e Ju k ic and
Lang, 2004).

SECTION 3 .7 REVIEW QUESTIONS


X. W hat are th e m ajor D W im plem entation tasks that ca n b e perform ed in parallel?
2 . List and d iscuss th e m ost p ro n ou n ced D W im plem entation guidelines.
3. W hen d ev elop in g a successful data w arehou se, w hat are th e m ost im portant risks and
issues to co n sid er and potentially avoid?
4 . W hat is scalability? Howr d oes it apply to DW?

3.8 REAL-TIME DATA WAREHOUSING


Data w arehousing and B I tools traditionally focu s o n assisting m anagers in m aking stra­
tegic and tactical decisions. In creased data volu m es and accelerating up date speed s are
fundam entally ch an gin g the role o f th e data w areh ou se in m o d em business. For m any
businesses, m aking fast and consisten t d ecisions across the enterprise requ ires m ore than
a traditional data w areh o u se or data mart. Traditional data w areh o u ses are not busi­
ness critical. Data are com m on ly updated o n a w eek ly basis, and this d oes n o t allow for
responding to transactions in n ear-real-tim e.
M ore data, com ing in faster and requiring im m ediate con v ersion in to decisions,
m eans that organizations are confronting th e n e e d fo r real-tim e data w arehousing. This
is b ecau se d ecisio n support has b eco m e operational, integrated BI requires closed -loop
analytics, and yesterd ay’s O D S will n ot support existing requirem ents.
In 2003, w ith the advent o f real-tim e data w arehousing, there w as a shift tow ard
using these tech n olog ies for operational decisions. Real-tim e d ata w areh o u sin g
(RDW), also k n ow n as active d ata w areh o u sin g (ADW), is the p ro cess o f loading
and providing data via the data w arehou se as they b eco m e available. It evolved from
the ED W con cep t. T h e active traits o f an RDW/ADW supp lem ent and exp an d traditional
data w arehou se functions into the realm o f tactical d ecisio n m aking. P eo p le throughout
the organization w h o interact directly w ith custom ers and suppliers will b e em pow ered
w ith inform ation-based d ecisio n m aking at their fingertips. Even further leverage results
w h en a n A D W provides inform ation directly to custom ers and suppliers. T h e reach and
im pact o f inform ation access for d ecisio n m aking ca n positively affect alm ost all aspects
o f cu stom er service, SCM, logistics, and beyond. E-business has b eco m e a m ajor catalyst
in the dem and fo r active data w arehousing (s e e Armstrong, 2000). For exam p le, online
retailer O verstock .co m , Inc. (o v ersto ck .co m ) co n n ecte d data users to a real-tim e data
w arehouse. At Egg pic, the w orld ’s largest purely online bank, a cu stom er data w arehouse
is refreshed in n ear-real-tim e. See A pplication Case 3.7.
As b u sin ess n eed s evolve, so d o the requirem ents o f the data w areh ou se. At this
basic level, a data w arehou se sim ply reports w hat h ap p ened . At th e n ext level, som e
analysis occurs. As the system evolves, it provides pred iction capabilities, w h ich lead
to the n ext lev el o f operationalization. At its highest evolution, the A D W is cap ab le o f
= ak in g events h a p p e n (e .g ., activities such as creating sales and m arketing cam paigns or
identifying and exp loitin g opportunities). S e e Figure 3 .1 2 for a graphic description o f this
■rolutionary p ro cess. A recen t survey o n m anaging evolution o f data w areh o u ses ca n b e
fro n d in W rem b el (2 0 0 9 ).
148 Part II • Descriptive Analytics

Application Case 3.7


Egg Pic Fries th e C om petition in N ear Real Time
E gg p ic, n o w a part o f Y orkshire Building Society using n e a r-re a l-tim e data (w ithin several m inutes).
(e g g .c o m ) is th e w orld ’s largest o n lin e b an k . It pro­ And better, th e system en a b les faster d ecisio n m ak­
vides banking, insurance, investm ents, and m ort­ ing a b o u t sp ecific cu stom ers and cu stom er classes.
g ag es to m o re th an 3-6 m illion cu stom ers through its
Internet site. In 1998, Egg selected Sun M icrosystem s Q u e s t io n s f o r D is c u s s io n
to create a reliable, scalab le, secu re infrastructure to 1. W hy kind o f b u sin ess is Egg p ic in? W hat is the
supp ort its m o re than 2.5 m illion daily transactions. com petitive landscape?
In 2001, th e system w as up graded to elim inate 2. H ow did Egg p ic u se near-real-tim e data w are­
laten cy p roblem s. Th is n e w cu stom er data w are­ hou sing for com petitive advantage?
h o u se (C D W ) u se d Sun, O ra cle, an d SAS softw are
products. T h e initial data w areh o u se had ab ou t 10 Sources: Compiled from “Egg's Customer Data Warehouse Hits the
terabytes o f data and used a 16-CPU server. T h e sys­ Mark," DM Review, Vol. 15, No. 10, October 2005, pp. 24-28; Sun
tem provides n e a r-re a l-tim e data a ccess. It provides Microsystems, ‘‘Egg Banks on Sun to Hit the Mark with Customers,”
September 19, 2005, sun.com/smi/Press/sunflash/2005-09/
data w areh o u se and data m ining services to inter­
sunflash.20050919.1 .xml (accessed April 2006); and ZD Net UK,
n al users, and it provides a requisite set o f cus­ "Sun Case Study: Egg’s Customer Data Warehouse," whitepapers.
to m er data to th e custom ers them selves. H undreds zdnet.co.u k/ 0,3 9 0 2 5 9 4 5 ,6 0 1 5 9 4 0 1 p -3 9 0 0 0 4 4 9 q ,0 0 .h tm
o f sales and m arketing cam paigns are constructed (accessed June 2009).

Enterprise Decisioning
Management

Real-Time Decisioning ACTIVATING


Applications MAKE it happen!

OPERATIONALIZING
W HAT IS
happening now?

a,
Es
Q Event-Based
u
£ Triggering Takes Hold
ra
Tf53 Continuous
O Update and Time-
Sensitive Queries
Become
Important

H Batch
ES Ad Hoc
Primarily H Analytics
Batch and
□ Continuous Update/Short Queries
Some Ad Hoc
Reports ■ Event-Based Triggering

D a ta Sophistication

FIGURE 3 .12 Enterprise Decision Evolution. Source: Courtesy of Teradata Corporation. Used with permission.
Chapter 3 • Data W arehousing 14 9

Actiue Access Actiue Workload


Front-Line operational Management
decisions or services Dynamically manage system
supported by NRT access; resources for optimum
Service Level Agreements of performance and resource
5 seconds or less utilization supporting a
mixed-workload environment
Actiue Load
Intra-day data acquisition; Actiue Enterprise
Mini-batch to near-real-time Integration
(NRT) trickle data feeds Integration into the
measured in minutes or Enterprise Architecture for
seconds delivery of intelligent
decisioning services
Actiue Events
Proactive monitoring of Actiue Auailability
business activity initiating Business Continuity to
intelligent actions based on support the requirements of
rules and context; to the business
systems or users supporting Many (up to 7 x 2 4 ]
Product Marketina
an operational business
process

FIGURE 3.13 The Teradata Active EDW. Source: Courtesy of Teradata Corporation. Used with permission.

Teradata Corporation provides the b aselin e requirem ents to support a n EDW'. It also
provides the n ew traits o f active data w arehousing required to deliver data freshness, per­
form ance, and availability and to e n a b le enterprise d ecisio n m anagem ent (s e e Figure 3.13
for an exam p le).
An ADW offers an integrated inform ation repository to drive strategic and tactical
decision supp ort within an organization. W ith real-tim e data w arehousing, instead o f
extracting op eration al data from an OLTP system in nightly b atch es into a n O D S, data
are assem bled from OLTP system s as and w h en events h ap p en and are m oved at o n ce
into th e data w arehouse. This perm its the instant updating o f the data w areh o u se and the
elim ination o f a n O D S. At this point, tactical and strategic queries ca n b e m ad e against the
RDW to u se im m ediate as w ell as historical data.
A ccording to B asu (2 0 0 3 ), the m ost distinctive difference b etw een a traditional data
w arehouse an d an RDW is the shift in the data acquisition paradigm. Som e o f th e busi­
ness cases an d enterprise requirem ents that led to the n eed for data in real tim e include
die follow ing:

• A busin ess often can n o t afford to wait a w h ole day fo r its op erational data to load
into the data w areh o u se fo r analysis.
• Until n ow , data w areho u ses have captured snapshots o f an organization’s fixed
states instead o f increm ental real-tim e data show ing every state ch a n g e and alm ost
analogou s patterns ov er time.
• W ith a traditional hu b-an d-sp oke architecture, k eep in g the m etadata in sy n c is dif­
ficult. It is also costly to develop, m aintain, and secu re m any system s as op p osed to
o n e hu ge data w arehou se so that data are centralized for BI/BA tools.
• In cases o f hu ge nightly b a tch loads, th e n ecessary ETL setup and p ro cessin g po w er
for large nightly data w areh o u se loading m ight b e very high, and the p ro cesses
m ight tak e to o long. An EAI w ith real-tim e data collection ca n red u ce o r elim inate
the nightly batch processes.
150 Part II • Descriptive Analytics

D espite the ben efits o f an RDW , d eveloping o n e c a n create its ow n set o f issues.
T h e se problem s relate to architecture, data m odeling, physical d atabase design, storage
and scalability, and maintainability. In addition, d ep end in g on exactly w h en data are
accessed , e v e n dow n to the m icrosecond , different versions o f the truth may b e extracted
and created, w h ich ca n con fu se team m em bers. For details, refer to Basu (2 0 0 3 ) and Terr
(2 0 0 4 ).
Real-tim e solutions presen t a rem arkable set o f ch allen g es to B I activities. Although
it is n o t ideal for all solutions, real-tim e data w arehousing m ay b e successful if the organi­
zation d ev elops a sou nd m ethod ology to hand le p ro ject risks, incorporate proper plan­
ning, and focus o n quality assurance activities. U nderstanding the com m on challenges
and applying b est practices ca n red u ce the exten t o f the p roblem s that are often a part
o f im plem enting co m p lex data w arehousing system s that incorporate BI/BA m ethods.
D etails and real im plem entations are discussed by B u rd ett and Singh (2 0 0 4 ) and W ilk
(2 0 0 3 ). A lso see A kbay (2 0 0 6 ) and Ericson (2 0 0 6 ).
S ee T ech n o lo g y Insights 3-3 for som e details o n h o w th e real-tim e co n c ep t evolved.
T h e flight m an agem ent dashboard application at Continental Airlines (s e e th e End-of-
C hapter A pplication C ase) illustrates the p o w er o f real-tim e B I in accessin g a data w are­
h o u se fo r use in fa ce-to -fa ce cu stom er interaction situations. T h e op erations staff u ses the
real-tim e system to identify issues in the C ontinental flight netw ork. As another exam ple.
UPS invested $600 m illion so it could use real-tim e data an d p rocesses. T h e investm ent
w as e x p ected to cut 100 m illion delivery m iles and save 14 m illion gallons o f fuel annu­
ally b y m anaging its real-tim e p ack ag e-flow tech n olog ies (s e e M alykhina, 2003). T a b le 3.6
com pares traditional and active data w arehousing environm ents.
Real-tim e d a ta warehousing, near-real-tim e d a ta warehousing, zero-latency w are­
housing, and active d a ta w arehousing are different n am es u sed in practice to describe
th e sam e concep t. G on zales (2 0 0 5 ) presented different definitions for ADW . A ccording
to G onzales, ADW is on ly o n e op tion that provides b len d ed tactical and strategic data on
dem and. T h e architecture to build an ADW is very sim ilar to the corporate inform ation
factory architecture d ev elop ed by Bill Inm on. T h e only d ifferen ce b etw een a corporate
inform ation factory and an AD W is th e im plem entation o f b o th data stores in a single

TEC H N O LO G Y IN SIG HTS 3 .3 T h e R eal-T im e R e alities o f A ctive


D a ta W a re h o u sin g

By 2003, the role o f data warehousing in practice was growing rapidly. Real-time systems, though
a novelty, were the latest buzz, along with the major complications o f providing data and infor­
mation instantaneously to those who need them. Many experts, including Peter Coffee, eW eek's
technology editor, believe that real-time systems must feed a real-time decision-making process.
Stephen Brobst, CTO of the Teradata division o f NCR, indicated that active data warehousing is a
process of evolution in how an enterprise uses data. A ctive means that the data warehouse is also
used as an operational and tactical tool. Brobst provided a five-stage model that fits Coffee’s
experience (2003) o f how organizations “grow” in their data utilization (see Brobst et al., 2005).
These stages (and the questions they purport to answer) are reporting (What happened?), analysis
(Why did it happen?), prediction (What will happen?), operationalizing (What is happening?), and
active warehousing (What do I want to happen?). The last stage, active warehousing, is where the
greatest benefits may be obtained. Many organizations are enhancing centralized data warehouses
to serve both operational and strategic decision making.
Sources.- Adapted from P. Coffee, “'Active’ Warehousing,” eWeek, Vol. 20, No. 25, June 23, 2003, p. 36; and
Teradata Corp., “Active Data Warehousing,” te r a d a ta .c o m / a c tiv e - d a ta - w a r e h o u s in g / (accessed August 2013).
Chapter 3 • Data Warehousing 151

T A B L E 3.6 Comparison Betw een Traditional and Active Data W arehousing Environm ents

Traditional Data W a reh o u se Environm ent Active Data W areh o u se Environm ent

Strategic decisions only Strategic and tactical decisions

Results sometimes hard to measure Results measured with operations


Only comprehensive detailed data available
Daily, weekly, monthly data currency
acceptable; summaries often appropriate within minutes is acceptable

Moderate user concurrency High number (1,000 or more) of users


accessing and querying the system
simultaneously

Highly restrictive reporting used to confirm Flexible ad hoc reporting, as well as


or check existing processes and patterns; machine-assisted modeling (e.g., data
often uses predeveloped summary tables mining) to discover new hypotheses
or data marts and relationships

Power users, knowledge workers, internal Operational staffs, call centers, external users
users
Sources: Adapted from P. Coffee, “’Active' Warehousing,” eWeek, Vol. 20, No. 25, June 23, 2003, p. 36; and
Teradata Corp., “Active Data Warehousing," t e r a d a t a .c o m / a c t i v e - d a t a - w a r e h o u s i n g / (accessed August 2013).

environm ent. H ow ever, an SOA b ased o n XML and W eb services provides an oth er op tion
for blend ing tactical and strategic data o n dem and.
O n e critical issue in real-tim e data w arehousing is that n ot all data should b e updated
continuously. This m ay certainly cau se problem s w h en re p o n s are gen erated in real time,
b ecau se o n e p e rso n ’s results m ay not m atch an oth er p erson ’s. For exam p le, a com pany
using B u siness O b jects W eb Intelligence n oticed a significant p ro blem w ith real-tim e
intelligence. R eal-tim e reports produ ced at slightly different tim es differ (s e e Peterson,
2003). Also, it m ay n ot b e n ecessary to update certain data continuously (e .g ., cou rse
grades that are 3 o r m o re years old).
R eal-tim e requ irem ents ch an g e the w ay w e view the design o f d atabases, data w are­
houses, OLAP, an d data m ining tools b eca u se they are literally updated concurrently
w hile queries are active. But the substantial busin ess value in doing so has b e e n d em on­
strated, so it is cru cial that organizations adopt th ese m ethods in their b u sin ess processes.
Careful planning is critical in su ch im plem entations.

SECTION 3 .8 REVIEW QUESTIONS

1 . W hat is an RDW?
2. List the b en efits o f an RDW.
3. W hat are th e m ajor d ifferences b etw een a traditional data w arehou se an d a n RDW?
4. List so m e o f the drivers for RDW.

3.9 DATA WAREHOUSE ADMINISTRATION, SECURITY ISSUES,


AND FUTURE TRENDS
Data w arehouses provide a distinct com petitive ed ge to enterprises that effectively cre­
ate and use them . D u e to its huge size and its intrinsic nature, a data w areh o u se requires
especially strong m onitoring in order to sustain satisfactory efficiency and productivity.
The successful adm inistration and m anagem ent o f a data w arehouse entails skills and
proficiency that g o past w hat is required o f a traditional d atabase adm inistrator (D BA ).
152 Part II • Descriptive Analytics

A data w arehouse adm inistrator (DWA) should b e fam iliar w ith high-perform ance
softw are, hardw are, and netw orking technolog ies. H e o r she should also p o ssess solid
business insight. B eca u se data w areh o u ses fe e d B l system s and DSS that h elp m anag­
ers w ith their d ecision-m aking activities, the DWA shou ld b e fam iliar w ith the decision­
m aking p ro cesses so as to suitably design and m aintain th e data w arehouse structure. It is
particularly significant for a DWA to k e e p the existing requ irem ents and capabilities o f the
data w areh o u se stable w h ile sim ultaneously providing flexibility for rapid im provem ents.
Finally, a DWA m ust-possess excellen t com m unications skills. S e e B en an d er et al. (2 0 0 0 )
for a d escription o f the key d ifferences b etw een a DBA and a DWA.
Security and privacy o f inform ation are m ain and significant con cern s for a data w are­
hou se professional. T h e U.S. governm ent has passed regulations (e.g ., the Gram m -Leach-
Bliley privacy and safeguards rules, the H ealth Insurance Portability and Accountability
Act o f 1996 [HIPAA]), instituting obligatory requirem ents in the m anagem ent o f custom er
inform ation. H ence, com panies must create security proced u res that are effective y et flex­
ible to conform to num erous privacy regulations. A ccording to Elson and LeClerc (2005),
effective security in a data w arehouse should focus o n fo u r m ain areas:

1 . Establishing effective corporate and security p o licies and procedures. An effective


security p o licy should start at the top, w ith execu tiv e m anagem ent, and should b e
com m unicated to all individuals within the organization.
2 . Im plem enting logical security proced ures and tech n iqu es to restrict access. This
inclu des u ser authentication, a cce ss controls, and encryption technology.
3 . Limiting physical a cce ss to th e data cen ter environm ent.
4 . Establishing a n effective internal control review' p ro cess w ith an em phasis o n security
and privacy.

S e e T ech n o lo g y Insights 3.4 for a d escription o f A m beo’s im portant softw are tool
that m onitors security and privacy o f data w arehou ses. Finally, k e e p in mind that a cce ss­
ing a data w arehou se via a m obile d ev ice should alw ays b e perform ed cautiously. In this
instance, data should only b e acce sse d as read-only.
In the near term , data w arehousing d ev elopm en ts will b e determ ined b y n o tice­
a b le factors (e.g ., data volum es, increased intolerance fo r latency, the diversity and co m ­
plexity o f data ty p es) and less n oticeable factors (e.g ., unm et en d -u ser requirem ents for

TECHNOLOGY INSIGHTS 3 .4 Ambeo D elivers Proven Data-Access


Auditing Solution

Since 1997, Ambeo (ambeo.com; now Embarcadero Technologies, Inc.) has deployed technol­
ogy that provides performance management, data usage tracking, data privacy auditing, and
monitoring to Fortune 1000 companies. These firms have some o f the largest database environ­
ments in existence. Ambeo data-access auditing solutions play a major role in an enterprise
information security infrastructure.
The Ambeo technology is a relatively easy solution that records everything that happens
in the databases, with low or zero overhead. In addition, it provides data-access auditing that
identifies exactly who is looking at data, when they are looking, and what they are doing with
the data. This real-time monitoring helps quickly and effectively identify security breaches.
Sources: Adapted from “Ambeo Delivers Proven Data Access Auditing Solution,” D atabase Trends a n d
Applications, Vol. 19, No. 7, July 2005; and Ambeo, “Keeping Data Private (and Knowing It): Moving
Beyond Conventional Safeguards to Ensure Data Privacy," am-beo.com/why_ambeo_white_papers.html
(accessed May 2009).
Chapter 3 * Data W arehousing 153

Lfcboards, b a la n ce d scorecard s, m aster data m anagem ent, inform ation quality). Given
Ifcse drivers, M oseley (2 0 0 9 ) and Agosta (2 0 0 6 ) suggested that data w arehousing trends
H Lean tow ard sim plicity, value, and perform ance.

Future o f Data Warehousing


C field o f data w arehousing has b e e n a vibrant area in inform ation tech n olog y in the
Ie cou ple o f d ecad es, and the evid en ce in th e BI/BA and B ig Data w orld sh ow s that
im portance o f the field will on ly g et ev e n m ore interesting. Follow ing are som e o f the
cmly popularized co n cep ts and tech n olog ies that w ill play a significant role in defining
k future o f data w arehousing.

Sourcing (m e c h a n ism s fo r acq u isitio n o f d ata fro m d iv erse an d d isp e rse d so u rce s):
• Web, socia l m edia, a n d B ig Data. T h e recen t upsurge in th e use o f the W eb
for p erson al as w ell as busin ess purposes cou p led w ith the trem end ou s interest in
‘ social m edia creates opportunities for analysts to tap into very rich data sources.
B ecau se o f th e sh eer volum e, velocity, and variety o f the data, a n ew term , Big Data,
has b e e n co in e d to nam e the ph en om en o n . T aking advantage o f B ig D ata requires
d evelopm ent o f n ew and dram atically im proved BI/BA tech nolog ies, w h ich will
result in a revolutionized data w arehousing world.
• Open so u rce software. U se o f open source software tools is increasing at an
unprecedented level in warehousing, business intelligence, and data integration. There
are good reasons for the upsw ing o f o p en source software used in data w arehous­
ing (Russom, 2009): (1 ) T he recession has driven up interest in low -cost o p en source
software; (2 ) o p en source tools are com ing into a new level o f maturity, and (3) op en
source softw are augm ents traditional enterprise software w ithout replacing it.
* SaaS (softw are a s a service) , “T h e E xten d ed ASP M od el.” SaaS is a creative
w ay o f d ep loy in g inform ation system ap p licatio n s w h ere th e provid er lice n ses
its ap p licatio n s to cu stom ers fo r use as a serv ice o n d em an d (u su ally ov er the
Internet). SaaS softw are v end ors m ay h o st the ap p licatio n on th eir ow n servers
I o r u p lo ad th e ap p licatio n to th e co n su m er site. In e sse n c e , SaaS is th e n ew and
im proved v e rsio n o f th e ASP m od el. For data w areh o u se cu stom ers, finding SaaS-
b ased softw are ap p licatio n s an d resou rces that m e e t sp e cific n e ed s an d requ ire­
m ents ca n b e ch allen g in g . As th e se softw are offering s b e c o m e m o re ag ile, the
appeal and th e actu al use o f SaaS as the c h o ic e o f data w areh o u sing platform will
also in crease.
■ Cloud com puting. Cloud com puting is perhaps the new est and th e m ost in n o­
vative platform ch o ice to com e along in years. N um erous hardwrare an d softw are
r' resources are p o o led and virtualized, so that they can b e freely allocated to appli­
cations an d softw are platform s as resou rces are need ed . T his en ab les inform ation
fvstem applications to dynam ically scale up as w orkloads increase. A lthough cloud
com puting and sim ilar virtualization tech niqu es are fairly w ell established for op era­
tional applications today, they are just now starting to b e used as data w areh ou se
platforms o f ch o ice. T h e dynam ic allocation o f a clou d is particularly usefu l w h en
the data volu m e o f the w arehou se varies unpredictably, m aking capacity planning
difficult.

