Module-3 : Decision Support Systems

• Classical, Administrative and Political Decision making

Model
• Herbert Simon's Model
• Structured Vs Unstructured Decisions
• Types of Decision Support Systems
• Group Decision Support Systems
• Executive Information Systems
• Executive Support Systems
• Expert Systems and
• Knowledge Based Expert Systems
• Artificial Intelligence
 Decision Making Models

• Classical

• Administrative

• Political
 Decision making
Classical Decision Making Model Classical Decision
Model. An approach
to decision
making that tells
managers how they
should make
decisions.
Approach assumes that
managers are logical
and rational.
Approach assumes that
managers‘
decisions will be in
the best interests of the
organization.
 Classical Decision Making Model

Obviously, a rational decision-making process is often suggested as the way in

which decisions should be made through those three activities, and it involves
the following strictly defined sequential process :
It begins with seeking to ask the right questions,
continues by discovering creative answers and
finishes by making sure that the chosen solution is valuable and useful.

“rationality is equated with scientific reasoning, empiricism and positivism

and with the use of decision criteria of evidence, logical argument and
reasoning”.

And the rational decisions are decisions which are based on the rationality.
The advantage of the classical model is to indicate a rational approach that can
be applied to the business of reaching decisions in organizations.
 Decision making
Administrative Decision making Model Administrative model, a
decision maker does not
try to optimize but instead
, tries to Satisfice －treats
objectives as loose
constraints that can
tighten if there are many
acceptable alternatives
that fulfill those
constraints.

While optimization would

require choosing the
alternative with the
highest value, satisficing
requires finding the first
alternative with an
acceptable value, that is,
an alternative with a value
above a minimally
acceptable level on a given
constraint.
 Administrative Model
• It has been pointed out that satisficing is an appropriate (i.e., rational) strategy when the cost of
delaying a decision or searching for further alternatives is high in relation to the expected payoff
of the supposedly superior alternative.

• When you take into consideration the costs related to extended search, it is questionable whether
the optimum procedure is to search for the optimum value.

• When a decision has been reached and the solution to the problem implemented and found to be
acceptable, then the organization institutionalizes the procedure used to solve the problem into
a standard operating procedure (SOP).

• SOPs are rules, programs, and routines that are invoked by managers to gain time and to avoid
the task of solving a problem from scratch each times it appears. Sometimes managers invoke
those SOPs when the organization is facing a similar but not identical problem to the one that the
SOP originally solved.

• Since SOPs are often processes that worked once but nobody is quite sure why or whether it was
the best way to solve the original problem in the first place. SOPs are not always the time-savers
they are supposed to be.
 Political Decision making Model
In contrast to the rational model, political model do not focus on a single issue
but on many intraorganizational problems that reflect their personal goals.

The political model does not assume that decisions result from applying
existing standard operating procedures, programs, and routines.

Decisions result from bargaining among coalitions.

Unlike in the previous models, power is decentralized.

Emphasizes the natural multiplicity of goals, values, and interests in a complex

environment. The political model views decision making as a process of conflict
resolution and consensus building and decisions as products of compromise.
The old adage, Scratch my back and I will scratch yours,」 is the dominant
decision-making strategy.

In Political model managers are incrementalists, meaning they make some

change for the existing decision, without looking at alternatives
 DECISION-MAKING CONCEPT:
• A decision is choice out of several alternatives (options) made by
the decision maker to achieve some objective s in a given situation.
• Business decisions are those, which are made in the process of
conducting business to achieve its objective in a given
environment. Managerial decision-making is a control point for
every managerial activity may be planning, organizing, staffing,
directing, controlling and communicating.
• Decision-making is the art of reasoned and judicious choice out of
many alternatives. Once decision is taken, it implies commitment
of resources.
• The business managers have to take variety of decision. Some are
routine and others are long-term implementation decision.
Thus managerial decisions are grouped as:
• (a) Strategic decision
• (b) Tactical decision
• (c) Operation decision
 Decision Support Systems
• Computer based system to help managers to select one of
many alternate solutions

• Manual working on alternatives will take very long time

in current complex business environment

• Managers save time and effort in analysing alternatives

• Makes managers to select best option quickly and take

decision in time.

