CHAPTER 6

SUPPORTING
DECISION MAKING
1
PROBLEM-SOLVING AND DECISION
MAKING REVIEW
 Problem solving consists of response to things going well and also to
things going badly.
 Problem is a condition or event that is harmful or potentially harmful to a
firm or that is beneficial or potentially beneficial.
 Decision making is the act of selecting from alternative problem
solutions.
 Decision is a selected course of action.

2
THE IMPORTANCE OF A SYSTEMS VIEW
 Systems view which regards business operations as systems
embedded within a larger environmental setting; abstract way
of thinking; potential value to the manager.
 Prevents the manager from getting lost in the complexity of
the organizational structure and details of the job.
 Recognizes the necessity of having good objectives.
 Emphasizes the importance of all of the parts of the
organization working together.
 Acknowledges the interconnections of the organization with
its environment.
 Places a high value on feedback information that can only be
achieved by means of a closed-loop system.

3
ELEMENTS OF A PROBLEM-
SOLVING

PHASE
Elements of a problem-solving phase.
 Desired state–what the system should achieve.
 Current state–what the system is now achieving.
 Solution criterion–difference between the current
state and the desired state.
 Constraints.
 Internal take the form of limited resources that exist
within the firm.
 Environmental take the form of pressures from various
environmental elements that restrict the flow of
resources into and out of the firm.
 When all of these elements exist and the manager
understands them, a solution to the problem is possible!
4
FIGURE 11.1 ELEMENTS OF THE
PROBLEM-SOLVING PROCESS

5
PROBLEM VS. SYMPTOMS
 Symptom is a condition produced by the
problem.
 Structured problem consists of elements and
relationships between elements, all of which are
understood by the problem solver.
 Unstructured problem is one that contains no
elements or relationships between elements that
are understood by the problem solver.
 Semistructured problem is one that contains
some elements or relationships that are
understood by the problem solver and some that
are not. 6
A DSS MODEL
 Originally the DSS was conceived to produce periodic and
special reports (responses to database queries), and outputs
from mathematical models.
 An ability was added to permit problem solvers to work in
groups.
 The addition of groupware enabled the system to function as a
group decision support system (GDSS).
 More recently, artificial intelligence (AI) capability has been
added, along with an ability to engage in on-line analytical
programming (OLAP).

7
FIGURE 11.3 A DSS MODEL THAT
INCORPORATES GROUP DECISION SUPPORT,
OLAP, AND ARTIFICIAL INTELLIGENCE

8
MATHEMATICAL MODELING
 Model is an abstraction of something. It represents some
object or activity, which is called an entity.
 There are four basic types of models:
 Physical model is a three-dimensional representation of its
entity.
 Narrative model, which describes its entity with spoken or
written words.
 Graphic model represents its entity with an abstraction of
lines, symbols, or shapes (Figure 11.4).
 Economic order quantity (EOQ) is the optimum quantity of
replenishment stock to order from a supplier.
 Mathematical model is any mathematical formula or
equation.
9
FORMULA TO COMPUTE ECONOMIC
ORDER QUANTITY (EOQ)

10
FIGURE 11.4 A GRAPHICAL CONCEPT MODEL OF
THE ECONOMIC ORDER QUANTITY

11
USES OF MODELS
 Facilitate Understanding: Once a simple model is
understood, it can gradually be made more complex so as to
more accurately represent its entity.
 Facilitate Communication: All four types of models can
communicate information quickly and accurately.
 Predict the Future: The mathematical model can predict
what might happen in the future but a manager must use
judgment and intuition in evaluating the output.
 A mathematical model can be classified in terms of three
dimensions: the influence of time, the degree of certainty, and
the ability to achieve optimization.
12
CLASSES OF MATHEMATICAL
MODELS
 Static model doesn’t include time as a variable but deals only with a
particular point in time.
 Dynamic model includes time as a variable; it represents the
behavior of the entity over time.
 Probabilistic model includes probabilities. Otherwise, it is a
deterministic model.
 Probability is the chance that something will happen.

 Optimizing model is one that selects the best solution among the
alternatives.
 Suboptimizing model (satisficing model) does not identify the
decisions that will produce the best outcome but leaves that task to
the manager.
13
SIMULATION
 The act of using a model is called simulation while the term
scenario is used to describe the conditions that influence a
simulation.
 Models can be designed so that the scenario data elements
are variables, thus enabling different values to be assigned.
 The input values the manager enters to gauge their impact on
the entity are known as decision variables.

14
FIGURE 11.5 SCENARIO DATA AND
DECISION VARIABLES FROM A
SIMULATION

15
MODELING ADVANTAGES AND
DISADVANTAGES
 Advantages:
 The modeling process is a learning experience.
 The speed of the simulation process enables the consideration of a larger
number of alternatives.
 Models provide a predictive power-a look into the future-that no other
information-producing method offers.
 Models are less expensive than the trial-and-error method.

