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Chapter 8

Decision Support Systems

ManagersandDecision
Making
A decision refers to a choice made between alternatives.

Why Managers Need the Support of Information


Technology. It is very difficult to make good
decisions without valid, timely and relevant
information.

Number of alternatives to be considered is increasing

Many decisions are made under time pressure.

Due to uncertainty in the decision environment, it is frequently


necessary to conduct a sophisticated analysis.

It is often necessary to rapidly access remote information.

Canwemakebetterdecisions?

DecisionProcess
Decision makers go through a fairly systematic process.
Define
the
Process or Problem
Develop
Alternative
Courses of Action
Select
The Best
One
Review It

Act on it

The nature of decisions

Information systems can support


decision-making levels. These include
the three levels of management
activity.
Strategic management, tactical
management, and operational
management.

Strategic management

A board of directors and an executive


committee of the CEO develop longrange planning.
Decisions made at the strategic level
tend to be unstructured.

Tactical management

Mid-level mangers deal with middle


level management activities such as
short-term planning, medium range
plans and control.
Decisions made at the tactical
management level tend to be semistructured.

Operational management

Operating managers deal with day-today operations of an organization,


such as assigning employees to tasks,
or placing or purchase an order.
Decisions made at the operational
management level tend to be more
structured.

Structured decisions

Structured decisions are repetitive


and routine problems for which
standard solutions exist.
Ex: finding an appropriate inventory
level, finding an optimal investment
strategy.
MIS primarily analyzes structured
problems.

Semi-structured decisions

Semi-structured problems fall between


structured and unstructured problems.
Only some of the phases are structured in
semi-structured problems.
It requires a combination of standard
procedures and individual judgment.
Ex: annual evaluation of employees, trading
bonds, setting marketing budgets for
consumer products.

Unstructured decisions

Unstructured problems are novel and nonroutine, complex.


For unstructured problems we cannot
specify some procedures to make a
decision.
Ex: expanding the business, moving
operations to foreign countries.
IS must provide a wide range of
information products to support these types
of decisions at all levels of the organization.

DecisionComplexity
Decision making ranges from simple to very complex decisions that
fall along a continuum that ranges from structured to unstructured.
Structured processes refer to routine & repetitive problems with
standard solutions. While Unstructured are "fuzzy," complex problems
with no clear-cut solutions.
Obj ective

Str ategic

Pr obl em
Compl ex

Impor tant

Semi
str uctur ed

Tactical

Oper ational

Unstr uctur ed

Infor mation

Repetitive

Str uctur ed

Oper ation
Mul ti
Dimensional

OLAP

Its been
done befor e

Day to Day
Repor t

Management Support Systems

Management Information Systems


Decision Support Systems
Executive Information Systems

Management Information
Systems (MIS)

MIS primarily provides information on


the firms performance to help
managers in monitoring and
controlling the business.

MIS

Information provided by MIS is used by


decision makers at the operational and
tactical levels of organization.
They face with more structured and semistructured types of decision situations.
A typical MIS report might show a
summary of monthly sales for each of the
major sales territories of a company.

MIS

MIS typically produces fixed, regularly


scheduled reports based on data extracted and
summarized from the organization's underlying
transaction processing systems.
Sometimes MIS produces exception reports,
highlighting only exceptional conditions, such
as when the sales quotas for a specific
territory fall below an anticipated level or
employees who have exceeded their spending
limit in a dental care plan.
Traditional MIS produced primarily hard copy
reports.
Today, these reports might be available online
through an intranet, and more MIS reports can
be generated on demand.

Decision Support Systems


(DSS)

DSS is a part of special category of information systems


that are designed to enhance managerial decisionmaking.

Decision support system (DSS) is a computer-based


information system that combines models and data in
an attempt to solve semi-structured and unstructured
problems with user involvement.
They help managers make more effective decisions by
answering complex questions such as;
Should a newer, more powerful machine replace two
older pieces of equipment?
Should your company sell directly to the retail market,
continue to sell through distributors, or both?
Should your company order parts more frequently and in
smaller lots?

DSS

DSSs help managers make decisions


that are unique, rapidly changing and
not easily specified in advance.
Although DSS uses internal
information from TPS and MIS, it also
uses external sources, such as
current stock prices or product prices
of competitors.

DSS

DSSs combine data and sophisticated


analytical models to support semistructured and unstructured decision
making.
DSSs help managers better use their
knowledge and help create new
knowledge.
They are essential components of
knowledge management systems.

