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Introduction to Decision
Support Systems

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Decision Making
• Business Environment Factors
• Markets: strong competition, global markets, market on
Internet
• Consumer demands: customization, quality, diversity,
delivery
• Technology: more innovations, more obsolescence rate,
more information overload
• Societal: more regulation and deregulation, more
diversified workforce, more social responsibility.

Decision Making
• Business Pressure-Response-Support Model

Organization Decisions and

Response Support
Business
Environment Strategy, Analysis,
Factors partners’ decisions,
collaboration, predictions
Globalization,
consumer Pressures real-time
response,
demands, agility,
government •Integrated
regulations, Opportunities increased
productivity, computerized
markets and new vendors, decision
competition support
new business
models, etc. •Business
Intelligence

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Decision Making
• Process of Decision Making
• Define the problem (i.e., a decision situation that may
deal with some difficulty or with and opportunity).
• Construct a model that describes the real-world problem.
• Identify possible solutions to the modeled problem and
evaluate the solutions.
• Compare, choose, and recommend a potential solution to
the problem.

Decision Support Systems

• Definition I (Keen and Scott-Morton):
• 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.

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Decision Support Systems

• High-level Architecture of DSS

Data Models

Knowledge

User Interface

Decision Support Systems

• Multitiered architecture for incorporating
optimization, simulation, and other models into
web-based DSS
Optimization/
Web browser simulation/ etc
server

Web server Application Data

Server warehouse or
lagacy DBMS
Data
server

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Decision Support Systems

• Key characteristics and capabilities of DSS
1. Semistructured 2. Support
and Unstructured managers
14. Stand alone, problems at all levels 3. Support individuals
integration and and groups
web-based
4. Interdependent or
13. Data access sequential decisions

12. Modelling and 5. Support intelligence,

DSS
analysis design, choice,
implementation

11. Ease of 6. Support variety of

development by end decision processes and
users styles

10. Human controls 7. Adaptable and

the process flexible
9. Effectiveness, 8. Interactive
not efficiency ease of use

Decision Support Systems

• Components of DSS
• Data Management Subsystems: include Database
management system (DBMS) and dataware house
• Model Management Subsystems: include financial,
statistical, management science, or other quantitative
models that provide the analytical capabilities (also
called model base management system MDMS)
• User Interface Subsystems: include graphical user
interface (GUI) that allows users to communicate with
the system.

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Decision Support Systems

• Schematic View of DSS
Other component- Internet, intranets,
based systems extranets

Data:
external Data Model External
and management management models
internal

Knowledge-based
subsystems

User interface

Organizational
KB

Manager
(user)

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Decision Support Systems

• The Structure of the DMS
Internal data sources

External Finance Marketing Production Personnel Other

data sources

Extraction Private personal data

Organizational
knowledge base
Corporate data
warehouse
Decision support
database
Query facility
Interface
management
Database
management system
•Retrieval Model management
Data directory
•Inquiry
•Update
•Report generation Knowledge-based
•Delete subsystem

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Decision Support Systems

• The Structure of MMS
Models (Model Base)
•Strategic, tactical, operational
•Statistical, financial, marketing, Model
management science, accounting, Directory
engineering, etc.
•Model building block

Model Base Management

•Modeling commands: creation Model execution,
•Maintenance: update integration, and command
•Database interface processor
•Modeling language

Data Interface Knowledge-based

management management subsystem

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Decision Support Systems

• Schematic View of the User Interface Systems
Data management Knowledge-based Model management
and DBMS subsystems and MBMS

User Interface management

system (UIMS)

Natural Language
processor

Input Output
PC Display Action Display Printers, plotters
language language

Users

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Modeling

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Highlights
• Static and Dynamic Models
• Certainty, Uncertainty, and Risk
• Modeling with Spreadsheets
• Decision Tables and Decision Trees
• The Structure of Mathematical Models
• Mathematical Programming Optimization
• Multiple Goals, Sensitivity, What-if and Goal
Seeking
• Problem Solving Search Methods

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Static and Dynamic Models

• A static model takes a single snapshot of the system.
The decision is made on that snapshot.
• A decision whether to buy a product, a quaterly or
annual income statement, the decision to invest are
static.
• A dynamic model is time dependent.
• Determining how many checkout points should be
open in a supermarket—this needs to take into
account the time of day because different numbers
of customers arrive during each hour.
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Certainty, Uncertainty, and Risk

• In decision making under certainty, it is assumed
that complete knowledge is available so that the
decision maker knows exactly what the outcome of
each course of action will be.
• Certainty models are relatively easy to develop and
solve, and they can yield optimal solutions.

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Certainty, Uncertainty, and Risk

• In decision making under uncertainty, the decision
maker considers situations in which several
outcomes are possible for each course of action.
• The decision maker does not know, or cannot
estimate, the probability of occurrence of the
possible outcomes.
• It is more difficult than making decision under
certainty because there is insufficient information.

