5/14/2023

BIT 30303
DECISION SUPPORT SYSTEM
CHAPTER 4. DECISION MAKING PROCESS

4.1 How to determine the level of Decision Making?

4.2 Decision Topologies
4.3 Decision Theory and Simon Model
4.4 Rational Decision Making
4.5 Cognitive Process
4.6 Heuristic and Bias in Decision Making

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4.1 How to determine the level of Decision Making?

Why are Decisions So Hard?

The four key areas that determine the relative difficulty of a
decision are:

1. Structure – in general, the more structure, the less

information required
2. Cognitive limitations – the human mind is limited to
handling 5 to 9 distinct pieces of information

Why are Decisions So Hard?

The four key areas that determine the relative difficulty of a
decision are:

3. Uncertainty – the amount is based on how complete and

accurate the information is
4. Alternatives and multiple objectives – the selection of
one alternative may impede the progress towards a different
goal

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4.2 Decision Topologies

A Typology of Decisions
No two decisions are alike, but they can be categorized:

• Negotiation-based decisions can be classified as routine,

creative, or negotiated.
• Activity-based decisions can be typed as entrepreneurial,
adaptive, or planning.
• Strategy-based decisions can be grouped into
computational, judgmental, inspirational, or compromise.

Typology of Decisions

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4.3 Decision Theory and Simon Model

Keen and Scott Morton categorized decision theory into

five perspectives.

1. Rational manager perspective

2. Process-oriented perspective
3. Organizational procedures perspective
4. Political perspective
5. Individual difference perspective

Phases of the
Decision-Making Process

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Phases of the
Decision-Making Process
• (1) Intelligence phase
The initial phase of problem definition in
decision making
• (2) Design phase
The second decision-making phase, which
involves finding possible alternatives in decision
making and assessing their contributions

Phases of the
Decision-Making Process
• (3) Choice phase
The third phase in decision making, in which an
alternative is selected
• (4) Implementation phase
The fourth decision-making phase, involving
actually putting a recommended solution to work

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Decision Making:
(1) The Intelligence Phase
• Problem (or opportunity) identification: some issues that may
arise during data collection
• Data are not available
• Obtaining data may be expensive
• Data may not be accurate or precise enough
• Data estimation is often subjective
• Data may be insecure
• Important data that influence the results may be qualitative

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Decision Making:
(1) The Intelligence Phase
• Problem (or opportunity) identification: some issues that may
arise during data collection
• Information overload
• Outcomes (or results) may occur over an extended period
• If future data is not consistent with historical data, the
nature of the change has to be predicted and included in
the analysis

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Decision Making:
(1) The Intelligence Phase
• Problem classification
The conceptualization of a problem in an attempt to place it in a
definable category, possibly leading to a standard solution
approach
• Problem decomposition
Dividing complex problems into simpler subproblems may help in
solving the complex problem
• Problem ownership
The jurisdiction (authority) to solve a problem

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Decision Making:
(2) The Design Phase
• The design phase involves finding or developing and analyzing
possible courses of action
• Understanding the problem
• Testing solutions for feasibility
• A model of the decision-making problem is constructed,
tested, and validated

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Decision Making:
(2) The Design Phase
• Modeling involves conceptualizing a problem and abstracting it to
quantitative and/or qualitative form. Models have:
• Decision variables
• Principle of choice
• Decision variables
A variable in a model that can be changed and manipulated by the decision
maker. Decision variables correspond to the decisions to be made, such as
quantity to produce, amounts of resources to allocate, and so on
• Principle of choice
The criterion for making a choice among alternatives

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Decision Making:
(2) The Design Phase
• Normative models
Models in which the chosen alternative is demonstrably the
best of all possible alternatives
• Optimization
The process of examining all the alternatives and proving
that the one selected is the best
• Suboptimization
An optimization-based procedure that does not consider
all the alternatives for or impacts on an organization

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Decision Making:
(2) The Design Phase
• Descriptive model
A model that describes things as they are
• Simulation
An imitation of reality
• Narrative is a story that helps a decision maker uncover the
important aspects of the situation and leads to better
understanding and framing

