Chapter

10

Decision Support Systems

McGraw-Hill/Irwin

Copyright 2009 by The McGraw-Hill Companies, Inc. All rights

Learning Objectives
Identify the changes taking place in the form
and use of decision support in business
Identify the role and reporting alternatives
of management information systems
Describe how online analytical processing
can meet key information needs of managers
Explain the decision support system concept
and how it differs from traditional management
information systems

10-2

Learning Objectives
Explain how the following information systems
can support the information needs of
executives, managers, and business
professionals
Executive information systems
Enterprise information portals
Knowledge management systems

Identify how neural networks, fuzzy logic,

genetic algorithms, virtual reality, and
intelligent agents can be used in business
10-3

Learning Objectives

Give examples of several ways

expert systems can be used in
business decision-making
situations

10-4

Decision Support in Business

Companies are investing in data-driven
decision support application frameworks
to help them respond to
Changing market conditions
Customer needs

This is accomplished by several types of

Management information
Decision support
Other information systems
10-5

Case 1: Hillman Group, Avnet, and Quaker

Chemical
BI refers to a variety of software applications used to analyze
an organizations raw data (e.g., sales transactions) and
extract useful insights from them.
BI projects can transform business processes. BI tools,
coupled with changes to business processes, can have a
significant impact on the bottom line.
Major impediment to using BI that transforms business
processes is that most companies dont understand their
business processes well enough to determine how to improve
them.
Companies that use BI to uncover flawed business processes
are in a much better position to successfully compete than
those companies that use BI merely to monitor whats
happening.
10-6

Case Questions
1. What are the business benefits of BI deployments such as
those implemented by Avnet and Quaker Chemical? What
roles do data and business processes play in achieving
those benefits?
2. What are the main challenges to the change of mindset
required to extend BI tools beyond mere reporting? What
can companies do to overcome them? Use examples from
the case to illustrate your answer.
3. Both Avnet and Quaker Chemical implemented systems
and processes that affect the practices of their salespeople.
In which ways did the latter benefit from these new
implementations? How important was their buy-in to the
success of these projects? Discuss alternative strategies
for companies to foster adoption of new systems like these.
10-7

Levels of Managerial Decision Making

10-8

Information Quality
Information products made more
valuable by their attributes,
characteristics, or qualities
Information that is outdated, inaccurate, or
hard to understand has much less value

Information has three dimensions

Time
Content
Form
10-9

Attributes of Information Quality

10-10

Decision Structure
Structured (operational)
The procedures to follow when decision
is needed can be specified in advance

Unstructured (strategic)
It is not possible to specify in advance
most of the decision procedures to follow

Semi-structured (tactical)
Decision procedures can be pre-specified,
but not enough to lead to the correct decision
10-11

Decision Support Systems

Management Information
Systems

Decision Support
Systems

Decision
support
provided

Provide information about

the performance of the
organization

Provide information and

techniques to analyze
specific problems

Information
form and
frequency

Periodic, exception,
demand, and push reports
and responses

Interactive inquiries and

responses

Information
format

Prespecified, fixed format

Ad hoc, flexible, and

adaptable format

Information produced by
extraction and manipulation
of business data

Information produced by
analytical modeling of
business data

Information
processing
methodology

10-12

Decision Support Trends

The emerging class of applications

focuses on
Personalized decision support
Modeling
Information retrieval
Data warehousing
What-if scenarios
Reporting
10-13

Business Intelligence Applications

10-14

Decision Support Systems

Decision support systems use the
following to support the making of semistructured business decisions
Analytical models
Specialized databases
A decision-makers own insights and
judgments
An interactive, computer-based modeling
process

DSS systems are designed to be ad hoc,

quick-response systems that are initiated
and controlled by decision makers
10-15

DSS Components

10-16

DSS Model Base

Model Base
A software component that consists of
models used in computational and analytical
routines that mathematically express
relations among variables

Spreadsheet Examples
Linear programming
Multiple regression forecasting
Capital budgeting present value
10-17

Applications of Statistics and Modeling

Supply Chain: simulate and optimize supply
chain flows, reduce inventory, reduce stock-outs
Pricing: identify the price that maximizes
yield or profit
Product and Service Quality: detect quality
problems early in order to minimize them
Research and Development: improve quality,
efficacy, and safety of products and services

10-18

Management Information Systems

The original type of information system
that supported managerial decision
making
Produces information products that support
many day-to-day decision-making needs
Produces reports, display, and responses
Satisfies needs of operational and tactical
decision makers who face structured
decisions

10-19

Management Reporting Alternatives

Periodic Scheduled Reports
Prespecified format on a regular basis

Exception Reports
Reports about exceptional conditions
May be produced regularly or when an
exception occurs

