Professional Documents
Culture Documents
Overview
Conceptual Foundations of Decision
Making
The Systems Approach
How Support is Provided
DSS
Decision
Support
Systems
Decision Making
Decision Making: a process of
choosing among alternative courses
of action for the purpose of
attaining a goal or goals
Intelligence
Design
Choice
Implementation
Management Support
Systems
MSS enables senior management to:
1. access common, shared sources of
2. internal and external information
3. that have been summarized in
4. easy-to-access, graphical displays.
Management Support
Systems
function as an integrated approach to
sharing information in an easy-to-use,
highly visual, and personalized way
system helps promote a shared view of
business activities due to integration of
tools and distributed data/information
managers can get up-to-date information
on industry news, competitor/market
trends and internal operations
1980s to 1990s
1980s - managers had support tools
designed to run on PCs (e.g.
spreadsheets, statistical packages,
graphics packages, word processing,
project management, etc.)
1990s - MSS provide integrated
environment for these support tools
MSS
MSS usually designed so that
individual manager can customize
the system as needed
MSS architecture - client/server
environment
one component of a distributed
information infrastructure
2. exception reporting
critical info. outside range of predefined boundaries is highlighted
manager may be notified by system
some orgs. use traffic-light pattern for
exception reporting
green = no problems
yellow = caution, marginal condition
red = trouble, needs immediate attention
3. Active exploration of
info. resources using
MSS can build queries to relational
data bases based on point and click
of managers
can move between internal and
external DBs
integrate all different analysis tools
4. Focused management
support
focus support on key management
activities or decisions (e.g. promotion
planning, pricing)
requires integration of variety of
sophisticated support tools
customized for specific activity
Implementing an MSS
Four key categories of risk must be
managed:
1. need thorough understanding of
individual, team, and organizational
information requirements
2. involves mega-change to formal
and informal policies and practices for
information management and
communication information is power
Implementing an MSS
3. implementation of an MSS should
be considered an organizational
change initiative need to manage the
change
4. must manage the simultaneous
evolution of both the organization
and the technological infrastructure
Past
Back in 1980s, management support
tools consisted of stand-alone (e.g.
not integrated!!) systems.
Two major types of support systems
were (are) termed (1) DSS and (2)
EIS/ESS.
Heres some info. on these standalone systems.
1. Decision support
systems
systems that support rather than replace
"managers" in their decision-making activities
give decision maker access to data and
models, but the intelligence, intuition, and
judgment of the decision maker are integral
parts of the system
DSS provide decision support - don't
automatically make the decision. They help
with the decision.
Types of decisions
Organizational problems differ in terms
of how structured the problems are
the extent to which a solution procedure
can be stated
DSS
DSS - computer system at management
level that combines data, analytical
models, and user-friendly software to
support semistructured and
unstructured decision making
give uses capability to analyze data provide software tools
a DSS is focused on a specific decision
DSS
DSS is a decision-making scratch pad,
backed up by databases - used to
support decision-making processes
can be applied to problems with
quantifiable dimensions that provide
criteria for evaluation of alternative
solutions
helps DM identify best alternative
DSS
DSS Subsystems
Subsystems &
& The
The
Capabilities
Capabilities They
They Offer
Offer
Data Management
for Retrieval
Data Extraction
from Internal and
External Databases
Data
Management
Model
Management
Creation,
Maintenance,
and Use of
Models
Menus, Icons,
Dialog
Natural Language,
Management Graphics
DSS on a Computer Platform
Human Decision Maker
User
models
Model is built by using a variety of
assumptions about the relationship
between its variables
by comparing alternatives (what ifs),
you can vary the premises and
compare the outcomes
goal-seeking
user asks what would it take in terms of
input factors to achieve a particular
outcome
loan amortization
depreciation
lease versus buy
break-even analysis
discounted cash flows and net
present value
Spreadsheets
about 20-30% of users will become
dissatisfied with spreadsheets for
decision support and will want more
powerful tools, but many users will
stay with spreadsheets as primary
DSS, especially for smaller problems
Development
Development &
& Adaptation
Adaptation of
of
Problem DefinitionDSS
by
DSS
Users and Developers
Development of
Initial Prototype
Adaptation
Loop
Prototype/DSS
Evaluation
Development
Loop
Are Current
Requirements
Satisfied?
