BUSINESS

INTELLIGENCE
 BASICS OF THE COURSE
• Course Name – Business Intelligence
• Course Code – ITHS 1030
• Schemes -

Teaching Scheme Examination Scheme

Lectures: 3 Hrs/ Week Class Test 1 :15 Marks
Credits : 3 Class Test 2 :15 Marks
Teacher’s Assessment : 10 Marks
End Semester Exam : 60 Marks
 BASICS OF THE COURSE
• PREREQUISITES:
NA
 BASICS OF THE COURSE
• COURSE DESCRIPTION:
• To expose to the basics of Business
Intelligence System with an
understanding of modeling aspects
behind Business Intelligence
 BASICS OF THE COURSE
• COURSE OUTCOMES :
• CO1 : Understand the need of BI & its
applications
• CO2 : Know the BI Life Cycle and its
techniques
• CO3 : Explore different tools and techniques
for analysis and decision making
• CO4 : Discuss Modelling and analysis of Data
 BASICS OF THE COURSE
• Text and Reference Books
• 1. Efraim Turban, Ramesh Sharda, DursunDelen,
Decision Support and Business Intelligence Systems,
9th Edition, Pearson 2013.
• 2. Carlo VercellisPolitecnico di Milano, Business
Intelligence: Data Mining and Optimization for
Decision Making, A John Wiley and Sons, Ltd.,
Publication.
• 3. Ian Dodson, The Art of Digital Marketing: The
Definitive Guide to Creating Strategic, Targeted, and
Measurable, Wiley publications
• 4. Larissa T. Moss, S. Atre, “Business Intelligence
Roadmap: The Complete Project Lifecycle of
Decision Making”, Addison Wesley, 2003.
• 5. Carlo Vercellis, Business Intelligence: Data
Mining and Optimization for Decision Making ,
Wiley Publications, 2009.
• 6. David Loshin Morgan, Kaufman, Business
Intelligence: The Savvy Manager‟s Guide, Second,
Edition, 2012.
 INTRODUCTION OF THE SUBJECT
• BUSINESS :
• Buying and Selling as a way of earning money
(Commerce)
• the work that you do as your job
 INTRODUCTION OF THE SUBJECT
• INTELLIGENCE :
• The ability to understand, learn and think
• The ability to learn, understand, and make
judgments or have opinions that are based on
reason
 INTRODUCTION OF THE SUBJECT
• BUSINESS INTELLIGENCE :
• Business intelligence combines business
analytics, data mining, data visualization, data
tools and infrastructure, and best practices to
help organizations make more data-driven
decisions.
 UNIT - I
BUSINESS
INTELLIGENCE
 SYLLABUS
• Effective and timely decisions – Data,
information and knowledge – Role of
mathematical models
• Business intelligence architectures:
Cycle of a business intelligence analysis –
Enabling factors in business intelligence
projects
• Development of a business intelligence
system – Ethics and business intelligence.
 BUSINESS
INTELLIGENCE
 BUSINESS INTELLIGENCE
• What is business intelligence?
• Business intelligence combines
business analytics, data mining, data
visualization, data tools and
infrastructure, and best practices to
help organizations make more data-
driven decisions.
 BUSINESS INTELLIGENCE
• How business intelligence works?
 BUSINESS INTELLIGENCE
• Gather the necessary data, analyze it, and
determine which actions to take to reach their
goals.
• Raw data is collected from business systems
• Data is processed and then stored in data
warehouses, the cloud, applications, and files.
• Once it’s stored, users can access the data,
starting the analysis process to answer
business questions
 BUSINESS INTELLIGENCE
• BI platforms also offer data visualization
tools, which convert data into charts or
graphs, as well as presenting to any key
stakeholders or decision-makers.
 BUSINESS INTELLIGENCE
• ADVANTAGES AND DISADVANTAGES OF BI :
• Some of the advantages of BI include:
– Data visibility
– Accurate reports
– Streamlined processes
• And disadvantages of BI include:
– Initial cost
– User resistance
– Data skills gap
EFFECTIVE AND TIMELY
DECISIONS
EFFECTIVE AND TIMELY DECISIONS
• The main purpose of business intelligence
systems is to provide knowledge workers
with tools and methodologies that allow
them to make effective and timely decisions.
• Effective decisions –
• The application of rigorous analytical
methods allows decision makers to rely on
information and knowledge which are more
