Decision Support System

A Decision Support System (DSS) is a collection of integrated software applications and hardware that form

the backbone of an organization’s decision making process. Companies across all industries rely on

decision support tools, techniques, and models to help them assess and resolve everyday business

questions. The decision support system is data-driven, as the entire process feeds off of the collection and

availability of data to analyze. Business Intelligence (BI) reporting tools, processes, and methodologies are

key components to any decision support system and provide end users with rich reporting, monitoring, and

data analysis.

A decision support systems (DSS) is a computer-based information system that supports

business or organizational decision-making activities. DSSs serve the management,
operations, and planning levels of an organization and help to make decisions, which may
be rapidly changing and not easily specified in advance.

DSSs include knowledge-based systems. A properly designed DSS is an interactive

software-based system intended to help decision makers compile useful information from
a combination of raw data, documents, personal knowledge, or business models to
identify and solve problems and make decisions.

Typical information that a decision support application might gather and present are:

• inventories of information assets (including legacy and relational data sources,

cubes, data warehouses, and data marts),
• comparative sales figures between one period and the next,
• projected revenue figures based on product sales assumptions.

Benefits
1. Improves personal efficiency
2. Speeds up problem solving in an organization
3. Facilitates interpersonal communication
4. Promotes learning or training
5. Increases organizational control
6. Generates new evidence in support of a decision
7. Creates a competitive advantage over competition
8. Encourages exploration and discovery on the part of the decision maker
9. Reveals new approaches to thinking about the problem space
10. Helps automate managerial processes

Decision support systems (DSS) are a diverse group of interactive computer tools
—primarily customizable software —designed to assist managerial decision
making. They fall into a broader class known as management support systems
(MSSs). The goal of a DSS is to make management more efficient and effective,
particularly with ad hoc and discretionary decisions (versus routine or
programmatic ones that require little judgment). Interactivity is key; unlike
related expert systems and many artificial intelligence tools (see Figure 1),
DSS generally do not attempt to make the decision themselves, but rather present
information in a manner that is conducive to making an informed and efficient
decision.

EVOLUTION OF DSS
DSS were introduced in the 1970s and gained mainstream attention in the 1980s.
Originally run largely on mainframes, they were seen as an evolutionary step
from management information systems, which at the time were relatively
inflexible storehouses of corporate data. In that environment, DSS were high-end
applications reserved for occasional, non-recurring strategic decisions by senior
management.

Since then, the rapid advances in personal computers ushered in a new breed of
simple and widely used DSS. Indeed, some experts consider the built-in
Figure 1
Decision support Systems Versus Other Management Tools
analytic functions in popular spreadsheet programs, such as Microsoft Excel and
Lotus 1-2-3, to be mini-DSS. As a result, many DSS today are simple, informal PC
software tools that users create themselves with the help of templates, macros,
user-programmed modules, and other customizable features.

While a simple DSS for an individual may cost a couple hundred dollars and
some programming time, sophisticated ones continue to be significant business
investments. At their inception they were exceptionally expensive to develop, and
thus only large companies could afford them. Although relative prices have come
down, they still tend to cost anywhere from $30,000 to $500,000 or more to
implement company-wide. Premium systems are offered by such firms as IBM,
SAS Institute, SPSS, and a host of more specialized vendors.

COMPONENTS OF A DSS
There are three basic components in a DSS:

• a database
• a model base
• a user interface

Depending on the system, each of these components may be very simple or highly
elaborate. The database, or in advanced systems, a database management
system (DBMS) or a data warehouse, consists of structured, real-life
information, such as customer account records, product sales history, employee
schedules, or manufacturing process statistics. The model base, or model base
management system (MBMS), contains one or more models for the kind of
analysis the system will perform. For example, if the purpose of the system is to
supply sales projections under different conditions, one model might be a linear
regression formula derived from past sales and other factors. The user interface
integrates the two into a coherent system and provides the decision maker with
controls for—and possibly feedback about—managing the data and the models.

ANATOMY OF A DECISION
In order to discuss the support of decisions and what these tools can or should
do, it is necessary to have a perspective on the nature of the decision process and
thus what it means to support it. One way of looking at a decision is in terms of
three areas or components. The first component is the data collected by a
decision maker to be used in making the decision. The second component is the
process selected by the decision maker to combine this data. Finally, there is an
evaluation or learning component that compares decisions and examines them to
see if there is a need to change either the data being used or the process that
combines the data. These components of a decision interact with the
characteristics of the decision being made. One approach to categorizing
decisions is to consider the degree of structure in the decision-making activity.

THE STRUCTURE OF DECISIONS

STRUCTURED DECISIONS.

A structured decision is one in which all three components can be fairly well
specified, i.e., the data, process, and evaluation are determined. Usually
structured decisions are made regularly and therefore it makes sense to place a
comparatively rigid framework around the decision and the people making it. An
example of this type of decision may be the routine credit-granting decision made
by many businesses. It is probably the case that most firms collect rather similar
sets of data for credit granting decision makers to use. In addition the way in
which the data is combined is likely to be consistent (for instance, household debt
must be less than 25 percent of gross income). Finally, this decision can also be
evaluated in a very structured way (specifically when the marginal cost of relaxing
credit requirements equals the marginal revenue obtained from additional sales).
For structured decisions it is possible and desirable to develop computer
programs that collect and combine the data, thus giving the process a high degree
of consistency. However, because these tend to be routine and predictable
choices, a DSS is typically not needed for highly structured decisions. Instead,
there are any number of automated tools that can make the decision based on the
predefined criteria.

UNSTRUCTURED DECISIONS.