Infrastructure (a rch itectu ra l— h ard w are an d so ftw a re— e n h a n c e m e n ts):


* C olum n ar (a new way to store a n d access data in the database). A colum n-
oriented d atabase m anagem ent system (also com m on ly called a co lu m n a r d a ta ­
base ) is a system that stores data tables as sectio n s o f colum ns o f data rather than
as row s o f data (w hich is the w ay m ost relational d atabase m anagem ent system s
do it). T h a t is, th ese colum nar d atabases store data by colum ns instead o f rows
154 Part II • Descriptive Analytics

(all values o f a single colu m n are stored con secu tiv ely o n disk m em ory). Such a
structure gives a m uch finer grain o f control to th e relational d atabase m anagem ent
system . It ca n a cce ss only the colum ns required fo r the query as op p o sed to b eing
forced to a cce ss all colum ns o f th e row. It perform s significantly b etter for queries
that n eed a small p ercentage o f the colum ns in th e tables they are in but perform s
significantly w orse w h en you n eed m ost o f the colum ns due to the overh ead in
attaching all o f th e colum ns together to form th e result sets. Com parisons b etw een
row -oriented and colum n-oriented data layouts are typically co n cern ed w ith the
efficien cy o f hard-disk a cce ss for a given w orkload (w h ich hap p en s to b e o n e o f
th e m ost tim e-consum ing op erations in a com puter). B a sed o n the task at hand,
o n e m ay b e significantly advantageous ov er the other. Colum n-oriented organiza­
tions are m ore efficient w h en (1 ) an aggregate n e ed s to b e com puted over m any
row s but on ly for a notably sm aller su b set o f all colum ns o f data, b eca u se reading
that sm aller subset o f data ca n b e faster than read ing all data, and (2 ) n ew v alues o f
a colum n are supplied for all row s at o n ce, b e ca u se that colu m n data can b e w ritten
efficiently and replace old colu m n data w ithout touching any oth er colum ns for the
row s. R ow -oriented organizations are m ore efficien t w h en (1 ) m any colum ns o f a
single row are required at th e sam e time, and w h en row size is relatively sm all, as
the entire row can b e retrieved with a single d isk seek , and (2 ) writing a new row if
all o f the colum n data is supp lied at the sam e tim e, as th e entire row ca n b e w ritten
w ith a single disk seek . Additionally, sin ce th e data stored in a colum n is o f uniform
type, it lends itself b etter fo r com pression. T h at is, significant storage size optim iza­
tion is available in colum n-oriented data that is n ot available in row -oriented data.
Su ch optim al com p ression o f data red uces storage size, m aking it m ore eco n o m i­
cally justifiable to pursue in-m em ory or solid state storage alternatives.
* Real-tim e data w arehousing. Real-tim e data w arehousing im plies that the
refresh cy cle o f a n existing data w areh ou se updates the data m ore frequently (alm ost
at the sam e tim e as the data b eco m es available at op eration al databases). T h ese
real-tim e data w arehou se system s can achiev e n ear-real-tim e update o f data, w h ere
the data laten cy typically is in the range from m inutes to hours. As th e latency gets
sm aller, th e cost o f data update seem s to in crease exponentially. Future advance­
m ents in m any techn olog ical fronts (ranging from autom atic data acquisition to intel­
ligent softw are agents) are n e ed ed to m ake real-tim e data w arehousing a reality with
a n affordable price tag.
• D ata w arehouse app lia n ces (all-in-one solutions to DW). A data w arehouse
applian ce consists o f a n integrated set o f servers, storage, operating system (s), data­
b a se m anagem ent system s, and softw are specifically preinstalled and preoptim ized
fo r data w arehousing. In practice, data w areh o u se applian ces provide solutions
for the m id-to-big data w arehou se m arket, offering low -cost p erform ance o n data
volum es in th e terabyte to petabyte range. In ord er to im prove perform ance, m ost
data w arehou se applian ce vend ors use m assively parallel processing architectures.
E ven though m ost d atabase and data w areh o u se vendors provide applian ces now a­
days, m any b elieve that Teradata w as the first to provide a com m ercial data w are­
hou se applian ce product. W hat is o ften observed now is the em erg en ce o f data
w areh ou se bundles, w h ere vend ors co m b in e their hardw are and d atabase softw are
as a data w areh ou se platform. From a b en efits standpoint, data w areh ou se appli­
an ces have significantly low total co st o f ow nership, w h ich includes initial purchase
costs, ongoing m ain ten ance costs, and the co s t o f changing capacity as the data
grows. T h e resource cost fo r m onitoring and tuning the data w areh ou se m ak es up
a large part o f the total co st o f ow nership, o ften as m u ch as 80 percent. D W appli­
an ces red u ce adm inistration fo r day-to-day op eration s, setup, and integration. Since
data w arehou se applian ces provide a sin gle-vend or solution, they tend to better
Chapter 3 • Data W arehousing 155

o p tim iz e th e h ard w are an d so ftw are w ith in th e a p p lia n c e . S u c h a u n ifie d in te g ra tio n


m a x im iz e s th e c h a n c e s o f s u c c e s sfu l in te g ra tio n a n d te stin g o f th e D B M S sto ra g e
an d o p e ra tin g sy ste m b y av o id in g s o m e o f th e co m p a tib ility issu e s th at arise fro m
m u lti-v e n d o r so lu tio n s. A d ata w a re h o u s e a p p lia n c e also p ro v id e s a sin g le p o in t o f
c o n ta c t fo r p ro b le m re s o lu tio n a n d a m u c h sim p le r u p g ra d e p a th fo r b o th so ftw a re
a n d h ard w are.
• D a t a m a n a g e m e n t te c h n o lo g ie s a n d p r a c t ic e s . S o m e o f th e m o st p re ssin g
n e e d s fo r a n e x t-g e n e ra tio n d ata w a re h o u s e p latfo rm in v o lv e te c h n o lo g ie s and
p ra c tic e s th at w e g e n e ra lly d o n ’t th in k o f as p art o f th e p latfo rm . In p articu lar,
m an y u se rs n e e d to u p d ate th e d ata m a n a g e m e n t to o ls th at p ro c e ss d ata fo r u se
th ro u g h d ata w a re h o u sin g . T h e fu tu re h o ld s stro n g g ro w th fo r m a ste r d ata m a n ­
a g e m e n t (M D M ). T h is re lativ ely n e w , b u t e x tre m e ly im p o rtan t, c o n c e p t is g a in in g
p o p u larity fo r m a n y re a so n s, in clu d in g th e fo llo w in g : (1 ) T ig h te r in te g ra tio n w ith
o p e ra tio n a l sy stem s d em a n d s M DM ; ( 2 ) m o st d ata w a re h o u se s still la c k M D M an d
data q u ality fu n ctio n s; and (3 ) re g u la to ry an d fin a n c ia l re p o rts m u st b e p e rfe c tly
c le a n a n d a ccu ra te .
• I n - d a t a b a s e p r o c e s s in g te c h n o lo g y (p u ttin g th e a lg o r it h m s w h e r e th e
d a t a is). In -d a ta b a s e p ro c e ss in g (a ls o c a lle d i n - d a t a b a s e a n a ly tic s') re fe rs to th e
in te g ra tio n o f th e alg o rith m ic e x te n t o f d ata an aly tics in to d ata w a re h o u se . B y d o in g
so , th e d ata an d th e an aly tics th at w o rk o ff th e d ata liv e w ith in th e sa m e e n v iro n ­
m en t. H av in g th e tw o in c lo s e p ro x im ity in c re a se s th e e ffic ie n c y o f th e c o m p u ta ­
tio n a lly in te n siv e an aly tics p ro c e d u re s. T o d a y , m a n y larg e d a ta b a se -d riv e n d e c isio n
su p p o rt sy stem s, s u c h as th o s e u se d fo r c re d it ca rd frau d d e te c tio n a n d in v e stm e n t
risk m a n a g e m e n t, u se this te c h n o lo g y b e c a u s e it p ro v id e s sig n ifican t p e rfo rm a n c e
im p ro v e m e n ts o v e r trad itio n al m e th o d s in a d e c isio n e n v iro n m e n t w h e r e tim e is
o f th e e s s e n c e . In -d a ta b a s e p ro c e s s in g is a c o m p le x e n d e a v o r c o m p a re d to th e
trad itio n al w a y o f c o n d u ctin g an aly tics, w h e r e th e d ata is m o v e d o u t o f th e d ata­
b a s e (o fte n in a flat file fo rm at th at c o n sists o f ro w s an d c o lu m n s ) in to a s e p a ­
rate an aly tics e n v iro n m e n t (s u c h as SAS E n te rp rise M o d e le r, Statistica D ata M iner,
o r IBM SPSS M o d e le r) fo r p ro c e ss in g . In -d a ta b a s e p ro c e ss in g m a k e s m o re s e n s e
fo r h ig h -th ro u g h p u t, re a l-tim e a p p lica tio n e n v iro n m e n ts, in clu d in g frau d d e te c ­
tion , cre d it sco rin g , risk m a n a g e m e n t, tra n s a c tio n p ro c e ss in g , p ricin g a n d m arg in
an alysis, u s a g e -b a s e d m ic ro -se g m e n tin g , b e h a v io ra l ad targ etin g , a n d re c o m m e n d a ­
tio n e n g in e s , s u c h as th o s e u s e d b y c u s to m e r s e rv ic e o rg a n iz a tio n s to d ete rm in e
n e x t-b e s t a ctio n s. In -d a ta b a s e p ro c e s s in g is p e rfo rm e d and p ro m o te d as a fe a tu re
b y m a n y o f th e m a jo r d ata w a re h o u sin g v e n d o rs, in clu d in g T e ra d a ta (in te g ra tin g
SAS an aly tics c a p a b ilitie s in to th e d ata w a re h o u s e a p p lia n c e s ), IB M N etezza, EMC
G re e n p lu m , an d S y b a se , a m o n g o th ers.
• In -m em o r y s t o r a g e te c h n o lo g y (m o v in g th e d a t a in th e m e m o r y f o r f a s t e r
p r o c e s s in g ). C o n v e n tio n a l d a ta b a se sy stem s, s u c h as re la tio n a l d a ta b a se m a n ­
a g e m e n t sy stem s, ty p ically u se p h y sic a l h ard d rives to sto re d ata fo r a n e x te n d e d
p e rio d o f tim e. W h e n a d a ta -re la te d p r o c e s s is re q u e s te d b y a n a p p lica tio n , th e
d a ta b a se m a n a g e m e n t sy ste m lo ad s th e d ata (o r p arts o f th e d ata) in to th e m ain
m e m o ry , p ro c e s s e s it, and re sp o n d s b a c k to th e a p p lica tio n . A lth ou g h d ata (o r p arts
o f th e d ata) is te m p o ra rily c a c h e d in th e m a in m e m o ry in a d a ta b a se m a n a g e m e n t
system , th e p rim ary sto ra g e lo c a tio n re m ain s a m a g n e tic h ard d isk. In co n tra st, an
in -m e m o ry d a ta b a se sy ste m k e e p s th e d ata p e rm a n e n tly in th e m a in m e m o iy . W h e n
a d a ta -re la te d p ro c e s s is re q u e s te d b y a n ap p lica tio n , th e d a ta b a se m a n a g e m e n t
sy ste m d irectly a c c e s s e s th e d ata, w h ic h is a lre ad y in th e m a in m e m o ry , p ro c e s s e s
it, an d re s p o n d s b a c k to th e re q u e s tin g a p p lica tio n . T h is d irect a c c e s s to d ata in
m a in m e m o ry m a k e s th e p ro c e ss in g o f d ata o rd ers m u ch fa ste r th a n th e trad itio n al
m e th o d . T h e m a in b e n e fit o f in -m e m o ry te c h n o lo g y (m a y b e th e o n ly b e n e fit o f it) is
156 Part II • Descriptive Analytics

the incredible sp eed at w h ich it a cce sse s th e data. T h e disadvantages include cost o f
paying for a very large m ain m em ory (ev en th o u g h it is getting ch eap er, it still costs
a great deal to have a large enou gh m ain m em ory that can hold all o f com pany's
data) and th e need fo r sophisticated data recov ery strategies (sin ce m ain m em ory is
volatile and can b e w ip ed ou t accidentally).
• New database m anagem ent systems. A data w arehouse platform consists o f sev­
eral basic com ponents, o f w hich the m ost critical is th e database m anagem ent system
(DBM S). This is only natural, given the fact that DBM S is the com ponent o f the platform
w here the m ost w ork must b e d one to im plem ent a data m odel and optim ize it for
query perform ance. Therefore, the DBMS is w here m any next-generation innovations
are exp ected to happen.
• A d v a n ced analytics. U sers ca n ch o o se different analytic m ethods as they move
bey on d b a sic O LAP-based m ethods and into ad vanced analytics. Som e users ch oo se
advanced analytic m ethods b ased o n data m ining, predictive analytics, statistics,
artificial intelligence, and so on. Still, th e m ajority o f users seem to b e ch oo sin g SQL-
b ased m ethods. Either SQ L-based or not, ad vanced analytics seem to b e am ong the
m ost im portant prom ises o f next-generation data w arehousing.

T h e future o f data w arehousing seem s to b e full o f prom ises and significant


challenges. As the w orld o f b u sin ess b eco m es m ore g lobal and com p lex , th e n eed for
busin ess intelligence and data w arehousing to ols will also b eco m e m ore prom inent. The
fast-im proving inform ation tech n olog y tools and tech n iqu es seem to b e m oving in the
right d irection to address the n eed s o f future busin ess in tellig en ce system s.

SECTION 3 .9 REVIEW QUESTIONS


1 . W hat steps ca n an organization take to ensure the secu rity and confidentiality o f cus­
to m er data in its data w arehouse?
2. W hat skills should a DWA possess? Why?
3. W hat recen t tech n olog ies may sh ap e the future o f data w arehousing? Why?

3.10 RESO U R C ES, LIN K S, A N D THE T ER A D A T A U N IV E R SIT Y


N ET W O R K CONNECTION
T h e u se o f this chapter and m ost oth er chapters in this b o o k can b e en h an ced b y th e tools
d escribed in th e follow ing sections.

Resources and Links


W e recom m en d lookin g at the follow ing resources an d links for further reading and
explanations:

• T h e Data W arehou se Institute (tdwi.org)


• DM Review (information-management.com)
• DSS R esources (dssresources.com )

Cases
All m ajor MSS vendors (e.g ., MicroStrategy, Microsoft, O racle, IBM, Hyperion, Cognos, Exsys,
Fair Isaac, SAP, Information Builders) provide interesting custom er success stories. Academic-
oriented cases are available at the Harvard B usiness School Case Collection (harvardbu
sinessonline.hbsp.harvard.edu), Business Perform ance Im provem ent Resource (bpir.
com), IGI G lobal Dissem inator o f K now ledge (igi-global.com), Ivy League Publishing
(ivylp.com), ICFAI Center for M anagem ent R esearch (icmr.icfai.org/casestudies/
Chapter 3 • Data W arehousing 157

icm r_case_studies.htm ), KnowledgeStorm (know ledgestorm .com ), and other sites. For
additional case resources, see Teradata University Network (teradatauniversitynetw ork.
co m ). For data w arehousing cases, w e specifically recom m end the follow ing from the
Teradata University N etwork (teradatauniversitynetw ork.com ): “Continental Airlines Flies
High with Real-Tim e B usiness Intelligence,” “Data W arehouse G overnance at B lu e Cross
and Blue Shield o f North Carolina/’ “3M M oves to a Custom er Focus Using a G lobal Data
W arehouse,” “D ata W arehousing Supports Corporate Strategy at First Am erican Corporation,”
“Harrah’s High Payoff from Custom er Inform ation,” and “W hirlpool.” W e also recom m end
the Data W arehousing Failures Assignment, w hich consists o f eight short cases on data
warehousing failures.

Vendors, Products, and Demos


A com p reh en sive list o f vendors, products, and dem os is available at DM Review
(d m review .co m ). V endors are listed in T a b le 3-2. Also se e tech n olog y evalu ation .co m .

Periodicals
W e recom m en d the follow ing periodicals:

• B aselin e (b aselin em ag .com )


• Business Intelligence Jo u r n a l (td w i.org )
•CIO (cio .co m )
• CIO Insight (cioin sigh t.com )
• Com puterworld (co m p u terw orld .com )
• D ecision Support Systems (elsevier.com)
• DM Review (dm review .com )
• eW eek (ew eek .co m )
• InfoW eek (in fow eek .com )
• InfoW orld (in fow orld .com )
• InternetW eek (in tem etw eek .co m )
• M anagem ent Inform ation Systems Quarterly (MIS Quarterly ; m isq .org )
3 Technology Evaluation (tech n o log yev alu atio n .com )
• T eradata M agazin e (terad ata.co m )

Additional References
For additional inform ation o n data w arehousing, s e e the follow ing:

• C. Im hoff, N. G alem m o, and J . G. Geiger. (2 0 0 3 ). Mastering D ata W arehouse Design:


R elation al a n d D im ensional Techniques. N ew Y ork : Wiley.
• D. M arco and M. Jen n in g s. (2 0 0 4 ). Universal M eta D ata Models. N ew Y ork: W iley.
• J . W ang. (2 0 0 5 ). Encyclopedia o f D ata W arehousing a n d Mining. H ershey, PA: Idea
G roup Publishing.

For m ore o n databases, the structure o n w hich data w areh o u ses are d ev elop ed , see
the follow ing:

• R. T. W atson. (2 0 0 6 ). D ata M anagement, 5th ed ., New Y ork: Wiley.

The Teradata University Network (TUN) Connection


TUN (terad atau n iv ersity n etw o rk .co m ) provides a w ealth o f inform ation and cases
o n data w arehousing. O n e o f th e b est is the C ontinental Airlines case, w h ich w e require
you to solve in a later exercise. O th er recom m end ed cases are m en tion ed earlier in this
158 Part II • Descriptive Analytics

chapter. At TUN, if y ou click th e C ourses tab and select D ata W arehousing, you will see
links to m any relevant articles, assignm ents, b o o k chapters, cou rse W eb sites, Pow erPoint
presentations, projects, research reports, syllabi, and W e b sem inars. Y ou will also find
links to active data w arehousing softw are d em onstrations. Finally, you will s e e links to
Teradata (terad ata.co m ), w h ere you ca n find additional inform ation, including e x c e l­
lent data w arehousing su ccess stories, w hite papers, W e b -b a sed cou rses, and the online
version o f T eradata M agazine.

Chapter Highlights
• A data w areh o u se is a sp ecially constructed data capture. W h en th ese three p ro cesses are correctly
repository w h ere data are organized so that they im plem ented, data ca n b e acce sse d and m ade
can b e easily a cce sse d by end users for several accessib le to an array o f ETL and analysis tools
applications. and data w arehousin g environm ents.
• Data marts contain data on o n e topic (e.g ., market­ • ETL tech n olog ies pull data from m any sources,
ing). A data m art can b e a replication o f a subset clean se them , and load them into a data w are­
o f data in the data w arehouse. Data marts are a hou se. ETL is an integral p ro cess in an y data-
less expensive solution that can b e replaced by centric project.
o r can supplem ent a data w arehouse. Data marts • R eal-tim e o r active data w arehousing supple­
can b e independent o f o r d epend ent o n a data m ents and exp an d s traditional data w arehousing,
w arehouse. m oving into the realm o f op eration al and tacti­
• An O D S is a type o f custom er-inform ation-file cal d ecisio n m aking b y loading data in real tim e
d atabase that is o ften u sed as a staging area for a and providing data to users for active decision
data w arehouse. making.
• D ata integration com prises three m ajor pro­ • T h e security and privacy o f data and information
cesses: data a cce ss, data federation, and change are critical issues for a data w arehouse professional.

Key Terms
active data w arehousing dep end en t data mart enterprise inform ation o p er mart
(ADW ) dim ensional m odeling integration (E li) op eration al data store
cu b e d im ension table extraction, (O D S)
data integration drill dow n transform ation, real-tim e data
data mart enterprise application and load (ETL) w arehousing (RDW )
data w arehou se (D W ) integration (EAI) ind ep end en t data mart snow flake schem a
data w arehouse enterprise data m etadata star sch em a
adm inistrator (D W A ) w areh o u se (ED W ) OLTP

Questions for Discussion


1 . Identify and describe the core characteristics o f a DW. 4 . What are the structural differences betw een two-tier and
2 . List and critically exam ine at least three potential sources three-tier architectures? W hich one o f the two models is
o f data that could b e used within a data w arehouse. more suitable for analytical operations performed on a
3 . W hat are the differences betw een dependent and inde­ very large data set?
pendent data marts? 5 . What is the role o f ODS? How does it differ from an EDW?
Chapter 3 • Data W arehousing 15 9

9 . Investigate current data w arehouse development imple­


6 . Highlight the utility o f the three types o f metadata
mentation through offshoring. Write a report about it. In
emphasized in the chapter.
class, debate the issue in terms o f the benefits and costs,
7. In w hat circum stances w ould a relational database be
more suitable than a multidimensional database? as w ell as social factors.
8 . Discuss security concerns involved in building a data
w arehouse.

