Unit 7: Supporting Decision Making LH 6

• Decision support in business

• Information, decisions, and management
• Information quality
• Decision structure, decision support trends, decision support systems
• Online analytical processing: OLAP examples
• Using decision support systems: what-if analysis, sensitivity
analysis, goal-seeking analysis,
• Optimization analysis, data mining for decision support
• Learning Objectives

• What are the different types of decisions and how does the
decision-making process work?
• How do information systems support the activities of managers
and management decision making?
• How do business intelligence and business analytics support
decision making?
• How do different decision-making constituencies in an
organization use business intelligence?
• What is the role of information systems in helping people
working in a group make decisions more efficiently?

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• What to Sell? What Price to Charge? Ask the Data

• Problem: Chain retailers such as Starbucks, Duane Reade, need

to determine what products will sell at what prices at different
locations

• Solutions: Business analytics software to analyze patterns in

sales data, create pricing profiles and buyer profiles for different
regions, locales, even times of day

• Demonstrates the use of business intelligence and analysis

systems to improve sales and profits

• Illustrates how information systems improve decision making

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• Decision Making and Information Systems

• Business value of improved decision making

– Improving hundreds of thousands of “small” decisions adds up
to large annual value for the business.

• Types of decisions:
– Unstructured: Decision maker must provide judgment,
evaluation, and insight to solve problem
– Structured: Repetitive and routine; involve definite procedure
for handling so they do not have to be treated each time as new
– Semistructured: Only part of problem has clear-cut answer
provided by accepted procedure.

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• Decision Making and Information Systems

• Senior managers:
– Make many unstructured decisions
– E.g. Should we enter a new market?

• Middle managers:
– Make more structured decisions but these may include
unstructured components
– E.g. Why is order fulfillment report showing decline in first
quarter?

• Operational managers, rank and file employees

– Make more structured decisions
– E.g. Does customer meet criteria for credit?

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• Decision Making and Information Systems
INFORMATION REQUIREMENTS OF KEY DECISION-MAKING GROUPS IN A FIRM

FIGURE 12-1 Senior managers, middle managers, operational managers, and employees
have different types of decisions and information requirements.
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• Decision Making and Information Systems

• The 4 stages of the decision making process

1. Intelligence
• Discovering, identifying, and understanding the problems
occurring in the organization
2. Design
• Identifying and exploring solutions to the problem
3. Choice
• Choosing among solution alternatives
4. Implementation
• Making chosen alternative work and continuing to monitor
how well solution is working

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Decision Making and Information Systems

STAGES IN DECISION
MAKING

The decision-making
process is broken down
into four stages.
FIGURE 12-2

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Decision Making and Information Systems

• Information systems can only assist in some of the roles played by

managers
• Classical model of management: 5 functions
– Planning, organizing, coordinating, deciding, and controlling
• More contemporary behavioral models
– Actual behavior of managers appears to be less systematic, more
informal, less reflective, more reactive, and less well organized
than in classical model

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• Decision Making and Information Systems

A) Interpersonal cluster includes:

• 1- Figurehead role, where a manager plays officially the role of a
professional representing his organization in social activities and
events.
• 2- The second role is leadership. This role is related to people‟s
motivation and inspiration. As a leader, a manager must coach,
support, and guide his/her subordinates.
• 3- The last role requested from a manager in the interpersonal
cluster is to be a liaison and to build contacts with all stakeholders.
Managers should oversee networking even beyond their
organization boundary.

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B) Informational cluster includes also very critical roles. Based on
these roles, the manager is supposed to communicate, monitor,
manage, and distribute the information at all levels. Therefore, the
detailed roles in this cluster are the following:
• 4- Monitor: managers should ask for information inside and outside
the workplace. This will help them to evaluate their department from
internal and external viewpoints, discover related problems, and
address them in due time.
• 5- Disseminator: managers must delegate more when it is
appropriate and convey important information especially to their
employees.
• 6- Spokesperson: as a manager one ought to transmit information
outside the workplace taking the role of a brand ambassador.

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C) Decisional part encompasses the following roles:
• 7- Entrepreneur: behaving as an entrepreneur, managers should
encourage change and creativity by leading the implementation of
new ideas.
• 8- Disturbance-handler: managers are responsible for avoiding any
disruptions that can prevent achieving the needed outcomes.
• 9- Resource-allocator: managers need to assign and administer a
variety of financial, technological, and human resources activities.
• 10- Negotiator: surely a manager is responsible to carry out
important negotiations within his department and organization.

