C12 Enhancing Decision Making How demand responds to changes in price? Adjust pricing based on location? Price-sensitive customers? How much of a difference

C12 Enhancing Decision Making

How demand responds to changes in price?Adjust pricing based on location?

Price-sensitive customers?How much of a difference does this knowledge

make?

Agora across Bangladesh

P&G’s Supply Chain- Complex?

One of the world’s largest consumer good companies

Annual revenue $51 billion

80 000 employees in 140 countries

300 brands

100000+ suppliers

• Hundreds of combinations of suppliers, manufacturing facilities and markets.

• Even small changes ripple through the supply chain and affect • inventory levels• service levels • costs

P&G Global Beauty Care division

Ch

all

en

ges Pressure to

reduce costs

competitors

large customers like

Wal-Mart

A new product?

How many plants?

Where/Location?

Distribution centres?

Deliver products faster

Changes Are Constant!10-15 new product launches per yearEach product has multiple sizes and package designs

New product- Dove!

Where to locate the plant(s)?

What are the sources of raw materials? Marketing Managers

wants it in their respective countries

Corporate experts prefer one megaplant

And there are millions of other solutions in between

IT Global Analytics group used: Excel enhanced by

LINDO (add-on) for optimization

Palisade’s @Risk for Monte Carlo simulation (add-on)

X-press-MP from Dash Optimiztion Inc. (optimization models)

Cplex from Ilog Inc. (optimization models)

Extend from Imagine That Inc. (simulation models)

Data from Oracle data warehouse (36 months of supplier, manufacturing, customer and consumer history by

region)

P&G’s Supply Chain …

Optimization models to allocate supply chain resources

Simulation models to mathematically try various options to see the impact of changes in important variables

Decision trees to combine the possibilities of various outcomes with their financial results

Success of a supply chain is not necessarily the most optimal solution but rather a robust solution that would stand up in real world conditions

Result: consolidation of plants by 20%Supply chain costs reduced by $200 million each year

P&G’s Supply Chain …

Problem Cost pressures, complex supply chain.

Solutions Deploy modeling and optimization software to

maximize return on investment and predict the most successful supply chain.

Modeling software fueled with data from Oracle data warehouse improved efficiency and reduced costs.Illustrates digital technology improving decision making through information systems.Demonstrates IT’s role in restructuring a supply chain.

The Business Value

Example decision Decision makerNo. of decisions per year

Estimated value to firm of a single improved decision

Annual value

Allocate support to most valuable customers Accounts manager 12 100,000 1200000

Predict call center daily demand

Call center management 4 150,000 600000

Decide parts inventory levels daily Inventory manager 365 5,000 1825000

Identify competitive bids from major suppliers Senior management 1

2,000,000 2000000

Schedule production to fill orders

Manufacturing manager 150 10,000 1500000

Allocate labor to complete a job

Production floor manager 100 4,000 400000

12.1 Decision making and information systems

monetary value of improved decision

quality of decision making

IS for Key Decision-Making Groups

Senior managers, middle managers, operational managers, and employees have different types of decisions and information requirements.


MIS- Based

Decision support

systems (DSS)

Executive support

systems (ESS)

Group decision support systems (GDSS)

Types of Decisions

• Unstructured decisions • decision maker must provide judgment,

evaluation, and insight to solve the problem.

• Structured decisions • repetitive and routine• they involve a definite procedure for handling

them.

• Many decisions have elements of both• Middle manager gets report from ES system

about sales decline at Rajshahi, gets secondary (related) report from the ES. Now needs to do interview.Consider senior managers, middle managers, operational managers, and employees


Decision-support systems

Model-driven DSS Earliest DSS were heavily model-driven E.g. voyage-estimating DSS (Chapter 2)

Data-driven DSS Some contemporary DSS are data-driven Use OLAP (On-Line Analytical Processing) and

data mining to analyze large pools of data

Systems for Decision Support

The Decision-Making Process


Managers and Decision Making

What managers do? Five classical functions planning, organizing, coordinating, deciding,

and controllingHow do the do it?

