Annamalai University: Directorate of Distance Education

178E1220
346E2320
349E2330
1 - 24
ANNAMALAI UNIVERSITY
DIRECTORATE OF DISTANCE EDUCATION
M.B.A. E - Business
Second Semester
Master of Business Administration

M.B.A. Financial Management
Third Semester
MANAGEMENT INFORMATION SYSTEM

LESSONS: 1 – 24
Copyright Reserved
(For Private Circulation Only)
M.B.A. E-BUSINESS
Second Semester
MASTER OF BUSINESS ADMINISTRATION
M.B.A. FINANCIAL MANAGEMENT
Third Semester
MANAGEMENT INFORMATION SYSYEM
Editorial Board
Dr. N. Ramagopal
Dean
Faculty of Arts
Annamalai University
Annamalai Nagar.
Members
Dr. R. Singaravel Dr. P. Vijayan

Director Director
Directorate of Distance Education Academic Affairs
Annamalai University Annamalai University
Dr. G. Udayasuriyan Dr. A. Selvarasu

Professor and Head Professor and Coordinator
Department of Business Administration Management Wing - DDE
Internals
Dr. G. Natarajan Dr. S. Partheeban
Assistant Professor Assistant Professor
Management Wing - DDE Management Wing - DDE
Externals
Dr. G.S. Subashini Dr. S. Tamil Selvan

Assistant Professor Assistant Professor
Department of Business Administration Department of Commerce
Kundavai Nachiar Arts College for Women St. Thomas College of Arts and Science
Tanjore Chennai.
Lesson Writers
Units: I - III Units: IV - VI

Dr. M. Kamaraj
Dr. G.S. Subashini
Associate Professor
Assistant Professor
Department of Business Administration
Department of Business Adminstration
Annamalai University
Kundavai Nachiar Arts College for Women
Annamalainagar.
Tanjore.
M.B.A. E-BUSINESS
Second Semester
Third Semester
SYLLABUS
Learning Objectives
The learning objectives of the course are:
LO1: To provide a real-world understanding of management information
systems in business;
LO2: To impart a firm foundation and background needed in the field of
information systems;
LO3: To explain the information system technologies currently available in
business world;
LO4: To provide the right balance of conceptual background, technical
information and real-world applications and
LO5: To introduce the infrastructure required and security issues for the
effective use of information system.
Course Outcomes
At the end of this course, the candidates should be able to:
C01: Use the knowledge of information system models for decision
making;
CO2: Analyze Management Information Systems within a context of an
integrated collection of subsystems;
CO3: Categorize the components of information systems and differentiate how
they interact to have competitive advantage;
CO4: Classify the conceptual foundations, structure and technology of
information systems. Apply planning and development techniques
involved in the implementation of an information system,
specifically DSS;
CO5: Create an information-based DSS within an MIS supporting improved
decision making and problem solving by means of insights and
CO6: Have the capacity of working with the associated technologies related
to inventory contol system.
ii
Teaching Methods
Lecture, Case Study and Seminar Presentation
Unit–I Introduction
MIS: Need - Purpose – Objectives - Data Information, - Knowledge - Elements of
Comprehensive Management Information System – Types of Information System –
Information as a Strategic Resource - Use of Information for Competitive
Advantages – Information System for Decision Making – Models of Decision Making
– Classical, Administrative and Herbert Simon’s Models – Attributes of Information
and its Relevance to Decision Making – Types of Information.
Unit–II MIS and Business
MIS in Organization – Top Management Responsibility – Data Processing Group
Responsibility – Development and Maintenances of MIS – Role of Computer in MIS –
Information Technology Infrastructure.
Unit–III System Analysis
System Analysis – System Concept - System Planning and Mutual Investigation
– Assessing Enterprise Information Requirements – System Design – The process
and Stages of System Design – Input Design - Forms Design – System Approach –
System implementation – System Testing – System Audit – System Development
Life Cycle.
Unit–IV Decision Support System
Decision Support System: Data Warehousing and Data Mining – Business
Intelligence and Analytics – Executive Information System - Executive Support
System – Expert Systems and Knowledge Based Expert System.
Unit–V MIS and Digital Firm
MIS Model for a Digital Firm - Organizations Structure for Digital Firm – BPO -
Management Issues in MIS – Information Security and Control – Ethical and Social
Dimension.
Unit–VI Application of MIS
Application of MIS in Functional Area – Marketing – Production System -
Accounting System - Inventory Control System - Human Resource Information
Systems - Recent Developments in MIS (for discussion only).
Text Books
1. Kenneth G. Laudon & Jane P. Laudon, “Management information
system – Managing the Digital firm,” Eighth edition, New Delhi: Prentice
– Hall of India Pvt. Ltd., 2003.
2. Robert C. Nickerson, “Business and Information System,” Second
edition, New Delhi: Prentice-Hall of India Pvt. Ltd., 2002.
3. Rich Schiesser, IT System Management, New Delhi, Prentice Hall of
India Pvt. Ltd., 2002.
iii
Supplementary Readings
1. Leonard Jessup & Joseph Valacich, “Information Systems Today,” New
Delhi: Prentice Hall of India Pvt. Ltd., 2003
2. Kenneth C. Laudon and Jane P. Laudon, Management Information
System, Fifth Edition, Singapore: Pearson Education (Sg.) Pvt. Ltd.,
2003.
3. Goyal, DP., Management Information Systems: Managerial
Perspectives, 4th edition, Vikas Publishing House, New Delhi, 2014
4. Janakiraman and Sarukeshi, Decision Support Systems, 12th Edition,
PHI Learning Pvt. Ltd., New Delhi, 2011.
Journals and Magazines
1. Journal of Management Information System
2. ACM Transactions of Management Information System
3. International Journal of Information Management
4. Information and Management
Web Resources
1. http://en.wikipedia.org/wiki/Management_information_system
2. http://www.webopedia.com/TERM/M/MIS.html
3. http://www.tutorialspoint.com/management_information_system/mana
gement_information_system.htm
4. http://searchcio.techtarget.com/definition/decision-support-system
5. http://www.techopedia.com/definition/770/decision-support-system-
dss
iv
M.B.A. E-BUSINESS
Second Semester
Third Semester
CONTENTS
U.No. L. No. Title P. No.
1. Introduction to Management Information System 1
2. Types of Information System 15
I 3. Information System and Strategic Management 25
4. Information System for Decision Making 38
5. Management Information System in Organization 54
6. Management and Other Group Responsibility 63
II 7. Development and Maintenance of MIS 67
8. Role of Computers in MIS and Designing MIS Infrastructures 76
9. Systems Analysis 86
10. System Planning for Information Systems 99
III
11. System Design and Implementation 105
12. Systems Development Life Cycle 124
13. Decision Support System 134
14. Business Intelligence and Analytics 154
IV
15. Executive Information System and Executive Support System 174
16. Expert System and Knowledge Base Expert System 191
17. MIS Model for Digital Firm 211
18. Organization Structure for Digital Firm 230
V
19. Information Security and Control 248
20. Ethical and Social Dimension 266
21. Application of MIS in Functional Area 284
22. Marketing Information System 303
VI
23. Production System and Accounting System 321
24. Inventory Control and Human Resource Information Systems 341
UNIT – I
LESSON – 1
INTRODUCTION TO MANAGEMENT INFORMATION SYSTEM
1.1. INTRODUCTION
Many organizations have flourished in a highly competitive environment,
because they have created a set of finely tuned business processes and information
systems that simultaneously promote agility, efficiency and quality. The
organizations can respond instantly to customers and changes in the marketplace
as events unfold, while working closely with suppliers and retailers. As a part of
ongoing effort to monitor quality, efficiency and costs on products/services, the
management would see the opportunities to use information systems to improve
business performance.
The latest technology alone would not provide solutions. The organizations
have to carefully revise its business processes to support a better products/services
on actual customer orders rather than “best guesses of customer demand. Once
that was accomplished, suitable software will be useful for coordinating the flow of
information among disparate internal production, ordering and invoicing systems
within the company and with systems of retailers and suppliers.
In order to help the customers management systems of many organizations
reduce inventory costs, because the organizations and dealers do not have to pay
for making/storing customers did not want. The system also increases customer
satisfaction by making it easier for customer to buy exactly the design, make and
option they desire. Information provided by the system helps management monitor
trends and forecast demand and product/service requirements more accurately,
which is clearly depicted in Figure 1.1.
Figure 1.1. Information System to monitor trends and forecast demand and
production/service requirements
Business
Problem
 Analyze market  Tough Competition
trends  Demanding Customers
Management
 Monitor quality,
efficiency and
costs
 Redesign
order and Organization Information Business
production System Solution
processes
 Reduce Costs
 Forecast demand and
 Deploy suitable  Increase revenue
production requirements
Software Technology  Improve customer service
more accurately
 Integrate
software with
intranet and
internet
2
WHAT IS MANAGEMENT INFORMATION SYSTEM (MIS)?

To the managers, Management Information System is an implementation of the
organizational systems and procedures. To a programmer it is nothing but files
structures and file processing. However, it involves much more complexity. The
three components of MIS provide a more complete and focused definition, where
System suggests integration and holistic view, Information stands for processed
data, and Management is the ultimate user, the decision makers. Management
information system can thus be analyzed as follows:
Management
Management covers the planning, control, and administration of the
operations of a concern. The top management handles planning; the middle
management concentrates on controlling; and the lower management is concerned
with actual administration.
Information
Information, in MIS, means the processed data that helps the management in
planning, controlling and operations. Data means all the facts arising out of the
operations of the concern. Data is processed i.e. recorded, summarized, compared
and finally presented to the management in the form of MIS report.
System
Data is processed into information with the help of a system. A system is made
up of inputs, processing, output and feedback or control.
Thus MIS means a system for processing data in order to give proper
information to the management for performing its functions.
Definition
Management Information System or 'MIS' is a planned system of collecting,
storing, and disseminating data in the form of information needed to carry out the
functions of management.
1.2. OBJECTIVES
After studying this lesson you will understand
 About what is Management Information System
 Need and Purpose of Management Information System
 Role of Management Information System in Organization Management
 The concept of Data Vs Information and Classification of Information
1.3. CONTENTS
1.3.1 Need and Purpose of MIS
1.3.2 Objectives of MIS
1.3.3 Data, Information and Knowledge
1.3.4 Elements of Management Information System
1.3.1. NEED AND PURPOSE OF MIS
As managers, most of us will work for firms that are intensively using
information systems and making large investments in information technology. We
3
will certainly want to know how to invest this money wisely. If we make wise
choices, our firm can outperform competitors. If we make poor choices, we will be
wasting valuable capital.
We can see the results of the massive spending on information technology and
systems around us everyday by observing how people conduct business. More
wireless cell phone accounts were opened in 2005 then telephone land lines
installed. Cell phones, Blackberrys, handhelds, e-mail, online conferencing, and
international teleconferencing over the internet have all become essential tools of
business.
Currently more than 80 million businesses had dot.com internet sites
registered. Most of the customers purchase something every day on the Internet.
The responsiveness of the new economy had led many experts to believe the era of
massive recessions and booms of the typical business cycle is over, replaced by
much smaller contractions and expansions, and strong long-term growth.
There has been a massive shift in media markets. As newspaper readership
continue to decline, more than 50 million people receive their news online. As
growing percentage of the American economy and other advanced industrial
economics in Europe and Asia-depend on imports and exports. Foreign trade, both
exports and imports, accounts for more than 25 per cent of the goods and services
produced in the United States and even more in countries such as Japan and
Germany.
The emergence of the Internet into a full-blown international communication
system had drastically reduced the costs of operating on a global scale. Customers
now can shop in a worldwide market place, obtaining price and quality information
reliably 24 hours a day. Firms can achieve extraordinary cost reduction by finding
low-cost suppliers and managing production facilities in other countries. Digital
content firms that produce Hollywood movies are able to sell millions more copies of
DVDs of popular films by using foreign markets. Internet service firms, such as
Google and eBay are able to replicate their business models and services in
multiple countries without having to redesign their expensive fixed cost information
system infrastructure.
Role of the Management Information System
The MIS plays exactly the same role in the organization. The system ensures
that an appropriate data is collected from the various sources, processed, and sent
further to all the needy destinations. The system is expected to fulfill the
information needs of an individual, a group of individuals, the management
functionaries: the managers and the top management.
The MIS satisfies the diverse needs through a variety of systems such as Query
Systems, Analysis Systems, Modeling Systems and Decision Support Systems the
MIS helps in Strategic Planning, Management Control, Operational Control and
Transaction Processing.
The MIS helps the clerical personnel in the transaction processing and
answers their queries on the data pertaining to the transaction, the status of a
4
particular record and references on a variety of documents. The MIS helps the
junior management personnel by providing the operational data for planning,
scheduling and control, and helps them further in decision making at the
operations level to correct an out of control situation. The MIS helps the middle
management in short them planning, target setting and controlling the business
functions. It is supported by the use of the management tools of planning and
control. The MIS helps the top management in goal setting, strategic planning and
evolving the business plans and their implementation.
The MIS plays the role of information generation, communication, problem
identification and helps in the process of decision making. The MIS, therefore, plays
a vital role in the management, administration and operations of an organization.
1.3.2 OBJECTIVES OF MIS
The goals of an MIS are to implement the organizational structure and
dynamics of the enterprise for the purpose of managing the organization in a better
way and capturing the potential of the information system for competitive
advantage. Following are the basic objectives of an MIS:
Capturing Data: Capturing contextual data, or operational information that
will contribute in decision making from various internal and external sources of
organization.
Processing Data: The captured data is processed into information needed for
planning, organizing, coordinating, directing and controlling functionalities at
strategic, tactical and operational level. Processing data means:
 making calculations with the data
 sorting data
 classifying data and
 summarizing data
Information Storage: Information or processed data need to be stored for
future use.
Information Retrieval: The system should be able to retrieve this information
from the storage as and when required by various users.
Information Propagation: Information or the finished product of the MIS
should be circulated to its users periodically using the organizational network.
1.3.3. DATA, INFORMATION AND KNOWLEDGE
Data, information, knowledge and wisdom are closely related concepts, but
each has its own role in relation to the other. Data is collected and analyzed to
create information suitable for making decisions, while knowledge is derived from
extensive amounts of experience dealing with information on a subject. For
example, the height of Mt. Everest is generally considered data. This data may be
included in a book along with other data on Mt. Everest to describe the mountain in
a manner useful for those who wish to make a decision about the best method to
climb it. Using an understanding based on experience climbing mountains to advise
persons on the way to reach Mt. Everest's peak may be seen as "knowledge". Some
5
complement the series "data", "information" and "knowledge" with "wisdom", which
would mean the status of a person in possession of certain "knowledge" who also
knows under which circumstances is good to use it.
That is to say, data is the least abstract, information the next least, and
knowledge the most. Data becomes information by interpretation; e.g., the height of
Mt. Everest is generally considered "data", a book on Mt. Everest geological
characteristics may be considered "information", and a report containing practical
information on the best way to reach Mt. Everest's peak may be considered
"knowledge".
All individuals, companies and, in general, all organisations are continuously
capturing data, many of which are of no significance to them at all. However, other
data are available that would afford them a better understanding of their own
environment and of themselves. These data – what we know as information – enable
them to make more accurate decisions. For this reason, the right amount of
information at the right time is a key factor for every organisation.
Company managers take decisions, prepare plans and control their company’s
activities using information that they can obtain either from formal sources or
through informal channels such as face-to-face conversations, telephone calls,
social contacts, etc. Managers are challenged by an increasingly complex and
uncertain environment. In these circumstances, managers should theoretically be
able to define and obtain the type of information they require. However, this is not
what happens in practice; rather, the way managers perform their work depends on
the available information that they have access to. Most decisions are therefore
made in the absence of absolute knowledge, either because the information is not
available or because access to it would be very costly.
Despite the difficulties in obtaining information, managers need relevant
information on which to base their planning, control and decision-making
functions. Although the terms data and information are sometimes used
indiscriminately, they do have different meanings. Data are non-random symbols
that represent the values of attributes or events. Hence, data are facts, events and
transactions stored according to an agreed code. Data are facts obtained through
reading, observation, calculation, measurement, etc. The amounts and other details
on an organisation’s invoices, cheques or pay slips, etc, are referred to as data, for
example. Data are obtained automatically, the result of a routine procedure such as
invoicing or measurement processes.
"Information" bears a diversity of meanings that ranges from everyday to
technical. Generally speaking, the concept of information is closely related to
notions of constraint, communication, control, data, form, instruction, knowledge,
meaning, mental stimulus, pattern, perception, and representation.
Beynon-Davies uses the concept of a sign to differentiate between data and
information; data is a series of symbols, while information occurs when the symbols
are used to refer to something.
6
It is people and computers who collect data and impose patterns on it. These
patterns are seen as information which can be used to enhance knowledge. These
patterns can be interpreted as truth, and are authorized as aesthetic and ethical
criteria. Events that leave behind perceivable physical or virtual remains can be
traced back through data. Marks are no longer considered data once the link
between the mark and observation is broken.
According to Davis and Olson:
“Information is a data that has been processed into a form that is meaningful
to recipient and is of real or perceived value in the current or the prospective action
or decision of recipient.”
Figure 1.2. Transformation of data into information
Data Transformation
Information
Process
Information is a set of data transformed in such a way that it helps to reduce

future uncertainty and, therefore, contributes to the decision-making process.
Information is data transformed in a way that makes sense to the person who
receives it; in other words, it has a real or perceived value for that person when he
or she acts or takes decisions. Information, moreover, is data that have been
interpreted and understood by the recipient of the message. The relationship
between data and information is similar to that of raw materials and the finished
product. Information will be meaningful insofar as it provides useful raw material
for taking a specific decision.
Professor Ray R. Larson of the School of Information at the University of
California, Berkeley, provides an Information Hierarchy, which is:
 Data: The raw material of information.
 Information: Data organized and presented by someone.
 Knowledge: Information read, heard, or seen, and understood.
Data / Information Collection Techniques
The most popular data collection techniques include:
 Surveys: A questionnaire is prepared to collect the data from the field.
 Secondary data sources or archival data: Data is collected through old
records, magazines, company website, etc.
 Objective measures or tests: An experimental test is conducted on the
subject and the data is collected.
 Interviews: Data is collected by the system analyst by following a rigid
procedure and collecting the answers to a set of pre-conceived questions
through personal interviews.
Classification of Information
Information can be classified in a number of ways and in this lesson; you will
learn two of the most important ways to classify information illustrated in Figure 1.3.
7
Figure 1.3. Classification of Information
Classification by Characteristic
Based on Anthony's classification of Management, information used in
business for decision-making is generally categorized into three types:
Strategic Information: Strategic information is concerned with long term
policy decisions that defines the objectives of a business and checks how well these
objectives are met. For example, acquiring a new plant, a new product,
diversification of business etc., comes under strategic information.
Tactical Information: Tactical information is concerned with the information
needed for exercising control over business resources, like budgeting, quality
control, service level, inventory level, productivity level etc.
Operational Information: Operational information is concerned with
plant/business level information and is used to ensure proper conduction of
specific operational tasks as planned/intended. Various operator specific, machine
specific and shift specific jobs for quality control checks comes under this category.
Classification by Application
In terms of applications, information can be categorized as:
Planning Information: These are the information needed for establishing
standard norms and specifications in an organization. This information is used in
strategic, tactical, and operation planning of any activity. Examples of such
information are time standards, design standards.
8
Control Information: This information is needed for establishing control over

all business activities through feedback mechanism. This information is used for
controlling attainment, nature and utilization of important processes in a system.
When such information reflects a deviation from the established standards, the
system should induce a decision or an action leading to control.
Knowledge Information: Knowledge is defined as "information about
information". Knowledge information is acquired through experience and learning,
and collected from archival data and research studies.
Organizational Information: Organizational information deals with an
organization's environment, culture in the light of its objectives. Karl Weick's
Organizational Information Theory emphasizes that an organization reduces its
equivocality or uncertainty by collecting, managing and using these information
prudently. This information is used by everybody in the organization; examples of
such information are employee and payroll information.
Functional/Operational Information: This is operation specific information.
For example, daily schedules in a manufacturing plant that refers to the detailed
assignment of jobs to machines or machines to operators. In a service oriented
business, it would be the duty roster of various personnel. This information is
mostly internal to the organization.
Database Information: Database information construes large quantities of
information that has multiple usage and application. Such information is stored,
retrieved and managed to create databases. For example, material specification or
supplier information is stored for multiple users.
1.3.4. ELEMENTS OF MANAGEMENT INFORMATION SYSTEM
In order to understand the elements of Management Information System (MIS),
understanding about systems concept is required. A system can be simply defined
as a group of inter-related or interacting elements forming a unified whole process.
We can find many examples of systems in the physical and biological sciences, in
modern technology, and in human society. Thus, we can talk of the physical system
of the sun and its planets, the biological system of the human body, the
technological system of an oil refinery, and the socio-economic system of a business
organization. However, the following generic system concept provides a more
appropriate frame work for describing information systems.
 Input involves obtaining and sequencing the elements that enter the system
to be processed. For example, raw materials, energy packets, data and
human effect must be secured and organized for processing.
 Processing involves transformation steps that convert input into output.
Examples are a manufacturing as a process, the human breathing as a
process or mathematical calculations.
 Output involves transferring elements that have been produced by a
transformation steps to their ultimate destination. For example, finished
products, human services, and management information must be
transmitted to their human.
9
Systems Concept
According to Yourdan, the word system is one of the most used terms in the
day-to-day life. This observation is very correct that we often refer different systems
in our day-to-day life. This includes solar systems, Biological systems, Human
system, Real time systems, online systems, cybernetic systems, Expert systems,
Information Systems etc. Thus we can very easily find so many systems very
popular around us. But is their exist relationship between so many systems we
come across and the systems concept? Indeed the answer is the ‘conceptualization
process’ of set of related activities resulted in so many number of systems around
us.
Now let us generalize and extend this conceptualization process with five
different elements namely, Input, Process, Output, Control and memory as shown
in figure 1.4.
Figure 1.4 : Basic Components of a system
Control
Input Proces sing Output
M em ory
All systems we come across in our day-to-day life will have all the above stated
five components. However, some of these components in many of the systems
cannot be realized very easily. Say for example the memory components of the
Human system may not be so visible as it is the case with memory component of
Information systems. In information systems the memory components can be
traced to all the files and ledgers or in the database. But in human systems the
memory components is nothing but the brain and the contents a specific brain can
be reproduced. From the Figure 1.4., it is possible to explain any systems in the
world. That is, one can very easily identify the various inputs, process and output
for all the systems. But identifying the control component and memory component
for naturally formed system requires in-depth analysis. However, in the artificially
created systems the success of the system depends on the proper deployment of the
controls on various inputs, processes and output. Also, the various happening of
the system is required to be recorded. But in most of the artificial systems created,
the memory component is not considered so significant. For example consider a car
as a system, the memory components one can identify so visibly with it is, the
distance travelled in the speedometer. But now the real question to be answered is,
the answer is no. There are many memory components that are available in the car,
but they are not predominantly required for the users of the car. Think about the
memory system in the car, which can bring the details like number of turns the car
can has taken in its life period. Thus, in most of the artificially created systems the
10
many memory components can be identified but all of them are usually not given
with proper significance.
Though, it is observed that most of the artificially created systems have
insignificant memory component, there exist at least one exception to that which is
nothing but an information systems. Indeed, the real significance of information
system relies heavily on the ‘memory system’ and its ability to retrieve or generate
information form the huge pools of data. From Figure 1.5. The information system
can be explained in terms of various data generation sources, various data
processing techniques and various possible information output in terms of
management reports. In the artificially created information systems appropriate
control is required to be designed for various inputs various processes and possible
information outputs. The details of the information systems with various inputs,
processes, output, control and memory are shown in Figure 1.5.
Figure 1.5. Components of Information System
Control
What controls are needed to protect against accidental loss of damage?
Is there a need to control access to data used by the application?
Input Processing Output

What data are available, What operations on the inputs are needed What information is needed by
in what form? to produce the desired output? end-users and in what form should
What software can most effectively support the output be presented?
those operations?
Storage
Does the application use previously stored
data?
Does create data that must be stored for
future use by this or other applications?
Sub systems
The subsystems can be defined as the independent entity available within the
system. Thus, it is nothing but a system residing within a ‘larger system’ defined
with clear-cut boundaries and processes. In a specific system it is always possible
to identify different subsystems. If this universe is considered as system we can
state different subsystems as stars, planets, satellites and comets. Each of these
sub-systems can be defined with clear-cut boundaries and functions. Similarly, in
the Figure 1.5, the components of information system namely Input, Process,
Output, Storage and Control can be individually called as different subsystems of
the Information systems. In the artificially created systems, the subsystems are
required to be carefully defined and created so that they can ensure the cohesive
functioning of the system. Normally, in such systems ‘created boundaries’ and
interfaces are carefully studied to make sure that the relations among subsystems
are clearly defined. This is considered very important because, too many sub-
systems will sometimes be a problem. For example, human body as a system can
considered. However, such considerations will create too many systems parameters
for the system designers. Thus, in artificially created systems optimal number of
11
subsystems is considered for analysis. In the process of Systems Analysis and

Design performed for creating Information Systems, detailed procedures and
methods are being adapted to define and create subsystems.
Management Information Systems and its Elements
Based on the Management Information Systems, it is to be understood that the
computerized management information system is the combination of computer
hardware, computer software and database, Networking devices, Operating
personnel of the computers, and the management control applied over the entire
MIS infrastructure. Also, if we take into account the development (creating a new
MIS) aspect of MIS then the elements of MIS will also have constituents
representing the software development procedures. Normally, for a layman the
established MIS is an organization will appear only as the set of computers in the
premises of the organization. Take for example the ATM (Automated Teller
Machines) used by the various banking systems, the end users drawing the money
from it may not recognize it as MIS infrastructure. Rather, for the end user the
system will only appear as computer system just delivering the money.
Figure 1.6. MIS Frame Work
Management
of IS
Development of IS
(Solutions to Problems)
Application of IS
(To Operations, Management
and Strategic Advantages)
Technology of IS
(Hardware, Software, Networks and
Data Management)
Foundation Concepts of IS
(Fundamental Behavioral and Technical Concepts)
Thus, the elements of MIS are to be explained from the business end users
perspective. The business end users framework for understanding the elements of
MIS is shown in Figure 1.6, which is a pyramid where the bottom most layer
represents the fundamental behavioural and technical concepts that should be
known to understand information systems. Those who have got fundamental ideas
related to the basic computer operations can understand the aspects related to this
layer.
12
The second layer from the bottom of the MIS pyramid represents the
technology aspects of the information systems like hardware, software, networks
and data management. The people associated in this layer of MIS are the
technocrats like software engineers etc. An ordinary end user may not recognize the
minute aspects in this layer. The layer from the bottom of the pyramid represents
the application of the information systems to various business requirements like
Operations, Management, Decision Making, and gaining the competitive and
strategic advantage. This layer represents the interfacing layer between the
identified application and the possible technological solution. For example, the first
satellite was launched in the year 1956, but it is identified that the satellite
applications can be used in the business, only in early 80s. This identified
application of satellite in the business has resulted in the growth of GIS
(Geographic Information Systems) technology. Similarly, what we are seeing today
as computer applications for our business in the day-to-day life is only a small-
identified aspects, but there exist a numerous scope for computer application in the
business in future. The fourth layer from the bottom of the pyramid in the Figure
1.6 represents the development of Information System for the identified application
areas of the specific business mode. This layer of the business end users framework
will represent the creation of MIS for the specific business establishment.
The top most layers in the MIS pyramid represents the management aspect of
the developed and implemented Information System in an organization. The
activities corresponding to this layer belongs to the specific business establishment
for which the MIS established and operated. For the ordinary end users this layer
may not be so familiar. However, the employees of the specific business
establishment can recognize the various activities in this layer of the business end
users framework.
Technology Elements of MIS
The technology elements of MIS are shown in the Figure 1.7. In which, the
details like computer networks, hardware, software, data and people are shown in
the different layers of the triangle representing the various aspect of MIS is sown in
the second base layer of the triangle and it signifies the importance of technology
elements in MIS. The second layer of Figure 1.7 is more elaborately represented in
the Figure 1.7.
In the figure 1.7 the network elements are represented in the base layer of the
triangle. This signifies the importance of computer networks in the present day
computerized MIS. Also, the computer networks in one form or another governs
more Internet orientation of the business establishment in the form of B2B type of
Electronic Commerce. In the Figure 1.7, the second layer is represented with the
elements of computer hardware in the enterprise network. The data management
and the related hardware support like physical memory component of the
computers are represented in the third base layer of the triangle. The top most two
layers in the Figure 1.7 represent the people and software resource is an MIS. The
overall control of the technology elements are taken care by the concerned people in
13
the technology domain. Also, software systems are essential to operate the
enterprise Information Systems.
Figure 1.7. Technology elements of MIS
People
Data Elements
Software Resource
Hardware Components
Network Elements
1.4. REVISION POINTS

1) The major types of Information System such as. Transaction Processing
System, Knowledge Work System, Decision-Support System, Management
Information System and Executive Support System.
2) Different types of information system support people to act according to the
process and each system provide and exchange data one another.
1.5. INTEXT QUESTIONS
1) Discuss on the different transaction processing system in the organizations.
2) What are the characteristics of DSS? How is it different from the ESS?
3) Describe the relationship between different levels of information system.
1.6. SUMMARY
Information system stands on four levels of management. The systems form,
not a hierarchy but a level of systems, with each type either formatting or
processing the information from a lower level. MIS depends on the data in
transaction processing systems. MIS serves the management level by providing the
managers with reports and on-line access to current records and historic
information.
1.7. TERMINAL EXERCISES
1) What are the major types of Information Systems in a business organization?
2) Define the following: a. TPS, b. MIS, c. DSS, d. ESS.
1.8. SUPPLEMENTARY MATERIALS
Musich, Paula, Introduction to Management Information System, eweek, 2004.
14
1.9. ASSIGNMENT QUESTIONS

1) List the different functional areas in management and describe the
information system supporting them.
2) What is a manufacturing information system? Explain in detail.
1.10. SUGGESTED READINGS / REFERENCE BOOK
1) Keneth C. Landon, Jane P. Landon. “Management Information System, New
approaches to organization and technology”.
2) Boone, Louise and David Karts, “Contemporary Business”. 11th ed. South-
Western, 2002
1.11. LEARNING ACTIVITIES
Visit to public sector organization and know the organization’s levels of
management also note the different managers’ roles and responsibilities, Hence,
Identify different rule information systems namely, Hr Marketing, production
available in the organization.
1.12. KEY WORDS
 TPSS
 ESS
 Alumini
 Disbursements
 Depreciation.

15
LESSON – 2
TYPES OF INFORMATION SYSTEM
2.1. INTRODUCTION
Information systems fall into six major types catering to four levels of
management. The five major functional areas are sales and marketing,
manufacturing, finance, accounting, finance, human resources (represented in
Figure 2.1).
 Transaction processing systems (TPS) performs the major lower level work
such as order entry, sales management, scheduling, accounting systems.
 Office systems support word processing, document management and
storage, electronic meeting and planning (calendars).
 Knowledge work systems support design and analysis such as CAD or data
analysis.
 Decision support systems (DSS) such as cost analysis systems and pricing
analysis.
 Management information systems (MIS) such as sales and marketing
management systems, inventory control, capital budgeting.
 Executive support systems (ESS) such as five-year sales trend, profit
planning, strategic planning.
Executive Support
Strategic Level System
(Senior Managers)
Decision Support
System
Management Level Management

(Middle Managers) Information System
Knowledge Level Office Information System

(Knowledge & Data
Knowledge Management
Workers)
System
Operational Level Transaction
(Operational Processing
Managers) System
Sales and Manufacturing Finance & Human
Marketing & Production Accounting Resources
Figure 2.1. Types of Information System
The systems form, not a hierarchy but a level of systems, with each type either
formatting or processing the information from a lower level. For instance, the office
systems provide reports or presentations on the information or data in transaction
processing systems, decision support and executive support systems often use
16
office systems in presenting information extracted from transaction processing

systems and MIS. MIS depends on the data in transaction processing systems.
2.2. OBJECTIVES
After completing this lesson you will be able to
 understand the manufacturing information system in detail
 know the relationship between different levels of information system
 define the functional areas in management and information system
supporting them
 learn the types of transaction processing system in business organization
2.3. CONTENTS
2.3.1 Operational Level Systems
2.3.2 Types of Transaction processing system in business organizations
2.3.3 Management Information System and Transaction Processing System
2.3.4 Production Information System
2.3.5 Interrelationships among Systems
2.3.1. OPERATIONAL LEVEL SYSTEMS
Operational-level is the lowest. Knowledge-level systems are next highest in the
hierarchy, followed by management-level systems. Strategic-level systems are at the
top. Transaction processing systems such as order tracking, payroll, machine
control, sales and marketing are examples of systems (or subsystems) that serve
the operational level. The main objective of the system is to keep track of
transactions. These system record data and keep them ready for the next level of
usage. At operational level the tasks, resources and goals are predefined and highly
structured. Here the lower level executives make decision based on the clearly spelt
out rules and their job is to check whether the issue comply with the definition.
Knowledge Work Systems and Office Systems
Knowledge work systems help knowledge workers such as engineers, data
analysts, scientists. CAD systems for design and engineering workstations are
examples. Office systems help all those in the office, including knowledge workers
and managers, manage office tasks. Word processing and desktop publishing and
presentation programs are some examples. These executive have a professional
degree and create some knowledge on the job.
Management Information Systems
Information system at the management level serve the functions of planning,
controlling, and decision making by providing routine summary of exception
reports. This answers some questions like, What was our profit per customer?
Which students were here in the last semester? MIS differs from TPS in that MIS
deals with summarized and compressed data from the TPS. Reports are normally
weekly, monthly, or fortnightly but not day to day. Most of them use simple
routines such as summaries and comparisons but not very complicated
mathematical calculations.
17
Decision Support Systems

A DSS provides material for analysis for the solution of semi-structured
problems, unique or rapidly changing problems. Typically, DSS provide the ability
to do “what if” analysis. DSS uses the data from MIS but is more a “right now”
analysis than the long-term structured analysis of MIS. ESS support senior
managers with unstructured decision-making. They are less analytical than DSS
with less use of models such as linear programming or forecasting. Sales region
analysis, cost analysis, production mix and scheduling, budgeting, facility location
are examples of decision support systems and management information systems.
Many of these systems are programs that students learn in their management
science or quantitative methods courses. Some are based on database management
systems.
Executive Support System
ESS supports the senior managers in making decision. They serve the
strategic level. They address the non routine decisions requiring judgment,
evaluation as there is no established procedure for arriving at a solution. ESS is
generalized computing and communication environment rather than providing any
fixed application or specific capability. ESS are designed to provide external
information like new tax law, legal amendment etc. they filter compress and track
critical data so that executive time is well utilized.
2.3.2. TYPES OF TRANSACTION PROCESSING SYSTEM IN BUSINESS
ORGANIZATIONS
 Sales/ marketing systems — sales management, market research, pricing,
promotion, new product introduction.
 Manufacturing/production systems — scheduling, purchasing, shipping/
receiving, engineering, operations.
 Human resources systems — personnel records, benefits, compensation,
labor relations, training.
 Industry specialized — university (admission, grade records, course
records, alumini etc.), freight shippers (rates, distance, rents etc.), property
management (rent, construction cost, convenience, joint promotion etc.).
(In the computer trade, these are called vertical markets.)
Information Systems Serving each of the Major Functional Areas of a Business
 Sales and marketing information systems are systems that help the firm
identify customers for the organization's products and services. Such
systems help to identify customer preferences, potential customers, sell the
products or services, provide support to salespeople and customers.
 Manufacturing and production information systems are systems that
provide information for planning, product development, production or
service scheduling, and controlling the flow of products and services.
 Finance and accounting information systems keep track of an
organization's financial assets and fund flows.
18
 Human resources information systems maintain employee records, track

employee skills, job performance, training, employee compensation
including pensions and benefits, legal and regulatory requirements, and
career development.
2.3.3. MANAGEMENT INFORMATION SYSTEM AND TRANSACTION PROCESSING
SYSTEM
Management information systems serve the management level of the
organization by providing the managers with reports and on-line access to current
records and historic information. They are primarily meant to handle internal and
not external and environmental information. They help mainly in planning,
controlling and decision making at the management level. They rely on the
transaction processing system for their data. The basic transactions from
transaction processing system are compressed and are usually presented in long
reports that are generated on a regular schedule. The figure exhibits the
transaction processing system and the management information system aligned to
generate the periodical reports. The management information system transforms
the transactional data from sales, production and accounting into MIS files.
Transaction Processing System Management Information System
MIS FILES
Order
processing Sales data
Order file system
Material Unit product

resource cost data
Production
master file planning
system
Product
change
General data
Accounting ledger
files system
Expense
data
Managers Reports M IS
Fig. 2.2
19
2.3.4. PRODUCTION INFORMATION SYSTEM

Production information system is a system that deals with the planning,
development and production of products and services and with controlling the flow
of production. Production function is responsible for the actual production of the
companies’ products and services.
Some examples of Production Information System
Organizational
System Description
level
Machine control Control the action of machines and Operational level
equipment
Computer-aided Design the new product Knowledge
design (CAD)
Production planning Decision as to how many and when to management
produce
Facilities location Decision as to location of the plant strategic
Strategic- level information manufacturing system deals with the firm’s long-
term manufacturing goals, such as where to locate the new plant, whether to invest
in new manufacturing technology etc. At the management level this analyze and
monitor manufacturing and production cost and resources.
Production operations of any organization depends on the following
 Technology
 Product design
 Plant layout
 Plant location
 Supply chain management
 Aggregate planning
 Production planning and control
 Scheduling
 Process control
 Inventory management etc.
The above Information is needed in the production planning. Information such
as aggregate planning, Production planning and control, Scheduling, Process
control and Inventory management etc. are used in the short term planning. The
production decision of long term needs information on Technology, Product design,
Plant layout, Plant location and Supply chain management.
20
Input Output
Production
data Product
design
Inventory
dat a Facility design
Vendor
dat a Production
Data
Marketing Base
data Vendor
data
Industrial
engineering QC/QA
data
External
data
Others
External interface
Fig. 2.3 Production Information System

Manufacturing Information System
Organizational
System Description
Level
Machine Control Control Actions of Equipment Operational
Computer-Aided-Design Design New Products Knowledge
Production Planning Decide Number, Schedule of Products Management
Facilities Location Decide where to Locate Facilities Strategic
Manufacturing and production systems deal with the planning, development,
and production of products and services, and controlling the flow of production. A
cross-functional business process would be filling an order. The workflow for the
work order of the material, information, and knowledge cuts across the functional
areas of the business.
Marketing Information System
Internal records
Product plan
Ext ernal Environment
Marketing
intelligence
data Price plan
Ot hers
Marketing Data
research base
Place plan
data
Marketing
Promotion plan
decision
data
Fig. 2.4
21
Sales and Marketing Information System

Organizational
System Sales Description
Level
Order Enter, Process, Track Orders Operational
Processing
Market Analysis Identify Customers & Knowledge
Markets
Pricing Analysis Determine Prices Management
Sales Trends Prepare 5-year Forecasts Strategic
Sales and marketing systems help the firm identify customers for the firm’s
products or services, develop products and services to meet their needs, promote
these products and services, sell the products and services, and provide ongoing
customer support.
Finance and Accounting Information System
Finance function is responsible for the managing the firms financial assets.
They manage cash, stock, bond, and other investments with an objective of
maximizing the return on these financial assets. This also manages the
capitalization of the firm like locating new financial assets or new forms of debt. The
finance function needs information from external sources for making such
decisions.
The accounting function is responsible for maintaining and managing the
firms financial records, receipts, disbursements, depreciation, payroll and fund
flow. The following table depicts some illustrations
System Finance Description Organizational
Level
Accounts Receivable Track Money Owed to Firm Operational
Portfolio Analysis Design Firms Investments Knowledge
Budgeting Prepare Short Term Budgets Management
Profit Planning Plan Long-Term Profits Strategic
Human Resource Information System
Human resource function is all about attracting, developing, and maintaining
the firms’ work force. Human resource information system support activities like
identifying potential employees, maintaining complete records on existing
employees and creating programs to develop employees’ talents and skills.
Human resource information system maintain employee records, track
employee skills, track job performance, track training and support planning for the
employee compensation and career development.
22
Examples of human resource information system

System Description Organizational Level
Training & Development Track Training, Skills, Appraisals Operational
Career Pathing Design Employee Career Paths Knowledge
Compensation Analysis Monitor Wages, Salaries, Benefits Management
Human Resources Plan Long-Term Labor Force
Strategic
Planning Needs
Employee data (various department) To pay roll
Payroll Management
Payroll reports
System
Master
file
Government
documents
Data elements in
Payroll master file
Employee number
Name
Address
Department
occupation
Pay rate On-line queries:
Vacation time Earnings
Gross pay
Earnings
Fig. 2.5
The figure exhibits a transaction processing system of human resources for
employee record keeping. It maintains basic employee data, such as employee
name, age, sex, marital status, address, educational background, salary, job title,
date of hiring, and date of termination. The system can generate various types of
reports such as the list of newly hired employees, employees who are terminated,
employees on leave, employees on training, employees with specific skill sets etc.
2.3.5. INTER RELATIONSHIPS AMONG SYSTEMS
Operational-level systems are TPSs. Examples of these are payroll or order
processing that track the flow of the daily routine transactions that are necessary to
conduct business. Knowledge-level systems support clerical, managerial, and
professional workers. They consist of the office systems for increasing data workers’
productivity and knowledge work systems for enhancing knowledge workers’
productivity. Management-level systems (MIS and DSS) provide the management
control level with reports and access to the organization’s current performance and
historical records.
Most MIS reports condense information from TPS and are not highly
analytical. Decisions-support systems (DSS) support management decisions when
these decisions are unique, rapidly changing, and not specified easily in advance.
They have more analytical models and data analysis capabilities than MIS and
23
often draw on information from external as well as internal sources. The various
types of systems in the organization exchange data with one another. TPS are a
major source of data for other systems, especially MIS and DSS.
Executive
information
system
Management Decision
information support
system system
Know ledge
w ork systems Transaction
& processing
Office system
automation
systems
Fig. 2.6
Relationship between TPS, office systems, KWS, MIS, DSS, and ESS.
1) The major types of Information System such as. Transaction Processing
System, Knowledge Work System, Decision-Support System, Management
Information System and Executive Support System
2) Different types of information system support people to act according to the
process and each system provide and exchange data one another.
1) Discuss on the different transaction processing system in the organizations
2) What are the characteristics of DSS? How is it different from the ESS?
3) Describe the relationship between different levels of information system.
2.6. SUMMARY
Information system stands on four levels of management. The systems form,
not a hierarchy but a level of systems, with each type either formatting or
processing the information from a lower level. MIS depends on the data in
transaction processing systems. MIS serves the management level by providing the
managers with reports and on-line access to current records and historic
information.
24

1) What are the major types of Information Systems in a business organization?
2) Define the following: a. TPS b. MIS c. DSS d. ESS.
Musich, Paula, Introduction to Management Information System, eweek, 2004.
1) List the different functional areas in management and describe the
information system supporting them.
2) What is a manufacturing information system? Explain in detail.
1) Keneth C. Landon, Jane P. Landon. “Management Information System,
New approaches to organization and technology”.
2) Boone, Louise and David Karts, “Contemporary Business”. 11th ed. South-
Western, 2002.
Visit to public sector organization and know the organization’s levels of
management also note the different managers’ roles and responsibilities, Hence,
Identify different rule information systems namely, Hr Marketing, production
available in the organization.
2.12. KEY WORDS
 TPSS
 ESS
 Alumini
 Disbursements
 Depreciation.

25
LESSON – 3
INFORMATION SYSTEM AND STRATEGIC MANAGEMENT
3.1. INTRODUCTION
Strategic information systems are such types of information systems which are
especially critical to firms' long term prosperity and survival. They are the powerful
tools for staying ahead of the competition. Strategic information systems change the
goals, operations, products, services, or environmental relationships of
organizations to help them gain an edge over competitors. At times the business of
such organizations may even change.
3.2. OBJECTIVES
After studying this lesson, you will be able to
 Know the Strategic Information Systems
 know the importance of value chain model
 know the difficulty in building strategic information system
 discuss about firm level strategy and information system
 know how information system influences the organization strategically
3.3. CONTENTS
3.3.1 Strategic Information Systems
3.3.2 Value Chain Model
3.3.3 Efficient Customer Response Systems
3.3.4 Strategic Impact of Information System
3.3.1. STRATEGIC INFORMATION SYSTEMS
Strategic information systems are different from strategic level systems for
senior managers that focus on long-term, decision making problems. Strategic
information systems can be used at all organizational levels and are more far
reaching and deep rooted than the other kinds of systems. Strategic information
systems alter the way a firm conducts its business completely or the very business
of the firm itself altogether. Organizations with such systems in place may need to
change their internal operations and relationships with customers and suppliers in
order to reap the benefit of new information systems.
Old model of strategy are not adequate to handle the present situation. They
have to be modified to in the light of new digital firms and the information flows.
Earlier business strategy emphasized competing head on against other firms in the
same marketplace. Now the emphasis is increasingly on exploring, identifying, and
occupying new market niches before competitors can understand such segments
and react.
Generally there is no single strategic system that encompasses all strategic
requirements. In practice there are a number of systems operating at different
levels of strategy, business, firm and industry level. Every level of business strategy
separate strategic systems is used. At each level of business strategy an appropriate
model is used for analysis.
26
3.3.2. VALUE CHAIN MODEL

In business level of strategy making the key question is, How can we compete
effectively in this particular market? The market might be cars, newspaper,
television etc. The most common generic strategies available are
 The general response is to become a low-cost producer,
 To differentiate their product or service and
 To change the scope of competition by either enlarging the market to
include the global markets or by narrowing the market by focusing on small
niches not well served by the competitors.
The digital firm provides new capabilities for supporting business by managing
supply chain, building efficient customer response system and participating in the
value web to deliver new products and services to the market.
Value chain analysis is a versatile analytic tool used at business level. This
highlights the specific activities where competitive strategies can be applied and
where the information system is most likely to have a strategic impact. This model
identifies the specific points where the information system can be used to leverage
its competitive position. Value chain model is the model that highlights the primary
and support activities that add margin of value to the firm’s products or services
where information systems can best be applied to achieve a competitive advantage.
This looks the firms as the series or the chain of basic activities that add a margin
to the firm. The basic activities fall into two categories and they are primary and
support activities.
Primary Activities are the activities that most directly related to the production
and distribution of the firm’s products or services. They include inbound logistics,
Operations, Sales and marketing and service. The inbound logistics is all about
bringing the raw materials and other semi-processed products, warehousing them
and distributing them to the firm process in time. Operations transform them into
finished products. Service includes the maintenance and service of firms’ goods and
service.
Support activities are the activities that delivery the firms primary activity such
as organization infrastructure, human resources, technology and procurement. The
organization infrastructure is about the management and administration. Human
resource is ensuring the employee requirements by hiring, training etc. technology
is improving the process and the products manufactured. Procurement is
purchasing the inputs needed for the operations etc.
Organizations gain competitive advantage when they provide more value to their
customers or when they provide the same value to customers at a lower price. An
information system could have a strategic impact if it helps the firm provide products
or services at a lower cost than competitors or if it provided products and services at
the same cost as competitors but with greater value addition. The value activities
that add the most value to products and services depend on the features of each
particular firm. Internet technology has extended the concept of a firm's value chain
to include all the firm's suppliers and business partners into a single value web.
27
A value web is a collection of independent firms who use information system to

coordinate their behaviour so as to collectively produce a product or service for a
target market. Earlier companies had relationships with key suppliers from whom
they purchased coal, steel, glass, and parts. But now value webs are much more
powerful. They use digitally enabled networks for more than purchase supplies.
They closely coordinate production of many independent firms.
Administration and Electronic scheduling and messaging systems
management
activities
Support
Human resources Workforce planning system
Technology Computer-Aided Design system
Procurement Computerized ordering system
Inbound Operations Sales and Service Outbound
Logist ics firm

logistics marketing logistics
Supplier A
Supplier B
Equipmen
Dist ribut or
Computer- t
controlled Computeri maintenan Automated
Automated
machining zed ce shipment
warehousi
system ordering System scheduling
ng system
Assembler
system systems
Primary activities t racking
On line
syst em
f orecast ing
Product ion
System
Value chain
Value web
Fig. 3.1
Figure illustrates the activities of the value chain and the value web. It is a
strategic information system that could be developed to make each of the value
activities more cost effective.
A firm can achieve a strategic advantage by providing value, not only through
its internal value chain processes but also through powerful, efficient ties to value
web partners as well. Businesses should try to develop strategic information
systems for both the internal value chain activities and the external value web
activities that add the most value. A strategic analysis may help in identifying
activities where information systems could provide the greatest boost. Such
28
analysis might recommend a system to reduce marketing costs by targeting

marketing campaigns more efficiently or by providing information for developing
products more finely tuned to a firm's target market. A series of systems which can
include some systems linked to other value web partners might be required to
create a strategic advantage. Information system at the business level can help in
reducing costs, differentiating products and serving new markets.
Product differentiation is a competitive strategy for creating brand loyalty by
developing new and unique products and services which cannot be easily
duplicated by competitors. Companies can use information systems to create
unique new products and services that can be easily distinguished from those of
competitors. Strategic information systems for product differentiation can prevent
the competitors from responding to them with their differentiated products and
services on the basis of cost. Many financial institutions have created information
technology-based products and services which were much ahead of their
competitors for them to copy. Citibank developed automatic teller machines (ATMs)
and bank debit cards in 1977. Citibank became at one time the largest bank in the
United States. Citibank ATMs were so successful that Citibank's competitors were
forced to counterstrike with their own ATM systems.
Manufacturers and retailers use information systems to create products and
services that are custom-tailored to fit the precise specifications of individual
customers. Dell Computer Corporation sells directly to customers using build-to-
order manufacturing. All consumers can buy computers directly from Dell
customized with exactly the features and components they need. They can place
their orders directly using a toll-free telephone number or Dell's Web site. On
receiving the order the company assembles the computer based on the
configuration specified by the customer. Hence the information technology is
creating customized products and services while retaining the cost efficiencies of
mass-production techniques.
Information System to Focus on the Market Niche
Focused differentiation is a competitive strategy for developing market niches
for specialized products or services where a business can compete in the target area
better than its competitors.
Businesses can create new market niches by identifying a specific target for a
product or service that it can serve in a superior manner. An information system
can give companies a competitive advantage by producing data for fine tuned sales
and marketing techniques. Such systems treat existing information as a resource
that the organization can "mine" to increase profitability and market penetration.
Information systems allow companies to finely analyze customer buying patterns,
tastes, and preferences so that they efficiently pitch advertising and marketing
campaigns to smaller and smaller target markets.
Now sophisticated software tools find patterns in large pools of data and infer
rules from them that can be used to guide decision making. Mining data about
purchases at supermarkets might reveal that when particular products are
29
purchased. The data come from a range of sources credit card transactions,
demographic data, purchase data from checkout counter scanners at supermarkets
and retail stores, and data collected when people access and interact with Web
sites. Analysis of such data can help one-to-one marketers create personal
messages based on individualized preferences. The level of fine-grained
customization provided by these data analysis systems parallels that for mass
customization.
The cost of acquiring a new customer has been estimated to be five times than
that of retaining an existing customer. By carefully examining transactions of
customer purchases and activities, firms can identify profitable customers and
target them for more business. Likewise, companies can use these data to identify
non profitable customers and wed them away. Companies that skilfully use
customer data will focus on identifying the most valued customers and use data
from a variety of sources to understand their needs.
3.3.3. EFFICIENT CUSTOMER RESPONSE SYSTEMS
Digital firms have the capabilities to go far beyond traditional strategic systems
for taking advantage of digital links with other organizations with which they do
business. A powerful business-level strategy available to digital firms involves
linking the value chains of vendors and suppliers to the firm's value chain.
Integration of value chains can be carried further by digital firms through linking
the customer's value chain to the firm's value chain in an efficient customer
response system. Firms using systems to link with customers and suppliers can
reduce their inventory costs while responding rapidly to customer demands.
By keeping prices low and shelves well stocked using a legendary inventory
replenishment system, Wal-Mart has become the leading retail business in the
United States. To manage the supply chain the company tries to eliminate delays
and cut the amount of resources tied up along the way. This can be accomplished
by streamlining the company's internal operations or by asking suppliers to put off
delivery of goods and their payments until the moment they are needed.
Supply chain management systems can not only lower inventory costs but can
also deliver the product or service more rapidly to the customer. Supply chain
management can thus be used to create efficient customer response systems that
respond to customer demands more efficiently. An efficient customer response
system directly links consumer behavior back to distribution, production, and
supply chains.
The convenience and ease of using these information systems raise switching
costs. Switching cost is the cost associated with the cost of switching from one
product to another competing product. This discourages customers from going to
competitors. Just-in-time inventory allows customers to reduce their inventories by
ordering only enough material for a few days' inventory. Stockless inventory allows
them to entirely eliminate their warehouse inventories. All inventory responsibilities
shift to the distributor who manages the supply flow. The stockless inventory is a
30
powerful instrument for locking in customers, thus giving the supplier a decided
competitive advantage.
Supply chain management and efficient customer response systems are two
instances of how emerging digital firms can engage in business strategies not available
to traditional firms. These systems require network-based information technology
infrastructure investment and software competence to make customer and supply
chain data flow seamlessly among different organizations. These types of systems have
greatly enhanced the efficiency of individual digital firms and the economy as a whole
by moving toward a demand-pull production system, and away from the traditional
supply-push economic system in which factories were managed on the basis of 12-
month official plans rather than on near-instantaneous customer purchase
information. The following figure illustrates the relationships between supply chain'
management, efficient customer response, and the various business-level strategies.
Firm-Level Strategy
Business level strategy
Vendors Customers
Business Organization
Supply chain management Intra firm strategy Efficient customer response
Stock less inventory Product differentiation Point of sale system

Continuous replenishment Focused differentiation Data analysis
Just in time delivery Low cost producer Online orders
Fig. 3.2
Collection of businesses is a business firm. Firm is organized financially as a
collection of strategic business units and the returns to the firm are directly tied to
strategic business unit performance. Issue is how can the overall performance of
these business units be increased? and how can information technology
contribute? Synergy and core competency are the ways of achieving them.
Synergy is attained when some units can be used as inputs to other units or
two organizations can pool markets and expertise. Such relationships can lower
costs and generate profits. Recent bank and financial firm mergers are clearly an
example of this. IT can be used strategically to tie together the operations of
disparate business units so that they can act as a whole. Such systems lower
retailing costs, increase customer access to new products and speed up the process
of marketing.
31
Core Competency is concept for firm-level strategy involves focusing on an

activity in which a firm excels as a world-class leader. Core competencies may
involve being the world's best engine manufacturer, the pneumatic system designer,
the best parcel delivery service, or the best thin polythene film manufacturer. The
core competency relies on knowledge that is gained over many years of experience
(ingrained knowledge) and a first-class research organization or simply key people
who follow the literature and stay abreast of new external knowledge.
IT can be used to advance or create core competencies. Systems encourage the
sharing of knowledge across business units which enhances competency. Such
systems which encourage or enhance existing competencies and help employees
become aware of new external knowledge. They also help a business leverage
existing competencies to related markets.
Industry-Level Strategy
Firms together comprise an industry. Examples are the automotive industry,
telephone, television broadcasting, and forest products industries. The key strategic
options at this level of analysis are whether to compete or cooperate with others in
the industry. Most strategic analyses emphasize competition. A great deal of money
can be made by cooperating with other firms in the same industry or firms in
related industries. Firms can cooperate to develop industry standards in a number
of areas. They can cooperate by working together to build customer awareness.
They can work collectively with suppliers to lower costs. The three ways of
analyzing the strategy at the industry level are information partnerships, the
competitive forces model, and network economics.
Information Partnerships
Firms can form information partnerships. They can even link their information
systems to achieve unique synergies. In this two companies can join forces, without
actually merging, by sharing information. Airlines can forge an arrangement with a
credit card company to award one mile in its frequent flier program for every dollar
spent using credit cards. Airline may benefits from increased customer loyalty, and
Credit Card Company gains new credit card subscribers and a highly creditworthy
customer base for cross-marketing. Such partnerships help firms gain access to
new customers, creating new opportunities for cross-selling and targeting products.
Companies that have been traditional competitors may find such alliances to be
mutually advantageous.
Competitive Forces Model
Firm faces a number of external threats and opportunities. The threat of new
entrants into its market, the pressure from substitute products or services, the
bargaining power of customers, the bargaining power of suppliers, the positioning
of traditional industry competitors etc.. Competitive advantage can be achieved by
enhancing the firm's ability to deal with customers, suppliers, substitute products
and services, and new entrants to its market. This may change the balance of
power between a firm and other competitors in the industry in the firm's favour.
32
COMPETITIVE FORCES MODEL

NEW MARKET SUBSTITUTE
ENTRANTS PRODUCTS &
SERVICES
THE INDUSTRY
TRADITIONAL
THE FIRM INDUSTRY
COMPETITORS
SUPPLIERS CUSTOMERS
Fig. 3.3
By working with other firms, industry participants can use information
technology to develop industry-wide standards for exchanging information or
business transactions electronically which force all market participants to
subscribe to similar standards. Firms benefits from such value webs with
complementary firms in the industry. Such efforts increase efficiency at the
industry level as well as at the business level-making substitute products less
possible and perhaps raising entry costs. This discourages new entrants. Industry
members are nowadays building industry-wide, IT supported consortia, symposia,
and communications networks to coordinate activities vis-a-vis government
agencies, foreign competition, and competing industries.
IMPROVED COMPETITIVE
FORCES MODEL SUBSTITUTE
NEW MARKET
ENTRANTS PRODUCTS &
INDUSTRY SET SERVICES
INDUSTRY 1 INDUSTRY 2
INDUSTRY COMPETITORS
INDUSTRY 3 INDUSTRY 4
CUSTOMERS
SUPPLIERS
Fig. 3.4
The competitive forces model needs some modification in this dynamic digital
era. The traditional Porter model assumes a relatively static industry environment,
relatively clear-cut industry boundaries, and a relatively stable set of suppliers,
substitutes, and customers.
Instead of participating in a single industry, today's firms are much more
aware that they participate in industry sets of multiple related industries that
consumers can choose from to obtain a product or service. Automobile companies
compete against other automobile companies in the auto industry, and also
compete against many other industries in the transportation industry, which
includes train, plane, and bus transportation companies. Success or failure for a
33
single auto company may depend on the success or failure of various other
industries.
In the digital era we can expect greater emphasis on building strategies to
compete and cooperate with members of the firm's industry set. Internet technology
has affected industry structure by providing technologies that make it easier for
rivals to compete on price alone and for new competitors to enter the market.
Profits have also been dampened because the Internet dramatically increases the
information available to customers for comparison shopping, thus raising their
bargaining power. Although the Internet can provide benefits such as new channels
to customers and new operating efficiencies, firms cannot achieve competitive
advantage with this technology unless they have skillfully integrated Internet
initiatives into their over all strategy and operations.
Network Economics
A third strategic concept useful at the industry level is network economics. In
case of factories and agriculture the production experiences diminishing returns.
The more any given resource is applied to production, the lower the marginal gain
in output, until a point is reached where the additional inputs produce no
additional outputs. This is the law of diminishing returns. This is the foundation for
most of modern economics. In the case of network, the marginal costs of adding
another participant are about zero, whereas the marginal gain is much larger. This
is true when the number of subscribers in a telephone system, or the Internet, the
greater the value to all participants. From this network economics perspective,
information technology can be strategically useful. Internet sites can be used by
firms to build communities of users. The like-minded customers want to share their
experiences in the web site. This can build customer loyalty and enjoyment, and
build unique ties to customers.
Strategic information systems often change the organization as well as its
products, service and operating procedures, driving the organization into new
behaviour patterns. Using technology effectively for strategic benefit requires
careful planning and management.
Adopting such strategic systems discussed requires changes in business goals,
relationships with customers and suppliers, internal operations, and information
architecture. These socio-technical changes, affecting both social and technical
elements of the organization, can be considered strategic transitions. It is the
movement between levels of socio-technical systems. Such changes often entail
blurring of organizational boundaries, both external and internal. Suppliers and
customers may become intimately linked and may share each other's
responsibilities. Managers will need to devise new business processes for
coordinating their firms' activities with those of customers, suppliers, and other
organizations. The organizational change requirements surrounding new
information systems are so important that the managers have to attach due
importance.
34
The managers should locate the type of system that will provide them strategic
advantages. In that they need to seriously consider the following:
 the factors influencing the industry and strategy preferred by the industry
leaders.
 need to look at the types of information and communication technology by
the industry leader and the type that would shoot them.
 the nature of change and its direction and its momentum have to be
ascertained.
On understanding the above, the manager must look into the organisation
critical issues like
 the organisation information system status, whether it is ahead or lagging
behind others.
 organisation strategic plan and its compactability with information service
strategy.
 capital availability and the organisation technology to develop strategic
information system.
 can the new information system deliver greater value.
 expected benefits in functional area by use of internet technology.
With all the above information managers can develop a promising strategic
information system.
3.3.4 STRATEGIC IMPACT OF INFORMATION SYSTEM
Information systems that have a strategic impact on a business helps to create
unique competitive advantage for the business. This advantage, which puts the
business in a stronger position to compete than other businesses, can be gained in
several ways.
Approach Way to achieve Information systems role
Cost leadership Have lowest production/ operations Cost reduction support in the
cost among competitors managerial and operational
Differentiation Provide goods and services that are Supporting tools to identify and
unique develop unique goods or services
Focus Goods or services designed for Provide information to identify
specific segment of the market (niche) niche markets
Innovation Develop new ways of operating or Provide technology necessary for
managing the business innovation in a business
Growth Expand goods or services provided by Provide capabilities to handle
the business increased volume of business
Business alliance Form groups of business that work
Provide the technology for
together business in alliance to work
effectively together
The main approach is summarized above for gaining a competitive advantage
and how information systems can help in each approach.
35
Cost Leadership
One way a business can gain a competitive advantage is through cost
leadership, which means having the lowest production or operating costs among
the business's competitors. Information systems can help create cost leadership by
providing unique operational and managerial support that reduces costs. Consider
a car manufacturer with special types of manufacturing information systems, such
as computer integrated manufacturing (CIM), the manufacturer could have the
lowest production costs in that industry. Its cars would sell for less than its
competitors, thus giving the business a competitive advantage.
Differentiation
Next way a business can gain a competitive advantage is through
differentiation, which means providing goods or services that are unique so that the
customer wants to purchase from the business. Information systems can help
create differentiation by providing the tools to identify and develop unique goods or
services. The car manufacturer could use a marketing research information system
to identify consumer interest on new types of cars, a computer aided system (CAD)
to design the car quickly, and a computer aided manufacturing (CAM) system to
produce the cars rapidly. If the business could identify and produce a new product
before its competitors did, the business would have a competitive advantage, at
least until other businesses caught up.
Focus
A third way competitive advantage can be gained by a business is to focus on a
niche, which means to provide goods or services that are designed for a specific
segment of the market. The car manufacturer might decide to focus on sports cars
and gain a competitive advantage by becoming the principal producer of such cars.
Information systems can help a business focus on a niche by providing information
to identify niche markets. The car manufacturer could use a decision support
system to analyze the data in a data warehouse by using data mining techniques to
help identify potential market niches.
Innovation
Another way of gaining a competitive advantage is through innovation. This is
developing new ways of operating or managing the business. Information systems
can provide the technology necessary for innovation in a business. The car
manufacturer could use an innovative approach to inventory control that requires a
special information system to function. The innovative approach, which would not
be possible without the information system, would provide better inventory
management than the approach used by competitors, thus giving the business a
Growth
A fifth way a business can gain a competitive advantage is by growth. This is
expanding the goods or services provided by the business. Such expansion could be
into new goods or services or into new geographic regions. This approach is the
opposite of the focus approach. Information systems are essential for businesses to
36
grow because they provide the capabilities to handle the increased volume of
business. If the car manufacturer wants to grow by expanding into new lines of
cars, he needs the appropriate information systems like order entry, inventory
control, and others for the increase in transactions.
Business Alliances
The sixth way a business can gain a competitive advantage is through
business alliances, which means forming groups of businesses that work together.
The car manufacturer could form an alliance with a car distributor to exclusively
distribute its cars. Information systems can help create alliances by providing the
technology for the businesses in the alliance to work effectively together. Thus, the
car manufacturer and the distributor could link their information systems so that
the manufacturer could check the distributor's inventory to decide when to increase
production, and the distributor could electronically place orders with the
manufacturer.
Helping a business gain a competitive advantage through cost leadership,
differentiation, focus, innovation, growth, and business alliances are just some of
the ways that information systems can have a strategic impact on a business.
1) Strategic Information System change the organizations goals, operations,
products, services or environmental relationships of organization to help them
gain an edge over competitors.
2) Business level stagey making is how an organization effectively compute in
the market
3) Value chain analysis is variable analytic tool which is used at a business
level, in which the basic activities are primary activities and supportive
activities.
4) Based on the physical activities (primary activities), supportive activities such
as, production forecasting system, online tracking are more useful to face the
competitive market environment.
3.5. INTEXT QUESTION
1) Script an essay on firm level strategy and information systems.
2) Explain how the information system influences organizations strategically.
3) What is competitive advantage?
3.6. SUMMARY
Strategic information systems can be used at all organization levels and are
more far reaching and deep rooted than the other kinds of systems. It also alters
the way a firm conducts its business completely. As we think, no strategic system
will solve all strategic requirements, but indeed, a number of systems operating at
different levels are required. If such strategic systems are adopted great changes
will occur.
37

Write short answer for the following:
1) strategic Information system
2) Value chain model
3) Online Tracking system
4) Customer response system
5) Business alliance
1) Information and Management. (www.Journals.elsevier.com)
2) Journal of Management Information Systems (www.mesharpe.com)
1) What issues a manager is expected to consider in designing information
system for competitive advantage?
2) Why are strategic information systems’ difficult to build?
3.10. SUGGESTED READING / REFERENCE BOOK
1) House, William C.(1983). Decision support systems – A data-Based, Model-
Oriented user developed discipline. Petrocelli books Inc. New York, NY.
2) Kenneth C, Landon, Jane P. Landon, “Management Information System New
Approaches to organization and Technology”, 5e.
Prepare a list of same level and products supplying organizations, compare
their value chain activities such as, primary activities and support activities.
Further suggest suitable strategic information systems to the supply chain
management and for customer level.
3.12. KEY WORDS
 Exploring
 Niches
 Value Web
 Counter strike
 Custom-tailored
 Streamlining
 Seamlessly
 Socio-technical
 CIM.

