Chapter 2

Chapter 2
DECISION MAKING,
SYSTEMS,
MODELING, AND
SUPPORT
8 Edition
th
2nd semester 2010 Dr. Qusai Abuein
Learning Objectives
Understand the conceptual foundations of
decision making
Understand Simons four phases of
decision making: intelligence, design,
choice, and implementation
Recognize the concepts of rationality and
bounded rationality, and how they relate
to decision making
Learning Objectives
Differentiate between the concepts of
making a choice and establishing a
principle of choice
Learn how DSS support for decision
making can be provided in practice
Understand the systems approach
(2.1) Opening Vignette

Illustrates how does Greenspan (the U.S federal
Reserve chairman) decided to raise or lower
interest rate.
He used statistical analysis to data collected
from different systems, his 25 years experience,
real-time information and knowledge systems.
(2.2) Decision Making:

Introduction and Definitions
Knowing:
How decision making is practiced,
Theories and models of decision making,
Traits of decision makers
Help in understanding the types of decision support
tools that managers can use to make more effective
decisions.

Characteristics of decision making
Groupthink
Decision makers are interested in evaluating what-if
scenarios
Experimentation with the real system may result in
failure
Experimentation with the real system is possible only
for one set of conditions at a time and can be
disastrous
Changes in the decision making environment may
occur continuously, leading to invalidating
assumptions about the situation

To determine how real decision makers make

decisions, we :
1. Must understand the process of decision making
2. Understand appropriate methodologies for assisting decision
makers
3. Contributions IS can make
Only then can we develop DSS to help decision

makers.

A decision is selection the best alternative from
two or more solutions. (as defined in ch1)
Decision making:
The action of selecting among alternatives
Planning involves a series of decisions: What
should be done? When? Where? Why? How? By
whom?
Managers set goals or plan
Planning implies decision making

Decision making and problem solving

A problem occurs when:
A system does not meet its goals

Does not yield the predicted results, or
Does not work as planned
Problem solving may deal with identifying new

opportunities.
Q) How to differentiate between problem solving and
decision making?
By examining the phases of decision process.

Phases of the decision process
1. Intelligence
2. Design
3. Choice
Problem solving
A process in which one starts from an initial state
and proceeds to search through a problem space
to identify a desired goal. It includes the 4th phase
of the decision process
4. Implementation
Some consider the phases (1-4) as problem solving, with the choice
phase as the real decision-making process.
Others, consider phases (1-3) as the formal decision-making, with the
implementation phase as the problem solving
10

In this book problem solving is used

interchangeably with decision making.
11

Decision making disciplines are:
Behavioral
Scientific
What constitutes a successful decision in practice?
Effectiveness
The degree of goal attainment. Doing the right things
Efficiency
The ratio of output to input. Appropriate use of
resources. Doing the things right
Effectiveness is the concern of MSS (Management Support Sys.)
Efficiency is the concern of TPS (Transaction Support System)
12

Decision style and decision makers
Decision style
The manner in which a decision maker
thinks and reacts to problems. It includes
perceptions, cognitive responses, values,
and beliefs.
Decision styles are:
Autocratic
Democratic
Consultative
13

Decision style and decision makers
Different decision styles require different types

of support
Individual decision makers need access to data

and to experts who can provide advice
Groups need collaboration tools
In small organizations, decisions are often made

by individuals at lower managerial level.
In medium and large organizations, decisions are
made by groups.
14
(2.3) Models
The basic idea is to perform the DSS analysis on a

model of reality rather than on real system.
A model is a simplified representation of reality.
Models are classified into:
Iconic model
A scaled physical replica, such as an airplane model

(3D)
Analog model
An abstract, symbolic model of a system that

behaves like the system but looks different, such as
charts and figure represents water on mountains. (2D)
15
(2.3) Models
Mental model
The mechanisms or images through
which a human mind performs sensemaking in decision making
Mathematical (quantitative) model
A system of symbols and expressions
that represent a real situation
16
(2.3) Models
The benefits of models

