Mrs Vibha Upadhya Trinity Academy of Engineering

Unit 4 Managerial Decision Making

Introduction of Managerial Decision Making

In simple terms, decision making is the process of making choices by recognizing the problem,
gathering information about feasible solutions, and finalizing the best alternative.
This process is carried out through an intuitive or logical process, or a combination of two.
Intuition is all about using your gut feeling to take a stand on the possible course of action. In contrast,
a logical process uses facts and figures to make scientifically sound decisions.
Intuition is an acceptable way of decision-making; nevertheless, it is often more suited when
the decision is easy, personal, or needs to be made quickly. More complex judgments typically need a
more formal, systematic approach that incorporates both intuition and logical reasoning. It is critical
to avoid rash reactions or intuitions in such scenarios, majorly in business decisions.

You live in an era of digitalization where new information is generated every second at a rapidly
increasing rate. And it circulates all around the globe, 24 by 7. This means the amount of historical
records you have in databases spread across the globe is huge. And not making use of it seems totally
delinquent. That is why organizations are increasingly relying on business and data analytics to guide
their decision-making.

Why Decision Making Matters

Making informed, sound, and collaborative decisions can help build a solid organizational direction
and have a favourable impact on costs.

Decision Making in an Organizational Context

The modern business environment is replete with examples of corporations that have made strategic
mistakes, most of which are the result of poor judgments made by CEOs and management in these
firms. For example, the recent crash of Netflix stocks along with the substantial drop in subscriber
count. All of this is because of statements made by Netflix’s CEO Reed Hastings in one interview. He
talked about launching an ad segment for the low-cost Netflix packs, which led to a horrendous ripple
in the share market. Hence, thinking about every statement, initiative and announcement are
increasingly critical in an organizational setup.
Another overarching rule in decision making is that the decision-maker must have legitimacy
and power over the individuals on whose behalf they are choosing. In other words, decision-makers
succeed only when the persons or groups involved in the process respect and obey their choices.
Another important aspect of organization-wide decision making is finding the right data. Having
incomplete or incorrect information (data) frequently leads to analysis paralysis, which is another
label for poor decision-making skills.

What Is the Decision Making Process?

The step-by-step decision-making process can lead to more deliberate and effective judgments. So, go
ahead and discover the involved steps one by one.
1. Identify Your Goals :-The first step in mastering the art of decision-making is to clarify your
objectives. When it comes to making a professional decision, you should have a rough idea about

1
Mrs Vibha Upadhya Trinity Academy of Engineering

which direction you want to follow. Once you've narrowed down your objectives, you'll be able to
make more informed judgments. Try to define the nature of judgement you want to make.
2. Make Use of the Elimination Process:-Along with what you want to achieve with your
judgement, evaluating what you don’t is also critical. Making smart judgments might be difficult if
you're still trying to determine what you want to do. However, if you know what you want to avoid,
the process of elimination might make certain decisions easier.
3. Use SWOT Analysis Method:-SWOT is an acronym that stands for Strengths, Weaknesses,
Opportunities, and Threats. The SWOT analysis is an excellent decision-making tool since it allows
you to determine the pros and cons of a certain decision readily. All you have to do is draw a
rectangular shape, divide it into four parts and label each section of the table with SWOT parameters.
In the next step, you will fill all the positives and negatives of your initiative. Focus more on what
connects strengths and opportunities when you complete your selection. Anything that is continually
linking threats and vulnerabilities should preferably be avoided.
4. Simulate Feasible Outcomes:-While simulating probable outcomes isn't a reliable approach to
predicting what will happen after you make a decision, there are certain ways to simulate what is more
likely to happen because of your decision. If you’re familiar with project management concepts, some
of your learnings can be applied here to visualize the outcome of your decision. Scientific
methodologies such as problem trees, SCQA (situation, complexity, question, answer), and MECE
(mutually exclusive, collectively exhaustive) can also help you add a touch of science to your decision
making.
5. Choose Best Alternative:-After you've analyzed all of your options and created a solid visual
picture of the repercussions of each, you're ready to choose the one that appears to be the greatest fit
for you. If you cannot decide the course of action, ask for help from your colleagues, leadership team,
and friends.

Decision Making Techniques and Tools

Up to this point, we’ve merely mentioned the need for research in coming up with alternatives for
management decision making. The following is a list of techniques and tools a manager can use to
explore different options to land upon a chosen decision:
1. Marginal Analysis
Marginal analysis helps organizations allocate resources to increase profitability and benefits and
reduce costs. An example from indeed.com is if a company has the budget to hire an employee, a
marginal analysis may show that hiring that person provides a net marginal benefit because the ability
to produce more products outweighs the increase in labor costs.
2. SWOT Diagram
This tool helps a manager study a situation in four quadrants:
● Strengths: Where does the organization excel compared to its competition? Consider the
internal and external strengths.
● Weaknesses: What could the organization improve?
● Opportunities: How can the organization leverage its strengths to create new avenues for
success. How could addressing a specific weakness provide a unique opportunity?
● Threats: Determine what obstacles prevent the organization from achieving its goals.
3. Decision Matrix
A decision matrix can provide clarity when dealing with different choices and variables. It is like a
pros/cons list, but decision-makers can place a level of importance on each factor. According to
Dashboards, to build a decision matrix:

2
Mrs Vibha Upadhya Trinity Academy of Engineering

● List your decision alternatives as rows

● List relevant factors as columns
● Establish a consistent scale to assess the value of each combination of alternatives and
factors
● Determine how important each factor is in choosing a final decision and assign weights
accordingly
● Multiply your original ratings by the weighted rankings
● Add up the factors under each decision alternative
● The highest-scoring option wins
4. Pareto Analysis
The Pareto Principle helps identify changes that will be the most effective for an organization. It’s
based on the principle that 20 percent of factors frequently contribute to 80 percent of the
organization’s growth. For example, suppose 80 percent of an organization’s sales came from 20
percent of its customers. A business can use the Pareto Principle by identifying the characteristics of
that 20 percent customer group and finding more like them. By identifying which small changes have
the most significant impact, an organization can better prioritize its decisions and energies.

Decision Making Pitfalls

Taking a systematic approach to decision making helps managers avoid making quick decisions
without adequately considering the consequences to the organization or their reputation. Some of the
pitfalls of decision making include:
● Consultation ambiguity – This can be a scenario where a group of employees all feel like
they have a vote in a decision or when a manager asks for input but doesn’t consider a
group’s views. It’s important for a manager to solicit feedback but to make sure that
contributors understand it’s the manager’s final decision.
● Avoiding discomfort – Sound management decision making requires leaders who do not
confuse their need for comfort with making the best decision. Some of the most effective
decisions involve a degree of discomfort for the manager.
● Appearing indecisive – Sometimes, a systematic decision making process has a
downside. Being too rigorous in evaluating every possible angle can draw out the process
and open the risk of appearing indecisive. Keep stakeholders informed about the timeline
for a decision.
● Blind spots – People have particular perspectives and ways of thinking that can create
blind spots, which may be important for an effective decision but cannot be readily
apparent. It can be helpful to seek input from trusted colleagues to provide a different
perspective.
● Groupthink – This occurs when a group’s members want to minimize conflict and reach a
comfortable decision at the expense of a critical evaluation of other ideas and viewpoints.
It’s important to explore alternatives a group may not have considered.

Decision making environment

It is said that every manager’s primary responsibility is decision-making. Managers follow a
sequential set of steps to make good decisions that are in the interest of the firm. This process is
known as decision making process.
However, the decision making environment is also an important factor in the process. Let us learn
some important aspects of the Decision making environment. The quality of the decisions made in an

3
Mrs Vibha Upadhya Trinity Academy of Engineering

organization will dictate the success or failure of the said business. So all the available information
and alternatives must be studied before arriving at an important decision. The process of decision
making will help a great deal.
Another factor that affects these decisions is the environment in which they are taken. There are a few
different types of environments in which these decisions are made. And the type of decision making
environment has an impact on the way the decision is taken.

Broadly there are three basic types of decision making environment.

1] Certainty:- Such type of environment is very sure and certain by its nature. This means that all the
information is available and at hand. Such data is also easy to attain and not very expensive to gather.
So the manager has all the information he may need to make an informed and well thought out
decision. All the alternatives and their outcomes can also be analyzed and then the manager chooses
the best alternative. Another way to ensure an environment of certainty is for the manager to create a
closed system. This means he will choose to only focus on some of the alternatives. He will get all the
available information with respect to such alternatives he is analyzing. He will ignore the other factors
for which the information is not available. Such factors become irrelevant to him altogether.

2] Uncertainty:- In the decision making environment of uncertainty, the information available to the
manager is incomplete, insufficient and often unreliable. In an uncertain environment, everything is in
a state of flux. Several external and random forces mean that the environment is most unpredictable.
In these times of chaos, all the variables change fast. But the manager has to make sense of this
mayhem to the best of his ability. He must create some order, obtain some reliable data and make the
best decision as per his judgement.

3] Risk:- Under the condition of risk, there is the possibility of more than one event taking place.
Which means the manager has to first ascertain the possibility and probability of the occurrence or
non-occurrence of the event. The manager will generally rely on past experiences to make this
deduction. In this scenario too, the manager has some information available to him. But the
availability and the reliability of the information is not guaranteed. He has to chart a few alternative
courses of actions from the data he has

Open and Closed Systems

A system is “a composition of different parts that perform together in order to improve productivity or
performance” .

Two types of systems occur in organizations.

The first one is an open system. An open system embraces new ideas from the environment. Many
open systems interact with their immediate environments in order to improve performance . An
organization’s marketing department presents the best example of an open system.

A closed system is usually rigid in nature. Such a system will have little interaction with the
surrounding environment. The transmission of knowledge and ideas does not occur within closed
systems. A closed system can discourage growth because it reduces the level of interaction with the
environment.

4
Mrs Vibha Upadhya Trinity Academy of Engineering

Determine if an organization is an open or closed organization

The targeted organization uses an open system. The company has always collaborated with different
stakeholders and business partners to achieve its objectives. The company’s Production Department
(PD) collaborates with different suppliers and business partners. The corporation has always used the
best strategies to remain profitable. Such strategies focus on “every environmental factor such as
politics, economic patterns, and socio-cultural practices” .

