Chapter 1:

An Overview of Business Intelligence,

Analytics, and Decision Support

Learning Objectives for Chapter 1

1. Understand today’s turbulent business environment and describe how organizations survive
and even excel in such an environment (solving problems and exploiting opportunities)
2. Understand the need for computerized support of managerial decision making
3. Understand an early framework for managerial decision making
4. Learn the conceptual foundations of the decision support systems (DSS) methodology
5. Describe the business intelligence (BI) methodology and concepts and relate them to DSS
6. Understand the various types of analytics
7. List the major tools of computerized decision support

CHAPTER OVERVIEW

- The business environment

- Organizations ability to respond quickly
- Make frequent and quick strategic, tactical, and operational decisions
- 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.
- The position of DSS in the overall context of organizational information systems.
they are not independent of other systems: Transaction processing is a major source of data for
decision support, in general, and for data warehouses, in particular. External information
sources are vital to any DSS.

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Section 1.2

The components of the Business Pressures–Responses–Support model

The components of the pressure-response-support model are business pressures, companies’
responses to these pressures, and computerized support. The model suggests that responses are
made to counter the pressures or to take advantage of opportunities, support facilitates
monitoring the environment (e.g., for opportunities) and enhances the quality of the responses.

The major factors in today’s business environment

The major factors in today’s business environment are:

 (Markets) strong competition, expansion of global markets, booming electronic markets

on the Internet, innovative marketing methods, opportunities for outsourcing with IT
support, and need for real time on-demand transactions
 (Consumer demand) wanting customization; wanting quality, diversity of products, and
speed of delivery; and customers becoming powerful and less loyal
 (Technology) more innovations, new products and services, increasing obsolescence rate,
increasing information overload, social networking, Web 2.0 and beyond
 (Societal) growth of government regulations and deregulation; work force becoming
more diversified, older, and composed of more women; prime concerns of homeland
security and terrorist attacks; necessity of compliance with the Sarbanes-Oxley Act and
other reporting-related legislation; increasing social responsibility; greater emphasis on
sustainability

The major response activities organizations can take

Responses taken by organizations include, but are not limited to:
 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
 Improve customer service and relationships
 Move to electronic commerce (e-commerce)
 Move to make-to-order production and on-demand manufacturing and services

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  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 many tasks of white-collar employees
 Automate certain decision processes, especially those dealing with customers
 Improve decision making by employing analytics

Section 1.3

The three major managerial roles, and some of the specific activities in each
Managerial roles fall into the three major categories:
 Interpersonal activities. Examples of interpersonal activities include being a figurehead,
a leader and a liaison.
 Informational activities. Examples of informational activities include monitoring,
disseminating, and acting as a spokesperson.
 Decisional activities. Examples of decisional roles include being an entrepreneur,
handling disturbances, allocating resources, and negotiating.

The four steps managers take in making a decision

Step 1. Define the problem (i.e., a decision situation that may deal with some difficulty or
with an opportunity).
Step 2. Construct a model that describes the real-world problem.
Step 3. Identify possible solutions to the modeled problem and evaluate the solutions.
Step 4. Compare, choose, and recommend a potential solution to the problem.

Section 1.4

Trends that have fostered IS-supported decision making to a new level

Important trends include:
1- Development of software for problem analysis and solution applications.
2- Availability of networking, especially with Web-based technologies and mobile devices.
3- Creation of tools for analytics and business intelligence.
4- Social media platforms also have contributed to taking IS-supported decision making to a
new level.

Capabilities of computing that can facilitate managerial decision making

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- Group communication and collaboration
- Improved data management
- Managing giant data warehouses and Big Data, analytical support
- Knowledge management
- Ability to access information anywhere, anytime.

Section 1.5

unstructured decision is one in which none of the three decision phases (intelligence, design,
choice) is structured.
structured decision is one in which all phases are structured. Examples: finding an appropriate
inventory level, choosing an optimal investment strategy.
Semistructured decisions fall between structured and unstructured problems, having some
structured elements and some unstructured elements. Examples: trading bonds, setting
marketing budgets for consumer products, performing capital acquisition analysis.

Operational control, managerial control, and strategic planning

Operational control is the efficient and effective execution of specific tasks. Examples:
scheduling computer storage backups, planning next week’s company cafeteria menu.