no
yes
Validation and
Documentation of DSS
Prototype/DSS
Modification
DSS Ready for Use
2. Executive support
systems (ESS)
help senior level managers with
unstructured problems dealing with
monitoring and control functions
ESS
used by both top level execs. and
managers several levels below
Relationship
Relationship between
between EIS
EIS and
and
DSS
User
Task
Primary Support
DSS
Areas
Executive
EIS
Problem/Opportunity
Discovery and
Assessment
Monitoring and
Control,
Strategic Planning
DSS
Seeking Problem
Solution:
Decision-Making
Process
Planning
Flow of Problems
Analyst/
Middle
Manager
2.3 Systems
A SYSTEM is a collection of objects
such as people, resources, concepts,
and procedures intended to perform
an identifiable function or to serve a
goal
43
The Structure of a
System
Three Distinct Parts of Systems (Figure 2.1)
Inputs
Processes
Outputs
Systems
Are surrounded by an environment
Frequently include a feedback mechanism
A human, the decision maker, is usually
considered part of the system
44
System
Environment
Output(s)
Input(s)
Processes
Feedback
Boundary
45
46
Social
Political
Legal
Physical
Economical
Often Other Systems
47
48
49
Factors
Management
Science, EOQ
(Closed System)
Demand
Constant
Unit cost
Constant
May changedaily
Lead time
Constant
Excluded from
analysis
Ignored
Inventory DSS
(Open System)
50
An Information System
Collects, processes, stores, analyzes, and
disseminates information for a specific
purpose
Is often at the heart of many organizations
Accepts inputs and processes data to
provide information to decision makers
and helps decision makers communicate
their results
51
52
2.4 Models
Major Component of DSS
Use Models instead of experimenting on the
real system
53
Degrees of Model
Abstraction
(Least to Most)
Iconic (Scale) Model: Physical replica of a
system
Analog Model behaves like the real system
but does not look like it (symbolic
representation)
Mathematical (Quantitative) Models use
mathematical relationships to represent
complexity
Used in most DSS analyses
54
Benefits of Models
An MSS employs models because
1. Time compression
2. Easy model manipulation
3. Low cost of construction
4. Low cost of execution (especially that of errors)
5. Can model risk and uncertainty
6. Can model large and extremely complex
systems with possibly infinite solutions
7. Enhance and reinforce learning, and enhance
training.
Computer graphics advances: more iconic and
analog models (visual simulation)
55
Trial-and-Error
Simulation
Optimization
Heuristics
56
The Decision-Making
Process
Systematic Decision-Making Process (Simon [1977])
Intelligence
Design
Choice
Implementation
(See Figure 2.2)
Modeling is Essential to the Process
57
Intelligence phase
Reality is examined
The problem is identified and defined
Design phase
Representative model is constructed
The model is validated and evaluation criteria are set
Choice phase
Includes a proposed solution to the model
If reasonable, move on to the
Implementation phase
Solution to the original problem
Failure: Return to the modeling process
Often Backtrack / Cycle Throughout the Process
58
59
Includes
Understanding the problem
Testing solutions for feasibility
A model is constructed, tested, and validated
Modeling
Conceptualization of the problem
Abstraction to quantitative and/or qualitative forms
60
Mathematical Model
Identify Variables
Establish Equations describing their
Relationships
Simplifications through Assumptions
Balance Model Simplification and the
Accurate Representation of Reality
Modeling: An Art and Science
61
Quantitative Modeling
Topics
Model Components
Model Structure
Selection of a Principle of Choice
(Criteria for Evaluation)
Developing (Generating)
Alternatives
Predicting Outcomes
Measuring Outcomes
Scenarios
62
Components of
Quantitative Models
(Figure 2.3)
Decision Variables
Uncontrollable Variables (and/or
Parameters)
Result (Outcome) Variables
Mathematical Relationships
or
Symbolic or Qualitative Relationships
63
Result Variables
Reflect the level of effectiveness of the system
Dependent variables
Examples - Table 2.2
Decision Variables
Describe alternative courses of action
The decision maker controls them
Examples - Table 2.2
64
Area
Financial investment
Decision
Result
Variables and
Variables
Variables
Parameters
Investment
Total profit
Inflation rate
alternatives and
Prime rate
amounts
Competition
Liquidity level
When to invest
Marketing
Manufacturing
Advertising budget
Market share
Customers' income
Where to advertise
Customer satisfaction
Competitors' actions
Total cost
Machine capacity
to produce
Quality level
Technology
Inventory levels
Employee satisfaction
Materials prices
Use of computers
Computer technology
Audit schedule
Error rate
Tax rates
Compensation
programs
Accounting
Legal requirements
Transportation
Shipments schedule
Delivery distance
Regulations
Services
Staffing levels
Customer satisfaction
65
Uncontrollable Variables or
Parameters
66
The Structure of
Quantitative Models
Mathematical expressions (e.g.,
equations or inequalities) connect
the components
Simple financial-type model
P=R-C
Present-value model
P = F / (1+i)n
67
Example
CC8
300
15,000
>=
>=
12,000
Rel
500
<=
100
200
Max
Limit
<=
200,000 / mo
8,000,000/mo
68
Linear Programming
Model
(DSS In Focus 2.1)
Components
Decision variables
Result variable
Uncontrollable variables (constraints)
Solution
X1 = 333.33
X2 = 200
Profit = $5,066,667
69
71
Normative Models
72
Suboptimization
Narrow the boundaries of a system
Consider a part of a complete
system
Leads to (possibly very good, but)
non-optimal solutions
Viable method
73
Descriptive Models
Describe things as they are, or as they
are believed to be
Extremely useful in DSS for evaluating
the consequences of decisions and
scenarios
No guarantee a solution is optimal
Often a solution will be "good enough
Simulation: Well-known descriptive
modeling technique
74
75
Satisficing (Good
Enough)
Most human decision makers will settle
for a good enough solution
There is a tradeoff between the time
and cost of searching for an optimum
versus the value of obtaining one
A good enough or satisficing solution
may be found if a certain goal level is
attained
(Simon [1977])
76
Why Satisfice?
