Decision Support and

Business Intelligence
Systems
Chapter 1:
Decision Support Systems
and Business Intelligence
Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 1-2
Learning Objectives
Understand today's turbulent business
environment and describe how organizations
survive and even excel in such an environment
(solving problems and exploiting opportunities)
Understand the need for computerized support
of managerial decision making
Understand an early framework for managerial
decision making
Learn the conceptual foundations of the
decision support systems (DSS)
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Learning Objectives cont.
Describe the business intelligence (BI)
methodology and concepts and relate them to
DSS
Describe the concept of work systems and its
relationship to decision support
List the major tools of computerized decision
support
Understand the major issues in implementing
computerized support systems
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OPENING VIGNETTE:
Norfolk Southern Uses BI for Decision
Support to Reach Success

Company Background
Problems
Proposed Solution
Results
Discussion
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Company Background
Large Freight railroad company

500 freight trains
21,000 route miles in 22 eastern states
$26 billion in assets
30,000 employees



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Company Background
RR industry partially deregulated in 1980
Rates are no longer fixed but could be
based on service quality
on-time delivery became important.
Norfolk transformed into a scheduled
RR
Fixed train schedules, connection for cars
to go between trains and yards
Allowed managers to predict when they
could get a shipment to a customer

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Problems
Becoming a scheduled RR required new
systems based on statistical models to
determine best route and connections
to optimize RR performance

Norfolk also needed to monitor and
measure its performance against the
plan

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Problems
Numerous systems in Norfolk Southern
generated millions of records (about
freight, railcars, train GPS info, train fuel levels,
revenue info, crew management, and historical
tracking records)
However, Norfolk could not access the
information without risking significant
impact on systems performance.
They decided to integrate TOP
Througbred Operating Plan with their
Data Warehouse built earlier.

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Proposed Solution
1 Terabyte data warehouse with
historical data and with access
through a browser:
Data comes from source systems, but users can
access it without risk of impacting operations.
Built a dashboard application pulling data from
the warehouse and graphically depicting actual
performance against the trip plan for both train
performance and connection performance
The visualization allows field managers to
interpret large amounts of data (160,000 weekly
connections)


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Proposed Solution
The DW is used archive records, analyze trends,
develop forecasting schedules
AccessNS facilitate customer self-service for
customers to find out where their shipments are
right now and search the shipment history
savings on customer service personnel
Other uses: HR used the DW for optimizing the field
office locations according to personnel addresses

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Results
Missed connections decreased by
60%
Railcar cycle time has decreased by
an entire day = millions of dollars
in annual savings
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Results
Accessing data updated hourly or from
the past 3 years at any time.
4500 reports/day
Self-service
Gives customer what they want
Reduces number of employee needed in
Customer Service (47 people)

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Discussion
AccessNS
required more timely & detailed
understanding of its operations and
ability to use that information to make
better decisions.
provided a huge competitive advantage
by squeezing additional efficiency from
its operations.

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Changing Business Environment
Companies are moving aggressively to
computerized support of their
operations => Business Intelligence
Business PressuresResponsesSupport
Model
Business pressures result of today's
competitive business climate
Responses to counter the pressures
Support to better facilitate the process
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Business PressuresResponses
Support Model
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The Business Environment
The environment in which organizations
operate today is becoming more and
more complex, creating:
opportunities and problems
Example: globalization
Business environment factors:
markets, consumer demands, technology,
and societal
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Business Environment Factors
FACTOR DESCRIPTION
Markets Strong competition
Expanding global markets
Blooming electronic markets on the Internet
Innovative marketing methods
Opportunities for outsourcing with IT support
Need for real-time, on-demand transactions
Consumer Desire for customization
demand Desire for quality, diversity of products, and speed of delivery
Customers getting powerful and less loyal
Technology More innovations, new products, and new services
Increasing obsolescence rate
Increasing information overload
Social networking, Web 2.0 and beyond
Societal Growing government regulations and deregulation
Workforce more diversified, older, and composed of more women
Prime concerns of homeland security and terrorist attacks
Necessity of Sarbanes-Oxley Act and other reporting-related legislation
Increasing social responsibility of companies
Greater emphasis on sustainability
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Factors Affecting Decision Making
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Organizational Responses
Be Reactive
Anticipative
Adaptive
Proactive
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Managers actions
Managers may take actions, such as ;
Employ strategic planning
Use new and innovative business models
Restructure business processes
Participate in business alliances
Improve partnership relationships
Improve corporate information systems
Encourage innovation and creativity
Improve customer service and relationships
Move to electronic commerce (e-commerce) cont>
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Managers actions, cont.
Move to make-to-order production and on-demand
manufacturing and services
Use new IT to improve communication, data access
(discovery of information), and collaboration
Respond quickly to competitors' actions (e.g., in pricing,
promotions, new products and services)
Automate many tasks of white-collar employees
Automate certain decision processes
Improve decision making by employing analytics