Demand Reports and Responses

Information is available on demand

Push Reporting
Information is pushed to a networked
computer
10-20

Online Analytical Processing

OLAP
Enables managers and analysts to
examine
and manipulate large amounts of
detailed and consolidated data from
many perspectives
Done interactively, in real time, with
rapid response to queries

10-21

Online Analytical Operations

Consolidation
Aggregation of data
Example: data about sales offices rolled up
to the district level

Drill-Down
Display underlying detail data
Example: sales figures by individual product

Slicing and Dicing

Viewing database from different viewpoints
Often performed along a time axis
10-22

Geographic Information Systems (GIS)

DSS uses geographic databases to

construct and display maps and
other graphic displays
Supports decisions affecting the
geographic distribution of people and
other resources
Often used with Global Positioning
Systems (GPS) devices
10-23

Data Visualization Systems (DVS)

Represents complex data using

interactive, three-dimensional
graphical forms (charts, graphs,
maps)
Helps users interactively sort,
subdivide, combine, and organize
data while it is in its graphical form

10-24

Using Decision Support Systems

Using a decision support system
involves an interactive analytical
modeling process
Decision makers are not demanding
pre-specified information
They are exploring possible alternatives

What-If Analysis
Observing how changes to selected
variables affect other variables

10-25

Using Decision Support Systems

Sensitivity Analysis
Observing how repeated changes to a single
variable affect other variables

Goal-seeking Analysis
Making repeated changes to selected
variables until a chosen variable reaches a
target value

Optimization Analysis
Finding an optimum value for selected
variables, given certain constraints
10-26

Data Mining
Provides decision support through
knowledge discovery
Analyzes vast stores of historical business
data
Looks for patterns, trends, and correlations
Goal is to improve business performance

Types of analysis

Regression
Decision tree
Neural network
Cluster detection
Market basket analysis
10-27

Analysis of Customer Demographics

10-28

Market Basket Analysis

One of the most common uses for data
mining
Determines what products customers
purchase together with other products

Results affect how companies

Market products
Place merchandise in the store
Lay out catalogs and order forms
Determine what new products to offer
Customize solicitation phone calls
10-29

Executive Information Systems (EIS)

Combines many features of MIS and DSS
Provide top executives with immediate and
easy access to information
Identify factors that are critical to
accomplishing strategic objectives (critical
success factors)
So popular that it has been expanded to
managers, analysis, and other knowledge
workers

10-30

Features of an EIS

Information presented in forms

tailored to the preferences of the
executives using the system
Customizable graphical user
interfaces
Exception reports
Trend analysis
Drill down capability
10-31

Enterprise Information Portals

An EIP is a Web-based interface and
integration of MIS, DSS, EIS, and other
technologies
Available to all intranet users and select
extranet users
Provides access to a variety of internal and
external business applications and services
Typically tailored or personalized to the user
or groups of users
Often has a digital dashboard
Also called enterprise knowledge portals
10-32

Enterprise Information Portal Components

10-33

Enterprise Knowledge Portal

10-34

Case 2: Goodyear, JEA, OSUMC, and

Monsanto
Advanced technologies such as AI, mathematical simulations,
and robotics can have dramatic impacts on both business
processes and financial results.
At Goodyear, designers can perform tests 10 times faster
using simulation, reducing a new tires time to market from
two years to as little as nine months.
Public Utility Company JEA uses neural network technology to
automatically determine the optimal combinations of oil and
natural gas the utilitys boilers need to produce electricity cost
effectively, given fuel prices and the amount of electricity
required.
The Ohio State University Medical Center (OSUMC) replaced
its overhead rail transport system with 46 self-guided robotic
vehicles to move linens, meals, trash, and medical supplies
throughout the 1,000-bed hospital.
10-35

Case Study Questions

1. Consider the outcomes of the projects discussed in the case. In all
of them, the payoffs are both larger and achieved more rapidly than
in more traditional system implementations. Why do you think this
is the case? How are these projects different from others you have
come across in the past? What are those differences? Provide
several examples.
2. How do these technologies create business value for the
implementing organizations? In which ways are these
implementations similar in how they accomplish this, and how are
they different? Use examples from the case to support your answer.
3. In all of these examples, companies had an urgent need that
prompted them to investigate these radical, new technologies. Do
you think the story would have been different had the companies
been performing well already? Why or why not? To what extent are
these innovations dependent on the presence of a problem or
crisis?
10-36

Artificial Intelligence (AI)

AI is a field of science and technology
based on

Computer science
Biology
Psychology
Linguistics
Mathematics
Engineering

The goal is to develop computers than

can simulate the ability to think
And see, hear, walk, talk, and feel as well
10-37