 Disadvantages:
 The difficulty of modeling a business system will produce a model that
does not capture all of the influences on the entity.
 A high degree of mathematical skill is required to develop and properly
interpret the output of complex models.
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 MATHEMATICAL MODELING USING
ELECTRONIC SPREADSHEETS
 The technological breakthrough that enabled problem
solvers to develop their own math models was the
electronic spreadsheet.
 Static model: Figure 11.11 shows an operating budget in
column form. The columns are for: the budgeted expenses,
actual expenses, and variance, while rows are used for the
various expense items.
 A spreadsheet is especially well-suited for use as a dynamic
model. The columns are excellent for the time periods, as
illustrated in Figure 11.12.

17
FIGURE 11.11 SPREADSHEET ROWS AND
COLUMNS PROVIDE THE FORMAT FOR
COLUMNAR REPORT

18
FIGURE 11.12 SPREADSHEET COLUMNS ARE
EXCELLENT FOR TIME PERIODS IN A DYNAMIC
MODEL

19
SPREADSHEET MODEL
INTERFACE
 When using a spreadsheet as a mathematical model, the user can
enter data or make changes directly to the spreadsheet cells, or by
using a GUI.
 The pricing model described earlier in Figures 11.6-11.10 could
have been developed using a spreadsheet, and had the graphical
user interface added.
 The interface could be created using a programming language such
as Visual Basic and would likely require an information specialist to
develop.
 A development approach would be for the user to develop the
spreadsheet and then have the interface added by an information
specialist.
20
ARTIFICIAL INTELLIGENCE
 Artificial intelligence (AI) is the activity of providing such
machines as computers with the ability to display behavior
that would be regarded as intelligent if it were observed in
humans.

 AI is being applied in business in knowledge-based

systems, which use human knowledge to solve problems.

 The most popular type of knowledge-based system are expert

systems, which are computer programs that try to represent
the knowledge of human experts in the form of heuristics.
21
AREAS OF AI
 Expert system is a computer program that attempts
to represent the knowledge of human experts in the
form of heuristics.
 Heuristic is a rule of thumb or a rule of good
guessing.
 Consultation is the act of using an expert system.
 Knowledge engineer has special expertise in
artificial intelligence; adept in obtaining knowledge
from the expert.
22
AREAS OF AI (CONT’D)
 Neural networks mimic the physiology of the human brain.
 Genetic algorithms apply the “survival of the fittest” process to enable
problem solvers to produce increasingly better problem solutions.
 Intelligent agents are used to perform repetitive computer-related tasks;
i.e., data mining.

23
THE EXPERT SYSTEM
CONFIGURATION
 User interface enables the manager to enter
instructions and information into the expert system
and to receive information from it.
 Knowledge base contains both facts that describe
the problem area and knowledge representation
techniques that describe how the facts fit together in
a logical manner.
 Problem domain is used to describe the problem
area.
24
 THE EXPERT SYSTEM CONFIGURATION
(CONT’D)
 Rule specifies what to do in a given situation and
consists of two parts:
 A condition that may or may not be true, and
 An action to be taken when the condition is true.
 Inference engine is the portion of the expert
system that performs reasoning by using the
contents of the knowledge base in a particular
sequence.
 Goal variable is assigning a value to the problem
solution.
25
THE EXPERT SYSTEM CONFIGURATION
(CONT’D)
 Case-based reasoning (CBR) uses historical data
as the basis for identifying problems and
recommending solutions.

 Decision tree is a network-like structure that

enables the user to progress from the root through
the network of branches by answering questions
relating to the problem.

26
FIGURE 11.13 AN EXPERT SYSTEM
MODEL
27
 GROUP DECISION SUPPORT
SYSTEM
 Group decision support system (GDSS) is “a
computer-based system that supports groups of people
engaged in a common task (or goal) and that provides
an interface to a shared environment”.

 Aliases group support system (GSS), computer-

supported cooperative work (CSCW),
computerized collaborative work support, and
electronic meeting system (EMS).

 Groupware the software used in these settings.

28
 Supporting
Collaboration

29
 Supporting Collaboration

• The company of the future could be a collection of online

communities:
– Some are internal and others reach outside the organization’s
boundaries into one’s business ecosystem

• A main job of executives and managers is to foster these

communities and the collaboration they engender
• A major job of CIOs is to provide the technology to support
online communities and online collaboration

30
.
Teams: the Basis of Organizations
 Organizations are becoming information-based, and
will thus be organized not like a manufacturing
organization but more like a hospital, which is team
based
 Hospitals:
– Have specialty units, each with its own knowledge, training,
and language
– Work in the units is done by ad hoc teams, assembled to
address a patient’s condition and diagnosis

• Systems that contain support groups are important

because most people spend 60 to 80 percent of their
time working with others
– Hitherto, people seem to feel they are most productive when
they work alone
31
Teams: the Basis of Organizations cont.