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• Decision Making and Information Systems

• Three main reasons why investments in information technology

do not always produce positive results

1. Information quality
• High-quality decisions require high-quality information

2. Management filters
• Managers have selective attention and have variety of biases
that reject information that does not conform to prior
conceptions

3. Organizational inertia and politics

• Strong forces within organizations resist making decisions
calling for major change
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• Decision Making and Information Systems

• High velocity automated decision making

– Made possible through computer algorithms precisely defining
steps for a highly structured decision

– Humans taken out of decision

– E.g. High-speed computer trading programs
• Trades executed in 30 milliseconds
• Responsible for “Flash Crash” of 2010

– Require safeguards to ensure proper operation and regulation

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• Business Intelligence in the Enterprise

• Business intelligence
– Infrastructure for collecting, storing, analyzing data produced by
business
– Databases, data warehouses, data marts.

• Business analytics
– Tools and techniques for analyzing data
– OLAP, statistics, models, data mining.

• Business intelligence vendors

– Create business intelligence and analytics purchased by firms

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• Business Intelligence in the Enterprise

• Six elements in the business intelligence environment

1. Data from the business environment
2. Business intelligence infrastructure
3. Business analytics toolset
4. Managerial users and methods
5. Delivery platform – MIS, DSS, ESS
6. User interface

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• Business Intelligence in the Enterprise
BUSINESS INTELLIGENCE AND ANALYTICS FOR DECISION SUPPORT

FIGURE 12-3 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.

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 • Information, decisions, and management

Information requirements of decision makers. The type of information required by

directors, executives, managers, and members of self-directed teams is directly related to
the level of management decision making involved and the structure of decision situations
they face. 18
• Figure above emphasizes that the type of information required by
decision makers in a company is directly related to the level of
management decision making and the amount of structure in the
decision situations they face.
• It is important to understand that the framework of the classic
managerial pyramid shown in figure above applies even in today‟s
downsized organizations and flattened or nonhierarchical
organizational structures.
• Levels of management decision making still exist, but their size,
shape, and participants continue to change as today‟s fluid
organizational structures evolve.
• Thus, the levels of managerial decision making that must be
supported by information technology in a successful organization
are:

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Strategic Management
• Typically, a board of directors and an executive committee of the
CEO and top executives develop overall organizational goals,
strategies, policies, and objectives as part of a strategic planning
process.
• They also monitor the strategic performance of the organization and
its overall direction in the political, economic, and competitive
business environment.
Tactical Management
• Increasingly, business professionals in self-directed teams as well as
business unit managers develop short and medium-range plans,
schedules, and budgets and specify the policies, procedures, and
business objectives for their subunits of the company.
• They also allocate resources and monitor the performance of their
organizational subunits, including departments, divisions, process
teams, project teams, and other workgroups.

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Operational Management:
The members of self-directed teams or operating managers develop
short-range plans such as weekly production schedules. - They direct
the use of resources and the performance of tasks according to
procedures and within budgets and schedules they establish for the
teams and other workgroups of the organization.

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What characteristics of information products make them valuable and
useful to you?
• To answer this important question, we must first examine the
characteristics or attributes of information quality.
• Information that is outdated, inaccurate, or hard to understand is not
very meaningful, useful, or valuable to you or other business
professionals.
• People need information of high quality, that is, information
products whose characteristics, attributes, or qualities make the
information more valuable to them.
• It is useful to think of information as having the three dimensions of
time, content, and form.

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• Information quality

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24
Decision structure
Types of decisions:
– Unstructured: Decision maker must provide judgment, evaluation,
and insight to solve problem
– Structured: Repetitive and routine; involve definite procedure for
handling so they do not have to be treated each time as new
– Semistructured: Only part of problem has clear-cut answer
provided by accepted procedure.

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Decision support systems:
• Decision makers at the strategic management level may look to
decision support systems to provide them with more summarized,
ad hoc, unscheduled reports, forecasts, and external intelligence to
support their more unstructured planning and policymaking
responsibilities.

• Decision makers at the operational management level, in contrast,

may depend on management information systems to supply more
pre specified internal reports emphasizing detailed current and
historical data comparisons that support their more structured
responsibilities in day-to-day operations.

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Decision Support Systems
An organized collection of people procedures, software, databases and
devices used to help make decisions that solve problems are the
decision support system (DSS). They deal with decision making
effectiveness for unstructured and semi-structured business problems.
Benefits of DSS include:
• Generate higher profits
• Lower costs
• Better products and services
Sometimes these systems are used by all kinds of managers in
government and non profit orgs as well.