38
LESSON – 4
INFORMATION SYSTEM FOR DECISION MAKING
4.1. INTRODUCTION
Decision making function is an essential function of different managerial
activities. The managers at various levels are first and foremost decision makers in
many organizations. The organization is filled with decision makers at various levels
and hence it is possible to evolve organization as decision-making model similar to
the model of organization as Information Processing System. Thus, any set of
activities that can help the managers in taking decisions can be called as Decision
Supporting activities. The activities can be a manual procedure or even a document
will aid in decision-making by the managers in various organizations. Hence, it
should be noted that the decision-making is more a manual process that can be
aided with various tools. In other words structured decision-making process
requires choosing one alternatives from the group of different alternatives available
to the organization or an Individual.
4.2. OBJECTIVES
 About Decision-Making Process
 Classification of Decisions
 Models of Decision-Making
 Classification of the Information
4.3. CONTENTS
4.4.1. Human Decision Making Process
4.3.2. Classification of Decisions
4.3.3. DSS Definition and Classification
4.3.4. DSS Design and Development
4.3.5. Expert Systems
4.3.6. Models of Decision-Making
4.3.7. Organizational Decision-Making
4.3.8 Types of Information
4.3.9. Classification of the Information
4.3.1. HUMAN DECISION MAKING PROCESS
Newell and Simon (1972) proposed a model for human decision-making. It
consisting of three different stages namely (i) Intelligence stage (ii) Design stage and
(iii) Choice stage.
i. Intelligence Stage
This is a stage where every individual recognizes the problem and solution to
the problem is being sought intangibly in this stage. For example consider an
wagons to transport them. In this circumstance they will recognize the need for
transport facilities to transport the commodities.
39
ii. Design Stage

In this stage the individual analyses the various data or information available
at his disposal and arrives at more than one option to solve the problem. The
individual based on the following criteria tangibly or intangibly ranks all these
solutions
1) The practicality and possibility of implementation of the solution.
2) Cost factors associated with the implementation.
3) Return on Investments (ROI).
4) Possibility of implementing the solution with the existing resources.
iii. Choice Stage
This is the most crucial stage of the decision making process. An individual
will analyze the ranking given in the earlier stage of the decision-making process in
this stage with various variables that can influence the outcome of the choice.
Finally the choice for the decision is made and implemented.
4.3.2. CLASSIFICATION OF DECISIONS
According to Janakiraman and Sarukershi (1999) the decisions can be
classified into three major categories namely (i) Structured Decisions (ii) Semi
structured Decisions and (iii) Unstructured decisions.
1. Structured decisions
A structured decisions are the one in which all the steps of the decision
making process is well structured. Hence, to arrive at structure decisions, it is
easier to design and develop a computer programs. For example consider the
decision regarding the top ranker of the class.
2. Unstructured Decisions
Unstructured decisions are the one in which all the steps of the decision
making process is not well structured. Researchers and Scientists are trying to
adopt artificial intelligence systems to provide support for unstructured decisions.
However, even with the usage of AI technologies the accuracy of the decisions may
not be ensured in this case. For example, consider the weather forecasting process,
the satellites and other artificial intelligence technologies can only predict the
occurrences of the storm and cyclone to the closest possible accuracies but not to
the level of 100% accuracies, as it is the case with choosing the top ranker in the
class. Most of the unstructured problems require the expert system support for
arriving at the solution.
3. Semi-structured Decisions
Semi-Structured decisions are the one in which some steps of the decision
making process are structured and the remaining steps of the decision making
process are unstructured. In this case the usage of DSS may not yield 100%
accuracies. However, more precise accuracies can be ensured with the application
of expert systems. For example imagine the medical diagnosis with the help of MRI
(Magnetic Resonance Imaging) scans, more accurate diagnosis followed by correct
treatment is possible. In this context, it should be noted that the MRI scan is an AI
technology.
40
4.3.3 DSS DEFINITION AND CLASSIFICATION

A decision support system (DSS) is defined as a computer-based system that
can provide various helps to the decision makers in the form of models to solve
unstructured problems and also by identifying the proper data available in the
database. Spreadsheet packages can be found in many organizations aiding them
in various decision making process. In the case of spreadsheet the user can build a
model and can look at the impact of hanging certain variables or assumptions. A
manager might look at the impact of a change in interest rates on a possible
investment in a new manufacturing plant. A more apt working definition for the
DSS is provided by Turban (2000). According to him “a, DSS is an interactive,
flexible, and adaptable computer based information system that utilizes decision
rules, models, and model base coupled with a comprehensive database and
decision makers own insight, leading to specific, deployable decisions in solving
problems that would not be amenable to management science models. Thus, a DSS
supports complex decision making and increases its effectiveness.”
A framework for classifying different types of DSS has many different
categories that can be summarized into two main types namely (i) Data oriented
DSS and (ii) Model based DSS. In a data oriented DSS various kinds of statistical
tests can be run, and data can be combined in different ways for display. A model-
based DSS generally has some kind of mathematical model of the decisions being
supported. For example, the model might be an operations research optimizing
model or a simple model represented by a balance sheet and an income statement
for a firm. Thus, decision support systems offer tremendous power for managers,
with which they can generate and try many different alternatives, asking what-if
questions and seeing the results.
Sub-systems in a DSS
According to the systems theory as stated earlier sections the subsystems are
nothing but the sub unit of the identified system. A typical DSS will have three
subsystems namely (i) Data management subsystem (ii) Model Management
subsystem and (iii) Dialogue management subsystem.
1. Data management subsystem: The Data management subsystem hold the
needed data to be used in the decision making process. In this subsystem is
nothing but the database controlled by a DBMS or RDBMS software.
2. Model management subsystem: This subsystem holds the mathematical,
statistical and decision science models used in the Decision making process.
Normally this will be software written in systems programming language.
3. Dialogue management subsystem: This subsystem helps to maintain the
user interface with the system. Thus, it helps the user of the DSS to communicate
with the system. Normally this subsystem will be a Graphical User Interface (GUI)
with menus, dialogue boxes etc.
41
4.3.4. DSS DESIGN AND DEVELOPMENT

The design and development of DSS is totally different from the design and
development of computerized MIS. Hence, the traditional System Development Life
Cycle (SDLC) is not applicable to DSS development. The major differentiating
factors between development of Information System and the development of DSS
are given below.
1) The DSS design and development focuses on decisions and not on data or
Information flow as it is the case with Information System design.
2) The construction of DSS requires iterative and prototyping approach. But in
the case of information System Development prototyping method alone is
followed that too not in a comprehensive manner.
3) The role of user in the construction DSS is considered to be more critical than
the role of users in the case of Information System development.
4) The role of system analyst in the development of DSS may not be so critical as
it is the case with Information Systems Development.
5) The decision makers of the organization can build the DSS with the
knowledge programming. However, it may not be possible for the end users of
the Information System to build the Information System.
6) The DSS is predominantly a software-based system. But the Information
System is built with due considerations given for hardware and networking
architecture.
4.3.5. EXPERT SYSTEMS
Expert system is a system, which has got more similarity to the DSS. A DSS
provides decision support to the managers; similarly an expert system provides
expertise support to the managers. Hence, an expert system requires DSS
capabilities with Intelligence on the specific domain of expertise. The expertise
provided by the expert system will be utilized for business forecasting and planning.
The typical DSS capability required by the expert system is nothing but the ability
to choose one alternative form fairly large sets of alternatives. This capability of the
expert system will be provided by the software component of the expert system. The
intelligence required for providing the expertise from the system will be obtained
through knowledge base supported with Artificial Intelligences like neutral
networks. Also, the most practical and widely implemented application of artificial
intelligence in business is the development of expert systems and other knowledge-
based information system.
A Knowledge-Based Information System (KBIS) is also an information system
with knowledge domain added to the database of the Information System. It should
be noted that the knowledge base is nothing but the database containing most
extensive and complete detail about the Intelligence factor based on which expert
support is provided. Hence, an expert system (ES) is a knowledge-based
information system that uses its knowledge about a specific, complex application
area to act as an expert consultant to end-users. Thus, it can provide answers to
questions in a very specific problem area by making humanlike inferences about
42
knowledge contained in a specialized knowledge base. In other words it can be

stated that the expert system provides decision support to the end users in the
form of advice from an expert consultant in a specific problem area. A very simple
and understandable expert system one can come across is the spell check feature
provided in the word processing software like MS-Word. However, in the example
stated there exist no business application for the decision-making, but the spell
check expertise is provided to the end users with various options to decide upon.
COMPONENTS OF AN EXPERT SYSTEM
The components of the expert systems are (i) Knowledge Base (ii) Software
Resource and (iii) Hardware Resources. A schematic representation of expert
system is shown in the figure 4.1, where the details like end users, hardware
support, software support and knowledge base is provided.
Knowledge Base
The details of knowledge base include (1) facts about a specific subject area
(for example if the expert system considered is ‘spell check’ feature of MS-Word,
then the details of all grammar and vocabulary of the English language will be the
content of knowledge base) and (2) heuristics (rules of thumb) that express the
reasoning procedures of an expert on the subject (For example: Logic of identifying
the sentence for its correctness). There exist many ways through which, the
knowledge is represented in expert systems. Examples are rule-based, frame-based,
object-based, and case-based methods of knowledge representation.
Software Resources
An expert system software package is the combination of an inference engine
and other programs for refining knowledge and communicating with users. The
knowledge related to a specific problem is processed in the inference engine
program. It then makes associations and inferences resulting in recommended
courses of action for a user. For example in the case of ‘spell check’ feature the
associations and the inferences are made out of the action performed in the source
code deployed for MS-Word. User interface programs for communicating with end
users in the case of ‘spell check’ feature is nothing but the menus and the dialog
boxes provided to the users of the MS-Word. The user interface of the expert system
also includes explanation program for reasoning process. A knowledge acquisition
program provided in the figure 4.1 is not a comprehensive part of an expert system.
However, the software tools provided for knowledge acquisition are used to
develop expert systems in a continuous manner. In the case of ‘Spell check’ feature
provided in the MS-Word software the knowledge acquisition is nothing but the
addition of new vocabularies added to the English language every now and then.
However, this type of knowledge acquisition is carried out during the creation of
next version of MS-Word that to by the source code providers (Microsoft) and not by
the end users.
43
Expert System Softw are
User Interface Interface Engine

User Expert Advice
Programs Program Know ledge
Base
Work Station
Knowledge
Acquisition Knowledge Expert and/or
Program Engineering Know ledge Engineer
Workstation
Fig. 4.1 : The Expert System

EXPERT SYSTEMS APPLICATIONS
The solution to the problem is explored using an expert system with an
interactive computer-based session. Thus, the expert system will act as a
consultant to an end user of the system. When the user of the system asks the
question, the expert system searches its knowledge base for facts and rules or other
knowledge, explains its reasoning process when asked, and gives expert advice to
the user in the subject area being explored.
Expert systems are being used for many different types of applications both in
business as well as in other domains, and the variety of applications is expected to
increase continuously. However, it should be realized that the expert systems
typically accomplish one or more generic uses. The six generic categories of expert
system application include (i) Decision management (ii) Diagnostic/trouble shooting
(iii) Maintenance/Scheduling (iv) Design/ Configuration (v) Selection/ Classification
and (vi) Process Monitoring / Control. Thus, expert systems are being used in many
different fields, including medicine, engineering, the physical sciences, and
business. Expert systems also help in diagnosing illnesses, search for minerals,
analyze compounds, recommend repairs, and do financial planning. From a
strategic business standpoint, expert systems are being used to improve every step
of the product cycle of a business. This may include finding customers to shipping
products.
Limitations of Expert Systems
Despite the growing application of expert systems in our day to day life, the
expert system and related ideas are still in the stage of evolution and hence, the
present day expert systems are subjected to the following limitations
1) The expert system provides solution to the problem with limited focus.
2) The expert system with the present day technology has serious limitations
with regard to the learning ability.
3) Expert system can excel only in solving specific types of problem in a limited
domains of knowledge.
44
4) Expert system cannot handle the variables generated due to uncertain

political, economic and societal problems. Hence, these factors are still
required to be evaluated by the human consultant.
5) The cost of development and maintenance of expert systems are very large
and not affordable for small organizations.
6) Expert system requires human role in its maintenance. Thus, the role of
humans in the expert system cannot be totally ruled out.
4.3.6. MODELS OF DECISION-MAKING
The Process of Decision Making
Decision making can classified by organizational level. They are strategic
management, knowledge and operational levels of the organization. Strategic
decision making determines the long term objectives, resources and policies of an
organization. Management control decisions are concerned with mostly monitoring
how efficiently or effectively resources are utilized and how well operational units
are performing. Operational controls decisions are about how to carry out a
particular task. Knowledge level decision are about evaluating new ideas for
products, services, ways to communicate new knowledge and ways to distribute
information throughout the organization.
Other way of classifying decisions is as structured and unstructured.
Unstructured decisions are non routine decisions which require judgment,
evaluation and insights of the decision maker. These decision situations do not
have any agreed upon procedure for making such decisions. Structured decisions
are repetitive routine and have a definite procedure for handling them. This can be
better understood from the figure.
TYPE OF ORGANIZATIONAL LEVEL

DECISION
OPERATIONAL KNOWLEDGE MANAGEMENT STRATEGIC
ACCOUNTS
STRUCTURED
RECEIVABLE
PRODUCTION
ELECTRONIC COST OVERRUNS
SCHEDULING
TPS
MIS
OAS
BUDGET
PREPARATION
PROJECT
SEMI-STRUCTURED
SCHEDULING
DSS
FACILITY
ESS
LOCATION
KWS
UNSTRUCTURED
NEW PRODUCTS
PRODUCT
NEW MARKETS
DESIGN
Fig. 4.2
45
TPS - Transaction Processing system DSS - Decision Support System

KWS - Knowledge Work System ESS - Executive Information System
MIS - Management Information System
SIMON'S FOUR STAGES OF DECISION MAKING
Simon's four stages of decision making are Intelligence, Design, Choice and
Implementation.
Intelligence
Identification of problems, where and why. Information systems can deliver a
wide variety of detailed information. Traditional MIS delivering routine information
can help in identifying the problem. Normally exception reports can be of more use.
Design
Designing a set of multiple solutions for problems. Small DSS systems operate
on simple models that can be developed quickly and operated with little data to
support the designers.
Simon four stages of decision making model
Problem identification Intelligence
Scan alternatives Design
Choosing the best Choice
Verify the w orking Implementation
Fig. 4.3
Choice
Choosing among alternatives. Larger DSS can be used to develop more
extensive data on a variety of alternatives and use complex analytic models to
account for all of the consequences and opportunities.
Implementation
Monitoring the progress of a specific solution. Reporting systems can be used
to obtain information on specific solutions. A full blown MIS can be of good use.
But can also use smaller MIS or project planning and evaluation software. This four
46
stage process does not move linearly. They may iterate to the earlier stage for want
of details or redefinition etc. at time one has to repeat the earlier stage.
INDIVIDUAL MODEL OF DECISION MAKING
Human individual decision making can fall into any of the four models.
They are rational, cognitive, systematic and intuitive decision making.
The rational model of human behaviour holds that people engage in basically
consistent rational value maximization calculations. An individual ascertains his
goals, ranks all possible alternative of achieving those goals. He is expected to
select an alternative that contributes most to those goals. It is difficult to list all the
possible alternatives. Many of us have multiple goals. Hence owing to the above two
reason one cannot calculate all the combination to arrive at a decision.
The cognitive style describes underlying personality disposition towards the
treatment of information selection and evaluation of consequences. Systematic
decision makers approach the problem by structuring it in term of some formal
method. They evaluate and gather information in their structured way. Intuitive
decision makers approach the problem with multiple methods in an unstructured
way using trial and error to find the solution. They do not structure the information
gathering or evaluation. All the methods have advantages and also associated
disadvantages. Individuals can have their bias towards certain issues which will
influence their information gathering and evaluation process.
4.3.7. ORGANIZATIONAL DECISION MAKING
In organizational context decision making is not individualistic but group.
Such decision making is influenced by the structural and political dimensions of
the individual organization. The four organizational decision making models are
rational model, Bureaucratic model, Political model and Garbage can model.
Bureaucratic Models
The most important goal of top management is preservation of the
organization. The next important goal is reduction of uncertainty. Policies do not
allow radical changes from the present status as it increases the uncertainty. In
bureaucratic organizations policies allow only incremental changes which allow
only marginal changes from the past. Such organizations decision is an outcome of
standard operating procedure (SOP) honed over the years. Change in SOP’s is very
rare and do not change. They have to replace with new team of people and risk
when they change the SOP. Changes happen over a long period of time.
Political model
Even the lower level employee shares some power. The power is shared across
the whole organization. Any decision is an outcome of the political bargain struck
across different key leader and interest groups instead of a real solution to a
problem. Outcome reflects the conflicts, the major stake holders, their diverse
interest, unequal power, and confusion that constitute the politics.
Garbage can model
Assumes that organizations do not make any rational decisions but the
decisions are accidents. The decisions are a product of stream of solutions,
47
problems and situations that are randomly associated. This may be true as many
organizations apply wrong solutions to wrong problem and finally die.
System Design Implications
Decision making is not a simple process for a person in the rational individual
model. Information systems cannot make the decision for humans but is expected
to support the decision making process. The way decision is made depend on the
types of decisions, decision makers, and frames of reference. Systems have to be
built to support group and organizational decision making. Information systems
developed should have the following characteristics.
 Systems are flexible and provide many options for handling data and
evaluating information.
 Systems are capable of supporting a variety of styles, skills, and knowledge.
 Systems are powerful with multiple analytical and intuitive models for the
evaluation of data and the ability to keep track of many alternatives and
consequences.
 Systems share the understanding of group and organizational processes of
decision making.
 Systems are sensitive to the bureaucratic and political requirements of
systems.
4.3.8. TYPES OF INFORMATION
The word information is used commonly in our day to day working. In MIS,
information has a precise meaning and it is different from data. The information
has a value in decision making while data does not have. Information brings clarity
and creates an intelligent human response in the mind.
In MIS a clear distinction is made between data and information. Data is like
raw materials while the information is equivalent to the finished goods produced
after processing the raw material. Information has certain characteristics.
These are: Information
 Improves representation of an entity
 Updates the level of knowledge.
 Has a surprise value.
 Reduces uncertainty.
 Aids in decision making.
The quality of information could be called good or bad depending on the mix of
these characteristics. A sales report shows in Table 4.1 will highlight this point.
It can be noted in the above example that sales data is processed with the
budget data and further some results are computed, providing information of an
exceptional nature that is the sale of new product in the total sales. The sales data
progressively becomes information when processed with other data such as the
budget and the new product sales.
Devis and Olson defines information as a data that has been processed into a
form that is meaningful to the recipient and is of real or perceived value in the
current or the prospective actions or decisions of the recipient. Data is defined as
48
groups of non-random symbols in the form of text, images or voice representing

quantities, actions and objects.
Table 4.1 Sales Information
Particulars of Sales Data Rs. Lakhs Characteristics
Sales 10 / day Represents sales / day
Budgeted sales 15 / day Represents budget / day
Cumulative sales 510 / 60 days Updates the knowledge about sales as on

date
Cumulative budget 600 / 60 days Makes the information meaningful by a

comparison with budgets and has a surprise
value as it is significantly below the budget
Ratio of sales performance 85% 15 per cent less than budget. Represents
Performance of Sales vs. Budget.
Sales of new products 80/60 days Reduces the uncertainty of sales of new
product as expected sales were only Rs.70
lakhs.
Whether an entity is a data or information, it must be transferred through

communication from the Source to the Destination without loss of content.
The general model for such communication is given in Figure 4.4.
Fig. 4.4. Conceptual Model of Communication
The above model of communication is used in the MIS. The MIS is equivalent
to the transmitter which provides information and sends through reports (channel)
to the various receivers, which is decoded or interpreted by the receiver at the
destination. The poor quality of information due to various factors would create
confusion and misunderstanding, which is equivalent to a Noise and a Destortion
in the communication model. A good MIS communicates the information without a
noise and a distortion to the user.
Information Presentation
Presentation of the information is an art. The data may be collected in the best
possible manner and processed analytically, bringing lot of value in the
information; however, if it is not presented properly, it may fail to communicate
anything of value to the receiver. The degree of communication is affected by the
methods of transmission, the manner of information handling and the limitations
49
and constraints of a receiver as the information processor and the organization as

the information user.
The methods used for improving communication are summarization and
message routing. The concept of summarization is used to provide information
which is needed in the form and content. The information can be summarized in a
number of ways as shown in Table 4.2.
Table 4.2. Information Summarization
Key for Summarization Focus of Information Example
Management Position Responsibility General Manager, Divisional

Head, Marketing, Materials..
Management functions Levels Performance, Goals, Targets. Production Top, Middle

in the organization selective on Operations. Only those
condition Relevance to the level products, where sale is below
Exceptions the budget
The principle behind summarization is that too much information causes

noises and distortions, i.e., confusion, misunderstanding and missing the purpose.
The summarization suppresses the noise and the distortions.
Another method of improving the degree of communication is through message
routing. The principle here is to distribute information to all those who are
accountable for the subsequent actions or decisions in any manner. That is if the
information is generated with a certain purpose for a primary user, then such
information may have secondary purposes to some other users in the organization.
This is achieved by sending the copies of the reports or documents to all the
concerned people or users. The principle of the message routing achieves the
spread of information to the appropriate quarters.
Knowledge is a power and an intelligent person in the organization can misuse
this power to achieve personal goals undermining the functional and organizational
goals. This tendency should be curbed. Further, the decision maker may call for the
information on the grounds that, just in case required, he should readily have it.
Apart from the misuse of information, it has an impact on the cost of information
processing.
In order to curb the misuse of information, a control is exercised on the
content of information and its distribution. The methods shown in Table 4.3 are
available for use with discretion.
Bias in Information
While choosing the appropriate method of communicating information a care
has to be taken to see that is not biased. For example, while using the techniques
of classification or filtering the information, it should not happen that certain
information gets eliminated or does not get classified. That is, a deliberate bias in
covering certain information is to be avoided. This bias enters because people try to
50
block sensitive information which affects them. To overcome this problem, a formal
structure of organization should be adopted and the type of information and its
receiver should be decided by the top management.
Many a times the data and the information are suppressed but the inferences
are informed, with no or little possibility of verification or rethinking. In this case
one who draws inferences may have a bias in the process of collection, processing
and presentation of data and information. Though the deliberate enforcement of the
inference on the receiver avoids a possibility of the multiple inferences, but in this
case processors bias is forced on the receiver. For example, organizations have
departments like Corporate Planning, Market Research, R and D, HRD and so on,
which collect the data and analyze it for the company and communicate the
inferences. In all these cases personal bias, organizational bias and management
bias may be reflected in the entire process of collection processing, and
communication inference.
Table 4.3. Methods to Avoid Misuse of Information
Method Reason Example
Delayed delivery of A possibility of immediate Sales report to the sales

information action or decision is representative or a copy of
reduced. It will have only invoice to the sales
representative.
a knowledge value
Change in the format and Provide only that Sales information to
content of the report information which may operations managements,
be needed, hence, the sales versus target for the
middle management sales
misuse is averted.
with a trend analysis to the
top management
Suppression and filtering To avoid the risk of The price, the cost
of the information of exposure and the misuse of information, Drawing and
confidential and sensitive information for achieving design information
nature the undesirable goals.
Suppress the details and Make it difficult to Statistical reports with no
references of data and collect, and process the references
information data at the user end to
meet the personal needs
of information
Truncated or lopsided Make it difficult to read A focus on high value sales
presentation through the information and and production and suppress
avoid its probable misuse the details.
The presentation of the information will generate a bias and may influence the
user. For example, if the information is presented in an alphabetical order and if it
is lengthy, the first few information entities will get more attention. If the
information is presented with a criteria of exception, the choice of exception and
51
deviation from the exception creates a bias by design itself. For a quick grasp, the
information is presented in a graphical form. The choice of scale, the graphic size
and the colour introduced a bias in the readers mind.
The base, which may creep in inadvertently because of the information system
design, can be tackled by making the design flexible, so far as reporting is
concerned. Allow the manager or the decision maker to choose his classification or
filtering criteria, the scope of information, the method of analysis and the
presentation of inference. However, somewhere balance needs to be maintained
between the flexibility of the design and the cost, and its benefits to the managers.
Disregarding the bias in information, it must have certain attributes to increase its
utility as shown in Table 4.4.
Table 4.4. Attributes of the Information
Attribute Explanation
The accuracy in The test of accuracy is how closely it represents a
representation situation or event. The degree of precision will
decide the accuracy in representation.
The form of presentation Forms are qualitative or quantitative numeric or
graphic, printed or displayed, summarized or
detailed.
The frequency of reporting How often the information is needed? How often
it needs to be updated
The scope of collection Internal form organization or external to
organization
The time scale It may relate to the past, the current and the
future and can cover the entire time span.
The relevance to decision The information has relevance to a situation and
making also to a decision making. The irrelevant
information is a data.
Complete for the decision The information which covers all the aspects of
considerations the decision situation by way of the scope,
transactions and period is a complete.
The timeliness of reporting The receipt of information on time or when
needed is highly useful. The information arriving
late loses its utility as it is outdated.
Redundancy is the repetition of the parts or messages in order to circumvent
the distortions or the transmission errors. The redundancy, therefore, sometimes is
considered as an essential feature to ensure that the information is received and
digested.
52
In MIS the redundancy of data and information, therefore, is inevitable on a

limited scale. Its use is to be made carefully so that the reports are not crowded
with information.
CLASSIFICATION OF THE INFORMATION
The information can be classified in a number of ways provide to a better
understanding. John Dearden of Harvard University classified information in the
following manner:
Action versus no-action Information
The information which induces action is called action information.
The information which communicates only the status of a situation is no-action
information. `No Stock report calling a purchase action is an action information but
the stock ledger showing the store transactions and the stock balances is a
No-action information.
Recurring Versus Non-recurring Information
The information generated at regular intervals is recurring information. The
monthly sales reports, the stock statements, the trial balance, etc. are recurring
information. The financial analysis or the report on the market research study is
non-recurring information.
Internal Versus External Information
The information generated through the internal sources of the organization is
termed as internal information, while the information generated through the
Government reports, the industry surveys, etc. is termed as external information,
as the sources of the data are outside the organization.
The timing information, the recurring information and the internal information
are the prime areas for computerization and they contribute qualitatively to the
MIS.
The timing and accuracy of the action information is usually important.
The mix of the internal and the external information changes, depending on the
level of the management decision. At the top management level, the stress is more
on the external information and at the operational and the middle management
level; the stress is more on the information. Figure 4.2 shows the source and kind
of information required vis--vis of management in the organization.
1) Different stages is human decision-making process.
2) Major categories decisions namely, structural division unstructured decisions.
3) Decision-supportive system and its classifications
4) Components of expert supportive system
5) Different types of Information
1) Explain different classification of the decisions.
2) Differentiate the development of DSS and development MIS.
3) What is an expert system? Explain its components?
4) What are the major limitations of expert systems?
53
5) List out the different types of Information.

4.6. SUMMARY
Decision making – This plays a vital role in all managerial activities.
The activity can be either a manual procedure or even a document with aid in
decision making by the managers in various organisation. Hence its importance
should be noted.
Answer the following
a) What are the stages in human decision making process
b) Structural decisions
c) Decision supportive system
d) Export system
House, William C. (1983) Decision Support Systems: A data based, model-
oriented user developed discipline. Petrocelli Books. New York,
1) What are the stages of human decision-making process? Explain with suitable
examples.
2) Explain in detail the various sub-systems of DSS.
1) Efraim Truban and Jay E.Aronson (2001). Decision Support Systems and
Intelligent Systems, Singapore; Addison Wesley, First Indian Reprint.
2) James A. O’Brien (1999). Management Information Systems: Managing
Information Technology in the Internet worked Enterprise; New Delhi, Tata
McGraw Hill Publishing Company Limited.
3) Janakiraan, V.S. and K. Sarukesi (1999); Decision Support Systems: New
Delhi, Prentice Hall of India, Private Limited.
4) Newwell, A. and Simon, H.A. Human Problem Solving, Prentice-Hall,
Englewood Cliffs, NJ, 1993.
List-out the process in designing an export system. Illustrate the
components through a conceptual diagram to your own organisation.
4.12. KEY WORDS
 DSS
 MRI
 Information Processing System
 GUI
 SDLC
 KBIS
 ES
 Heuristics.

54
UNIT – II
LESSON – 5
MANAGEMENT INFORMATION SYSTEM IN ORGANIZATION
5.1. INTRODUCTION
An organization is a stable, formal social structure that takes resources from
the environment and processes them to produce outputs. Organizations use
information to produce outputs, but are not designed primarily for processing
information. Capital and labour are drawn from the environment. The organization
transforms them into output and return them back to the environment as products
or services.
5.2. OBJECTIVES
After completing this lesson, you will be able to
 understand the common and unique features in organizations
 know the impact of information systems in organization
 know the different types of organization
 know the role of Internet, WWW on Information System
5.3. CONTENTS
5.3.1. Organization and Information
5.3.2. Information System Dimensions
5.3.3. Information System and Organization
5.3.4. Impact of Information Systems on Organizations
5.3.5. Internet and World Wide Web Role on Information Systems
5.3.1. ORGANIZATION AND INFORMATION
The organization is more stable entity than informal group on its longevity and
routines. They are legal entities and have internal rules and procedures that are in
accordance with the laws. They are social structures as they are a collection of
social elements.
FIG. 5.1. The Organization and Information Systems Influence each Other
M ediating factors
Environment
Culture
Structure
Standard Procedures INFORMATION
ORGANISATIONS
Business Process TECHNOLOGY
Politics
Management Decisions
Chance
The behavioral definition states that an organization is a collection of rights,

privileges, obligations, and responsibilities that are delicately balanced over a
period of time through conflict and conflict resolution. This definition highlights the
55
people within the organization, their ways of working, their relationships. People
working in organizations develop customary ways of working, gain attachments to
existing relationships, make arrangements with subordinates and superiors as to
how a work will be done, how much work will be done, and under what conditions
etc. Mostly these do not find place in the rules book. The behavioral definition is the
more realistic of the two.
The technical definition encourages focusing on the way the inputs are
transformed into output when technology changes are introduced. Here capital and
labor can substitute for each other infinitely. But the realistic behavioral definition
suggests building information system or rebuilding is more than technical
arrangement of machines or workers. An information system changes the
organizational balance of rights, privileges, obligations, responsibilities, and feelings
that has been established over a long period of time. Such changes bring in
changes as to who owns and controls information, who has the right to access and
update that information, and who makes decision on whom, when and how.
Therefore a great deal of resistance is expected for new information system
implementation.
Fig. 5.2 Organization
INPUTS FROM PRODUCTION OUTPUTS TO

ENVIRONMENT PROCESS ENVIRONMENT
All organizations have some universal characteristics common to them and

some unique characteristics in which they differ from one another.
Universal Characteristics of Organizations
 Clear division of labor
 Hierarchy
 Explicit rules and procedures
 Impartial judgments
 Technical qualifications for positions
 Maximum organizational efficiency
 standard operating procedure
 organizational politics
 organizational culture
Bureaucracies are the formal organizations with a clear cut division of labor,
abstract rules, and procedures and impartial decision making that uses technical
qualifications and professionalism as a basis for promoting employees. Standard
operating procedures (SOP) are the precise rules, procedures and practices
developed to cope with virtually all expected situations. SOP’s have a great deal to
do with the efficiency of the modern organizations.
56
Organizational politics is indispensable part of any organization. People in

organization take different viewpoints depending on their specializations,
experience etc. Hence a political struggle, competition for resources and conflict are
unavoidable. All organizations have some strong assumptions that define their
goals and products. Organizational culture is the set of assumptions about what
products the organization should produce, how, when, and where it should produce
them, and for whom they should be produced.
There are some unique features that differentiate organizations from one
another.
Organizations differs in
 Organizational type
 Environment
 Goals
 Power
 Constituencies
 Function
 Leadership
 Tasks
 Technology
Organizations can be entrepreneurial, machine bureaucracy, divisional
bureaucracy, professional bureaucracy and adhocracy.
Organization Type Characteristics Illustration
Young
Small
Entrepreneurial Small Start Ups
Simple Structure
Promoter As CEO
Large
Produce Standard Products
Machine Bureaucracy Midsized Firm
Central Management
Central Decision Making
Combination of Multiple Machine
Bureaucracy Fortune 100/ 500
Divisional Bureaucracy
Produce Different Products/ Service Companies
One Central Head Quarters
Knowledge Based Organization
Goods and Service Depend on
Professional
Knowledge of Professionals Law Firms, Hospitals
Bureaucracy
Department Head Domination
Weak Central Authority
Task Force
Large Group of Specialist Pooled in
Adhocracy Consulting Firms
Short Lived Multidisciplinary Teams
Weak Central Management
57
Organization and Environment
Government
Firm
Competitors
Customers
Financial Institutions
Information
system
Fig. 5.3
Organizations reside in the environment it take the input from the
environment and gives the output to the environment. Organization depends on the
social and physical environment that surrounds them. Organization has to depend
on the society for the manpower, consumers etc. it has to comply with the
legislative and other statutory requirements of the government.
5.3.2. INFORMATION SYSTEM DIMENSIONS
Organization
Information systems are part of organizations, and in some cases (financial
information services) they are the organization. Information systems will have the
SOPs (Standard Operating Procedures) and the culture of an organization imbedded
within them.
Technology
Organization
Information
systems
Management
Fig. 5.4
Management: Information systems supply tools and information needed by
managers to allocate, coordinate and monitor their work, make decisions, create
new product, and services and make long-range strategic decisions.
Technology: Management uses information systems technology (hardware,
software, storage, and telecommunications) to carry out their functions. It is the
glue that holds the organization together.
58
Information systems are tied to the organization's business strategy, rules, and
procedures. A change in strategy, rules or procedures requires changes in software,
hardware, databases, and communications technology, and vice-versa.
Fig. 5.5 Organization and Information System Interdependence
Softw are
Business
strategy
Softw are Hardw are
Rules
Procedures
Tele-
communications
Interdependence
Organization Information system

An organization’s achievements depend in many respects on what its systems
will permit it to do. Whereas early information systems addressed primarily technical
or operational issues, contemporary information systems are integral to the
management and strategic goals of the firm. Building systems today affects a much
larger part of the organization itself, its products, objectives, and structure. More and
more business activities at all levels involve the use of information systems.
Digital Firm
Digital firm is the organization where nearly all the significant business
process and relationships with customers, suppliers and employees are digitally
enabled and the key corporate assets are managed through digital means. Digital
firms use the Internet technology more for electronic commerce and electronic
business to manage their internal processes and relationships with customers,
suppliers, and other external entities. This makes it possible for them to replace
manual and paper-based processes with electronic flow of information. It helps the
digital firm to communicate and coordinate with inside the organization and
between the organization and its business partners on a near real time.
5.3.3. INFORMATION SYSTEM AND ORGANIZATION
Information system has become an integral part of many large corporations.
Managers decision making purely relies on the information system. Information
systems use has all along been changing from time to time.
Information systems are important because of their increased strategic
importance in this age of globalization and the pressure for increased quality with
lower costs. Hence the information systems have a larger role in each of the business
functions. The changing organizational structures increase the importance of
information systems for management and communication in the organization.
59
Major Business Functions

Purpose
(specialized task performed)
Sales and marketing Product selling
Manufacturing and production Producing goods
Finance Managing financial assets like cash, bond etc.
Accounting Maintaining financial records
Human resources Ensuring the required employees
 Growing interdependence between business strategy, rules, and procedures
on one side and information systems software, hardware, databases, and
telecommunications on the other
 Growing reach and scope of systems projects and applications and the
relationship between information systems and organizations,
 Increasing power of computer technology, emergence of powerful
communication networks that organizations can use to access vast
storehouses of information from around the world
 Changing management processes with redefinitions of organizational
boundaries makes the information systems more important
IT infrastructure is continuously evolving since 1950. Then the development
was initially focused on isolated computers used for electronic accounting. Their
uses were restricted to complex and critical jobs. In the 1960s and 1970s IT moved
to mainframes. Huge machines were installed at central locations to take care of
the entire operations. The isolated PC's got into picture by early 1980s. The
networked PC's of the later 80s and early 1990s have evolved to today's enterprise
networks and World Wide Web.
Other important issue about information system is who will design, build and
maintains the systems. This decides how IT services are delivered. Generally
organizations have an information system department. This department is in
charge of the information systems function in the organization. They are
responsible for the maintenance of the hardware, software, data storage, and
network that comprise of the organizations IT infrastructure.
Information system department has programmers who are highly trained
specialist who can write computer software instructions. Next level is the system
analysts. These are the specialist who can translate business problems and
requirements into information requirements and systems, acting as liaison between
the information system department and the rest of the organization.
The information system department has information system manager who
heads the various specialists department. They lead the team of programmers and
analyst, project managers, physical facility managers, telecommunication and
heads of the office systems groups. They also manage the managers of computer
operations and data entry staff. External experts in area like hardware, network,
software vendors and manufactures also participate in the long term planning of
the system. On top of this chief information officer (CIO) is a senior officer who over
sees the whole information technology of the department. End users are the actual
user of the other department who use the information system. Now these end users
60
role in system development is gaining importance. They have greater role in

planning and development process.
5.3.4 Impact of information systems on organizations
The flattening of organizations is probably one that concerns many.
The parallel increase in information system and in the decision power of line
workers (empowerment), and their corresponding increase in work satisfaction, is
often missed in media reports of downsizing. The flexibility of organizations in
operations, for example, mass customization and in linking customers and
suppliers (thus reducing order times) are some of the major changes.
Managers are ensured with more information at a faster pace. Therefore, they
can respond quickly to changes in the market for a product or in production
conditions. With the increased information available, managers can more easily make
plans, forecasts, and decisions. The empowering of the line worker means managers
can plan and make decisions at a higher level, i.e., they can think more strategically.
Information systems are driving both daily operations and organizational strategy.
Powerful computers, software, and networks, including the Internet, have helped
organizations become more flexible, eliminate layers of management, separate work
from location, and restructure work flows, giving new powers to both line workers and
management. Information technology provides managers with tools for more precise
planning, forecasting, and monitoring of the business. To maximize the advantages of
information technology, there is a much greater need to plan the organization’s
information architecture and information technology (IT) infrastructure.
The Internet and other networks have made it possible for the digital firm to replace
manual and paper-based processes with the electronic flow of information. The digital
firm uses the Internet and digital technology to expedite the exchange of information that
can facilitate communication and coordination both inside the organization and between
the organization and its partners. Without this linkage of buyers and sellers through the
networks and the Internet, there would be no way to transmit the transactions to the
electronic market. Otherwise, buyers and sellers would have to depend on the paper
transactions with their time delays and inaccuracies.
5.3.5 INTERNET AND WORLD WIDE WEB ROLE ON INFORMATION SYSTEMS
IMPLEMENTING CHANGE
TASK
RESISTANCE
TECHNOLOGY PEOPLE
MUTUAL
ADJUSTMENT
STRUCTURES
Fig. 5.6
61
The Internet is an international network of over 100,000 public and private

networks used to exchange information or perform business transactions.
The World Wide Web is a part of the Internet that provides a graphically based
system of pages for storing information on the Internet. The Internet has changed
the role of information systems by allowing the separation of work from location
through the virtual organization. Networks allow the flattening of organizations
because line workers can make the decisions formerly made by managers. At the
same time, networks increase the flexibility of the organizations by allowing
electronic commerce, and reorganize work flows.
1) An organization is a stable, formal social structure that takes resources from
the environment and processing them to produce output.
2) The organizational output process are determined by the factors namely,
environment, culture, structuring, quality standard procedures, Business
Process, organizational politics and every changing technologies, these
factors and scope of management are differed among the organizations
caliber.
1) What are the common and unique features in organizations?
2) Explain the impact of information system on organization.
3) Discuss on the different types of organization.
5.6. SUMMARY
Organization is a social structure that resides in the environment. It also takes
the input from the environment and gives the output to the environment. It has to
depend on the society for all its needs. The internet and other networks have made
it possible and have replaced manual and paper-based processes with the
electronic flow of information.
1) List out mediating factors influencing organization’s information technology.
2) What are the three major dimensions to the considered in information system
development
3) Define the following:
a. software; b. hardware; c. digital firm; d. accounting information system
e. technology
The Journal of Strategic Information System.
(www.Journals.elsevier.com).
1) Discuss the impact of information system on organization
2) Trace the information systems role in organization from early years
62

1) Boone, Louise and David Kurts. Contemporary Business, 11th ed. South –
Western (2002).
2) Laucton, K. and Laudon, J.(2006). Management Information Systems:
Managing the Digital Firms 9th ed. Prentice Hall
5.11. LEARING ACTIVITIES
Visit an industry on your own choice, where identify the types of information
systems followed by them. Further, know the types of software, hardware
configuration and network followed by them.
5.12. KEY WORDS
 Longevity
 Bureaucracies
 SOP
 Adhocracy
 Entrepreneurial
 Imbedded
 Liaison.

63
LESSON – 6
MANAGEMENT AND OTHER GROUP RESPONSIBILITY
6.1. INTRODUCTION
Data processing and users of the Information system are any person who has
an interest in an existing or proposed information system. The major players may
include technical and non-technical workers as well as internal and external
workers. There are a number of persons, who have their own views about a system
as well as has their own role to develop the system.
In real life situation, any individual may play more than one of these roles. For
example, a system owner might also be a system user, similarly system analyst
might also be a project manager, so any combination of these may work. Broadly,
there are five major group of people and others are external service providers and
project managers.
All the above group people have one thing in common – they all are
information workers. Information worker means any person whose work is to
create, collect, process, distribute and use information. So now, we briefly examine
the each group people separately.
6.2. OBJECTIVES
 About Management and Other group responsibility on System Development
6.3. CONTENTS
6.3.1 Management and Other Group Responsibility on System Development
6.3.1. MANAGEMENT AND OTHER GROUP RESPONSIBILITY
Managers (System Owner)
Any information system can have one or more owners. Usually, system owners
are the managers of the organization. If a system is large then the system owners
are middle level or top level managers. If the system is small then the system owner
may be middle manager or the supervisor of the organization.
System owner has to pay for the system to be built, so they are the persons
who set the vision and priorities for the system. Hence, they view an information in
terms of cost and benefits to solve problems and exploit opportunities.
System Analyst
System managers, users, designers and builders have different perspectives on
information system. Some of these are technical person and others are non
technical, one owner may be interested in overall or general view of the information
while the designer is interested in each and every detail of the system. This
situation represents the gap that has always existed when one wants to use the
benefits of information technology or computer based solution to their business
problem. Only a system analyst would be able to fill up these gaps. System analyst
is a specialist who studies the problems and needs of an organization to determine
how people, data, process and information technology can best accomplish
improvements for the business. The system analyst is a unique stakeholder
64
because he serves as a facilitator, bridges the communication gaps that can

naturally developed between the technical system designer and builder and non-
technical owners and users.
Hence, they view an information system in terms of identifying the needs and
requirements of system and providing technical solutions to them and develop the
information system through interaction with the other group people.
A successful system analyst is one who posses following skills, knowledge and
traits:
 He must have a working knowledge of information technology. This
knowledge could be acquired in college level, seminars, workshops etc.
 System analyst needs to be proficient in one or more higher level
programming languages.
 He must know the general knowledge of business processes, and
terminologies.
 He must have problem-solving skills.
 An analyst must be able to communicate effectively, both orally and in
writing.
 Being a facilitator, a system analyst must have good interpersonal relations
skills.
 He should be flexible.
 The nature of the system analyst’s job requires a strong character and a
sense of right and wrong.
System Designers
A technical expert is someone who translates system users, business
requirements and constraints into a technical solutions. They design the
computerized data base, input, output, software that will fulfill these requirements.
A system designer can be a database administrator, network architect, web
architect, graphics artists, security experts and technology specialists. System
designers translate the business requirement into a feasible technical solution.
Hence, they view an information system in terms of a design blueprint to guide the
construction of the final system.
System Builders
System builder is a technical specialist who constructs information system
and components based on the design specifications generated by the system
designers. System builders construct, implement and maintain the information
system. Hence, they tend to view an information system in terms of actual working
hardware and software to implement the system.
System Users
System user is a person who will use or is affected by an information system
on a regular basis. They are the people who are involved in capturing, validating,
entering, and exchanging data and information. They are broadly two categories of
system users:
65
Internal System Users: They are employees of business for whom information
system is built. Internal system users are clerical and service workers, technical
and professional staff, supervisors, middle managers and top managers.
External System Users: They are also known as remote users (a user who is
located at a distant place but needs the information). Mobile user (a user whose
location is constantly changing but who is required to access information system
from any location. Example of external user are customers, suppliers, partners,
employees etc.
External Service Providers
A combination of system analyst, system designer and system builder can
come together to sell their expertise and experience to other business organizations
in order to help those businesses, to develop or integrate their information system
solution, they may also be affiliated with a consulting services organization.
Project Managers
The above group people must work together or in a team to successfully build
a quality information system. As we all know, a team can not perform better if it is
without an effective leader. Therefore one of the groups play the role of project
manager to ensure that systems are developed on time, within budget and an
acceptable quality. Project manager is an experienced skilled professional who
accepts the responsibility for planning, monitoring and controlling project with
respect to schedule, budget, deliverables, customers satisfaction, technical
standard and system quality.
1) The major players in information system may include technical and non-
technical workers as well as internal and external workers.
2) There are a number of persons, who have their own views about a system as
well as has their own role to develop the system.
3) There are five major group of people and others are external service providers
and project managers play their role in information system development.
1) List out the different group of people play their role in Information System
Development.
2) Explain the role of Managers in Information system Development
3) What are the roles of external workers in system development?
6.6. SUMMARY
There are mainly five groups of people play their responsibility in information
system management, users in an organization such as managers, system users,
system builders, system designers and system analyst.
6.7. TERMINAL EXERCISE
1) In what ways has the role of information systems in business expanded
during the last 40 years?
2) Give a detailed account on Management and other group responsibilities in
Information System Management.
66

The Journal of Strategic Information System
(www.Journals.elsevier.com)
6.9. ASSIGNMENT QUESTION
Discuss in detail on the role of designers in information system development.
Western (2002).
3) Dharminder Kumar and Sangeeta Gupta. 2006. Management Information
System: A Computer Oriented Approach for Business Operations, Excel
Books, New Delhi.
Visit to a project organization and identify the various responsibilities of
different team members in information system management for technology projects.
Present a detailed report.
6.12. KEY WORDS
 Project Group
 System Analyst
 System Designers
 System Users.

67
LESSON – 7
DEVELOPMENT AND MAINTENANCE OF MIS
7.1. INTRODUCTION
In MIS, the information is recognized as a major resource like capital and time.
If this resource has to be managed well, it calls upon the management to plan for it
and control it, so that the information becomes a vital resource for the system.
7.2. OBJECTIVES
 The process of Management Information Development
 About the Maintenance of Management Information System
 The problems related to the maintenance of MIS
 Measures to overcome the problems related to the maintenance of
Information System
7.3. CONTENTS
7.3.1 The process of Management Information Development
7.3.2 Maintenance of Management Information System
7.3.3 Problems related to the Maintenance of MIS
7.3.4 Measures to overcome the problems related to the maintenance of MIS
7.3.1. THE PROCESS OF MANAGEMENT INFORMATION DEVELOPMENT
Development of Information System involves a multistep process called the
information system development cycle. The steps taken to develop management
information system are given below.
 The management information system needs good planning.
 This system should deal with the management information not with data
processing alone.
 It should provide support for the management planning, decision-making
and action.
 It should provide support to the changing needs of business management.
Major challenges in MIS implementation are:
 Quantity, content and context of information - how much information and
exactly what should it describe.
 Nature of analysis and presentation- comprehensibility of information.
 Availability of information - frequency, contemporariness, on-demand or
routine, periodic or occasional, one-time info or repetitive in nature and so
on
 Accuracy of information.
 Reliability of information.
 Security and Authentication of the system.
68
Planning for MIS

MIS design and development process has to address the following issues
successfully:
 There should be effective communication between the developers and users
of the system.
 There should be synchronization in understanding of management,
processes and IT among the users as well as the developers.
 Understanding of the information needs of managers from different
functional areas and combining these needs into a single integrated system.
Creating a unified MIS covering the entire organization will lead to a more
economical, faster and more integrated system, however it will increase in design
complexity manifold.
 The MIS has to be interacting with the complex environment comprising all
other sub-systems in the overall information system of the organization. So,
it is extremely necessary to understand and define the requirements of MIS
in the context of the organization.
 It should keep pace with changes in environment, changing demands of the
customers and growing competition.
 It should utilize fast developing in IT capabilities in the best possible ways.
 Cost and time of installing such advanced IT-based systems is high, so
there should not be a need for frequent and major modifications.
 It should take care of not only the users i.e., the managers but also other
stakeholders like employees, customers and suppliers.
Once the organizational planning stage is over, the designer of the system
should take the following strategic decisions for the achievement of MIS goals and
objectives:
 Development Strategy: Example - an online, real-time batch.
 System Development Strategy: Designer selects an approach to system
development like operational verses functional, accounting verses analysis.
 Resources for the Development: Designer has to select resources. Resources
can be in-house verses external, customized or use of package.
 Manpower Composition: The staffs should have analysts, and programmers.
Information system planning essentially involves:
 Identification of the stage of information system in the organization.
 Identification of the application of organizational IS.
 Evolution of each of this application based on the established evolution
criteria.
 Establishing a priority ranking for these applications.
 Determining the optimum architecture of IS for serving the top priority
applications.
69
7.3. 2 MAINTENANCE OF MANAGEMENT INFORMATION SYSTEM

In the maintenance of Management Information System of organization,
control and maintenance of the system are the responsibilities of the managers.
Control of the system means the operation of the system as it was designed to
operate. Sometimes operators will develop their own private procedures or will
short-circuit procedures designed to provide checks. Often people make
unauthorized changes to improve the system, changes that are not approved or
documented. Managers themselves may not be factoring into decisions information
supplied by the system, such as sales forecast or inventory information, and may
be relying on intuition. It is upto management at each level in the organization to
provide periodic spot-check of the system for control purpose.
Maintenance is closely related to control. Maintenance is the ongoing activity
that keeps the Management Information System at the highest levels of
effectiveness and efficiency within cost constraints. In other words, maintenance of
the Management Information System is directed towards reducing errors due to
design, environment changes, and improving the system’s scope and services.
These activities are sometimes classified as (1) emergency maintenance (2) routine
maintenance, (3) requests for special (one-time) reports and (4) systems
improvements.
Maintenance may be applied to the following activities of Management
Information System of an organization.
 Change in policy statements
 Change in reports
 Change in forms
 Change in procedures
 System controls and security needs
 Change in hardware
 Software addition or modification
 Change in economic conditions
 New technology
 Industry and competitive conditions
 Change in government policies, regulations and regulations.
Change in the policy statements: Change in policy statements often takes
place in the organizations with the passage of time. The manager should change the
policy relating of Management Information System according to the different
situations, so that there should be proper environment for the maintenance. The
change must be made according to the required standard of the organization as
there should not be obstacles achieving the goals of the organization.
Change in Reports: When a manager of an organization replaces an outgoing
manager, then he should change the reports of the outgoing manager according to
his convenience. But before changing the reports, t must be kept in mind that, it
should not affect adversely on the maintenance of MIS. The change in reports of the
70
outgoing manager must be done with the proper consent of the related staff. There
must be regular change in reports of maintenance of Management Information
System.
Change in Forms: For the proper maintenance of MIS, there must be change
in forms of reports of maintenance of Management Information System. The change
in forms is done with the change in environment of the organization, so that the
new forms should not be contrary to the existing reports.
Change in Procedures: The procedures of the maintenance of Management
Information System must be changed with the change in form, software and
hardware in an organization. The new procedure must be related to the new forms
and easily adopted in new software and hardware. The pros and cons of new
procedures must be taken into account before implementing it. The procedures
must not be contrary to the goals of the organization.
System controls and Security Needs: The system controls and maintenance
of the system are the responsibilities of the line manager of an organization.
Sometimes, there are unauthorized changes in the existing system for its
improvement, which is not accepted in the organizations. Maintenance is closely
related to control. It helps in improving the system’s scope and services, and
reducing the error due to the environment changes. Each system is to be tested in
accordance with the test specifications and procedures prevailing in the particular
organization. Each new form may be tested relatively independent of the system to
which they belong.
Change in Hardware: There should be proper change in the acquisition of
computer system equipments with the passage of time. The design of the computer
system and the architecture available from vendors are closely tied together. Once a
choice of a new CPU and peripheral equipment has made, then make a decision
whether to buy or lease. The capital expenditure analysis must also be taken into
consideration. Other factors like usage, anticipated replacement schedule and
vendor’s options also take into account.
Software Addition or Modification: There is a continuous need for change in
software packages. There should be proper planning, forecasting, operating, and
control models, so that software must be developed internally or under contract.
The addition or modification of software must be taken into account depending on
the nature of the hardware. It would have been cheaper to have developed the
entire software internally in the organization.
Change in Economic Conditions: Changes in general economic conditions
play a major role in defining financial information systems. If the system is properly
designed, it should meet the needs of all users, not just the accounting and finance
departments. General economic conditions dictate corporate policy in several areas,
and the ability to internalize these changes in an important part of a good systems
design. As these changes are only partly predictable, the system should be
evaluated periodically to ensure both proper inclusion and measurement of new
conditions. Changes in the unemployment rate, both nationally and locally, could
71
effect the direct labour cost and could also affect the time frame for completion of
planned projects. Changes in inflation and interest rates have even more far-
reaching impacts. A rise in interest rates may hinder customers attempting to
obtain short-term credit to purchase a company’s product. The same rise in interest
rates may stop a company from expanding plant capacity, stockpiling inventories,
or replacing and updating fixed assets. This list is not all inclusive, but it should be
noted that periodic systems evaluations will help to ensure that these and similar
items are included.
New Technology: The development of computer technology, applications
programs, and management techniques have progressed at such a rate as to make
farcical the articles of only a few years ago suggesting that total information
systems would always be myths. Data communications system interactive systems
with video displays, tremendous storage capacities, and higher-speed computers
are staggering to old-line managers. This new technology is being introduced and
used by different institutions.
Industry and Competitive Conditions: Change in industrial conditions
should be treated in the same manner as changes in economic conditions; however,
the timing of reactions of these changes may be more important. The expansion or
collapse of a market for a company’s products is of such importance that failure to
react on a timely basis may mean failure of the business as a whole. Competitive
strategies, price policy, hiring, and capital budgeting are but a few of the areas
affected by changes in business conditions. New technology, either in production of
products or in the creation of alternative products, may affect even the basic
concepts that form the corporate objectives. New standards for measurement such
as package sizes or the metric system may have great financial impact. Industry
innovations in reporting or gathering data , such as point-of-purchase data
collection in retailing, and video responses to stock price information in brokerage
houses, are other examples. These and the changes cited earlier require anything
from routine to major changes in the Management Information System.
Changes in Government Policies, Regulations and Legislation: Large
companies require specialists or lawyers to keep management appraised of the
numerous change in reporting requirement, compliance requirements, and
pressures for change. For example, banks must be aware of new regulations,
maximum interest rates, interest rates established through federal reserve
activities, minimum down payments required on loans and mortgages, acceptance
rules. Manufacturing companies must be aware of change in pension rules,
financial disclosure, companies must be aware of change in pension rules, financial
disclosure, and so on. Health care facilities must be aware of legislation and rulings
with regard to state and federal government payments for the elderly, indigent, and
so on. In other words there is a continuous flow of rules from government that
requires constant updating of the Management Information System in a Company.
72
7.3.3. PROBLEMS RELATED TO THE MAINTENANCE OF MIS

Maintenance is the ongoing activity that keeps the Management Information
System at the highest levels of effectiveness and efficiency within cost constraints.
The problems which can arise in the area of maintenance of MIS are as follows:
No plan for maintenance: The first and fore most problems in maintenance of
the MIS is lack of proper planning. Inadequate planning slows down the work of
maintenance. Without proper planning there are a lot of unnecessary events, which
increase the total loss of maintenance and ultimately reduces the profit of the
organization.
No process Allocation of Maintenance: Another major problem relating to
maintenance is that there are no resources allocated particularly to the
maintenance of MIS. So for the regular upkeeping of the MIS, one has to depend
upon other departments regarding the resources. Without the proper resources
allocation, there is always lack of fund, which ultimately deteriorate the
maintenance.
Lack of Management Interest, Understanding and Commitment: The
another area of negligence is lack of management interest, understanding and
commitment to the MIS department. Due to non-interest of management, they are
not interested in the development of MIS. They are also not bothered about the
various commitments made by them to the MIS department. They are least
interested about the functioning of MIS.
Lack of User Understanding and Cooperation: The lack of user
understanding and cooperation towards the functioning of Management
Information System is another problem in the maintenance of Management
Information System. Most of the users are not in a position to understand the
importance of MIS, so they pay least attention towards the proper and smooth
running of the MIS and its timely maintenance.
Lack of Qualified Personnel: The another problem comes to into picture is
lack of quality personnel for the maintenance of MIS. The main reason is that,
nobody takes the maintenance as a serious problem. Everyone takes it as an
ordinary problem. In the case of any breakdown, non-functioning or interruption in
the working of MIS, the organization has to depend on its unqualified or semiskilled
staff or, on the professionals available in the market, which is a very time
consuming and costly method of maintenance.
Inadequate Documentation: Inadequate documentation is also a very big
problem in the maintenance of MIS. Due to lack of proper documentation, the
maintenance is not done properly and not upto the mark. It effects on the
performance of MIS department, which may cause decrease in the overall efficiency
of the organization.
73
7.3.4. MEASURES TO OVERCOME THE PROBLEMS RELATED TO THE MAINTENANCE

OF MIS
The following measures should be taken to overcome the problems related to
maintenance of MIS.
 Proper planning for Maintenance: Maintenance cannot be performed in a
haphazard manner, information basis or on a first-come, first served basis.
Four steps are necessary for a good maintenance program. (i) Log all
requests for change. Only written requests should be accepted and included
in the log. (ii) Assign priorities to all requests. These will be determined by
urgency of the project for the MIS, long-range benefits, time and resources
required, and, in some cases, management dictum. (iii) Prepare annual and
short-range (usually monthly) plans and (iv) Document maintenance as it
occurs when a project is completed, revise the MIS design manual.
 Responsibility for Maintenance: Specific responsibility for maintenance
should be assigned to a supervisor and team of MIS analysts, programmers,
and forms specialists. Fragmentation of responsibility to MIS analysts, the
computer experts, and the forms coordinator, without at least a unifying
committee, can lead to compounding of MIS maintenance as primarily
computer program maintenance, it is not. The most important maintenance
activities may precede, or not even include, program maintenance.
 Initiation of Maintenance Projects: Maintenance activity may be initiated
by effort reports, a user’s change request, a member of the maintenance
team, or company management. Usually, specifically designed forms for
error reports and for change requests must be completed. A barrier to
soliciting information on errors or for changes is the detail required on the
form. It may be more useful to have a very simple form that calls for only
the requests correction or change and a brief statement of the need. Once a
maintenance analyst receives such a form, a more detailed documentation
may be filled out after an interview.
 Adequate Documentation: Adequate documentation, so that there should
be proper and smooth functioning of the MIS. Adequate documentation also
helps the organization in increasing its efficiency.
 Qualified Personnel: There should be proper qualified personnel for the
proper maintenance of MIS. With the availability of qualified personnel,
organization need not look here and there for its maintenance of MIS and
working of the organization is also very smooth and proper. The qualified
personnel can immediately remove any problem faced by the MIS
department.
1) Development of Information System involves a multistep process called the
information system development cycle.
2) Creating a unified MIS covering the entire organization will lead to a more
economical, faster and more integrated system, however it will increase in
design complexity manifold.
74
3) Once the organizational planning stage is over, the designer of the system
should take certain strategic maintenance of MIS may be applied to the
activities such as, Change in policy statements, Change in reports, Change in
forms, Change in procedures, System controls and security needs, Change in
hardware, software addition or modification, Change in economic conditions,
New technology, Industry and competitive conditions, Change in government
policies, regulations and regulations.
4) Problems related with maintenance is the ongoing activity that keeps the
Management Information System are presented.
5) Measures to overcome the problems related to the maintenance of MIS are as,
Proper planning for maintenance, responsibility, initiation of maintenance
projects, adequate documentation, qualified personnel for the proper
maintenance of MIS.
1) What are the steps involved in information system development?
2) List out the various activities to be applied for the strategic maintenance of
MIS.
3) Write short note of impact of new technology in system maintenance.
4) What are the problems related with the ongoing maintenance of MIS?
5) Point out the measures to overcome the problems related to the maintenance
of MIS.
7.6. SUMMARY
Development of Information System involves a multistep process called the
information system development cycle. Creating a unified MIS covering the entire
organization will lead to a more economical, faster and more integrated system,
however it will increase in design complexity manifold. Once the organizational
planning stage is over, the designer of the system should take certain strategic
Maintenance of MIS may be applied to the activities such as, Change in policy
statements, Change in reports, Change in forms, Change in procedures, System
controls and security needs, Change in hardware, software addition or modification,
Change in economic conditions, New technology, Industry and competitive
conditions, Change in government policies, regulations and regulations. Problems
related with maintenance is the ongoing activity that keeps the Management
Information System are presented. Measures to overcome the problems related to
the maintenance of MIS are as, Proper planning for maintenance, responsibility,
initiation of maintenance projects, adequate documentation, qualified personnel for
the proper maintenance of MIS.
1) Draw a flow chart on the steps involved in Information System Development.
2) What is called the strategic maintenance?
3) Write a short note on ongoing maintenance of information system.
75

The Journal of Strategic Information System
(www.Journals.elsevier.com)
1) Discuss in detail on various problems related with the ongoing maintenance
of MIS.
2) Give a detailed account on the measures to overcome the problems related to
the maintenance of MIS.
Western (2002).
Visit an industry on your own choice, learn about the ongoing maintenance
process of Management Information System.
7.12. KEY WORDS
 Ongoing maintenance
 Strategic management
 System Design and Development.