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Closing the Strategy Gap
One of the major objectives of
computerized decision support is to
facilitate closing the gap between the
current performance of an organization
and its desired performance, as
expressed in its mission, objectives, and
goals, and the strategy to achieve them
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Managerial Decision Making
Management is a process by which
organizational goals are achieved by
using resources
Inputs: resources
Output: attainment of goals
Measure of success: outputs / inputs
Management Decision Making
Decision making: selecting the best
solution from two or more alternatives
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Mintzberg's 10 Managerial Roles
Interpersonal
1. Figurehead
2. Leader
3. Liaison

Informational
4. Monitor
5. Disseminator
6. Spokesperson
Decisional
7. Entrepreneur
8. Disturbance handler
9. Resource allocator
10. Negotiator
Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 1-25
2005 Prentice Hall, Decision
Support Systems and Intelligent
Systems, 7th Edition, Turban,
Aronson, and Liang
1-25
Mintzbergs 10 Management Roles
Interpersonal
Figurehead
Leader
Liaison
Informational
Monitor
Disseminator
Spokesperson
Decisional
Entrepreneur
Disturbance Handler
Resource Allocation
Negotiator
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Decision Making Process
Managers usually make decisions by
following a four-step process (a.k.a. the
scientific approach)
1. Define the problem (or opportunity)
2. Construct a model that describes the real-
world problem
3. Identify possible solutions to the modeled
problem and evaluate the solutions
4. Compare, choose, and recommend a
potential solution to the problem
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Simons Decision-Making Process
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Decision making is difficult, because
Technology, information systems, advanced search
engines, and globalization result in more and more
alternatives from which to choose
Government regulations and the need for compliance,
political instability and terrorism, competition, and
changing consumer demands produce more
uncertainty, making it more difficult to predict
consequences and the future
Other factors and the need to make rapid decisions,
the frequent and unpredictable changes that make
trial-and-error learning difficult, and the potential costs
of making mistakes very high
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Why Use Computerized DSS
Computerized DSS can facilitate decision via:
Speedy computations
Improved communication and collaboration
Increased productivity of group members
Improved data management
Overcoming cognitive limits
Quality support; agility support
Using Web; anywhere, anytime support
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A Decision Support Framework cont.
Degree of Structuredness (Simon, 1977)
Decision are classified as
Highly structured (a.k.a. programmed)
Semi-structured
Highly unstructured (i.e., non-programmed)
Types of Control (Anthony, 1965)
Strategic planning (top-level, long-range)
Management control (tactical planning)
Operational control
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A Decision Support Framework
(by Gory and Scott-Morten, 1971)
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Computer Support for Structured
Decisions
Structured problems: encountered
repeatedly, have a high level of structure
It is possible to abstract, analyze, and
classify them into specific categories
e.g., make-or-buy decisions, capital
budgeting, resource allocation, distribution,
procurement, and inventory control
For each category a solution approach is
developed => Management Science
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Management Science Approach
Also referred to as Operations Research
In solving problems, managers should
follow the five-step MS approach
1. Define the problem
2. Classify the problem into a standard category (*)
3. Construct a model that describes the real-world
problem
4. Identify possible solutions to the modeled problem
and evaluate the solutions
5. Compare, choose, and recommend a potential
solution to the problem
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Automated Decision Making
A relatively new approach to supporting
decision making
Applies to highly structures decisions
Automated decision systems (ADS)
(or decision automation systems)
An ADS is a rule-based system that
provides a solution to a repetitive
managerial problem in a specific area
e.g., simple-loan approval system
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Automated Decision Making
ADS initially appeared in the airline
industry called revenue (or yield)
management (or revenue optimization)
systems
dynamically price tickets based on actual
demand
Today, many service industries use
similar pricing models
ADS are driven by business rules!
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Application Case 1.1: Giant Food
Stores Prices the Entire Store
Background
Giant Food Stores: Regional US supermarket
Everyday Low Price Strategy that applied to
almost all items
30 year old pricing strategy and pricing
system that couldn't keep up with the pricing
decisions

