CHAPTER 5

Modeling and Analysis

1
 Modeling and Analysis
 Major DSS component
 Model base and model management
 CAUTION - Difficult Topic Ahead
– Familiarity with major ideas
– Basic concepts and definitions
– Tool--influence diagram
– Model directly in spreadsheets

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 Modeling and Analysis
 Structure of some successful models and methodologies
– Decision analysis
– Decision trees
– Optimization
– Heuristic programming
– Simulation

 New developments in modeling tools / techniques

 Important issues in model base management

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 Modeling and Analysis Topics
 Modeling for MSS
 Static and dynamic models
 Treating certainty, uncertainty, and risk
 Influence diagrams
 MSS modeling in spreadsheets
 Decision analysis of a few alternatives (decision tables and trees)
 Optimization via mathematical programming
 Heuristic programming
 Simulation
 Multidimensional modeling -OLAP
 Visual interactive modeling and visual interactive simulation
 Quantitative software packages - OLAP
 Model base management

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 Modeling for MSS
 Key element in most DSS

 Necessity in a model-based DSS

 Can lead to massive cost reduction /

revenue increases

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Good Examples of MSS Models
 DuPont rail system simulation model (opening
vignette)
 Procter & Gamble optimization supply chain
restructuring models (case application 5.1)
 Scott Homes AHP select a supplier model (case
application 5.2)
 IMERYS optimization clay production model
(case application 5.3)

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 Major Modeling Issues
 Problem identification
 Environmental analysis
 Variable identification
 Forecasting
 Multiple model use
 Model categories or selection (Table 5.1)
 Model management
 Knowledge-based modeling

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 Static and Dynamic Models
 Static Analysis
– Single snapshot
 Dynamic Analysis
– Dynamic models
– Evaluate scenarios that change over time
– Time dependent
– Trends and patterns over time
– Extend static models

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 Treating Certainty,
Uncertainty, and Risk

 Certainty Models

 Uncertainty

 Risk

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 Influence Diagrams
 Graphical representations of a model
 Model of a model
 Visual communication
 Some packages create and solve the mathematical model
 Framework for expressing MSS model relationships
Rectangle = a decision variable
Circle = uncontrollable or intermediate variable
Oval = result (outcome) variable: intermediate or final
Variables connected with arrows
Example (Figure 5.1)

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 Unit Price Income

~
Amount used in advertisement Units Sold Profit

Expense
Unit Cost

Fixed Cost

FIGURE 5.1 An Influence Diagram for the Profit Model.

Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson, 6th edition 11
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Analytica Influence Diagram of a Marketing
Problem: The Marketing Model (Figure 5.2a)
(Courtesy of Lumina Decision Systems, Los Altos, CA)

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 Analytica: Price Submodel (Figure 5.2b)
(Courtesy of Lumina Decision Systems, Los Altos, CA)

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 Analytica: Sales Submodel (Figure 5.2c)
(Courtesy of Lumina Decision Systems, Los Altos, CA)

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 MSS Modeling in Spreadsheets
 Spreadsheet: most popular end-user modeling tool
 Powerful functions
 Add-in functions and solvers
 Important for analysis, planning, modeling
 Programmability (macros)
(More)

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 What-if analysis
 Goal seeking
 Simple database management
 Seamless integration
 Microsoft Excel
 Lotus 1-2-3

 Excel spreadsheet static model example of a simple loan calculation of

monthly payments (Figure 5.3)

 Excel spreadsheet dynamic model example of a simple loan calculation

of monthly payments and effects of prepayment (Figure 5.4)

Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson, 6th edition 16
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 Decision Analysis
of Few Alternatives
(Decision Tables and Trees)

Single Goal Situations

 Decision tables

 Decision trees

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 Decision Tables

 Investment example

 One goal: maximize the yield after one year

 Yield depends on the status of the economy

(the state of nature)
– Solid growth
– Stagnation
– Inflation

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 Possible Situations
1. If solid growth in the economy, bonds yield 12%;
stocks 15%; time deposits 6.5%

2. If stagnation, bonds yield 6%; stocks 3%; time

deposits 6.5%

3. If inflation, bonds yield 3%; stocks lose 2%;

time deposits yield 6.5%

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View Problem as a Two-Person Game
Payoff Table 5.2

 Decision variables (alternatives)

 Uncontrollable variables (states of economy)

 Result variables (projected yield)

Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson, 6th edition 20
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 Table 5.2: Investment Problem
Decision Table Model
States of Nature
Solid Stagnation Inflation
Alternatives Growth

