Lecture 03 decision making

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  • 1. IS - 332DECISION SUPPORT SYSTEMS Lecture 03 Dr. Abdul Rauf Baig Second Semester 2010-2011 1
  • 2. Topic 02: Decision Making Second Semester 2010-2011 2
  • 3. DECISION MAKINGSummary of previous lectures:1. From databases to DSS2. Computerized support for decision making: its benefits3. Framework for computerized decision support4. Framework for business intelligence Second Semester 2010-2011 3
  • 4. DECISION MAKINGDecision Making: Introduction Second Semester 2010-2011 4
  • 5. DECISION MAKINGWhat is decision making?Decision making is a process of choosing among two or morealternate courses of action for the purpose of attaining a goal(or goals)Managerial decision making is a complex task in today’sbusiness environment. Second Semester 2010-2011 5
  • 6. DECISION MAKINGPhases of Decision Making Process Second Semester 2010-2011 6
  • 7. DECISION MAKING: Four PhasesDecision Making PhasesSystematic decision making involves three major phasesfollowed by the implementation phase: • Intelligence or Information gathering, • Design, • Choice, • ImplementationDecision making process starts with the intelligence orinformation gathering phase, where reality is examined andthe problem is identified. Second Semester 2010-2011 7
  • 8. DECISION MAKING: Four PhasesDecision Making PhasesIn the design phase, a model that represents the system isconstructed.The choice phase includes selection of a proposed solution tothe model.Once the proposed solution seems to be reasonable, we areready for the last phase: implementation. Second Semester 2010-2011 8
  • 9. DECISION MAKING: Intelligence Phase Decision Making Phases: Intelligence & Information Gathering Second Semester 2010-2011 9
  • 10. DECISION MAKING: Intelligence PhaseDecision Making: Intelligence PhaseIntelligence or information gathering includes severalactivities aimed at identifying problem situations oropportunities. 1. Problem or opportunity identification 2. Problem classification 3. Programmed versus non-programmed problems 4. Problem decomposition 5. Problem ownership Second Semester 2010-2011 10
  • 11. DECISION MAKING: Intelligence PhaseDecision Making: Intelligence PhaseProblem or Opportunity Identification:The intelligence or information gathering phase begins withthe identification of organizational goals and objectivesrelated to an issue of concern (e.g. inventory management,job selection).Problems occur because of dissatisfaction with the statusquo. Dissatisfaction is the result of a difference between whatwe desire (or expect) and what is occurring. Second Semester 2010-2011 11
  • 12. DECISION MAKING: Intelligence PhaseDecision Making: Intelligence PhaseProblem or Opportunity Identification:In the first phase, one attempts to determine whether aproblem exists, identify its symptoms, determine itsmagnitude, and explicitly define it.The existence of a problem can be determined by monitoringand analyzing the organization’s productivity level. This isbased on real data. Second Semester 2010-2011 12
  • 13. DECISION MAKING: Intelligence PhaseDecision Making: Intelligence PhaseProblem or Opportunity Identification:Some issues that may arise during data collection andestimation are:- Data may not be available - Outcomes or results may occur- Obtaining data may be expensive over an extended period of time. As- Data may not be accurate or precise a result, revenues, expenses, and- Data estimation is often subjective profits will be recorded at different- Important data that influence the points in time. results may be qualitative - It is assumed that future data will- There may be too much data be similar to historic data. (information overload) Second Semester 2010-2011 13
  • 14. DECISION MAKING: Intelligence PhaseDecision Making: Intelligence PhaseProblem Classification:Problem classification is the placement of a problem in adefinable category.This leads to a standard solution approach.An important classification is according to the degree ofstructuredness evident in the problem. This ranges fromtotally structured to totally unstructured Second Semester 2010-2011 14
  • 15. DECISION MAKING: Intelligence PhaseDecision Making: Intelligence PhaseProblem Decomposition:Many complex problems can be divided into sub-problems.Solving the simpler sub-problems may help in solving thecomplex problem.Some unstructured problems may have some highlystructure sub-problemsDecomposition also facilitates communication amongdecision makers Second Semester 2010-2011 15
  • 16. DECISION MAKING: Intelligence PhaseDecision Making: Intelligence PhaseProblem Ownership:A problem exists in an organization only if someone or somegroups takes on the responsibility of attacking it and if theorganization has the ability to solve it. Second Semester 2010-2011 16
  • 17. DECISION MAKING: Design Phase Decision Making: Design Phase Second Semester 2010-2011 17
  • 18. DECISION MAKING: Design PhaseDecision Making: Design PhaseThe design phase involves finding (or developing) andanalyzing possible courses of action.These include understanding the problem and testingsolutions for feasibility.A model of the decision making problem is constructed,tested, and validated Second Semester 2010-2011 18
  • 19. DECISION MAKING: Design PhaseDecision Making: Design PhaseModelling involves abstracting the problem to quantitativeand/or qualitative forms.For a mathematical model, the variables are identified andthe relationships among them are established. Second Semester 2010-2011 19