dependable
EFFECTIVE AND TIMELY DECISIONS
• Timely decisions –
• The ability to rapidly react to the actions
of competitors and to new market
conditions is a critical factor in the
success or even the survival of a
company.
EFFECTIVE AND TIMELY DECISIONS
DATA, INFORMATION AND
KNOWLEDGE
 DATA, INFORMATION AND
KNOWLEDGE
• DATA:
• For a retailer data refer to primary entities
such as customers, points of sale and items,
while sales receipts represent the commercial
transactions.
• Data is unprocessed facts and figures without
any added interpretation or analysis.
• "The price of crude oil is $80 per barrel."
 DATA, INFORMATION AND
KNOWLEDGE
• INFORMATION:
• Information is the outcome of extraction and
processing activities carried out on data, and it
appears meaningful for those who receive it in a
specific domain Information is data that has been
interpreted so that it has meaning for the user.
• "The price of crude oil has risen from $70 to $80
per barrel" gives meaning to the data and so is
said to be information to someone who tracks oil
prices.
 DATA, INFORMATION AND
KNOWLEDGE
• KNOWLEDGE:
• Information is transformed into knowledge
when it is used to make decisions and develop
the corresponding actions.
• Knowledge is a combination of information,
experience and insight that may benefit the
individual or the organization.
• "When crude oil prices go up by $10 per
barrel, it's likely that petrol prices will rise by
2p per litre" is knowledge.
DATA, INFORMATION AND
KNOWLEDGE
ROLE OF MATHEMATICAL
MODELS
ROLE OF MATHEMATICAL MODELS
• A business intelligence system provides
decision makers with information and
knowledge extracted from data, through the
application of mathematical models and
algorithms.
• In some instances, this activity may reduce to
calculations of totals and percentages,
graphically represented by simple histograms,
whereas more elaborate analyses require the
development of advanced optimization and
learning models.
ROLE OF MATHEMATICAL MODELS
• A business intelligence system provides
decision makers with information and
knowledge extracted from data, through the
application of mathematical models and
algorithms.
• First, the objectives of the analysis are
identified and the performance indicators that
will be used to evaluate alternative options
are defined.
ROLE OF MATHEMATICAL MODELS
• Mathematical models are then
developed by exploiting the relationships
among system control variables,
parameters and evaluation metrics.
• Finally, what-if analyses are carried out to
evaluate the effects on the performance
determined by variations in the control
variables and changes in the parameters.
BUSINESS INTELLIGENCE
ARCHITECTURES
BUSINESS INTELLIGENCE
ARCHITECTURES
 BUSINESS INTELLIGENCE
ARCHITECTURES
• The architecture of a business
intelligence system, includes three
major components –
–Data sources
–Data warehouses and data marts
–Business intelligence methodologies
 BUSINESS INTELLIGENCE
ARCHITECTURES
• DATA SOURCES :
• In a first stage, it is necessary to gather and
integrate the data stored in the various primary
and secondary sources, which are heterogeneous
in origin and type.
• The sources consist for the most part of data
belonging to operational systems, but may also
include unstructured documents, such as emails
and data received from external providers.
• Generally speaking, a major effort is required to
unify and integrate the different data sources.
 BUSINESS INTELLIGENCE
ARCHITECTURES
• DATA WAREHOUSES AND DATA MARTS :
• Using extraction and transformation tools
known as extract, transform, load (ETL), the
data originating from the different sources are
stored in databases intended to support
business intelligence analyses.
• These databases are usually referred to as
data warehouses and data marts.
 BUSINESS INTELLIGENCE
ARCHITECTURES
• BUSINESS INTELLIGENCE METHODOLOGIES :
• Data are finally extracted and used to feed
mathematical models and analysis
methodologies intended to support decision
makers.
• In a business intelligence system, several