76
LESSON – 8
ROLE OF COMPUTERS IN MIS AND DESIGNING MIS
INFRASTRUCTURES
8.1. INTRODUCTION
In the modern workplace, it is imperative that Information Technology (IT)
works both effectively and reliably. Computer and information systems managers
play a vital role in the implementation and administration of technology within their
organizations. They plan, coordinate, and direct research on the computer-related
activities of firms. In consultation with other managers, they help determine the
goals of an organization and then implement technology to meet those goals.
They oversee all technical aspect of an organization, such as software development,
network security, and Internet operations. In designing of MIS infrastructure, there
exist many ways to organize an infrastructure in an organization. There is no single
organization structure that applies optimally to all situations. This could be due
factors such as size, maturity, and orientation of a firm. Hence, firms MIS
organization varies widely from one company to another company and it can
directly influence the best design for MIS infrastructure.
8.2. OBJECTIVES
 Know the different role of computers in MIS
 understand the four critical departments in designing the MIS information
infrastructure
 learn the general view in framing the “MIS infrastructure”
 know how to maintain the quality of data in an organization
 Along with quality assurance
8.3. CONTENTS
8.3.1. Role of Computers in MIS
8.3.2. Designing of MIS infrastructure
8.3.3. Locations for the Help Desk
8.3.4. Locations for the Database Administration
8.3.5. Locations of Network Operations
8.3.6. Locations for Systems Management
8.3.7. MIS-Maintenance of Application Quality
8.3.8. Maintenance of Data Quality
8.3.9. Quality Assurance with User-Developed Systems
8.3.1. ROLE OF COMPUTERS IN MIS
Computer and information systems managers direct the work of other IT
professionals, such as computer software engineers and computer programmers,
computer systems analysts, and computer support specialists. They plan and
coordinate activities such as installing and upgrading hardware and software,
programming and systems design, the implementation of computer networks, and
77
the development of Internet and intranet sites. They are increasingly involved with
the upkeep, maintenance, and security of networks. They analyze the computer and
information needs of their organizations from an operational and strategic
perspective and determine immediate and long-range personnel and equipment
requirements. They assign and review the work of their subordinates and stay
abreast of the latest technology to ensure that the organization remains
competitive.
Computer and information systems managers can have additional duties,
depending on their role within an organization. Chief technology officers (CTOs), for
example, evaluate the newest and most innovative technologies and determine how
these can help their organizations. They develop technical standards, deploy
technology, and supervise workers who deal with the daily information technology
issues of the firm. When a useful new tool has been identified, the CTO determines
one or more possible implementation strategies, including cost-benefit and return
on investment analyses, and presents those strategies to top management, such as
the chief information officer (CIO).
Management information systems (MIS) directors or information technology
(IT) directors manage computing resources for their organizations. They often work
under the chief information officer and plan and direct the work of subordinate
information technology employees. These managers ensure the availability,
continuity, and security of data and information technology services in their
organizations. In this capacity, they oversee a variety of technical departments,
develop and monitor performance standards, and implement new projects.
IT project managers develop requirements, budgets, and schedules for their
firm’s information technology projects. They coordinate such projects from
development through implementation, working with their organization’s IT workers,
as well as clients, vendors, and consultants. These managers are increasingly
involved in projects that upgrade the information security of an organization.
Work Environment
Computer and information systems managers generally work in clean,
comfortable offices. Long hours are common, and some may have to work evenings
and weekends to meet deadlines or solve unexpected problems; in 2008, about 25
percent worked more than 50 hours per week. Some computer and information
systems managers may experience considerable pressure in meeting technical goals
with short deadlines or tight budgets. As networks continue to expand and more
work is done remotely, computer and information systems managers have to
communicate with and oversee offsite employees using laptops, e-mail, and the
Internet.
Injuries in this occupation are uncommon, but like other workers who spend
considerable time using computers, computer and information systems managers
are susceptible to eyestrain, back discomfort, and hand and wrist problems such as
carpal tunnel syndrome.
78
Education & Training Required

A bachelor's degree in a computer-related field usually is required for
management positions, although employers often prefer a graduate degree,
especially an MBA with technology as a core component. Common majors for
undergraduate degrees are computer science, information science, or management
information systems (MIS).
A bachelor’s degree in a computer-related field generally takes 4 years to
complete, and includes courses in computer science, computer programming,
computer engineering, mathematics, and statistics. Most also include general
education courses such as English and communications. MIS programs usually are
part of the business school or college, and contain courses such as finance,
marketing, accounting, and management, as well as systems design, networking,
database management, and systems security.
MBA programs usually require 2 years of study beyond the undergraduate
degree, and, like undergraduate business programs, include courses on finance,
marketing, accounting, and management, as well as database management,
electronic business, and systems management and design.
A few computer and information systems managers attain their positions with
only an associate or trade school degree, but they must have sufficient experience
and must have acquired additional skills on the job. To aid their professional
advancement, many managers with an associate degree eventually earn a
bachelor's or master's degree while working.
Other Skills Required (Other Qualifications)
Computer and information systems managers need a broad range of skills.
Employers look for individuals who can demonstrate an understanding of the
specific software or technology used on the job. Generally, this knowledge is gained
through years of experience working with that particular product. Another way to
demonstrate this trait is with professional certification. Although not required for
most computer and information system management positions, certification
demonstrates an area of expertise, and can increase an applicant’s chances of
employment. These high-level certifications are often product-specific, and are
generally administered by software or hardware companies rather than
independent organizations.
Computer and information systems managers also need a thorough
understanding of business practices. Because information technology is a central
component of many organizations, these workers often must make important
business decisions. Consequently, many firms seek managers with a background in
business management, consulting, or sales. These workers also must possess good
leadership and communication skills, as one of their main duties is to assign work
and monitor employee performance. They also must be able to explain technical
subjects to people without technical expertise, such as clients or managers of other
departments.
79
8.3.2. DESIGNING OF MIS INFRASTRUCTURES

There exist many ways to organize an infrastructure in an organization. There
is no single organization structure that applies optimally to all situations. This
could be due factors such as size, maturity, and orientation of a firm. Hence, firms
MIS organization varies widely from one company to another company and it can
directly influence the best design for MIS infrastructure. For example, in some
enterprises the voice and data network groups are merged, but in most of the cases
these two functions are taken care as separate portfolios. Also, in some firms MIS
related functions such as security, planning, quality assurance, procurement, and
asset management are directly brought under the infrastructure organization.
However, this may not be the case in other firms. Mostly the organizational position
of department can play an important role in distinguishing a world-class
infrastructure from a mediocre one. In this context, four departments are
considered to be most critical they are help desk, database administration, network
operations, and systems management
8.3.3. LOCATIONS FOR THE HELP DESK
The proper location of the help desk is critical and essential to the success of
almost any MIS infrastructure. This is because most users of the established MIS
requires the support of first level help desk in an MIS organization. Thus, elevating the
help desk higher in the organization or merging it with other help desks can increase
its effectiveness, visibility and stature. The first impression gained by the users of the
MIS infrastructure with regard to help desk operations are considered to critical for the
sustained user involvement in the IT Systems. Any irresponsible response provided at
the help desk will make the users of the IT systems to feel dejected and this might
make them to form their own negative attitude towards the quality of IT services
available in the organization. The factors such as the number of rings before
answering, the setup of the menu system, and the attitude of the help desk agent
responding to the caller are all considered to be the factors that can influence the
user’s perception of the effectiveness of a help desk. According to Schiesser (2002) the
following are considered to be preferences of the users in the help desk.
1. Answer for the calls within two rings.
2. Being polite, patient, courteous and helpful to callers
3. Proper follow up to the callers ensuring the solutions to the problems posed.
Locating the help desk in a department is very essential because it can define
the degree to which the other help desks can be integrated into fewer help desks or
into one fully integrated help desk usually referred to as a Customer Service Center
(CSC). During the initial period of IT adaptation into the organization, the numbers
of helpdesks are found to be in large in number. Normally during this period of the
IT adaptation, seven help desks can be located in the organizations correspondingly
for applications, operations, desktop support, technical services, database
administration, data network services, and voice network services. The integrated
help desk called CSC can be located outside the Infrastructure division in the case
when help desk operations are outsourced. However, by keeping the help desk
80
within the infrastructure division, it is possible to provide better control for the help
desk operations. Also, in the case of internal help desk kept within organization,
staffing and various performance metrics of the operating personnel of the IT
infrastructure can be effectively handled.
In the case of internal help desk, the help desk operations can also be located
as the division of computer operations. This is because computer operations are
being staffed 24 hours a day and 7 days a week. The organization with Customer
Service Center is shown in the figure 8.1 where computer operations are separated
from the CSC. This is because, the most of the support required for the computer
operations division are with regard to providing desktop support and hence a
separate division within the customer service namely, desktop support can be
located in the Customer Service division.
Infras tructure
Technical Network Computer Customer

Services Services Operations Serivces
Desk
Help Desk
Support
Figure 8.1. MIS Organization with Customer Service Center

8.3.4. LOCATIONS FOR DATABASE ADMINISTRATION
Normally in many IT infrastructure the database administration and the related
set of activities will be grouped in the applications development division. This is mainly
due to the reason that the structure and design of the database is more closely aligned
to the requirements of the users with whom the applications group works directly. But
once the database is designed and deployed, most of the database maintenance
involves monitoring the performance metrics and database tuning related issues. The
technical services group of the infrastructure is closely aligned with these issues in the
MIS infrastructure. In some MIS organizations the database administration group will
be positioned in such a manner that they can give their reporting directly to the head
of the infrastructure group. But this kind of arrangement will be conducive only when
the database unit is unusually large with all mission-critical applications are running
on sophisticated databases. The MIS organization with a separate division for database
Administration is shown in the figure 8.2.
Figure 8.2. MIS Organization with Data Base Administration Unit

Source: Schiesser (2002).
81
The activities related to the Database Administration is broadly separated into

two categories namely the activities related to the maintenance of the database and
the activities related to the development of the database. The database development
and related activities can be brought under the application development division
and the maintenance related work of the database could be brought under
infrastructure’s technical services group.
8.3.5. LOCATIONS OF NETWORK OPERATIONS
The MIS organization with separate division for Network operations is shown
in the figure-8.3. In the figure the activities related to the network operations are
located in the division computer operations. However, in the first instance it may
appear illogical that the computer operations division provides the network
operations. But it should be noted that both groups are involved with providing
reliable, responsive, real-time network services. During the early MIS adaptation
period in the organization it makes perfect sense to initiate network operations
under network services. But as the network operation group grows to the extent
that it requires 24 hours look out then it should be aligned with computer
operations. Both computer operations and network operations groups have around-
the-clock monitoring and troubleshooting responsibilities.
Infrastructure
Network Computer Customer

Technical Services
Services Operations Serivces
Network
Operations
Figure 8.3. MIS Organization with Network Operations Unit

Source: Schiesser ( 2002).
Thus, by bringing computer operations group with network operations groups
both can be made beneficial technically from cross-training each other. This will
make them to give each other more back up support. Thus, in matured IT
infrastructure it is appropriate to locate Network operations under computer
operations.
8.3.6. LOCATIONS FOR SYSTEMS MANAGEMENT
The world class IT infrastructures will have the existence and location of a
systems management group in its organization’s structure. Many IT infrastructures
are found to exist without the systems management group. Hence, most of the IT
infrastructure we come across cannot come under the category of world-class
infrastructure. But these types of firms will derive the maximum benefit from more
effective management of their key processes rather than relying fully on the IT
infrastructure. The systems management group is a separate department
considered solely responsible for those infrastructure processes determined to be
most critical to a particular IT environment. Some of these processes include
change management, problem management, and production acceptance. After the
82
maturity and orientation of the IT infrastructure, additional systems management

process like capacity management, storage management, security, and disaster
recovery will get included as an additional component of this department.
Based on the process requirement of the IT infrastructure, this department
provides the reports to one of three infrastructure groups namely technical services,
computer operations and customer services. For example, when change
management or production acceptance is the key process of the IT infrastructure,
these groups often report to computer operations. In the mainframe environment
for production planning and control, this department would have been called
production support and could have included batch scheduling, batch processing,
and output processing. When problem management is the key process of the IT
infrastructure, systems management group usually reports to the customer
services or help desk department. In a world-class infrastructure single systems
management group manages all the key processes of the IT infrastructure and this
group reports directly to the head of the infrastructure. This type of arrangement
will provide the systems management, the visibility and executive support needed
to emphasize integrated process management. This type of IT organization is shown
in the Figure 8.4.
Infrastructure
Technical Network Computer Customer Systems

Services Services Operations Serivces Management
Figure 8.4: MIS Organization with Systems Management Unit

Source: Schiesser ( 2002).
8.3.7. MIS-MAINTENANCE OF APPLICATION QUALITY
According to systems theory a system will run down and become disorganized
unless matter and energy are applied to overcome the natural tendency to entropy.
For information system applications, the negative entropy is application
maintenance; this refers to either repairs of errors or enhancements. If repairs are
not made, users lose confidence in the system and fail to use it or to provide inputs.
If enchantments are not made, users may switch to alternative sources of
information.
The process of maintenance follows a cycle, of identification, analysis,
performing change, and testing. The identification of errors and proposed
enhancement is crucial to the maintenance of system quality. Procedures need to
be established for feedback from users. If the application is “owned” by one function
this function can assign responsibility for working with maintenance personal. If
there are many users, there may need to be user group responsible for resolving
conflicts.
8.3.8. MAINTENANCE OF DATA QUALITY
The principle of entropy also applies to stored data. The maintenance of data
quality requires continuous inputs of resources. In assessing the establishment of
83
databases, an important factor to be considered is the probability that the integrity

of the data can be maintained. The assessment should also consider the risk from a
degradation of data quality. The ability of an organization to maintain data quality
depends on both organizational factors and data factors.
1) Length of error-effect cycle: If errors have an immediate effect, organizational
resources, will be applied more readily that if the effect of error is longer term.
Errors in the billing file are therefore more likely to receive attention than
errors in the employee information file (e.g. address).
2) Regularity of Measurement: Data collection that is scheduled at frequent,
regular intervals is more likely to be regularized through institutional
procedures. Occasional, data collection is likely to be forgotten or done poorly.
A regular, weekly report it competitor intelligence from sales staff as part of
expense reports is more likely to have high integrity that an occasional
intelligence reports.
3) User-Provider link: It is more difficult to maintain quality data when the
function providing the data has no organizational link with its users. If the
data is received from an external source, the organization cannot impose its
own quality control standards.
4) Provider data discipline: The extent of data discipline (following practices that
achieve complete, accurate data) in a function is a result of the background,
training and culture of the function. For example, the accounting function
tends to have greater data discipline than marketing.
5) Ease of verification: Some data items can be easily checked by comparison
with other stored data or by comparison with physical evidence. The credits to
accounts receivable are easily verified by the debits to cash (Plus other
adjustments)
Given these factors affecting data quality and the difficulty of maintaining data
quality over time, organizational procedures can be applied to increase the
probability of maintaining suitable quality. There can be regular comparisons with
physical evidence such as inventory counts. The objects of data collection
(employees, customers, clients, etc.) may be requested to review their records for
correctness and completeness. Persons who can recognize errors may review
records on a cycle basis (a portion of each period). For example, the purchasing
department may review two percent of the vendor files each week. Training and
supervision may be utilized to instill an appropriate level of data discipline.
Custodians for Non-accounting Data
In seeking to provide more data in support of strategic management one
organization found that much of the data needed by the top executives was already
being collected on stored by the organization. The procedures for collection and
storage were often casual and undisciplined. There were frequent lapses in data
collection and file maintenance. Most of the data in question was collected and
stored outside of accounting.
The first step in a solution was to identify the data for which there was
executive need and to appoint a custodian for the data from the same function (or
perhaps the same person) who had been collecting and storing it. Responsibility of
84
custodians includes collection, storage, maintenance, and providing part of all

when requested. In the future, part of the data assigned to custodians may be
added to the organization database. In the meantime, it is available too.
8.3.9. QUALITY ASSURANCE WITH USER-DEVELOPED SYSTEMS
User-developed applications are an approach to overcoming problem of
backlog of new applications, systems that do not meet user needs, implementation
failure. Users are provided with application development tools and given training
and assistance; they take over the responsibility for requirement determination,
development, implementation, and maintenance. There are unique quality
assurance problems associated with user-developed systems, primarily because of
the elimination of the analyst role in the design of controls for the application.
There are two approaches development tools and policy. Development tools can be
which automatically include control procedures or prompt users to include them.
Some also provide appropriate documentation as a by product of user development.
The policy approach is to establish policy for adequate testing and
documentation. For example, a policy may establish different testing and
documentation guidelines depending on the importance of the problem, the
duration of the system, and the task interdependencies involved. Four levels of
testing might be:
1) No testing or non-developer review.
2) Minimal testing and peer review
3) Medium testing and external review
4) High level of testing and formal external review
The quality assurance procedures summarized above reflect a balance between
letting users have complete responsibility for developing their own systems without
organizational controls and having a formal quality assurance process that must be
applied to all user-developed systems. The same level of formal process for all cases
would stifle creativity and experimentation. But, the lack of any organizational
controls subjects to the organization to an unacceptable level of risk.
1) Role of Computers in MIS
2) Organizing and designing infrastructure of an organization
3) Maintenance of System Quality for Management Information System
4) Quality assurance procedures for user developed systems.
1) What are the roles of computers in MIS?
2) What are the four critical departments that are considered in designing the
MIS Infrastructure?
3) Explain and justify the locations of Help Desk, Database Administration Unit,
and Network operations unit in the MIS organization of a firm.
4) Explain the functions of systems management unit in the MIS organization of
the firm.
85
5) What are the organizational factors and data factors associated with the
ability of the organization to maintain the data quality? Explain.
8.6. SUMMARY
Different approaches have been developed to explain the process of designing
MIS infra-structure. Here, in this lesson there is a clear view, how to maintain the
database, network operations, system management and etc. in a detailed manner.
Besides, the ability of an organization to maintain data quality depends on both
organizational factors and data factors. The problems and benefits have also been
presented in detail
1) What are the roles of MIS?
2) What are the MIS infrastructures of an organizations?
3) Define: a. Help desk ; b. Database Administration;
c. Network operations d. Systems Management;
e. Data Quality.
Management Information Systems, Stephan B.Harsh, Michigan State
university.
1) Explain the general preferences of the user in help disk of ‘MIS infrastructure’
of an organization.
2) What do you mean by quality assurance? Explain quality assurance with
user-developed systems.
8.10. REFERENCES
1) Rich Schiesser (2003), IT Systems Management: Designing, Implementing,
and Managing World – Class Infrastructures. Prentice-Hall of India, Third
Printing.
2) Dharminder Kumar and Sangeeta Gupta, Management Information Systems:
A computer oriented approach for Business Operations, Excel Books, 2003.
As a system manager, design management information system for your
organization. While designing the system consider different locations such as, help
desk, data base administration, network operations, systems management. Also
consider on application quality.
8.12. KEY WORDS
Portfolios, Desktop, Vender, Custodians.

86
UNIT – III
LESSON – 9
SYSTEMS ANALYSIS
9.1. INTRODUCTION
Systems analysis can be defined as the set of processes carried out to
represent the existing manual Information System into the structured Information
System design based on which an automated and computerized Information System
can be evolved. System analyst is the person associated with the process. The
process of system analysis also requires the extensive role of (i) Users of the
proposed system (ii) Top management personnel (iii) Auditors as well as quality
assurance people (iv) System designers and (v) Programmers. However, the system
analyst will coordinate the role of these people before finalizing a specific
Information System Design. Hence, a system analyst is required to have certain
qualities so that he can successfully coordinate varied set of people.
9.2. OBJECTIVES
After completing this lesson you should be able to,
 understand the role of system analyst in information system development
 describe the attributes of system analyst
 differentiate system analysis and system designing
 know the various stages in system analysis and organizational analysis
 clear with the methods in information gathering for system analysis
 explain the techniques of information gathering
9.3. CONTENTS
9.3.1. Role of Systems Analyst in Information System Development
9.3.2 Systems Analysis Vs Systems Designing
9.2.3. Stages of Systems Analysis
9.3.4. Methods of Information Gathering for Systems Analysis
9.3.5. Information Gathering Tools
9.3.6 Techniques of Information Gathering
9.3.1. ROLE OF SYSTEMS ANALYST IN INFORMATION SYSTEM DEVELOPMENT
The system analyst is considered to be the key member of any system
development project. Hence, the system analyst is identified with the following roles
in the system development project.
Archaeologist and Scribe
The role of system analyst as archaeologist and scribe in the system
development project is to uncover the details and to document business policies of
the company that has ordered the proposed Computerized MIS. The Business policy
of the organization is considered to be an important aspect in designing the
Information System. Because, the level of transparency that is to be adapted with
regard to ‘Information reach’ over different levels of the Management is a key aspect
while designing the information architecture of the organization.
87
Innovator
As an innovator of the system development project, the system analyst should
be able to separate the symptoms of the user’s problem from the true causes. With
the knowledge on computer technology the system analyst should guide the user
about the different possibilities of usage of computers. In this role the system
analyst of the system development project is expected to define the requirement of
the users as well as the requirement of the system. This has done by gathering the
data, facts and opinion of the users of the system. Thus, the system analyst as an
innovator should be able to come up with the detailed and complete specification of
the Computerized MIS proposed for the organization.
Mediator
As stated earlier the system development project will normally have the roles of
different set of people, who often disagree with one another. Hence, a system
analyst should act as the mediator between different set of conflicting ideas
regarding the system development project.
Project Leader
The system analyst are often found to be the person who is more experienced
than the many of the programmers working on the project for developing the
Computerized Information System for the specific organization. Hence, the system
analyst need qualities more than drawing the system design that include people
skills to interview the users, application knowledge of computer technology etc.
Attributes of the System Analyst
In order to perform the role of system analyst, a person in the Information
System development team should have the following attributes.
1. Knowledge about the Organizations
The system analyst should be able to recognize the specific pattern of
functioning of the organization that has ordered the product ‘Computerized MIS’.
This can be possible only when the analyst understands the various ways by which
different organizations functions. He must be able to understand the structure and
the relationship between different departments in an organization. Normally
computerized MIS are built for the tasks associated with accounting, marketing,
and materials management and hence an analyst is required to have basic
knowledge about these aspects of the different organizations.
2. Knowledge of Computer Systems and Software
The system analyst should have widespread knowledge about different
systems and applications software available for the project and his programmers. In
this context, it should be noted that in-depth expertise in programming languages
is not required for the system analyst. However, he should be able to identify the
suitable technology for the Information System projects provided to him. Also, the
knowledge about different conceptual ideas related to all the domains in the
computer technology is considered to be very important for a system analyst. In
simple terms a system analyst should be a jack of all domains available in
computer technologies and he need not be master of specific technology like
88
programmers and DBA’s associated with the Information System Development

project.
3. Good Interpersonal Skills
One of the principle roles identified for the system analyst is to coordinate the
different set of people in the system development project. Hence, a very good
interpersonal skill is required for the system analyst. This will make the system
analyst to get the opinion of the different set of people associated with the system
development projects in short span of time without any distortions.
4. Ability to Communicate
This attribute of the system analyst is more or less intangible with good
interpersonal skills. However, the ability to communicate is not mere a verbal
communicative abilities, it is indeed the ability to communicate the policies in an
ease and in jovial manner to different levels of administration.
5. Analytical Mind
The successful system analyst will have good analyzing abilities. This is
nothing but the ability to identify the different variables in the organization and
establish the relationship among them. This is very complex knowledge passed on
to the individual who is considered to be analyst. Also the analytical abilities of the
system analyst should be complimented with the abilities to formulate and
implement different logics.
6. Wide Range of Knowledge
The system analyst is required to be the person with greater horizons of
knowledge in every walk of life. This is very important because the usage of
computers can be identified with almost all activities of the mankind. Even the
biological studies requires the in-depth application of computer technology
resulting in the specialty areas of studies like ‘Bio Informatics’
9.3.2. SYSTEMS ANALYSIS VS SYSTEMS DESIGNING
The terms systems analysis and systems designing are often used
interchangeably in many texts. However, it should be noted that systems analysis
and systems designing are totally a different processes associated with the
Information Systems development project. To make it very clear the activities
associated with the systems analysis can be identified in the fourth step of the
System Development Life Cycle explained in the figure 10. Thus, it is possible to
evolve conceptual system design with the systems analysis process. In the case of
system designing, the physical system design is formulated and this is can be
referred to the fifth step of the System Development Life Cycle explained in the
figure 10. Normally, the physical systems designing work is carried out with system
designing tools (or) CASE (Computer Aided Systems Engineering) tools. Thus, it
should be noted that there exist a clear-cut difference between systems analysis
and systems designing. Then what really confuses between systems analysis and
systems designing? Answer is the person doing the job. In most of the Information
Systems development project the same person is found to be acting both as
systems analyst and systems designer. Thus, it is possible to say that the out put
89
generated in the systems analysis process namely conceptual system design is used
as the input details for drawing the physical system designing in SDLC. The output
generated at the end of the system designing process will help the programmers to
write the software coding associated with the Information system development
project. Also, based on the physical system design formulated, the data base design
is decided by the database designers or administrators. Thus, to explain the
relationship between system analyst, system designers and programmers the
following points are given.
1) On small Information System design projects, the roles of analysis, design,
and programming are combined. Thus, it is possible to find out the single
person doing all these roles.
2) On relatively complex project the single person possibly an analyst performs
the roles of systems analysis and system designing. However, the
programming works will be taken care by the group of programmers
monitored by the project leaders. Under these circumstances mostly the
system analyst will act as the project leaders. This will enable them to
correspond and guide the programmers in more efficient manner.
3) In large and complex Information System development projects different
individuals will perform the role of systems analysis and system designing.
The programming work associated with the project might get out-sourced or it
will be performed by large number of programmers controlled in different
groups by appropriate team leaders. However, periodic review meeting will be
conducted among different team leaders, system designers and system
analyst associated with the project. The senior most system analyst will act as
project leader for the projects of this sort. This type of Information system
Development projects will go through each and every step of the SDLC in
meticulous and in cautious manner because of risk associated with the
project. This type of Information System Development projects will be taken
up only in large Information system development agencies.
9.3.3. STAGES OF SYSTEMS ANALYSIS
The process of systems analysis is carried out in different stages, when the
creation of new application requires long project duration. Some of the basic
activities performed in the system analysis are the extension of the feasibility study
carried out in the System Development Life Cycle (SDLC). This practically mean
that the same information and its gathering methods adapted for feasibility study
will be incorporated for meeting the information requirements of the systems
analysis. The information collected for systems analysis will be utilized to represent
the system in diagrammatic form with the help of tools for systems analysis. Thus,
it should be noted that the systems analysis is not a preliminary study. It is an in-
depth study of end user information needs that produces functional requirements
that are used as the basis for the design of a new information system. Traditionally
Systems analysis involves a detailed study of,
1) The information needs of the organization.
2) Information needs of end users.
90
3) The existing activities, resources, and products of present information

systems.
4) The required capabilities of the proposed information system that can meet
the information needs of the organization.
Organizational Analysis
An organizational analysis is considered to be an essential and important first
step in systems analysis. This is because, improvement to the information system
can be provided only when the members of the development team know about the
organizational environment in which that information system is located. Normally,
in the organizational analysis the members of an Information System development
team will asses about the organization’s management structure, its people, its
business activities, the environmental systems, and its current information systems
capabilities. These factors will be assessed for each of the business units or
departments of the organization in the context of ‘end user workgroups’ that are
likely to get affected by the new or improved information system being proposed.
For example, is very difficult to design inventory control system for a chain of
departmental stores without someone on a development team knows a lot about the
company and the types of business activities related to its inventory. Thus, in the
organizational analysis the decision regarding the induction of end users of the
Information System in the development team will be made.
Analysis of the Present System
This is the stage of the systems analysis, where the focus will get shifted more
precisely into the existing manual or computer assisted Information system in the
organization. In case the organization is already provided with computerized MIS, it
is important to study the existing hardware, software, network, data management
system (DBMS or RDBMS) and people resources. Also, the existing schemes for
converting data into information products to produce different kinds of reports and
displays will be studied. In this context, it should be noted that the existing
schemes could be a manual procedures or computerized operations. The various
input, processing, output, storage, and control components of the existing
information system followed in the organization will be analyzed.
For example, the systems analyst might evaluate the format, timing, volume,
and quality of input and output activities in the existing system. These activities are
very important to maintain effective interaction between end users and computers.
Thus, it is possible to support the system designing process following system
analysis, with the required resources, products, and activities.
Functional Requirements Analysis
This stage of systems analysis is considered to be the difficult phase where the
conglomeration of different set of people is most required. In this stage of the
systems analysis the systems analyst and other end users work together, and
determine the information needs of specific organization. For example, it may be
required to determine the type of information a specific work requires; its format,
volume, and frequency of occurrence, response times etc. After identifying the
91
information needs of the organization; in this stage of the systems analyses

identification of information processing capabilities required for each identified
system activity (input, processing, output, storage, control) is made. Also, the
system design’s implementation plan is finalized in this stage of the systems
analysis.
Finally, the functional requirement analyses is documented and presented to
the next step of the SDLC (i.e.) ‘System designing’. In this context it should be noted
that functional requirements are the end user’s information requirement that are
independent of the hardware, software, network, data, and people resources. Also,
it should be noted that these resources could be or could not be, the part of
Information system that are being used at present in the organization. However, the
information requirements and corresponding software and hardware requirements
are decided in the systems design stage.
9.3.4. METHODS OF INFORMATION GATHERING FOR SYSTEMS ANALYSIS
Information gathering is an art and a science. The approach and manner in
which information is gathered require persons with sensitivity, common sense and
a knowledge of what and when to gather and what channels to use in securing
information. Hence, this section addresses the categories and sources of
information and the functions, uses and relevance of key information gathering
tools during the phases of system analysis. The phases are:
1) Familiarity with the present system through available documentation such as
procedures manuals, documents and their flow, interviews of the user staff,
and on-site observation.
2) Definition of the decision making associated with managing the system. This
is important for determining what information is required of the system.
Conducting interviews clarifies the decision points and how decisions are
made in the user area.
3) Once decision points are identified, a series of interviews may be conducted to
define the information requirements of the user. The information gathered is
analyzed and document discrepancies between the decision system and the
information generated from the information system are identified. This
concludes the analysis and sets the stage for system design.
Where does information originate?
Information is gathered from two principal sources personnel or written
documents from within the organization and from the organization’s environment.
The Primary external sources are:
1) Vendors
2) Government documents
3) Newspapers and professional journals
The primary internal sources are:
1) Financial reports
2) Personnel staff
92
3) Professional staff (legal counsel) EDP (electronic data processing) auditor

etc.
4) System documentation or manuals
5) The user or user staff
6) Reports and transaction documents
9.3.5. INFORMATION GATHERING TOOLS
No two projects are ever the same. This means that the analyst must decide on
the information-gathering tool and how it must be used. Although there are no
standard rules for specifying their use and important rules is that information must
be acquired accurately, mathematically under the right conditions and with
minimum interruption to user personnel. As a first step, a search of the literature
through professional references and procedure manuals, textbooks, company
studies, government publication or consultant studies may prove invaluable.
Procedure manuals and forms are useful consultant studies may prove invaluable
sources for the analyst. They describe the format and functions of the present
systems. Included in most manuals are the system requirements that help
determine how well various objectives are met. Up-to-date manuals save hours of
information gathering time.
On-Site Observation
Another information gathering tool used in system studies is on-site
observation. It is the process of recognizing and nothing people, objects, and
occurrences to obtain information. The analyst’s role is that of information seeker
who is expected to be detached (therefore unbiased) from the system observed.
The major objective of on-site observation is to get as close as possible to the
real system being studied. For this reason it is important that the analyst is
knowledgeable about the general make-up and activities of the system.
The following questions can save as a guide for on-site observations.
1) What kind of system is it? What does it do?
2) Who runs the system? Who are the important people in it?
3) What is the history of the system? How did it get to its present stage
development?
4) A part from its formal function, what kind of system is in comparison
with other systems in the organization? Is it a primary or secondary
contributor to the organization? Is it fast paced or is it a leisurely system
that responds slowly to external crises?
For on-site observation to be done properly in a complex situation it can be
very time-consuming. Proper sampling procedures must be used to ascertain the
stability of the behavior being observed without knowledge of suitability inferences
drawn from small samples of behavior small time slices can be inaccurate
93
9.3.6. TECHNIQUES OF INFORMATION GATHERING

There are several methods existing to gather facts about an existing system.
The analyst’s approach to the investigation will influence the use of the various
methods. The commonly used methods are,
1. Interviewing
2. Questionnaires
3. Observation
4. Sampling
5. Record Searching
The above methods should not be independent activities but integrated. Each
has particular advantages and disadvantages. The analyst should encourage
participation in the investigation by welcoming all information, which is offered,
and especially by recognizing the superior knowledge of the user of the existing
system.
Interview
Interviewing has its own scientific process. Interviews are used to collect
information verbally through questions posed by the analyst. Respondents may be
managers or employees who are current users of the existing system. The analyst
can interview people one at a time or in-groups.
Collecting Data by Interview
Interview technique is a tool for data collection. Interviewing is a form of
conversation not interrogation. By discussing systems characteristics with
respondents carefully selected for their knowledge of the system, analysts may
learn of details that are not available through any other means. In system
investigations, both quantitative forms of information are important Qualitative
information deals with opinions, policies, and narrative description of activities,
while quantitative description deal with numbers frequencies or quantities.
Interviews are often the best source of qualitative data. Respondents’ opinions,
comments, ideas, or suggestions about how work is or could be done are valuable.
Interviewing is sometimes the best way to learn about them.
Determining the type of Interview
Interview is broadly classified into two categories, namely structured and
unstructured interviews. If the intent of the interview is to acquire general
information, unstructured questioning with a free question and answer session is
suitable. The open and free-flowing atmosphere of this format provides greater
opportunities to learn abut the feelings, ideas, and beliefs of the respondent.
However, when analysis need to acquire specific application details or wish to
ensure high reliability of answer to question posed to all interviewers, structured
interviews are better.
Structured interviews use standardized question. The response format for the
questions can be open or closed. Open-response questions allow the interviewees to
provide whatever answers seem appropriate. They can answer fully in their own
94
words. With closed response question the user is given a set of answer form which
to select respondents select from the same set of possible answers. The advantages
disadvantages of structured and unstructured interviews are given above.
Selecting Interviewees
Before conducting an interview the right person to be interviewed is to be
identified. Conducting interview takes time. Thus it is not possible to use this
method to gather all the information needed in an investigation. Moreover the
analyst should verify the data gathered by using one of the other data collection
methods. Since a limited number of persons will be selected for interviewing,
analyst should be careful to include those people who have information that will not
be collected through some other method. During the early stages of study, when
analyst is determining projects feasibility, interviews are often limited to
management or supervisory personnel.
Conducting the Interview
Conducting interview is a scientific process. Interviewing is an art as well as a
skill that comes through practice and knowledge of the system under investigation.
Those who are successful and effective in using interviewing methods during
system studies agree on the steps analyst should follow. To ensure the interview is
useful, the analyst should remember the following points. (i) Make an appointment
with the interviewees in advance. Interviews are successful only if carefully planned
and arranged in advance and (ii) Prepare for the thoroughness’ of the topic of
interviews and prepare an appropriate set of questions that should be answered
during the planned conversations. While conducting the interview, the following
points to be observed.
1. Proper introduction of the interviewer to the interviewee is a very essential.
2. Outline of the topic should be provided to the interviewee based on the
nature of the project.
3. The Interview should be started with basic questions that can establish
the framework within which the rest of the interview will be conducted
4. The note taking process of the interviewer should not distract the
interviewee.
5. Drawing conclusions during the process of interview should be avoided
and if necessary further clarifications can be sought with the interviewee.
6. Monopolizing the conversation should be avoided
7. Attentive listening is very essential for the interviewer
8. Emotional involvement in the interview process should be avoided.
9. Rushing through the interview should be avoided
10. Proper distinction between facts and opinions should be made.
11. Summarizing the information gathered during the interview in logical and
in systematic manner is very essential.
95
Questionnaire
Questionnaire provides a useful alternative to interviews. Questionnaire
should be designed carefully for maximum effectiveness. Questionnaire may be the
only feasible way for the analyst contact a large number of persons about various
aspects of the system. When large multi department studies are being conducted,
questionnaires can be distributed to all appropriate persons to collect facts about
the system.
There are some disadvantages to questionnaires also. Even though
distribution may be made to a large number of individuals, full response is very
rare. Follow-up questionnaire may be needed to encourage individuals to respond
but even then over all response rates are not uncommon. Many people take their
time in completing questionnaires they receive about the system study may not be
their not be their top priorities. When large groups can be gathered together for the
sole purpose of completing a questionnaire, response rates may be improved.
Selecting Questionnaire Forms
Development and distribution of questionnaire is very expensive. Therefore
time invested in developing a questionnaire should be used wisely. The format and
content of the questionnaire is all-important in collect in meaningful facts.
Open Ended Questionnaire
Like interviews, questionnaire can be open-ended. Open –ended forms are
good for finding out about feelings, opinions and general experience. They are also
useful for exploring a process or problem. For example, an analyst, using
questionnaire to study credit verification methods in a retail sales environment
would probably collect the most useful information from an open question. The
open format provides ample opportunity for the representative to describe the
reasons for their ideas. Some people however, find it easier to check one of a set of
prepared responses than to think for them.
Closed Questionnaire
The closed questionnaire method limits the possible responses of the recipient.
Through careful wording of question, the analyst can control the frame of reference.
This format is the best method for eliciting factual information. It also force
individuals to take a stand on opinion about important issues and some common
forms of closed questionnaire response are yes/no, agree/disagree.
Steps in Questionnaire Development
Good questionnaire are not developed quickly. They take time and handwork.
Good questionnaire are not just written they are designed. Careful thought coupled
with pre-testing of both the format and the questions are the basis of meaningful
data collection through questionnaires. While developing a questionnaire the
following points should be observed.
96
1. Identifying the facts need to be collected and the persons best qualified to
provide it.
2. Proper identification of the questionnaire to be used like Open ended or
closed - ended.
3. Developing a pool of questions to be included in the questionnaire.
4. Examining the questionnaire for flaws and defects such as unnecessary
questions, misinterpreted questions, question that cannot be possibly
answered, questions that are interpreted differently, questions that do not
adequate response, improper ordering questions etc
5. Possibility of conducting the pilot study based on the questionnaire on a
small group.
6. Analyzing the responses of the pretest to ensure that the intended data
analysis can be carried out with the type of data collected
Observation
Observation means seeing through any system directly. Thus observation
provides first hand information about how activities are carried out. Interviewing
a person either directly or through questionnaire or reading about a particular
through documents and fills may not give complete and correct information. Where
as direct observation by a person can give correct information. Because
interviewing requires recalling memory, often memory fails to give correct and
complete information. Reading a document or file gives what should happen. But
observation Actually tells what exactly happens.
Observer should watch for minor details in systems and he should also watch
for other unusual happenings. These observations will help to analyze the system
thoroughly to identify bottlenecks in the system.
For example, the trained observer can pick up important clues such as office
conditions, bottlenecks, and pace of work and methods of work. They are not
gained from casual observation but needs deliberate attention. It is unlikely that
this knowledge can be gained without the conscious co-operative of the person
being observed. The analyst should always arrange to be introduced to the person
and give an explanation of what is going to be done and why, some interviewing
may also be necessary to explain the logic behind some of the operations.
Sampling
When we have voluminous data, it may not be practical to observe each and
every item. So we take a representative sample of the total data with the assumptions
that any resulting information of the sample will hold good for entire volume.
Firm conclusions to the whole set of data can be obtained by randomly
selecting and examining 10% or 15% data. For example, if it is found from random
sampling that 10% of invoices have a value between Rs. 1000 and Rs 1500, then it
can be inferred that the same proportion will exist in the whole lot of invoices.
97
In order to achieve the above assumption we follow some of the methods such as.
a) Every nth data of the volume.
b) Every data which occurs after a constant interval.
The sampling technique can be used to reveal volumes, frequencies, trends
or rations. It is also commonly used as a method of work measurement.
Record Searching
The main purpose of record search is to establish quantitative information,
volumes, frequency trends, and rations. It will also help to establish how much
reliance can be put on the estimates given by the staff or the management of
department. It may also indicate whether the departmental objectives are being
achieved and whether information needed for decision-making is available when
required. It may disclose exceptions and additions to the information obtained from
interviews such as documents not mentioned, or received and filed without any
action. The following points may be observed while searching the records.
1. The collected information must be accurate and it should be related to the
current practices.
2. The information should be crosschecked wherever possible. For example, a
procedure, which is laid down in the manual may not be followed in
practice. This has to be verified.
3. The information collected must be relevant to the analysis begin made.
1) Roles and responsibilities of system analysis in Information System
Development.
2) Different stages in System Analysis
3) Various sources of information gathering and techniques.
1) Differentiate system analysis and system designing.
2) What are the stages of system analysis? Explain each stage in detail.
3) Explain about the methods of Information gathering for systems analysis.
4) Explain the need and different types of investigation.
9.6. SUMMARY
System analyst is the key member of any system development project. Hence,
he plays many roles in the development of the project. Moreover, system analyst is
a person who is more experienced than any, working on the project. He should also
have a wide knowledge about different systems and application software available
for the project.
Define the following:
a. System analysis; b. Project reader; c. Interpersonal;
d. Systems designing; e. on-site observation; f. Sampling;
g. Skill questionnaire
98

Hibberd, Betty Jo, and Allison Eratt. “Mapping Information Flows. A
Practical guide”, Management Information Journal (January/February, 2004)
1) What is system analysis? Explain the role of system analyst in systems
analysis.
2) Elaborate in detail the various information gathering techniques.
1) Edward Yourdan (2003). Modern Structured Analysis. New-Delhi: Prentice-Hall
of India, Third Printing.
2) James A. O’Brein (1999).Management Information Systems: Managing
Information Technology in the Internet worked Enterprise. New Delhi: Tata
McGraw-Hill Publishing Company Limited.
List out the various activities of system analysis prepare a manual about
various techniques are adopted by the system analysis for gathering information for
system designing.
9.12. KEY WORDS
 Archaeologist
 Scribe
 Conglomeration
 Monopolizing
 Voluminous data.

99
LESSON – 10
SYSTEM PLANNING FOR INFORMATION SYSTEMS
10.1. INTRODUCTION
The value of planning is well-understood fact. The Companies with strategic
planning approach tend to achieve better results than companies that do not, yet
many organizations do not plan or do it poorly. An information system with
computer application is a complex project and therefore needs an overall plan to
guide its initial development and subsequent change. The plan describes the
structure and content of the proposed information system and how it is to be
developed. Since all projects within the plan cannot be developed and implemented
concurrently, priorities must be set for implementation in the planning. Also, it
should be noted that information resources available in every organization contrary
to other resources. However, the intangible nature of the information resources
make it so complex and to tough to understand. Thus, in the organizations where
there exists scope for hectic activities with higher level of dynamism, there are more
opportunities for information system applications. Even it is possible to state that
in such organizations the wastage of various resources can be minimized with
Information Systems application. Therefore it is mandatory for such organizations
to go in for Information Systems applications with well-defined plan and
appropriate allocation. The master plan once developed for Information System
application does not remain constant, as it requires updating as when
developments occur.
Normally, the organizations strategic planning will have the basis for
Information System planning and this is considered to be the fundamental aspect
of Information Systems planning. Thus, it is very essential to align MIS strategy of
the organization with its organizational strategy. However, achieving this alignment
is just not an ordinary task and once achieved successfully will result big success.
For example, think about the popularity of ATM banking in India, Initially not all
the banking systems were having ATM’s. Now a stage has been reached in the
market, where the bank cannot survive without ATM facility. There exist different
approaches for the organizations to organizing and supervise its information system
planning effort. Normally, the Chief Information Officer (CIO) of the organization will
take up the responsibility for MIS planning.
The Information System Plan for an organization is reviewed and approved
based on the difference, the proposed system can make with the existing set of
activities. The priorities for implementation are set based on the functions being
served and the degree of high level support provided. “In some companies, the
review is performed by information systems steering committee composed of
executives from major functional areas plus the information systems executive. The
steering committee reviews and approves the master development plan and also
periodically reviews progress against the plan,” (Gordon, 1983). The completed
information system plan will be given to the organization’s top-level committee for
review, approval and integration with other plans.
100
The planning cycle for information systems should go in coherence with the
cycle for the organization plan. This will enable the information system plan to get
easily merged with the overall organizational plan. The information system plan
should establish the information roles of various organizational units. Also, it
should ensure the coordination and integration required by different functions
planning for new or revised information resources, and the planning cycle.
10.2. OBJECTIVES
After studying this lesson you will able to
 understand the process of information system planning
 get familiar with information system goals, objectives and architecture
 be clear with forecast of development affecting the plan
 learn to maintain the master plan
10.3. CONTENTS
10.3.1. Contents of Information System Master Plan
10.3.2. Maintenance of the Master Plan
10.3.1. CONTENTS OF INFORMATION SYSTEM MASTER PLAN
The master plan for the Information Systems will have two components namely
(i) a long-range plan for three to five years (or longer) and (ii) a short-range plan for
one year. The plan will act as basis for resource allocation and control. The long-
range portion of the plan provides general guidelines for direction, and the short-
range portion of the plan provides a basis for specific accountability with regard to
operational and financial performance of the organization. The master development
plan for Information Systems establishes a framework for all detailed information
system planning. In general, it consists of four major sections:
1) Goals, objectives, and architecture of the proposed Information Systems.
2) List of current Information Processing capabilities
3) Forecast of developments that can affect the plan
4) The specific plan for immediate action.
However, the above stated details will not be organized in the same logical
manner in a particular Information Systems plans. Each of these sections are
described in more detailed manner as follows.
Information system Goals, Objectives and Architecture
This section of the plan provides the following descriptions
1) Goals, objectives, and strategies of the organization.
2) External environment like industry, government regulations, customers,
and suppliers who are likely to influence the system in one-way or
another.
3) Internal constraints of the organization such as management philosophy.
4) Possible business risks and potential consequences associated with the
project.
5) Proposed Information system’s overall goals, objectives, and strategies
6) Tentative Architecture of the Information System
101
Thus, it should be noted that the plan for the Information Systems should be
made within the context of overall organizational goals, policy, objectives,
strategies, and plans. Also, there should be policy, goals, objectives, strategies, and
plans for the proposed Information System. The general goals provide guidelines for
the directions in which the information system project should be directed. The
objectives should be more specific and should be explicitly stated in, so that
performance or nonperformance may be measured. For example, a goal might be
“to provide information system resources on a timely basis to all organizational
units.” An objective might be “to get periodic financial reports not later than 36
hours after the end of the period.”
The information architecture provided in the plan might define major
categories of information and the major information subsystems or applications.
The overall architecture or structure of the information system could provide a
framework for detailed planning for further course of action.
Current Capabilities
The organization might be using the computers and other peripheral already
for some of its operations. Hence, the details of the current status of an information
system will find its place in the master plan of the proposed Information System. It
includes such items as the following:
1. Existing details of:
a. Usable Hardware
b. Generalized Software like system software, database management system,
etc.)
c. Application Systems available if any.
d. Computer Personnel.
2. Analysis of:
a. Operational expense
b. Hardware Utilization
c. Software Utilization
d. Personnel Utilization
3. Status of other projects in process
4. Assessment of strengths and weaknesses with regard to Information system
applications.
The purpose of identifying the existing details of inventory is to clearly identify
the current status of all systems. Accordingly, application may be classified by:
1) Major functional system like as accounting, marketing, human resources etc.
2) Organizational strategies (e.g., provide online ordering by customers)
3) Need for maintenance or revision:
a. Application which are working reasonably well
b. Applications which require revises implementation or improvement
c. Applications which need to be substantially revised or completely
replaced by new systems
In the case of personnel, useful classifications might include:
102
1) Job classifications (programmer, operator, etc)

2) Skill categories (COBOL programming, data communications, etc)
3) Functional area experience (finance, accounting, manufacturing, etc.,)
In each case, the classification should reflect planning concerns, For example,
in planning for a shift to facilities for end-user computing, software might be
classified with respect to users.
1. System software
a) For operations
b) For trained programmers
c) For both programmers and end users
d) For end users
2. Application software
a) Purchased or developed and supported by information systems personnel
b) Purchased or developed by users and supported by information systems
Personnel.
c) Developed and supported only by users.
Forecast of Developments Affecting the Plan
The growth of the technology with regard to computer hardware and software
is observed to be very rapid to the extent that the technology introduced even five to
ten years before goes obsolete. Under these circumstances, planning is affected by
current and anticipated technology. The possible impact of such developments as
personal computers, local area networks, database management systems, and office
automation should be reflected in the long-range plan created for Information
Systems. Though the technological innovations are announced one or more year
before the actual deployment, it is found to be difficult to estimate technology far
into the future. However, it should be possible to perceive broad technological
changes before they are implemented. For example, it was known for several years
that the wireless application of computer networks is an operational reality and if
such applications are incorporated in large scale in the business applications then
it would have a substantial impact on the design of future Information Systems.
Similarly, the availability of notebook PC’s and its ‘business applications’ with
growing possibility of ‘Wireless Internet Access’, it is reasonably obvious that they
would be an important factor in future Information Systems.
Forecasting with regard to the growth in the software technologies should
consider the facts like availability of customized software solutions, ERP packages
like SAP/R3 etc. Also, the focus in the software technology is shifting towards the
Free Open Source Software (FOSS). This development will have its impact in the
application development and hence, forecast of software sustainability and the
impact on future system should be anticipated in plan for Information Systems.
“For example, in 1965 when IBM announced the system 360, the software trend to
COBOL as the dominant business procedural language was under way.
Installations that perceived that trend correctly made better decisions that those
which chose to ignore COBOL (and other procedure-oriented languages). In 1984,
103
the trend in development software is to fourth generation languages” (Gordon,

1983).
The plan for Information Systems should have the forecast for any possible
alternatives with regard to the System Development methodologies. The effective
alternative for the traditional System Development Life cycle (SDLC) methods
should be provided in the plan. In this context it should be noted that the
automatic development tools are likely to have an impact and should be examined
in the plan. Also, the environmental developments such as government regulations,
tax laws, and competitor actions can also be included as they affect information
systems in long run.
The Specific Plan
The plan for Information Systems will normally cover few years’ say 2 to 4
years. However, the specific details of action to be carried out in the immediate 6
months to one year can be found in the specific plan. Thus, the specific plan of the
Information Systems will be reasonably specific with sufficient details like budget
for the Information System initiatives in the next year. The specific plan should also
include:
1) Acquisitions schedule for the hardware.
2) Schedule for purchasing software like:
a) System software
b) Applications software
3) Schedule for the development of Applications system.
4) System Conversion and Software maintenance schedule.
5) Schedule for hiring and training the personnel associated with the
Information System.
6) Financial and other resources require by object of expenditure (Hardware,
software, personnel, etc.,) and by purpose (operations, maintenance, new
development, etc.).
10.3.2 MAINTENANCE OF THE MASTER PLAN
The Master plan for the Information Systems as stated earlier will consist of
different potions based on different criteria. Hence, as the year passes the plan
requires constant updating. Most of the current status in the plan gets updated
with the new equipment purchased and the changing personnel figures. Changes in
the technology, experience with the systems that have been developed, changing
needs for new system, and changes in the organization might affect future ideas
incorporated in the plan. Normally, when the organization acquires new division of
operation in its business model, then factors like common information processing,
common codes, installation of common system etc. may affect the entire plan
formulated for Information Systems. A Change in the technology of the hardware
and the software is likely to cause a considerable impact in the plan even though
these changes have been forecast. However, it should be noted that the proper
forecast of these changes would make ‘assessment and corresponding impact’
amended easily in the plan. Sometimes the changing financial constraints could
cause internal pressure for changes in the plan. The most important aspect in
maintaining the master plan involves updating the plan as per the status of the
systems installed and the progress of the system development activity. The changes
104
to the plan could also be caused due to the regulations from the government and
actions from the competitors.
1) Some of the organizations wasting its various resources, which can be
minimized by implementing Information Systems.
2) Organizations should go for Information Systems
1) Differentiate the terms ‘planning for information systems’ and ‘information
system plan’.
2) Briefly explain the contents of information system master plan.
3) What do you mean by the current capabilities of information systems?
Explain.
4) What is a specific plan for Information systems? Differentiate it with master
plan.
10.6. SUMMARY
Normally in organization, we can really know the value of planning to achieve
better results when compared with companies that do not plan properly. In
organization strategic planning will have the basis for information system planning
which is considered to be the fundamental for information system planning.
1) Define: a. Strategic planning; b. Master plan
c. System software; d. application software
2) List-out the four major sections of master development plan for Information
Systems establishment.
“Management Information Systems: New approaches to organization and
Technology,” 5e Kenneth C. Landon, Jane. P. Landon.
1) Explain about ‘forecast of development’ affecting the information systems
master plan.
2) Explain about maintenance of information systems master plan.
Gordan. B. Davis (1984). Management Information Systems: Conceptual
foundations, Structure and Development. Singapore: McGraw-Hill Book co.
You have been assigned to develop Information systems for your organization.
In order to fulfill the organization requirements plan the system and sale-systems
for long-term as well as short-term. Prepare a flow diagram
10.12. KEY WORDS
Dynamism, FOSS, Hectic, ERP, SAP.

105
LESSON – 11
SYSTEM DESIGN AND IMPLEMENTATION
11.1. INTRODUCTION
Systems analysis represents the fourth step of the SDLC. In other words it can
be explained that the systems analysis sets the objectives for the proposed
information system. However, system design will be the next step immediately
following systems analysis, consisting of details specifying; how the objectives set
forth at the analysis stage are accomplished.
11.2. OBJECTIVES
 understand the system designing process in a detailed manner
 describe the tools for system designing
 know the types of forms
 analyse the design consideration to be maintained in the form
 understand the four major forms of conversion, to the newly computerized
MIS from the manual system
 know about the technical, operational and economic evaluation of the new
system
 know the two ways of providing protection and security
 comprehend the various aspects of security considerations
11.3. CONTENTS
11.3.1. System Designing Process and its Sub-Components
11.3.2. User Interface Design
11.3.3. Data Design
11.3.4. Process Design
11.3.5. System Specifications
11.3.6. Tools for System Designing
11.3.7. Conversion
11.3.8. Evaluation of System Value
11.3.9. System Dependency and Vulnerability
11.3.10. Environmental Protection.
11.3.1. SYSTEM DESIGNING PROCESS AND ITS SUB-COMPONENTS
In other words the activities corresponding to the ‘system designing’ can be
identified from the fifth step of the System Development Life Cycle (SDLC) shown in
the figure 11.1. Thus, the system design will consist of design activities that
produce system specifications, satisfying the functional requirements developed in
the systems analysis stage.
Technical Network Customer

Services Services Serivces
Screen, Form, Report Data Element Program and
and Dialog Design Structure Design Procedure Design
Figure 11.1. System Designing process and its Sub Components

106
A schematic representation of the process ‘System Designing’ where the process

of system designing is stated to constitute three sub components namely (i) User
Interface Design (ii) Data Design and (iii) The Process design. At the end of the
system designing process, it is possible to visualize three major products, or
deliverables made out of the process. Hence, it is possible to evolve a framework for
‘system designing’ constituting the set of activities corresponding to (a) Designing
user interface (b) Designing Database (c) Designing the process. Thus, at the end of
the system designing process a detailed ‘system specifications’ consisting of user
interface methods and products, database structures and processing, Software
specifications and control procedures, and overall MIS structure for the
organization will be evolved.
11.3.2. USER INTERFACE DESIGN
The user interface of the MIS is the convergence point for man and the
machine called computer. In the early 70’s when the usage of computers for
business Information processing was recognized, the user interface provided is of
‘character-based’ one. In other words it can be said that the user has to interact
with the system only through the letter commands. However, the technological
growth in computer science and engineering made it possible to have voiced based
and GUI (Graphical User Interface) based interaction with the system. Thus, the
user interface design activity focuses on supporting the interactions between the
end users and their computer-based applications. Normally, many of the user
interfaces designed for the present day computerized MIS is of GUI and voice based
one. More precisely the GUI is designed with the ‘programmable object’ called
forms. However, the availability of Internet based infrastructure and the possibility
of evolving corporate ‘Intranet’ have made many companies to switchover to HTML
based Graphical User Interface.
11.3.3. DATA DESIGN
The data design is nothing but creating and formatting the memory component
of the Information System. In the case of manual Information System this memory
component can be traced back to the large volumes of paper based files
accumulated in the record rooms of the organization. However, in computerized
MIS the memory component of the system is nothing but a database. Hence, the
activities associated with the ‘data design’ of the Information System concentrates
on the creation of the schemes and structure of the database deployable in the
proposed Computerized MIS. Also, the structure of files to be used by a proposed
information system will be designed in this stage. Hence, the product of data design
is detailed descriptions of:
1) Characteristics of entities (objects, people, places, events) about which the
proposed information system needs to maintain information.
2) The relationships between the entities.
3) The specific data elements (databases, files, records, etc.) corresponding to
each of the entity tracked by the information system.
4) The integrity rules that govern how each data element is specified and used in
the information system.
107
11.3.4. PROCESS DESIGN

The process design activity of the ‘System Design’ concentrates on designing
the specifications for the software resources needed by the proposed computerized
MIS. Hence, designers concentrate on developing detailed specifications for the
software that will have to be purchased or developed by the programming team. The
detailed specifications for the software component in the system includes the
software associated with designing the user interface. However, the specification
details of user interface should go in line with the requirements identified in the
‘user interface designing’ component of ‘system designing’ process. Also, the details
regarding the specific method of database connectivity and its relevance will be
justified in the specifications generated in the ‘process design’.
One of the important issues of ‘software process design’ is the decision
regarding the architecture deployable while processing the services of computerized
MIS. The popularity and the usage of client /server architecture is well-know to the
extend that Limited Area Network’s (LAN) can be established very easily anywhere.
However, it should be noted that the ‘service processing’ of the computerized MIS
can be deployed in two different architectures namely (i) Two tier architecture and
(ii) Three tier architecture.
(i) Two tier architecture: The two tier architecture of the computer networks can
be deployed in two different propositions namely (a) Thin Client/Fat Server and (b)
Fat Client/Thin Server.
(ii) Three tier architecture: The three-tier architecture is the outcome of the
technological growth experienced in the networking domain of the computer science
and engineering. A three-tier architecture will provide more range of flexibility for
processing the services of computerized MIS. The three-tier architecture of the
Computer networks will have three layers of operations namely (a) User Service
layer (b) Application Service layer and (c) Data Service layer.
1) User Service Layer: The user service layer of the three-tier architecture is
deployed with front-end client software that communicates with users
through a GUI.
2) Application Service Layer: The user application service layer of the three-tier
architecture is deployed with software modules that enforce business rules,
process information, and manage transactions. Application services can be
made to reside on client systems or in server systems.
3) Data Service Layer: The data service layer of the three-tier architecture is
deployed with DBMS or RDBMS software.
11.3.5. SYSTEM SPECIFICATIONS
This is the end product of system designing process. System Specifications
provide the design of an application user interface methods and products, database
structures, and processing and control procedures. Therefore, systems designers
will frequently develop hardware, software, network, data, and personnel
specifications for a proposed computerized MIS. The final system design must be a
document specifying the types of hardware resources (machines and media),
108
software resources (programs and procedures), network resources (communications

media and networks), and people resources (end users and information systems
staff). The system specification will also specify; how the various resources of
proposed computerized MIS will convert data resources (stored in files and data
bases they design) into information products (displays, responses, reports,
documents).
11.3.6. TOOLS FOR SYSTEM DESIGNING
The system designing work resulting in system specification is the work of the
specialist in the Information Systems and it should be noted that it may not be
possible even for a hardcore software programmer to design a system. However, in
practical scenario the systems designers in many of the software development
consultancies are found to be the senior most people, who might have started their
career as software programmers. To perform the task of system designing a person
should be good in using the tools of ‘structured analysis’, which is a specialist job.
The detailed list of tools for designing the different system features is show below.
Designing System Component’s and Flow
The components of the computerized MIS and corresponding information flow
of the information system will be designed with (i) System Flow Chart (ii)
Presentation Graph (iii) Data Flow Diagrams (iv) Context Diagrams and (v)
Information System Component Matrix.
Designing User Interface
Input /Output layout forms and screens, dialogue flow diagrams etc. More
detailed designing considerations are discussed in the next section of this lesson.
Designing Data attributes and relationships
The data attributes and relationships of the system will be designed with the
help of (i) Data dictionaries (ii) Entity-Relationship diagrams, (iii) File layout forma
and (v) Grid Charts.
Designing Detailed System Process
The various processes of the system will be designed with the help of decision
trees and tables (ii) structure charts (iii) pseudo code program flowcharts.
FORM DESIGN
The different stages of systems analysis and physical design of a computer
based MIS was discussed earlier. In this part, the physical design of one of the
manual sub-systems i.e., forms and their design will be discussed. In this context it
should be noted that ‘form designing’ is the minute aspect of ‘User Interface
Designing’ discussed in the previous section. In computer based information
systems the forms are used for input, output and display purposes. The end user of
the information system reads from forms and writes on forms. Also, the end user of
the information system spend sufficient amount of time in handling and filing
forms. Since, forms are the GUI provided to most of the computerized MIS, they
must be designed carefully.
In a specific computerized MIS of the organization, there can be different types
of GUI based forms like purchase order, application, requisitions, shop orders,
109
claims etc. In all these categories of GUI, the data is transformed through forms
and information is obtained through forms. Hence it can be said the forms is a
physical carrier of data as well as information within the computerized MIS. Thus,
form is defined GUI that can be made as a document having constant printed
information and space to add variables information.
TYPES OF FORMS
The three types of forms are (i) Action forms (ii) Records or memory forms and
(iii) Reports.
Any form may be classified as action form, record or report form or some
combination thereof. The information recorded on forms constitute data. The forms
can also be classified as input or output forms depending on their functions in a
data processing environment. Input forms provide information from the
environment to the system. Output forms provide information from the
environment to the system to the environment. Many of the input are also
function forms (e.g., withdrawal from an inventory). More or the output forms are
reports, but some of them may be action forms (e.g., recorders, replenish stock).
The forms may also be classified as single part or multi-part forms. The different
types of forms, its characteristics and the relevant examples are stated in the Table
11.1.
Table 11.1: Details of Forms and its types.
S. Types of Characteristics Examples
No. Forms
1. Action Orders, Instructs, Authorize Purchase Order
Provides the results of certain Display regarding sale
Process. performance of the month.
Capable of getting shared from Requisition Sales Slip, Shop
one system to another. Order, Claim, Time Cards.
2. Record or Represents historical data Cheque /Registers.

Memory
Data generally used for reference Inventory Records.
Stationary and remains in one Journal Sheet, Purchase
place usually in file Record, Stock Ledger.
Serving control on certain details Balance Sheet Profit and Loss.
3. Report Summary Picture of a project Status Reports.
Provides information about job or Monthly Sales, Summaries and
details that need attention Market Positions.
Used by a manager with Balance Sheet Profit and Loss.
authority to effect change and
loss.
FORM DESIGN CONSIDERATION
After analyzing the existing forms, evaluating present documents, either new
forms or improved forms must be designed. While designing a form the following
points must be considered.
1) The title of the forms must clearly identify its purpose.
110
2) The form should be identified by the form name.