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Decision Making:
(2) The Design Phase
• Good enough or satisficing
• Satisficing
A process by which one seeks a solution that will satisfy a set of
constraints. In contrast to optimization, which seeks the best possible
solution, satisficing simply seeks a solution that will work well enough
• Reasons for satisficing:
• Time pressures
• Ability to achieve optimization
• Recognition that the marginal benefit of a better solution is not
worth the marginal cost to obtain it

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Decision Making:
(2) The Design Phase
• Developing (generating) alternatives
• In optimization models the alternatives may be generated
automatically by the model
• In most MSS situations it is necessary to generate alternatives
manually (a lengthy, costly process); issues such as when to stop
generating alternatives are very important
• The search for alternatives usually occurs after the criteria for
evaluating the alternatives are determined
• The outcome of every proposed alternative must be established

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Decision Making:
(2) The Design Phase
• Measuring outcomes
• The value of an alternative is evaluated in terms
of goal attainment
• Risk
• One important task of a decision maker is to
attribute a level of risk to the outcome associated
with each potential alternative being considered

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Decision Making:
(2) The Design Phase
• Scenario
A statement of assumptions about the operating
environment of a particular system at a given time;
a narrative description of the decision-situation
setting
• Scenarios are especially helpful in simulations
and what-if analyses

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Decision Making:
(2) The Design Phase
• Scenarios play an important role in MSS because they:
• Help identify opportunities and problem areas
• Provide flexibility in planning
• Identify the leading edges of changes that management should
monitor
• Help validate major modeling assumptions
• Allow the decision maker to explore the behavior of a system
through a model
• Help to check the sensitivity of proposed solutions to changes
in the environment

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Decision Making:
(2) The Design Phase
• Possible scenarios
• The worst possible scenario
• The best possible scenario
• The most likely scenario
• The average scenario

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Decision Making:
(2) The Design Phase
• Errors in decision making
• The model is a critical component in the decision-making
process
• 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 is also critical

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Decision Making:
(3) The Choice Phase
• Solving a decision-making model involves searching
for an appropriate course of action
• Analytical techniques (solving a formula)
• Algorithms (step-by-step procedures)
• Heuristics (rules of thumb)
• Blind searches

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Decision Making:
(3) The Choice Phase
• Analytical techniques
Methods that use mathematical formulas to derive an
optimal solution directly or to predict a certain result,
mainly in solving structured problems
• Algorithm
A step-by-step search in which improvement is made
at every step until the best solution is found

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Decision Making:
(3) The Choice Phase
• Heuristics
Informal, judgmental knowledge of an application area
that constitutes the rules of good judgment in the field.
Heuristics also encompasses the knowledge of how to
solve problems efficiently and effectively, how to plan
steps in solving a complex problem, how to improve
performance, and so forth

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Decision Making:
(3) The Choice Phase
• Sensitivity analysis
A study of the effect of a change in one or more
input variables on a proposed solution
• What-if analysis
A process that involves asking a computer what the
effect of changing some of the input data or
parameters would be

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Decision Making:
(4) The Implementation Phase
• Generic implementation issues important in
dealing with MSS include:
• Resistance to change
• Degree of support of top management
• User training

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Decision Making:
(4) The Implementation Phase

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Simon’s Model of Problem Solving

Simon proposed a three-phase model of problem solving:

1. Intelligence phase – the decision maker looks for

indications that a problem exists
2. Design phase – alternatives are formulated and analyzed
3. Choice phase – one of the alternatives is selected and
implemented
4. Implementation phase – can be added as Fourth phases

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Simon’s Model of Problem Solving

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Stages in Simon Model

• Stage 1: Intelligence
identify the problems/opportunities and then, collect data or
information
• Stage 2: Design
analyze/develop the possible solutions for the feasibility
GO back to stage 1 if there is insufficient data.
• Stage 3: Choice
Choose one alternative
Go back to stage 1 or 2 if there are no satisfactory solutions.
• Stage 4: Implementation
Implement the selected alternative
Failure of implementation  go back to stage 1 or 2 or 3

