Business Logic

Business Value of Decision Model

• Explain business decisions characteristics and its
complexes
• Demonstrate business value characteristics
Characteristic #2: Its Volume-Based Economic Impact
 Business decision – inverse proportion to individual
economic value

 Sometimes economic value of everyday transactions – is

insignificant in an enterprise as a whole

 A strategic business decision may be made only once in a

long period of time, but a single strategic business decision
may have a profound economic value
 Characteristic #2: Its Volume-Based Economic Impact
 Operational decisions are important
 Organizations are viewed by the decisions they make
 a lot of tiny decisions build up
 every decision made by an organization should be managed as though it were
purposeful
 Operational decisions can and should be automated
 high-volume operational decisions in particular can and should be automated
 traditional technology approaches will not succeed in automating decisions
 to assess overall effectiveness, automated decisions must be measured,
tracked, and refined over time
 Taking control of operational decisions is increasingly a source of competitive
advantage
 Characteristic #2: Its Volume-Based Economic Impact
Management Typical Characteristics and Economic Business Value of the Corresponding Decision Model
Level Impact of Corresponding Business
Decisions
Strategic • Low volume • delivers the same value as its operative context; (see
• High individual economic value Table 3.2: The Usefulness of the Decision Model Based on
• Spans simple to chaotic operative Operative Context )
context
Tactical • Medium value • delivers the same value as its operative context; (see
• Medium individual economic value Table 3.2: The Usefulness of the Decision Model Based on
• Medium collective economic value Operative Context )
• Spans simple to chaotic operative
context ex. Bank
operations
Operational • High volume • Provides a management approach for the small decisions
• Small individual economic value that add up to high economic impact
• High collective economic value • Provides a starting point for high-volume operational
• Mostly operates in the simple decisions to be automated
operative context • Provides traceability to business objectives and
metrics—especially relating to business decisions that
ex. Numerous repetitive
transactions result in fines, reprocessing, and reclaiming of money
• Serves to provide competitive advantage and agility
Table 3.3 The Value of the Decision Model Based on the Management Level and Volume-Based Economic Impact
 Characteristic #3: Its Complexity of Business Logic
 From a dictionary, the word ‘complex’ means “a whole made up of complicated
or interrelated parts”
 For business decision
whole → corresponding Decision Model
complicated or interrelated parts → Rule Families of conditions and
conclusions and the relationships among Rule Families
 Necessary to understand
Quantity of Rule Families
Conditions Module 1

Conclusions
Relationships among Rule Families
 Characteristic #3: Its Complexity of Business Logic

The complexity of the business logic of a Decision Model

To be High Medium To be Low
• a large quantity of Rule In between • a Rule Family contains
Families few fact types
• each single Rule Family • only a single formula for
consists of a very large its conclusion fact type
quantity of fact types
• many logic statements
in a Rule Family
Observed in large
businesses which
also depends on its
operative industry
 Characteristic #3: Its Complexity of Business Logic

Measure of Characteristics of Business Value of the Corresponding

Business Corresponding Decision
Logic Model
Complexity
Simple Low quantity of:
complexity • Fact types (columns)
• Business logic (rows)
• Rule Families (tables)
• Inferential relationships
(connections)
• Fact types known
• Fact values known
Attributes to fact types
Decision Model
• Delivers the same value as Decision Models
operating in the simple context
• For Decision Models that are very simple in
business logic complexity, the main value is
in communicating and standardizing on the
business logic
Repetitive

Table 3.4 The Value of the Decision Model Based on Complexity of Business Logic
 Characteristic #3: Its Complexity of Business Logic

Measure of Characteristics of Business Value of the Corresponding

Business Corresponding Decision
Logic Model
Complexity
Medium Medium quantity of:
complexity • Fact types (columns)
• Business logic (rows)
• Rule Families (tables)
• Inferential relationships
(connections)
• Fact types known
• Fact values known or
require human expertise
Decision Model
• Delivers the same value as Decision Models
operating in the complicated context
• Serves as a mechanism for discovering,
gaining clarity, and standardizing business
logic with medium complexity, ensuring the
greatest degree of simplicity of the business
logic as possible
• Serves as a basis for determining which
parts of the Decision Model can be
automated and which ought to be handled
by humans

