CSE4DSS Lecture 1 Decision Support and Business Intelligence

Based on material from Chapter 1 Decision Support and Business Intelligence Turban, Sharda and Delen, 9th edition.

Contents
The Business Pressures-Responses-Support Model The managerial decision making process The Gorry and Scott-Morton framework Simons phases of decision making Framework for managerial decision-making Definition of a decision support system Decision Support Systems and Business Intelligence

Business Pressures Responses Support Model

Business Pressures Responses Support Model

Companies are moving aggressively to computerized support of their operations. This can be explained by the Business Pressures ResponsesSupport Model. Today's competitive business climate creates pressures for businesses In order to remain competitive businesses must respond to those pressures This response process can be better facilitated through the use of computerized support.

Business Pressures Responses Support Model

The (business) environment in which organizations operate today is becoming more and more complex, creating problems, but also opportunities. Business environment factors: Markets Consumer demands Technology Societal

Business Pressures Responses Support Model

FACTOR Markets DESCRIPTION Strong competition Expanding global markets Blooming electronic markets on the Internet Innovative marketing methods Opportunities for outsourcing with IT support Need for real-time, on-demand transactions Consumer Desire for customization demand Desire for quality, diversity of products, and speed of delivery Customers getting powerful and less loyal Technology More innovations, new products, and new services 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 Increasing social responsibility of companies Greater emphasis on sustainability

Business Pressures Responses Support Model

In response to these pressures, managers may take actions, such as

Employ strategic planning Use new and innovative business models Restructure business processes Participate in business alliances and partnership relationships Improve corporate information systems Encourage innovation and creativity Improve customer service and relationships Move to make-to-order production and on-demand manufacturing and services Use new IT to improve communication, data access (discovery of information), and collaboration Respond quickly to competitors' actions (e.g., in pricing, promotions, new products and services) Automate many tasks of white-collar employees Improve decision making by employing analytics Automate certain decision processes
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Business Pressures Responses Support Model

Managerial Decision Making

Managerial Decision Making

Management is a process by which organizational goals are achieved by using resources Inputs: resources (e.g., people, capital, equipment) Output: attainment of goals Measure of success: outputs / inputs resources

process
management

goals

Managers are involved in a continuous process of making decisions

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Managerial Decision Making

What is a decision? A decision is a reasoned choice among alternatives Making decisions is part of the broader subject of problem solving Its purpose is to solve problems by closing the gaps between reality and a more desirable situation What is decision-making? selecting the best solution from two or more alternatives

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Managerial Decision Making

Decision Making is difficult because:
Technology, information systems, advanced search engines, and globalization result in more and more alternatives from which to choose Government regulations and the need for compliance, political instability and terrorism, competition, and changing consumer demands produce more uncertainty, making it more difficult to predict consequences and the future Need to make rapid decisions Frequent and unpredictable changes that make trial-anderror learning difficult Potential costs of making mistakes
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The 4-step Decision-Making Process

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The 4-step Decision-Making Process

Managers usually make decisions by following a four-step process: 1. Define the problem (or opportunity) 2. Construct a model that describes the real-world problem 3. Identify possible solutions to the modeled problem and evaluate the solutions 4. Compare, choose, and recommend a potential solution to the problem

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Computerized Support for Decision Making

Why Use Computerized Decision Support Systems?

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Computerized Support for Decision Making

Computerized DSS can facilitate decision making via: Fast computations Improved communication and collaboration Increased productivity of group members Improved data management Managing giant data warehouses Overcoming cognitive limits Using Web Anywhere, anytime support

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A Framework for Computerized Decision Support

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A Framework for Computerized Decision Support

Gorry and Scott-Morton proposed a framework that is a 3-by-3 matrix. One dimension describes how structured the problem is; the other dimension describes the scope of the decision.

