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Chapter

10
Decision Support Systems

McGraw-Hill/Irwin

Copyright 2008, The McGraw-Hill Companies, Inc. All rights reserved.

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

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

Learning Objectives
Give examples of several ways expert systems
can be used in business decision-making
situations

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

Case 1: 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

Case Study Questions


What is the attraction of dashboards to CEOs and
other executives?
What real business value do they provide
to executives?

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?

Case Study Questions


What are several reasons for criticism of
the use of dashboards by executives?
Do you agree with any of this criticism?

Levels of Managerial Decision Making

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Information that is outdated, inaccurate, or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

Attributes of Information Quality

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

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

Decision Support Trends


The emerging class of applications focuses on

Personalized decision support


Modeling
Information retrieval
Data warehousing
What-if scenarios
Reporting

Business Intelligence Applications

Decision Support Systems


Decision support systems use the following to
support the making of semi-structured 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

DSS Components

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

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

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

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

Example of Push Reporting

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

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

OLAP Configuration

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

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

DVS Example

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

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

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

Analysis of Customer Demographics

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

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

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

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

Dashboard Example

Enterprise Information Portal Components

Enterprise Knowledge Portal

Case 2: Automated Decision Making


Automated decision making has been slow
to materialize
Early applications were just solutions looking
for problems, contributing little to improved
organizational performance

A new generation of AI applications


Easier to create and manage
Decision making triggered without human
intervention
Can translate decisions into action quickly,
accurately, and efficiently

Case 2: Automated Decision Making


AI is best suited for
Decisions that must be made quickly and
frequently, using electronic data
Highly structured decision criteria
High-quality data

Common users of AI
Transportation industry
Hotels
Investment firms and lenders

Case Study Questions


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
coming of age?

What types of decisions are best suited for


automated decision making?

Case Study Questions


What role do humans plan 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?

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

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

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

Domains of Artificial Intelligence

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

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

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

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

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

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

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

Components of an Expert System

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

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)

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

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

Expert System Application Categories


Process Monitoring/Control

Machine control (including robotics)


Inventory control
Production monitoring
Chemical testing

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

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

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

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

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

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

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

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

Example of Fuzzy Logic Rules and Query

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

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

Typical VR Applications
Current applications of virtual reality

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

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

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

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

Case 3: Centralized Business Intelligence


A reinventing-the-wheel approach to business
intelligence implementations can result in
High development costs
High support costs
Incompatible business intelligence systems

A more strategic approach


Standardize on fewer business intelligence tools
Make them available throughout the organization,
even before projects are planned

Case 3: Centralized Business Intelligence


About 10 percent of the 2,000 largest companies
have a business intelligence competency center
Centralized or virtual
Part of the IT department or independent

Cost reduction is often the driving force behind


creating competency centers and consolidating
business intelligence systems
Despite the potential savings, funding for
creating and running a BI center can be an issue

Case Study Questions


What is business intelligence?
Why are business intelligence systems such
a popular business application of IT?

What is the business value of the various


BI applications discussed in the case?
Is the business intelligence system an MIS
or a DSS?

Case 4: Robots, the Common Denominator


In early 2004, 22 patients underwent complex
laparoscopic operations
The operations included colon cancer
procedures and hernia repairs
The primary surgeon was 250 miles away
A three-armed robot was used to perform the
procedures
Left arm, right arm, camera arm

Case 4: Robots, the Common Denominator


Automakers heavily use robotics
Ford has a completely wireless assembly factory
It also have a completely automated body shop
BMW has two wireless plants in Europe and
is setting one up in the U.S.
Vehicle tracking and material replenishment
are automated as well

Case Study Questions


What is the current and future business value
of robotics?
Would you be comfortable with a robot
performing surgery on you?
The robotics being used by Ford Motor Co. are
contributing to a streamlining of its supply chain
What other applications of robots can you
envision to improve supply chain management
beyond those described in the case?