Ch02 Dss Turban At

Embed Size (px)

Citation preview

  • 7/27/2019 Ch02 Dss Turban At

    1/54

    1

    MIS-410: Decision Support System (DSS)

    Ashis Talukder

    Lecturer, MISDhaka University

  • 7/27/2019 Ch02 Dss Turban At

    2/54

    2

    Book:DECISION SUPPORT SYSTEMS ANDBUSINESS INTELLIGENCE

    Efraim Turban

    Jay E Aronson

    Teng-Peng LiangReamesh Sharda

  • 7/27/2019 Ch02 Dss Turban At

    3/54

    3

    Chapter 2:DECISION MAKING, SYSTEMS,MODELING, AND SUPPORT

  • 7/27/2019 Ch02 Dss Turban At

    4/54

    4

    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 relateto decision making

  • 7/27/2019 Ch02 Dss Turban At

    5/54

    5

    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

  • 7/27/2019 Ch02 Dss Turban At

    6/54

    6

    Decision Making:Introduction and Definitions Characteristics of decision making

    Groupthink

    Decision makers are interested in evaluating what-ifscenarios

    Experimentation with the real system may result infailure

    Experimentation with the real system is possible onlyfor one set of conditions at a time and can be

    disastrous Changes in the decision making environment may

    occur continuously, leading to invalidatingassumptions about the situation

  • 7/27/2019 Ch02 Dss Turban At

    7/54

    7

    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: Too much information

  • 7/27/2019 Ch02 Dss Turban At

    8/54

    8

    Decision Making:Introduction and Definitions Decision making

    The action of selecting among alternative courses ofactions to attain a goal or goals.

    Important managerial function: planning

    Planning involves series of decisions: what should be done? When?

    Where?

    Why?

    How?

    By whom?

    Manger sets goals (or plans), planning implies decisionmaking.

  • 7/27/2019 Ch02 Dss Turban At

    9/54

    9

    Decision Making:Introduction and Definitions Problem Occurs

    When a system doesnt meet its

    established goals

    Doesnt yield the predicted result

    Doesnt work as planned

    Problem solving may also deal with

    identifying new opportunities.

  • 7/27/2019 Ch02 Dss Turban At

    10/54

    10

    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 initialstate and proceeds to search through a

    problem space to identify a desired goal. Itincludes the 4th phase of the decision process4. Implementation

  • 7/27/2019 Ch02 Dss Turban At

    11/54

    11

    Decision Making:Introduction and Definitions Decision making disciplines

    Behavioral:

    anthropology, law, philosophy, political science,

    psychology, social psychology, sociology Scientific

    Computer Science, decision analysis,

    economics, engineering, hard sciences (biology,

    chemistry, physics), ManagementSciences/Operation Researches, Mathematics

    and Statistics.

  • 7/27/2019 Ch02 Dss Turban At

    12/54

    12

    Decision Making:Introduction and Definitions Each discipline has its own sets of assumptions about

    reality and methods

    Each also contributes a unique, valid view of howpeople make decisions.

    Finally there is a lot of variations in what constitutes asuccessful decision in practice.

    Example: Crainer (2002) discussed 75 greatestmanagement decisions ever made

    Successful decision 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

  • 7/27/2019 Ch02 Dss Turban At

    13/54

    13

    Decision Making:Introduction and Definitions Decision style and decision makers

    Decision style

    The manner in which a decision maker thinks andreacts to problems. It includes perceptions, cognitive

    responses, values, and beliefs changes fromindividual to individual and situation to situation.

    Heuristic and Analytic

    Autocratic

    Democratic

    Consultative Hybrid (Consultative & heuristic, analytic & autocratic)

  • 7/27/2019 Ch02 Dss Turban At

    14/54

    14

    Decision Making:Introduction and Definitions Decision style and decision makers

    Different decision styles require different

    types of support

    Individual decision makers need access to dataand to experts who can provide advice

    Groups need collaboration tools

  • 7/27/2019 Ch02 Dss Turban At

    15/54

    15

    Models A model is a simplified representation or

    abstraction of the reality.

    Simplified: since reality may be too complex

    Classification based on degree ofabstraction:

    Iconic model

    A scaled physical replica,

    may be 3D: model of airplane, a car, a bridge

    2D iconic model: photographs

  • 7/27/2019 Ch02 Dss Turban At

    16/54

    16

    Models Analog model

    An abstract, symbolic model of a system thatbehaves like the system but looks different

    More abstract that iconic and symbolicrepresentation of reality

    Examples: 2D charts and diagrams Organization charts: depicts structure, authority,

    responsibility relationship

    Maps: different color represents different objects, such asbodies of water or mountains.

    Stock Market Charts: represents the price movements ofstocks

    Blueprint of a machine or house

    Animations, videos, and movies.