decision support applications may be
implemented
 BUSINESS INTELLIGENCE
ARCHITECTURES
• Multidimensional cube analysis
• Exploratory data analysis
• Time series analysis
• Inductive learning models for data
mining
• Optimization models
 BUSINESS INTELLIGENCE
ARCHITECTURES
• COMPONENTS OF BUSINESS
INTELLIGENCE :
– 1. Data sources
– 2. Data warehouses and data marts
– 3. Data exploration
– 4. Data Mining
– 5. Optimization
– 6. Decision
 BUSINESS INTELLIGENCE
ARCHITECTURES
• DATA EXPLORATION:
• Passive Business Intelligence Analysis consists
of
– 1. Query and Reporting Systems
– 2. Statistical Methods.
These are referred to as passive methodologies
because decision makers are requested to generate
prior hypotheses or define data extraction criteria, and
then use the analysis tools to find answers and confirm
their original insight.
 BUSINESS INTELLIGENCE
ARCHITECTURES
• For instance, consider the sales manager of a
company who notices that revenues in a given
geographic area have dropped for a specific
group of customers.
• Hence, she might want to bear out her
hypothesis by using extraction and
visualization tools, and then apply a statistical
test to verify that her conclusions are
adequately supported by data.
 BUSINESS INTELLIGENCE
ARCHITECTURES
• 4. DATA MINING:
• The fourth level includes active business
intelligence methodologies, whose
purpose is the extraction of information
and knowledge from data
• These include mathematical models for
pattern recognition, machine learning
and data mining techniques
 BUSINESS INTELLIGENCE
ARCHITECTURES
• Unlike the tools described at the previous
level of the pyramid, the models of an
active kind do not require decision
makers to formulate any prior hypothesis
to be later verified.
• Their purpose is instead to expand the
decision makers’ knowledge.
 BUSINESS INTELLIGENCE
ARCHITECTURES
• 5. OPTIMIZATION :
• By moving up one level in the pyramid
we find optimization models that allow
us to determine the best solution out of
a set of alternative actions, which is
usually fairly extensive and sometimes
even infinite.
 BUSINESS INTELLIGENCE
ARCHITECTURES
• 6. DECISION :
• Finally, the top of the pyramid
corresponds to the choice and the actual
adoption of a specific decision, and in
some way represents the natural
conclusion of the decision-making
process
 BUSINESS INTELLIGENCE
ARCHITECTURES
• Even when business intelligence
methodologies are available and successfully
adopted, the choice of a decision pertains to
the decision makers, who may also take
advantage of informal and unstructured
information available to adapt and modify the
recommendations and the conclusions
achieved through the use of mathematical
models.
 CYCLE OF A BUSINESS
INTELLIGENCE ANALYSIS
CYCLE OF A BUSINESS INTELLIGENCE
ANALYSIS
 CYCLE OF A BUSINESS INTELLIGENCE
ANALYSIS
• 1. ANALYSIS :
• During the analysis phase, it is necessary to
recognize and accurately spell out the
problem at hand
• Decision makers must then create a mental
representation of the phenomenon being
analyzed, by identifying the critical factors
that are perceived as the most relevant.
 CYCLE OF A BUSINESS INTELLIGENCE
ANALYSIS
• The availability of business intelligence
methodologies may help already in this stage,
by permitting decision makers to rapidly
develop various paths of investigation.
• For instance, the exploration of data cubes in
a multidimensional analysis, according to
different logical views, allows decision makers
to modify their hypotheses flexibly and
rapidly, until they reach an interpretation
scheme that they deem satisfactory
 CYCLE OF A BUSINESS INTELLIGENCE
ANALYSIS
• Thus, the first phase in the business
intelligence cycle leads decision makers
to ask several questions and to obtain
quick responses in an interactive way.
 CYCLE OF A BUSINESS INTELLIGENCE
ANALYSIS
• 2.INSIGHT :
• The second phase allows decision makers to
better and more deeply understand the
problem at hand, often at a causal level.
• For instance, if the analysis carried out in the
