Decision Support and

Business Intelligence
Systems

Chapter 1:
Decision Support Systems
and Business Intelligence
 Learning Objectives
 Understand today's turbulent business
environment and describe how
organizations survive and even excel in
such an environment (solving problems
and exploiting opportunities)
 Understand the need for computerized

support of managerial decision making

 Understand an early framework for

managerial decision making

 Learn the conceptual foundations of the

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decision support systems (DSS)
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 Learning Objectives – cont.
 Describe the business intelligence (BI)
methodology and concepts and relate
them to DSS
 Describe the concept of work systems
and its relationship to decision support
 List the major tools of computerized
decision support
 Understand the major issues in
implementing computerized support
systems
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 Changing Business Environment
 Companies are moving
aggressively to computerized
support of their operations =>
Business Intelligence
 Business Pressures–Responses–
Support Model
 Business pressures result of today's
competitive business climate
 Responses to counter the pressures

 Support to better facilitate the

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process
 Business Pressures–Responses–
Support Model

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 The Business Environment
 The environment in which
organizations operate today is
becoming more and more
complex, creating:
 opportunities, and
 problems
 Example: globalization
 Business environment factors:
 markets, consumer demands,
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technology, and societal…
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 Business Environment Factors
FACTOR DESCRIPTION
Markets Strong competition
Expanding global markets
Blooming electronic markets on the Internet
Innovative marketing methods
Opportunities for outsourcing with IT support
Need for real-time, on-demand transactions
Consumer Desire for customization
demand Desire for quality, diversity of products, and speed of delivery
Customers getting powerful and less loyal
Technology More innovations, new products, and new services
Increasing obsolescence rate
Increasing information overload
Social networking, Web 2.0 and beyond
Societal Growing government regulations and deregulation
Workforce more diversified, older, and composed of more women
Prime concerns of homeland security and terrorist attacks
Necessity of Sarbanes-Oxley Act and other reporting-related
legislation Increasing social responsibility of companies
Greater emphasis on sustainability
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 Organizational Responses
Major response
 Organizational responses should be
Reactive, Anticipative, Adaptive, and
Proactive
 Managers may take actions, such as

 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 …

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2011 Pearson Education, Inc. Publishing as Prentice Hall
 Managers actions, continued
 Improve customer service and relationships
 Move to electronic commerce (e-commerce)

 Move to make-to-order production and on-

demand manufacturing and services

 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
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Copyright
certain decision processes
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 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

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 Managerial Decision Making
 Management is a process by which
organizational goals are achieved
by using resources
 Inputs: resources
 Output: attainment of goals
 Measure of success: outputs / inputs
 Management  Decision Making
 Decision making: selecting the best
solution from two or more
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 Mintzberg's 10 Managerial Roles

Interpersonal
1. Figurehead
2. Leader Decisional
3. Liaison 7. Entrepreneur
8. Disturbance handler
Informational 9. Resource allocator
4. Monitor 10. Negotiator
5. Disseminator
6. Spokesperson

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 Decision Making Process
 Managers usually make decisions
by following a four-step process
(a.k.a. the scientific approach)
1. Define the problem (or opportunity)
2. Construct a model that describes the
real-world problem
3. Identify possible solutions to the
modeled problem and evaluate the
solutions
4. Compare, choose, and recommend a
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Copyright © 2011 Pearson Education, solution to the
Inc. Publishing as Prentice Hall problem
 Decision making is difficult,
because
 Technology, information systems, advanced
search engines, and globalization result in more
and more alternatives from which to choose
 Government regulations and the need for
compliance, political instability and terrorism,
competition, and changing consumer demands
produce more uncertainty, making it more
difficult to predict consequences and the future
 Other factors are the need to make rapid
decisions, the frequent and unpredictable
changes that make trial-and-error learning
difficult, and the potential costs of making
mistakes
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 Why Use Computerized DSS
 Computerized DSS can facilitate
decision via:
 Speedy computations
 Improved communication and

collaboration
 Increased productivity of group

members
 Improved data management

 Overcoming cognitive limits

 Quality support; agility support

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 Using Web; anywhere, anytime
 Simon’s Decision-Making Process
Four phases

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 Computer Support for Structured
Decisions
 Structured problems: encountered
repeatedly, have a high level of
structure
 It is possible to abstract, analyze,
and classify them into specific
categories
 e.g., make-or-buy decisions, capital
budgeting, resource allocation,
distribution, procurement, and
inventory control
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 For each category a solution
 Management Science Approach
 Also referred to as Operation
Research
 In solving problems, managers
should follow the five-step MS
approach
1. Define the problem
2. Classify the problem into a standard category
(*)
3. Construct a model that describes the real-world
problem
4. Identify possible solutions to the modeled
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problem and evaluate the solutions
 Automated Decision Making
 A relatively new approach to
supporting decision making
 Applies to highly structures
decisions
 Automated decision systems (ADS)
(or decision automation systems)
 An ADS is a rule-based system that
provides a solution to a repetitive
managerial problem in a specific
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 Automated Decision Making
 ADS initially appeared in the airline
industry called revenue (or yield)
management (or revenue
optimization) systems
 dynamically price tickets based on
actual demand
 Today, many service industries use
similar pricing models
 ADS are driven by business rules!
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 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
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Copyright - Keen
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 High-Level Architecture of a DSS

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 Types of DSS
 Two major types:
 Model-oriented DSS
 Data-oriented DSS

 Evolution of DSS into Business

Intelligence
 Use of DSS moved from specialist to
managers, and then whomever, whenever,
wherever
 Enabling tools like OLAP, data warehousing,

data mining, intelligent systems, delivered

via Web technology have collectively led to
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the term “business intelligence” (BI) and
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 Business Intelligence (BI)
 BI is an umbrella term that combines
architectures, tools, databases,
analytical tools, applications, and
methodologies
 Like DSS, BI a content-free expression,

so it means different things to different

people
 BI's major objective is to enable easy

access to data (and models) to provide

business managers with the ability to
conduct analysis
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 BI helps transform data, to information
 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

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components
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 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
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answer and the business value they bring
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 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
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 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

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mining and predictive analysis are core