• DSS are used by employees at all levels, though higher

level managers use more often and level of complexity
increases
 Decision making
The decision-making process can be divided
into three main phases:
Intelligence
• (a) Intelligence: searching the
environment for condition calling for
decisions. The phase consists of
determining that a problem exists. Design
• (b) Design: during this phase a set of
alternative solution is generated and tested
for feasibility.
• (c) Choice: in this phase, the
Choice
decision-maker select one of the solution
identified in the design phase.
Intelligence
What exactly is the problem?
Why the problem should be solved?
Who are the affected parties of the problem?
Does the problem have a deadline or a specific time-line?
 HERBERT SIMON MODEL
Herbert Simon describes the Decision making
model in three phases as shown in the figure
below:
• Intelligence
• I. Intelligence: raw data collected, processed and
examined, Identifies a problem calling for a
decision.
Design
• II. Design: inventing, developing and analyzing the
different decision alternatives for Maximum
PAYOFFs and testing the feasibility of
implementation. Assess the value of the decision
Choice
outcome. Decision Tree Technique

• III. Choice: select one alternative as a decision,

based on the selection criteria.
Ex: Product mix question. Current product mix is resulting in losses
Loan/borrowing constitution, Equity and loan.
 DSS – Components and Process

Components MIS Components are

1. The Data management Module different
2. The model management module DSS Components are
different
3. The Dialog module
4. Sensitivity Analysis

Process
1. Manager gives a query to DSS
2. Search vast amount of data across data bases for
relevant facts
3. Process the data through desired models/algorithms
4. Present the results in desired format- Graph, Pie chart,
tables, Reports, etc..
 DSS - Components

1. The Data management Module : Data base to hold

data, by extracting data from other Functional data
bases. Ex: Investment advisor: takes data of different
stocks, their performance, Dividend paid, etc.. To select
best stock to invest. Uses internal and external data
 DSS - Components
2. The model management module : To convert data
to useful information, DSS uses Models like regression,
time series, LPP, etc... Fixed model and Dynamic models
are used. Manager or DSS selects the Model to be used
depending on the Variables and the query.
Truck routing : logistics company uses models to find out
the best economical routing while working under
limitations/requirements like distance, time, load, driver
OT, etc..
Airline ticket : Dynamic pricing base on time, date, day of
week, season, length of stay for return ticket

Model in marks computation: Weightage to CIA-1,3+Cia-2+Final exam

 DSS - Components
The Dialog module:

• User interface to key in variables and the type of

report/output required

• Dialog module is also responsible for displaying the

output in the form of reports, graphs, etc

• It allows user to change the input variable and watch how

the out put variable varies

Ex: Spending on TV commercials to boost sales. How much

to spend is the Question to be answered
 DSS - Components
Sensitivity Analysis or What If analysis:

Helps manager to see how the output varies with changing

inputs
Ex: How profits vary by changing prices, discounts,
payment schemes etc..

Airlines dynamic pricing: Every 10% seats booked, price

goes up by 10%.

Travel package pricing

 Decision making- Structured Vs.
Unstructured Systems
▪ Structured Vs Unstructured Systems
(Programmed and Non-programmed Decisions)
• There are two types of decisions - programmed and
non-programmed decisions.
• Programmed decisions are basically automated
processes, general routine work, where:
• These decisions have been taken several times.
• These decisions follow some guidelines or rules.
• For example, selecting a reorder level for inventories, is a
programmed decision, Penalty for 75% attendance ,
Penalty for Ticket less travelling
 Decision making- Programmed
decisions
Simon distinguishes between two types of decisions (i) programmed
decisions and (ii) non-programmed decisions.
• (i) Programmed decisions are standing decisions. A
programme in computer literature is a plan for automatic solution.
In organisation there are decisions, which are repetitive and routine
in nature. A definite procedure can be worked out for handling
them, as they may not be treated as new and, therefore, no adhoc
decisions are called for. Programmed decisions are available to
administrators as guides in solving those problems that recur
frequently.

