CHAPTER ONE

Fundamentals of Management
Information System

Outline
• Introduction
 Data
 Information
 Roles of information
 Defining System
 System Theory
 System Types
 System Performance measure
• Information System
 Component
 IS in organization
• Dimensions of Information Systems

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 Data and Infomation
Data
• A raw fact and can take the form of a number, figures, pictures
such as a date or a measurement
• Data relates to transactions, events and facts
• On its own - it is not very useful
Example
• Think of the data that is created when you buy a product from a
retailer - this includes
 Time and date of Transaction(e.g. 10:05 Tuesday 16 September 2019)
 Transaction Value(e.g. 55.00 Birr)
 Facts about what was bought(e.g. hairdryer, cosmetics pack, saving foam) and how
much was bought(quantities)
 How payment was made(e.g. credit card, credit card number and code)
 Which employee recorded the sale 3

 Whether any promotion discount applied

Data and Information

Information
• When data are processed, organized, structured or presented in
a given context so as to make them useful, they are called
Information
• It is data that have been processed/analyzed so that they are
meaningful
• The derivative of manipulating, organizing, summarizing, and
presenting data in a form suitable for decision-making or further
analysis.

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 Data and Information
Information
• Involves collecting data and then subjecting them to a
transformation process in order to create information
• Examples of information include a sales forecast or a financial
statement

Cont.

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 Data and Information

Information

 Tables (frequency distributions).

 Graphical representations (histograms, bar plots, pie-charts).

Data Processing Functions

• Aggregating which summarizes data, such as taking an average
value of a group of numbers.
• Classification places data into categories, such as on-time and
late deliveries
• Sorting organizes data so that items are placed in a particular
order, for example listing orders by delivery date
• Calculations can be made on data such as calculating an
employee’s pay by multiplying the number of hours worked by
the hourly rate of pay

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 Attributes of Information

Accurate
• Error free
 Measured correctly
 Entered correctly
 Interpreted correctly
 Program should verify data

Attributes of Information
Complete
• Has all important facts or data fields needed to
achieve goals of IS
• No missing information
• Student records system
 Name, SSN, GPA, payments, course grades

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 Attributes of Information
Economical
• Worthwhile to collect, buy or produce
• “Value” of information vs. cost
 What if “tip sheet” cost $1000 ?
• Better be accurate and reliable

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Attributes of Information
Flexible
• Can be used for a variety of purposes
• Supports different users goals
• Easily transformed to another use
• Transferable to another application or use: Inventory levels
used by:
 Sales staff, purchasing, production

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 Attributes of Information
Reliable
• Always accurate/available – not just sometimes
• Can be depended on
• Quality is consistent

Relevant
• Important to decision maker - not extraneous
• Captures important aspects of model
• Can be used to problem at hand

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Attributes of Information
Simple
• Easy to understand
• Easy to manipulate
Timely
• Delivered when it is needed
• Relevant in time: still contributes to goals of organization
Verifiable
• Can check to see if correct
• Has other sources or can be “proved”

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 Attributes of Information
Accessible
• Can be retrieved in reasonable time in correct format

Secure
• Only authorized users can access easily
• Protected from damage (backed up)

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Attributes of Information

• Characteristics of good information are as follows:

 Usability  Delivery
 Relevant  Timely

 Simple  Accessible

 Flexible  Secure

 Economical
 Quality

 Accurate
 Verifiable
 Complete
 Reliable
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 Cont.
• Accuracy: error free

• Relevance: serve the purpose

• Timeliness: How current

• Completeness: no missing information

• Accessible: when needed

• Reliable: trusted

• Secured: not to be access by unauthorized users

• Verifiable: check its correctness

• Simple: without complexity, inf. overload

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Information/knowledge Hierarchy

• Data  processing  Information

• Information  intelligence  Knowledge
• Knowledge  experience  Wisdom

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 Information/knowledge Hierarchy

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Why Do People Need Information in

