||Jai Shri Gurudev||

Sri Adichunchanagiri Shikshana Trust

SJB INSTITUTE OF TECHNOLOGY

No.67,BGS Health & Education City, Dr. Vishnuvardhan Road, Kengeri, Bangaluru – 560060

An Autonomous Institute under VTU

Approved by AICTE - New Delhi, Accredited by NAAC A+
Department of Artificial Intelligence and Machine Learning

BUSINESS INTELLIGENCE
[23AIE423]
Prepared by
Mr. Hemanthkumar K
Asst. Professor Dept of
AI&ML,SJBIT
 DECISION SUPPORT AND BUSINESS
INTELLIGENCE

Opening Vignette: Magpie Sensing Employs Analytics

to Manage a Vaccine Supply Chain Effectively and
Safely
•Cold chain in healthcare is defined as the temperature-controlled
supply chain involving system of transporting and storing vaccines
and pharmaceutical drugs.
•It consists of three major components—transport and storage
equipment, trained personnel, and efficient management procedures
•The majority of the vaccines in the cold chain are typically
maintained at a temperature of 35–46 degrees Fahrenheit [2–8
degrees Centigrade]. Maintaining cold chain integrity is extremely
important for healthcare product manufacturers.
 CONTINUED

• Especially for the vaccines, improper storage and handling practices

that compromise vaccine viability prove a costly, time-consuming
affair. Vaccines must be stored properly from manufacture until they
are available for use.
• Effectively maintaining the temperatures of storage units throughout
the healthcare supply chain in real time—i.e., beginning from the
gathering of the resources, manufacturing, distribution, and
dispensing of the products—is the most effective solution desired in
the cold chain.
• A study conducted by the Centres for Disease Control and
Prevention (CDC) looked at the handling of cold chain vaccines by
45 healthcare providers around United States and reported that
three-quarters of the providers experienced serious cold chain
violations.
 CONTINUED

A Way Toward a Possible Solution

Magpie Sensing, a start-up project under EbersSmith and
Douglas Associated LLC, provides a suite of cold chain
monitoring and analysis technologies for the healthcare
industry.
It is a shippable, wireless temperature and humidity monitor that
provides real-time, location-aware tracking of cold chain
products during shipment.
Magpie Sensing’s solutions rely on rich analytics algorithms that
leverage the data gathered from the monitoring devices to
improve the efficiency of cold chain processes and predict cold
storage problems before they occur.
 CONTINUED

What We Can Learn from This Vignette

This vignette illustrates how data from a business process can be
used to generate insights at various levels. First, the graphical
analysis of the data (termed reporting analytics) allows users to
get a good feel for the situation.
Then, additional analysis using data mining techniques can be
used to estimate what future behavior would be like. This is
the domain of predictive analytics. Such analysis can then be
taken to create specific recommendations for operators.
This is an example of what we call prescriptive analytics. Finally,
this open ing vignette also suggests that innovative
applications of analytics can create new business ventures.
 CHANGING BUSINESS ENVIRONMENTS AND
COMPUTERIZED DECISION SUPPORT

The Business Pressures–Responses–Support

Model
The Business Pressures–Responses–Support model, as its name
indicates, has three components: business pressures that result
from today’s business climate, responses
 CONTINUED

THE BUSINESS ENVIRONMENT

The environment in which organizations operate today is
becoming more and more complex. This complexity creates
opportunities on the one hand and problems on the other.
Take globalization as an example. Today, you can easily find
suppliers and customers in many countries, which means you
can buy cheaper materials and sell more of your products and
services; great opportunities exist.
 CONTINUED

• Business environment factors can be divided into four major

categories: markets, consumer demands, technology, and
societal. These categories are summarized in Table 1.1.
ORGANIZATIONAL RESPONSES: BE
REACTIVE, ANTICIPATIVE, ADAPTIVE,
AND PROACTIVE
• Both private and public organizations are aware of
today’s business environment and pressures. They use
different actions to counter the pressures. Vodafone New
Zealand Ltd (Krivda, 2008), for example, turned to BI to
improve communication and to support executives in its
effort to retain existing customers and increase revenue
from these customers (see case at the end of this chapter).
Managers may take other actions, including the
following:
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• Employ strategic planning.