3) The rows and columns should be labeled to avoid confusion.
4) The forms must be easy to use and fill out.
5) It should be legible, intelligible and uncomplicated.
6) Ample writing space must be provided for inserting data
7) The forms composition should lead to easy reading
8) When multi-page reports are being generated they should be numbered
9) The data requested should be in a logical sequence
10) Related data should be in adjacent positions.
11) Data copied from the source documents should be in the same sequence in all
the pages of the forms.
12) The data should be easy to enter. The field positions should be indicated
under each column of data. The Decimal points also to be indicated.
13) The form must be easily stored and filed.
14) Important items must be located in a prominent place
15) Instructions accompanying a form should clearly indicate how they should be
used and handled.
16) The form must be cost effective by eliminating unnecessary data and facilitate
easy reading.
17) If the form is to be used for report purposes that should be taken into
consideration in the form of design.
Information Gathering for Form Designing
Printed forms are widely used for capturing and providing information. The
objective is to understand how forms are used. The following questions may be
useful with regard to gathering information about the forms to be designed.
1) Who uses the forms? How important are they to the user?
2) Do the forms include all the necessary information? What items should be
added or deleted?
3) How many departments receive the existing forms? Why? It would make little
sense, for instances, if the manager of the production department required
copies of each purchase order even though purchase requisitions were
initiated by the department.
4) How readable and easy to follow is the form?
5) How does the information in the form help other users make better decisions?
FORMS CONTROL
The forms control is a procedure for;
1. Providing improved and effective forms
2. Reducing printing costs
3. Securing adequate stock at all times.
The first step in the control is to decide whether the form is needed or not. The
next step is to collect, group, index, stock and control the forms in the organization.
Each form has to be identified and classified by the function it performs. In the next
step each form is evaluated by the data it captures, where it is used etc. In other
111
words unnecessary forms must be eliminated and if necessary other forms must be
improved.
11.3.7. CONVERSION
Conversion to the new application system will be initiated after all the
programs and procedures have been prepared manually and individually tested.
“Three major activities prepared for actual conversion are acceptance testing, file
building, and user training.” Acceptance testing is the activity where the completed
application software will be compared with its specifications. It verifies to the user
that the system meets performance criteria as well as operational requirements.
The testing includes verification of user inputs, operating and control procedure
and outputs. Hence in acceptance testing the difference between what users
expected and what the system delivers are identified and resolved. The acceptance
test is being developed as part of the system planning.
File building refers to the collection and conversion to the machine-readable
form of all new data required by the application. This is nothing but the installation
of different executable files constituting the developed software. Thus, it can be a
long and tedious process. Normally, some file conversion programs will be employed
if the required data is already in computer readable form. If not, the data must be
gathered, coded and entered into the database. Sufficient time and human resource
should be provided to clean up the data, that is remove inaccuracies and
inconsistencies and make the data complete.
User training may be relatively straight forward or a critical effort and it
depends on the degree to which the new application system affects existing jobs. If
the technique such as job design is used as part of computerized MIS initiative,
training will involve substantial reorientation of the users to their jobs. Hence,
proper user training is considered to be an important factor in overcoming user
resistance to the system.
Though, the training is considered to be the essential requirement to operate
the new system, the new system will be deployed in four different schemas before
its full operational cycle. The deployment of the new system is taken up in four
schemes namely (a) Parallel Conversion (b) Pilot Conversion (c) Phased conversion
and (d) Plunged Conversion. Hence, it should be noted that the training details for
the end users of the Information System is largely influenced by the conversion
scheme followed for the specific Information System. The conversion schemas
stated can be implemented individually or in combination with one another in the
practical implementation process. Figure-11.2. provides the pictorial representation
of the four different conversion schemas discussed.
112
Old System
(a) Parallel
New System
Old System
(b) Pilot
New System
Old System (c) Phased

New System
Old System
(d) Plunged
New System
Figure –11.2: The four major forms of conversion to a new system

Source: O’brien (1999 )
Parallel Conversion: The newly developed Computerized Information System
will be operated in parallel with the existing manual information system for certain
period of time in the organization. This exercise is carried out to ensure the smooth
transition of the system from manual to computerized operations. However, it
should be noted that this exercise couldn’t be continued for a longer duration time,
as the operational cost of the system will increase very rapidly.
Pilot Conversion: In the pilot conversion scheme, the small portion of the new
system (Computerized MIS) is introduced in the existing manual operations. After
the successful introduction of the small portion of the new system, subsequent
insertion of the other portions of the new system will be made into the existing
manual operations. The insertion of the potions of the new system will not follow
any time schedule in the case of pilot conversion and the only parameter
considered for subsequent insertion of the new system is the successful operation
of earlier introduced portion of the new system.
Phased Conversion: In this case, the introduction of the new system into the
existing manual operations will follow a time schedule. Thus, it should be noted
that the complications regarding the conversions should be adapted within the time
frame provided. This method of conversion is considered to be very common as it is
less expensive. Also, the users of the new system can be trained systematically
based on the time availability between subsequent conversions.
Plunged Conversion: In this case the new computerized MIS will be introduced
all of a sudden in the place of existing manual operations. This type of conversions
is considered to be very difficult for ‘initial adaptation’ by the users of the system.
This type of conversion is ‘very risky’ to carry out and hence, it is uncommon in
practice.
Post Audit Evaluation of Information System Applications
This is a review by a task group composed, for example, one or more users,
representatives from the internal audit staff, and analysts from information made
on behalf of the project and compares them with actual performance and actual
113
costs. It also reviews the operational characteristics of the system to determine if

they are satisfactory. Documentation is reviewed for backup and maintainability
considerations. Control and security provisions are examined. The results of the
post audit are intended to assist in improved cost justification and management of
future projects, improvements in the application under review, or cancellation of
the application if it is no longer justified. Applications may be evaluated in terms
of system value. They may also be compared with the reports of technical,
operational and economic feasibility by which they were originally justified.
11.3.8. EVALUATION OF SYSTEM VALUE
One of the most severe problems with the post audit evaluation is the difficulty
of determining system value. The ideal measure, as of any investment of
organizational resources, is a determination of the impact of the system on
organizational effectiveness. Since little change can be isolated so that their effect
on overall organizational functioning can be measured, substitute indicators must
be used. The most logical place to look for such measures of system value is the
immediate environment where the system is being used. Methods can be
determined for measuring the effectiveness of the users as a result of having
received the output or service from the system. Some methods of indirectly
measuring system value are:
1) Significant relevance
2) Willingness to pay
3) System usage
4) User information satisfaction
i. Significant relevance: Results of system use are directly observable. For
instance, an office support system results in improved turn around of documents
for a decisions support system, task relevance is improved decision quality, which
is often difficult to observe, but sometimes possible to approximate through users
subjective estimated
ii. Willingness to pay: Users may be asked to specify how much they are willing
to pay for specific report of system capability (such as adhoc query). This type of
estimate will be very imprecise unless it is linked to an actual transfer price.
iii. System usage: System logs may permit measures of system use, or users
may be asked to estimate their use of the system. This is only appropriate for
systems whose usage is voluntary.
iv. User information satisfaction: Users are asked to rate their satisfaction with
such aspects of the system as response time, turnaround time, vendor support,
accuracy timeliness, format of outputs, and confidence in the system.
Measures developed according to any of the above methods are probably most
effective if given both before and after a new system or system enhancement is
produced. This provides a comparative indicator of improvements. System value
assessments should not be made shortly after a system is implemented; an excess
of program errors, difficulties in learning and adjusting to new procedures, and
general resistance to change may bias significantly both user satisfaction and
114
system usage. With many voluntary-use systems, initial use may be very high and
will gradually taper to a steady level once the novelty of the system has worn off.
Another caution is that some application cause subtle changes in the structure and
behaviour of organization in ways that were not anticipated, and these changes
may be difficult to uncover through the simple measures described above.
Technical Evaluation
The questions asked during a technical evaluation are similar to those used
determine whether the application was technically feasible. Some examples are:
Is the data transmission rate enough to handle the data?
Is there sufficient secondary storage to keep the necessary data?
Does the CPU respond to all requests with the specified time period?
When applications are installed, subsequent evaluation may disclose that the
operate ineffectively because the technical capabilities of the hardware or software
cannot support them properly. An on –line real-time operation may be very slow
because computer involved has insufficient capacity to handle the workload. A
communication network may adequately handle the workload but be more costly
than had been anticipated. An another common problem is that transaction
volumes were underestimated. So that secondary storage for on line processing has
inadequate capacity.
Operational Evaluation
Operational evaluation considers whether the input data is properly provided
the output is usable and used appropriately. Evaluation of applications should
examine how well they operate with special reference to input, error rates, timelines
of output and utilization. Some research on utilization of output suggests the need
for periodic evaluation of applications. In a study by Gee, 64 line managers at the
middle level manufacturing companies were interviewed and asked to evaluate
control information items they received as being used substantially or a being
irrelevant or background information of 579 items, 46 percent (267) were
considered to be irrelevant or useful only for background. In a further investigation,
49 middle managers were asked to classify items of control information as vital
(admitting no delay), important (used for reference and delay or inaccuracy
generally not significant), or background (items rarely used). The results from 38.3
items were as follows:
Vital 32%
Important 36%
Background 32%
There is a tendency not to terminate a report once it is started. Even though it
may not be used, there often is a feeling that it might have utility in the future. This
is consistent with the concept of the value of unused information. Various methods
can be used to identify unused reports. They are,
a) Termination of the report to see if anyone asks for it when it does not arrive
b) Periodic review of all reports by a task force.
115
c) Transfer pricing for reports to provide incentives for managers to eliminate

those that are unnecessary.
Economic Evaluation
The original proposal for an application included an economic evaluation. In
the post audit economic evaluation, the actual costs are compared with actual
benefits: The costs can be estimated with reasonable accuracy at post audit, but
many benefits may still be difficult to measure. After making these estimates, an
economic evaluation may be computed. For example, revised returns on investment
may be calculated.
The economic evaluation may be used beyond the specific application
examined. For management purposes, the evaluation may aid future decision
making to identify the costs of applications for which an economic return was not
expected or could not be estimated. For example, the reasons for the applications
may have been:
i. Mandated by law or changes in external system (such as changes in
postal PIN codes)
ii. Required in order to meet competition.
iii. To establish or maintain a competitive advantage or innovation
iv. Improvements in organizational performance that are expected but are
difficult to measure.
If economic evaluation shows that the return-on-investment objective will not
be achieved or other benefits are less (compared with cost) than anticipated, the
economic analysis required to decide whether or not to drop the application uses
only future costs and benefits. In other words, the costs of development already
incurred are no longer relevant; they are sunk costs and cannot be altered by the
decision. Frequently therefore, an application that has less benefit that anticipated
may still have sufficient future benefit to pay for operating costs and future
maintenance costs.
Information: Vital Resources
Information and its value was defined earlier. It was stated that the value
depended on the effective use of information. This in turn depends on
management’s confidence in the information they receive. Their confidence is based
on the reliability and accuracy of the information.
Throughout this study material emphasis has been placed on designing and
building systems which provide reliable, accurate information, where and when it is
needed. However, no system, however good, can be left for too long before it is
checked to see that it is performing efficiently. There are many ways in which a
system can be damaged, both deliberately and accidentally. It is essential, therefore
that all systems are regularly audited.
In many organizations the information held within the system is of vital
operational and strategic importance to the organization. The possibility of such
information falling into the wrong hands, or the damage that might be caused if the
116
information were lost, are not often thought about. The cost of either event
occurring could be extremely high, and organizations really have no alternative but
to protect their information resources.
11.3.9. SYSTEM DEPENDENCY AND VULNERABILITY
There are many areas in which the thought of existing without the computer is
frightening, as we would simply lose control. The traffic in India controlled by the
computer; hospitals could not function effectively; neither could the railways or the
airlines; the banking system in India would collapse, as would many of the large
companies, whose production lines and processes would be thrown into chaos. The
computer and its servants are assuming a place in society, which their inventors
never imagined. The dangers of dependency are immense, especially dependencies
on machines, which relatively few people, understand. Even computer programmers
and operators do not know how the electronics within the machine function. Of
course, programmers do not need this knowledge to write programs, but it indicates
the string of dependencies that the many groups of people does, of course, lead to
vulnerability of computer system, to fraud, error, misuse and damage.
In recent discussions at the American National Computer Conference in New
York the following areas were highlighted for attention.
1) Control and protection of input and output from error, theft and
modification.
2) Access to computer files
3) Unauthorized use of programmes
4) Unauthorized changes to programmes
5) Physical protection of magnetic files, tape and disc.
6) Adequate controls
7) Auditability.
These are all concerned with the protection of the system themselves, but
there is also a need to protect computer resources from physical damage. The best
auditing and control procedures possible will be of little use if the computer center
is burned down. Hence, the protection and security of computer systems can be
examined at two levels
1) Physical
2) Systems.
Physical security is concerned with
1) Access security is concerned with
2) Fire
3) Theft
4) Power interruptions
5) Sabotage
6) Environmental
Access to Facilities: Access to premises is the starting point, because if access
is difficult or impossible, except for authorized personnel, the possibility of theft or
117
damage is reduced. There are various ways in which access can be controlled
including magnetic card locks, reception areas, security guards etc
Fire: The effects of fire can be guarded against with fireproof premises,
cupboards and security copies of files stored off the premises. Special fire detection
and control systems can be installed which can put the fire out by using a chemical
gas to suffocate the flames. Sprinkler devices can also be used, but water does as
much damage as, if not more damage then, fire.
Theft: Theft is a real hazard, both direct theft of magnetic tapes or discs, and
indirect theft via terminals. The first is controlled by access security, the second by
systems security. There have been a number of cases of staff stealing files and
offering to sell them back.
Power Interruption: Power interruptions caused by power cuts strikes or
installing the appropriate equipment can protect against simple voltage
fluctuations. It is important to remember that RAM files are volatile and will be
affected by power interruption.
Sabotage: Sabotage, though less likely, is nevertheless a threat, terrorists, staff
taking, have sabotaged computer centers.
11.3.10. ENVIRONMENTAL PROTECTION
Even though these threats can be guarded against to some extent 100 percent
security is never possible and so it is essential that every organization has
contingency plans in the event of a serious disruption taking place. Contingency
plans should cover:
1. Copies of files and software
2. Access to data-processing resources
3. Contingency procedures
Copies of files should be made regularly, ideally daily, and these should be
held with copies of software off the premises, preferably in secure premises. Most
banks offer such a service.
Of course, copy files are of limited value if there are no machines to put them
on. It is usual to have an arrangement with another company to borrow their
machine and vice versa. These are known as reciprocal arrangements. Some
organizations are so dependent on computer systems for order taking or control
that they have their own stand-by facilities at another site. With the growth of
distributed systems protection is increased, because if one site is taken out another
site can be used. However important these aspects of security are, the main threats
come from the breaching of systems controls.
Systems Security can be Separated into
1. Data Security
2. File Security
3. Programme Security
4. System design controls
Data Security
Data are vulnerable at three points in the system
118
1. Input
2. Processing
3. Output
Input: when data are input, full records must be kept which show clearly
where the data originated. (i.e.) the prime documents, the person inputting the
data, and where the data are going within the system. For batch systems, batch
controls should be kept: the data, reference number and content are vital items to
be recorded. For interactive systems where data are input direct to the computer,
often with no prime document, the computer must produce a detailed transaction
log.
Processing: During processing, as data are moved around the computer, it is
essential that the controls affected by the move are checked before and after the
move. This calls for additional programming but will ensure the integrity of the
data.
Output: Output controls are associated with files security, but in addition it is
important to ensure that the computer does not provide data to unauthorized
users, either or paper on screen. It is import that every item of data output should
be recorded, showing:
1. What has been the output?
2. To whom it was given? and
3. When?
Even if some unauthorized person gains access, this control procedure should
identify the fault.
File Security
Data are held in the computer as some form of electronic signal in the main
processor, or as a sensitized spot on some magnetic medium external to the
computer. There is always a possibility that the data could be wiped off the file,
over-written, mixed up with other data or simply lost.
There are a variety of engineering devices within the computer to provide a
degree of protection, but the computer cannot foresee human error. It is essential
therefore, that data files are removed at regular intervals and held in a relatively
secure form.
At least two copies of these files should be kept one on the premises and the
other elsewhere, preferably in a bank. The normal procedure is known as
grandfather, father, son which means holding a copy of each files as follows:
1) The last updated file position-son
2) The transactions to reach the last updated file position-son
3) The previous updated file position-father
4) The transactions to reach the previous updated file position-father
5) The previous updated file to previous updated file position-father-
grandfather
If this procedure is followed (usually standard practice), it is possible to
recreate the file position that might be lost or changed by re-running the previous
119
file and transactions. Where batch processing is used, the files should be copied at
the end of each run. When transaction processing is used, the files should be
copied at the end of each run. In transaction processing regular copies have to be
taken on a time basis, i.e hourly, daily, weekly, etc. With copies of the files available
containing the appropriate controls, it is possible to recover from situations which
would be a disaster in most manual systems. However, copies can be checked with
the controls. It has been known for a file to be regenerated from a partially read
security file, thus creating an incomplete file. When files are being changed (file
maintenance) it is important to control the implications of the changes. Basically
four types of action take place:
1) New/insert record
2) Amendment to existing details
3) Display current details
4) Delete record
When a validation program links with a file maintenance system, part of the
controls should be a count of the different types of transaction that are going to
affect the master file. In the main update itself, the program must produce the
following controls:
1) Number of record brought forward:
2) Breakdown of transactions input:
3) Rejections:
4) Total update records: and
5) Number of records carry forward.
In some files, where information other than static information is held, it may
be necessary to expend the controls under each of the categories to show either
absolute values or high values, or in the case of a file where an amendment does
not affect the file structure, the date of the last update.
Programme Security
Programme Security is important. There are three program libraries held on
the computers test library, a temporary library and a load library. Access to and
use of these libraries must be carefully controlled.
The first step is to restrict access to a very number of people. The next step is
for the computer to record and produce a control report for every access to the
program libraries, showing:
1) Who accessed the library.
2) Which programmes they extracted
3) When this report can then be reviewed and, if necessary, questions be
asked.
In addition to controls on library access it is crucial to protect programmes
from unauthorized use. This is difficult if people with authority wish to misuse the
programmes for their own purposes. One of the controls that can be used is to
produce a control system which links to the computer accounts system and shows
for every programme:
120
1) When it was last used:

2) The job: and
3) The work the programme does.
This is particularly important for transaction processing systems and can lead
to rather interesting reports showing programmes being used in the middle of the
night for odd purpose.
It must also be possible to run a programme through an audit system to
establish what the programme does, particularly in relation to file update or data
input and output.
System Design Controls
System design controls should be built into the system. At any point within a
system it should be apparent if a malfunction has occurred. To this end it is
important that within any system there are control points. Control should appear to
the beginning and end of each system and also at any point in the system where
data are extended or change their nature, e.g. merges, validation, extensions, etc.
A control flowchart should be produced showing where each control, points its
role in the system. It should go without saying that all these controls are fully
documented so that they can be audited at some future date.
Operational Controls
It is important to reiterate here the need for observance of these controls.
Standards must be produced and followed if operations activities are to be secured.
Perhaps one of the most important consideration is the proper separation of
duties. This is done to avoid one person being able to tamper with the program then
the run the program and change the control. The rules are:-
1) Programmers must not be allowed to operate;
2) Neither operators nor programmers are allowed to authorize controls;
3) People responsible for input must not be involved in output control
4) Programmers must not have access to live files.
5) Operators must not have access to programmes, except for loading.
6) File libraries, whether on-line or on devices, must not be accessible by
programmers.
The objectives of separating duties in this way are to make misuse difficult
without collusion of several people. This reduces risk considerably; it does not,
however, eliminate it.
Auditability
Auditability refers to the way the system is designed so that it can be audited.
This means being aware of the auditors’ requirements at the design stage, and
incorporating the appropriate codes, validation checks, records and controls
necessary to permit an audit.
One way of ensuring that the system is auditable is to involve the auditors in
the initial design phase. They must at least approve the design report, and then
comment and make suggestions when the system specification is produced.
121
When a system is designed originally it is a good idea to check with the auditor
how he or she intends to design the audit system so that the required facilities can
be built in. This is not only good sense, but also can save in the audit fees. The
primary requirement will undoubtedly be a clear audit path through the system.
Audit Path
An audit path or trail is a way in which the auditor can check transactions by
leaving control signals as the data proceed through the system, rather like leaving
marks on trees when going through a dense forest.
The ability to select a transaction at random at any point in the system and
trace in either to its entry or exit, or both, is fundamental to effective auditing. This
requires considerable understanding of the way in which computer-based systems
work and the variety of interpretations that can be placed by programmers on
seemingly simple and direct instructions. The responsibility of ensuring that the
systems are auditable rests with the designer, who should insist on the design and
programming standards that are required. Those involved in the programming and
operation of computer systems should be allowed no discretion in interpretation of
such auditing standards. However, such standards should be prepared with a view
to the programming and operational constraints and the general level of machine
efficiency.
The audit system must provide a means for auditing the following aspects:
1. Systems:
a. User needs;
b. Design methods;
c. Project control
d. Testing procedures, and
e. Maintenance procedures.
2. Processing:
a. Organization of transactions;
b. Data entry;
c. Data communications;
d. Processing procedures, and
e. Storage and retrieval of data.
3. Computer Operations:
a. Input/output controls;
b. Library controls;
c. Division of duties;
f. Physical searching procedures, and
d. Stand-by and back-up
Meeting these auditing and security requirement places a burden on the
system designer, but it is a burden he or she must accept if the systems are going
to serve the organization.
1) System design is the next step immediately following system analysis
122
2) The system design function involved in three sub-functions namely, user

interface design, Data Design and the process design.
3) System designing tools are such as, system flowchart, presentation graphs,
data flows diagrams, context diagrams and Is component matrix.
4) Three types of design terms are namely, Action forms, Records or memory
terms Reports
5) Conversion to the new application system will be initialed after all the
programme and procedure have been prepared manually and tested
individually
6) Measuring the effectiveness of system value based on the users decided
output or service
7) Should identify the system dependency and vulnerability by applying small
sample applications for all the related activities.
8) Data security, file security, programme security and system design control
one mandatory for the system protraction in the in secured environment
1) Explain the process design associated with a specific system design.
2) What is a system specification? Explain the tools for system designing.
3) Narrate the considerations that are to be taken into account while designing
the form.
4) Explain different types of forms and its corresponding details.
5) Explain four major forms of conversion to the new Computerized MIS from the
existing manual system.
6) Explain the methods adapted to measure the new system’s value indirectly.
7) Explain the two levels of providing protection and security to the newly
installed Computerized MIS.
11.6. SUMMARY
The process of system designing is explained more clearly with neat sketches.
Designing means creating formatting the components needed for the system. Not
only the data is designed, but also the software resources are also designed in order
to satisfy the requirements. The system specification is considered as the blue print
for the work to be continued further. After analyzing the existing forms evaluating
the documents, improved forms must be designed. Not only that, each form should
be identified by the function it performs. The system implementation is the activity
related with the installation and conversion of the information systems from the
manual procedures to computerized process. Any date held in computer is in the
form of electronic signal within the processor, or as a sensifized spot on a magnetic
medium external to the system. So, there is always a possibility that data could be
wiped off, or simply lost. So some sort of security should maintained.
1) Define the following: a. user interface design; b. system specification
2) List out different types of forms.
3) What do you mean by forms control.
a. Conversion; b. Post-Audit Evaluation;
c. Economic – Evaluation; d. System Dependency; e. Data Security.
123

1) Hibberd Betly Jo. And Allison Evatt, “Maping Information Flows: A practical
guide”. Management Information System Journal (Jan / Feb, 2004).
2) Landon, K. and Landon, J. (2006), “Management Information System :
Managing the Digital Firm”. 9th ed. Prentice Hall.
1) Select a system of your choice of and explain the various stages of its (system)
designing.
2) What is a Graphical User Interface? Explain the advantages of HTML based
forms when compared to other GUI.
3) While designing and implementing a new system explain how the technical,
operational and economic evaluation is to be considered?
4) Explain in detail the system audit path
1) O’Brein (1999). Management Information Systems: Managing Information
Technology in the Internet Worked Enterprise. New Delhi: TATA McGraw-Hill
Publishing Company Limited.
2) Dharminder Kumar and Sangeetha Gupta (2006). Management Information
Systems: A Computer Oriented Approach for Business Operations, Excel
Books.
1) Design an Accounting System for your organization. While designing the
system what are the forms to be designed and list out various important
points to be considered for the system’s good appearance.
2) As an analysis convert the manual data into computerization without losing of
old data measure the effectiveness of your system and output. Further,
mention the system protection and securities.
11.12. KEY WORDS
 Audit Path
 Deployable
 Fat server
 Grid Charts
 Pseudo code
 Sabotage
 Suffocate
 System Designing
 Thin client
 Thin server
 User Interface Designing
 Validation
 Vulnerability.

124
LESSON - 12
SYSTEMS DEVELOPMENT LIFE CYCLE
12.1. INTRODUCTION
The concept MIS development is aimed at the computer based Information
Systems. The system development and related ideas gains significance with the
proliferation of more personal computers and its increasing pattern of its usage
among the people. Hence, it is imperative to say that the process related to the
creation of Computer Based Information System for existing manual Information
System can be called as System Development. The Information System
Development process is carried out conceptually in three different stages namely
system definition phase, system design phase and system Implementation phase.
These three phases put together can be called as System Development Life Cycle
(SDLC). The typical System Development Life Cycle (SDLC) is shown in the figure-
10, where 3 stages of system development is shown as sequential stages with feed
back.
12.2. OBJECTIVES
 Know the significance of different stages in Management Information
System Development Life Cycle.
 Know the approaches regarding MIS software development.
 have an idea about the phases of software testing and also the approaches
regarding software development
12.3. CONTENT
12.3.1. System Development Life Cycle
12.3.1. SYSTEM DEVELOPMENT LIFE CYCLE
The system definition stage is provided in the figure-10 with four activities
namely, 1. Activities related to Proposal Definition 2. Activities related Feasibility
Assessment 3. Activities related to Information Requirement and Analysis.
4. Activities related to Framing Conceptual Design of the System. Similarly, the
system development stage in the System Development Life Cycle is given with four
more activities namely 1. Activities related to Physical system design 2. Activities
related to Physical Database design 3. Activities related to Program Development
and 4. Activities related to procedure development. The third stage of the system
development (i.e.) the Implementation stage of the SDLC is given with three
activities namely; 1. Activities related to Conversion of the newly developed system
2. Activities related to the Operation and Maintenance of the newly created system
and 3. activities like Post audit.
SDLC: System Definition Stage
As stated previously the system definition stage of the SDLC consist of four
different sets of activities and they are mentioned in the figure 12.1 in the top most
block. Following are the functions performed in each of the activities in the
definition stage of the SDLC.
125
1. Proposal Definition
The proposal definition phase is not necessary if the application was defined as
part of information system planning. Otherwise, a simple procedure may be used
for proposal of an application. Proposals may be for entirely new application or for
enhancements to existing applications. (i.e.) The proposal could be for the creation
of new computer based MIS or It could be for the corrections to be carried out in
already existing computerized MIS. Normally the proposal will not be too complex
but it will have justification to proceed with the feasibility analysis. The proposal
will be subjected to the user management approval. The user management will
normally be the steering committee consisting of representative from all the levels of
the management. The proposal once accepted in this stage alone will move to the
next phases of activities in the System Development Life Cycle. Some of the items
that can be normally found in the proposal for the Information System include the
organizational need for or benefit from the proposed infrastructure (Computerized
MIS), Organizational support in terms of budget, sponsor management support etc.
Definition Stage Development Stage Installation and Operation
Proposal Definition Phys ical System Design

Conversion
Feasibility Ass essment Physical Database Design Operation and

Maintenance
Information Requirement Program Development
Analys is
Post Audit
Conceptual Design Procedure Development
Figure 12.1.: The Application System Development Life Cycle

2. Feasibility Assessment
The activities related to the proposal definition will be followed immediately by
the activities related to the feasibility assessment. The proposal given will be
subjected to the rigorous analysis in this stage of the SDLC. The project will be
accepted only if it crosses this stage of the SDLC. Normally, the proposal for the
creation of Computer based Information system in an organization will be analyzed
for feasibility aspects related to (a) Technical Feasibility (b) Economic Feasibility (c)
Motivational Feasibility (d) Scheduled Feasibility and (e) Operational Feasibility
Technical Feasibility: The project will be analyzed for the technical possibility
in this stage of the study. Sometimes the proposal given will be highly encouraging
but the organization may not be in a position to provide the technology required for
the project. For example consider the project proposal for the Information System
based on Internet as Infrastructure and imagine the place of operation of the
information system as remote village with no provision for Internet access. Then the
project will be deemed as technically unviable one.
126
Economic Feasibility: The economic feasibility study of the project is carried

with considerations like Cost/Benefit analysis. In this step the cost that will be
incurred due to the creation of the computerized Information System will be
calculated and it will be compared against the associated benefits of the system.
Normally the benefits that can be derived out of the computerized Information
System will be classified as (a) Tangible benefit and (b) Intangible benefit. Tangible
benefits are the benefits that can be quantified easily in terms of cost value.
Intangible benefits are the benefits that cannot be calculated easily in terms of cost
value.
Motivational Feasibility: The probability that the organization is sufficiently
motivated to support the development an implementation of the application with
necessary user participation training etc. This motivation is usually by owner or
champion for the application who has sufficient organizational power to provide the
resource and motivate others to assist and cooperate.
Schedulable Feasibility: The probability that the organization can complete the
development process in the time allowed for development. Adding development
resource does not always reduce the development time; in fact, adding staff who
cannot be used effectively may impede development because time spent in
communication. (Gordan, 1984)
Operational Feasibility: This part of the feasibility study is considered to be the
very sensitive, because the system is going to be operated by majority of the people
who have not taken part directly in the decision-making regarding the creation and
implementation of new MIS in the organization. However, the new system could
form new pattern of work for majority of the employees. Normally, the
computerization move by the management will not be accepted very easily by
majority of the employees in an organization. However, the full is cooperation of all
the levels of employees in an organization is considered to be the prerequisite for
the successful operation of the computerized MIS. Normally, the feasibility report
will have the details like general description of the application, expected
development schedule, schedule of resource and budget required for development.
3. Information Requirement Analyses
The activities related to this step of the system definition stage of the SDLC. Is
considered to be the first step towards building the new computer based
Information System. An Information System should meet the needs of the
organization its services, and applications should meet the needs of their user.
Hence, in order to fulfill these requirements three levels of Information in an
organization should be ascertained. They are stated here as follows.
1. The organizational information requirements to define an overall
information systems structure and to specify a portfolio of application and
database. Normally, these requirements are factored into databases and
subsystems that can be scheduled for development. Hence, the information
collected in this level of the organization will help in designing the overall
information architecture of the proposed MIS.
127
2. The requirement of each database defined by data model and other

specifications. The process of obtaining and organizing more detailed database
requirements can be divided into two categories namely (a) Defining data
requirements as perceived by the users and (b) Defining requirements for physical
design of the database.
3. The detailed information requirements for an application. In this context
two types of Information System application requirements can be categorized. They
are Social or Behavioral Information Requirements and Technical Information
requirements. For example, Information related to work organization design
objectives, Individual role and responsibility assumptions and organizational
policies are considered to be the information requirements in this level.
4. Conceptual Design
The details generated in the first three steps of the definition phase of the
SDLC will be used in framing the conceptual design of the Information Systems.
This is considered to be the work of system analyst. The conceptual design will
provide the foundation for the physical system design and it will establish a more
complete user oriented design for the application. Hence, the conceptual design of
the system is expected to provide the following details.
1) User oriented application description. For example the flow of the application
activities through the organizational units providing inputs and using outputs
of the original manual system. Also, the boundary between the manual
operations and computerized operations performed in the system will be
shown in the conceptual system design.
2) Inputs for the application with general description of each visual display
screens, source documents, form queries etc.
3) Outputs produced by the application with general description of each visual
display screens, query responses, printed outputs reports etc.
4) Functions to be performed by the application system.
5) General flow of processing with relationship of major programs, files inputs
and outputs.
6) Outlines of operating manuals, user manuals and training materials needed
for the application.
7) Audits and control processes and procedures for ensuring appropriate quality
in the use and operation of the application.
DEVELOPMENT STAGE
The system development stage of the SDLC as stated earlier would have four
different set of activities. During this phase of the SDLC the entire system would
have got fragmented into subsystems with appropriate Information architecture.
Normally, the technocrats like system analyst, DBA’s and programmers carry out
the activities related to this phase of the SDLC and hence, the users of the system
will no longer be involved in system development process. This stage of the SDLC is
grouped into four different sets of activities namely 1. Activities related to physical
128
system Design 2. Activities related top physical database design. 3. Activities

related to program development and 4. Activities related to procedure development.
1. Physical System Design
The physical system design of the Computerized MIS is normally designed with
the help of system designing tools like (a) Data Flow Diagram (b) Data Dictionaries
(c) State Transition Diagram (d) Context Diagrams etc. The system analyst performs
the basics of System Analysis and Physical System Design with the help of system
designing tools. However, the availability of CASE (Computer Aided System
Engineering Tools) has nowadays simplified the tasks associate with drawing the
physical system design of Computerized MIS. The important point to be noted here
is that the availability of automated work bench for the system designing work will
only reduce the repetitive component of the physical system designing work and
hence the creative component associated with the system designing work is still to
be carried out with highest accuracy and sincerity. In practical scenario, the
inexperienced programmers are often carried away with the thought that the
system-designing task is simple one because of CASE tools. But in reality the
physical system designing work is much tougher than programming. The following
will be the details that can be identified with the Physical System Design.
1) Details regarding the flow of work, software specifications and the user
function in the system.
2) Controls to be implemented at various points in the flow of processing.
3) Hardware specification for the application if new hardware is required.
4) Data communications specifications and requirements.
5) The overall structure of program required by the application with procedural
specifications on functions to be performed by each.
6) Security and backup provisions.
7) An application test or quality assurance plans for the remainder of the
development.
2. Database Design
The database design of the SDLC is nothing but the representation that can
facilitate the creation of structured memory component for Information Systems.
The specific data base design of Information systems depends on the nature of the
physical System Design. The data base design of an Information System is carried
out based on the data model formed for the Information System. The data model of
an Information System is represented with the help of designing tool called Entity
Relationship Diagrams (ER Diagrams). The database design is carried out mainly
with three major approaches. They are
1) Creation of new file or database: This is appropriate if no database is used
earlier specifically for the Information Systems. This approach to the database
design will provide an Independent and dedicated database exclusively
created for the Information System’s data.
2) Using and modifying the existing database: This method will be more
appropriate for an already existing computerized Information System that
129
requires updating features. This approach may require special functions to be

evolved by the data base administrator for restructuring the existing database
as well as adding the necessary data.
3) Providing access to the existing database by means of scheme: This approach
is possible if a complete conceptual model of the enterprise, anticipating new
applications needs, was used as the basis for physical database design. New
data may need to be added to the database, but the connection between the
logical description if the data needed by the application and the physical
database is easily made through the database management software. Some of
the powerful database management software that are considered to be very
popular include Oracle, Ingress, Dbase, Foxbase etc.
3. Program Development
This phase of the SDLC requires the extensive role of technocrats like
application programmers and Program Module Leader. The programmers to code
the software needed for the Information Systems, use different software
technologies and programming languages. The program development phase of the
SDLC is considered to be the more visible phase that can be easily recognized by
most of us. The growing numbers of programmers and software professionals in
India could be the reason for higher visibility regarding this phase. The growth in
the technology domain of the software like Object Oriented Programming (OOPS)
has made the penetration of software systems more rapid in the Information
Systems applications. Normally, the software programming can be classified into
two categories namely systems programming and application programming. Most of
the software systems created for MIS development can be categorized in application
programming. Some of the programming languages that are considered to be very
powerful in systems programming include C, C++,VC++,JAVA. However, the most
powerful ‘application systems’ programming languages are Visual Basics, FoxPro,
Developer 2000, and VB Net etc. The penetration of Internet based Information
Systems have made some of the scripting languages like JAVA Script and VB script
very popular. Similarly the HTML (Hyper Text Markup Language) has made creation
and deployment of web pages an easy affair in the Internet. Some of the server side
scripting technologies that have gained popularity in the Internet revolutions
include ASP (Active Server Pages), JAVA SERVLET etc. Normally, the software when
coded will be subjected to various phases of testing. The specialized software testing
engineers will perform the software testing operations in the premises of the
software development consultancies. The software testing has three distinct phases.
They are;
1) Module Testing: All Individual program module is tested using the dummy
routines for calls to other modules.
2) Integration Testing: Groups of program modules are tested together to
determine whether they interface properly. This could be done incrementally
as they are developed until the entire program system is tested.
3) Systems Testing: This involves testing of complete set of application programs
coded for the entire Information Systems.
130
Approaches Regarding MIS Software Deployment

The program development activity in the SDLC is carried out with the aim of
creating software that can be deployed in the computerized MIS of an organization.
However, there exist three distinct approaches to deploy the software for the MIS.
They are;
1. Developing the customized software package: This approach is aimed at
creating the new software solution that never existed before for the specific
business establishment. Indeed, the very basic idea behind the SDLC is to develop
the new software solutions. Hence, this approach to the deployment of software
system requires comparatively a very high financial outlay from the organization
that is going to use the software
2. Making the organization to adapt to the software package: This approach is
considered to be the most common among most of the organizations going for
computerized MIS. The commonality of this approach is due to the reason that the
software development methodology and the related SDLC will be very simple and
cost effective to adapt. The best example for this approach is the implementation of
ERP solutions like SAP/R3 in the organization. Normally, the ERP solutions are
provided with proven set of world-class practices in different administrative
processes. Thus, while implementing ERP solutions the organizations never
hesitate to adapt to the operational changes required.
3. Adapt packages to organizational needs: This approach is common among
the small organizations going for computerization for the first time. Thus, one can
find small and medium enterprises using this type of software solution in their
computerized MIS. In this type of approach also, the software development
methodology and the related SDLC will be cost effective to adapt. The best example
for this approach is the implementation of standard application packages like Excel
Spread sheet and the Tally packages for accounting and other information
processing requirements.
4. Procedure Development: This is nothing but the development of manuals,
instruction sheets, input forms, help screens for all personnel who are going to
have contact with the system in one way or other. Normally, the different set of
personnel that the system can come in contact with during its operational period
can be categorized as (a) Primary Users (b) Secondary Users (c) Computer Operating
Personnel (d) Training Personnel.
1. Primary Users: The procedure for the primary users of the system includes
instructions for how to interpret a report, how to select different options for a
report, etc. If the user can execute the system directly, similar to online queries, it
includes detailed instructions for accessing the system and formulating different
types of queries.
2. Secondary Users: The procedure for the secondary users includes detailed
instructions on how to enter each kind of input. The instructions are more oriented
towards providing different methods of providing input details into the Information
131
System. Hence, these types of instructions are given with less reasoning regarding
the purpose of different data and information entry into the system.
3. Computer Operating Personnel: The procedure given for these kinds of
personnel include the general maintenance procedures to be performed by
computer operators and control personnel. Also, these procedures include
instructions for quality assurance, backing up system files, maintaining program
documentation, etc.
4. Training Personnel: This includes a separate training manuals or set of
training screens developed for the implementation stage and subsequent training.
Implementation Stage
The system implementation stage of the SDLC as stated earlier would have
three different set of activities. During this phase of the SDLC the entire software
component of the Information System should be ready in the form of executable file
(.exe) format. Normally, the technocrats like Hardware Engineers and networking
Professionals carry out the activities related to this phase of the SDLC. However,
the users of the system will be involved in phase, because their choices for
appropriate end user computer terminal will be taken into considerations while
installing the physical structures of Information System. This stage of the SDLC is
grouped into four different sets of activities namely 1. Activities related to
conversion 2. Activities related to operation and maintenance 3. Activities related to
post audit.
1. Conversion
Conversion of the new application system will be initiated after all the
programs and procedures have been prepared manually and individually tested.
“Three major activities prepared for actual conversion are acceptance testing, file
building, and user training”. Acceptance testing is the activity where the completed
application software will be compared with its specifications. It verifies to the user
that the system meets performance criteria as well as operational requirements.
The testing includes verification of user inputs, operating and control procedure
and outputs. Hence in acceptance testing the difference between what users
expected and what the system delivers are identified and resolved. The acceptance
test is being developed as part of the system planning.
File building refers to the collection and conversion to the machine-readable
form of all new data required by the application. This is nothing but the installation
of different executable files constituting the developed software. Thus, it can be a
long and tedious process. Normally, some file conversion programs will be employed
if the required data is already in computer readable form. If not, the data must be
gathered, coded and entered into the database. Sufficient time and human resource
should be provided to clean up the data, that is remove inaccuracies and
inconsistencies and make the data complete.
User training may be relatively straight forward or a critical effort and it
depends on the degree to which the new application system affects existing jobs. If
the technique such as job design is used as part of computerized MIS initiative,
132
training will involve substantial reorientation of the users to their jobs. Hence,
proper user training is considered to be an important factor in overcoming user
resistance to the system
2. Operation and Maintenance
When the system appears to be operating without any difficulty it is turned
over to the information processing function. “This often requires not only the
approval by the user stating that the system meets predefined acceptance criteria,
but also approval of the system operations and maintenance groups stating that it
meets standards for documentation and maintainability ” .
Any further changes in the application are handled as maintenance of an
application can be classified into repairs and enhancements. Repairs are required
when incomplete or incorrect coding renders the application defective
enhancements are additions or improvements to the developed software. Normally,
repairs dominate the maintenance activity for the first few months of operation.
Later, most of the maintenance are enhancements. The system developers perform
sometimes maintenance, but often it is responsibility of a separate maintenance
group.
3. Post Audit
The most part of the system development life cycle is a review of the
application after it has been in operation for a period, such as year. An audit team
consisting of representatives from users, development team, maintenance team,
operational executives, and perhaps internal auditing people review the operation of
the system in terms of cost and benefit of the application newly deployed. The post
audit function could bring out the recommendation for dropping, repairing or
enhancing an application and suggestions for improving the development process
on subsequent applications in the organization.
1) Different stages in system development life cycle.
2) Feasibility assessment including, Technical economic, motivational,
schedulable operable feasibilities.
3) Different set of activities such as, physical system design, physical database
design, programme development and procedure development.
4) System implementation stage activities namely, conversion, operation and
maintenance and post audit.
1) Explain SDLC and its relevance.
2) Compare and contrast Conceptual System Design and Physical system
Design.
3) What is a procedure development? Who are different levels of personnel found
to be in need of operational procedure in an MIS Organization?
4) Explain the various set of activities associated with the implementation stage
of the SDLC.
133
12.6. SUMMARY
The system development life cycle is provided with all its different stages.
The system development and related ideas gain more importance with the usage of
personal computers, by increasing the pattern of its usage among the people.
a. System development life cycle
b. Definition stage in SDLC
c. Feasibility
d. Technical feasibility
e. Economic feasibility
f. Operable feasibility
2) List-Out various activities involved in implementation stage.
1) Journal of Information and Systems management.
2) Saravana Muthiah, Multimedia University Malaysia (www.dline.info/jism).
1) What is the feasibility assessment of Information Systems Development?
Explain its significance.
2) What are the phases of software testing? Explain the approaches regarding
software development.
12.10. SUGGESTED READINGS / REFERENC BOOK
Gordan.B. Davis (1984). Management Information Systems: Conceptual
foundations, Structure and Development. Singapore: McGraw-Hill Book co.
Plan a new management Information System for your own organisation and
list all the activities. Based on the activities design the system development stage
and different operations.
12.12. KEY WORDS
 Architecture
 Technocrats
 Post audit
 Penetration
 Enhancing
 Conversion
 Feasibility
 Design
 SDLC
 Testing.

134
UNIT - IV
LESSON – 13
DECISION SUPPORT SYSTEM
13.1 INTRODUCTION
To succeed in business today, companies need information system that can
support the diverse information and decision–making needs of their managers and
business professional. This lesson will explore in more detail, how this can be
accomplished by decision support system (DSS).Decision support systems are
achieved the popularity in various areas, including business, engineering, the
military, and medicine. They are specifically valuable in circumstances which the
amount of available information is prohibitive for the intuition of an unaided
human decision maker and in which exactness and optimality are of prominence.
DSS can aid individuals’ cognitive deﬁciencies by combining various sources of
information, providing intelligent access to relevant knowledge, and assisting the
process of structuring decisions. They can also select choice among well-defined
alternatives and form on formal approaches, such as the methods of operations
research, engineering economics, statistics, and decision theory. Proper usage of
decision-making tools increases productivity, eﬃciency, and electiveness and
allowing them to make optimal choices for technological processes, planning
business operations, competitive advantage logistics, or investments.
13.2 OBJECTIVES
After reading and studying this lesson you should be able to:
 Identify the changes taking place in the form and use of decision support in
business.
 Understand the DSS concept and how it differs from traditional
management system.
 Describers the characteristics and competencies of DSS.
 Explain the Components and applications of DSS.
 Discuss how databases are used in web.
 Recognize how data warehouse differs from database and know the basic
ways to engage in data mining.
13.3 CONTENTS
13.3.1 Decision Making and DSS
13.3.2 Types of Problems
13.3.3 Decision Support System (DSS)
13.3.4 Characteristics and Capabilities of DSS
13.3.5 Components of DSS
13.3.6 DSS Benefits
13.3.7 DSS Applications
13.3.8 Data Warehouses
13.3.9 Data Warehouse Characteristics
13.3.10 Components of a Data Warehouse
135
13.3.11 Building Data Warehouse

13.3.12 Data Mining
13.3.1. DECISION MAKING AND DSS
Decisions are made at all levels of the firm. Some decisions are very usual
and routine but exceptionally valuable. Improving thousands of these small
decisions adds up to large annual value. Decisions are classified according to the
type:
Unstructured Decisions: Unstructured decisions are those in which decision-
maker must provide decision, assessment and insights into the problem definition.
Unstructured decisions are more common at higher level .Senior executives may
face numerous unstructured decisions, such as establishing the firm’s long term
goals.
Structured Decisions: Structured decisions are repetitive and routine in
which decision makers can follow a definite procedure for handling them to be
efficient. Operational level management faces more structured decisions.
Semi Structured Decisions: Semi structured decisions are those in which
only part of the problem has a clear-cut answers provided by an accepted
procedure. Semi structured decisions are taken middle level management.
Senior manager, middle level managers, operational level managers and
employees have different types of decisions and information requirements.
There are four different stages in decision-making:
Intelligence: Consists of identifying and understanding a problem.
Design: Involves exploring various solutions.
Choice: Consists of choosing among available solutions.
Implementations: Involves making the chosen alternative work and
monitoring how the solution working.
13.3.2. TYPES OF PROBLEMS
Structured problems: A manager may understand some problems better
than others. The problem of how much replishment stock to order is an example of
a problem that a manager may understand very well. Economic order quantity
formula prescribes how the problem is to be solved. Such a problem is called
structured problems.
Unstructured problems: An unstructured problem is one that contains no
elements or relationship between elements that are understood by the problem
solver. For example an unstructured problem is deciding what movie made you feel
the best. The business manager is often ill equipped to define such problems in a
structured way.
Semi structured problem: It is the one that contains some elements or
relationship that are understood by the problem solver and some that are not. An
example is the selection of a location to build a new manufacturing plant. Some of
the elements such as land costs, taxes and the costs of shipping raw materials can
136
be measured with a high degree of precision. Other elements such as natural

hazards and local community attitude are difficult to identify and measure.
Once the procedure has been devised, computers can solve structured
problems without manager involvement. However, the manager often has to do all
of the work in solving unstructured problem. For semi structured problems the
manager and computers can jointly work toward a solution.
A DSS is an interactive, flexible, computer based information system with an
organized collection of models, people, procedures, software, databases,
telecommunication, and devices, which supports the decision makers to solve
unstructured or semi-structured business problems.
13.3.3. TAXONOMY
As with the definition, there is no universally-accepted taxonomy of DSS
either. Different authors propose different classifications. Using the relationship
with the user as the criterion, Haettenschwiler differentiates,
 Passive DSS
 Active DSS
 Cooperative DSS
A passive DSS is a system that aids the process of decision making, but that
cannot bring out explicit decision suggestions or solutions.
An active DSS can bring out such decision suggestions or solutions.
A cooperative DSS allows the decision maker (or its advisor) to modify,
complete, or refine the decision suggestions provided by the system, before sending
them back to the system for validation.
Taxonomy for DSS has been created by Daniel Power. Using the mode of
assistance as the criterion, Power differentiates communication-driven DSS, data
driven DSS, document-driven DSS, knowledge-driven DSS, and model-driven DSS.
 A communication-driven DSS supports more than one person working on
a shared task; examples include integrated tools like Microsoft's NetMeeting
or Groove
 A data-driven DSS or data-oriented DSS emphasizes access to and
manipulation of a time series of internal company data and, sometimes,
external data.
 A document-driven DSS manages, retrieves, and manipulates
unstructured information in a variety of electronic formats.
 A knowledge-driven DSS provides specialized problem-solving expertise
stored as facts, rules, procedures, or in similar structures.
 A model-driven DSS emphasizes access to and manipulation of a statistical,
financial, optimization, or simulation model. Model-driven DSS use data
and parameters provided by users to assist decision makers in analyzing a
situation; they are not necessarily data-intensive. Dicodess is an example of
an open source model-driven DSS generator.
137
13.3.3. DECISION SUPPORT SYSTEM (DSS)

A decision support system can be defined as a system that provides
information for making semi structured and unstructured decision.
Keen and Scoff Morton has defined DSS as follows:
"Decision support systems (DSS) represent a different approach to
information system support for semi-structured and unstructured decisions. They
support a variety of unstructured decision processes.
According Laudon and Laudon :-
A decision support system is a computer system at the management level of
an organization that combines data, sophisticated analytical tools, and user-
friendly software to support semi-structured and unstructured decision making.
Decision Supports Systems (DSS) are computer-based information systems
designed in such a way that assist managers to select one of the many alternative
solutions to a problem. It is possible to automate some of the decision making
processes in a large, computer-based DSS which is sophisticated and analyze huge
amount of information fast. It helps corporate to increase market share, reduce
costs, increase profitability and enhance quality. The nature of problem itself plays
the main role in a process of decision making. (k p Tripathi et al.,)
Difference between DSS & MIS
MIS DSS
Structured Decision Semi structured, Unstructured decision
Report based on routine flows of data Focused on specific decisions/classes of

decision
General control of organization End-user control of data, tools and sessions
Structured information flows Emphasizes change, flexibility, quick responses
Presentation in form of reports Presentation in form of graphics
Traditional system development Develop through prototyping; iterative process
Some more differences are as follow

1) MIS functions to produce routine reports, DSS employ sophisticated data
modeling& analysis tools for the purpose of resolving structured problems.
2) MIS is used by a limited group (staff managers & professionals), DSS are used
by groups, individuals& managers at various levels.
3) DSS is characterized by an adaptability which contrasted with the semi-
inflexible nature of MIS.
4) DSS data sources are much more varied comprising inventory, accounting &
production sources & not just internal business ones & its analytical tools are
more sophisticated (simulation, statistical analysis).
138
5) MIS focus on operational efficiency (comfort organization "do things right" ) -

DSS focus on making effective decision ( help collective "do the right thing" )
6) DSS: Focus on finding making, unstructured and available on request,
immediate, friendly MIS: Plan report on variety of subject, reports are
standard, structured, routine, constraint by organizational system.
7) The terms MIS and DSS stand for Management Information Systems and
Decision Support Systems respectively. There has been greatly of talk
regarding these two, whether they are actually impossible to tell apart thing or
if there are any significant differences between the two.
8) MIS is basically a compassionate of link to facilitate communication between
managers across different areas in a business association. MIS plays a pivotal
role in enabling communications across the floor of an organization, between
multiple entities therein.
9) DSS, many consider, is advancement from the original MIS. However, this is
not the sole difference between the two. While there may not be too much
separating the two, the difference is still within, as is apparent when we say
DSS is an advancement over MIS.
10) The essential difference between the two is in focus. DSS, as the permanent
status indicates, is about leadership and senior management surrounded by
an organization providing good, reliable judgment as ably as vision. MIS, on
the other hand, is about focusing on the actual flow of information itself.
Thus, MIS & DSS are differentiated in terms of components, dynamics ,
analytical tools & general properties.
13.3.4. CHARACTERISTICS AND CAPABILITIES OF DSS
The Characteristics and Capabilities of DSS were listed below:
1) Assist decision makers (predominantly in semi- and un-structured situation)
by combining human judgment and computerized information.
2) Assist all managerial levels, from top level executives to line managers.
3) Support the individuals (from various departments, different organizations) as
well as groups of decision makers working somewhat autonomously – virtual
teams through collaborative Web tools.
4) Helps the interdependent or sequential decisions that may be prepared once
or repeatedly.
139
5) Figure 13.1: DSS characteristic and capabilities. Source:http://

www.cs.ubbcluj.ro
6) Support the decision-making process (intelligence, design, choice, and
implementation) in all the phases.
7) Support for a diversity of decision-making process and style.
8) The decision maker should be responsive and able to adapt the DSS to meet
these alterations. DSS are flexible, so users can modify or reorganize basic
elements.
9) User-friendliness, graphical capabilities and natural language interactive
human-machine interface will increase the effectiveness of DSS, Most new
DSS application practice Web-based interfaces.
10) Improvement the effectiveness of decision making instead of its efficiency.
Once DSS are deployed, decision making often takes longer but the decisions
are better.
11) DSS aims to support not to replace the decision maker .The decision maker
has complete control over all steps of the decision-making process in solving a
problem.
12) End users are able to create and change simple systems by themselves.
Larger systems can be built with guidance from information system specialist.
Online analytical process (OLAP) and data mining software, with data
warehouses, allow users to develop very large and complex DSS.
13) Models are generally used to investigate decision-making situations. The
modeling will enable experimentation with varied strategies under different
configurations.
14) Data access is provided to variety of data sources, formats and types, as well
as GIS, and object oriented.
15) Can be used by an individual decision maker or distributed throughout an
organization and in several organizations along the supply chain. It can be
combined with other DSS or applications further; it can be circulated
internally and externally using networking and Web technologies.
140
These Characteristics and Capabilities of DSS permit decision makers to make better, more
reliable decision in a timely manner and they are provided by the major DSS components.
13.3.5 COMPONENTS OF DSS

Figure 13.2 illustrates the components of a DSS. They include a database of
data used for query and analysis; a software with models, data mining, and other
analytical tools and user interface.
The Data Management Subsystem contains a databank that has pertinent
data for the situation and managed by Database Management System
(DBMS)software. It can be interrelated with the company data warehouse, a
repository for company relevant decision making data. Generally, the data are
stored or retrieved through a database Web server. For example, an investment
consultant always need to current stock prices and those from at least the
preceding few years. A data management module accesses the data and provides a
means for the DSS to choose data according to certain criteria: Stock types, range
of years and so on.
Fig. 13.2 : Components of DSS. Source:http://www.cs.ubbcluj.ro

The Model Management Subsystem (MBMS) is a software package that
contains financial, management science, statistical, or other quantitative models
that offer the system’s analytical competences and appropriate software
management. To turn the data into useful information, the system utilizes its model
management module. 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.
The User Interface Subsystem allows the communication between the
computer and the decision maker. It is used by the user (is part of system) to
interact with and commands the DSS. The Web browser provides a popular and
141
consistent Graphical User Interface (GUI) structure for most decision support
system. The main product of an interaction with a DSS is insight. As managers are
their users often who are not trained fully in computer, DSSs need to be prepared
with intuitive and easy-to-use interfaces. These interfaces aid in model
The Knowledge-Based Management Subsystem can act as an independent
component or support any of the other subsystems. It provides intelligence to
augment the decision maker’s own. It can be interconnected with the organization’s
knowledge repository (part of the Knowledge Management System - KMS) which is
called the Organizational Knowledge Base. Knowledge can be provided through Web
servers. Many artificial intelligence (AI) methods have been applied in Web
development system such as Java and are easy to incorporate into the other DSS
components. A DSS must comprise the three major components: DBMS, MBMS
and user interface.
The Data Management Subsystem (DBMS) is composed of the subsequent
elements: • DSS database, • SBMS, • Data directory, • Query facility.
The Query Facility permits to access manipulate and query data. It receives
requests for data from other DSS components, determines how the results can be
filled, frames the detailed requests and returns the results to the issuer of the
request. It contains a special query language (SQL). Significant functions of a DSS
query system are selection and manipulation operations.
The Data Directory is a catalog of all data in a database. It encompasses data
definitions and its main function is to response questions about the availability of
data items, their source and their exact meaning. It supports the addition of
entries, deletion of entries and retrieval of information about specific objects.
Data Security is required by confidentiality laws. In some circumstances,
unauthorized access prolongs to modifying data in place or abolishing it. Data must
be secured from unauthorized access through security measures such is user ID
and Password protection. It is vital to identify exactly who has right of entry to and
why they have access to specific sets of data and to what extent an individual is
allowed to change the data in the system. Data can be encrypted so that even in
case of unauthorized access the viewed data is scrambled an unintelligible.
13.3.6 DSS BENEFITS
DSS Improves personal efficiency and Speed up the process of decision
making. Increases organizational control and helps automate managerial processes.
It encourages exploration and discovery on the part of the decision maker and
facilitates interpersonal communication .Further; it promotes learning or training
and reveals new approaches to thinking about the problem space.DSS creates a
competitive advantage over competition.
13.3.7 DSS APPLICATIONS
A growing number of organizations implement software applications that
produce decision automatically and in real time. Following are some of the example
of how DSS are used for various purposes.
142
Food Productions and Retailing

How much of each type of cookie should a cookie store produced today? Which
ingredients should be taken out of the refrigerators, and how long before they are to
be mixed and put in the oven? These are only some of the decision that operates of
a Mrs.Field cookies store would have to make. However, the decision making is
done for them by a DSS. The system, installed in each store, decides for the
manager which types of cookies to make, what quantities of each type, and which
ingredients to use, on basis of the store’s historical sales volume and corporate-
dictated banking instructions. The company which operates 390 stores in the
United States and more than 80 stores in other countries has structured the
business environment for the store managers. Each store manager should follow
the same instructions regarding which baked products to make and their
quantities. The system prescribes the ingredients for each product, when to pull
dough from refrigerators, and how to bake, including oven temperatures and time.
These prescriptions are the result of input such as region, average traffic in the
shopping mall and previous day sales volume.
Agriculture
The Canadian government has sponsored the development of a series of DSSs
for farmers, one of which is prairie Crop Protection Planner, a system that helps
farmers make decisions regarding weed, insect and disease control on the Canadian
prairie. When a farmer enter basic information about a particular crop and the pest
problem- weeds, insects or diseases- the planner outlines options such as
chemicals and ways to apply them . Farmers can describe their spraying
equipment, size of the field, and current chemical prices from local suppliers, and
the prairie Crop Protection Planner calculates applications rates, cost per acre, the
amount of chemicals needed to spray the fields.
Web Site Planning and Adjustment
Many companies use the web as a marketing, selling and customer support
tool, decision on how to design web sites are extremely important. Some companies
offer DSSs specifically designed to analyze shoppers’ behavior at their sites based
on captured data such as pages views, options clicked and the sequence of pages
shoppers view.
Yield Management
It would be surprised to learn that the passenger sitting next to you on an
airplane paid a third of what you paid for the same flight. This is the result of
recommendations the airline receives from a DSS whose purpose is to maximize the
revenue. This concept is called yield management or revenue management. For
each flight, revenue managers enter a myriad of data, including departure point
and time, destination point and time arrival, the number of airports in which the
airplane stops ,its capacity and information on utilized capacity form previous
operations of the particular flight. They change pricing, or let the system change
prices, according to time a ticket purchased, and how long before the passenger
flies back. The dilemma is between offering price. The purpose of yield management
143
DSS is to find the proper pricing to maximize the overall revenue from selling seats
for each flight.
Financial Services
Manually deciding how much money to loan to which customer at what
interest rate could delay the decision process to a point of losing the potential
customer. Loan applicants are reluctant to wait more than a day or even a few
hours for the bank’s response. Automated decision aid can produce offers within
minutes after a customer enters data. The DSS combines this data with data
retrieved from credit history databases and preprogrammed rule models to create a
rapid response.
Typical application areas of DSSs are management and planning in business,
food production and retailing health care, the military, and any area in which
management will encounter complex decision situations. Decision 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 of generously in the long run.
13.3.8 DATA WAREHOUSES
In a large company obtaining concise, reliable information about current
operations and changes across the entire company would be difficult because data
are often maintained in separate systems such as sales manufacturing, or
accounting. Some of the data you needed might be found in the sales system and
other pieces in manufacturing system. Many of these systems use outdated data
management technologies or file systems where information is difficult for user to
access. You might have to spend more amount of time in locating and gathering the
data you needed or you may be forced to make decision based on incomplete
knowledge. Data warehouse address the problems in finding data about past
events. The term Data Warehouse was coined by Bill Inmon in 1990, which he
defined in the following way: "A warehouse is a subject-oriented, integrated, time-
variant and non-volatile collection of data in support of management's decision
making process". He defined the terms in the sentence as follows:
Subject Oriented: Data that gives information’s about a particular subject
instead of about a company's ongoing operations.
Integrated: Data that is gathered into the data warehouse from a variety of
sources and merged into a coherent whole
Time-variant: All data in the data warehouse is identified with a particular
time period.
Non-volatile: Data is stable in a data warehouse. More data is added but data
is never removed.
This enables management to gain a consistent picture of the business. It is a
single, complete and consistent store of data obtained from a variety of different
144
sources made available to end users in what they can understand and use in a
business context. It can be
 Used for decision Support
 Used to manage and control business
 Used by managers and end-users to understand the business and make
judgments
A data warehouses a database that stores current and historical data of
potential interest to decision makers throughout the company. The data originated
in many core operational transaction systems, such as system for sales, customer
accounts and manufacturing and may include data from web site transaction. The
data warehouse consolidates and standardized information from different
operational databases so that the information can be used across the enterprise for
management analysis and decision making.
13.3.9 DATA WAREHOUSE CHARACTERISTICS
The term data warehouse has been coined to describe data storage that has
the following characteristics:
 The storage capacity is very large.
 The data are accumulated by adding new records, as opposed to being kept
current by updating existing records with new information.
 The data are easily retrievable.
 The data are used solely for decision making, not for use in the firm’s daily
operations.
Differences between a data warehouse and a database
A data warehouse is a repository of information collected from multiple
sources, over a history of time, stored under a unified schema, and used for data
analysis and decision support; whereas a database, is a collection of interrelated
data that represents the current status of the stored data. There could be multiple
heterogeneous databases where the schema of one database may not agree with the
schema of another. A database system supports ad-hoc query and on-line
transaction processing
Data Mart
Companies often build enterprise-wide data warehouse, where a central data
warehouse serves the entire organization, or they create smaller, decentralized
warehouses called data marts. A data mart is a subset of a data warehouse in
which a summarized or highly focused portion of the organization’s data is placed
in a separate database for specific population of users. For example, a company
might develop marketing and sales data marts to deal with customer information. A
data mart typically focuses on a single subject area or line of business, so it usually
can be constructed more rapidly and at lower cost than an enterprise-wide data
warehouse. Data mart is used in the following situation:
 Extremely urgent user requirement
 The absence of a budget for a full scale data warehouse strategy
145
 The decentralization of business needs

 The attraction of easy to use tools and mind sized project
Data mart presents two problems:
1) Scalability: A small data mart can grow quickly in multi dimensions.
So that while designing it, the organization has to pay more attention on
system scalability, consistency and manageability issues
2) Data integration.
13.3.10 COMPONENTS OF A DATA WAREHOUSE
Figure 13.3 shows how a data warehouse works. The data warehouse makes
the data available for anyone to access as needed, but it cannot be altered. A data
warehouse system also provides a range of ad hoc and standardized query tools,
analytical tools and graphical reporting facilities. Many firm use intranet portals to
make the data warehouse information widely available throughout the firm. The
data warehouse extracts current and historical data from multiple operational
systems inside the organization. These data are combined with data from external
sources and reorganized into a central database designed for management
reporting and analysis. The information directory provides users with information
about the data available in the warehouse.
Fig. 13.3 : Components of Data Warehouse

13.3.11. BUILDING A DATA WAREHOUSE
There are two reasons why organizations consider data warehousing a critical
need. In other words, there are two factors that drive you to build and use data
warehouse. They are:
Business factors:
 Business users want to make decision quickly and correctly using all
available data.
Technological factors:
146
 To address the incompatibility of operational data stores

 IT infrastructure is changing rapidly. Its capacity is increasing and cost is
decreasing so that building a data warehouse is easy
There are several things to be considered while building a successful data
warehouse
Business considerations:
Organizations interested in development of a data warehouse can choose one
of the following two approaches:
 Top - Down Approach (Suggested by Bill Inmon)
 Bottom - Up Approach (Suggested by Ralph Kimball)
Top - Down Approach
In the top down approach suggested by Bill Inmon, we build a centralized
repository to house corporate wide business data. This repository is called
Enterprise Data Warehouse (EDW). The data in the EDW is stored in a normalized
form in order to avoid redundancy.
The central repository for corporate wide data helps us maintain one version of
truth of the data.
The data in the EDW is stored at the most detail level. The reason to build the
EDW on the most detail level is to leverage
1) Flexibility to be used by multiple departments.
2) Flexibility to cater for future requirements.
The disadvantages of storing data at the detail level are
1) The complexity of design increases with increasing level of detail.
2) It takes large amount of space to store data at detail level, hence increased
cost.
Once the EDW is implemented we start building subject area specific data
marts which contain data in a de normalized form also called star schema. The
data in the marts are usually summarized based on the end users analytical
requirements.
The reason to de normalize the data in the mart is to provide faster access to
the data for the end users analytics. If we were to have queried a normalized
schema for the same analytics, we would end up in a complex multiple level joins
that would be much slower as compared to the one on the de normalized schema.
We should implement the top-down approach when
1) The business has complete clarity on all or multiple subject areas data
warehouse requirements.
2) The business is ready to invest considerable time and money.
The advantage of using the Top Down approach is that we build a centralized
repository to cater for one version of truth for business data. This is very important
for the data to be reliable, consistent across subject areas and for reconciliation in
case of data related contention between subject areas.
147
The disadvantage of using the Top Down approach is that it requires more
time and initial investment. The business has to wait for the EDW to be
implemented followed by building the data marts before which they can access their
reports.
Bottom Up Approach
The bottom up approach suggested by Ralph Kimball is an incremental
approach to build a data warehouse. Here we build the data marts separately at
different points of time as and when the specific subject area requirements are
clear. The data marts are integrated or combined together to form a data
warehouse. Separate data marts are combined through the use of conformed
dimensions and conformed facts. A conformed dimension and a conformed fact is
one that can be shared across data marts.
A Conformed dimension has consistent dimension keys, consistent attribute
names and consistent values across separate data marts. The conformed dimension
means exact same thing with every fact table it is joined.
A Conformed fact has the same definition of measures, same dimensions
joined to it and at the same granularity across data marts.
The bottom up approach helps us incrementally build the warehouse by
developing and integrating data marts as and when the requirements are clear. We
don’t have to wait for knowing the overall requirements of the warehouse. We
should implement the bottom up approach when
1) We have initial cost and time constraints.
2) The complete warehouse requirements are not clear. We have clarity to only
one data mart.
The advantage of using the Bottom Up approach is that they do not require
high initial costs and have a faster implementation time; hence the business can
start using the marts much earlier as compared to the top-down approach.
The disadvantages of using the Bottom Up approach are that it stores data
in the de normalized format; hence there would be high space usage for detailed
data. We have a tendency of not keeping detailed data in this approach hence losing
out on advantage of having detail data .i.e. flexibility to easily cater to future
requirements.
Bottom up approach is more realistic but the complexity of the integration
may become a serious obstacle.
Design considerations
To be a successful data warehouse designer must adopt a holistic approach
that is considering all data warehouse components as parts of a single complex
system, and take into account all possible data sources and all known usage
requirements.
Most successful data warehouses that meet these requirements have these
common characteristics:
 Are based on a dimensional model
148
 Contain historical and current data

 Include both detailed and summarized data
 Consolidate disparate data from multiple sources while retaining
consistency
Data warehouse is difficult to build due to the following reason:
 Heterogeneity of data sources
 Use of historical data
 Growing nature of data base
Data warehouse design approach muse be business driven, continuous and
iterative engineering approach. In addition to the general considerations there are
following specific points relevant to the data warehouse design:
Benefits of Data Warehousing
 Data warehouses are designed to perform well with aggregate queries
running on large amounts of data.
 The structure of data warehouses is easier for end users to navigate,
understand and query against unlike the relational databases primarily
designed to handle lots of transactions.
 Data warehouses enable queries that cut across different segments of a
company's operation. E.g. production data could be compared against
inventory data even if they were originally stored in different databases with
different structures.
 Queries that would be complex in much normalized databases could be
easier to build and maintain in data warehouses, decreasing the workload
on transaction systems.
 Data warehousing is an efficient way to manage and report on data that is
from a variety of sources, non-uniform and scattered throughout a
company.
 Data warehousing is an efficient way to manage demand for lots of
information from lots of users.
 Data warehousing provides the capability to analyze large amounts of
historical data for nuggets of wisdom that can provide an organization with
13.3.12. DATA MINING
A term that is often used in conjunction with data warehousing and the data
mart is data mining. Data mining is the process of finding relationship in data that
are unknown to the user. Data mining helps the user by discovering the
relationships and presenting them in an understandable way so that the
relationships may provide the basis for decision making. Figure 13.4 shows how
data mining extracts business knowledge from a data warehouse.
The types of information obtained from data mining include associations,
sequences, classifications, clusters and forecasts.
 Associations are occurrences linked to a single event. For instance, a study
of supermarket purchasing patterns might reveal that, when corn chips are
purchased, a cola drink is purchased 65 percent of the time, but when
149
there is a promotion; cola is purchased 85 percent of the time. This

information helps managers make better decisions because they have
learned the profitability of a promotion.
 In Sequences, events are linked over time. We might find, for example, that
if a house is purchased, a new refrigerator will be purchased within two
weeks 65 percent of the time, and an oven will be bought within one month
of the home purchased 45 percent of the time.
 Classification recognizes a pattern that describes the group to which an
item belongs by examining existing items that have been classified and by
inferring a set of rules. For example, business such as credit card or
telephone companies worry about the loss of steady customers.
Classification helps discover the characteristics of customers who are likely
to leave and can provide a model to help managers predict who those
customers are so that the managers can devise special campaigns to retain
such customers.
Fig. 13.4 : Data mining extracts business knowledge

 Clustering works in a manner similar to classification when no groups have
yet been defined. A data mining tool can discover different groupings within
data, such as finding affinity groups for bank cards or partitioning a
database into groups of customers based on demographics and types of
personal investments.
 Although these applications involve predictions, forecasting use predictions
in a different way. It uses a series of existing values to forecast what other
values will be. For example, forecasting might find patterns in data to help
managers estimate the future value of continuous variables, such as sales
figures.
These systems perform high-level analyses of patterns or trends, but they can
also drill down to provide more detail when needed. There are data mining
applications for all the functional areas of business, and for government and
scientific work. One popular use for data mining is to provide analyses of pattern in
customer data for one-to-one marketing campaigns or for identifying profitable
customers.
150
For example, Virgin Mobile Australia uses a data warehouse and data mining
to increase customers’ loyalty and roll out new services. The data warehouse
consolidates data from its enterprise system, customer relationship management
system and customer billing system in massive database. Data mining has enabled
management to determine the demographic profile of new customers and relate it to
the handsets they purchased. It has also helped management evaluated the
performance of each store and point-of-sale campaigns, consumer reactions to new
products and services, customer attrition rates and the revenue generated by each
customer.
Harrah’s Entertainment, the second-largest gambling company in its industry,
uses data mining to identify its most profitable customers and generate more
revenue from them. The company continually analyzes data about its customers
gathered when people play its slot machines or use Harrah’s casinos and hotels.
Harrah’s marketing department uses this information to build a detailed gambling
profile, based on a particular customer’s ongoing value to the company. For
instance, data mining lets Harrah’s know the favorite gaming experience of a
regular customer at one of its Midwest riverboat casinos, along with that person’s
preferences for room accommodations, restaurants, and entertainment. This
information guides management decisions about how to cultivate the most
profitable customers, encourage those customers to spend more, and attract more
customers with high revenue-generating potential. Business intelligence has
improved Harrah’s profits so much that it has become the centerpiece of the firm’s
business strategy.
Predictive analytics use data mining techniques, historical data, and
assumptions about future conditions to predict outcomes of events, such as the
probability a customer will respond to an offer or purchase a specific product. For
example, the U.S. division of The Body Shop International plc used predictive
analytics with its database of catalog, Web, and retail store customers to identify
customers who were more likely to make catalog purchases. That information
helped the company build a more precise and targeted mailing list for its catalogs,
improving the response rate for catalog mailings and catalog revenues.
Text Mining and Web Mining Business intelligence tools deal primarily with
data that have been structured in databases and files. However, unstructured data,
most in the form of text files, is believed to account for over 80 percent of an
organization’s useful information. E-mail, memos, call center transcripts, survey
responses, legal cases, patent descriptions, and service reports are all valuable for
finding patterns and trends that will help employees make better business
decisions. Text mining tools are now available to help businesses analyze these
data. These tools are able to extract key elements from large unstructured data
sets, discover patterns and relationships, and summarize the information.
Businesses might turn to text mining to analyze transcripts of calls to customer
service centers to identify major service and repair issues. Text mining is a
relatively new technology, but what’s really new are the myriad ways in which
unstructured data are being generated by consumers and the business uses for
these data. The Interactive Session on Technology explores some of these business
applications of text mining. The Web is another rich source of valuable information,
151
some of which can now be mined for patterns, trends, and insights into customer
behavior. The discovery and analysis of useful patterns and information from the
World Wide Web is called Web mining. Businesses might turn to Web mining to
help them understand customer behavior, evaluate the effectiveness of a particular
Web site, or quantify the success of a marketing campaign. For instance, marketers
use Google Trends and Google Insights for Search services, which track the
popularity of various words and phrases used in Google search queries, to learn
what people are interested in and what they are interested in buying.
1) Decisions are classified according to the type: Unstructured Decisions,
Structured Decisions and Semi structured Decisions.
2) A decision support system is a computer system at the management level of
an organization that combines data, sophisticated analytical tools, and user-
friendly software to support semi-structured and unstructured decision
making.
3) Components of a DSS include a database of data used for query and analysis;
software with models, data mining, and other analytical tools and user
interface.
4) A data warehouse is a database that stores current and historical data of
potential interest to decision makers throughout the company.
5) Data mining helps the user by discovering the relationships and presenting
them in an understandable way so that the relationships may provide the
basis for decision making.
6) The types of information obtained from data mining include associations,
sequences, classifications, clusters and forecasts.
1) What is DSS?
2) Define data warehouse
3) What is data mart?
4) Discuss the difference between MIS and DSS.
13.6. SUMMARY
Decision Support system (DSS) offers a significant potential for assisting and
improving management decision making.DSS support for the intelligent and design
phase of decision making can led to better choices with more predictable
outcomes.DSS are interactive, computer-based information systems that use DSS
software and a model base and database to provide information tailored to support
semi structured and unstructured decision faced by individual managers. They are
designed to use a decision make’s own insights and judgment in an ad hoc,
interactive, analytical modeling process leading to specific decision. Typical
application areas of DSSs are management and planning in business, food
production and retailing health care, the military, and any area in which
management will encounter complex decision situations. A data warehouse is a
database that stores current and historical data of potential interest to decision
makers throughout the company. Companies often build enterprise-wide data
warehouse, where a central data warehouse serves the entire organization, or they
152
create smaller, decentralized warehouses called data marts. A data mart is a subset
of a data warehouse in which a summarized or highly focused portion of the
organization’s data is placed in a separate database for specific population of users
.A term that is often used in conjunction with data warehousing and the data mart
is data mining. Data mining is the process of finding relationship in data that are
unknown to the user.
1) Describe DSS and identify the characteristics of a DSS.
2) What are the differences among structure, semi-structured and unstructured
decision making? Give an example of each.
3) Describe the application of DSS.
4) Explain the components of DSS.
5) What is the difference between data warehouse and a database?
6) Discuss the components of data warehouse.
7) What are the some areas of business other than marketing that would require
data warehouses?
8) Explain how data mining is used in financial data analysis.
9) Discuss in detail about any four data mining applications
1) http://study.com/academy/lesson/data-warehousing-and-data-mining-
information-for-business-intelligence.html
2) http://www.tutorialspoint.com/dwh/dwh_overview.htm
3) http://www.cs.ubbcluj.ro
13.9. ASSIGNMENTS
Bank officers use DSSs to decide to whom to extend and to whom to deny
credit. Universities might use DSSs to decide which applicant to admit and which
applicant to reject. Would you agree to use DSSs for such decisions without human
intervention?
13.3.10. REFERENCES
1) Power, D. J. (2002). Decision support systems : concepts and resources for
managers. Westport, Conn., Quorum Books.
2) James A O’Brien, George M.Marakas and Ramesh Behl, “Management
Information System”, Ninthedition, Tata McGraw Hill Education Private
Limited, New Delhi.,2010
3) Kenneth C.Laudon and Jane P.Laudon, “Management Information System”
Tenth Edition, PHI Learning Private limited, New Delhi,2008.,
4) Effy Oz, “Management Information System”, Fifth Edition, Thomas Course
Technology,2007
13.3.11. LEARNING ACTIVITIES
Prepare a one-page report on the career you intend to pursue. Give at least
four examples of activities involved in such a career that call for problem solving.
Explain which problem solving is structured and which is unstructured.
153
13.12. KEY WORDS

 Data Mining.
 Data ware house.
 Decision Support System.
 Decision.
 Problems.
 Data Base Management System.
 Data Mart.
 Model Management System.
 Text Mining
 User Interface.

