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- Decision Support Systems (DSS)
- DSS in Banks
- Turban Dss9e Ch03
- Turban Dss9e Im Ch01
- Decision Support and Business Intelligence Systems (9th Edition) [20ebooks.com]
- Turban Dss9e Im Ch02
- Turban Dss 9e Chapter 03
- DSS Decision support system
- 70192694 Decision Support and Business Intelligence 9th Edition
- Chapter 1 Test Bank
- Turban Decision Support and Business Intelligence Systems 9e
- new quiz
- Chapter 2 Test Bank
- Turban Dss9e Ch08
- 271796035 Test Bank for Business Intelligence and Analytics Systems for Decision Support 10th Edition Sharda Delen Turban
- intro1
- Turban Dss9e Ch02
- Chap 03
- Ejercicios de optimización
- Business Intelligence: Making Decisions Through Data Analytics

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Business Intelligence

Systems

(9

th

Ed., Prentice Hall)

Chapter 4:

Modeling and Analysis

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-2

Learning Objectives

Understand the basic concepts of management

support system (MSS) modeling

Describe how MSS models interact with data

and the users

Understand the well-known model classes and

decision making with a few alternatives

Describe how spreadsheets can be used for

MSS modeling and solution

Explain the basic concepts of optimization,

simulation and heuristics; when to use which

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-3

Learning Objectives

Describe how to structure a linear

programming model

Understand how search methods are used to

solve MSS models

Explain the differences among algorithms,

blind search, and heuristics

Describe how to handle multiple goals

Explain what is meant by sensitivity analysis,

what-if analysis, and goal seeking

Describe the key issues of model management

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-4

Opening Vignette:

Model-Based Auctions Serve More

Lunches in Chile

Background: problem situation

Proposed solution

Results

Answer and discuss the case questions

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-5

Modeling and Analysis Topics

Modeling for MSS (a critical component)

Static and dynamic models

Treating certainty, uncertainty, and risk

Influence diagrams (in the posted PDF file)

MSS modeling in spreadsheets

Decision analysis of a few alternatives (with decision

tables and decision trees)

Optimization via mathematical programming

Heuristic programming

Simulation

Model base management

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-6

MSS Modeling

A key element in most MSS

Leads to reduced cost and increased revenue

DuPont Simulates Rail Transportation System and

Avoids Costly Capital Expenses

Procter & Gamble uses several DSS models

collectively to support strategic decisions

Locating distribution centers, assignment of DCs to

warehouses/customers, forecasting demand, scheduling

production per product type, etc.

Fiat, Pillowtex (operational efficiency)

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-7

Major Modeling Issues

Problem identification and environmental

analysis (information collection)

Variable identification

Influence diagrams, cognitive maps

Forecasting/predicting

More information leads to better prediction

Multiple models: A MSS can include several

models, each of which represents a different

part of the decision-making problem

Categories of models >>>

Model management

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-8

Categories of Models

Category Objective Techniques

Optimization of

problems with few

alternatives

Find the best solution from a

small number of alternatives

Decision tables,

decision trees

Optimization via

algorithm

Find the best solution from a

large number of alternatives

using a step-by-step process

Linear and other

mathematical

programming models

Optimization via an

analytic formula

Find the best solution in one

step using a formula

Some inventory models

Simulation Find a good enough solution

by experimenting with a

dynamic model of the system

Several types of

simulation

Heuristics Find a good enough solution

using common-sense rules

Heuristic programming

and expert systems

Predictive and

other models

Predict future occurrences,

what-if analysis,

Forecasting, Markov

chains, financial,

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-9

Static and Dynamic Models

Static Analysis

Single snapshot of the situation

Single interval

Steady state

Dynamic Analysis

Dynamic models

Evaluate scenarios that change over time

Time dependent

Represents trends and patterns over time

More realistic: Extends static models

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-10

Decision Making:

Treating Certainty, Uncertainty and Risk

Certainty Models

Assume complete knowledge

All potential outcomes are known

May yield optimal solution

Uncertainty

Several outcomes for each decision

Probability of each outcome is unknown

Knowledge would lead to less uncertainty

Risk analysis (probabilistic decision making)

Probability of each of several outcomes occurring

Level of uncertainty => Risk (expected value)

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-11

Certainty, Uncertainty and Risk

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-12

Influence Diagrams

(Posted on the Course Website)

Graphical representations of a model

Model of a model

A tool for visual communication

Some influence diagram packages create and solve

the mathematical model

Framework for expressing MSS model relationships

Rectangle = a decision variable

Circle = uncontrollable or intermediate variable

Oval = result (outcome) variable: intermediate or final

Variables are connected with arrows indicates the direction

of influence (relationship)

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-13

Influence Diagrams: Relationships

Amount in

CDs

Interest

Collected

Price

Sales

Sales

~

Demand

CERTAINTY

UNCERTAINTY

RANDOM (risk) variable: Place a tilde (~) above the variables name

The shape of

the arrow

indicates the

type of

relationship

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-14

Influence Diagrams: Example

~

Amount used in

Advertisement

Unit Price

Units Sold

Unit Cost

Fixed Cost

Income

Expenses

Profit

An influence diagram for the profit model

Profit = Income Expense

Income = UnitsSold * UnitPrice

UnitsSold = 0.5 * Advertisement Expense

Expenses = UnitsCost * UnitSold + FixedCost

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-15

Influence Diagrams: Software

Analytica, Lumina Decision Systems

Supports hierarchical (multi-level) diagrams

DecisionPro, Vanguard Software Co.

