Chapter 1 DECISION SUPPORT SYSTEMS AND BUSINESS INTELLIGENCE

Chapter 1 DECISION SUPPORT SYSTEMS AND BUSINESS INTELLIGENCE 8 th Edition 2 nd semester 2010 Dr. Qusai Abuein 1

Learning Objectives • Understand today’s turbulent business environment and describe how organizations survive and even excel in such an environment • Understand the need for computerized support of managerial decision making • Understand an early framework for managerial decision making • Learn the conceptual foundations of the decision support systems (DSS) methodology 2 nd semester 2010 Dr. Qusai Abuein 2

Learning Objectives • Describe the business intelligence (BI) methodology and concepts and relate them to DSS • Describe the concept of work systems and its relationship to decision support • List the major tools of computerized decision support • Understand the major issues in implementing computerized support systems 2 nd semester 2010 Dr. Qusai Abuein 3

Preface • Nowadays managers use computerized support in making decisions. • DSS is quickly becoming a shared commodity across the organization, utilizing the networks (Internet and Intranet). • Data are stored in multiple locations. Using distributed systems, intranet, extranet and Internet, corporations can easily access those data, analyzing it and report it to decision makers. 2 nd semester 2010 Dr. Qusai Abuein 4

Preface • Various IS are being integrated with each other and/or with other automated systems. That integration results more accurate information, which enables managers to make better decisions. • The friendly and easy to use DSS interface allows users to view and process data and models with standard web browsers with flexibility and efficiency. • Managers can communicate with computer and the web using wireless and/or wired devices (cell phones, PADs) 2 nd semester 2010 Dr. Qusai Abuein 5

Preface • Data warehouse and their analytical tools (such as OLAP: On-Line Analytical Processing) enhance information access across organizational boundaries. • Artificial Intelligence methods are improving the quality of decision making support and are becoming embedded in many applications (web search engines). • Developments in organizational learning and knowledge management deliver the entire organization’s expertise to bear on problems anytime and anywhere. 2 nd semester 2010 Dr. Qusai Abuein 6

Preface • This course introduces these technologies, which we call management support systems (MMS). • This course also introduces knowledge management, supply chain decision support, and web DSS. • This course is about emerging advanced computer technologies for supporting the solution of managerial problems. 2 nd semester 2010 Dr. Qusai Abuein 7

Introduction • This chapter covers the managerial decision making and its computerized support. • The business environment today is changing and becoming more and more complex. • Organizations are required to make frequent strategic, tactical and organizational decisions. Some of which are very complex. • Making such decisions may require considerable data, information and knowledge. • Processing these, must be done quickly, frequently in real -time and suing computerized support. • this book is about using business intelligent as computerized support for managerial decision making. 2 nd semester 2010 Dr. Qusai Abuein 8

(1. 1) Opening Vignette: Toyota using Business Intelligent to Excel • Keeping Vehicle in transit is money costing. • 144 to 160 million US$ / year • Problems in supply chain, deliver cars to dealers made customers to buy cars from competitors (Honda). • Data exists, but managers can not use this data strategically. No shared data, reports were always late. • Managers were unable to make timely decisions. • IT in organization was unable to respond to the growing business. 2 nd semester 2010 Dr. Qusai Abuein 9

(1. 2) Changing Business Environments and Computerized Decision Support • To realize why Toyota embraces computerized support, including business intelligence a “business pressures-responses-support model” has been developed. See Figure 1. 1 next slide. • The model components are: 1. The business environment (becomes complex) 2. Organizational responses: be reactive, anticipative, adaptive, and proactive, so as to take advantage of opportunities available 3. Computerized support that facilitates monitoring and enhance response 2 nd semester 2010 Dr. Qusai Abuein 10

Managerial Decision Making 2 nd semester 2010 Dr. Qusai Abuein 11

(1. 2) Changing Business Environments and Computerized Decision Support • The business Environment: – Today's environment complexity creates a) opportunity on one hand b) problems on the other hand for organizations. – Example: Globalization (Internet) a) One can easily find suppliers and costumers in many countries, which means buying cheaper materials and sell more products and services. b) More and stronger competitors. 2 nd semester 2010 Dr. Qusai Abuein 12