Attributes of Intelligent Behavior

Some of the attributes of intelligent
behavior
Think and reason
Use reason to solve problems
Learn or understand from experience
Acquire and apply knowledge
Exhibit creativity and imagination
Deal with complex or perplexing situations

10-38

Attributes of Intelligent Behavior

Attributes of intelligent behavior

(continued)
Respond quickly and successfully to
new situations
Recognize the relative importance of
elements in a situation
Handle ambiguous, incomplete, or
erroneous information
10-39

Domains of Artificial Intelligence

10-40

Cognitive Science
Applications in the cognitive science of AI

Expert systems
Knowledge-based systems
Adaptive learning systems
Fuzzy logic systems
Neural networks
Genetic algorithm software
Intelligent agents

Focuses on how the human brain works

and how humans think and learn
10-41

Robotics
AI, engineering, and physiology are the basic
disciplines of robotics
Produces robot machines with computer intelligence
and humanlike physical capabilities

This area include applications designed to

give robots the powers of

Sight or visual perception

Touch
Dexterity
Locomotion
Navigation

10-42

Natural Interfaces
Major thrusts in the area of AI and the
development of natural interfaces
Natural languages
Speech recognition
Virtual reality

Involves research and development in

Linguistics
Psychology
Computer science
Other disciplines
10-43

Latest Commercial Applications of AI

Decision Support
Helps capture the why as well as the what
of engineered design and decision making

Information Retrieval
Distills tidal waves of information into
simple presentations
Natural language technology
Database mining
10-44

Latest Commercial Applications of AI

Virtual Reality
X-ray-like vision enabled by enhanced-reality
visualization helps surgeons
Automated animation and haptic interfaces
allow users to interact with virtual objects

Robotics
Machine-vision inspections systems
Cutting-edge robotics systems
From micro robots and hands and legs, to
cognitive and trainable modular vision systems
10-45

Expert Systems

An Expert System (ES)

A knowledge-based information
system
Contain knowledge about a specific,
complex application area
Acts as an expert consultant to end
users

10-46

Components of an Expert System

Knowledge Base
Facts about a specific subject area
Heuristics that express the reasoning
procedures of an expert (rules of thumb)

Software Resources
An inference engine processes the
knowledge
and recommends a course of action
User interface programs communicate with
the end user
Explanation programs explain the reasoning
process to the end user
10-47

Components of an Expert System

10-48

Methods of Knowledge Representation

Case-Based
Knowledge organized in the form of cases
Cases are examples of past performance,
occurrences, and experiences

Frame-Based
Knowledge organized in a hierarchy or
network of frames
A frame is a collection of knowledge about
an entity, consisting of a complex package
of data values describing its attributes
10-49

Methods of Knowledge Representation

Object-Based
Knowledge represented as a network of
objects
An object is a data element that includes
both data and the methods or processes that
act on those data

Rule-Based
Knowledge represented in the form of rules
and statements of fact
Rules are statements that typically take the
form of a premise and a conclusion (If, Then)
10-50

Expert System Application Categories

Decision Management
Loan portfolio analysis
Employee performance evaluation
Insurance underwriting

Diagnostic/Troubleshooting
Equipment calibration
Help desk operations
Medical diagnosis
Software debugging
10-51

Expert System Application Categories

Design/Configuration
Computer option installation
Manufacturability studies
Communications networks

Selection/Classification

Material selection
Delinquent account identification
Information classification
Suspect identification

Process Monitoring/Control
10-52

Expert System Application Categories

Process Monitoring/Control
Machine control (including robotics)
Inventory control
Production monitoring
Chemical testing

10-53

Benefits of Expert Systems

Captures the expertise of an expert or
group of experts in a computer-based
information system
Faster and more consistent than an expert
Can contain knowledge of multiple experts
Does not get tired or distracted
Cannot be overworked or stressed
Helps preserve and reproduce the
knowledge
of human experts
10-54

Limitations of Expert Systems

The major limitations of expert

systems
Limited focus
Inability to learn
Maintenance problems
Development cost
Can only solve specific types of problems
in a limited domain of knowledge
10-55

Developing Expert Systems

Suitability Criteria for Expert Systems
Domain: the domain or subject area of
the problem is small and well-defined
Expertise: a body of knowledge, techniques,
and intuition is needed that only a few people
possess
Complexity: solving the problem is a
complex task that requires logical inference
processing
10-56

Developing Expert Systems

Suitability Criteria for Expert Systems
Structure: the solution process must be able
to cope with ill-structured, uncertain, missing,
and conflicting data and a changing problem
situation
Availability: an expert exists who is
articulate, cooperative, and supported by the
management and end users involved in the
development process
10-57