Exercises
work and how they can be used to extend existing data
T e ra d a ta U n iv ersity a n d O th e r H an ds-O n E x e rc ise s
warehousing and B I architectures to support day-to-day
1 . Consider the case describing the development and appli­
decision making. Write a report indicating how real-time
cation o f a data w arehouse for Coca-Cola Jap an (a sum­
data warehousing is specifically providing competitive
mary appears in Application Case 3-4), available at the
advantage for organizations. D escribe in detail the dif­
DSS Resources W eb site, h ttp ://d s s r e s o u r c e s .c o m /
ficulties in such implementations and operations and
c a s e s /c o c a -co la ja p a n /. Read the case and answ er the
describe how they are being addressed in practice.
nine questions for further analysis and discussion. 9 . At terad atau n iv ersity n etw o rk .co m , watch the W eb
2 . Read the Ball (2005) article and rank-order the criteria
seminars “Data Integration Renaissance: New Drivers and
(ideally for a real organization). In a report, explain how
Emerging A pproaches,” “In Search o f a Single Version of
important each criterion is and why. the Truth: Strategies for Consolidating Analytic Silos,” and
3 . Explain w hen you should implement a two- or three­
“Data Integration: Using ETL, EAI, and E li Tools to Create
tiered architecture w hen considering developing a data
an Integrated Enterprise.” Also read the “Data Integration’
w arehouse. research report. Compare and contrast the presentations.
4 . Read the full Continental Airlines case (summa­
W hat is the most important issue described in these semi­
rized in the End-of-Chapter Application Case) at
nars? What is the best way to handle the strategies and
terad a ta u n iv e rsity n e tw o rk .co m and answer the
challenges o f consolidating data marts and spreadsheets
questions. into a unified data warehousing architecture? Perform a
5 . At tera d a ta u n iv e rsity n e tw o rk .co m , read and answer
W eb search to identify the latest developments in the
the questions to the case “Harrah’s High Payoff from
field. Compare the presentation to the material in the text
Customer Inform ation.” Relate Harrah’s results to how
and the new material that you found.
airlines and other casinos use their custom er data.
1 0 . Consider the future o f data warehousing. Perform a W eb
6 . At tera d a ta u n iv e rsity n e tw o rk .co m . read and answer
search on this topic. Also, read these two articles: L. Agosta,
the questions o f the assignment “Data Warehousing
“Data W arehousing in a Flat World: Trends for 2006,” DM
Failures.” B ecau se eight cases are described in that
D irect Newsletter, March 31, 2006; and J. G. Geiger, “CIFe:
assignment, the class may be divided into eight groups,
Evolving with the Times,” DM Review, November 2005,
with on e case assigned per group. In addition, read
pp. 38 -41. Compare and contrast your findings.
Ariyachandra and W atson (2006a), and for each case 1 1 . Access terad atau n iv ersity n etw o rk .co m . Identify the
identify how the failure occurred as related to not focus­
latest articles, research reports, and cases o n data ware­
ing on one o r more o f the reference’s success factor(s).
housing. D escribe recent developments in the field.
7 . At tera d a ta u n iv e rsity n e tw o rk .co m , read and answer
Include in your report how data warehousing is used in
the questions with the assignment “Ad-Vent Technology:
BI and DSS.
Using the MicroStrategy Sales Analytic Model.” T he
MicroStrategy software is accessible from the TUN site.
Team Assignments and Role-Playing Projects
Also, you might w ant to use Barbara W ixom ’s PowerPoint
presentation about the MicroStrategy software ( “Demo 1 . Franklin Lyons has b een a Junior Advisor with an IT con­
Slides for MicroStrategy Tutorial Script”), w hich is also sultancy for almost two years. His com pany w on a bid and
tasked him to advise XCOMP— a medium-sized fast grow­
available at the TUN site.
8 . At tera d a ta u n iv e rsity n e tw o rk .co m , watch the W eb ing call centre provider with an increasing international
seminars titled “Real-Time Data W arehousing: The Next presence— on developing an EDW suitable for their
Generation o f D ecision Support Data Management” and analytical needs. The client is currently facing increasing
“Building the Real-Time Enterprise.” Read the article concerns over data transparency as a result o f the expan­
“Teradata’s Real-Tim e Enterprise Reference Architecture: sion in its divisional organizational structure and would
A Blueprint for the Future o f IT.” also available at this like a DW to help the management gain a holistic view
site. D escribe how real-time concepts and technologies o f the enterprise for decision making purposes. XCOMP
160 Part II • Descriptive Analytics

currently uses a CRM system to monitor customer interac­ negative effects o f their neglect. Identify exam ples o f
tion, Excel for operational reporting and an ERP system data security failure in recent events.
to manage the com pany’s HR and Finance requirements. 5. Access teradata.com and read the white papers
After analyzing the circumstances, Franklin still has the “Measuring Data W arehouse ROI” and “Realizing ROI:
Projecting and Harvesting the Business Value o f an
following questions:
a . What type o f data w arehouse architecture should be Enterprise Data W arehouse.” Also, watch the W eb-based
recom m ended based on the custom er’s needs and course “The ROI Factor: How Leading Practitioners Deal
with the Tough Issue o f Measuring DW ROI.” D escribe the
why?
b. What potential challenges should the..com pany be m ost important issues described in them. Compare these
issues to the success factors described in Ariyachandra
aware of?
c. Should the com pany consider using a hosted data and Watson (2006a).
warehouse? W hat are the potential implications of 6 . Read the article b y K. Liddell Aveiy and Hugh J.
Watson, “Training Data Warehouse End Users,’" B usin ess
such an approach?
Help Franklin answ er these questions. In telligen ce Jo u r n a l, Vol. 9, No. 4, Fall 2004, pp. 40-51
(which is available at teradatauniversitynetwork.com).
2 . Julia Gonzales has recently b een em ployed as a data
w arehouse m anager, or DWM, within Poplog - a large Consider the different classes o f end users, describe their
logistics com pany. As part o f her new responsibilities, difficulties, and discuss the benefits o f appropriate train­
she has b e e n asked to review the current DW solu­ ing for each group. Have each member o f the group take
tion and identify areas o f potential improvement, since on one o f the roles and have a discussion about how an
the CEO is not satisfied with the quality o f the insights appropriate type o f data warehousing training would be
derived from their existing systems, as w ell as the long good for each o f you.
lead time associated with their data warehousing process.
Internet Exercises
Julia has identified that the com pany utilizes a two-tiered
data warehousing with limited metadata and a variety o f 1. Search the Internet to find information about data ware­
data sources being used, depending o n w hich branch of housing. Identify som e newsgroups that have an interest in
the com pany they originate from. B efore being able to this concept. Explore ABI/INFORM in your library, e-library,
submit a report with her findings and suggestions, Julia and Google for recent articles on the topic. Begin with
tdwi.org, technologyevaluation.com, and the major
w ould still like to find out:
a . W hat elem ents o f the current system are likely to slow vendors: teradata.com, sas.com, oracle.com, and ncr.
com. Also check cio.com, information-management.
the process down? Why?
b. How could the decision support functionality o f the com, dssresources.com, and db2mag.com.
data warehousing be improved? 2. Survey som e ETL tools and vendors. Start with fairisaac.
c. What factors would she have to take into considera­ com and egain.com. Also consult information-
tion before suggesting the implementation o f a new management. com .
data w arehousing design? 3. Contact som e data w arehouse vendors and obtain infor­
3 . Doug O ’Brien is a DWA for Phone Sales - a large mobile mation about their products. Give special attention to
device retailer. T he com pany has b een effectively using vendors that provide tools for multiple purposes, such as
their data warehousing for over 6 years; however, the Cognos, Software A&G, SAS Institute, and Oracle. Free
board o f directors has decided that the technology might online dem os are available from som e o f these vendors.
need an upgrade to ensure its sustainability. Doug has Download a dem o or two and try them. Write a report
been asked to write a report identifying current data describing your experience.
warehousing trends and relevant technologies on the 4. Explore teradata.com for developments and success
m arket and m ake suggestions for their potential use stories about data warehousing. W rite a report about
within Phone Sales. Although he is partially familiar with what you have discovered.
current growing technologies, Doug still has the follow­ 5. Explore teradata.com for white papers and W eb-
based courses o n data warehousing. Read the former
ing questions:
a . W hich technologies influence the development of and w atch the latter. (Divide the class so that all the
data warehousing as a business area? sources are covered.) W rite what you have discovered in
b. W hat are the effects o f these technologies? a report.
c. How do these technologies affect data warehousing 6 . Find recent cases o f successful data warehousing appli­
cations. G o to data w arehouse vendors’ sites and look
security?
4 . G o through the list o f data warehousing security meas­ for cases o r success stories. Select one and write a brief
ures suggested in the chapter and discuss the potential summary to present to your class.
Chapter 3 * Data W arehousing 161

End-of-Chapter Application Case


Continental Airlines Flies High with Its Real-Time Data Warehouse
As business intelligence (BI) becom es a critical com ponent of wanted Continental to be their custom ers’ favorite airline. The
daily operations, real-time data warehouses that provide end G o Forward plan established more actionable ways to move
users with rapid updates and alerts generated from transactional from first to favorite among customers. Technology becam e
systems are increasingly being deployed. Real-time data ware­ increasingly critical for supporting these new initiatives. In
housing and BI, supporting its aggressive G o Forward business the early days, having access to historical, integrated informa­
plan, have helped Continental Airlines alter its industry status tion was sufficient. This produced substantial strategic value.
from “worst to first” and then from “first to favorite.” Continental But it becam e increasingly imperative for the data w arehouse
airlines (now a part o f United Airlines) is a leader in real-time to provide real-time, actionable information to support enter­
DW and BI. In 2004, Continental w on the Data Warehousing prise-wide tactical decision making and business processes.
Institute’s Best Practices and Leadership Award. Even though it Luckily, the warehouse team had expected and arranged
has been a while since Continental Airlines deployed its hugely for the real-time shift. From the very beginning, the team had
successful real-time DW and BI infrastructure, it is still regarded created an architecture to handle real-time data feeds into the
as one o f the best examples and a seminal success story for warehouse, extracts o f data from legacy systems into the ware­
real-time active data warehousing. house, and tactical queries to the warehouse that required almost
immediate response times. In 2001, real-time data becam e avail­
P ro b le m (s ) able from the warehouse, and the amount stored grew rapidly.
Continental moves real-time data (ranging from to-the-minute
Continental Airlines was founded in 1934, with a single-engine
to hourly) about customers, reservations, check-ins, operations,
Lockheed aircraft in the Southwestern United States. As o f
and flights from its main operational systems to the warehouse.
2006, Continental w as the fifth largest airline in the United
Continental’s real-time applications include the following:
States and the seventh largest in the world. Continental had the
broadest global route network o f any U.S. airline, with more • Revenue m anagem ent and accounting
than 2,300 daily departures to more than 227 destinations. • Customer relationship management (CRM)
B ack in 1994, Continental was in deep financial trouble. • Crew operations and payroll
It had filed for Chapter 11 bankruptcy protection twice and was • Security and fraud
heading for its third, and probably final, bankruptcy. Ticket • Flight operations
sales w ere hurting because perform ance on factors that are
important to custom ers was dismal, including a low percent­ R esu lts
age o f on-time departures, frequent baggage arrival problems, In the first year alone, after the data warehouse project was
and too many custom ers turned away due to overbooking. deployed. Continental identified and eliminated over $7 million
in fraud and reduced costs by $41 million. With a $30 million
S olu tion investment in hardware and software over 6 years, Continental
The revival o f Continental began in 1994, w hen Gordon has reached over $500 million in increased revenues and cost
Bethune becam e CEO and initiated the G o Forward plan, savings in marketing, fraud detection, demand forecasting and
w hich consisted o f four interrelated parts to b e implemented tracking, and improved data center management. The single,
simultaneously. Bethune targeted the need to improve cus­ integrated, trusted view o f the business (i.e., the single version
tomer-valued perform ance measures by better understanding o f die truth) has led to better, faster decision making.
custom er needs as well as customer perceptions o f the value Because o f its tremendous success, Continental’s DW
o f services that w ere and could be offered. Financial manage­ implementation has been recognized as an excellent example
ment practices w ere also targeted for a significant overhaul. As for real-time BI, based on its scalable and extensible architec­
early as 1998, the airline had separate databases for marketing ture, practical decisions on what data are captured in real time,
and operations, all hosted and managed by outside vendors. strong relationships with end users, a small and highly compe­
Processing queries and instigating marketing programs to its tent data warehouse staff, sensible weighing o f strategic and tac­
high-value custom ers w ere time-consuming and ineffective. tical decision support requirements, understanding o f the syn­
In additional, information that the w orkforce needed to make ergies between decision support and operations, and changed
quick decisions was simply not available. In 1999, Continental business processes that use real-time data.
chose to integrate its marketing, IT, revenue, and operational
data sources into a single, in-house, EDW. The data ware­ Q u e s t io n s f o r t h e E n d - o f -C h a p t e r
house provided a variety o f early, major benefits. A p p l ic a t io n C a s e
As soon as Continental returned to profitability and 1 . D escribe the benefits o f implementing die Continental
ranked first in the airline industry in many perform ance met­ G o Foiw ard strategy.
rics, Bethune and his m anagement team raised the bar by 2 . Explain why it is important for an airline to use a real­
escalating the vision. Instead o f just performing best, they time data w arehouse.
162 Part II • Descriptive Analytics

3 . Identify the m ajor differences betw een the traditional Intelligence,” MIS Q uarterly Executive, Vol. 3, No. 4, December
2004, pp. 163-176 (available at teradatauniversitynetwork.com);
data w arehouse and a real-time data w arehouse, as was
H. Watson, “Real Time: The Next Generation of Decision-Support
implemented at Continental.
Data Management,” B usiness Intelligence Jou rn al, Vol. 10, No. 3,
4 . W hat strategic advantage can Continental derive from
2005, pp. 4-6: M. Edwards, “2003 Best Practices Awards Winners:
the real-time system as opposed to a traditional infor­ Innovators in Business Intelligence and Data Warehousing,” Business
mation system? Intelligence Jou rn al, Fall 2003, pp. 57-64; R. Westervelt, “Continental
Airlines Builds Real-Time Data Warehouse,” August 20, 2003,
Sources: Adapted from H. Wixom, J. Hoffer, R. Anderson-Lehman, searchoracle.techtarget.com; R. Clayton, “Enterprise Business
and A. Reynolds, “Real-Time Business Intelligence: Best Practices Performance Management: Business Intelligence + Data Warehouse
at Continental Airlines,” Inform ation Systems M anagem ent Jou rn al, = Optimal Business Performance,” T eradata M agazine, September
Winter 2006, pp. 7-18; R. Anderson-Lehman, H. Watson, B. Wixom, 2005, and The Data Warehousing Institute, “2003 Best Practices
and J. Hoffer, “Continental Airlines Flies High with Real-Time Business Summaries: Enterprise Data Warehouse,” 2003-

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C H A P T E R

1 :1 - v !
• 5"- f f O | i
tffn ra i ■
w m m M M

Business Reporting,
Visual Analytics, and Business
Performance Management

LEARNING OBJECTIVES
■ D efine busin ess reporting and ■ K now th e capabilities and lim itations o f
understand its historical evolution dashboards
■ R ecognize th e n eed fo r and th e pow er * Understand the nature o f busin ess
o f busin ess reporting p erform ance m anagem ent (BPM )
■ U nderstand th e im portance o f data/ * Learn the closed -loo p BPM m ethodology
inform ation visualization ■ D escribe th e b asic elem en ts o f the
■ Learn different types o f visualization balan ced scorecard
techniqu es
■ A ppreciate th e value that visual analytics
brings to BI/BA

A
report is a com m unication artifact prepared with the sp ecific intention o f relaying
inform ation in a presen table form . I f it con cern s business m atters, then it is
called a b u s in e s s r e p o r t. B u sin ess reporting is a n essential part o f the business
intelligence m ovem ent tow ard im proving m anagerial decision m aking. N ow adays, these
reports are m ore visually oriented, often using colors and graphical icon s that collectively
look like a d ashboard to e n h a n ce th e inform ation content. B usiness reporting and
business perform ance m anagem ent (B PM ) are b o th enablers o f b usin ess intelligence and
analytics. As a d ecisio n support tool, BPM is m ore than ju st a reporting technology. It is
an integrated set o f p ro cesses, m ethodologies, m etrics, and applications d esigned to drive
ih e overall finan cial and op eration al p erform ance o f an enterprise. It h elp s enterprises
translate their strategies and ob jectives into plans, m onitor perform ance against those
plans, analyze variations b etw ee n actual results and planned results, an d adjust their
objectives and action s in resp on se to this analysis.
This ch ap ter starts w ith exam ining the n eed for and th e po w er o f b u sin ess report­
ing With the e m erg en ce o f analytics, busin ess reporting evolved into dashboards and
V2? ja l analytics, w h ich, com p ared to traditional descriptive reporting, is m u ch m ore pre-
■ acive and prescriptive. C overage o f d ashboards and visual analytics is fo llow ed b y a
166 Part II • Descriptive Analytics

com prehen sive introduction to BPM . As you will se e and appreciate, BPM and visual
analytics have a sym biotic relationship (o v e r scorecard s and d ashboards) w h ere they
b en efit from ea ch other’s strengths.

4 .1 O p e n in g V ig n ette: S e lf-S erv ice R ep o rtin g E n v iro n m en t S av es M illions fo r


C o rp o ra te C u stom ers 166
4 .2 B u s in e s s R e p o rtin g D e fin itio n s a n d C o n ce p ts 169
4 . 3 D ata a n d In fo rm a tio n V isu alizatio n 175
4 . 4 D iffe ren t T y p e s o f C h arts an d G ra p h s 1 80
4 . 5 T h e E m e rg e n c e o f D ata V isu a liz a tio n and V isu al A nalytics 18 4
4 . 6 P erfo rm a n ce D ash b o a rd s 190
4 .7 B u s in e s s P erfo rm a n ce M a n a g em en t 19 6
4 . 8 P erfo rm a n ce M e a su rem en t 200
4 .9 B a la n c e d S c o re c a rd s 202
4 .1 0 Six Sigm a as a P erfo rm a n ce M e a su re m e n t System 20 5

4.1 OPENING VIGNETTE: Self-Service Reporting Environment


Saves Millions for Corporate Customers
H eadquartered in O m aha, N ebraska, Travel and Transport, Inc., is the sixth largest travel
m anagem ent com pany in th e U nited States, w ith m ore than 7 0 0 em ployee-ow ners located
nationw ide. T h e com pany has extensive exp e rien ce in m ultiple verticals, including travel
m anagem ent, loyalty solutions program s, m eeting and incentive planning, and leisure
travel services.

CHALLENGE
In the field o f em p loyee travel services, the ability to effectively com m unicate a value
p roposition to existing and potential custom ers is critical to w inning and retaining
business. W ith travel arrangem ents o ften m ade o n an ad h o c basis, custom ers rind it
difficult to analyze costs o r instate optim al purchase agreem ents. Travel and Transport
w an ted to ov ercom e th ese challenges b y im plem enting an integrated reporting and
analysis system to e n h a n ce relationships w ith existing clients, w hile providing the kind of
value-added services that w ould attract n ew prospects.

SOLUTION
Travel and Transport im plem ented Inform ation B uild ers’ W ebFO C U S busin ess intelligence
(B I) platform (called e T T ek R eview ) as the foundation o f a dynam ic cu stom er self-
service BI environm ent. This dashboard-driven exp ense-m an ag em ent application helps
m ore than 80 0 external clients like R ob ert W . Baird & Co., MetLife, and Am erican Fami y
Insurance to plan, track, analyze, and b u d get their travel exp en ses m ore efficiently and
to benchm ark them against similar com p an ies, saving them m illions o f dollars. More than
20 0 internal em p loyees, including cu stom er sendee specialists, also have a cce ss to the
system , using it to g enerate m ore precise forecasts for clients and to stream line and a cce l­
erate other key support p ro cesses su ch a s quarterly review s.
T hanks to W ebFO C U S, Travel and T ransport d o esn ’t just tell its clients h ow m uch
they are saving b y using its services— it show s them . T his has h elp ed the com pany to
differentiate itself in a m arket d efined b y aggressive com petition. Additionally, W ebPO CUS
Chapter 4 • Business Reporting, Visual Analytics, and Business Perform ance Management 167

elim inates m anual rep ort com pilation for clien t service specialists, saving the com pany
d o s e to $200,000 in lost tim e e a ch year.

AN INTUITIVE, GRAPHICAL WAY TO MANAGE TRAVEL DATA


Using stunning graphics created w ith W ebFO C U S and A d obe Flex, the busin ess intelli­
g en ce system provides a cc e ss to thousands o f reports that show individual client m etrics,
benchm arked inform ation against aggregated m arket data, and even ad h o c reports that
users can sp ecify as n eed ed . “For m ost o f ou r corporate custom ers, w e thoroughly m anage
their travel from planning and reservations to billing, fulfillm ent, and o n g o in g analysis,
says M ike Kubasik, sen io r vice president and CIO at Travel and Transport. “W ebFO C U S
as im portant to ou r busin ess. It help s our custom ers m onitor em p loyee spending, b o o k
travel w ith preferred vend ors, and negotiate corporate purchasing agreem ents that can
save them m illions o f dollars p er y ear.”
Clients love it, and it’s giving Travel and Transport a com petitive ed ge in a crow d ed
m arketplace. “I u se Travel and Transport’s e T T ek R eview to autom atically e-m ail reports
throughout the com p an y for a variety o f reasons, su ch as m onitoring travel trends and
com pany expend itures and assisting w ith airline exp e n se reconciliation and allocations,
savs Cathy M oulton, v ice presid ent and travel m anager at R obert W . B aird & Co.,
a prom inent financial services com pany. W hat she loves about the W ebFO C U S-enabled
W eb portal is that it m ak es all o f th e com p an y ’s travel inform ation available in just a few
d ick s. “I have th e data at m y fingertips,” sh e adds. “I d on ’t have to w ait for so m e o n e to
g o in and d o it for m e. I ca n set up the reports o n m y ow n. T h e n w e ca n g o to the hotels
and preferred vendors arm ed w ith d etailed inform ation that gives us leverage to negotiate
ou r rates.”
Robert W . B aird & Co. isn’t th e only firm ben efitin g from this ad vanced a c c e ss to
reporting. Many o f Travel and Transport’s oth er clien ts are also happy w ith th e te ch n o l­
ogy “W ith Travel an d Transport’s state-of-the-art reporting techn ology, MetLife is able
© m e a s u re its travel program through data analysis, standard reporting, and the ability
to create ad h o c reports dynam ically,” says T o m M olesky, director o f travel services at
MetLife. “M etrics derived from action ab le data provide direction and drive us tow ard oui
=oals This is k e y to help ing us negotiate w ith our suppliers, en force our travel policy,
and save ou r com pany m oney. Travel and Transport’s lead ing-edge product has h elp ed
” 5 to m eet and, in som e cases, e x c e e d our travel goals.

READY FOR TAKEOFF


, Travei and Transport u sed W ebFO CU S to create an online system that allow s clients
s access inform ation directly, so they w o n ’t have to rely o n th e IT departm ent to run
reports for them . Its o b jectiv e w as to give custom ers online to ols to m onitor corporate
t e v e l expenditures throughout their com panies. B y giving clients access to th e right
daia, Travel and Transport ca n help m ake sure its custom ers are getting the b e s t pricing
fr o m airlines, hotels, ca r rental com panies, and other vendors. “W e n eed ed m ore than
fust pretty reports,” K ubasik recalls, look in g b a ck o n the early p h ases o f the BI project.
“W e w anted to build a reporting environm ent that w as pow erful enou gh to handle
transaction-intensive op eration s, yet sim ple enou gh to d ep loy over the W e b .” It w as a
■sinning form ula. Clients and cu stom er service specialists continu e to u se e T le k R eview
L create forecasts fo r the com ing year and to target sp ecific areas o f b u sin ess travel
I expenditures. T h e se users ca n ch o o se from d ozens o f m anagem ent reports. P opu lar
-snorts include travel sum m ary, airline com p liance, hotel analysis, and car analysis.
Travel m anagers at a b ou t 7 0 0 corporation s use th ese reports to analyze corp orate trave
I - e n d in g o n a daily, w eekly, m onthly, quarterly, and annual basis. A bout 160 standard
-sports and m o re th an 3 ,0 0 0 custom reports are currently set up in e T T ek Review ,
168 Part II * Descriptive Analytics

including everything from n on com p lian ce reports that reveal w h y a n em p loyee did no:
obtain the low est airfare fo r a particular flight to execu tiv e overview s that sum marize
spending patterns. M ost reports are param eter driven w ith Inform ation Builders’ unique
guided ad h o c reporting technology.

PEER REVIEW SYSTEM KEEPS EXPENSES ON TRACK


Users ca n also run reports that com pare their o w n travel m etrics w ith aggregated, travel
data from oth er Travel and Transport clients. T his bench m arkin g service lets them gauge
w h eth er their expend itures, preferred rates, an d other m etrics are in line w ith th o se ot
oth er com p an ies o f a sim ilar size o r w ithin the sam e industry. B y pooling the data, Travel
and Transport help s pro tect individual clien ts’ inform ation w hile also enablin g its entire
cu stom er b ase to achiev e low er rates b y giving them leverage for their negotiations.
Reports can b e run interactively o r in b a tch m ode, w ith results displayed o n the
screen, stored in a library, saved to a PD F file, load ed into an E xcel spread sheet, or
sen t as an Active R eport that perm its additional analysis. “O ur clients love the visual
m etaphors provided b y Inform ation B uild ers’ graphical displays, including A d o be Flex
and W ebFO CU S Active PD F file s,” explains Steve Cords, IT m an ager at Travel and
Transport and team lead er for th e e T T ek R eview project. “Most sum m ary reports have
drill-dow n capability to a d etailed report. All reports ca n b e run for a particular hierarchy
structure, and m o re than o n e hierarchy ca n b e sele cte d .”
O f cou rse, users n ever se e th e co d e that m ak es all o f this possible. T h ey operate
in an intuitive dashboard environm ent w ith drop-dow n m enus and drillable graphs, all
accessib le through a b row ser-b ased interface that requires n o client-side softw are. This
architecture m akes it easy and cost-effectiv e fo r users to tap into eT T ek R eview from any
location. Collectively, custom ers run an estim ated 5 0 ,000 reports p e r m onth. A bout 20,000
o f those reports are autom atically generated and distributed via W ebFO CU S ReportCaster.