(1. 2) Changing Business Environments and Computerized Decision Support • The intensity of the business environment factors (Markets, customer demands, Technology and societal) see table 1. 1, increases with time, leading to more pressure and competition. • Q) How managers will respond quickly, innovative and agilely under the above environment? – By using computerized support. Take for example Toyota (opening vignette) TSL. They turned to BI to improve communication and to support executives in their effort to know exactly what is going on in each area of operation (real-time) • Doing so, organization can cut expenses and increase customer satisfaction. • Q) What is the major objective of the computerized DS? – It is to facilitate closing the gap between the current performance of an organization and its desired performance. 2 nd semester 2010 Dr. Qusai Abuein 13

(1. 3) Managerial Decision Making • A decision is selection the best alternative from two or more solutions. • Management is a process by which organizational goals are achieved through the use of resources. • Resources are considered to be Input • Attaining goals is viewed as output • The degree of success is measured by productivity (ratio of output to input) • Managers continuously make decisions to carry out their functions (planning, organizing, directing and controlling) 2 nd semester 2010 Dr. Qusai Abuein 14

(1. 3) Managerial Decision Making • The nature of manager’s work • Managers perform 10 major roles classified into 3 categories (see table 1. 2): – Interpersonal – Informational – Decisional • To execute these roles, managers need information that is delivered efficiently and timely by computers. • Manager is a decision maker. • Organizations are filled with decision makers at different levels. 15 2 nd semester 2010 Dr. Qusai Abuein

(1. 3) Managerial Decision Making • The process of decision making • Lately, managers considered decision making as a talent acquired over a long period of time through experience. • Managers usually make decision by following a 4 steps process: 1. 2. 3. 4. Defining the problem (a decision situation that may deal with some difficulty or with an opportunity) Constructing a model that describes the real-world problem Identifying possible solutions to the modeled problem and evaluating the solutions Comparing, choosing, and recommending a potential solution to the problem 16 2 nd semester 2010 Dr. Qusai Abuein

(1. 3) Managerial Decision Making • One must make sure that sufficient alternative solutions are being considered, that the consequences using these alternatives can be predicted. • The environment factors (table 1. 1) make the evaluation process difficult for: – Technology and globalization result in more alternatives – Uncertainty produced from government, politics competition and changing consumer demand, make prediction difficult. – Need for making rapid decisions – Environmental complexity grows every day, making decisions a complex task • Based on above 4 reasons, it is nearly impossible to rely on trialand-error approach to management • Managers must use new tools and techniques for decision making 17 2 nd semester 2010 Dr. Qusai Abuein

(1. 3) Managerial Decision Making • Technology insights 1. 1 • Making clear-cut decision when needed is the most important 10 managerial practices. 2 nd semester 2010 Dr. Qusai Abuein 18

(1. 3) Managerial Decision Making • Decision support systems (DSS) A conceptual framework for a process of supporting managerial decision- making, usually by modeling problems and employing quantitative models for solution analysis 2 nd semester 2010 Dr. Qusai Abuein 19

(1. 4) Computerized Support for Decision Making • Computerized support are now penetrating complex managerial areas: – Design – Management of automated factories – Application of AI methods – Evaluation process • Computer applications have moved from transaction processing and monitoring activities to problem analysis and solution applications. Most of the activities are done with the web-based technologies. 2 nd semester 2010 Dr. Qusai Abuein 20

(1. 4) Computerized Support for Decision Making • The followings are the cornerstone of today’s modern management for decision support: 1. 2. 3. 4. 5. 6. BI tools Data warehousing Data Mining Online Analytical processing (OLAP) Dashboards The web Dashboard is a term now being used generally to refer to a web-based technology page on which real time information is collated from various sources in the business. The metaphor of dashboard is adopted here to emphasize the nature of the data being displayed on the page, it is a real-time analysis as to how a business is operating, just like on an automobile dashboard real time information is displayed about the performance of that vehicle. 2 nd semester 2010 Dr. Qusai Abuein 21