At the other end of the continuum are unstructured decisions. These decisions
have the same components as structured ones; however, there is little agreement
on their nature. For instance, with these types of decisions, each decision maker
may use different data and processes to reach a conclusion. In addition, because
of the nature of the decision there may also be few people that are even qualified
to evaluate the decision. These types of decisions are generally the domain of
experts in a given field. This is why firms hire consulting engineers to assist their
decision-making activities in these areas. To support unstructured decisions
requires an appreciation of individual approaches, and it may not be terribly
beneficial to expend a great deal of effort to support them.
Generally, unstructured decisions are not made regularly or are made in
situations in which the environment is not well understood. New product
decisions may fit into this category for either of these reasons. To support a
decision like this requires a system that begins by focusing on the individual or
team that will make the decision. These decision makers are usually entrusted
with decisions that are unstructured because of their experience or expertise, and
therefore it is their individual ability that is of value. One approach to support
systems in this area is to construct a program that simulates the process used by a
particular individual. These have been called "expert systems." It is probably not
the case that an expert decision maker would be replaced by such a system,
although it may offer support in terms of providing another perspective of the
decision. Another approach is to monitor and document the process that was
used so that the decision maker(s) can readily review what has already been
examined and concluded. An even more novel approach used to support these
decisions is to provide environments that are specially designed to give these
decision makers an atmosphere that is conducive to their particular tastes, a task
well suited for a DSS. The key to support of unstructured decisions is to
understand the role that individual experience or expertise plays in the decision
and to allow for individual approaches.

SEMI-STRUCTURED DECISIONS.

In the middle of the continuum are semi-structured decisions, and this is where
most of what are considered to be true decision support systems are focused.
Decisions of this type are characterized as having some agreement on the data,
process, and/or evaluation to be used, but there is still a desire not to place too
much structure on the decision and to let some human judgment be used. An
initial step in analyzing which support system is required is to understand where
the limitations of the decision maker may be manifested, i.e., will it be in the data
acquisition portion, or in the process component, or possibly in the evaluation of
outcomes. For instance, suppose an insurance executive is trying to decide
whether to offer a new type of product to existing policyholders that will focus on
families with two or more children that will be ready to attend college in six to
nine years. The support required for this decision is essentially data oriented. The
information required can be expressed in terms of the following query on the
insurance company's database: "Give me a list of all of our policyholders that
have a college education and have more than two children between ages 10 and
12."

PROCESSING INFORMATION
A major role of DSS is simple information processing; the program makes a large
array of facts and considerations more digestible. They also automate tasks at
which humans tend to be slow and inaccurate, such as sorting and mathematical
calculations.

WHAT-IF ANALYSIS.

For instance, the insurance executive who wanted to offer the new product now
has to decide on a price for the product. In order to make this decision, the effect
of different variables (including price) on demand for the product and the
subsequent profit must be evaluated. The executive's perceptions of the demand
for the product can be captured in a mathematical formula that portrays the
relationship between profit, price, and other variables considered important.
Once the relationships have been expressed, the decision maker may now want to
change the values for different variables and see what the effect on profits would
be. The ability to save mathematical relationships and then obtain results for
different values is a feature of many decision support systems. This is called
"what-if' analysis and is a common application for DSS to automate.

EVALUATING OUTPUT.

Of course, the output from such a system is only as good as the model or data
being used; if the demand model is inaccurate or outdated or based on dissimilar
products, the outcome projections may be worthless. Thus, decision makers must
be aware of the risk of potential inaccuracies and understand the underlying logic
behind a DSS's output, as opposed to accepting its output blindly, in order to
make an informed decision. The object of a good DSS is to obtain useful
information for human consideration rather than to let the computer make the
decision itself. Advanced DSS may contain safeguards and pointers to help users
avoid misinterpreting output or creating meaningless output.

LEVEL OF INTERACTION.

Systems such as the Statistical Navigator go through a dialogue with the user to
determine what the data's characteristics are and what questions are actually
being asked of the data. Then the system suggests what techniques are most
appropriate to use. This approach to supporting decision makers requires that
the DSS possess a great deal more than database or processing capabilities—it
should actually have an understanding of the domain in which the system is
being used. The Statistical Navigator has knowledge of statistical methods and
the benefits, assumptions, and problems associated with each method. A future
step would be a system that has an understanding of more processing options
than just statistical methods. This might include linear programming or present
value analysis. As DSS start to include many different processing models in the
library of choices, two possibilities exist.

One possibility is that the system will merely allow users to choose different
methods within the same overall DSS. In this instance the user must still supply
the knowledge of what is the most appropriate method and must be able to
interpret the results. Another possibility is similar to the approach used in the
Statistical Navigator, which would be to include a knowledge of the methods in
the DSS and let it help the user select among many methods, not just statistical.
Of course each approach does have its problems. There are software packages
that allow users to select among different methods, but they do not offer a great
deal of guidance on their use. Thus, as is the case with certain statistical analysis
packages, the conclusions may not be correct because the method was applied
incorrectly.
The second possibility presents a very different problem, or perhaps challenge;
that is, how much knowledge to build into the DSS. A single system with general
knowledge of most processing methods would be very popular with most users.
However, designers would be confronted with the problem of what to include in a
support system or what decision activities it should support. Should it have
simple knowledge of the processing methods, such as linear programming,
statistical regression, and present value? Or should it have knowledge about
decision areas, such as cash budgeting, locating a new plant, or pricing policies?

This second approach may keep inappropriate data from being used, but then the
questions about the role of the decision maker and how structured decisions may
become must be addressed. Is the decision maker merely an information provider
to a DSS that performs many functions, or should the role of the DSS be simply to
make whatever analysis is desired as easy as possible. As software develops more
and more capabilities, designers and users of decision support systems will have
to answer the question of what it actually means to support a decision.

SPECIAL KINDS OF DSS

Although all DSS are designed to tackle fairly specific types of problems, there are
a number of recognized subcategories of DSS. Among them group decision
support systems (GDSS) and executive information systems (EIS). At times these
can be hard to distinguish from a "conventional" DSS, but both continue to enjoy
solid backing in corporations and the separate terminology persists.