• Use new and innovative business models.
• Restructure business processes.
• Participate in business alliances.
• Improve corporate information systems.
• Improve partnership relationships.
• Encourage innovation and creativity.
• Improve customer service and relationships.
• Move to electronic commerce (e-commerce).
• Move to make-to-order production and on-demand manufacturing and
services.
 CONTINUED

• Use new IT to improve communication, data access

(discovery of information), and collaboration.
• Respond quickly to competitors’ actions (e.g., in pricing,
promotions, new products and services).
• Automate many tasks of white-collar employees.
• Automate certain decision processes, especially those
dealing with customers.
• Improve decision making by employing analytics.
 CONTINUED

CLOSING THE STRATEGY GAP

• One of the major objectives of computerized decision support
is to facilitate closing the gap between the current performance
of an organization and its desired performance, as expressed in
its mission, objectives, and goals, and the strategy to achieve
them.
• In order to understand why computerized support is needed
and how it is provided, especially for decision-making support,
let’s look at managerial decision making.
 MANAGERIAL DECISION MAKING

• Management is a process by which organizational goals

are achieved by using resources.
• The resources are considered inputs, and attainment of
goals is viewed as the output of the process. The degree
of success of the organization and the manager is often
measured by the ratio of outputs to inputs.
• The level of productivity or the success of management
depends on the performance of managerial functions,
such as planning, organizing, directing, and controlling.
• Making a decision means selecting the best alternative
from two or more solutions.
 The Nature of Managers’ Work

• Mintzberg’s (2008) classic study of top managers and several

replicated studies suggest that managers perform 10 major
roles that can be classified into three major categories:
interpersonal, informational, and decisional (see Table 1.2).
• To perform these roles, managers need information that is
delivered efficiently and in a timely manner to personal
computers (PCs) on their desktops and to mobile devices.
• This information is delivered by networks, generally via Web
technologies.
• In addition to obtaining information necessary to better
perform their roles, managers use computers directly to
support and improve decision making, which is a key task that
is part of most of these roles.
 CONTINUED

• Many managerial activities in all roles revolve around decision

making. Managers, especially those at high managerial levels,
are primarily decision makers.
 The Decision-Making Process

• Define the problem (i.e., a decision situation that may deal

with some difficulty or with an opportunity).
• Construct a model that describes the real-world problem.
• Identify possible solutions to the modeled problem and
evaluate the solutions.
• Compare, choose, and recommend a potential solution to the
problem.
 COMPUTERIZED SUPPORT FOR DECISION
MAKING
Today’s computerized systems possess capabilities that can facilitate decision
support in a number of ways, including the following

• Speedy computations. A computer enables the decision maker to

perform many computations quickly and at a low cost. Timely
decisions are critical in many situations, ranging from a physician in
an emergency room to a stock trader on the trading floor. With a
computer, thousands of alternatives can be evaluated in seconds.
Furthermore, the benefits-to-cost ratio of computers and the speed of
executions are constantly increasing.
• Improved communication and collaboration. Many decisions are
made today by groups whose members may be in different locations.
Groups can collaborate and communicate readily by using Web-
based tools. Collaboration is especially important along the supply
chain, where partners—all the way from vendors to customers—
must share information.
 CONTINUED

• Increased productivity of group members. Assembling a

group of decision makers, especially experts, in one place can
be costly. Computerized support can improve the collaboration
process of a group and enable its members to be at different
locations (saving travel costs). In addition, computerized
support can increase the productivity of staff support (e.g.,
financial and legal analysts). Decision makers can also increase
their productivity by using software optimization tools that help
determine the best way to run a business
 CONTINUED

• Managing giant data warehouses. Large data warehouses, like the one
operated by Wal-Mart, contain terabytes and even petabytes of data.
Computers can provide extremely great storage capability for any type of
digital information, and this information can be accessed and searched very
rapidly. Special methods, including parallel computing, are available to
organize, search, and mine the data. The costs related to data warehousing
are declining.
• Improved data management. Many decisions involve complex
computations. Data for these can be stored in different databases anywhere
in the organization and even possibly at Web sites outside the organization.
The data may include text, sound, graphics, and video, and they can be in
foreign languages. It may be necessary to transmit data quickly from distant
locations. Computers can search, store, and transmit needed data quickly,
economically, securely, and transparently.
 CONTINUED

