Business Intelligence and Analytics:

Systems for Decision Support

(10th Edition)

Chapter 1:
An Overview of Business
Intelligence, Analytics, and
Decision Support
 Introduction
 Business environment (climate) is constantly changing, and it is
becoming more and more complex. Organizations, private and
public, are under pressures that force them to respond quickly
to changing conditions and to be innovative in the way they
operate.
 Such activities require organizations to be agile and to make
frequent and quick strategic, tactical, and operational decisions,
some of which are very complex. Making such decisions may
require considerable amounts of relevant data, information, and
knowledge. Processing these, in the framework of the needed
decisions, must be done quickly, frequently in real time, and
usually requires some computerized support.
 This book is about using business analytics as computerized
support for managerial decision making. It concentrates on
both the theoretical and conceptual foundations of decision
support, as well as on the commercial tools and techniques that
are available.
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 Learning Objectives
 Understand today’s turbulent business
environment and describe how organizations
survive and even excel in such an environment
(solving problems and exploiting opportunities)
 Understand the need for computerized support
of managerial decision making
 Understand an early framework for managerial
decision making
 ... (Continued…)

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 Learning Objectives
 Learn the conceptual foundations of the DSS
methodology
 Describe the BI methodology and concepts
and relate them to DSS
 Understand the various types of analytics
 List the major tools of computerized decision
support

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 Changing Business Environment and
Computerized Decision Support
 Companies are moving aggressively to
computerized support of their
operations => Business Intelligence
 Business Pressures–Responses–Support
Model
 Business pressures result of today's
competitive business climate
 Responses to counter the pressures
 Computerized Support to better facilitate
the process
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 Business Pressures–Responses–
Support Model

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 The Business Environment
 The environment in which organizations
operate today is becoming more and
more complex, creating:
 opportunities, and
 problems
 Example: globalization
 Business environment factors:
 markets, consumer demands, technology,
and societal…
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 Business Environment Factors
FACTOR DESCRIPTION
Markets Strong competition
Expanding global markets
Blooming electronic markets on the Internet
Innovative marketing methods
Opportunities for outsourcing with IT support
Need for real-time, on-demand transactions
Consumer Desire for customization
demand Desire for quality, diversity of products, and speed of delivery
Customers getting powerful and less loyal
Technology More innovations, new products, and new services
Increasing obsolescence rate
Increasing information overload
Social networking, Web 2.0 and beyond
Societal Growing government regulations and deregulation
Workforce more diversified, older, and composed of more women
Prime concerns of homeland security and terrorist attacks
Increasing social responsibility of companies
Greater emphasis on sustainability

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 Organizational Responses
 Be Reactive, Anticipative, Adaptive, and
Proactive
 Managers may take actions, such as
 Employ strategic planning
 Use new and innovative business models
 Restructure business processes
 Participate in business alliances
 Improve corporate information systems
 Improve partnership relationships
 Encourage innovation and creativity …cont…>
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 Managers actions, continued
 Improve customer service and relationships
 Move to electronic commerce (e-commerce)
 Move to make-to-order production and on-demand
manufacturing and services
 Use new IT to improve communication, data access
(discovery of information), and collaboration
 Respond quickly to competitors' actions (e.g., in
pricing, promotions, new products and services)
 Automate certain decision processes
 Improve decision making by employing analytics

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 Closing the Strategy Gap
 One of the major objectives of
computerized decision support is to
facilitate closing the gap between the
current performance of an organization
and its desired performance, as
expressed in its mission, objectives, and
goals, and the strategy to achieve them

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 Managerial Decision Making
 Management is a process by which
organizational goals are achieved by
using resources
 Inputs: resources
 Output: attainment of goals
 Measure of success: outputs / inputs
 Management  Decision Making
 Decision making: selecting the best
solution from two or more alternatives
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 The nature of managers’ work
Mintzberg's 10 Managerial Roles

Interpersonal
1. Figurehead
2. Leader Decisional
3. Liaison 7. Entrepreneur
8. Disturbance handler
Informational 9. Resource allocator
4. Monitor 10. Negotiator
5. Disseminator
6. Spokesperson

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 The process of decision making
 Managers usually make decisions by
following a four-step process (the
scientific approach)
1. Define the problem (or opportunity)
2. Construct a model that describes the real-
world problem
3. Identify possible solutions to the modeled
problem and evaluate the solutions
4. Compare, choose, and recommend a
potential solution to the problem
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 The process of decision making
 y= mx + c
 Total cost= variable cost per unit ×
production unit+ fixed cost
 Solution model for the problem of
finding the minimum total cost.

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 Decision making is difficult, because
 Technology, information systems, advanced search
engines, and globalization result in more and more
alternatives from which to choose
 Government regulations and the need for compliance,
political instability and terrorism, competition, and
changing consumer demands produce more
uncertainty, making it more difficult to predict
consequences and the future
 Other factors are the need to make rapid decisions,
the frequent and unpredictable changes that make
trial-and-error learning difficult, and the potential costs
of making mistakes
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 Information Systems Support
for Decision Making
 Group communication and collaboration
 Improved data management
 Managing data warehouses and Big Data
 Analytical support
 Overcoming cognitive limits in processing
and storing information
 Knowledge management
 Anywhere, anytime support
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 An Early Framework for Computerized Decision Support
(The Gorry and Scott-Morton Classical Framework)

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 An Early Framework for Computerized Decision Support
(The Gorry and Scott-Morton Classical Framework)

 Degree of Structuredness (Simon, 1977)

 Decision / Decision making process are
classified as
 Highly structured ( programmed)
 Semi-structured
 Highly unstructured (i.e., non-programmed)

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 An Early Framework for Computerized Decision Support
(The Gorry and Scott-Morton Classical Framework)

 Types of Control (Anthony, 1965)

 Strategic planning (top-level, long-range)
 Management control (tactical planning,
mid-level)
 Operational control (low-level)

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 An Early Framework for Computerized Decision Support
(The Gorry and Scott-Morton Classical Framework)

 Types of control in all managerial activities

 Strategic planning
 Defining long range of goals and policies for resource allocation
 Management control
 Acquisition and efficient use of resources for organizational
goal
 Operational control
 Efficient and effective execution of specific task.
 The decision support matrix
 For semi-structured decisions and unstructured decisions,
conventional MIS and MS (mgt Sc) tools are insufficient
 Decision support systems (DSS) are used for unstructured
problems.

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 Computer Support for Structured
Decisions
 Structured problems: encountered repeatedly, have
a high level of structure.
 It is possible to abstract, analyze, and classify them
into specific categories
 e.g., make-or-buy decisions, capital budgeting,
resource allocation, distribution, procurement, and
inventory control
 For each category of decision, model and solution
approach is developed as quantitative formulas.
This process is called Management Science
 The application of a scientific approach and
mathematical models to the analysis and solution of
managerial decision situations (e.g., problems,
opportunities)
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 Computer Support for Structured
Decisions

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 Management Science Approach
 Also referred to as Operation Research
 In solving problems, managers should
follow the five-step MS approach
1. Define the problem
2. Classify the problem into a standard category
3. Construct a model that describes the real-world
problem
4. Identify possible solutions to the modeled problem
and evaluate the solutions
5. Compare, choose, and recommend a potential
solution to the problem
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 Automated Decision Making
 A relatively new approach to supporting
decision making
 Applies to highly structured decisions
 Automated decision systems (ADS)
(or decision automation systems)
 An ADS is a rule-based system that provides
a solution, usually in one functional area, to
a specific repetitive managerial problem,
usually in one industry.
 e.g., simple-loan approval system
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 Automated Decision Making
 ADS initially appeared in the airline
industry called revenue (or yield)
management (or revenue optimization)
systems
 dynamically price tickets based on actual
demand
 Today, many service industries use
similar pricing models
 ADS are driven by business rules!
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 Automated Decision-Making
Framework

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 Computer Support for
Unstructured Decisions
 Unstructured problems can be only partially
supported by standard computerized
quantitative methods
 They often require customized solutions
 They benefit from data and information
 Intuition and judgment may play a role in
this decision
 Computerized communication and
collaboration technologies along with
knowledge management is often used
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 Intuition
 When talking about intuition we are
describing something that is known,
perceived, understood or believed by
instinct, feelings or nature without actual
evidence, rather than by use of conscious
thought, reason, or rational processes.
 This does not imply that intuitive decision
making is irrational. Instead, we mean that
the explanation for a choice is not directly
available through conscious or logical
thought.
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 Intuition
 How does intuition form in human?
 How will you take decision using your
intuition? Describe with a real life
example.