GROUP DECISION SUPPORT SYSTEMS.

As the name implies, GDSS are used to assist groups of decision makers who have
common or overlapping responsibilities, such as executive committees, task
forces, and work teams. Some of these tools are designed to be used directly when
the group is convened. One example is tallying and processing group member
preferences, and then presenting output for the participants to discuss. In other
cases the group may never meet, but a centralized system is available to each
member for common tasks they perform, such as financial monitoring and
reporting.

EXECUTIVE INFORMATION SYSTEMS.

EISs are suites of data analysis tools that are meant to be applied to a company's
most critical financial and performance data. In large organizations, usually this
means the EIS has the ability to pull and manipulate data—increasingly in real
time instead of waiting days or weeks for the most recent data—on multiple
corporate systems. EISs enjoyed a resurgence in the 1990s in part because of
widespread management interest in activity-based costing, data warehousing,
and enterprise resource planning systems. Software advances have also made
EISs less costly and more powerful. Many of the latest systems are run on
client/server technology using a Web browser.

Decision Support Systems – DSS (definition)

Decision Support Systems (DSS) are a specific class of computerized information system
that supports business and organizational decision-making activities. A properly designed
DSS is an interactive software-based system intended to help decision makers compile
useful information from raw data, documents, personal knowledge, and/or business
models to identify and solve problems and make decisions.

Typical information that a decision support application might gather and present
would be:

• Accessing all of your current information assets, including legacy and relational
data sources, cubes, data warehouses, and data marts
• Comparative sales figures between one week and the next
• Projected revenue figures based on new product sales assumptions
• The consequences of different decision alternatives, given past experience in a
context that is described

Decision Support Systems Origins

In the 1960s, researchers began systematically studying the use of computerized quantitative models to
assist in decision making and planning (Raymond, 1966; Turban, 1967; Urban, 1967, Holt and Huber,
1969). Ferguson and Jones (1969) reported the first experimental study using a computer aided decision
system. They investigated a production scheduling application running on an IBM 7094. In retrospect, a
major historical turning point was Michael S. Scott Morton's (1967) dissertation field research at Harvard
University.

Scott Morton’s study involved building, implementing and then testing an interactive, model-driven
management decision system. Fellow Harvard Ph.D. student Andrew McCosh asserts that the “concept of
decision support systems was first articulated by Scott Morton in February 1964 in a basement office in
Sherman Hall, Harvard Business School” (McCosh email, 2002) in a discussion they had about Scott
Morton’s dissertation. During 1966, Scott Morton (1971) studied how computers and analytical models
could help managers make a recurring key business planning decision. He conducted an experiment in
which managers actually used a Management Decision System (MDS). Marketing and production
managers used an MDS to coordinate production planning for laundry equipment. The MDS ran on an IDI
21 inch CRT with a light pen connected using a 2400 bps modem to a pair of Univac 494 systems.

The pioneering work of George Dantzig, Douglas Engelbart and Jay Forrester likely influenced the
feasibility of building computerized decision support systems. In 1952, Dantzig became a research
mathematician at the Rand Corporation, where he began implementing linear programming on its
experimental computers. In the mid-1960s, Engelbart and colleagues developed the first hypermedia—
groupware system called NLS (oNLine System). NLS facilitated the creation of digital libraries and the
storage and retrieval of electronic documents using hypertext. NLS also provided for on-screen video
teleconferencing and was a forerunner to group decision support systems. Forrester was involved in
building the SAGE (Semi-Automatic Ground Environment) air defense system for North America
completed in 1962. SAGE is probably the first computerized data-driven DSS. Also, Professor Forrester
started the System Dynamics Group at the Massachusetts Institute of Technology Sloan School. His work
on corporate modeling led to programming DYNAMO, a general simulation compiler.

In 1960, J.C.R. Licklider published his ideas about the future role of multiaccess interactive computing in a
paper titled “Man-Computer Symbiosis.” He saw man-computer interaction as enhancing both the quality
and efficiency of human problem solving and his paper provided a guide for decades of computer research
to follow. Licklider was the architect of Project MAC at MIT that furthered the study of interactive
computing.

By April 1964, the development of the IBM System 360 and other more powerful mainframe systems made
it practical and cost-effective to develop Management Information Systems (MIS) for large companies (cf.,
Davis, 1974). These early MIS focused on providing managers with structured, periodic reports and the
information was primarily from accounting and transaction processing systems, but the systems did not
provide interactive support to assist managers in decision making.

Around 1970 business journals started to publish articles on management decision systems, strategic
planning systems and decision support systems (cf., Sprague and Watson 1979).. For example, Scott
Morton and colleagues McCosh and Stephens published decision support related articles in 1968. The first
use of the term decision support system was in Gorry and Scott-Morton’s (1971) Sloan Management
Review article. They argued that Management Information Systems primarily focused on structured
decisions and suggested that the supporting information systems for semi-structured and unstructured
decisions should be termed “Decision Support Systems”.

T.P. Gerrity, Jr. focused on Decision Support Systems design issues in his 1971 Sloan Management Review
article titled "The Design of Man-Machine Decision Systems: An Application to Portfolio Management".
The article was based on his MIT Ph.D. dissertation. His system was designed to support investment
managers in their daily administration of a clients' stock portfolio.
John D.C. Little, also at Massachusetts Institute of Technology, was studying DSS for marketing. Little and
Lodish (1969) reported research on MEDIAC, a media planning support system. Also, Little (1970)
identified criteria for designing models and systems to support management decision-making. His four
criteria included: robustness, ease of control, simplicity, and completeness of relevant detail. All four
criteria remain relevant in evaluating modern Decision Support Systems. By 1975, Little was expanding the
frontiers of computer-supported modeling. His DSS called Brandaid was designed to support product,
promotion, pricing and advertising decisions. Little also helped develop the financial and marketing
modeling language known as EXPRESS.

