MIS-410: Decision Support System (DSS)

Ashis Talukder Lecturer, MIS Dhaka University

Book:

DECISION SUPPORT SYSTEMS AND BUSINESS INTELLIGENCE

Efraim Turban Jay E Aronson Teng-Peng Liang Reamesh Sharda

Chapter 2:

DECISION MAKING, SYSTEMS, MODELING, AND SUPPORT

Learning Objectives
Understand the conceptual foundations of decision making Understand Simons four phases of decision making: intelligence, design, choice, and implementation Recognize the concepts of rationality and bounded rationality, and how they relate to decision making
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Learning Objectives
Differentiate between the concepts of making a choice and establishing a principle of choice Learn how DSS support for decision making can be provided in practice Understand the systems approach

Decision Making: Introduction and Definitions

Characteristics of decision making
Groupthink Decision makers are interested in evaluating what-if scenarios Experimentation with the real system may result in failure Experimentation with the real system is possible only for one set of conditions at a time and can be disastrous Changes in the decision making environment may occur continuously, leading to invalidating assumptions about the situation
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Decision Making: Introduction and Definitions

Characteristics of decision making
Changes in the decision making environment may affect decision quality by imposing time pressure on the decision maker Collecting information and analyzing a problem takes time and can be expensive. It is difficult to determine when to stop and make a decision There may not be sufficient information to make an intelligent decision Information overload: Too much information
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Decision Making: Introduction and Definitions

Decision making The action of selecting among alternative courses of actions to attain a goal or goals. Important managerial function: planning Planning involves series of decisions:
what should be done? When? Where? Why? How? By whom?

Manger sets goals (or plans), planning implies decision making.

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Decision Making: Introduction and Definitions

Problem Occurs
When a system doesnt meet its established goals Doesnt yield the predicted result Doesnt work as planned

Problem solving may also deal with identifying new opportunities.

Decision Making: Introduction and Definitions

Phases of the decision process
1. Intelligence 2. Design 3. Choice

Problem solving A process in which one starts from an initial state and proceeds to search through a problem space to identify a desired goal. It includes the 4th phase of the decision process
4. Implementation
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Decision Making: Introduction and Definitions

Decision making disciplines
Behavioral:
anthropology, law, philosophy, political science, psychology, social psychology, sociology Computer Science, decision analysis, economics, engineering, hard sciences (biology, chemistry, physics), Management Sciences/Operation Researches, Mathematics and Statistics.
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Scientific

Decision Making: Introduction and Definitions

Each discipline has its own sets of assumptions about reality and methods Each also contributes a unique, valid view of how people make decisions. Finally there is a lot of variations in what constitutes a successful decision in practice. Example: Crainer (2002) discussed 75 greatest management decisions ever made Successful decision
Effectiveness
The degree of goal attainment. Doing the right things The ratio of output to input. Appropriate use of resources. Doing the things right
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Efficiency

Decision Making: Introduction and Definitions

Decision style and decision makers Decision style The manner in which a decision maker thinks and reacts to problems. It includes perceptions, cognitive responses, values, and beliefs changes from individual to individual and situation to situation.
Heuristic and Analytic Autocratic Democratic Consultative Hybrid (Consultative & heuristic, analytic & autocratic)

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Decision Making: Introduction and Definitions

Decision style and decision makers
Different decision styles require different types of support
Individual decision makers need access to data and to experts who can provide advice Groups need collaboration tools

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Models
A model is a simplified representation or abstraction of the reality.
Simplified: since reality may be too complex

Classification based on degree of abstraction: Iconic model

A scaled physical replica, may be 3D: model of airplane, a car, a bridge 2D iconic model: photographs
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Models
Analog model

An abstract, symbolic model of a system that behaves like the system but looks different More abstract that iconic and symbolic representation of reality Examples: 2D charts and diagrams
Organization charts: depicts structure, authority, responsibility relationship Maps: different color represents different objects, such as bodies of water or mountains. Stock Market Charts: represents the price movements of stocks Blueprint of a machine or house Animations, videos, and movies.
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Models

Mental model
The mechanisms or images through which a human mind performs sense-making in decision making Used in time-pressure situation (airplane pilot consider whether to fly) Consider the utility & risks of each alternative When mostly qualitative factors are in decision making

Mathematical (quantitative) model

A system of symbols and expressions that represent a real situation When relationship cant be represented by icons or analogically
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Models
The benefits of models
Model manipulation is much easier than manipulating a real system Models enable the compression of time The cost of modeling analysis is much lower The cost of making mistakes during a trialand-error experiment is much lower when models are used than with real systems
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Models
The benefits of models
With modeling, a manager can estimate the risks resulting from specific actions within the uncertainty of the business environment Mathematical models enable the analysis of a very large number of possible solutions Models enhance and reinforce learning and training Models and solution methods are readily available on the Web Many Java applets are available to readily solve models
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Phases of the Decision-Making Process