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 Computer Support for
Semi-structured Problems
 Solving semi-structured problems may
involve a combination of standard solution
procedures and human judgment
 MS handles the structured parts while DSS
deals with the unstructured parts
 DSS can improve the quality of information
on which decision is based by providing a
range of alternative solutions, along with
their potential impacts. Thus to make better
decision
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 Concept of Decision Support Systems
Classical Definitions of DSS

 Interactive computer-based systems, which help

decision makers utilize data and models to solve
unstructured problems" - Gorry and Scott-Morton, 1971

 Decision support systems couple the intellectual

resources of individuals with the capabilities of the
computer to improve the quality of decisions. It is a
computer-based support system for management
decision makers who deal with semistructured
problems - Keen and Scott-Morton, 1978

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 DSS as an Umbrella Term
 The term DSS can be used as an
umbrella term to describe any
computerized system that supports
decision making in an organization
 E.g., an organization wide knowledge
management system; a decision support
system specific to an organizational function
(marketing, finance, accounting,
manufacturing, planning, SCM, etc.)

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 Concept of Decision Support Systems
A Decision Support System is an interactive computer-
based system or subsystem that helps people use computer,
communications, data, documents, knowledge and models
to identify and solve problems, complete decision process
tasks, and make decisions.

“DSS comprise a class of information system that draws on

transaction processing systems and interacts with the other
parts of the overall information system to support the
decision-making activities of managers and other knowledge
workers in organizations" (Sprague and Carlson, 1982, p. 9).

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 Concept of Decision Support Systems
A decision support system (DSS) is a computer-based
application that collects, organizes and analyzes business
data to facilitate quality business decision-making for
management, operations and planning.
A well-designed DSS aids decision makers in compiling a
variety of data from many sources: raw data, documents,
personal knowledge from employees, management,
executives and business models. DSS analysis helps
companies to identify and solve problems, and make
decisions.

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 Concept of Decision Support Systems
 Decision support systems are computer-based
systems that bring together information from a
variety of sources, assist in the organization and
analysis of information, and facilitate the
evaluation of assumptions underlying the use of
specific models.
 In other words, these systems allow decision
makers to access relevant data across the
organization as they need it to make choices
among alternatives.
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 Concept of Decision Support Systems
 The DSS allow decision makers to analyze data
generated from transaction processing systems
and other internal information sources easily. In
addition, DSS allow access to information external
from the organization.
 Finally, DSS allow the decision makers the ability
to analyze the information in a manner that will
be helpful to that particular decision and will
provide that support interactively.

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 Concept of Decision Support Systems
 Decision support system use is not programming
and not data entry. That is, decision makers do
not write computer code to analyze data when
using a DSS.
 Rather the DSS provides a framework through
which decision makers can obtain necessary
assistance for decision making through an easy-
to-use menu or command system.

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 Concept of Decision Support Systems
 Generally, a DSS will provide help in formulating
alternatives, accessing data, developing models,
and interpreting their results, selecting options or
analyzing the impacts of a selection.
 In other words, the DSS provides a vehicle for
accessing resources external to the decision-
making process for use in that choice process.
 A DSS is a computer-based system that supports
choice by assisting the decision maker in the
organization of information and modeling of
outcomes.
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 Continuum of Information System
Products

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 Continuum of Information System
Products
 Consider Figure 1.6 which illustrates a continuum
of information system products available.
 In this diagram, the conventional management
information system (MIS) or transaction
processing system (TPS) is shown at the far left.

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 Continuum of Information System
Products
 The MIS is intended for routine, structural, and
anticipated decisions.
 In those cases, the system might retrieve or
extract data, integrate it, and produce a report.
 These systems are not analysis oriented and tend
to be slow, batch processing systems. As such,
they are not good for supporting decisions.

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 Continuum of Information System
Products
 The far right of this diagram illustrates expert
systems (ES). These systems are intended to
reproduce the logic of a human who is considered
an expert for the purposes of a particular
decision.
 The systems generally process a series of
heuristics that are believed to mimic that logic.
 They are good at supporting decisions, but only
those decisions it has been programmed to
process.
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 Continuum of Information System
Products
 In between those two is the area of DSS and
executive information systems (EIS).
 These two types of systems are intended to help
decision makers identify and access information they
believe will be useful in processing poorly structured,
underspecified problems.
 They provide flexible mechanisms for retrieving data,
flexible mechanisms for analyzing data, and tools
which help understand the problems, opportunities,
and possible solutions.
 They allow the decision maker to select what they
want in both substance and format.
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 Continuum of Information System
Products
 Similarly, the MIS provides no help in generating
alternatives. If it does provide some sort of
model, it provides only the results. Typically there
is no provision for "what if?" analyses to
determine how sensitive the answer is to the
assumptions made.
 The DSS would typically provide access to these
sensitivity analyses. In addition, a DSS might
prompt users to consider sensitivity analyses or
provide suggestions on how to improve the
analyses.

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 Architecture of DSS
 Components of the DSS Architecture
 Data, Model, Knowledge/Intelligence, User,
Interface (user interface)
 DSS often is created by putting together
loosely coupled instances of these
components

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 High-Level Architecture of a DSS

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 Types of DSS
 Two major types:
 Model-oriented DSS
 quantitative models used to generate a
recommended solution to a problem
 Data-oriented DSS
 support ad-hoc reporting and queries

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 Uses of a Decision Support System
 Decision support systems are most useful when it
is not obvious what information needs to be
provided, what models need to be used or even
what criteria are most appropriate.
 Furthermore, since DSS proceed with requests
from decision makers in the order and manner
selected by the user (and not necessarily linear in
their application), they tend to be associated with
situations where users proceed differently with
each problem.
 However, that does not mean a DSS cannot be
useful for a more structured problem.
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 Uses of a Decision Support System
 LaPlante (1993) notes that DSS are most useful when
 (a) managers and their staffs spend significant time locating
and analyzing data that are already stored electronically,
 (b) management meetings stall because people challenge
the validity of the data,
 (c) management is frequently surprised by the data when
end-of-month-type reports are generated, and
 (d) decisions are too frequently made based upon anecdotal
evidence instead of appropriate data even when data might
be collected regularly.
 In short, she notes that if the data are collected electronically
but are not used to their full potential, a DSS is warranted.
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 Uses of a Decision Support System
 Hogue and Watson (1983) note that DSS might be
developed for other reasons. Although their study
noted that the number one reason for using a DSS
is to obtain accurate information, many users
develop such a system to obtain timely information
or because new information is needed.
 Other corporations develop DSS because they are
viewed as an "organizational winner" or because
management has mandated the use of a system. In
these cases, managers believe that their image of
using the DSS affects their client's view of their
product. In very few cases the DSS is used because
it reduces cost.
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 Uses of a Decision Support System
 Generally, it is accepted that DSS technology is
warranted if the goal is to help decision makers:
 Look at more facets of a decision

 Generate better alternatives

 Respond to situations quickly

 Solve complex problems

 Consider more options for solving a problem

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 Uses of a Decision Support System
 Brainstorm solutions
 Utilize multiple analyses in solving a problem
 Have new insights into problems and
eliminate "tunnel vision" associated with
premature evaluation of options
 Implement a variety of decision styles and
strategies
 Use more appropriate data
 Better utilize models
 Consider "what if?" analyses
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 Evolution of DSS into Business
Intelligence
 In the early days of DSS, managers let their staff do
some supportive analysis by using DSS tools.
 As PC technology advanced, a new generation of
managers evolved—one that was comfortable with
computing and knew that technology can directly
help make intelligent business decisions faster. New
tools such as OLAP, data warehousing, data mining,
and intelligent systems, delivered via Web
technology, added promised capabilities and easy
access to tools, models, and data for computer-
aided decision making.
 These tools started to appear under the names BI
and business analytics in the mid-1990s.
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 A Framework for
Business Intelligence (BI)
 BI is an evolution of decision support
concepts over time
 Then: Executive Information System
 Now: Everybody’s Information System (BI)

 BI systems are enhanced with additional

visualizations, alerts, and performance
measurement capabilities
 The term BI emerged from industry