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Characteristics of Decision Support System
• Provide rapid access to information: information is received on the
dashboard and the performance of the company can be seen in real-
time. The dashboard show graphical and textual information.
• Handle large amounts of data from different sources: retrieve data
from other databases over the network.
• Provide report and presentation flexibility: get the information in the
format that suits the decision-maker.
• Textual and graphical representation: show text, tables, pie charts,
trend lines or any preferred orientation.
• Support drill-down analysis: getting detailed information about a
situation, e.g. cost of each phase, then activity, then task.
• Perform complex, sophisticated analysis and comparison:
• Support optimization, satisficing and heuristic approaches

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Capabilities of Decision Support System
• Support for problem solving phases: The problem solving phases
include intelligence, design, choice and implementation. It gives
decision maker flexibility in getting computer support for any one or
a few phases.
• Support for different decision frequencies: Decisions can range
from being the continuous once to something happening once in a
while. Ad-hoc DSS handles „one of a kind‟ decisions while
institutional DSS handles repetitive decisions. E.g. computer related
problems occur multiple times, a DSS can monitor the system and
take action to prevent problem.
• Support for different problem structures: DSS supports decision
from highly structured problems to semi structured and unstructured
problems.
• Support for various decision making levels: Provide help to
managers at different levels, which is operational, tactical and
strategic decision making.

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Components of Decision Support System

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The Database
• DBMS allows managers and decision makers to perform qualitative
analysis on the variety of data in the organization. So, a Data-driven
DSS uses the company‟s databases, retrieving info on inventory,
sales, personnel, production, accounts.
• E.g. Data-driven medical DSS allow doctors to have access to
complete patient record.

The Model Base

• A model base allows managers and decision makers to perform
quantitative analysis. Model-driven DSS performs mathematical
analysis by giving decision makers access to variety of models so
that different scenarios can be explored.

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The User Interface
• The user interface allows users to interact with the background DSS.
It is also called dialogue manager or dashboard.

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Decision support trends
• During the 1990s, however, both academic researchers and business
practitioners began to report that the traditional managerial focus
originating in classic management information systems (1960s),
decision support systems (1970s), and executive information
systems (1980s) was expanding.
• The fast pace of new information technologies like PC hardware and
software suites, client/server networks, and networked PC versions
of DSS software made decision support available to lower levels of
management, as well as to non managerial individuals and self-
directed teams of business professionals.
• Decision support in business is changing, driven by rapid
developments in end-user computing and networking; Internet and
Web technologies; and Web-enabled business applications.

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Online analytical processing:
• It supports multidimensional data analysis, so users can use
same data in different ways/dimensions (product, pricing, region,
time period) for better analysis That‟s why they are used with data
warehouses for storing and delivering warehouse information
efficiently.
• It also enables users to obtain online answers to ad-hoc questions.
• It enables managers and analysts to interactively examine and
manipulate large amounts of detailed and consolidated data from
many perspectives.
• OLAP involves analyzing complex relationships among thousands
or even millions of data items stored in data marts, data warehouses,
and other multidimensional databases to discover patterns, trends,
and exception conditions
• OLAP systems are used to answer question such as: how many
washers sold in each of your sales regions and compare actual
results with projected sales?
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 Online analytical processing involves several basic analytical
operations, including consolidation “roll-up ”, “drill-down,” and
“slicing and dicing.”
Consolidation “Roll-Up”:
.
Consolidation involves the
aggregation of data, which can
involve simple roll-ups or
complex groupings involving
interrelated data.

For example, data about BIM

can be rolled up to the
Management faculty, and the
management data can be rolled
up to provide a College
Perpective perspective
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Drill-down. OLAP can also go in the reverse direction and
automatically display detailed data that comprise consolidated data.
This process is called drill-down. For example, the sales by individual
products or sales reps in quarter can be further breakdown to month.

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Slicing and Dicing.
• Slicing and dicing refers to the ability to look at the database from
different viewpoints. One slice of the sales database might show all
sales of a product type within regions. Another slice might show all
sales by sales channel within each product type. Slicing and dicing
is often performed along a time axis to analyze trends and find time-
based patterns in the data.

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Slice
• The slice operation performs a selection on one dimension of the
given cube, resulting in a subcube.
• Reduces the dimensionality of the cubes.
Dice
• The dice operation defines a sub-cube by performing a selection on
two or more dimensions.
• - For example, if we want to make a select where Medal = 3 or
Location = New York

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Pivot is also known as rotate.
It rotates the data axis to view the data from different perspectives.

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Common business areas where OLAP can solve
• Complex problems include
• Marketing and sales analysis
• Clickstream data
• Database marketing
• Budgeting
• Financial reporting and consolidation
• Profitability analysis
• Quality analysis

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OLAP VS Data Mining
Online analytical processing interactively analyzes complex relationships
among large amounts of data stored in multidimensional databases.

