Essentials of Management

Information Systems
Fourteenth Edition, Global Edition

Chapter 11
Improving Decision Making and
Managing Artificial Intelligence

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Business Value of Improved Decision
Making
• Possible to measure value of improved decision making
• Decisions made at all levels of the firm
– Some are common, routine, and numerous
– Although value of improving any single decision may be
small, improving hundreds of thousands of “small” decisions
adds up to large annual value for the business

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Table 11.1 Business Value of
Enhanced Decision Making
Example Decision Value Decision # of Annual Estimated Annual
Maker Decisions Value to Firm
Allocate support to most Accounts 12 $100,000 $1,200,000
valuable customers manager
Predict call center daily demand Call Center 4 150,000 600,000
management
Decide parts inventory level Inventory 365 5,000 1,825,000
daily manager
Identify competitive bids from Senior 1 2,000,000 2,000,000
major suppliers management
Schedule production to fill Manufacturin 150 10,000 1,500,000
orders g manager

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Types of Decisions
• Unstructured
– Decision maker must provide judgment to solve problem
– Novel, important, nonroutine
– No well-understood or agreed-upon procedure for making
them
• Structured
– Repetitive and routine
– Involve definite procedure for handling them so do not have
to be treated as new
• Semi-structured
– Only part of problem has clear-cut answer provided by
accepted procedure
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Figure 11.1 Information Requirements
of Key Decision-Making Groups in a
Firm

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The Decision-Making Process
1. Intelligence
– Discovering, identifying, and understanding the problems
occurring in the organization
2. Design
– Identifying and exploring various solutions
3. Choice
– Choosing among solution alternatives

4. Implementation
– Making chosen alternative work and monitoring how well
solution is working

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Figure 11.2 Stages in Decision
Making

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High-Velocity Automated Decision
Making
• Humans eliminated
• Decision-making process captured by computer algorithms
• Predefined range of acceptable solutions
• Decisions made faster than managers can monitor and
control
• E.g., Trading programs at electronic stock exchanges

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Quality of Decisions and Decision
Making
• Accuracy
• Comprehensiveness
• Fairness
• Speed (efficiency)
• Coherence
• Due process

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What Is Business Intelligence?
• Infrastructure for managing data from business
environment
– Warehousing
– Integrating
– Reporting
– Analyzing
• Hadoop, O LA P, analytics
• Products defined by technology vendors and consulting
firms

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The Business Intelligence
Environment
• Six elements in the BI environment
1. Data from business environment
2. Business intelligence infrastructure
3. Business analytics toolset
4. Managerial users and methods
5. Delivery platform
▪ MSS,DSS,ESS

6. User interface

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Figure 11.3 Business Intelligence and
Analytics for Decision Support

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Business Intelligence and Analytics
Capabilities
• Production reports
• Parameterized reports
• Dashboards/scorecards
• Ad-hoc query/search/report creation
• Drill-down
• Forecasts, scenarios, models
– Linear forecasting, what-if scenario analysis, data analysis

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Table 11.3 Examples of Predefined
Business Intelligence Production Reports
Business Functional Area Production Reports
Sales Sales forecasts, sales team performance,
cross selling, sales cycle times

Service/Call Center Customer satisfaction, service cost,

resolution rates, churn rates
Marketing Campaign effectiveness, loyalty and
attrition, market basket analysis
Procurement and Support Direct and indirect spending, off-contract
purchases, supplier performance

Supply Chain Backlog, fulfillment status, order cycle

time, bill of materials analysis
Financials General ledger, accounts receivable and
payable, cash flow, profitability
Human Resources Employee productivity, compensation,
workforce demographics, retention
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Predictive Analytics
• Uses statistical analytics, data mining, historical data;
assumptions of future conditions
• Extracts information from data to predict future trends and
behavior patterns
– Responses to direct marketing campaigns
– Best potential customers for credit cards
– At-risk customers
– Customer response to price changes and new services
• Accuracies range from 65 to 90 percent