Supports hierarchical (tree structured) diagrams

DATA Decision Analysis, TreeAge Software

Includes influence diagrams, decision trees and simulation

Definitive Scenario, Definitive Software

Integrates influence diagrams and Excel, also supports

Monte Carlo simulations

PrecisionTree, Palisade Co.

Creates influence diagrams and decision trees directly in an

Excel spreadsheet

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-16

Analytica Influence Diagram of a Marketing

Problem: The Marketing Model

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-17

Analytica: The Price Submodel

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-18

Analytica: The Sales Submodel

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-19

MSS Modeling with Spreadsheets

Spreadsheet: most popular end-user modeling tool

Flexible and easy to use

Powerful functions

Add-in functions and solvers

Programmability (via macros)

What-if analysis

Goal seeking

Simple database management

Seamless integration of model and data

Incorporates both static and dynamic models

Examples: Microsoft Excel, Lotus 1-2-3

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-20

Excel spreadsheet - static model example:

Simple loan calculation of monthly payments

(

+

+

=

+ =

1 ) 1 (

) 1 (

) 1 (

n

n

n

i

i i

P A

i P F

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-21

Excel spreadsheet -

Dynamic model

example:

Simple loan

calculation of

monthly payments

and effects of

prepayment

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-22

Decision Analysis: A Few Alternatives

Single Goal Situations

Decision tables

Multiple criteria decision analysis

Features include decision

variables (alternatives),

uncontrollable variables, result

variables

Decision trees

Graphical representation of

relationships

Multiple criteria approach

Demonstrates complex

relationships

Cumbersome, if many

alternatives exists

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-23

Decision Tables

Investment example

One goal: maximize the yield after one year

Yield depends on the status of the economy

(the state of nature)

Solid growth

Stagnation

Inflation

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-24

Investment Example:

Possible Situations

1. If solid growth in the economy, bonds yield 12%;

stocks 15%; time deposits 6.5%

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

deposits 6.5%

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

deposits yield 6.5%

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-25

Payoff Decision variables (alternatives)

Uncontrollable variables (states of economy)

Result variables (projected yield)

Tabular representation:

Investment Example:

Decision Table

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-26

Investment Example:

Treating Uncertainty

Optimistic approach

Pessimistic approach

Treating Risk:

Use known probabilities

Risk analysis: compute expected values

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-27

Decision Analysis: A Few Alternatives

Other methods of treating risk

Simulation, Certainty factors, Fuzzy logic

Multiple goals

Yield, safety, and liquidity

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-28

MSS Mathematical Models

Decision

Variables

Mathematical

Relationships

Uncontrollable

Variables

Result

Variables

Non-Quantitative Models (Qualitative)

Captures symbolic relationships between decision variables, uncontrollable

variables and result variables

Quantitative Models: Mathematically links decision variables,

uncontrollable variables, and result variables

Decision variables describe alternative choices.

Uncontrollable variables are outside decision-makers control

Result variables are dependent on chosen combination of decision variables

and uncontrollable variables

Intermediate

Variables

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-29

Optimization

via Mathematical Programming

Mathematical Programming

A family of tools designed to help solve

managerial problems in which the decision maker

must allocate scarce resources among competing

activities to optimize a measurable goal

Optimal solution: The best possible solution

to a modeled problem

Linear programming (LP): A mathematical model

for the optimal solution of resource allocation

problems. All the relationships are linear

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-30

LP Problem Characteristics

1. Limited quantity of economic resources

2. Resources are used in the production of

products or services

3. Two or more ways (solutions, programs) to

use the resources

4. Each activity (product or service) yields a

return in terms of the goal

5. Allocation is usually restricted by constraints

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-31

Line

Linear Programming Steps

1. Identify the

Decision variables

Objective function

Objective function coefficients

Constraints

Capacities / Demands

2. Represent the model

LINDO: Write mathematical formulation

EXCEL: Input data into specific cells in Excel

3. Run the model and observe the results

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-32

LP Example

The Product-Mix Linear Programming Model

MBI Corporation

Decision: How many computers to build next month?