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A Framework for Computerized Decision Support

Type of Decisions Structured decision
A well defined decision making procedure Standard solutions exist Could be given to a computer program

Unstructured decision
Fuzzy, complex problems for which there are no cut-and-dried solution methods Uncertainty involving human judgement

Semi-structured decision
Lies somewhere between structured and un-structured decisions Most decisions are of this type
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A Framework for Computerized Decision Support

Scope of Decisions Strategic Planning
Defining long-range goals and policies for resource allocation High level decisions that will affect entire organizational objectives and policies Acquisition and efficient use of resources in the accomplishment of organizational goals Decisions affect some part or parts of the organization, and are made by middle-level managers Efficient and effective execution of specific tasks Lower-level managers
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Managerial Control

Operational

Class Exercise
Categorize each of the following decisions along the dimensions of Type and Scope.
1. Determining the location for a new warehouse 2. Determining whether to build a new plant 3. Determining whether to make or buy a component for a new product 4. Selecting a cover for the monthly advertising brochure 5. Reward system design 6. Recruiting an executive

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A Framework for Computerized Decision Support

Gorry and Scott-Morton framework, with examples
(scope of decision)

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Phases of Decision-Making

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Phases of Decision-Making
Simons four Phases of Decision-Making
1.

Intelligence: involves Searching for conditions that call for decisions Design: involves inventing, developing, and analyzing possible alternative courses of action (solutions)

2.

3.

Choice: involves selecting a course of action from those available

Implementation: involves adapting the selected course of action to the decision situation (i.e., problem solving or opportunity exploiting).
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4.

Phases of Decision-Making

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Computer Support for Structured Decisions

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Computer Support for Structured Decisions

Structured problems are encountered repeatedly, and have a high level of structure. It is possible to abstract, analyze, and classify them into specific categories; e.g.,
make-or-buy decisions capital budgeting resource allocation distribution procurement inventory control

For each category, easy-to-apply prescribed models and solutions have been developed. This approach is commonly known as Management Science, or Operations Research
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Computer Support for Structured Decisions

Management Science (Operations Research) Approach
1. 2. 3.

4.

5.

Define the problem Classify the problem into a standard category Construct a model that describes the real-world problem Identify possible solutions to the modeled problem and evaluate the solutions Compare, choose, and recommend a potential solution to the problem

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Computer Support for Structured Decisions

Management Science (Operations Research) Approach The Management Science approach is based on mathematical modeling (i.e., algebraic expressions that describe problems) Modeling involves transforming a real-world problem into an appropriate prototype structure (i.e., model) Computerized methodologies (e.g., linear programming) can then be used to find solutions to the standard category models quickly and efficiently

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Computer Support for Structured Decisions

Automated Decision System (ADS) Approach Automated Decision Systems (ADSs) are a relatively new approach to supporting structured decision making An ADS is a rule-based system that provides a solution to a repetitive managerial problem in a specific area e.g., simple-loan approval system Expert Systems (to be covered in Week 10 ) are an example of automated decision systems

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Computer Support for Unstructured Decisions

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Computer Support for Unstructured Decisions

Unstructured problems can be only partially supported by standard computerized quantitative methods They often require customized solutions They benefit from data and information generated from external sources Intuition and judgment may play a role Computerized communication and collaboration technologies, along with knowledge management, is often used

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Computer Support for Semi-structured Decisions

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Computer Support for Semi-structured Decisions

Solving semi-structured problems may involve a combination of standard solution procedures and human judgment Management Science handles the structured parts while DSS deals with the unstructured parts With proper data and information, a range of alternative solutions can be considered, along with their potential impacts

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The Concept of Decision Support Systems (DSS)

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The Concept of Decision Support Systems (DSS)

Decision Support Systems are computer-based information systems that use data and models to support unstructured and semi-structured decisions made by managers
(Gorry and Scott-Morton, 1971)

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The Concept of Decision Support Systems (DSS)

Decision Support Systems are computer-based information systems that use data and models to support unstructured and semi-structured decisions made by managers
(Gorry and Scott-Morton, 1971)

Decision support systems couple the intellectual resources of individuals with the capabilities of the computer to improve quality of decisions. It is a computer-based support system for management decision makers who deal with semi-structured problems
(Keen and Scott-Morton, 1978)
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The Concept of Decision Support Systems (DSS)

Basic architecture of a DSS

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The Concept of Decision Support Systems (DSS)

DSS as an Umbrella term Describes any computerized system that supports decision making in an organization DSS as a specific application Although DSS usually refers to the umbrella term, sometimes it is used in a narrower scope to refer to a process for building specific customized applications for unstructured or semi-structured problems.