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 Definition of
Business Intelligence (BI)
 BI is an umbrella term that combines
architectures, tools, databases, analytical
tools, applications, and methodologies
 Like DSS, BI is a content-free expression, so
it means different things to different people
 BI's major objective is to enable easy access
to data (and models) to provide business
managers with the ability to conduct analysis
 BI helps transform data, to information (and
knowledge), to decisions and finally to action
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 Definition of
Business Intelligence (BI)
 Business intelligence (BI) is a set of theories,
methodologies, processes, architectures, and
technologies that transform raw data into
meaningful and useful information for business
purposes.
 BI can handle large amounts of information to
help identify and develop new opportunities.
 Making use of new opportunities and
implementing an effective strategy can provide a
competitive market advantage and long-term
stability.
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 A Brief History of BI
 The term BI was coined by the Gartner
Group in the mid-1990s
 However, the concept is much older
 1970s - MIS reporting - static/periodic reports
 1980s - Executive Information Systems (EIS)
 1990s - OLAP, dynamic, multidimensional, ad-hoc
reporting -> coining of the term “BI”
 2010s - Inclusion of AI and Data/Text Mining
capabilities; Web-based Portals/Dashboards, Big
Data, Social Media, Analytics
 2020s - yet to be seen

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 The Evolution of BI Capabilities

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 A High-Level Architecture of BI

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 A High-Level Architecture of BI
 A BI system has four major components
 Data warehouse
 The data warehouse is a large repository of well-
organized historical data
 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
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 A High-Level Architecture of BI
 A BI system has four major components
 Business analytics

 business analytics, a collection of tools for

manipulating, mining, and analyzing the data

in the data warehouse;
 Business analytics are the tools that allow

transformation of data into information and

knowledge
 Reporting and queries

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 A High-Level Architecture of BI
 A BI system has four major components
 Business analytics

 Data, text and Web mining and other

sophisticated mathematical and statistical tools
 Data mining

 A process of searching for unknown

relationships or information in large
databases or data warehouses, using
intelligent tools such as neural computing,
predictive analytics techniques, or
advanced statistical methods
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 A High-Level Architecture of BI
 A BI system has four major components
 Business performance management (BPM)
 business performance management (BPM) for monitoring
and analyzing performance
 (BPM) allows monitoring, measuring, and comparing key
performance indicators
 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 corporate-wide
strategy

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 A High-Level Architecture of BI
 A BI system has four major components
 User interface

 User interface (e.g., dashboards) allows access and

easy manipulation of other BI components
 The user interface- Dash boards and other information
broadcasting tools:
 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

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 Dashboard

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 The Origins and Drivers of BI
 Organizations are being compelled to capture,
understand, and harness their data to support decision
making in order to improve business operations.
 Legislation and regulation (e.g., the Sarbanes-Oxley Act
of 2002) now require business leaders to document
their business processes and to sign off on the
legitimacy of the information they rely on and report to
stakeholders.
 Moreover, business cycle times are now extremely
compressed; faster, more informed, and better decision
making is therefore a competitive imperative.
 Managers need the right information at the right time
and in the right place. This is the mantra for modern
approaches to BI.
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 Business Value of BI Analytical
Applications
 Customer segmentation
 Propensity to buy
 Customer profitability
 Fraud detection
 Customer attrition
 Channel optimization

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 Business Value of BI Analytical
Applications

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 A Multimedia Exercise
in Business Intelligence
 Teradata University Network (TUN)

https://www.teradata.com/University/Academics

 BSI Videos (Business Scenario

Investigations)
www.youtube.com/watch?v=NXEL5F4_aKA

 Also look for other BSI Videos at TUN

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 The DSS–BI Connection (Difference and
Similarities)
 First, their architectures are very similar
because BI evolved from DSS
 Second, DSS directly support specific decision
making, while BI provides accurate and
timely information, and indirectly support
decision making
 Third, BI has an executive and strategy
orientation, especially in its BPM and
dashboard components, while DSS, in
contrast, is oriented toward analysts
1-76 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall
 The DSS–BI Connection (Difference and
Similarities) – cont.
 Fourth, most BI systems are constructed with
commercially available tools and components,
while DSS is often built from scratch
 Fifth, DSS methodologies and even some tools
were developed mostly in the academic world,
while BI methodologies and tools were
developed mostly by software companies
 Sixth, many of the tools that BI uses are also
considered DSS tools (e.g., data mining and
predictive analysis are core tools in both)
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 The DSS–BI Connection (Difference
and Similarities) – cont.
 Although some people equate DSS with BI,
these systems are not, at present, the same
 some people believe that DSS is a part of BI—one
of its analytical tools
 others think that BI is a special case of DSS that
deals mostly with reporting, communication, and
collaboration (a form of data-oriented DSS)
 BI is a result of a continuous revolution and, as
such, DSS is one of BI's original elements
 In this book, we separate DSS from BI

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 Management support systems (MSS)
 Management support systems (MSS)
 A system that applies any type of decision
support tool or technique to managerial
decision-making
 MSS = BI and/or DSS

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 The Major Tools and Techniques
of Managerial Decision Support
TOOL CATEGORY TOOLS AND THEIR ACRONYMS
Data management Databases and database management system (DBMS)
Extraction, transformation, and load (ETL) systems
Data warehouses (DW), real-time DW, and data marts
Reporting status tracking Online analytical processing (OLAP)
Executive information systems (EIS)
Visualization Geographical information systems (GIS)
Dashboards, Information portals
Multidimensional presentations
Business analytics Optimization, Web analytics
Data mining, Web mining, and text mining
Strategy and performance Business performance management (BPM)/
management Corporate performance management (CPM)
Business activity management (BAM)
Dashboards and Scorecards
Communication and Group decision support systems (GDSS)
collaboration Group support systems (GSS)
Collaborative information portals and systems Source: Table 1.4
Social networking Web 2.0, Expert locating systems
Knowledge management Knowledge management systems (KMS) Computerized tools
Intelligent systems Expert systems (ES)
Artificial neural networks (ANN)
for decision
Fuzzy logic, Genetic algorithms, Intelligent agents support
Enterprise systems Enterprise resource planning (ERP),
Customer Relationship Management (CRM), and
Supply-Chain Management (SCM)
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 The Major Tools and Techniques
of Managerial Decision Support
 Tools-Web connection
 All of these tools are available in both
web-based and non web-based
formats

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 Hybrid (Integrated) Support Systems
 The objective of computerized decision support,
regardless of its name or nature, is to assist
management in solving managerial or organizational
problems (and assess opportunities and strategies)
faster and better than possible without computers
 Every type of tool has certain capabilities and
limitations. By integrating several tools, we can
improve decision support because one tool can provide
advantages where another is weak

 The trend is therefore towards developing

hybrid (integrated) support system
1-82 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall
 Analytics Overview
 Analytics?
 Something new or just a new name for …
 A Simple Taxonomy of Analytics
(proposed by INFORMS)
 Descriptive Analytics
 Predictive Analytics
 Prescriptive Analytics

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 Analytics Overview

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1-85 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall
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1-88 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall
 Analytics Applied to Different Domains
 It is almost fashionable to attach the word
analytics to any specific industry or type of data.
Besides the general category of text analytics—
aimed at getting value out of text (to be studied in
Chapter 6)—or Web analytics—analyzing Web data
streams (Chapter 7)—many industry- or problem-
specific analytics professions/streams have come
up.
 Examples of such areas are marketing analytics,
retail analytics, fraud analytics, transportation
analytics, health analytics, sports analytics, talent
analytics, behavioral analytics, and so forth.
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 Analytics Applied to Different Domains
 For example, Application Case 1.1 could also be
termed as a case study in airline analytics.
Application Cases 1.2 and 1.3 would belong to
health analytics; Application Cases 1.4 and 1.5 to
sports analytics; Application Case 1.6 to bank
analytics; and Application Case 1.7 to retail
analytics. The End-of-Chapter Application Case
could be termed insurance analytics.
 Literally, any systematic analysis of data in a
specific sector is being labeled as “(fill-in-blanks)”
Analytics. Although this may result in overselling
the concepts of analytics, the benefit is that more
people in specific industries are aware of the power
and potential of analytics.

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 Analytics or Data Science?
 One view is that data analyst is just another term for
professionals who were doing business intelligence in the
form of data compilation, cleaning, reporting, and perhaps
some visualization.
 Their skill sets included Excel, some SQL knowledge, and
reporting. A reader of Section 1.8 would recognize that as
descriptive or reporting analytics.
 In contrast, a data scientist is responsible for predictive
analysis, statistical analysis, and more advanced analytical
tools and algorithms.
 They may have a deeper knowledge of algorithms and
may recognize them under various labels—data mining,
knowledge discovery, machine learning, and so forth.
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 Analytics or Data Science?
 Some of these professionals may also need deeper
programming knowledge to be able to write code for data
cleaning and analysis in current Web-oriented languages
such as Java and Python.
 Again, our readers should recognize these as falling under
the predictive and prescriptive analytics umbrella.
 Our view is that the distinction between analytics and data
science is more of a degree of technical knowledge and
skill sets than the functions.
 It may also be more of a distinction across disciplines.
Computer science, statistics, and applied mathematics
programs appear to prefer the data science label,
reserving the analytics label for more business-oriented
professionals.