The organization advertises its missions and products using various channels such as social media and
newspapers. The above practice explains why this is an open organization. The “practical world does
not give room for absolutely closed systems” . The firm’s marketing department also focuses on every
changing environmental condition in order to achieve its targeted goals. The organization’s Research
and Development (R&D) does not interact with the outside environment. This organization promotes
an open system in order to realize its potentials.

Compare an example of an organization that is a closed system

Some companies are closed systems because they have little interaction with their outside
environments or elements. Such systems “does not mean the organizations are completely closed”.

A good example of a closed organization is the National Aeronautics and Space Administration
(NASA). This agency is responsible for America’s space and aerospace research. The organization
handles critical and sensitive information. The agency’s main stakeholders include the government
and various learning institutions.

The organization prefers a closed system in order to conserve its information. This practice ensures
the agency’s information in never corrupted or lost. The practice retains the level of integrity in the
organization. This system differs from the one applied in the above company. NASA interacts with a
small number of interested parties and stakeholders in order to achieve its objectives. Every
organization should consider the best system depending on its goals and business objectives.

Are the system structures in these organizations appropriate or detrimental to their goals?
The open system used in this organization is appropriate towards achieving every targeted goal. Open
systems ensure organizations focuses on the changing expectations of their stakeholders. This system
structure ensures every organization acquires new ideas and information from the environment.
Companies can use open systems to make the best decisions. An open system has always been
supporting the goals and missions of the above organization . NASA is a closed organization. This
system ensures the organization safeguards its information and data. NASA also collaborates with a
few stakeholders in order to support its goals. This system structure is appropriate because it supports
NASA’s goals.

Decision Types

Decision-making is one of the core functions of management. And it is actually a very scientific
function with a well-defined decision-making process. There are various types of decisions the
managers have to take in the day to day functioning of the firm. Let us take a look at some of the
types of decisions.

5
Mrs Vibha Upadhya Trinity Academy of Engineering

Programmed Decisions and Non-Programmed Decisions

1. Programmed decisions relate to those functions that are repetitive in nature. These decisions
are dealt with by following a specific standard procedure. These decisions are usually taken
by lower management.
For example, granting leave to employees, purchasing spare parts etc are programmed
decisions where a specific procedure is followed.
2. Non-programmed decisions arise out of unstructured problems, i.e. these are not routine or
daily occurrences. So there is no standard procedure or process to deal with such issues.
Usually, these decisions are important to the organization. Such decisions are left to upper
management.
For example, opening a new branch office will be a non-programmed decision.

Structured Decisions and Unstructured Decisions

1. Unstructured decisions: These decisions require judgement, evaluation, and insight to solve
the problem. Unstructured means “decision processes that have not been encountered in quite
the same form and for which no predetermined and explicit set of ordered responses exists in
the organization”.
2. Semistructured decisions: These decisions have elements of both structured and
semi-structured decisions. Only part of the problem has a clear-cut answer provided by an
accepted procedure. A semi-structured decision is one that is partially programmable but still
requires human judgement.
3. Structured decisions: Means having processes in place to handle a situation. These decisions
are repetitive and routine.

6
Mrs Vibha Upadhya Trinity Academy of Engineering

Decision Making Models

Classical Model of decision-making

A classical decision model is a prescriptive approach that guides management on how it should make
a decision. It rests on the assumption that managers are logical and rational and that they make
decisions that are in the best interest of the organization.
The classical model views the decision-making process:

i) Decision-makers have complete information about the decision situation and possible alternatives,
ii) They can effectively eliminate uncertainty to achieve a decision condition of certainty,
iii) They evaluate all aspects of the decision situation logically and rationally.

However, these conditions rarely, if ever, actually exist. This model may be represented in the
following diagram:

Administrative Model of Decision-making

Herbert A. Simon was one of the first few scholars to recognize that decisions are not always made
with rationality and logic. Simon, a winner of the Nobel Prize in Economics, instead of prescribing
how decisions should be made, describes how decisions often actually are made.
The Administrative model holds that managers:

(i) Have incomplete and imperfect information,

(ii) Are constrained by bounded rationality, and
(iii) Tend to satisfies when making decisions.

As a matter of fact, the classical and administrative models paint quite different pictures of decision
making. The classical model is prescriptive: it explains how managers can at least attempt to be more
rational and logical in their approach to decisions.
The administrative model can be used by managers to develop a better understanding of their inherent
biases and limitations.

7
Mrs Vibha Upadhya Trinity Academy of Engineering

Decision Making Tools:

All groups make or influence decisions. Some decisions are big and impact the entire partnership
(e.g., how funds should be allocated to achieve the partnership mission). Some are small and have
only minimal impact on members (e.g., where the next meeting should be held). The four decision
making styles described below are for you to consider as you go about developing communication
strategies that are responsive to the needs of the people and organizations that are part of your early
childhood development systems building efforts. Effective communication includes helping group
participants (staff or stakeholders) understand their roles in the various decisionmaking models which
can reduce conflict and focus discussion.

1. Autocratic – “Leader Decides”

Autocratic decision making involves the leader maintaining control of and responsibility for the
decision. As the collaborative leader you make and announce the decision without consulting the
group.