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The Concept of Decision Support Systems (DSS)

Types of DSS model-oriented DSS: quantitative models used to generate a recommended solution to a problem data-oriented DSS: support ad-hoc reporting and queries

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Business Intelligence (BI)

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Business Intelligence (BI)

Business Intelligence (BI) is an umbrella term that combines architectures, tools, databases, analytical tools, applications, and methodologies Like DSS, BI means different things to different people BI's major objective is to enable easy access to data (and models) to provide business managers with the ability to conduct analysis BI helps transform data to information (and knowledge), to decisions, and finally to actions

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A Framework for Business Intelligence (BI)

A Brief History of BI The term BI was coined in the mid-1990s However, the concept is much older
1970s - MIS reporting - static/periodic reports 1980s - Executive Information Systems (EIS)

1990s - OLAP, dynamic, multidimensional, ad-hoc reporting

2005+ Inclusion of AI and Data/Text Mining capabilities; Webbased Portals/Dashboards 2010s - Big data, social network analysis,

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A Framework for Business Intelligence (BI)

General BI Architecture

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A Framework for Business Intelligence (BI)

The Benefits of BI The ability to provide accurate information when needed, including a real-time view of the corporate performance and its parts Faster, more accurate reporting Improved decision making Improved customer service Increased revenue

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Business value of BI Analytical Applications

Analytic Application
Customer segmentation

Business Question
What market segments do my customers fall into, and what are their characteristics?

Business Value
Personalize customer relationships for higher satisfaction and retention.

Propensity to buy

Which customers are most likely to respond to my promotion?

Customer targeting. Increase advertising campaign profitability by focussing on the most likely to buy. Make individual business interaction decisions based on the overall profitability of customers. Quickly determine fraud and take immediate action to minimize cost. Prevent loss of high-value customers and let go of lower-values customers. Interact with customers based on their preference and your need to manage cost.

Customer profitability

What is the lifetime profitability of my customer?

Fraud detection

How can I tell which transactions are most likely to be fraudulent? Which customer is at risk of leaving?

Customer attrition

Channel optimization

What is my best channel to reach my customer in each segment?

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Some Examples
National Australia Bank
NAB uses data mining to aid its predictive marketing. The tools are used to extract and analyse data stored in the banks Oracle database. Data mining tools are used to generate market analysis models from historical data. The bank considers these initiatives to be crucial to maintaining an edge in the increasingly competitive financial services marketplace.

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Some Examples
FAI Insurance Group
FAI Insurance Group uses its data mining to reassess the relationship between historical risk from insurance policies and the pricing structure used by its underwriters. The data analysis capabilities allow FAI to better serve its customers by more accurately assessing the insurance risk associated with a customer request. Through the use of neural networks and business statistics, the analysts comb the data for trends and relationships.

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A Framework for Business Intelligence (BI)

The DSSBI Connection
1. Similar architectures because BI evolved from DSS 2. DSS directly supports specific decision making, while BI provides accurate and timely information, and indirectly supports decision making 3. BI has an executive and strategy orientation, while DSS tend to be more oriented toward analysis 4. Most BI systems are constructed with commercially available tools and components, while DSS are often built from scratch 5. DSS methodologies and even some tools were developed mostly in the academic world, while BI methodologies and tools were developed mostly by software companies 6. Many of the tools that BI uses are also considered DSS tools (e.g., data mining and predictive analysis are core tools in both)
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A Framework for Business Intelligence (BI)

Management Support Systems Due to the lack of crisp and universal definition of DSS and BI, some people refer to DSS and BI, either independently, or collectively, as Management Support Systems (MSS)

MSS = BI and/or DSS

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Homework Reading
Chapter 1 from Turban, Sharda, Delen, Decision Support and Business Intelligence Systems, Ninth Edition.

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Weekly Quiz
After you have completed the reading, attempt the Week 1 Quiz (which you will find on the LMS under Quizzes).

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Homework Questions
1. What are structured, unstructured, and semi-structured decisions? Provide two examples of each, and indicate their position in the Gorry and Scott-Morton framework. 2. Think of an organization with which you are familiar. List three decisions it makes in each of the following categories: strategic planning, management control, and operational control. For each decision, is it best described as structured, unstructured, or semistructured?

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