• Programmed decisions are generally used for routine cases such as

tenders and contracts, compensation policy and salary
administration.
Decision making- Non-Programmed
decisions
Non-Programmed decisions when decisions are not repetitive,
non-routine and cannot rely much on the past practices,
established rules, regulations and procedures and which are
inadequate to deal with the new kind of situations the organisation has
to be obviously creative and innovative.
Non-programmed decisions thus call for more ingenuity,
consultation, and a degree of risk taking. They are new,
unstructured and consequential. There is no cut-and-dried
method for handling them. They require creativity and a greater
amount of judgement in treating each independently. Basically these
are special purpose decisions. Their life is short since they exist for a
particular or single use.
- Investment decision
- Take over and Merger
- Accident relief works (Combination)
Decision making- Non-programmed
• Non-programmed decisions occur in unusual and
non-addressed situations, so:
• It would be a new decision.
• There will not be any rules to follow.
• These decisions are made based on the available
information.
• These decisions are based on the manger's discretion,
instinct, perception and judgment.
• For example, investing in a new technology is a
non-programmed decision.
• Decision support systems generally involve
non-programmed decisions. Therefore, there will be no
exact report, content, or format for these systems.
Reports are generated on the fly.
 Executive Support Systems
▪ Executive support systems (ESS) are usually meant for
the top executives of an organization.
▪ ESS combine many features of MIS and DSS.
▪ The ESS provides information in the form of summary,
charts, and graphs, as suited to the top management’s
preferences.
▪ ESS are no longer the prerogative of the top executives,
as ESS is now being used by managers at all levels and
decision-makers in the organization.
▪ EIS holds information of both internal and external
entities
Executive Support Systems
• Meant for CXO level employees
• Objective is to provide quick and prompt summary
information on Critical success factors
• Performance is assessed enterprise-wide
• Avoids large amount of data/data overload
• Presentation is in the form of Charts, graphs,
Dashboards
• Facility of Drill down is provided to analyse summary
when required, look into details
• Alert systems to give warning when progress lags
behind the plan with a big margin
• Mobile apps available to access when on move
• Model based DSS provided in ESS for enterprise
level/strategic decisions
Alert systems : warning to leaders before the damage takes place, to take
proactive actions
Group Decision Support Systems
• GDSS is an interactive computer based system that
facilitates a number of decision-makers in finding
solutions that are unstructured in nature
• Input is taken simultaneously from different users to
arrive at a decision collectively
• Simultaneous Communication is made possible
between the decision makers
• Facilitator monitors the meeting. Proceedings
displayed on a screen. Phases- idea generation,
discussion, voting, vote counting, decision taken
• Group meetings : web based groupware tools for
videoconferencing support group decision making
process

• Ex: ThinkTank and MeetingWorks

Knowledge Management
• In organizations, Knowledge is an outcome of
research, development, and organizational experience
• This knowledge is contained by Individuals or
business processes in an organization
• KM systems aim at capturing this knowledge
systematically store and share with the employees for
leveraging the experience of the organization as a
whole
• IT tools like Communication, Collaboration,
storage and retrieval are used in KM systems
• Tips for doctors on complex diagnostic reports

• Ex of IT systems for KM : Documentum, SharePoint,

etc…
Expert Systems/Knowledge Based
Expert Systems
• Expert help organization in difficult times / complex situations
• For structured Complex problems Computer based Expert system can be
used
• Expert systems are the application of AI in business, through rule based
models and knowledge base and if-then logic
• Todays business uses number of small decisions which can be taken by
employees at all levels with the help of KM based systems
• Expert systems are Knowledge based systems in a specific and limited
domain area that assist in Business decision making
• Help to improve quality and productivity
• Applications
• Taxation, Credit analysis, Equipment maintenance,
• Fault diagnosis – Predictive maintenance
• Medical diagnosis
• Space shuttle monitoring
Artificial Intelligence
• AI Refers to replicating human thought process in computers
• Major thrust of AI is simulation of computer functions like
• Human intelligence
• Reasoning
• Learning
• Problem solving
• Applications –
• Manufacturing and Handling of hazardous material like
Nuclear waste through robotics (CAM)
• Quality Inspection of products
• Training, User support, Testing (GRE)
• Resource allocation in airlines, logistics
• Data mining for marketing trend analysis, financial
forecasting
• Natural Language processing- Speech recognition,
natural language understanding and generation (Siri,
Skype-Translator)
• Drones, Self-driven cars, playing chess, etc…
Thank You