Decision Support Systems

Chapter 2
Decision-Making Systems, Models,
and Support

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 Outline
• 1. Decision making
• 2. Systems
• 3. Models
• 4. A preview of the modeling process
• 5. Decision making: the Intelligence Phase
• 6. Decision making: the Design Phase
• 7. Decision making: the Choice Phase
• 8. Evaluation: Multiple goals, sentivity analysis,
what-if and goal seeking
• 9.Decision making: the Implementation Phase
• 10. How decision are supported.
• 11. Human cognition and decision styles.

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 Decision Support Systems
(DSS)

Dissecting DSS into its main

concepts

Building successful DSS

requires a through
understanding of these
concepts
 1. Decision Making

• Decision making is a process of choosing among

alternative courses of actions for the purpose of
attaining a goal or goals.
• The four phases of the decision process are:
– Intelligence
– Design
– Choice
– Implementation
• Decision making = problem solving ?

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 Characteristics of Decision
Making
• Groupthink
• Evaluating what-if scenarios
• Experimentation with a real system!
• Changes in the decision-making
environment may occur continuously
• Time pressure on the decision maker
• Analyzing a problem takes time/money
• Insufficient or too much information
 Team-Based Decision-Making

• Team-based decision making

– Increased information sharing
– Daily feedback
– Self-empowerment
• Shifting responsibility towards teams
• Elimination of middle management

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 Decision Making and Problem
Solving
• A problem occurs when a system
– does not meet its established goals
– does not yield the predicted results, or
– does not work as planned
• Problem is the difference between the
desired and actual outcome
• Problem solving also involves
identification of new opportunities
 2. Systems

• Structure of a system:
– Inputs
– Processes
– Outputs
– Feedback from output to decision maker
• Separated from environment by boundary
• Surrounded by environment

Input Processes Output

boundary

Environment
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 System Types

• Closed system
– Independent
– Takes no inputs
– Delivers no outputs to the environment
– Black Box
• Open system
– Accepts inputs
– Delivers outputs to environment

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 System effectiveness and
efficiency
• Two major performance measures:
– Effectiveness is the degree to which goals are
achieved. It is concerned with the outputs of a
system.
– Efficientcy is a measure of the use of inputs (or
resources) to achieve outputs.

Effectiveness is doing the right thing

Efficiency is doing the thing right

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 3. Models Used for DSS

• A model is a simplified representation or

abstraction of reality.
• Models are classified into 3 groups:
– Iconic
• Small physical replication of system
– Analog
• Behavioral representation of system
• May not look like system
– Quantitative (mathematical)
• Demonstrates relationships between systems

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 The Benefits of Models

• Ease of manipulation
• Compression of time
• Lower cost of analysis on models
• Cost of making mistakes on experiments
• Inclusion of risk/uncertainty
• Evaluation of many alternatives
• Reinforce learning and training
• Web is source and a destination for it
 4. A preview of the modeling
process

• There are some ways to solve a

problem
– Trial-and-error with the real system
– Simulation
– Optimization
– Heuristics

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 Phases of Decision-Making

• Simon’s original three phases:

– Intelligence
– Design
– Choice
• He added fourth phase later:
– Implementation
• Book adds fifth stage:
– Monitoring

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Phases of decision-making process

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 5. Decision-Making:
Intelligence Phase
• Scan the environment
• Analyze organizational goals
• Collect data
• Identify problem
• Categorize problem
– Programmed and non-programmed
– Decomposed into smaller parts
• Assess ownership and responsibility for problem
resolution

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 Decision-Making: Intelligence
Phase
• Scan the environment, either intermittently or
continuously
• Identify problem situations or opportunities
• Monitor the results of the implementation
• Problem is the difference between what
people desire (or expect) and what is actually
occurring
– Symptom versus Problem
• Timely identification of opportunities is as
important as identification of problems
 Decision-Making: Intelligence
Phase
• Potential issues in data/information
collection and estimation
– Lack of data
– Cost of data collection
– Inaccurate and/or imprecise data
– Data estimation is often subjective
– Data may be insecure
– Key data may be qualitative
– Data change over time (time-dependence)
 Decision-Making: Intelligence
Phase
• Problem Classification
– Classification of problems according to the degree
of structuredness
• Problem Decomposition
– Often solving the simpler subproblems may help
in solving a complex problem
– Information/data can improve the structuredness
of a problem situation
• Problem Ownership A Formal
• Outcome of intelligence phase: Problem
Statement
 6. Decision-Making: Design Phase

• Develop alternative courses of action

• Analyze potential solutions
• Create model
• Test for feasibility
• Validate results
• Select a principle of choice
– Establish objectives
– Incorporate into models
– Risk assessment
– Criteria and constraints

