Decision Support and Expert Systems
Chapter 10 – Oz (5th ed)
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Decision Making in Business
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Organization’s success depends on quality of
managers’ decisions
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When decisions involve large amounts of data and
complex processing, a DSS is a valuable tool
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When decision making involves many uncertainties
and/or lots of alternatives a DSS is needed
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Simon’s Stages of Decision Making
• Intelligence - the individual collects information to
identify problems occurring
• Design - the individual conceives of possible alternative
solutions to the problem
• Choice - the individual selects among the various
solution alternatives
• Implementation - the individual puts the decision into
effect and reports on the progress of the solution
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The Decision Making Process Is Not Linear
Is there a problem?
Intelligence
What are the alternatives?
Design
Which should you choose?
Choice
Is the choice working?
Implementation
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Typical Activities in the Stages of
Decision-Making
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Structured and
Unstructured Problems
Figure 12.2 Business problems vary from structured to
unstructured. Many fall between the two extremes and are
considered semistructured.
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Types of Decisions
• Structured decisions are repetitive, routine, and involve
a definite procedure for handling
• Unstructured decisions are nonroutine decisions in
which the decision maker must provide judgment,
evaluation, and insights; there is no agreed-upon
procedure for making the decision
• Semistructured decisions are ones where only part of the
problem has a clear-cut answer provided by an
acceptable procedure
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Example of a Structured and
Semistructured Problem
• Structured problem: How much will I earn after two
years if I invest $100,000 in municipal bonds that pay 4
percent per annum tax free?
• Semistructured problem: If I invest $100,000 in stock
XYZ and sell the stock in two years, how much money
will I make?
• How are these problems different?
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Examples of Structured and
Semistructured Problems
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A Definition of a DSS
• A DSS is a computer system that combines data,
sophisticated analytical models, and user-friendly
software to support semi-structured and unstructured
decision making.
• Examples
– Some DSS are very sophisticated and built by
experts to improve firm performance (e.g., in
trucking, models are developed to minimize total
mileage and maximize truck loads while
maintaining satisfactory delivery times)
– Other DSS are built for individual managers to
assist in daily decision making tasks (e.g., Mrs.
Fields Cookies provides managers with a DSS that
assists in decisions related to which cookies to make,10
how many to make based on prior sales)
Characteristics of a DSS
• DSS offer users flexibility, adaptability, and a quick
response (usually interactive)
• DSS allow users to initiate and control the input and
output
• DSS operate with little or no assistance from
professional programmers (e.g., personal and CDSS)
• DSS provide support for decisions and problems whose
solutions cannot be specified in advance
• DSS use sophisticated analysis and modeling tools
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How a DSS Can Improve Managerial
Decision Making
• In the intelligence phase
– produce more timely data
– increase the use of quantitative data
– make more data available
• In the design phase
– generate more alternatives
– generate more accurate alternatives
• In the choice phase
– make faster decisions
– sometimes rank the choices
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Components of a DSS
• Data management module
– consists of current or historical data and possibly
some external data; data warehouse
– Capabilities to manipulate the data
• Model management module
– collection of mathematical models (statistical
models, linear programming, forecasting, sensitivity
analysis models) available for the user
– May also include OLAP or datamining tools
• Dialog management module
– Interface between user and other modules
– Displays the analysis of results
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Typical Features of Commercial DSS
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Easy to use graphical user interface (Windows like)
Drill down capacity
On-demand financial analysis (ratios or indicators)
Access to external (outside the firm) databases
Statistical analysis tools
Tools to navigate in a database or data warehouse
Ability to perform ad hoc queries or what-if analysis
Ability to solve diverse business problems
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Web Sites With DSS Products
• Examples of DSS software
http://cdss.state.co.us/
http://www.vanguardsw.com
DecisionScript enables you to build Web-based DSS or CDSS
DecisionPro can be downloaded for free 15-day trial
Examples of EIS
– http://visualmining.com
• Look at dashboards and specific examples
– http://www.meditech.com/productbriefs/pages/ProductBriefsCSES
S.htm
• Drill down, customized views, individualized reporting
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Types of DSS (one way of classifying)
• Model-driven DSS are primarily standalone systems
that use some type of quantitative model to perform
“what-if” or other types of analysis.
• Data-driven DSS are systems that analyze large pools
of data that are (usually) stored in a data warehouse;
these systems permit managers to extract useful
relationships that exist in the data (datamining).