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Application Case 1.1: Giant Food
Stores Prices the Entire Store
Also limited the ability to execute more
sophisticated pricing decisions
Needed pricing rules based on national and
private brands
Relationship between sizes
Ending digit such as 99

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Application Case 1.1: Giant Food
Stores Prices the Entire Store
Action
Teamed with DemandTec to deploy a system
for its pricing decisions
Should handle Massive POS and competitive
data
Automate and Streamline complex Rules-
Based pricing schemes
Allows Natural Language to codify rules
System has forecasting capabilities

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Results
Agility in pricing: react to competitive
pricing prices and vendor cost changes
Productivity has doubled

Application Case 1.1: Giant Food
Stores Prices the Entire Store
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Automated Decision-Making
Framework
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Computer Support for
Unstructured Decisions
Unstructured problems can be only
partially supported by standard
computerized quantitative methods
They often require customized solutions
They benefit from data and information
Intuition and judgment may play a role
Computerized communication and
collaboration technologies along with
knowledge management is often used
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Computer Support for
Semi-structured Problems
Solving semi-structured problems may
involve a combination of standard
solution procedures and human
judgment
MS handles the structured parts while
DSS deals with the unstructured parts
With proper data and information, a
range of alternative solutions, along with
their potential impacts
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Application Case 1.2 :
Optimal Inventory Policy
Company:GlaxoSmithKline
Environment: Competitive retail market
Problem: Need enough product quantity
at hand but excess inventory is
undesirable ->Optimal Inventory Policy
is needed
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Application Case 1.2 GlaxoSmithKline
for Managing Inventory
Supply Chain management System provides
Historical forecast and demand
Month-end inventory
Production lot size
Lead time information
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Application Case 1.2 GlaxoSmithKline
for Managing Inventory
Use these inputs to compute safety stock
Tool was built using a spreadsheet to
evaluate what-if situations
Stochastic nature of demand is modeled by
simulations
Effect of demand on safety stock is
observed


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Concept of Decision Support Systems
Classical Definitions of DSS

Interactive computer-based systems, which help
decision makers utilize data and models to solve
unstructured problems" - Gorry and Scott-Morton, 1971

Decision support systems couple the intellectual
resources of individuals with the capabilities of the
computer to improve the quality of decisions. It is a
computer-based support system for management
decision makers who deal with semistructured
problems - Keen and Scott-Morton, 1978
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DSS as an Umbrella Term
The term DSS can be used as an umbrella
term to describe any computerized system
that supports decision making in an
organization
E.g., an organization wide knowledge
management system; a decision support system
specific to an organizational function
(marketing, finance, accounting, manufacturing,
planning, SCM, etc.)
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DSS as a Specific Application
In a narrow sense DSS refers to a
process for building customized
applications for unstructured or semi-
structured problems
Components of the DSS Architecture
Data, Model, Knowledge/Intelligence, User,
Interface (API and/or user interface)
DSS often is created by putting together
loosely coupled instances of these
components
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High-Level Architecture of a DSS
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Types of DSS
Two major types:
Model-oriented DSS
Data-oriented DSS

Evolution of DSS into Business Intelligence
Use of DSS moved from specialist to managers,
and then whomever, whenever, wherever
Enabling tools like OLAP, data warehousing, data
mining, intelligent systems, delivered via Web
technology have collectively led to the term
business intelligence (BI) and business analytics

