Chapter 2

DECISION MAKING, SYSTEMS, MODELING, AND SUPPORT

Learning Objectives
Understand the conceptual foundations of decision making Understand Simons four phases of decision making: intelligence, design, choice, and implementation Recognize the concepts of rationality and bounded rationality, and how they relate to decision making

Learning Objectives
Differentiate between the concepts of making a choice and establishing a principle of choice Learn how DSS support for decision making can be provided in practice Understand the systems approach

Decision Making: Introduction and Definitions

Characteristics of decision making
Groupthink Decision makers are interested in evaluating what-if scenarios Experimentation with the real system may result in failure Experimentation with the real system is possible only for one set of conditions at a time and can be disastrous Changes in the decision making environment may occur continuously, leading to invalidating assumptions about the situation

Decision Making: Introduction and Definitions

Characteristics of decision making
Changes in the decision making environment may affect decision quality by imposing time pressure on the decision maker Collecting information and analyzing a problem takes time and can be expensive. It is difficult to determine when to stop and make a decision There may not be sufficient information to make an intelligent decision Information overload

Decision Making: Introduction and Definitions

Decision making The action of selecting among alternatives

Decision Making: Introduction and Definitions

Phases of the decision process
1. Intelligence 2. Design 3. Choice

Problem solving A process in which one starts from an initial state and proceeds to search through a problem space to identify a desired goal. It includes the 4th phase of the decision process
4. Implementation

Decision Making: Introduction and Definitions

Decision making disciplines
Behavioral Scientific Effectiveness The degree of goal attainment. Doing the right things Efficiency The ratio of output to input. Appropriate use of resources. Doing the things right

Successful decision

Decision Making: Introduction and Definitions

Decision style and decision makers Decision style The manner in which a decision maker thinks and reacts to problems. It includes perceptions, cognitive responses, values, and beliefs
Autocratic Democratic Consultative

Decision Making: Introduction and Definitions

Decision style and decision makers
Different decision styles require different types of support
Individual decision makers need access to data and to experts who can provide advice Groups need collaboration tools

Models
Iconic model A scaled physical replica Analog model An abstract, symbolic model of a system that behaves like the system but looks different

Models
Mental model The mechanisms or images through which a human mind performs sensemaking in decision making Mathematical (quantitative) model A system of symbols and expressions that represent a real situation

Models
The benefits of models
Model manipulation is much easier than manipulating a real system Models enable the compression of time The cost of modeling analysis is much lower The cost of making mistakes during a trialand-error experiment is much lower when models are used than with real systems

Models
With modeling, a manager can estimate the risks resulting from specific actions within the uncertainty of the business environment Mathematical models enable the analysis of a very large number of possible solutions Models enhance and reinforce learning and training Models and solution methods are readily available on the Web Many Java applets are available to readily solve models

Phases of the Decision-Making Process

Phases of the Decision-Making Process

Intelligence phase The initial phase of problem definition in decision making Design phase The second decision-making phase, which involves finding possible alternatives in decision making and assessing their contributions

Phases of the Decision-Making Process

Choice phase The third phase in decision making, in which an alternative is selected Implementation phase The fourth decision-making phase, involving actually putting a recommended solution to work

Decision Making: The Intelligence Phase

Problem (or opportunity) identification: some issues that may arise during data collection
Data are not available Obtaining data may be expensive Data may not be accurate or precise enough Data estimation is often subjective Data may be insecure Important data that influence the results may be qualitative

Decision Making: The Intelligence Phase

Problem (or opportunity) identification: some issues that may arise during data collection
Information overload Outcomes (or results) may occur over an extended period If future data is not consistent with historical data, the nature of the change has to be predicted and included in the analysis

Decision Making: The Intelligence Phase

Problem classification The conceptualization of a problem in an attempt to place it in a definable category, possibly leading to a standard solution approach Problem decomposition Dividing complex problems into simpler subproblems may help in solving the complex problem Problem ownership The jurisdiction (authority) to solve a problem

Decision Making: The Design Phase

The design phase involves finding or developing and analyzing possible courses of action
Understanding the problem Testing solutions for feasibility A model of the decision-making problem is constructed, tested, and validated

Decision Making: The Design Phase

Modeling involves conceptualizing a problem and abstracting it to quantitative and/or qualitative form Models have:
Decision variables Principle of choice

Decision Making: The Design Phase

Decision variables A variable in a model that can be changed and manipulated by the decision maker. Decision variables correspond to the decisions to be made, such as quantity to produce, amounts of resources to allocate, and so on Principle of choice The criterion for making a choice among alternatives