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Big Data Analytics
• Predictive analytics can use the big data generated from
social media, consumer transactions, sensor and machine
output, etc.
• Combining with customer data
• Big data analytics driving move toward “smart cities”
– Utility management
– Transportation operation
– Healthcare delivery
– Public safety

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Operational Intelligence and
Analytics
• Operational intelligence
– Day-to-day monitoring of business decisions and activity
• Real-time monitoring
• Schneider National truckload logistics services provider
– Data developed from sensors in trucks, trains, industrial
systems
• The Internet of Things (IoT ) providing huge streams of
data from connected sensors and devices

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Location Analytics and GIS
• Location analytics
– Big data analytics that uses location data from mobile
phones, sensors, and maps
– E.g. Helping a utility company view customer costs as
related to location
• G I S – Geographic information systems
– Help decision makers visualize problems with mapping
– Tie location data about resources to map

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Figure 11.4 Business Intelligence
Users

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Support for Semi-Structured
Decisions
• Decision-support systems (DSS)
– BI delivery platform for “super-users” who want to create
own reports, use more sophisticated analytics and models
– What-if analysis
– Sensitivity analysis
– Backward sensitivity analysis
– Pivot tables: Spreadsheet function for multidimensional
analysis
– Intensive modeling techniques

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Figure 11.5 Sensitivity Analysis

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Figure 11.6 A Pivot Table That Examines
Customer Regional Distribution and Advertising
Source

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Decision Support for Senior
Management (1 of 2)
• Executive support systems
• Balanced scorecard method
– Measures four dimensions of firm performance
▪ Financial
▪ Business process
▪ Customer
▪ Learning and growth
– Key performance indicators (K PI) used to measure each
dimension

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Figure 11.7 The Balanced Scorecard
Framework

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Decision Support for Senior
Management (2 of 2)
• Business performance management (BPM)
– Management methodology based on firm’s strategies
– Translates strategies into operational targets
– Uses set of KPIs to measure progress toward targets
• ESS combine internal data with external
– Financial data, news, etc.
• Drill-down capabilities

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Artificial Intelligence Techniques
• Artificial intelligence: Grand vision vs. narrow definition
• Evolution of AI
– Big data databases
– Reduction in the price of processors
– Expansion in capacity of processors
– Refinement and explosion of algorithms
– Large investments in IT and AI
• Progress in image recognition and natural language
– E.g.: Siri, Alexa, facial recognition

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What Are the Major Types of AI
Techniques and How Do They Benefit
Organizations? (1 of 5)
• Expert systems
– Capture human expertise in a limited domain of knowledge
– Express expertise as a set of rules in a software system
– Knowledge base
– Inference engine

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Figure 11.8 Rules in an Expert
System

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What Are the Major Types of AI
Techniques and How Do They Benefit
Organizations?(2 of 5)
• Machine learning
– Computers improving performance by using algorithms to
learn patterns from data and examples
• Neural networks
– Find patterns and relationships in very large amounts of
data
– Sensoring and processing nodes
– “Deep Learning” neural networks

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Figure 11.9 How a Neural Network
Works

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Figure 11.10 A Deep Learning
Network

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What Are the Major Types of AI
Techniques and How Do They Benefit
Organizations?(3 of 5)
• Genetic algorithms
– Examine large number of solutions for a problem
– Based on machine learning techniques inspired by
evolutionary biology

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Figure 11.11 The Components of a
Genetic Algorithm

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What Are the Major Types of AI
Techniques and How Do They Benefit
Organizations?(4 of 5)
• Natural language processing
– Software that can process voice or text commands using
natural human language
• Computer vision systems
– Emulate human visual system to view and extract
information from real-world images
• Robotics
– Design and use of movable machines that can substitute for
humans

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What Are the Major Types of AI
Techniques and How Do They Benefit
Organizations?(5 of 5)
• Intelligent Agents
– Software programs that imitate humans and perform tasks
on command
– The agent uses a limited built-in or learned knowledge base
– Accomplish tasks or make decisions on the user’s behalf,
e.g. chatbots finding cheap fares, routing calls in a call
center

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