Chapter 10 Supporting Management & Decision Making
Learning Objectives • Describe the concepts of management, decision making, and computerized support for decision making. • Justify the role of models in decision making. • Describe the framework for computerized decision support & classify problems & support according to the framework. • Describe decision support systems and their benefits, and analyze their role in management support.
Learning Objectives (cont.) • Compare regular (personal) decision support systems with group and organizational decision support systems and analyze the major differences. • Describe enterprise and executive information systems, and analyze their role in management support. • Explain how networks and the Web can enhance managerial decision making.
Problem: The information systems that supported ShopKo’s business in the past were highly fragmented, ineffective, and inflexible. Forecasts were inaccurate, and wrong decisions were frequently made. Solution: The company installed comprehensive decision support system (DSS) software (DSS Agent, from MicroStrategy). This system includes a data warehouse and online analytical processing. Results: ShopKo’s investment into sophisticated web-based data analysis enabled stores to carry the right merchandise at the right place & time. Case:Web-based Data Analysis at Shopko
A solution to complex decisions can be enhanced with the use of computer programs called a decision support system (DSS). Decisions are supported both in the sales and inventory areas. Much of the support is based around the concepts of data warehousing and online analytical processing. The Web is playing an increasing role in facilitating purchasing. Lessons from the Case
Managers & Decision Making • Managementis a process by which organizational goals are achieved through the use of resources (people, money, energy, materials, space, time). • These resources are considered to be inputs, and the attainment of the goals is viewed as the outputof the process. • Managers oversee this processin an attempt to optimize it.
The Manager’s Job 3 Categories (Mintzberg ,1973) 1.Interpersonal roles:figurehead, leader, liaison. 2.Informational roles:monitor, disseminator, spokesperson. 3.Decisional roles:entrepreneur, disturbance handler, resource allocator, negotiator.
Managerial Decisions & Computerized Support • The success of management depends on the skillful execution of managerial functions such as planning, organizing, directing, and controlling. • To carry out these functions, managers engage in the continuous process of making decisions. • Managers must learn how to use the new tools and techniques that can help them make decisions. • Computerized techniques support qualitative and quantitative decision making.
Modeling & Models • A model (in decision making) is a simplified representation or abstraction of reality. • With modeling, one can perform virtual experiments and an analysis on a model of reality, rather than on reality itself. • Some Benefits of Modelling: • The cost of virtual experimentation is much lower than the cost of experimentation conducted with a real system. • Models allow for the simulated compression of time. • Manipulating the model (by changing variables) is much easier than manipulating the real system. • The cost of making mistakes during a real trial-and-error experiment is much lower.
Iconic (Scale) Models.An iconic model—the least abstract model—is a physical replica of a system, usually based on a different scale from the original. Analog Models.An analog model, in contrast to an iconic model, does not look like the real system but behaves like it. Mathematical (Quantitative) Models.The complexity of relationships in many systems cannot conveniently be represented. A more abstract model is possible with the aid of mathematics. Mental modelsprovide a subjective description of how a person thinks about a situation. 4 Types of Models
Why do Managers Need the Support of IT? Making decisions while processing information manually is growing increasingly difficult due to the following trends: • The number of alternatives to be considered is ever increasing. • Many decisions must be made under time pressure. • Due to increased fluctuations & uncertainty in the decision environment, it is frequently necessary to conduct a sophisticated analysis to make a good decision. • It is often necessary to access remote information, consult with experts, or have a group decision-making session, all quickly & in expensively.
Determining the Information Needs of Managers • Wetherbe approach (1991): Two-phase process. • Phase I: a structured interview is conducted to determine managers’ perceived information needs. • Phase I: a prototype of the information system is quickly constructed. • Critical success factor (CSF)approach • Watson and Frolick approach (1992): is based on the following strategies: • determining information requirements • asking (the interview approach) • deriving the needs from an existing information system • synthesizing from characteristics of the systems • and discovering via evolving systems (prototyping)
Management Support Systems (MSS] • Four major information technologies have been successfully used to support managers. • DSSs: provide support primarily to analytical, quantitative types of decisions. • Executive (enterprise) support systems:support the informational roles of executives. • Group decision support systems: support managers working in groups. • Intelligent systems: provide mulitfunctional support.
Framework for Computerized Decisions • Managerial problems fall under 3 categories (Source: Simon,1977): • Structured problems:all phases—intelligence, design, and choice—are structured & the procedures for obtaining the best solution are known. • Unstructured problems:none of the three phases—intelligence, design, or choice—is structured, and human intuition is frequently the basis for decision making. • Semistructured problems: requires a combination of standard solution procedures and individual judgment.
Framework for Computerized Decisions (cont.) • There are 3 broad categories that encompass all managerial activities (Part ii Source: Anthony,1965): • Strategic planning— the long-range goals & policies for resource allocation; • Management control— the acquisition & efficient utilization of resources in the accomplishment of organizational goals • Operational control— the efficient & effective execution of specific tasks.