154
LESSON – 14
BUSINESS INTELLIGENCE AND ANALYTICS
14.1. INTRODUCTION
Business intelligence (BI) has two different connotations related to the use of
the term intelligence. The main is the human intelligence capacity applied in
business affairs/activities less frequently. Intelligence of Corporate is a novel field of
the investigation of the application of human cognitive and artificial intelligence (AI)
technologies to the organization and decision support in various business problems
.The second associates to the intelligence as information valued for its money and
relevance. It is expert knowledge, technologies and information competent in the
management of organizational and specific business. Hence, in this logic, business
intelligences a wide category of applications and technologies for collecting,
providing access to, and investigating data for the purpose of assisting corporate
users to make better business decisions. The term implies having a complete
knowledge of all of the factors that affect the business. It is imperative that firms
have an in depth knowledge about factors such as the customers, competitors,
economic environment, business partners and internal processes to make effective
and quality decisions in business. To make these kinds of decisions a specialized
field of business intelligence known as competitive intelligence concentrates solely
on the external competitive environment. Information is collected on the actions of
competitors and decisions are ended based on this information. In modern
businesses vast amount of data are available due to increasing standards,
automation, and technologies. Data warehouse technologies have set up
repositories to store this data. OLAP (Online-Analytical processing) reporting
technologies have allowed quicker generation of new reports which investigate the
data. Business intelligence has now become the art of scrutinizing through large
amounts of data, extracting relevant information, and changing that information
into knowledge upon which actions can be taken. This lesson explores the
concepts, components, emergence, Benefits of a Business Intelligence and Analytics
Strategy and various BI techniques.
14.2. OBJECTIVE
 Understand the concepts and components of business intelligence.
 Describe how online analytical processing can meet key information needs
of managers.
 Explain the applications of Business Intelligence(BI) and Business Analytics
(BA).
14.3. CONTENTS
14.3.1 Business Intelligence.
14.3.2 Definitions.
14.3.3 What does BI do?
14.3.4 External Databases.
155
14.3.5 Search Engines.

14.3.6 Applying Business Intelligence.
14.3.7 Leveraging Success.
14.3.8 Enriching Applications.
14.3.9 Types of business intelligence tools.
14.3.10 Business Analytics (BA).
14.3.11 Benefits of a Business Intelligence and Analytics Strategy.
14.3.12 BI vs BA.
14.3.1 BUSINESS INTELLIGENCE
The term intelligence has been used by researchers in artificial intelligence
since the 1950s. Business intelligence became a popular term in the business and
IT communities only in the 1990s. In the late 2000s, business analytics was
introduced to represent the key analytical component in BI (Davenport 2006). More
recently big data and big data analytics have been used to describe the data sets
and analytical techniques in applications that are so large (from terabytes to
Exabyte’s) and complex (from sensor to social media data) that they require
advanced and unique data storage, management, analysis, and visualization
technologies.
Once data have been captured and organized in data warehouses and data
marts, they are available for further analysis. A series of tools enables users to
analyze these data to see new patterns, relationships, and insights that are useful
for guiding decision making. These tools for consolidating, analyzing, and providing
access to vast amounts of data to help users make better business decisions are
often referred to Business Intelligence (BI). Principal tools for business intelligence
include software for database query and reporting, tools for multidimensional data
analysis (online analytical processing), and data mining.
We think of intelligences applied to humans, we typically think of people's
ability to combine learned knowledge with new information and change behaviors
in such a way that they succeed at their task or adapt to a new situation. Likewise,
business intelligence provides firms with the capability to amass information;
develop knowledge about customers, competitors, and internal operations; and
change decision-making behavior to achieve higher profitability and other business
goals. For instance, Harrah's Entertainment, the second-largest gambling company
in its industry, continually analyzes data about its customers gathered when people
play its slot machines or use Harrah's casinos and hotels. Harrah’s marketing
department uses this information to build a detailed gambling profile, based on a
particular customer's ongoing value to the company. This information guides
management decisions about how to cultivate the most profitable customers,
encourage those customers to spend more and attract more customers with high
revenue generating potential. Business intelligence has improved Harrah’s profits
so much that it has become the centerpiece of the firm’s business
strategy.(kenneth etal.,)
156
Figure 14.1 shows how BI works. The firm’s operational databases keep track
of the transactions generated by running the business. These databases feed data
to the data warehouse. Managers uses business intelligence tools to find patterns
and meaning in the data. Managers then act on what they have learned from
analyzing the data by making more informed and intelligent business decisions.
The important business intelligence tool is OLAP (Online Analytical Processing)
Fig. 14.1 : Business Intelligence

14.3.2. DEFINITIONS
Stackowiak et al., (2007) define Business intelligence as the process of taking
large amounts of data, analyzing that data, and presenting a high -level set of
reports that condense the essence of that data into the basis of business actions,
enabling management to make fundamental daily business decisions.
Cuietet al, (2007) view BI as way and method of improving business
performance by providing powerful assists for executive decision maker to enable
them to have actionable information at hand. BI tools are seen as technology that
enables the efficiency of business operation by providing an increased value to the
enterprise information and hence the way this information is utilized.
Business intelligence (BI) can be defined as a set of processes and technologies
that change data into meaningful and beneficial information for business purposes.
In application is intensive on querying and reporting, but it can contain reported
information from a BA analysis. BI seeks to response questions such as what is
happening now and where, and also what business actions are needed based on
previous experience. BA, on the other hand, can response questions like why
something is happening, what innovative trends may exist, what will happen next,
and what the best course is for the future. In summary, BA contains the similar
procedures as in plain analytics however has the additional requirement that the
157
result of the analytic analysis must make a quantifiable impact on business

performance. BA includes reporting results like BI but seeks to clarify why the
results occur based on the analysis rather than just reporting and keeping the
results, as is the case with BI.
14.3.3. WHAT DOES BI DO?
BI supports in strategic and operational decision making. Strategic use of BI
was ordered by a Gartner survey in the following rank (Willen, 2002):
 Business performance management.
 Optimizing customer relationships, observing business activity, and
traditional decision support.
 Standalone BI applications Package for specific operations or strategies.
 Executive reporting of BI.
The suggestion of this ranking is the strength of many existing software
packages is merely reporting the performance of a firm and its competitors, which
is not enough. Another implication is that too many firms still think business
intelligence (like DSS and EIS before it) as an inward looking function.
Business intelligence is a natural outgrowth designed to support decision
making. The development of the data warehouse as a repository, the advances in
data cleansing that lead to a the greater capabilities of hardware and software, and
the flourishing of Internet technologies that provided the prevalent user interface all
combine to create a richer business intelligence environment than was available
before. BI drags information from many other systems and converts data into
useful information through human analysis, into knowledge. Some of the jobs
performed by BI are:
 Estimates the way in which the future will go by the predictions based on
historical data and current performance.
 “What if” analysis of the impacts of changes and alternative situations.
 Ad hoc access to the data to reply specific, non-routine questions.
14.3.4. EXTERNAL DATABASES
Business intelligence (BI)is the activities of gathering information about the
elements in the environment that interact with the firm. Companies do not have to
gather environmental information themselves. A number of important commercial
databases are available that provide information on virtually any subject. LEXIS-
NEXIS (WWW.LEXISNEXIS.COM) provides legal, financial, and government infor-
mation from a wide variety of sources. For a fee, the firm will provide analyses of
the information requested. DIALOG (WWW.DIALOG.COM) covers news, business,
government, and other sources. DowJones.com (WWWDOWJONES.COM) offers a
wide variety of information on financial matters. Global exchange Services
(WWW.GXS.COM) sells services aimed at integrating electronic transactions for
global supply chains. These are only a few of the companies that provide data and
data services to firms.
158
Firms use these databases to gather business intelligence because it is faster

and less expensive than trying to research a wide array of information sources.
Reuters (WWW. REUTERS.COM) can search and analyze news media for subjects of
concern to a firm much more effectively and efficiently than most firms can do for
themselves. The value that these commercial databases bring to the firm is their
wide knowledge of information sources. Thomas Net (WWW,THOMASNET.COM) is
an example of a database that provides a great deal of information for free and also
offers services for a fee. Thomas Register provides an index of over 170,000 U.S.
and Canadian manufacturers and can be used to obtain information on products
and their suppliers. All records provide the name, address, telephone number, and
industry code for companies, as well as brand names, trademarks, and descriptions
of the company's products. Also, many records provide such information as the
number of employees and executive names and titles.
Government databases are another important source of information. The
Library of Congress (WWW.LOC.GOV) offers a wide range of topics for researchers
in many fields. The Census Bureau (WWW.CENSUS.GOV) contains a treasure trove
of information concerning the demographics of people in the United States.
Information is provided in a number of formats and can be as general as an
industry or as specific as a county. The Bureau of Labor Statistics (WWW.BLS.GOV)
has information about inflation, wages, and international data, and much more.
Firms can tap into the Securities and Exchange Commission records
(WWW.SEC.GOV) to view various required financial filings via the EDGAR
databases. EDGAR is the Electronic Data Gathering. Analysis and Retrieval system.
The federal government and many state governments are under a mandate to make
public information avail-able via the Internet.
Firms are becoming more inclined to initiate their own external searches for
market intelligence. External searches have been helped by the fact that more and
more firms are placing information about themselves on the Web. Search engines
are the most popular means for people to obtain information available from the
Web.
14.3.5. SEARCH ENGINES
A search engine is a special computer program that asks a user for a word or
group of words to be found. The program then searches the content of Web sites on
the Internet to see if the word or words are on any Web sites. For example you
might use a search engine to find the availability of a motel room (Figure 14.2). For
our purposes .the specialized programs that index the sites and create directories of
site categories will be considered subparts of the search engine. Customers
interested in B2C e-commerce frequently begin their transaction by using search
engines to locate possible vendors. Search engines estimate the usefulness of the
sites that contain the words and present the requestor with the addresses of Web
sites and documents that contain the chosen words.
Yahoo! (WWW.YAHOO.COM). Excite (WWW.EXCITE.COM). AltaVista (WWW.
ALTAVISTA.COM), MSN (WWW.MSN.COM), Google (WWW.GOOGLE.COM), and Ask.
159
leeves (WWW.ASKJEEVES.COM) are just a few of the popular search engine sites
and portals available to users to search Web-accessible information. The sites are
organized in a manner that makes them easy to use. Searches can be simple or use
advanced features to look for complex combinations of key words. There is no
charge for the use of these searches.
Fig. 14.2 Search Engines Explore the Internet to

Find Sites Contains Information user Seek.
14.3.6. APPLYING BUSINESS INTELLIGENCE
Practically every motorist has noticed the disclaimer: "Objects in mirror are
closer pear". Drivers are advised to recognize that what appears to be the reality is
in fact distorted. In other words, don't try passing because that tractor trailer is
closing in on your rear even though it looks like its 30 yards behind you.Users face
similar issue with the information that drives their organization’s decision, tactics
and strategies. Despite the IT department's best efforts, chances are the
information at your disposal dated and distorted.
Over the past decade, organizations have steadily deployed business
intelligence software to equip decision makers and analysts with better and more
reliable data. The payoff has been enormous and while other IT sectors have
suffered, companies' investment in BI remains strong. Yet the problems remain and
room for improvement is ample. By and large, BI provides a rear view mirror look
through the historical data. But now on the horizon is Web services, a technology
fabric that can help BI realize its potential as a catalyst for proactive decision
making among the users driven from accurate, comprehensive and real-time
information from all corners of the enterprise.
As performance management gets linked with operations, business intelligence
itself is moving closer to operations. By analyzing real-time data, feedback and input
to operations, managers can be prompt and leave an impact. Performance
management is also penetrating to lower levels. Effective managers are pushing the
decision point down so that decisions are made as close to the customer as possible.
While traditional BI solutions focus on strategic planning, operational BI is a
relatively new form of BI that empowers executives, managers and professionals
across the enterprise. Operationally focused access to both dynamic (transactional)
160
and static (historical) data in a real-time Web services is fundamentally about

interoperability. It is fast emerging as a means of application-to-application
communication to serve such practical purposes as automated replenishment from
inventory, once stock falls below a threshold.
With Web services, BI capitalizes on the integrated data to address several
weaknesses in the Conventional BI systems. Forward-thinking enterprises view
Web services as a framework for pervasive enterprise BI that provides: Faster, real-
time access to dynamic information; instantaneous reach into broad network of
incompatible data systems; proactive decision-making vs rear view mirror look data
at historical data; broader reach of analytics to more users; metrics-driven
performance measurement, management and alerting; and data exchange and
analysis among related functions (supply ring, finance, sales, etc.)
These have been the objectives of business intelligence and data warehousing
for a number of years, the approach has been to use a platform for data integration
(sometimes called an extraction, transformation and loading tool) to move data into
a central repository to create a data From there, users access and analyze the
information with a front-end BI tool.
14.3.7. LEVERAGING SUCCESS
Business intelligence driven from a data warehouse is a sound and proven
system. Web services canboth enrich the dividends that organizations realize from
these systems, and make them easier to deploy and maintain. While building a
warehouse will never be an effortless task, the standards-based interoperability
provided by Web services promises to make it considerably easier and less costly.
Furthermore, Web services provide business users with greater flexibility in
accessing fluid data as needed. With a web services/ BI system, data does not need
to be moved into a warehouse, but maybe sourced directly from applications and a
warehouse as well, if desired.
It should be noted that the Web services flavor of BI is best suited for "light"
query and. It complements a warehouse, but does not replace a ware house for
deeper, multi-dimensional analysis and advanced data mining. A central tenet of
Web services is its use of standard protocols for interoperability among
incompatible, chiefly XMLor Extensible Markup Language, SOAP or Simple Object
Access protocol. These protocols make it much easier for developers to connect
disparate system. Today, support for these protocols is built into many leading data
integration platforms and analytic BI tools.
14.3.8. ENRICHING APPLICATIONS
Most users use some flavor of enterprise applications for financial reporting,
product and supply chain management, and sales and marketing. The problem is
that the information in those applications frequently raises more questions than it
answers.It's often raw data and numbers, with little or no context and texture to
indicate its importance to the business and its relationships with other information.
The questions may be fairly simple: why are our sales down in the
Northeast? Why our inventory growing? Which are our best and worst performers in
161
online sales vs retail? What is complex is getting a straight answer because bits and
pieces of the truth are scattered about. Web services is a powerful agent that can
dissolve barriers among your enterprise and enrich them with analytic BI
functionality that enables a broader audience of users to run on-the-spot queries
and seamlessly “drill through” to various systems.
Fig. 14.3 Business Intelligence Applications

The above Figure 14.3 highlights several major information technologies that
are being customized, personalized and Web-enabled to provide key business
information and analytical tools for managers, business professionals, and
business stakeholders. We highlight the trends toward such business intelligence
applications in the various types of information and decision support system
14.3.9 TYPES OF BUSINESS INTELLIGENCE TOOLS
The key general categories of business intelligence tools are:
 Spreadsheets
 Reporting and querying software: tools that extract, sort, summarize, and
present selected data
 OLAP: Online analytical processing
 Digital dashboards
 Data mining
 Data warehousing
Incremental and Iterative process followed in BI architecture is shown in Fig. 14.4.
162
Fig. 14.4 : Incremental and Iterative process followed in BI architecture.

Source: NavitaKumari(2013).
OLAP (On-line Analytical Processing)
Any type of software can be used to extract data from the data repository and
transform it into information. Report writers, database query packages, and
mathematical models can all be used. In addition, there is a type of software that
has been developed especially for the data warehouse. It is called OLAP (on-line
analytical processing). OLAP enables the user to communicate with the data
warehouse either through a GUI or a Web interface and quickly produce the
information in a variety of forms, including graphics.
There are two approaches to OLAP: ROLAP and MOLAP. ROLAP (for relational
on-line analytical processing) uses a standard relational database management
system. MOLAP (for multidimensional on-line analytical processing) uses a special
multidimensional database management system. ROLAP data typically exist in a
detailed form, and analyses must be performed to produce summaries. MOLAP data
are typically pre-processed to produce summaries at the various levels of detail and
arranged by the various dimensions.
Figure 14.5 illustrates the two architectures. Both include a data warehouse
server and a second server that contains the OLAP software. A major difference is
that the workstation of the MOLAP user includes a downloaded multidimensional
database. The data in this database have already been formatted in various
dimensions so that data may be made available quickly rather than force users to
go through time-consuming analyses. ROLAP can easily produce outputs at
detailed levels and at a few summary levels but must execute processes to achieve
summary levels that have not been previously prepared. This means that ROLAP
analysis is constrained to a limited number of dimensions.
163
Fig. 14.5 : ROLAP and MOLAP Architectures. Source:Kenneth et al., (2008)

Online analytical processing enables managers and analysts to interactively
examine and manipulate large amounts of detailed and consolidated data from
many perspectives. OLAP involves analyzing complex relationships among
thousands or even millions of data marts data warehouses, and other
multidimensional databases to discover patterns, trends, and exception conditions.
An OLAP session takes place online in real time, with rapid responses to managers
or analysts queries, so that the analytical or decision-making process is
undisturbed.
Online analytical processing involves several basic analytical operations,
including consolidation, “drill-down," and "slicing and dicing."
 Consolidation. Consolidation involves the aggregation of data, which can
involve simple roll-ups or complex groupings involving interrelated data.
For example, data about sales office can be rolled up to the district level,
and district-level data can be rolled up to provide a regional-level
perspective.
 Drill-down. OLAP can also go in the reverse direction and automatically
display detailed data that comprise consolidated data. This process is called
drill-down. For example, the sales by individual products or sales reps that
make up a region's sales totals could be easily accessed
 Slicing and Dicing. Slicing and dicing refers to the ability to look at the
database from different viewpoints. One slice of the sales database might
show all sales of a product type within regions. Another slice might show all
sales by sales channel within each product type. Slicing and dicing is often
performed along a time axis to analyze trends and find time-based patterns
in data.
Advanced Analytics
This partis a superior model of OLAP and it cares more about the future
prediction which based on statistics processed and delivered by OLAP. OLAP has
164
advanced analytics features; it deals with complicated problems and vast amount of
data. Mohammad AtwahAlma'aitah (2013).
Data Warehouse
Huge collections of historical data that can be processed to support
management decision making. It is the techniques to store very large amount of
historical data in database, especially for business intelligence.
Data Mart
Collections of archival data that is part of a data warehouse usually focusing
on one aspect of the organization such as sales of a family of products or daily
revenues in geographic region.
Data Mining
A term that is often used in conjunction with data warehousing and the data
mart is data mining. Data mining is the process of finding relationships in data that
are unknown to the user. It is analogous to a miner panning for gold in a mountain
stream. Data mining helps the user by discovering the relationships and presenting
them in an understandable way so that the relationship may provide the basis for
decision making.
Business Intelligence Vendors
It is important to remember that business intelligence and analytics are
products defined by technology vendors and consulting firms. They consist of
hardware and software suites sold primarily by large system vendors to very large
Fortune 500 firms. The largest five providers of these products are SAP, Oracle,
IBM, SAS Institute, and Microsoft (see Table 2.1). Microsoft’s products are aimed at
small to medium size firms, and they are based on desktop tools familiar to
employees (such as Excel spreadsheet software), Microsoft SharePoint collaboration
tools, and Microsoft SQL Server database software. The size of the American BI and
BA marketplace in 2010 is estimated to be $10.5 billion and growing at over 20%
annually (Gartner, 2010). This makes business intelligence and business analytics
one of the fastest-growing and largest segments in the U.S. software market.
Table 14.1 Market Leaders and Share For The Top Business Intelligence Vendors
The Business Intelligence Environment
Figure 14.6 gives an overview of a business intelligence environment,
highlighting the kinds of hardware, software, and management capabilities that the
165
major vendors offer and those firms develop over time. There are six elements in
this business intelligence environment:
 Data from the business environment: Businesses must deal with both
structured and unstructured data from many different sources, including
mobile devices and the Internet. The data need to be integrated and
organized so that they can be analyzed and used by human decision
makers.
 Business intelligence infrastructure: The underlying foundation of
business intelligence is a powerful database system that captures all the
relevant data to operate the business. The data may be stored in
transactional databases or combined and integrated into an enterprise-data
warehouse or series of interrelated data marts.
 Business analytics toolset: A set of software tools are used to analyze data
and produce reports, respond to questions posed by managers, and track
the progress of the business using key indicators of performance.
 Managerial users and methods: Business intelligence hardware and
software are only as intelligent as the human beings who use them.
Managers impose order on the analysis of data using a variety of
managerial methods that define strategic business goals and specify how
progress will be measured. These include business performance
management and balanced scorecard approaches focusing on key
performance indicators and industry strategic analyses focusing on changes
in the general business environment, with special attention to competitors.
Without strong senior management oversight, business analytics can
produce a great deal of information, reports, and online screens that focus
on the wrong matters and divert attention from the real issues. You need to
remember that, so far, only humans can ask intelligent questions.
 Delivery Platform: MIS, DSS, ESS. The results from business intelligence
and analytics are delivered to managers and employees in a variety of ways,
depending on what they need to know to perform their jobs. MIS, DSS, and
ESS, deliver information and knowledge to different people and levels in the
firm—operational employees, middle managers, and senior executives. In
the past, these systems could not share data and operated as independent
systems. Today, one suite of hardware and software tools in the form of a
business intelligence and analytics package is able to integrate all this
information and bring it to managers’ desktop or mobile platforms.
 User Interface: Business people are no longer tied to their desks and
desktops. They often learn quicker from a visual representation of data
than from a dry report with columns and rows of information. Today’s
business analytics software suites emphasize visual techniques such as
dashboards and scorecards. They also are able to deliver reports on
Blackberrys, iPhones, and other mobile handhelds as well as on the firm’s
Web portal. BA software is adding capabilities to post information on
Twitter, Facebook, or internal social media to support decision making in
an online group setting rather than in a face-to-face meeting
166
Fig. 14.6 Business Intelligence And Analytics For Decision Support

14.3.10. BUSINESS ANALYTICS (BA)
In business literature three terms are often related to one another: analytics,
business analytics (BA) and business intelligence (BI). A process that involves the
use of statistical techniques (measures of central tendency, graphs, and so on) is
known as analytics, information system software (data mining, sorting routines),
and linear programming problem operations research methodologies to discover,
visualize, and communicate patterns or trends in data. Simply, analytics convert
data into useful information. Analytics is commonly applied to all disciplines, not
just industry. A typical instance of the use of analytics is the weather
measurements collected and transformed into statistics, which in turn forecast
weather patterns. There are many types of analytics, and there is a need to organize
these types to understand their uses. We will adopt the three categories
(descriptive, predictive, and prescriptive) that the Institute of Operations Research
and Management Sciences (INFORMS) organization (www.informs.org ) suggests for
grouping the types of analytics (see Table 14.2 ).
These types of analytics can be viewed independently. For example, some firms
may only use descriptive analytics to provide information on decisions they face.
Others may use a combination of analytic types to glean insightful information
needed to plan and make decisions. Marc J. Schniederjans et al.,(2014).
167
Type of Analytics Definition
Descriptive The application of simple statistical techniques that describes what

is contained in a data set or database. Example: An age bar chart is
used to depict retail shoppers for a department store that wants to
target advertising to customers by age.
Predictive An application of advanced statistical, information software, or

operations research methods to identify predictive variables and
build predictive models to identify trends and relationships not
readily observed in a descriptive analysis. Example: Multiple
regression is used to show the relationship (or lack of relationship)
between age, weight, and exercise on diet food sales. Knowing that
relationships exist helps explain why one set of independent
variables influences dependent variables such as business
performance.
Prescriptive An application of decision science, management science, and

operations research methodologies (applied mathematical
techniques) to make best use of allocable resources.
Example: A department store has a limited advertising budget to
target customers. Linear programming models can be used to
optimally allocate the budget to various advertising media.
Table 14.2 Types of Analytics

Whereas analytics is concentrated on generating insightful information from
data sources, BA goes the extra step to leverage analytics to create a development
in quantifiable business performance. Whereas the process of analytics can include
any one of the three kinds of analytics, the main components of BA include all
three used in grouping to create new, unique, and valuable information that can
support business organization in decision-making. In addition, the three types of
analytics are applied consecutively (descriptive, then predictive, then prescriptive).
Therefore, business analytics(BA) can be defined as a process commencing with
business-related data collection and comprising of sequential application of
descriptive, predictive, and prescriptive foremost analytic components, the outcome
of which helps and demonstrates business decision-making and organizational
performance. Marc J. Schniederjans et al., (2014). Stubbs (2011) trusts that BA
goes beyond plain analytics, requiring a clear relevancy to business, a resulting
insight that will be implementable, and performance and value measurement to
ensure a successful business result.
Business Analytic Process
The complete business analytic process involves the three major component
steps applied sequentially to a source of data (see Figure 14.7 ). The outcome of the
business analytic process must relate to business and seek to improve business
performance in some way.
168
The logic of the BA process in figure 14.7 is initially based on a question: What
valuable or problem-solving information is locked up in the sources of data that an
organization has available? At each of the three steps that make up the BA process,
additional questions need to be answered, as shown in Figure 14.7. Answering all
these questions requires mining the information out of the data via the three steps
of analysis that comprises the BA process. The analogy of digging in a mine is
appropriate for the BA process because finding new, unique, and valuable
information that can lead to a successful strategy is just as good as finding gold in
a mine.
Many firms routinely undertake BA to solve specific problems, while other
firms undertake BA to explore and discover new knowledge to guide organizational
planning and decision-making to improve business performance.
Fig. 14.7 Business analytic processes

From Step 1 in the Descriptive Analytic analysis (see Figure 14.7), some
patterns or variables of business behavior should be identified representing targets
of business opportunities and possible (but not yet defined) future trend behavior.
Additional effort (more mining) might be required, such as the generation of detailed
statistical reports narrowly focused on the data related to targets of business
opportunities to explain what is taking place in the data (what happened in the
past). This is like a statistical search for predictive variables in data that may lead
to patterns of behavior a firm might take advantage of if the patterns of behavior
occur in the future. For example, a firm might find in its general sales information
that during economic downtimes, certain products are sold to customers of a
particular income level if certain advertising is undertaken. The sales, customers,
169
and advertising variables may be in the form of any of the measurable scales for
data, but they have to meet the three conditions of BA previously mentioned: clear
relevancy to business, an implementable resulting insight, and performance and
value measurement capabilities.
To determine whether observed trends and behavior found in the relationships
of the descriptive analysis of Step 1 actually exist or hold true and can be used to
forecast or predict the future, more advanced analysis is undertaken in Step 2,
Predictive Analytic analysis, of the BA process. There are many methods that can
be used in this step of the BA process. A commonly used methodology is multiple
regression This methodology is ideal for establishing whether a statistical
relationship exists between the predictive variables found in the descriptive
analysis. The relationship might be to show that a dependent variable is
predicatively associated with business value or performance of some kind. For
example, a firm might want to determine which of several promotion efforts
(independent variables measured and represented in the model by dollars in TV
ads, radio ads, personal selling, and/or magazine ads) is most efficient in
generating customer sale dollars (the dependent variable and a measure of
business performance). Care would have to be taken to ensure the multiple
regression models was used in a valid and reliable way, which is why ANOVA and
other statistical confirmatory analyses are used to support the model development.
Exploring a database using advanced statistical procedures to verify and confirm
the best predictive variables is an important part of this step in the BA process.
This answers the questions of what is currently happening and why it happened
between the variables in the model. A single or multiple regression models can
often forecast a trend line into the future. When regression is not practical, other
forecasting methods (exponential smoothing, smoothing averages) can be applied as
predictive analytics to develop needed forecasts of business trends. The
identification of future trends is the main output of Step 2 and the predictive
analytics used to find them. This helps answer the question of what will happen. If
a firm knows where the future lies by forecasting trends as they would in Step 2 of
the BA process, it can then take advantage of any possible opportunities predicted
in that future state.
In Step 3, Prescriptive Analytics analysis, operations research methodologies
can be used to optimally allocate a firm’s limited resources to take best advantage
of the opportunities it found in the predicted future trends. Limits on human,
technology, and financial resources prevent any firm from going after all
opportunities they may have available at any one time. Using prescriptive analytics
allows the firm to allocate limited resources to optimally achieve objectives as fully
as possible. For example, linear programming (a constrained optimization
methodology) has been used to maximize the profit in the design of supply chains
(Paksoy et al., 2013). This third step in the BA process answers the question of how
best to allocate and manage decision-making in the future.
170
In summary, the three major components of descriptive, predictive, and

prescriptive analytics arranged as steps in the BA process can help a firm find
opportunities in data, predict trends that forecast future opportunities, and aid in
selecting a course of action that optimizes the firm’s allocation of resources to
maximize value and performance.
Future of Business Intelligence
In this rapidly changing world consumers are now demanding quicker more
efficient service from businesses. To stay competitive companies must meet or
exceed the expectations of consumers. Companies will have to rely more heavily on
their business intelligence systems to stay ahead of trends and future events.
Business intelligence users are beginning to demand Real time Business
Intelligence] or near real time analysis relating to their business, particularly in
frontline operations. They will come to expect up to date and fresh information in
the same fashion as they monitor stock quotes online. Monthly and even weekly
analysis will not suffice. In the not too distant future companies will become
dependent on real time business information in much the same fashion as people
come to expect to get information on the internet in just one or two clicks. Also in
the near future business information will become more democratized where end
users from throughout the organization will be able to view information on their
particular segment to see how it's performing. So, in the future, the capability
requirements of business intelligence will increase in the same way that consumer
expectations increase. It is therefore imperative that companies increase at the
same pace or even faster to stay competitive Jayanthi Ranjan (2009).
Management Strategies for Developing BI And BA Capabilities
There are two different strategies for adopting BI and BA capabilities for the
organization: one-stop integrated solutions versus multiple best-of-breed vendor
solutions. The hardware firms (IBM, HP, and now Oracle, which owns Sun
Microsystems) want to sell your firm integrated hardware/software solutions that tend
to run only on their hardware (the totally integrated solution). It’s called “one stop
shopping.” The software firms (SAP, SAS, and Microsoft) encourage firms to adopt the
“best of breed” software and that runs on any machine they want. In this strategy, you
adopt the best database and data warehouse solution, and select the best business
intelligence and analytics package from whatever vendor you believe is best. The first
solution carries the risk that a single vendor provides your firm’s total hardware and
software solution, making your firm dependent on its pricing power. It also offers the
advantage of dealing with a single vendor who can deliver on a global scale. The second
solution offers greater flexibility and independence, but with the risk of potential
difficulties integrating the software to the hardware platform, as well as to other
software. Vendors always claim their software is “compatible” with other software, but
the reality is that it can be very difficult to integrate software from different vendors.
Microsoft in particular emphasizes building on its desktop interface and operating
system (Windows), which are familiar to many users, and developing server
applications that run on Microsoft local area networks. But data from hardware and
software produced by different vendors will have to flow seamlessly into Microsoft
171
workstations to make this strategy work. This may not be adequate for Fortune 500
firms needing a global networking solution. Regardless of which strategy your firm
adopts, all BI and BA systems lock the firm into a set of vendors and switching is very
costly. Once you train thousands of employees across the world on using a particular
set of tools, it is extremely difficult to switch. When you adopt these systems, you are
in essence taking in a new partner. The marketplace is very competitive and given to
hyperbole. One BI vendor claims “[Our tools] bring together a portfolio of services,
software, hardware and partner technologies to create business intelligence solutions.
By connecting intelligence across your company, you gain a competitive advantage for
creating new business opportunities.” As a manager, you will have to critically evaluate
such claims, understand exactly how these systems could improve your business, and
determine whether the expenditures are worth the benefits.
14.3.11. BENEFITS OF A BUSINESS INTELLIGENCE AND ANALYTICS STRATEGY
A business intelligence (BI) and analytics strategy empowers employees with
the precise information at the right time. As results insightful business knowledge
with the capability to expect change and unlock new opportunities. When a
thorough understanding of business and technical requirements for BI is in place
higher revenue will be generated per employee High performing companies are50
percent more likely to practice analytic information strategically
14.3.12. BI VS BA
The table 14.3 shows the difference between business intelligence and
business analytics.
BI vs. BA Business intelligence(BI) Business Analytics(BA)
What happened? Why did it happen?
Answers the When? Will it happen again?

questions:
Who? What will happen if we change x?
How many? What else does the data tell us that

we never thought to ask?
Reporting (KPIs, metrics) Statistical/quantitative analysis
Includes: Ad hoc querying Data mining
OLAP (cubes, slice & dice, drilling) Predictive modeling/analytics
Dashboards/scorecards Big data analytics
Operational/real-time BI Text analytics
Automated monitoring/alerting Multivariate testing
Table 14.3 : BA vs BI
172

 Business intelligence as the process of taking large amounts of data,
analyzing that data, and presenting a high -level set of reports that
condense the essence of that data into the basis of business actions,
enabling management to make fundamental daily business decisions.
 A search engine is a special computer program that asks a user for a word
or group of words to be found
 The key general categories of business intelligence tools are(Spreadsheets
 Reporting and querying software: tools that extract, sort, summarize, and
present selected data; OLAP: Online analytical processing; Digital
dashboards; Data mining; Data warehousing).
 OLAP enables the user to communicate with the data warehouse either
through a GUI or a Web interface and quickly produce the information in a
variety of forms; including graphics. There are two approaches to OLAP:
ROLAP and MOLAP. ROLAP
 Online analytical processing involves several basic analytical operations,
including consolidation, “drill-down," and "slicing and dicing."
 Business analytics (BA) can be defined as a process commencing with
business-related data collection and comprising of sequential application of
descriptive, predictive, and prescriptive foremost analytic components, the
outcome of which helps and demonstrates business decision-making and
organizational performance.
1) Define Business intelligence
2) What is Business Analytics?
3) List the approaches OLAP
14.6. SUMMARY
When data have been captured and organized in data warehouses and data
marts, they are available for further analysis. A series of tools enables users to
analyze these data to see new patterns, relationships, and insights that are useful
for guiding decision making. These tools for consolidating, analyzing, and providing
access to vast amounts of data to help users make better business decisions are
often referred to Business Intelligence (BI). Principal tools for business intelligence
include software for database query and reporting, tools for multidimensional data
analysis (online analytical processing), and data mining .Business intelligence(BI)
can be defined as a set of processes and technologies that change data into
meaningful and beneficial information for business purposes. In application BI is
intensive on querying and reporting, but it can contain reported information from a
BA analysis. BI seeks to response questions such as what is happening now and
where, and also what business actions are needed based on previous experience.
BA, on the other hand, can response questions like why something is happening,
what innovative trends may exist, what will happen next, and what the best course
is for the future.
173
14.7. TERMINAL QUESTIONS

1) Explain the components of Business Intelligence.
2) Discuss online analytical processing.
3) What are the applications of business intelligence?
4) What is the difference between analytics and business analytics?
5) What is the difference between business analytics and business intelligence?
1) International Journal of Information Management
2) Information and Management
14.9. ASSIGNMENT
It has been said that you do not need database management software to create
a database environment. Discuss.
14.10. REFERENCES
1) Mohammad Atwah Al-ma'aitah(2013) “The Role of Business Intelligence
Tools in Decision Making Process”, International Journal of Computer
Applications Volume 73-No.13,, July 2013.
2) NavitaKumari(2013), “Business Intel ligence in a Nutshell”,
International Journal of Innovative Research in Computer and
Communication Engineering Vol. 1, Issue 4, June 2013.
3) Marc J. Schniederjans, Dara G. Schniederjans, and Christopher M.
Starkey (2014) “Business Analytics Principles, Concepts, and Applications”,
Pearson Education, Inc. Upper Saddle River, New Jersey 07458.
With a group of two or three of your fellow students, select an online
database to explore, such as AOL Music, iGo.Com, or other internet movie
database. Explore these web sites to see what information they provide. Then list
the entities and attributes that they must keep track of in their databases. Diagram
the relationship between the entities you have identified. If possible, use electronic
presentation software to present your findings to the class.
14.12. KEYWORDS
 Ad hoc querying.
 Business Intelligence.
 Database.
 E-commerce
 OLAP. Business Analytics.
 Data Warehouse.
 Descriptive.
 Predictive.
 Prescriptive.

174
LESSON – 15
EXECUTIVE INFORMATION SYSTEM AND EXECUTIVE SUPPORT
SYSTEM
15.1. INTRODUCTION
Executive information system is a computer based system that assists the
information that is required by the various top executives. It provides very fast
access to the timely information and also offers the direct access to the different
management reports. Just as executives have always had to cope with operations,
strategy, financial planning and people, now they are going to have to deal with
information technology. Top management, which some years ago was shielded from
information technology, cannot afford to be so any longer. One type of system that
helps top managers with strategic, unstructured decision making is executive
information systems (EIS).DSS mainly assist in planning tasks, but the EIS the
powerful tool vital feature is to support the control activities. An executive who
practices an EIS has a greater capability to evaluate all aspects of the company’s
operations and to seek out problems and opportunities. ESS is a reporting software
tool that allows you to turn your organization's data into useful summarized
reports. These reports are generally used by executive level managers, for quick
access to reports coming from all company levels and departments such as billing,
cost accounting, staffing, scheduling, and more. Purpose and Features of EIS,
Characteristics and Components of EIS, Critical Success factor of DSS/EIS, ESS
Model, Dashboards and Balanced Scorecard Systems were discussed below.
15.2. OBJECTIVES
 Understand the concept of Executive Information system (EIS).
 Describers the characteristics and competencies of EIS.
 Discuss the critical success factor of EIS.
 Explain the role of Executive Support System(ESS)
 Discussed the model of ESS.
15.3. CONTENTS
15.3.1 Purpose and Features of EIS.
15.3.2 Characteristics of EIS.
15.3.3 Components of EIS
15.3.4 Critical Success factor of DSS/EIS.
15.3.5 ESS.
15.3.6 ESS Model.
15.3.7 Relationship of Systems to one Another.
15.3.8 Dashboards and Balanced Scorecard Systems
15.3.1 PURPOSE OF EIS
The primary purpose of an Executive Information System (EIS) is to help
managerial learning about business, its work processes and interaction with the
175
external environment. Informed managers can ask better questions and make
better decisions. Vandenbosch and Huff (1992) from the University of Western
Ontario found that Canadian organizations adapting an EIS achieved better
business results if their EIS stimulated managerial learning. Organizations with an
EIS designed to maintain managers' "mental models" were less effective than
organizations with an EIS designed to build or enhance managers' knowledge.
Learning further about system behavior and how numerous system inputs and
actions interrelate will let managers to make more proactive changes to make long-
term improvement.
A secondary purpose for an EIS is to permit timely access to information.
Managers can obtain all of this information in an EIS through traditional methods.
However, the resources and time needed to manually compile information in a wide
range of formats, and in response to ever fluctuating and ever more definite
questions usually inhibit managers from obtaining this information. By the time a
useful report can be compiled, the strategic issues facing the manager have
changed, and the report is never fully utilized. Timely access also influences
learning. When a manager obtains the answer to a question, that answer typically
sparks other related questions in the manager's mind. If those questions can be
posed immediately, and the next answer retrieved, the learning cycle continues
unbroken. Using traditional methods, by the time the answer is produced, the
context of the question may be lost, and the learning cycle will not continue. (Floyd
Kelly.,n.d)
Definition
An executive information system (EIS) is a decision support system (DSS) used
to support senior executives in the decision-making. It ensures this by granting
easy access to significant data needed to achieve strategic goals in firms. An EIS
generally features graphical displays on an easy-to-use interface. Executive
information systems can be practiced in many different types of organizations to
monitor the performance, identify the opportunities and problems of the enterprise.
Features of EIS
Fig 15.1: Common Features of EIS
An EIS is a set of computer-based tools with features such as color graphics,
touch screens commands, and natural-language interfaces, that help managers to
176
analyze, navigate, summarize, and disseminate large volumes of data. An EIS is

frequently connected with online information services so that top managers can
quickly access external data as well. The primary goal of an EIS is, therefore, the
delivery and display of information, rather than the analysis or diagnosis of
problems and possible solutions. This is one of the primary differences between an
EIS and a DSS, which focuses primarily on problem solving figure 15.1 shows some
of the features commonly found in an EIS.
In a recent article in Harward Business Review, management guru, Peter
Drucker, identifies the different kinds of information top managers need to make
good decisions. He points out that the primary goals of an enterprise is to create
wealth, not merely control costs, and this requires four sets of diagnostic tools that
provide decision makers with right information to make sound decisions:
 Foundation information (such as cash flow, liquidity, and so on)
 Productivity information
Economic value-added analysis (EVA) measures the value added over all the
cost including the cost of capital It, therefore, measures the productivity of all
factors of production and shows which product, service, operation, or activity has
unusually high productivity unusually high value.
Competence information
This tracks a company's competencies and those of its competitors. It
identifies unexpected successes and failures and helps managers learn important
management lessons. It also tracks innovations in an entire field (such as defense,
automobiles, electronics, manufacturing, and so on) in a given period. "It raises
right questions rather than answers ", says Peter Drucker.
Resource-related information
This monitors and measures the different kinds of resources an organization
uses, such as manpower. A company should look at all four financial measures, viz.
return on investment, payback period, cash flow, or discounted present value in
order to asses financial performance. Although many organizations spend a lot of
time assessing the performance of their capital, Drucker points out that it is people,
not capital, that is one of the scarcest resources in any organization.
The four kinds of information above allow managers to assess current
business, while–information related to the environment-such as markets,
customers, non-customer, technology applications, and worldwide finance-provide
information necessary to operate in the market place.
So what kind of information should a system provide top management? "It
must lead them to request the right questions, not just feed them the information
they expect", says Drucker.”What we need are services that make specific
suggestions about how to use the information ask specific questions regarding the
users' business and its practices, and perhaps provide interactive consultation.
That is a new and radically different view of meaning and purpose of information:
177
as a measurement on which to base future action rather than as a post-mortem

and a record of what has already happened.
EIS ate used in many ways in the business world. For example, a few years
ago, top officials of U.S. Air Force were looking for a tool that would help them
analyze large volume of data related to base closings around the country. Managers
had to process more than gigabyte of data to identify the naval bases that should be
closed. The Air force selected an EIS that graphically depicted large volumes of
data. It allowed decision makers to arrive at a decision quickly and save the Air
Force a great deal of time and money.
Beaver Lumber Co., in Markham, Ontario, needed a way for store managers at
its 165 stores to examine sales information for approximately 30,000 items The
Company selected an EIS package that allows managers to quickly and easily
retrieve and process data in a number of ways, such as examining sales by
department, by salesperson, or even by time of the day. The company has made the
EIS part of its long-term information strategy; it plans eventually to provide all
managers with access to EIS tools that will allow them to generate customized
reports.
Virginia polytechnic institute in Blacksburg, Virginia, uses an EIS package
developed by SAS institute to help university administrators scan through large
volumes ofstudent, faculty and administrative data and generate reports. Once the
system was installed, users could generate necessary reports immediately instead
of waiting days or weeks for the MIS department to act. Another company that
relies on an EIS for quality information is Sundstrand. This company uses its EIS
only to disseminate timely and valuable information to decision markers, but also a
business intelligence tool that provides the firm with critical information about
competitors and their strategies so it can position itself competitively in the
marketplace.
The market for DSS and EIS is expected to more than triple,
in 2008. Banks and other financial institutions, in particular, is enthusiastic
end, according to an Ernst & Young survey published in 1993. It is estimated that
roughly one in four banks uses an EIS system and another 40% of banks are in the
process of installing ElS. In fact, EIS is considered such an important technology
that some universities in the U.S. devote a considerable portion of their research
money to EIS research. The University of Texas at Austin and MIT are major
centers for DSS and EIS research.
EIS have also become liaison tool that link operational data (accounting
ledgers, payroll, production control, and so on) with other tools, such as
spreadsheets, word processors and accounting packages. This helps managers
assess who, what, where, and why of data. EIS also helps to increase the
productivity of knowledge workers. For example, Data General, a manufacturer of
computers and peripherals, once had all its data in a minicomputer. At the end of
each business day, managers were responsible for compiling, printing, and
disseminating all daily business transactions to top managers. Today, the company
178
uses an EIS that provides instantaneous access to all managers about company-
wide information.
Finally, as corporations around the world try to "achieve more with less",
managers searching for tools that reduce bureaucratic waste and operating costs.
The Manitoba Public Insurance Corporation reduced its operating costs by using
Before the system was installed, the company used a mainframe to determine at
insurance rates. Unfortunately, each time there was a rate change, considerable
portions of the software had to the rewritten. Today, the company relies on an EIS
to make these changes automatically and provide managers with current
information; this has resulted in significant cost savings. The EIS also does 'what-
if" analysis, helping managers to be proactive in their decision making. Some
popular EIS packages are Commander-EIS, SAS/EIS-Express, IRI software and EIS
Toolkit. Table 3.1 lists some popular EIS packages.
Table 3.1 : Some Popular EIS Packages and their Operating Systems
Package Vendor Operating System
Commander EIS Comshare Windows,OS/2,UNIX
SASIEIS Package SAS institute OS/2, UNIX
IRI Software Information Resources, Inc. MS-DOS
Lightship Pilot Software Windows,OS/2
EIS Toolkit MicroStrategy Windows
Source: James A o’Brien et al.,(2010)
15.3.2. CHARACTERISTICS OF AN EIS
DSS and EIS have many functions in common, including "what-if" analysis,
risk analysis, and graphical analysis. In addition to these, an EIS has two special
functions
 Derived-information function.
 Drill-down function.
Derived Information
Derived information is gleaned from existing data with the primary purpose of
identifying the cause or the source of a given problem. For example, when a
manager is informed the sales in Region A have fallen by 30%, the information
simply identifies the presence of a problem: it does not indicate the cause of the
problem. The derived-information function in an EIS identifies what and the why of
information and assists managers with further data analysis so that the cause of a
drop in sales can be determined.
Drill-Down
Drill-down is the location and retrieval of data at whatever level of detail is
desired by the user .For example, a human resource manager may want to know
the total number of employees working in Division A (summary data) and a
breakdown of employees in sales, and administration (more detailed data) in that
division. For example, managers in the state of Wisconsin's health insurance office
can drill down for specific information about a health claim or even about the
179
doctor treating a specific patient. The drill-down function in an EIS allows a

manager to obtain summary or detailed data through a few simple keystrokes.
The recent feature found in DSS and EIS that increases the usefulness of drill-
down and derived information is a software agent. Agents are small software
programs that specific background tasks and filter information so it reaches
decision makers in a ready-to-use format. Software agents can also alert users to
exceptional or unusual. Agents are very good at identifying specific data and are
highly suitable for repetitive task. Comshare is one of the leading producers of
agents for DSS. Microsoft Excel also has many EIS features.
15.3.3. COMPONENTS OF EXECUTIVE INFORMATION SYSTEMS
Major components of EIS are as follows:-
1) Executive's staff
2) Database, Data warehouse, Data mart
3) EIS software (Personal productivity software Prewritten EIS software
Customized EIS software)
4) EIS Output
Executive: An executive is the end-user of output derived from EIS. Though
executives may retrieve desired information on their own specially when database
contains tailored information, most of the executives prefer to get this job done by
their staff either because they are busy in their work or they do not prefer to work
on computers. Thus executive‘s staff personnel work as intermediaries between
executives and EIS.T hese personnel do the job of retrieving information, making
analysis, and interpreting results to the executives. Thus executives do not require
knowing how their staff personnel use the EIS to get the desired information.
Database: Database for EIS is both comprehensive as well as specific. It is
comprehensive in the sense that EIS require data about the functioning of the
entire organization besides data about environmental-factors-customers, suppliers,
competitors, government polices towards business and technological development.
Database for EIS is specific because relevant data for EIS must be stored in concise
form for easy retrieval and them authorized access because a significant portion of
data may be sensitive and needs confidentiality. Database for EIS may be
categorized as data warehouse and data mart.
Data warehouse: It is a collection of current and historical operational data
stored for use in EIS. The data in the data warehouse may be updated daily, weekly
or monthly depending on the need of data users. Through data warehousing in
large organizations, data are spread at various points in different forms because of
this it is difficult to locate and retrieve data at a time when these are needed.
Growing demands of executives for easy and quick access to relevant data for
planning and control have generated the need for storing data in a manner that
serves the needs of executives and other decision makers.
In most of the organizations information systems are developed as
evolutionary process with application-specific databases. With the result an
organization may have a number of databases consisting of files, hierarchical
180
databases and relational databases. This system results into difficulty in data
location and retrieval. Data warehousing overcomes this difficulty.
Data mart:-It is usually a customized database as per the requirements of a
specific type of users. They are created from data warehouses .for creating a data
mart relevant data are extracted from data warehouses and are earmarked for
specific users. EIS data marts contains those data which are relevant for executives
for strategic management that involves strategic planning and strategic control,
Data are kept in precise form and whenever details of any issue are required, these
are mined from data warehouses. .
Data mining:-It is an activity which involves finding relevant data from data
warehouse. It discovers various patterns which are followed by available data
automatically.
EIS Software: EIS software is in dedicated from that is used for data
manipulation from database.
Personal productivity software:-it is general purpose software that anyone
can use to develop his own application. EIS use them to provide status information
about organizational performance.
Prewritten EIS Software:- It is designed to meet the information needs of
executives Some prewritten EIS software contains external information in the form
of industry trend, competition analysis, proposed legislation changes etc.
Customized EIS Software: - If an organization does not want to use
prewritten software, it can develop EIS software on its own according to its specific
requirements.
The basic software needed for a typical EIS includes four components:
 Text base software. The most common form of text are probably documents;
 Database. Heterogeneous databases residing on a range of vendor specific
and open computer platforms help executives access both internal and
external data;
 Graphic base. Graphics can turn volumes of text and statistics into visual
information for executives
 Model base. The EIS models contain routine and special statistical,
financial, and other Quantitative analysis.
This may be in the form of report and graphics. These may be either through
hard copy or screen display. The report remains brief because executives require so
many reports in a single day and if these reports are not brief these ay not be
handled effectively by the executives. These reports are called summary reports.
15.3.4. CRITICAL SUCCESS FACTORS FOR DSS/EIS
Critical success factor(CSFs) for DSS/EIS are those that significantly
increase the chances of successfully using and implementing these technologies. A
brief summary of these factors are listed below:
 Top management commitment
 Availability of accurate and reliable data
181
 Careful problem selection

These factors have even greater importance in the success of DSS and EIS
because these systems are used mostly by top and middle managers.
Top Management Commitment
A critical factor in the successful adoption of any technology is commitment
from top management. Since DSS and EIS are targeted primarily toward top and
middle managers, this factor becomes even more important. Further, since these
systems evolve over time in terms of breadth, depth, and functionally, the
continued support of top management is vital to their success. One way to get
commitment from top management is to build organization wide systems, rather
than systems that solve a specific problem in a given department or business unit.
Availability of accurate and reliable data
Because intelligent support systems are data-driven, the quality of the
decisions produced by the system can only be as high as that of the data input into
the system. If the data necessary to make decisions are not readily available,
accessible, or reliable, users may be unwilling to use the system; eventually,
confidence in the technology itself will be eroded.
Careful Problem Selection
Problems to be solved using an ISS should be carefully selected to be neither
too easy nor too difficult. A subjective definition of an easy problem can be solved in
a short period of time and does not require complex analysis of number of
variables. Further, decision makers may not use the system if they can solve the
problem easily without any help from the system; if the problem is too complex, it
may be too difficult and time-consuming to model it. The cost of developing a
system for highly problems may be prohibitive. Another consideration in problem
selection is the way managers view the problem. If the system is to be successful,
managers should believe the problem is critical to the well-being of the organization
and affects the bottom line. Finally, a 1SS should be built around the problem and
not around the cognitive style of the decision maker. In other words, the intent
should be to capture the problem and its characteristics, not just the decision
making style of the manager.
Integration of DSS and EIS with Existing Technologies
ISS should be integrated with existing systems and technologies in the
organization, because this is the only way to ensure the free flow of information.
Without integration, it is difficult to achieve the full potential of systems and to
deliver the full power of technology, integration is not easy to achieve; it requires
vision, long-range planning, standardization and teamwork between the MIS
department and other business units in the organization.
Advantages
 Simple for high-level executives to use Operations do not require extensive
computer experience
 Provides timely delivery of company summary information
 Provides better understanding of information
182
 Filters data for better time management

 Provides system for improvement in information tracking
Disadvantages
 Computer skills required to obtain results
 Requires preparation and analysis time to get desired information
 Detail oriented Provides detailed analysis of a situation
 Difficult to quantify benefits of DSS How do you quantify a better decision?
 Difficult to maintain database integrity
 Provides only moderate support of external data and graphics capabilities
Examples of EIS
The examples of EIS provided in the lesson offer interesting contrasts of how
each organization uses its system to aid in the decision-making process.
The organization uses mostly external data, including information from the
Internet, in its EIS. It organizes the information in order to help executives make
decisions based on trends in the marketplace. The information includes data on
competitors and information from market research. Organization uses its system
output to determine sales forecasts, marketing campaigns, and investment plans.
Managers in an organization are able to choose their own criteria to drill down
and navigate data through easy-to-use interfaces. They don't have to accept data in
formats chosen by someone else who may not understand individual manager's
needs. Data analysis is more timely because the information is quicker to obtain
and more convenient than before.
Applications
EIS enables executives to find those data according to user-defined criteria
and promote information-based insight and understanding. Unlike a traditional
management information system presentation, EIS can distinguish between vital
and seldom-used data, and track different key critical activities for executives, both
which are helpful in evaluating if the company is meeting its corporate objectives.
After realizing its advantages, people have applied EIS in many areas, especially, in
manufacturing, marketing, and finance areas. Dr Mir Mohammad Azad et al.,(2012)
Manufacturing basically, manufacturing is the transformation of raw materials
into finished goods for sale, or intermediate processes involving the production or
finishing of semi manufactures. It is a large branch of industry and of secondary
production. Manufacturing operational control focuses on day-to-day operations,
and the central idea of this process is effectiveness and efficiency.
Marketing In an organization, marketing executives’ role is to create the
future. Their main duty is managing available marketing resources to create a more
effective future. For this, they need make judgments about risk and uncertainty of
a project and its impact on the company in short term and long term. To assist
marketing executives in making effective marketing decisions, an EIS can be
applied. EIS provides an approach to sales forecasting, which can allow the market
executive to compare sales forecast with past sales. EIS also offers an approach to
183
product price, which is found in venture analysis. The market executive can
evaluate pricing as related to competition along with the relationship of product
quality with price charged. In summary, EIS software package enables marketing
executives to manipulate the data by looking for trends, performing audits of the
sales data, and calculating totals, averages, changes, variances, or ratios.
Financial A financial analysis is one of the most important steps to companies
today. The executive needs to use financial ratios and cash flow analysis to
estimate the trends and make capital investment decisions. An EIS is a
responsibility-oriented approach that integrates planning or budgeting with control
of performance reporting, and it can be extremely helpful to finance executives.
Basically, EIS focuses on accountability of financial performance and it recognizes
the importance of cost standards and flexible budgeting in developing the quality of
information provided for all executive levels.
15.3.5. EXECUTIVE SUPPORT SYSTEM (ESS)
Executive Support System (ESS) is a comprehensive support system that gives
beyond EIS to comprise communication, Office automation, analysis support and
intelligence. EIS assists only the top executives; it does slight to improve
coordination and control except through the indirect effect of focusing attention
throughout the enterprises on the executive’s “critical success factors”. It is only
meant to make the executive understand where the organization is today.ESS has
the ability to drill down, moving from a piece of summary data to lower and lower
levels of detail. The ability to drill down is useful not only senior executives but also
to employees at lower levels of the firm who need to analyze data. OLAP tools for
analyzing large databases provide capability.
A major challenge of executive support systems has been to integrate data
from systems designed for very different purposes so that senior executives can
review organizational performance from a firm-wide perspective. ESS based on such
data can be considered logical extensions of enterprise system functionality.
Executives need a wide range of external data, from current stock
news to competitor information, industry trends, and even projected legislative
action. Through their ESS, many managers have access to news services, financial
market databases, economic information, and whatever other data they may
require.
Contemporary ESS includes tools for modeling and analysis. With only a
minimum of experience, most managers find they can use these tools to create
graphic comparisons of data by time, region, product, price range, and so on. ESS
need to have some facility for environmental scanning. A key information
requirement of managers at the strategic level is the ability to detect signals of
problems in the organizational environment that indicate strategic threats and
opportunities (Walls et al., 1992). The ESS need to be designed so, that both
external and internal sources of information can be used for environmental
scanning purposes.
184
Executive support systems are intended to be used by the senior managers

directly to provide support to non-programmed decisions in strategic management.
These information are often external, unstructured and even uncertain. Exact
scope and context of such information is often not known beforehand. This
information is intelligence based:
 Market intelligence
 Investment intelligence
 Technology intelligence
Examples of Intelligent Information Following are some examples of intelligent
information, which is often source of an ESS:
 External databases
 Technology reports like patent records etc.
 Technical reports from consultants
 Market reports
 Confidential information about competitors
 Speculative information like market conditions
 Government policies
 inancial reports and information
Capabilities of Executive Support Systems
Capabilities of the executive support systems are listed below:
 Support for defining an overall vision
 Support for strategic planning
 Support for strategic organizing and staffing
 Support for strategic control
 Support for crisis management
15.3.6. ESS MODEL
ESS presents graphs and data from many sources through an interface that
is easy for senior managers to use. Often the information is delivered to senior
Executives through a portal, which uses a web interface to present integrated
personalized business content. Figure 15.2 illustrates the model of an ESS.
185
Fig. 15.2 Model of an ESS

It consists of work stations with menus interactive graphics and
communications capabilities that can be used to access historical and competitive
data from internal corporate systems and external databases such as Dow Jones
News/Retrieval or the Gallup Poll.
According to Watson, Executive Information System/executive support
system depends on some of the factors that can be summarized as the follows:
Internal factors
i. Need for the timely information.
ii. Need for the improved communications.
iii. Need for the access to the operational data.
iv. Need for the rapid status updates on the various business activities.
v. Need for the access to the corporate database.
vi. Need for very accurate information.
vii. Need for the ability to identify the various historical trends.
External Factors
i. Increasing and intensifying the global competition.
ii. Rapidly changing the business environment.
iii. Need to be more proactive.
iv. Need to access the external database.
v. Increasing the various government regulations
15.3.7 RELATIONSHIP OF SYSTEMS TO ONE ANOTHER
Systems are interrelated as shown in the figure 15.3. Transaction processing
system (TPS) are typically major source of data for other systems, whereas ESS are
primarily a recipient of data from lower-level systems the various types of systems
in the organization have interdependencies. TPS are major producers of information
that is required by many other systems in the firm, which in turn, produce
186
information for other systems. These different types of systems are loosely coupled
in most business firms, but increasingly firms are using new technology to
integrate information that resides in many different systems.
Fig. 15.3 Interrelationship Among Systems

15.3.8. DASHBOARDS AND BALANCED SCORECARD SYSTEMS
Executive support systems (ESS) help senior management make these
decisions. They address non-routine decisions requiring judgment, evaluation, and
insight because there is no agreed-on procedure for arriving at a solution. ESS
present graphs and data from many sources through an interface that is easy for
senior managers to use. Often the information is delivered to senior executives
through a portal, which uses a Web interface to present integrated personalized
business content. ESS are designed to incorporate data about external events, such
as new tax laws or competitors, but they also draw summarized information from
internal MIS and DSS. They filter, compress, and track critical data, displaying the
data of greatest importance to senior managers. Increasingly, such systems include
business intelligence analytics for analyzing trends, forecasting, and “drilling down”
to data at greater levels of detail. For example, the CEO of Leiner Health Products,
one of the largest manufacturers of private-label vitamins and supplements in the
United States, has an ESS that provides on his desktop a minute-to-minute view of
the firm’s financial performance as measured by working capital, accounts
receivable, accounts payable, cash flow, and inventory. The information is presented
in the form of a digital dashboard, which displays on a single screen graphs and
charts of key performance indicators for managing a company. Digital dashboards
are becoming an increasingly popular tool for management decision makers.
ESS can be configured to summarize and report on key performance indicators
for senior management in the form of a digital dashboard or "executive dashboard."
The dashboard displays on a single screen all of the critical measurements for
piloting a company, similar to the cockpit of an airplane or an automobile
dashboard. The dashboard presents key performance indicators as graphs and
charts in a Web browser format, providing a one-page overview of all the critical
measurements necessary to make key executive decisions.
187
Many firms have implemented a balanced scorecard model that supplements

traditional financial measures with measurements from additional perspectives, such
as customers, internal business processes, and learning and growth. The goals and
measures for the balanced scorecard vary from company to company. Companies are
setting up information systems to populate the scorecard for management.
Fig. 15.4
Figure 15.4 Data Visualization’s digital dashboard delivers comprehensive and
accurate information for decision making. The graphical overview of key
performance indicators helps managers’ quickly spot areas that need attention.
Advantages of ESS
 Easy for upper level executive to use
 Ability to analyze trends
 Augmentation of managers' leadership capabilities
 Enhance personal thinking and decision-making
 Contribution to strategic control flexibility
 Enhance organizational competitiveness in the market place
 Instruments of change
 Increased executive time horizons.
 Better reporting system
 Improved mental model of business executive
 Help improve consensus building and communication
 Improve office automation
 Reduce time for finding information
 Early identification of company performance
 Detail examination of critical success factor
 Better understanding
 Time management
 Increased communication capacity and quality
188
Disadvantage of ESS
 Functions are limited
 Hard to quantify benefits
 Executive may encounter information overload
 System may become slow
 Difficult to keep current data
 May lead to less reliable and insecure data
 Excessive cost for small company
Main Kinds of Information Systems in Business Are Described Briefly Below
Executive Support Systems
An Executive Support System ("ESS") is designed to help senior management
make strategic decisions. It gathers analyses and summarizes the key internal and
external information used in the business.
A good way to think about an ESS is to imagine the senior management team
in an aircraft cockpit - with the instrument panel showing them the status of all the
key business activities. ESS typically involve lots of data analysis and modeling
tools such as "what-if" analysis to help strategic decision-making.
Management Information Systems
A management information system ("MIS") is mainly concerned with internal
sources of information. MIS usually take data from the transaction processing
systems (see below) and summaries it into a series of management reports.
MIS reports tend to be used by middle management and operational
supervisors.
Decision Support Systems
Decision-support systems ("DSS") are specifically designed to help
management make decisions in situations where there is uncertainty about the
possible outcomes of those decisions. DSS comprise tools and techniques to help
gather relevant information and analyse the options and alternatives. DSS often
involves use of complex spreadsheet and databases to create "what-if" models.
Knowledge Management Systems
Knowledge Management Systems ("KMS") exist to help businesses create and
share information. These are typically used in a business where employees create
new knowledge and expertise - which can then be shared by other people in the
organisation to create further commercial opportunities. Good examples include
firms of lawyers, accountants and management consultants.
KMS are built around systems which allow efficient categorization and
distribution of knowledge. For example, the knowledge itself might be contained in
word processing documents, spreadsheets, PowerPoint presentations. internet
pages or whatever. To share the knowledge, a KMS would use group collaboration
systems such as an intranet.
189
Transaction Processing Systems

As the name implies, Transaction Processing Systems ("TPS") are designed to
process routine transactions efficiently and accurately. A business will have several
(sometimes many) TPS; for example:
Billing systems to send invoices to customers - Systems to calculate the weekly
and monthly payroll and tax payments - Production and purchasing systems to
calculate raw material requirements - Stock control systems to process all
movements into, within and out of the business
Office Automation Systems
Office Automation Systems are systems that try to improve the productivity of
employees who need to process data and information. Perhaps the best example is
the wide range of software systems that exist to improve the productivity of
employees working in an office (e.g. Microsoft Office XP) or systems that allow
employees to work from home or whilst on the move.
1) An executive information system (EIS) is a decision support system (DSS)
used to support senior executives in the decision-making. It ensures this by
granting easy access to significant data needed to achieve strategic goals in
firms. An EIS generally features graphical displays on an easy-to-use
interface.
2) Executive information systems can be practiced in many different types of
organizations to monitor the performance, identify the opportunities and
problems of the enterprise.
3) An EIS has two special functions (i) Derived-information function. (ii)Drill-
down function.
4) Major components of EIS are as follows:1. Executive's staff 2. Database, Data
warehouse, Data mart 3. EIS software (Personal productivity software
Prewritten EIS software Customized EIS software) 4. EIS Output
5) Executive support systems (ESS) help senior management make these
decisions. They address non-routine decisions requiring judgment, evaluation,
and insight because there is no agreed-on procedure for arriving at a solution.
ESS present graphs and data from many sources through an interface that is
easy for senior managers to use.
1) Define executive information system?
2) What is executive support system?
3) List the advantages and disadvantages of ESS.
15.6. SUMMARY
An executive information system (EIS) is a type of MIS intended to assist the
information and decision-making needs of senior executives by providing cool
access to both internal and external information related to meeting the strategic
goals of the business. EIS is a tool that provides direct on-line access to relevant
information in a useful and navigable format. Relevant information is timely,
190
accurate, and actionable information about aspects of a business that are of

particular interest to the senior manager. It is generally considered as a specialized
form of decision support system (DSS). The importance of EIS is on graphical
displays and easy-to-use user interfaces. They offer strong reporting and drilldown
capabilities. EIS help top-level executives to analyze, compare, and highlight trends
in important variables so that they can monitor performance and find the
opportunities and problems in enterprises. An EIS is easy to navigate so that
managers can identify broad strategic issues, and then explore the information to
find the root causes of those issues. Executive Support System (ESS) is a
comprehensive support system that gives beyond EIS to comprise communication,
Office automation, analysis support and intelligence. EIS and data warehousing
technologies are converging in the marketplace.
1) What is an EIS and how does it support unstructured decision making?
2) Describe the drill-down function through an example?
3) What are the critical success factors of EIS?
4) What are the difference among TPS, MIS, DSS and EIS?
5) Discuss the components of ESS?
6) Illustrate an ESS model.
7) List the benefits of expert support system.
1) ACM Transaction of Management Information System
2) International Journal of Information System
15.9. ASSIGNMENTS
How do ESS enhance managerial decision making? How do they provide value
for a business?
15.10. REFERENCES
1) Floyd Kelly., (n.d)Implementing an Executive Information System
(EIS),http://dssresources.com/papers/features/kelly11072002.html.
2) Dr. Mir Mohammad Azad et al.,(2012)1IJCSNS International Journal of
Computer Science and Network Security, VOL.12 No.5, May 2012.
Identify the several organizations that could be benefit from executive support
system.
15.12. KEYWORDS
 Dashboards
 Executive Information System
 Executive Support System
 Transaction processing System Competence information
 Derived-information function.
 Drill-down function
 Productivity information.