Bonds 12% 6% 3%

Stocks 15% 3% -2%

CDs 6.5% 6.5% 6.5%

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 Treating Uncertainty

 Optimistic approach

 Pessimistic approach

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 Treating Risk

 Use known probabilities (Table 5.3)

 Risk analysis: compute expected values

 Can be dangerous

Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson, 6th edition 23
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 Table 5.3: Decision Under Risk and Its
Solution
Solid Stagnation Inflation Expected
Growth Value

Alternatives .5 .3 .2

Bonds 12% 6% 3% 8.4% *

Stocks 15% 3% -2% 8.0%

CDs 6.5% 6.5% 6.5% 6.5%

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 Decision Trees

 Other methods of treating risk

– Simulation
– Certainty factors
– Fuzzy logic

 Multiple goals

 Yield, safety, and liquidity (Table 5.4)

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 Table 5.4: Multiple Goals

Alternatives Yield Safety Liquidity

Bonds 8.4% High High

Stocks 8.0% Low High

CDs 6.5% Very High High

Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson, 6th edition 26
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 Table 5.5: Discrete vs. Continuous
Probability Distribution

Daily Discrete Continuous

Demand Probability

5 .1 Normally distributed with

6 .15 a mean of 7 and a
7 .3 standard deviation of 1.2
8 .25
9 .2

Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson, 6th edition 27
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 Optimization via Mathematical
Programming

 Linear programming (LP)

Used extensively in DSS

 Mathematical Programming
Family of tools to solve managerial problems in
allocating scarce resources among various
activities to optimize a measurable goal

Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson, 6th edition 28
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 LP Allocation
Problem Characteristics

1. Limited quantity of economic resources

2. Resources are used in the production of
products or services
3. Two or more ways (solutions, programs) to
use the resources
4. Each activity (product or service) yields a
return in terms of the goal
5. Allocation is usually restricted by constraints

Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson, 6th edition 29
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 LP Allocation Model
 Rational economic assumptions
1. Returns from allocations can be compared in a common unit
2. Independent returns
3. Total return is the sum of different activities’ returns
4. All data are known with certainty
5. The resources are to be used in the most economical manner

 Optimal solution: the best, found algorithmically

Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson, 6th edition 30
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Linear Programming

 Decision variables Line

 Objective function
 Objective function coefficients
 Constraints
 Capacities
 Input-output (technology) coefficients

Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson, 6th edition 31
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 Lindo LP Product-Mix Model
DSS in Focus 5.4

<< The Lindo Model: >>

MAX 8000 X1 + 12000 X2
SUBJECT TO
LABOR) 300 X1 + 500 X2 <= 200000
BUDGET) 10000 X1 + 15000 X2 <= 8000000
MARKET1) X1 >= 100
MARKET2) X2 >= 200
END

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<< Generated Solution Report >>

LP OPTIMUM FOUND AT STEP 3

OBJECTIVE FUNCTION VALUE

1) 5066667.00

VARIABLE VALUE REDUCED COST

X1 333.333300 .000000
X2 200.000000 .000000

Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson, 6th edition 33
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 ROW SLACK OR SURPLUS DUAL PRICES
LABOR) .000000 26.666670
BUDGET) 1666667.000000 .000000
MARKET1) 233.333300 .000000
MARKET2) .000000 -1333.333000

NO. ITERATIONS= 3

Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson, 6th edition 34
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RANGES IN WHICH THE BASIS IS UNCHANGED:

OBJ COEFFICIENT RANGES

VARIABLE CURRENT ALLOWABLE ALLOWABLE
COEF INCREASE DECREASE
X1 8000.000 INFINITY 799.9998
X2 12000.000 1333.333 INFINITY

RIGHTHAND SIDE RANGES

ROW CURRENT ALLOWABLE ALLOWABLE
RHS INCREASE DECREASE
LABOR 200000.000 50000.000 70000.000
BUDGET 8000000.000 INFINITY 1666667.000
MARKET1 100.000 233.333 INFINITY
MARKET2 200.000 140.000 200.000

Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson, 6th edition 35
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 Lingo LP Product-Mix Model
DSS in Focus 5.5
<< The Model >>>
MODEL:
! The Product-Mix Example;
SETS:
COMPUTERS /CC7, CC8/ : PROFIT, QUANTITY, MARKETLIM ;
RESOURCES /LABOR, BUDGET/ : AVAILABLE ;
RESBYCOMP(RESOURCES, COMPUTERS) : UNITCONSUMPTION ;
ENDSETS
DATA:
PROFIT MARKETLIM =
8000, 100,
12000, 200;
AVAILABLE = 200000, 8000000 ;

