Chapter 2: Foundations and Technologies for
Decision Making
Learning Objectives
• Understand the conceptual foundations of decision
making
• Understand Simon’s four phases of decision making:
intelligence, design, choice, and implementation
• Understand the essential definition of decision
support systems (DSS)
• Understand different types of DSS classifications
(Continued…)
MIS470: Decision Support & Business Intelligence 2
Learning Objectives
• Learn the capabilities and limitations of DSS in
supporting managerial decisions
• Learn how DSS support for decision making can be
provided in practice
• Understand DSS components and how they integrate
MIS470: Decision Support & Business Intelligence 3
Opening Vignette
Decision Modeling at HP Using
Spreadsheets
• Background
• Problem description
• Proposed solution
• Results
• Answer & discuss the case questions…
MIS470: Decision Support & Business Intelligence 4
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
MIS470: Decision Support & Business Intelligence 5
Characteristics of Decision Making
Decision Support Systems (DSS)
Dissecting DSS into
its main concepts
Building successful
DSS requires a
thorough
understanding of
these concepts
MIS470: Decision Support & Business Intelligence 6
Decision Making
• A process of choosing among two or more alternative
courses of action for the purpose of attaining a goal(s)
• Managerial decision making is synonymous with the
entire management process – Simon (1977)
• Example: Planning
• What should be done? When? Where? Why? How? By
whom?
MIS470: Decision Support & Business Intelligence 7
Decision-Making Disciplines
• Behavioral: anthropology, law, philosophy, political science,
psychology, social psychology, and sociology
• Scientific: computer science, decision analysis, economics,
engineering, the hard sciences (e.g., biology, chemistry,
physics), management science/operations research,
mathematics, and statistics
Each discipline has its own set of assumptions and each
contributes a unique, valid view of how people make
decisions
MIS470: Decision Support & Business Intelligence 8
Decision-Making Disciplines
• Better decisions
• Tradeoff: accuracy versus speed
• Fast decision may be detrimental
• Many areas suffer from fast decisions
• Effectiveness versus Efficiency
• Effectiveness “goodness”, “accuracy”
• Efficiency “speed”, “less resources”
A fine balance is what is needed!
MIS470: Decision Support & Business Intelligence 9
Decision Style
• The manner by which decision makers think and react to problems
• perceive a problem
• cognitive response
• values and beliefs
• When making decisions, people:
• follow different steps/sequence
• give different emphasis, time allotment, and priority to each step
MIS470: Decision Support & Business Intelligence 10
Decision Style
• Personality temperament tests are often used to determine decision
styles
• There are many such tests
• Meyers/Briggs,
• True Colors (Birkman), https://www.youtube.com/watch?v=wHPq7TZiMKo
• Keirsey Temperament Theory,
• Various tests measure somewhat different aspects of personality.
They cannot be equated!
MIS470: Decision Support & Business Intelligence 11
Decision Style
• Decision-making styles
• Heuristic versus Analytic
• Autocratic versus Democratic
• Consultative (with individuals or groups)
• A successful computerized system should fit the decision style and
the decision situation
• Should be flexible and adaptable to different users (individuals vs. groups)
MIS470: Decision Support & Business Intelligence 12
Decision Makers
• Small organizations
• Individuals
• Conflicting objectives
• Medium-to-large organizations
• Groups
• Different styles, backgrounds, expectations
• Conflicting objectives
• Consensus is often difficult to reach
• Help: Computer support, GSS, etc.
MIS470: Decision Support & Business Intelligence 13
Phases of Decision-Making Process
• Humans consciously or subconsciously follow a systematic decision-
making process – Simon (1977)
1) Intelligence
2) Design
3) Choice
4) Implementation
5) (?) Monitoring (a part of intelligence?)
MIS470: Decision Support & Business Intelligence 14
Simon’s Decision-Making Process
MIS470: Decision Support & Business Intelligence 15
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
MIS470: Decision Support & Business Intelligence 16
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)
MIS470: Decision Support & Business Intelligence 17
Application Case 2.1
Making Elevators Go Faster!
• Background
• Problem description
• Proposed solution
• Results
MIS470: Decision Support & Business Intelligence 18
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
• Outcome of intelligence phase
A Formal
Problem
Statement
MIS470: Decision Support & Business Intelligence 19
Web and the
Decision-
Making
Process
MIS470: Decision Support & Business Intelligence 20
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
MIS470: Decision Support & Business Intelligence 21
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!
