UNIT 2.

1
Management Information System

Topics to be covered
Characteristic Features of Information

Classification of Information System

Dimensions of Information System Types of Information

Information Quality
Quality of information refers to the fitness for use, or its reliability. Some of the attributes of information, which influence the quality of information system are as follows : 1.Timeliness 2.Accuracy

3.Relevance
4.Adequacy 5.Completeness

6.Explicitness
7.Exception - based

Timeliness
Timeliness

means that information must reach the recipients within the

prescribed time frame.

For

effective decision making, information must reach the decision

maker at the right time i.e. recipients must get the information when

they need it.

Delays

whatever nature destroys the value of information. Timely

information ensures correct executive action at an early stage.

The

expected losses can be eliminated/minimized and gains

maximized by proper management of operations.

Timeliness

For example, if the report which is required by an executive on the sixth of

every month, if presented later, is considered of doubtful value and decision taken on the basis would not be effective as might have been otherwise.

Information delayed is information denied. Many short term opportunities may be lost for a business organization.

For example, discount on bulk purchases by the supplier may be lost because of the late report.

The characteristics of timeliness, to be effective should also include up to date, i.e. current information.

Accuracy

Another is another key attribute of information system.

It means that information must be free from mistakes and errors,

and accurately reflects the meaning of data on which is based.

A wrong information would lead the management in taking wrong

decisions.

As managers information is based on supplied MIS reports, they need accurate information. If MIS supplies accurate information, the

confidence of the managers will be strengthened and as a result

system implementation will be a success.

Relevance

Relevance is yet another key attribute of management information. Information is said to be relevant if it answers specifically for the recipient what, why, where, when and who?

The MIS should serve reports to managers which are useful and
information helps them to make decision.

The relevance of information from a specific customer order, for example will vary among employees of the company. The individuals will be directly responsible for processing customer orders will regard as relevant information and perform their respective jobs.

Accountants view customer orders as data until they are represented into billable shipments, accounts receivables, monthly revenue etc.

Adequacy

Adequacy means information must be sufficient in quantity.

For example, MIS must provide reports containing information which is required in the deciding processes of decision

making.

The report should not give inadequate information, or for that matter, more than adequate information which may create difficult

situation for a decision maker.

Inadequacy of information leads to crisis and information overload means chaos. Adequacy is a vital attribute of information

system which underscores that a report should cover all related

aspects about a particular event.

Completeness

The information which is provided to a manager must be complete

and should meet all the needs.

Incomplete information may result in wrong decisions and thus prove costly to the organization.

Explicitness

A report to be said to be a good quality if it does not require

further analysis by the recipient for decision making.

On the other hand, a poor quality report requires further analysis or processing of its contents.

Explicitness is a prominent attribute of information system procured

through the MIS of an organization. The reports should be such that the managers must not waste any time on further

processing, rather, it should be able to extract the required

information directly.

Exception based

Today, more and more organizations are being run on the principle

of management by exception. Top managers need only exception

reports regarding the performance of the organization.

Exception reporting principle states that only those items of

information which will be of the particular interest to a manager

will be reported.

Requirement of exception reporting indicate when the normal

operations have gone skewed.

CLASSIFICATION OF INFORMATION SYSTEM

IS CLASSIFICATION
Information System can be classified in the following six different classes : Transaction Processing System Management Information System Executive Support System Office Automation Systems Business Expert System

Transaction Processing System

What is a transaction? A transaction may be defined as an activity taking place in an organization. For example, a purchase or a sale or manufacturing a product. It may be within the organization or may be external in nature.

Transaction Processing System

TPS are relevant to all four functional areas of business organization

production, marketing, finance and human resource because each functional area needs some kind of transaction processing. However, more emphasis is put on the financial transactions and the system applied for this purpose is known as accounting information system or accounting transaction processing.

TPS is also known as Data Processing System. Data processing was

performed manually before the advent of microcomputers. Nowadays, with

the help of powerful microcomputers data processing system is

accomplished electronically.

Transaction Processing System

Transaction processing system is mainly conducted in operational

level in the management hierarchy. At the operational level, objectives, tasks and resources are pre defined. For example, a decision regarding granting credit to a customer can be made by a superior concerned as the criteria for allowing credit are pre defined by higher level managers. What the supervisor has to do is merely to determine whether customers meet those criteria.

TPS can connect the organization with customers and suppliers. Such
connectivity ensures faster transaction processing with results in increased organizational efficiency.

