McGraw-Hill/Irwin Copyright 2008

2008,The
TheMcGraw-Hill
McGraw-HillCompanies,
Companies,Inc.
Inc.All
Allrights
rightsreserved.
reserved.
 Chapter

10
Decision Support Systems

McGraw-Hill/Irwin Copyright 2008

2008,The
TheMcGraw-Hill
McGraw-HillCompanies,
Companies,Inc.
Inc.All
Allrights
rightsreserved.
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Information that is outdated, inaccurate, or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 Decision Support

Systems Systems
Decision Provide information about Provide information and
support the performance of the techniques to analyze
provided organization specific problems
Information Periodic, exception, Interactive inquiries and
form and demand, and push reports responses
frequency and responses
Information Prespecified, fixed format Ad hoc, flexible, and
format adaptable format
Information Information produced by Information produced by
processing extraction and manipulation analytical modeling of
methodology of business data business data
 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

Insert Figure 10.10 here

 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

Insert Figure 10.11

 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

Insert Figure 10.14 here

 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?