Behavioral models state that the actual behavior of managers appears to be less systematic, more informal, less reflective, more reactive, and less well organized than the classical model would have us believe.

in the Real World



engage in more than 600 different activities each day

managerial activities are fragmented- most less than nine minutes, 10% exceed one hour

prefer current, specific, and ad hoc informationrefer oral forms of communication- greater

flexibility, ess effort, aster responsegive high priority to maintaining a diverse and

complex web of contacts- acts as an informal information system, helps them execute their personal agendas and short- and long-term goals

in the Real World

Mintzberg’s Managerial Roles …




investments in information technology do not always produce positive results. There are three main reasons:

information qualitymanagement filters

selective attention, biasesorganizational culture

resist major change decisions represent various

interest groups rather thanthe best solution to the problem.

in the Real World

Quality Dimension

Description

Accuracy Do the data represent reality?

Integrity Are the structure of data and relationships among the entities and attributes consistent?

Consistency Are data elements consistently defined?

Completeness

Are all the necessary data present?

Validity Do data values fall within defined ranges?

Timeliness Area data available when needed?

Accessibility Are the data accessible,comprehensible,and usable?


High-Velocity Automated Decision Making

Google’s search engine High frequency traders at NYSE execute

their trades in under 30 millisecondshumans (including managers) are

eliminated from the decision chain because they are too slow

Flash Crash- 2010


Infrastructure for DSS

At the foundation of all of these DSSs are infrastructure business intelligence (BI) and business analytics (BA)

that supplies the data and analytic tools

for supporting decision making.

12.2 Business Intelligence In The Enterprise

Business Intelligence?

Humans are intelligent beings ability to take in data from their environment, understand the meaning and significance of the

information, and then act appropriately.

“Business intelligence”- the infrastructure for warehousing, integrating,

reporting, and analyzing data that comes from the business environment

An infrastructure collects, stores, cleans, and makes relevant information available to managers

databases, data warehouses, and data marts

Just like human beings, some business firms do this well, and others poorly .)


BI and BA Capabilities

“Business analytics” focuses more on tools and techniques for analyzing/understanding data OLAP, statistics, models, and data mining

BI and BA are about integrating all the information streams produced by a firm into a single, coherent enterprise-wide set of data, and then, using modeling, statistical analysis tools (like normal distributions, correlation and regression analysis, forecasting,), and data mining tools (pattern discovery and machine learning), to make sense out of all these data


BI and BA Vendors

Vendor Market Share

Business Intelligence Software

SAP 25% SAP BusinessObjects EPM Solutions

SAS Institute 15% SAS Activity Based Management; financial, human capital, profitability and strategy management

Oracle 14% Enterprise Performance Management System

IBM 11% IBM Cognos

Microsoft 7% SQL Server with PowerPivot


BI and BA Vendors

Business intelligence and analytics requires a strong database foundation, a set of analytic tools, and an involved management team that can ask intelligent questions and analyze data.


5 analytic functionalities of BI systems


Casual users are consumers of BI output, while intense power users are the producers of reports, new analyses, models, and forecasts.

Business Intelligence Applications


Predictive Analytics Credit card risk

Data Visualization and Geographic Information Systems (GIS)

Management Strategies for Developing BI and BA Capabilities

One-stop integrated solutions versus multiple best-of-breed vendor solutions

Advantage/Not!

switching is very costly When you adopt these systems, you are in

essence taking in a new partner


Decision Support for Operational and Middle Management

Company

MIS Application

California Pizza Kitchen

Inventory Express application “remembers” each restaurant’s ordering patterns and compares the amount of ingredients used per menu item to predefined portion measurements established by management. The system identifies restaurants with out-of-line portions and notifies their managers so that corrective actions will be taken.

PharMark

Extranet MIS identifies patients with drug-use patterns that place them at risk for adverse outcomes.

Black & Veatch

Intranet MIS tracks construction costs for various projects across the United States.

Taco Bell Total Automation of Company Operations (TACO) system provides information on food, labor, and period-to-date costs for each restaurant.12.3 Business Intelligence Constituencies

Decision Support for Operational and Middle Management

12.3 Business Intelligence Constituencies

Some managers are “super users”/ business analysts who want to create their own reports use more sophisticated analytics and models find patterns in data model alternative business scenarios to test specific hypotheses.