Transaction Processing System

In many cases, organizations are required to process transactions in

a way that is required by its external stakeholders. For example, large business organization is required to maintain its financial transactions as prescribed by Income Tax Act.

TPS are major producers of information. TPS are the only systems from which the managers can obtain up-to-date assessment of organizational performance. For example, purchase processing systems supply data to

the organizations ledger systems which is responsible for maintaining

records of the organization for producing reports, such as trial balance, profit and loss account and balance sheet.

Components of Transaction Processing System

A computer based transaction processing system has the following components: Input Process Storage Output

Components of Transaction Processing System

Input
Various input of TPS are in the form of source documents, such as customer orders, invoices, employee attendance cards. These documents serve the following purposes in TPS: 1. Capturing of data. 2. Facilitates by communicating the data and initiating another operation in the process. 3. Standardizing operations by indicating what data are required for recording and what actions need to be taken. 4. Maintaining a master file for future use if the documents are retained.

Components of Transaction Processing System

Processing
Processing involves the use of journals and registers to provide a chronological record of inputs. Journals are used to record financial accounting transactions, and registers are used to record other types of data not directly required for accounting. Some of the common journals are : Sales journal used to keep records of sales. Purchase journal to keep records of purchases. Cash book to keep records of cash received and disbursed. Account Receivable book to keep records of debtors Account payable book to keep records of creditors.

Components of Transaction Processing System

Storage
The computer stores the various records in files. There are several types of files which are classified as transaction file and master file. A transaction file is a collection of transaction input data. Transaction files usually contains data which are temporary in nature. The master file contains data which are permanent in nature.

Components of Transaction Processing System

Output
Variety of outputs may be generated from a TPS which can be used for various purposes. Some of the outputs can be used as inputs for further processing. Reports are generated either on regular basis or on ad hoc basis.

Office Automation System

OAS refers to the application of computer and communication

technology to office functions. Office automation systems are meant to improve the productivity of managers at various management levels of management by providing secretarial assistance and better communication facilities.

OAS are combination of hardware, software and people of information system, that process office transactions and support office activities at all levels of the organization.

Office Automation System

These systems include wide level range of application support

facilities which include word processing, electronic filing, email, message data storage, data and voice communication.

Office activities may be grouped under two classes i) activities performed by classical personnel (clerks, secretaries and typists etc.)

ii) activities performed by executives (managers, engineers,

researchers and economists etc.).

Office Automation System

In the first category, the following is the list of activities typing,

mailing, scheduling of meetings and conferences, generating reports

(ad hoc and regular) and retrieving documents.

The second category data analysis, pivoting, summarizing, data

projections etc.

IT facilitates both types of activities. A wide variety of office automation devices like fax machines, photocopiers, phones are

used in offices.

Business Expert System

These systems are one of the main type of knowledge based information systems (KBIS).

A knowledge based information system adds a knowledge to the main components found in different types of information systems.

AI may be referred to as the capability that makes the computer display intelligent, human like behaviour.

A business Expert System (BES) is a knowledge based information system that uses the knowledge about a specific, complex application area to act as an expert.

Business Expert System

Thus, expert system provides decision support to managers in the form of advice from an expert in a specific problem area.

Expert system find application in diverse areas ranging from medical, engineering and business.

The main advantages of using expert systems may be outlined as: i) Knowledge/capabilities of many experts can be used to build a single expert system. ii) Decision making in critical times can be more reliable, as these systems are not affected by emotional factors or fatigue.

Business Expert System

The expert system is interactive in nature, which enables the user to

ask questions. On the basis of these questions, the expert system searches its knowledge from base for facts and rules and comes out with expert advise to the end user in the functional area being explored.

The main components of a Business expert system includes: Knowledge base, Inference Engine and user interface.

Business Expert System

Knowledge Base : contains the facts of specific expert area that

describe the reasoning procedures of an expert.

Inference engine system contains the logic of reaching an inference

from the stored data.

User interface -

it is the environment provided to the users to

interact with the system for asking questions.

Management Information System

MIS is an information which processes data and converts into information.

A management information system uses TPS for its data inputs. The information generated by the IS may be used for control of operations, strategic and long range planning, short range planning and management control.

MIS is an integrated system. In business organizations, MIS is developed to cater the information needs of managers of each of the functional areas of business.