first phase shows that a large number of
customers are discontinuing an insurance
policy upon yearly expiration, in the second
phase it will be necessary to identify the
profile and characteristics shared by such
customers.
 CYCLE OF A BUSINESS INTELLIGENCE
ANALYSIS
• The information obtained through the
analysis phase is then transformed into
knowledge during the insight phase
• On the one hand, the extraction of
knowledge may occur due to the intuition
of the decision makers and therefore be
based on their experience and possibly on
unstructured information available to
them
 CYCLE OF A BUSINESS INTELLIGENCE
ANALYSIS
• On the other hand, inductive
learning models may also prove very
useful during this stage of analysis,
particularly when applied to
structured data.
 CYCLE OF A BUSINESS INTELLIGENCE
ANALYSIS
• 3. DECISION :
• During the third phase, knowledge obtained
as a result of the insight phase is converted
into decisions and subsequently into actions.
• The availability of business intelligence
methodologies allows the analysis and insight
phases to be executed more rapidly so that
more effective and timely decisions can be
made that better suit the strategic priorities
of a given organization.
 CYCLE OF A BUSINESS INTELLIGENCE
ANALYSIS
• This leads to an overall reduction in
the execution time of the analysis–
decision–action– revision cycle, and
thus to a decision-making process of
better quality
 CYCLE OF A BUSINESS INTELLIGENCE
ANALYSIS
• 4. EVALUATION:
• Finally, the fourth phase of the business
intelligence cycle involves performance
measurement and evaluation
• Extensive metrics should then be devised that
are not exclusively limited to the financial
aspects but also take into account the major
performance indicators defined for the
different company departments.
 ENABLING FACTORS IN
BUSINESS INTELLIGENCE
PROJECTS
 ENABLING FACTORS IN BUSINESS
INTELLIGENCE PROJECTS
• Some factors are more critical than
others to the success of a business
intelligence project:
–Technologies
–Analytics
–Human resources
 ENABLING FACTORS IN BUSINESS
INTELLIGENCE PROJECTS
• A. TECHNOLOGIES:
• Hardware and software technologies are
significant enabling factors that have
facilitated the development of business
intelligence systems within enterprises and
complex organizations.
• On the one hand, the computing capabilities
of microprocessors have increased on average
by 100% every 18 months during the last two
decades, and prices have fallen
 ENABLING FACTORS IN BUSINESS
INTELLIGENCE PROJECTS
• This trend has enabled the use of advanced
algorithms which are required to employ
inductive learning methods and
optimization models, keeping the
processing times within a reasonable range.
• Moreover, it permits the adoption of state-
of-the-art graphical visualization
techniques, featuring real-time animations.
 ENABLING FACTORS IN BUSINESS
INTELLIGENCE PROJECTS
• A further relevant enabling factor derives from
the exponential increase in the capacity of
mass storage devices, again at decreasing
costs, enabling any organization to store
terabytes of data for business intelligence
systems
• And network connectivity, in the form of
Extranets or Intranets, has played a primary
role in the diffusion within organizations of
information and knowledge extracted from
business intelligence systems
 ENABLING FACTORS IN BUSINESS
INTELLIGENCE PROJECTS
• Finally, the easy integration of hardware
and software purchased by different
suppliers, or developed internally by an
organization, is a further relevant factor
affecting the diffusion of data analysis
tools.
 ENABLING FACTORS IN BUSINESS
INTELLIGENCE PROJECTS
• B. ANALYTICS :
• As stated above, mathematical models and
analytical methodologies play a key role in
information enhancement and knowledge
extraction from the data available inside most
organizations.
• The mere visualization of the data according to
timely and flexible logical views, plays a relevant
role in facilitating the decision-making process,
but still represents a passive form of support.