• Quality support. Computers can improve the quality of decisions

made. For example, more data can be accessed, more alternatives
can be evaluated, forecasts can be improved, risk analysis can be
performed quickly, and the views of experts (some of whom are in
remote locations) can be collected quickly and at a reduced cost.
Expertise can even be derived directly from a computer system using
artificial intelligence methods With computers, decision makers can
perform complex simulations, check many possible scenarios, and
assess diverse impacts quickly and economically.
• Agility support. Competition today is based not just on price but
also on quality, timeliness, customization of products, and customer
support. In addition, organizations must be able to frequently and
rapidly change their mode of operation, reengineer processes and
structures, empower employees, and innovate in order to adapt to
their changing environments. Decision support technologies such as
intelligent systems can empower people by allowing them to make
good decisions quickly, even if they lack some knowledge.
 CONTINUED

• Overcoming cognitive limits in processing and storing information.

According to Simon (1977), the human mind has only a limited ability
to process and store information. People sometimes find it difficult to
recall and use information in an error-free fashion due to their cognitive
limits. The term cognitive limits indicates that an individual’s problem-
solving capability is limited when a wide range of diverse information
and knowledge is required.
• Using the Web. Since the development of the Internet and Web servers
and tools, there have been dramatic changes in how decision makers are
supported. Most important, the Web provides (1) access to a vast body
of data, information, and knowledge available around the world; (2) a
common, user-friendly graphical user interface (GUI) that is easy to
learn to use and readily available; (3) the ability to effectively
collaborate with remote partners; and (4) the availability of intelligent
search tools that enable managers to find the information they need
quickly and inexpensively.
 CONTINUED

• Anywhere, anytime support. Using wireless technology,

managers can access information anytime and from anyplace,
analyze and interpret it, and communicate with those
involved.
 AN EARLY FRAMEWORK FOR COMPUTERIZED
DECISION SUPPORT

DEGREE OF STRUCTUREDNESS
The left side of Figure 1.2 is based on Simon’s (1977) idea that
decision-making processes fall along a continuum that ranges from
highly structured (sometimes called programmed) to highly
unstructured (i.e., non programmed)decisions. Structured processes
are routine and typically repetitive problems for which standard
solution methods exist. Unstructured processes are fuzzy, complex
problems for which there are no cut-and-dried solution methods.
Simon also described the decision making process with a three-
phase process of intelligence, design, and choice. Later, a fourth
phase was added: implementation (see Chapter 2). The four phases
are defined as follows:
 CONTINUED

• Intelligence. This phase involves searching for conditions that call for
decisions.
• Design. This phase involves inventing, developing, and analysing possible
alternative courses of action (solutions).
• Choice. This phase involves selecting a course of action from among those
available.
• Implementation. This phase involves adapting the selected course of action
to the decision situation (i.e., problem solving or opportunity exploiting).
 CONTINUED

The relationships among the four phases are shown in Figure 1.3.
• An unstructured problem is one in which none of the four phases
described in Figure 1.3 is structured.
• In a structured problem, all phases are structured. The procedures
for obtaining the best (or at least a good enough) solution are
known. Whether the problem involves finding an appropriate
inventory level or choosing an optimal investment strategy, the
objectives are clearly defined. Common objectives are cost
minimization and profit maximization.
• Semi Structured problems fall between structured and
unstructured problems, having some structured elements and some
unstructured elements. Keen and Scott-Morton (1978) mentioned
trading bonds, setting marketing budgets for consumer products, and
performing capital acquisition analysis as semi structured problems.
CONTINUED
 CONTINUED

• TYPES OF CONTROL The second half of the Gorry and Scott-

Morton framework (refer to Figure 1.2) is based on Anthony’s
(1965) taxonomy, which defines three broad categories that
encompass all managerial activities: strategic planning, which
involves defining long range goals and policies for resource
allocation; management control, the acquisition and efficient use of
resources in the accomplishment of organizational goals; and
operational control, the efficient and effective execution of specific
tasks.
 MANAGEMENT SCIENCE

The management science (MS) approach (also called the operations research
[OR] approach) says that in solving problems managers should follow the
four-step systematic process described in Section1.3. Therefore, it is
possible to use a scientific approach to automating portions of managerial
decision making.
The MS process adds a new step 2 to the process described in Section 1.3 so
that the steps are as follows:
• Define the problem (i.e., a decision situation that may deal with some
difficulty or with an opportunity).
• Classify the problem into a standard category.
• Construct a model that describes the real-world problem.
 CONTINUED