DSS Components

DSS relies on model bases and databases.


A model (in decision making) is a simplified
representation of reality. Simplified because reality is
too complex to copy exactly and much of the
processes complexity is irrelevant to a specific
problem.
A DSS model base is a software component that
contains all the models used to develop applications
to run the system.
DSS uses models to manipulate data.
Ex: If you have some historic sales data, you can use
many different types of models to create a forecast of
future sales.

DSS Components

DSS software is a collection of software


tools that are used for data analysis or a
collection of mathematical and analytical
models.
There can be 3 different types of
modeling software for DSSs:
statistical models,
optimization models,
forecasting models.

Statistical modeling

Statistical modeling software can be


used to help establish relationships
such as relating product sales to
differences in age, income or other
factors between communities.
Ex: SPSS.

Optimization models

Optimization models often using


Linear Programming (LP) determine
the proper mix of products within a
given market to maximize profit.

Forecasting models

The user of this type of model might


supply a range of historical data to
project future conditions and sales
that might result from those
conditions.
Companies often use this software to
predict the action of competitors.

Capabilities of DSS

Using a DSS involves 4 basic types of


analytical modeling activities:
What-if analysis
Sensitivity analysis
Goal-seeking analysis
Optimization analysis

What-if analysis

An end user makes predictions and assumptions regarding


the input data, many of which are based on the assessment
of uncertain futures.
When the model is solved, the results depend on these
assumptions.
What-if analysis attempts to check the impact of a change
in the assumptions on the proposed solution.
Ex: What will happen to the total inventory cost if the
originally assumed cost of carrying inventories is not 10
percent but 12 percent? Or, what will be the market share
if the initially assumed advertising budget is overspent by 5
percent?
In a well designed DSS, managers themselves can
interactively ask the computer these types of questions as
many times as needed.

Sensitivity Analysis

Investigation of the effect that


changes in one or more parts of a
model have on other parts of the
model.
Usually we check the impact that
changes in input variables on output
variables.
It is a special case of what-if
analysis.

Goal-seeking analysis

Attempts to find the value of the inputs


necessary to achieve a desired level of
outputs.
Ex: let us say that a DSS solution yielded a
profit of $ 2 million. Management wants to
know that what sales volume and additional
advertising would be necessary to generate
a profit of $2.7 million. This is a goalseeking problem.

Optimization analysis

Often uses Linear Programming.


Determines optimal resource allocation
to max or minimize specified variable
such as cost, profit, revenue, or risk.
A classic use of optimization analysis is
to determine the proper mix products
within a given market to maximize
profits.

The benefits of DSSs

Improved decision making through better


understanding of the businesses
An increased number of decision
alternatives examined
The ability to implement ad hoc analysis
Faster response to expended situations
Improved communication
More effective teamwork
Better control
Time and costs savings

DSS-MIS
DSS
UsesdatafromTPS,MIS,and

MIS
UsesdatafromTPS.

externaldata
Interactive

Notinteractive

Emphasisonmodels.

Pre-specified,fixedformat

Assumptions,displaygraphics.
Notfixedformatreports.

reports

Supportssemi-structuredand

Addressesstructuredand

unstructuredproblems

semi-structuredproblems

Data Visualization

Data visualization refers to presentation of


data by technologies such as digital images,
geographical information systems, graphical
user interfaces, multidimensional tables and
graphs, virtual reality, three-dimensional
presentations, videos and animation.
By presenting data in graphical form helps
users see patterns.
Visualization software packages offer users
capabilities for self-guided exploration and
visual analysis of large amounts of data.

Geographical Information System


(GIS)

A geographical information system (GIS) is a computerbased system for capturing, storing, checking, integrating,
manipulating, and displaying data using digitized maps.
Every record or digital object has an identified geographical
location. It employs spatially oriented databases.
GIS software uses geographic information tying data to
points, lines and areas on a map.
GIS software simplifies the analysis and visualization of
information about entities whose physical location is
important.
GIS can be used to support decisions that require
knowledge about the geographic distribution of people or
other resources in scientific research and resource
management.

GIS (Contd)

GIS might be used to help state and


local governments calculate
emergency response times to natural
disasters or to help banks identify the
best locations for installing new
branches or ATM terminals.
GIS tools have become affordable
even for small businesses and some
can be used on the Web.

GIS Applications
Company

Whattheapplicationdoes

PepsiCo,Inc.

Helps select new locations for Taco Bell and Pizza


Hut restaurants by combining demographic data
and traffic patterns.