(1. 4) Computerized Support for Decision Making • Why use computerized decision support systems? 1. Speedy computations: enables decision makers to perform quick computations, low cost, timely and thousands of alternatives can be evaluated fast 2. Improved communication and collaboration: groups in different locations can use the web-based tools to communicate 3. Increased productivity of group members: using webbased tools saves money and time, since group gathering in one place is no more needed. Also software help decision makers to determine the best way to run a business in a short time 22 2 nd semester 2010 Dr. Qusai Abuein

(1. 4) Computerized Support for Decision Making • Why use computerized decision support systems? 4. Improved data management: data stored inside and outside the organization (web). Computers transmit, search and store needed data quickly, economically, securely and transparently (how? ) 5. Managing giant data warehouses: computers can deal (store, access) with huge digital data of any type quickly (parallel computers) 6. Quality support: quality of decisions can be improved since more data can be accessed, more alternatives can be evaluated, view of experts can be collected quickly, AI methods can be used to derive expertise, and complex simulations can be performed. 23 2 nd semester 2010 Dr. Qusai Abuein

(1. 4) Computerized Support for Decision Making • H. W. : find simulations, videos and text about Japanese expected destructive earthquake, and how it affected decision making. • Why use computerized decision support systems? 7. Agility support: DS technologies (intelligent systems) can empower people by allowing them to make good decisions quickly, even if they lack knowledge. 8. Overcoming cognitive limits in processing and storing information: the man mind has limited ability to process and store information. 2 nd semester 2010 Dr. Qusai Abuein 24

(1. 4)Computerized Support for Decision Making • • • Cognitive limits indicates that the individual’s problemsolving capability is limited when a wide range of diverse information and knowledge is required. Computerized systems overcome the cognitive limits by quickly accessing and processing vast amount of stored information. Why use computerized decision support systems? 9. Using the Web: the web changed how decision makers are supported. 10. Anywhere, anytime support: using wireless technology 2 nd semester 2010 Dr. Qusai Abuein 25

(1. 5) An Early Framework for Computerized Decision Support • Figure 1. 2 (next slide) shows the 3 x 3 matrix proposed framework for computerized DS introduced by Gorry and Scott (1971). • The two dimensions are: – D 1: Degree of structuredness for the type of the decision. – D 2: Type of control 2 nd semester 2010 Dr. Qusai Abuein 26

(1. 5) An Early Framework for Computerized Decision Support 2 nd semester 2010 Dr. Qusai Abuein 27

(1. 5) An Early Framework for Computerized Decision Support – Degree of structuredness (D 1) 1. Structured decisions (programmed): routine and typically repetitive problems for which standard solution exist. 2. Unstructured decisions (unprogrammed): complex problems for which there are no cutand-dried solution methods. • Four-phase decision making process (see Figure 1. 3) next slide – – Intelligence Design Choice Implementation 2 nd semester 2010 Dr. Qusai Abuein 28

An Early Framework for Computerized Decision Support 2 nd semester 2010 Dr. Qusai Abuein 29

(1. 5) An Early Framework for Computerized Decision Support – Degree of structuredness (D 1) 3. Semistructured problems: fall between structured and unstructured problems. Such as setting marketing budget for customer product. 2 nd semester 2010 Dr. Qusai Abuein 30

(1. 5) An Early Framework for Computerized Decision Support – Types of control in all managerial activities (D 2): – Type of control that encompass all managerial activities: 1. Strategic planning: long range goals 2. Management control: efficient use of resources 3. Operational control: efficient execution of tasks 2 nd semester 2010 Dr. Qusai Abuein 31

(1. 5) An Early Framework for Computerized Decision Support – The decision support matrix • The initial purpose of this matrix was to suggest different types of computerized support to different cells in the matrix • Structures and operational control-oriented tasks (cells 1, 2, 4) are performed by low-level managers. • Tasks (cells 6, 8, 9) are performed by top executives. 2 nd semester 2010 Dr. Qusai Abuein 32