Advantages: Autocratic decisionmaking is fast. As the leader you do not ask for suggestions or ideas
from the group. You base your decision on personal knowledge and perceptions of the situation.
Decisions are made with little or no discussion.

Disadvantages: Group members are less likely to support and participate in the collaborative effort
when they have no input in the decision making process. Continued and regular autocratic decision
making can lead to distrust, low morale, and inefficiency, especially if group members are adversely
affected by the decision.
When to Use This Style: Use autocratic decision making when the decision needs to be made quickly
or when outcomes involve inconsequential matters that will have little impact.

2. Consultative – “Leader Decides With Input from the Group”

Consultative decision making is when the leader involves the members of the group by asking them to
share ideas, perceptions, and information concerning the decision. As the leader you maintain control
and responsibility for the decision but let the group know how their input impacted the final decision.

Advantages: Group participation and involvement in the decision making process can lead to
increased levels of commitment to the collaborative work. Input from others increases understanding
about the situation and helps the leader make a better decision.

Disadvantages: Group members may assume they have a say in the final decision, which is not the
case. It must be clear to the group that their recommendations will be considered, but the leader is still
making the final decision.

When to Use This Style: Use consultative decision making when you don’t have time to negotiate
consensus but you need the expertise of the group to make a quality decision.

3. Democratic – “One Member, One Vote”

The leader gives up ultimate decision making authority and has an equal vote in the democratic
decision making process where the majority wins. While the group votes and the majority leads, no

8
Mrs Vibha Upadhya Trinity Academy of Engineering

one individual is responsible for the decision and the group may not feel responsible if all of the
members did not vote. There may be no responsibility taken for the decision.

Advantages: Provides an opportunity for all group members to have equal input in decisions that can
be made fairly quickly and with minimal impact.

Disadvantages: Group members may agree to comply with the voting decision, but they may not take
ownership or feel responsible for the decision if their vote did not win.

When to Use This Style: Democratic decision making can be used to narrow down the field of
alternatives for consideration, and when you need to speed up decision results. Use it when it is
important to know the general opinion of the group, but you do not anticipate major resistance from
those who “lose” the vote.

4. Consensus – “The Group Decides”

Consensus decision making means that every group member buys into the decision. The leader gives
up total control of the decision to the group. Group members are fully committed to the decision.
They have a sense of ownership and responsibility for follow-through and the outcome.

Advantages: Individual group members feel valued and respected while agreeing with and supporting
the group’s decision. Every group member has a stake in the success of the decision.

Disadvantages: Reaching consensus can be a slow process. It requires a structured discussion process
that allows enough time to fully explore information, thoughts, and feelings related to the decision. It
requires members to understand the issues and be willing to share their opinions openly.

When to Use This Style: Use consensus decision making when you want high quality input and
commitment, with follow-through, from the group. You may consider using a neutral facilitator to
lead the discussion and decision making if the topic is complex and the outcome will have a major
impact on the group’s direction.

Herbert Simon Model on Decision Making

Herbert Simon, the Nobel Prize winning researcher, showed that humans went through three essential
stages in the act of problem solving. He called these the Intelligence, Design, and Choice stages.

(I). Intelligence: raw data collected, processed and examined, Identifies a problem calling for a
decision.
In the intelligence phase, the MIS collects the data. The data is scanned, examined, checked and
edited. Further, the data is sorted and merged with other data and computations are made, summarized
and presented. In this process, the attention of the manager is drawn to all problem situations by
highlighting the significant differences between the actual and the expected, the budgeted or the
targeted.

(II).Design: inventing, developing and analysing the different decision alternatives and testing the
feasibility of implementation. Assess the value of the decision outcome.

9
Mrs Vibha Upadhya Trinity Academy of Engineering

In the design phase, the manager develops a model of the problem situation on which he can
generate and test the different decision alternatives, he then further moves into phase of selection
called as choice

(III). Choice: select one alternative as a decision, based on the selection criteria.

In the phase of choice, the manager evolves selection criteria such as maximum profit, least cost,
minimum wastage, least time taken and highest utility. The criterion is applied to the various decision
alternatives and the one which satisfies the most is selected. In these phases, if the manager fails to
reach a decision, he starts the process all over again and again. An ideal MIS is supposed to make a
decision for the manager.

Decision making can also be considered as a type of problem solving. In the first stage, that of
intelligence, they collect information about the issue from the environment and the surrounding
context.

For example, if a person is faced with the problem of travelling from Bangalore to New Delhi, a
distance of about 2000 km, then in the intelligence stage the person will seek all possible information
of how to travel – by air, by train, by bus, or by a personal vehicle. This inquiry is open-ended and
will involve searching for all possible avenues by which the problem can be solved.

The question addressed at this stage is as follows: What criteria should be used to decide between the
alternative possible solutions to the problem? This question requires the decision maker to settle on
the criteria that are important, and then select or rank-order them. For example, the choice of cost and
time may be the most important criteria for the decision-making process.

At the next stage, that of choice, the criteria are applied to select the best answer from the available
choices. For example, based on the criteria of cost and time available, it may be best to travel to Delhi
from Bangalore by train. The criteria may be weighted and these weights are applied in a formal
manner, often with the help of a mathematical model. Once a solution is available, the decision maker
may be satisfied with the answer or may return to earlier stages to redo the process.