Management Science • The Management Scienceapproach maintains that managers can follow a fairly systematic process for solving problems. • Definingthe problem (a decision situation that may deal with a setback or with an opportunity). • Classifying the problem into a standard category. • Constructinga standard mathematical model that describes the real-life problem. • Findingpotential solutions to the modeled problem and evaluating them. • Choosing & recommending a solution to the problem.
Decision Support Systems [DSS] • Decision Support System (DSS) = a computer-based information system that combines models and data in an attempt to solve semistructure problems with extensive user involvement. • The term decision support systems (DSS), like the terms MIS and MSS, means different things to different people. • DSS can be viewed as an approach or a philosophy rather than a precise methodology.
Problem: Houston Oil & Minerals Corporation was interested in a proposed joint venture but requried a risk analysis. Solution: Houston Oil built a DSS by means of a specialized planning language. The results suggested that the project be accepted. Results: The executive vice president, using his experience, judgment, and intuition, decided to reverse the decision and rejected the project. The DSS was flexible and responsive enough to allow managerial intuition and judgment to be incorporated into the analysis. . Case: Using DSS to Determine Risk
Characteristics of DSSs . • Provides support for decision makers at all management levels, whether individuals or groups, by bringing together human judgment and objective information. • Supports several interdependent and/or sequential decisions. • Supports all phases of the decision-making process— intelligence, design, choice, and implementation—as well as a variety of decision-making processes and styles. • Is adaptable by the user over time to deal with changing conditions.
Characteristics of DSSs (cont.) • Is easy to construct and use in many cases. • Promotes learning, which leads to new demands & refinement of the application, which leads to additional learning, and so forth. • Utilizes quantitative models (standard and/or custom made). • Advanced DSSs are equipped with a knowledge management component that allows the efficient and effective solution of very complex problems. • Can be disseminated for use via the Web. • Allows the easy execution of sensitivity analyses.
Components of a DSS System • Data Management Subsystem contains all the necessary data that flow from several sources and are extracted prior to their entry to a DSS database. • Model Management Subsystemcontains completed models & models’ building blocks necessary to develop DSS applications. • This includes standard software with financial, statistical, management science, or other quantitative models. • Model Base Management System (MBMS) creates DSS models easily and quickly, either from scratch, existing models, or building blocks.
Staff Assistant.This person has specialized knowledge about management problems and some experience with decision support technology. Expert Tool User.This person is skilled in the application of one or more types of specialized problem-solving tools. This user performs tasks for which the manager does not have the necessary skills or training. Business (System) Analyst.This person has a general knowledge of the application area, formal business administration education, and considerable skill in DSS construction tools. Group Facilitator.When group decisions are supported by IT, it is frequently beneficial to use a process facilitator. DSS Users
Group Decision Support Systems • Group decision support system (GDSS) = an interactive computer-based system that facilitates the solution of semistructured and unstructured problems by a group of decision makers. • The goal of GDSS is to improve the productivity of decision-making meetings, either by speeding up the decision-making process or by improving the quality of the resulting decisions, or both. • The first generation of GDSS was designed to support face-to-face meetings in what is called a decision room. • Such a GDSS is composed of hardware, software, people and procedures.
GDSS Components People. The group members and a facilitator. Hardware.A group can use two types of hardware configurations. • a GDSS facility designed for electronic meetings. • a collection of PCs, equipped with keypads for voting and other groupware activities. Software. Typical GDSS software is a collection of about a dozen tools or packages, which are integrated into a comprehensive system. Procedures. The procedures that allow for ease of operation and effective use of the technology by group members.
Case: The World Economic Forum (WEF) Problem: • WEF is a consortium of top business, government, academic, and media leaders from virtually every country in the world. • Until 1998 the members conferred privately or debated global issues at meetings. Follow-up was difficult. Solution: • WEF developed a collaborative computing system called the World Electronic Community (WELCOM). • Provides members with a secure channel to send e-mail, read reports & communicate in videoconferences. Results: • By 2001 the system was completely on the Web.
Enterprise Decision Support There are two main types of enterprise decision support system: • Organizational decision support systems (ODSS)which focus on an organizational task or activity involving a sequence of operations and decision makers • Computer-based systems can be developed to provide decision support at the individual group or organization levels (Hackathorn and Keen, 1981). • Executive information system (EIS), also known as an Executive support system (ESS),is a technology designed in response to managers’ specific needs.
The drill downcapability enables users to get details, and details of details, of any given information. Critical success factors (CSFs) & Key Performance Indicators are identified. In a status access mode, the latest data or reports on the status of key indicators or other factors can be accessed at any time. Trend analysiscan be done using forecasting models, which are included in many ESSs Executive support systems provide for ad hoc analysiscapabilities, in which executives can make specific requests for data analysis as needed. Characteristics of EISs
Exception reportingis based on the concept of management by exception, in which an executive gives attention to significant deviations from standards. In order to save the executive’s time in conducting a drill down, finding exceptions, or identifying trends, an intelligent EIS has been developed. Integration with DSS.Executive information systems are useful in identifying problems and opportunities. With the introduction of the Intranet & corporate portals, the traditional EIS has become a part of an enterprise information system, and it now often appears under the name of business intelligence. Characteristics of EISs (cont.)