 ENABLING FACTORS IN BUSINESS
INTELLIGENCE PROJECTS
• Therefore, it is necessary to apply more
advanced models of inductive learning
and optimization in order to achieve
active forms of support for the decision-
making process
 ENABLING FACTORS IN BUSINESS
INTELLIGENCE PROJECTS
• C. Human resources :
• The human assets of an organization are
built up by the competencies of those who
operate within its boundaries, whether as
individuals or collectively.
• The overall knowledge possessed and shared
by these individuals constitutes the
organizational culture.
 ENABLING FACTORS IN BUSINESS
INTELLIGENCE PROJECTS
• The ability of knowledge workers to acquire
information and then translate it into practical
actions is one of the major assets of any
organization, and has a major impact on the quality
of the decision-making process.
• If a given enterprise has implemented an advanced
business intelligence system, there still remains
much scope to emphasize the personal skills of its
knowledge workers, who are required to perform
the analyses and to interpret the results, to work
out creative solutions and to devise effective action
plans.
 ENABLING FACTORS IN BUSINESS
INTELLIGENCE PROJECTS
• All the available analytical tools being equal, a
company employing human resources
endowed with a greater mental agility and
willing to accept changes in the decision-
making style will be at an advantage over its
competitors.
 DEVELOPMENT OF A
BUSINESS INTELLIGENCE
SYSTEM
 DEVELOPMENT OF A BUSINESS
INTELLIGENCE SYSTEM
• The development of a business
intelligence system can be assimilated to
a project, with a specific final objective,
expected development times and costs,
and the usage and coordination of the
resources needed to perform planned
• Analysis – Identification of the needs
• Design – infrastructure recognition
- Project Micro Planning
 DEVELOPMENT OF A BUSINESS
INTELLIGENCE SYSTEM
• A. ANALYSIS:
• During the first phase, the needs of the
organization relative to the development of a
business intelligence system should be
carefully identified.
• This preliminary phase is generally conducted
through a series of interviews of knowledge
workers performing different roles and
activities within the organization
 DEVELOPMENT OF A BUSINESS
INTELLIGENCE SYSTEM
• It is necessary to clearly describe the
general objectives and priorities of the
project, as well as to set out the costs
and benefits deriving from the
development of the business intelligence
system.
 DEVELOPMENT OF A BUSINESS
INTELLIGENCE SYSTEM
• B. Design:
• The second phase includes two sub-phases
and is aimed at deriving a provisional plan
of the overall architecture, taking into
account any development in the near
future and the evolution of the system in
the mid-term
• First, it is necessary to make an assessment
of the existing information infrastructures
 DEVELOPMENT OF A BUSINESS
INTELLIGENCE SYSTEM
• Moreover, the main decision-making processes
that are to be supported by the business
intelligence system should be examined, in order
to adequately determine the information
requirements.
• Later on, using classical project management
methodologies, the project plan will be laid
down, identifying development phases, priorities,
expected execution times and costs, together
with the required roles and resources.
 DEVELOPMENT OF A BUSINESS
INTELLIGENCE SYSTEM
• C. Planning:
• The planning stage includes a sub-phase
where the functions of the business
intelligence system are defined and
described in greater detail.
• Subsequently, existing data as well as
other data that might be retrieved
externally are assessed.
 DEVELOPMENT OF A BUSINESS
INTELLIGENCE SYSTEM
• This allows the information structures of the
business intelligence architecture, which consist
of a central data warehouse and possibly some
satellite data marts, to be designed.
• Simultaneously with the recognition of the
available data, the mathematical models to be
adopted should be defined, ensuring the
availability of the data required to feed each