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UNITCONSUMPTION =
300, 500,
10000, 15000 ;
ENDDATA

MAX = @SUM(COMPUTERS: PROFIT * QUANTITY) ;

@FOR( RESOURCES( I):
@SUM( COMPUTERS( J):
UNITCONSUMPTION( I,J) * QUANTITY(J)) <= AVAILABLE( I));
@FOR( COMPUTERS( J):
QUANTITY(J) >= MARKETLIM( J));
! Alternative
@FOR( COMPUTERS( J):
@BND(MARKETLIM(J), QUANTITY(J),1000000));

Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson, 6th edition 37
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<< (Partial ) Solution Report >>

Global optimal solution found at step: 2

Objective value: 5066667.

Variable Value Reduced Cost

PROFIT( CC7) 8000.000 0.0000
PROFIT( CC8) 12000.00 0.0000
QUANTITY( CC7) 333.3333 0.0000
QUANTITY( CC8) 200.0000 0.0000
MARKETLIM( CC7) 100.0000 0.0000
MARKETLIM( CC8) 200.0000 0.0000
AVAILABLE( LABOR) 200000.0 0.0000
AVAILABLE( BUDGET) 8000000. 0.0000

Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson, 6th edition 38
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UNITCONSUMPTION( LABOR, CC7) 300.00 0.00
UNITCONSUMPTION( LABOR, CC8) 500.00 0.00
UNITCONSUMPTION( BUDGET, CC7) 10000. 0.00
UNITCONSUMPTION( BUDGET, CC8) 15000. 0.00

Row Slack or Surplus Dual Price

1 5066667. 1.000000
2 0.0000000 26.66667
3 1666667. 0.0000000
4 233.3333 0.0000000
5 0.0000000 -1333.333

Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson, 6th edition 39
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 Heuristic Programming
 Cuts the search
 Gets satisfactory solutions more quickly and less
expensively
 Finds rules to solve complex problems
 Finds good enough feasible solutions to complex problems
 Heuristics can be
– Quantitative
– Qualitative (in ES)

Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson, 6th edition 40
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 When to Use Heuristics
1. Inexact or limited input data
2. Complex reality
3. Reliable, exact algorithm not available
4. Computation time excessive
5. To improve the efficiency of optimization
6. To solve complex problems
7. For symbolic processing
8. For making quick decisions

Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson, 6th edition 41
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 Advantages of Heuristics
1. Simple to understand: easier to implement and explain
2. Help train people to be creative
3. Save formulation time
4. Save programming and storage on computers
5. Save computational time
6. Frequently produce multiple acceptable solutions
7. Possible to develop a solution quality measure
8. Can incorporate intelligent search
9. Can solve very complex models

Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson, 6th edition 42
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 Limitations of Heuristics

1. Cannot guarantee an optimal solution

2. There may be too many exceptions
3. Sequential decisions might not anticipate future
consequences
4. Interdependencies of subsystems can influence the whole
system

 Heuristics successfully applied to vehicle routing

Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson, 6th edition 43
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 Heuristic Types
 Construction
 Improvement
 Mathematical programming
 Decomposition
 Partitioning

Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson, 6th edition 44
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 Modern Heuristic Methods
 Tabu search

 Genetic algorithms

 Simulated annealing

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 Simulation
 Technique for conducting experiments with a
computer on a model of a management system

 Frequently used DSS tool

Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson, 6th edition 46
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Major Characteristics of Simulation

 Imitates reality and capture its richness

 Technique for conducting experiments

 Descriptive, not normative tool

 Often to solve very complex, risky problems

Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson, 6th edition 47
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 Advantages of Simulation

1. Theory is straightforward
2. Time compression
3. Descriptive, not normative
4. MSS builder interfaces with manager to gain intimate
knowledge of the problem
5. Model is built from the manager's perspective
6. Manager needs no generalized understanding. Each
component represents a real problem component
(More)

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 7. Wide variation in problem types
8. Can experiment with different variables
9. Allows for real-life problem complexities
10. Easy to obtain many performance measures directly
11. Frequently the only DSS modeling tool for
nonstructured problems
12. Monte Carlo add-in spreadsheet packages (@Risk)

Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson, 6th edition 49
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 Limitations of Simulation
1. Cannot guarantee an optimal solution
2. Slow and costly construction process
3. Cannot transfer solutions and inferences to solve other
problems
4. So easy to sell to managers, may miss analytical solutions
5. Software is not so user friendly

Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson, 6th edition 50
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 Simulation Methodology

Model real system and conduct repetitive experiments

1. Define problem
2. Construct simulation model
3. Test and validate model
4. Design experiments
5. Conduct experiments
6. Evaluate results
7. Implement solution

Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson, 6th edition 51
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 Simulation Types
 Probabilistic Simulation
– Discrete distributions
– Continuous distributions
– Probabilistic simulation via Monte Carlo technique
– Time dependent versus time independent simulation
– Simulation software
– Visual simulation
– Object-oriented simulation

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 Multidimensional Modeling

 Performed in online analytical processing (OLAP)

 From a spreadsheet and analysis perspective
 2-D to 3-D to multiple-D
 Multidimensional modeling tools: 16-D +
 Multidimensional modeling - OLAP (Figure 5.6)
 Tool can compare, rotate, and slice and dice
corporate data across different management
viewpoints

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Entire Data Cube from a Query in
PowerPlay (Figure 5.6a)
(Courtesy Cognos Inc.)

Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson, 6th edition 54
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Graphical Display of the Screen
in Figure 5.6a (Figure 5.6b)
(Courtesy Cognos Inc.)

Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson, 6th edition 55
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Environmental Line of Products by
Drilling Down (Figure 5.6c)
(Courtesy Cognos Inc.)

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 Drilled Deep into the Data: Current
Month, Water Purifiers, Only in North
America (Figure 5.6d)
(Courtesy Cognos Inc.)

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 Visual Spreadsheets

 User can visualize models and

formulas with influence diagrams

 Not cells--symbolic elements

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Visual Interactive Modeling (VIS) and
Visual Interactive Simulation (VIS)
 Visual interactive modeling (VIM) (DSS In Action 5.8)
Also called
– Visual interactive problem solving
– Visual interactive modeling
– Visual interactive simulation
 Use computer graphics to present the impact of different
management decisions.
 Can integrate with GIS
 Users perform sensitivity analysis
 Static or a dynamic (animation) systems (Figure 5.7)

Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson, 6th edition 59
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Generated Image of Traffic at an Intersection from the
Orca Visual Simulation Environment (Figure 5.7)
(Courtesy Orca Computer, Inc.)

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Visual Interactive Simulation (VIS)
 Decision makers interact with the simulated
model and watch the results over time

 Visual interactive models and DSS

– VIM (Case Application W5.1 on book’s Web site)
– Queueing

Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson, 6th edition 61
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Quantitative Software Packages-OLAP
 Preprogrammed models can expedite DSS
programming time
 Some models are building blocks of other models
– Statistical packages
– Management science packages
– Revenue (yield) management
– Other specific DSS applications
including spreadsheet add-ins

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 Model Base Management
 MBMS: capabilities similar to that of DBMS
 But, there are no comprehensive model base management
packages
 Each organization uses models somewhat differently
 There are many model classes
 Within each class there are different solution approaches
 Some MBMS capabilities require expertise and reasoning

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Desirable Capabilities of MBMS

 Control
 Flexibility
 Feedback
 Interface
 Redundancy reduction
 Increased consistency

Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson, 6th edition 64
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 MBMS Design Must Allow the
DSS User to:

1. Access and retrieve existing models.

2. Exercise and manipulate existing models
3. Store existing models
4. Maintain existing models
5. Construct new models with reasonable effort

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 Modeling languages
 Relational MBMS
 Object-oriented model base and its
management
 Models for database and MIS design and their
management

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 SUMMARY
 Models play a major role in DSS
 Models can be static or dynamic
 Analysis is under assumed certainty, risk, or
uncertainty
– Influence diagrams
– Spreadsheets
– Decision tables and decision trees
 Spreadsheet models and results in influence diagrams
 Optimization: mathematical programming
(More)

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 Linear programming: economic-based
 Heuristic programming
 Simulation - more complex situations
 Expert Choice
 Multidimensional models - OLAP
(More)

Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson, 6th edition 68
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 Quantitative software packages-OLAP (statistical, etc.)
 Visual interactive modeling (VIM)
 Visual interactive simulation (VIS)
 MBMS are like DBMS
 AI techniques in MBMS

Decision Support Systems and Intelligent Systems, Efraim Turban and Jay E. Aronson, 6th edition 69
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