Benefits of DSS for the User • Users can access DSS from anywhere. • Many DSSs are now deployed on the corporate Intranet, making them accessible to all employees. • The Web supports interactive DSS-related queries and ad hoc report generation. • Users can select a list of variables from a pull-down menu when executing a predefined query or report. • Web-based application servers can download Java applets that execute functions on desktop DSS programs. • This gives users the capabilities of advanced DSS applications without requiring client software to be loaded.
Benefits of DSS for the Builder • A DSS developer (builder) can access Web pages with data related to the project, the software used, the users etc., thus cutting development time. • A DSS developer can collaborate with end-users for quicker prototyping of DSS applications. • A DSS developer can collaborate with vendors over the Web. • DSS software and applications are available from ASPs over the Web. In such a case there is no need to program the DSS, but the developer must work with the vendor.
Able to reach rich resources of data with simple data entry & analysis procedure. Can easily retrieve data in sophisticated ways. Is easy to use. Reduces paperwork Contributes to better decision making. Enables easier use of ready-made DSS. Cuts development costs. Benefits Web-Based DSSs
Requirements for Web-Based DSS • A study by Business Objects Corporation (businessobjects.com) identified five key requirements for the successful delivery of Web-based DSS. • Self-service data access • High availability & performance • Zero-administration clients • Security • Unified meta data
Simulation for Decision Makers • In DSS, simulation refers to a technique for conducting experiments with a computer on a model of a management system. • Characteristics of Simulation; • While models in general represent reality, simulation usually imitates it closely. • It is a technique for conducting experiments. • It can describe and/or predict the characteristics of a given system under different circumstances. • It can be used for complex decision making
Case: Simulation Saves Siemens Millions Problem: • Siemens Solar Industries (SSI), the world’s largest maker of solar electric products, suffered continuous problems in poor material flow, unbalanced resource use, bottlenecks in throughput & schedule delays. Solution: • SSI built a cleanroom contamination-control technology. • The simulation provided a virtual laboratory for engineers to experiment with various configurations before the physical systems were constructed. Results: • SSI improved their manufacturing process significantly. • The cleanroom facility saved SSI over $75 million/ year.
1.Allows for inclusion of the real-life complexities of problems. 2.Is descriptive, enabling managers to ask what-if type questions. 3.Can handle an extremely wide variation in problem types, such as inventory & staffing, as well as higher managerial-level tasks like long-range planning. 4.Can show the effect of compressing time, giving the manager in a matter of minutes the long-term effects of various policies. 5. Can be conducted from anywhere using Web tools on the corporate portal or extranet. Advantages of Simulation
Examples of DSSs • PriceWaterhouseCoopers (pcwglobal.com) offers online DSSs in retailing, financial services, etc. Of special interest are the risk management and self insurance decisions. • Microsoft’s Office Small Business edition (microsoft.com)contains “what-if”wizards that can be used to view the financial impacts of decisions, such as price and inventory decisions. • IBM (software.ibm.com) offers many tools ranging from market-basket analysis to financial & manufacturing decision support • Brio’s (brio.com) “revenue optimization application” helps companies to identify & capture the full potential of revenue across product lines & market segments.
Frontline Decision Making • Frontline decision makingis the process by which companies automate decision processes and push them down into the organization & sometimes out to partners. • Frontline decision making serves business users such as line managers, sales executives, and call-center representatives by incorporating decision making into their daily work. • Frontline software that started to appear on the market in late 1999 can solve standard problems • According to Forrester Research Inc., such systems are essential for the survival of many companies, but it is expected to take five years for the technology to mature.
DSS Failures • Over the years there have been many cases of failures of all types of decision support systems. Here are some examples; • The ill-fated Challeger Shuttle mission was partially attributed to a flawed GDSS. NASA used a mismanaged GDSS session in which anonymity was not allowed and other procedures were violated. • In an international congress on airports, failures in Denver, Hong Kong, and Malaysia airports have been attributed to failed DSSs. • Brezillon and Pomerol (1997) describe some failures in intelligent DSSs.
Intangible benefits.Management support systems are difficult to justify because they generate mostly intangible benefits, such as the ability to solve problems faster. Documenting personal DSS. Many employees develop their own DSS to increase their productivity. It is advisable to have an inventory of these DSSs so that if the employee leaves the organization, the productivity tool remains. Security.Decision support systems may contain extremely important information for the livelihood of organizations. Managerial Issues
Ready-made commercial DSS.With the increased use of Web-based system and ASPs, it is possible to find more and more DSS applications sold off the shelf, frequently online. Organizational culture.The more people recognize the benefits of DSS and the more support is given to it by top management, the more DSS will be used. Intelligent DSS. Introducing intelligent agents into a DSS application can greatly increase its functionality. Ethical issues.Corporations with management support systems may need to address some serious ethical issues such as privacy & accountability. Human judgment is another important issue DSS. Managerial Issues (cont.)