In 1974, Gordon Davis, a Professor at the University of Minnesota, published his influential text on
Management Information Systems. He defined a Management Information System as "an integrated,
man/machine system for providing information to support the operations, management, and decision-
making functions in an organization. (p. 5)." Davis's Chapter 12 was titled "Information System Support for
Decision Making" and Chapter 13 was titled "Information System Support for Planning and Control".
Davis’s framework incorporated computerized decision support systems into the emerging field of
management information systems.

Peter Keen and Charles Stabell claim the concept of decision support systems evolved from "the theoretical
studies of organizational decisionmaking done at the Carnegie Institute of Technology during the late
1950s and early '60s and the technical work on interactive computer systems, mainly carried out at the
Massachusetts Institute of Technology in the 1960s. (Keen and Scott Morton, 1978)". Herbert Simon’s
books (1947, 1960) and articles provide a context for understanding and supporting decision making.

In 1995, Hans Klein and Leif Methlie noted “A study of the origin of DSS has still to be written. It seems
that the first DSS papers were published by PhD students or professors in business schools, who had access
to the first time-sharing computer system: Project MAC at the Sloan School, the Dartmouth Time Sharing
Systems at the Tuck School. In France, HEC was the first French business school to have a time-sharing
system (installed in 1967), and the first DSS papers were published by professors of the School in 1970. (p.
112).”