Decision support systems (DSS) are the BI delivery platform rely more heavily on modeling than MIS what-if or other kinds of analysis Sensitivity analysis - predict a range of outcomes OLAP- pivot table

Sensitivity Analysis

This table displays the results of a sensitivity analysis of the effect of changing the sales price of a necktie and the cost per unit on the product’s break-even point. It answers the question, “What happens to the break-even point if the sales price and the cost to make each unit increase or decrease?”


The Excel PivotTable Wizard

The PivotTable Wizard in Excel makes it easy to analyze lists and databases by simply dragging and dropping elements from the Field List


Using spreadsheet pivot tables to support decision making

Online Management Training Inc. (OMT Inc.), sells online management training books and streaming online videos to corporations and individuals

Records of online transactions can be analyzed using Excel to help business decisions, e.g.: Where do most customers come from? Where are average purchases higher? What time of day do people buy? What kinds of ads work best?


Example: ALICO Insurance

Using widely available insurance industry data, ALICO defines small groups of customers, or “cells,” such as motorcycle riders aged 30 or above with college educations, credit scores over a certain level, and no accidents.

For each “cell,” Progressive performs a regression analysis to identify factors most closely correlated with the insurance losses that are typical for this group.

It then sets prices for each cell, and uses simulation software to test whether this pricing arrangement will enable the company to make a profit.

These analytic techniques, make it possible for ALICO to profitably insure customers in traditionally high-risk categories that other insurers would have rejected.


Consider GP Package

Example: Business value of DSS …

Burlington Coat Factory: DSS for pricing DSS manages pricing and inventory nationwide,

considering complex interdependencies between initial prices, promotions, markdowns, cross-item pricing effects and item seasonality

Syngenta: DSS for profitability analysis DSS determines if freight charges, employee sales

commissions, currency shifts, and other costs in proposed sale make that sale or product unprofitable

Compass Bank: DSS for customer relationship management DSS analyzes relationship between checking and savings

account activity and default risk to help it minimize default risk in credit card business


DSS for CRM …


Senior Management: The Balanced Scorecard and Enterprise Performance

Management Methods

• Executive Support Systems (ESS)• a methodology for understanding exactly what

is “the really important performance information”

• develop systems capable of delivering this information

• The balanced scorecard• a framework for operationalizing a firm’s

strategic plan by focusing on measurable outcomes on four dimensions of firm performance: financial, business process, customer, and learning and growth

• Performance on each dimension is measured using key performance indicators (KPIs), which are the measures proposed by senior management


The balanced scorecard

• If your firm is a bank, one KPI of business process performance is the length of time required to perform a basic function like creating a new customer account.


CATEGORY Purpose Aim

Learning & Growth for Employees

To achieve our vision How will we sustain our ability to change & improve?

Internal Business Processes

To satisfy our stakeholders & customers

Where must we excel in our business processes?

Customer Satisfaction

To achieve our vision How should we appear to our customers?

Financial Performance

To succeed financially How should we appear to our stakeholders?

The balanced scorecard


Executive support systems (ESS)

Integrate data from different functional systems for firmwide view

Incorporate external data, e.g. stock market news, competitor information, industry trends, legislative action

Include tools for modeling and analysis Primarily for status, comparison information about

performance Facilities for environmental scanning -

detecting signals of problems, threats, or strategic opportunities

Able to drill down from summary information to lower levels of detail

Executive Support Systems (ESS)

Business value of ESS

Enables executive to review more data in less time with greater clarity than paper-based systems Result: Needed actions identified and carried

out earlierIncreases upper management’s span of

control Can enable decision making to be decentralized

and take place at lower operating levelsIncreases executives’ ability to monitor

activities of lower units reporting to themExecutive Support Systems (ESS)

Case of National Life

National Life: Markets life insurance, health insurance, and retirement/investment products executive information system

Executive information system: Allows senior managers to access corporate databases

through Web interface Shows premium dollars by salesperson Authorized users can drill down into these data to see

product, agent, and client for each sale Data can be examined by region, by product, and by

broker, and accessed for monthly, quarterly, and annual time periods

ESS for business intelligenceExecutive Support Systems (ESS)

Group Decision-Support Systems (GDSS)

• Much work is accomplished in groups within firms that a special category of systems called group decision-support systems (GDSS) has been developed to support group and organizational decision making.

