Using Management Information Systems

David Kroenke Business Intelligence and Knowledge Management Chapter 9
© 2007 Prentice Hall, Inc. 1

Learning Objectives

Understand the need for business intelligence systems. Know the characteristics of reporting systems. Know the purpose and role of data warehouses and data marts. Understand fundamental data-mining techniques. Know the purpose, features, and functions of knowledge management systems.

The Nature of Intelligence
Some of the characteristics of intelligent behavior include the ability to do the following: Learn from experience including the ability to learn by trial and error Apply knowledge acquired from experience to another situation Handle complex situations Solve problems when important information is missing is the essence of decision making when dealing with uncertainty Determining what is important is a mark of a good decision maker The ability to reason and think Reacting quickly and correctly to a new situation Understand and interpret visual images including processing and manipulating symbols Being creative and imaginative Using heuristics, or rules of thumb, or even guesses in making decisions


hardware. software.What is AI? Artificial Intelligence systems include people. procedures. data and knowledge needed to develop computer systems and machines that demonstrate characteristics of intelligence [Ralph Stair]. 4 .

Robotics involves developing mechanical or computer devices controlled by software to perform tasks that require a high degree of precision or are tedious or hazardous for humans Vision Systems include hardware and software that permit computers to capture.Components of AI Expert Systems are computer programs that act or behave like a human expert in a field or area. store and manipulate visual images and pictures Natural Language Processing allows the computer to understand and react to statements and commands made in a "natural" language. such as English Learning Systems include hardware and software that allow the computer to change how it functions or reacts to situations based on feedback it receives Neural Networks are computer systems that act like or simulate the functioning of the human brain 5 .

Expert Systems    Expert systems are created by interviewing experts in a given business domain and codifying the rules stated by those experts.  They were unable to live up to the high expectations set by their name. Expert systems suffer from three major disadvantages. Many expert systems were created in the late 1980s and 1990s. and some of them have been successful.  They are difficult and expensive to develop. 6 .  They are difficult to maintain.

7 . 400 petabytes equals 40.01 petabytes.000 copies of the print collection of the Library of Congress. 403 petabytes is roughly the amount of all printed material ever written.   The printed collection of the Library of Congress is .The Need for Business Intelligence Systems According to a study done at the University of California at Berkeley. a total of 403 petabytes of new data were created in 2002.

8 . BI systems help users accomplish their goals and objectives by producing insights that lead to actions. to the right user.Business Intelligence Systems The purpose of a business intelligence (BI) system is to provide the right information. at the right time.

Data mining involves searching for patterns and relationships among data. In most cases.  For example. data-mining tools are used to make predictions. Reporting tools are used to address questions like:    What has happened in the past? What is the current situation? How does the current situation compare to the past? Data-mining tools process data using statistical techniques. 9 . Data-mining tools use sophisticated techniques. many of which are sophisticated and mathematically complex.Business Intelligence Tools Tools for searching business data in an attempt to find patterns is called business intelligence (BI) tools. The processing of data is simple:Data are sorted and grouped and simple totals and averages are calculated. we can use one form of analysis to compute the probability that a customer will default on a loan.

Data-mining techniques emerged from statistics and mathematics and from artificial intelligence and machine-learning fields in computer science.Data Mining Data mining is the application of statistical techniques to find patterns and relationships among data and to classify and predict. Data mining represents a convergence of disciplines. 10 .

11 . Analysts create hypotheses after the analysis to explain the patterns found.Unsupervised Data Mining With unsupervised data mining. they apply the data-mining technique to the data and observe the results. analysts do not create a model or hypothesis before running the analysis. Instead.

which measures the impact of a set of variables on another variable. Neural networks are another popular supervised data-mining technique used to predict values and make classifications such as “good prospect” or “poor prospect” customers. is called a regression analysis. One such analysis. data miners develop a model prior to the analysis and apply statistical techniques to data to estimate parameters of the model.Supervised Data Mining With supervised data mining. 12 .

Data Warehouses and Data Marts Basic reports and simple OLAP analyses can be made directly from operational data. and manage data specifically for data mining and other analyses. The prepared data are stored in a data-warehouse database using data-warehouse DBMS. Many organizations choose to extract operational data into facilities called data warehouses and data marts. clean. Programs read operational data and extract. which can be different from the organization’s operational DBMS. and prepare that data for BI processing. store. 13 . both of which are facilities that prepare.

Data Warehouses Versus Data Marts A data mart is a data collection. The data warehouse is like the distributor in the supply chain and the data mart is like the retail store in the supply chain. Users in the data mart obtain data that pertain to a particular business function from the data warehouse. staff. that addresses a particular component or functional area of the business. 14 . and operate data warehouses and data marts. It is expensive to create. smaller than the data warehouse.

15 .Problems with Operational Data Most operational and purchased data have problems that inhibit their usefulness for business intelligence.

Decision Trees A decision tree is a hierarchical arrangement of criteria that predict a classification or a value. The analyst sets up the computer program and provides the data to analyze. 16 . Decision tree analyses are an unsupervised datamining technique. and the decision tree program produces the tree.

17 . Organizations analyze data from past loans to produce a decision tree that can be converted to loan-decision rules.A Decision Tree for Loan Evaluation A common business application of decision trees is to classify loans by likelihood of default.  A financial institution could use such a tree to assess the default risk on a new loan.