MMS uses models for the following reasons:
Model manipulation is much easier than
manipulating a real system
Models enable the compression of time
(simulation)
The cost of modeling analysis is much
lower
The cost of making mistakes during a trialand-error experiment is much lower when
models are used than with real systems
17
(2.3) Models
The benefits of models
With modeling, a manager can estimate the risks

resulting from specific actions within the
uncertainty of the business environment
Mathematical models enable the analysis of a very
large number of possible solutions
Models enhance and reinforce learning and
training
Models and solution methods are readily available
on the Web
Many Java applets are available to readily solve
models
18
(2.4) Phases of the Decision-Making

Process
19

Process
It advisable to follow a systematic decisionmaking process:
1. Intelligence phase
The initial phase of problem definition in decision
making
2. Design phase
The second decision-making phase, which
involves constructing a model and finding
possible alternatives in decision making and
assessing their contributions
20

Process
3. Choice phase
The third phase in decision making, in which
an alternative is selected
4. Implementation phase
The fourth decision-making phase, involving
actually putting a recommended solution to
work
21
(2.5) Decision Making: The

Intelligence Phase
It includes problem (or opportunity) identification.

Some issues that may arise during data collection:
Data are not available

Obtaining data may be expensive
Data may not be accurate or precise enough
Data estimation is often subjective
Data may be insecure
Important data that influence the results may be
qualitative
22

Intelligence Phase
Some issues that may arise during data collection
Information overload (too many data)
Outcomes (or results) may occur over an extended
period
If future data is not consistent with historical data,
the nature of the change has to be predicted and
included in the analysis
23

Intelligence Phase
Problem classification
The conceptualization of a problem in an attempt to
place it in a definable category, possibly leading to a
standard solution approach
Problem decomposition
Dividing complex problems into simpler subproblems
may help in solving the complex ones
Problem ownership
Is the process of assigning authority to solve a problem
24
(2.6) Decision Making: The Design

Phase
The design phase involves finding or developing

and analyzing possible courses of action. These
include:
Understanding the problem
Testing solutions for feasibility
A model of the decision-making problem is
constructed, tested, and validated
25

Phase
Modeling involves conceptualizing a

problem and abstracting it to quantitative
and/or qualitative form
Models have:
Decision variables
Principle of choice
26

Phase
Decision variables
A variable in a model that can be changed and

manipulated by the decision maker. Decision
variables correspond to the decisions to be made,
such as quantity to produce, amounts of resources
to allocate, and so on
Principle of choice
The criterion that describes the acceptability of a
solution approach.
Q) What is the difference between Criterion and
constraint? (See technology insight 2.1 page 59)

27

Phase
Among the many principles of choice,
normative and descriptive are important.
Normative models
Models in which the chosen alternative is demonstrably

(proven to be) the best of all possible alternatives
Optimization
The process of examining all the alternatives and
proving that the one selected is the best
Suboptimization
An optimization-based procedure that does not
consider all the alternatives for or impacts on an
organization because a decision made in one area
may affect other areas. (details P61,62 are important)
28

Phase
Descriptive model
A model that describes things as they are.

These models are typically mathematically
based.
Simulation
Is an imitation of reality and the most common

descriptive modeling method.
Narrative is another descriptive decision-making
model, it is a story that helps a decision maker
uncover the important aspects of the situation
and leads to better understanding and framing
29

Phase
Good enough or satisficing

Satisficing
A process by which one seeks a solution that will

satisfy a set of constraints. In contrast to optimization,
which seeks the best possible solution, satisficing
simply seeks a solution that will work well enough up
to a predetermined level of performance.
Q) Why accepting satisficing solution?
Due to time pressure (timely decision)
The ability to achieve optimization
Marginal benefit of a better decision does not worth
the marginal cost to obtain it
30
(2.6) Decision Making: The Design Phase
Good enough or satisficing

Satisficing is a form of suboptimization.
There may be a best solution (optimum), but it
would be difficult (impossible) to attain:
With a normative model: too much computation may
be involved
With descriptive model: it may not be possible to
evaluate all alternatives
Q) Since rationality and the use of normative

models lead to good decisions, why are so many
bad decisions made in practice? H.W.
31