Two types of mainframe computers: CC7 and CC8

Constraints: Labor limits, Materials limit, Marketing lower limits

CC7 CC8 Rel Limit

Labor (days) 300 500 <= 200,000 /mo

Materials ($) 10,000 15,000 <= 8,000,000 /mo

Units 1 >= 100

Units 1 >= 200

Profit ($) 8,000 12,000 Max

Objective: Maximize Total Profit / Month

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-33

LP Solution

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-34

LP Solution

Decision Variables:

X

1

: unit of CC-7

X

2

: unit of CC-8

Objective Function:

Maximize Z (profit)

Z=8000X

1

+12000X

2

Subject To

300X

1

+ 500X

2

s 200K

10000X

1

+ 15000X

2

s 8000K

X

1

> 100

X

2

> 200

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-35

Sensitivity, What-if, and

Goal Seeking Analysis

Sensitivity

Assesses impact of change in inputs on outputs

Eliminates or reduces variables

Can be automatic or trial and error

What-if

Assesses solutions based on changes in variables or

assumptions (scenario analysis)

Goal seeking

Backwards approach, starts with goal

Determines values of inputs needed to achieve goal

Example is break-even point determination

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-36

Heuristic Programming

Cuts the search space

Gets satisfactory solutions more

quickly and less expensively

Finds good enough feasible

solutions to very complex

problems

Heuristics can be

Quantitative

Qualitative (in ES)

Traveling Salesman Problem

>>>

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-37

Heuristic Programming - SEARCH

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-38

Traveling Salesman Problem

What is it?

A traveling salesman must visit customers in

several cities, visiting each city only once, across

the country. Goal: Find the shortest possible route

Total number of unique routes (TNUR):

TNUR = (1/2) (Number of Cities 1)!

Number of Cities TNUR

5 12

6 60

9 20,160

20 1.22 10

18

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-39

When to Use Heuristics

When to Use Heuristics

Inexact or limited input data

Complex reality

Reliable, exact algorithm not available

Computation time excessive

For making quick decisions

Limitations of Heuristics

Cannot guarantee an optimal solution

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-40

Tabu search

Intelligent search algorithm

Genetic algorithms

Survival of the fittest

Simulated annealing

Analogy to Thermodynamics

Modern Heuristic Methods

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-41

Simulation

Technique for conducting experiments with a

computer on a comprehensive model of the

behavior of a system

Frequently used in DSS tools

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-42

Imitates reality and capture its richness

Technique for conducting experiments

Descriptive, not normative tool

Often to solve very complex problems

Simulation is normally used only when a

problem is too complex to be treated using

numerical optimization techniques

Major Characteristics of Simulation

!

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-43

Advantages of Simulation

The theory is fairly straightforward

Great deal of time compression

Experiment with different alternatives

The model reflects managers perspective

Can handle wide variety of problem types

Can include the real complexities of problems

Produces important performance measures

Often it is the only DSS modeling tool for

non-structured problems

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-44

Limitations of Simulation

Cannot guarantee an optimal solution

Slow and costly construction process

Cannot transfer solutions and inferences to

solve other problems (problem specific)

So easy to explain/sell to managers, may lead

overlooking analytical solutions

Software may require special skills

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-45

Simulation Methodology

Model real system and conduct repetitive experiments.

Steps:

1. Define problem 5. Conduct experiments

2. Construct simulation model 6. Evaluate results

3. Test and validate model 7. Implement solution

4. Design experiments

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-46

Simulation Types

Stochastic vs. Deterministic Simulation

In stochastic simulations: We use distributions (Discrete or

Continuous probability distributions)

Time-dependent vs. Time-independent Simulation

Time independent stochastic simulation via Monte Carlo

technique (X = A + B)

Discrete event vs. Continuous simulation

Steady State vs. Transient Simulation

Simulation Implementation

Visual simulation

Object-oriented simulation

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-47

Visual interactive modeling (VIM)

Also called

Visual interactive problem solving

Visual interactive modeling

Visual interactive simulation

Uses computer graphics to present the impact

of different management decisions

Often integrated with GIS

Users perform sensitivity analysis

Static or a dynamic (animation) systems

Visual Interactive Modeling (VIM) /

Visual Interactive Simulation (VIS)

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-48

Model Base Management

MBMS: capabilities similar to that of DBMS

But, there are no comprehensive model base

management packages

Each organization uses models somewhat

differently

There are many model classes

Within each class there are different solution

approaches

Relations MBMS

Object-oriented MBMS

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-49

End of the Chapter

Questions / Comments

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 4-50

All rights reserved. No part of this publication may be reproduced, stored in a

retrieval system, or transmitted, in any form or by any means, electronic,

mechanical, photocopying, recording, or otherwise, without the prior written

permission of the publisher. Printed in the United States of America.

Copyright 2011 Pearson Education, Inc.

Publishing as Prentice Hall

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