IS for Decision Support

Prof. Himanshu Joshi

himanshu@imi.edu

1.1 © 2010 by Prentice Hall

 Managing Large Databases

• Very large databases and systems require special

capabilities, tools
• To analyze large quantities of data
• To access data from multiple systems
• Three key techniques
• Data warehousing
• Data mining
• Tools for accessing internal databases through the
Web

1.2 © 2010 by Prentice Hall

 Data Warehouse and Data Marts

• Why do organizations need a separate data repository

from the normal database?
• Data warehouse:
• Stores current and historical data from many core operational
transaction systems
• Consolidates and standardizes information for use across
enterprise, but data cannot be altered
• Data warehouse system will provide query, analysis, and reporting
tools
• Data marts:
• Subset of data warehouse
• Summarized or highly focused portion of firm’s data for use by
specific population of users
• Typically focuses on single subject or line of business
1.3 © 2010 by Prentice Hall
 Components of a Data Warehouse

The data warehouse extracts current and historical data from multiple operational systems
inside the organization. These data are combined with data from external sources and
reorganized into a central database designed for management reporting and analysis. The
information directory provides users with information about the data available in the warehouse.

Figure 6-13
1.4 © 2010 by Prentice Hall
 Business Intelligence

• Business Intelligence:
• Tools for consolidating, analyzing, and providing access
to vast amounts of data to help users make better
business decisions
• E.g., Harrah’s Entertainment analyzes customers to
develop gambling profiles and identify most profitable
customers
• Principle tools include:
• Software for database query and reporting
• Online analytical processing (OLAP)
• Data mining

1.5 © 2010 by Prentice Hall

 Business Intelligence

Figure 6-14
A series of analytical
tools works with data
stored in databases to
find patterns and insights
for helping managers and
employees make better
decisions to improve
organizational
performance.

1.6 © 2010 by Prentice Hall

 • Online analytical processing (OLAP)
• Supports multidimensional data analysis
• Viewing data using multiple dimensions
• Each aspect of information (product, pricing, cost,
region, time period) is different dimension
• E.g., how many washers sold in East in June
compared with other regions?
• OLAP enables rapid, online answers to ad hoc queries

1.7 © 2010 by Prentice Hall

 Multidimensional Data Model

Figure 6-15
The view that is showing is
product versus region. If
you rotate the cube 90
degrees, the face that will
show is product versus
actual and projected sales.
If you rotate the cube 90
degrees again, you will see
region versus actual and
projected sales. Other
views are possible.

1.8 © 2010 by Prentice Hall

 Data Mining

• Data mining:
• More discovery driven than OLAP
• Finds hidden patterns, relationships in large databases and
infers rules to predict future behavior
• E.g., Finding patterns in customer data for one-to-one
marketing campaigns or to identify profitable customers.
• Types of information obtainable from data mining
• Associations: Occurrences linked to single event.
• Sequences: Events linked over time
• Classification: Recognizes patterns that describe group to
which item belongs
• Clustering: Similar to classification when no groups have been
defined; finds groupings within data
• Forecasting: Uses series of existing values to forecast what
other values will be
1.9 © 2010 by Prentice Hall
 Data Mining Techniques

• Predictive analysis
• Uses data mining techniques, historical data, and
assumptions about future conditions to predict
outcomes of events
• E.g., Probability a customer will respond to an offer or
purchase a specific product
• Text mining
• Extracts key elements from large unstructured data sets
(e.g., stored e-mails)

1.10 © 2010 by Prentice Hall

 • Web mining
• Discovery and analysis of useful patterns and information
from WWW
• E.g., to understand customer behavior, evaluate
effectiveness of Web site, etc.
• Techniques
• Web content mining
• Knowledge extracted from content of Web pages
• Web structure mining
• E.g., links to and from Web page
• Web usage mining
• User interaction data recorded by Web server

1.11 © 2010 by Prentice Hall

 Real World Examples

1.12 © 2010 by Prentice Hall

 Harrah's Entertainment

Casino operators routinely offer low hotel rates to motivate

their guests to spend more on games. Yet not all customers
spend enough on games to justify the discounts on the hotel
rates. Harrah's Entertainment, with 26 casinos in 13 states, used
data mining to analyze spending on games in real time and
customers are offered incentives while they are still in the hotel.
It processes 16 terabytes of data everyday emanating from the
slotting machines and analyzes data on time spent on each of
the games, the preferences of tourists and local visitors, gender
differences in game expenditure and a host of other variables.
The share of expenditure on games has increased from 36% to
nearly 50% after it started to use data mining technologies.

