Decision Support and

Business Intelligence
Systems
(9th Ed., Prentice Hall)

Chapter 4:
Modeling and Analysis
 Learning Objectives
 Understand the basic concepts of
management support system (MSS)
modeling
 Describe how MSS models interact with

data and the users

 Understand the well-known model

classes and decision making with a few

alternatives
 Describe how spreadsheets can be used

for MSS modeling and solution

 Explain the basic concepts of
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 Modeling and Analysis Topics
 Modeling for MSS (a critical component)
 Static and dynamic models
 Treating certainty, uncertainty, and risk
 Influence diagrams (in the posted PDF file)
 MSS modeling in spreadsheets
 Decision analysis of a few alternatives (with
decision tables and decision trees)
 Optimization via mathematical programming
 Heuristic programming
 Simulation
 Model base management
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 MSS Modeling
 A key element in most MSS
 Leads to reduced cost and increased
revenue
 DuPont Simulates Rail Transportation System
and Avoids Costly Capital Expenses

 Procter & Gamble uses several DSS models

collectively to support strategic decisions

Locating distribution centers, assignment of DCs to
warehouses/customers, forecasting demand,
scheduling production per product type, etc.
 Fiat, Pillowtex (…operational efficiency)
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…
 Major Modeling Issues
 Problem identification and environmental
analysis (information collection)
 Variable identification
 Influence diagrams, cognitive maps
 Forecasting/predicting
 More information leads to better prediction
 Multiple models: A MSS can include
several models, each of which
represents a different part of the
decision-making problem
 Categories of models >>>
 Model management
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 Categories of Models \major types
of models
Category Objective Techniques
Optimization of Find the best solution from Decision tables,
problems with few a small number of decision trees
alternatives alternatives
Optimization via Find the best solution from Linear and other
algorithm a large number of mathematical
alternatives using a step- programming
by-step process models
Optimization via Find the best solution in Some inventory
an analytic formula one step using a formula models

Simulation Find a good enough Several types of

solution by experimenting simulation
with a dynamic model of
the system
Heuristics Find a good enough Heuristic
solution using “common- programming and
sense” rules expert systems

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Predictive and Predict future
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Forecasting, Markov
other models occurrences, what-if chains, financial, …
 Static and Dynamic Models
 Static Analysis
 Single snapshot of the situation
 Single interval
 Steady state
 Dynamic Analysis
 Dynamic models
 Evaluate scenarios that change over time
 Time dependent
 Represents trends and patterns over time
 More realistic: Extends static models

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 Decision Making:
Treating Certainty, Uncertainty and
Risk
 Certainty Models
 Assume complete knowledge
 All potential outcomes are known
 May yield optimal solution
 Uncertainty
 Several outcomes for each decision
 Probability of each outcome is unknown
 Knowledge would lead to less uncertainty
 Risk analysis (probabilistic decision
making)
 Probability of each of several outcomes
occurring
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Copyright
of uncertainty => Risk (expected
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 Certainty, Uncertainty and Risk

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 MSS Modeling with Spreadsheets
 Spreadsheet: most popular end-user modeling
tool
 Flexible and easy to use
 Powerful functions
 Add-in functions and solvers
 Programmability (via macros)
 What-if analysis
 Goal seeking
 Simple database management
 Seamless integration of model and data
 Incorporates both static and dynamic models
 Examples: Microsoft Excel, Lotus 1-2-3
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 Sensitivity, What-if, and
Goal Seeking Analysis
 Sensitivity
 Assesses impact of change in inputs on
outputs
 Eliminates or reduces variables
 Can be automatic or trial and error
 What-if
 Assesses solutions based on changes in
variables or assumptions (scenario analysis)
 Goal seeking
 Backwards approach, starts with goal
 Determines values of inputs needed to

achieve goal
Copyright ©Example is break-even point determination

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 Heuristic Programming
 Cuts the search space
 Gets satisfactory solutions
more quickly and less
expensively
 Finds good enough feasible
solutions to very complex
problems
 Heuristics can be
 Quantitative
 Qualitative (in ES)

 Traveling Salesman Problem

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 When to Use Heuristics
When to Use Heuristics
 Inexact or limited input data
 Complex reality
 Reliable, exact algorithm not available
 Computation time excessive
 For making quick decisions

Limitations of Heuristics
 Cannot guarantee an optimal solution

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 Modern Heuristic Methods
 Tabu search
 Intelligent search algorithm

 Genetic algorithms
 Survival of the fittest

 Simulated annealing
 Analogy to Thermodynamics

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 Simulation
 Technique for conducting experiments
with a computer on a comprehensive
model of the behavior of a system

 Frequently used in DSS tools

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 Major Characteristics of
Simulation
 Imitates reality and capture its richness
 Technique for conducting experiments
 Descriptive, not normative tool
 Often to “solve” very complex problems

!
Simulation is normally used only when
a problem is too complex to be treated
using numerical optimization
techniques

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 Advantages of Simulation
 The theory is fairly straightforward
 Great deal of time compression

 Experiment with different alternatives

 The model reflects manager’s

perspective
 Can handle wide variety of problem

types
 Can include the real complexities of

problems
 Produces important performance

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 Limitations of Simulation
 Cannot guarantee an optimal solution
 Slow and costly construction process
 Cannot transfer solutions and inferences
to solve other problems (problem
specific)
 So easy to explain/sell to managers,
may lead overlooking analytical
solutions
 Software may require special skills

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 Simulation Methodology
 Model real system and conduct repetitive experiments.
 Steps:
1. Define problem 5. Conduct experiments
2. Construct simulation model 6. Evaluate results
3. Test and validate model 7. Implement
solution
4. Design experiments

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 Visual Interactive Modeling (VIM)
/ Visual Interactive Simulation
(VIS)
 Visual interactive modeling (VIM)
Also called
 Visual interactive problem solving
 Visual interactive modeling
 Visual interactive simulation
 Uses computer graphics to present the
impact of different management
decisions
 Often integrated with GIS
 Users perform sensitivity analysis
 Static or a dynamic (animation) systems
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 Model Base Management
 MBMS: capabilities similar to that of
DBMS
 But, there are no comprehensive model
base management packages
 Each organization uses models
somewhat differently
 There are many model classes
 Within each class there are different
solution approaches
 Relations MBMS
 Object-oriented MBMS
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Copyright © 2011 Pearson Education, Inc.

Publishing as Prentice Hall

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