Decision support tools

1. Decision support tools Lecture 6: Model-based Decision Support Systems

2. Module structure • Management Decision-Making • OLAP & Data Mining • Group Support Systems • Executive Support Systems • Model-based Decision Support Systems • Intelligent Systems • Expert Systems • Managing Decision Support Tools

3. Management Decision Making Transactions Internal databases Management Information Systems External databases MIS reports Specialised decision support applications

5. The role of modelling • Helps to understand complex situations • Types of model • Analog • Scale • Mathematical • Mathematical models • Controllable (decision) variables • Uncontrollable variable • Result variables • Mathematical relationships between them

6. More about mathematical models • Econometric modelsspecify the statistical relationship between various economic quantities • They are typically derived by using least-squares regression, maximum-likelihood estimation, or time series methods • Reliable models provide a valuable forecasting tool

7. Advert for forecasting software http://www.gmdhshell.com/business-forecasting-software • “How much should you spend on advertising? Should you pay more attention to managing expenses or focus on bringing in sales instead? Business forecasting is never a simple task.” • “By analyzing your past moves and historical data though, you can achieve a better vision of what you should do next.” • “Our application loads the historical values you provide and builds comprehensive mathematical models with the most accurate prediction strength.”

8. Relevant problems in decision-making • Intelligence • Access to information • Personal approaches & bias • Design • Complex calculations • Impact assessment • Learning from the past • Choice • Inconsistency • Justification • Changing environments

9. How a DSS supports decision-making • Combines models and data • Mathematical models • Internal / external data • Provides insight into the problem • Known relationships between variables • Accommodates both objective information and human judgement • Can perform sensitivity analysis • Sometimes a small change will have a big impact

11. Interactions occurring within a DSS • A human user specifies one or more scenarios to be evaluated, and the outcome that is of interest • There must be a known relationship between the variables included in a scenario • The DSS retrieves data relating to the variables involved • The DSS applies models (formulas) that reflect the relationship between the different variables • The DSS estimates an outcome for each scenario based on historical data and the known relationships between variables

12. The components of a DSS • Dialogue Manager (user interface) • Database Management System (DBMS) giving access to • Internal databases (e.g. TPS, MIS) • External databases (internet, libraries, government, etc) • Model Management Software (MMS) used to select appropriate models from the model base • A model base is a collection of mathematical and statistical functions that quantify the relationship between variables commonly used in business scenarios (e.g. financial, economic) • Specific model bases are available for different industries

13. Diagram of a DSS Manager (user) User interface Internal data bases Model management component Data management component External data sources Model base Other computer-based systems (sometimes)

14. Comparison of DSS and MIS

15. Benefits of a DSS • Easier experimentation • Lower cost • Compressed time frames • Assessment of risk • Sophisticated calculations • Comparison of alternatives • Improved understanding of problem context • Consistency, reliability, model refinement Problems: cost, time, reliance, maintenance

16. Other types of DSS • Intelligent DSS • Includes knowledge base with rules • Organisational DSS • Supports a sequence of decisions • Crosses functional boundaries and hierarchies • Includes a communication component

17. Intelligent DSS Manager (user) User interface Best practices Knowledge management Internal data bases Model management component Data management component External data sources Model base Other computer-based systems (sometimes)

18. Tomorrow: self-study (again!) Instead of coming to a lecture, read the “New Balance” Case Study on pages 457-458 of the module handout. Write down your answers to the questions posted on RUconnected. Bring your answers to the lecture on Thursday 27 March, where we’ll discuss everybody’s ideas.