Decision Making: The Design Phase

Normative models Models in which the chosen alternative is demonstrably the best of all possible alternatives
Optimization The process of examining all the alternatives and proving that the one selected is the best Suboptimization An optimization-based procedure that does not consider all the alternatives for or impacts on an organization

Decision Making: The Design Phase

Descriptive model A model that describes things as they are
Simulation An imitation of reality Narrative is a story that helps a decision maker uncover the important aspects of the situation and leads to better understanding and framing

Decision Making: The Design Phase

Good enough or satisficing
Satisficing A process by which one seeks a solution that will satisfy a set of constraints. In contrast to optimization, which seeks the best possible solution, satisficing simply seeks a solution that will work well enough

Decision Making: The Design Phase

Good enough or satisficing
Reasons for satisficing:
Time pressures Ability to achieve optimization Recognition that the marginal benefit of a better solution is not worth the marginal cost to obtain it

Decision Making: The Design Phase

Developing (generating) alternatives
In optimization models the alternatives may be generated automatically by the model In most MSS situations it is necessary to generate alternatives manually (a lengthy, costly process); issues such as when to stop generating alternatives are very important The search for alternatives usually occurs after the criteria for evaluating the alternatives are determined The outcome of every proposed alternative must be established

Decision Making: The Design Phase

Measuring outcomes
The value of an alternative is evaluated in terms of goal attainment

Risk
One important task of a decision maker is to attribute a level of risk to the outcome associated with each potential alternative being considered

Decision Making: The Design Phase

Scenario A statement of assumptions about the operating environment of a particular system at a given time; a narrative description of the decision-situation setting
Scenarios are especially helpful in simulations and what-if analyses

Decision Making: The Design Phase

Scenarios play an important role in MSS because they:
Help identify opportunities and problem areas Provide flexibility in planning Identify the leading edges of changes that management should monitor Help validate major modeling assumptions Allow the decision maker to explore the behavior of a system through a model Help to check the sensitivity of proposed solutions to changes in the environment

Decision Making: The Design Phase

Possible scenarios
The worst possible scenario The best possible scenario The most likely scenario The average scenario

Decision Making: The Design Phase

Errors in decision making
The model is a critical component in the decisionmaking process A decision maker may make a number of errors in its development and use Validating the model before it is used is critical Gathering the right amount of information, with the right level of precision and accuracy is also critical

Decision Making: The Choice Phase

Solving a decision-making model involves searching for an appropriate course of action
Analytical techniques (solving a formula) Algorithms (step-by-step procedures) Heuristics (rules of thumb) Blind searches

Decision Making: The Choice Phase

Analytical techniques Methods that use mathematical formulas to derive an optimal solution directly or to predict a certain result, mainly in solving structured problems Algorithm A step-by-step search in which improvement is made at every step until the best solution is found

Decision Making: The Choice Phase

Heuristics Informal, judgmental knowledge of an application area that constitutes the rules of good judgment in the field. Heuristics also encompasses the knowledge of how to solve problems efficiently and effectively, how to plan steps in solving a complex problem, how to improve performance, and so forth

Decision Making: The Choice Phase

Sensitivity analysis A study of the effect of a change in one or more input variables on a proposed solution What-if analysis A process that involves asking a computer what the effect of changing some of the input data or parameters would be

Decision Making: The Implementation Phase

Generic implementation issues important in dealing with MSS include:
Resistance to change Degree of support of top management User training

Decision Making: The Implementation Phase

How Decisions Are Supported

Support for the intelligence phase
The ability to scan external and internal information sources for opportunities and problems and to interpret what the scanning discovers
Web tools and sources are extremely useful for environmental scanning Web browsers provide useful front ends for a variety of tools (OLAP, data mining, data warehouses) Internal data sources may be accessible via a corporate intranet External sources are many and varied

How Decisions Are Supported

Support for the design phase
The generation of alternatives for complex problems requires expertise that can be provided only by a human, brainstorming software, or an ES

How Decisions Are Supported

Support for the choice phase
DSS can support the choice phase through what-if and goal-seeking analyses Different scenarios can be tested for the selected option to reinforce the final decision KMS helps identify similar past experiences CRM, ERP, and SCM systems are used to test the impacts of decisions in establishing their value, leading to an intelligent choice An ES can be used to assess the desirability of certain solutions and to recommend an appropriate solution A GSS can provide support to lead to consensus in a group

How Decisions Are Supported

Support for the implementation phase
DSS can be used in implementation activities such as decision communication, explanation, and justification DSS benefits are partly due to the vividness and detail of analyses and reports

How Decisions Are Supported

New technology support for decision making
Mobile commerce (m-commerce) Personal devices
Personal digital assistants [PDAs] Cell phones Tablet computers :aptop computers