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 Introduction to Big Data Analytics
 Big Data?
 Not just big!
 Volume

 Variety

 Velocity

 More of Big Data and related

analytics tools and techniques are
covered in Chapter 13.
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 Evolution of Computerized Decision Support to
Business Intelligence/Analytics /Data Science

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 Video Link
 Decision-making Made Easier
 https://www.youtube.com/watch?v=0EDFv
Jb9WOA

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 Resources Link
 sas.com/news/sascom/analytics_levels.
pdf
 informs.org/Community/Analytics
 emc.com/collateral/about/news/emc-
data-science-study-wp.pdf
 barabasilab.neu.edu/networkscienceboo
k/downlPDF.html

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 Resources Link
 Resources and Links
 The Data Warehousing Institute (tdwi.org)
 Information Management (information-
management.com)
 DSS Resources (dssresources.com)
 Microsoft Enterprise Consortium
(enterprise.waltoncollege.uark.edu/mec.as
p)

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 Resources
 Vendors, Products, and Demos
 Most vendors provide software demos of
their products and applications.
 Informationabout products, architecture,
and software is available at
dssresources.com.

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 Resources Link
 Periodicals
 Decision Support Systems
 CIO Insight (cioinsight.com)
 Technology Evaluation
(technologyevaluation.com)
 Baseline Magazine (baselinemag.com)

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Business Intelligence and Analytics:
Systems for Decision Support
(10th Edition)

Chapter 2:
Foundations and Technologies
for Decision Making
 Introduction
 The major focus in this book is the
support of decision making through
computer-based information systems.
 The purpose of this chapter is to
describe the conceptual foundations of
decision making and how decision
support is provided.

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 Learning Objectives
 Understand the conceptual foundations
of decision making
 Understand Simon’s four phases of
decision making: intelligence, design,
choice, and implementation
 Understand the essential definition of
decision support systems (DSS)
 Understand different types of DSS
classifications (Continued…)
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 Learning Objectives
 Learn the capabilities and limitations of
DSS in supporting managerial decisions
 Learn how DSS support for decision
making can be provided in practice
 Understand DSS components and how
they integrate

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 Characteristics of Decision Making
 Groupthink
 Decision makers are interested in evaluating
what-if scenarios
 Experimentation with the real system may
result in failure
 Experimentation with the real system is
possible only for one set of conditions at a time
and can be disastrous
 Changes in the decision making environment
may occur continuously, leading to invalidating
assumptions about the situation
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 Characteristics of Decision Making
 Changes in the decision making environment may
affect decision quality by imposing time pressure on
the decision maker
 Collecting information and analyzing a problem
takes time and can be expensive. It is difficult to
determine when to stop and make a decision
 There may not be sufficient information to make an
intelligent decision
 Information overload: Too much information

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 Decision Support Systems (DSS)
 To determine how real decision makers make
decisions, we must first understand the process
and the important issues involved in decision
making.
 Then we can understand appropriate
methodologies for assisting decision makers
and the contributions information systems can
make.
 Only then can we develop DSS to help decision
makers.

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 Decision Support Systems (DSS)

Dissecting DSS into

its main concepts

Building successful DSS

requires a through
understanding of these
concepts

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 Decision Support Systems (DSS)
 This chapter is organized based on the three key
words that form the term DSS: decision, support,
and systems.
 A decision maker should not simply apply IT tools
blindly.
 Rather, the decision maker gets support through a
rational approach that simplifies reality and
provides a relatively quick and inexpensive means
of considering various alternative courses of action
to arrive at the best (or at least a very good)
solution to the problem.
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 Decision Making
 A process of choosing among two or
more alternative courses of action for
the purpose of attaining a goal(s)
 Managerial decision making is
synonymous with the entire
management process - Simon (1977)
 e.g., Planning
 What should be done? When? Where?
Why? How? By whom?
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 Decision-Making Disciplines
 Decision making is directly influenced by
several major disciplines, some of which are
behavioral and some of which are scientific in
nature.
 We must be aware of how their philosophies
can affect our ability to make decisions and
provide support.

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 Decision-Making Disciplines
 Behavioral: anthropology, law, philosophy,
political science, psychology, social psychology,
and sociology
 Scientific: computer science, decision analysis,
economics, engineering, the hard sciences (e.g.,
biology, chemistry, physics), management
science/operations research, mathematics, and
statistics
 Each discipline has its own set of assumptions
about reality and method. Each contributes a
unique, valid view of how people make decisions
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 Decision-Making Disciplines
 Better decisions
 Tradeoff: accuracy versus speed
 Fast decision may be detrimental
 Many areas suffer from fast decisions
 Effectiveness versus Efficiency
 Effectiveness  “goodness” “accuracy”
 Efficiency  “speed” “less resources”
 A fine balance is what is needed!
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 Decision Style
 The manner by which decision makers
think and react to problems
 perceive a problem
 cognitive response
 values and beliefs
 When making decisions, people…
 follow different steps/sequence
 give different emphasis, time allotment,
and priority to each steps
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 Decision Style
 Personality temperament tests are often used to
determine decision styles
 Various tests measure somewhat different aspects
of personality
 They cannot be equated!
 Decision-making styles
 Heuristic versus Analytic
 Autocratic versus Democratic
 Consultative (with individuals or groups)
 A successful computerized system should fit the
decision style and the decision situation
 Should be flexible and adaptable to different users
(individuals vs. groups)
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 Decision Style
 There are many such tests
 Meyers/Briggs, myersbriggs.org,
 True Colors (Birkman): birkman.com,
 Keirsey Temperament Theory: keirsey.com
 Others:
 16personalities.com/free-personality-test
 https://www.truity.com/test/big-five-
personality-test
 https://bigfive-test.com/

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 Decision Makers
 Small organizations
 Individuals
 Conflicting objectives
 Medium-to-large organizations
 Groups
 Conflicting objectives
 Different styles, backgrounds, expectations,
personality types
 Consensus is often difficult to reach
 Help: Computerized support, GSS, ERP, SCM,
KMS, CRM
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 Phases of Decision-Making Process
 Humans consciously or sub consciously
follow a systematic decision-making
process - Simon (1977)
1) Intelligence
2) Design
3) Choice
4) Implementation
5) (?) Monitoring (a part of intelligence?)

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 Phases of the
Decision-Making Process
 Intelligence phase
The initial phase of problem definition in decision making
 Design phase
The second decision-making phase, which involves finding
possible alternatives in decision making and assessing their
contributions
 Choice phase
The third phase in decision making, in which an alternative
is selected
 Implementation phase
The fourth decision-making phase, involving actually
putting a recommended solution to work
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Simon’s Decision-Making Process
Web and
the
Decision-
Making
Process
 Decision-Making: Intelligence Phase
 Scan the environment, either intermittently or continuously
 Identify problem situations or opportunities
 Monitor the results of the implementation
 Problem ( or opportunity ) identification:
 Determine whether a problem exists, identify its

symptoms, determine its magnitude and explicitly define

it
 Problem is the difference between what people desire

(or expect) and what is actually occurring

 Symptom versus Problem

 Timely identification of opportunities is as important as

identification of problems
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 Decision-Making: Intelligence Phase
 Problem ( or opportunity ) identification:
 Potential issues in data/information

collection and estimation

 Lack of data
 Cost of data collection
 Inaccurate and/or imprecise data
 Data estimation is often subjective
 Data may be insecure
 Key data may be qualitative
 Data change over time (time-dependence)
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 Decision-Making: Intelligence Phase
 Problem Classification
 Problem classification is the conceptualization of a
problem in an attempt to place it in a definable
category
 Classification of problems according to the degree of
structuredness
 Problem Decomposition
 Dividing complex problems into simpler sub-problems
may help in solving the complex problem
 Information/data can improve the structuredness of a
problem situation
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 Decision-Making: Intelligence Phase
 Problem Ownership
 Assignment of authority to solve a problem is
called “problem ownership”
 Example: high-interest rate, what is the
managerial role?
 Outcome of intelligence phase:
• A Formal Problem Statement

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 Decision-Making: The Design Phase

 Finding or developing and analyzing possible

courses of actions.
 These includes understanding the problem and
testing solutions for feasibility
 A model of the decision-making problem is
constructed, tested, and validated

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 Decision-Making: The Design Phase:
Model
 A significant part of many DSS and BI tools
(notably those of business analytics)
 A model is a simplified representation (or
abstraction) of reality
 Often, reality is too complex to describe
 Much of the complexity is actually irrelevant
in solving a specific problem
 Models can represent systems/problems at
various degrees of abstraction
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 Decision-Making: The Design Phase:
Types of Models
 Models can be classified based on their
degree of abstraction
Less
 Iconic models (scale models)
Degree of abstraction

 Analog models

 Mental Models

 Mathematical (quantitative) models

More

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 Types of Models
 Iconic model
 Also called scale model
 Least abstract type of model

 A physical replica of a system, on a different scale

from original.
 May be 3D: model of airplane, a car, a bridge

 2D iconic model: photographs

 Analog model
 An abstract, symbolic model of a system that
behaves like the system but does not look like it
 More abstract than an iconic model and symbolic
representation of reality
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 Types of Models
 Analog model
 2D charts and diagrams.