10
Mrs Vibha Upadhya Trinity Academy of Engineering

At the choice stage, the criteria and parameters for the decision help curtail the amount of search
required to arrive at a decision. If the criteria are not specified sharply then the number of alternatives
to be considered to arrive at a decision may be very large.

This stage may also require returning to the intelligence gathering activity, and then to the design
stage to change or modify the criteria and the weights used to apply them. In his seminal work,
Herbert

DSS are designed to support mainly the choice stage of the decision-making process.

Managers can enter the relevant data into the system, select or prioritise their criteria and let the
system decide on the final solution.

Principle of Rationality / Bounded Rationality

What is the Principle of Rationality?

Different types of the tools and techniques are used in the decision making process, which have been
explained in previous posts but besides these techniques, there are some principles which are used
widely in the, as explained above making process and these can be summarized as the follows –

1. The Principle of the Bounded Rationality – Our rationality is very widely conditioned by the
large number of the factors or the constraints which may include the following –

a. Financial
b. Technical
c. Administrative

The decisions are and should be generally based on rationality and in such a scenario; the Principle of
Rationality plays a very critical role. According to the Principle of Rationality, taking a complete
rational decision is very much difficult, in – fact the possibility of this is nil, so the Principle of the
Rationality implies that it is not at all possible to achieve any type of the scientific solution and as a
result of this it is better in any way to carry on and arrive at the workable decisions which fit in to the
Principle of the Bounded Rationality. The workable decision acts as the starting point of a scientific
solution, which in turn is the ultimate goal that one thinks to get.
If any case, a scientific decision cannot be taken or cannot be implemented, then the decision would
actually be only ideal, hypothetical in the nature but also the decision would be very much impractical
in nature.
So in such a scenario, it is very much necessary that the workable solution is worked out while still
continuing to work on the development of the scientific solution.

2. The Principle of the Logic and Intuition – The type of the scenario existing today involves the
availability of a huge amount of the information and hence in any case, it cannot be ignored while
taking any type of the decision. The Principle of the Logic and the Intuition helps in taking the
decisions based on their own logic and intuition / hunch. The main aim should be to arrive at a
decision based on the data or the information and one very important thing to keep in the mind here is
that the due weight age should be given to the data or the intuition.

11
Mrs Vibha Upadhya Trinity Academy of Engineering

Now a days, the various professional managers tend to take the decisions depending widely on the
data, facts and the figures.
The decisions based on the intuitions can be defined as the decisions where the logical explanation is
not at possible though the decision makers think that their approach is and would be absolutely the
right one.

Business Intelligence

What is Business Intelligence?

BI(Business Intelligence) is a set of processes, architectures, and technologies that convert raw data
into meaningful information that drives profitable business actions. It is a suite of software and
services to transform data into actionable intelligence and knowledge.
BI has a direct impact on organization’s strategic, tactical and operational business decisions. BI
supports fact-based decision making using historical data rather than assumptions and gut feeling.
BI tools perform data analysis and create reports, summaries, dashboards, maps, graphs, and charts to
provide users with detailed intelligence about the nature of the business.

Why is BI important?

● Measurement: creating KPI (Key Performance Indicators) based on historic data

● Identify and set benchmarks for varied processes.
● With BI systems organizations can identify market trends and spot business problems that
need to be addressed.
● BI helps on data visualization that enhances the data quality and thereby the quality of
decision making.
● BI systems can be used not just by enterprises but SME (Small and Medium Enterprises)

How Business Intelligence systems are implemented?

Here are the steps:

Step 1) Raw Data from corporate databases is extracted. The data could be spread across multiple
heterogeneous systems.
Step 2) The data is cleaned and transformed into the data warehouse. The table can be linked, and
data cubes are formed.
Step 3) Using BI system the user can ask queries, request ad-hoc reports or conduct any other
analysis.

12
Mrs Vibha Upadhya Trinity Academy of Engineering

Examples of Business Intelligence System used in Practice

Example 1:

In an Online Transaction Processing (OLTP) system information that could be fed into product
database could be
● add a product line
● change a product price
Correspondingly, in a Business Intelligence system query that would be executed for the product
subject area could be did the addition of new product line or change in product price increase
revenues
In an advertising database of OLTP system query that could be executed
● Changed in advertisement options
● Increase radio budget
Correspondingly, in BI system query that could be executed would be how many new clients added
due to change in radio budget
In OLTP system dealing with customer demographic data bases data that could be fed would be
● increase customer credit limit
● change in customer salary level
Correspondingly in the OLAP system query that could be executed would be can customer profile
changes support support higher product price
Example 2:
A hotel owner uses BI analytical applications to gather statistical information regarding average
occupancy and room rate. It helps to find aggregate revenue generated per room.
It also collects statistics on market share and data from customer surveys from each hotel to decides
its competitive position in various markets.
By analyzing these trends year by year, month by month and day by day helps management to offer
discounts on room rentals.
Example 3:
A bank gives branch managers access to BI applications. It helps branch manager to determine who
are the most profitable customers and which customers they should work on.