Sears

Supports planning of truck routes

CellularOneCorp.

Maps companys entire cellular network to identify


clusters of call disconnects and to dispatch
technicians accordingly.

Toyota,GM

Direct drivers to destinations

SunMicrosystems

Manages leased property in dozens of places


worldwide

Wilkening&Co.
(consulting
services)

Designs optimal sales territories and routes for


clients, reducing travel costs by 15 percent

Executive Information Systems


(EIS)

An executive information system (EIS), also


known as an executive support system (ESS), is
a technology designed in response to the specific
needs of top-level managers and executives.
EIS help managers with unstructured problems,
focusing on the information needs of Senior
management.
EIS helps senior executives monitor
organizational performance, track activities of
competitors, spot problems, identify
opportunities, and forecast trends.

EIS (contd)

EIS:

very user friendly

supported by graphics

provides the capabilities of exception


reporting (reporting only the results that
deviate from a set standard)

provides drill down (investigating


information in increasing detail).

EIS (contd)

Contemporary EIS can bring together data


from all parts of the organization and allow
managers to select, access them as needed
using easy-to-use desktop analytical tools
and online data displays.
It also helps managers to determine the
critical success factors which are critical to
accomplishing an organization's objective.
Todays systems try to avoid the problem of
data overload because data can be filtered
and viewed in graphic format.

EIS (contd)

EIS has the ability to drill down,


moving from a piece of summary data
to lower and lower levels of detail.
Drill down capability provides details
behind any given information.

EIS (contd)

External data including data from Web are


now easily available in many EISs.
Executives need a variety of external data
from current stock market news to
competitor information, industry trends.
Through their EIS, many managers have
access to news services, financial market
databases and economic information.

EIS (contd)

EIS includes tools for modeling and analysis.


With only a min. experience, most managers
can use these tools to create graphic
comparisons of data by time, region,
product, price, and so on.
EIS provides for ad hoc analysis capabilities,
with which executives can make specific
requests for data analysis. Instead of merely
having access to existing reports, the
executives can do creative analysis on their
own.

EIS (contd)

BENEFITS:
FLEXIBILITY
ABILITY TO ANALYZE, COMPARE,
HIGHLIGHT TRENDS
GRAPHICS HELP EXPLORE SITUATION
MONITOR PERFORMANCE
TIMELINESS, AVAILABILITY OF DATA
ALLOWS PROMPT ACTION

Data mining for Decision Support

Data mining is a tool for analyzing


large amounts of data.
It derives its name from the
similarities between searching for
valuable business information in a
large database, and mining a
mountain for a vein of valuable ore.

Data mining

Data mining helps organize information by


analyzing huge quantities of data and
looking for patterns, trends, associations,
exceptions, and changes in data that are
too complicated for normal human
detection.
Data mining uses a variety of tools, such as
artificial intelligence and statistical and
visualization tools to analyze the data in a
database.

Artificial Intelligence (AI)- (when)


Will computers be smarter than you?

Several capabilities are considered to


be the signs of intelligence: learning
and understanding from experience,
responding quickly and successfully to
a new situation, dealing with complex
situations, etc.

Artificial Intelligence

Artificial intelligence (AI) is concerned


with studying the thought processes of
humans and representing those
processes via machines (computers,
robots, and so on).
Its ultimate goal is to build machines
that will mimic human intelligence.

AI

Why businesses are interested in AI;


To create a mechanism that is not subject
to human feelings, such as fatigue and
worry.
To eliminate routine and unsatisfying jobs
held by people.
To enhance the organization's knowledge
base by generating solutions to specific
problems that are too massive and complex
to be analyzed by human being in a short
period of time.

MajorareasofAI

ExpertSystem. It is an attempt to
mimic human experts. It is decisionmaking software that can reach a level
of performance comparable to a human
expert in some specialized and usually
narrow problem area.

Expert System
Neural Networks
Robotics

Artificialneuralnetworks(ANNs)
simulate massive parallel processes
that involve processing elements
interconnected in a network.

Natural
Language
Processing

Cognitive/Learning
Science
Visual & Auditory
Processing

AI

Fuzzylogic deals with uncertainties


by simulating the process of human
reasoning, allowing the computer to
behave less precisely and logically
than conventional computers do.

Major areas of AI
1.Cognitivescience: It is based on
research in biology, neurology,
mathematic and many disciplines. It
focuses on researching how the
human brain works and how human
think and learn.
Its major applications are intelligent
agents, neural networks, and fuzzy
logic.