Introduction
Making decisions concerning complex systems (e.g., the management of
organizational operations,
industrial processes, or investment portfolios; the command and control of military
units; or the
control of nuclear power plants) often strains our cognitive capabilities. Even though
individual
interactions among a system's variables may be well understood, predicting how the
system will
react to an external manipulation such as a policy decision is often di_cult. What will
be, for
example, the e_ect of introducing the third shift on a factory oor? One might expect
that this
will increase the plant's output by roughly 50 percent. Factors such as additional
wages, machine
weardown, maintenance breaks, raw material usage, supply logistics, and future
demand need also
be considered, however, as they all will impact the total _nancial outcome of this
decision. Many
variables are involved in complex and often subtle interdependencies and predicting
the total outcome
may be daunting.
There is a substantial amount of empirical evidence that human intuitive judgment
and deci-
sion making can be far from optimal, and it deteriorates even further with complexity
and stress.
Because in many situations the quality of decisions is important, aiding the
de_ciencies of human
judgment and decision making has been a major focus of science throughout history.
Disciplines
such as statistics, economics, and operations research developed various methods
for making rational
choices. More recently, these methods, often enhanced by a variety of techniques
originating from
information science, cognitive psychology, and arti_cial intelligence, have been
implemented in the
form of computer programs, either as stand-alone tools or as integrated computing
environments for
complex decision making. Such environments are often given the common name of
decision support
systems (DSSs). The concept of DSS is extremely broad, and its de_nitions vary,
depending on the
author's point of view. To avoid exclusion of any of the existing types of DSSs, we will
de_ne them
roughly as interactive computer-based systems that aid users in judgment and
choice activities. An-
other name sometimes used as a synonym for DSS is knowledge-based systems,
which refers to their
attempt to formalize domain knowledge so that it is amenable to mechanized
reasoning.
Decision support systems are gaining an increased popularity in various domains,
including busi-
ness, engineering, the military, and medicine. They are especially valuable in
situations in which the
amount of available information is prohibitive for the intuition of an unaided human
decision maker
and in which precision and optimality are of importance. Decision support systems
can aid human
cognitive de_ciencies by integrating various sources of information, providing
intelligent access to
relevant knowledge, and aiding the process of structuring decisions. They can also
support choice
among well-de_ned alternatives and build on formal approaches, such as the
methods of engineering
economics, operations research, statistics, and decision theory. They can also employ
arti_cial intel-
ligence methods to address heuristically problems that are intractable by formal
techniques. Proper
application of decision-making tools increases productivity, e_ciency, and
e_ectiveness and gives
many businesses a comparative advantage over their competitors, allowing them to
make optimal
choices for technological processes and their parameters, planning business
operations, logistics, or
investments.
While it is di_cult to overestimate the importance of various computer-based tools
that are
relevant to decision making (e.g., databases, planning software, and spreadsheets),
this article focuses
primarily on the core of a DSS, the part that directly supports modeling decision
problems and
identi_es best alternatives. We will briey discuss the characteristics of decision
problems and how
decision making can be supported by computer programs. We then cover various
components of
DSSs and the role that they play in decision support. We will also introduce an
emergent class of
normative systems (i.e., DSSs based on sound theoretical principles), and in
particular, decision-
analytic DSSs. Finally, we will review issues related to user interfaces to DSSs and
stress the
importance of user interfaces to the ultimate quality of decisions aided by computer
programs.
3
Decisions and Decision Modeling
Types of Decisions
A simple view of decision making is that it is a problem of choice among several
alternatives. A
somewhat more sophisticated view includes the process of constructing the
alternatives (i.e., given
a problem statement, developing a list of choice options). A complete picture
includes a search for
opportunities for decisions (i.e., discovering that there is a decision to be made). A
manager of a
company may face a choice in which the options are clear (e.g., the choice of a
supplier from among all
existing suppliers). She may also face a well-de_ned problem for which she designs
creative decision
options (e.g., how to market a new product so that the pro_ts are maximized). Finally,
she may work
in a less reactive fashion and view decision problems as opportunities that have to be
discovered by
studying the operations of her company and its surrounding environment (e.g., how
can she make
the production process more e_cient). There is much anecdotal and some empirical
evidence that
structuring decision problems and identifying creative decision alternatives
determine the ultimate
quality of decisions. Decision support systems aim mainly at this broadest type of
decision making,
and in addition to supporting choice, they aid in modeling and analyzing systems
(such as complex
organizations), identifying decision opportunities, and structuring decision problems.
Human Judgment and Decision Making
Theoretical studies on rational decision making, notably that in the context of
probability theory and
decision theory, have been accompanied by empirical research on whether human
behavior complies
with the theory. It has been rather convincingly demonstrated in numerous empirical
studies that
human judgment and decision making is based on intuitive strategies as opposed to
theoretically
sound reasoning rules. These intuitive strategies, referred to as judgmental heuristics
in the context
of decision making, help us in reducing the cognitive load, but alas at the expense of
optimal decision
making. E_ectively, our unaided judgment and choice exhibit systematic violations of
probability
axioms (referred to as biases). Formal discussion of the most important research
results along with
experimental data can be found in an anthology edited by Kahneman, Slovic, and
Tversky [16].
Dawes [2] provides an accessible introduction to what is known about people's
decision-making
performance.
One might hope that people who have achieved expertise in a domain will not be
subject to
judgmental biases and will approach optimality in decision making. While empirical
evidence shows
that experts indeed are more accurate than novices within their area of expertise, it
also shows
that they also are liable to the same judgmental biases as novices and demonstrate
apparent errors
and inconsistencies in their judgment. Professionals such as practicing physicians use
essentially the
same judgmental heuristics and are prone to the same biases, although the degree
of departure from
the normatively prescribed judgment seems to decrease with experience. In addition
to laboratory
evidence, there are several studies of expert performance in realistic settings,
showing that it is
inferior even to simple linear models (an informal review of the available evidence
and pointers
to literature can be found in the book by Dawes [2]). For example, predictions of
future violent
behavior of psychiatric patients made by a panel of psychiatrists who had access to
patient records
and interviewed the patients were found to be inferior to a simple model that
included only the
past incidence of violent behavior. Predictions of marriage counselors concerning
marital happiness
were shown to be inferior to a simple model that just subtracted the rate of _ghting
from the rate
of sexual intercourse (again, the marriage counselors had access to all data,
including interviews
with the couples). Studies yielding similar results have been conducted with bank
loan o_cers,
physicians, university admission committees, and so on.
4
Modeling Decisions
The superiority of even simple linear models over human intuitive judgment suggests
that one way
to improve the quality of decisions is to decompose a decision problem into simpler
components that
are well de_ned and well understood. Studying a complex system built out of such
components can
be subsequently aided by a formal, theoretically sound technique. The process of
decomposing
and formalizing a problem is often called modeling. Modeling amounts to _nding an
abstract
representation of a real-world system that simpli_es and assumes as much as
possible about the