Source: Too much Information" by Daniel Lyons, Forbes, Dec 13th 2004; "The
Road to One-to-One Pricing", Executive Technology, May 2004

1.13 © 2010 by Prentice Hall

 VISA
Credit card fraud is endemic at a rate of 0.93% for off-line
transactions and a higher 1.97% for on-line transactions. The
challenge of detecting fraud is avoiding false alarms. In the past,
ninety seven false alarms were generated for every genuine alarm.
Credit card companies have to meet the conflicting demands of
keeping fraud low without irritating customers with false alarms. This
is hard to achieve with statistical models which compare the normal
behavior with abnormal behavior because criminals are savvy enough
to circumvent them.
VISA introduced its new software, VISOR, VISA Intelligent Scoring of
Risk, across all banks in Europe to lower the rate of fraud. Its new
system analyzes abnormal behavior of not only the card holder but
also for each merchant. In addition, it now uses artificial intelligence
software which changes the rules of identifying fraud based on the
most recent data. The rate of fraud has dropped from 1,576 to 458
cases. The false alarms have declined to ten.
Source: The Economist, A Golden Vein, June 10th 2004
1.14 © 2010 by Prentice Hall
 Big Data?

• Big data
• Massive sets of unstructured/semi-structured data
from Web traffic, social media, sensors, and so on
• Petabytes, exabytes of data
• Volumes too great for typical DBMS
• Can reveal more patterns and anomalies

1.15 © 2010 by Prentice Hall

 Infrastructure required for
Intelligence?

• Business intelligence infrastructure

– Today includes an array of tools for separate systems,
and big data
• Contemporary tools:
– Data warehouses
– Data marts
– Hadoop
– In-memory computing
– Analytical platforms
1.16 © 2010 by Prentice Hall
 Data Warehouse & Data Marts

• Data warehouse:
– Stores current and historical data from many core
operational transaction systems
– Consolidates and standardizes information for use across
enterprise, but data cannot be altered
– Provides analysis and reporting tools
• Data marts:
– Subset of data warehouse
– Summarized or focused portion of data for use by specific
population of users
– Typically focuses on single subject or line of business

1.17 © 2010 by Prentice Hall

 CONTEMPORARY BUSINESS INTELLIGENCE
INFRASTRUCTURE

A contemporary business
intelligence infrastructure
features capabilities and
tools to manage and
analyze large quantities
and different types of data
from multiple sources.
Easy-to-use query and
reporting tools for casual
business users and more
sophisticated analytical
toolsets for power users
are included.

FIGURE 6-12

1.18 © 2010 by Prentice Hall

 Emerging Concepts in Business Intelligence

• Hadoop
– Enables distributed parallel processing of big data
across inexpensive computers
– Key services
• Hadoop Distributed File System (HDFS): data storage
• MapReduce: breaks data into clusters for work
• Hbase: NoSQL database
– Used by Facebook, Yahoo, NextBio

1.19 © 2010 by Prentice Hall

 Emerging Concepts in Business Intelligence

• In-memory computing
– Used in big data analysis
– Uses computers main memory (RAM) for data storage
to avoid delays in retrieving data from disk storage
– Can reduce hours/days of processing to seconds
– Requires optimized hardware
• Analytic platforms
– High-speed platforms using both relational and non-
relational tools optimized for large datasets

1.20 © 2010 by Prentice Hall

 Business Intelligence and Business Analytics

• Business intelligence
– Infrastructure for collecting, storing, analyzing data
produced by business
– Databases, data warehouses, data marts
• Business analytics
– Tools and techniques for analyzing data
– OLAP, statistics, models, data mining

1.21 © 2010 by Prentice Hall

 BUSINESS INTELLIGENCE AND ANALYTICS
FOR DECISION SUPPORT

Business intelligence
and analytics requires
a strong database
foundation, a set of
analytic tools, and an
involved management
team that can ask
intelligent questions
and analyze data.

FIGURE 12-3

1.22 © 2010 by Prentice Hall

 Business Intelligence and Business Analytics

• Six elements in the business intelligence

environment
1. Data from the business environment
2. Business intelligence infrastructure
3. Business analytics toolset
4. Managerial users and methods
5. Delivery platform—MIS, DSS, ESS
6. User interface
1.23 © 2010 by Prentice Hall
 Business Intelligence and Business Analytics

• Business intelligence and analytics capabilities

– Goal is to deliver accurate real-time information to
decision makers
– Main functionalities of BI systems
1. Production reports
2. Parameterized reports
3. Dashboards/scorecards
4. Ad hoc query/search/report creation
5. Drill down
6. Forecasts, scenarios, models

1.24 © 2010 by Prentice Hall

 Business Intelligence and Business Analytics

• Business intelligence users

– 80 percent are casual users relying on production reports
– Senior executives
• Use monitoring functionalities
– Middle managers and analysts
• Ad-hoc analysis
– Operational employees
• Prepackaged reports
• For example: sales forecasts, customer satisfaction, loyalty
and attrition, supply chain backlog, employee productivity

1.25 © 2010 by Prentice Hall

 BUSINESS INTELLIGENCE USERS

FIGURE 12-4 Casual users are consumers of BI output, while intense power users are the producers of reports, new
analyses, models, and forecasts.