AN EFFICIENT ARCHITECTURE THAT YIELDS SOARING RESULTS


Travel and Transport captures travel inform ation from reservation system s k n ow n as
G lobal D istribution System s (G D S ) via a proprietary b a ck -o ffice system that resides in
a D B 2 d atabase o n an IBM iSeries com puter. T h ey u se SQL tables to store u ser IDs
and passw ords, and use oth er d atabases to store the inform ation. “T h e d atabase can b e
sorted accord ing to a sp ecific hierarchy to m atch the b reak d ow n o f reports required by
ea ch com p an y ,” continu es Cords. “If they w an t to see just m arketing and accounting
inform ation, w e ca n deliver it. If they w ant to s e e the particular level o f detail reflecting a
given co st center, w e can deliver that, to o .”
B eca u se all data is secu rely stored fo r three years, clients ca n generate trend reports
to com pare current travel to previous years. T h e y can also u se th e BT system to m onitor
w h ere em p loy ees are traveling at any point in tim e. T h e reports are so easy to u se that
Cords and his team have started replacing outdated p ro cesses w ith n e w autom ated ones
using the sam e W ebFO CU S technology. T h e co m p an y also uses W ebFO CU S to stream line
their quarterly review process. In the past, client service m anagers had to m anually create
th ese quarterly reports b y aggregating data from a variety o f clients. T h e 80 -p a g e report
to o k o n e w e e k to create at th e end o f every quarter.
Travel and Transport has com pletely autom ated the quarterly review system using
W ebFO CU S so the m anagers can select the pages, percentages, and specific data they
w an t to include. This gives them m ore tim e to d o further analysis and m ake better use o f
the inform ation. Cords estim ates that the tim e savings add up to about $200,000 every year
for this project alone. “Metrics derived from action ab le data are key to helping us negotiate
w ith ou r suppliers, en force our travel policy, an d save ou r com pany m o n ey ,” continues
Cords. “D uring the recession, the travel industry w as hit particularly hard, but Travel and
Chapter 4 • Business Reporting, Visual Analytics, and Business Performance Management 169

Transport m anaged to add n ew m ultimillion dollar accou nts ev e n in the w orst o f tim es. W e
attribute a lot o f this grow th to the cutting-edge reporting tech n olog y w e offer to clients.”

QUESTIONS FOR THE OPENING VIGNETTE


1 . W hat d oes Travel and Transport, In c., do?
2 . D escrib e th e com plexity and th e com petitive nature o f th e busin ess environm ent in
w h ich Travel and Transport, In c., functions.
3 . W hat w ere the m ain busin ess challenges?
4 . W hat w as the solution? H ow w as it im plem ented?
5 . W hy d o you think a multi-vendor, m ulti-tool solution w as im plem ented?
6 . List and com m en t o n at least three m ain benefits o f the im plem ented system . Can
you think o f oth er potential benefits that are n o t m entioned in the case?

WHAT WE CAN LEARN FROM THIS VIGNETTE


Trying to survive (an d thrive) in a highly com petitive industry. Travel and Transport,
In c., w as aw are o f the n eed to create and effectively com m un icate a value proposition
to its existing and potential custom ers. As is th e case in m any industries, in the travel
busin ess, su ccess o r m ere survival d ep end s o n continu ou sly w inning n e w custom ers
w h ile retaining the existing on es. T h e k ey w as to provide value-added services to the
clien t so that they can efficiently analyze costs and o th er options to quickly instate
optim al pu rchase agreem ents. Using W ebFO CU S (an integrated reporting and inform ation
visualization environm ent b y Inform ation B uild ers), Travel and Transport empo^veied
their clients to a cce ss inform ation w h en ev er and w h erever they n eed it. Inform ation is
th e pow er that d ecisio n m akers n eed the m ost to m ake b etter and faster decisions. W hen
e co n o m ic conditions are tight, every m anagerial decision— every busin ess transaction
cou n ts. Travel and Transport used a variety o f repu table vendors/products (hardw are
an d softw are) to create a cutting-edge reporting tech n olog y s o that their clients ca n m ake
b etter, faster d ecisions to im prove their financial w ell-being.

Source: Information Builders, Customer Success Story, in f o r m a t i o n b u i l d e r s .c o m / a p p l i c a t io n s / t r a v e l - a n d -


transport (accessed February 2013).

4.2 B U S IN E S S REPO RTIN G D EFIN IT IO N S A N D CO NCEPTS


D ecisio n m akers are in n eed o f inform ation to m ake accu rate and tim ely decisions.
Inform ation is essentially the contextualization o f data. Inform ation is often provided in
th e form o f a w ritten r e p o r t (digital o r o n paper), although it can also b e provided orally.
Sim ply put, a report is any com m unication artifact prepared w ith th e sp ecific intention o f
conveyin g inform ation in a presen table form to w h o ev er n eed s it, w h en ever and w herever
th e y may n e e d it. It is usually a d ocu m en t that contains inform ation (usually driven from
data and personal e xp erien ces) organized in a narrative, graphic, and/or tabular form,
prepared periodically (recurring) o r o n an as-required (ad h o c ) basis, referring to specific
tim e periods, events, occu rren ces, o r subjects.
In b u sin ess settings, types o f reports include m em os, m inutes, lab reports, sales
reports, progress reports, ju stification reports, com p lian ce reports, annual reports, and
policies and proced u res. R eports can fulfill m any different (b u t often related) Junctions.
H ere are a few o f th e m ost prevailing ones:

• T o en su re that all departm ents arc fu nctioning properly


• T o provide inform ation
170 Part II • Descriptive Analytics

• T o provide the results o f an analysis


• T o persuad e others to act
• T o create an organizational m em ory (as p a n o f a know led ge m anagem ent system )

R eports can b e lengthy at tim es. F o r th o se reports, there usually is an executive


sum m ary fo r those w ho d o n ot h ave the tim e and interest to g o through it all. T h e
sum m ary (o r abstract, o r m ore com m only ca lled execu tiv e b rief) should b e crafted
carefully, expressin g on ly the im portant points in a very co n cise and p recise m anner, and
lasting no m ore than a p ag e o r tw o.
In addition to busin ess reports, exam p les o f oth er types o f reports include crim e
scen e reports, p o lice reports, credit reports, scientific reports, recom m end ation reports,
w hite papers, annual reports, auditor’s reports, w ork p lace reports, cen su s reports, trip
reports, progress reports, investigative reports, bud get reports, policy reports, d em ographic
reports, cred it reports, appraisal reports, in sp ection reports, and military reports, am ong
others. In this chapter w e are particularly interested in busin ess reports.

W hat Is a Business Report?


A busin ess report is a w ritten d ocu m en t that contains inform ation regarding business
matters. B u siness reporting (also called enterprise reporting) is an essential part o f the
larger drive tow ard im proved m anagerial d ecisio n m aking and organizational know led ge
m anagem ent. T h e found ation o f these reports is various sou rces o f data com in g from
both inside and outside th e organization. C reation o f th ese reports involves ETL (extract,
transform , and load ) proced ures in coord ination with a data w arehouse and then using
o n e o r m ore reporting tools. W hile reports ca n b e distributed in print form o r via e-m ail,
they are typically accessed via a corporate intranet.
D u e to th e exp an sion o f inform ation tech n olog y cou p led w ith th e n e e d fo r im proved
com petitiveness in businesses, there has b e e n a n increase in the use o f com puting pow er
to produ ce unified reports that jo in different view s o f the enterprise in o n e p lace. Usually,
this reporting p ro cess involves querying structured data sou rces, m ost o f w h ich are created
b y using different logical data m odels and data dictionaries to p rod u ce a hum an-readable,
easily digestible report. T h ese types o f b u sin ess reports allow m anagers and cow orkers
to stay inform ed and involved, review op tions and alternatives, and m ak e inform ed
decisions. Figure 4.1 show s the continu ou s cy cle o f data acquisition —» inform ation
gen eration decision m aking —> busin ess p ro cess m anagem ent. Perhaps th e m ost critical
task in this cyclic p rocess is the reporting (i.e ., inform ation g eneration )— converting data
from different sou rces into action ab le inform ation.
T h e key to any successful report is clarity, brevity, com p leten ess, and correctness.
In term s o f con ten t and format, th ere are only a few categories o f b u sin ess report: infor­
mal, form al, and short. Inform al reports are usually up to 10 pag es long; are routine and
internal; follow a letter o r m em o form at; and u se personal p ronou ns and contractions.
Form al reports are 10 to 100 pages long; d o n o t u se personal pronouns or contractions;
include a title page, table o f con ten ts, and a n execu tiv e summary; are b ased o n d eep
research or an analytic study; and are distributed to external o r internal p e o p le with a
need -to-k n o w designation. Short reports are to inform p e o p le about events o r system
status chan g es and are often period ic, investigative, com p liance, and situational focused.
T h e nature o f the report also ch an g es significantly b ased o n w h om th e report is
created for. M ost o f the research in effective reporting is dedicated to internal reports
that inform stakeholders and d ecisio n m akers w ithin the organization. T h ere are also
external reports b etw een busin esses and the governm ent (e .g ., for tax p u rposes o r for
regular filings to the Securities and E xch an g e Com m ission). T h ese form al reports are
m ostly standardized and periodically filed eith er nationally o r internationally. Standard
B u sin ess Reporting, w h ich is a co llectio n o f international program s instigated b y a
Chapter 4 • B u s in e s s Reporting, Visual Analytics, and Business Perform ance Management 171

B u sin ess Functions

Data |
i ransactional Records
Exception Event
S-.mbol Count Description
Action
Machine (decision)
1 Failure

Decision
M aker
(reporting)

FIGURE 4.1 The Role of Information Reporting in Managerial Decision Making.

num ber o f governm ents, aim s to red uce the regulatory burden for business b y sim plifying
and standardizing reporting requirem ents. T h e idea is to m ake busin ess th e ep icen ter
w h en it com es to m anaging bu siness-to-governm ent reporting obligations. B usinesses
cond u ct their o w n financial adm inistration; th e facts th ey record and d ecisions they m ake
5hould drive their reporting. T h e governm ent should b e ab le to receiv e and p rocess
tfus inform ation w ithout im posing undue constraints o n h ow b u sin esses adm inister
m eir finances. A pplication Case 4.1 illustrates an excellen t exam p le for ov ercom in g the
challenges o f financial reporting.

Application Case 4.1


Delta Lloyd Group Ensures Accuracy and Efficiency in Financial Reporting
Delta Lloyd G roup is a financial services provider to €3 .9 billion and investments under m anagem ent
based in the Netherlands. It offers insurance, pen­ w orth nearly € 74 billion.
sions, investing, and banking services to its private
and corporate clients through its three strong brands: C h allen g es
Delta Lloyd, OHRA, and ABN AiMRO Insurance.
Since D elta Lloyd G roup is publicly listed o n the
Since its founding in 1807, the com pany has grown
in the Netherlands, Germany, and Belgium, and N YSE Euronext Am sterdam , it is obliged to produ ce
now em ploys around 5,400 perm anent staff. Its 2011 annual and half-year reports. V arious subsidiaries in
D elta Lloyd G roup m ust a lso p rod u ce reports to fulfill
full-year financial reports show €5-5 billion in gross
written premiums, w ith shareholders funds amounting local legal requirem ents: for exam p le, banking and
0 C ontinued )
172 Part II • Descriptive Analytics

Application Case 4.1 (Continued)


insurance reports are obligatory in th e N etherlands. report into chapters, and ea ch m em ber o f the report­
In addition, D elta Lloyd G roup must provide reports ing team is responsible fo r one chapter. Arnold Honig
to m eet international requirem ents, such as the says, “Since em ployees can w ork o n docum ents
IFRS (International Financial Reporting Standards) sim ultaneously, they can share the huge w orkload
for accou n tin g and th e EU Solvency I D irective for involved in report generation. B efore, the reporting
insurance com panies. T h e data fo r th ese reports is process was inefficient, b ecau se only o n e person
gathered b y the group’s finan ce departm ent, w h ich could w ork o n th e report at a tim e.”
is divided into sm all team s in several locations, and Sin ce th e w orkload can b e divided u p , staff can
then converted into XML so that it can b e published com p lete the report w ith less overtim e. Arnold H onig
o n th e corp orate W eb site. com m ents, “Previously, em p loy ees w ere putting in
2 w e e k s o f overtim e during th e 8 w eek s required to
Im p o rta n c e o f A c c u ra c y generate a report. This year, the 10 m em bers o f staff :
involved in th e report gen eration p ro cess w orked
T h e m ost challenging part o f the reporting p rocess is 25 p ercen t less overtim e, even though th ey w ere still
the “last m ile”— the stage at w h ich th e consolid ated getting used to the new' softw are. This is a b ig win
figures are cited, form atted, and d escribed to form for D elta Lloyd G roup and its staff.” T h e group is
the final text o f the report. D elta Lloyd G roup w as e xp ectin g further reductions in em p loyee overtim e I
using M icrosoft E xcel for the last-m ile stage o f the in the future as staff b eco m es m ore fam iliar with
reporting p ro cess. T o m inim ize the risk o f errors, the software.
th e fin an ce team n eed ed to m anually ch e c k all
the data in its reports for accuracy. T h e se manual
A ccu ra te R e p o rts
ch e ck s w ere very tim e-consum ing. Arnold Honig,
team lead er fo r reporting at D elta Lloyd G roup, T h e IBM C o g n os FSR solu tion autom ates k e y stages
com m ents: “A ccuracy is essential in financial in th e report-w riting p ro cess b y p o p u latin g the
reporting, sin ce errors cou ld lead to penalties, final report w ith accu rate, up -to-d ate fin an cial data.
reputational dam age, and e v e n a negative im pact W h erever th e text o f th e rep ort n e ed s to m ention
o n th e co m p an y ’s stock price. W e n e ed ed a n ew a sp e cific fin an cial figure, the fin a n ce tea m sim ply
solution that w'ould autom ate som e o f th e last mile inserts a “v a ria b le”— a tag that is lin k ed to an under­
p ro cesses and red u ce th e risk o f m anual error.” lying data so u rce . W herever th e variable ap p ears
in th e d ocu m en t, FSR will pull the figure through
from th e so u rce into th e report. If th e value o f the
S o lu tio n
figure n eed s to b e ch an g ed , th e team c a n sim ply
T h e group decid ed to im plem ent IBM Cognos up date it in th e so u rce, and th e n ew valu e will
Financial Statem ent Reporting (FSR). T h e im plem en­ autom atically flo w through into the text, m aintain­
tation o f th e softw are w as com pleted in just 6 w eek s ing accu racy an d co n siste n cy o f data throughout
during th e late sum mer. This rapid im plem entation the report.
gave the fin a n ce departm ent enou gh tim e to prepare A rnold H onig com m ents, “T h e ability to
a trial draft o f the annual report in FSR, based on update figures autom atically across th e w h ole report
figures from the third financial quarter. T h e su ccess­ red uces th e sc o p e for m anual error inherent in
ful creation o f this draft gave D elta Lloyd G roup sp read sh eet-based p ro cesses and activities. Since :
en ou g h co n fid e n ce to use C ognos FSR for the final w e have full control o f ou r reporting p rocesses,
version o f the annual report, w hich w as published w e can p ro d u ce b etter quality reports m ore effi­
shortly after th e en d o f the year. ciently and red u ce ou r b u sin ess risk.” IBM Cognos
FSR also provides a com parison feature, w hich
R esu lts highlights any ch an g es m ad e to reports. T his feature
m akes it q u ick er and easier for users to review new
Em ployees are delighted with the IBM Cognos FSR versions o f d ocu m en ts and ensure the accu racy o f
solution. D elta Lloyd G roup has divided the annual their reports.
Chapter 4 • Business Reporting, Visual Analytics, and Business Perform ance Management 17 3

A d h e rin g to I n d u s try R e g u la tio n s Q u e s t io n s f o r D is c u s s io n

in the future, D elta Lloyd G roup is planning to extend 1. H ow did D elta Lloyd G roup im prove accuracy
as use o f IBM Cognos FSR to generate internal m an­ and efficien cy in financial reporting?
agement reports. It will also help Delta Lloyd Group 2. W hat w ere the challeng es, the p rop osed solution,
to m eet industry regulatory standards, w h ich are and the obtained results?
becom ing stricter. Arnold H onig com m ents, “T h e EU 3. W hy is it im portant for D elta Lloyd G roup to
Solvency II Directive will co m e into effect soon, and com ply w ith industry regulations?
our Solvency II reports will n eed to b e tagged with
rX tensible B usiness Reporting Language [XBRL]. By
Source: IBM, Customer Success Story, “Delta Lloyd Group
implementing IBM Cognos FSR, w h ich fully supports Ensures Accuracy in Financial Reporting,” public.dhe.ibm.com/
XBRL tagging, w e have equipped ourselves to m eet com m on/ssi/ecm /en/ytc0356lnlen/YTC0356lN LEN .PDF
both current and future regulatory requirem ents.” (accessed Febmary 2013); and www.deltalloydgroep.com.

Even though there are a w id e variety o f busin ess reports, the on es that are often
_5ed for m anagerial purposes can b e grouped into th ree m ajor categories (Hill, 2013).

VETRIC M A N A G E M E N T REPO RTS In m any organizations, business perform ance is


m n a g e d through ou tcom e-oriented m etrics. For external groups, th ese are service-level
i^reem ents (SLAs). F o r internal m anagem ent, they are k ey perform ance indicators (KPIs).
7;.pically, there are enterprise-w ide agreed targets to b e tracked o v er a p eriod o f time.
They m ay b e u sed as part o f oth er m anagem ent strategies su ch as Six Sigm a or Total
Quality M anagem ent (TQ M ).

DASHBOARD-TYPE REPO RTS A popular idea in business reporting in recen t years has
~cen to present a ran ge o f different perform ance indicators o n o n e page, lik e a d ash­
board in a car. Typically, dashboard vend ors w ould provide a set o f p red efined reports
with static elem ents and fixed structure, but also allow for custom ization o f the dashboard
v-. idgets, view s, an d set targets fo r various m etrics. It’s com m on to have co lo r-co d ed traf­
fic lights d efined fo r perform ance (red , orange, g reen ) to draw m anagem ent attention to
particular areas. M ore details o n dashboards are given later in this chapter.

BA LAN C ED SC O REC A RD -TYPE REPO RTS This is a m ethod d eveloped b y K aplan and
Norton that attem pts to presen t an integrated view o f su ccess in a n organization. In addi-
:ion to financial perform ance, b alan ced sco reca rd -ty p e reports a lso include custom er,
business p ro cess, an d learning and grow th perspectives. M ore details o n b alan ced sco re ­
cards are provided later in this chapter.

Components of the Business Reporting System


Although e a ch b u sin ess reporting system has its un iq u e characteristics, th ere see m s to
b e a g e n eric pattern that is co m m o n acro ss organizations and tech n o lo g y architectures.
Think o f this g e n e ric pattern as having th e b u sin ess u ser o n o n e end o f th e reporting
continuum and th e data so u rces on th e o th er end . B a sed o n the n e ed s and requ irem en ts
o f the b u sin ess u ser, th e data is captu red, stored , con so lid ated , an d co n v erted to
desired reports u sing a set o f p red efin ed b u sin ess rules. T o b e su ccessfu l, su ch a
system n e ed s an ov erarch in g assu ran ce p ro cess that co v ers th e en tire value ch a in and
m oves b a ck and forth, en su ring that reporting requ irem en ts an d in form ation delivery
174 Pari II • Descriptive Analytics

are properly aligned (H ill, 2 0 0 8 ). F ollo w ing a re the m o st co m m o n co m p o n en ts o f a


b u sin ess reporting system .

• OLTP (o n lin e transaction p ro cessin g). A system that m easures som e aspect
o f th e real w orld as events (e.g ., tran saction s) and records them into enterprise
databases. Exam ples inclu de ERP system s, P O S system s, W eb servers, RFID readers,
handheld inventory readers, card readers, an d so forth.
• D ata supply. A system that takes record ed events/transactions and delivers them
reliably to the reporting system . T h e data a cce ss ca n b e push or pull, depending
o n w h eth er o r n ot it is resp onsible fo r initiating th e delivery process. It ca n also b e
p o lled (o r b atch ed ) if the data are transferred periodically, o r triggered (o r o nline)
if data are transferred in ca se o f a sp ecific event.
• ETL (extract, transform , a n d load). T h is is th e interm ediate step w h ere these
recorded transactions/events are ch e ck ed fo r quality, put into the appropriate
format, and inserted into the desired data format.
• D ata storage. This is the storage area fo r the data and m etadata. It could b e a
flat file o r a spreadsh eet, but it is usually a relational d atabase m anagem ent system
(RD BM S) set up as a data mart, data w arehou se, or op eration al data store (O D S); it
o ften em ploys online analytical processing (OLAP) functions like cu bes.
• B u sin ess logic. T h e exp licit steps for h o w the record ed transactions/events are
to b e converted into m etrics, scorecard s, and dashboards.
• P ublication. T h e system that builds th e various reports and hosts them (for
users) o r dissem inates them (to users). T h e se system s m ay also provide notification,
annotation, collaboration, and oth er services.
• A ssu ra n ce. A g oo d busin ess reporting system is e x p ected to o ffer a quality
service to its users. This inclu des determ ining if and w h en the right inform ation is to
b e delivered to the right p e o p le in the right way/format.

A pplication Case 4 .2 is an exce lle n t exam p le to illustrate the po w er and the util­
ity o f autom ated report generation for a large (and , at a tim e o f natural crisis, som ew hat
ch aotic) organization like FEMA.

Application Case 4.2


Flood of Paper Ends at FEMA
Staff at th e Federal Em ergen cy M anagem ent A gency p ro ject m anager and com puter scientist, respectively,
(FEMA), a U.S. federal ag ency that coordinates from Com puter Scien ces C orporation (C SC) have
d isaster resp o n se w h en the President d eclares a u sed W ebFO CU S softw are from Inform ation
national disaster, alw ays got tw o floods at once. Builders to turn b ack the flood o f paper generated
First, w ater covered th e land. N ext, a flood o f paper, b y th e NFIP. T h e program allow s the governm ent
required to adm inister the N ational Flood Insurance to w o rk to g eth er with national insurance com panies
Program (N FIP), cov ered their desks— pallets to co llect flood insurance prem ium s and pay claim s
and pallets o f green-striped reports poured o ff a fo r flooding in com m unities that adopt flood control
m ainfram e printer and into their offices. Individual m easures. As a result o f CSC’s w ork, FEMA staff no
reports w ere som etim es 18 in ch es thick, w ith a lon g er le a f through paper reports to find the data
nugget o f inform ation about insurance claim s, th ey need . Instead, they brow se insurance data
prem ium s, o r paym ents buried in them som ew h ere. p osted o n N FIP’s BureauN et intranet site, select just
Bill B arton and M ike Miles d on ’t claim to b e the inform ation they w ant to see, and g et an o n ­
ab le to d o anything ab ou t the w eather, but the screen report o r dow nload the data as a spreadsheet.
Chapter 4 • Business Reporting, Visual Analytics, and Business Perform ance Management 175

need ed it, and asking for m any new types o f reports.