system, and while retaining the system's essential relationships, omits unnecessary
detail. Building
a model of a decision problem, as opposed to reasoning about a problem in a holistic
way, allows for
applying scienti_c knowledge that can be transferred across problems and often
across domains. It
allows for analyzing, explaining, and arguing about a decision problem.
The desire to improve human decision making provided motivation for the
development of a
variety of modeling tools in disciplines of economics, operations research, decision
theory, decision
analysis, and statistics. In each of these modeling tools, knowledge about a system is
represented by
means of algebraic, logical, or statistical variables. Interactions among these
variables are expressed
by equations or logical rules, possibly enhanced with an explicit representation of
uncertainty. When
the functional form of an interaction is unknown, it is sometimes described in purely
probabilistic
terms; for example, by a conditional probability distribution. Once a model has been
formulated,
a variety of mathematical methods can be used to analyze it. Decision making under
certainty has
been addressed by economic and operations research methods, such as cash ow
analysis, break-
even analysis, scenario analysis, mathematical programming, inventory techniques,
and a variety of
optimization algorithms for scheduling and logistics. Decision making under
uncertainty enhances
the above methods with statistical approaches, such as reliability analysis,
simulation, and statistical
decision making. Most of these methods have made it into college curricula and can
be found in
management textbooks. Due to space constraints, we will not discuss their details
further.
Components of Decision Models
While mathematically a model consists of variables and a speci_cation of interactions
among them,
from the point of view of decision making a model and its variables represent the
following three
components: a measure of preferences over decision objectives, available decision
options, and a
measure of uncertainty over variables inuencing the decision and the outcomes.
Preference is widely viewed as the most important concept in decision making.
Outcomes of a
decision process are not all equally attractive and it is crucial for a decision maker to
examine these
outcomes in terms of their desirability. Preferences can be ordinal (e.g., more income
is preferred
to less income), but it is convenient and often necessary to represent them as
numerical quantities,
especially if the outcome of the decision process consists of multiple attributes that
need to be
compared on a common scale. Even when they consist of just a single attribute but
the choice is
made under uncertainty, expressing preferences numerically allows for trade-o_s
between desirability
and risk.
The second component of decision problems is available decision options. Often
these options
can be enumerated (e.g., a list of possible suppliers), but sometimes they are
continuous values of
speci_ed policy variables (e.g., the amount of raw material to be kept in stock).
Listing the available
decision options is an important element of model structuring.
The third element of decision models is uncertainty. Uncertainty is one of the most
inherent and
most prevalent properties of knowledge, originating from incompleteness of
information, imprecision,
5
aand model approximations made for the sake of simplicity. It would not be an
exaggeration to state
that real-world decisions not involving uncertainty either do not exist or belong to a
truly limited
class.1
Decision making under uncertainty can be viewed as a deliberation: determining
what action
should be taken that will maximize the expected gain. Due to uncertainty there is no
guarantee
that the result of the action will be the one intended, and the best one can hope for is
to maximize
the chance of a desirable outcome. The process rests on the assumption that a good
decision is one
that results from a good decision-making process that considers all important factors
and is explicit
about decision alternatives, preferences, and uncertainty.
It is important to distinguish between good decisions and good outcomes. By a stroke
of good
luck a poor decision can lead to a very good outcome. Similarly, a very good decision
can be
followed by a bad outcome. Supporting decisions means supporting the decision-
making process so
that better decisions are made. Better decisions can be expected to lead to better
outcomes.
Decision Support Systems
Decision support systems are interactive, computer-based systems that aid users in
judgment and
choice activities. They provide data storage and retrieval but enhance the traditional
information
access and retrieval functions with support for model building and model-based
reasoning. They
support framing, modeling, and problem solving.
Typical application areas of DSSs are management and planning in business, health
care, the
military, and any area in which management will encounter complex decision
situations. Deci-
sion support systems are typically used for strategic and tactical decisions faced by
upper-level
management|decisions with a reasonably low frequency and high potential
consequences|in which
the time taken for thinking through and modeling the problem pays o_ generously in
the long run.
There are three fundamental components of DSSs [22].
_ Database management system (DBMS). A DBMS serves as a data bank for the DSS.
It stores
large quantities of data that are relevant to the class of problems for which the DSS
has been
designed and provides logical data structures (as opposed to the physical data
structures)
with which the users interact. A DBMS separates the users from the physical aspects
of the
database structure and processing. It should also be capable of informing the user of
the types
of data that are available and how to gain access to them.
_ Model-base management system (MBMS). The role of MBMS is analogous to that of
a DBMS.
Its primary function is providing independence between speci_c models that are used
in a DSS
from the applications that use them. The purpose of an MBMS is to transform data
from the
DBMS into information that is useful in decision making. Since many problems that
the user
of a DSS will cope with may be unstructured, the MBMS should also be capable of
assisting
the user in model building.
_ Dialog generation and management system (DGMS). The main product of an
interaction with
a DSS is insight. As their users are often managers who are not computer-trained,
DSSs
need to be equipped with intuitive and easy-to-use interfaces. These interfaces aid in
model
1As Benjamin Franklin expressed it in 1789 in a letter to his friend M. Le Roy, \in this world nothing can said
to
be certain, except death and taxes" (The Complete Works of Benjamin Franklin, John Bigelow (ed), New
York and
London: G.P. Putnam's Sons, 1887, Vol. 10, page 170).
6
building, but also in interaction with the model, such as gaining insight and
recommendations
from it. The primary responsibility of a DGMS is to enhance the ability of the system
user
to utilize and bene_t from the DSS. In the remainder of this article, we will use the
broader
term user interface rather than DGMS.
While a variety of DSSs exists, the above three components can be found in many
DSS architectures
and play a prominent role in their structure. Interaction among them is illustrated in
Fig. 1.
Essentially, the user interacts with the DSS through the DGMS. This communicates
with the DBMS
Model Base MBMS DBMS Database
DGMS
DSS User
Figure 1: The architecture of a DSSs (after Sage, Ref. [22]).
and MBMS, which screen the user and the user interface from the physical details of
the model base
and database implementation.
Normative Systems
Normative and Descriptive Approaches
Whether or not one trusts the quality of human intuitive reasoning strategies has a
profound im-
pact on one's view of the philosophical and technical foundations of DSSs. There are
two distinct
approaches to supporting decision making. The _rst aims at building support
procedures or systems
that imitate human experts. The most prominent member of this class of DSSs are
expert systems,
computer programs based on rules elicited from human domain experts that imitate
reasoning of a
human expert in a given domain. Expert systems are often capable of supporting
decision making
in that domain at a level comparable to human experts. While they are exible and
often able to
address complex decision problems, they are based on intuitive human reasoning
and lack soundness
and formal guarantees with respect to the theoretical reliability of their results. The
danger of
the expert system approach, increasingly appreciated by DSS builders, is that along
with imitating
human thinking and its e_cient heuristic principles, we may also imitate its
undesirable aws [13].
The second approach is based on the assumption that the most reliable method of
dealing with
complex decisions is through a small set of normatively sound principles of how