13
Mrs Vibha Upadhya Trinity Academy of Engineering

The use of BI tools frees information technology staff from the task of generating analytical reports
for the departments. It also gives department personnel access to a richer data source.
Four types of BI users

Following given are the four key players who are used Business Intelligence System:
1. The Professional Data Analyst:
The data analyst is a statistician who always needs to drill deep down into data. BI system
helps them to get fresh insights to develop unique business strategies.
2. The IT users:
The IT user also plays a dominant role in maintaining the BI infrastructure.
3. The head of the company:
CEO or CXO can increase the profit of their business by improving operational efficiency in
their business.
4. The Business Users”
Business intelligence users can be found from across the organization. There are mainly two
types of business users
1. Casual business intelligence user
2. The power user.
The difference between both of them is that a power user has the capability of working with
complex data sets, while the casual user need will make him use dashboards to evaluate
predefined sets of data.

Advantages of Business Intelligence

Here are some of the advantages of using Business Intelligence System:
1. Boost productivity:-With a BI program, It is possible for businesses to create reports with a single
click thus saves lots of time and resources. It also allows employees to be more productive on their
tasks.
2. To improve visibility:-BI also helps to improve the visibility of these processes and make it
possible to identify any areas which need attention.
3. Fix Accountability:-BI system assigns accountability in the organization as there must be someone
who should own accountability and ownership for the organization’s performance against its set goals.
4. It gives a bird’s eye view:-BI system also helps organizations as decision makers get an overall
bird’s eye view through typical BI features like dashboards and scorecards.
5. It streamlines business processes:-BI takes out all complexity associated with business processes.
It also automates analytics by offering predictive analysis, computer modeling, benchmarking and
other methodologies.
6. It allows for easy analytics:-BI software has democratized its usage, allowing even nontechnical
or non-analysts users to collect and process data quickly. This also allows putting the power of
analytics from the hand’s many people.

BI System Disadvantages
1. Cost:-Business intelligence can prove costly for small as well as for medium-sized enterprises. The
use of such type of system may be expensive for routine business transactions.
2. Complexity:-Another drawback of BI is its complexity in implementation of datawarehouse. It can
be so complex that it can make business techniques rigid to deal with.

14
Mrs Vibha Upadhya Trinity Academy of Engineering

3. Limited use:-Like all improved technologies, BI was first established keeping in consideration the
buying competence of rich firms. Therefore, BI system is yet not affordable for many small and
medium size companies.
4. Time Consuming Implementation:-It takes almost one and half year for data warehousing system
to be completely implemented. Therefore, it is a time-consuming process.

Trends in Business Intelligence

The following are some business intelligence and analytics trends that you should be aware of.
Artificial Intelligence: Gartner’ report indicates that AI and machine learning now take on complex
tasks done by human intelligence. This capability is being leveraged to come up with real-time data
analysis and dashboard reporting.
Collaborative BI: BI software combined with collaboration tools, including social media, and other
latest technologies enhance the working and sharing by teams for collaborative decision making.
Embedded BI: Embedded BI allows the integration of BI software or some of its features into
another business application for enhancing and extending it’s reporting functionality.
Cloud Analytics: BI applications will be soon offered in the cloud, and more businesses will be
shifting to this technology. As per their predictions within a couple of years, the spending on
cloud-based analytics will grow 4.5 times faster.

Summary:

● BI is a set of processes, architectures, and technologies that convert raw data into meaningful
information that drives profitable business actions.
● BI systems help businesses to identify market trends and spot business problems that need to
be addressed.
● BI technology can be used by Data analyst, IT people, business users and the head of the
company.
● BI system helps organization to improve visibility, productivity and fix accountability.
● The draw-backs of BI is that it is time-consuming, costly and very complex process.

Case Study on Web-Based Decision Support Systems for Retirement Planning

What is a Decision Support System (DSS)?

Now that we know what a decision support system does, let’s understand what exactly it is and how it
works. A decision support system is:

● a computer-based application or program

● that compiles, combines and analyzes raw data, documents, fundamentals of social
science, applied science, mathematics and managerial science, and personal knowledge
(of decision maker/s)
● to identify problems and determine their solutions
● in order to facilitate optimal decision making
A decision support system is an interactive computer application that has complete access to
information about your organization. When used, it offers comparative figures between one period
and the next. It projects revenue figures based on assumptions related to product sales. A DSS is smart

15
Mrs Vibha Upadhya Trinity Academy of Engineering

enough to help you understand the expenses involved in and consequences resulting from different
decision alternatives.

A decision support system helps overcome the barriers to a good decision making, including:

● lack of experience
● biasness
● shortage of time
● wrong calculations
● not considering alternatives

The Decision Support Systems can be divided into following categories:

1. Model-driven DSS
A model-driven DSS was based on simple quantitative models. It used limited data and
emphasized manipulation of financial models. A model-drive DSS was used in
production planning, scheduling and management. It provided the most elementary
functionality to manufacturing concerns.
2. Data-driven DSS
Data-driven DSS emphasized the access and manipulation of data tailored to specific
tasks using general tools. While it also provided elementary functionality to businesses,
it relied heavily on time-series data. It was able to support decision making in a range of
situations.
3. Communication-driven DSS
As the name suggests, communication-driven DSS uses communication and network
technologies to facilitate decision making. The major difference between this and the
previous classes of DSS was that it supported collaboration and communication. It made
use of a variety of tools including computer-based bulletin boards, audio and video
conferencing.
4. Document-driven DSS
A document-driven DSS uses large document databases that stores documents, images,
sounds, videos and hypertext docs. It has a primary search engine tool associated for
searching the data when required. The information stored can be facts and figures,
historical data, minutes of meetings, catalogs, business correspondences, product
specifications, etc.
5. Knowledge-driven DSS
Knowledge-based DSS are human-computer systems that come with a problem-solving
expertise. These combine artificial intelligence with human cognitive capacities and can
suggest actions to users. The notable point is that these systems have expertise in a
particular domain.
6. Web-based DSS
Web-based DSS is considered the most sophisticated decision support system that
extends its capabilities by making use of worldwide web and internet. The evolution
continues with advancement in internet technology.

16
Mrs Vibha Upadhya Trinity Academy of Engineering

Components of a Decision Support System

Like any other software system, DSS also has components and phases of development. No matter
what kind of decision support system you’re looking to develop, you must plan around these four
components:
● Input: What kind of input does it require to carry out the analysis? As mentioned
earlier, it can be rule, problem, spreadsheet, text or database oriented.
● User Knowledge/Expertise: Whether inputs will require manual analysis by the user
or not
● Output: Should the outcomes be comparative or generic?
● Decisions: Whether it should be a suggestion support system? Or you just want it to
analyze the data and outcome of different actions?

Web-Based Decision Support Systems

To accelerate the process of transforming information into knowledge and applying it to resolve
problems, organizations use resources in addition to human intellect. These resources help them
discover patterns, identify context where these patterns work and analyze alternative solutions.

A computerized decision support system does all the work and aids managers in making the right
choice. However, with the arrival of the internet and modern communication technologies, the
organizational decision support systems deploy web-based technologies. The new science of gathering
and distributing information adds efficiency to DSS, ultimately helping managers make more
appropriate decisions.

The best part is that the web-based decision support systems can be knowledge-driven,
communications-driven, model-driven, document-driven or data-driven or hybrid. Web technologies
can be integrated with any type of decision support system. Since internet technologies are known for
effective, faster and safer information distribution, the web-based DSS can be used across the
organization and by two or more organizations where there is a need for information sharing.

Designing and Developing Web-Based DSS

Most companies simply integrate a web browser on their existing decision support systems, in the
name of upgrading it and deploying a so-called web-based DSS. The results, most likely, are
unsatisfactory and ambiguous. This is because the web technologies are integrated without carrying a
feasibility analysis. When a DSS is initially designed, it focuses on the current requirements of its
users. Ideally, managers shouldn’t expect it to be efficient in other areas.

So, the question remains - what goes into designing and developing a web-based decision support
system?

Step-by-step process explaining how a web-based system is designed and developed. However, this is
a standard process and any of the below mentioned steps can be removed during system development,
depending on the understanding and preferences of developers, analysts and users.

1. Problem Identification: This is universal because without having to know what you
want a web-based DSS to do for you, it’s impossible to move ahead – let alone getting

17
Mrs Vibha Upadhya Trinity Academy of Engineering

things right. Brainstorm with your team members to identify the problems you want to
resolve using a DSS.
2. Conceptualization: Next step is to conceptualize the idea on which your DSS will be
based. Ask yourself these questions:
○ What is it going to do?
○ How is it doing to do?
○ What techniques will it use?
○ Who’s going to use it?
○ What processes do you want it to carry?
3. Feasibility Analysis: Once you have a clear idea of a prospective decision support
system, you must assess it. Try to uncover
○ Its strengths and weaknesses
○ Opportunities and threats
○ Resources required to build it
○ Prospects for success
4. In addition to this, a feasibility analysis sheds light on a project’s operational,
economical, technological, scheduling and legal viability.
5. System Development: Once the prospective system has passed your feasibility test, you
can begin with system development. Remember that system development doesn’t just
require technical expertise; rather it’s a collaborative effort of managers, DSS analysts,
developers and finance professionals. The focus must be on:
6. UI Development: Developing a user interface remains the most crucial aspect of any
computer-based system. And it becomes more important when a prospective system will
be used by individuals of various levels of sophistication and technical know-how.
Control, memory aids and suggestions based on user’s history are important components
of a user interface, when it comes to a web-based system.
7. DSS Architecture: User interface is just a part of DSS architecture and thus, is not
separated from it. However, we mentioned it separately because UI is like a middleman
that fosters communication between the system and the user. Arguably, it’s the most
important aspect of DSS architecture.
Typically a web-based DSS is built on three or four tier architecture. One, user sends a
request through a web browser using HTTP to a web server. Two, the web server then
uses a program or a script to process the request. Three, the script may link to a model,
processes a database request or format a document. Four, the web browser where the
user sent a request displays results most suited to his/her query.
8. Tool Selection: HTML (Hyper Text Markup Language) is the most commonly used tool
for developing web-based DSS. HTML is not a programming language, but can be used
for input and output from a decision support which is programmed in Java or JavaScript.
HTML has been basically designed to stipulate the rational organization of documents
with hypertext extensions.
XML (Extensible Markup Language), CGI (Common Gateway Interface Scripts),
JavaScript code in HTML pages, Java applets and ActiveX are other tools that can be
used to develop web-based DSS. In order to weigh your options, you must consult your
developer and determine development costs.