• Web-based DSS exist for both types (customer decision
support systems; Vanguard;, Rainbird irrigation
systems), Home Depot (deck projects)
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Other Types of DSS
• Geographic Information Systems (GIS)
• Customer DSS (CDSS)
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Geographic Information Systems (GIS)
• A GIS is a DSS for decision aid for map-related
decisions
• Typical GIS contains
– Database of quantitative and qualitative data
– Database of maps
– Program to display information on maps
• Applications of GIS
– Identifying the best site to locate a branch office
– Targeting pockets of potential customers
– Repositioning promotions and advertising
– Tracking the spread of disease or crime
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Web Sites for GIS
• HUD environmental maps
http://198.102.62.140/emaps/SearchFrame.asp
• A major GIS vendor
– http://maps.esri.com
• An example of how a state can use a GIS
– http://www.state.ma.us/mgis/muniapps.htm
• An example of how Charlotte, NC uses a GIS
– http://meckcama.co.mecklenburg.nc.us/relookup/ /
– http://gischamber.co.mecklenburg.nc.us/website/chamber/Defa
ult.aspx
• An example from San Francisco, CA
– http://www.sfgov.org/site/gis_index.asp
– Use APN #8719003 in SFprospector; demographic and
business report for Mission Bay South location
• An example from York County, SC
– http://www.yorkcountygov.com
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Customer DSS (CDSS)
• A CDSS is a special type of DSS designed to support
the buying decisions of an existing or potential
customer. Most current CDSS are Web based
• Support exists for both the individual consumer (B2C)
and businesses (B2B)
• Complexity of products and sophistication of the buyer
often determine the nature of a CDSS
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Examples of CDSS
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BusinessWeek (www.businessweek.com/bschools)
PriceGrabber ( www.pricegrabber.com)
BankRate (http://www.bankrate.com/)
HomeDepot (http://www.homedepot.com)
– Design tools and calculators for various projects
• Automobile tires (http://www.tirerack.com)
– Assistance for choosing tires for an automobile
• Vanguard (Vanguard - Investing for retirement Determine how much to save#early#early)
– Retirement planning tool
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Manager and Consumer Decision Making
Manager’s DecisionMaking Process
Customer’s Purchasing Decision
Process
Need recognition
Intelligence
Information search
Design
Choice
Implementation
Evaluation
Purchase
After purchase evaluation
Description
Customers must recognize they have a need
Customers must search for a product or service
that satisfies this need
Customers use decision heuristics to evaluate and
compare goods and services
The customer must place an order, pay for it, and
arrange for collection delivery, or maybe
installation
Customers evaluate purchases with a view to
future decision-making. Customer support
and maintenance may be important
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The Electronic Spreadsheet: A DSS Tool
• Most widely used tool for decision support because
it is widely accessible to both experienced and
inexperienced users
• Features of spreadsheets that support DSS
construction
– Preprogrammed functions enable the use of
many mathematical models
– Built in IF-THEN function
– Ability to use Visual Basic for Applications
– Charts, pivot tables, what-if tables, scenario
management
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Ethical and Societal Issues
Decisions by Machines
• To what extent should businesses use computer-based
decisions that can affect individuals.
– Mortgage companies, credit card companies,
employers, banks, etc.
• Distinctions between US and European approaches
• Pros for automated decisions – efficiency (cost, time,
speed)
• Cons – injustices due to errors, awareness, and finality
of decision
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Model Types
• A model is an abstraction of an object or activity
(entity)
• Model types
– Physical models like a scale model of a building
– Narrative models provide spoken or written
descriptions
– Graphic models that use lines, symbols and shapes
(ER diagram)
– Mathematical models employ equations and(or)
inequalities
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Mathematical Models
• A system of mathematical expressions usually
equations that describe relationships between variables
in order to better understand or describe a real world
situation or process.
• Mathematical models usually contain input and output
variables. Input variables are variables that are
systematically varied (plugged into the equations). The
results from the equations are the output variables.
• Types of models
– Dynamic versus static
– Stochastic (probabilistic) versus deterministic
– Linear versus nonlinear
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Sample Models by Functional Area
• Accounting
– breakeven analysis
– tax computations
– depreciation methods
• Finance
– cash flow
– return on investment
– after-tax yield
• Marketing
– product demand
forecast
– pricing strategies
– Sales performance
• Production
– product-mix
inventory level (EOQ)
– quality control
– production schedule
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Uses of Models
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Description
Understanding
Prediction
Simulation
Optimization
Models typically do more than one of the above
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