Management control is the acquisition and efficient use of resources to accomplish

organizational goals. Examples: hiring a production coordinator, planning an advertising
program.

Strategic planning is defining long-range goals and policies for resource allocation. Examples:
choosing which of three new products to develop, deciding whether or not to outsource
customer telephone support to a region with lower labor costs than where it is now based.

Computers support for making structured decisions

The high level of structure that structured problems have makes it possible to abstract them,
analyze them, and classify them into specific categories. For each category, it is possible to
develop a standard solution approach, usually with a standard quantitative model. This model
can then be implemented in easy-to-apply software.

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Computers support to semistructured and unstructured decisions

Unstructured decisions can be only partially supported by standard computerized quantitative

methods. Usually it is necessary to develop a customized solution. Intuition and judgment play a
large role in this type of decision. They may benefit from computerized communication and
collaboration technologies and from knowledge management.

Making semistructured decisions may involve a combination of both standard solution

procedures and human judgment. Management science can provide models for the portion of
the decision-making problem that is structured. For the unstructured portion, a DSS can improve
the quality of the information on which the decision is based by providing, for example, not
only a single solution but also a range of alternative solutions along with their potential impacts.
These capabilities help managers to better understand the nature of problems and thus to make
better decisions.

Section 1.6
Definitions of DSS
 Interactive computer-based systems, which help decision makers utilize data and
models to solve unstructured problems.
 It is a computer-based support system for management decision makers who deal
with semistructured problems.

Section 1.7

Definition of BI
Business Intelligence (BI) is an umbrella term that combines architectures, tools, databases,
analytical tools, applications, and methodologies. Its major objective is to enable interactive
access (sometimes in real time) to data, enable manipulation of these data, and to provide
business managers and analysts the ability to conduct appropriate analysis.

The major components of BI

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BI systems have four major components: the data warehouse (with its source data), business
analytics (a collection of tools for manipulating, mining, and analyzing the data in the data
warehouse), business performance management (for monitoring and analyzing performance),
and the user interface (e.g., a dashboard).

The major similarities and differences of DSS and BI

 BI uses a data warehouse, whereas DSS can use any data source (including a data
warehouse).
 Most DSS are built to support decision making directly, whereas most BI systems are
built to provide information that it is believed will lead to improved decision making.
 BI has a strategy/executive orientation whereas DSS are usually oriented toward
analysts.
 BI systems tend to be developed with commercially available tools, whereas DSS
tend to use more custom programming to deal with problems that may be unstructured.
 DSS methodologies and tools originated largely in academia, whereas BI arose
largely from the software industry. Many BI tools, such as data mining and predictive
analysis, have come to be considered DSS tools as well.

Section 1.8

Defininition of analytics
Analytics is the process of developing actionable decisions or recommendations for actions
based upon insights generated from historical data. “looking at all the data to understand what
is happening, what will happen, and how to make the best of it.”

Data warehouse

A data warehouse is the component of a BI system that contains the source data. It includes
development of the data infrastructure for descriptive analytics—that is, consolidation of data
sources and making relevant data available in a form that enables appropriate reporting and
analysis. A data warehouse serves as the basis for developing appropriate reports, queries,
alerts, and trends.

Predictive and Employment of predictive analytics

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Predictive analytics is the use of statistical techniques and data mining to determine what is
likely to happen in the future. Businesses use predictive analytics to forecast whether customers
are likely to switch to a competitor, what customers are likely to buy, how likely customers are
to respond to a promotion, and whether a customer is creditworthy. Sports teams have used
predictive analytics to identify the players most likely to contribute to a team’s success.

Big Data analytics

The term Big Data refers to data that cannot be stored in a single storage unit. Typically, the data
is arriving in many different forms, be they structured, unstructured, or in a stream. Big Data
analytics is analytics on a large enough scale, with fast enough processing, to handle this kind of
data. Major sources of Big Data include click streams from Web sites, postings on social media,
and data from traffic, sensors, and the weather.

Characteristics of Big Data

Today Big Data refers to almost any kind of large data that has the characteristics of volume,
velocity, and variety. Examples include data about Web searches, such as the billions of Web
pages searched by Google; data about financial trading, which operates in the order of
microseconds; and data about consumer opinions measured from postings in social media.