 Examples:

 Organization charts: depicts structure, authority,

responsibility relationship
 Maps: different colour represents different objects,
such as bodies of water or mountains.
 Stock Market Charts: represents the price
movements of stocks
 Blueprint of a machine or house
 Animations, videos, and movies
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 Types of Models

 Mental model
 Used in time-pressure situation (airplane pilot consider
whether to fly)
 Are descriptive representation of decision making
situations that people form in their head and think
about.
 The mechanisms or images through which a human
mind performs sense-making in decision making
 Thought process work through scenario to consider the
utility & risks of each potential alternative
 When mostly qualitative factors are in decision making
 Cognitive maps
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 Types of Models

 Mathematical (quantitative) model

 A system of symbols and expressions that represent a
real situation
 The complexity of relationships in many organization
can’t be represented by icons or
analogically.(cumbersome and time consuming).
 More abstract models are described mathematically.
 Most DSS analyses are performed numerically with
mathematical or other quantitative models.

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 Iconic model

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 Iconic model

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 Analog model

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 Analog model

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 Mental model

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 Mathematical (quantitative) model

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 Decision-Making: The Design Phase:
The Benefits of Models
 Model manipulation is much easier than
manipulating a real system
 Models enable the compression of time
 The cost of modeling analysis is much
lower
 The cost of making mistakes during a trial-
and-error experiment is much lower when
models are used than with real systems

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 Decision-Making: The Design Phase:
The Benefits of Models
 With modeling, a manager can estimate the
risks resulting from specific actions within the
uncertainty of the business environment
 Mathematical models enable the analysis of a
very large number of possible solutions
 Models enhance and reinforce learning and
training
 Models and solution methods are readily
available on the Web
 Many Java applets are available to readily
solve models
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 Decision-Making: The Design Phase:
 Modeling involves conceptualizing a problem and
abstracting it into a quantitative and/or qualitative
form.
 For a mathematical model, the variables are
identified, and their mutual relationships are
established.
 Making assumptions for simplification

 Tradeoff (cost/benefit): model simplification vs.

representation of reality
 Process of modeling: both an art and a science

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 Decision-Making: The Design Phase
 Models have:
 Decision variables:

 A variable in a model that can be changed

and manipulated by the decision maker.

 Result variable

 Uncontrollable variable

 The process of modeling involves determining

the (usually mathematical, sometimes symbolic)
relationships among the variables.

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 Decision-Making: The Design Phase
 Selection of a Principle of Choice
 It is a criterion that describes the acceptability of a solution
approach
 In a model, it is the result variable
 Selecting a principle of choice is not part of the choice
phase but involves how a person establishes decision-
making objective(s) and incorporates the objective(s) into
the model(s).
 Choosing and validating against
 High-risk versus low-risk

 Optimize versus satisfice

 Among the many principles of choice, normative and

descriptive are of prime importance.

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 Decision-Making: The Design Phase
 Selection of a Principle of Choice
 Normative models (= optimization)
 Heuristic models (= suboptimization)
 Descriptive models
 Good Enough, or Satisficing

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 Decision-Making: The Design Phase
 Normative models (= optimization)
 the chosen alternative is demonstrably the best

of all possible alternatives

 To find it, the decision maker should examine all

the alternatives and prove that the one selected

is indeed the best, which is what the person
would normally want.
 This process is basically optimization. This is

typically the goal of what we call prescriptive

analytics (Part IV).
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 Decision-Making: The Design Phase
 Normative models (= optimization)
 Three ways to achieve optimization:

 Get the highest level of goal attainment from

a given set of resources

 Find the alternatives with the highest ratio of

goal attainment to cost

 Find the alternative with the lowest cost (or

smallest amount of other resources) that will

meet an acceptable level of goals.

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 Decision-Making: The Design Phase
 Normative models (= optimization)
 Normative decision theory is based on the following
assumptions of rational decision makers:
 Humans are economic beings whose objective is to

maximize the attainment of goals

 For a decision-making situation, all viable
alternative courses of action and their
consequences, or at least the probability and the
values of the consequences, are known.
 Decision makers have an order or preference that

enables them to rank the desirability of all

consequences of the analysis (best to worst).
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 Decision-Making: The Design Phase
 Heuristic models (= suboptimization)
 the chosen alternative is the best of only a subset of
possible alternatives
 One part of organization rather than whole.
 Often, it is not feasible to optimize realistic
(size/complexity) problems
 Suboptimization may also help relax unrealistic
assumptions in models
 Apply when simplifying assumptions are used in
modelling a problem
 Help reach a good enough solution faster
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 Decision-Making: The Design Phase

 Descriptive models
 Describe things as they are or as they are believed to be
(mathematically based)
 Check the performance of the system for a given set of
alternative
 Simulation - most common descriptive modeling method
(imitation of reality or mathematical depiction of systems in a
computer environment)
 Allows experimentation with the descriptive model of a system
 Classes of descriptive model ( see book)
 Nonmathematical descriptive models
 Cognitive map ( Software: Decision Explorer)

 Narrative

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 Decision-Making: The Design Phase
 Good Enough, or Satisficing
 “something less than the best”
 Satisficing
 A process by which one seeks a solution or goal

or desired level of performance that will satisfy a

set of constraints.
 A form of suboptimization
 Reasons: time pressure, ability of achieve
optimization, marginal benefit vs marginal cost.
 Benefit: time saving
 Simon’s idea of bounded rationality
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 Decision-Making: The Design Phase
 Developing (Generating) Alternatives
 In optimization models (such as linear
programming), the alternatives may be
generated automatically .
 In most MSS situations, however, it is
necessary to generate alternatives manually
 Use of GSS helps generate alternatives
 The search for alternatives usually occurs after
the criteria for evaluating the alternatives are
determined
 Outcome of proposed alternative must be
established
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 Decision-Making: The Design Phase
 Measuring/ranking the outcomes
 The value of an alternative is evaluated in
terms of goal attainment
 Outcome expressed in terms of goal
 Risk
 Unstable environment (unpredictable event)
 Lack of precise knowledge (uncertainty)
 Risk can be measured with probability
 Attribute a level of risk to the outcome
associated with each potential alternative being
considered
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 Decision-Making: The Design Phase
 Scenario (what-if case)
 A statement of assumptions about the operating
environment (variables) of a particular system at a
given time
 Change the scenario of problem and examine the
result
 There may be thousands of possible scenarios for
every decision situation. However, the following
are especially useful in practice
 The worst possible scenario
 The best possible scenario
 The most likely scenario
 The average scenario
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 Decision-Making: The Design Phase
 Errors in Decision Making
 The model is a critical component in the decision-
making process, but a decision maker may make a
number of errors in its development and use.
 Validating the model before it is used is critical.
 Gathering the right amount of information, with the
right level of precision and accuracy, to incorporate
into the decision-making process is also critical.
 Sawyer (1999) described “the seven deadly sins of
decision making,” most of which are behavior or
information related.
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 Decision-Making: The Choice Phase
 The actual decision is made and the commitment
to follow a certain course of action are made
here
 The boundary between the design and choice is
often unclear
 Generate alternatives while performing evaluations
 Includes the search, evaluation, and
recommendation of an appropriate solution to
the model
 Solving the model versus solving the problem!
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 Decision-Making: The Choice Phase
 Search approaches
 Analytic techniques (solving with a formula)
 Algorithms (step-by-step procedures)
 Heuristics (rule of thumb, problem solving aid)
 Blind search (truly random search)
 Additional activities
 Sensitivity analysis (effect of change in one on
others)
 What-if analysis ( explore major change in
parameter )
 Goal seeking ( determine value of decision
variable to meet objective)
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 Decision-Making:
The Implementation Phase
“Nothing more difficult to carry out, nor
more doubtful of success, nor more
dangerous to handle, than to initiate a
new order of things.”
- The Prince, Machiavelli 1500s
 Solution to a problem = Change
 Change management?
 Implementation: putting a recommended
solution to work
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 How Decisions Are Supported

