Chapter 10

Supporting Decision
Making

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives
 Identify the changes taking place in the form
and use of decision support in business.
 Identify the role and reporting alternatives of
management information systems.
 Describe how online analytical processing can
meet key information needs of managers.
 Explain the decision support system concept
and how it differs from traditional
management information systems.

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Learning Objectives
 Explain how the following information systems
can support the information needs of
executives, managers, and business
professionals:
 Executive information systems
 Enterprise information portals
 Knowledge management systems

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Learning Objectives
 Identify how neural networks, fuzzy logic,
genetic algorithms, virtual reality, and
intelligent agents can be used in business.
 Give examples of several ways expert systems
can be used in business decision-making
situations.

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 Section 1
Supporting Decision Making

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I. Introduction
 An organization is a nexus of decisions with information
needs supplied by an Information System
 Information, Decisions, and Management – the type of
information required by decision makers is directly related
to the level of management decision making and the
amount of structure in the decision situation
 Strategic Management – executive level, long-range plans,
organizational goals and policies, and objectives
 Tactical Management – mid-level management, medium- and
short-range plans to support objectives made by executives, and
allocation of resources and performance monitoring of
organizational subunits
 Operational Management – short-range plans, day-to-day
operations, direct the use of resources and performance of tasks

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I. Introduction
 Information Quality – characteristics of information
products
 Timeliness – was information present when needed?
 Accuracy – was the information correct & error free?
 Completeness – was all the needed information there?
 Relevance – was the information related to the situation?
 Decision Structure
 Structured – operational level, occur frequently, much
information available
 Semistructured – managerial level (most business decisions
are here), not as frequent, less information available
 Unstructured – executive level, infrequent, little information
available

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I. Introduction

Information Requirements of Decision Makers

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I. Introduction

Dimensions
of
Information

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II. Decision Support Trends
Using IS to support business decision
making is increasing
Business Intelligence (BI) – improving
business decision making using fact-
based support systems
Business Analytics (BA) – iterative
exploration of a firm’s historical
performance to improve the strategic
planning process

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 Hyatt Hotels: Dashboards Integrate
Financial and Operational Information

 What did Hyatt want that was different from

traditional dashboards?
 What made this necessary?
 What tool did they adopt to do this?
 What benefits does it provide?

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III. Decision Support Systems
• IS providing interactive support to
managers during the decision-making
process
• DSS Components – DSS relies on model-
bases as well as databases

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 United Agri Products: Making Better
Decisions Using Models and Data

 What BI tools was UAP unhappy with? Why?

 What tools did the new system supply and
why were they better than the old ones?
 What benefits did they bring to UAP?

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IV. Management Information Systems
 Supports day-to-day managerial decision making
 Management Reporting Alternatives – MIS
reports:
 Periodic Scheduled Reports – supplied on a regular
basis
 Exception Reports – created only when something
out of the ordinary happens
 Demand Reports and Responses- available when
requested
 Push Reporting – reports sent without being
requested

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V. Online Analytical Processing
 Enables examination/manipulation of large amounts of
detailed and consolidated data from many perspectives
 Consolidation aggregation of data
 Drill-Down – displaying details that comprise the consolidated data
 Slicing and Dicing – looking at a database from different viewpoints
 OLAP Examples – the real power of OLAP is the combining of data
and models on a large scale, allowing solution of complex problems
 Geographic Information (GIS) and Data Visualization (DVS) Systems
 GIS – facilitate use of data associated with a geophysical location
 DVS – represent complex data using interactive 3-dimensional models, assist
in discovery of patterns, links and anomalies

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 Direct Energy: Mining BI to Keep Its
Customers

 What was the problem with the old business

intelligence at Direct Energy?
 What BI technique did they use for the new
system?
 What benefits did Direct Energy obtain from
it?

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 JPMorgan and Panopticon: Data
Visualization Helps Fixed income Traders

 What does Panopticon provide for JPMorgan?

 What does this provide for JPMorgan’s
customers?
 How does the software present the data to the
customers?
 How does this help a business?

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VI. Using Decision Support Systems
• Involves interactive analytical modeling for exploring
possible alternatives
• What-If Analysis – change variables and relationships
among variables to see changing outcomes
• Sensitivity Analysis – special case of what-if; change
one variable at a time to see the effect on a pre-
specified value
• Goal-Seeking Analysis – reverse of what-if; changing
variables to reach a target goal of a variable
• Optimization Analysis – complex goal-seeking; finding
the optimal value for a target variable

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 Casual Male Retail Group: On-Demand
Business Intelligence

 What type of system was Casual Male using?

 What were its weaknesses?
 How did they solve this problem?
 What business tools does this system provide?

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VI. Using Decision Support Systems
 Data Mining for Decision Support – providing
decision support through knowledge discovery
(analyze data for patterns and trends)
 Market Basket Analysis (MBA) – one of the most
common and useful types of data mining; MBA
applications:
 Cross-Selling – offer associated items to that being purchased
 Product Placement – related items physically near each other
 Affinity Promotion – promotions based on related products
 Survey Analysis – useful to analyze questionnaire data
 Fraud Detection – detect behavior associated with fraud
 Customer Behavior – associate purchases with demographic and
socioeconomic data

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 Warner Home Video: Predicting Harry
Potter DVD Sales

 What does Warner use to help in sales

forecasting?
 What does this help them do?
 What are the first steps and what do they do
with that information?
 What does this better data enable them to do?