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Business Intelligence (BI)
BI is an umbrella term that combines
architectures, tools, databases, analytical
tools, applications, and methodologies
Like DSS, BI a content-free expression, so it
means different things to different people
BI's major objective is to enable easy access
to data (and models) to provide business
managers with the ability to conduct analysis
BI helps transform data, to information (and
knowledge), to decisions and finally to action
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A Brief History of BI
The term BI was coined by the Gartner
Group in the mid-1990s
However, the concept is much older
1970s - MIS reporting - static/periodic reports
1980s - Executive Information Systems (EIS)
1990s - OLAP, dynamic, multidimensional, ad-hoc
reporting -> coining of the term BI
2005+ Inclusion of AI and Data/Text Mining
capabilities; Web-based Portals/Dashboards
2010s - yet to be seen
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The Evolution of BI Capabilities
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The Architecture of BI
A BI system has four major components
a data warehouse, with its source data
business analytics, a collection of tools for
manipulating, mining, and analyzing the
data in the data warehouse;
business performance management (BPM)
for monitoring and analyzing performance
a user interface (e.g., dashboard)
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A High-Level Architecture of BI
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Application Case 1.3:
Location, Location, Location
Hoyt Highland Partners: Marketing Intelligence
Firm that assists urgent health care clinics
A clinic faced shrinking patient base due to
increased competition => considering relocation
or change marketing practices
Acxioms PersonicX system is used to determine
where the target audience is.
Households are divided into 21 life stages and
70 segments using demographics and consumer
behaviour.





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Application Case 1.3
Using geospatial analysis of the system
80% of the present patients live within
5mile radius of the clinic.
Young families are well represented but
singles and seniors are underrepresented.
The clinic focuses its marketing to families
with small children that live in 5mile radius.
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Components in a BI Architecture
The data warehouse is a large repository of well-
organized historical data
Business analytics are the tools that allow
transformation of data into information and
knowledge
Business performance management (BPM) allows
monitoring, measuring, and comparing key
performance indicators
User interface (e.g., dashboards) allows access
and easy manipulation of other BI components
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Styles of BI
MicroStrategy, Corp. distinguishes five
styles of BI and offers tools for each
1. report delivery and alerting
2. enterprise reporting (using dashboards
and scorecards)
3. cube analysis (also known as slice-and-
dice analysis)
4. ad-hoc queries
5. statistics and data mining
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The Benefits of BI
The ability to provide accurate information
when needed, including a real-time view of
the corporate performance and its parts
A survey by Thompson (2004)
Faster, more accurate reporting (81%)
Improved decision making (78%)
Improved customer service (56%)
Increased revenue (49%)
See Table 1.3 for a list of BI analytic
applications, the business questions they
answer and the business value they bring
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The DSSBI Connection
First, their architectures are very similar
because BI evolved from DSS
Second, DSS directly support specific decision
making, while BI provides accurate and
timely information, and indirectly support
decision making
Third, BI has an executive and strategy
orientation, especially in its BPM and
dashboard components, while DSS, in
contrast, is oriented toward analysts
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The DSSBI Connection cont.
Fourth, most BI systems are constructed with
commercially available tools and components,
while DSS is often built from scratch
Fifth, DSS methodologies and even some tools
were developed mostly in the academic world,
while BI methodologies and tools were
developed mostly by software companies
Sixth, many of the tools that BI uses are also
considered DSS tools (e.g., data mining and
predictive analysis are core tools in both)
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The DSSBI Connection cont.
Although some people equate DSS with BI, these
systems are not, at present, the same
some people believe that DSS is a part of BIone of its
analytical tools
others think that BI is a special case of DSS that deals
mostly with reporting, communication, and collaboration
(a form of data-oriented DSS)
BI is a result of a continuous revolution and, as such,
DSS is one of BI's original elements
In this book, we separate DSS from BI
MSS = BI and/or DSS
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A Work System View of Decision
Support (Alter, 2004)
drop the word systems from DSS
focus on decision support
use of any plausible computerized or
noncomputerized means for improving decision
making in a particular repetitive or nonrepetitive
business situation in a particular organization

Work system: a system in which human participants
and/or machines perform a business process, using
information, technology, and other resources, to
produce products and/or services for internal or
external customers
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Elements of a Work System
1. Business process. Variations in the process rationale,
sequence of steps, or methods used for performing
particular steps
2. Participants. Better training, better skills, higher
levels of commitment, or better real-time or delayed
feedback
3. Information. Better information quality, information
availability, or information presentation
4. Technology. Better data storage and retrieval,
models, algorithms, statistical or graphical
capabilities, or computer interaction
-->
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Elements of a Work System cont.
5. Product and services. Better ways to evaluate
potential decisions
6. Customers. Better ways to involve customers in the
decision process and to obtain greater clarity about
their needs
7. Infrastructure. More effective use of shared
infrastructure, which might lead to improvements
8. Environment. Better methods for incorporating
concerns from the surrounding environment
9. Strategy. A fundamentally different operational
strategy for the work system