Development Tool

Expert System Shell

The easiest way to develop an expert
system
A software package consisting of an
expert system without its knowledge
base
Has an inference engine and user
interface programs
10-58

Knowledge Engineering
A knowledge engineer
Works with experts to capture the knowledge
(facts and rules of thumb) they possess
Builds the knowledge base, and if necessary,
the rest of the expert system
Performs a role similar to that of systems
analysts in conventional information systems
development

10-59

Neural Networks

Computing systems modeled after

the brains mesh-like network of
interconnected processing elements
(neurons)
Interconnected processors operate in
parallel
and interact with each other
Allows the network to learn from the
data it processes
10-60

Fuzzy Logic
Fuzzy logic
Resembles human reasoning
Allows for approximate values and
inferences and incomplete or ambiguous
data
Uses terms such as very high instead of
precise measures
Used more often in Japan than in the U.S.
Used in fuzzy process controllers used in
subway trains, elevators, and cars
10-61

Example of Fuzzy Logic Rules and Query

10-62

Genetic Algorithms
Genetic algorithm software
Uses Darwinian, randomizing, and other
mathematical functions
Simulates an evolutionary process, yielding
increasingly better solutions to a problem
Being uses to model a variety of scientific,
technical, and business processes
Especially useful for situations in which
thousands of solutions are possible

10-63

Virtual Reality (VR)

Virtual reality is a computer-simulated
reality
Fast-growing area of artificial intelligence
Originated from efforts to build natural,
realistic, multi-sensory human-computer
interfaces
Relies on multi-sensory input/output devices
Creates a three-dimensional world through
sight, sound, and touch
Also called telepresence
10-64

Typical VR Applications

Current applications of virtual reality

Computer-aided design
Medical diagnostics and treatment
Scientific experimentation
Flight simulation
Product demonstrations
Employee training
Entertainment
10-65

Intelligent Agents
A software surrogate for an end user or a
process that fulfills a stated need or
activity
Uses built-in and learned knowledge base
to make decisions and accomplish tasks in
a way that fulfills the intentions of a user
Also call software robots or bots

10-66

User Interface Agents

Interface Tutors observe user computer
operations, correct user mistakes, provide
hints/advice on efficient software use
Presentation Agents show information in
a variety of forms/media based on user
preferences
Network Navigation Agents discover
paths
to information, provide ways to view it based
on user preferences
Role-Playing play what-if games and other
roles to help users understand information
and make better decisions
10-67

Information Management Agents

Search Agents help users find files and
databases, search for information, and
suggest and find new types of information
products, media, resources
Information Brokers provide commercial
services to discover and develop information
resources that fit business or personal needs
Information Filters Receive, find, filter,
discard, save, forward, and notify users
about products received or desired, including
e-mail, voice mail, and other information
media
10-68

Case 3: Oracle Corporation and Others:

Dashboards for Executives
Web-based dashboards
Displays critical information in graphic form
Assembled from data pulled in real time from
corporate software and databases
Managers see changes almost
instantaneously
Now available to smaller companies

Potential problems
Pressure on employees
Divisions in the office
Tendency to hoard information
10-69

Case Study Questions

1. What is the attraction of dashboards

to CEOs and other executives?
What real business value do they
provide to executives?
2. The case emphasizes that managers
of small businesses and many
business professionals now rely on
dashboards. What business benefits
do dashboards provide to this
business audience?
10-70

Case Study Questions

3. What are several reasons for

criticism of the use of dashboards
by executives? Do you agree with
any of this criticism?

10-71

Case 4: Harrahs Entertainment,

LendingTree, DeepGreen Financial, and
Cisco Systems:

The promise of AI of automating

decision making has been very slow to
materialize.
The new generation AI applications are
easier to create and manage, do not
require anyone to identify the problems
or to initiate the analysis, decisionmaking capabilities are embedded into
the normal flow of work, and are
triggered without human intervention.
10-72

Case 4: Harrahs Entertainment,

LendingTree, DeepGreen Financial, and
Cisco Systems:

They sense online data or conditions,

apply codified knowledge or logic and
make decisions with minimal human
intervention.
But they rely on experts and managers
to create and maintain rules and monitor
the results.
Also, managers in charge of automated
decision systems must develop
processes for managing exceptions.
10-73

Case Study Questions

1. Why did some previous attempts to use
artificial intelligence technologies fail?
What key differences of the new AI-based
applications versus the old cause the
authors to declare that automated decision
making is finally coming of age?
2. What types of decisions are best suited for
automated decision making? Provide
several examples of successful
applications from the companies in this
case to illustrate your answer.
10-74

Case Study Questions

3. What role do humans play in
automated decision making
applications? What are some of
the challenges faced by managers
where automated decision-making
systems are being used? What
solutions are needed to meet such
challenges?
10-75