  • 7/27/2019 Ch02 Dss Turban At

    17/54

    17

    Models Mental model

    The mechanisms or images through which a human mindperforms sense-making in decision making

    Used in time-pressure situation (airplane pilot considerwhether to fly)

    Consider the utility & risks of each alternative

    When mostly qualitative factors are in decision making

    Mathematical (quantitative) model

    A system of symbols and expressions that represent a realsituation

    When relationship cant be represented by icons oranalogically

  • 7/27/2019 Ch02 Dss Turban At

    18/54

    18

    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 trial-and-error experiment is much lower when

    models are used than with real systems

  • 7/27/2019 Ch02 Dss Turban At

    19/54

    19

    Models The benefits of models

    With modeling, a manager can estimate the risksresulting from specific actions within theuncertainty of the business environment

    Mathematical models enable the analysis of a verylarge number of possible solutions

    Models enhance and reinforce learning andtraining

    Models and solution methods are readily availableon the Web

    Many Java applets are available to readily solvemodels

  • 7/27/2019 Ch02 Dss Turban At

    20/54

    20

    Phases of theDecision-Making Process Simon (77): systematic decision making

    process has 3 major phases, he later

    added a 4th phase :

    Intelligence

    Design

    Choice

    Implementation

  • 7/27/2019 Ch02 Dss Turban At

    21/54

    21

    Phases of theDecision-Making Process

  • 7/27/2019 Ch02 Dss Turban At

    22/54

    22

    Phases of theDecision-Making Process There is continuous flow of activity from

    intelligence to design to choice

    At any phase, there may be a return to a

    previous phase (feedback)

  • 7/27/2019 Ch02 Dss Turban At

    23/54

    23

    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 A model that represents the system is constructed

  • 7/27/2019 Ch02 Dss Turban At

    24/54

    24

    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

  • 7/27/2019 Ch02 Dss Turban At

    25/54

    25

    Decision Making:The Intelligence Phase (Phase 1) A decision maker attempts to

    determine whether a problem exists (monitoring/analyzingthe productivity level),

    identity its symptoms

    Determine its magnitude Explicitly define the problem.

    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

  • 7/27/2019 Ch02 Dss Turban At

    26/54

    26

    Decision Making:The Intelligence Phase (Phase 1) Problem (or opportunity) identification:some

    issues that may arise during data collection

    Data estimation is often subjective

    Data may be insecure

    Important data that influence the results may be

    qualitative

  • 7/27/2019 Ch02 Dss Turban At

    27/54

    27

    Decision Making:The Intelligence Phase (Phase 1) Problem (or opportunity) identification:some

    issues that may arise during data collection

    Information overload

    Outcomes (or results) may occur over an extendedperiod

    If future data is not consistent with historical data,

    the nature of the change has to be predicted andincluded in the analysis

  • 7/27/2019 Ch02 Dss Turban At

    28/54

    28

    Decision Making:The Intelligence Phase (Phase 1) Problem classification

    The conceptualization of a problem in an attempt to place it in adefinable category, possibly leading to a standard solution approach

    Problem decomposition Dividing complex problems into simpler sub-problems may help in

    solving the complex problem

    Poor structured problem may have high structured sub-problems(consider: semi-structured problem)

    Problem ownership The jurisdiction (authority) to solve a problem

    Done in INTELLIGENCE phase

    Assignment of authority to solve a problem is called problemownership

    Example: high-interest rate, what is the managerial role?

  • 7/27/2019 Ch02 Dss Turban At

    29/54

    29

    Decision Making:The Design Phase (Phase 2) The design phase involves finding or

    developing and analyzing possible courses of

    action

    This includes:

    Understanding the problem

    Testing solutions for feasibility

    A model of the decision-making problem isconstructed, tested, and validated

  • 7/27/2019 Ch02 Dss Turban At

    30/54

    30

    Decision Making:The Design Phase (Phase 2) Modeling involves conceptualizing a problem and abstracting

    it to quantitative and/or qualitative form

    (Mathematical) Models have: Decision variables and relationships among them

    Principle of choice Simplification of relations (expression) are made, if

    necessary, through assumption. (linear, even if some nonlinear effect)

    Proper balance between simplification and presentation of

    reality needed for cost-benefit trade-off Simpler model leads: lower development cost, easier

    manipulation, faster solution but less representative to thereal problem, and can produce inaccurate results.

  • 7/27/2019 Ch02 Dss Turban At

    31/54

    31

    Decision Making:The Design Phase (Phase 2) Decision variables

    A variable in a model that can be changedand manipulated by the decision maker.

    Decision variables correspond to thedecisions to be made, such as quantity toproduce, amounts of resources to allocate,and so on

    Principle of choice

    The criterion for making a choice amongalternatives

  • 7/27/2019 Ch02 Dss Turban At

    32/54

    32

    Decision Making:The Design Phase (Phase 2) 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

    Three ways to achieve optimization:

    Get the highest level of goal attainment from a given set ofresources

    Find the alternatives with the highest ratio of goal attainment to

    cost

    Find the alternative with minimum cost that will meet the goal.

  • 7/27/2019 Ch02 Dss Turban At

    33/54

    33

    Decision Making:The Design Phase (Phase 2) Normative models

    Suboptimization

    An optimization-based procedure that does notconsider all the alternatives for or impacts on an

    organization

    Example:marketing department introduces E-marketing by web site, may affect the production

    department.