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 How Decisions Are Supported
 Support for the Intelligence Phase
 Enabling continuous scanning of external
and internal information sources to identify
problems and/or opportunities
 Resources/technologies: Web; ES, OLAP,
data warehousing, data/text/Web mining,
EIS/Dashboards, KMS, GSS, GIS,…
 Business activity monitoring (BAM)
 Business process management (BPM)
 Product life-cycle management (PLM)
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 How Decisions Are Supported
 Support for the Design Phase
 Enabling generating alternative courses of
action, determining the criteria for choice
 Generating alternatives
 Structured/simple problems: standard and/or
special models
 Unstructured/complex problems: human
experts, ES, KMS, brainstorming/GSS, OLAP,
data/text mining
 A good “criteria for choice” is critical!
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 How Decisions Are Supported
 Support for the Choice Phase
 Enabling selection of the best alternative
given a complex constraint structure
 Use sensitivity analyses, what-if analyses,
goal seeking
 Resources
 KMS
 CRM, ERP, and SCM
 Simulation and other descriptive models

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 How Decisions Are Supported
 Support for the Implementation Phase
 Enabling implementation/deployment of
the selected solution to the system
 Decision communication, explanation and
justification to reduce resistance to change
 Resources
 Corporate portals, Web 2.0/Wikis
 Brainstorming/GSS
 KMS , ES

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 DSS Capabilities
 DSS early definition: it is a system intended to
support managerial decisions in semistructured and
unstructured decision situations
 DSS were meant to be adjuncts to decision makers 
extending their capabilities
 Aimed at decisions that required judgment or at
decisions that could not be completely supported by
algorithms
 They are computer based and would operate
interactively online, and preferably would have
graphical output capabilities
 Nowadays, simplified via Web browsers and mobile
devices
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 DSS Capabilities
 A DSS Application:
 A DSS is typically built to support the solution of a certain
problem (or to evaluate a specific opportunity). This is a key
difference between DSS and BI applications
 BI systems monitor situations and identify problems

and/or opportunities, using variety of analytic methods

 Reporting plays a major role in BI; the user generally

must identify whether a particular situation warrants

attention, and then analytical methods can be applied.
 Again, although models and data access (generally

through a data warehouse) are included in BI, DSS

typically have their own databases and are developed to
solve a specific problem or set of problems. They are
therefore called DSS applications.
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 DSS Capabilities

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 DSS Capabilities
 The key characteristics and capabilities of
DSS
1. Support for decision makers, mainly in
semistructured and unstructured situations,
by bringing together human judgment and
computerized information
2. Support for all managerial levels, ranging
from top executives to line managers
3. Support for individuals as well as groups

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 DSS Capabilities
4. Support for interdependent and/or sequential
decisions
5. Support in all phases of the decision-making
process
6. Support for a variety of decision-making
processes and styles
7. DSS are flexible, so users can add, delete,
combine, change, or rearrange basic elements;
DSS can be readily modified to solve other,
similar problems
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 DSS Capabilities

8. User-friendliness, strong graphical capabilities,

and a natural language interactive human–
machine interface can greatly increase the
effectiveness of DSS
9. Improved effectiveness of decision making
10. The decision maker has complete control over all
steps of the decision-making process in solving a
problem
11. End users are able to develop and modify simple
systems by themselves
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 DSS Capabilities
12. Models are generally utilized to analyze decision-
making situations
13. Access is provided to a variety of data sources,
formats, and types
14. Can be employed as a standalone tool used by
an individual decision maker in one location or
distributed throughout an organization and in
several organizations along the supply chain
15. Can be integrated with other DSS and/or
applications, and it can be distributed internally
and externally, using networking and Web
technologies
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 A Web-Based DSS Architecture

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 DSS Classifications

 AIS SIGDSS classification for DSS

1. Communications-driven and group DSS (GSS)
2. Data-driven DSS
3. Document-driven DSS
4. Knowledge-driven DSS, data mining, and
management ES applications
5. Model-driven DSS
6. Compound DSS
 https://www.wolframalpha.com/
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 DSS Classifications
 Other DSS Categories
 Institutional and ad-hoc DSS
 Custom-made systems versus ready-made
systems
 Personal, group, and organizational
support
 Individual support system versus group
support system (GSS)

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 Components of DSS

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 Components of DSS
 Data Management Subsystem
 Includes the database that contains the data
 Database management system (DBMS)
 Can be connected to a data warehouse
 Model Management Subsystem
 Model base management system (MBMS)
 Software for establishing, updating, combining, and
so on (e.g., managing) a DSS model base
 User Interface Subsystem
 Communicate with and command the DSS
 Knowledgebase Management Subsystem
 support any of the other subsystems or act as an
independent component
 Organizational knowledge base
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 DSS Components
Data Management Subsystem

Composed of the
following
elements
 DSS database

 DBMS

 Data directory

 Query facility

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 Data Management Subsystem

The Database
 A database is a collection of interrelated data ,
organised to meet the needs and structure of an
organization that can be used by one person for
more than one application.
 Data in a DSS database are extracted from:
 Internal data come mainly from the organization’s
transaction processing system
 External data include industry data, market research data,
census data, regional employment data, government
regulations, tax rate schedules, and national economic data
 Private data can include guidelines used by specific
decision makers and assessments of specific data and/or
situations
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 Data Management Subsystem
 The Database
 Data organization

 Data extraction
 The process of capturing data from several sources, synthesizing
them, summarizing them, determining which of them are
relevant, and organizing them, resulting in their effective
integration.
 Database management system (DBMS)
 Software for establishing, creating, updating, and querying
(e.g., managing) a database
 Query Facility
 The (database) mechanism that accepts requests for data,
accesses them, manipulates them, and queries them
 Directory
 A catalog of all the data in a database or all the models in a
model base
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 Key Data and Database Management
Issues
 Data quality
 “Garbage in/garbage out" (GIGO)
 Data integration
 “Creating a single version of the truth”
 Scalability
 Data Security

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 10 Key Ingredients of Data
(Information) Quality Management
1. Data quality is a business problem, not only
a systems problem
2. Focus on information about customers and
suppliers, not just data
3. Focus on all components of information and
data: definition, content, and presentation
4. Implement data/information quality
management processes, not just software to
handle them
5. Measure data accuracy as well as validity
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 10 Key Ingredients of Data
(Information) Quality Management
6. Measure real costs (not just the percentage)
of poor quality data/information
7. Emphasize process improvement and
preventive maintenance, not just data
cleansing
8. Improve processes (and hence data quality)
at the source
9. Educate managers about the impacts of
poor data quality and how to improve it
10. Actively transform the culture to one that
values data quality
2-85 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall
 DSS Components
Model Management Subsystem

 Model base
 MBMS
 Modeling
language
 Model directory
 Model execution,
integration, and
command
processor

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 The Model Management Subsystem

 Model base
 A collection of preprogrammed quantitative models (e.g.,
statistical, financial, optimization) organized as a single
unit.
 Contain routine and special statistical, financial,
forecasting, management science and other quantitative
model that provide the analysis capabilities in DSS.
 Four categories of models with the model base
 Strategic models

 Tactical models

 Operational models

 Analytical models

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 The Model Management Subsystem
 Model base
 Strategic models
Models that represent problems for the strategic level
(i.e., executive level) of management
 Tactical models
Models that represent problems for the tactical level
(i.e., midlevel) of management
 Operational models
Models that represent problems for the operational
level of management
 Analytical models
Mathematical models into which data are loaded for
analysis
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 The Model Management Subsystem
 Model base
 Model building blocks and routines
 Model building blocks

Preprogrammed software elements that can be used to build

computerized models. For example, a random-number generator
can be employed in the construction of a simulation model
 Model components for building DSS
 Modeling tools
 Model base management system: MBMS software has four
main functions
 Model creation, using programming languages, DSS tools and/or
subroutines, and other building blocks
 Generation of new routines and reports
 Model updating and changing
 Model data manipulation

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 The Model Management Subsystem

 Model directory
 A catalog of all model and other software in the model base.
 Model execution, integration, and command
processor
 Model execution is the process of controlling the actual running
of the model
 Model integration involves combining the operations of several
models when needed
 A model command processor is used to accept and interpret
modeling instructions from the user interface component and
route them to the MBMS, model execution, or integration
functions
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 DSS Components
User Interface (Dialog) Subsystem