191
LESSON - 16
EXPERT SYSTEM AND KNOWLEDGE BASE EXPERT SYSTEM
16.1. INTRODUCTION
An Expert system (ES) is a type of application program that makes decisions or
resolves problems in a particular field by using knowledge and analytical rules
defined by experts in that field. A Knowledge-Based System uses the knowledge
provided with to solve problems in a specific domain. Books and manuals have an
incredible amount of knowledge but a human has to read and interpret the
knowledge for it to be used. Taking this into consideration it can be understood
that a human cannot perform a complex problem because of the various
disadvantages he/she might be facing. The disadvantages are unreliable, speed,
and not enough memory capacity would cause a human to make a mistake or be
inefficient. For this circumstance Humans can design Expert systems providing the
human intelligence and knowledge of solving a specified problem. These ES and
KBES systems have underlying rules which they are bound to helping them in
solving complex problems. Adequate information must be fed to the expert system
to make it able to accomplish the different tasks the human would want it to
do.Knowledge-based systems collect the small fragments of human know-how into
a knowledge-base which is used to reason through a problem, using the knowledge
that is appropriate.
16.2. OBJECTIVES
 Understand the concept of Expert system and knowledge based expert
system
 Describers the evolution of expert system.
 Explain the Components and applications of expert system.
 Explain Knowledge-based system versus Expert system
 Discuss types of problems solved by ES.
 Explain the benefits of ES
16.3. CONTENTS
16.3.1 Capturing Knowledge: Expert Systems
16.3.2 Purpose of Expert System and Knowledge Base Expert System.
16.3.3 Knowledge-based system versus Expert system
16.3.4 ES Architecture
16.3.5 Components of Expert System.
16.3.6 Prominent Expert System
16.3.7 Types of problems solved by expert systems
16.3.8 Expert System Applications
16.3.9 Benefits of ES.
16.3.10 Disadvantages of ES.
192
16.3.1. EXPERT SYSTEM

One of the most practical and widely implemented applications of artificial
intelligence in business is the development of expert systems and other knowledge-
based information systems. A knowledgebase information system (KBIS) adds a
knowledge base to the major components found in other types of computer-based
information systems. An expert system (ES) is a knowledge-based information
system that uses its knowledge about a specific, complex application area to act as
an expert consultant to end users. Expert systems provide answers to questions in
a very specific problem area by making humanlike inferences about knowledge
contained in a specialized knowledge base. They must also be able to explain their
reasoning process and conclusions to a user, so expert systems can provide
decision support to end users in the form of advice from an expert consultant in a
specific problem area.
Expert systems are a common form of artificial intelligence. They are used to
assist humans in the decision-making process, but they don't replace humans.
Many of the decision we make are based on past experience, but we have the added
benefit of reasoning and intuition. Expert systems ask questions, then give you
advice and reasons why you should take a certain course of action based on hard
data, not on hunches. Again, they don't make the final decision.
Most of the problems an expert system helps resolve can in fact be solved by a
human. But since the computer is faster or safer, businesses choose to use them
instead.
Differences between DSS and ES
It is possible to integrate ES with DSS. There may be some components which
may look similar in DSS and ES. But one should understand the differences
between them. It then becomes clear as to how integration of ES with DSS can be
realized.
 A DSS helps manager to take a decision whereas an ES acts as a decision
maker or an advisor to the manager.
 A DSS is meant only for decision making whereas an ES provides expertise
to the manager.
 The spectrum of complexity is high in DSS and low in ES since ES
addresses issues related to specific areas only.
 DSS does not capability to reason whereas an ES has.
 A DSS cannot provide detailed explanation about the results whereas an ES
can.
 Hence by integrating the two it is possible the blend their advantages
and derive the best out of the two.
The Evolution of Support Systems
The first applications of computers did repetitive, large-volume, transactions-
computing tasks. As the cost of computing decreased and computers’ capabilities
increased, a new breed of information system, started to develop. These systems
accessed, organized, summarized, and displayed information for supporting routine
193
decision making in the functional areas. Office automation systems (OAS) such as
airline reservation systems were developed to support office workers. Computers
also were introduced in the manufacturing environment, with applications ranging
from robotics to computer-aided design and manufacturing (CAD/CAM). Additional
increasing computing capabilities and reduced costs justified computerized support
for a growing number of non-routine applications, and decision support systems
were developed to provide computerized support for complex, non-routine
decisions.
Table 16.1 Evolution of Support Systems

Source:http://www.uotechnology.edu.iq/ce/Lectures/SarmadFuad-MIS/MIS_Lecture_11.pdf
The microcomputer revolution, which started around 1980, began the era of
end-user computing, in which analysts, managers, and many other professionals
can build and use systems on their own desktop computers. Decision support
expanded in two directions: first, toward executives and then managers (executive
support systems and enterprise information systems), and second, to people
working in groups (group support systems). Eventually, interest in programming
computers to perform intelligent problem solving led to commercial applications
known as intelligent support systems (ISSs). These include expert systems, which
provide the stored knowledge of experts to non-experts, and a new breed of
194
intelligent systems with machine learning capabilities such as artificial neural

networks and case-based reasoning that can learn from historical cases
A major innovation in the evolution of support systems has been the
development of data warehousing. A data warehouse is a database designed to
support DSS, ESS, and other analytical and end-user activities. The use of data
warehouses is a part of business intelligence, the gathering and use of large
amounts of data for query or analysis by DSS, ESS, and intelligent systems. The
latest support system in organizations is mobile computing. Mobile computing
supports mobile employees, those who are working with customers or business
partners, at least part of the time, outside the physical boundaries of their
companies. The mobile employees carry portable devices, which can access the
Internet. These devices enable communication with organizations and other
individuals via wire line or wireless networks.
16.3.2. PURPOSE OF EXPERT SYSTEMS AND KNOWLEDGE BASED SYSTEMS
Expert systems are meant to solve real problems which usually would require
a specialized human expert (such as a doctor). Building an expert system hence
first involves extracting the relevant knowledge from the human expert. There are
numerous purposes to emphasis on knowledge-based methods rather than other
formal representations and related analytic methods.
The foremost goal of the expert system research is to get very rapid answers for
the technicians and the markers who use this kind of expertise. That answers are
not available always at the right place and right time because there is no sufficient
expertise to looking for by them. Portable with computers loaded with in-depth
knowledge of specific subjects can bring decade’s worth of knowledge to a problem.
Many of the supervisors and managers use the same system to help them with
situation assessment and long-range planning. During these times, many small
systems exist that bring a narrow slice of (in-depth knowledge) to specific problems,
and that prove to us that the broader goal is achievable.
Expert systems (the knowledge based systems) of AI (artificial intelligence)
have enhanced productivity in business, science, engineering, and the military with
some advances in the last decade. Expert systems today can be chosen from dozens
of commercial software packages which is easy to use interfaces.
AI researches provide even better applications of expert systems because each
new deployment of an expert system yields valuable data for what works in what
context.
Characteristics of an Expert System
1) Expert system provides the high-quality performance which solves difficult
programs in a domain as good as or better than human experts.
2) Expert System possesses vast quantities of domain specific knowledge to the
minute details.
3) Expert systems apply heuristics to guide the reasoning and thus reduce the
search area for a solution.
195
4) A unique feature of an expert system is its explanation capability. It enables

the expert system to review its own reasoning and explain its decisions.
5) Expert systems employ symbolic reasoning when solving a problem. Symbols
are used to represent different types of knowledge such as facts, concepts and
rules.
6) Expert system can advise, modifies, update, expand & deals with uncertain
and irrelevant data.
Capturing Knowledge: Expert Systems
Expert systems are an intelligent technique for capturing tacit knowledge in a
very specific and limited domain of human expertise. These systems capture the
knowledge of skilled employees in the form of a set of rules in a software system
that can be used by others in the organization. The set of rules in the expert system
adds to the memory, or stored learning, of the firm. Expert systems lack the
breadth of knowledge and the understanding of fundamental principles of a human
expert. They typically perform very limited tasks that can be performed by
professionals in a few minutes or hours, such as diagnosing a malfunctioning
machine or determining whether to grant credit for a loan. Problems that cannot be
solved by human experts in the same short period of time are far too difficult for an
expert system. However, by capturing human expertise in limited areas, expert
systems can provide benefits, helping organizations make high-quality decisions
with fewer people. Today, expert systems are widely used in business in discrete,
highly structured decision making situations.
Conventional Programs vs. ES
Expert System (ES) vary from the conventional computer programs in the
following aspects:
i. ESs is knowledge intensive programs
ii. ESs is highly interactive
iii. ESs mimics human experts in decision making and reasoning process
iv. ESs splits expert knowledge into number of separate rules
v. ESs is user friendly and intelligent.
16.3.3. KNOWLEDGE-BASED SYSTEM VERSUS EXPERT SYSTEM
Information can be termed as raw data waiting to be processed to attain a
goal. Knowledge based system on the other hand is the engine which uses such
information processes it in to rules and facts which can be used in archiving a
specified goal. Knowledge-based system is a more general than the expert system.
Figure 16.1 illustrate the difference, knowledge based are a verse domain than an
expert system. Expert systems are a specified domain of a knowledge based as
expert system uses the representation of knowledge to solve problems.
196
Fig. 16.1 : Knowledge-based system versus Expert system.

As simple as it appears, expert systems are well known to solve complex
problems. Computers are good in representing numbers, words and even maps but
the greatest trouble it faces is representing knowledge.
Knowledge Based Construction
Knowledge can be distinguished from mere facts by the way it is used in
decision processes. There are two approaches leading to successful knowledge
based system. The approaches can be by obtaining expert knowledge on a specific
problem and breaking the facts into rules which can be applied to solve a problem.
The other method is through learning through experience. As a system functions,
whatever could be seen as a malfunction or an extra requirement is filled in. These
seem simple methods to address, but they are indeed obtaining through much
effort.
16.3.4. ES ARCHITECTURE
An ES is specific to one problem domain. However, it is not for domain
modeling but for problem solving. The architecture of a typical ES is shown in
Figure 16.2. The expert system consists of
a. Knowledge base
b. Working memory
c. Inference engine
d. System analysis, graphic and other software and
e. User interface.
Knowledge base consists of declarative knowledge that are facts about the
domain and procedural knowledge that are heuristic rules from the domain. The
working memory is the active set of knowledge base. Inference engine is the
problem solving module. It also gives justification (explanation) for the advice from
the ES. Communication module helps in interaction between other modules and
also provide user – developer interfaces.
197
Fig. 16.2 Expert System Architecture

16.3.5. COMPONENTS OF AN EXPERT SYSTEM
The components of an expert system include a knowledge base and software
modules that perform inferences on the knowledge in the knowledge base and
communicate answers to a user's questions. Table 16.2 illustrates the interrelated
components of an expert system. Note the following components:
Table 16.2A summary of four ways that knowledge can be represented in an expert
system's knowledge base.
Case-Based Reasoning: Representing knowledge in an expert system's knowledge base in
the form of cases that is, examples of past performance, occurrences, and experiences
Frame-Based Knowledge: Knowledge represented in the form of a hierarchy or network

offames. A frame is a collection of knowledge about an entity consisting of a complex package
of data values describing its attributes.
Object-Based Knowledge: Knowledge represented as a network of objects. An object is a
data element that includes both data and the methods or processes that act on those data.
Rule-Based Knowledge: Knowledge represented in the fond of rules and statements of fact.
Rules are statements that typically take the form of a premise and a conclusion such as: If
(condition), Then (conclusion).
Knowledge Base
The knowledge base of an expert system contains (1) facts about a specific
subject area (e.g., John is an analyst) and (2) heuristics (rules of thumb) that
express the reasoning procedures of an expert on the subject (e.g., IF John is an
analyst, THEN he needs a workstation).There are many ways that such knowledge
is represented in expert systems. Examples are rule based, frame-based, object-
based, and case-based methods of knowledge representation. See Figure 16.3.
198
Fig. 16.3 Components of an Expert System.

Human knowledge must be modeled or represented in a way that a co can
process. Expert systems model human knowledge as a set of rules that collectively
are called the knowledge base. Expert systems have from 200 to many thousands of
these rules, depending on the complexity of the problem. These rules are much
more interconnected and nested than in a traditional software program as shown in
Figure 16.4.
Fig. 16.4 Rules in an Expert System

199
An expert system contains a number of rules to be followed. The rules are

interconnected; the number of outcomes is known in advance and is limited; there
are multiple paths to the same outcome; and the system can consider multiple
rules at a single time. The rules illustrated are for simple credit-granting expert
systems.
The strategy used to search through the knowledge base is called inference
engine. Two strategies are commonly used: forward chaining and backward
chaining (see Figure 16.5).
Figure 16.5 Inference Engines in Expert Systems

In forward chaining, the inference engine begins with the information,
entered by the user and searches the knowledge base to arrive at a conclusion.
The strategy is to fire, or carry out, the action of the rule when a condition is true.
In Figure 16.5, beginning on the left, if the user enters a client's name with income
greater than $100,000, the engine will fire all rules in sequence from left to right.
If the user then enters information indicating that the same client owns real estate,
another pass of the knowledge base will occur and more rules will fire. Processing
continues until no more rules can be fired.
In backward chaining, the strategy for searching the knowledge base starts
with a hypothesis and proceeds by asking the user questions about selected facts
until the hypothesis is either confirmed or disproved. In our example, in Figure
16.5, ask the question, "Should we add this person to the prospect database? Begin
on the right of the diagram and work toward the left. You can see that the person
should be added to the database if a sales representative is sent, term insurance is
granted, or a financial adviser visits the client. An inference engine works by
searching through the rules and "firing" those rules that are triggered by facts
gathered and entered by the user.
200
Developing an expert system requires input from one or more experts who
have a thorough command of the knowledge base, and one or more knowledge
engineers who can translate the knowledge (as described by the expert) into a set of
rules. A knowledge engineer is similar to a traditional systems analyst but has
special expertise in eliciting information and expertise from other professionals.
The software modules perform inferences on a knowledge base built by an
expert and/or knowledge engineer. This provides expert answers to an end user’s
questions in an interactive process.
Software Resources
An expert system software package contains an inference engine and other
programs for refining knowledge and communication with users. The inference
engine program process the knowledge (such as rules and facts) related to a specific
problem. It then makes associations and inferences resulting in recommended
courses of action for a user. User interface programs for communicating with end
users are also needed, including an explanation program to explain the reasoning
process to a user if requested. Knowledge acquisition programs are not part of an
expert system but are software tools for knowledge base development, as are expert
system shells, which are used for developing expert systems.
Examples for Rule Based and Object-Oriented
The DENDRAL
The DENDRAL is one of the initial systems to cover the domain-specific
knowledge in problem solving. It was established at Stanford in the late 1960’s by
Lindsay. The DENDRAL was planned to be able to recognize the structure of
organic molecules from their chemical molecules. The Number of molecules is large
to be able to refer to books often. The DENDRAL uses the heuristic knowledge
developed by chemical experts to clarify the problem from the structure of the
molecule. DENDRAL was a success in only a few trials and was marketed all over
the world.
The MYCIN
MYCIN was developed by Buchanan and Shortliff in the mid-1970 in Stanford.
MYCIN can be also described as a system which acts like a doctor in a hospital. It
uses expert medical knowledge to diagnose and prescribe treatment for spinal
meningitis and bacterial infections of the blood. MYCIN is the first program which
had the capability to reason with uncertain or incomplete information and provided
clear and logical explanations of its reasoning. szakwani (2007).
16.3.6. PROMINENT EXPERT SYSTEMS
Prominent expert systemslisted by Szakwani(2007) have listed below
 Dendral:- analyze mass spectra
 Dipmeter:- Advisor analysis of data gathered during oil exploration
 Mycin:- diagnose infectious blood diseases and recommend antibiotics (by
Stanford University)
 CADUCEUS:- (expert system) blood-borne infectious bacteria
201
 R1 (expert system)/XCon:- order processing

 CLIPS:- programming language
 Prolog:- programming language(logic)
 Jess:- CLIPS using Java with more features
 ART:- programming language
Expert System Life Cycle
There are five major stages in the development· of an expert system. Each
stage has its own unique features and a correlation with other stages.
Stage 1: Identification of the problem
In this stage, the expert and the knowledge engineer interact to identify the
problem. The major points discussed before for the characteristics of the problem
are studied. The scope and the extent are pondered. The amount of resources
needed, e.g. men, computing resources, finance etc. are identified. The return-of-
investment analysis is done. Areas in the problem which can give much trouble are
identified and a conceptual solution for that problem and the overall specification is
made.
Stage 2: Decision about the mode of development
Once the problem is identified, the immediate step would be to decide on the
vehicle for development. The knowledge engineer can develop the system from
scratch using a programming language like PROLOG or LISP or any conventional
language or adopt a shell for development. In this stage, various shells and tools
are identified and analyzed for the suitability. Those tools whose features fit the
characteristics of the problem are analyzed in detail.
Stage 3: Development of a prototype
Before developing a prototype, the following are the prerequisite activities:
 Decide on what concepts are needed to produce the solution.
One important factor to be decided here is the level of knowledge
(granularity). Starting with coarse granularity, the system development
proceeds towards fine granularity.
 After this, the task of knowledge acquisition begins. The knowledge
engineer and the domain expert interact frequently and the domain-specific
knowledge is extracted.
 Once the knowledge is acquired, the knowledge engineer decides on the
method of representation. In the identification phase, a conceptual picture
of knowledge representation would have emerged. In this stage, that view is
either enforced or modified.
 When the knowledge representation scheme and the knowledge is available,
a prototype constructed. This prototype undergoes the process of testing for
various problems and revision of the prototype takes place.
By this process, knowledge of fine granularity emerges and this is effectively
coded in the knowledge base.
202
Stage 4: Planning for a full-scale System

The success of the prototype provides the needs impetus for the full-scale
system. In prototype construction, the area in the problem which can be
implemented with native ease is first chosen. In the full-scale implementation,
sub-system development is assigned (l group leader) and schedules are drawn. Use
of Gantt chart, PERT or PM techniques are Welcome.
Fig. 16.6 Expert System Life Cycle

Stage 5: Final implementation, maintenance and evolution
This is the final life cycle stage of an expert system. The full scale system
developed is implemented at the site. The basic resource requirements at the site
are fulfilled and parallel conversion and testing techniques are adopted. The final
system undergoes rigorous testing and later handed over to the user.
Maintenance of the system implies tuning of the knowledge base because
knowledge, the environment and types of problems that arrive are never static.
The historical database has to be maintained and the minor modifications made on
inference engine have to be kept track off. Maintenance engulfs security also.
Evaluation is a difficult task for any AI programs. As mentioned previously,
solutions for AI problems are only satisfactory. Since the yardstick for evaluation is
not available, it is difficult to evaluate. However, utmost what one can do is to
supply a set of problems to the system and a human export and compare the
results. When this method was adopted for the system MYCIN.
203
16.3.7. TYPES OF PROBLEMS SOLVED BY EXPERT SYSTEMS

Organizations with highly experienced expertise which the knowledge cannot
easily be transferred to other members would value expert system the most. The
expert system can be design to carry the intelligence and information found in the
experts knowledge and provide such kinds of knowledge for other members of the
organization for problem solving purposes.
Most of the problems which require expert system might seem easy to be
solved by a professional. Generally expert systems are used for problems for which
there is no single “correct” solution which can be encoded in a predictable
algorithm. One would not write an expert system to find shortest paths through
graphs, or sort data, as there are simply easier ways to do these tasks.
Simple systems use simple true/false logic to evaluate their data, but more
sophisticated systems are capable of performing at least some evaluation by taking
into account real-world uncertainties. Taking an Example in predicting the weather
forecast might seem a simple task to do. The probability your answer stays correct
would be very small compared to the sophisticated systems which take every data
into consideration and provide a higher chance of success.
Organizational Intelligence: Case-Based Reasoning
Expert systems primarily capture the tacit knowledge of individual experts, but
organizations also have collective knowledge and expertise that they have built up
over the years. This organizational knowledge can be captured and stored using
case-based reasoning. In case-based reasoning (CBR), descriptions of past
experiences of human specialists, represented as cases, are stored in a database for
later retrieval when the user encounters a new case with similar parameters. The
system searches for stored cases with problem characteristics similar to the new
one, finds the closest fit, and applies the solutions of the old case to the new case.
Successful solutions are tagged to the new case and both are stored together with
the other cases in the knowledge base.
Unsuccessful solutions also are appended to the case database along with
explanations as to why the solutions did not work (see Figure 16.7). Figure 16.7
illustrates the case-based reasoning represents knowledge as a database of past
cases and their solutions. The system uses a six-step process to generate solutions
to new problems encountered by the user. Expert systems work by applying a set of
IF-THEN-ELSE rules extracted from human experts. Case-based reasoning, in
contrast, represents knowledge as a series of cases, and this knowledge base is
continuously expanded and refined by users. You’ll find case-based reasoning in
diagnostic systems in medicine or customer support where users can retrieve past
cases whose characteristics are similar to the new case. The system suggests a
solution or diagnosis based on the best-matching retrieved case.
Fuzzy Logic Systems
Most people do not think in terms of traditional IF-THEN rules or precise
numbers. Humans tend to categorize things imprecisely using rules for making
204
decisions that may have many shades of meaning. For example, a man or a woman
can be strong or intelligent.
Figure 16.7 How Case-Based Reasoning Works

A company can be large, medium, or small in size. Temperature can be hot,
cold, cool, or warm. These categories represent a range of values. Fuzzy logic is a
rule-based technology that can represent such imprecision by creating rules that
use approximate or subjective values. It can describe a particular phenomenon or
process linguistically and then represent that description in a small number of
flexible rules. Organizations can use fuzzy logic to create software systems that
capture tacit knowledge where there is linguistic ambiguity. Let’s look at the way
fuzzy logic would represent various temperatures in a computer application to
control room temperature automatically. The terms (known as membership
functions) are imprecisely defined so that, for example, in Figure 16.8, cool is
between 45 degrees and 70 degrees, although the temperature is most clearly cool
between about 60 degrees and 67 degrees. Note that cool is overlapped by cold or
norm. To control the room environment using this logic, the programmer would
develop similarly imprecise definitions for humidity and other factors, such as
outdoor wind and temperature.
205
The rules might include one that says: “If the temperature is cool or cold and
the humidity is low while the outdoor wind is high and the outdoor temperature is
low, raise the heat and humidity in the room.” The computer would combine the
membership function readings in a weighted manner and, using all the rules, raise
and lower the temperature and humidity. Fuzzy logic provides solutions to
problems requiring expertise that is difficult to represent in the form of crisp IF-
THEN rules. In Japan, Sendai’s subway system uses fuzzy logic controls to
accelerate so smoothly that standing passengers need not hold on. Mitsubishi
Heavy Industries in Tokyo has been able to reduce the power consumption of its air
conditioners by 20 percent by implementing control programs in fuzzy logic. The
autofocus device in cameras is only possible because of fuzzy logic. In these
instances, fuzzy logic allows incremental changes in inputs to produce smooth
changes in outputs instead of discontinuous ones, making it useful for consumer
electronics and engineering applications. Management also has found fuzzy logic
useful for decision making and organizational control. A Wall Street firm created a
system that selects companies for potential acquisition, using the language stock
traders understand. A fuzzy logic system has been developed to detect possible
fraud in medical claims submitted by health care providers anywhere in the United
States.
Fig. 16.8 Fuzzy Logic for Temperature Control

outdoor temperature is low, raise the heat and humidity in the room.”
The computer would combine the membership function readings in a weighted
manner and, using all the rules, raise and lower the temperature and humidity.
Fuzzy logic provides solutions to problems requiring expertise that is difficult to
represent in the form of crisp IF-THEN rules. In Japan, Sendai’s subway system
uses fuzzy logic controls to accelerate so smoothly that standing passengers need
not hold on. Mitsubishi Heavy Industries in Tokyo has been able to reduce the
power consumption of its air conditioners by 20 percent by implementing control
programs in fuzzy logic. The autofocus device in cameras is only possible because of
fuzzy logic. In these instances, fuzzy logic allows incremental changes in inputs to
produce smooth changes in outputs instead of discontinuous ones, making it
useful for consumer electronics and engineering applications. Management also has
found fuzzy logic useful for decision making and organizational control. A Wall
206
Street firm created a system that selects companies for potential acquisition, using
the language stock traders understand. A fuzzy logic system has been developed to
detect possible fraud in medical claims submitted by health care providers
anywhere in the United States.
16.3.8. EXPERT SYSTEM APPLICATIONS
Using an expert system involves an interactive computer-based session in which
the solution to a problem is explored, with the expert system acting as a consultant
to an end user. The expert system asks questions of the user, searches its knowledge
base for facts and rules or other knowledge, explains its reasoning process when
asked, and gives expert advice to the user in the subject area being explored.
Expert systems are being used for many different types of applications, and
the variety of applications is expected to continue to increase. Expert systems are
being used in many different fields, including medicine, engineering, the physical
sciences, and business. Expert system helps diagnose illnesses, search for
minerals, analyze compounds, recommend repairs, and do financial planning. So
from a strategic business standpoint, expert systems can be and are being used to
improve every step of the product cycle of a business, from finding customers to
shipping products to providing customer service.
 Decision management-Systems that appraise situations or consider alternatives and
make recommendations based on criteria supplied during the discovers process:
Loan portfolio analysis.
Employee performance evaluation.
Insurance underwriting.
Demographic forecasts.
 Diagnostic/troubleshooting-Systems that infer underlying causes from reported

symptoms and history:
Equipment calibration.
Help desk operations.
Software debugging.
Medical diagnosis.
 Design/configuration-Systems that help configure equipment

components, given existing constraints:
Computer option installation.
Manufacturability studies.
Communications networks.
Optimum assembly plan

207
 Selection/classification-Systems that help users choose products or processes, often

from among lame A or complex sets of alternatives:
Material selection.
Delinquent account identification.
Information classification.
Suspect identification
 Process monitoring/control-Systems that monitor and control

procedures or processes: Machine control (including robotics)
Inventory control.
Production monitoring.
Chemical testing.
Table 16.3 : Application Categories of Expert System

16.3.9. BENEFITS OF EXPERT SYSTEMS
An expert system captures the expertise of an expert or group of experts in a
computer-based information system. Thus, it can outperform a single human
expert in many problem situations. That's because an expert system is faster and
more consistent, can have the knowledge of several experts, and does not get tired
or distracted by overwork or stress. The ES could be better than local and even
national human expert if the expertise of world-renowned experts is captures within
the knowledge-base of the system. An ES can be used also:
 To store and be able to manipulate important levels of information
 To be able to provide consistent answers for repetitive decisions, processes
and tasks
 Reduce employee training costs
 Centralize the decision making process
 Create efficiencies and reduce time needed to solve problems
 Combine multiple human expert intelligences
 Reduce the amount of human errors
 Review transactions that human experts may overlook
16.3.10. DISADVANTAGES
The major limitations of expert systems arise from their limited focus,
inability to learn, maintenance problems and development cost. Expert systems
excel only in solving specific types of problems in a limited domain of knowledge.
They fail miserably in solving problems requiring a broad knowledge base and
subjective problem solving. They do well with specific types of operational or
analytical tasks but falter at subjective managerial decision making.
Expert system may also be difficult and costly to develop and maintain. The
cost of knowledge engineers, lost expert time, and hardware and software resources
208
may be too high to offset the benefits expected from some applications. Also, expert
system can’t maintain themselves, that is, they can’t learn from experience but
instead must be taught new knowledge and modified as new expertise is needed to
match developments in their subject areas.
Although there are practical applications for expert system, applications
have been limited and specific because, as discussed, expert systems are narrow in
their domain of knowledge. An amusing example of this is the user who used an
expert system designed to diagnose skin diseases to conclude that his rusty old car
had likely developed measles. Additionally, once some of the novelty had worn off,
most programmers and developers realized the common expert systems were just
more elaborate version of the same decision logic used in most computer programs.
Today, many of the techniques used to develop expert system can now be found in
most complex programs without any fuss about them. The knowledge in an ES is
highly dependent upon the human expert expressing and articulating knowledge in
the form that can be used in a knowledge-base. The lack of human common sense
needed in some decision makings .The creative responses human experts can
respond to in unusual circumstances. Domain experts not always being able to
explain their logic and reasoning
16.4. REVISIONS POINTS
1) An expert system (ES)is a knowledge-based information system that uses its
knowledge about a specific, complex application area to act as an expert
consultant to end users. Expert systems provide answers to questions in a
very specific problem area by making humanlike inferences about knowledge
contained in a specialized knowledge base. They must also be able to explain
their reasoning process and conclusions to a user, so expert systems can
provide decision support to end users in the form of advice from an expert
consultant in a specific problem area.
2) Knowledge based system is the engine which uses such information processes
it in to rules and facts which can be used in archiving a specified goal.
Knowledge-based system is a more general than the expert system
3) The components of an expert system include a knowledge base and software
modules that perform inferences on the knowledge in the knowledge base and
communicate answers to a user's questions.
4) Knowledge base consists of declarative knowledge that are facts about the
domain and procedural knowledge that are heuristic rules from the domain.
5) The strategy used to search through the knowledge base is called inference
engine. Two strategies are commonly used: forward chaining and backward
chaining
6) A knowledge engineer is similar to a traditional systems analyst but has
special expertise in eliciting information and expertise from other
professionals.
7) Fuzzy logic is a rule-based technology that can represent such imprecision by
creating rules that use approximate or subjective values. It can describe a
209
particular phenomenon or process linguistically and then represent that

description in a small number of flexible rules.
1) Define an expert system, describe how it works, and explain its value to
business.
2) What are the advantages of Expert system?
3) Define Knowledge engineer?
4) Explain Fuzzy logic
16.6. SUMMARY
Expert systems are knowledge based information systems that use software and
a knowledge base about a specific, complex application area to act as expert
consultants to user in many business and technical applications. Software includes
an inference engine program that makes inference based on the facts and rules
stored in the knowledge base. A knowledge base consists of facts about specific
subject area and heuristics (rule of thumb) that express the reasoning procedures of
an expert. It is observed that domain experts not always able to explain their logic
and reasoning. Also an expert system cannot respond creatively like a human expert
in unusual circumstances and can automatically modify its knowledge base, or
adjust existing rules or add new ones. The knowledge engineer is still responsible for
revising and maintaining the system. Expert systems are most useful for problems of
classification or diagnosis. Case-based reasoning represents organizational
knowledge as a database of cases that can be continually expanded and refined.
Fuzzy logic is a software technology for expressing knowledge in the form of rules
that use approximate or subjective values. Fuzzy logic has been used for controlling
physical devices and is starting to be used for limited decision-making applications.
The benefits of expert systems (Such as preservation and replication of expertise)
must be balanced with their limited applicability in many problem situations.
1) What is the purpose of an expert system? How can it serve as a competitive
weapon?
2) How could an expert system be used to detect probable fraud committed by a
bank employee?
3) Some managers say that you should never accept the output of any
computer-based decision aid without scrutiny. Do you agree? Explain.
4) As an increasing amount of decision making is carried out by software, do you
think the demand for college-educated workers will diminish?
5) Define case-based reasoning and explain how it differs from an expert system
6) Discuss the components of the expert system?
7) Explain the applications of expert systems.
1) http:// www.webopedia.com/TERM/M/MIS.html.
2) http:// Searchcio.techtarget.com/definition/decision-support-system.
210
16.9. ASSIGNMENTS
How an expert system could be used to detect probable fraud committed by a
bank employee.
16.10. REFERENCES
1) K.P. Tripathi (2011), “A Review on Knowledge-based Expert System: Concept
and Architecture”, IJCA Special Issue on “Artificial Intelligence Techniques -
Novel Approaches & Practical Applications” AIT, 2011.
2) szakwani (2007), “Expert System and Knowledge Based Systems”,
www.omandev.net/index.php/author/szakwani.
Expert system can distribute expertise. How so?. Discuss in a group.
16.12. KEYWORDS
 Expert System.
 Fuzzy logic
 Inference Engine.
 Knowledge based Expert System.
 User Interface.
 Backward chaining.
 Decision Management.
 Forward chaining.
 Mobile Computing.
 Neural Networks
 Software Resources.

211
UNIT - V
LESSON – 17
MIS MODEL FOR DIGITAL FIRM
17.1. INTRODUCTION
Today it is widely recognized that information systems knowledge is essential
for managers because most organizations need information systems to survive and
prosper. Information systems can help companies extend their reach to faraway
locations, offer new products and services, reshape jobs and work flows, and
perhaps profoundly change the way they conduct business. Four powerful
worldwide changes have altered the business environment. The first change is the
emergence and strengthening of the global economy. The second change is the
transformation of industrial economies and societies into knowledge- and
information-based service economies. The third is the transformation of the
business enterprise. The fourth is the emergence of the digital firm. These changes
in the business environment and climate pose a number of new challenges to
business firms and their management. BPO started with non-core processes and is
now moving towards more critical applications. It has boomed with call centers and
customer support processes, and now is happening with software development,
Human Resources (HR), Finance and Accounting (F&A), training, payroll, and
procurement. The trend is moving beyond the outsourcing of typical back-office
functions into middle-office functions. BPO is catching up with industries like
medical transcription, animation production, and even disaster recovery
management systems. Moreover, it is not just India or the Philippines that are
booming with BPO. Central & Eastern Europe’s markets are aggressively chasing
near shore outsourcing from Europe. Dimensions of Information Systems,
Contemporary approaches to information system, The Competitive Business
Environment and the Emerging Digital Firm, The Emerging Digital Firm, The Digital
Firm: Electronic Commerce, Electronic Business, and New Digital Relationships,
The Challenge of Information Systems: Key Management Issues, Business Process
Outsourcing (BPO) and Quality Dimension in BPO were discussed below.
17.2. OBJECTIVES
 Identify the Transformation of Business Enterprise.
 Understand the concept of digital firm..
 Describers the Emergence of the digital firm.
 Explain the Perspective of Information systems.
 Discuss how databases are used in w Rise in the Information Economy.
 Explain the organization structure of digital firm.
 Understand the functions of BPO and Management issues in MIS.
17.3. CONTENTS
17.3.1 Information Systems
212
17.3.2 Dimensions of Information Systems

17.3.3 Contemporary approaches to information system
17.3.4 The Competitive Business Environment and the Emerging Digital
Firm
17.3.5 The Emerging Digital Firm
17.3.6 The Digital Firm: Electronic Commerce, Electronic Business, and
New Digital Relationships
17.3.7 The Challenge of Information Systems: Key Management Issues
17.3.8 Business Process Outsourcing (BPO)
17.3.9 Quality Dimension in BPO
17.3.1. INFORMATION SYSTEMS
A set of interrelated components that collect (or retrieve), process, store, and
distribute information to support decision making and control in an organization
 Data: Streams of raw facts representing events such as business
transactions
 Information: Clusters of data that are meaningful and useful to human
beings
Brief example contrasting information to data may prove useful. Supermarket
checkout counters ring up millions of pieces of data, such as product identification
numbers or the cost of each item sold. Such pieces of data can be totaled and
analyzed to provide meaningful information such as the total number of bottles of
dish detergent sold at a particular store, which brands of dish detergent were
selling the most rapidly at that store or sales territory, or the total amount spent on
that brand of dish detergent at that store or sales region (see Figure 17.1).
Figure 17.1 illustrate raw data from a supermarket checkout counter can be
processed and organized in order to produce meaningful information such as the
total unit sales of dish detergent or the total sales revenue from dish detergent for a
specific store or sales territory.
Fig. 17.1 Data and Information

213
17.3.2. DIMENSIONS OF INFORMATION SYSTEMS

Organization
Information system is the integral part of the organization. The key elements of
organization are its people, structure, business process, politics, and culture.
Organizations are composed of different levels and specialties in terms of levels and
functions. An organization coordinates work through a structured hierarchy. It can
be formal or informal in nature. Organization requires many different kinds of skills
and people such as knowledge workers, data workers and production workers.
Each organization has a unique culture. Different levels and specialties in an
organization create different interests and points of view.
Management
Management is responsible to take a sense out of many situations faced by
organizations, make decisions and formulate action plans to solve the problems.
It rests to the managerial level people. It is important to know the managerial roles
and decisions vary at different levels of the organization such as senior, middle,
operational and junior manager. All the level of management is expected to be
creative, to develop novel solutions to a broad range of problems. Each level of
management has different needs and requirements.
Technology
IT is one of the tools to cope up with the change. Computer hardware is the
physical equipment used for input, processing and output activities in system.
Computer software consists of detailed preprogrammed instructions that control
and coordinate the hardware components. Storage technology includes both the
physical media for storing data in magnetic disk, optical disk, tape etc.
Communication technology consisting both the physical and software recourses
links the various parts of hardware and transfers data from one location to other.
Computers and communication equipment can be connected into network for
sharing the resources.
Fig. 17.2 Functions of an Information System

214
Three activities in an information system produce the information that

organizations need to make decisions, control operations, analyze problems, and
create new products or services. These activities are input, processing, and output
(see Figure 17.2). Input captures or collects raw data from within the organization
or from its external environment. Processing converts this raw input into a more
meaningful form. Output transfers the processed information to the people who will
use it or to the activities for which it will be used. Information systems also require
feedback, which is output that is returned to appropriate members of the
organization to help them evaluate or correct the input stage. Fig. 17.2 illustrates
an information system contains information about an organization and its
surrounding environment. Three basic activities—input, processing, and output—
produce the information organizations need. Feedback is output returned to
appropriate people or activities in the organization to evaluate and refine the input.
Environmental factors such as customers, suppliers, competitors, stockholders,
and regulatory agencies interact with the organization and its information systems.
17.3.3. CONTEMPORARY APPROACHES TO INFORMATION SYSTEM
Multiple perspectives on information systems show that the information
systems are the socio technical systems. It can be divided into two approaches:
Technical approach
This emphasizes mathematically based models to study information systems
as well as the physical technology and formal capabilities of these systems.
Computer science is concerned with establishing methods of computation, storage
and access. Management science emphasizes on development of models for
decision making and management practices.
Behavioral approach
It is concerned with the issues like strategic business integration, design,
implementation, utilization and management. It majorly focuses on the cognitive
style of an individual. It also focuses on technical solutions, changes in attitudes,
management and organizational policies.
17.3.4. THE COMPETITIVE BUSINESS ENVIRONMENT AND THE EMERGING DIGITAL
FIRM
Four powerful worldwide changes have altered the business environment.
The first change is the emergence and strengthening of the global economy.
The second change is the transformation of industrial economies and societies into
knowledge- and information-based service economies. The third is the
transformation of the business enterprise. The fourth is the emergence of the digital
firm. These changes in the business environment and climate, summarized in Table
17.1, pose a number of new challenges to business firms and their management.
Globalization Transformation of the Enterprise
Management and control in a global Flattening

marketplace
Decentralization
215
Competition in world markets Flexibility
Global work groups Location independence
Global delivery systems Low transaction and coordination costs
Empowerment
Collaborative work and teamwork
Transformation of Industrial Economies
Transformation of Industrial Emergence of the Digital Firm

Economies
Digitally enabled relationships with
Knowledge and information-based customers, suppliers, and employees
economies
Core business processes accomplished via
Productivity digital networks
New products and services Digital management of key corporate assets
Knowledge: a central productive and Rapid sensing and responding to

strategic asset environmental changes
Time-based competition
Shorter product life
Turbulent environment Limited employee

knowledge base
17.3.5. THE EMERGING DIGITAL FIRM

The intensive use of information technology in business firms since the mid-
1990s, coupled with equally significant organizational redesign, has created the
conditions for a new phenomenon in industrial society— the fully digital firm. The
digital firm can be defined along several dimensions. A digital firm is one where
nearly all of the organization's significant business relationships with customers,
suppliers, and employees are digitally enabled and mediated. Core business
processes are accomplished through digital networks spanning the entire
organization or linking multiple organizations. Business processes refer to the
unique manner in which work is organized, coordinated, and focused to produce a
valuable product or service. Developing a new product, generating and fulfilling an
order, or hiring an employee are examples of business processes, and the way
organizations accomplish their business processes can be a source of competitive
strength. Key corporate assets—intellectual property, core competencies, financial,
and human assets—are managed through digital means. In a digital firm, any piece
of information required to support key business decisions is available at anytime
and anywhere in the firm. Digital firms sense and respond to their environments far
216
more rapidly than traditional firms, giving them more flexibility to survive in
turbulent times. Digital firms offer extraordinary opportunities for more global
organization and management. By digitally enabling and streamlining their work,
digital firms have the potential to achieve unprecedented levels of profitability and
competitiveness.
Fig. 17.3 Emerging Digital Firm Electronic Business

Digital firms are distinguished from traditional firms by their near total
reliance on a set of information technologies to organize and manage. For managers
of digital firms, information technology is not simply a useful handmaiden, an
enabler, but rather it is the core of the business and the primary management tool.
There are very few fully digital firms today. Yet nearly all firms—especially
larger traditional firms—are being driven in this direction by a number of business
forces and opportunities. Despite the recent decline in technology investments and
Internet-only businesses, firms are continuing to invest heavily in information
systems that integrate internal business processes and build closer links with
suppliers and customers.
Moving from a traditional firm foundation toward a digital firm requires
insight, skill, and patience. Managers need to identify the challenges facing their
firms; discover the technologies that will help them meet these challenges; organize
their firms and business processes to take advantage of the technology; and create
management procedures and policies to implement the required changes.
217
Figure 17.3 illustrates a digital firm making intensive use of Internet and
digital technology for electronic business. Information can flow seamlessly among
different parts of the company and between the company and external entities—its
customers, suppliers, and business partners. More and more organizations are
moving toward this digital firm vision.
17.3.6. THE DIGITAL FIRM: ELECTRONIC COMMERCE, ELECTRONIC BUSINESS, AND
NEW DIGITAL RELATIONSHIPS
The changes we have just described represent new ways of conducting
business electronically both inside and outside the firm that can ultimately result
in the creation of digital firms. Increasingly, the Internet is providing the underlying
technology for these changes. The Internet can link thousands of organizations into
a single network, creating the foundation for a vast electronic marketplace.
An electronic market is an information system that links together many buyers and
sellers to exchange information, products, services, and payments. Through
computers and networks, these systems function like electronic intermediaries,
with lowered costs for typical marketplace transactions, such as matching buyers
and sellers, establishing prices, ordering goods, and paying bills (Bakos, 1998).
Buyers and sellers can complete purchase and sale transactions digitally,
regardless of their location.
A vast array of goods and services are being advertised, bought, and
exchanged worldwide using the Internet as a global marketplace. Companies are
furiously creating eye-catching electronic brochures, advertisements, product
manuals, and order forms on the World Wide Web. All kinds of products and
services are available on the Web, including fresh flowers, books, real estate,
musical recordings, electronics, and steaks. Even electronic financial trading has
arrived on the Web for stocks, bonds, mutual funds, and other financial
instruments.
Increasingly the Web is being used for business-to-business transactions as
well. For example, airlines can use the Boeing Corporation's Web site to order parts
electronically and check the status of their orders. Altranet Energy Technologies of
Houston operates an on-line marketplace called altranet.com where many different
energy industry suppliers and buyers can meet any time of day or night to trade
natural gas, liquids, electricity, and crude oil in a spot market for immediate
delivery. Participants can select their trading partners, confirm transactions, and
obtain credit and insurance.
The global availability of the Internet for the exchange of transactions between
buyers and sellers has fueled the growth of electronic commerce. Electronic
commerce is the process of buying and selling goods and services electronically
with computerized business transactions using the Internet, networks, and other
digital technologies. It also encompasses activities supporting those market
transactions, such as advertising, marketing, customer support, delivery, and
payment. By replacing manual and paper-based procedures with electronic
alternatives, and by using information flows in new and dynamic ways, electronic
218
commerce can accelerate ordering, delivery, and payment for goods and services
while reducing companies' operating and inventory costs.
The Internet has emerged as the primary technology platform for electronic
commerce. Equally important, Internet technology is facilitating management of the
rest of the business—publishing employee personnel policies, reviewing account
balances and production plans, scheduling plant repairs and maintenance, and
revising design documents. Companies are taking advantage of the connectivity and
ease of use of Internet technology to create internal corporate networks called
intranets that are based on Internet technology. Procter & Gamble set up a private
intranet for employees to publish reports, charts, and their ideas for improving the
company. The number of these private intranets for organizational communication,
collaboration, and coordination is soaring. In this text, we use the term electronic
business to distinguish these uses of Internet and digital technology for the
management and coordination of other business processes from electronic
commerce.
The Window on Organizations showed how Li & Fung allowed its suppliers and
business partners to access portions of its private intranet. Private intranets
extended to authorized users outside the organization are called extranets, and
firms use such networks to coordinate their activities with other firms for electronic
commerce and electronic business.
Examples of Electronic Commerce and Electronic Business
Electronic Commerce
Drugstore.com operates a virtual pharmacy on the Internet selling
prescription medicine and over-the-counter health, beauty, and wellness products.
Customers can input their orders via Drugstore.com's Web site and have their
purchases shipped to them.
Travelocity provides a Web site that can be used by consumers for travel and
vacation planning. Visitors can find out information on airlines, hotels, vacation
packages, and other travel and leisure topics, and they can make airline and hotel
reservations on-line through the Web site.
Milwaukee Electric Tool, a subsidiary of the Atlas Copco AB global industrial
machine tools conglomerate based in Stockholm, created a secure sales extranet
that allows its distributors to search the company's product catalog and order
equipment.
Electronic Business
Roche Bioscience scientists worldwide use an intranet to share research
results and discuss findings. The intranet also provides a company telephone
directory and newsletter.
Texas Instruments uses an intranet to provide employees with a
consolidated report of all of their compensation and benefits, including pension
plans, 401K employee savings plans, and stock purchase plans. Employees can use
charts and modeling tools to see the value of their portfolios and benefits now and
in the future.
219
Dream Works SKG uses an intranet to check the daily status of projects,
including animation objects, and to coordinate movie scenes.
17.3.7 THE CHALLENGE OF INFORMATION SYSTEMS: KEY MANAGEMENT ISSUES
Although information technology is advancing at a blinding pace, there is
nothing easy or mechanical about building and using information systems. There
are five key challenges confronting managers:
The Strategic Business Challenge: Realizing the Digital Firm: How can
businesses use information technology to become competitive, effective, and
digitally enabled? Creating a digital firm and obtaining benefits is a long and
difficult journey for most organizations. Despite heavy information technology
investments, many organizations are not obtaining significant business benefits,
nor are they becoming digitally enabled. The power of computer hardware and
software has grown much more rapidly than the ability of organizations to apply
and use this technology. To fully benefit from information technology, realize
genuine productivity, and take advantage of digital firm capabilities, many
organizations actually need to be redesigned. They will have to make fundamental
changes in organizational behavior, develop new business models, and eliminate
the inefficiencies of outmoded organizational structures. If organizations merely
automate what they are doing today, they are largely missing the potential of
information technology.
The Globalization Challenge: How can firms understand the business and
system requirements of a global economic environment? The rapid growth in
international trade and the emergence of a global economy call for information
systems that can support both producing and selling goods in many different
countries. In the past, each regional office of a multinational corporation focused on
solving its own unique information problems. Given language, cultural, and
political differences among countries, this focus frequently resulted in chaos and
the failure of central management controls. To develop integrated, multinational,
information systems, businesses must develop global hardware, software, and
communications standards; create cross-cultural accounting and reporting
structures (Roche, 1992); and design transnational business processes.
The Information Architecture and Infrastructure Challenge: How can
organizations develop an information architecture and information technology
infrastructure that can support their goals when business conditions and
technologies are changing so rapidly? Meeting the business and technology
challenges of today's digital economy requires redesigning the organization and
building a new information architecture and information technology (IT)
infrastructure.
Information architecture is the particular form that information technology
takes in an organization to achieve selected goals or functions. It is a design for the
business application systems that serve each functional specialty and level of the
organization and the specific ways that they are used by each organization.
As firms move toward digital firm organizations and technologies, information
220
architectures are increasingly being designed around business processes and

clusters of system applications spanning multiple functions and organizational
levels (Kalakota and Robinson, 2001). Because managers and employees directly
interact with these systems, it is critical for organizational success that the
information architecture meet business requirements now and in the future.
Figure 17.4 illustrates the major elements of information architecture that
managers will need to develop now and in the future. The architecture shows the
firm's business application systems for each of the major functional areas of the
organization, including sales and marketing, manufacturing, finance, accounting,
and human resources. It also shows application systems supporting business
processes spanning multiple organizational levels and functions within the
enterprise and extending outside the enterprise to systems of suppliers,
distributors, business partners, and customers. The firm's IT infrastructure
provides the technology platform for this architecture. Computer hardware,
software, data and storage technology, networks, and human resources required to
operate the equipment constitute the shared IT resources of the firm and are
available to all of its applications. Contemporary IT infrastructures are linked to
public infrastructures such as the Internet. Although this technology platform is
typically operated by technical personnel, general management must decide how to
allocate the resources it has assigned to hardware, software, data storage, and
telecommunications networks to make sound information technology investments
(Weill and Broadbent, 1997 and 1998).
Fig. 17.4 Information Architecture and Information Technology Infrastructure

Typical questions regarding information architecture and IT infrastructure
facing today's managers include the following: Should the corporate sales data and
221
function be distributed to each corporate remote site, or should they be centralized

at headquarters? Should the organization build systems to connect the entire
enterprise or separate islands of applications? Should the organization extend its
infrastructure outside its boundaries to link to customers or suppliers? There is no
one right answer to each of these questions (see Allen and Boynton, 1991).
Moreover, business needs are constantly changing, which requires the IT
architecture to be reassessed continually (Feeny and Willcocks, 1998).
Creating the information architecture and IT infrastructure for a digital firm is
an especially formidable task. Most companies are crippled by fragmented and
incompatible computer hardware, software, telecommunications networks, and
information systems that prevent information from flowing freely between different
parts of the organization. Although Internet standards are solving some of these
connectivity problems, creating data and computing platforms that span the
enterprise—and, increasingly, link the enterprise to external business partners—is
rarely as seamless as promised. Many organizations are still struggling to integrate
their islands of information and technology into a coherent architecture.
The Information Systems Investment Challenge: How can organizations
determine the business value of information systems? A major problem raised by
the development of powerful, inexpensive computers involves not technology but
management and organizations. It's one thing to use information technology to
design, produce, deliver, and maintain new products. It's another thing to make
money doing it. How can organizations obtain a sizable payoff from their investment
in information systems?
Engineering massive organizational and system changes in the hope of
positioning a firm strategically is complicated and expensive. Senior management
can be expected to ask these questions: Are we receiving the kind of return on
investment from our systems that we should be? Do our competitors get more?
Understanding the costs and benefits of building a single system is difficult enough;
it is daunting to consider whether the entire systems effort is "worth it." Imagine,
then, how a senior executive must think when presented with a major
transformation in information architecture and IT infrastructure—a bold venture in
organizational change costing tens of millions of dollars and taking many years.
The Responsibility and Control Challenge: How can organizations ensure
that their information systems are used in an ethically and socially responsible
manner? How can we design information systems that people can control and
understand? Although information systems have provided enormous benefits and
efficiencies, they have also created new problems and challenges of which managers
should be aware. Table 1-6 describes some of these problems and challenges.
Internet Business Models
Internet businesses come in all shapes and sizes, from content-based websites
that earn revenue through advertising to sites catering to merchandise sales. Each
model offers unique advantages and has its own shortcomings, and a clear
understanding of all the available models is necessary to select the one that will
222
serve you best. There are seven commonly used models, although many businesses
successfully employ multiple models on one site to generate revenue.
 Virtual storefront: Sells physical products directly to consumers or
businesses.
 Information broker: Provides product pricing and availability information;
generates revenue from advertising or directing buyers to sellers.
 Transaction Broker: Processes online sales transactions for fee.
 Online Marketplace: Provides digital environment where buyers and sellers
meet
 Content Provider: Provides digital content, such as news; revenue from fees
or advertising sales
 Online Service Provider: Provides connectivity; revenue from fees,
advertising, or marketing information
 Virtual Community: Provides online meeting place for people of similar
interests
 Portal: Provides initial point of entry to the Web, along with specialized
content and services
 Syndicator: aggregates content or applications to resell as package to third-
party Web sites
17.3.8 BUSINESS PROCESS OUTSOURCING (BPO)
BPO is an important branch and trend of outsourcing that many management
theories and methodologies generated and developed for outsourcing can be applied
to. Many corporations, like Dell, AIG, IBM and Citi Group, have been using BPO
and leveraging the larger scale of outside service providers to cut costs,improve
process quality and speed time to market. Also, many IT service vendors, like IBM,
EDS, Accenture, and SAP, have integrated BPO services into their systems and
models.
17.3.9. QUALITY DIMENSION IN BPO
As a special service provider, BPO service quality is the degree and direction of
variation between the service receiver’s expectations and perceptions. As Kumar
(2004) pointed out “Service excellence has become the basic instinct and real value
differentiator that drives client satisfaction. Operational excellence, product/service
leadership and highly effective client relationship management are keys to assuring
superior service delivery. The service provider must have a clearly defined service
vision in line with outsourcers ’priorities and hones on creating measurable values”
Hongyan Li et al.,(n.d), suggested the following dimensions In each dimension, the
sub-measures are identified based on the nature of BPO service. These criteria
arestrongly acknowledged as some of the main factors leading to BPO success.
Reliability
Reliability is how to manage the outsourcing relationship, assuring the successful
service delivery after the deal is signed and the outsourced process activities are in
operation. Grover et al. (1996) suggested that the success of outsourcing is heavily
dependent on the reliability of the service a service provider provides.
223
In Human Capital Management, the finalized and easy-to-use results should

be available. A full HRRP service begins with the job requisition through hiring the
new employee, including: information collection and applications management,
candidate sourcing (internally and externally), recruitment agencies management,
screening, interviewing and testing, reference checking, offer and contracts
management, on-boarding and even any needed initial training.
 In outsourced E-Learning activities, customer expectations include:
 Service providers will deliver promised service by a certain time;
 Accurate learning resources and tools are delivered;
 Sufficient capacity is provided to record the learner’s learning history;
 The speed and effects will not be impacted by the amount of the users;
 When customers have a problem, excellent service providers will resolve the
issue as soon as possible.
Tangibility
Tangibility includes the physical evidence of service. Technology is the first
visible quality feature in BPO. Technology and applications allow the monitoring of
process operations. Technology adds to the BPO quality and success by making the
operations more visible by different views suited for different role-based levels in the
client’s organization, e.g. operational vs. managerial vs. strategic and planning level.
For example, in outsourced E-Learning activities, cutting-edge technology is
one of the critical factors in matching the learning architecture a company needs to
provide the best solution for the business process. When delivering the learning
system to a business, the service providers’ technology choices should bearing mind
the existing technical infrastructure and the needs and skill levels of the employees
who will work with whatever products and systems are chosen.
Other customer expectations include:
 Physical advances - global expertise in the course relevant field;
 Assessment tools - diversity should be provided, etc.;
 Courses - well designed and structured;
 Easy to apply - a competency model that really works;
 Comprehensive - covers all job descriptions and management levels;
 Automated - most of the analysis can be automated using online
assessment tools.
Responsiveness
Responsiveness concerns the willingness or readiness of employees to provide
service. Customer-facing staff can be brought up to speed with new offerings far
more rapidly, and brand service values can be communicated to customer touch
points more efficiently and consistently. Providers cannot escape errors at any stage
of BPO service, so the ability to discover errors swiftly and track down their causes
are important. This will result in the quick operation restoration, and thereby
increase client satisfaction due to minimum interruption and early discovery of
problems. This is aligned with Tax and Brown’s (1998) arguments regarding how
224
effective service recovery from failure is one of the major demands that customers
expect. Using outsourced E-Learning process as an example, other customer
expectations include:
 When a break-down happens, an excellent E-Learning service provider
should be able to resolve it promptly;
 Specific individuals should be available to provide help on any application
problems.
Conformance
Conformance is the degree to which the design and operation of an application
of service meets its established standards. Although BPO is usually considered
service first, it is actually providing applications to organizations. Any outsourced
business process involves some specifications which are usually restricted by a
contract. The BPO activities should align the outsourcing objectives with the
appropriate contract reviews, performance monitoring and measurement systems.
Therefore, quality BPO service should provide the needed framework for driving the
behavior of the BPO provider towards sustaining the quality level of service required.
The conformance performance in BPO involves how the provider is able to
align his activities with the evolving goals of the client. Only then will the providers’
activities be completely client focused and will add real value. For this to succeed
the client should provide the needed resources for managing the relationship or the
provider will not be able to fulfill his part of the relationship. For example, in the
HR Recruitment process, the governance team should not only control the cycle
time or the cost-per-hire but more importantly, the new-hire efficacy and turnover.
Quality in the recruitment process does not end with the hiring step but would also
measure how the newly hired employee fits the job, and how the selection was
accurate, reliable, and effective. HRRP providers are dedicated to enhancing the
process creating access for their clients to the best of the talents.
Flexibility
Outsourcing, especially in the process of HR-Recruitment, provides flexibility
to the organization’s staffing function (RES (2005)). For example, flexibility reflects
the ability of BPO service provider to adapt to their clients’ seasonal peaks, and
scale to maintain their service metrics, like time-to-fill and cost- per hire, even at
times of talent shortages.
An E-learning process should be able to support both synchronous and
asynchronous learning, accommodate diversity course resources and assessment
tools, etc. Synchronous learning has significant strength in the number of different
applications it can be applied to. Thinking of live E-learning as not solely training.
Assurance and Empathy
Assurance and empathy are both client focused quality criteria. Assurance is
reflected by the knowledge and courtesy of employees and their ability to instill
trust and confidence. Empathy is the degree of individualized attention the service
provider gives its customers. As the quality advantages of BPO service, assurance
and empathy are the critical view organizations gain when they outsource their
225
processes to the provider. In other words, assurance and empathy help improve the
perceived service quality, customer value and customer satisfaction.
In a HRO deal, the buyer and the provider can hold a monthly virtual meeting
between senior managers to measure the each side’s satisfaction. This way, any quality
drop can be more visible at senior levels and more likely to be rapidly resolved. Based
the perspective of assurance and empathy, quality BPO service should support the
increasing dependency between the client and the service provider. A trusted
relationship between BPO service providers and their clients should be built around
open communication, fairness, belief in the mutual benefit and interdependence. In
addition, quality BPO service requires that the service provider has formal systems and
procedures to consistently fulfill the requirements of different customers and deliver
services to the agreed service levels. Moreover, higher levels of quality capability require
that the providers must have quality and performance measures in place to monitor
performance progress and proactively enhance the quality of service they are providing.
Other customer expectations include:
 Providing effective customer training and education programs;
 Sharing work practices and problem solving approaches with their clients;
 Deploying more staff to improving the functions of the system;
 Helping customer in strategic planning and setting proper expectations;
 Detailed fee-for services, no hidden costs, etc.
Security
In BPO, the outsourced business process often interacts with other business
processes of the customer, or intervene important or confidential business
information. BPO service has to guarantee the security of the customer business.
Concretely, the quality of security should be analyzed from the following aspects:
 Confidential data and information;
 Security auditing;
 Encryption and anti-virus protection;
 Secure physical environment.
Industry Structure
The growth of BPO in India can be classified into four distinct phases:
The First Wave: Company Owned Units Pioneered BPO in India
Company owned units such as American Express, General Electric (GE),
Citibank, and AOL etc. triggered the trend of outsourcing back office operations and
call centre services to India.
Since then several banks, insurance companies, airlines and manufacturing
companies have set up back office service centers in India.
The Second Wave: Venture Funded New Companies
Over the last few years, a number of experienced professionals have set up
start-up operations in India. Generally such start-ups have been funded by venture
capital funds.
226
The Third Wave: Leading IT Services Companies enter BPO

Given the magnitude of such opportunity, natural synergies with the
software services business and the ability to leverage their high-end physical
infrastructure and management band-width, most large IT services companies have
ventured into ITES.
Consolidation of the market with the smaller players merging with each
other/ larger companies for economies of scale
The Fourth Wave: Domain / Industry Specialized BPO’s
Niche players in industry verticals or specific business processes have setup
BPO businesses. Many of these players have had vast experience in the domestic
market and are now offering offshore BPO services
Generalized large BPO players are now focusing on “verticalizing” their
competencies and structures
Fig. 17.5 Growth of BPO Classifications

A majority of the key players in the BPO industry in India are captive units of
MNCs and international BPO companies desiring to take advantage of the cost
arbitrage offered by India. For the Indian ventures of these MNC’s the risks are
limited since they are captive units and volumes are assured. Many of the BPO
ventures of MNCs are now trying to offer their services to other companies. Several
ventures have been hived off into independent companies to attract other
customers and become profit centers as opposed to the cost centers they used to be
earlier. Examples include Server International, World Network Services (British
Airways) and GECIS.
Advantage India
Despite a growing number of off shoring location options available with
organizations today, India has emerged as one of the most preferred locations for
outsourcing. The primary factors in consideration while deciding on an offshore
location include:
227
Cost Competitiveness, which consists of cost of labor, infrastructure costs

and currency exchange rates
Labour Competitiveness, consisting of the size of the available labour, level of
education, domain skills, fluency in the English language, cultural compatibility to
western markets and attrition rates
Other factors, which consist of existing business and political risks associated
with the country, geographic location (time difference), tax regime and regulatory
considerations such as Data Security and IPR issues
A country-level analysis of people and cost competitiveness reveals that India
has greater traction primarily due to the availability of adequately trained
manpower. It offers a large (over a million graduates each year with 350,000
engineers), well-qualified, English speaking labor force to off shoring organizations.
It is on this parameter that potential and existing outsourcers perceive it more
favorably than other low-cost countries such as BrazilHungary, Philippines and
China. Canada, a viable “near-shore” option for many organizations, recognized for
its people competitiveness, is however, considered a high-cost location.
Fig. 17.6 Call Center Employee Costs

The cost advantages of off shoring to India are significant. It costs less than US$
7,500* annually to hire a call center agent in India (cost to company) as compared to
US$ 19,000 in the United States and US$ 17,000 in Australia. It is also estimated
that the average annual salary of graduates in India is just US$ 2,400 as compared
US$ 2,900 in Philippines and US$ 19,500 in Ireland. Moreover, with a favorable
exchange rate with the US Dollar, BPO service providers are able to pass on these
benefits to the customers, making it one of the more attractive destinations.
 Information system is a set of interrelated components that collect (or
retrieve), process, store, and distribute information to support decision
making and control in an organization.
 Contemporary approaches to information system can be divided into two
approaches: Technical approach and Behavioral approach
 The digital firm can be defined along several dimensions. A digital firm is one
where nearly all of the organization's significant business relationships with
customers, suppliers, and employees are digitally enabled and mediated.
Core business processes are accomplished through digital networks
spanning the entire organization or linking multiple organizations.
228
 An electronic market is an information system that links together many

buyers and sellers to exchange information, products, services, and
payments. Through computers and networks, these systems function like
electronic intermediaries, with lowered costs for typical marketplace
transactions, such as matching buyers and sellers, establishing prices,
ordering goods, and paying bills.
 Electronic commerce is the process of buying and selling goods and services
electronically with computerized business transactions using the Internet,
networks, and other digital technologies.
 Business process outsourcing (BPO) is the contracting of a specific business
task, such as payroll, to a third-party service provider. Usually, BPO is
implemented as a cost-saving measure for tasks that a company requires but
does not depend upon to maintain their position in the marketplace.
1) What is information system?
2) Explain the term Globalization
3) What is BPO?
17.6. SUMMARY
Information system is a set of interrelated components that collect (or retrieve),
process, store, and distribute information to support decision making and control
in an organization. Organization, management and technology are the three
dimensions of information system. Three activities in an information system
produce the information that organizations need to make decisions, control
operations, analyze problems, and create new products or services. Emergence of
the digital firm changes in the business environment and climate pose a number of
new challenges to business firms and their management. The Internet can link
thousands of organizations into a single network, creating the foundation for a vast
electronic marketplace. An electronic market is an information system that links
together many buyers and sellers to exchange information, products, services, and
payments. Through computers and networks, these systems function like electronic
intermediaries, with lowered costs for typical marketplace transactions, such as
matching buyers and sellers, establishing prices, ordering goods, and paying bills.
There are five key challenges confronting managers (Strategic Business Challenge,
Globalization Challenge, Information Architecture and Infrastructure Challenge,
Information Systems Investment Challenge, Responsibility and Control
Challenge).There are seven commonly used models, although many businesses
successfully employ multiple models on one site to generate revenue.BPO is an
important branch and trend of outsourcing that many management theories and
methodologies generated and developed for outsourcing can be applied to. Many
corporations, like Dell, AIG, IBM and Citi Group, have been using BPO and
leveraging the larger scale of outside service providers to cut costs, improve process
quality and speed time to market. India is uniquely positioned to leverage its cost
and quality advantages, to cater to the escalating demand for off shoring of
transactional and strategic business processes. As the application objective of BPO
229
is shifting towards that of enhancing the competitiveness of BPO buyers, the value
of the technology driving BPO is increasing.
1) What are the dimensions of information system?
2) Describe the capabilities of digital Firm. Why are digital firms so powerful?
3) List and describe why information systems are so important for business today.
4) What are the major managerial and organizational challenges posed by
electronic business and electronic commerce?
5) How has Internet technology changed value propositions and business models?
6) What is electronic commerce? How has electronic commerce changed
consumer retailing and business-to-business transactions?
1) Hongyan Li et al., (n.d), “Improving Quality in Business Process Outsourcing
through Technology” Source: http://www.kenexa.com/Solutions/Recruitment
ProcessOutsourcing.
2) BPO Excellence. 2006. How to make BPO sustainable and the role of
technology in achieving this. SAP Seminar June.
3) Erlanger, L. 2006. Business process outsourcing: putting IT in the director’s
chair. Infor World 27 Feb.
17.9. ASSIGNMENTS
List and describe important types of m-commerce services and applications
17.10. REFERENCES
Information System”, Ninth edition, Tata McGraw Hill Education Private
Limited, New Delhi., 2010.
2) Kenneth C. Laudon and Jane P. Laudon, “Management Information System”.
Tenth Edition, PHI Learning Private limited, New Delhi, 2008.,
3) PricewaterhouseCoopers,” The evolution of BPO in India”, April2005.
How does internet change consumer and supplier relationships?
17.12. KEYWORDS
 Digital Firm.
 Globalization
 Technical Approach
 Behavioral Approach
 Virtual Community Information System.
 Business Process outsourcing
 E-commerce
 E-business
 Conformance.