  • 7/27/2019 Ch02 Dss Turban At

    34/54

    34

    Decision Making:The Design Phase (Phase 2) Descriptive model

    A model that describes things as they are or

    believed to be.

    Models are Mathematically based

    Simulation

    An imitation of reality

    Narrative is a story that helps a decision makeruncover the important aspects of the situation and

    leads to better understanding and framing

  • 7/27/2019 Ch02 Dss Turban At

    35/54

    35

    Decision Making:The Design Phase (Phase 2) Classes of Descriptive model include

    Complex Inventory Decision

    Environmental-impact analysis

    Financial Planning Information Flow

    Markov Analysis (Prediction)

    Scenario Analysis

    Simulation (Alternative types)

    Technological Forecasting

    Waiting-line (Queuing) managment

  • 7/27/2019 Ch02 Dss Turban At

    36/54

    36

    Decision Making:The Design Phase (Phase 2) 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 asolution that will work well enough

    something less than the best

  • 7/27/2019 Ch02 Dss Turban At

    37/54

    37

    Decision Making:The Design Phase (Phase 2) Good enough or satisficing

    Reasons for satisficing:

    Time pressures (decision may loose value over time)

    Ability to achieve optimization Recognition that the marginal benefit of a better

    solution is not worth the marginal cost to obtain it

  • 7/27/2019 Ch02 Dss Turban At

    38/54

    38

    Decision Making:The Design Phase (Phase 2) 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

  • 7/27/2019 Ch02 Dss Turban At

    39/54

    39

    Decision Making:The Design Phase (Phase 2) 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

  • 7/27/2019 Ch02 Dss Turban At

    40/54

    40

    Decision Making:The Design Phase (Phase 2) Scenario

    A statement of assumptions about the

    operating environment of a particular system

    at a given time; a narrative description of thedecision-situation setting

    Scenarios are especially helpful in simulations

    and what-if analyses

  • 7/27/2019 Ch02 Dss Turban At

    41/54

    41

    Decision Making:The Design Phase (Phase 2) 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 asystem through a model

    Help to check the sensitivity of proposed solutions to

    changes in the environment

  • 7/27/2019 Ch02 Dss Turban At

    42/54

    42

    Decision Making:The Design Phase (Phase 2) Possible scenarios

    The worst possible scenario

    The best possible scenario

    The most likely scenario The average scenario

  • 7/27/2019 Ch02 Dss Turban At

    43/54

    43

    Decision Making:The Design Phase (Phase 2) Errors in decision making

    The model is a critical component in the decision-making process

    A decision maker may make a number of errors inits 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 alsocritical

    Reference: Sawyer(99)s seven deadly sins ofdecision making

  • 7/27/2019 Ch02 Dss Turban At

    44/54

    44

    Decision Making:The Choice Phase (Phase 3) Solving a decision-making model involves

    searching for an appropriate course of action:

    Search for

    Evaluation of Recommendation of an appropriate solution to a

    model

    Searching Approaches include:

    Analytical techniques (solving a formula) Algorithms (step-by-step procedures)

    Heuristics (rules of thumb)

    Blind searches

  • 7/27/2019 Ch02 Dss Turban At

    45/54

    45

    Decision Making:The Choice Phase (Phase 3) Analytical techniques

    Methods that use mathematical formulas to

    derive an optimal solution directly or to predict

    a certain result, mainly in solving structuredproblems

    Algorithm

    A step-by-step search in which improvementis made at every step until the best solution is

    found

  • 7/27/2019 Ch02 Dss Turban At

    46/54

  • 7/27/2019 Ch02 Dss Turban At

    47/54

    47

    Decision Making:The Choice Phase (Phase 3) 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

  • 7/27/2019 Ch02 Dss Turban At

    48/54

    48

    Decision Making:The Implementation Phase (Phase 4)

    Complex: Long, involved process with vagueboundaries.

    Generic implementation issues important in

    dealing with MSS include: Resistance to change

    Degree of support of top management

    User training

  • 7/27/2019 Ch02 Dss Turban At

    49/54

    49

    How Decisions Are Supported

  • 7/27/2019 Ch02 Dss Turban At

    50/54

    50

    How Decisions Are Supported Support for the intelligence phase

    The ability to scan external and internalinformation sources for opportunities andproblems and to interpret what the scanningdiscovers 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

  • 7/27/2019 Ch02 Dss Turban At

    51/54

    51

    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 anES

  • 7/27/2019 Ch02 Dss Turban At

    52/54

    52

    How Decisions Are Supported Support for the choice phase

    DSS can support the choice phase through what-if andgoal-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 theimpacts of decisions in establishing their value, leading toan intelligent choice

    An ES can be used to assess the desirability of certainsolutions and to recommend an appropriate solution

    A GSS can provide support to lead to consensus in agroup

  • 7/27/2019 Ch02 Dss Turban At

    53/54

    53

    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

  • 7/27/2019 Ch02 Dss Turban At

    54/54

    54

    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