decisions should be
made. While heuristic methods and ad hoc reasoning schemes that imitate human
cognition may
in many domains perform well, most decision makers will be reluctant to rely on
them whenever
the cost of making an error is high. To give an extreme example, few people would
choose to y
airplanes built using heuristic principles over airplanes built using the laws of
aerodynamics enhanced
with probabilistic reliability analysis. Application of formal methods in DSSs makes
these systems
7
philosophically distinct from those based on ad hoc heuristic arti_cial intelligence
methods, such as
rule-based systems. The goal of a DSS, according to this view, is to support unaided
human intuition,
just as the goal of using a calculator is to aid human's limited capacity for mental
arithmetic.
Decision-Analytic Decision Support Systems
An emergent class of DSSs known as decision-analytic DSSs applies the principles of
decision theory,
probability theory, and decision analysis to their decision models. Decision theory is
an axiomatic
theory of decision making that is built on a small set of axioms of rational decision
making. It
expresses uncertainty in terms of probabilities and preferences in terms of utilities.
These are com-
bined using the operation of mathematical expectation. The attractiveness of
probability theory, as
a formalism for handling uncertainty in DSSs, lies in its soundness and its guarantees
concerning
long-term performance. Probability theory is often viewed as the gold standard for
rationality in
reasoning under uncertainty. Following its axioms o_ers protection from some
elementary inconsis-
tencies. Their violation, on the other hand, can be demonstrated to lead to sure
losses [23]. Decision
analysis is the art and science of applying decision theory to real-world problems. It
includes a
wealth of techniques for model construction, such as methods for elicitation of model
structure and
probability distributions that allow minimization of human bias, methods for checking
the sensitivity
of a model to imprecision in the data, computing the value of obtaining additional
information, and
presentation of results. (See, for example, Ref. [27] for a basic review of the available
techniques.)
These methods have been under continuous scrutiny by psychologists working in the
domain of be-
havioral decision theory and have proven to cope reasonably well with the dangers
related to human
judgmental biases.
Normative systems are usually based on graphical probabilistic models, which are
representations
of the joint probability distribution over a model's variables in terms of directed
graphs. Directed
graphs, such as the one in Fig. 2, are known as Bayesian networks (BNs) or causal
networks [19].
Bayesian networks o_er a compact representation of joint probability distributions
and are capable
of practical representation of large models, consisting of tens or hundreds of
variables. Bayesian
networks can be easily extended with decision and value variables for modeling
decision problems.
The former denote variables that are under the decision maker's control and can be
directly ma-
nipulated, and the latter encode users' preferences over various outcomes of the
decision process.
Such amended graphs are known as inuence diagrams [15]. Both the structure and
the numerical
probability distributions in a BN can be elicited from a human expert and are a
reection of the
expert's subjective view of a real-world system. If available, scienti_c knowledge
about the system,
both in terms of the structure and frequency data, can be easily incorporated in the
model. Once
a model has been created, it is optimized using formal decision-theoretic algorithms.
Decision anal-
ysis is based on the empirically tested paradigm that people are able to reliably store
and retrieve
their personal beliefs about uncertainty and preferences for di_erent outcomes, but
are much less
reliable in aggregating these fragments into a global inference. While human experts
are excellent
in structuring a problem, determining the components that are relevant to it and
providing local
estimates of probabilities and preferences, they are not reliable in combining many
simple factors
into an optimal decision. The role of a decision-analytic DSS is to support them in
their weaknesses
using the formal and theoretically sound principles of statistics.
The approach taken by decision analysis is compatible with that of DSSs. The goal of
decision
analysis is to provide insight into a decision. This insight, consisting of the analysis of
all relevant
factors, their uncertainty, and the critical nature of some assumptions, is even more
important than
the actual recommendation.
Decision-analytic DSSs have been successfully applied to practical systems in
medicine, business,
8
Fecision-analytic DSSs have been successfully applied to practical systems in
medicine, business,
8
Figure 2: Example of a Bayesian network modeling teaching expenditures in
university operations.
and engineering.2 As these systems tend to naturally evolve into three not
necessarily distinct
classes, it may be interesting to compare their structure and architectural
organization.
_ Systems with static domain models. In this class of systems, a probabilistic domain
is rep-
resented by a large network encoding the domain's structure and its numerical
parameters.
The network comprising the domain model is normally built by decision analysts and
domain
experts. An example might be a medical diagnostic system covering a certain class
of disor-
ders. Queries in such a system are answered by assigning values to those nodes of
the network
that constitute the observations for a particular case and propagating the impact of
the ob-
servation through the network in order to _nd the probability distribution of some
selected
nodes of interest (e.g., nodes that represent diseases). Such a network can, on a
case-by-case
basis, be extended with decision nodes and value nodes to support decisions.
Systems with
static domain models are conceptually similar to rule-based expert systems covering
an area
of expertise.
_ Systems with customized decision models. The main idea behind this approach is
automatic
generation of a graphical decision model on a per-case basis in an interactive e_ort
between the
DSS and the decision maker. The DSS has domain expertise in a certain area and
plays the
role of a decision analyst. During this interaction, the program creates a customized
inuence
diagram, which is later used for generating advice. The main motivation for this
approach is
the premise that every decision is unique and needs to be looked at individually; an
inuence
diagram needs to be tailored to individual needs [14].
2Some examples of applications are described in a special issue of Communications of the ACM on
practical
applications of decision-theoretic methods (vol. 38, no. 3, March 1995). The readers can experiment with
GeNIe
[7], a development system for decision-analytic DSSs developed at the Decision Systems Laboratory,
University of
Pittsburgh, available at http://www2.sis.pitt.edu/_genie.
9
_ Systems capable of learning a model from data. The third class of systems employs
computer-
intensive statistical methods for learning models from data [1, 11, 12, 21, 26].
Whenever there
are su_cient data available, the systems can literally learn a graphical model from
these data.
This model can be subsequently used to support decisions within the same domain.
The _rst two approaches are suited for slightly di_erent applications. The customized
model gener-
ation approach is an attempt to automate the most laborious part of decision making,
structuring
a problem, so far done with signi_cant assistance from trained decision analysts. A
session with the
program that assists the decision maker in building an inuence diagram is laborious.
This makes
the customized model generation approach particularly suitable for decision
problems that are infre-
quent and serious enough to be treated individually. Because in the static domain
model approach
an existing domain model needs to be customized by the case data only, the
decision-making cycle
is rather short. This makes it particularly suitable for those decisions that are highly
repetitive and
need to be made under time constraints.
A practical system can combine the three approaches. A static domain model can be
slightly
customized for a case that needs individual treatment. Once completed, a
customized model can
be blended into the large static model. Learning systems can support both the static
and the
customized model approach. On the other hand, the learning process can be greatly
enhanced by
prior knowledge from domain experts or by a prior model.
Equation-Based and Mixed Systems
In many business and engineering problems, interactions among model variables can
be described
by equations which, when solved simultaneously, can be used to predict the e_ect of
decisions
on the system, and hence support decision making. One special type of simultaneous