Business/organization?
• Businesses and other organizations need information for many purposes
• Some of the roles of Information are listed below
• Planning
 To plan properly, a business needs to know what resources it has (e.g.
cash, people, machinery and equipment, property, customers).
 It also needs information about the markets in which it operates and
the actions of competitors

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 Why Do People Need Information in
Business/organization?
• Controlling
 Once a business has produced its plan it needs to monitor progress
against the plan –
 So information is needed to help identify whether things are going
better or worse than expected, and to spot ways in which
corrective action can be taken

• Performance Measuring
 Performance must be measured for a business to be successful
 Information is used as the main way of measuring performance
 For example, this can be done by collecting and analyzing
information on sales, costs and profits

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Why Do People Need Information in

Business/organization?

• Decision-making
 Information used for decision-making is often categorized into
three types:
• Strategic information: used to help plan the objectives of the
business as a whole and to measure how well those objectives
are being achieved
• Examples of strategic information include:
• Profitability of each part of the business
• Size, growth and competitive structure of the markets in
which a business operates
• Investments made by the business and the returns (e.g.
profits, cash inflows) from those investments

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 Why Do People Need Information in
Business/organization?
ii. Tactical Information: this is used to decide how the
resources of the business should be employed Examples
include:
 Information about business productivity (e.g. units
produced per employee; staff turnover)
 Profit and cash flow forecasts in the short term
 Pricing information from the market
iii. Operational Information: this information is used to make
sure that specific operational tasks are carried out as
planned/intended (i.e. things are done properly).
 For example, a production manager will want information
about the extent and results of quality control checks that
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are being carried out in the manufacturing process.

Why Do People Need Information in

Business/organization?
• Dealing with competitors
• Customers: needs, perceptions, preferences
 The right product or service
• Suppliers: ability to supply
 Dealing: surplus/shortage
• Employees: needs/perspectives; information seeking (profitability,
problems, what others do)
 Motivational, engaging
 Cross-sectional team

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 Why Do People Need Information in
Business/organization?
• Dealing with competitors
 5 competitive forces: Competitive Rivalry, Supplier power, buyer
power, threats of substitution, threats of new entry.
 Influencing strategies
• Customers: needs, perceptions, preferences
 The right product or service
• Suppliers: ability to supply
 dealing: surplus/shortage
• Employees: needs/perspectives; information seeking (profitability,
problems, what others do)
 Motivational, engaging
 Cross-sectional team
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Defining Systems
• An interrelated set of components that work together within an
identifiable boundary to achieve common objectives (purposes).
Systems have:
 Component – One part/group of parts (sub-systems)

 Interrelationships – the function of one component depends on the

function & existence of the other (output of one – the input for the other)

 Objective/purpose – the main reason for the existence of a system: set of

defined objectives

 Boundary – Conceptual line drawn around the system that separates the
system from the environment
 What is inside and outside of the system
 scope of operation/functional boundary: what the system can and cannot do

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 Defining Systems
• Environment – everything outside a system & interact with a system
 Systems interact with the environment

 Events in the environment affect the system

 Interface: the points at which two systems, subjects, organizations, etc.

meets and interact (e.g. menu in computer system)
 Set of rules/procedures for how a system interacts (communicates) with
the environment

 Input - whatever the system takes in from the environment

 Output – whatever returned to the environment (product/service)

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Defining Systems
• Constraints: limits or restrictions to what a system can accomplish
(capacity, resources, …)

• Feedback: The reaction or response of the environment to the output is

known as feedback. Feedback is useful in evaluating and improving the
functioning of the system.