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VII. Executive Information Systems (EIS)
a.k.a. Executive Support Systems (ESS)

Popular to the point of being called

“Everyone’s Information Systems”
Features of an EIS – can be tailored to
preferences of the executive, provides drill-
down capabilities and “dashboards”

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 PureSense and Farming: Watering Plans
Based on Minute-by-Minute Data

 Although the farmer was receiving more

information than ever before, he wanted …. ?
 Why would a dashboard be important? Or
helpful?
 Even with the experience ot analyze all the
data, many of the decisions are … ? Why?

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VIII. Enterprise Portals and Decision
Support

Enterprise Information Portals (EIP) –

Web-based interface with integration of
MIS, DSS, EIS, etc., to give
intranet/extranet users access to a
variety of applications and services

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IX. Knowledge Management Systems

Use of IT to gather, organize, and share

knowledge within an organization
Enterprise Knowledge Portal – entry to
knowledge management systems

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 Mitre and 3M: Two Takes on Knowledge
Management

 What is the organizational culture that should

be fostered to support knowledge
management?
 How does social networking support this
culture?
 How can this culture help a business?

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 Section 2
Advanced Technologies for Decision Support

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I. Business and AI

 A variety of ways to support decision making

and improve competitive advantage

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II. An Overview of Artificial Intelligence (AI)

 Goal of AI is to simulate the ability to think –

reasoning, learning, problem solving
 Turing Test – if a human communicates with a
computer and does not know it is a computer,
the computer is exhibiting artificial intelligence
 CAPTCHA (Completely Automated Public
Turing Test) – a test to tell people from
computers – a distorted graphic with
letters/numbers; a human can see the
letters/numbers a computer cannot

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II. An Overview of Artificial Intelligence (AI)

 Domains of Artificial Intelligence

 Cognitive Science – how humans think and learn
 Robotics – machines with intelligence and human-like
physical capabilities
 Natural Interfaces – speaking to a computer in a normal voice

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II. An Overview of Artificial Intelligence (AI)
Applications of Artificial Intelligence

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 Artificial Intelligence Gets Down to
Business

What sort of things do AI applications

do?
What is at the heart of AI applications?
What benefits can businesses obtain
from AI?

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III. Expert Systems

 Components of an Expert System

 Knowledge Base – contains facts and the heuristics (rules) to
express the reasoning procedures the expert uses
 Software Resources –
Inference Engine – the program that processes the
knowledge (rules and facts)
Interface – the way the user communicates with the
system

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III. Expert Systems
 Expert System Applications
Decision Management – consider alternatives,
recommendations
Diagnostics/Troubleshooting – infer causes from symptoms
Design/Configuration – help configure equipment components
Selection/Classification – help users choose
products/processes
Process Monitoring/Control – monitor/control
procedures/processes
 Benefits of Expert Systems – captures expertise of a
specialist in a limited problem domain
 Limitations of Expert Systems – limited focus, inability
to learn, cost

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 Healthways: Applying Expert Systems to
Health Care

What is the key to successful disease

management?
How does Healthways generally improve
its members’ health outcomes?
What is Healthways’ goal?
How is Healthways using technology to
meet this goal?

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IV. Developing Expert Systems
Easiest is an expert system shell – an
experts systems without the knowledge
base
Knowledge Engineering – a knowledge
engineer (similar to a systems analyst) is the
specialist who works with the expert to
build the system
V. Neural Networks
Computing systems modeled after the
brain
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BioPassword: Neural Networks Applied to
Authentication

What are the basic tradeoffs when

dealing with security?
What are the three basic approaches to
providing security?
What is the new approach from
BioPassword?
What are the advantages of this
method?
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VI. Fuzzy Logic Systems
Reasoning with incomplete or
ambiguous data
Fuzzy Logic in Business – rare in the U.S.
(preferring expert systems), but popular in
Japan

VII. Genetic Algorithms

Simulates evolutionary processes that
yield increasingly better solutions

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 United Distillers: Moving Casks Around
with Genetic Algorithms

What is the forgotten side of the

business at United Distillers?
What technology did they use to remedy
this?
What are the results of using this
technology?

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VIII. Virtual Reality (VR)
Computer-simulated reality
VR Applications – CAD, medical
diagnostics, flight simulation,
entertainment

IX. Intelligent Agents

Use built-in and learned knowledge to
make decisions and accomplish tasks
that fulfill the intentions of the user

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Real Students Practice on Virtual Surgeries

What does this virtual software allow

medical students to do?
What may be the location of their
instructors?
Why is this important?
What benefits would this software offer?

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 Security Uses of Intelligent Software
Agents

How did the Army use intelligent

agents?
What are intelligent agents good at
doing?
How much effort did intelligent agents
save the Army?

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