Management Information System

The functional areas of business may be marketing, production planning, manufacturing, human resource, financial and accounting and correspondingly the information systems are marketing information system, production planning information system, human resource information system, financial information system,

accounting information system.

Decision Support Systems

DSS is an IS application that assists decision makers.

DSS is used in planning, analyzing alternatives and trial and error search for organizations.

DSS incorporate variety of decision models like what if analysis

for performing decision making for top level managers.

A DSS is tailored for a specific managerial task and its use is limited

to that specific problem.

DSS are primarily designed to serve management control and strategic planning.

Decision Support Systems

MIS processes data to convert it into information whereas DSS

processes information to support to support decision making process of a manager.

For example, a salary information system provides information to every employee regarding his basic salary, allowances and deductions if any. However, if an employee wants to make deposits in some schemes for availing income tax rebates, he/she can make use of DSS. DSS helps the user to decide in which scheme and how much he/she should invest in order to get maximum benefits.

Decision Support Systems

DSS provides an interactive environment through which the user

can interact with the system to add or modify the requirement.

The main application areas of DSS is production planning, finance

and marketing. DSS supports decision making in procurement

analysis, production planning and scheduling, inventory planning and control, finance planning and analysis, strategic tax planning.

TOP LEVEL MANAGEMENT

BES

DSS
MIDDLE LEVEL MANAGEMENT

MIS

OAS
LOW LEVEL MANAGEMENT

TPS

HIERARCHY OF INFORMATION SYSTEMS AS USED IN DIFFERENT MANAGEMENT LEVELS

Dimensions of Information System

Dimension of information
Information may be understood to have various dimensions. However, the following three dimensions of information will be

of interest.
1.Economic Dimension. 2.Business Dimension. 3.Technical Dimension.

Business Dimension of Information

When we talk about business dimension of information, we have business organizations in our mind. Business dimension of information indicates the information requirement for an organization with respect to :

1.Types of management functions. 2.Types of management levels. 3.Types of business functions.

Information System requirement for Management Functions

There are wide use of information in management.
Management is a process consisting of planning, organizing, staffing, directing and control. These are known as management functions. Coordination is a essence of management which involves in every management function. Out of all the management functions planning, control and coordination require frequent information.

Planning

Planning is a process that involves determination of future course of

action, that is, why an action, what action, how to take action, and when to take action. These why, how and what are related to different aspects of planning process.

Why of an action reveals that action has some objective or end result

which an organization wants to achieve; what of action specifies the activities to be undertaken; how of action generates various policies and procedures; and when of action denotes the time frame.

Planning

The nature of planning in different management levels can be categorized as

1.Strategic Planning. 2.Tactical Planning.

3.Operational Planning.

Strategic Planning

In an organization, strategic planning undertaken by the top management.

Strategic planning is a process of deciding on objectives of the organization, the resources to be utilized to attain these

objectives, the policies that to govern the acquisition, and

the disposition of the resources.

In the present business environment, only those

organizations will be successful which are engaged with

effective strategic planning.

Strategic Planning

Strategic planning do not occur on a periodic regular basis. Strategic planning may be scheduled into the yearly planning cycle.

The information requirement for strategic planning is somewhat externally oriented because the strategic plans are prepared in the context of environmental

variables.

The types of information needed for strategic planning are the organizations current and prospective areas of

Tactical Planning

Tactical planning is undertaken, mostly by middle level management.

Tactical planning is concerned by putting strategic planning into action.

It is more concerned with utilization of resources already committed through strategic planning exercise.

Managerial personnel are responsible in managing the resources in most effective way.

Operational Planning

Operational planning are taken by the lower level management.

At this level, managers are concerned with day to

day affairs of a part of an organization.

Operational planning has a short term has a short term orientation and focuses its attention on how various

activities to be performed most effectively.

Control

Control is a process of ensuring that organizational objectives are being achieved through various organizational actions.

Control involves measurement of actual performance, comparison of actual performance with standard performance, identification of deviation between the

two, and taking corrective actions to bridge the

deviation.

Control can be in three forms strategic control,

Strategic Control

Strategic control is exercised by top management and is related to that aspect of strategic management through which an organization ensures whether it is achieving its objectives considered in the strategic action.

Strategic control is exercised at two stages : control during strategy implementation and control after achievement of results.

Management Control

Management control is exercised by the middle level management

and involves measurement of overall performance of

various organization units and business functions.

Units/functional performance is measured in terms of various

quantitative criteria relevant to each unit/function.