Phase
Developing (generating) alternatives
In optimization models (linear programming) the
alternatives may be generated automatically by the
model
In most MSS situations it is necessary to generate
alternatives manually (a lengthy, costly process); issues
such as when to stop generating alternatives are very
important
The search for alternatives usually occurs after the
criteria for evaluating the alternatives are determined
(this way it is easy to find alternatives)
The outcome of every proposed alternative must be
established
32

Phase
Measuring outcomes
The value of an alternative is evaluated in terms of

goal attainment
Ex.(1):
Goal Profit maximization
Outcome Profit
Measured by JD
Ex.(2):
Goal Customer Satisfaction maximization
Outcome Customer Satisfaction
Measured by # of complaints, level of loyalty to
product, or surveys
Q) What is an AHP? H.W.
33

Phase
Risk
One important task of a decision maker is to

attribute a level of risk to the outcome associated
with each potential alternative being considered
Decisions that lead to unacceptable risks in terms
of success are discarded.
Risk is an important issue when developing BI/DSS
34

Phase
Scenario
Is a statement of assumptions about the
operating environment of a particular system
at a given time; that is, it is a narrative
description of the decision-situation setting
Scenarios are especially helpful in simulations
and what-if analyses
In simulation and what-if analysis, scenarios are
changes and results are examined
35

Phase
Scenarios play an important role in MSS
because they:
Help identify opportunities and problem areas

Provide flexibility in planning
Identify the leading edges of changes that
management should monitor
Help validate major modeling assumptions
Allow the decision maker to explore the behavior of a
system through a model
Help to check the sensitivity of proposed solutions to
changes in the environment
36

Phase
Possible scenarios
The worst possible scenario

The best possible scenario
The most likely scenario
The average scenario
Scenario determines the context of analysis to

be performed.
37

Phase
Errors in decision making

The model is a critical component in the
decision-making process
A decision maker may make a number of errors
in its development and use
Validating the model before it is used is critical
Gathering the right amount of information, with
the right level of precision and accuracy is also
critical
38
(2.7) Decision Making: The Choice

Phase
The choice phase is the one in which the actual decision

is made and involves following appropriate course of
action
Q) Why boundary between design and choice phases are not clear?
H.W.
The choice phase includes the search for, evaluation of,

and recommendation of an appropriate solution to a
model.
Solving a model is not as solving the problem the model
represents.
Solution to a model is considered a recommended
solution to a problem.
When the recommended solution is successful, then
39
the problem is solved.

Phase
Solving a model involves searching for appropriate
course of action. Searching approaches include:
Analytical techniques (solving a formula)

Algorithms (step-by-step procedures)
Heuristics (rules of thumb)
Blind searches
40

Phase
Analytical techniques
Methods that use mathematical formulas to
derive an optimal solution directly or to
predict a certain result, mainly in solving
structured problems
Algorithm
A step-by-step search in which improvement
is made at every step until the best solution
is found
41

Phase
Heuristics
Informal, judgmental knowledge of an
application area that constitutes the rules of
good judgment in the field. Heuristics also
encompasses the knowledge of how to
solve problems efficiently and effectively,
how to plan steps in solving a complex
problem, how to improve performance, and
so forth
42

Phase
Sensitivity analysis
A study of the effect of a change in one or
more input variables on a proposed solution
What-if analysis
A process that involves asking a computer
what the effect of changing some of the input
data or parameters would be
43

The Implementation Phase
The implementation to a proposed solution is the
introduction of change.
Change which includes user expectation must be
managed.
Implementation phase involves putting a
recommended solution to work.
Generic implementation issues important in
dealing with MSS include:
Resistance to change
Degree of support of top management
User training
44
(2.9) How Decisions Are Supported

The decision making process (Figure 2.2 next slide)
can be improved with computer support.
Specific MSS technologies to decision making
process include:
Database
Data warehouse
45
(2.9) How Decisions Are
Supported
46
Support for the intelligence phase