• An interactive computer-based system for facilitating the solution of unstructured problems by a set of decision makers working together as a group in the same location or in different locations

• Collaboration systems type tools and technologies• Geared explicitly toward group decision making• promotes a collaboration by guaranteeing anonymity



California’s South Coast Air Quality Management District (AQMD) is responsible for monitoring and controlling emissions in all of Orange County and the urban portions of Los Angeles, Riverside, and San Bernardino counties. Displayed is a map produced with ESRI GIS software tracking particulate matter emissions from building construction activity in a two-by-two kilometer area.

Overview of a GDSS meeting

Each attendee has workstation, networked to facilitator’s workstation and meeting’s file server

Whiteboards on either side of projection screen Seating arrangements typically semicircular,

tiered Facilitator controls use of tools during meeting All input saved to server, kept confidential After meeting, full record (raw material and

final output) assembled and distributedMake meetings more productive by providing tools to facilitate:• Planning, generating, organizing, and evaluating ideas• Establishing priorities• Documenting meeting proceedings for others in firm

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MIS- Based

Help managers monitor and control business by providing information on firm’s performance and address structured problems

Typically produce fixed, regularly scheduled reports based on data from TPS E.g. exception reports: Highlighting exceptional

conditions, such as sales quotas below anticipated levelE.g. Pizzahut Kitchen MIS

For each restaurant, compares amount of ingredients used per ordered menu item to predefined portion measurements and identifies restaurants with out-of-line portions


Components of DSS

Database used for query and analysis Current or historical data from

number of applications or groups May be small database or large

data warehouseUser interface

Often has Web interfaceSoftware system with models,

data mining, and other analytical tools

Systems for Decision SupportOverview of a Decision-Support System

Model

Abstract representation that illustrates components or relationships of phenomenon; may be physical, mathematical, or verbal model


Statistical modelsOptimization modelsForecasting modelsSensitivity analysis models

DSS for Supply Chain Management

Comprehensive examination of inventory, supplier performance, logistics data

To help managers search alternatives and decide on the most efficient and cost-effective combination

Reduces overall costsIncreases speed and accuracy of filling

customer orders


Data visualization tools: Help users see patterns and relationships in large

amounts of data that would be difficult to discern if data were presented as traditional lists of text

Geographic information systems (GIS): Category of DSS that use data visualization technology to

analyze and display data in form of digitized maps Used for decisions that require knowledge about

geographic distribution of people or other resources, e.g.: Helping local governments calculate emergency response

times to natural disasters Help retail chains identify profitable new store locations


Web-based customer decision-support systems (CDSS)

Support decision-making process of existing or potential customer

Automobile companies that use CDSS to allow Web site visitors to configure desired car

Financial services companies with Web-based asset-management tools for customers; Fidelity Investments: customer portfolio allocations, retirement savings plans...

Home.com: mortgage, rent or buy...Systems for Decision Support

Bonita Bay Properties

Digital dashboard: Displays on single screen key performance indicators as graphs and charts for executives

Bonita Bay Properties Inc.: Develops planned communities centered around golf courses and fitness centers

Executive dashboard displays: Summaries from point-of-sale systems and general

ledger accounts Staffing levels Executives can drill down to performance of fitness

centers, activity on golf courses


Monitoring corporate performance with digital dashboards

Case of Pharmacia Corporation

Balanced scorecard model: Supplements traditional financial metrics with measurements from additional perspectives (customers, internal business processes, etc.)