Therefore,
System = C + I + O + B + E + I + I/O + C + F

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 Defining Systems
• Large number of Interconnections/Interactions  Problem  Reduce
 Decomposition: breaking  hierarchical subsystem (manageable size)  defining
boundary & interfaces

 Simplification: organizing subsystems

 Clustering: forming a group

 Decoupling: reducing direct dependence or the need for communication (slack

capacity, use of standards, buffering)

 Therefore,
System = C + I + O + B + E + I + I/O + C + F
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Defining Systems
• The entire system is broken into three parts namely - input, process
and output

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 System Approach/System Theory
• The Systems Approach or Systems Theory is set of ideas with which we
can view systems. This set of ideas can be summarized as follows:
 All systems are composed of inter-related parts or sub-systems
 The components form an indissoluble whole – change in one part affects
other parts of the overall system

 Sub-systems need to work towards the goals of the system (not to their
own goals independently)

 Holism or synergy: The systems approach takes the view that the whole is
greater than the sum of the parts
• Mutual interaction adds something more OR

• A system as whole has properties that non of the parts/components/subsystems

have OR It can do something that individual components/ subsystems can not.

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System Approach/System Theory

• Advantages of Systems approach
 managers have a good view of the organization.

 It gives importance to interdependence of the different

parts of an organization and its environment.

 It forecast consequences and plans action

 Goal oriented

• Disadvantages of Systems Approach

 Does not offer specific tools and techniques for practicing
manager

 It cannot be easily and directly applied to practical problem32

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 System Types

• Simple vs. Complex

 Simple: easily define system’s output from known inputs; no need of
high level system analysis
• E.g. A college classroom system – Instructors, Students, Text, Facility –
educated citizen

 Complex: Multitude of components and relationships; processes

are not describable with single rule; unpredictable occurrence of
features from the current specification

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System Types
• Open vs. Closed System
 Open: Dynamically interact to their environments

 Taking inputs and transforming them into outputs to be distributed

into their environments

 Exchange of feedback with its external environment

 Analyzed & used for adjusting internal systems & necessary information is
transmitted back to the environment

 Closed: nearly no interaction with and not influenced by the environment;

 its operation is relatively independent of its environment

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 System Types
• Adaptive vs. Non-Adaptive
 Adaptive System – changing behavior based on its environment; react
to what other agents are doing; tailoring the response based on the
problem

 Non-Adaptive System - fail to adopt to the environment;

steady/stable/fixed

• Natural/man-made (solar system/organization)

• Conceptual/physical (social system or theory/production system)

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System Performance Measures

• Efficiency
 A measure of the use of inputs (or resources) to achieve results.

 Achieved output divided by consumed input

• Effectiveness
 A measure of the extent to which a system achieves its goals
(achieved output divided by expected output)

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 Defining Information System

• An information system is defined as the software that

helps organize and analyze data
 The purpose of an information system is to turn raw data into
useful information that can be used for decision making in an
organization
 The role of the Information systems to provide information to
management which will enable them to make decisions which
ensure that the organization is controlled
 The organization will be in control if it is meeting the needs of
the environment

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Components of Information System

• In an organization, an information systems consists of:

 People
 Hardware
 Software
 Communication
 Data
 Procedure

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 Components of Information System
• People resources include the users and developers of an information
system and those who help maintain and operate the system such as IS
managers and technical support staff
• Hardware resources include computers and other items such as printers.
• Software resources refer to computer programs known as software and
associated instruction manuals
• Communications resources include networks ,the hardware and software
needed to support them
• Data resources cover the data that an organization has access to such as
computer databases
• Procedure rule for achieving optimal and secure operation in data
processing
• Procedure include priorities in dispensing software applications and
security measure 39

Business Information System

• Input: collect and introduce data to system
 Transaction: a business event, usually entered as input (e.g. deposit or
withdraw in a bank)
 Transaction processing system (TPS): a system that records transactions
 Input devices include keyboards, barcode readers, voice recognition systems,
touch screens
• Data processing: perform calculations on input
• Output: what is produced by the information system
 Output devices include printers and speakers
• Storage: maintaining vast amounts of data
 Storage devices include optical discs

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 Information and Managers
• Systems thinking: thinking of an organization in terms of subsystems
 Powerful management approach that creates a framework for problem
solving and decision making
 Helps keep managers focused on overall goals
• Information systems automate exchange of information among
subsystems
• Information map: description of data and information flow within an
organization
 Shows a network of information subsystems that exchange information with
each other and with the outside world
• Information technology: technologies that facilitate construction and
maintenance of information systems