(1. 5) An Early Framework for Computerized Decision Support • Computer support for structured decisions – For each category of decision, an easy-to-apply prescribed model and solution approach have been developed, this approach is called management science (MS). Also called operations research (OR). – Management science (MS) or operations research (OR) The application of a scientific approach and mathematical models to the analysis and solution of managerial decision situations (e. g. , problems, opportunities) 2 nd semester 2010 Dr. Qusai Abuein 33

(1. 5) An Early Framework for Computerized Decision Support • MS says that solving a problem, managers should follow the 4 steps system. • MS added a new step (step 2) to the process: 1. 2. 3. 4. 5. • Defining the problem (a decision situation that may deal with some difficulty or with an opportunity) Classify the problem into a standard category Constructing a model that describes the real-world problem Identifying possible solutions to the modeled problem and evaluating the solutions Comparing, choosing, and recommending a potential solution to the problem Computerized methodologies can find solutions to the standard category model quickly and efficiently. 2 nd semester 2010 Dr. Qusai Abuein 34

(1. 5) An Early Framework for Computerized Decision Support • Automated decision systems (ADS) – A new approach to support decision making is called ADS – ADS is a business rules-based system that provides a solution uses intelligence, usually in one functional area, to a specific repetitive decisions (such as pricing) – ADS are mostly suitable for frontline employees who can see the customer information online and frequently make quick decisions. 2 nd semester 2010 Dr. Qusai Abuein 35

(1. 5) An Early Framework for Computerized Decision Support • Case Study (Intelligent price setting using ADS). – Page 17. (H. W. for one student) 2 nd semester 2010 Dr. Qusai Abuein 36

(1. 5) An Early Framework for Computerized Decision Support 2 nd semester 2010 Dr. Qusai Abuein 37

(1. 5) An Early Framework for Computerized Decision Support • Computer support for unstructured decisions • Unstructured problems can be only partially supported by standard computerized quantitative methods. • Customized solutions are usually necessary, such solutions may require certain expertise, that can be provided by intelligent systems. • intuition and judgment, computerized communication, collaboration technologies and knowledge management play a greate role in this type of decisions. 2 nd semester 2010 Dr. Qusai Abuein 38

(1. 5) An Early Framework for Computerized Decision Support • Computer support for semistructured problems • For such problems a combination of both standard solution procedures and human judgment may be involved. • MS can provide models for the structured portion. • For the unstructured portion, a DSS can improve the quality of the information on which the decision is based by providing a range of alternative solutions along with their potential impacts. 2 nd semester 2010 Dr. Qusai Abuein 39

(1. 5) An Early Framework for Computerized Decision Support • The benefits of computerized decision support 1. 2. 3. 4. Companies work in an unstable or rapidly changing economy. E-commerce is changing the ways business is done. Existing IS do not fully support decision making. There are difficulties in tracking the numerous business operations. (timely information is needed) 5. Competition has increased especially global competition. (Coast reduction is needed) Q) What is the difference between e-commerce and Ebusiness? (H. W) Q) How to support semistructured problems suing several strategic and operational decisions? (H. W): case 1. 3 2 nd semester 2010 Dr. Qusai Abuein 40

(1. 6) The Concept of Decision Support Systems (DSS) • • DSS can be used as an Umbrella term: Describes any computerized system that supports decision making in an organization Case study 1. 4 (page 21) H. W. It demonstrates some of the major undtructured or semistructured problems DSS can refer to a process for building customized application for unstructured or semistructured problems The architecture of DSS (Figure 1. 5) (next 2 nd slide) 1. Data: Every problem needs data to be solved and every opportunity needs data to be analyzed 2. Models to manipulate data. These models can be A) standard (Excell function) or B) customized 3. Knowledge component 4. Users 5. User interface 2 nd semester 2010 Dr. Qusai Abuein 41