  • 20. DECISION MAKING: Design PhaseDecision Making: Design PhaseComponents of Quantitative Models:All models are made up of three basic components: decisionvariables, uncontrollable variables, and result (outcome)variablesMathematical relationships link these components togetherIn a non-quantitative model, the relationships are symbolicor qualitative. Second Semester 2010-2011 20
  • 21. DECISION MAKING: Design PhaseDecision Making: Design PhaseComponents of Quantitative Models: Result VariablesResult variables are outputs.They reflect the level of effectiveness of the system.These are dependent variables. Second Semester 2010-2011 21
  • 22. DECISION MAKING: Design PhaseDecision Making: Design PhaseComponents of Quantitative Models: Decision VariablesDecision variables describe alternative courses of action.Example: For an investment problem, the amount to investin bonds is a decision variable.In a scheduling problem, the decision variables are people,times, and schedules. Second Semester 2010-2011 22
  • 23. DECISION MAKING: Design PhaseDecision Making: Design PhaseComponents of Quantitative Models: Uncontrollable VariablesIn any decision making situation, there are factors that affectthe result variables but are not under the control of thedecision maker.Either these factors are fixed (called parameters) or they canvary.Examples: Prime interest rate, a city’s building code, taxregulations Second Semester 2010-2011 23
  • 24. DECISION MAKING: Design PhaseDecision Making: Design PhaseComponents of Quantitative Models: Intermediate ResultsVariablesIntermediate result variables reflect intermediate outcomes.Example: Employee’s salaries is a decision variable, It determines employee’s satisfaction (intermediate variable), which determines productivity level (final outcome) Second Semester 2010-2011 24
  • 25. DECISION MAKING: Design PhaseDecision Making: Design PhaseStructure of Quantitative Models:The components (i.e. decision variables, result variables, etc.)of a quantitative model are linked together by mathematicalexpressions.Example: Profit = Revenue - Cost Second Semester 2010-2011 25
  • 26. DECISION MAKING: Design PhaseDecision Making: Design PhaseSelection of a Principle of Choice:A principle of choice is a criterion that describes theacceptability of a solution approach.Two types: normative and descriptiveNormative models: Normative implies that the chosenalternative is demonstrably the best of all possiblealternatives. To find it, one should examine al alternativesand prove that the one selected is indeed the best. Theprocess is basically optimization Second Semester 2010-2011 26
  • 27. DECISION MAKING: Design PhaseDecision Making: Design PhaseSelection of a Principle of Choice:Descriptive models: They investigate alternate courses ofaction under different configurations of inputs and processes.Al the alternatives are not checked, only a given set ofalternatives are checked. Second Semester 2010-2011 27
  • 28. DECISION MAKING: Choice Phase Decision Making: Choice Phase Second Semester 2010-2011 28
  • 29. DECISION MAKING: Choice PhaseDecision Making: Choice PhaseChoice is the critical act of decision making.The choice phase is the one in which the actual decision ismade and where the commitment to follow a certain courseof action is made.The choice phase includes search for, evaluation of, andrecommendation of an appropriate solution to the model(problem).The boundary between the design and choice phases is oftenunclear Second Semester 2010-2011 29
  • 30. DECISION MAKING: Implementation Phase Decision Making: Implementation Phase Second Semester 2010-2011 30
  • 31. DECISION MAKING: Implementation PhaseDecision Making: Implementation PhaseImplementation means putting a recommended solution towork.It does not stop at implementing a computer system. Thereare many issues involved, such as user expectations,resistance to change, and user training Second Semester 2010-2011 31
  • 32. DECISION MAKINGDecision Making: How decisions are supported Second Semester 2010-2011 32
  • 33. DECISION MAKING: How decisions are supportedSupport for Intelligence PhaseThe primary requirement of decision support for theintelligence phase is the ability to scan external and internalinformation sources for opportunities and problems and tointerpret what the scanning discovers Second Semester 2010-2011 33
  • 34. DECISION MAKING: How decisions are supportedSupport for Design PhaseThe design phase involves generating alternate courses ofactions, discussing the criteria for choices and their relativeimportance, and forecasting the future consequences of usingvarious alternativesSeveral of these activities can use standard models providedby a DSS (e.g. financial and forecasting models) Second Semester 2010-2011 34
  • 35. DECISION MAKING: How decisions are supportedSupport for Choice PhaseIn addition to providing models that rapidly identify a bestor good-enough alternative, a DSS can support the choicephase through what-if and goal seeking analysesDifferent scenarios can be tested for the selected option toreinforce the final decision Second Semester 2010-2011 35
  • 36. DECISION MAKING: How decisions are supportedSupport for Implementation PhaseThe DSS benefits implementation phase through thevividness and detail of analyses and reportsThis improves the communication, explanation, andjustification of decisions Second Semester 2010-2011 36
  • 37. DECISION MAKINGReferenceChapter 2: Sections 2.1 to 2.9 (except 2.3) Second Semester 2010-2011 37