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Information System in an organization

• Trends that have made information systems important in business:

 Growing power and decreasing cost of computers
 Growing capacity and decreasing costs of data storage devices
 Increasing variety and ingenuity of computer programs
 Available, reliable, affordable, and fast communications links to the
Internet
 Growth of the Internet
 Increasing computer literacy of the workforce

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 Information Systems in Business Functions

• Functional business area: services within a company that

support main business including
• Accounting
• Finance
• Marketing
• Human resources

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Accounting

• Accounting information systems:

 Help record transactions
 Produce periodic statements
 Create required reports for law
 Create supplemental reports for managers
 Contain controls to guarantee adherence to standards

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 Finance

• Finance systems:
 Facilitate financial planning and business transactions
• Tasks include organizing budgets, managing cash flow,
analyzing investments, and making decisions

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Marketing

• Marketing’s purpose is to pinpoint likely customers and promote

products
• Marketing information systems:
 Analyze demand for products in regions and demographic groups
 Identify trends in demand for products/services
 Help analyze how advertising campaigns affect profit
• Web provides opportunity to collect marketing data as well as
promote products and services

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 Human Resources
• Human resource management systems aid record-keeping
 Must keep accurate records
 Aids recruiting, selection, placement, benefits analysis, requirement
projections
• Performance evaluation systems provide grading utilities

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Manufacturing

• Control Inventory
• Process customer orders,
• Prepare production schedules
• Perform quality assurance
• Prepare shipping documents

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 Government

• Tax authorities
• National insurance and welfare agencies
• Defense departments
• Economic organizations
• Immigration and authorities

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Retail
• Some retil stores(e.g. Wal-Mart,Kmart) are now linked to
communication networks by satellite.
• Management can determine which items move quickly
and which do not.

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 Information System Model

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Dimensions of Information Systems

• Information System consists of three dimensions, organization,
management and Technology
• Using information systems effectively requires an understanding of the
organization, management, and information technology shaping the
systems
• An information system creates value for the firm as an organizational and
management solution to challenges posed by the environment

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 Organizations
• Information systems are an integral part of organizations
• Indeed, for some companies, such as credit reporting firms, there
would be no business without an information system
• The key elements of an organization are its people, structure,
business processes, politics, and culture
• Parts of an organization’s culture can always be found embedded
in its information systems
 For instance, XYZ’s company first priority is customer service, which is
an aspect of its organizational culture that can be found in the
company’s package tracking systems

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Organizations

• Different levels and specialties in an organization create

different interests and points of view
• These views often conflict over how the company should be
run and how resources and rewards should be distributed
• Conflict is the basis for organizational politics
• Information systems come out of this cauldron of differing
perspectives, conflicts, compromises, and agreements that
are a natural part of all organizations

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 Management
• Management’s job is to make sense out of the many situations
faced by organizations, make decisions, and formulate action
plans to solve organizational problems
• Managers perceive business challenges in the environment; they
set the organizational strategy for responding to those
challenges; and they allocate the human and financial resources
to coordinate the work and achieve success
• Throughout, they must exercise responsible leadership

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Management
• But managers must do more than manage what already exists
• They must also create new products and services and even re-
create the organization from time to time.
• A substantial part of management responsibility is creative
work driven by new knowledge and information
• Information Systems can play a powerful role in helping
managers design and deliver new products and services and
redirecting and redesigning their organizations

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 Information Technology
• Information technology is one of many tools managers use to
cope with change
• Computer hardware is the physical equipment used for input,
processing, and output activities in an information system
 It consists of the following: computers of various sizes and shapes
(including mobile handheld devices); various input, output, and
storage devices; and telecommunications devices that link computers
together
• Computer software consists of the detailed, preprogrammed
instructions that control and coordinate the computer
hardware components in an information system

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Exercise

 Make a list of the different information systems you interact

with every day

 Identify the technologies (HW, SW), Input used, the processes

involved and type of outputs

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