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 User Interface (Dialog) Subsystem
 User interface
 The component of a computer system that cover communication
between the system/DSS/ any MSS and its user.
 Management of the user interface subsystem
 User interface management system (UIMS)
 The user interface system is managed by software called UIMS

 The user interface process

 Users interact with computer via action language processed by the
UIMS
 It enables to interact with DM and MM subsystem
 In advance system, user interface component includes,
 Natural language processor

 Use object ( button) through GUI

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 User Interface (Dialog) Subsystem
 DSS user interfaces
 DSS access is provided through web browsers
(portal and dashboard) including:
 Portable devices
 Input through SMS
 iPhone’s Application
 Voice input and output
 Personal Music player
 Direct sensing devices

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 DSS Components
Knowledgebase Management SubSystem
 Supply the required expertise for solving some aspects
of the problem and provide knowledge that can
enhance the operation of other DSS components
 Incorporation of intelligence and expertise
 Knowledge components:
 Expert systems,
 Knowledge management systems,
 Neural networks,
 Intelligent agents,
 Fuzzy logic,
 Case-based reasoning systems, and so on
 Often used to better manage the other DSS
components
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 DSS User
 One faced with a decision that an MSS is
designed to support
 Manager, decision maker, problem solver, …
 The users differ greatly from each other
 Different organizational positions they occupy;
cognitive preferences/abilities; the ways of
arriving at a decision (i.e., decision styles)
 User = Individual versus Group
 Human intellect/ Intellectual capability

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 Analytics Examples in Selected
Domains
 Sports Analytics—An Exciting Frontier for Learning and
Understanding Applications of Analytics
 Example 1: Business office

2-97 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

 HW
 You are about to buy a car. Using
Simon’s four-phase model, describe
your activities at each step.

2-98 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

 Links
 https://www.kepner-tregoe.com/
 How To Improve Decision Making Skills
| Decision Making Process
 https://www.youtube.com/watch?v=2tCYy
66CyuQ
 When Emotions Make Better Decisions -
Antonio Damasio
 https://www.youtube.com/watch?v=1wup_
K2WN0I
2-99 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall
Business Intelligence and Analytics:
Systems for Decision Support
(10th Edition)

Chapter 4:
Business Reporting,
Visual Analytics, and Business
Performance Management
 Introduction
 Descriptive analytics, often referred to as business
intelligence, uses data and models to answer the
“what happened?” and “why did it happen?”
questions in business settings.
 It is perhaps the most fundamental echelon in the
three-step analytics continuum upon which
predictive and Prescriptive analytics capabilities are
built.
 As you will see in the following chapters, the key
enablers of descriptive analytics include data
warehousing, business reporting, decision
dashboard/ scorecards, and visual analytics.

4-2 Copyright © 2014 Pearson Education, Inc.

 Introduction
 A report is a communication artifact prepared with
the specific intention of relaying information in a
presentable form. If it concerns business matters,
then it is called a business report.
 Business reporting is an essential part of the
business intelligence movement toward improving
managerial decision making.
 Nowadays, these reports are more visually oriented,
often using colors and graphical icons that
collectively look like a dashboard to enhance the
information content.
 Business reporting and business performance
management (BPM) are both enablers of business
intelligence and analytics.
4-3 Copyright © 2014 Pearson Education, Inc.
 Introduction
 As a decision support tool, BPM is more than
just a reporting technology. It is an integrated
set of processes, methodologies, metrics, and
applications designed to drive the overall
financial and operational performance of an
enterprise.
 It helps enterprises translate their strategies and
objectives into plans, monitor performance
against those plans, analyze variations between
actual results and planned results, and adjust
their objectives and actions in response to this
analysis.
4-4 Copyright © 2014 Pearson Education, Inc.
 Introduction
 This chapter starts with examining the need for and
the power of business reporting. With the
emergence of analytics, business reporting evolved
into dashboards and visual analytics, which,
compared to traditional descriptive reporting, is
much more predictive and prescriptive.
 Coverage of dashboards and visual analytics is
followed by a comprehensive introduction to BPM.
As you will see and appreciate, BPM and visual
Analytics have a symbiotic relationship (over
scorecards and dashboards) where they benefit
from each other’s strengths.

4-5 Copyright © 2014 Pearson Education, Inc.

 Learning Objectives
 Define business reporting and understand its
historical evolution
 Recognize the need for and the power of
business reporting
 Understand the importance of data/information
visualization
 Learn different types of visualization techniques
 Appreciate the value that visual analytics brings
to BI/BA
 …
(Continued…)
4-6 Copyright © 2014 Pearson Education, Inc.
 Learning Objectives
 Know the capabilities and limitations of
dashboards
 Understand the nature of business performance
management (BPM)
 Learn the closed-loop BPM methodology
 Describe the basic elements of balanced
scorecards

4-7 Copyright © 2014 Pearson Education, Inc.

 Business Reporting
Definitions and Concepts
 Report = Information  Decision
 Report?
 Any communication artifact prepared to convey
specific information
 A report can fulfill many functions
 To ensure proper departmental functioning
 To provide information
 To provide the results of an analysis
 To persuade others to act
 To create an organizational memory…
4-8 Copyright © 2014 Pearson Education, Inc.
 What is a Business Report?
 A written document that contains information
regarding business matters.
 Purpose: to improve managerial decisions
 Source: data from inside and outside the
organization (via the use of ETL)
 Format: text + tables + graphs/charts
 Distribution: in-print, email, portal/intranet
Data acquisition  Information generation 
Decision making  Process management
4-9 Copyright © 2014 Pearson Education, Inc.
 Business Reporting
Business Functions

UOB 1.0 X UOB 2.1 X UOB 3.0

Data UOB 2.2

Transactional Records
Exception Event
Symbol Count Description
Action
Machine
1
Failure (decision)

DEPLOYMENT CHART

PHASE 1 PHASE 2 PHASE 3 PHASE 4 PHASE 5

DEPT 1

DEPT 2

DEPT 3

Data
DEPT 4

4 5
2 3
1
Repositories
Decision
Information
Maker
(reporting)

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 Key to Any Successful Report
 Clarity …
 Brevity …
 Completeness …
 Correctness …

 Report types (in terms of content and format)

 Informal – a single letter or a memo
 Formal – 10-100 pages; cover + summary + text
 Short report – periodic, informative, investigative
4-11 Copyright © 2014 Pearson Education, Inc.
 Types of Business Reports
 Metric Management Reports
 Help manage business performance through
metrics (SLAs for externals; KPIs for internals)
 Can be used as part of Six Sigma and/or TQM
 Dashboard-Type Reports
 Graphical presentation of several performance
indicators in a single page using dials/gauges
 Balanced Scorecard-Type Reports
 Include financial, customer, business process,
and learning & growth indicators
4-12 Copyright © 2014 Pearson Education, Inc.
 Components of the Business
Reporting System
 OLTP (online transaction processing).
 A system that measures some aspect of the real world as events (e.g.,
transactions) and records them into enterprise databases. Examples
include ERP systems, POS systems, Web servers, RFID readers, handheld
inventory readers, card readers, and so forth.
 Data supply.
 A system that takes recorded events/transactions and delivers them
reliably to the reporting system. The data access can be push or pull,
depending on whether or not it is responsible for initiating the delivery
process. It can also be polled (or batched) if the data are transferred
periodically, or triggered (or online) if data are transferred in case of a
specific event.
 ETL (extract, transform, and load).
 This is the intermediate step where these recorded transactions/events
are checked for quality, put into the appropriate format, and inserted into
the desired data format.

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 Components of the Business
Reporting System
 Data storage.
 This is the storage area for the data and metadata. It could be a flat file or
a spreadsheet, but it is usually a relational database management system
(RDBMS) set up as a data mart, data warehouse, or operational data store
(ODS); it often employs online analytical processing (OLAP) functions like
cubes.
 Business logic.
 The explicit steps for how the recorded transactions/events are to be
converted into metrics, scorecards, and dashboards.
 Publication.
 The system that builds the various reports and hosts them (for users) or
disseminates them (to users). These systems may also provide notification,
annotation, collaboration, and other services.
 • Assurance.
 A good business reporting system is expected to offer a quality service to
its users. This includes determining if and when the right information is to
be delivered to the right people in the right way/format.
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 Data and Information Visualization
“The use of visual representations to explore,
make sense of, and communicate data.”