(1. 6) The Concept of Decision Support Systems (DSS) • Types of DSS: 1. Models-oriented DSS: quantitative models are used to generate a recommended solution to a problem. 2. Data-oriented DSS: support ad hoc reporting and queries. • Ad hoc: is a Latin phrase which means "for this purpose". It generally signifies a solution designed for a specific problem or task, nongeneralizable, and which cannot be adapted to other purposes. 2 nd semester 2010 Dr. Qusai Abuein 42

(1. 6) The Concept of Decision Support Systems (DSS) 2 nd semester 2010 Dr. Qusai Abuein 43

(1. 6) The Concept of Decision Support Systems (DSS) – Types of DSS • model-oriented DSS: quantitative models used to generate a recommended solution to a problem • data-oriented DSS: support ad-hoc reporting and queries 2 nd semester 2010 Dr. Qusai Abuein 44

(1. 7) A Framework for Business Intelligence (BI) • Business intelligence (BI): Is an umbrella term that combines architectures, tools, databases, applications, and methodologies • BI’s major objective is to enable interactive access to data, to enable manipulation of data, and to give business managers and analysts the ability to conduct appropriate analysis. • The process of BI is based on the transformation of data to information, then to decisions, and finally to actions. 2 nd semester 2010 Dr. Qusai Abuein 45

(1. 7) A Framework for Business Intelligence (BI) • Business intelligence (BI): Is an umbrella term that combines architectures, tools, databases, applications, and methodologies • BI’s major objective is to enable interactive access to data, to enable manipulation of data, and to give business managers and analysts the ability to conduct appropriate analysis. • The process of BI is based on the transformation of data to information, then to decisions, and finally to actions. 2 nd semester 2010 Dr. Qusai Abuein 46

(1. 7) A Framework for Business Intelligence (BI) History of BI 2 nd semester 2010 Dr. Qusai Abuein 47

(1. 7) A Framework for Business Intelligence (BI) • BI architecture (Figure 1. 7) – Data warehouse : (Technical staff responsibility) – Business analytics: a collection of tools for manipulating, mining and analyzing the data in the data warehouse. (Business users realm) – Business Performance Management (BPM): for monitoring and analyzing performance. (used by Top Managers ) – User Interface 2 nd semester 2010 Dr. Qusai Abuein 48

(1. 7) A Framework for Business Intelligence (BI) 2 nd semester 2010 Dr. Qusai Abuein 49

(1. 7) A Framework for Business Intelligence (BI) – Data warehouse • Originally, included historical data that were organized and summarize, so end users could easily view or manipulate data and information • Today, some data warehouses include current data as well, so they can provide real time decision support 2 nd semester 2010 Dr. Qusai Abuein 50

(1. 7) A Framework for Business Intelligence (BI) • Business analytics: End users can work with the data and information in a data warehouse by using a variety of tools and techniques. Those techniques fit into 3 categories: – Reporting and queries – Advanced analytics – Data, text and Web mining and other sophisticated mathematical and statistical tools 2 nd semester 2010 Dr. Qusai Abuein 51

(1. 7) A Framework for Business Intelligence (BI) • Data mining A process of searching (extracting) for unknown (hidden) relationships or information in large databases or data warehouses, using intelligent tools such as neural computing, predictive analytics techniques, or advanced statistical methods 2 nd semester 2010 Dr. Qusai Abuein 52

(1. 7) A Framework for Business Intelligence (BI) • Business performance management (BPM) An advanced performance measurement and analysis approach that embraces planning and strategy – BPM extends the monitoring, measuring, and comparing of sales, profit, cost, profitability, and other performance indicators by introducing the concept of “management and feedback – BPM provides a top-down enforcement of corporatewide strategy 2 nd semester 2010 Dr. Qusai Abuein 53

(1. 7) A Framework for Business Intelligence (BI) • Business performance management – User interface – Dashboard A visual presentation of critical data for executives to view. It allows executives to see hot spots in seconds and explore the situation – Dashboards integrate information from multiple business areas • Visualization tools 2 nd semester 2010 Dr. Qusai Abuein 54