For example, performance of production function may be measured in terms of number of units produced and cost

involved.
Performance of marketing may be measured in number of units sold and costs involved in marketing efforts.

Operationalis Control by Operational control exercised

management including supervisors.

lower

level

Operational control is concerned with action completed or

performance

achieved

and

evaluated

the

performance at the operational level.

Operational control is exercised at two levels of an action steering control and post action control.

In steering control, corrective actions are taken during the process of taking the action itself. In post action, the process is completed and the corrective actions are taken for

Coordination

One of the basic roles of managers is to coordinate various activities of business organization

Coordination is a mechanism to link the parts of the

organization together to help to achieve specific

objectives.

In addition to linking various parts, an organization is

required to link itself to its environment.

Information Requirements at Different Management Levels

Though all managers in the organization perform functions related to planning, organizing, staffing, directing and control besides coordinating various organizational activities the relative importance of these functions differ at different levels of management. The nature of management at different level differs. People of an organization are arranged in a hierarchy and they all have the relationship of superior subordinate.

Information Requirements at Different Management Levels

The management levels can be differentiated based on the nature of functions at two levels differs. From this view point the management can be broadly classified into : 1. Top Management

2. Middle Management
3. Lower Management.

Top Management

It consists of board of directors and chief executive. Top management integrates the functions of the whole organization. The basic goals of the organizations are established to fit the environment, determining the resources available at the disposal of the organization and determining the needs of the organization members.

Functions of Top the organizational goals, Management Overall management includes determining
overall planning, organizing, staffing, directing and controlling. Top management translates organizational plans into action, creates environment for effective work performance.

The top level management is responsible for formulating the strategies, policies and objectives of the entire environment.

This involves predicting the future of the organization and its environment.

The information of such decisions are highly unstructured i.e. not well defined. It is because of unstructured nature such information are difficult to process.

Middle Level Management

Middle level management stands between top management and lower level management. While working in the middle, middle level management has to face pressures from two sides; top management forces to act in accordance to the policies and guidance; lower management puts pressure over middle management for accepting and

accommodating ideas and views.

Functions of Middle Management

Training and development of employees for better efficiency and

filling for future vacancies.

The policies, plans and objectives of the company are translated into

revenue, cost and profit goals.

Managing the departments in such a way that it contributes to the

of other departments for attaining organizational

functioning

objectives and goals set by the top management.

Supervising the performance of various functional areas so that the

top management can perceive a clear picture of the overall functioning of the organization.

Lower level Management

This level includes various types of personnel work and supervisory capacity. Lower level management is concerned with utilizing the organizational resources

which have been allocated by the top management.

It is the executor of policies and procedures. The decisions made by the lower level management are highly structured and routine type.

Functions of Lower level Management Planning the activities of a section and classifying and assigning
jobs. Guiding operatives about their work procedures.

Managing physical resources necessary for operatives.

Ensuring maintenance of physical resources. Providing training to operatives.

Solving problems of operatives and communicating such problems

upward which cannot be solved at this level.

Providing feedback to the top management about the nature of

work prevailing in the section.

Economic Dimension of Information

Economic dimension of information refers to costs and benefits of information. Information system in an organization which involves costs must justify these by matching benefits. The costs of information may include

cost of acquiring data, cost of maintaining data, costs of generating information and costs of communicating information.

Economic Dimension of Information

The cost is related to the response time required to generate the information and communicate it. Thus, systems with low response time, the cost is high. Similarly, cost also depends on the required accuracy, speed of generation, relevance. Before the piece of in

acquired, the decision makers must know its value. In decision theory, the
value of the information is the value of the change in decision behaviour because of the information. Decision theory refers to the techniques for analyzing decisions under risk and uncertainty.

Economic Dimension maker wants to In the process of decision making, the decision
achieve something which may be called his goal or objective. The decision maker may choose only one particular alternative

that proves economically beneficial for the organization. There

are certain factors or parameters which affect the outcome of the strategies known as states of nature which are beyond the

control of a decision maker. The strategy alongwith the states of

nature determines the degree of the goal. The measure of the achievement of the goal is called the Pay Off. The Pay Off value actually determines the Cost Benefit Analysis.

Technical Dimension
The dimension of information system refers to the technical aspects of the database, how information system is adopted and developed. The basic objectives of technical dimension is to ensure that the information systems are capable of providing needed information in the right form and right time and in secured manner.