 Data visualization vs. Information visualization

 Information = aggregation, summarization,
and contextualization of data
 Related to information graphics, scientific
visualization, and statistical graphics
 Often includes charts, graphs, illustrations, …
4-15 Copyright © 2014 Pearson Education, Inc.
 A Brief History of
Data Visualization
 Data visualization can date back to the
second century AD
 Most developments have occurred in the
last two and a half centuries
 Until recently it was not recognized as a
discipline
 Today’s most popular visual forms date
back a few centuries

4-16 Copyright © 2014 Pearson Education, Inc.

 The First Pie Chart
Created by William Playfair in 1801

William Playfair
is widely
credited as the
inventor of the
modern chart,
having created
the first line
and pie charts.

4-17 Copyright © 2014 Pearson Education, Inc.

 Decimation of Napoleon’s Army
During the 1812 Russian Campaign

By Charles Joseph Minard

• Arguably the most popular multi-dimensional chart

4-18 Copyright © 2014 Pearson Education, Inc.
 A Brief History of Data
Visualization
 1900s –
 more formal attitude toward visualization
 focus on color, value scales, and labeling
 Publication of the book Semiologie Graphique
 2000s –
 Emergence of Internet as the medium for
information visualization  raising visual literacy
 Incorporate interaction, animation, 3D graphics-
rendering, virtual worlds, real-time data feed
 2010s and beyond – ?
4-19 Copyright © 2014 Pearson Education, Inc.
 Different Types of
Charts and Graphs
 Which one to use? Where and when?
 Basic Charts and  Specialized Charts and
Graphs Graphs
 Histogram
 Line Chart
 Gantt Chart
 Bar Chart  PERT Chart
 Pie Chart  Geographic Map
 Scatter Plot  Bullet Graph
 Heat Map
 Bubble Chart
 Highlight Table
 Tree Map
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 A Gapminder Chart
Wealth and Health of Nations

See gapminder.org for

interesting animated examples

4-21 Copyright © 2014 Pearson Education, Inc.

 The Emergence of Data
Visualization And Visual Analytics
Magic Quadrant for
Business Intelligence
and Analytics Platforms
(Source: Gartner.com)
• Many data
visualization
companies are in the
4th quadrant
• There is a move
toward visualization
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 The Emergence of Data
Visualization And Visual Analytics
 Emergence of new companies
 Tableau, Spotfire, QlikView, …
 Increased focus by the big players
 MicroStrategy improved Visual Insight
 SAP launched Visual Intelligence
 SAS launched Visual Analytics
 Microsoft bolstered PowerPivot with Power
View
 IBM launched Cognos Insight
 Oracle acquired Endeca
4-23 Copyright © 2014 Pearson Education, Inc.
 Visual Analytics
 A recently coined term
 Information visualization + predictive analytics
 Information visualization
 Descriptive, backward focused
 “what happened” “what is happening”
 Predictive analytics
 Predictive, future focused
 “what will happen” “why will it happen”
 There is a strong move toward visual analytics
4-24 Copyright © 2014 Pearson Education, Inc.
 Visual Analytics by SAS Institute

 SAS Visual Analytics Architecture

 Big data + In memory + Massively parallel processing + ..
4-25 Copyright © 2014 Pearson Education, Inc.
 Visual Analytics by SAS Institute
 At teradatauniversitynetwork.com, you can learn
more about SAS VA, experiment with the tool

4-26 Copyright © 2014 Pearson Education, Inc.

 Performance Dashboards
 Performance dashboards are commonly
used in BPM software suites and BI
platforms
 Dashboards provide visual displays of
important information that is consolidated
and arranged on a single screen so that
information can be digested at a single
glance and easily drilled in and further
explored
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Performance Dashboards
 Performance Dashboards
 Dashboard design
 The fundamental challenge of dashboard
design is to display all the required
information on a single screen, clearly and
without distraction, in a manner that can be
assimilated quickly
 Three layer of information
 Monitoring
 Analysis
 Management

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 Performance Dashboards
 What to look for in a dashboard
 Use of visual components to highlight data and
exceptions that require action.
 Transparent to the user, meaning that they require
minimal training and are extremely easy to use
 Combine data from a variety of systems into a single,
summarized, unified view of the business
 Enable drill-down or drill-through to underlying data
sources or reports
 Present a dynamic, real-world view with timely data
 Require little coding to implement/deploy/maintain
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 Best Practices in
Dashboard Design
 Benchmark KPIs with Industry Standards
 Wrap the Metrics with Contextual Metadata
 Validate the Design by a Usability Specialist
 Prioritize and Rank Alerts and Exceptions
 Enrich Dashboard with Business-User Comments
 Present Information in Three Different Levels
 Pick the Right Visual Constructs
 Provide for Guided Analytics

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 Business Performance
Management (BPM)
 Business Performance Management (BPM) is…
A real-time system that alerts managers to
potential opportunities, impending problems and
threats, and then empowers them to react
through models and collaboration.
 Also called corporate performance management
(CPM by Gartner Group), enterprise performance
management (EPM by Oracle), strategic
enterprise management (SEM by SAP)

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 Business Performance
Management (BPM)
 BPM refers to the business processes,
methodologies, metrics, and technologies used
by enterprises to measure, monitor, and manage
business performance.
 BPM encompasses three key components
 A set of integrated, closed-loop management and
analytic processes, supported by technology …
 Tools for businesses to define strategic goals and
then measure/manage performance against them
 Methods and tools for monitoring key performance
indicators (KPIs), linked to organizational strategy
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 A Closed-Loop Process to
Optimize Business Performance
 Process Steps
1. Strategize
2. Plan
3. Monitor/analyze
4. Act/adjust

Each with its own

process steps

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 Strategize:
Where Do We Want to Go?
 Strategic planning
 Common tasks for the strategic planning
process:
1. Conduct a current situation analysis
2. Determine the planning horizon
3. Conduct an environment scan
4. Identify critical success factors
5. Complete a gap analysis
6. Create a strategic vision
7. Develop a business strategy
8. Identify strategic objectives and goals

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 Plan:
How Do We Get There?
 Operational planning
 Operational plan: plan that translates an
organization’s strategic objectives and goals
into a set of well-defined tactics and
initiatives, resources requirements, and
expected results for some future time period
(usually a year).
 Operational planning can be
 Tactic-centric (operationally focused)
 Budget-centric plan (financially focused)
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 Monitor/Analyze:
How Are We Doing?
 A comprehensive framework for
monitoring performance should
address two key issues:
 What to monitor?
 Critical success factors
 Strategic goals and targets

 …

 How to monitor?
 …
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 Act and Adjust: What Do We
Need to Do Differently?
 Success (or mere survival) depends on
new projects: creating new products,
entering new markets, acquiring new
customers (or businesses), or
streamlining some process.
 Many new projects and ventures fail!
 What is the chance of failure?
 60% of Hollywood movies fail
 70% of large IT projects fail, …
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 Performance Measurement
 Performance measurement system
A system that assists managers in tracking
the implementations of business strategy
by comparing actual results against
strategic goals and objectives
 Comprises systematic comparative methods
that indicate progress (or lack thereof)
against goals

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 KPIs and Operational Metrics
 Key performance indicator (KPI)
A KPI represents a strategic objective and
metrics that measure performance against
a goal
 Distinguishing features of KPIs
 Strategy  Encodings

 Targets  Time frames

 Ranges  Benchmarks

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 Performance Measurement
 Key performance indicator (KBI)
Outcome KPIs vs. Driver KPIs
(lagging indicators (leading indicators
e.g., revenues) e.g., sales leads)
 Operational areas covered by driver KPIs
 Customer performance
 Service performance
 Sales operations
 Sales plan/forecast
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 Performance Measurement
System
 Balanced Scorecard (BSC)
A performance measurement and
management methodology that helps
translate an organization’s financial,
customer, internal process, and learning
and growth objectives and targets into a
set of actionable initiatives
"The Balanced Scorecard: Measures That
Drive Performance” (HBR, 1992)
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 Balanced
Scorecard

The meaning of
“balance” ?
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 Topics
 The Meaning of Balance in BSC
 Dashboards Versus Scorecards

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 Six Sigma as a Performance
Measurement System
 Six Sigma
A performance management
methodology aimed at reducing the
number of defects in a business process
to as close to zero defects per million
opportunities (DPMO) as possible

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 Six Sigma as a Performance
Measurement System
 The DMAIC performance model
A closed-loop business improvement
model that encompasses the steps of
defining, measuring, analyzing,
improving, and controlling a process
 Lean Six Sigma
 Lean manufacturing / lean production

 Lean production versus six sigma?

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 Comparison of Balanced
Scorecard and Six Sigma

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 Comparison of Balanced
Scorecard and Six Sigma

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 Topics
 Effective Performance Measurement

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