Table 3.4 The Value of the Decision Model Based on Complexity of Business Logic
 Characteristic #3: Its Complexity of Business Logic

Measure of Characteristics of Business Value of the Corresponding

Business Corresponding Decision
Logic Model
Complexity
High High quantity of:
complexity • Fact types (columns)
• Business logic (rows)
• Rule Families (tables)
• Inferential relationships
(connections)
• Fact types unknown
• Fact values unknown
• or require rare human
expertise
Decision Model
• Delivers the same value as Decision Models
operating in the complex and chaotic
context
• Highlights the value and competitive
advantage of strategic human expertise
• Serves as a mechanism for discovering,
gaining clarity, and standardizing business
logic with high complexity, ensuring the
greatest degree of simplicity of the business
logic as possible.

Table 3.4 The Value of the Decision Model Based on Complexity of Business Logic
 Putting characteristics together

conveys a holistic
view of the worth
of the Decision
Model to the
business

Cynefin
Framework

Operative Context

Categorizing business decision

 Putting characteristics together • The vertical axis of the
graph demonstrates the
volume-based economic
impact as discussed by
Taylor and Raden.
• Because the axis
conveys a holistic represents two values that
view of the worth are inverses of each other,
represents by a split bar.
of the Decision • The split bar on the right
Model to the indicates the relative
frequency of business
business decisions where the
frequency rises from top
to bottom.
• The split bar on the left
represents the economic
value of each business
decision that rises from
top to bottom.
• The business decisions
higher on the vertical axis
occur in the most volume
and have the lowest
individual economic
impact.
• The business decisions
lower on the vertical axis
volume-based occur in the least volume
economic impact and have the highest
individual economic
Categorizing business decision impact.
 Putting characteristics together

conveys a holistic
view of the worth
of the Decision there are unique
Model to the business decision
business types with
corresponding
positions on the
each bubble grid for different
represents a industries and
“business decision different
type” organizations

which divides
among strategic,
midlevel, and
operational
management
levels
Categorizing business decision
 Putting characteristics together

• all business decisions

types as the same
conveys a holistic relative size,
indicating that the
view of the worth
business logic behind
of the Decision each is roughly
Model to the equivalent in
business complexity

The bigger the • By representing

business logic
the size of the bubble, the bigger
complexity as the
bubble is the business logic
behind it relative size of the
indicative of the bubble, such a
business logic diagram becomes
complexity of its useful in comparing
business decision the level of effort
required for different
business decisions in
different areas of the
enterprise.

Categorizing business decision

 Putting characteristics together • The business decisions
ideally suited for complete
coverage in a Decision
Model are those that
operate in the simple or
conveys a holistic complicated domain,
view of the worth hence are fact based, and
provide guidance in
of the Decision business processes. These
Model to the are the business decisions
business on the right side of the
diagram. Their
corresponding Decision
Models are useful for
documenting, sharing,
the size of the
measuring, and managing
bubble is changes in such business
indicative of the decisions.
business logic • On the left of the graph
complexity of its are decisions that arise
business decision from unforeseen events or
complex changes in the
business. The usefulness of
corresponding Decision
Models is to reduce
complexity and invent
decision solutions in
unordered environments.
Categorizing business decision
Business Value Characteristic in Some Practical Ideas

 important to determine the  provided insights into how to

potential business value of a assess three characteristics of
business decision to business decisions where the
understand fully (of its Decision Model can contribute
to their value
corresponding Decision Model)
 An approach to assessing such
Usefulness
business value is to identify:
Participants  for each characteristic –
Cost where the Decision Model
fits
Effort
 how it influences the use,
Benefits participants, cost, and effort
Case study