model and verifying that the efficiency of the
algorithms to be utilized will be adequate for the
magnitude of the resulting problems.
 DEVELOPMENT OF A BUSINESS
INTELLIGENCE SYSTEM
• Finally, it is appropriate to create a
system prototype, at low cost and with
limited capabilities, in order to uncover
beforehand any discrepancy between
actual needs and project specifications.
 DEVELOPMENT OF A BUSINESS
INTELLIGENCE SYSTEM
• D. Implementation and control:
• The last phase consists of five main sub-
phases
• First, the data warehouse and each specific
data mart are developed
• These represent the information
infrastructures that will feed the business
intelligence system
 DEVELOPMENT OF A BUSINESS
INTELLIGENCE SYSTEM
• In order to explain the meaning of the data
contained in the data warehouse and the
transformations applied in advance to the
primary data, a metadata archive should be
created.
• Moreover, ETL procedures are set `out to
extract and transform the data existing in the
primary sources, loading them into the data
warehouse and the data marts.
 DEVELOPMENT OF A BUSINESS
INTELLIGENCE SYSTEM
• The next step is aimed at developing the
core business intelligence applications
that allow the planned analyses to be
carried out.
• Finally, the system is released for test and
usage.
ETHICS AND BUSINESS
INTELLIGENCE
ETHICS AND BUSINESS INTELLIGENCE
• The type of ethics in business intelligence (BI) is
the ethical principles of conduct that govern an
individual in the workplace or a company in
general.
• It is also known as professional ethics and not to
be confused with other forms of philosophical
ethics including religious conviction, or popular
conviction
• Professional ethics according to Griffin (1986) is
that profit is not the only important strategy of a
business anymore.
ETHICS AND BUSINESS INTELLIGENCE
• There is also more of a concern and motivator
of companies to do what is right.
• Companies must acknowledge that they have
a common good to protect their local
community, improve employee relations and
promote informational press to the public.
• Everyday in BI management professionals may
be at risk of making unethical practices in
there decisions that regards the consumer,
business and/or other employees data
ETHICS AND BUSINESS INTELLIGENCE
• Ethics is a touchy subject, there is always
going to be controversy on how companies
choose to handle business decisions.
• There is no definite decision to make when it
comes to ethical decisions
• While sometimes it may involve illegal
practices, other times it is just a decision that
needs to be made in a company to promote a
better way of life for all.
ETHICS AND BUSINESS INTELLIGENCE
• An example of an ethical decision:
• A manager of a BI system that chooses to use
cheaper data in his/her data mining activities
to save money
• The cheaper data sets have a 20% possibility
of being incorrect.
• The manager did not see it as being an
unethical decision when it was made, just a
way to continue to generate close-to-accurate
reports and save money.
ETHICS AND BUSINESS INTELLIGENCE
• PAPA Framework
• privacy, accuracy, property, and accessibility
 UNIT - II
DECISION MAKING,
SYSTEMS,
MODELING
 DECISION MAKING, SYSTEMS,
MODELING
• SYLLABUS :
• Introduction and Definitions, Models,
Phases of the Decision-Making Process
• Decision Making: The Intelligence Phase,
• Decision Making: The Design Phase,
• Decision Making: The Implementation
Phase
INTRODUCTION AND
DEFINITIONS
INTRODUCTION AND DEFINITIONS
• DECISION MAKING: a process of choosing
among alternative courses of action for the
purpose of attaining a goal or goals
• Managerial Decision Making is synonymous
with the whole process of management
• A SYSTEM is a collection of objects such as
people, resources, concepts, and procedures
intended to perform an identifiable function or
to serve a goal
INTRODUCTION AND DEFINITIONS
• System Levels (Hierarchy): All systems are
subsystems interconnected through interfaces
• Inputs are elements that enter the system