Data mining analyzes the vast amounts of historical data that have been
prepared for analysis in data warehouses. Both technologies discover
patterns, trends, and exception conditions in a company‟s data that support
business analysis and decision making.

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Using decision support systems:
A decision support system involves an interactive analytical modeling process.
This differs from the demand responses of management information systems
because decision makers are not demanding pre specified information; rather,
they are exploring possible alternatives.
Thus, they do not have to specify their information needs in advance. - Instead,
they use the DSS to find the information they need to help them make a decision.
This is the essence of the decision support system concept.
Four basic types of analytical modeling activities are involved in using a
decision support system:
• What-if analysis,
• Sensitivity analysis,
• Goal-seeking analysis, and
• Optimization analysis

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43
What-if analysis
User makes changes to variables, or relationships among variables, and
observes the resulting changes in the values of other variables.
For example Change in tax rate will bring change to revenue of country
but it also create changes in person saving.
A managerial user would be able to observe and evaluate any changes
that occurred to the values in the spreadsheet, especially to a variable
such as net profit after taxes.
To many managers, net profit after taxes is an example of the bottom
line, that is, a key factor in making many types of decisions. - This type
of analysis would be repeated until the manager was satisfied with what
the results revealed about the effects of various possible decisions.

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Sensitivity analysis:
• Sensitivity analysis is a special case of what-if analysis.
• Typically, the value of only one variable is changed repeatedly, and
the resulting changes on other variables are observed.
• As such, sensitivity analysis is really a case of what-if analysis that
involves repeated changes to only one variable at a time.
• Typically, decision makers use sensitivity analysis when they are
uncertain about the assumptions made in estimating the value of
certain key variables.
• A typical example might be determining at what point the interest
rate on a loan makes a project no longer feasible. By varying the
interest rate used in a net present value calculation, for example, a
manager can determine the range of acceptable interest rates under
which a project can move forward. Approaching the problem this
way allows the manager to make decisions about a forthcoming
project without knowing the actual cost of the money being
borrowed.

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Goal-seeking analysis.
• Goal-seeking analysis reverses the direction of the analysis done in
what-if and sensitivity analyses.
• Instead of observing how changes in a variable affect other
variables, goal-seeking analysis (also called how-can analysis) sets a
target value (goal) for a variable and then repeatedly changes other
variables until the target value is achieved.
• For example, you could specify a target value (goal) of $2 million in
net profit after taxes for a business venture. Then you could
repeatedly change the value of revenue or expenses in a spreadsheet
model until you achieve a result of $2 million.

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Data mining for decision support.
• The main role of data mining is to provide decision support to managers
and business professionals through a process referred to as knowledge
discovery.
• Data mining software analyzes the vast stores of historical business data
that have been prepared for analysis in corporate data warehouses and tries
to discover patterns, trends, and correlations hidden in the data that can
help a company improve its business performance.
• Data mining software may perform regression, decision tree, neural
network, cluster detection, or market basket analysis for a business.
• The data mining process can highlight buying patterns, reveal customer
tendencies, cut redundant costs, or uncover unseen profitable relationships
and opportunities.
• For example, many companies use data mining to find more profitable
ways to perform successful direct mailings, including e-mailings, or
discover better ways to display products in a store, design a better
ecommerce website, reach untapped profitable customers, or recognize
customers or products that are unprofitable or marginal.

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Optimization analysis
• Optimization analysis is a more complex extension of goal-seeking
analysis.
• Instead of setting a specific target value for a variable, the goal is to
find the optimum value for one or more target variables, given
certain constraints.
• Then one or more other variables are changed repeatedly, subject to
the specified constraints, until you discover the best values for the
target variables.
• For example, you could try to determine the highest possible level of
profits that could be achieved by varying the values for selected
revenue sources and expense categories.
• Changes to such variables could be subject to constraints, such as
the limited capacity of a production process or limits to available
financing.

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• Business Intelligence in the Enterprise

• Business intelligence and analytics capabilities

– Goal is to deliver accurate real-time information to
decision-makers
– Main functionalities of BI systems
1. Production reports
2. Parameterized reports
3. Dashboards/scorecards
4. Ad hoc query/search/report creation
5. Drill down
6. Forecasts, scenarios, models

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• Business Intelligence in the Enterprise

• Business intelligence users

– 80% are casual users relying on production reports
– Senior executives
• Use monitoring functionalities
– Middle managers and analysts
• Ad-hoc analysis
– Operational employees
• Prepackaged reports
• E.g. sales forecasts, customer satisfaction, loyalty and
attrition, supply chain backlog, employee productivity

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• Business Intelligence in the Enterprise
BUSINESS INTELLIGENCE USERS

FIGURE 12-4 Casual users are consumers of BI output, while intense power users are the producers of reports, new
analyses, models, and forecasts.