• See Technology Insight 2.1
MIS470: Decision Support & Business Intelligence 22
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 or preference that enables them to rank the
desirability of all consequences
MIS470: Decision Support & Business Intelligence 23
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
MIS470: Decision Support & Business Intelligence 24
Decision Making: The Design Phase
• Descriptive models
• Describe things as they are or as they are believed to be
(mathematically based)
• They do not provide a solution but information that may lead
to a solution
• Simulation – most common descriptive modeling method
(mathematical depiction of systems in a computer
environment)
• Allows experimentation with the descriptive model of a
system
MIS470: Decision Support & Business Intelligence 25
Decision Making: The Design Phase
• Good Enough, or Satisficing
“something less than the best”
• A form of suboptimization
• Seeking to achieve a desired level of performance
as opposed to the “best”
• Benefit: time saving
• Simon’s idea of bounded rationality
MIS470: Decision Support & Business Intelligence 26
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 generate alternatives
• Measuring/ranking the outcomes
• Using the principle of choice
MIS470: Decision Support & Business Intelligence 27
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)
MIS470: Decision Support & Business Intelligence 28
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!
MIS470: Decision Support & Business Intelligence 29
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
MIS470: Decision Support & Business Intelligence 30
Decision Making: The Implementation Phase
“Nothing more difficult to carry out, nor more doubtful of success,
nor more dangerous to handle, than to initiate a new of
things.”
– The Prince, Machiavelli 1500s
• Solution to a problem Change
• Change management ?
Implementation: putting a recommended solution to work
MIS470: Decision Support & Business Intelligence 31
How Decisions are Supported
MIS470: Decision Support & Business Intelligence 32
How Decisions are Supported
• Support for the Intelligence Phase
• Enabling continuous scanning of external and internal
information sources to identify problems and/or opportunities
• Resources/technologies: Web; ES, OLAP, data warehousing,
data/text/Web mining, EIS/Dashboards, KMS, GSS, GIS,…
• Business activity monitoring (BAM)
• Business process management (BPM)
• Product life-cycle management (PLM)
MIS470: Decision Support & Business Intelligence 33
How Decisions are Supported
• Support for the Design Phase
• Enabling generating alternative courses of action, determining
the criteria for choice
• Generating alternatives
• Structured/simple problems: standard and/or special models
• Unstructured/complex problems: human experts, ES, KMS,
brainstorming/GSS, OLAP, data/text mining
• A good “criteria for choice” is critical!
MIS470: Decision Support & Business Intelligence 34
How Decisions are Supported
• Support for the Choice Phase
• Enabling selection of the best alternative given a complex
constraint structure
• Use sensitivity analyses, what-if analyses, goal seeking
• Resources
• KMS
• CRM, ERP, and SCM
• Simulation and other descriptive models
MIS470: Decision Support & Business Intelligence 35
How Decisions are Supported
• Support for the Implementation Phase
• Enabling implementation/deployment of the selected
solution to the system
• Decision communication, explanation and justification to
reduce resistance to change
• Resources
• Corporate portals, Web 2.0/Wikis
• Brainstorming/GSS
• KMS, ES
MIS470: Decision Support & Business Intelligence 36
DSS Capabilities
• DSS early definition: it is a system intended to support
managerial decisions in semistructured and unstructured
decision situations
• DSS were meant to be adjuncts to decision makers
extending their capabilities
• They are computer based and would operate interactively
online, and preferably would have graphical output
capabilities
• Nowadays, simplified via Web browsers and mobile
devices
MIS470: Decision Support & Business Intelligence 37
DSS Capabilities
MIS470: Decision Support & Business Intelligence 38
DSS Classifications
• AIS SIGDSS Classification
1. Communication-driven and group DSS
2. Data-driven DSS
3. Document-driven DSS
4. Knowledge-driven DSS
5. Model-driven DSS
• Often DSS is a hybrid of many classes
MIS470: Decision Support & Business Intelligence 39
DSS Classifications
• Other DSS Categories
• Institutional and ad-hoc DSS
• Custom-made systems versus ready-made systems
• Personal, group, and organizational support
• Individual support system versus group support
system (GSS)…
MIS470: Decision Support & Business Intelligence 40
Components of DSS
MIS470: Decision Support & Business Intelligence 41
Components of DSS
1. Data Management Subsystem
• Includes the database that contains the data
• Database management system (DBMS)
• Can be connected to a data warehouse
2. Model Management Subsystem
• Model base management system (MBMS)
3. User Interface Subsystem
4. Knowledgebase Management Subsystem
• Organizational knowledge base
MIS470: Decision Support & Business Intelligence 42
DSS Components: Data Management
Subsystem
• DSS database
• DBMS
• Data directory
• Query facility
MIS470: Decision Support & Business Intelligence 43
DSS Components: Model Management
Subsystem
• Model base
• MBMS
• Modeling language
• Model directory
• Model execution,
integration, and
command
processor
MIS470: Decision Support & Business Intelligence 44
DSS Components: User Interface Subsystem
• Interface
• Application interface
• User Interface (GUI?)
• DSS User Interface
• Portal
• Graphical icons
• Dashboard
• Color coding
• Interfacing with PDAs, cell
phones, etc.
• See Technology Insight 2.2
for next gen devices
45MIS470: Decision Support & Business Intelligence
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