• Processes convert or transform inputs into

outputs
INTRODUCTION AND DEFINITIONS
• Outputs describe finished products or
consequences of being in the system

• Feedback is the flow of information from the

output to the decision maker, who may modify
the inputs or the processes (closed loop)

• The Environment contains the elements that

lie outside but impact the system's
performance
INTRODUCTION AND DEFINITIONS
• A Closed System is totally independent of other
systems and subsystems
• An Open System is very dependent on its
environment
• An Information System : Collects, processes, stores,
analyzes, and disseminates information for a specific
purpose. It is often at the heart of many organizations.
Accepts inputs and processes data to provide
information to decision makers and helps decision
makers communicate their results
INTRODUCTION AND DEFINITIONS
• Effectiveness is the degree to which goals are
achieved

• Efficiency is a measure of the use of inputs (or

resources) to achieve outputs
INTRODUCTION AND DEFINITIONS
• A model is a simplified representation or
abstraction of reality. Reality is generally too
complex to copy exactly. Much of the
complexity is actually irrelevant in problem
solving
INTRODUCTION AND DEFINITIONS
• Iconic (Scale) Model: Physical replica of a
system

• Analog Model behaves like the real system but

does not look like it (symbolic representation)

• Mathematical (Quantitative) Models use

mathematical relationships to represent
complexity
Used in most DSS analyses
MODELS
 MODELS
• Major component of DSS
• Use models instead of experimenting on the
real system
• A model is a simplified representation or
abstraction of reality.
• Reality is generally too complex to copy
exactly
• Much of the complexity is actually irrelevant
in problem solving
 MODELS
• TYPES OF MODELS :
–Mathematical Model
–Quantitative Model
–Linear Programming Model
–Normative Models
–Descriptive Models
 MODELS
• BENEFITS OF MODELS :
1. Time compression
2. Easy model manipulation
3. Low cost of construction
4. Low cost of execution (especially that of errors)
5. Can model risk and uncertainty
6. Can model large and extremely complex systems
with possibly infinite solutions
7. Enhance and reinforce learning, and enhance
training.
 MODELS
• SOLUTION APPROACHES
– Trial-and-Error
– Simulation

– Optimization

– Heuristics
 MODELS
• MATHEMATICAL MODEL :
• Identify variables

• Establish equations describing their

relationships
• Simplifications through assumptions

• Balance model simplification and the

accurate representation of reality
 MODELS
• QUANTITATIVE MODELS :
• Components of Quantitative Models :
– Decision Variables
– Uncontrollable Variables (and/or Parameters)
– Result (Outcome) Variables
– Mathematical Relationships or
– Symbolic or Qualitative Relationships
 MODELS
• DECISION VARIABLES :
• Describe alternative courses of action
• The decision maker controls them
 MODELS
• RESULT (OUTCOME) VARIABLES:
• Reflect the level of effectiveness of the
system
• Dependent variables
 MODELS
• UNCONTROLLABLE VARIABLES OR
PARAMETERS :
• Factors that affect the result variables

• Not under the control of the decision

maker
• Generally part of the environment

• Some constrain the decision maker and

are called constraints
 MODELS
• THE STRUCTURE OF QUANTITATIVE MODELS :
• Mathematical expressions (e.g., equations or
inequalities) connect the components

• Simple financial model

P= R- C

• Present-value model
P = F / (1+i)n
 MODELS
• LINEAR PROGRAMMING MODEL:
• Components
Decision variables
Result variable
Uncontrollable variables (constraints)
 MODELS
• NORMATIVE MODELS :
• The chosen alternative is demonstrably the
best of all (normally a good idea)

• Optimization process

• Normative decision theory based on rational

decision makers
 MODELS
• Descriptive Models
• Describe things as they are, or as they are
believed to be
• Extremely useful in DSS for evaluating
the consequences of decisions and
scenarios
• No guarantee a solution is optimal
• Often a solution will be good enough
DECISION MAKING
 DECISION MAKING
• Decision Making can be done under
following circumstances:
–Decision Making Under certainty
–Decision Making Under Risk
–Decision Making Under Uncertainty
 DECISION MAKING
• DECISION MAKING UNDER CERTAINTY :
• Assumes complete knowledge available
(deterministic environment)
• Typically for structured problems with
short time horizons
• Sometimes DSS approach is needed for
certainty situations
 DECISION MAKING
• DECISION MAKING UNDER RISK :
• Probabilistic or stochastic decision situation
• Must consider several possible outcomes for
each alternative, each with a probability
• Long-run probabilities of the occurrences of
the given outcomes are assumed known or
estimated

• Assess the (calculated) degree of risk associated

with each alternative
 DECISION MAKING
• DECISION MAKING UNDER UNCERTAINTY :
• Several outcomes possible for each course of
action
• BUT the decision maker does not know, or cannot
estimate the probability of occurrence

• More difficult - insufficient information

• Assessing the decision maker's (and/or the
organizational) attitude toward risk
• Example: poker game with no cards face up (5
card stud or draw)
 DECISION MAKING
• IMPORTANT DECISION- MAKING ISSUES :
1. Personality types