Simon (77): systematic decision making process has 3 major phases, he later added a 4th phase :
Intelligence Design Choice Implementation

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Phases of the Decision-Making Process

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Phases of the Decision-Making Process

There is continuous flow of activity from intelligence to design to choice At any phase, there may be a return to a previous phase (feedback)

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Phases of the Decision-Making Process

Intelligence phase
The initial phase of problem definition in decision making

Design phase
The second decision-making phase, which involves finding possible alternatives in decision making and assessing their contributions A model that represents the system is constructed

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Phases of the Decision-Making Process

Choice phase
The third phase in decision making, in which an alternative is selected

Implementation phase
The fourth decision-making phase, involving actually putting a recommended solution to work

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Decision Making:

The Intelligence Phase (Phase 1)

A decision maker attempts to
determine whether a problem exists (monitoring/analyzing the productivity level), identity its symptoms Determine its magnitude Explicitly define the problem.

Problem (or opportunity) identification: some issues that may arise during data collection:
Data are not available Obtaining data may be expensive Data may not be accurate or precise enough

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Decision Making:

The Intelligence Phase (Phase 1) Problem (or opportunity) identification: some issues that may arise during data collection
Data estimation is often subjective Data may be insecure Important data that influence the results may be qualitative

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Decision Making:

The Intelligence Phase (Phase 1) Problem (or opportunity) identification: some issues that may arise during data collection
Information overload Outcomes (or results) may occur over an extended period If future data is not consistent with historical data, the nature of the change has to be predicted and included in the analysis

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Decision Making:
Problem classification

The Intelligence Phase (Phase 1)

The conceptualization of a problem in an attempt to place it in a definable category, possibly leading to a standard solution approach

Problem decomposition
Dividing complex problems into simpler sub-problems may help in solving the complex problem Poor structured problem may have high structured sub-problems (consider: semi-structured problem)

Problem ownership
The jurisdiction (authority) to solve a problem Done in INTELLIGENCE phase Assignment of authority to solve a problem is called problem ownership Example: high-interest rate, what is the managerial role?
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Decision Making: The Design Phase (Phase 2)

The design phase involves finding or developing and analyzing possible courses of action This includes:
Understanding the problem Testing solutions for feasibility A model of the decision-making problem is constructed, tested, and validated
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Decision Making: The Design Phase (Phase 2)

Modeling involves conceptualizing a problem and abstracting it to quantitative and/or qualitative form (Mathematical) Models have:
Decision variables and relationships among them Principle of choice

Simplification of relations (expression) are made, if necessary, through assumption. (linear, even if some non linear effect) Proper balance between simplification and presentation of reality needed for cost-benefit trade-off Simpler model leads: lower development cost, easier manipulation, faster solution but less representative to the real problem, and can produce inaccurate results.
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Decision Making: The Design Phase (Phase 2)

Decision variables A variable in a model that can be changed and manipulated by the decision maker. Decision variables correspond to the decisions to be made, such as quantity to produce, amounts of resources to allocate, and so on Principle of choice The criterion for making a choice among alternatives
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Decision Making: The Design Phase (Phase 2)

Normative models Models in which the chosen alternative is demonstrably the best of all possible alternatives Optimization
The process of examining all the alternatives and proving that the one selected is the best Three ways to achieve optimization:
Get the highest level of goal attainment from a given set of resources Find the alternatives with the highest ratio of goal attainment to cost Find the alternative with minimum cost that will meet the goal. 32

Decision Making: The Design Phase (Phase 2)

Normative models
Suboptimization An optimization-based procedure that does not consider all the alternatives for or impacts on an organization Example: marketing department introduces Emarketing by web site, may affect the production department.
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Decision Making: The Design Phase (Phase 2)

Descriptive model A model that describes things as they are or believed to be.
Models are Mathematically based Simulation An imitation of reality Narrative is a story that helps a decision maker uncover the important aspects of the situation and leads to better understanding and framing
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Decision Making: The Design Phase (Phase 2)

Classes of Descriptive model include
Complex Inventory Decision Environmental-impact analysis Financial Planning Information Flow Markov Analysis (Prediction) Scenario Analysis Simulation (Alternative types) Technological Forecasting Waiting-line (Queuing) managment
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Decision Making: The Design Phase (Phase 2)