And that is only th e start o f the savings that
Fortunately, Miles and W ebFO CU S w ere up to the
W ebFO CU S has provided. T h e n u m ber o f tim es that
task. In som e cases, B aito n says, “FEMA w ould ask for
NFIP staff asks CSC for sp ecial reports has dropped
a new type o f report one day, and Miles w ould have it
in half, b ecau se NFIP staff can generate m any o f the
o n BureauN et the next day, thanks to the speed with
special reports they n e e d w ithout calling o n a p io -
w hich h e could create new reports in W ebFO CU S.”
gram m er to develop them . T h en there is the cost
T h e sudden dem and o n th e system had little
o f creating B ureauN et in the first p lace. B a ito n esti­
im pact o n its perform ance, notes Barton. "It handled
m ates that using conv entional W e b and d atabase
the d em and just fin e,” h e says. "W e had no p ro b ­
softw are to exp o rt data from FEMA’s m ainfram e,
lem s w ith it at all.” “And it m ade a hu ge d ifference
store it in a n e w d atabase, and link that to a W eb
to FEMA and th e jo b they h ad to do. T h e y had never
server w ould have co st ab o u t 100 tim es as m uch
had that level o f access b efo re , never had b e e n ab le
m ore than $500,000— and tak en ab ou t tw o years
to just click o n their d esktop and g enerate such
to com plete, com p ared w ith th e few m onths Miles
d etailed and sp ecific rep orts.”
spent o n the W ebFO C U S solution.
W hen Tropical Storm Allison, a huge slug o f
sodden, swirling clouds, moved out o f the Gulf o f Q u e s t io n s f o r D is c u s s io n

M exico onto the T e x a s and Louisiana coastline in Ju n e 1. W h at is FEMA and w h at d oes it do?
2001, it killed 34 people, m ost from drowning; dam­ 2. W hat are th e m ain ch allen g es that FEMA faces?
aged or destroyed 16,000 hom es and businesses; and 3. H ow did FEMA im prove its in efficient reporting
displaced m ore than 10,000 families. President G eorge
practices?
W. B ush declared 2 8 T exas counties disaster areas,
and FEMA m oved in to help. This w as the first serious Sources: Information Builders, Customer Success Story-.Useful
test for BureauNet, and it delivered. This first com pre­ Information Flows at Disaster
Response Agency,”
informationbuilders.coni/applications/fema (accessed January
hensive use o f BureauN et resulted in FEMA field staff
readily accessing w hat they need ed and w hen they 2013); and fema.gov.

SECTION 4 .2 REVIEW QUESTIONS


1 . W hat is a report? W h at are they u sed for?
2. W hat is a b u sin ess report? W hat are the m ain characteristics o f a g oo d busin ess
report?
3 . D escrib e the cy clic p rocess o f m anagem ent and com m en t o n the role o f busin ess
reports.
4. List and d escribe th e three m ajor categories o f b usin ess reports.
5. W hat are the m ain com p on en ts o f a busin ess reporting system?

4.3 D A T A A N D IN FO R M A T IO N V ISU A LIZ A T IO N


Data visualization (o r m ore appropriately, inform ation visualization) has b e e n d efined
i s . "the u se o f visual representations to exp lore, m ak e sen se of, and com m unicate data
Few, 2008). A lthough th e nam e that is com m only u sed is d a ta visualization , usually
T,h a t is m eant b y this is inform ation visualization. Since inform ation is the aggrega-
;:on sum m arizations, and contextualization o f data (raw facts), w h at is portrayed in
visualizations is the inform ation an d not the data. H ow ever, sin ce th e tw o term s d a ta
i isualization and in form ation visualization are used interchangeably and synonym ously,
m this ch ap ter w e w ill fo llow suit.
D ata visualization is closely related to the fields o f inform ation graphics, inform ation
-isualization, scientific visualization, and statistical graphics. Until recently, the m ajor
17 6 Part II • Descriptive Analytics

form s o f data visualization available in b o th b u sin ess in tellig en ce applications have


inclu ded charts and graphs, as w ell as the other types o f visual elem ents u sed to create
scorecard s and d ashboards. A pplication Case 4 .3 sh ow s h ow visual reporting tools car.
help facilitate cost-effective busin ess inform ation creations and sharing.

Application Case 4.3


Tableau Saves Blastrac Thousands of Dollars with Simplified Information Sharing
Blastrac, a self-proclaim ed global lead er in portable the data sou rces. Murray then d ep loyed tw o data
surface preparation tech n olog ies and equipm ent visualization to o ls from T ableau Softw are: T ableau
(e .g ., sh ot blasting, grinding, polishing, scarifying, D esktop, a visual data analysis solution that allow ed
scraping, milling, and cutting equ ipm ent), d ep en d ed B lastrac analysts to quickly and easily create intui­
on the creation and distribution o f reports across the tive and visually com pelling reports, and Tableau
organization to m ake busin ess decisions. H ow ever, Reader, a fre e application that en ab led everyone
the com p an y did n ot have a consistent reporting across the com p an y to directly interact w ith the
m ethod in p lace and, consequently, preparation o f reports, filtering, sorting, extracting, and printing
reports fo r the com pany’s various n eed s (sales data, data as it fit th eir need s— and at a total cost o f less
w orking capital, inventory, purchase analysis, etc.) than one-third the low est com petin g B I quote.
w as ted iou s. B lastrac’s analysts ea ch sp ent nearly W ith on ly o n e hour per w e e k n o w required to
o n e w h o le day p er w e e k (a total o f 20 to 30 hours) create reports— a 95 p ercent increase in productiv­
extracting data from the m ultiple enterprise resource ity— and updates to th ese reports happening auto­
planning (E R P ) system s, loading it into several E xcel m atically th rough Tableau, Murray and his team are
spread sh eets, creating filtering capabilities and ab le to proactively identify m ajor business events
establishing pred efined pivot tables. reflected in co m p an y data— such as an e x cep tio n ­
Not only w ere th ese m assive spreadsheets ally large sale— instead o f reacting to incom ing
often inaccurate and consistently hard to under­ questions from em p loy ees as th ey had b e e n forced
stand, b u t also they w ere virtually u seless for the to d o previously.
sales team , w h ich cou ld n ’t w o rk w ith the com p lex “Prior to deploying Tableau, I sp ent countless
format. In addition, ea ch consu m er o f th e reports hours cu stom izing and creating n e w reports based
had different needs. o n individual requ ests, w h ich w as n o t efficien t or
B lastrac V ice Presid ent and CIO D an Murray productive fo r m e,” said Murray. “W ith Tableau,
b eg an lo o k in g fo r a solution to the com p an y ’s report­ w e create o n e report for e a c h b u sin ess area, and,
ing troubles. H e quickly rilled out the rollout o f a w ith very little training, th ey ca n e x p lo re th e data
single ERP system , a m ultim illion-dollar proposition. them selves. B y deploying Tableau, I n ot only
He also elim inated the possibility o f an enterprise- saved thousand s o f dollars and end less m onths
w id e busin ess intelligen ce (B I) platform deploym ent o f d ep loym ent, b u t T’m a lso now ab le to create a
b ecau se o f cost— q u otes from five different v en ­ product that is infinitely m o re valuable fo r p eo p le
dors ranged from $ 1 3 0 ,0 0 0 to over $ 500,000. W hat across th e organization.
Murray n eed ed w as a solution that w as affordable,
cou ld d ep lo y quickly w ithout disrupting current sys­ Q u e s t io n s f o r D is c u s s io n
tem s, and w as able to represent data consistently
1. H ow did B lastrac achiev e significant co st savin-
regardless o f the m ultiple cu rrencies B lastrac op er­
gin reporting and inform ation sharing?
ates in.
2. W h at w ere th e challen ge, the proposed, solution,

T h e S o lu tio n a n d th e R esu lts and th e ob tain ed results?

W orking w ith IT services consultant firm, Interw orks, Sources: tableausoftware.com/leam/stories/spotlight-blastric;


In c., out o f O klahom a, Murray and team finessed blastrac.com/about-us; and interworks.com.
Chapter 4 • Business Reporting, Visual Analytics, and Business Performance Management 177

T o b etter understand the current and future trends in the field o f data visualization,
it helps to begin with so m e historical context.

A Brief History o f Data Visualization


D espite the fact that pred ecessors to data visualization date b a ck to the seco n d century
AD. m ost d evelopm ents have occurred in the last tw o and a h alf centuries, predom inantly
during the last 3 0 years (F ew , 2007). Although visualization has n o t b e e n w idely
recognized as a discipline until fairly recently, tod ay’s m ost popular visual form s date
back a few centuries. G eographical exploration, m athem atics, and popularized history
spurred the creation o f early m aps, graphs, and tim elines as far b ack as th e 1 600s, but
William Playfair is w idely credited as the inventor o f the m odern chart, having created
the first w idely distributed line and bar charts in his Com m ercial and Political Atlas o f
I " 8 6 and w h at is generally con sid ered to b e th e first pie chart in his Statistical Breviary,
published in 1801 (s e e Figure 4.2).
Perhaps the m o st notable innovator o f inform ation graphics during this period was
Charles Jo s e p h M inard, w h o graphically portrayed the losses suffered b y N apoleon s army
m the Russian cam paign o f 1812 (se e Figure 4 .3 ). B eg inning at the P olish-R u ssian bord er,
d ie thick band sh ow s th e size o f the arm y at e a ch position. T h e path o f N ap oleon ’s
retreat from M oscow in th e bitterly cold w inter is d ep icted b y the dark low er b and , w hich
^ tied to tem perature and tim e scales. P opu lar visualization expert, author, an d critic

The Bottom Inw is divided in to years, the R irfh t hand lin e into JLM
A ct v* * Ig r W ? e it* v r a ir ... ..... -............................. ....................................... ..

: GURE 4.2 The First Pie Chart Created by William Playfair in 1801. Source: en.wikipedia.org.
178 Part II • Descriptive Analytics

FIGURE 4.3 Decimation of Napoleon's Army During the 1812 Russian Campaign. Source: en.wikipedia.org.

Edw ard T u fte says that this “m ay w ell b e the b est statistical graphic ev er draw n.” In this
g raphic Minard m anaged to sim ultaneously rep resen t several data d im ensions (th e size
o f the army, d irection o f m ovem ent, g eog rap hic locations, outside tem perature, e tc.) in
a n artistic and inform ative m anner. M any m o re great visualizations w ere created in the
1800s, and m ost o f them are ch ro n icled in T u fte’s W eb site (e d w a r d tu fte .c o m ) and hi'
visualization books.
T h e 1900s saw the rise o f a m ore form al, em pirical attitude tow ard visualization,
w h ich ten d ed to focu s o n asp ects such as color, value scales, and labeling. In th e mid-
1900s, cartographer and theorist Ja c q u e s Bertin published his Sem iologie Graphique.
w h ich som e say serves as the theoretical found ation o f m o d em inform ation visualization.
W hile m ost o f his patterns are eith er outdated b y m ore recen t research o r com pletely
inapplicable to digital m edia, m any are still very relevant.
In the 2000s the Internet has em erged as a n e w m edium for visualization and
brought w ith it a w h o le lot o f n ew tricks and capabilities. Not only has the worldwide,
digital distribution o f b o th data and visualization m ad e them m ore accessib le to a broader
aud ien ce (raising visual literacy along the w ay), b u t it has also spurred the design o f new
form s that incorporate interaction, anim ation, graphics-rendering tech n olog y un ique to
screen m edia, and real-tim e data feed s to create im m ersive environm ents for com m uni­
cating and consum ing data.
Com panies and individuals are, seem ingly all o f a sudden, interested in data; that
interest has, in turn, sparked a n eed for visual tools that help them understand it. Cheap hard­
w are sensors and do-it-yourself fram ew orks for building your ow n system are driving down
the costs o f collecting and processing data. Countless other applications, softw are tools,
and low -level cod e libraries are springing up to h elp p eo p le collect, organize, manipulate,
visualize, and understand data from practically any source. T h e Internet has also served as a
fantastic distribution channel for visualizations; a diverse com m unity o f designers, program­
m ers, cartographers, tinkerers, and data w onks has assem bled to disseminate all sorts o f
n ew ideas and tools for w orking with data in b oth visual and nonvisual forms.
Chapter 4 • Business Reporting, Visual Analytics, and Business Perform ance Management 179

G o o g le Maps has also single-handedly dem ocratized b oth the interface conv entions
click to pan, d ou ble-click to zoo m ) and the techn olog y (2 5 6 -p ix el square m ap tiles w ith
rred ictable file nam es) fo r displaying interactive geography on line, to the exten t that
m ost p e o p le just k n ow w h at to do w h en they’re presen ted with a m ap online. Flash has
served w ell as a cro ss-b ro w ser platform o n w h ich to design and d ev elop rich, beautiful
Internet applications incorporating interactive data visualization and m aps; now , n ew
brow ser-native tech n olog ies such as canvas and SVG (som etim es collectively inclu ded
under th e um brella o f HTML5) are em erging to ch allenge Flash's suprem acy and exten d
the reach o f dynam ic visualization interfaces to m obile devices.
T h e future o f data/information visualization is very hard to predict. W e ca n only
extrapolate from w hat h as already b ee n invented: m ore three-dim ensional visualization,
more im m ersive e xp erien ce with multidim ensional data in a virtual reality environm ent,
and holographic visualization o f inform ation. Th ere is a pretty goo d ch a n ce that w e will see
som ething that w e have n ev er seen in the inform ation visualization realm invented b efo re
die end o f this decad e. A pplication Case 4 .4 show s h ow D ana-Farber C an cer Institute u sed
information visualization to better understand the ca n cer v accin e clinical trials.

Application Case 4.4


TIBCO Spotfire Provides Dana-Farber Cancer Institute with Unprecedented Insight into Cancer
Vaccine Clinical Trials
W hen Karen M aloney, business developm ent m anager inherent in the data registry. T o gain a good under­
o f the Cancer V accine Center (CVC) at D ana-Farber standing o f the landscape, b oth an overview and
Cancer Institute in Boston, decided to investigate the an in-depth analytic capability w ere required simul­
com petitive landscape o f the can cer vaccine field, she taneously. It w ould have b e e n very difficult, not to
looked to a strategic planning and marketing MBA m ention incredibly tim e-consum ing, to analyze infor­
class at B abson College in W ellesley, Massachusetts, mation from the multiple data sources separately, in
for help with the research project. T here she met order to understand the relationships underlying the
Xiaohong Cao, w h ose bioinform atics background led data or identify trends an d patterns using spread­
to the decision to focus o n clinical vaccine trials as sheets. And to attempt to u se a traditional business
representative o f potential com petition. This becam e intelligence tool w ould have required significant IT
Dana-Farber CVC’s first organized attempt to assess resources. Cao proposed using the TIBCO Spotfire
in-depth the cancer vaccine market. DXP (Spotfire) com putational and visual analysis tool
C ao fo cu sed o n the analysis o f 64 5 clini­ for data exploration and discovery.
cal trials related to ca n ce r vaccines. T h e data w as
extracted in XML from the C lin ic a lT r ia ls .g o v W eb R esu lts
site, and included categ ories su ch as “Sum mary W ith th e help o f Cao and Spotfire softw are, D ana-
o f P u rp ose,” “Trial S p o n so r,” “P hase o f the T rial,” Farber’s CVC d ev eloped a first-of-its-kind analysis
“R ecm iting Status,” and “L ocation.” Additional sta­ ap p roach to rapidly extract co m p lex data specifi­
tistics o n ca n ce r types, including in cid en ce and sur­ cally for ca n cer vaccines from the m ajor clinical
vival rates, w ere retrieved from th e N ational C ancer trial repository. Sum m arization and visualization
Institute Surveillance data. o f th ese data rep resen ts' a cost-effectiv e m eans o f
m aking inform ed d ecisio n s ab ou t future can cer
C hallenge an d S o lu tio n
v accin e clinical trials. T h e findings are h elp ing the
Although information from clinical vaccine trials is CVC a t D ana-Farber understand its com petition and
organized fairly w ell into categories and can b e dow n­ th e d iseases they are w orking on to help sh ap e its
loaded, there is great inconsistency and redundancy strategy in th e m arketplace.
0C ontinued )
180 Part II • Descriptive Analytics

Application Case 4.4 (Continued)


Spotfire softw are’s visual an d com putational fro m th e d ata th at w as p rev io u sly n o t easily
analysis ap p roach provides the CVC at D ana-Farber a tta in a b le .”
and the research com m unity at large w ith a b e t­
ter understanding o f the ca n ce r v accine clinical Q u e s t io n s f o r D is c u s s i o n

trials lan d scap e and en ab les rapid insight into the 1. H ow did D ana-Farber C ancer Institute use TIBCO
hotspots o f ca n cer vaccin e activity, as w ell as into Spotfire to en h an ce inform ation reporting and
the identification o f n eg lected cancers. visualization?
“T h e w h o le field o f m ed ica l re sea rch is g o in g 2. W hat w ere th e challenge, the p ro p osed solution,
th ro u g h a n e n o rm o u s tran sform atio n , in part and th e obtained results?
d riven b y in fo rm atio n te c h n o lo g y ,” ad ds B ru sic.
Sources: TIBCO Spotfire. Customer Success Story. “TIBCO Spotfire
“U sing a to o l lik e Sp o tfire fo r an aly sis is a p rom ­
Provides Dana-Farber Cancer Institute with Unprecedented Insight
isin g area in this field b e c a u s e it h elp s in teg rate into Cancer Vaccine Clinical Trials," spotfire.tibco.com/-/media/
in fo rm atio n fro m m u ltiple so u rce s, a sk sp e cific content-center/case-studies/dana-farber.ashx (accessed March
q u e stio n s, an d rapid ly e x tra ct n ew k n o w led g e 2013); and Dana-Farber Cancer Institute, dana-farber.org.

SECTION 4 .3 REVIEW QUESTIONS


1 . W hat is data visualization? W hy is it needed?
2 . W hat are the historical roots o f data visualization?
3 . Carefully analyze Charles Jo se p h Minard’s graphical portrayal o f N apoleon ’s march
Identify and com m ent o n all o f the inform ation d im ensions captured in this ancien:
diagram.
4 . W ho is Edw ard Tufte? W hy do you think w e should k n ow ab ou t his work?
5. W hat d o you think th e “next big thing” is in data visualization?

4.4 D IFFEREN T T Y P E S OF CHARTS A N D G R A PH S


O ften end users o f busin ess analytics system s a re n ot sure w hat type o f chart o r graph
to use fo r a sp ecific purpose. Som e charts and/or graphs are b etter at answ ering certain
types o f questions. W hat follow s is a short description o f the types o f charts and/or
graphs com m only found in m ost business analytics to o ls and w hat types o f q uestion that
th ey are b etter at answering/analyzing.

Basic Charts and Graphs


W hat follow s are th e b asic charts and graphs that are com m only u sed for information
visualization.

LINE CH ART Line charts are perhaps the m ost frequently used graphical visuals for
tim e-series data. Line charts (o r line graphs) sh o w th e relationship b etw ee n tw o variables:
they m ost often are used to track chan g es or trend s over tim e (having o n e o f the vari­
ab les set to tim e o n the x-axis). Line charts sequ entially co n n e ct individual data points
to h elp infer changing trends over a period o f tim e. Line charts are often used to show
tim e-d epend ent ch an g es in the values o f som e m easure su ch as chan g es o n a specific
sto ck price over a 5-year period o r chang es in th e n u m ber o f daily cu stom er service calls
ov er a m onth.
Chapter 4 • Business Reporting, Visual Analytics, and Business Performance Management 181

BAR CHART B a r charts are am ong the m ost b asic visuals u sed for data representation.
B ar charts are effective w h en you have nom inal data o r num erical data that splits nicely
into different categories so you ca n quickly se e com parative results and trends within
your data. B ar charts a rc often u sed to com pare data across m ultiple categories su ch as
percent advertising sp end ing by departm ents or b y product categories. B ai charts can b e
vertically o r horizontally oriented. T h e y ca n also b e stack ed o n to p o f ea ch oth er to show
multiple d im ensions in a single chart.

PIE CH ART Pie charts are visually appealing, as the nam e im plies, p ie-looking charts.
B ecau se they are so visually attractive, they are often incorrectly used. Pie charts should
only b e used to illustrate relative proportions o f a sp ecific m easure. For instance, they
can b e u sed to show relative p ercen tag e o f advertising bud get spent o n different product
lines o r they can show relative proportions o f m ajors d eclared by colleg e students in their
sophom ore year. If the nu m ber o f categories to show are m ore than just a few (say , m ore
than 4 ), o n e should, seriously con sid er using a bar chart instead o f a p ie chart.

SCATTER PLOT Scatter plots are often used to exp lore relationships b etw een tw o or
three variables (in 2D o r 2D visuals). Since they are visual exploration tools, having
m ore than three variables, translating into m ore than three dim ensions, is n o t easily
achievable. Scatter plots are an effective w ay to exp lore the existen ce o f trends, c o n c e n ­
trations, and outliers. For instance, in a tw o-variable (tw o-axis) graph, a scatter plot can
be u sed to illustrate th e co-relationship b etw een age and w eigh t o f heart disease patients
o r it can illustrate th e relationship b etw ee n n u m ber o f cu stom er care representatives and
num ber o f o p en cu stom er service claim s. O ften, a trend line is superim posed o n a tw o-
dim ensional scatter p lot to illustrate the nature o f th e relationship.

BUBBLE CHART B u b b le charts are often enh an ced versions o f scatter plots. T h e b u b ble
chart is n ot a new visualization type; instead, it should b e view ed as a techniqu e to
enrich data illustrated in scatter plots (o r ev en geographic m aps). B y varying the size and/
or co lo r o f the circles, o n e ca n add additional data dim ensions, offering m ore enriched
m eaning about the data. F o r instance, it can b e used to show a com petitive view o f
college-level class attend ance b y m ajor and by tim e o f the day o r it ca n b e used to show
profit m argin b y produ ct type and b y geographic region.

Specialized Charts and Graphs


T he graphs and charts that w e review in this sectio n are eith er derived from th e basic
charts as sp ecial cases o r they are relatively n ew and sp ecific to a problem ty p e and/or
an application area.

HISTOGRAM G raphically speaking, a histogram look s just like a bar chart. T h e difference
b etw een histogram s and gen eric b a r charts is the inform ation that is portrayed in them.
Histograms are used to show th e freq u en cy distribution o f a variable, or several variables.
In a histogram , the x-axis is often used to show the categories or ranges, and th e y -axis
is used to show th e m easures/values/frequencies. Histogram s show the distributional
shape o f the data. T h at w ay, o n e ca n visually exam ine if the data is distributed norm ally,
exponentially, and so on. F o r instance, o n e ca n use a histogram to illustrate th e exam
perform ance o f a class, w h ere distribution o f the grades as w ell as com parative analysis
o f individual results can b e show n; o r o n e ca n u se a histogram to show age distribution
o f their cu stom er b ase.
182 Part II • Descriptive Analytics

GANTT CHART G antt charts are a special ca se o f horizontal b ar charts that are used to
portray p roject tim elines, p ro ject tasks/activity durations, and overlap am ongst the tasks/
activities. B y show ing start and en d dates/times o f tasks/activities and the overlapping
relationships, G antt charts m ake an invaluable aid for m anagem ent and control o f
projects. For instance, G antt charts are o ften u sed to sh ow p ro ject tim eline, talk overlaps,
relative task com p letions (a partial b a r illustrating th e com p letion p ercen tag e inside a
b a r that show s the actual task duration), resou rces assigned to e a ch task, m ilestones,
and deliverables.

PERT CHART PERT charts (also called n etw ork diagram s) are d ev eloped primarily
to sim plify the planning and scheduling o f large and com p lex projects. A PERT chan
show s p re ce d e n ce relationships am ong th e p ro ject activities/tasks. It is com posed
o f nod es (rep resen ted as circles o r rectangles) and ed g es (rep resented w ith directed
arrow s). B a sed o n the selected PERT ch a n con v en tio n , eith er n od es o r the ed ges may­
b e used to represent the p roject activities/tasks (activity-on-node versus activity-on-arrow
representation schem a).

G EO G RAPH IC M AP W hen the data set includes any kind o f location data (e.g ., physical
addresses, postal cod es, state nam es o r abbreviations, country nam es, latitude/longitude,
o r som e type o f custom geographic en cod in g ), it is b etter and m ore inform ative to see
th e data o n a map. Maps usually are u sed in con ju n ctio n with oth er ch an s and graphs,
as op p o sed to b y them selves. For instance, o n e ca n use m aps to show distribution
o f cu stom er service requests by product type (d ep icted in pie charts) b y geographic
locations. O ften a large variety o f inform ation (e .g ., age distribution, in com e distribution,
edu cation, eco n o m ic grow th, population ch an g es, e tc .) ca n b e portrayed in a geographic
m ap to help d ecid e w h ere to o p en a n ew restaurant or a n ew service station. T h e se types
o f system s are often called geographic inform ation system s (G IS).

