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Analytical Support for Decision Making

- an Introduction

Analytical Support for Decision Making

Why is ASDM an important topic on the MBA?

Q: What’s a Manager’s Role/Function?A: to make timely and effective decisions

• Traditionally, this has happened through intuition, experience and gut-feel

• But because the business world is now much more complex, cut-throat and competitive, such approaches don’t deliver.

• Increasingly there’s a need for a more structured, analytical and evidence-based approach but also building on experience and judgement

What Do Managers Do?

Managers make decisions

Decisions need to be made rationally and to be based on available evidence

Managers need information to help make proper decisions

Information comes from data

That data has to be managed – collected, analysed, reported

Implications

• You can’t be a good manager without understanding the basics of good ASDM

• Otherwise you have to rely on the ASDM “experts”

ASDM Experts

• You’ve brought in some ASDM consultants to do some market research on likely customer reaction to a new product/service.

• Their report concludes:“Based on a random sample of 350 potential customers selected using statistical quota methods and stratified by the targeted customer segments, we conclude that the most likely level of market penetration is 37% with a margin of error at the95% level of +/- 5.3%. This compares with the projected penetration figure of 32% obtained from straight line linear regression of past sales, with an R2 at 0.87”

• Your CEO knows you’ve done the MBA and asksShould we launch the new product/service?

What We Want to Achieve• To develop your understanding as to why good data,

information and decision making are critical for any successful organisation

• To develop your understanding of the process of effective problem structuring and business modelling

• To develop your understanding of the principles and practice of effective data collection

• To develop your understanding of different approaches to analysis and modelling used to support management decision making

• To ensure you appreciate the issues which arise in putting business analysis into practice

What You Want to Achieve

• To pass this class

Relevance of ASDM?

• Information is power in today's constantly changing business environment

• Data is the raw material of information

• ASDM is the art and science of collecting that data and extracting the relevant information from it and deciding how to use that information in decision-making

Why Isn’t ASDM Used More in Business?

• It is used but it’s often “hidden”

• Managers are sometimes/often “frightened” of ASDM

• ASDM sometimes has a poor image/reputation – poorly taught, too theoretical

Why Doesn’t ASDM have a Higher Profile?• A lot of ASDM techniques are applied in many organisations but

they’re often ‘hidden’

• For example, establishing a call centre requires management:

- forecast likely demand (Ch. 9,10)

- market research into customer expectations and response (Ch. 7)

- assess queue lengths and waiting times using probability (Ch. 5)

- look at the business case using financial probability-based evaluation (Ch. 15)

- present and “sell” the analysis (Ch. 3, 4)

ASDM Contributes Directly to “Bottom Line”

• An American electricity company used forecasting techniques to improve demand planning. The result was a reduction in costs of US$140 million a year

• Forecasting models are estimated to save the mail order company L.L. Bean US$300,000 each year by forecasting staffing requirements in call centres

• A New Zealand utility company applied quantitative techniques to its vehicle fleet management. The result was a reduction of 55% in the number of vehicles required while maintaining quality of service

• Digital (DEC) saved an estimated US$100 million by applying quantitative techniques to its world-wide manufacturing and distribution strategy

• American Airlines has developed a number of quantitative models in relation to its airline seat reservation systems. The models are estimated to contribute around US$500 million per year to the company's revenue.

• Quantitative techniques were applied to the transportation of mentally handicapped adults to and from a specialist training centre in the UK with a resulting 16% reduction in travel time and a 12% reduction in distance travelled

• Quantitative models were developed for the planning of transportation of blood supplies from a regional centre to surrounding hospitals in the UK. A reduction of over 12% in the number of units of blood which had reached their expiry date before use was achieved.

• Derbyshire Constabulary dramatically improved crime detection rates by applying ASDM techniques to its crime pattern analysis

• One UK NHS hospital analysed its patient appointments system and cut waiting times by 50%

• Companies like Federal Express, Gap, Dell, Amazon, Shell …. acknowledge the contribution of AM&DM to their success

Common Applications of ASDM

• Forecasting• Customer research• Competitor analysis• Quality control• Risk & reliability• Six Sigma• Queuing• Operations management• Performance measurement• Strategy evaluation• Stock/inventory control• Supply chain management (logistics)

Implications

• If you can’t manage the data and information in your business to help make better decisions

• … you won’t have a business