· We are in the third evolution in the structure of

management:
1. Around 1900 – separated business ownership from
management
2. 1920s – created the ‘command and control’ corporation
3. Now – organization of knowledge specialists
• Groupware – electronic tools that support teams of
collaborators – represents a fundamental change in the
way people think about using computers

32
Understanding Groups
Characteristics of Groups

• Collaboration is all about getting work done in a group rather than

individually
• Not all groups are the same. Some characteristics that differentiate
groups include:
– Membership – Some groups are open, some are closed.
– Interaction – Some groups are loosely coupled (salespeople with their own
territories), others work closely together (project team)
– Hierarchy – Some groups have a chain of command (tiers of committees)
– Location – Some members are co-located, some are dispersed
– Time – Some groups are short-lived, some are ongoing. Some work intensely at
times, others do not

33
 SUPPORTING
KNOWLEDGE WORK

34
 OVERVIEW CONT.
 Computer ethics deals with such areas as:
 Information privacy
 Intellectual property rights and
 Other legal and ethical issues relating to information and
knowledge

13-35
 KNOWLEDGE MANAGEMENT
 Managing knowledge means
 Encouraging people to share knowledge in a form that others can
easily access
 As well as customer knowledge and researchers’ knowledge – and
 How to embed this outside knowledge in a real-time system

 Knowledge exists in two states, tacit and explicit,

and effective knowledge management requires
transferring knowledge between these two states
 Tacit knowledge exists within a person’s mind and is
private and unique to each person
 Explicit knowledge has been articulated, codified, and 13-36
A MODEL FOR MANAGING
KNOWLEDGE
 The model is circular with four stages, which
represent what people generally do with
knowledge
1. First they create it, or capture it from a source
2. Second, they organize it and put it into categories for
easy retrieval
3. Third, they distribute it (push) or access it (pull)
4. Fourth, they absorb another’s knowledge for their
own use or to create more new knowledge

 Thus, the cycle begins again

 These four stages create three types of capital:
1. Human capital
2. Structural capital, and
3. Customer capital
13-37
13-38
A MODEL FOR MANAGING KNOWLEDGE
BUILDING HUMAN CAPITAL

 Human capital is the knowledge, skills,

and innovativeness of employees as well
as company values, culture, and
philosophy
 Creating it focuses on getting people
together to share knowledge

1. Knowledge Creation and Capture

 This phase deals with generating knowledge,
either by nurturing employees to create it or
by acquiring it from outside 13-39
A MODEL FOR MANAGING KNOWLEDGE
BUILDING HUMAN CAPITAL CONT.

2. Knowledge Absorption and Reuse

• This phase of building human capital
addresses the notion of getting knowledge
into ­people’s heads where it can be
enhanced and reused
• One of the problems is that management
often does not realize which employees are
vital to information sharing because they
house the organizational memory
• One way to foster sharing is via T-managers
– These are executives who have both a vertical role
(such as running a business unit) and a horizontal
role (such as sharing knowledge with their peers in
other business units)
13-40
A MODEL FOR MANAGING KNOWLEDGE
BUILDING STRUCTURAL CAPITAL
 Structural capital is the capabilities embedded in
hardware, software, databases, organizational
structure, patents, and trademarks that support
employees as well as relationships with customers

 It moves knowledge from people’s heads to a

tangible company asset
 Note: The ‘Rudy problem’ also applies here

1. Knowledge Organization and Categorization

 This phase is often handled by creating best practices
knowledge bases
 A few have even tried to measure intellectual capital
 Following 2 cases
1. Improving a knowledge-support process
2. Valuing intellectual capital 13-41
A MODEL FOR MANAGING KNOWLEDGE
BUILDING STRUCTURAL CAPITAL CONT.