BULLET B u llet graphs are often used to show progress tow ard a goal. A bullet graph
is essentially a variation o f a bar chart. O ften th ey are u sed in p lace o f gauges, m eters,
and therm om eters in dashboards to m ore intuitively con vey th e m eaning w ithin a m uch
sm aller space. B ullet graphs com pare a primary m easure (e .g ., year-to-date revenu e) to
o n e or m o re oth er m easures (e .g ., annual revenue target) and present this in the context
o f d efined p erform ance m etrics (e.g ., sales q u ota). A bullet graph can intuitively illustrate
h o w the prim ary m easure is perform ing against overall goals (e .g ., h o w clo se a sales
representative is to achieving his/her annual quota).

HEAT M AP H eat m aps are great visuals to illustrate the com parison o f continuous values
across tw o categories using color. T h e goal is to help the u ser quickly se e w h ere the
intersection o f th e categories is strongest and w eak est in term s o f num erical values o f
the m easure b ein g analyzed. For instance, h eat m aps ca n b e used to show segm entation
analysis o f th e target m arket w h ere th e m easu re (co lo r gradient w ould b e the purchase
am ount) and the d im ensions w ould b e age and in co m e distribution.

HIGHLIGHT TA B LE Highlight tables are intended to take h eat m aps o n e step further. In
addition to show ing h ow data intersects b y u sing color, highlight tables add a num ber
o n to p to provide additional detail. T h at is, it is a tw o-dim ensional table w ith cells
populated w ith num erical values and gradients o f colors. For instance, o n e can show
sales representative p erform ance b y produ ct ty p e and by sales volum e.

TR EE M AP T re e m aps d isplay h ierarch ical (tree-stru ctu red ) data as a set o f nested
rectan g les. E ach b ra n ch o f th e tre e is g iv en a recta n g le, w h ich is th en tiled with
Chapter 4 • Business Reporting, Visual Analytics, and Business Perform ance M anagem ent 183

sm aller rectan g les re p resen tin g su b -b ra n ch e s. A le a f n o d e ’s recta n g le has a n a re a p ro ­


portional to a sp e cifie d d im en sio n o n th e data. O fte n th e le a f n o d e s are c o lo re d to
show a sep arate d im en sio n o f th e data. W h e n th e c o lo r and size d im en sio n s are
correlated in so m e w a y w ith th e tree stru cture, o n e ca n often easily s e e patterns
that w o u ld b e difficu lt to sp o t in o th er w ay s, such as if a certa in c o lo r is particu larly
—levant A s e co n d ad van tage o f tree m ap s is that, b y con stru ctio n , th e y m a k e efficien t
Lse o f sp a ce . As a resu lt, th ey c a n leg ibly d isplay th o u san d s o f item s o n th e scre en
sim ultaneously.
Even though th ese charts and graphs cov er a m ajor part o f w h at is com m only used
p i inform ation visualization, they b y n o m eans cov er it all. N ow adays, o n e can find m any
other specialized graphs and charts that serve a sp ecific purpose. Furtherm ore, current
r a i d s are to com bine/hybridize and anim ate th ese charts for b etter look in g an d m ore
intuitive visualization o f today’s com p lex and volatile data sou rces. F o r instance, the
'te ra ctiv e , anim ated, b u b b le charts available at the G apm inder W e b site (g a p m in d e r .
o rg ) provide an intriguing w ay o f exploring w orld health, w ealth, and population data
from a m ultidim ensional perspective. Figure 4 .4 depicts th e sorts o f displays available
iz the site. In this graph, population size, life exp ectancy, and p er capita in com e at the
continent lev el are show n; also given is a tim e-varying anim ation that show s h ow these
variables changed o v er time.

1 ooe 2 030 4 003' 10 300 20 000 0 000 100000

Income per person (GDP/capita, PPP$ inflation-adjusted)

SGUBE 4.4 A Gapminder Chart That Shows Wealth and Health of Nations. Source: gapminder.org.
184 Part II • Descriptive Analytics

SECTION 4 .4 REVIEW QUESTIONS


1 . W hy d o you think th ere are large nu m bers o f d ifferent types o f charts and graphs-
2 . W hat are the m ain differences am ong line, bar, and pie charts? W h en should y t *
ch o o se to use o n e ov er the other?
3 . W h y ,w ould you use a geographic map? W h at oth er types o f charts ca n b e co m b ir.ril
w ith a geographic map?
4. Find tw o m ore charts that are not covered in this section, and com m ent o n their usabil:7 I

4.5 THE E M E R G E N C E OF D A T A V IS U A LIZ A T IO N


A N D V IS U A L A N A LY T IC S
As Seth G rim es (2 0 0 9 ) has n oted , there is a “grow ing p alette” o f data visualization
techniqu es and to ols that en a b le the users o f busin ess analytics and busin ess intelligence
system s to b etter “com m unicate relationships, add historical context, u n cov er hidden
correlations and tell persuasive stories that clarify and call to actio n .” T h e latest Magic
Q uadrant o n B u siness In telligence and Analytics Platform s released b y G artner in February
2 0 1 3 further em phasizes the im portance o f visualization in busin ess intelligence. As the
chart show s, m ost o f the solution providers in the Leaders quadrant are eith er relatively
recently found ed inform ation visualization com p an ies (e .g ., T ab leau Softw are, Q lik T ecL
T ib co Spotfire) o r are w ell-established , large analytics com panies (e.g ., SAS, IBM.
M icrosoft, SAP, M icroStrategy) that are increasingly focusing their efforts in information
visualization and visual analytics. D etails o n th e G artner’s latest M agic Q uadrant are given
in T ech n olog y Insights 4.1.

T EC H N O LO G Y IN SIG HTS 4 .1 G a rtn e r M agic Q u a d ra n t f o r B u sin e s s


In te llig e n c e a n d A n aly tics P la tfo rm s

Gartner, Inc., the creator o f Magic Quadrants, is a leading information technology research and
advisory company. Founded in 1979, Gartner has 5,300 associates, including 1,280 research ana­
lysts and consultants, and numerous clients in 85 countries.
Magic Quadrant is a research method designed and implemented by Gartner to monitor
and evaluate the progress and positions of companies in a specific, technology-based market.
By applying a graphical treatment and a uniform set o f evaluation criteria, Magic Quadrant helps
users to understand how technology providers are positioned within a market.
Gartner changed the name of this Magic Quadrant from “Business Intelligence Platforms
to “Business Intelligence and Analytics Platforms” in 2012 to emphasize the growing importance
of analytics capabilities to the information systems that organizations are now building. Gartner
defines the business intelligence and analytics platform market as a software platfoim that
delivers 15 capabilities across three categories: integration, information delivery, and analysis.
These capabilities enable organizations to build precise systems of classification and measure­
ment to support decision making and improve performance.
Figure 4.5 illustrates the latest Magic Quadrant for Business Intelligence and Analytics
platforms. Magic Quadrant places providers in four groups (niche players, challengers,
visionaries, and leaders) along two dimensions: completeness of vision Oc-axis) and ability to
execute (j-axis). As the quadrant clearly shows, most of the well-known BI/BA providers are
positioned in the “leaders” category while many of the lesser known, relatively new, emerging
providers are positioned in the “niche players” category'.
Right now, most of the activity in the business intelligence and analytics platform market
is from organizations that are trying to mam re their visualization capabilities and to move from
descriptive to diagnostic (i.e., predictive and prescriptive) analytics. The vendors in the market
have overwhelmingly concentrated on meeting this user demand. If there were a single market
Chapter 4 • Business Reporting, Visual Analytics, and Business Perform ance M anagem ent 18 5

Challengers Leaders

Tableau Software Microsoft

^ __ QlikTech
•— Oracle e IBM
•— SAS
m MicroStrategy
A Tibco Spotfire
Information Builders
■SAP
Proqnoz # Actuate
Bifam • .
Board International
# Panorama Software
T Alterys • |
Jaspersoft \ s a|jent Management Company
Pentaho *
Targit 9 GoodData
Arcplan •

Niche players Visionaries


---------------------- 1Completeness of vision [-------------- ►

As of February 2013

FIGURE 4.5 Magic Quadrant for Business Intelligence and Analytics Platforms. Source: gartner.com.

theme in 2012, it w ould b e that data discovery/visualization becam e a mainstream architec­


ture For years’, data discovery/visualization vendors— such as QlikTech, Salient M anagem ent
Company, Tableau Software, and T ib co Spotfire— received more positive feedback than vendors
offering OLAP cu b e and sem antic-layer-based architectures. In 2012, the market respont ed:

• MicroStrategy significantly improved Visual Insight.


• SAP launched Visual Intelligence.
• SAS launched Visual Analytics.
• Microsoft bolstered PowerPivot with Pow er View.
• IBM launched Cognos Insight.
• Oracle acquired Endeca.
• Actuate acquired Quiterian.
This emphasis o n data discovery/visualization from m ost o f the leaders in the market—
which are now promoting tools with business-user-friendlv data integration, coupled with
embedded storage and com puting layers (typically in-memory/columnar) and unfettered
drilling— accelerates the trend toward decentralization and user em pow erm ent o f B l and
analytics, and greatly enables organizations’ ability to perform diagnostic analytics.

Source: Gartner Magic Quadrant, released on February 5, 2013. gartner.com (accessed February 2013).

In business intelligence and analytics, the k ey ch allen g es fo r visualization have


evolved around the intuitive representation o f large, co m p lex data sets w ith multiple
dimensions and m easures. For th e m ost part, th e typical charts, graphs, and oth er visual
dem ents u sed in th ese applications usually involve tw o dim ensions, som etim es three,
m d fairly sm all su b sets o f data sets. In contrast, the data in th ese system s resid e in a
18 6 Part II • Descriptive Analytics

data w arehouse. At a m inimum, th e se w areho u ses involve a range o f d im ensions (e.g..


product, location, organizational structure, tim e), a ran ge o f m easures, and m illions or
cells o f data. In an effort to address th ese ch alleng es, a nu m ber o f researchers have
d ev elop ed a variety o f n ew visualization techniqu es.

Visual Analytics
Visual analytics is a recently co in ed term that is o ften used loosely to m ean nothing m ore
than inform ation visualization. W hat is m eant b y v is u a l a n a ly tic s is th e com bination
o f visualization and predictive analytics. W hile inform ation visualization is aim ed ai
answ ering “w hat h ap p en ed ” and “w h at is h ap p en in g ” and is closely associated with
b usin ess intelligence (routine reports, scorecard s, and dashboards), visual analytics if
aim ed at answ ering “w hy is it hap p en in g ,” “w h at is m ore likely to h a p p e n ,” and is usually
associated w ith busin ess analytics (forecasting, segm entation, correlation analysis).
M any o f the inform ation visualization vendors are adding the capabilities to call them­
selves visual analytics solution providers. O n e o f th e top, long-tim e analytics solution
providers, SAS Institute, is approaching it from an oth er direction. T h ey are em bedding
their analytics capabilities into a high-perform ance data visualization environm ent tha:
they call visual analytics.
Visual or not visual, autom ated or m anual, on lin e or p ap er b ased , busin ess reporting
is n ot m uch different than telling a story. T e ch n o lo g y Insights 4 .2 provides a different,
u northod ox view point to b etter busin ess reporting.

T EC H N O LO G Y IN SIG H TS 4 .2 T ellin g G re a t S to rie s w ith D ata


a n d V isu alizatio n

Everyone w ho has data to analyze has stories to tell, w hether it’s diagnosing the reasons for
manufacturing defects, selling a new idea in a way that captures the imagination o f your target
audience, or informing colleagues about a particular custom er service improvement program.
And w hen it’s telling the story behind a big strategic choice so that you and your senior
m anagem ent team can make a solid decision, providing a fact-based stoiy can be especially
challenging. In all cases, it’s a big job. Y ou w ant to b e interesting and m em orable; you know
you need to keep it sim ple for your busy executives and colleagues. Yet you also know you
have to be factual, detail oriented, and data driven, especially in today’s metric-centric world.
It’s tempting to present just the data and facts, but w hen colleagues and senior manage­
ment are overwhelmed by data and facts without context, you lose. W e have all experienced
presentations with large slide decks, only to find that the audience is so overwhelmed with data
that they don’t know what to think, or they are so com pletely tuned out, they take aw'ay only a
fraction o f the key points.
Start engaging your executive team and explaining your strategies and results more
powerfully by approaching your assignment as a story. You will need the “w hat” o f your story
(the facts and data) but you also need the “who?,” the “how?,” the “why?," and the often missed
“so what?” It’s these stoiy elem ents that will make your data relevant and tangible for your
audience. Creating a good story can aid you and senior managem ent in focusing o n what
is important.

W h y S to ry ?
Stories bring life to data and facts. They can help you make sense and order out o f a disparate
collection o f facts. They m ake it easier to rem em ber key points and can paint a vivid picture of
w hat the future can look like. Stories also create interactivity— people put them selves into stories
and can relate to the situation.
Chapter 4 • Business Reporting, Visual Analytics, and Business Perform ance Management 187

Cultures have long used storytelling to pass o n knowledge and content. In som e cultures,
storytelling is critical to their identity. For exam ple, in New Zealand, som e o f the Maori people
tattoo their faces with m ok u s. A m o k u is a facial tattoo containing a story about ancestors the
family tribe. A man may have a tattoo design on his face that show s features o f a hammerhead
to highlight unique qualities about his lineage. T h e design h e chooses signifies what is part of
his “true s e lf’ and his ancestral home.
Likewise, w hen w e are trying to understand a story, the storyteller navigates to finding the
“tnie north.” If senior m anagem ent is looking to discuss how they will respond to a com petitive
change, a good story can make sense and order out o f a lot o f noise. For exam ple, you may
have facts and data from two studies, one including results from an advertising study and one
from a product satisfaction study. Developing a story for what you measured across both studies
can help people see the w hole w here there w ere disparate parts. For rallying your distributors
around a new product, you can em ploy a story to give vision to what the future can look like.
Most importantly, storytelling is interactive— typically the presenter uses words and pictures that
audience m em bers can put them selves into. As a result, they becom e m ore engaged and better
understand the information.

So W hat Is a Good Story?


Most people can easily rattle off their favorite film or bo ok. O r they rem em ber a funny story
that a colleague recently shared. W hy do people rem em ber these stories? Becau se they contain
certain characteristics. First, a good story has great characters. In som e cases, the reader or
viewer has a vicarious experience where they becom e involved with the character. T he charac­
ter then has to b e faced with a challenge that is difficult but believable. There must be hurdles
that the character overcom es. And finally, the outcom e or prognosis is clear by the end o f the
story. T h e situation may not be resolved— but the story has a clear endpoint.

Think o f Y ou r Analysis as a Story—Use a Story Structure


W hen crafting a data-rich story, the first objective is to find the story. W ho are the characters?
W hat is the drama o r challenge? W hat hurdles have to be overcom e? And at the end o f your
story, what do you want your audience to do as a result?
O n ce you know the core story, craft your other story elem ents: define your characters,
understand the challenge, identify the hurdles, and crystallize the outcom e o r decision
question. Make sure you are clear with what you want people to do as a result. This will
shape how your audience will recall your story. With the story elem ents in place, write out
the storyboard, w hich represents the structure and form o f your story. Although it’s tempting
to skip this step, it is better first to understand the story you are telling and then to focu s on
the presentation structure and form. O nce the storyboard is in place, the other elem ents will
fall into place. T h e storyboard will help you to think about the best analogies o r m etaphors, to
clearly set up challenge o r opportunity, and to finally see the flow and transitions needed. The
storyboard also helps you focus o n key visuals (graphs, charts, and graphics) that you need
your executives to recall.
In summary, don’t b e afraid to use data to tell great stories. Being factual, detail oriented,
and data driven is critical in today’s metric-centric world but it does not have to m ean being b or­
ing and lengthy. In fact, by finding the real stories in your data and following the best practices,
you can get people to focus o n your message— and thus on what’s important. Here are those
best practices:

1. Think o f your analysis as a story— use a story structure.


2. B e authentic— your story will flow.
3. B e visual— think o f yourself as a film editor.
4. Make it easy for your audience and you.
5. Invite and direct discussion.

Sotirce: Elissa Fink and Susan J. Moore, “Five Best Practices for Telling Great Stories with Data,” 2012, white
raper by Tableau Software, Inc., t a b le a u s o f t w a r e .c o m / w h it e p a p e r s / t e l l i n g - s t o r i e s - w i t h - d a t a (accessed
February 2013).
18 8 Part II • Descriptive Analytics

High-Powered Visual Analytics Environments


D ue to the increasing dem and for visual analytics co u p led w ith fast-grow ing data volumes,
there is an exponential m ovem ent tow ard investing in highly efficien t visualization systems.
W ith their latest m ove into visual analytics, the statistical softw are giant SAS Institute is
n ow am ong the on es w h o are leading this w ave. T h eir n ew product, SAS Visual Analytics,
is a very h ig h -p e r fo r m a n c e , in-m em ory solution fo r exploring m assive am ounts o f data
in a very short tim e (alm ost instantaneously). It em pow ers users to spot patterns, identify
opportunities for further analysis, and convey visual results via W e b reports or a m obile
platform such as tablets and sm artphones. Figure 4 .6 show s the high-level architecture of
the SAS Visual Analytics platform. O n o n e end o f the architecture, there are universal Data
Builder and Administrator capabilities, leading into Explorer, Report D esigner, and Mobile
B I m odules, collectively providing an end -to-end visual analytics solution.
Som e o f the key benefits p ro p osed b y SAS analytics are:

8 Em pow er all users w ith data exploration tech n iqu es and approachable analytics to
drive im proved decision making. SAS Visual Analytics enables different types o f users
to cond u ct fast, thorough explorations o n all available data. Subsetting or sampling
o f data is not required. Easy-to-use, interactive W e b interfaces broad en the audi­
e n ce for analytics, enabling everyone to glean n ew insights. Users can lo o k at more
options, m ake m ore p recise decisions, and drive su ccess ev en faster than before.
• A nsw er co m p lex questions faster, enhancing the contributions from you r analytic
talent. SAS Visual Analytics augm ents th e data discovery and exploration p rocess by
providing extrem ely fast results to en a b le better, m ore fo cu sed analysis. Analytically
savvy users can identify areas o f opportunity o r co n c ern from vast am ounts o f data
so further investigation ca n take p lace quickly.
• Im prove inform ation sharing and collaboration. Large num bers o f users, including
th o se w ith lim ited analytical skills, ca n quickly view and interact with reports and
charts via the W eb, A dobe PD F files, and iPad m o bile d evices, w hile IT maintains
control o f the underlying data and security. SAS Visual Analytics provides the
right inform ation to the right person at the right tim e to im prove productivity and
organizational know ledge.

FIGURE 4.6 An Overview of SAS Visual Analytics Architecture. Source: SAS.com.


Chapter 4 • Business Reporting, Visual Analytics, and Business Perform ance M anagem ent 18 9

FIG U RE 4 .7 A Screenshot from SA S Visual Analytics. Source; SAS.com .

• Liberate IT b y giving users a new w ay to access the inform ation they n eed . Free
IT from the constan t barrage o f dem ands from users w h o n eed a cce ss to different
am ounts o f data, different data view s, ad h o c reports, and o n e -o ff requ ests for
inform ation. SAS Visual Analytics en a b les IT to easily load and prepare data for
m ultiple users. O n ce data is load ed and available, users can dynam ically exp lore
data, create reports, and share inform ation o n their ow n.
• Provide ro om to grow at a self-determ ined p ace. SAS V isual Analytics provides the
op tion o f u sing com m od ity hardw are or d atabase appliances from EMC G reenplum
and Teradata. It is designed from the ground up for perform ance optim ization and
scalability to m e e t the n eed s o f any size organization.

Figure 4.7 show s a screensh o t o f an SAS Analytics platform w h ere tim e-series
pxecasting and co n fid en ce intervals around the fo recast are depicted. A w ealth o f infor­
mation o n SAS Visual Analytics, along with access to th e to o l itself for teaching an d learn-
L purposes, can b e fou nd at teradatauniversitynetw ork.com .

SECTION 4 .5 REVIEW QUESTIONS


1. W hat are the reasons for the recen t em erg en ce o f visual analytics?
2 . Look at G artner’s M agic Q uadrant for B usiness In telligence and Analytics Platforms.
W hat d o you see? D iscuss and justify you r observations.
3 . W hat is th e d ifference b etw een inform ation visualization and visual analytics?
-L W hy should storytelling b e a part o f you r reporting and data visualization?
5 . W hat is a high-pow ered visual analytics environm ent? W hy d o w e n eed it?
190 Part II • Descriptive Analytics

4.6 PERFO RM A N C E D ASHBO ARD S


P erform ance dashboards are com m on com p on en ts o f m ost, if not all, p erform ance man­
agem ent system s, perform ance m easurem ent system s, BPM softw are suites, and B I plat­
form s. D a s h b o a r d s provide visual displays o f im portant inform ation that is consolidated
and arranged o n a single screen so that inform ation can b e digested at a single glance
and easily drilled in and further explored . A typical dashboard is show n in Figure 4.8.
This particular execu tiv e dashboard displays a variety o f KPIs for a hypothetical software
com pany called Sonatica (sellin g audio tools). T h is execu tiv e dashboard sh ow s a high-
level view o f th e different fu nctional groups surrounding the products, starting from a
gen eral overview to the m arketing efforts, sales, finan ce, and support departm ents. All o f
this is intended to give execu tiv e decision m akers a q u ick and accu rate idea o f w hat is
going o n w ithin the organization. O n the left sid e o f the dashbord, w e can s e e (in a time-
series fashion) the quarterly chan g es in revenues, e x p en ses, and margins, as w ell as the
com parison o f those figures to previous years’ m onthly num bers. O n the upper-right side
w e se e tw o dials w ith colo r-co d ed regions sh ow ing the am ount o f m onthly exp en ses for
support services (dial o n the left) and th e am ount o f oth er exp en ses (dial o n the right).

Executive Dashboard Sonatica


'' s'fPl,. Turn it up.

S p e c if y a d a t e r a n g e : jJun e, 2009 j:^ » jJuly, 2010 ||^

□ Margin Margin (previous year) n Monthly Expense Average Monthly Expense High Monthly Expense low

n 09 A ug 09 Oct 09 Dec 09 10 Apr 10

FIGURE 4.8 A Sample Executive Dashboard. Source: dundas.com.


Chapter 4 ♦ Business Reporting, Visual Analytics, and Business Performance Management 191

the color cod ing indicates, w hile th e m onthly support exp en ses are w ell within the
norm al ranges, the oth er ex p e n se s are in the red (o r d arker) region, indicating excessiv e
"ilu e s . T h e geograp hic m ap o n the bottom right sh ow s the distribution o f sales a t the
country level throughput the w orld. B eh in d th ese graphical icons there are variety o f
mathem atical functions aggregating num erious data points to their highest level o f m ean-
mgul figures. By clicking o n th ese graphical icon s, the consu m er o f this inform ation can
drill dow n to m ore granular levels o f inform ation and data.
D ashboards are u sed in a w id e variety o f b u sin esses for a w ide variety o f reasons.
For instance, in A pplication Case 4.5 , you will find the sum m ary o f a successful im ple­
m entation o f inform ation dashboards by the D allas C ow boys football team.