230
LESSON – 18
ORGANIZATION STRUCTURE FOR DIGITAL FIRM
18.1. INTRODUCTION
Computers are changing every aspect of our lives from entertainment to
shopping, from the work we do and where we do it, to how we communicate with
friends and relatives. Even though we are still hearing negative news about the dot-
com bubble from the late 1990s through 2001, the death of the Internet has been
greatly exaggerated. Not only is it alive and well, but thriving. The difference
between then and now is that many of the companies went bust primarily because
of poor business planning or simply because their product wasn't viable to begin
with. As you can see from the opening vignette in the text, many companies are
remodeling their businesses and information systems with the Internet in mind.
This chapter gives you an overview of many of the subjects we'll touch on in
this course. It will help you understand how information technology is being used
by many businesses worldwide to increase operational efficiency, improves effective
management, save money, and create better relationships between suppliers and
customers.
18.2. OBJECTIVES
 Understand the traditional organisation and its characteristics.
 Understanding the need for a shift in culture in managing the firm.
 Assess the impact of the Internet and Internet technology on business and
government.
 Comprehending the impact that information systems and
telecommunication networks have had on working culture, business
processes and employees within the firm.
18.3. CONTENTS
18.3.1 Digital Firm
18.3.2 Paradigm Shift to Digital Firm
18.3.3 Comparison between Conventional Design Vs. Digital Firm
18.3.4 E-Communication
18.3.5 E-collaboration
18.3.6 Real Time Enterprise
18.3.1 DIGITAL FIRM
There has been a tremendous growth in expenditure in information
technology over the past two decades. Companies have invested in information
systems and have come to rely on functionality, reliability and availability of these
systems to fulfill business processes effectively. Within the same period of time
there has also been a tendency to increase connectivity within the organisation
through the use of local and wide area networks. More over the availability of cheap
communication networks and the Internet has prompted connectivity among the
231
disparate systems leading to collaboration between different departments and

between the organisation and its business partners.
Use technology to increase communication and collaboration has prompted
the potential for rethinking and redesigning the corporate leading to:
 New organisational structure
 Reconfiguration of working culture
Results are invariably increased flexibility of the organisation and what we call
a digital firm. In essence digital firm activities span across business activities
comprehensively, including electronic commerce, electronic business and the
electronic relationships.
Figure 18.1 Organization Structure

New organisational Structure
Traditional organisation that has been developed before the information
technology era is characterized by clear division of labour leading to inflexibility in
terms of responding to need for change and reorganization. Organisations change
continuously in the way they do things or in products and services they offer.
Conventional organisation in the information age may be less competitive
than the new entrants to the market in global economy because it may be slow to
respond to potentials for new markets, the need to develop new products and
services, reconfigure business processes for better efficiency and more effective
customer management.
Traditional organisation has a rigid hierarchical structure. Pyramid shape of
the organisation demonstrates many levels of middle management. In order to
compete, many of these types of company have had to downsize, reducing the
number of employees and the management layers. These changes have to be
accompanied by other developments such as a shift in working culture and
232
enabling the employees to take advantage of opportunities for personal growth or to

allow them to manage themselves. This though has not always been the case.
The hierarchical structure of the organisation does not disappear and it
persists with the contemporary firm. In digital firm, the level of hierarchy is greatly
reduced leading to flatter hierarchical organisation. In designing a digital firm we
endeavor to optimize the level of hierarchy to achieve balanced distribution of power
among the various layers. Delegation of decision making and distribution of power
is extended to the lower layers of the organisation and lower level employees are
given greater powers to manage themselves and more authority to make decisions
than in the past. A shift in culture takes place where employees are no longer
required to work specified hours. Employees become outcome driven and their
performance is measured against requirements and achievements as oppose to
presence. Employees are much more likely to work flexible hours through the use
of information technology. Working from home becomes more fashionable through
provision of information and opening access to internal organisational
infrastructure.
This devolution of power also means that middle managers can manage higher
number of employees leading to considerable reduction in their numbers and
ultimately flatter hierarchy of the organisation.
Reconfiguration of Working Culture
Work culture has changed in a number of ways. In fact in order to progress
from the traditional structures to the contemporary and more efficient ways of
working, there has to be a shift in the working culture within the organisation and
the way organisation perceives its communication with the partner community
such as the customers, the suppliers, the service providers and the stakeholders.
The major aspects are;
 Changes to working location
 Automation of business processes
 Business agility
(I) Changes to Working Location
Availability and use of IT and communication technology diminishes the
importance of location. Employees whom are in direct contact with business
partners are much more likely to be effective if they spend their time in the field as
oppose to the office. For example salespeople would like to be talking to their
customers rather than operating from the office. Collaborative work in product
design is another area where information systems and telecommunication networks
can play a big role. Design cycles have been reduced dramatically through
electronic collaboration and online teamwork. These partnerships have typically
been international and across a number of continents. Such projects have
traditionally been relatively more expensive and time consuming.
Employees have the possibility to work from their preferred location such as
their home, from the hotel room, while travelling, etc. This shift in working culture
233
is possible through provision of up to date information and arrangement of access

to the information infrastructure through the use of telecommunication channels.
(II) Automation of Business Processes
Introduction of information systems usually leads to automation of some or all
of the business processes. In a digital firm efficiency gains are achieved through
redesigning, redefining and refining workflows. Working processes and procedures
are reengineered before the introduction of new information technology
infrastructure. At times these activities lead to completely new ways of working and
even new products and services. Solutions such as Enterprise Resource Planning
(ERP) serve to automate back office processes. Efficiency gains are achieved by
providing the employee with information from all areas of business, all relevant
information systems and across many geographical localities to help improve the
process of monitoring and control.
The idea of ERP is to maximize and optimize the use of resources within the
organisation. Resources are usually referred to time, raw material, space and
premises. In addition they also include employees and their skill set, experiences
and specialties, the IT systems that are in place to support the various business
processes and the organisational structure and procedures. ERP is large
investment and organisation has to make sure that business processes are
functional, appropriate and efficient. For this purpose a complete process of
rationalization is undertaken prior to the introduction of ERP system.
(III) Business Agility
In e-Business there is a notion that "small businesses can act big and big
businesses can act small". The idea is that small businesses can use information
technology to acquire some of the know-how, expertise and functionalities that can
only be afforded by bigger companies. This tendency has been compounded by the
availability of cheap communication and telecommunication channels. On the
other hand bigger businesses tend to traditionally be less agile than small
businesses. Large volumes of production, trading with big business partners and
managing large volume of workforce forces these companies to adopt well defined
product lines, business processes and business culture. Large businesses can also
use information technology to adopt more readily to changes in their environment
in shape of new products, personalize products and services, etc.
18.3.2. PARADIGM SHIFT TO DIGITAL FIRM
The paradigm shift to Digital Firm has brought four transformations, namely
 Domestic business to global business.
 Industrial manufacturing economy to knowledge based service economy.
 Enterprise Resource Management to Enterprise Network Management.
 Manual document driven business process to paperless automated
electronically transacted business process.
This paradigm shift has added new challenges for management to tackle. It
has opened larger market but not without severe competition from more
234
competitors. Market and business risks have increased. Then differentiating factors
in manufacturing process and products are no longer competitive advantage. What
is critically important is service to the customer and customer satisfaction.
Customer satisfaction and high level customer service is possible using knowledge
based proactive management systems. These transformations have made
conventional organisation design obsolete. The basis of conventional organisation
design is command and control which is now collaborates and control. This change
has affected the organisation structure, scope of operations, reporting mechanisms,
work practices, workflows, and business processes at large. The comparison
between conventional organisation design and Digital Firm is summarized in Table
18.1.
18.3.3. COMPARISON BETWEEN CONVENTIONAL ORGANIZATION DESIGN VS.
DIGITAL FIRM
Table 18.1 Comparison between Conventional organization Design Vs. Digital Firm
Conventional Organization Design Digital Firm
 Top heavy organisation structure  Flat organisation structure

 Work and work place location at one  Separation of work from workplace
place location
 Manual and document based work  Paperless work flows
flows  Low overheads due to lean
 High administrative and organisation
management overheads  Flexible, agile and responsive process
 Inflexible, rigid and longer business cycles
process cycles  Public business processes and
 Private business process systems for systems for use by customers,
self-use. vendors and business partners
 They are barred for usage to  Use Internet, wireless and network
customer. technologies at all work centers
 Vendors, and business partners
 Low and selective usage of
technology
In E-enterprise, business is conducted electronically. Buyers and sellers
through Internet drive the market and Internet based web systems. Buying and
selling is possible on Internet. Books, CDs, computer, white goods and many such
goods are bought and sold on Internet. The new channel of business is well known
as E-commerce. On the same lines, banking, insurance, healthcare are being
managed through Internet. E-banking,E-billing, E-audit, & use of Credit cards.
Smart card, ATM, E-money are the examples of the E-commerce application.
Managers in Digital Firm must be highly IS and IT literate to meet their own
information and knowledge needs. Major management challenge to build and use
MIS is developing competitive information systems, understanding the character of
global business heterogeneity, variability & risk, creation of IS and IT platform for
235
achieving MIS goals. Having discussed so much good about Digital Firm, its
management has some challenges to meet information needs arising due to global
operations of the business into a comprehensive MIS.
To achieve the said benefits of Digital Firm it is necessary to redesign the
organisation to realize the benefits of digital firm. The organisation structure should
lean and flat. Get rid of rigid established infrastructure such as branch office, zonal
office. Allow people to work from anywhere. Automate processes after re-
engineering to cut down process cycle time.
Another challenge is to convert domestic process design to work for
international process, where integration of multinational information systems using
different communication standards, country specific accounting practices, and laws
of security are to be adhered strictly.
Internet and networking technology has thrown another challenge to enlarge
the scope of organization where customers and vendors become part of the
organisation. This technology offers a solution to communicate, coordinate, and
collaborate with customers, vendors and business partners. This is just not a
technical change in business operations but a cultural change in the mindset of
managers and workers to look beyond the conventional organisation. It means
changing the organisation behavior to take competitive advantage of the Digital
technology. The last but not least important, is the challenge to organize and
implement information architecture and information technology platforms,
considering multiple locations and multiple
Fig. 18.2 Digital Firm model

We now discuss in detail how E-business enterprise model, and E-business
process adds value in management process. Such E-business enterprise model is
shown in Fig. 18.2. Source Adapted and Modi-fied from Ravi Kalakota and Marcia
Robinson.MIS, Fifth edition, James A'.0' Brien, TMH. The Internet and networks
provide platform and various capabilities whereby communication, collaboration,
236
and conversion has become significantly faster, transparent and cheaper.

These technologies help to save time, resource and enable faster decision-making.
The technology adds speed and intelligence in the business process improving
quality of service to the customer.
The business process of following components serving the customer to offer
goods, products or services is made of
Enquiry Processing
 Order Preparation
 Order Placement
 Order Confirmation
 Order Planning
 Order Scheduling
 Order Manufacturing
 Order Status Monitoring
 Order Dispatching
 Order Billing
 Order Receivable Accounting
 Order Payment Processing
The entire process in parts or full can be handled through these technologies
and software solutions. It provides important strategic competitive advantage.
Further the technology is flexible and capable of handling any business models
such as
 Retailing, Trading, Auctioning
 Manufacturing, Distribution & Selling
 Outsourcing, Subcontracting
 Servicing, Training, Learning.
The resultant effect is the reduction in cost of business operations, improved
customer loyalty and retention and better quality offer to the customer. Four major
applications mentioned earlier make this achievement possible. We go into details
of each one of them.
Digital Firm Models are developed using these intermediaries. The components
of E-business models are:
 Internet for external communication
 Intranet/Extranet for internal communication
 Network and TCP/IP protocols and tools for delivery mechanism
 Web server and web browsers software for access, process and download
and mail-ing.
 Back-end integrated systems for application processes
The people involved in E-business model other than users of the models are:
 Web master
237
 Content provider
 Web designer
 Content designer
 Web developer/programmer
 Web administrator
Web master controls the website inflow/outflow, content management and
regulation of the traffic. The role is similar to DBA in RDBMS environment. Web
designer conceptualizes and visualizes the requirement of the parties and creates a
web design, which is attractive, useful and easy to handle. He plays a role of an
architect and an interior designer of the website. Web developer/programmer writes
web pages using HTML, DHTML, XML, CGI script and other tools. They are also
involved in program writing for transaction processing, information processing,
providing links to other sites, writing interfaces for connectivity to other databases
and to create text, images and a multimedia input to the site. These people are
subject experts and are key people in making a website a grand success. They have
to write contents of the website looking into the needs of the target website visitors.
The contents should address the needs of the users of the website. The content
designers give website layout icons, positioning and display ideas to deliver the
contents to the viewer’s immediately. They provide input in terms of aesthetics,
colours, navigating through different information layers, and so on.
Web administrator maintains the website. He is a troubleshooter. In case of
any problem, web administrator is the first contact point of users/viewers to solve
their difficulties. The job is to keep the website very responsive and keep contents
latest and up-to-date. Web administrator is responsible to make viewers analysis in
terms of visits to website, areas visited and business generated. A Digital Firm
structure model is given in Fig. 18.3.
Fig. 18.3 Digital Firm Organization Structure

238
All buying and selling does not succeed through E-commerce. The products
and services, which are standard in nature, and customer does not have a great
need of interaction with seller, are best suited for E-commerce. E-commerce culture
is mostly virtual and impersonal. E-commerce site must create confidence in the
buyer showing competitive prices, performance assurance and post sale support.
Faster processing in every step and covering entire buying and selling cycle are very
much essential. The look and feel of E-commerce website should be customer
friendly and attractive. Finally, security and reliability of information, transactions,
and order fulfillment is an absolute necessity.
18.3.4. E-COMMUNICATION
In E-business world, E-communication system is a backbone of all processes
whose role is to share information by messages or store information to download on
access by the customer. This is done through many applications and systems. Most
popular and widely used messaging system is e-mail and voice -mail. Through
these systems both parties communicate on ongoing basis. It provides facilities to
store, delete and search mails supporting the reference need of the user. This
system is popular when one to one communication is needed. When there is a need
of communication in real time, systems available are voice conference, Video
conferencing and electronic meeting systems. Voice conferencing is conducted on
telephone network using speaker phones or networked PCs with Internet telephone
connectivity. Video conferencing provides capabilities of video and audio for
participants situated at different locations. Video conferencing also becomes an
interacting and effective communication system when it has a feature of white
boarding and document sharing. In electronic meeting system, participants sit in a
meeting room with networked PCs and online screen projector to discuss the
meeting agenda. PC network is chosen for communication and access databases
and processing and projecting on the screen for common viewing .this system is
useful to solve some problems, and communication within small groups.
Another E-Communication system which is a kind of offline is known as web
publishing. web publishing uses websites and portals for storing documents,
catalogues, drawings, pictures and so on for sharing. Such information is stored on
documents. In this system, a user searches, navigates, selects and downloads
documents for self-use. Web publishing is popular research organisations,
educational bodies, government organisations, and large business and commercial
bodies. These organisations have large information set and document to share with
community.
E-communication systems are capable of sending messages, documents, and
files in any format over Internet. The communication could be online in offline mode
and online in real time mode. All E-communication systems have sufficient
safeguards, which make them secured for use. Internet and web technologies are
used for forming different interest groups to communicate and share the
information. These groups are popularly known as ‘user groups’ who have common
interest in subject, technology or tool, and come together with the objective of
239
improving the quality of subject of interest by sharing the experience. Enterprise

information portal is another tool used for information posting and communication
to users or customers. ‘Portal is a web-based interface on an integrated
internet/intranet/extranet platform allowing customers to use application and
other services. It provides secured access to all users/consumers to search
information analyses the situation and communicate. The difference between a
website and a portal is that the latter is a comprehensive multipurpose repository of
information, applications, and tools to serve the consumers. Most of the
information needs are met at one place like portal eliminating excessive surfing,
quick access to various resources and application. Relatively, website is a much
focused platform with limited objective of sharing and communicating the
information.
18.3.5. E-COLLABORATION
Fig. 18.4 E-collaboration System Models

Every business has number of work scenarios where group of people work
together to complete the tasks and to achieve a common objective. The groups
could be teams or virtual teams with different member strength. They come
together to perform a task to achieve some results. The process is called
collaboration. The collaboration now is possible with e-technologies, which put
these teams in network with Internet support tor communication, access to
different databases and servers. These capabilities help to create collaborative work
systems and allow members to work together cooperatively on projects and
240
assignments. The biggest advantage of E-collaboration is that it taps the collective

wisdom, knowledge and experience of the members. The collaboration team or
group could he within the organisation and between the organizations as well.
Since, E-collaboration works on an Internet platform and uses web technology,
work group/team need not be at one physical location. They can be at different
locations and form a virtual team to work on project or assignment. E-collaboration
uses E-communication capabilities to perform collaborative tasks, or project
assignment.
Its effectiveness is increased by software ‘Group Ware’ that enables the
members of the group to share information, invoke an application and work
together to create documents and share them and so on. GroupWare is
collaboration software. For example Lotus Notes, Novell Group Ware, Microsoft
exchange and Netscape communicator are GroupWare tools. These tools are
designed to make communication and coordination between members of the group
more easily, disregarding their physical location. E-collaboration helps work
effectively on applications like calendaring and scheduling tasks, event, project
management, workflow applications, work group applications, document creation
and sharing, and knowledge management. Figure 18.5 shows an E-collaboration
system Model.
E-collaboration system components are Internet, Intranet, Extranet and LAN,
WAN networks for communication through Group Ware tools, browsers. Application
packages are software suit, which help process customer requirements. It is
supported by databases present on various servers like mail server, material
database, knowledge server, document server and so on. Having understood the
E-collaboration system let us know where it is successfully applied in business.
There are five main applications, which are very popular amongst E-business
community. They are:
Preparation of Calendars and Schedules
Organisation plans a number of meetings, appointments, schedules where
number of people are involved and they need to he informed about their
participation in a number of events. GroupWare tools help in automatic scheduling,
notification and reminding to the participants. Group Ware tools help in time
management, arranging the meetings without conflict in availability of the persons.
Project Management
Teams manage projects, and a high-level collaboration among team members
and within teams is absolutely necessary for expeditious project process execution
towards completion. Group Ware tools provide capabilities by scheduling, tracking
and charting the group status on various aspects of project.
Work Flow Management
There are many tasks in an organisation, which require progressive
incremental working as the flow moves forward. The entire process has steps that
contribute to incremental value of task. The workflow is managed by a group of
personnel, each having a specific role and responsibility in the task The Group
241
Ware tools handle communication between stages, trigger process of that stage,
support member to perform, and secure the completed task and hands it over to
the next stage. Group Ware tools work best where work is to be performed step by
step. Another popular application is electronic document processing. For example,
in project management, contracts are created and finalized between a customer or a
vendor and the organisation. Such contract has a number of sections like technical,
commercial, legal, performance and obligation and so on. These documents are
prepared step by step by different experts in the organisation. In other words,
contract document preparation work flows from stage to stage in segment towards
the goal of publication.
Work Group Application
Work Group Application differs from workflow to the extent that in workflow a
process or transaction is handled while in workgroup the members of the group
share a common database and perform their respective roles to achieve some
common goals. The concept of a work group is that a set of information has a
multiple use and the concerned users draw this information to perform their role.
Members of the work group are in a network and use GroupWare tools to
communicate coordinate, and collaborate by sharing knowledge, software and
databases to complete a group assignment.
Fig. 18.5 Shows the Workflow and Workgroup Model

Let us illustrate these two models using an event in the business such as
receipt of material for a job to be processed on the shop floor. In this event there is
a transaction receipt of material. Which needs to be processed, and then a
workgroup will use this information of material receipt. Each member of this
workgroup has a different goal.
242
In workflow application different members with a single goal of processing

receipt of material for inventory, process transaction in its logical serial order. While
in work group application, three members have different assignments, in a sense
independent of each other but they share information of receipt of material to
complete their assignment.
All four applications: E-business, E-commerce, E-communication and
E-collaboration run on Internet, Intranet, and Extranet and other networks and use
web technology extensively. In the execution of these applications, E-organization
uses Group Ware software and tools. GroupWare is capable of handling core
processes like communication, integration, collaboration and delivery, and
expedites processing of transaction, application and system. The GroupWare thus
becomes an integral part of the enterprise E-solution, designed to manage the
enterprise business.
For all four applications, packaged software solutions are available broadly
called as Enterprise Resource Planning (ERP), Customer Relation Management
(CRM), and Supply Chain Management (SCM). All three packages are then
integrated in one customize suit known as Enterprise Application Integration (EAI).
EAI supports E-organization functioning through MIS.
MIS in E-organization deviates from traditional report formats to automated

intelligent knowledge driven system. It enforces manager to act quickly to response
displayed on the screen. Most of the decisions of middle and operational
management are delegated to IT- enabled information and knowledge driven
systems. They are supported by the rule based transaction processing system,
decision support systems, expert systems, artificial intelligence (Al) systems, and
data warehouse and mining systems. MIS in E-organization deviates from the
conventional model of ‘Capture - Compute - Process - Analyze - Report - Think and
Act’ to ‘Point - Click - Respond - Act’.
243
18.3.6. REAL TIME ENTERPRISE

Real Time Enterprise (RTE) is a special case of a digital firm. In RTE the
business needs are to be executed in real time mode. That is any request needs to
be serviced or responded instantaneously in real time. This means capturing the
input, data/information/event in real time and processing it immediately through
real time information collaboration. In RTE the information is not scattered but it is
available immediately and accessible instantaneously in real time. It is extracted
from transaction paper documents, databases and E mails, and processed and
stored for ready use on demand in real time. It is also being updated continuously
in real time making it current for just in time use when called for.
The goal of RTE is to provide accurate and timely information to decision
makers within and outside the organization. The other goal of RTF is to connect all
operations and enable all information to be shared in real time. RTE operates on a
platform built out of Strategy, Technology and People. RTE are benefited in
shortening the ‘Order to Cash’, ‘Issue to Resolution’ and ‘Lead to Order’ cycle times.
In RTE the collaboration between people and processes is through automated
business processes.
In RTE customers build and enter their orders, check inventory, track
shipments make secured payments and seek real time support to enquiries.
Suppliers assess and monitor E-Business Enterprise: A Digital Firm customer
demand, check inventory, build delivery details, deliver and bill the customer.
Business partners work in collaboration to obtain business leads, conduct joint
campaigns and promotions and convert a prospect into a customer. In RTE,
Internet and other complementary technologies are used for real time automation
and integration of Enterprise resource planning, marketing and sales, sales force
management, accounting, customer servicing, billing and payment, and e- mails
carrying actionable information. In RTE the information, resident and inaccessible
in spreadsheets, ERE, CRM, SCM etc, is extracted and stored in central repository
giving a single real time view of the data. RTE is a model of demand driven
enterprise working on integrated platform of Back office and Front office systems.
Figure 18.6 is a digital model of an engineering firm producing engineering
products. The processing of data, information, transactions, applications in large
enterprise systems run on digital platform. In E- enterprise/digital firm: All data
and information is in digital format available from any storage location to all
authorized persons.
An efficiently working RTE would have the following characteristics.
 Business process automation bridging the gap between organizations
systems and processes across the organization.
 Rea1 time creation and storage of information ready for exchange to
customers, vendors and business partners.
 Processes to ensure currency and consistency of Information across the
global network.
 Event driven processes with automated sense and respond trigger
eliminating human interventions.
244
Figure 18.6 Model of a Digital Firm for Engineering Product Company

BPO a ‘Digital Firm’ The internet supports collaborative processes on a global
scale; business Process Outsourcing (BPO) enables new forms of cooperation
amongst organisations. With the help of internet, organisations can be established
without the use of ‘brick and mortar’ buildings and business functions could be
carried out by outsourcing them to internet connected organisations. This form of
an organisation is called a digital firm or RTE, where most of the business functions
have been digitized. Even though, the business is going on still there is no existence
of a corporate other, branch offices and factories in the vicinity to keep rolling in
the work. The internet can link thousands of organisations into a single network,
creating the foundation for a vast digital market place. In a digital market, many
buyers and sellers exchange information, products, services and payments.
Through computers and networks these systems function like electronic
intermediaries in integrated manner as a single process. Buyers and sellers can
complete purchase and sale transactions digitally, regardless of their location. All
information driven functions are outsourced to the other companies while only the
core competencies remain with the original enterprise. For example all cell phone
companies have outsourced all customer related functions like billing, recovery and
queries. These companies then concentrate on business expansion, marketing and
improving cell phone device with features and facilities.
The Impact of going digitalis on the way the business is conducted by the
organisation in the internet world.
 The organisations have become flat as they focus on processes driven by
their core competency. And other processes are outsourced to other
organisations that are in network.
245
 Decision making is decentralized and delegated to people who are

empowered by the knowledge.
 Organisations have become flexible in meeting customer expectations due
to digital culture of conducting the business. The product or service can he
easily redesigned to fulfill specific need of the customer. The organisations
have become more agile.
 Information being available from any location, the work and the person
need riot be at fixed location, The location independence adds further
flexibility into the organisations operations.
 Low transaction and coordination costs is a reality due reduced overhead,
cycle times and ease in coordinating various agencies for achieving a
common goal.
 Empowerment of people by knowledge has made people more productive
and efficient,
 Collaborative work and teamwork has become a dire necessity because of
distributed and flexible nature of work.
1) In designing a digital firm we endeavor to optimize the level of hierarchy to
achieve balanced distribution of power among the various layers. Delegation
of decision making and distribution of power is extended to the lower layers of
the organisation and lower level employees are given greater powers to
manage themselves and more authority to make decisions than in the past.
2) The major aspects of work culture are Changes to working location,
Automation of business processes and Business agility
3) The paradigm shift to Digital Firm has brought four transformations, namely
Industrial manufacturing economy to knowledge based service economy,
Enterprise Resource Management to Enterprise Network Management and
Manual document driven business process to paperless automated
electronically transacted business process.
4) Web master controls the website inflow/outflow, content management and
regulation of the traffic.
5) Web designer conceptualizes and visualizes the requirement of the parties and
creates a web design, which is attractive, useful and easy to handle.
6) Web developer/programmer writes web pages using HTML, DHTML, XML, CGI
script and other tools
7) Web administrator maintains the website. He is a troubleshooter
8) . E-communication systems are capable of sending messages, documents, and
files in any format over Internet. The communication could be online in offline
mode and online in real time mode.
9) The groups could be teams or virtual teams with different member strength.
They come together to perform a task to achieve some results. The process is
called collaboration. The collaboration now is possible with e-technologies.
10) In RTE the business needs are to be executed in real time mode. That is any
request needs to be serviced or responded instantaneously in real time. This
246
means capturing the input, data/information/event in real time and

processing it immediately through real time information collaboration.
1) What is Digital firm?
2) Define e-Communication
3) What is RTE?
18.6. SUMMARY
E-commerce involves digitally enabled commercial transactions between and
among organizations and individuals. Unique features of e-commerce technology
include ubiquity, global reach, universal technology standards, richness,
interactivity, and information density, capabilities for personalization and
customization, and social technology. Digital markets are said to be more
“transparent” than traditional markets, with reduced information asymmetry, search
costs, transaction costs, and menu costs, along with the ability to change prices
dynamically based on market conditions. Digital goods, such as music, video,
software, and books, can be delivered over a digital network. Once a digital product
has been produced, the cost of delivering that product digitally is extremely low. Data
mining. Data mining is the process of finding relationship in data that are unknown
to the user. The biggest advantage of E-collaboration is that it taps the collective
wisdom, knowledge and experience of the members. The collaboration team or group
could he within the organisation and between the organizations as well. Since, E-
collaboration works on an Internet platform and uses web technology, work
group/team need not be at one physical location. They can be at different locations
and form a virtual team to work on project or assignment. E—collaboration uses E-
communication capabilities to perform collaborative tasks, or project assignment.
The goal of RTE is to provide accurate and timely information to decision makers
within and outside the organization. The other goal of RTF is to connect all
operations and enable all information to be shared in real time. RTE operates on a
platform built out of Strategy, Technology and People. RTE are benefited in
shortening the ‘Order to Cash’, ‘Issue to Resolution’ and ‘Lead to Order’ cycle times.
1) Describe Reconfiguration of working culture.
2) What are the differences Conventional organization Design Vs. Digital Firm?
3) Discuss the people involved in E-business model other than users of the
models.
4) What are the unique features of e-commerce, digital markets, and digital
goods?
5) Describe the e-collaboration.
6) Discuss the application of e-business community.
7) Can you think of some ERP vendors? Explain.
8) Discuss in detail about RTE and BPO.
1) http://elearn.unikl.edu.my/course/info.php?id=4226.
247
2) https://suzhou.wikispaces.com/file/view/351Ch1.ppt.
3) https://cld.pt/.../Kenneth%20C.%20Laudon.
18.9. ASSIGNMENTS
1) The Internet may not make corporations obsolete, but the corporations will
have to change their business models. Do you agree? Why or why not?
2) How have social technologies changed e-commerce?
18.10. REFERENCES
1) Power, D.J. (2002). Decision support systems: concepts and resources for
managers. Westport, Conn., Quorum Books.
2) James A. O’Brien, George M. Marakas and Ramesh Behl, “Management
3) Kenneth C.Laudon and Jane P. Laudon, “Management Information System”
Tenth Edition, PHI Learning Private Limited, New Delhi, 2008.
Technology, 2007.
Form a group with three or four of your classmates. Select two businesses that
are competitors in the same industry and that use their Web sites for electronic
commerce. Visit these Web sites. You might compare, for example, the Web sites for
iTunes and Napster, Amazon and BarnesandNoble.com, or E*Trade and Scottrade.
Prepare an evaluation of each business’s Web site in terms of its functions, user
friendliness, and ability to support the company’s business strategy. Which Web
site does a better job? Why? Can you make some recommendations to improve
these Web sites? If possible, use Google Sites to post links to Web pages, team
communication announcements, and work assignments; to brainstorm; and to
work collaboratively on project documents. Try to use Google Docs to develop a
presentation of your findings for the class.
18.12. KEY WORDS
 Data Mining.
 E-Business
 Digital Firm
 E-collaboration.
 Data Base Management System.
 ERP
 Real Time Enterprise
 BPO.

248
LESSON – 19
INFORMATION SECURITY AND CONTROL
19.1. INTRODUCTION
Securing Information Systems are becoming increasingly important as e-
commerce and e-business further integrates into the consumer experience. The
lack of security measures allow hackers to invade private networks and cause
complete system disruptions or failure. Hackers destroy these systems through
viruses, worms, bugs, and malicious software and hardware to obtain valuable and
private information. Systems must be protected through the use of firewalls,
intrusion detection systems, and authentication programs; essentially a user must
be identified before he/she is able to log on to a system.
Usually, systems are vulnerable because they are in electronic form, which is
more vulnerable than manual form. There is a small drawback relative to the gains
that data in electronic form has. Electronic form makes information and critical
data accessible to those who desire to obtain these files by illegal means. It is
possible for criminals to gain data through networks as they are being passed in
packets while they are being transmitted. Systems need to be protected from
vulnerabilities that can occur to them and cause costly damage to a company.
Systems can shut down if damaged by abuse from hackers trying to access
information and these hackers can even alter the data, destroy it, or steal it for
personal use. Securities are put in to place to help prevent unauthorized access,
alteration, theft, or physical damage to the information systems. Controls are used
to ensure the safety of the organization's assets, and the accuracy and reliability of
it's accounting records. Systems are vulnerable to hardware and software problems,
disasters and internet vulnerabilities. Included are malicious software, hackers and
the internal threat of employees.
Concepts
Information System
The term information system describes the organized collection,
processing, transmission, and spreading of information in accordance with defined
procedures, whether automated or manual.
Security
Policies, procedures and technical measures used to prevent unauthorized
access, alteration, theft, or physical damage to information systems.
Controls
Methods, policies, and organizational procedures that ensure safety of
organization’s assets; accuracy and reliability of its accounting records; and
operational adherence to management standards is known as controls.
19.2. OBJECTIVES
 Understand the concept of information security and control.
 Describers the goals of IS.
249
 Discuss the risk of IS.

 Explain the risk of online IS
 Discussed the methods of attack and categories of IS controls.
19.3. CONTENTS
19.3.1. Principles of Information System Security
19.3.2. Goals of Information System
19.3.3. Reasons for System Vulnerability
19.3.4. Risk of Information System
19.3.5. Risk of online Information System
19.3.6. Methods of Attack
19.3.7. IS Controls
19.3.1. BASIC PRINCIPLES OF INFORMATION SYSTEMS SECURITY
A. Confidentiality
This principle is applied to information by enforcing rules about who is allowed
to know it. Preserving personal privacy is one of the major aim of confidentiality. It
prevents the unauthorized disclosure of information and restricts the data access to
only those who are authorized. But today the world is moving towards less
authoritative structures, more informality, and fewer rules. Such developments are
creating an issue of concern for the principle of confidentiality since the
developments are aimed at making information accessible to many, not few.
B. Integrity
In any business organization having IS, the values of data stored and
manipulated, such as maintaining the correct signs and symbols is an important
issue of concern. This issue is referred to integrity within an organization which is
the prevention of the unauthorized modification.
C. Availability
Availability is referred to as accessibility of information and in usable form
when and where it is required. Sometimes it is also explained as the prevention of
unauthorized withholding of data or resources. Within any organization today
availability of resources and data is an important issue of concern since system
failure is an organizational security issue
19.3.2. GOALS OF INFORMATION SECURITY
The development, implementation, and maintenance of ISs constitute a large
and growing part of the cost of doing business; protecting these resources is a
primary concern. The increasing reliance on ISs, combined with their connection to
the outside world through a public network, the Internet, makes securing corporate
ISs increasingly challenging. The role of computer controls and security is to
protect systems against accidental mishaps and intentional theft and corruption of
data and application, as well as to help organizations ensure that their IT
operations comply with the law and with expectations of employees and customers
for privacy. The major goals of information security are to:
 Reduce the risk of systems and organizations ceasing operations.
250
 Maintain information confidentiality.

 Ensure the integrity and reliability of data resources.
 Ensure the uninterrupted availability of data resources and online
operations.
 Ensure compliance with policies and laws regarding security and privacy.
To plan measures to support these goals, organizations first must be aware of
the possible risks to their information resources, which include hardware,
application data, and networks; then, they must execute security measures to
defend against those risks.
19.3.3. REASONS FOR SYSTEM VULNERABILITY
When large amounts of data are stored in electronic form, they are vulnerable
to many more kinds of threats than when they existed in manual form. Through
communications networks, information systems in different locations are
interconnected. The potential for unauthorized access, abuse, or fraud is not
limited to a single location but can occur at any access point in the network.
Fig. 19.1 Contemporary Security Challenges and Vulnerabilities

Figure 19.1 illustrates the most common threats against contemporary
information systems. They can stem from technical, organizational, and
environmental factors compounded by poor management decisions. In the multi-
tier client/server computing environment illustrated here, vulnerabilities exist at
each layer and in the communications between the layers. Users at the client layer
can cause harm by introducing errors or by accessing systems without
authorization. It is possible to access data flowing over networks, steal valuable
data during transmission, or alter messages without authorization. Radiation may
disrupt a network at various points as well. Intruders can launch denial-of-service
attacks or malicious software to disrupt the operation of Web sites. Those capable
of penetrating corporate systems can destroy or alter corporate data stored in
databases or files. Systems malfunction if computer hardware breaks down, is not
configured properly, or is damaged by improper use or criminal acts. Errors in
programming, improper installation, or unauthorized changes cause computer
software to fail. Power failures, floods, fires, or other natural disasters can also
251
disrupt computer systems. Domestic or offshore partnering with another company

adds to system vulnerability if valuable information resides on networks and
computers outside the organization’s control. Without strong safeguards,
valuable data could be lost, destroyed, or could fall into the wrong hands, revealing
important trade secrets or information that violates personal privacy. The
popularity of handheld mobile devices for business computing adds to these woes.
Portability makes cell phones, Smartphone, and tablet computers easy to lose or
steal. Smart phones share the same security weaknesses as other Internet devices,
and are vulnerable to malicious software and penetration from outsiders. In 2009,
security experts identified 30 security flaws in software and operating systems of
smart phones made by Apple, Nokia, and BlackBerry maker Research in Motion.
Even the apps that have been custom-developed for mobile devices are capable of
turning into rogue software. For example, in December 2009, Google pulled dozens
of mobile banking apps from its Android Market because they could have been
updated to capture customers’ banking credentials. Smart phones used by
corporate executives may contain sensitive data such as sales figures, customer
names, phone numbers, and e-mail addresses. Intruders may be able to access
internal corporate networks through these devices.
19.3.4. RISKS TO INFORMATION SYSTEMS
In recent years, especially because of the growth of online business,
corporations have considered protection of their IS resources an increasingly
important issue, for good reasons. Downtime, the time during which ISs or data are
not available in the course of conducting business, has become a dreaded situation
for almost every business worldwide.
Risks to Hardware
While stories about damage to ISs by malicious Internet attacks grab
headlines, the truth about risks to ISs is simply this: the number one cause of
systems downtime is hardware failure. Risksto hardware involve physical damage
to computers, peripheral equipment, and communications media. The major
causes’ of such damage are natural disasters, blackouts and brownouts, and
vandalism
Natural Disasters
Natural disasters that pose a risk to ISs include fires, floods, earthquakes,
hurricanes, tornadoes, and lightning, which can destroy hardware, software, or
both, causing total or partial paralysis of systems or communications lines.
Floodwater can ruin storage media and cause short circuits that bum delicate
components such as microchips. Lightning and voltage surges cause tiny wires to
melt and destroy circuitry. In addition, wildlife and human error occasionally
destroy communications lines; animals gnaw cables, and farmers occasionally cut
wires inadvertently while tending their crops.
252
Blackouts and Brownouts

Computers run on electricity. If power is disrupted, the computer and its
peripheral devices cannot function; and the change in power supply can be very
damaging to computer processes and storage Blackouts are total losses of electrical
power. In brownouts, the voltage of the power decreases, or there are very short
interruptions in the flow of power. Power failure might not only disrupt operations,
but it can also cause irreparable damage to hardware. Occasional surges in voltage
are equally harmful, because their impact on equipment is similar to that of
lightning.
To ensure against interruptions in power supply, organizations use
uninterruptible power supply (UPS) systems, which provide an alternative power
supply for a short time, as soon as a power network fails. The only practical
measure against prolonged blackouts in a public electrical network is to maintain
an alternative source of power, such as a generator that uses diesel or another fuel.
Vandalism
Vandalism occurs when human beings deliberately destroy computer systems.
Bitter customers might damage ATMs or disgruntled employees 'night destroy
computer equipment out of fear that it will eliminate their jobs or simply to get even
with their superiors. It is difficult to defend computers against vandalism.
ATMsandother equipment that are accessible to the public are often encased in
metal boxes, but someone with persistence can still cause severe damage.
A hacker is an individual who intends to gain unauthorized access to a
computer system. Within the hacking community, the term cracker is typically
used to denote a hacker with criminal intent, although in the public press, the
terms hacker and cracker are used interchangeably. Hackers and crackers gain
unauthorized access by finding weaknesses in the security protections employed by
Web sites and computer systems, often taking advantage of various features of the
Internet that make it an open system that is easy to use. Hacker activities have
broadened beyond mere system intrusion to include theft of goods and information,
as well as system damage and cyber vandalism, the intentional disruption,
defacement, or even destruction of a Web site or corporate information system. For
example, cyber vandals have turned many of the MySpace “group” sites, which are
dedicated to interests such as home beer brewing or animal welfare, into cyber-
graffiti walls, filled with offensive comments and photographs.
Risks to Data and Applications
The primary concern of any organization should be its data, because it is
often a unique resource. Data collected over time can almost never be recollected
the same way, and even when it can, the process would be too expensive and too
time consuming to recover the business from its loss. All data and, applications are
susceptible to disruption, damage, and theft. While the culprit in the destruction of
hardware is often a natural disaster or power spike, the culprit in damage to
software is almost always human
253
Theft of Information and Identity Theft

Keystroke logging software records individual keystrokes. For one year, his
software secretly recorded more than 450 user names and passwords, which he
used to access existing bank accounts and create new ones. Jiang was caught
when he used an application called GoToMyPC. Subscribers to the GoToMyPC
service can use an application by the same name to link to a PC from another PC
and fully control the remote one as if they were sitting in front of it.
Once criminals have a person's identifying details, such as a Social Security
number, driver’s license number, or credit-card number, they can pretend to be
this person. This crime is called identity theft. The Imposter can easily withdraw
money from the victim's bank accounts, put charges on the victim's credit card,
and apply for new credit cards. Since an increasing number of applications for such
instruments as well as financial transactions are executed online, identity theft has
become a serious problem. According to Gartner Group, 9.4 million U.S. adults
were identity theft victims between May 2003 and April 2004, and their financial
losses were $11.7 billion.
Data Alteration, Data Destruction, and Web Defacement
Alteration or destruction of data is often an act of mischief. Data alteration is
not a new phenomenon. In 1983, a group of Milwaukee teenagers accessed a
computer system at Sloan-Kettering Cancer Center in New York via a modem and
altered patients' records just for "fun." An alert nurse noticed a double-and lethal-
dose of a medication in a patient's record and called a doctor. She saved the
patient's life. Even if data is altered or destroyed as a prank, the damage to the
organization is great. The effort to reinstate missing or altered records from a
backup copy might entail expensive labor. Even if the actual damage is not great, IT
staff must spend a lot of time scanning the data pools to ascertain the integrity of
the entire resource, and they must also figure out how the perpetrator managed to
circumvent security controls.
Computer Viruses, Worms, and Logic Bombs
Computer viruses are so named because they act on programs and data in a
fashion similar to the way viruses act on living tissue: computer viruses easily
spread from computer to computer. Because so many computers are now
connected to one another and many people share files, people unknowingly
transmit to other computers viruses that have infected their own files. Once a virus
reaches a computer, it damages applications and data files. In addition to
destroying legitimate applications and data flies, viruses might disrupt data
communications: the presence of viruses causes data communications applications
to process huge numbers of messages and files for no useful purpose, which
detracts from the efficiency of transmitting and receiving legitimate messages and
files. The only difference between a computer virus and a worm is that a worm
spreads in a network without human intervention. A worm attacks computers
without the need to send e-mail or open any received files. Most people refer to both
types of rogue code as viruses, as does this book.
254
Some viruses do not affect any files, but the speed at which they spread and
their repeated attacks slow down network traffic to an intolerable crawl.
Without protection against malware and intruders, connecting to the Internet
would be very dangerous. Firewalls, intrusion detection systems, and antivirus
software have become essential business tools. Firewalls prevent unauthorized
users from accessing private networks. A firewall is a combination of hardware and
software that controls the flow of incoming and outgoing network traffic. It is
generally placed between the organization’s private internal networks and
distrusted external networks, such as the Internet, although firewalls can also be
used to protect one part of a company’s network from the rest of the network.(Refer
figure 19.2)
Fig. 19.2 A Corporate Firewall

The firewall is placed between the firm’s private network and the public
Internet or another distrusted network to protect against unauthorized traffic.
The firewall acts like a gatekeeper who examines each user’s credentials before
access is granted to a network. The firewall identifies names, IP addresses,
applications, and other characteristics of incoming traffic. It checks this
information against the access rules that have been programmed into the system by
the network administrator. The firewall prevents unauthorized communication into
and out of the network. In large organizations, the firewall often resides on a
specially designated computer separate from the rest of the network, so no
incoming request directly accesses private network resources. There are a number
of firewall screening technologies, including static packet filtering, stateful
inspection, Network Address Translation, and application proxy filtering. They are
frequently used in combination to provide firewall protection.
Packet filtering examines selected fields in the headers of data packets flowing
back and forth between the trusted network and the Internet, examining individual
packets in isolation. This filtering technology can miss many types of attacks.
Stateful inspection provides additional security by determining whether packets are
255
part of an ongoing dialogue between a sender and a receiver. It sets up state tables
to track information over multiple packets. Packets are accepted or rejected based
on whether they are part of an approved conversation or whether they are
attempting to establish a legitimate connection. Network Address Translation (NAT)
can provide another layer of protection when static packet filtering and state full
inspection are employed. NAT conceals the IP addresses of the organization’s
internal host computer(s) to prevent sniffer programs outside the firewall from
ascertaining them and using that information to penetrate internal systems.
Application proxy filtering examines the application content of packets. A proxy
server stops data packets originating outside the organization, inspects them, and
passes a proxy to the other side of the firewall. If a user outside the company wants
to communicate with a user inside the organization, the outside user first “talks” to
the proxy application and the proxy application communicates with the firm’s
internal computer. Likewise, a computer user inside the organization goes through
the proxy to talk with computers on the outside. To create a good firewall, an
administrator must maintain detailed internal rules identifying the people,
applications, or addresses that are allowed or rejected. Firewalls can deter, but not
completely prevent, network penetration by outsiders and should be viewed as one
element in an overall security plan.
In addition to firewalls, commercial security vendors now provide intrusion
detection tools and services to protect against suspicious network traffic and
attempts to access files and databases. Intrusion detection systems feature full-
time monitoring tools placed at the most vulnerable points or “hot spots” of
corporate networks to detect and deter intruders continually. The system generates
an alarm if it finds a suspicious or anomalous event. Scanning software looks for
patterns indicative of known methods of computer attacks, such as bad passwords,
checks to see if important files have been removed or modified, and sends warnings
of vandalism or system administration errors. Monitoring software examines events
as they are happening to discover security attacks in progress. The intrusion
detection tool can also be customized to shut down a particularly sensitive part of a
network if it receives unauthorized traffic.
One way to protect against viruses is to use antivirus software, which is
readily available on the market from companies that specialize in developing this
kind of software, such as Symantec and McAfee. Subscribers can regularly update
the software with code that identifies and deletes or quarantines new viruses, or
choose automatic updates, in which virus definitions are updated automatically
when the computer is connected to the Internet. However, if a new virus is designed
to operate in a way not yet known, the software is unlikely to detect it. Most virus-
detection applications allow the user to automatically or selectively destroy suspect
programs. Another way to minimize virus threats is to program network software,
especially e-mail server software, to reject any messages that come with executable
files that might be or contain viruses. Some e-mail applications, such as Microsoft
Outlook, are programmed to reject such files.
256
Some viruses are called Trojan horses, analogous to the destructive gift given
to the ancient Trojans. In computer terms a Trojan horse is any virus disguised as
legitimate software or useful software contains a virus.Many people also refer to
spyware that comes with useful software as Trojan horse software.
A growing number of viruses and worms take advantage of vulnerable features
of operating systems, most notably Microsoft Windows. Most attack this company's
operating systems because the large majority of organizations worldwide use
Microsoft operating systems to run their servers and computers. In the same way
software vendors provide patches against direct intrusion into computer systems,
they also distribute security patches against viruses and worms. However, it is up
to security profession and network administrators to implement those patches as
soon as they become available.
A logic bomb is software that is programmed to cause damage at a specified
time to specific applications and data files. It lies dormant until a certain event
takes place in the computer or until the computer's inner clock reaches the
specified time; the event or time triggers the virus to start causing damage. Logic
bombs are usually planted by insiders, that is, employees of the victimized
organization.
Unauthorized downloading and installation of software that might cause
damage can be controlled by limiting administration rights to employees. Many
organizations instruct operating .Systems to deny such rights to most employees.
They Program ISs to accept new software installation only when the proper access
codes are entered.
19.3.5. RISKS TO ONLINE OPERATIONS
Denial of Service
Denial of service(DoS) occurs when someone launches a frequent and
unusually large number of information requests to a Web site. The mere logging in
to a site is such a request. The intention of suchlog-in requests is to slow down
legitimate traffic on the site's server; business can slow to a halt. The server's or
servers' frantic effort to handle the massive amount of traffic denies legitimate
visitors and business partners access to the site.
Such attacks are usually perpetrated from multiple computers; in which case
they are called distribute denial of-service (DDoS) attacks. In most such attacks,
the perpetrator launches software that uses other people's computers for the
attack-unbeknownst to them.
For example, during the 2009 Iranian election protests, foreign activists trying
to help the opposition engaged in DDoS attacks against Iran’s government. The
official Web site of the Iranian government (ahmadinejad.ir) was rendered
inaccessible on several occasions. Although DoS attacks do not destroy information
or access restricted areas of a company’s information systems, they often cause a
Web site to shut down, making it impossible for legitimate users to access the site.
For busy e-commerce sites, these attacks are costly; while the site is shut down,
customers cannot make purchases. Especially vulnerable are small and midsize
257
businesses whose networks tend to be less protected than those of large

corporations.
Computer Hijacking
Hijacking a computer means using some or all of the resources of a computer
linked to a public network without the consent of its owner. Hijacking is carried out
by surreptitiously installing a small program called a boton a computer. Like many
viruses, these programs are downloaded unwittingly by people who use chat rooms
and file-sharing networks. When your computer is hijacked, your Internet
connection might slow to a crawl.
Most hacker activities are criminal offenses, and the vulnerabilities of systems
we have just described make them targets for other types of computer crime as
well. For example, in early July 2009, U.S. federal agents arrested Sergey
Aleynikov, a computer programmer at investment banking firm Goldman Sachs, for
stealing proprietary computer programs used in making lucrative rapid-fire trades
in the financial markets. The software brought Goldman many millions of dollars of
profits per year and, in the wrong hands, could have been used to manipulate
financial markets in unfair ways. Computer crime is defined by the U.S.
Department of Justice as “any violations of criminal law that involve a knowledge of
computer technology for their perpetration, investigation, or prosecution.”
Information System Security
Today, organizations are increasingly becoming dependent on information
systems/technology. .However these systems are vulnerable to a large number of
potential hazards, especially due to network computing Therefore, IS control and
security is an important issue of concern for the management. Some of the major
threats to the information systems are as follows:
 Errors in handling, entering, processing g, transferring, or programming
data
 Equipment malfunctions
 Accidental or malicious damage to computer resources
 Destruction from virus
 Theft of equipment and/ or programs
 Inappropriate use of data like manipulating inputs
 Loss, theft, or changes of data
 Fire or any other natural calamity.
The advances in telecommunication and computer software have further
increased the potential of -computer threats. Telecommunication network are
highly vulnerable to natural failures of hardware and software and to misuse by
computer professional and other end users. It is possible to tap communication
lines and illegally intercept data. Such offences can also be performed by an
outsider, called hacker, who penetrates a computer system. Computer criminals
use various, innovative methods for attacking the information systems.
258
IS security refers to the policies, procedures, and technical measures used to

prevent potential threats to IS resources.
19.3.6. METHODS OF ATTACK
The following approaches are used in deliberate attacks on computer
systems:
 Data Tampering
 Programming Techniques
Table 19.1 MIS Evaluation Form
Name of the organization------------------------- Date-------------
Address-------------------------------------------- Ref. No----------
(A) Estimated Initial Development Cost
1. Project Planning Rs-------
2. Feasibility Study Rs------
3. Design Rs------
4. Conversion Rs------
5. Implementation Rs------
6. Miscellaneous Rs-------
Total (A) Rs------
(B) Estimated Capital Cost
].'Computer Room Equipment and H/W Rs------
2. Facilities Rs------
- Total(B) Rs-------
(Q Estimated Operating Cost
1. Personnel Rs----_
2. Computerr/Equipment Rent Rs----
3. Overhead and Supplies Rs -------
Total(c) Rs--------
259
(D) Estimated Benefits
I. Reduced Salary and Labour Cost
2. Reduced Inventory Cost
3. Better decisions
4. Any Other intangible Benefit
Total(D)
(E) Annual Savings D-C
(F)Rate of Return (rate at which present value of

savings equals present value of one-time costs) -%
(ppofE = Pp of A+B)
Data Tampering
Data Tampering is also called as ‘data diddling’ which is the most common
approach and is often used by insiders. It involves entering false, fabricated, or
fraudulent data into the computer; or changing or deleting existing data. For
example operator may transfer some amount to his own account and try to cover
up the transfer with some take-debit and credit-debit and credit transactions.
Programming Techniques
Programming techniques is another approach used by computer criminals to
modify a computer programs. There are many types of programming fraud schemes
which are known by different names.-The more knowing attack method is the use
of a virus (Turban, et al, 2001).
Table 19.2 Programming Fraud Schemes
Programming
Definition
Technique
Secret instruction inserted into program (or data) that are innocently run
Virus during ordinary task. The secret instruction may destroy or alter data as
well as spared within or between computer systems
A program which replicates itself and penetrates a valid computer
Worms system. It may spread within a network, penetrating all connected
computers.
An illegal program, contained within another program, that 'seeps’ until
Trojan horse some specific event occurs, then triggers the illegal program to be
activated and cause damage
Salami slicing A program designed to siphon-off small amounts of money from a
number of large transaction, so the quantity taken is not readily
apparent.
Super Zapping A method of using a utility ‘Zap’ program that can bypass controls to
260
modify programs or data.

