Problem Solving and Decision Making

 BA represents only a portion of the overall problem solving and

decision making process.
 Six steps in the problem solving process
1. Recognizing the problem
2. Defining the problem
3. Structuring the problem
4. Analyzing the problem
5. Interpreting results and making a decision
6. Implementing the solution
Problem Solving and Decision Making

1. Recognizing the Problem

 Problems exist when there is a gap between what is happening and
what we think should be happening.
 For example, costs are too high compared with competitors.
Problem Solving and Decision Making
2. Defining the Problem
 Clearly defining the problem is not a trivial task.
 Complexity increases when the following occur:
- large number of courses of action
- several competing objectives
- external groups are affected
- problem owner and problem solver are not the
same person
- time constraints exist

What is part of the problem? What not?

Problem Solving and Decision Making

3. Structuring the Problem

 Stating goals and objectives
 Characterizing the possible decisions
 Identifying any constraints or restrictions
 4. Analyze the problem

• Analytics plays a major role.

• Analysis involves some sort of experimentation

or solution process, such as evaluating
different scenarios, analyzing risks associated
with various decision alternatives, fin27ding a
Business Analytics For Managers

solution that meets certain goals, or

determining an optimal solution.
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 5. Interpret the Results
• What do the results found by the model mean for
the application?

• Models cannot capture every detail of the real

problem. Managers must understand the
limitations of models and their underlying
us ly
assumptions and often incorporate judgment into
making a decision.

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Problem Solving and Decision Making

5. Interpreting Results and Making a Decision

 Managers interpret the results from the analysis phase.
 Incorporate subjective judgment as needed.
 Understand limitations and model assumptions.
 Make a decision utilizing the above information.
Problem Solving and Decision Making

6. Implementing the Solution

 Translate the results of the model back to the real world.
 Make the solution work in the organization by providing adequate
training and resources.
 The Missing Link

Closing the Loop

Monitoring Changes in data

Changes in environment

• How do I know my model remains

valid and applicable?
• When should I update my model(s)?
• How do I update my model(s)?
Example: Reliability and Validity Criterions
Validity Type Criterion Description Literature

Greater than 0.70 is considered to achieve the Nunnally (1978); Uniyal &
Cronbach Alpha
reliability of measurement model Kanojia (2019)
Internal consistency
Reliability Measure the sum of an LV's factors loadings
relative to the sum of the factor loadings plus error Nunnally & Bernstein (1994);
Composite Reliability
variances Kretzschmar & Gignac (2019)

Measured the indicators variance explained by the Chin (1998); Wijethilake & Lama
Indicator Reliability Indicator loadings
corresponding latent variables (2018)

Average Variance AVE higher than 0.50 is considered for the Fornell & Larcker (2017); Imran
Convergent Validity
Extracted (AVE) measurement model et al. (2019)

The AVE of each latent variable greater than the

Fornell-Larcker Fornell & Larcker (2017); Imran
Discriminant Validity latent variable highest squared correlation with any
criterion et al. (2019)
other latent variable is considered in the model

Reliability and Validity tests performed

Pyramid of Analytics

Analytics for
competitive strategy
(Data is everything)

Analytics for decision making

(What promotion strategy to use)

Analytics for problem solving

(Reduce inventory cost)

Analytics for process improvement

(Reduce procurement cycle time)