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Certainty, Uncertainty, and Risk

• A decision made under risk (also known as a
probabilistic, or stochastic) is one in which the
decision maker must consider several possible
outcomes for each alternative, each with a given
probability of occurrence.
• Risk analysis is a decision-making method that
analyzes the risk (based on assumed known
probabilities) associated with different alternatives.

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Modeling with Spreadsheets

• Spreadsheet packages were quickly recognized as easy-to-
use implementation software for the development of a wide
range of applications in business, engineering, mathematics,
and science.
• Spreadsheets include extensive statistical, forecasting, and
other modeling and database management capabilities,
functions, and routines.
• These DSS-related spreadsheets include solver(solver.com),
What’s best(lindo.com), Braincel(promland.com),
NeuralTools, Evolver, @RISK (palisade.com), and GRG-
2(MS Excel).

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Decision Tables and Trees

• Decision tables conventionally organize information and
knowledge in a systematic tabular manner to prepare for it
analysis.
• Decision under certainty:
State of Nature (Uncontrollable Variables)
Alternative Solid Stagnation(%) Inflation(%)
Growth(%)
Bonds 12 6 3
Stocks 15 3 -2
CDs 6.5 6.5 6.5

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Decision Tables and Trees

• Decision under risk

Solid Stagnation Inflation Expected

Growth Value
Alternative .5 (%) .3 (%) .2 (%) (%)

Bonds 12 6 3 8.4

Stocks 15 3 -2 8.0

CDs 6.5 6.5 6.5 6.5

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Decision Tables and Trees

• A decision tree shows the relationships of the
problem graphically and can handle complex
situation in a compact form.
• TreeAge Pro(treeage.com), PrecisionTree
(palisade.com), psychwww.com/mtsite/dectree.html
and Mind Tools (mindtools.com).

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Structure of Mathematical Model

Uncontrollable
variables

Decision Mathematical Results

variables relationships variables

Intermediate
variables

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Example of the Components of Models

Area Decision variables Result variables Uncontrollable variables
and parameters
Financial Investment alternatives Total profit, risk Inflation rate
investment and amounts Rate of return on Prime rate
investment (ROI) Competition
Earning per share
Liquidity level
Marketing Advertising budget Market share Customer’s income
Where to advertise Customer satisfaction Competitor’s action

Manufacturing What and how much to Total cost Machine capacity

produce Quantity level Technology
Inventory levels Employee satisfaction Material prices
Compensation programs
Accounting Use of computers Data processing cost Computer technology
Audit schedule Error rate Tax rates
Legal requirements
Transportation Shipments schedule Total transport cost Delivery distance
Use of smart cards Payment float time Regulations

Services Staffing levels Customer satisfaction Demand for services

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Mathematical Programming
Optimization
• Linear programming
• Product Mix
• Transportation Problem
• Non-Linear programming
• Travelling salesman
• Vehicle routing problem

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Multiple Goals
• Managers want to attain simultaneous goals, some of which
may conflict.
• In addition to earning money, the company wants to grow,
develop its products and employees, provide job security to
its workers.
• Managers want to satisfy the shareholders and at the same
time enjoy high salaries and expense accounts, and
employees want to increase their take-home pay and
benefits.
• To solve this kind of problems, common methods are:
• Utility theory
• Goal programming
• Expression of goals as constraints, using LP
• A point system

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Sensitivity Analysis
• Sensitivity analysis attempts to assess the impact of a change in
the input data or parameters on the proposed solution.
• Sensitivity allows flexibility and adaptation to changing
conditions and to the requirements of different decision-making
situations.
• Sensitivity analysis tests relationships such as the following:
• The impact of changes in external (uncontrollable) variables and
parameters on the outcome variables(s)
• The impact of changes in decision variables on the outcome variable(s).
• The effect of uncertainty in estimating external variables
• The effects of different dependent interactions among variables
• The robustness of decisions under changing conditions

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What-if Analysis
• What-if analysis is structured as What will happen
to the solution if an input variable, and assumption,
or a parameter value is changed?
• For example, what will happen to the total inventory
cost if the cost of the carrying inventories increases
by 10 per cent?
• A spreadsheet tool is a good example. A manager
can analyze a cash flow problem by changing
parameters’ values and see the differences without
any involvement of computer programmers.
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Goal Seeking
• Goal seeking calculates the values of the inputs
necessary to achieve a desired level of an output
(goal). It represents a backward solution approach.
• For example, What annual R&D budget is needed
for an annual growth rate of 15 per cent by 2012?

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Problem Solving Search Methods

Optimization Generate Stop when no Optimal
(Analytical) improved solutions improvement (best)
or get the best is possible
solution directly

Complete All possible Comparisons: Optimal

enumeration solutions are Stop when all (best)
(exhaustive) checked alternatives
Search Blind are checked.
approaches search

Partial Check only some Comparisons, Best

search alternatives: simulation: among
Systematically Stop when alternative
drop interior solution is s checked
solutions good enough.

Heuristics
Only promising Stop when Good
solutions are solution is enough
considered. good enough 11/03/64

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Thank you
for your
attentions!

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