Bounded Rationality
(Simon)
Humans have a limited capacity for rational thinking
They generally construct and analyze a simplified
model
Their behavior with respect to the simplified model
may be rational
But, the rational solution for the simplified model
may NOT BE rational in the real-world situation
Rationality is bounded not only by limitations on
human processing capacities, but also by individual
differences
Bounded rationality is why many models are
descriptive, not normative
77
Developing (Generating)
Alternatives
In Optimization Models:
Automatically by the Model!
Not Always So!
78
79
80
81
Risk Analysis
Calculate the expected value of each
alternative
Selecting the alternative with the best
expected value.
Example: Poker game with some cards
face up (7 card game - 2 down, 4 up, 1
down)
82
83
Measuring Outcomes
Goal attainment
Maximize profit
Minimize cost
Customer satisfaction level (Minimize
number of complaints)
Maximize quality or satisfaction
ratings (found by surveys)
84
Scenarios
Useful in
Simulation
What-if analysis
85
Importance of Scenarios
in MSS
Help identify potential opportunities
and/or problem areas
Provide flexibility in planning
Identify leading edges of changes that
management should monitor
Help validate major assumptions used
in modeling
Help check the sensitivity of proposed
solutions to changes in scenarios
86
Possible Scenarios
Many, but
Worst possible (Low demand, High costs)
Best possible (High demand, High Revenue,
Low Costs)
Most likely (Typical or average values)
87
Search Approaches
Analytical Techniques
Algorithms (Optimization)
Blind and Heuristic Search Techniques
88
Purchasestocks
If a price-to-earnings ratio
exceeds 10, then do not buy
thestocks.
Travel
Do not usethefreeway
between 8 and 9 a.m.
Purchaseof a house
90
Common Methods
Utility theory
Goal programming
Expression of goals as constraints,
using linear programming
Point system
91
Sensitivity Analysis
Change inputs or parameters, look at
model results
92
93
What-If Analysis
Figure 2.8 - SSpreadsheet example of a what-if
query for a cash flow problem
Goal Seeking
Backward solution approach
Example: Figure 2.9
Example: What interest rate causes an the net
present value of an investment to break even?
In a DSS the what-if and the goal-seeking options
must be easy to perform
94
Important Issues
Resistance to change
Degree of top management support
Users roles and involvement in system development
Users training
95
96
97
Cognitive Style
98
Heuristic
Analytic
feedback.
Search
spontaneous action.
Approach to analysis
Scope of analysis
causal functions.
Locates similarities or
commonalities by comparing
objects.
99
Decision Styles
The manner in which decision makers
Think and react to problems
Perceive
Their cognitive response
Their values and beliefs
100
Heuristic
Analytic
Autocratic
Democratic
Consultative (with individuals or groups)
Combinations and variations
101
The system
102
103
Individuals
May still have conflicting objectives
Decisions may be fully automated
104
Groups
105
Summary
Managerial decision making is synonymous with
the whole process of management
Problem solving also refers to opportunity's
evaluation
A system is a collection of objects such as people,
resources, concepts, and procedures intended to
perform an identifiable function or to serve a goal
DSS deals primarily with open systems
A model is a simplified representation or
abstraction of reality
Models enable fast and inexpensive
experimentation with systems
106
Summary (cont.)
Modeling can employ optimization, heuristic, or
simulation techniques
Decision making involves four major phases:
intelligence, design, choice, and implementation
What-if and goal seeking are the two most common
sensitivity analysis approaches
Computers can support all phases of decision
making by automating many of the required tasks
Human cognitive styles may influence humanmachine interaction
Human decision styles need to be recognized in
designing MSS
107
Questions?
1. Identify the conflicting objectives
2. Identify the uncertainties
3. Identify the alternative courses of action (can
they be combined?)
4. What are the possible results of the decision?
Why may the results be difficult to predict?
5. What kind of risk is associated with the
decision?
6. What were the decision-makers different
attitudes toward risk? How could this
influence the decision?
7. What would you do and why?
108
Group Project
Interview an individual who was recently
involved in making a business decision. Try to
identify:
1. The scope of the problem being solved
2. The individuals involved in the decision
(explicitly identify the problem owner(s))
3. Simons phases (you may have to ask the
individual specific questions such as how he
or she identified the problem, etc.)
4. The alternatives (choices) and the decision
chosen
5. How the decision was implemented
109