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Major Tool Categories for MSS
Source: Table 1.4
TOOL CATEGORY TOOLS AND THEIR ACRONYMS
Data management Databases and database management system (DBMS)
Extraction, transformation, and load (ETL) systems
Data warehouses (DW), real-time DW, and data marts
Reporting status tracking Online analytical processing (OLAP)
Executive information systems (EIS)
Visualization Geographical information systems (GIS)
Dashboards, Information portals
Multidimensional presentations
Business analytics Optimization, Web analytics
Data mining, Web mining, and text mining
Strategy and performance
management
Business performance management (BPM)/
Corporate performance management (CPM)
Business activity management (BAM)
Dashboards and Scorecards
Communication and
collaboration
Group decision support systems (GDSS)
Group support systems (GSS)
Collaborative information portals and systems
Social networking Web 2.0, Expert locating systems
Knowledge management Knowledge management systems (KMS)
Intelligent systems Expert systems (ES)
Artificial neural networks (ANN)
Fuzzy logic, Genetic algorithms, Intelligent agents
Enterprise systems Enterprise resource planning (ERP),
Customer Relationship Management (CRM), and
Supply-Chain Management (SCM)

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Hybrid (Integrated) Support Systems
The objective of computerized decision support,
regardless of its name or nature, is to assist
management in solving managerial or organizational
problems (and assess opportunities and strategies)
faster and better than possible without computers
Every type of tool has certain capabilities and
limitations. By integrating several tools, we can
improve decision support because one tool can provide
advantages where another is weak

The trend is therefore towards developing
hybrid (integrated) support system
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Hybrid (Integrated) Support Systems
Type of integration
Use each tool independently to solve different
aspects of the problem
Use several loosely integrated tools. This mainly
involves transferring data from one tool to another
for further processing
Use several tightly integrated tools. From the user's
standpoint, the tool appears as a unified system
In addition to performing different tasks in the
problem-solving process, tools can support
each other
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Application Case 1.5: United Sugars
Corp.
United Sugars Corp. :Optimizes Production, Distribution
and Inventory Capacity with different DS tools
United Sugars grower-owned cooperative that sells and
distributes sugar products for its member companies. 25%
US market share. Revenues >1M
Decided to revise its marketing strategy when Florida
joined the cooperative
to gain access to new markets and
Serve existing ones more effectively
Developed a strategic model to identify the minimum cost
solutions for packaging, inventory and distribution

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Application Case 1.5: United Sugars
Corp.
ERP system and legacy database provided the data for model with
1M decision variables and >250K relationships
Web based GIS displays reports, location of plants, warehouses
and customer. Each one is a hotspot that links to additional
information
The model is also used for production and distribution scheduling
Results are uploaded into the ERP to support operational decisions
Simulations of a variety of inventory situations through what-if
analysis
Results are displayed in a variety of formats in a web browser
This is a hybrid DSS


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End of Chapter 1: Vodafone uses BI
to improve customer growth and
retention plans
Problem
Vodafone New Zealand: started from a small base
to 50% customer share but stalled to 56%
Mature market + new competitors+ government
regulations -> lower revenues per customer
How can it be increased?
Help the company deliver the right message to the
appropriate customers when they want it, through
the preferred channel


Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 1-73
Vodafone: Solution
Customer knowledge and analysis department to conduct:
Analysis, modeling, market research, competitive intelligence
Enterprise Data Warehouse (EDW): predefined or ad hoc
queries, OLAP, predictive analysis
Hired analysts and used many tools: SAS, SPSS, KXEN etc
Perform effective analysis, achieve better customer offer
optimization, campaign effectiveness analysis and customer
service
EDW can trigger marketing campaign based on recent
customer activity
Goal: Get the best possible return from the process of
campaigning and contacting customers



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End of the Chapter


Questions / Comments
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