Application Case 4.5


Dallas Cowboys Score Big with Tableau and Teknion
Founded in I9 6 0 , th e D allas C ow boys are a pro­ Added Luisi, “O f cou rse, T ableau w orked very
fessional Am erican football team headquartered closely w ith us and th e C ow boys during the entire
in Irving, T exas. T h e team has a large national p roject. Togeth er, w e m ad e sure that the Cow boys
follow ing, w hich is perhaps b est represented by cou ld ach iev e their reporting and analytical goals in
the NFL record for nu m ber o f con secu tiv e gam es at record tim e.”
sold-out stadiums. N ow , for the first tim e, the D allas Cow boys
are a b le to m onitor th eir com p lete m erchandising
C hallen ge activities from m anufacture to end cu stom er and see
n ot only w hat is h ap p en in g across th e life cycle, but
Bill Priakos, C O O o f th e Dallas C ow boys M erchan­ drill dow n e v e n further into w h y it is happening.
dising Division, and his team need ed m ore visibility Today, this BI solu tion is used to report and
into their data so th ey could run it m ore profitably. analyze the business activities o f th e M erchandising
M icrosoft w as selected as the b aseline platform for D ivision, w h ich is resp on sible fo r all o f the D allas
this upgrade as w ell as a nu m ber o f other sales, logis­ C ow boys’ bran d sales. Industry' estim ates say that
tics, and e-co m m erce applications. T h e Cow boys the C ow boys g enerate 2 0 p ercent o f all NFL m er­
e xp ected that this n e w inform ation architecture chan d ise sales, w h ich reflects the fact they are the
would provide the n eed ed analytics and reporting. m ost recognized sports fran chise in th e world.
Unfortunately, this w as n ot the case, and th e search According to Eric Lai, a ComputerWorld
beg an fo r a robu st dashboarding, analytics, and reporter, T o n y Rom o an d the rest o f th e Dallas
reporting tool to fill this gap. C ow boys m ay have b e e n only average on th e foot­
ball field in the last fe w years, but o ff the field,
S olu tion a n d R e su lts esp ecially in th e m erchandising arena, th ey rem ain
T ableau and T e k n io n togeth er provided real-tim e Am erica’s team.
reporting and dashboard capabilities that exce e d e d
the C ow boys’ requirem ents. System atically and Q u e s t io n s f o r D is c u s s i o n
m ethodically the T e k n io n team w orked sid e by side
1. H ow did the D allas C ow boys use inform ation
with data ow ners and data users within th e Dallas
visualization?
Cow boys to deliver all required functionality, o n
2. W hat w ere the ch allen g e, the proposed solution,
time and under budget. “Early in th e p ro cess, w e
and th e obtained results?
w ere ab le to g et a clea r understanding o f w hat it
w ould take to run a m ore profitable op eration for
Sources: Tableau, Case Study, tableausoftware.com/learn/
the C ow boys,” said T ek n io n V ice President Bill stories/tableau-and-teknion-exceed-cowboys-requirements
Luisi. “This p ro cess step is a k ey step in T ek n io n ’s (accessed February 2013); and E. Lai, “B I Visualization Tool Helps
approach w ith any client, and it alw ays pays huge Dallas Cowboys Sell More Tony Romo Jerseys,” ComputerW orld,
dividends as th e im plem entation plan progresses.” October 8, 2009-
192 Part II • Descriptive Analytics

Dashboard Design
D ashbo ard s are n o t a n ew c o n c ep t. T h e ir ro o ts ca n b e traced at lea st to th e E IS o f the
1 980s. T o d a y , d ash bo ard s a re u b iqu ito u s. F o r ex a m p le , a few years b a ck , F oriestei
R esea rch estim ated that o v er 4 0 p e rce n t o f th e larg est 2 ,0 0 0 co m p a n ie s in the world
u se th e te ch n o lo g y (A nte and M cG regor, 2 0 0 6 ). S in ce th e n , o n e ca n safely assum e
that this n u m b er h as g o n e up q u ite significantly. In fact, n ow ad ay s it w o u ld b e rather
unusual to se e a large co m p an y u sin g a B I sy stem that d o e s not em p lo y so m e sort o;
p e rfo rm a n ce d ashboard s. T h e D ash b o ard Spy W e b site ( d a s h b o a r d s p y .c o m / a b o u t
provid es fu rther e v id e n ce o f th eir ubiquity. T h e site co n ta in s d escrip tion s and scie e n -
sh o ts o f th o u san d s o f B I d ashboard s, sco reca rd s, an d B I in terfaces u sed b y b u sin esses
o f all sizes an d industries, n on p rofits, and g o v ern m en t a g en cies.
A ccording to E ck erso n (2 0 0 6 ), a w ell-kn ow n exp ert o n B I in general and dash­
b oard s in particular, the m ost distinctive featu re o f a dashboard is its three layers of
inform ation:

1 . M o n ito r in g . G raphical, abstracted data to m onitor k ey p erform ance metrics.


2 . A n a ly s is . Sum m arized dim ensional data to analyze the root cau se o f problem s.
3 . M a n a g e m e n t. D etailed operational data that identify w hat actions to take to
resolve a problem .

B e c a u s e o f th e se layers, d ash bo ard s p a c k a lo t o f in form ation in to a single


scre en . A ccord ing to F e w (2 0 0 5 ), “T h e fu nd am ental ch a lle n g e o f d ashboard design
is to d isplay all th e requ ired inform ation o n a sin gle scre e n , clearly and w ithout
d istraction, in a m an n er that c a n b e assim ilated q u ick ly .” T o sp e e d assim ilation o f
th e n u m bers, the nu m bers n e e d to b e p la ced in co n tex t. T h is c a n b e d o n e b y co m ­
paring th e nu m bers o f in terest to o th er b a se lin e o r target nu m bers, b y indicating
w h eth er th e n u m bers are g o o d o r b ad , b y d en o tin g w h eth er a trend is b etter o r w orse,
a n d b y u sin g sp ecialized display w id gets o r co m p o n e n ts to set th e com p arative and
evaluative co n tex t.
S om e o f th e co m m o n co m p a riso n s th at are typically m ad e in busin ess
in tellig en ce system s in clu d e com p ariso n s a g a in st p ast v alu es, fo reca ste d values,
targ eted v alu es, b en ch m a rk o r averag e v alu es, m u ltiple in sta n ces o f the sam e m easure,
and th e v alu es o f o th er m easu res (e .g ., re v e n u e s versu s co sts). In Figure 4 .8 , the
various K PIs are set in co n te x t b y co m p arin g th em w ith targ eted values, th e revenue
figure is set in c o n te x t b y com p arin g it w ith m ark eting co sts, and th e figu res for
the various stag es o f th e sa les p ip e lin e are s e t in co n te x t b y com p arin g o n e stage
w ith an oth er.
E v en w ith com p arativ e m easu res, it is im portant to sp e cifica lly p o in t out
w h e th e r a p articu lar n u m b er is g o o d o r b a d an d w h eth er it is tren d in g in th e right
d irection . W ithou t th e se sorts o f evalu ative d esig n a tio n s, it ca n b e tim e-con su m in g
to d eterm in e th e status o f a p articu lar n u m b e r o r result. T y p ically , e ith er sp ecialized
visual o b je c ts (e .g ., traffic ligh ts) o r visual attrib u tes (e .g ., c o lo r co d in g ) are used
to set th e evaluative co n te x t. A gain, fo r th e d ash b o ard in Figure 4 .8 , c o lo r cod in g
(o r varying gray to n e s ) is u se d w ith th e g au g es to d esig n a te w h eth er th e KP1 is goo d
o r b a d , an d g re e n up arrow s a re u sed w ith th e vario u s stag es o f th e sa le s p ip elin e to
in d icate w h eth er th e results fo r th o se stag es are tren d in g u p o r d ow n a n d w h eth er
up o r d ow n is g o o d o r bad. A lthough n o t u se d in this p articu lar e x a m p le , additional
co lo rs— red an d o ra n g e, fo r in sta n ce — c o u ld b e u sed to re p re sen t o th e r states on
th e vario u s g au g es. An in terestin g and in form ative d ash b o ard -d riv en rep orting
solu tion bu ilt sp e cifica lly fo r a v ery larg e te le co m m u n ica tio n co m p an y is featu red in
A p p licatio n C ase 4.6.
Chapter 4 • Business Reporting, Visual Analytics, and Business Perform ance Management 193

Application Case 4.6


Saudi Telecom Company Excels with Information Visualization
Supplying Internet and m o bile services to over data cen ter finally transform ing from reactive to pro­
160 m illion custom ers across the Middle East, active. Figure 4 .9 show s a sam ple dashboard for call
Saudi T e le co m C om pany (STC ) is o n e o f the larg­ cen ter m anagem ent.
est providers in th e region, extend in g as far as
Africa and South Asia. W ith m illions o f custom ers T h e B e n e fits
contacting STC daily for billing, paym ent, netw ork
“D und as’ inform ation visualization to o ls allow ed
usage, and support, all o f this inform ation has to b e
us to se e trends and co rrect issues b efo re th ey
m onitored som ew h ere. L ocated in the headquarters
b e ca m e p ro b lem s,” said Mr. Eshaiw y. H e added,
o f STC is a data ce n te r that features a so cce r field­
“W e d ecrea sed the am o u n t o f serv ice tickets
sized wall o f m onitors all displaying inform ation
by 55 p e rce n t th e y ea r th at w e started using the
regarding netw ork statistics, service analytics, and
inform ation visualization to o ls and d ashboards.
cu stom er calls.
T h e availability o f th e system in creased , w h ich
m ean t cu stom er satisfactio n lev els in creased , w h ich
T h e P ro b le m
led to an in creased cu sto m er b a se , w h ich o f cou rse
W hen you have acres o f inform ation in front o f lead to in crea sed re v e n u e s.” W ith new , cu stom
you, prioritizing an d contextualizing th e data are K PIs b eco m in g visually available to the STC team ,
param ount in understanding it. STC n e ed ed to iden­ D und as’ d ash board s cu rrently o ccu p y nearly a
tify the relevant m etrics, properly visualize them, quarter o f th e s o c c e r fie ld -s iz e d m onitor wall.
and provide them to the right p eo p le, often with “E verything is o n m y scre e n , and I ca n drill d ow n
tim e-sensitive inform ation. “T h e execu tiv es didn’t and find w h atev er I n e e d to k n o w ,” exp la in ed
have the ability to s e e k ey perform ance indicators” W aleed . H e added, “B e c a u s e o f the design and
said W aleed Al Eshaiw y, m anager o f the data cen ter structure o f th e d ashboard s, w e ca n v ery quickly
at STC. “T h ey w o u ld have to con tact the technical reco g n iz e th e ro o t ca u se o f th e p ro blem s and take
team s to get status reports. B y that time, it w ould appropriate a ctio n .” A ccord ing to Mr. Eshaiw y,
often b e to o late an d w e w ould b e reacting to prob­ D und as is a su ccess: “T h e ad op tion rates are
lems rather than preventing th em .” e x ce lle n t, it’s easy to u se, and it’s o n e o f th e m ost
su ccessfu l pro jects that w e h av e im plem ented.
The S o lu tio n E ven visitors w h o stop b y m y o ffice are g rabbed
right aw ay b y th e lo o k o f th e d ashboard !”
After carefully evaluating several vendors, STC m ade
die decision to g o w ith D undas b eca u se o f its rich
data visualization alternatives. D undas business Q u e s t io n s f o r D is c u s s i o n

intelligence consultants w orked on-site in S T C s 1. W hy d o you think telecom m un ications com p a­


headquarters in Riyadh to refine the telecom m u­ n ies are am ong the prim e users o f inform ation
nication dashboards so they functioned properly. visualization tools?
'E ven if so m eo n e w e re to sh o w y ou w h at w as in 2. H ow did Saudi T e le co m use inform ation
d ie database, line b y line, w ithout visualizing it, it visualization?
w ould b e difficult to k n o w w h at w as g oing o n ,”
3- W hat w ere their challeng es, the p rop osed solu­
said W aleed , w h o w o rk ed clo sely w ith D undas c o n ­
tion, and the ob tain ed results?
sultants. T h e su ccess that STC exp erien ced led to
engagem ent o n an enterprise-w ide, m ission-critical
Source: Dundas, Customer Success Story, “Saudi Telecom
project to transform their data cen ter and create a Company Used Dundas’ Information Visualization Solution,"
m ore proactive m onitoring environm ent. This project dundas.com/wp-content/ uploads/ Saudi-Telecom-Company-
culminated w ith th e m onitoring system s in STC’s Case-Studyl.pdf (accessed February 2013).

0C ontinued )
194 Part II • Descriptive Analytics

Application Case 4.6 (Continued)

tsuikww
CALL CENTER DASHBOARD • r * ,w
D u n d a s Dat a V i s u a l i z a t i o n Inc.
TFRS CALLS RATE
AHT (tnins)
AGENT FCRw Q TO
14 W 18 30
(Nt«* z.g80% 0 2 4 6 3 i 10
17 32 92
M «tkW ev«i 92 .1
16 28 89
He<n»one Grange* ?2
12 29 81
f
11 31 81
Aibus CMmbledore
IS 24 81

S-jvw s Snape
Miranda July
I 17 27 76
20 22 74
i
Syivia Piath
i 15 25 74
Billy CoHinj
11 24 70
Pablo Netuda 8
3 17 22 68
7

Ku«Vonnegot
I 16 21 68
i 15 18 67
3
Richatd Btaulfcjan ?
J 10 15 65
C M Sagan 4 11 16 62
ColsnRrth s
I s 14 61
OavWSHrigley

(RATE ABANDONRATE

F IG U R E 4 .9 A Sam ple Dashboard fo r Call Center M anagem ent. Source: dundas.com .

W hat to Look fo r in a Dashboard


A lthough p erform ance dashboards and oth er inform ation visualization fram ew orks dif­
fer in their pu rpose, th ey all share som e co m m o n design characteristics. First, they all
fit w ithin the larger busin ess intelligence and/or perform ance m easurem ent systern This
m eans that their underlying architecture is th e B I or p erform ance m anagem ent architec-
ture o f the larger system . Secon d , all w ell-d esigned dashboard and oth er inform ation
visualizations p o ssess the follow ing characteristics (N ovell, 2009)-

• T hey use visual com ponents (e.g., charts, p erfonnance bars, sparklines, gauges,
m eters, stoplights) to highlight, at a glance, the data and exceptions that require action.
• T h ey are transparent to th e user, m eaning that they require m inimal training and are
extrem ely easy to use.
• T h e y com bin e data from a variety o f system s into a single, sum m arized, unitied
view o f the business.
• T h ey e n a b le drill-dow n o r drill-through to underlying data sou rces or reports,
providing m ore detail ab ou t the un derlying com parative and evaluative context.
• T h ey presen t a dynam ic, real-w orld v ie w w ith tim ely data refreshes, enablin g the
end user to stay up to date w ith any recen t changes in the business.
• T h e y require little, if any, custom ized cod in g to im plem ent, dep loy, an d m aintain.
Chapter 4 • Business Reporting, Visual Analytics, and Business Perform ance Management 19 5

Best Practices in D ashbo ard D esign


T he real estate saying “location , location, location” m akes it obviou s that th e m ost im por­
tant attribute fo r a p iece o f real estate property is w h ere it is located. For d ashboards, it
is “data, data, data.” An o ften ov erloo k ed aspect, data is o n e o f the m ost im portant things
to con sid er in designing dashboards (C arotenuto, 2 0 0 7 ). E ven if a d a sh b o a rd s ap p eai-
an ce look s professional, is aesthetically pleasing, and includes graphs and tables created
according to a cce p te d visual design standards, it is also im portant to ask ab ou t the data: Is
it reliable? Is it timely? Is any data missing? Is it consistent across all dashboards? H ere are
som e o f the exp erien ces-d riven b est practices in dashboard d esign (Radha, 2008).

Benchm ark K ey Perform ance Indicato rs w ith In d ustry Standards


Many custom ers, at so m e p oin t in tim e, w ant to k n o w if the m etrics they are m easuring
are the right m etrics to m onitor. At tim es, m any custom ers h ave found that the m etrics
they are tracking are n o t th e right o n e s to track. D oing a gap assessm en t w ith industry
benchm arks aligns you w ith industry b est practices.

Wrap the D ashboard M etrics w ith Co ntextual M etadata


O ften w h en a report o r a visual dashboard/scorecard is presen ted to busin ess users,
m any questions rem ain unansw ered. T h e follow ing are som e exam ples:

• W here did you so u rce this data?


• W hile loading th e data w arehou se, w h at p ercentage o f the data g o t rejected/
en cou n tered data quality problem s?
• Is the dashboard presenting “fresh ” inform ation or “stale” information?
• W h en w as the data w areh o u se last refreshed?
• W h en is it going to b e refreshed next?
• W ere any high-value transactions that w ould sk ew the overall trends rejected as a
part o f th e load ing process?

V a lid a te the D ashboard D esign by a U sab ility Sp e cialist


In m ost d ashboard environm ents, the dashboard is d esigned b y a tool specialist w ithout
giving consid eration to usability principles. Even though it’s a w ell-en g in eered data
w arehouse that can p erfo rm w ell, m any busin ess users d o n ot u se the dashboard b eca u se
it is p erceiv ed as n ot b ein g u ser friendly, leading to p o o r adoption o f the infrastructure
and ch an ge m anagem ent issues. U pfront validation o f the dashboard design b y a usability
specialist can m itigate this risk.

Prioritize and Rank A lerts/Excep tio ns Stream ed to the D ashboard


B ecau se there are to n s o f raw data, it is im portant to have a m echanism b y w h ich
important exceptions/behaviors are proactively pu sh ed to the inform ation consum ers.
A business rule can b e codified, w h ich d etects th e alert pattern o f interest. It c a n b e
coded into a program , using d atabase-stored p roced u res, w h ich ca n craw l through the
fact tables and detect patterns that n eed the im m ediate attention o f the b usin ess user.
This way, inform ation finds the b usin ess u ser as op p o sed to the b u sin ess user p olling the
fact tables for o ccu rren ce o f critical patterns.

Enrich D ashboard w ith B usiness Users' Com m ents


W hen the sam e d ashboard inform ation is presen ted to m ultiple busin ess users, a small
lext b o x can b e provided to capture the com m ents from an end -u ser perspective. T h is can
196 Part II • D escrip tiv e Analytics „ w r.f ner-
o fte n b e ta g g e d to th e d a sh b o a rd a n d p u t th e in fo rm a tio n m c o n te x t, a
s p e ctiv e to t h e stru ctu red K P Is b e m g re n d e re d .

In f o r m aiiuii
Present inrorm a t i o n ■!«
in Th re e D iffe re n t Levels
---------------- f ,
In fo rm a tio n c a n b e p re s e n te d in th re e fh | se lf-s e rv ic e c u b e
in fo rm a tio n ; th e v isu a l d a sh b o a rd le: , & K p Is c a n b e p re s en ted ,

te v e l. W h e n a u s e r w J t is n o t.
w h ich w o u ld give a sen se o f w h at is goi g

Pick th e Right Visual Construct Using D ashboard Design P r in c ip le s

in presenting inform ation in a ^ ^ ^ “ “ ^ ^ ^ " n s ^ s c a T t e r plot


charts, som e w ith tim e-series lin e graphs, an , P Q n ce th e dashboard
s u s e k . Som etim es m erely rendering it as sim ple a b k s s effe ^ ^ ^ ^

« £ - —
Provide for G u id e d A n alytics .
In a typical W n e s T u s 'e r in order

■ -

3 . S l T d ^ s X 't h e t e e fayers o f ^ ^ ^ f X r t “ o n visuals? !


4 . W h a t a re th e c o m m o n c h a ra c te n s tic s fo r d a sh b o a rd s
5 . W h a t a re th e b e s t p ra c tic e s in d a sh b o a rd d esign .

4 7 B U S IN E S S P E R F O R M A N C E M A N A G E M E N T

th e b u sin ess and trade literature, \


nu m ber o f n am es, including corp orate P * en terpriSe m anagem en t (SEM ). C P M w as
perform ance m an ag em ent CEP ), a n * rtn er.co m "). EPM is a term associated with
co in ed b y th e m arket analyst firm G a r t n ( g ^ is the term that SAP (s a p .c o m )
O r a c le ’s (o r a c le .c o m ) o ffe rin g y e b e c a u s e it is th e e a rlie st, I
u s e s , i n th is c h a p te r, BPM is p re fe rr e d o v e r t h e o t h e r « e r ^ ^ ^ ^ s in g le _so lu tio n

th e m o s t g e n e ra lly u s e d , a n d m a n a g e m e n t (B P M ) re fe rs to th e b u s in e s s 1
p ro v id e r. T h e t e r m b u s i n e s s p e r f o o n ^ S ^ e n te rp r is e s to m e a su re ,

*— threekeycom
ponents]
s. SKfL“SSTd,“ ®«s.
p e rfo rm a n c e ag a in st th o s e g o a ls
‘,,d
o p e ra tio n a l p la n n in g , c o n so lid a tio n

3' r d° :X P m « “ s, a n d m o m to n n g o f k e y p e rfo rm a n c e in d icato rs

(K P Is), linked to organizational strategy


Chapter 4 • Business Reporting, Visual Analytics, and Business Perform ance Managem ent 197

FIGURE 4.10 Closed-Loop BPM Cycle Source: Business Intelligence, 2e.

Closed-Loop BPM Cycle


M aybe the m ost significan t d ifferentiator o f BPM from any oth er B I to ols and p ractices
is its strategy fo cu s. BPM en co m p asses a clo sed -lo o p set o f p ro cesse s that link strategy
to e x ecu tio n in o rd er to optim ize b u sin ess perform ance (s e e Figure 4 .1 0 ). T h e loop
im plies that op tim um p erfo rm an ce is ach iev ed b y settin g goals and ob jectiv es (i.e ., strat-
egize), establishing initiatives and plans to ach iev e th o se goals (i.e ., plan), m onitoring
actual perform ance against the g oals and ob jectiv es (i.e ., m onitor), and taking correctiv e
action (i.e ., act and adjust). T h e con tinu ou s and repetitive nature o f the cy cle im plies
that the com p letion o f an iteration leads to a n e w and im proved o n e (su pporting c o n ­
tinues p ro cess im provem en t efforts). In th e follow in g sectio n th e se fo u r p ro cesse s are
described.

1. S tr a te g iz e : W here d o w e w a n t to g o ? Strategy, in general terms, is a high-


level p lan o f action, en com p assin g a long period o f tim e (o ften several years) to ach iev e a
defined goal. It is esp ecially n ecessary in a situation w h ere there are num erous constraints
(driven b y m arket cond itions, resou rce availabilities, and legal/political alterations) to deal
with o n the w ay to ach iev ing the goal. In a busin ess setting, strategy is the art and the
scien ce o f crafting d ecisio n s that help b u sin esses achiev e their goals. M ore specifically, it
is the p ro cess o f identifying and stating the organization’s m ission, vision, and ob jectives,
and d ev eloping plans (at different levels o f granularity— strategic, tactical, an d op era­
tional) to achiev e th ese objectives.
B u siness strategies are norm ally planned and created by a team o f corporate
executives (o ften le d b y the CEO ), approved and authorized b y th e board o f directors,
and th en im plem ented b y the com p an y ’s m anagem ent team under the supervision o f the
19 8 Part II • Descriptive Analytics

sen ior executives. B u sin ess strategy provides an overall d irection to the enterprise and is
the first and forem ost im portant p ro cess in the BPM m ethodology.