2. Gender

3. Human cognition

4. Decision styles
1. Personality (Temperament) Types :
• Strong relationship between personality and
decision making
• Type helps explain how to best attack a problem
• Type indicates how to relate to other types
– important for team building
• Influences cognitive style and decision style
2. Gender:
• Sometimes empirical testing indicates
gender differences in decision making
• Results are overwhelmingly inconclusive
3. Cognition:
• Activities by which an individual resolves
differences between an internalized view of the
environment and what actually exists in that
same environment

• Ability to perceive and understand information

• Cognitive models are attempts to explain or

understand various human cognitive processes
• COGNITIVE STYLE:
• The subjective process through which individuals perceive,
organize, and change information during the decision-making
process

• Often determines people's preference for human-machine

interface

• Impacts on preferences for qualitative versus quantitative

analysis and preferences for decision-making aids

• Affects the way a decision maker frames a problem

• Impacts on the design of management
information systems
• May be overemphasized

• Analytic decision maker

• Heuristic decision maker
4. Decision styles
The manner in which decision makers
• Think and react to problems
• Perceive their
– Cognitive response
– Values and beliefs

• Varies from individual to individual and from situation to situation

• Decision making is a nonlinear process

The manner in which managers make decisions (and the way they
interact with other people) describes their decision style
• SOME DECISION STYLES :
• Heuristic
• Analytic
• Autocratic
• Democratic
• Consultative (with individuals or groups)
• Combinations and variations

• For successful decision-making support, an MSS must fit

the
– Decision situation
– Decision style
• The system
– should be flexible and adaptable to different users
– have what-if and goal seeking
– have graphics
– have process flexibility

• An MSS (Management Support System) should help decision

makers use and develop their own styles, skills, and knowledge

• Different decision styles require different types of support

• Major factor: individual or group decision maker

• THE DECISION MAKERS :
– Individuals
– Groups
• INDIVIDUALS :
• May still have conflicting objectives

• Decisions may be fully automated

• GROUPS:
• Most major decisions made by groups
• Conflicting objectives are common
• Variable size
• People from different departments
• People from different organizations
• The group decision-making process can be very
complicated
• Consider Group Support Systems (GSS)

• Organizational DSS can help in enterprise-wide

decision-making situations
PHASES OF THE DECISION-
MAKING PROCESS
 PHASES OF THE DECISION-MAKING
PROCESS
• Following are the phases of decision making
process :
– Intelligence
– Design
– Choice
– Implementation
 DECISION MAKING: THE
INTELLIGENCE PHASE
• The Decision-Making Process :
• Intelligence phase
– Reality is examined
– The problem is identified and defined
• Design phase
– Representative model is constructed
– The model is validated and evaluation criteria
are set
• Choice phase
– Includes a proposed solution to the model
– If reasonable, move on to the
• Implementation phase
– Solution to the original problem

Failure: Return to the modeling process

Often Backtrack / Cycle Throughout the Process

DECISION MAKING: THE
INTELLIGENCE PHASE
 DECISION MAKING: THE
INTELLIGENCE PHASE
Scan the environment to identify problem
situations or opportunities

Find the Problem

• Identify organizational goals and objectives
• Determine whether they are being met
• Explicitly define the problem
• PROBLEM CLASSIFICATION :
Structured versus Unstructured

Programmed versus Nonprogrammed

Problems

Nonprogrammed Programmed
Problems Problems
• Problem Decomposition: Divide a complex
problem into (easier to solve) subproblems
Chunking (Salami)
• Some seemingly poorly structured problems
may have some highly structured
subproblems
• Problem Ownership

Outcome: Problem Statement

DECISION MAKING: THE DESIGN
PHASE
 DECISION MAKING: THE DESIGN
PHASE
• Generating, developing, and analyzing
possible courses of action

Includes
• Understanding the problem
• Testing solutions for feasibility
• A model is constructed, tested, and validated

Modeling
• Conceptualization of the problem
• Abstraction to quantitative and/or qualitative forms
 DECISION MAKING: THE
IMPLEMENTATION PHASE
 DECISION MAKING: THE
IMPLEMENTATION PHASE
Important Issues
• Resistance to change

• Degree of top management support

• Users’ roles and involvement in system

development
• Users’ training