18
Mrs Vibha Upadhya Trinity Academy of Engineering

9. System Implementation: Once the system is developed, the next phase is to implement
it. A number of tools are available that specialize in implementation of DSS. These are
ColdFusion and dbProbe.

Potential Problems

When an organization gets on with web-based DSS, there can arise many potential problems, which
can be easily resolved. Let’s take a look at potential problems and their solutions.

● As the DSS is web-based, it may encounter peak load problems when many managers
use the system simultaneously. High performance hardware can resolve this problem.
● Web is stateless and doesn’t keep track of configuration settings automatically. At the
same time users don’t want to reenter the username and password each time they use
the system. You must consult your developers or solution providers on how to handle
user authorization and authentication.
● Users must learn to use the system rapidly. This is because web technologies keep
advancing and there will be a need to upgrade the system on regular basis. Training can
help users keep up with the changing technology.

Managing Web-Based and Inter-Organizational Decision Support System

Managing web-based and inter-organizational decision support systems can be daunting. This is
because these systems are used by a many individuals for making shared decisions. Despite observing
extreme caution when developing a system, there are some real-world issues that are bound to arise.
Reengineering business process can be really challenging. It’s not an easy task to redesign or
reengineer a business process when it involves a huge number of users. Managers in interdependent
organizations must consider following issues to ensure effective implementation of a web-based DSS:

● The first major issue is – who will use the system: managers, suppliers, customers or
all? When you answer this question, you’ll identify the associated questions: whether
there will be a need to redefine processes; how are you going to train the users to work
on a DSS; what are the chances of its success, etc. If the answers to these questions are
ambiguous, your DSS is destined to fail.
● The second major issue is availability of technical talent to develop a web-based DSS.
Experts need to determine hardware, software and manpower required to build a
system. So, managers need to ask themselves if they have in-house capabilities to work
on developing the system. If not, where are they going to find their technology
partners?
● Third major issue is legality of the information distributed through DSS to external
parties. Consider, if you are likely to face any copyright or privacy issues?

Examples of Web-Based DSS

There are several famous web-based decision support systems, including but not limited to:

● Microsoft Carpoint: Demonstrating both data and model-driven DSS, Microsoft

Carpoint is a web-based system that allows users to make pair-wise comparisons of car
models.

19
Mrs Vibha Upadhya Trinity Academy of Engineering

● TCB Works: A communication-driven web-based DSS, TCB Works enables people to

interact, discuss and make both structured and multi-criteria decisions. Users are
prompted to enter username and password, in order to start with the project screen.
● Fidelity ‘Retirement Planning Calculator’: It is a model-driven DSS to help a person
decide how much he or she needs to invest each month for retirement.
● Netscape Decision Guides: These are model and knowledge-driven web-based
decision support systems, offering 25 different decision guides on diverse topics,
including choosing pets, bikes and business schools.
● Stockfinder: It’s a data-driven DSS to help investors identify stocks based on various
criteria, including industry type, price and earnings.

Companies with Web-based DSS

Many companies across the world have implemented some kind of web-based decision support
systems, including but not limited to:

● NDC Health Information Services has created a web-enabled prescription data

warehouse that it sells to pharmaceutical manufacturers.
● Bell Canada uses the Essbase Web Gateway enabling hundreds of sales and business
managers compose their own interactive queries from their own web browsers. They
can also navigate, analyze and update sales forecasts for their own use.
● Societe Generale USA installed a multi-tier architecture that enables the support of
both web computing and client server.
● Hannaford brothers Grocery chain uses a DSS that provides store managers with
detailed reports sales, cost, inventory and budget, so that they can use the information
to make decisions.

Advantages and Disadvantages of Web-based DSS

Web-based decision support systems though are the latest in the class. But they also have a fair share
of pros and cons. Let’s take a look at their advantages and disadvantages:

Advantages

● Web-based DSS reduce decision making costs to a great extent.

● They have reduced geographical and technological barriers.
● They make it easy for companies to involve their vendors, suppliers and customers in
decision making, surveys, etc.
● They have significantly improved the speed of information distribution.
● They provide an excellent way to create and manage a knowledge repository.
● They have reduced end-user training costs as web technologies nowadays are used by
almost everyone.
Disadvantages

● Web-based DSS are extremely efficient, due to which users sometimes set unrealistic
expectations.
● They may succumb to peak demands and experience load problems.

20
Mrs Vibha Upadhya Trinity Academy of Engineering

● Web-based DSS require additional security, which may be expensive.

● Web technologies advance at a very fast pace. It may be difficult to upgrade the system
so frequently.
● The knowledge repository may accumulate obsolete reports, if users don’t delete old
information.
The internet and World Wide Web have created major opportunities to create, manage and share both
quantitative and qualitative information while keeping the costs low. Though these technologies don’t
resolve all the problems but they have contributed significantly to knowledge management and
decision making.

Web-based DSS can be very effective if managers are aware of what they want to create and how they
want to use it. These systems are expected to evolve and become smarter with the advancement in
internet technologies.

***********Best of Luck***********

21