• Identify possible solutions to the modelled problem and evaluate the

solutions.
• Compare, choose, and recommend a potential solution to the problem.
 AUTOMATED DECISION MAKING

A relatively new approach to supporting decision making is called

automated decision systems (ADS), sometimes also known as
decision automation systems (DAS; see Davenport and Harris,
2005). An ADS is a rule-based system that provides a solution,
usually in one functional area (e.g., finance, manufacturing), to a
specific repetitive managerial problem, usually in one industry (e.g.,
to approve or not to approve a request for a loan, to determine the
price of an item in a store).
CONTINUED
 CONTINUED

• ADS initially appeared in the airline industry, where they were called
revenue (or yield) management (or revenue optimization) systems.
• Airlines use these systems to dynamically price tickets based on actual
demand.
• Today, many service industries use similar pricing models. In contrast with
management science approaches, which provide a model-based solution to
generic structured problems (e.g., resource allocation, inventory level
determination), ADS provide rule-based solutions.
• The following are examples of business rules: “If only 70% of the seats on
a flight from Los Angeles to New York are sold 3 days prior to departure,
offer a discount of x to non-business travellers,” “If an applicant owns a
house and makes over $100,000 a year, offer a $10,000 credit line,” and “If
an item costs more than $2,000, and if your company buys it only once a
year, the purchasing agent does not need special approval.”
 CONTINUED

• Such rules, which are based on experience or derived through data mining,
can be combined with mathematical models to form solutions that can be
automatically and instantly applied to problems (e.g., “Basedon the
information provided and subject to verification, you will be admitted to
our university”), or they can be provided to a human, who will make the
final decision (see Figure 1.4).
 CONCEPT OF DECISION SUPPORT SYSTEMS

Classical Definitions of DSS

• Interactive computer-based systems, which help decision makers utilize
data and models to solve unstructured problems" - Gorry and Scott-
Morton, 1971

• Decision support systems couple the intellectual resources of individuals

with the capabilities of the computer to improve the quality of decisions. It
is a computer-based support system for management decision makers who
deal with semistructured problems - Keen and Scott-Morton,
1978
 DSS AS AN UMBRELLA TERM

• The term DSS can be used as an umbrella term to describe any

computerized system that supports decision making in an organization
– E.g., an organization wide knowledge management system; a
decision support system specific to an organizational function
(marketing, finance, accounting, manufacturing, planning, SCM,
etc.)
 CONTINUED

• In a narrow sense DSS refers to a process for building customized

applications for unstructured or semi-structured problems
• Components of the DSS Architecture
– Data, Model, Knowledge/Intelligence, User, Interface (API and/or user
interface)
– DSS often is created by putting together loosely coupled instances of
these components
HIGH-LEVEL ARCHITECTURE OF A DSS
The Evolution of BI Capabilities
 The Architecture of BI

• A BI system has four major components

– a data warehouse, with its source data
– business analytics, a collection of tools for manipulating, mining, and
analyzing the data in the data warehouse;
– business performance management (BPM) for monitoring and
analyzing performance
– a user interface (e.g., dashboard)
A HIGH-LEVEL ARCHITECTURE OF BI
COMPONENTS IN A BI ARCHITECTURE

• The data warehouse is a large repository of well-organized historical

data
• Business analytics are the tools that allow transformation of data into
information and knowledge
• Business performance management (BPM) allows monitoring,
measuring, and comparing key performance indicators
• User interface (e.g., dashboards) allows access and easy manipulation of
other BI components
 STYLES OF BI

• MicroStrategy, Corp. distinguishes five styles of BI and offers tools for

each
1. report delivery and alerting
2. enterprise reporting (using dashboards and scorecards)
3. cube analysis (also known as slice-and-dice analysis)
4. ad-hoc queries
5. statistics and data mining
 The Benefits of BI
• The ability to provide accurate information when needed, including a
real-time view of the corporate performance and its parts
• A survey by Thompson (2004)
– Faster, more accurate reporting (81%)
– Improved decision making (78%)
– Improved customer service (56%)
– Increased revenue (49%)
• See Table 1.3 for a list of BI analytic applications, the business
questions they answer and the business value they bring
 The DSS–BI Connection

• First, their architectures are very similar because BI evolved from DSS
• Second, DSS directly support specific decision making, while BI provides
accurate and timely information, and indirectly support decision making
• Third, BI has an executive and strategy orientation, especially in its BPM
and dashboard components, while DSS, in contrast, is oriented toward
analysts.
 The DSS–BI Connection – cont.