Pharmacia Corporation: global pharmaceutical firm

Balanced scorecard shows: Performance of U.S. or European clinical operations in

relation to corporate objectives Attrition rate of new compounds under study Number of patents in clinical trials How funds allocated for research are being spent


Monitoring corporate performance with balanced scorecard systems

Caesar’s Entertainment

Has integrated reporting structure to help management determine how well it is performing against forecasts on a daily basis

Integrates data from internal TPS with other internal and external sources Financial data from general ledger system, personnel

data, weather pattern and real estate data Delivers daily cost, effect, impact analysis, and profit-

and-loss reports Reports predict combined effect of these factors on

company’s business performance System lets executives adjust plans as required

online


Enterprise-wide performance analysis

Components of GDSS

Hardware Facility: Appropriate facility, furniture, layout Electronic hardware: Audiovisual, computer,

networking equipment Software

Electronic questionnaires, electronic brainstorming tools, idea organizers

Tools for voting or setting priorities, stakeholder identification and analysis tools, policy formation tools

Tools ensure anonymity Group dictionaries

People Participants and trained facilitator, support staff


Group System Tools


The sequence of activities and collaborative support tools used in an electronic meeting system facilitate communication among attendees and generate a full record of the meeting.Source: From Nunamaker et al., “Electronic Meeting Systems to Support Group Work,” Communications of the ACM, July 1991. Reprinted by permission.

Business value of GDSS

Supports greater numbers of attendees Without GDSS, decision-making meeting process

breaks down with more than 5 attendees More collaborative atmosphere

Guarantees anonymity Can increase number of ideas generated and

quality of decisions made Most useful for idea generation, complex

problems, large groups Successful use of GDSS depends on many

factors Facilitator’s effectiveness, culture and environment,

planning, composition of group, appropriateness of tools selected, etc.


Learning Objectives

Assess how information systems support the activities of managers and management decision making.

Demonstrate how decision-support systems (DSS) differ from MIS and how they provide value to the business.

Demonstrate how executive support systems (ESS) help senior managers make better decisions.

Evaluate the role of information systems in helping people working in a group make decisions more efficiently.

Questions

1. What are the different types of decisions and how does the decision-making process work?

2. How do information systems support the activities of managers and management decision making?

3. How do business intelligence and business analytics support decision making?

4. How do different decision-making constituencies in an organization use business intelligence?

5. What is the role of information systems in helping people working in a group make decisions more efficiently?

12.1 Decision Making And Information Systems• Business Value of Improved Decision Making• Types of Decisions • The Decision-Making Process• Managers and Decision Making in the Real World• High-Velocity Automated Decision Making12.2 Business Intelligence In The Enterprise• What Is Business Intelligence?• The Business Intelligence Environment• Business Intelligence and Analytics Capabilities• Management Strategies for Developing BI and BA Capabilities 12.3 Business Intelligence Constituencies• Decision Support for Operational and Middle Management• Decision Support for Senior Management: The Balanced Scorecard

and Enterprise Performance Management Methods• Group Decision-Support Systems (GDSS)

TOC

Interpersonal

Role Description Identifiable Activity

Figurehead

Manager serves as an official representative of the organization or unit

Greeting visitors; signing legal documents

Leader Manager guides and motivates staff and acts as a positive influence in the workplace

Staffing, training

Liaison Manager interacts with peers and with people outside the organization to gain information

Acknowledging mail/email; serving on boards; performing activities that involve outsiders


Mintzberg’s Managerial Roles

Informational


Monitor Manager receives and collects information

Reading magazines and reports; maintaining personal contacts

Communication (Disseminator)

Manager distributes information within the organization

Holding meetings; making phone calls to relay information; email/memos

Spokesperson

Manager distributes information outside the organization

Holding board meetings; giving information to the media



Decisional




Entrepreneur

Manager initiates change Organizing sessions to develop new programs; supervises design of projects

Disturbance Handler

Manager decides how conflicts between subordinates should be resolved

Steps in when an employee suddenly leaves or an important customer is lost

Resource Allocator

Manager decides how the organization will use its resources

Scheduling; requesting authorization; budgeting

Negotiator Manager decides to negotiate major contracts with other organizations or individuals

Participating in union contract negotiations or in those with suppliers

Documents

C12 Enhancing Decision Making How demand responds to changes in price? Adjust pricing based on location? Price-sensitive customers? How much of a difference