GOOD-ENOUGH or SATISFICING
Satisficing A process by which one seeks a solution that will satisfy a set of constraints.
In contrast to optimization, which seeks the best possible solution, satisficing simply seeks a solution that will work well enough something less than the best

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Decision Making: The Design Phase (Phase 2)

Good enough or satisficing
Reasons for satisficing:
Time pressures (decision may loose value over time) Ability to achieve optimization Recognition that the marginal benefit of a better solution is not worth the marginal cost to obtain it

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Decision Making: The Design Phase (Phase 2)

Developing (generating) alternatives
In optimization models the alternatives may be generated automatically by the model In most MSS situations it is necessary to generate alternatives manually (a lengthy, costly process); issues such as when to stop generating alternatives are very important The search for alternatives usually occurs after the criteria for evaluating the alternatives are determined The outcome of every proposed alternative must be established
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Decision Making: The Design Phase (Phase 2)

Measuring outcomes
The value of an alternative is evaluated in terms of goal attainment

Risk
One important task of a decision maker is to attribute a level of risk to the outcome associated with each potential alternative being considered

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Decision Making: The Design Phase (Phase 2)

Scenario A statement of assumptions about the operating environment of a particular system at a given time; a narrative description of the decision-situation setting
Scenarios are especially helpful in simulations and what-if analyses

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Decision Making: The Design Phase (Phase 2)

Scenarios play an important role in MSS because they:
Help identify opportunities and problem areas Provide flexibility in planning Identify the leading edges of changes that management should monitor Help validate major modeling assumptions Allow the decision maker to explore the behavior of a system through a model Help to check the sensitivity of proposed solutions to changes in the environment
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Decision Making: The Design Phase (Phase 2)

Possible scenarios
The worst possible scenario The best possible scenario The most likely scenario The average scenario

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Decision Making: The Design Phase (Phase 2)

Errors in decision making
The model is a critical component in the decisionmaking process A decision maker may make a number of errors in its development and use Validating the model before it is used is critical Gathering the right amount of information, with the right level of precision and accuracy is also critical Reference: Sawyer(99)s seven deadly sins of decision making
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Decision Making: The Choice Phase (Phase 3)

Solving a decision-making model involves searching for an appropriate course of action:
Search for Evaluation of Recommendation of an appropriate solution to a model Searching Approaches include:
Analytical techniques (solving a formula) Algorithms (step-by-step procedures) Heuristics (rules of thumb) Blind searches
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Decision Making: The Choice Phase (Phase 3)

Analytical techniques Methods that use mathematical formulas to derive an optimal solution directly or to predict a certain result, mainly in solving structured problems Algorithm A step-by-step search in which improvement is made at every step until the best solution is found
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Decision Making: The Choice Phase (Phase 3)

Heuristics Informal, judgmental knowledge of an application area that constitutes the rules of good judgment in the field. Heuristics also encompasses the knowledge of how to solve problems efficiently and effectively, how to plan steps in solving a complex problem, how to improve performance, and so forth
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Decision Making: The Choice Phase (Phase 3)

Sensitivity analysis A study of the effect of a change in one or more input variables on a proposed solution What-if analysis A process that involves asking a computer what the effect of changing some of the input data or parameters would be

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Decision Making:

The Implementation Phase (Phase 4)

Complex: Long, involved process with vague boundaries. Generic implementation issues important in dealing with MSS include:
Resistance to change Degree of support of top management User training

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How Decisions Are Supported

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How Decisions Are Supported

Support for the intelligence phase
The ability to scan external and internal information sources for opportunities and problems and to interpret what the scanning discovers
Web tools and sources are extremely useful for environmental scanning Web browsers provide useful front ends for a variety of tools (OLAP, data mining, data warehouses) Internal data sources may be accessible via a corporate intranet External sources are many and varied
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How Decisions Are Supported

Support for the design phase
The generation of alternatives for complex problems requires expertise that can be provided only by a human, brainstorming software, or an ES

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How Decisions Are Supported

Support for the choice phase
DSS can support the choice phase through what-if and goal-seeking analyses Different scenarios can be tested for the selected option to reinforce the final decision KMS helps identify similar past experiences CRM, ERP, and SCM systems are used to test the impacts of decisions in establishing their value, leading to an intelligent choice An ES can be used to assess the desirability of certain solutions and to recommend an appropriate solution A GSS can provide support to lead to consensus in a group 52

How Decisions Are Supported

Support for the implementation phase
DSS can be used in implementation activities such as decision communication, explanation, and justification DSS benefits are partly due to the vividness and detail of analyses and reports

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How Decisions Are Supported

New technology support for decision making
Mobile commerce (m-commerce) Personal devices
Personal digital assistants [PDAs] Cell phones Tablet computers :aptop computers

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