2. Knowledge Distribution and Access

 This phase emphasizes both “pushing” knowledge out to
users (distribution) and accommodating users who “pull”
information to themselves (access)
 Generally, companies focus on high-tech approaches, such
as implementing networks and networking tools to access
human and structural capital

13-42
A MODEL FOR MANAGING KNOWLEDGE
BUILDING CUSTOMER CAPITAL

· Customer capital is the strength of a

company’s franchise with its customers,
and is concerned with its relationships
and networks of associates
 When customers are familiar with a
company’s products or services, the
company can call that familiarity
customer capital
 This form of capital may be either:
 Human (relationships with the company) or
 Structural (products used from the company)

13-43
INTELLECTUAL CAPITAL ISSUES
VALUE ISSUES
 Information’s value depends on the recipient and
the context; most people cannot put a value on a
piece of information until they have seen it
 The only practical way to establish the value of
information is to establish a price for it and see if
anyone buys
 A number of tools are being used within
companies to increase the value of information:
 Information maps
 Textual charts, diagrammatic maps etc. that point to location
of information
 Information guides
 People who know where the information is
 Business documents, and
 Groupware
13-44
 Lotus Notes
INTELLECTUAL CAPITAL ISSUES
USAGE ISSUES
 Information management is a management issue because it
deals with how people use information
 Information use is difficult to manage because:
 The information’s complexity must be preserved
 People do not share easily, and
 Technology does not change culture
 Just building an information system doesn’t mean that people will use
it!!!

13-45
INTELLECTUAL CAPITAL ISSUES
SHARING ISSUES
 A sharing culture must be in place or the existing
disincentives will thwart using a sharing system
 But forcing employees to share information with those
above them can lead to intrusive management
 Unlimited sharing also does not work, so there need to be
limits

13-46
WHAT IS COMPUTER ETHICS?
 Areas of ethical concern include:
 Privacy
 Property rights
 Liabilities
 Free speech, and
 Professional ethics

 To address such issues, some people look to

traditional moral norms and apply them to the
new situations
 Extending property laws to software, for example

13-47
 INFORMATION PRIVACY
Privacy includes:
 Freedom from intrusion
 The right to be left alone
 The right to control information about
oneself, and
 Freedom from surveillance

13-48
 THE VAST AREA OF COMPUTER ETHICS
INFORMATION PRIVACY CONT.

 Five ways to increase information privacy

protection include things that can be done:
1. At the national level
2. By computer professionals
3. By technology
4. In Institutions, and
5. By individuals

13-49
 INTELLECTUAL PROPERTY RIGHTS
 The protection of intellectual property is
critical in an Internet-based world because
many products and services contain
intellectual property, and copies are easy to
make and are often as good as the original
 There are four types of legal protection for
intellectual property:
 Copyrights
 Patents
 Trademarks, and
 Trade secrets
13-50
SECURITY AND ETHICAL CHALLENGES
IT SECURITY, ETHICS, AND SOCIETY

13-
51
BUSINESS ETHICS
 Ethics questions that managers confront as part of their daily business
decision making include
 Equity
 Rights
 Honesty
 Exercise of corporate power

13-
52
CATEGORIES OF ETHICAL
BUSINESS ISSUES

13-
53
PRINCIPLES OF
TECHNOLOGY ETHICS
 Justice
 The benefits and burdens of the technology should be distributed fairly.
 Those who benefit should bear their fair share
of the risks, and those who do not benefit should not suffer a significant increase
in risk
 Minimized Risk
 Even if judged acceptable by the other three guidelines, the technology must be
implemented so as to avoid all unnecessary risk

13-
54
AITP(ASSOCIATION OF INFORMATION TECHNOLOGY PROFESSIONALS) STANDARDS
OF PROFESSIONAL CONDUCT

13-
55
RESPONSIBLE
PROFESSIONAL GUIDELINES
 A responsible professional
 Acts with integrity
 Increases personal competence
 Sets high standards of personal performance
 Accepts responsibility for his/her work
 Advances the health, privacy, and general
welfare of the public

13-
56
COMPUTER CRIME
 Computer crime includes
 Unauthorized use, access, modification, or destruction of hardware, software,
data, or network resources
 The unauthorized release of information
 The unauthorized copying of software
 Denying an end user access to his/her own hardware, software, data, or network
resources
 Using or conspiring to use computer or network resources illegally to obtain
information or tangible property

13-
57
HACKING
 Hacking is
 The obsessive use of computers
 The unauthorized access and use of networked computer systems

 Electronic Breaking and Entering

 Hacking into a computer system and reading files, but neither stealing nor
damaging anything
 Cracker
 A malicious or criminal hacker who maintains knowledge of the vulnerabilities
found for private advantage

13-
58
SOFTWARE PRIVACY
 Software Privacy
 Unauthorized copying of computer programs

 Licensing
 Purchasing software is really a payment
for a license for fair use
 Site license allows a certain number of copies

13-
59
VIRUSES AND WORMS
 A virus is a program that cannot work without being inserted into another
program
 A worm can run unaided

 These programs copy annoying or destructive routines into networked

computers
 Copy routines spread the virus

 Commonly transmitted through

 The Internet and online services
 Email and file attachments
 Disks from contaminated computers
 Shareware

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60
 THANK YOU !

END OF THE COURSE

61