2. P la n : How do we g et there? W hen op eration al m anagers k n ow and under­


stand th e w hat (i.e., th e organizational ob jectives an d goals), they will b e a b le to com e
up w ith the how (i.e ., d etailed operational and financial plans). O perational and financial
plans answ er tw o questions: W hat tactics and initiatives will b e pursued to m eet th e per­
form ance targets established b y th e strategic plan? W hat are the e x p ected financial results
o f execu ting th e tactics?
An op eration al plan translates an organization’s strategic ob jectives and goals into
a set o f w ell-d efined tactics and initiatives, resou rce requirem ents, and e x p ected results
for som e future tim e period, usually, b u t not alw ays, a year. In esse n ce , an operational
plan is like a p ro ject plan that is d esigned to en su re that an organization s strategy is
realized. M ost operational plans en com p ass a portfolio o f tactics and initiatives. T h e key
to su ccessfu l operational planning is integration. Strategy drives tactics, and tactics drive
results. Basically, the tactics and initiatives d efined in an operational plan n eed to b e
d irectly linked to k ey ob jectives and targets in th e strategic plan. If th ere is n o linkage
b etw ee n an individual tactic and o n e o r m ore strategic ob jectives or targets, m anagem ent
should question w h eth er th e tactic and its associated initiatives are really need ed at all.
T h e BPM m ethod ologies discussed later in this ch ap ter are designed to ensure that these
linkages exist.
T h e financial planning and bud geting p ro cess has a logical structure that typically
starts w ith th o se tactics that g en erate som e form o f revenue or incom e. In organizations
that sell g o o d s o r services, the ability to g en erate rev en u e is b a se d o n eith er the ability
to directly p rod u ce good s and services o r acq u ire the right am ount o f g ood s and
services to sell. After a revenu e figure has b e e n established , the associated co sts o f
delivering that level o f revenue ca n b e generated . Q uite often , this entails input from
sev eral departm ents o r tactics. This m eans the p ro cess has to b e collaborative and that
d ep en d en cies b e tw e e n fu nctions n eed to b e clearly com m unicated and understood. In
addition to th e collaborative input, the organization also n e ed s to add various overhead
costs, as w ell as th e costs o f th e capital required. T his inform ation, o n c e consolidated,
sh ow s the co st by tactic as w ell as th e cash and Rinding requ irem ents to put th e plan
into op eration.
3. M onitor/A nalyze: How a re we d o in g? W h en the operational and finan­
cial plans are underw ay, it is im perative that th e perform ance o f the organization b e
m onitored. A com prehensive fram ew ork for m onitoring perform ance should address two
k e y issues: w hat to m onitor and h ow to monitor. B eca u se it is im possible to lo o k at every­
thing, an organization need s to focus o n m onitoring specific issues. After the organization
has identified the indicators o r m easures to look at, it n eed s to d evelop a strategy for m on­
itoring those factors and responding effectively. T h e se m easures are m ost often called key
perform ance indicators (o r KPI, in short). An overview o f the p rocess o f determ ining KPI
is given later in this chapter. A related topic to th e selectio n o f the optim al set o f KPIs is
th e b alan ced scorecard m ethod, w h ich will also b e covered in detail later in this chapter.

4 . A ct a n d A djust: What do we n e e d to do d ifferen tly ? W hether a com pany is


interested in grow ing its busin ess or sim ply im proving its operations, virtually all strategies
d ep en d o n n ew projects— creating n ew products, entering new m arkets, acquiring new
custom ers o r businesses, o r stream lining som e p ro cesses. M ost com panies ap p roach these
new projects with a spirit o f optim ism rather than objectivity, ignoring the fact that most
new projects and ventures fail. W hat is the ch a n ce o f failure? O bviously, it depends o n the
type o f p ro ject (Slyw otzky and W eber, 2007). H ollyw ood m ovies have around a 60 per­
cen t ch a n ce o f failure. T h e sam e is true for m ergers and acquisitions. Large IT projects fail
Chapter 4 • Business Reporting, Visual Analytics, and Business Performance Management 199

at the rate o f 7 0 p ercen t. For n ew fo od products, th e failure rate is 80 percent. F o r new


pharm aceutical products, it is ev e n higher, around 9 0 percent. Overall, the rate o f failure
for m ost n e w projects or ventures runs b etw ee n 6 0 and 80 percent. G iven th ese num bers,
the answ er to the q u estio n o f “w hat do w e n eed to d o differently?” b eco m es a vital issue.

A pplication C ase 4 .7 show s h ow a large construction and consu ltan cy com pan y
im plem ented an integrated reporting system to b etter track their financials and oth er
im portant KPIs across its international branches.

Application Case 4.7


IBM Cognos Express Helps Mace for Faster and Better Business Reporting
H eadquartered in th e UK, M ace is an international international division. W e also liked th e w eb inter­
consu ltancy and construction com p an y that offers fa ce, w h ich w e kn ew ou r international users w ould
highly integrated services across the full property b e able to access easily .”
and infrastructure lifecycle. It em ploys 3 ,7 0 0 p e o ­ “W e en gaged with B arrachd , a n IBM B usiness
ple in m ore than 6 0 countries w orldw ide, and is Partner, to support us during the project, and they
involved in som e o f the w orld’s highest-profile proj­ did a very professional jo b . T h e y h elp ed us n e g o ­
ects, su ch as the construction o f London’s “Shard”, tiate a reason ab le price for the softw are licenses,
the tallest building in W estern Europe. delivered excellen t tech n ical support, and provided
M any o f M a ce’s international pro jects are us w ith a cce ss to the right IBM experts w h enever w e
contracted o n a fixed -p rice basis, and their suc­ n eed ed them .”
cess d ep end s o n th e com p an y ’s ability to control
costs and m aintain profitability. Until recently, the R ap id Im p le m e n ta tio n
only w ay for sen io r m anagers to gain a full under­ T h e im plem entation w as com pleted w ithin six
standing o f international op eration s wras a m onthly m onths, despite all th e com p lexities o f im porting
report, b ased o n a co m p le x spread sh eet w h ich drew' data from m ultiple accou n tin g system s and handling
data from num erous different accou nting system s in ex ch a n g e rate calculations fo r op eration s in ov er 40
subsidiaries arou nd the world. countries. M ace is using all four m odu les o f IBM
B rend an Kitley, Fin an ce System s M anager at Cognos Express: X celera to r and P lan ner for m odel­
M ace, com m ents: “T h e spread sh eet o n w h ich w e ing and planning; R eporter for busin ess intelligence;
based ou r international reports had ab ou t 4 0 tabs and Advisor for several im portant dashboards.
and hundreds o f cross-links, w h ich m eant it was “We have b een really impressed by the ease
very easy to introd u ce errors, and the lack o f a stan­ o f developm ent with Cognos Express,” com m ents
dardized ap p roach w as affecting accu racy and co n ­ Brendan Kitley. “Setting up new' applications and cubes
sistency. W e w an ted to find a m ore robust p rocess is relatively quick and sim ple, and w e feel that w e’ve
for financial reporting.” only scratched the surface o f w hat w e can achieve. We
have a lot o f Cognos skills and experience in-house,
F in d in g th e R ig h t P a r tn e r so w e are k een to build a w ider range o f functional­
M ace w as already using IBM C ognos TM 1® softw are ities into Cognos Express as w e m ove forward.”
for its dom estic busin ess in the UK, and w as k e e n to
F a s te r , M o re S o p h istica te d R e p o rtin g
find a sim ilar solu tion fo r the international business.
“W e d ecid ed to u se IBM C ognos Express as T h e first m ajor p ro ject w ith C ognos Express was
the foundation o f our international reporting plat­ to replicate the default reports that u sed to b e pro­
form ,” says B ren d an Kitley. “W e w ere im pressed by d u ced b y th e old sp read sh eet-b ased p ro cess. This
its ability to give us m any o f th e sam e capabilities w as achiev ed relatively quickly, so the team was
as ou r TM1 solution, b u t at a price-point that w as ab le to m ove o n to a s eco n d phase o f developing
m ore afford able fo r an organization the size o f our m ore sophisticated and d etailed reports.
0 C ontinued )
200 Part II * Descriptive Analytics

A D D lic a t io n Case 4.7 (Continued)


maintaining and custom izing the processes and
“T h e reports w e have now are m uch m ore
m ore o n actually analyzing the figures them selves.
useful b e ca u se they allow us to drill dow n from the Brendan Kitley concludes: “W ith better vis­
group level through all our international subsidiar­
ibility and m ore tim ely access to m ore detailed and
ies to the individual cost-cen ters, and even to the accurate inform ation, w e are in a b etter position to
projects them selves,” explains Brendan Kitley. “T he
m onitor perform ance and maintain profitability while
ability to g et an accurate picture o f financial perroi-
ensuring that ou r projects are delivered o n tim e and
m ance in ea ch project em pow ers our m anagers to
w ithin budget. B y continuing to w ork with IBM and
m ake b etter decisions.” Barrachd to d evelop our Cognos Express solution,
“M oreover, since the reporting process is now
w e e xp ect to u n lo ck even greater b enefits in term s ot
largely autom ated, w e can create reports m ore quickly
standardization and financial control.
and w ith less effort - w hich m eans w e ca n generate
them m ore frequently. Instead o f a one-m onth lead
Q u e s t io n s fo r D is c u s s io n
tim e for reporting, w e can do a full profitability anal­
1. W hat w as th e reporting ch allenge M ace w as fac­
ysis in h a lf the tim e, and give our m anagers m ore
ing? D o y o u think this is an unusual challenge
tim ely acce ss to the inform ation they n e e d .”
sp ecific to Mace?
2. W hat w as th e ap p roach for a potential solution?
M o vin g T o w a rd s a S in gle P la tfo rm
3. W hat w ere th e results obtained in the short term,
W ith the su ccess o f the international reporting proj­ and w hat w ere the future plans?
ect, M ace is w orking to unite all its U K and interna­
tional subsidiaries into this single financial reporting sou rce: IBM, Customer Success Story, “Mace gains insight in to,
and bud geting system . W ith a com m on platform for the performance o f international projects’-
ibm.com/software/success/cssdb.nsf/CS/STRD-99ALB
all reporting processes, the com pan y’s central finance
(accessed September 2013)-
team w ill b e a b le to spend less tim e and effort on

S E C T IO N 4 . 7 R E V IE W Q U E S T IO N S

1 . W hat is busin ess perform ance m anagem ent? H ow d oes it relate to BI?
2 . W hat are th e three key com p on en ts o f a BPM system?
3 . List and briefly describe th e four p hases o f the BPM cycle.
4 . W hy is strategy the m ost im portant part o f a BPM im plem entation.

4 .8 P E R F O R M A N C E M E A SU R E M E N T
Underlying BPM is a perform ance m easu rem ent system . A ccording to Sim ons (2002),
p erfo rm an ce m easu rem en t system s:

Assist m anagers in tracking the im plem entations o f business strategy b y Compaq


ing actualTesults against sttategic goals and objectives. A perform ance m easure­
m ent system typically com prises system atic m ethods o f setting business g o a s
together with periodic feed b ack reports that indicate progress against goal .

All m easurem ent is ab ou t com parisons. R aw num bers are o f M e * . » T™


Chapter 4 * Business Reporting, Visual Analytics, and Business Performance Management

com pany w as 8 0 percent? Obviously, that particular salesp erson n eed s to p ick up the
pace. As Sim ons’ definition suggests, in perform ance m easurem ent, th e key com parisons
revolve around strategies, goals, and objectives. O perational m etrics that are u sed to
m easure perform ance are usually called k ey perform ance indicators (K PIs).

Key Performance Indicator (KPI)


There is a d ifferen ce b etw een a “run o f the m ill” m etric and a “strategically aligned ” m et­
ric. T h e term k ey p e rfo rm an ce in d icato r (K P I) is o ften u sed to d en ote the latter. A KPI
represents a strategic ob jective and m easures perform ance against a goal. A ccording to
E ckerson (2 0 0 9 ), KPIs are m ultidim ensional. Loosely translated, this m eans that K PIs have
a variety o f d istinguishing features, including:

• Strategy. KPIs em bo d y a strategic objective.


• Targets. KPIs m easure perform ance against sp ecific targets. Targets are defined
in strategy, planning, or budgeting sessions and ca n take different form s (e.g.,
ach iev em ent targets, reduction targets, absolu te targets).
• R a n ges. Targets have perform ance ranges (e.g ., ab ove, on, or b elo w target).
• E n co d in gs. Ranges are e n co d ed in softw are, enablin g the visual display o f
perform ance (e .g ., green , yellow , red). Encodings ca n b e b ased o n p ercen tag es or
m o re co m p le x rules.
• Tim e fr a m e s . Targets are assigned tim e fram es b y w h ich they m ust be
accom plished . A tim e fram e is often divided into sm aller intervals to provide
perform ance m ileposts.
• B en ch m a rk s. Targets are m easured against a b aselin e o r benchm ark. T h e
previous year’s results o ften serve as a ben ch m ark, b u t arbitrary num bers o r external
b enchm arks m ay also b e used.

A distinction is som etim es m ade b etw ee n KPIs that are “ou tco m es” and th o se that
are “drivers.” O u tco m e KPIs— som etim es know n as lagging in dicators — m easu re the
output o f p ast activity (e .g ., revenues). T h ey are often financial in nature, but n o t always.
Driver KPIs— som etim es k n ow n as lead in g in d icators or valu e drivers — m easure activities
that have a significant im pact on o u tcom e KPIs (e .g ., sales leads).
In so m e circles, driver KPIs are som etim es called op eration al KPIs, w h ich is a bit o f
an oxym oron (H atch, 2008). M ost organizations co lle ct a w ide range o f op erational metrics.
As the nam e im plies, th ese m etrics d eal w ith the operational activities and perform ance
o f a com pany. T h e follow ing list o f exam p les illustrates th e variety o f op eration al areas
covered by these m etrics:

• C ustom er p e rfo rm a n c e . M etrics fo r cu stom er satisfaction, sp eed and accu racy


o f issue resolution, and cu stom er retention.
• Service p e rfo rm a n c e . M etrics for service-call resolution rates, service renew al
rates, service-level agreem ents, delivery perform ance, and return rates.
• Sales operations. N ew p ipelin e accou nts, sales m eetings secu red , con v ersion o f
inquiries to lead s, and average call closure time.
• Sales p la n /fo reca st. M etrics for price-to-purch ase accuracy, purchase order-to-
fulfillm ent ratio, quantity earned, forecast-to-plan ratio, and total closed contracts.

W hether a n op eration al m etric is strategic o r n o t d ep end s o n the co m p an y and its


use o f the m easure. In m any instances, th ese m etrics represent critical drivers o f strate­
gic ou tcom es. F o r instance, H atch (2 0 0 8 ) recalls the case o f a m id-tier w in e distributor
that w as b ein g sq u eezed upstream by th e consolid ation o f suppliers and d ow nstream by
th e consolid ation o f retailers. In resp on se, it d ecid ed to fo cu s o n four op eration al m ea­
sures: on-hand/on-tim e inventory availability, outstanding “o p en ” order value, n et-new
202 Part II • Descriptive Analytics

accou nts, and prom otion costs and return o n m arketing investm ent. T h e net result o f
its efforts w as a 12 p ercen t in crease in reven ues in 1 year. O bviously, th ese operational
m etrics w ere k e y drivers. H ow ever, as d escribed in th e follow ing section, in m any cases,
com p an ies sim ply m easure w hat is con v en ien t w ith m inim al consid eration as to w h y the
data are b ein g collected . T h e result is a significant w aste o f tim e, effort, and m oney.

Performance Measurem ent System


T h ere is a difference b etw een a perform ance m easurem ent system and a perform ance
m anagem ent system . T h e latter en com p asses th e form er. That is, any perform ance
m anagem ent system has a perform ance m easurem ent system , but n ot the oth er w ay
around. If y ou w ere to ask, m ost com p an ies today w ould claim that they have a p er­
form ance m easurem ent system b u t n ot necessarily a perform ance m anagem en t system ,
e v e n though a p erform ance m easurem ent system has very little, if any, use w ithout the
overarching structure o f the perform ance m anag em ent system .
T h e m ost popular perform ance m easurem ent system s in use are som e variant o f
K aplan and N orton’s b alan ced scorecard (B S C ). V arious surveys and benchm arking
studies indicate that anyw here from 50 to ov er 9 0 p ercen t o f all com panies h ave im ple­
m ented som e form o f BSC at o n e tim e o r another. A lthough there seem s to b e som e
confu sion ab ou t w hat constitutes “b a la n ce ,” th ere is no d ou bt ab ou t the originators o f
th e B SC (K aplan & N orton, 1996): “Central to th e B SC m ethodology is a holistic vision o f
a m easurem ent system tied to the strategic d irection o f the organization. It is b ased o n a
four-perspective view o f the w orld, w ith financial m easures supported b y custom er, inter­
nal, and learning an d grow th m etrics.”

SECTION 4 .8 REVIEW QUESTIONS


1 . W hat is a p erform ance m anagem en t system? W hy d o w e n eed one?
2 . W hat are the m ost distinguishing featu res o f KPIs?
3. List and briefly d efine four o f the m ost com m only cited operational areas for KPIs.
4 . W hat is a p erform ance m easurem ent system? H ow d oes it work?

4.9 B A L A N C ED SC O R EC A R D S
P robably th e b est-k n ow n and m ost w idely u sed perform ance m anagem ent system is
th e b alan ced scorecard (B SC ). Kaplan and N orton first articulated this m ethodology in
their H arvard B usiness Review article, “T h e B a la n ce d Scorecard: M easures T hat Drive
Perform ance,” w h ich ap p eared in 1992. A few years later, in 1996, th ese sam e authors
prod u ced a groundbreaking b o o k — The B a la n ced S corecard: Translating Strategy into
A ction — that d ocu m en ted h o w com panies w ere using the B SC n ot only to supp lem ent
their financial m easures w ith n onfinancial m easures, but also to com m unicate and im ple­
m ent their strategies. O ver the past few years, BSC has b eco m e a g en eric term that is used
to rep resen t virtually every type o f scorecard application and im plem entation, regard­
less o f w h eth er it is balanced or strategic. In resp on se to this bastardization o f the term ,
K aplan and N orton released a n ew b o o k in 2 0 0 0 , The Strategy-Focused O rganization:
H ow B a la n ced S corecard C om panies Thrive in the New B usiness Environm ent. This b o o k
w as d esigned to reem phasize th e strategic nature o f the BSC m ethodology. This w as
follow ed a few years later, in 2004, b y Strategy M aps: C onverting In tan gible Assets into
T angible O utcom es, w h ich d escribes a detailed p ro cess for linking strategic ob jectives to
op eration al tactics and initiatives. Finally, their latest b o o k , The E xecution P rem ium , p u b ­
lished in 2008, fo cu ses on the strategy gap— linking strategy form ulation and planning
w ith op eration al execution.
Chapter 4 • Business Reporting, Visual Analytics, and Business Perform ance Management 203

The Four Perspectives


The b alan ced scorecard suggests that w e view the organization from four perspectives—
customer, financial, internal busin ess p ro cesses, learning and growth— and d ev elop o b jec-
tives, m easures, targets, and initiatives relative to ea ch o f th ese perspectives. Figure 4.11
show s th ese four ob jectiv es and th eir interrelationship w ith the organization’s vision and
strategy.

THE CUSTOM ER PERSPECTIV E R ecen t m anagem ent p h ilosop h ies have show n a n increas­
ing realization o f th e im portance o f cu stom er focu s and cu stom er satisfaction in any
business. T h ese are lead ing indicators: I f custom ers are n ot satisfied, they will eventually
rind other suppliers th at will m eet their n eed s. P oor p erform ance from this perspective is
± u s a leading indicator o f future d ecline, ev e n though the current financial picture m ay
look good. In d ev elop in g m etrics fo r satisfaction, custom ers should b e analyzed in terms
of kinds o f custom ers and the kinds o f p ro cesses for w h ich w e are providing a product
o r service to th o se cu stom er groups.

THE FIN A N C IA L PERSPECTIVE K aplan and N orton d o not disregard the traditional need
for financial data. Tim ely and accu rate funding data will alw ays b e a priority, and m anag­
ers will d o w h atever is necessary to provide it. In fact, often there is m ore than en ou gh
handling and p ro cessin g o f financial data. W ith th e im plem entation o f a corporate
ictab ase , it is h o p ed that m ore o f th e processing can b e centralized and autom ated. B ut
± e point is that the current em phasis o n financials leads to the "unbalanced" situation
w ith regard to oth er perspectives. T h ere is perhaps a n eed to include additional financial-
related data, su ch as risk assessm ent and co st-b e n e fit data, in this category.

THE LEARN IN G A N D GROWTH PERSPECTIV E Th is perspective aim s to an sw er the


question, “T o a ch iev e ou r vision, h ow will w e sustain our ability to ch an g e and im prove?”
k includes em p loyee training, know led ge m anagem ent, and corporate cultural character­
istics related to b o th individual and corporate-level im provem ent. In the current clim ate
:e rapid tech n ological ch an g e, it is b eco m in g n ecessary for know led ge w orkers to b e in a
continuous learning an d grow ing m ode. M etrics ca n b e put into p lace to guide m anagers

1 GURE 4.11 Four Perspectives in Balanced Scorecard Methodology.


204 Part II • Descriptive Analytics

in focusing training funds w h ere they ca n h elp th e m ost. In any case, learning and growth
constitute th e essential foundation for the su ccess o f any know led ge-w orker organization.
Kaplan and N orton em phasize that “learning” is m ore than "training”; it also includes
things like m entors and tutors w ithin the organization, as w ell as that e a se o f com m unica­
tion am ong w orkers that allow s th em to readily g e t help o n a problem w h en it is needed.

THE IN TERN AL BU SIN ESS PRO CESS PERSPECTIVE Th is perspective fo cu ses o n the im por­
tan ce o f busin ess p rocesses. M etrics b ased o n this perspective allow the m anagers to
k n ow h ow w ell their internal business p ro cesses an d functions are running, and w hether
the ou tcom es o f th ese p ro cesses (i.e., produ cts and services) m eet and e x ce e d the
cu stom er requirem ents (th e m ission).

The Meaning o f Balance in BSC


From a high-level view point, the balanced scorecard (BSC) is b oth a perform ance
m easurem ent and a m anagem ent m ethodology that helps translate an organization’s finan­
cial, custom er, internal process, and learning and growth objectives and targets into a set
o f actionable initiatives. As a m easurem ent m ethodology, BSC is designed to overcom e the
limitations o f system s that are financially focused. It d oes this b y translating an organization’s
vision and strategy into a set o f interrelated financial and nonfinancial objectives, measures,
targets, and initiatives. T h e nonfinancial objectives fall into o n e o f three perspectives:

• Custom er. Th is ob jective d efines h ow th e organization should ap p ear to its


custom ers if it is to accom plish its vision.
• In te rn a l b u sin ess process. T his o b jectiv e specifies the p ro cesses th e organiza­
tion m ust e x c e l at in order to satisfy its sh arehold ers and custom ers.
• L e a rn in g a n d grow th. Th is ob jective indicates how' an organization ca n improve
its ability to ch an g e and im prove in order to achiev e its vision.

Basically, n onfinancial ob jectiv es form a sim ple causal ch ain w ith “learning and
g row th” driving “internal busin ess p ro cess” ch an g e, w h ich produ ces “cu stom er” out­
com es that are resp onsible fo r reaching a com p an y ’s “financial” objectives. A sim ple
ch ain o f this sort is exem plified in Figure 4 .1 2 , w h ere a strategy m ap and balanced
scorecard for a fictitious com pany are displayed. From the strategy m ap, w e ca n se e that
the organization has four ob jectives across the fo u r BSC perspectives. Like oth er strategy
m aps, this o n e begin s at the top w ith a financial o b jectiv e (i.e., increase n et in com e). This
ob jective is driven b y a cu stom er ob jective (i.e., in crease cu stom er retention). In turn, the
cu stom er ob jective is the result o f an internal p ro cess ob jective (i.e., im prove call center
perform ance). T h e m ap continu es dow n to the b otto m o f the hierarchy, w h ere the learn­
ing ob jective is found (e.g ., red u ce em p loyee turnover).
In BSC , the term b a la n ce arises b eca u se th e com bin ed set o f m easures is supposed
to en com p ass indicators that are:

• Financial and nonfinancial


• Leading and lagging
• Internal and external
• Quantitative and qualitative
• Short term and long term