A financial institution is reevaluating its loan approval process,

which is partly automated and partly handled by loan officers. The
system seems to operate well in making most decisions involved in
approving loans except in the area of the possibility of the
applicant’s defaulting on a loan. A disturbing organizational issue
is that the evaluation of an applicant’s likelihood of defaulting on a
loan often differs depending on who the loan officer is, because
different loan officers use different criteria. Another disturbing
issue is that the quantity of defaulted loans over the past six
months has significantly increased.
Case study

The institution wants to automate the business decision involving

the applicant’s likelihood of defaulting on a loan to enforce
consistency and so that only exceptional situations in this regard
require immediate handling by a loan officer. Therefore, new
objectives are set: to decrease by 60% in one year the number of
loan applications evaluated by a loan officer regarding the
likelihood of default and to reduce by 25% in one year the quantity
of defaulted loans.
Case study
(Task)

 to identify a target business decision

starting with an appropriate deciding word
fact type to which the conclusion applies
 Business motivations → identified for why it is important for the
business to manage it
Case study (Solution)
Business Decision and Business Motivation

 Target business decision: Determine Applicant’s Likelihood of

Defaulting on a Loan
 Business Motivations
General
Greater consistency in loan approvals by automating the
business decision
Less time spent by humans making this business decision;
60% reduction in one year
 Fewer defaulted loans; 25% reduction of quantity of loans in one
year
Case study (Solution)
Operative Context

Simple
Complicated
Complex
Chaotic
Case study (Solution)
Operative Context

 Primary operative context: Simple context

Why: the business decision is related to a business process
 Fact type: can be known (more likely)
may need to be gathered from various loan officers to study a
complete set of fact types
 Fact values: can be same as fact type
 Case study (Solution)

There should be Operative Context

only one
solution for a
given loan ➢ business decision has some characteristics of the Complicated
request, and the
business context
decision is not ➢ because it probably will be easy to determine the most
part of complex
processing important fact types, but the fact values used by the different
. loan officers may be more unknown
Reasonable use
of the Decision ➢ loan officers may not remember the fact values they use, may
Model is to not be consistent in the fact values they use, or may not want
reduce the
business
to participate
decision to the
Simple
operative
context.
Case study (Solution)
Usefulness of Decision Model

Decision Model will represent:

 agreed-upon, shared, complete, and accurate business logic
for determining an applicant’s likelihood of defaulting on a loan that
can be measured against business objectives
Decision Model → separated from the Loan Approval Process
Model
agility is increased because the business logic for the decision can be
changed without changing the Loan Approval Process itself
Case study (Solution)
Usefulness of Decision Model

Decision Model will point out which fact types and values:
 not well known
 needing more expertise so that expert knowledge (when
automated) will be in place for the nonexperts using the system

Identification of the most appropriate fact types and fact values will
probably require the involvement of those loan officers who have
been approving the least number of defaulted loans.
 Case study (Solution)
Volume-Based Economic Impact
The
stakeholders
decide that it
makes economic
 The business people need to provide information on how much
sense to move money is lost on average for each defaulted loan.
forward with
estimates for  The product of number of defaulted loans per day times the
developing and amount of money lost for each will provide the volume-based
sustaining this economic impact of improving this business decision.
Decision Model
based on the  Assuming the number of loans can amount to hundreds of
volume-based thousands of currency very quickly, the savings due to reduction
economic
impact of the in the quantity of defaulting loans by 25% can be calculated.
Decision Model.

Estimates involve understanding the business logic complexity.

 Case study (Solution)
The business Business Logic Complexity
logic complexity
assists in
understanding  Based on the business logic complexity of the Decision Model,
the cost of
developing and the effort is assessed by estimating the time required to define
managing its fact types, Rule Families, populate Rule Families, and resolve
Decision Model. conflicts, confusion, and unknowns.

 If the IT group already has experience in automating Decision

Models in target technology, estimates can be made for
incorporating the automated Decision Model into a business
application.