• Fourth, most BI systems are constructed with commercially available

tools and components, while DSS is often built from scratch
• Fifth, DSS methodologies and even some tools were developed mostly
in the academic world, while BI methodologies and tools were
developed mostly by software companies
• Sixth, many of the tools that BI uses are also considered DSS tools (e.g.,
data mining and predictive analysis are core tools in both)
 The DSS–BI Connection – cont.

• Although some people equate DSS with BI, these systems are not, at
present, the same
– some people believe that DSS is a part of BI—one of its analytical
tools
– others think that BI is a special case of DSS that deals mostly with
reporting, communication, and collaboration (a form of data-oriented
DSS)
– BI is a result of a continuous revolution and, as such, DSS is one of
BI's original elements
– In this book, we separate DSS from BI
• MSS = BI and/or DSS
 A Work System View of Decision Support (Alter,
2004)

• Drop the word “systems” from DSS

• focus on “decision support”
“use of any plausible computerized or noncomputerized means for
improving decision making in a particular repetitive or nonrepetitive
business situation in a particular organization”

• Work system: a system in which human participants and/or machines

perform a business process, using information, technology, and other
resources, to produce products and/or services for internal or external
customers
 Elements of a Work System

1. Business process. Variations in the process rationale, sequence of steps, or

methods used for performing particular steps
2. Participants. Better training, better skills, higher levels of commitment, or
better real-time or delayed feedback
3. Information. Better information quality, information availability, or
information presentation
4. Technology. Better data storage and retrieval, models, algorithms,
statistical or graphical capabilities, or computer interaction
-->
 Elements of a Work System – cont.

5. Product and services. Better ways to evaluate potential decisions

6. Customers. Better ways to involve customers in the decision process and
to obtain greater clarity about their needs
7. Infrastructure. More effective use of shared infrastructure, which might
lead to improvements
8. Environment. Better methods for incorporating concerns from the
surrounding environment
9. Strategy. A fundamentally different operational strategy for the work
system
 Major Tool Categories for MSS
TOOL CATEGORY TOOLS AND THEIR ACRONYMS
Data management Databases and database management system (DBMS)
Extraction, transformation, and load (ETL) systems
Data warehouses (DW), real-time DW, and data marts
Reporting status tracking Online analytical processing (OLAP)
Executive information systems (EIS)
Visualization Geographical information systems (GIS)
Dashboards, Information portals
Multidimensional presentations
Business analytics Optimization, Web analytics
Data mining, Web mining, and text mining
Strategy and performance Business performance management (BPM)/
management Corporate performance management (CPM)
Business activity management (BAM)
Dashboards and Scorecards
Communication and Group decision support systems (GDSS)
collaboration Group support systems (GSS)
Collaborative information portals and systems
Social networking Web 2.0, Expert locating systems
Knowledge management Knowledge management systems (KMS)
Intelligent systems Expert systems (ES)
Artificial neural networks (ANN)
Fuzzy logic, Genetic algorithms, Intelligent agents
Enterprise systems Enterprise resource planning (ERP),
Customer Relationship Management (CRM), and
Supply-Chain Management (SCM)
Source: Table 1.4
 Hybrid (Integrated) Support Systems

• The objective of computerized decision support, regardless of its name

or nature, is to assist management in solving managerial or
organizational problems (and assess opportunities and strategies) faster
and better than possible without computers
• Every type of tool has certain capabilities and limitations. By integrating
several tools, we can improve decision support because one tool can
provide advantages where another is weak

• The trend is therefore towards developing

hybrid (integrated) support system
 Hybrid (Integrated) Support Systems

• Type of integration
– Use each tool independently to solve different aspects of the problem
– Use several loosely integrated tools. This mainly involves
transferring data from one tool to another for further processing
– Use several tightly integrated tools. From the user's standpoint, the
tool appears as a unified system
• In addition to performing different tasks in the problem-solving process,
tools can support each other