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Chapter 4 discusses the importance of modeling in Management Support Systems (MSS) for enhancing decision-making and optimizing resources. It covers various types of models, decision environments, and the modeling process, including techniques like decision analysis, simulation, and optimization. The chapter also highlights the use of tools such as influence diagrams and spreadsheet modeling to facilitate effective decision-making.

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3 views

ch_4

Chapter 4 discusses the importance of modeling in Management Support Systems (MSS) for enhancing decision-making and optimizing resources. It covers various types of models, decision environments, and the modeling process, including techniques like decision analysis, simulation, and optimization. The chapter also highlights the use of tools such as influence diagrams and spreadsheet modeling to facilitate effective decision-making.

Uploaded by

zeyad999.mahmoud
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Chapter 4

Modeling in MSS

➤ Overview of Modeling in MSS

• Modeling is central to MSS: enhances decision-making, reduces costs, increases


revenue.
• Used by real-world companies like DuPont, P&G, Fiat for forecasting, scheduling, and
strategic decisions.

➤ Major Modeling Concepts

• Types of Models:

• Static Models: Snapshot view; no change over time.


• Dynamic Models: Change over time; used for evolving scenarios.

• Decision Environments:

• Certainty: All data is known → optimal decision.


• Uncertainty: Outcomes known, but no probabilities.
• Risk: Outcomes and probabilities are known.

➤ Modeling Process Steps:

1. Identify problem and environment.


2. Define variables and relationships (using tools like influence diagrams).
3. Forecast or predict outcomes.
4. Use multiple models for broader perspectives.

➤ Model Management

• MSS uses multiple models for different aspects of a problem.


• Model base management organizes, stores, and retrieves these models.
➤ Categories of Models & Techniques

Category Objective Techniques


Decision Analysis Choose best from few Decision tables, trees
options
Algorithmic Optimization Find best among many Linear/mathematical
programming
Formula-Based Use formulas directly Inventory models
Optimization
Simulation Test scenarios Dynamic simulations
Heuristics Quick "good enough" Expert systems, rules
answers
Predictive Models Forecast outcomes Markov chains, financial models

➤ Influence Diagrams

• Graphical tool showing how decisions, variables, and outcomes are related.
• Shapes:
o Rectangle = Decision Variable
o Circle = Intermediate or Uncontrollable Variable
o Oval = Result/Outcome Variable
o Arrows = Show influence direction

• Types of Variables:

• Deterministic: Certain
• Stochastic: Uncertain
• Random Variable: Marked with tilde (~)

• Tools for Influence Diagrams:

• Analytica, DecisionPro, Vanguard, TreeAge, PrecisionTree (many integrate with


Excel)

➤ Spreadsheet Modeling in MSS

• Excel is most used: Easy, flexible, supports static and dynamic models.
• Tools like Solver and macros aid in optimization, automation, and scenario analysis.

Examples:

• Static: Monthly loan payment calculator.


• Dynamic: Loan with prepayments over time.
➤ Decision Analysis: Few Options, One Goal

Used for problems with:

• Limited alternatives
• Single objective

Tools:

1. Decision Tables: Matrix of decisions vs. outcomes.


2. Decision Trees: Graphical representation of decisions + chance events.

Example Scenario:

Investment Decision under Economic Uncertainty:

Economy Bonds Stocks Time Deposits


Solid Growth 12% 15% 6.5%
Stagnation 6% 3% 6.5%
Inflation 3% -2% 6.5%

Decision Approaches:

1. Optimistic (Maximax) → Choose highest possible return → Stocks (15%).


2. Pessimistic (Maximin) → Best worst-case → Time Deposits (6.5%).
3. Expected Value (with probabilities):
o Example probabilities: Solid Growth 30%, Stagnation 50%, Inflation 20%
o Calculate expected returns and choose the best.

➤ Mathematical Models in MSS

1. Qualitative Models

• Use symbolic (non-numerical) relationships.

2. Quantitative Models

• Use mathematical formulas:


o Decision Variables: Controllable inputs.
o Uncontrollable Variables: External factors.
o Result Variables: Outputs/results.
o Intermediate Variables: Help connect inputs to outputs.

➤ Optimization via Linear Programming (LP)


Used for resource allocation problems.

LP Characteristics:

• Limited resources.
• Must meet constraints.
• Goal: Maximize or minimize an objective.

Example: MBI Corp Product-Mix

• Objective: Maximize profit from 2 products: CC7 & CC8.


• Model:
o Let X1 = units of CC7, X2 = units of CC8
o Objective Function: Maximize Z = 8000X1 + 12000X2
o Constraints:
▪ 300X1 + 500X2 ≤ 200,000 (Labor)
▪ 10000X1 + 15000X2 ≤ 8,000,000 (Materials)
▪ X1 ≥ 100, X2 ≥ 200

➤ Sensitivity, What-if, and Goal Seeking

1. Sensitivity Analysis: See how changes in input affect output.


2. What-if Analysis: Try different scenarios and inputs.
3. Goal Seeking: Start from a desired outcome and work backward to required inputs.

➤ Heuristic Programming

Used when:

• Problems are too large/complex.


• Time is limited.
• Data is uncertain or incomplete.

Key Heuristic Techniques:

• Tabu Search: Avoids repeating past solutions.


• Genetic Algorithms: Simulates evolution.
• Simulated Annealing: Uses random sampling to avoid local optima.

➤ Simulation in DSS

Definition:
A computer-based experiment that mimics real-world behavior.

Characteristics:

• Descriptive (not prescriptive)


• Can handle complex, non-structured problems

Advantages:

• Time compression
• Experiment with different scenarios
• Supports complex real-world issues
• Reflects managerial thinking

Limitations:

• No guaranteed optimal solution


• May require time and cost to build

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