(1. 7) A Framework for Business Intelligence (BI) – Styles of BI: The architecture of BI depends on its applications. – There are five styles of BI, each style have special tool: 1. 2. 3. 4. 5. Report Delivery and Alerting Enterprise Reporting (dashboard, scorecard) Cube Analysis (Slice and Dice Analysis) Ad-hoc Query Statistics and Data Mining 2 nd semester 2010 Dr. Qusai Abuein 55

(1. 7) A Framework for Business Intelligence (BI) • • Benefits of BI: The major benefit of a BI to a company is the ability to provide accurate information when needed. The benefits are: – – Faster, more accurate reporting Improved decision making Improved customer service Increased revenue 2 nd semester 2010 Dr. Qusai Abuein 56

(1. 7) A Framework for Business Intelligence (BI) • The DSS/BI connection 1. The architecture is very similar since BI evolved from DSS 2. DSS are constructed to directly support specific decision making; BI systems are geared to provide accurate and timely information (indirect support) 3. BI has an executive and strategy orientation while DSS has been oriented toward analysts 2 nd semester 2010 Dr. Qusai Abuein 57

(1. 7) A Framework for Business Intelligence (BI) • The DSS-BI connection 4. BI systems are constructed with commercially available tools and components that are fitted to the needs of organizations; DSS more programming is used to construct custom solutions to very unstructured problems 5. DSS were developed mostly in the academic world; BI were developed mostly by software companies 6. Many tools used by BI are also considered DSS tools (e. g. , data mining and predictive analysis ) 2 nd semester 2010 Dr. Qusai Abuein 58

(1. 7) A Framework for Business Intelligence (BI) • Management support systems (MSS) A system that applies any type of decision support tool or technique to managerial decision-making 2 nd semester 2010 Dr. Qusai Abuein 59

(1. 8) A Work System View of Decision Support • Work system A system in which human participants and/or machines perform a business process using information, technology, and other resources to produce products and/or services for internal or external customers 2 nd semester 2010 Dr. Qusai Abuein 60

(1. 8) A Work System View of Decision Support • A work system usually have nine elements, each of these elements can be varied or modified to provide better decision quality: 1. 2. 3. 4. 5. 6. 7. 8. 9. Business process Participants Information: better info. quality, availability or presentation Technology: better data storage and retrieval, algorithms or statistical capabilities Product and services Customers Infrastructure: more effective use of shared infrastructure Environment Strategy 2 nd semester 2010 Dr. Qusai Abuein 61

(1. 9) The Major Tools and Techniques of Managerial Decision Support Computerized Tools for Decision Support • Data management • Reporting status tracking • Visualization • Business analytics • Strategy and performance management • Communication and collaboration • Knowledge management • Intelligent systems • Enterprise systems 2 nd semester 2010 Dr. Qusai Abuein 62

(1. 9) The Major Tools and Techniques of Managerial Decision Support • Tools-Web connection – All of these tools are available in both webbased and non web-based formats • Hybrid (integrated) support systems A support system that uses several tools and techniques to assist management in solving managerial or organizational problems and assess opportunities and strategies Q) Why integrating (hybrid) several tool? – So as to improve decision support because one tool can provide advantages where another is weak. – See Application Case 1. 7 page 33. 63 2 nd semester 2010 Dr. Qusai Abuein

(1. 10) Implementing Computer-Based Managerial Decision Support Systems • What is to select? Developing (Building) or acquiring (buying or renting) support systems • Justification and cost-benefit analysis are needed to take the decision for the above. • Security and protection of privacy are very important issues. • Integration of MSS applications and other systems are very important. • The Web in DSS/BI implementation is widely used • Information portals and MSS: visualization aids serves both customers and employees. 2 nd semester 2010 Dr. Qusai Abuein 64

End Of Chapter 1 Thank you 2 nd semester 2010 Dr. Qusai Abuein 65