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Stages in Simon Model

(1) The Intelligence Phase
• Decision maker examines the organization’s environment for conditions that
need decisions
• Data is collected from a variety of sources and processed
• Decision maker can discover ways to approach the problem
• Three parts
• First: determine what the reality is
• Second: get a better understanding of the problem by collecting data and
information about it
• Third: gather data and information needed to define alternatives for
solving the problem

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Stages in Simon Model

(2) The Design Phase
• Objective
• Define criteria for the decision
• Generate alternatives for meeting the criteria
• Define associations between the criteria and the alternatives
• Defining associations between alternatives and criteria involves
understanding how each alternative affects the criteria
• Information technology doesn’t support this phase of decision
making much

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Stages in Simon Model

(3) The Choice Phase
• Best and most effective course of action is chosen
• From the practical alternatives
• Analyze each alternative and its relationship to the criteria
to determine whether it’s feasible
• Decision support system (DSS) can be particularly useful in
this phase

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Stages in Simon Model

(4) The Implementation Phase
• Organization devises a plan for carrying out the alternative
selected in the choice phase
• Obtains the resources to implement the plan
• DSS can do a follow-up assessment on how well a solution is
performing

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4.4 Rational Decision Making

• Many decision strategies attempt to find optimal solutions.
• In many circles, this is considered to be rational behavior.
• It is not always possible to optimize. Some problems have only
qualitative solutions. Others may be quantitative but have
multiple objectives at odds with others.
• In such situations, rational behavior would be to choose a
“good” solution.

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4.5 Cognitive Process

Decision makers face a formidable task if they are to overcome all

the factors contributing to cognitive limitations:

• Humans can only retain a few bits of information in short-

term memory.
• Decision makers display differing intelligence.
• Some decision makers tend to restrict their search.
• Decision makers that employ concrete thinking tend to be
limited information processors.

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Perception
This is a special type of cognitive limitation.
Common perception blocks are:

Difficulty in isolating the problem.

Delimiting the problem space too closely.
Inability to see the problem from different perspectives.
Stereotyping.
Cognitive saturation or overload.

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Judgment
Although numerous strategies exist for evaluation of solution
alternatives, judgment appears to be the most favored.
Compared to detailed analysis, judgment is faster, more
convenient, and less stressful.
When applied in isolation, however, judgment may be nothing
but a guess.
One reason why it may not be used exclusively is that it relies
heavily on the decision maker’s recollection, which may fail.

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4.6 Heuristic and Bias in Decision Making

• We all have “rules of thumb” that we rely on in making

decisions. Another term for such rules is heuristics.
• Heuristic search techniques follow a series of steps based on
“rules” developed by experience.
• These searches can often provide solutions very close to
those found by exhaustive search.

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Advantages of Heuristics in Problem Solving

• Simple to understand
• Easy to implement.
• Requires less conception time.
• Requires less cognitive effort.
• Can produce multiple solutions.

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Appropriate Uses of Heuristics in Problem Solving

• Input data are inexact or limited.

• High computation time for an optimal solution.
• Problems are solved frequently and repeatedly.
• Symbolic processing is involved.
• A reliable, exact method is not available.
• Optimization is not economically feasible.

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Traveling
Salesman
Problem

Cities to
Visit

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Initial Heuristic Solution

Rule: start at home, go to closest city

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Modified Heuristic Solution

Rule: no crossing any connection, no backtracking

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Heuristic Bias
Sometimes the use of heuristics can hamper finding a
solution. The four major categories of bias are:
1. Availability – people tend to estimate probability
based on past experience, which may not be
representative.
2. Adjustment and anchoring – people often pick a
starting value and then adjust up and down from it.
They tend to underestimate the need for adjustments.

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Heuristic Bias (cont.)

Sometimes the use of heuristics can hamper finding a
solution. The four major categories of bias are:
3. Representativeness – people tend to misestimate
probabilities of belonging to a group.
4. Motivational – incentives often lead decision makers
to estimate probabilities that do not reflect their true
beliefs.

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Effectiveness and Efficiency

Effectiveness of DSS:
Easier access to information
Faster problem recognition and identification
Easier access to computing tools
Greater ability to evaluate large choice sets
Efficiency from DSS:
Reduction in decision costs
Reduction in decision time
Better quality in feedback supplied

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Terima kasih

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