equation
model is known as the structural equation model (SEM), which has been a popular
method of
representing systems in econometrics. An equation is structural if it describes a
unique, independent
causal mechanism acting in the system. Structural equations are based on expert
knowledge of
the system combined with theoretical considerations. Structural equations allow for a
natural,
modular description of a system|each equation represents its individual component,
a separable
and independent mechanism acting in the system|yet, the main advantage of having
a structural
model is, as explicated by Simon [24], that it includes causal information and aids
predictions of the
e_ects of external interventions. In addition, the causal structure of a structural
equation model can
be represented graphically [24], which allows for combining them with decision-
analytic graphical
models in practical systems [9, 20].
Structural equation models o_er signi_cant advantages for policy making. Often a
decision maker
confronted with a complex system needs to decide not only the values of policy
variables but also
which variables should be manipulated. A change in the set of policy variables has a
profound impact
on the structure of the problem and on how their values will propagate through the
system. The
user determines which variables are policy variables and which are determined
within the model. A
change in the SEMs or the set of policy variables can be reected by a rapid
restructuring of the
model and predictions involving this new structure [25].
Our long-term project, the Environment for Strategic Planning (ESP) [6], is based on a
hybrid
graphical modeling tool that combines SEMs with decision-analytic principles. ESP is
capable
of representing both discrete and continuous variables involved in deterministic and
probabilistic
relationships. The powerful features of SEMs allow ESP to act as a graphical
spreadsheet integrating
numerical and symbolic methods and allowing the independent variables to be
selected at will without
having to reformulate the model each time. This provides an immense exibility that is
not a_orded
10
by ordinary spreadsheets in evaluating alternate policy options.
User Interfaces to Decision Support Systems
While the quality and reliability of modeling tools and the internal architectures of
DSSs are impor-
tant, the most crucial aspect of DSSs is, by far, their user interface. Systems with
user interfaces
that are cumbersome or unclear or that require unusual skills are rarely useful and
accepted in
practice. The most important result of a session with a DSS is insight into the decision
problem. In
addition, when the system is based on normative principles, it can play a tutoring
role; one might
hope that users will learn the domain model and how to reason with it over time, and
improve their
own thinking.
A good user interface to DSSs should support model construction and model analysis,
reasoning
about the problem structure in addition to numerical calculations and both choice
and optimization
of decision variables. We will discuss these in the following sections.
Support for Model Construction and Model Analysis
User interface is the vehicle for both model construction (or model choice) and for
investigating the
results. Even if a system is based on a theoretically sound reasoning scheme, its
recommendations
will be as good as the model they are based on. Furthermore, even if the model is a
very good
approximation of reality and its recommendations are correct, they will not be
followed if they are
not understood. Without understanding, the users may accept or reject a system's
advice for the
wrong reasons and the combined decision-making performance may deteriorate even
below unaided
performance [17]. A good user interface should make the model on which the
system's reasoning is
based transparent to the user.
Modeling is rarely a one-shot process, and good models are usually re_ned and
enhanced as
their users gather practical experiences with the system recommendations. It is
important to strike
a careful balance between precision and modeling e_orts; some parts of a model
need to be very
precise while others do not. A good user interface should include tools for examining
the model and
identifying its most sensitive parts, which can be subsequently elaborated on.
Systems employed
in practice will need their models re_ned, and a good user interface should make it
easy to access,
examine, and re_ne its models. Some pointers to work on support for building
decision-analytic
systems can be found in [8, 10, 18, 28].
Support for Reasoning about the Problem Structure in Addition to Nu-
merical Calculations
While numerical calculations are important in decision support, reasoning about the
problem struc-
ture is even more important. Often when the system and its model are complex it is
insightful for
the decision maker to realize how the system variables are interrelated. This is
helpful in designing
creative decision options but also in understanding how a policy decision will impact
the objective.
Graphical models, such as those used in decision analysis or in equation-based and
hybrid sys-
tems, are particularly suitable for reasoning about structure. Under certain
assumptions, a directed
graphical model can be given a causal interpretation. This is especially convenient in
situations
where the DSS autonomically suggests decision options; given a causal interpretation
of its model,
11
it is capable of predicting e_ects of interventions. A causal graph facilitates building
an e_ective
user interface. The system can refer to causal interactions during its dialogue with
the user, which
is known to enhance user insight [3].
Support for Both Choice and Optimization of Decision Variables
Many DSSs have an inexible structure in the sense that the variables that will be
manipulated are
determined at the model-building stage. This is not very suitable for planning of the
strategic type
when the object of the decision-making process is identifying both the objectives and
the methods of
achieving them. For example, changing policy variables in a spreadsheet-based
model often requires
that the entire spreadsheet be rebuilt. If there is no support for that, few users will
consider it
as an option. This closes the world of possibilities for exible reframing of a decision
problem in
the exploratory process of searching for opportunities. Support for both choice and
optimization of
decision variables should be an inherent part of DSSs.
Graphical Interface
Insight into a model can be increased greatly at the user interface level by a diagram
representing
the interactions among its components; for example, a drawing of a graph on which a
model is based,
such as in Fig. 2. This graph is a qualitative, structural explanation of how information
ows from
the independent variables to the dependent variables of interest. As models may
become very large,
it is convenient to structure them into submodels, groups of variables that form a
subsystem of the
modeled system. Such submodels can be again shown graphically with interactions
among them,
increasing simplicity and clarity of the interface. Fig. 3 shows a submodel-level view
of a model
developed in our ESP project. Note that the graph in Fig. 2 is an expanded version of
the Teaching
Expenditures submodel in Fig. 3. The user can navigate through the hierarchy of the
entire model
in her quest for insight, opening and closing submodels on demand. Some pointers to
work on user
interfaces of decision-analytic systems can be found in [4, 5, 28].
Summary
Decision support systems are powerful tools integrating scienti_c methods for
supporting complex
decisions with techniques developed in information science, and are gaining an
increased popularity
in many domains. They are especially valuable in situations in which the amount of
available infor-
mation is prohibitive for the intuition of an unaided human decision maker and in
which precision
and optimality are of importance. Decision support systems aid human cognitive
de_ciencies by
integrating various sources of information, providing intelligent access to relevant
knowledge, aiding
the process of structuring, and optimizing decisions.
Normative DSSs o_er a theoretically correct and appealing way of handling
uncertainty and
preferences in decision problems. They are based on carefully studied empirical
principles underlying
the discipline of decision analysis and they have been successfully applied in many
practical systems.
We believe that they o_er several attractive features that are likely to prevail in the
long run as far
as the technical developments are concerned.
Because DSSs do not replace humans but rather augment their limited capacity to
deal with
complex problems, their user interfaces are critical. The user interface determines
whether a DSS
12
Figure 3: A submodel-level view of a decision model.
will be used at all and if so, whether the ultimate quality of decisions will be higher
than that of an
unaided decision maker.