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 Decision-Making: The Design
Phase
• Finding/developing and analyzing possible
courses of actions
• A model of the decision-making problem is
constructed, tested, and validated
• Modeling: conceptualizing a problem and
abstracting it into a quantitative and/or
qualitative form (i.e., using symbols/variables)
– Abstraction: making assumptions for simplification
– Tradeoff (cost/benefit): more or less abstraction
– Modeling: both an art and a science
 Decision-Making: The Design
Phase
• Selection of a Principle of Choice
– It is a criterion that describes the
acceptability of a solution approach
– Reflection of decision-making objective(s)
– In a model, it is the result variable
– Choosing and validating against
• High-risk versus low-risk
• Optimize versus satisfice
– Criterion is not a constraint
 Decision-Making: The Design
Phase
• Normative models (= optimization)
– the chosen alternative is demonstrably the
best of all possible alternatives
– Assumptions of rational decision makers
• Humans are economic beings whose objective is
to maximize the attainment of goals
• For a decision-making situation, all alternative
courses of action and consequences are known
• Decision makers have an order or preference that
enables them to rank the desirability of all
consequences
 Decision-Making: The Design
Phase
• Heuristic models (= suboptimization)
– the chosen alternative is the best of only a
subset of possible alternatives
– Often, it is not feasible to optimize realistic
(size/complexity) problems
– Suboptimization may also help relax
unrealistic assumptions in models
– Help reach a good enough solution faster
 Decision-Making: The Design
Phase
Descriptive Models
• Describe how things are believed to be
• Typically, mathematically based
• Applies single set of alternatives
• Examples:
– Simulations
– What-if scenarios
– Cognitive map
– Narratives
 Components of quantitative
models
• Decision variables: describe alternative courses of
actions.
• Result variables: indicates how well the system
performs or attains its goals. Result variables are
considered dependent variables.
• Uncontrollable variables or parameters. There are
factors that affect the result variables but not
under the control of the decision maker.
• Intermediate result variables

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 Decision-Making: The Design
Phase
• Good Enough, or Satisficing
“something less than the best”
– A form of suboptimization
– Seeking to achieving a desired level of
performance as opposed to the “best”
– Benefit: time saving

– Simon’s idea of bounded rationality

 Decision-Making: The Design
Phase
• Developing (Generating) Alternatives
– In optimization models (such as linear
programming), the alternatives may be
generated automatically
– In most MSS situations, however, it is
necessary to generate alternatives manually
– Use of GSS helps generating alternatives
• Measuring/ranking the outcomes
– Using the principle of choice
 Decision-Making: The Design
Phase
• Risk
– Lack of precise knowledge (uncertainty)
– Risk can be measured with probability
• Scenario (what-if case)
– A statement of assumptions about the
operating environment (variables) of a
particular system at a given time
– Possible scenarios: best, worst, most likely,
average (and custom intervals)
 7.Decision-Making: Choice Phase

• Decision making with commitment to act

• Determine courses of action
– Analytical techniques
– Algorithms
– Heuristics
– Blind searches
• Analyze for robustness

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 Decision-Making: The Choice
Phase
• The actual decision and the commitment to
follow a certain course of action are made here
• The boundary between the design and choice
is often unclear (partially overlapping phases)
– Generate alternatives while performing evaluations
• Includes the search, evaluation, and
recommendation of an appropriate solution to
the model
• Solving the model versus solving the problem!
 Decision-Making: The Choice
Phase
• Search approaches
– Analytic techniques (solving with a formula)
– Algorithms (step-by-step procedures)
– Heuristics (rule of thumb)
– Blind search (truly random search)
• Additional activities
– Sensitivity analysis
– What-if analysis
– Goal seeking
 8. Evaluation: Multiple goals, sentivity
analysis, what-if and goal seeking

• Multiple goals. Managers want to attain

simultaneous goals, where some of them are
conflicts.  goal programming.
• Sensitivity analysis. Sensitivity analysis attempts
to assess the impact of a change in the input data
or parameters on the proposed solution.
• What-if analysis. “What will happen to the
solution if an input variable, an assumption, or a
parameter value is changed?”
– EX: “What will be the market share if the advertisement
budget increases by 5 percent?”
• Goal seeking. Goal seeking analysis calculates
the values of inputs necessary to achieve a
desired level of an output (goal). It is a backward
solution approach.
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 9. Decision-Making:
Implementation Phase
• Putting solution to work
• Vague boundaries which include:
– Dealing with resistance to change
– User training
– Upper management support

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10. How Decisions are Supported

• Support for Intelligence Phase

– Automatic
• Data Mining
– Expert systems, CRM, neural networks
– Manual
• OLAP
• KMS
– Reporting
• Routine and ad hoc

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 Decision Support Systems

• Support for Design Phase

– Financial and forecasting models
– Generation of alternatives by expert
system
– Relationship identification through OLAP
and data mining
– Recognition through KMS
– Business process models from CRM,
RMS, ERP, and SCM
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 Decision Support Systems

• Support for Choice Phase

– Identification of best alternative
– Identification of good enough alternative
– What-if analysis
– Goal-seeking analysis
– May use KMS, GSS, CRM, ERP, and
SCM systems

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 Decision Support Systems

• Support for Implementation Phase

– Improved communications
– Collaboration
– Training
– Supported by KMS, expert systems,
GSS

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