1.26 © 2010 by Prentice Hall

 Business Intelligence and Business Analytics

• Production reports
– Most widely used output of BI suites
– Common predefined, prepackaged reports
• Sales: Forecast sales; sales team performance
• Service/call center: Customer satisfaction; service cost
• Marketing: Campaign effectiveness; loyalty and attrition
• Procurement and support: Supplier performance
• Supply chain: Backlog; fulfillment status
• Financials: General ledger; cash flow
• Human resources: Employee productivity; compensation

1.27 © 2010 by Prentice Hall

 Business Intelligence and Business Analytics

• Predictive analytics
– Use variety of data, techniques to predict future trends
and behavior patterns
• Statistical analysis
• Data mining
• Historical data
• Assumptions
– Incorporated into numerous BI applications for sales,
marketing, finance, fraud detection, health care
• Credit scoring
• Predicting responses to direct marketing campaigns

1.28 © 2010 by Prentice Hall

 Business Intelligence in the Enterprise

• Big data analytics

– Big data: Massive datasets collected from social
media, online and in-store customer data, and so on
– Help create real-time, personalized shopping
experiences for major online retailers
– Smart cities
• Public records
• Sensors, location data from smartphones
• Ability to evaluate effect of one service change on
system

1.29 © 2010 by Prentice Hall

 Interactive Session: Technology

Big Data Make Cities Smarter

Read the Interactive Session and discuss the following questions

• What technologies are New York and Barcelona employing to run

their cities more efficiently and improve citizens’ quality of life?
• What are the people, organization, and technology issues that
should be addressed by “smart city” initiatives?
• What problems are solved by “smart cities”? What are the
drawbacks?
• Give examples of four decisions that would be improved in a “smart
city.”
• Would you be concerned if social media data were used to
supplement public data to help improve the delivery of municipal
services? Why or why not?

1.30 © 2010 by Prentice Hall

 Business Intelligence and Business Analytics

• Operational intelligence and analytics

– Operational intelligence: Business activity
monitoring
– Collection and use of data generated by sensors
– Internet of Things
• Creating huge streams of data from Web activities,
sensors, and other monitoring devices
– Software for operational intelligence and analytics
enable companies to analyze their Big Data

1.31 © 2010 by Prentice Hall

 Business Intelligence and Business Analytics

• Location analytics
• Ability to gain business insight from the location
(geographic) component of data
• Mobile phones
• Sensors, scanning devices
• Map data
• Geographic information systems (GIS)
• Ties location-related data to maps
• Example: For helping local governments calculate
response times to disasters
1.32 © 2010 by Prentice Hall
 Business Intelligence and Business Analytics

• Two main management strategies for

developing BI and BA capabilities
1. One-stop integrated solution
– Hardware firms sell software that run optimally on their
hardware
– Makes firm dependent on single vendor—switching
costs
2. Multiple best-of-breed solution
– Greater flexibility and independence
– Potential difficulties in integration
– Must deal with multiple vendors

1.33 © 2010 by Prentice Hall

 Decision-Making Constituencies

• Operational and middle managers

– Use MIS (running data from TPS) for:
• Routine production reports
• Exception reports
• “Super user” and business analysts
– Use DSS for:
• More sophisticated analysis and custom reports
• Semistructured decisions

1.34 © 2010 by Prentice Hall

 Decision-Making Constituencies

• Decision support systems: Support for

semistructured decisions
– Use mathematical or analytical models
– Allow varied types of analysis
• “What-if” analysis
• Sensitivity analysis
• Backward sensitivity analysis
• Multidimensional analysis / OLAP
– For example: pivot tables
1.35 © 2010 by Prentice Hall
 SENSITIVITY ANALYSIS

FIGURE 12-5 This table displays the results of a sensitivity analysis of the effect of changing the sales price of a
necktie and the cost per unit on the product’s break-even point. It answers the question, “What
happens to the break-even point if the sales price and the cost to make each unit increase or decrease?”

1.36 © 2010 by Prentice Hall

 A PIVOT TABLE THAT EXAMINES CUSTOMER REGIONAL DISTRIBUTION AND ADVERTISING SOURCE

In this pivot table, we

are able to examine
where an online
training company’s
customers come from
in terms of region and
advertising source.

FIGURE 12-6

1.37 © 2010 by Prentice Hall

 Decision-Making Constituencies

• ESS: decision support for senior management

– Help executives focus on important performance
information
– Balanced scorecard method:
• Measures outcomes on four dimensions:
1. Financial
2. Business process
3. Customer
4. Learning and growth
• Key performance indicators (KPIs) measure each
dimension
1.38 © 2010 by Prentice Hall