Intelligent agents

Intelligent agents represent a new


technology with the potential to become
one of the most important tools of
information technology.
It is a software surrogate for end user or
process that fulfills a stated need or
activity.
Wizards is one of its examples. Wizard is a
built-in package capability that watches
users and offers suggestions as they
attempt to perform tasks by themselves.
Ex: Excels or Words wizards.

Artificial Neural Networks (ANN)

It is an architecture that mimics certain data


processing capabilities of human brain.
It is a computer model which can handle fast retrieval
of large amounts of information and has the ability to
recognize patterns based on experiences.
It consists of interconnected processing elements,
called neurons.
It emulates a biological neural network.
The neurons in an ANN receive information from other
neurons or from external sources, transform the
information, and pass it on to other neurons or as
external outputs.

ANN

The value of neural network technology


includes its usefulness for pattern
recognition, learning, and the interpretation
of incomplete inputs.
ANNs have the potential to provide some of
the human characteristics of problem
solving that are difficult to simulate using
the logical, analytical techniques of DSSs.
ANN can analyze large quantities of data to
discover patterns and characteristics in
situations where the logic or rules are not
known.

ANN

Ex: Loan applications would be a good example.


By reviewing many historical cases of applicants
responses to questionnaires and the granting
decisions (yes or no), the ANN can create patterns
or profiles of applications that should be approved,
or those that should be denied.
Let us say, a new application is matched against the
pattern. If it comes close enough, the computer
classifies it as a yes or no.
Otherwise it goes to a human to decide.
Applications can thus be processed more rapidly.

ANN

Specific business areas that are well-suited to the use of


ANNs are;
Tax fraud: identifying, enhancing, and finding irregularities.
Airline management: seat demand forecasting and crew
scheduling.
Prediction of consumer behavior on the Internet: predicting
consumer behavior in order to plan e-commerce
advertising.
Stocks, bonds, and commodity selection and trading:
analyzing various investment alternatives, including pricing
of initial public offerings.
Signature validation: matching against previous signatures.
Evaluation of personnel and job candidates: matching
personnel data to job requirements and performance
criteria.

Fuzzy Logic

It deals with uncertainties by simulating the


process of human reasoning.
These systems allow computers to behave
less precisely and logically than conventional
computers do.
The idea behind this approach is that
decision making is not always a matter of
true or false, black and white.
It often involves gray areas where the terms
approximately, possible, and similar are
more appropriate.

Fuzzy Logic

Ex: The variable height.


Most people would agree that if you are above 6 feet, you are
tall.
Similarly, if your height is less than 5 feet, you are short.
But between 6 feet and 5.75 feet, there is less probability that
you will be considered tall.
Similarly, between 5 and 5.25 feet some will consider you short.
Notice that in the area between 5.25 and 5.75 feet you have a
chance for being considered either short or tall.
Fuzzy logic systems can process such data that are ambiguous,
that is fuzzy data, instead of relying only on crisp data, such as
binary (yes/no) choices.
It quickly provides approximate, but acceptable solutions to
problems.
It allows for approximate values and inferences.
Currently there are only a few examples of fuzzy logic
applications in business.
The Japanese trade shares on the Tokyo Stock Exchange using a
stock-trading program based on fuzzy logic rules.

Major Areas of AI (contd)


2.Robotics: Robot machines are
electromechanical devices that can be
programmed and reprogrammed to
automate manual tasks.
In computer aided manufacturing
robotics are used.

Major Areas of AI (contd)


3.Natural Interfaces: Virtual reality is an example of natural
interfaces.

Virtual reality is a computer-simulated reality.

Human users can experience computer-simulated objects,


spaces, activities as if they actually exist.

It is interactive, uses computer-generated, threedimensional graphics.

Ex: CAD.

Ex: NEC Corporation (Japan) developed a ski simulator,


which is available in amusement centers. It is also used
for training.

Expert Systems

Expert systems are an attempt to mimic


human experts.
It is a decision-making software that can
reach a level of performance comparable to
a human expert in some specialized and
usually narrow problem area.
The idea is simple: expertise is transferred
from an expert or other source of expertise
to the computer.

Expert systems

It captures the expertise of an expert or group


of experts in a computer-based information
system.
The necessary expertise is stored electronically
in a knowledge base.
The computer is programmed so that it can
make inferences.
During the past few years, the technology of
expert systems have been successfully applied
in thousands of organizations worldwide to
problems ranging from identifying credit card
fraud to medical diagnosis to the analysis of
dust in mines.