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• Business Intelligence in the Enterprise

• Examples of BI applications
– Predictive analytics
• Use patterns in data to predict future behavior
• E.g. Credit card companies use predictive analytics to
determine customers at risk for leaving
– Data visualization
• Help users see patterns and relationships that would be
difficult to see in text lists
– Geographic information systems (GIS)
• Ties location-related data to maps

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• Business Intelligence in the Enterprise

• Management strategies for developing BI and BA

capabilities
– Two main strategies
1. One-stop integrated solution
– Hardware firms sell software that run optimally on their
hardware
– Makes firm dependent on single vendor – switching costs
2. Multiple best-of-breed solution
– Greater flexibility and independence
– Potential difficulties in integration
– Must deal with multiple vendors

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• Business Intelligence in the Enterprise

• DATA-DRIVEN SCHOOLS
Read the Interactive Session and discuss the following questions

• Identify and describe the problem discussed in the case.

• How do business intelligence systems provide a solution to
this problem? What are the inputs and outputs of these
systems?
• What management, organization, and technology issues
must be addressed by this solution?
• How successful is this solution? Explain your answer.
• Should all school districts use such a data-driven approach to
education? Why or why not?
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• Business Intelligence Constituencies

• Operational and middle managers

– Monitor day to day business performance
– Make fairly structured decisions
– Use MIS
• “Super user” and business analysts
– Use more sophisticated analysis
– Create customized reports
– Use DSS

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• Business Intelligence Constituencies

• Decision support systems

– Use mathematical or analytical models
– Allow varied types of analysis
• “What-if” analysis
• Sensitivity analysis
• Backward sensitivity analysis
• Multidimensional analysis / OLAP
–E. g. pivot tables

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• Business Intelligence Constituencies
SENSITIVITY ANALYSIS

FIGURE 12-5 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 increases or decreases?”

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 Business Intelligence Constituencies

A PIVOT TABLE THAT

EXAMINES CUSTOMER
REGIONAL
DISTRIBUTION AND
ADVERTISING SOURCE
In this pivot table, we are
able to examine where an
online training company’s
customers come from
in terms of region and
advertising source.

FIGURE 12-6

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• Business Intelligence Constituencies

• Decision-support for senior management

– Help executives focus on important performance
information
– Balanced scorecard method:
• Measures outcomes on four dimensions:
1. Financial
2. Business process
3. Customer
4. Learning & growth
• Key performance indicators (KPIs) measure each
dimension

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 Business Intelligence Constituencies

THE BALANCED
SCORECARD
FRAMEWORK
In the balanced scorecard
framework, the firm’s
strategic objectives are
operationalized along
four dimensions:
financial, business
process, customer, and
learning and growth. Each
dimension is measured
using several KPIs.

FIGURE 12-7

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• Business Intelligence Constituencies

• Decision-support for senior management (cont.)

– Business performance management (BPM)
• Translates firm’s strategies (e.g. differentiation, low-
cost producer, scope of operation) into operational
targets
• KPIs developed to measure progress towards targets
– Data for ESS
• Internal data from enterprise applications
• External data such as financial market databases
• Drill-down capabilities

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• Business Intelligence Constituencies

• PILOTING VALERO WITH REAL-TIME MANAGEMENT

Read the Interactive Session and discuss the following questions

• What management, organization, and technology issues had to be

addressed when developing Valero’s dashboard?
• What measures of performance do the dashboards display? Give
examples of several management decisions that would benefit
from the information provided by Valero’s dashboards.
• What kinds of information systems are required by Valero to
maintain and operate its refining dashboard?
• How effective are Valero’s dashboards in helping management
pilot the company? Explain your answer.
• Should Valero develop a dashboard to measure the many factors
in its environment that it does not control? Why or why not?
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• Business Intelligence Constituencies

• Group Decision Support Systems (GDSS)

– Interactive system to facilitate solution of unstructured
problems by group
– Specialized hardware and software; typically used in
conference rooms
• Overhead projectors, display screens
• Software to collect, rank, edit participant ideas and responses
• May require facilitator and staff
– Enables increasing meeting size and increasing
productivity
– Promotes collaborative atmosphere, guaranteeing
anonymity
– Uses structured methods to organize and evaluate ideas

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