Reporting systems generate information from data as a result of four operations:     Filtering data Sorting data Grouping data Making simple calculations on the data 18 .Reporting Systems The purpose of a reporting system is to create meaningful information from disparate data sources and to deliver that information to the proper user on a timely basis.

The metadata describes the reports.Components of Reporting Systems A reporting system maintains a database of reporting metadata. groups. The reporting system uses the metadata to prepare and deliver reports to the proper users on a timely basis. and other entities involved in the reporting activity. events. 19 . roles. users.

and they do not change. reports can be static or dynamic.Report Type In terms of a report type. a report of past year’s sales Dynamic reports: the reporting system reads the most current data and generates the report using that fresh data. Static reports are prepared once from the underlying data.  Example. Examples are: a report on sales today and a report on current stock prices Query reports are prepared in response to data entered by users.  20 . Online analytical processing (OLAP) reports allow the user to dynamically change the report grouping structures.

Companies sometimes place reports on internal corporate Web sites for employees to access. Another report medium is a digital dashboard. a local weather forecast. a list of stock prices. and others are created in a format like PDF whereby they can be printed or viewed electronically. Other reports are delivered to computer screens. or a list of news sources. which is an electronic display customized for a particular user.Report Media Reports are delivered via many different report media or channels. Some reports are printed on paper. The vendor constructs the display customized for each user. Users of these services can define content they want. 21 .    Vendors like Yahoo! and MSN provide common examples.say.

Digital Dashboard Example 22 .

It is a simple technique that considers how recently (R) a customer has ordered. Finally the program sorts the customers again according to the amount spent on their orders. 23 . In a common form of this analysis. The program then re-sorts the customers on the basis of how frequently they order.  The top 20% of the customers who order most frequently are given a F score of 1 (highest).  The top 20% of the customers having the most recent orders are given an R score 1 (highest). To produce an RFM score. the program first sorts customer purchase records by the date of their most recent (R) purchase. and how much money (M) the customer spends per order. how frequently (F) a customer orders.  The 20% who have ordered the most expensive items are given an M score of 1 (highest). the program then divides the customers into five groups and gives customers in each group a score of 1 to 5.RFM Analysis RFM analysis is a way of analyzing and ranking customers according to their purchasing patterns.

customer type. With an OLAP report. The remarkable characteristics of OLAP reports is that they are dynamic. count.Online Analytical Processing Online analytical processing (OLAP) provides the ability to sum. the term online. 24 . A measure is the data item of interest. Purchase data. and perform other simple arithmetic operations on groups of data.   This term means to further divide the data into more detail. The viewer of the report can change the report’s format. and sales region are all examples of dimension. A dimension is a characteristic of a measure. hence. customer location.  It is the item that is to be summed or averaged or otherwise processed in the OLAP report. average. An OLAP report has measures and dimensions. it is possible to drill down into the data.

You can expect market-basket analysis to become a standard CRM analysis during your career.Market-Basket Analysis A market-basket analysis is a data-mining technique for determining sales patterns. In market-basket terminology. 25 . A market-basket analysis shows the products that customers tend to buy together. support is the probability that two items will be purchased together.

KM preserves organizational memory by capturing and storing the lessons learned and best practices of key employees. suppliers. their knowledge. either in libraries of documents. 26 . and effective means for sharing that knowledge with others. managers. and others who need that capital. Knowledge management (KM) is the process of creating value from intellectual capital and sharing that knowledge with employees. in the heads of employees. or in other known sources.  Its emphasis is on people. customers.Knowledge Management Knowledge management systems concern the sharing of knowledge that is already known to exist. Knowledge management is a process that is supported by the five components of an information system. The benefits of KM concern the application of knowledge to enable employees and others to leverage organizational knowledge to work smarter.

manage. The only requirement that content managers place on document authoring is that the document has been created in a standardized format. graphics. and deliver. The basic functions of content management systems are the same as for report management systems: author. KM content management systems are concerned with the creation. and related materials. management. Typical users of content management systems are companies that sell complicated products and want to share their knowledge of those products with employees and customers. and delivery of documents that exist for the purpose of imparting knowledge. 27 .Content Management Systems Content management systems are information systems that track organizational documents. Web pages.

and a facility for searching the content devised. Web browsers and other programs can readily format content expressed in HTML.Content Delivery Almost all users of content management systems pull the contents. or another standard format. XML documents often contain their own formatting rules that browsers can interpret. Documents that reside behind a corporate firewall. are not publicly accessible and will not be reachable by Google or other search engines. PDF. Users cannot pull content if they do not know it exists. Organizations must index their own proprietary documents and provide their own search capability for them.  The content must be arranged and indexed. however.   The content management system will have to determine an appropriate format for content expressed in other ways. 28 .

discussion groups. KM systems are concerned with the sharing not only of content.KM Systems to Facilitate the Sharing of Human Knowledge Nothing is more frustrating for a manager to contemplate than the situation in which one employee struggles with a problem that another employee knows how to solve easily. but also with the sharing of knowledge among humans.sharing among humans:     Portals. How can one person share her knowledge with another?  How can one person learn of another person’s great idea? Three forms of technology are used for knowledge. and email Collaborations systems Expert systems 29 .

 But those activities can also be dangerous Serious ethical issues arise when we classify people. important. and essential activities. then the ethical issue may not be too serious. Sorting and classifying are necessary.Ethics Guide–The Ethics of Classification Classification is a useful human skill.    What makes someone a good or bad “prospect”? If we’re talking about classifying customers in order to prioritize our sales calls. What about classifying applicants for college? 30 .

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