The ability to scan external and internal
information sources for opportunities and
problems and to interpret what the scanning
discovers
Web tools and sources are extremely useful for
environmental scanning
Web browsers provide useful front ends for a variety
of tools (OLAP, data mining, data warehouses)
Internal data sources may be accessible via a
corporate intranet
External sources are many and varied
47
Support for the design phase

The generation of alternatives for complex
problems requires expertise that can be
provided only by a human, brainstorming
software, or an ES
48

Support for the choice phase
DSS can support the choice phase through what-if and
goal-seeking analyses
Different scenarios can be tested for the selected option
to reinforce the final decision
KMS helps identify similar past experiences
CRM, ERP, and SCM systems are used to test the
impacts of decisions in establishing their value, leading
to an intelligent choice
An ES can be used to assess the desirability of certain
solutions and to recommend an appropriate solution
A GSS can provide support to lead to consensus in a
group
49
Support for the implementation phase

DSS can be used in implementation activities
such as decision communication, explanation,
and justification.
DSS benefits are partly due to the vividness and
detail of analyses and reports.
Decision implementation can also be supported
by ES.
ES can be used as an advisory system and
provide training that may smooth the
implementation.
50
New technology support for decision making

Web-based systems have clearly influenced how
decision making is supported
Mobile commerce (m-commerce)
Personal devices
Personal digital assistants [PDAs]

Cell phones
Tablet computers
laptop computers
Advanced AI can be utilized in decision making.

51
End Of Chapter 2
Thank you
52

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Chapter 2

2nd semester 2010 Dr. Qusai Abuein

2nd semester 2010 Dr. Qusai Abuein

(2.1) Opening Vignette

2nd semester 2010 Dr. Qusai Abuein

(2.2) Decision Making:

2nd semester 2010 Dr. Qusai Abuein

(2.2) Decision Making:

(2.2) Decision Making:

To determine how real decision makers make

Only then can we develop DSS to help decision

2nd semester 2010 Dr. Qusai Abuein

(2.2) Decision Making:

(2.2) Decision Making:

Decision making and problem solving

A system does not meet its goals

Problem solving may deal with identifying new

By examining the phases of decision process.

2nd semester 2010 Dr. Qusai Abuein

(2.2) Decision Making:

(2.2) Decision Making:

In this book problem solving is used

2nd semester 2010 Dr. Qusai Abuein

(2.2) Decision Making:

What constitutes a successful decision in practice?

(2.2) Decision Making:

(2.2) Decision Making:

Decision style and decision makers

Different decision styles require different types

Individual decision makers need access to data

In small organizations, decisions are often made

The basic idea is to perform the DSS analysis on a

A scaled physical replica, such as an airplane model

An abstract, symbolic model of a system that

2nd semester 2010 Dr. Qusai Abuein

2nd semester 2010 Dr. Qusai Abuein

The benefits of models

With modeling, a manager can estimate the risks

(2.4) Phases of the Decision-Making

2nd semester 2010 Dr. Qusai Abuein

(2.4) Phases of the Decision-Making

It advisable to follow a systematic decisionmaking process:

(2.4) Phases of the Decision-Making

2nd semester 2010 Dr. Qusai Abuein

(2.5) Decision Making: The

It includes problem (or opportunity) identification.

Data are not available

2nd semester 2010 Dr. Qusai Abuein

(2.5) Decision Making: The

2nd semester 2010 Dr. Qusai Abuein

(2.5) Decision Making: The

(2.6) Decision Making: The Design

The design phase involves finding or developing

2nd semester 2010 Dr. Qusai Abuein

(2.6) Decision Making: The Design

Modeling involves conceptualizing a

2nd semester 2010 Dr. Qusai Abuein

(2.6) Decision Making: The Design

A variable in a model that can be changed and

Q) What is the difference between Criterion and

constraint? (See technology insight 2.1 page 59)

(2.6) Decision Making: The Design

Models in which the chosen alternative is demonstrably

(2.6) Decision Making: The Design