A technique that allows for breaking into a program code, malting it
Trap door possible to insert additional instructions.
PROTECTING INFORMATION SYSTEM

Having known the major potential threats to information systems, it is critical
to understand the _ways to defend IS against these threats. Defending information
systems is a difficult as well as an expensive task because of the following reasons:
 A large number of potential threats exist.
 Information assets are controlled by many persons.
 Computer networks can be outside the organisation and difficult to protect
 Advances in technology can make some controls obsolete immediately after
they are installed
 Many computer crimes are undetected for a long period of time, so it is
difficult to ‘learn from experiences’.
 Many a time’s procedures are inconvenient and thus people tend to violate
security procedures.
 Many computer criminals who are; caught go unpunished, so there is no
deterrent effect.
 The amount of computer knowledge necessary to commit computer crimes
is usually minimal. Hacking tools are available for free on the internet.
 The cost of preventing hazards can be very high. Therefore, most
organizations simply cannot afford to protect against all possible hazards.
 It is difficult to conduct a cost-benefit justification for controls before an
attack occurs since it is difficult to assess the value of a hypothetical
attack.
Thus managing IT threats is one of the challenging task or any IS manager.
This can be done by having defense strategies and controls, which are intended to
prevent accidental hazards, deter international acts detect problems as early as
possible, enhance damage recovery, and correct problems. Controls can be
integrated into hardware and software during the system development phase as
well as can be implemented in operational phase or during the maintenance.
Let us discuss some of the main defense strategies and control.
Defense Strategies
1) Controls for prevention, and deterrence: Properly designed controls would
help prevent errors from occurring, deter criminals from attacking the system,
and deny access to unauthorized people.
2) Detection: It may not be economically feasible to prevent all hazards, and
deterring measures may not work. Therefore unprotected systems are
vulnerable to attack. In many cases, special diagnostic software can be used
for detection
3) Limitation: It refers to minimize losses once a malfunction has occurred.
Users want their systems back in operation as early as possible. This can be
261
accomplished by including a fault tolerant .system that permits operation in a

degraded mode until full recovery is made. If a fault tolerant system does not
exist, a quick recovery must take place.
4) Recovery: A recovery plan explains how to fix a damaged information system
as quickly as possible. Replacing rather than repairing components is one
route to fast recovery.
5) Correction: Correcting damaged system can prevent-the problem from
occurring again.
19.3.7. IS CONTROL
Information System (IS) Controls can be grouped under two categories, as
given below:
(a) General Controls
(b) Application Controls
(a) General Controls
These types of controls are established to protect the system regardless of the
specific application, for example, protecting hardware, access control, etc.
The major categories of general controls are physical controls, access controls, data
security controls, communications(networks) controls, and administrative controls.
A brief description of these controls is given as below;
Physical Controls:
Physical security refers to the protection of computer facilities and resources.
This includes protecting computers, data centers, Software, manuals, and
networks. Appropriate physical security may include several controls such as the
following:
1) Design of the computer centre, for example, the site should benon-
combustible and waterproof.
2) Good fire prevention, detection, and extinguishing systems, including
sprinkler system, water pumps, and adequate drainage facilities,
3) Emergency power shutoff and backup batteries must be maintained in
operational condition.
4) Properly designed, maintained, and operated air conditioning systems.
Access Controls:
These refer to the restriction of unauthorized user access to the system. In
other word, a user, in order to gain access, must be authorized and before he is
given an access, must be authenticated. Access control software is commercially
available or all types of information systems. User identification is accomplished
with a unique user identifier (UID) tike the password; a smart card; .digital
signature, voice finger print, or retinal (eye) scan. It is' implemented via bio-meter
controls, which refer to an automated method of verifying the identity of a person,
based on physiological or behavioral characteristics.
Data Security Controls
These controls are concerned with protected data form accidental or
intentional disclosure to unauthorized person, or from unauthorized changes or
262
destruction. These controls can he accomplished through operating systems,

database security, access control programmes, backup and recovery procedures,
etc.
Communication Controls
These-refer to network protections which have become critical, with an
increased use of the Internet, Intranet and electronic commerce, for example,
Access control; Encryption; common communication controls.
Administrative Controls
Besides the technical controls, administrative controls are also important in
protecting IS; These control refer to clear guidelines, policies of the organisations
with regards to the use and deployment of IT in the organisation.-For example,
immediately revoking access privileges of-dismissed, resigned, or transferred
employees ; developing programming and documentation standards, etc.
Other Controls
There are still other types of controls, which are understood under general
controls. These controls are also implemented so as to ensure that IS is protected
from various potential threats. For example, system development controls like
budgeting, schedule, Quality, etc., are meant to ensure that a system is developed
as per the predefined policies, procedures and other standards.
(b) Application Controls
Besides the general control there are many applications controls which are
generally built into the applications and are usually written as validation rules. The
applications controls may be known as input controls processing controls and
output controls
SECURITY ISSUES FOR CLOUD COMPUTING AND THE MOBILE DIGITAL PLATFORM
Although cloud computing and the emerging mobile digital platform have the
potential to deliver powerful benefits, they pose new challenges to system security
and reliability. We now describe some of these challenges and how they should be
addresses
Security in the Cloud
When processing takes place in the cloud, accountability and responsibility for
protection of sensitive data still reside with the company owning that data.
Understanding how the cloud computing provider organizes its services and
manages the data is critical. The Interactive Session on Technology details some of
the cloud security issues that should be addressed. Cloud users need to confirm
that regardless of where their data are stored or transferred, they are protected at a
level that meets their corporate requirements. They should stipulate that the cloud
provider store and process data in specific jurisdictions according to the privacy
rules of those jurisdictions. Cloud clients should find how the cloud provider
segregates their corporate data from those of other companies and ask for proof
that encryption mechanisms are sound. It’s also important to know how the cloud
provider will respond if a disaster strikes, whether the provider will be able to
completely restore your data, and how long this should take. Cloud users should
263
also ask whether cloud providers will submit to external audits and security
certifications. These kinds of controls can be written into the service level
agreement (SLA) before to signing with a cloud provider.
Securing Mobile Platforms
If mobile devices are performing many of the functions of computers, they need
to be secured like desktops and laptops against malware, theft, accidental loss,
unauthorized access, and hacking attempts. Mobile devices accessing corporate
systems and data require special protection. Companies should make sure that
their corporate security policy includes mobile devices, with additional details on
how mobile devices should be supported, protected, and used. They will need tools
to authorize all devices in use; to maintain accurate inventory records on all mobile
devices, users, and applications; to control updates to applications; and to lock
down lost devices so they can’t be compromised. Firms should develop guidelines
stipulating approved mobile platforms and software applications as well as the
required software and procedures for remote access of corporate systems.
Companies will need to ensure that all smart phones are up to date with the latest
security patches and antivirus/ant spam software, and they should encrypt
communication whenever possible.
1) The term information system describes the organized collection, processing,
transmission, and spreading of information in accordance with defined
procedures, whether automated or manual.
2) Security is Policies, procedures and technical measures used to prevent
unauthorized access, alteration, theft, or physical damage to information
systems.
3) Controls are a methods, policies, and organizational procedures that ensure
safety of organization’s assets; accuracy and reliability of its accounting
records; and operational adherence to management standards is known as
controls.
4) Confidentiality, Integrity and availability are the basic Principles of
Information Systems Security.
5) Once criminals have a person's identifying details, such as a Social Security
number, driver’s license number, or credit-card number, they can pretend to
be this person. This crime is called identity theft.
6) Data Tampering is also called as ‘data diddling’ which is the most common
approach and is often used by insiders. It involves entering false, fabricated,
or fraudulent data into the computer; or changing or deleting existing data.
7) Programming techniques is another approach used by computer criminals to
modify a computer programs. There are many types of programming fraud
schemes which are known by different names.-The more knowing attack
method is the use of a virus.
8) Information System (IS) controls can be grouped under two categories:
General Controls and Application Control.
264

1) Define Information System?
2) What is Viruses?
3) What is data diddling?
4) List the types of IS controls.
19.6. SUMMARY
One of the most important responsibilities of the management of a company is
to ensure the security and quality of its IT- enabled business activities. Digital data
are vulnerable to destruction, misuse, error, fraud, and hardware or software
failures. The Internet is designed to be an open system and makes internal
corporate systems more vulnerable to actions from outsiders. Hackers can unleash
denial-of-service (DoS) attacks or penetrate corporate networks, causing serious
system disruptions. Wi-Fi networks can easily be penetrated by intruders using
sniffer programs to obtain an address to access the resources of the network.
Computer viruses and worms can disable systems and Web sites. The dispersed
nature of cloud computing makes it difficult to track unauthorized activity or to
apply controls from afar. Software presents problems because software bugs may
be impossible to eliminate and because software vulnerabilities can be exploited by
hackers and malicious software. End users often introduce errors. Lack of sound
security and control can cause firms relying on computer systems for their core
business functions to lose sales and productivity. Firewalls prevent unauthorized
users from accessing a private network when it is linked to the Internet. Intrusion
detection systems monitor private networks from suspicious network traffic and
attempts to access corporate systems. Passwords, tokens, smart cards, and
biometric authentication are used to authenticate system users. Antivirus software
checks computer systems for infections by viruses and worms and often eliminates
the malicious software, while antispyware software combats intrusive and harmful
spyware programs. Encryption, the coding and scrambling of messages, is a widely
used technology for securing electronic transmissions over unprotected networks.
Digital certificates combined with public key encryption provide further protection
of electronic transactions by authenticating a user’s identity.
1) List and describe the most common threats against contemporary information
systems.
2) Define malware and distinguish among a virus, a worm, and a Trojan horse.
3) Define a hacker and explain how hackers create security problems and
damage systems.
4) Define computer crime. Provide two examples of crime in which computers are
targets and two examples in which computers are used as instruments of
crime.
5) Explain how security and control provide value for businesses.
6) Define general controls and describe each type of general control.
7) Define application controls and describe each type of application control.
265
8) Describe the roles of firewalls, intrusion detection systems, and antivirus

software in promoting security
9) Identify and describe the security problems posed by cloud computing
1) Journal of Management Information System.
2) Biswajit Bhattacharjee (19) & Biswaraj Das Purkayastha (20) Presents
SECURITY & CONTROL OF INFORMATION SYSTEM (ppt).
19.9. ASSIGNMENTS
1) What are your major concern about computer crime and privacy on the
internet? What can you do about it? Explain
2) What is the difference between a virus and a worms? Which is potentially
more dangerous and why?
19.10. REFERENCES
1) Power, D.J. (2002). Decision Support Systems : Concepts and Resources for
Managers. Westport, Conn., Quorum Books.
2) James A O’Brien, George M. Marakas and Ramesh Behl, “Management
Information System”, Ninth edition, Tata McGraw Hill Education Private
Limited, New Delhi, 2010.
3) Kenneth C. Laudon and Jane P. Laudon, “Management Information System”
Tenth Edition, PHI Learning Private limited, New Delhi,2008.
Technology, 2007.
The majority of criminals who commit fraud are insiders that are employees.
What measures would you take to minimize insider fraud through ISs?. Discuss.
19.12. KEYWORDS
 Anti-Virus.
 Computer Virus.
 Cyber vandalism.
 Firewall.
 Security
 Spyware.
 Cloud Computing
 Hacking.
 Identity theft.
 Intrusion detection system
 Key loggers.
 Worms.

266
LESSON – 20
ETHICAL AND SOCIAL DIMENSION
20.1. INTRODUCTION
Information systems raise new and often-perplexing ethical problems. This is
truer today than ever because of the challenges posed by the Internet and electronic
commerce to the protection of privacy and intellectual property. Other ethical
issues raised by widespread use of information systems include establishing
accountability for the consequences of information systems, setting standards to
safeguard system quality that protect the safety of individual and society, and
preserving values and institutions considered essential to the quality of life in an
information society. Ethics in information system, moral dimensions of information
system, System quality.
20.2. OBJECTIVES
 Analyze the relationships among ethical, social, and political issues that are
raised by information systems.
 Identify the main moral dimensions of an information society and specific
principles for conduct that can be used to guide ethical decisions.
 Evaluate the impact of contemporary information systems and the Internet
on the protection of individual privacy and intellectual property.
 Assess how information systems have affected everyday life.
20.3. CONTENTS
20.3.1 Understanding Ethical and Social Issues Related to Systems
20.3.2. Ethics in an Information Society
20.3.3. The Moral Dimensions of Information Systems
20.3.4. System Quality: Data Quality and System Errors
20.3.5. Quality Of Life: Equity, Access, and Boundaries
20.3.1. UNDERSTANDING ETHICAL AND SOCIAL ISSUES RELATED TO SYSTEMS
In the past ten years we have witnessed, arguably, one of the most ethically
challenging periods for U.S and global business. Table 20.1 provides a small sample
of recent cases demonstrating failed ethical judgment by senior and middle
managers. These lapses in management ethical and business judgment occurred
across a broad spectrum of industries.
In today’s new legal environment, managers who violate the law and are
convicted will most likely spend time in prison. U.S.Federal Sentencing Guidelines
adopted in 1 987 mandate that federal judges impose stiff sentences on business
executives based on the monetary value of the crime, the presence of a conspiracy
prevent discovery of the crime, the use of structured financial transactions to hide
the crime, and failure to cooperate with prosecutors (US. Sentencing Commission,
2004).
267
Table 20.1 Examples of Failed Ethical Judgment by Managers

Lehman Brothers (2008–2010) One of the oldest American investment banks collapses
in 2008.Lehman used information systems and
accounting sleight of hand to conceal its bad
investments. Lehman also engaged in deceptive tactics
to shift investments off its books.
WG Trading Co.(2010) Paul Greenwood,h edge fund manager and general
partner at WG Trading, pled guilty to defrauding
investors of $554 million over 13 years; Greenwood has
forfeited $331 million to the government and faces up to
85 years in prison.
Minerals Management Service Managers accused of accepting gifts and other favors
(U.S.Department of the Interior) from oil companies, letting oil company rig employees
(2010) write up inspection reports, and failing to enforce
existing regulations on offshore Gulf drilling rigs.
Employees systematically falsified information record
systems.
Although in the past, business firms would often pay for the legal defense of
their employees enmeshed in civil charges and criminal investigations, flow firms
are encouraged to cooperate with prosecutors to reduce charges against- the entire
firm for obstructing investigations. These developments mean that, more than ever,
as a manager or an employee, you will have to decide for yourself what constitutes
proper legal and ethical conduct.
Although these major instances of failed ethical and legal judgment were not
masterminded by information systems departments, information systems were
instrumental in many of these frauds: In many cases, the perpetrators of these
crimes artfully used financial reporting information systems to bury their decisions
from, public scrutiny in the vain hope they caught. Wedeal with the issue of control
in information systems in this lesson. In this lesson we talk about the ethical
dimensions of these and other actions based on the use of information systems.
Ethics refers to the principles of right and wrong that individuals, acting as
free moral agents, use to make choices to guide their behaviors. Information
systems raise new ethical questions for both individuals and societies because they
create opportunities for intense social change, and thus threaten existing
distributions of power, money, rights, and obligations. Like other technologies, such
as steam engines, electricity, the telephone, and the radio, information technology
can be used to achieve social progress, but it can also be used to commit crimes
and threaten cherished social values. The development of information technology
will produce benefits for many and costs for others.
Ethical issues in information systems have been given new urgency by the rise
of the Internet and electronic commerce. Internet and digital firm technologies
make it easier than ever to assemble, integrate, and distribute information
unleashing new concerns about the appropriate use of customer information, the
protection of personal privacy, and the protection of intellectual property. Insiders
with special knowledge can ‘fool” information systems by submitting phony records,
and diverting cash, on a scale unimaginable in the pre-computer era. Other
268
pressing ethical issues raised by information systems include establishing

accountability for the consequences of information systems, setting standards to
safeguard system quality that protects the safety of the individual and society, and
preserving values and institutions considered essential to the quality of life in an
information society. When using information systems, it is essential to ask, “What
is the ethical and socially responsible course of action?”
A Model for Thinking about Ethical, Social and Political Issues
Ethical, social, and political issues are closely linked. The ethical dilemma you
‘‘may face as a manager of information systems typically is reflected in social and
political debate. One way to think about these relationships is given in Figure
20.1.Imagine society as a more or less calm pond on a summer day, a delicate
ecosystem in partial equilibrium with individuals and with social and political
institutions. Individuals know how to act in this pond because social institutions
(family, education, organizations) have developed well-honed rules of behavior, and
these are supported by laws developed in the political sector that prescribe behavior
and promise sanctions for violations. Now toss a rock into the center of the pond.
But imagine instead of a rock that the disturbing force is a powerful shock of new
information technology and systems hitting a society more or less at rest. What
happens? Ripples, of course.
The introduction of new information technology has a ripple effect, raising new
ethical, social and political issues that must be dealt with on the individual, social
and political levels. These issues have five moral dimensions: information rights
and obligations, property rights and obligations, system quality, quality of life and
accountability and control.
Figure 20.1 The relationship between ethical, social, and political issues in
an information society
Information Rights
and Obligations Property Rights
Political issues and Obligations
Social issues
Ethical issues
Information
technology and
systems
Accountability and Individual

Control System
Quality
Society
Polity
269
Quality of Life
Suddenly individual actors are confronted with new situations often not
covered by the old rules. Social institutions cannot respond overnight to these
ripples—it may take years to develop etiquette, expectations, social responsibility,
politically correct attitudes, or approved rules. Political institutions also require
time before developing new laws and often require the demonstration of real harm
before they act. In the meantime, you may have to act. You may be forced to act in
a legal gray area. We can use this model to illustrate the dynamics that connect
ethical, social, and political issues. This model is also useful for identifying the
main moral dimensions of the information society, which cut across various levels
of action— individual, social, and political.
Five Moral Dimensions of the Information Age
The major ethical, social, and political issues raised by information systems
include the following moral dimensions:
Information rights and obligations. What information rights do individuals and
organizations possess with respect to themselves? What can they protect? What
obligations do individuals and organizations have concerning this information?
Property rights and obligations. How will traditional intellectual property rights
be protected in a digital society n which tracing and accounting for ownership are
difficult and ignoring such property rights is so easy?
Accountability and control. Who can and will be held accountable and liable for
the harm done to individual and collective information and property rights? System
quality. What standards of data and system quality should we demand to protect
individual rights and the safety of society?
Quality of life. What values should be preserved in an information- and
knowledge-based society? Which institutions should we protect from violation?
Which cultural values and practices are supported by the new information
technology?
KEY TECHNOLOGY TRENDS THAT RAISE ETHICAL ISSUES
Ethical issues long preceded information technology. There are four key
technological trends responsible for these ethical stresses and they are summarized
in Table 20.2.
Table 20.2 Technology Trends that Raise Ethical Issues
Trend Impact
Computing power doubles every More organizations depend on computer systems for
18 months critical operations
Data storage cost rapidly Organizations can easily maintain detailed
Data analysis advances Companies can analyze vast quantities of data

gathered on individuals to develop detailed profiles
of individual behavior
Networking advances and the Copying data from one location to another and
270
internet accessing personal data from remote locations are

much easier
The doubling of computing power every 18 months has made it possible for
most organizations to use information systems for their core production processes.
As a result, our dependence on systems and our vulnerability to, system errors and
poor data quality have increased. The very same information systems that lead to
high levels of productivity also create opportunities for ‘abuse. Social rules and laws
have not yet adjusted to this dependence. Standards ‘for ensuring the accuracy and
reliability of information systems are not universally accepted or enforced.
Advances in data storage techniques and rapidly declining storage costs have
been responsible for the multiplying databases on individuals—employees,
customers, and potential customers—maintained by private and publications.
These advances in data storage have made the routine violation of individual
privacy both cheap and effective. Already, massive data storage systems are cheap
enough for regional and even local retailing firms to use in identifying customers.
For instance, the major, America Online (AOL), MSN, and Yahoo! maintain detailed
search histories on the more than 75 million Americans whose Internet search
engines every day and who generate more than 200 million searches each day.
These huge collections of “consumer intentions” become the natural targets of
private firms looking for market advantage, government agencies, and private
investigators.
Advances in data analysis techniques for large pools of data are another
technological trend that heightens ethical concerns because companies and
government agencies are able to find out much detailed personal information about
individuals. With contemporary data management tools, companies can assemble
and combine the myriad pieces of information about you stored on computers
much more easily than in the past.
Think of all the ways you generate computer information about yourself—
credit card purchases; telephone calls; magazine subscriptions; video rentals; mail-
order purchases; banking records; local, state, and federal government records
(including court and police records); and visits to Web sites to read Web materials,
use search engines, and write blogs. Put together and mined properly, this
information could reveal not only your credit information but also your driving
habits, your tastes, your associations, intended purchases, political views, and
interests. What you thought was private, in fact, can quickly become public.
Companies with products to sell purchase relevant information from these
sources to help them more finely target their marketing campaigns. The use of
computers to combine data from multiple sources and create electronic dossiers of
detailed information on individuals is called profiling.
For example, hundreds of Web sites allow Double Click (www.doubleclick.net),
an internet advertising broker, to track the activities of their visitors in exchange for
revenue from advertisements based on visitor information Double Click gathers.
271
Double Click uses this information to create a profile of each online visitor, adding
more detail to the profile as the visitor accesses an associated Double Click site.
A new data analysis technology called non obvious relationship awareness
(NORA) has given both the government and the private sector even more powerful
profiling capabilities. NORA can take information about people from many disparate
sources, such as employment applications, telephone records, customer listings,
and “wanted” lists, and correlate relationships to find obscure hidden connections
that might help identify criminals or terrorists.
NORA technology scans data and extracts information as the data are being
generated so that it could, for example, instantly discover a man at an airline ticket
counter who shares a phone number with a known terrorist before that person
boards an airplane. The technology is considered a valuable tool for homeland
security but does have privacy implications because it can provide such a detailed
picture of the activities and associations of a single individual.
Finally, advances in networking, including the Internet, promise to reduce
greatly the costs of moving and accessing large quantities of data and open the
possibility of mining large pools of data remotely using small desktop machines,
permitting an invasion of privacy on a scale and with a precision heretofore
unimaginable. If computing and networking technologies continue to advance at
the same pace as in the past, by 2023, large organizations will be able to devote the
equivalent of a contemporary desktop personal computer to monitoring each of the
350 million individuals who will then be living in the United States (Farmer and
Mann, 2003).
Fig. 20.2 Non Obvious Relationship Awareness

272
Figure 20.2 illustrates NORA technology can take information about people
from disparate sources and find obscure, non-obvious relationships. It might
discover, for example, that an applicant for a job at a casino shares a telephone
number with a known criminal and issue an alert to the hiring manager.
20.3.2. ETHICS IN AN INFORMATION SOCIETY
Ethics is a concern of humans who have freedom of choice. Ethics is about
individual choice: When faced with alternative courses of action, what is the correct
moral choice? What are the main features of ethical choice?
Basic Concepts: Responsibility, Accountability, And Liability
Ethical choices are decisions made by individuals who are responsible for
the consequences of their actions. Responsibility is a key element of ethical action.
Responsibility means that you accept the potential costs, duties, and obligations for
the decisions you make.
Accountability is a feature of systems and social institutions: It means that
mechanisms are in place to determine who took responsible action, who is
responsible. Systems and institutions in which it is impossible to find out who took
what action are inherently incapable of ethical analysis or ethical action. Liability
extends the concept of responsibility further to the area of laws.
Liability is a feature of political systems in which a body of laws is in place
that permits individuals to recover the damages done to them by other actors,
systems, or organizations. Due process is a related feature of law-governed
societies and is a process in which laws are known and understood and there is an
ability to appeal to higher authorities to ensure that the laws are applied correctly.
These basic concepts form the underpinning of an ethical analysis of
information systems and those who manage them. First, information technologies
are filtered through social institutions, organizations, and individuals. Systems do
not have impacts by themselves, Whatever information system impacts exist are
products of institutional, organizational, and individual actions and behaviors.
Second, responsibility for the consequences of technology falls clearly on the
institutions, organizations, and individual managers who choose to use the
technology. Using information technology in a socially responsible manner means
that you can and will be held accountable for the consequences of your actions.
Third, in an ethical, political society, individuals and others can recover damages
done to them through a set of laws characterized by due process.
Ethical Analysis
When confronted with a situation that seems to present ethical issues, how
should you analyze it? The following five-step process should help.
1) Identify and describe clearly the facts. Find out who did what to whom, and
where, when, and how. In many instances, you will be surprised at the errors
in the initially reported facts, and often you will find that simply getting the
facts straight helps define the solution. It also helps to get the opposing
parties involved in an ethical dilemma to agree on the facts.
273
2) Define the conflict or dilemma and identify the higher-order values involved.
Ethical, social, and political issues always reference higher values. The parties
to a dispute all claim to be pursuing higher values (e.g. , freedom, privacy,
protection of property, and the free enterprise system). 1jpically, an ethical
issue involves a dilemma: two diametrically opposed courses of action that
support worthwhile values. For example, the chapter-ending case study
illustrates two competing values: the need to protect citizens from terrorist
acts and the need to protect individual privacy.
3) Identify the stakeholders. Every ethical, social, and political issue has •
stakeholders: players in the game who have an interest in the outcome, who
have invested in the situation, and usually who have vocal opinions. Find out
the identity of these groups and what they want. This will be useful later
when designing a solution.
4) Identify the options that you can reasonably take. You may find that none of
the options satisfy all the interests involved, but that some options do a better
job than others. Sometimes arriving at a good or ethical solution may not
always be balancing of consequences to stakeholders.
5) Identify the potential consequences of your options. Some options may be
ethically correct but disastrous from other points of view. Other options may
work in one instance but not in other similar instances. Always ask yourself,
‘What if I choose this option consistently over time?”
Candidate Ethical Principles
Once your analysis is complete, what ethical principles or rules should you
use to make a decision? What higher-order values should inform your judgment?
Although you are the only one who can decide which among many ethical principles
you will follow, and how you will prioritize them, it is helpful to consider some
ethical principles with deep roots in many cultures that have survived throughout
recorded history.
1) Do unto others as you would have them do unto you (the Golden Rule).
Putting yourself into the place of others, and thinking of yourself as the object
of the decision, can help you think about fairness in decision making.
2) If an action is not right for everyone to take, it is not right for
anyone(Immanuel Kant’s Categorical Imperative). Ask yourself, “If everyone
did this, could the organization, or society, survive?”
3) it an action cannot be taken repeatedly, it is not right to take at all (Descartes
‘rule of change). This is the slippery-slope rule: An action may bring about a
small change now that is acceptable, but if it is repeated, it would bring
unacceptable changes in the long run. In the vernacular, it might be stated as
once started down a slippery path, you may not be able to stop.”
4) Take the action that achieves the higher or greater value (the Utilitarian
Principle) this rule assumes you can prioritize values in a rank order and
understand the consequences of various courses of action.
5) Take the action that produces the least harm or the least potential cost (Risk
Aversion Principle). Some actions have extremely high failure costs of very low
274
probability (e.g., building a nuclear generating facility in an urban area) or

extremely high failure costs of moderate probability (speeding and automobile
accidents). Avoid these high-failure-cost actions, paying greater attention
obviously to high-failure-cost potential of moderate to high probability.
6) Assume that virtually all tangible and intangible objects are owned by
someone else unless there is a specific declaration otherwise. (This is the
ethical “no free lunch” rule.) If something someone else has created is useful
to you, it has value, and you should assume the creator wants compensation
for this work.
Although these ethical rules cannot be guides to action, actions that do not
easily pass these rules deserve some very close attention and a great deal of
caution. The appearance of unethical behavior may do as much harm to you and
your company as actual unethical behavior.)
Professional Codes of Conduct
When groups of people claim to be professionals, they take on special rights
and obligations because of their special claims to knowledge, wisdom, and respect.
Professional codes of conduct are promulgated by associations of professionals,
such as the American Medical Association (AMA), the American Bar Association
(ABA), the Association of Information Technology Professionals (AITP), and the
Association of Computing Machinery (ACM). These professional groups take
responsibility for the partial regulation of their professions by determining entrance
qualifications and competence. Codes of ethics are promises by professions to
regulate themselves in the general interest of society. For example, avoiding harm
to others, honoring property rights (including intellectual property), and respecting
privacy are among the General Moral Imperatives of the ACM’s code of ethics and
professional Conduct.
20.3.3. THE MORAL DIMENSIONS OF INFORMATION SYSTEMS
In this section, we take a closer look at the five moral dimensions of
information systems first described in Figure 20.1. In each dimension, we identify
the ethical, social, and political levels of analysis and use real-world examples to
illustrate the values involved, the stakeholders, and the options chosen.
Information Rights: Privacy and Freedom in the Internet Age
Privacy is the claim of individuals to be left alone, free from surveillance or
interference from other individuals or organizations, including the state. Claims to
privacy are also involved at the workplace: Millions of employees are subject to
electronic and other forms of high-tech surveillance (Ball, 2001).Information
technology and systems threaten individual claims to privacy by making the
invasion of privacy cheap, profitable, and effective.
The claim to privacy is protected in the U.S., Canadian, and German
constitutions in a variety of different ways and in other countries through various
statutes. In the United States, the claim to privacy is protected primarily by the
First Amendment guarantees of freedom of speech and association, the Fourth
275
Amendment protections against unreasonable search and seizure of one’s personal

documents or home, and the guarantee of due process.
The Privacy Act of 1 974 has been the most important of these laws, regulating
the federal government’s collection, use, and disclosure of information. At present,
most U.S. federal privacy laws apply only to the federal government arid regulate
‘vet-ST few areas of the private sector)
The Health Insurance Portability and Accountability Act of 1996 (HIPAA),
which took effect on April 14, 2003, includes privacy protection for medical-
records. The law gives patients access to their personal medical records maintained
by healthcare providers, hospitals, and health insurers and the right to authorize
how protected information about them can be used or disclosed. Doctors, hospitals,
and other healthcare providers must limit the disclosure of personal information
about patients to the minimum amount necessary to achieve a given purpose.
The European Commission’s Directive on Data Protection
The European Commission’s Directive on Data Protection went into effect,
broadening privacy protection in the European Union (EU) nations. The directive
requires companies to inform people when they collect information about them and
disclose how it will be stored and used. Customers must provide their informed
consent before any company can legally use data about them, and they have the
right to access that information, correct it, and request that no further data be
collected. Informed consent can be defined as consent given with knowledge of all
the facts needed to make a rational decision. EU member nations must translate
these principles into their own laws and cannot transfer personal data to countries,
such as the United States, that do not have similar personal data to countries,
such as the United States, that do not have similar privacy protection regulations.
Internet Challenges to Privacy
Internet technology has posed new challenges for the protection of individual
privacy. Information sent over this vast network of networks may pass through
many different computer systems before it reaches its final destination. Each of
these systems is capable of monitoring, capturing, and storing communications
that pass through it.
It is possible to record all online activities of literally tens of millions of people,
including which online newsgroups or files a person has accessed, which Web sites
and Web pages he or she has visited, and what items that person has inspected or
purchased over the Web. Much of this monitoring and tracking of Web site visitors
occurs in the background without the visitors’ knowledge. Tools to monitor visits to
the World Wide Web have become popular because they help organizations
determine who is visiting their Web sites and how to better target their offerings.
Some firms also monitor the Internet usage of their employees to see how they are
using company network resources. Web.now have access to software that lets them
“watch” the online eg behavior of individuals and groups while they are visiting a
Web site and making purchases. The commercial demand for this personal
information is virtually insatiable.
276
Cookies are tiny files deposited on a computer hard drive when a user visits
certain Web sites. Cookies identify the visitor’s Web browser software and track
visits to the Web site. When the visitor returns to a site that has stored cookie, the
Web site software will search the visitor’s computer, find the cookie, and know what
that person has done in the past. It may also update the cookie, depending on the
activity during the visit. In this way, the site can customize its contents for each
visitor’s interests. For example, if you purchase a book on the Amazon.com Web
site and return later from the same browser, the site will welcome you y name and
recommend other books of interest based on your past purchases. Figure 20.3
illustrates how cookies work.
Web sites using cookie technology cannot directly obtain visitors’ names and
addresses. However, if a person has registered at a site, that information can be
combined with cookie data to identify the visitor. Web site owners can also combine
the data they have gathered from cookies and other Web site monitoring tools with
personal data from other sources, such as offline data collected from surveys paper
catalog purchases, to develop very detailed profiles of their visitors.
Marketers use Web bugs as another tool to monitor online behavior. Web bugs
are tiny graphic files embedded in e-mail messages and Web pages that are
designed to monitor who is reading the e-mail message or Web page and transmit
that informatio4 to another computer. Other spyware cane secretly installs itself on
an Internet user’s computer by piggybacking on larger applications.
Fig. 20.3 How Cookies Identify Web Visitors

Spyware also can log user keystrokes and send the information to other sites
on the web without the user’s knowledge.
Technical Solutions
In addition to legislation, new technologies are available to protect user privacy
during interactions with Web sites. Many of these tools are used for encrypting e-
mail, for making e-mail or surfing activities appear anonymous, for preventing
client computers from accepting cookies, or for detecting and eliminating spyware.
277
There are now tools to help users determine the kind of personal data that can
be extracted by Web sites. The Platform for Privacy Preferences, known as P3P,
enables automatic communication of privacy policies between an e-commerce site
and its visitors. P3P provides a standard for communicating a Web site’s privacy
policy to Internet users and for comparing that policy to the user’s preferences or to
other standards, such as the FTC’s new FTP guidelines or the European Directive
on Data Protection. Users can use P3P to select the level of privacy they wish to
maintain when interacting with the Web site.
The P3P standard allows Web sites to publish privacy policies in a form that
computers can understand. Once it is codified according to P3P rules, the privacy
policy becomes part of the software for individual Web pages (see Figure 20.4). P3P
enables Web sites to translate their privacy policies into a standard format that can
be read by the user’s Web browser software. The user’s Web browser software
evaluates the Web site’s privacy policy to determine whether it is compatible with
the user’s privacy preferences.
Fig. 20.4 The P3P Standard

1) The user with P3P Web browsing software requests a Web page.
2) The Web server returns the Web page along with a compact version of the
Web site’s policy and a pointer to the full P3P policy. If the Web site is not
P3Pcompliant, no P3P data are returned.
3) The user’s Web browsing software compares the response from the Web site
with the user’s privacy preferences. If the Web site does not have a P3P policy
or the policy does not match the privacy levels established by the user, it
warns the user or rejects the cookies from the Web site. Otherwise, the Web
page loads normally.
Users of Microsoft Internet Explorer Web browsing software can access and
read the P3P site’s privacy policy and a list of all cookies coming from the site.
Internet Explorer enables users to adjust their computers to screen out all cookies
or let in selected cookies based on specific levels of privacy. For example, the
“medium” level accepts cookies from first-party host sites that have opt-in or opt-
out policies but rejects third-party cookies that use, personally identifiable
information without an opt-in policy.
However, P3P only works with Web sites of members of the World Wide Web
Consortium who have translated their Web site privacy policies into P3P format.
The technology will display cookies from Web sites that are not part of the
278
consortium, but users will not be able to obtain sender information or privacy
statements. Many users may also need to be educated about interpreting company
privacy statements and P3P levels of privacy.
Property Rights: Intellectual Property
Contemporary information systems have severely challenged existing law and
social practices that protect private intellectual property. Intellectual property is
considered to be intangible property created by individuals or corporations.
Information technology has made it difficult to protect intellectual property because
computerized information can be so easily copied or distributed on networks.
Intellectual property is subject to a variety of protections under three different legal
traditions: trade secrets, copyright, and patent law.
Trade Secrets
Any intellectual work product—a formula, device, pattern, or compilation of
data-used for a business purpose can be classified as a trade secret, provided it is
not based on information in the public domain. Protections for trade secrets vary
from state to state. In general, trade secret laws grant a monopoly of the ideas
behind a work product, but it can be a very tenuous monopoly.
Software that contains novel or unique elements, procedures, or compilations
can be included as a trade secret. trade secret law protects the actual ideas in a
work product, not only their manifestation. To make this claim, the creator or
Owner must take care to bind employees and customers with nondisclosure
agreements and to prevent the secret from falling into the public domain.
Copyright
Copyright is a statutory grant that protect creators of inte1letual property from
having their work copied by others for any purpose during the life of the author
plus an additional 70 years after the author’s death. For corporate-owned works,
copyright protection lasts for 95 years after their initial creation. Congress has
extended copyright protection to books; periodicals, lectures, dramas, musical
compositions, maps, drawings, artwork of any kind, and motion pictures. The
intent behind copyright laws has been to encourage creativity and authorship by
ensuring that creative people receive the financial and other benefits of their work.
Patents
A patent grants the owner an exclusive monopoly on the ideas behind an
invention for 20 years. The congressional intent behind patent law’ was to ensure
that inventors of new machines, devices, ‘or methods receive the full financial and
other rewards of their labor and yet still make widespread use of the invention
possible by providing detailed diagrams for those wishing to use the idea under
license from the patent’s owner. The granting of a patent is determined by the
Patent Office and relies on court rulings.
The key concepts in patent law are originality, novelty, and invention. The
Patent Office did not accept applications for software patents routinely until a I 981
Supreme Court decision that held that computer programs could be a part of a
patentable process. Since that time, hundreds of patents have been granted and
thousands await consideration.
The strength of patent protection is that it grants a monopoly on the under-
lying concepts and ideas of software. The difficulty is passing stringent criteria
279
ofnon-obviousness (e.g., the work must reflect some special understanding and
contribution originality, and novelty, as well as years of waiting to receive
protection.
Mechanisms are being developed to sell and distribute books, articles, and
other intellectual property legally on the Internet, and the Digital Millennium
Copyright Act (DMCA) of 1 998 is providing some copyright protection. The DMCA
implemented a World Intellectual Property Organization Treaty that makes it illegal
to circumvent technology-based protections of copyrighted materials. Internet
service providers (ISPs) are required to take down sites of copyright infringers that
they are hosting once they are notified of the problems.
Accountability, Liability, and Control
Along with privacy and property laws, new information technologies are
challenging existing liability laws and social practices for holding individuals and
institutions accountable. If a person is injured by a machine controlled, in part, by
software, who should be held accountable and, therefore, held liable? Should a
public bulletin board or an electronic service, such as America Online, permit the
transmission of pornographic or offensive material (as broadcasters), or should they
be held harmless against any liability for what users transmit (as is true of common
carriers, such as the telephone system)? What about the Internet? If you outsource
your information processing, can you hold the external vendor liable for injuries
done to your customers? Some real-world examples may shed light on these
questions.
Computer-Related Liability Problems
During the last week of September 2009, thousands of customers of TD Bank,
one of the largest banks in North America, scrambled to find their payroll checks,
social security checks, and savings and checking account balances. The bank’s 6.5
million customers were temporarily out of funds because of a computer glitch. The
problems were caused by a failed effort to integrate systems of TD Bank and
Commerce Bank. A spokesperson for TD Bank, said that “while the overall
integration of the systems went well, there have been some speed-bumps in the
final stages, as you might expect with a project of this size and complexity.”
(Vijayan, 2009). Who is liable for any economic harm caused to individuals or
businesses that could not access their full account balances in this period? This
case reveals the difficulties faced by information systems executives who ultimately
are responsible for any harm done by systems developed by their staffs. In general,
insofar as computer software is part of a machine, and the machine injures
someone physically or economically, the producer of the software and the operator
can be held liable for damages. Insofar as the software acts like a book, storing and
displaying information, courts have been reluctant to hold authors, publishers, and
booksellers liable for contents (the exception being instances of fraud or
defamation), and hence courts have been wary of holding software authors liable for
book like software. In general, it is very difficult (if not impossible) to hold software
producers liable for their software products that are considered to be like books,
regardless of the physical or economic harm that results. Historically, print
publishers, books, and periodicals have not been held liable because of fears that
280
liability claims would interfere with First Amendment rights guaranteeing freedom
of expression.
20.3.4. SYSTEM QUALITY: DATA QUALITY AND SYSTEM ERRORS
The debate over liability and accountability for unintentional consequences of
system use raises a related but independent moral dimension: What is an
acceptable, technologically feasible level of system quality? At what point should
system managers say, “Stop testing, we’ve done all we can to perfect this software.
Ship it!” Individuals and organizations may be held responsible for avoidable and
foreseeable consequences, which they have a duty to perceive and correct. And the
gray area is that some system errors are foreseeable and correctable only at very
great expense, an expense so great that pursuing this level of perfection is not
feasible economically—no one could afford the product. For example, although
software companies try to debug their products before releasing them to the
marketplace, they knowingly ship buggy products because the time and cost of
fixing all minor errors would prevent these products from ever being released. What
if the product was not offered on the marketplace, would social welfare as a whole
not advance and perhaps even decline? Carrying this further, just what is the
responsibility of a producer of computer services—should it withdraw the product
that can never be perfect, warn the user, or forget about the risk (let the buyer
beware)? Three principal sources of poor system performance are (1) software bugs
and errors, (2) hardware or facility failures caused by natural or other causes, and
(3) poor input data quality. zero defects in software code of any complexity cannot
be achieved and why the seriousness of remaining bugs cannot be estimated.
Hence, there is a technological barrier to perfect software, and users must be aware
of the potential for catastrophic failure. The software industry has not yet arrived at
testing standards for producing software of acceptable but not perfect performance.
Although software bugs and facility catastrophes are likely to be widely reported in
the press, by far the most common source of business system failure is data
quality. Few companies routinely measure the quality of their data, but individual
organizations report data error rates ranging from 0.5 to 30 percent.
20.3.5. QUALITY OF LIFE: EQUITY, ACCESS, AND BOUNDARIES
Negative social consequences of systems
Many of these negative social consequences are not violations of individual
rights or property crimes. Nevertheless, these negative consequences can be
extremely harmful to individuals, societies, and political institutions. Computers
and information technologies potentially can destroy valuable elements of our
culture and society even while they bring us benefits
 Balancing power although computing power decentralizing, key decision-
making remains centralized. The shift toward highly decentralized
computing, coupled with an ideology of empowerment of thousands of
workers, and the decentralization of decision making to lower organizational
levels, have reduced the fears of power centralization in institutions
 Rapidity of change Businesses may not have enough time to respond to
global competition
 Maintaining boundaries Computing, Internet use lengthens work-day,
infringes on family, personal time. Even leisure time spent on the computer
281
threatens these close social relationships. Extensive Internet use, even for
entertainment or recreational purposes, takes people away from their family
and friends. Among middle school and teenage children, it can lead to
harmful anti-social behavior, such as the recent upsurge in cyber bullying.
 Dependence and vulnerability Public and private organizations ever more
dependent on computer systems. With systems now as ubiquitous as the
telephone system, it is startling to remember that there are no regulatory or
standard-setting forces in place that are similar to telephone, electrical,
radio, television, or other public utility technologies. The absence of
standards and the criticality of some system applications will probably call
forth demands for national standards and perhaps regulatory oversight.
1) Ethics refers to the principles of right and wrong that individuals, acting as
free moral agents, use to make choices to guide their behaviors.
2) Ethical issues in information systems have been given new urgency by the
rise of the Internet and electronic commerce. Internet and digital firm
technologies make it easier than ever to assemble, integrate, and distribute
information unleashing new concerns about the appropriate use of customer
information, the protection of personal privacy, and the protection of
intellectual property.
3) Five Moral Dimensions of the Information Age are Information rights and
obligations, Property rights and obligations, Accountability and control and
Quality of life
4) The use of computers to combine data from multiple sources and create
electronic dossiers of detailed information on individuals is called profiling.
5) Responsibility is a key element of ethical action. Responsibility means that
you accept the potential costs, duties, and obligations for the decisions you
make.
6) Accountability is a feature of systems and social institutions: It means that
mechanisms are in place to determine who took responsible action, who is
responsible.
7) Liability is a feature of political systems in which a body of laws is in place
that permits individuals to recover the damages done to them by other actors,
systems, or organizations.
8) Due process is a related feature of law-governed societies and is a process in
which laws are known and understood and there is an ability to appeal to
higher authorities to ensure that the laws are applied correctly.
9) A patent grants the owner an exclusive monopoly on the ideas behind an
invention for 20 years.
10) Three principal sources of poor system performance are (1) software bugs and
errors, (2) hardware or facility failures caused by natural or other causes, and
(3) poor input data quality.
11) System quality is finding an acceptable amount for the quality of data and
number of system errors.
282
12) Quality of life is the social cost of introducing information technologies. These
social consequences can be extremely harmful or helpful to individuals,
societies and political institutions
1) Define Ethics?
2) Explain the five moral dimensions of the information age?
3) Differentiate between responsibility, accountability, and liability.
20.6. SUMMARY
Information technology is introducing changes for which laws and rules of
acceptable conduct have not yet been developed. Increasing computing power,
storage, and networking capabilities including the Internet expand the reach of
individual and organizational actions and magnify their impacts. The ease and
anonymity with which information is now communicated, copied, and manipulated
in online environments pose new challenges to the protection of privacy and
intellectual property. The main ethical, social, and political issues raised by
information systems center around information rights and obligations, property
rights and obligations, accountability and control, system quality, and quality of
life. Contemporary data storage and data analysis technology enables companies to
easily gather personal data about individuals from many different sources and
analyze these data to create detailed electronic profiles about individuals and their
behaviors. Data flowing over the Internet can be monitored at many points. Cookies
and other Web monitoring tools closely track the activities of Web site visitors. Not
all Web sites have strong privacy protection policies, and they do not always allow
for informed consent regarding the use of personal information. Traditional
copyright laws are insufficient to protect against software piracy because digital
material can be copied so easily and transmitted to many different locations
simultaneously over the Internet. Although computer systems have been sources of
efficiency and wealth, they have some negative impacts. Computer errors can cause
serious harm to individuals and organizations. Poor data quality is also responsible
for disruptions and losses for businesses. The ability to own and use a computer
may be exacerbating socioeconomic disparities among different racial groups and
social classes. Widespread use of computers increases opportunities for computer
crime and computer abuse. Computers can also create health problems, such as
RSI, computer vision syndrome, and techno stress.
1) What ethical, social, and political issues are raised by information systems?
Information technology is introducing changes for which laws and rules of
acceptable
2) Why do contemporary information systems technology and the Internet pose
challenges to the protection of individual privacy and intellectual property?
3) Explain how ethical, social, and political issues are connected and give some
examples.
4) List and describe the key technological trends that heighten ethical concerns.
5) Identify and describe six ethical principles
6) How have information systems affected everyday life?
283

1) Ball, Kirstie S. “Situating Workplace Surveillance: Ethics and computer-based
performance monitoring”. Ethics and information Technology 3, no. 3 (2001).
2) Farmer, Dan and Charles C.Mann.“Surveillance Nation.” Part I Technology
Review(April 2003) and Part II Technology review (May 2003).
20.9. ASSIGNMENTS
How is internet challenging the protection of individual privacy?
20.10. REFERENCES
2) Kenneth C.Laudon and Jane P.Laudon, “Management Information System”
Tenth Edition, PHI Learning Private limited, New Delhi, 2008.,
3) United states sentencing commission, U.S. sentencing Commision’s
Sourcebook of federal sentencing statistics.http://www.ussc.gov/ANNRPT/
2004.
Assess how information systems have affected everyday life
20.12. KEYWORDS
 Accountability
 Computer abuse.
 Cookies.
 Ethical.
 Social Due Process
 Intellectual property
 Liability
 NORA
 System quality.

284
UNIT - VI
LESSON – 21
APPLICATION OF MIS IN FUNCTIONAL AREA
21.1. INTRODUCTION
A management information system is organized according to the business
functionality of an organization. Thus an MIS contains systems in areas of
accounting, human resources, marketing, manufacturing, research and
development, legal services, operations/support, and finance. Each functional
system uses its own set of function-specific subsystems, all of which interface with
both the TPS and the MIS. Provides support to managers as they work to achieve
corporate goals. Enables managers to compare results to established company
goals and identify problem areas and opportunities for improvement. In the
following sections, we will describe information systems for four major business
areas of the firm and marketing subsystems in detail.
21.2. OBJECTIVES
 Understanding of the use of IS to support the major functional areas in
business.
 Describe the Information systems in marketing, manufacturing, and human
resource management with a special emphasis on computer integrated
manufacturing.
 An understanding of the different roles managers play and how marketing
information systems can support them in these roles
 An appreciation of the different types and levels of marketing decision
making
 A knowledge of the major components of a marketing information system
21.3. CONTENTS
21.3.1. Organizational Information Systems
21.3.2. Cross Functional Information Systems
21.3.3. Marketing Information System
21.3.4. Human Resources Information System
21.3.5. Manufacturing Information System
21.3.6. Information Systems for Production/Operations Management
21.3.7. Financial Information System
21.3.1. ORGANIZATIONAL INFORMATION SYSTEMS
The business areas of the firm-finance, human resources, information
services, manufacturing, and marketing-use the database produced by the
transaction processing system, plus data from other sources, to produce
information that managers use 'in making decisions and solving problems.
Information systems have been developed for each of these business areas. All of
these information systems are examples of organizational information systems.
285
They are developed to meet the needs for information relating to those particular
parts of the organization.
As a prospective managerial end user you should have a general
understanding of the major ways information systems are used to support each of
the functions of business. The term business information systems is used to
describe a variety of types of information systems (transaction processing,
information reporting, decision support, etc.) that support the functions of business
such as accounting, finance, marketing, or human resource management.
21.3.2. CROSS FUNCTIONAL INFORMATION SYSTEMS:
Information systems can be grouped into business function categories,
however, in the real world information systems are typically integrated
combinations of functional information systems. Such systems support business
processes, such as product development, production, distribution, order
management, customer support, and so on. There is a strong emphasis in many
organizations to develop such composite or cross-functional information systems
that cross the boundaries of traditional business functions in order to reengineer
and improve vital business processes. These organizations view cross-functional
information systems as a strategic way to share information resources and improve
the efficiency and effectiveness of a business, thus helping it attain its strategic
objectives.
Applications of information systems in the functional areas of business include:
1. Production/Operations IS
2. Marketing IS
3. Financial IS
4. Accounting IS
5. Human Resource Management IS
Business firms are turning to Internet technologies to integrate the flow of
information among their internal business functions and their customers and
suppliers. Companies are using the World Wide Web and their intranets and
extranets as the technology platform for their cross-functional and inter
organizational information systems.
In addition, many companies have moved from functional mainframe legacy
systems to cross-functional client/server network applications. This typically has
involved installing enterprise resource planning (ERP) or supply chain management
(SCM) software. Instead of focusing on the information processing requirements of
business functions, ERP software focuses on supporting the supply chain processes
involved in the operations of a business.
 A management information system is organized according to the business
functionality of an organization.
 Thus an MIS contains systems in areas of accounting, human resources,
marketing, manufacturing, research and development, legal services,
operations/support, and finance. See figure 21.1.
286
 Each functional system uses its own set of function-specific subsystems, all
of which interface with both the TPS and the MIS.
 Each functional system requires different information and support for
decision making; but they share some common information needs.
Fig. 21.1 Functional aspects of MIS

21.3.3. THE MARKETING INFORMATION SYSTEM
The marketing information system (MKIS) provides information that relates to
the firm's marketing activities. Our model of an MKIS is illustrated in Figure 21.2; it
consists of a combination of input and output subsystems connected by a database.
Output Subsystems
Each output subsystem provides information about critical elements in the
marketing mix. The marketing mix consists of four main ingredients that
287
management manages in order to meet customers' needs at a profit. The product

subsystem provides information about the firm's products. The place subsystem
provides information about the firm's distribution network. The promotion subsystem
provides information about the firm's advertising and personal selling activities. The
price subsystem helps the manager make pricing decisions. In addition, there is a
fifth subsystem, the integrated-mix subsystem, which enables the manager to
develop strategies that consider the combined effects of the ingredients. An example
of the information provided by the integrated-mix subsystem is the sales forecast,
which considers the interaction of all the ingredients.
Each of the output subsystems consists of programs in the software library.
These pro-grams enable users to obtain information in the form of periodic and
special reports, the results of mathematical simulations, electronic
communications, and knowledge-based systems advice. Users include managers
throughout the firm who have an interest i n the firm's marketing activities
Database
'The data that are used by the output subsystems comes from the database.
The database is populated with data from three input subsystems
Fig. 21.2 A Model of Marketing Information System

288
Input Subsystems
As shown in Figure 21.1, the transaction processing system gathers data, from
both internal and environmental sources and enters the data into the database. We
Observed that data gathering in the discussion of the distribution system. The
marketing research subsystem also gathers internal and environmental data by
conducting special studies. The marketing intelligence subsystem gathers
environmental data that serves to keep management informed of activities of the
firm's competitors and customers and other elements that can influence marketing
operations.
A marketing MIS supports activities throughout the many activities of
marketing departments. Some of the typical subsystems of a marketing MIS are
marketing research, product development and delivery, promotion and advertising,
product pricing and sales analysis.
One of the most common uses of a marketing MIS is to produce sales reports.
These are typically produced on a regular schedule, such as by week, month and
quarter. Reports can be organized by sales representative, product, customer or
geographic area. Such reports allow managers to see which aspects of sales are
doing well and which ones need attention.
Perhaps one sales representative has suddenly experienced a drop in sales by
losing one major customer and needs some support to develop some new leads.
If there are only a handful of sales reps sharing one office, a manager might be able
to pick up on this just by talking to everyone. However, what if a manager has to
oversee more than 100 sales reps in 12 different offices around the nation?
A specialized information system that provides regular updates in a meaningful
format will make it a lot easier for the manager to make effective decisions.
21.3.4. THE HUMAN RESOURCES INFORMATION SYSTEM
The human resources information system (HRIS) provides information to
managers throughout the firm concerning the firm's human resources. Figure 21.3
illustrates the HRIS, using the same format as the MKIS. The transaction
processing system provides input data, as does a human resources research
subsystem that conducts special studies and a human resources intelligence
subsystem that gathers environmental data that bear on HR issues.
The output subsystems of the HRIS each address a particular aspect of HR
management: planning, recruiting, and managing the workforce; compensating the
employees; providing employee benefits; and preparing the many HR reports that
are required by the environment, primarily government agencies. This is the way
that output subsystems are determined-they represent the major areas of interest
to the users.
289
Fig. 21.3 : A Model of Human Resources Information System

The human resource management (HRM) function involves the recruitment,
placement, evaluation, compensation, and development of the employees of an
organization. The goal of HRM is the effective and efficient use of the human
resources of a company. Thus, human resource information systems are designed
to support:
1. Planning to meet the personnel needs of the business.
2. Development of employees to their full potential.
3. Control of all personnel policies and programs.
Traditionally, businesses used computer-based information systems to:
1. Produce paychecks and payroll reports
2. Maintain personnel records
3. Analyze the use of personnel in business operations.
Many firms have gone beyond these traditional personnel management
functions and have developed human resource information systems (HRIS) that
also support:
1. Recruitment, selection and hiring
2. Job placement
3. Performance appraisals
4. Employee benefit analysis
5. Training and development
6. Health, safety, and security
290
HRM and the Internet

The Internet has become a major force for change in human resource
management. For example, companies are:
1) Recruiting for employees through recruitment sections of their corporate web
sites.
2) Using commercial recruiting services and databases on the World Wide Web,
posting messages in selected Internet newsgroups, and communicating with
job applicants by Internet E-mail.
HRM and the Corporate Intranet
Intranet technologies allow companies to process most common HRM
applications over their corporate intranets. For example:
1) Intranets allow the HRM department to provide around-the-clock services to
their customers and employees.
2) They also disseminate valuable information faster than through previous
company channels.
3) Intranets can collect information online from employees for input to their
HRM files, and they can enable employees to perform HRM tasks with little
intervention by the HRM department.
4) Intranet can serve as a superior training pool.
Staffing the Organization
The staffing function must be supported by information systems that record
and track human resources within a company to maximize their use. These
systems are used in personnel record keeping systems, employee skills inventory
systems, and personnel requirements forecasting systems.
291
Training & Development

Information systems help human resource managers plan and monitor
employee recruitment, training, performance appraisals, and career development by
analysing the success history of present programs. They also analyze the career
development status of each employee to determine whether development methods
such as training programs and periodic performance appraisals should be
recommended.
Compensation Analysis
Information systems can help analyse the range and distribution of employee
compensation (wages, salaries, incentive payments, and fringe benefits) within a
company and make comparisons with compensation paid by similar firms or with
various economic indicators. This information is useful for:
1) Planning changes in compensation, especially if negotiations with labour
unions are involved.
2) Helps keep the compensation of a company competitive and equitable, while
controlling compensation costs.
Governmental Reporting
Reporting to government agencies is a major responsibility of human resource
management. Organizations use computer-based information systems to keep
track of the statistics and produce reports required by a variety of government laws
and regulations. These statistics may concern issues such as:
1) Equal opportunity policies and statistics
2) Employee health
3) Workplace accidents and hazards
4) Safety procedures
21.3.5. THE MANUFACTURING INFORMATION SYSTEM
The manufacturing information system provides information to managers
throughout the firm concerning the firm's manufacturing operations. Figure 21.4
illustrates the manufacturing information system, using the same format as the
MKIS and HRIS. The industrial engineering subsystem consists of activity by
industrial engineers (IEs) who conduct studies of the manufacturing operation to
ensure its efficiency. The four output subsystems report on subjects that are of
greatest interest concerning manufacturing-production, inventory. quality, and
cost.
Manufacturing is one of the areas where information systems have made a
major impact. A typical manufacturing MIS is used to monitor the flow of
materials and products throughout the organization. In a manufacturing process,
raw materials or parts are transformed to finished products, and a manufacturing
MIS is used at every stage. Some of the common subsystems in a manufacturing
MIS include: design and engineering, production scheduling, inventory control,
process control and quality control.
292
Fig. 21.4 : A Model of Manufacturing Information System

Consider the example of building an airplane. How many different
parts do you think there are in an airplane? One of those commercial jets used by
the major airlines easily has over 100,000 parts. Many of those parts come from
suppliers and have to be ordered. Others are made at the manufacturing plant
itself. Now think of the process that is needed to get all those parts at the right
place at the right time. And all those parts have to be carefully inspected before
they can be used in building the plane.
21.3.6. INFORMATION SYSTEMS FOR PRODUCTION/OPERATIONS MANAGEMENT
The production and operations management (POM) function in an organization
is responsible for the processes that transform inputs into useful outputs as well as
for the overall operation of the business. Because POM processes are many and
varied, we discuss only four of them here; in-house logistics and materials
management, planning production and operation, computer integrated
manufacturing (CIM) and product life cycle management (PLM)
The POM function is also responsible For managing, the organization’s
supply chain. Because supply chain management is vital to the success of modern
organizations
In-House Logistics and Materials Management
Logistics s management deals with ordering, purchasing, inbound logistics
(receiving) and outbound logistics (shipping) activities. Related activities include
inventory management and quality control
Inventory Management
As the name, suggests, inventory management determines how much
inventory to maintain, Both excessive inventory and insufficient inventory create
problems, Overstocking can be expensive, due to storage costs and the costs of
293
spoilage and obsolescence However:, keeping insufficient inventory is also

expensive, due to last-minute orders and lost sales.
Operations personnel make two basic decisions when to order and how
much to order. Inventory models, such as the economic order quantity model,
support these decisions. There are many commercial inventory software packages
that automated the applications of these models.
Many large companies allow their suppliers to monitor their inventory levels
and ship products as they needed. This strategy, called vendor –management
inventory, eliminates the need for the company to submit purchasing orders.
Quality Control
Quality control systems are used by manufacturing units to obtain information
about the quality of incoming material and parts as well as that of in-process semi-
finished products and finished products. Such systems record all inspection results
and compare them with established metrics. These systems also generate periodic
reports containing information about quality; for example the percentage of defects
and the percentage of necessary rework. Quality/ control data collected by web
based sensors can be interpreted in real time or can be stored in a database for
future analysis.
Planning Production and Operations
In many firms, POM planning is supported by IT. POM planning has evolved
from material requirements planning to manufacturing resource planning,
enterprise resource planning.
Inventory systems that use an economic order quantity approach are
designed for items for which demanded is completely independent; for example, the
number of identical personal computers a computer manufacturer will sell.
In manufacturing operations however, the demand for some items is
interdependent. Consider, for example a company that makes three types of chair,
all of which use same screws and bolts. In this case, the demand for screws and
bolts depends on the total demand for all three types of chairs and their shipment
schedules. The planning process that integrates production, purchasing and
inventory management of interdependent items is called material requirement
planning (MRP).
MRP deals only with production scheduling and inventories. More complex
planning however, involves allocating related resources such as money and labour
as well. For these case more complex integrated software called manufacturing
resource planning (MRPII) is available. MRPII integrates a firm’s production,
inventory management, purchasing, financing and labour activities. Thus, MRPII
adds functions to regular MRP system . In fact MRPII has evolved into enterprise
resource planning.
Computer Integrated Manufacturing
Computer Integrated Manufacturing (CIM) also called digital manufacturing is
an approach that integrates various automated factory system. CIM has three basic
goals: (1) to simplify all manufacturing technologies and techniques .(2) to automate
294
as many of the manufacturing process as possible, and(3) to integrate and

coordinate all aspects of design, manufacturing and related functions via computer
systems
Some of the benefits of CIM are:
1) Increased efficiency through:
 work simplification & automation,
 better production schedule planning
 better balancing of production workloads in production capacity
2) Improved utilization of facilities, higher productivity, better quality control
through:
 continuous monitoring
 feedback and control of factory operations, equipment and robots.
3) Reduced investments in production inventories & facilities
 work simplification
 just-in-time inventory policies
 better planning and control of production
 better planning and control of finished goods requirements
4) Improved customer service
 reducing out-of-stock situations
 producing high-quality products that better meet customer requirements
Collaborative Manufacturing Networks
Manufacturing processes like computer-aided engineering and design,
production control, production scheduling, and procurement management typically
involve a collaborative process. Increasingly, this involves using the Internet,
intranets, extranets, and other networks to link the workstations of engineers and
other specialists with their colleagues at other sites. These collaborative
manufacturing networks may link employees within a company, or include
representatives from a company’s suppliers or customers wherever they may be
located.
Process Control
Process control is the use of computers to control an ongoing physical
process. Process control computers are used to control physical processes in such
areas as:
1. Petroleum refineries 5. Food product manufacturing plants
2. Cement plants 6. Pulp and paper mills
3. Steel mills 7. Electrical power plants
4. Chemical plants
Machine Control
Machine control is the use of a computer to control the actions of a machine.
This is also popularly called numerical control. The control of machine tools in
factories is a typical numerical control application, though it also refers to the
295
control of typesetting machines, weaving machines, and other industrial

machinery.
Machine control computers are used in such areas as:
1. Factories
2. Industrial shops
3. Machine tooling shops
Robotics
Robots are smart machines which directly control their own activities with the
aid of microcomputers. Robotics is the technology of building and using machines
(robots) with computer intelligence and computer controlled humanlike physical
capabilities (dexterity, movement, vision, and so on).
Robots are used as “steel-collar workers” to increase productivity and cuts
costs. They are used in such areas as:
1. Factories
2. Hazardous areas or work activities
9.9.7 COMPUTER-AIDED ENGINEERING
Manufacturing engineers use computer-aided engineering (CAE) to simulate,
analyze, and evaluate the models of product designs they have developed using
computer-aided design (CAD) methods.
Networks of powerful engineering workstations with enhanced graphics and
computational capabilities and CAD software help them:
1) Analyze and design products and manufacturing processes and facilities.
2) Refine an engineer’s initial drawings and provide three-dimensional
computer graphics that can be rotated to display all sides of the object being
designed.
3) Zoom in for close-up views of a specific part and even make parts of the
product appear to move as they would in normal operation.
4) Design can be converted into a finished mathematical model of the product.
Product Life Cycle management
Even within a Single organization. designing and developing new products can
be expensive and time consuming, When multiple organizations are involved, the
process can become very complex. Product life cycle management (PLA) is a
business strategy that enables manufacturers to share products-related data that
support both product design and development and supply chain operations. PLM
applies web-based collaborative technologies to product development. By
integrating formerly disparate Functions, such as a manufacturing process and the
logistics that support it, PLM enables these functions to collaborate, essentially
forming a single team that manages the product from its inception to its
completion.
296
21.3.7. THE FINANCIAL INFORMATION SYSTEM

The financial information system provides information to managers
throughout the firm concerning the firm's financial activities. Figure 21.5 uses the
same format as the information systems for the other business areas. The internal
audit subsystem consists of activities by the firm's internal auditors to maintain the
integrity of the firm's systems. Key output activities include forecasting future
economic trends. Managing the flow of funds through the firm and controlling the
firm's finances.
Fig. 21.5.1A Model of FinancialInformation System

A financial MIS provides financial information for managers to make daily
decisions on operations within the organization. Most systems provide these functions:
 Integrate financial information from multiple sources
 Provide easy access to financial information in summarized form
 Enable financial analysis using easy-to-use tools
 Compare historic and current financial activity
A financial MIS often has a number of subsystems, depending on the type of
organization. These include systems to analyze revenues, costs and profits, auditing
systems for both internal and external purposes and systems to manage funds. A
financial MIS can also be used to prepare reports for third parties, such as external
auditors or shareholders.
Computer-based financial information systems support financial managers in
decisions concerning:
1) The financing of a business
2) The allocation and control of financial resources within a business.
Major financial information system categories include:
1) Cash and securities management
2) Capital budgeting
3) Financial forecasting
4) Financial planning
297
Case Management
Cash management systems collect information on all cash receipts and
disbursements within a company on a realtime or periodic basis. Cash
management systems:
1) Allow businesses to deposit or invest excess funds more quickly and thus
increase the income generated by deposited or invested funds.
2) Produce daily, weekly, or monthly forecasts of cash receipts or disbursements
(cash flow forecast) that are used to spot future cash deficits or surpluses.
Online Investment Management
Many businesses invest their excess cash in short-term low-risk marketable
securities or in higher return/higher risk alternatives, so that investment income
may be earned until the funds are required. Online investment management
services:
Help a financial manager make buying, selling, or holding decisions for each
type of security so that an optimum mix of securities is developed that minimizes
risk and maximizes investment income for the business.
Capital Budgeting
The capital budgeting process involves evaluate the profitability and financial
impact of proposed capital expenditures. This application makes heavy use of
spreadsheet models that incorporate present value analysis of expected cash flows
and probability analysis of risk to determine the optimum mix of capital projects for
a business.
Financial Forecasting and Planning
A variety of financial forecasting packages provide analytical techniques that
result in economic or financial forecasts of national and local economic conditions,
wage levels, price levels, and interest rates.
Financial Planning systems use financial planning models to evaluate the
present and projected financial performance of a business or of one of its divisions
or subsidiaries. Financial planning systems:
1) Help determine the financial needs of a business and analyze alternative
methods of financing the business.
2) Use financial forecasts concerning the economic situation, business
operations, and types of financing available, interest rates, and stock and
bond prices to develop an optimal financing plan for the business.
3) They frequently use electronic spreadsheet packages and DSS generators to
build and manipulate models.
4) Are used to answer what-if and goal-seeking questions in order to evaluate
financial and investment alternatives.
Accounting Information Systems
Accounting information systems are the oldest and most widely used
information systems in business. Computer based accounting information
systems:
298
1) Record and report the flow of funds through an organization on a historical

basis and produce important financial statements such as balance sheets and
income statements.
2) Produce forecasts of future conditions such as projected financial statements
and financial budgets.
Operational Accounting Systems - focus on transaction processing systems.
They emphasize:
1) Legal and historical record-keeping
2) Production of accurate financial statements.
Typically, these systems include transaction processing systems such as:
1) Order processing 4. Accounts payable
2) Inventory control 5. Payroll systems
3) Accounts receivable 6. General ledger systems
Management Accounting Systems - focus on the planning and control of
business operations. They emphasize:
1) Cost accounting reports
2) Development of financial budgets & projected financial statements
3) Analytical reports comparing actual to forecasted performance.
The six most widely used accounting information systems include:
1) Order Processing
2) Inventory Control
3) Accounts Receivable
4) Accounts Payable
5) Payroll
6) General Ledger
Online Accounting Systems
Accounting information systems are being affected by Internet and client/
server technologies. Using the Internet, intranets, extranets, and other networks
changes how accounting information systems monitor and track business activity.
The online, interactive nature of such networks calls for new forms of transaction
documents, procedures, and controls. This particularly applies to systems like
order processing, inventory control, accounts receivable, and accounts payable.
These systems are directly involved in the processing of transactions between a
business and its customers and suppliers. Many companies are using or developing
network links to these trading partners for such applications, using the Internet or
other networks.
Order Processing
Order processing, or sales order processing, is an important transaction
processing system that captures and processes customer orders and produces data
needed for sales analysis and inventory control. In many firms, it also keeps track
of the status of customer orders until goods are delivered. Computer-based sales
order processing systems:
299
1) Provide a fast, accurate, and efficient method of recording and screening

customer orders and sales transactions.
2) Provide inventory control systems with information on accepted orders so
they can be filled as quickly as possible.
Fig. 21.6 Accounting information System

Inventory Control
Inventory control systems process data reflecting changes to items in
inventory. A computer-based inventory control system:
1) Records changes to inventory levels and prepares appropriate shipping
documents
2) May notify managers about items that need reordering and provide them with
a variety of inventory status reports.
3) Help a business provide high-quality service to customers while minimizing
investment in inventory and inventory carrying costs.
Accounts Receivable
Accounts receivable systems keep records of amounts owed by customers
from data generated by customer purchases and payments. Accounts receivable
systems:
1) Produce invoices to customers, monthly customer statements and credit
management reports.
2) Stimulate prompt customer payments by preparing accurate and timely
invoices and monthly statements to credit customers
3) Provide managers with reports to help them control the amount of credit
extended and the collection of money owed.
4) Help to maximize profitable credit sales while minimizing losses from bad
debts.
300
Accounts Payable
Accounts payable systems keep track of data concerning purchases from and
payments to suppliers. Accounts payable systems:
1) Prepare checks in payment of outstanding invoices and produce cash
management reports.
2) Help ensure prompt and accurate payment of suppliers to maintain good
relationships, ensure a good credit standing, and secure any discounts offered
for prompt payment.
3) Provide tight financial control over all cash disbursements of the business.
4) Provide management with information needed for the analysis of payments,
expenses, purchases, employee expense accounts, and cash requirements.
Payroll
Payroll systems receive and maintain data from employee time cards and other
work records. Accounts payable systems:
1) Produce paychecks and other documents such as earning statements, payroll
reports, and labour analysis reports
2) Are prepared for management and government agencies.
3) Help businesses make prompt and accurate payments to their employees,
as well as reports to management, employees, and government agencies
concerning earnings, taxes, and other deductions.
4) Provide management with reports analyzing labour costs and productivity.
General Ledger
General ledger systems consolidate data from accounts receivable, accounts
payable, payroll, and other accounting information systems. General ledger
systems:
1) Produce the periodic financial statements and reports of the business.
2) Help businesses accomplish accounting tasks in an accurate and timely
manner.
3) Typically provide better financial controls and management reports and
involve fewer personnel and lower costs than manual accounting methods.
1) The term business information systems is used to describe a variety of
types of information systems (transaction processing, information reporting,
decision support, etc.) that support the functions of business such as
accounting, finance, marketing, or human resource management..
2) Applications of information systems in the functional areas of business
include:
1. Production/Operations IS, 2. Marketing IS, 3. Financial IS,
4. Accounting IS, 5. Human Resource Management IS.
3) A marketing MIS supports activities throughout the many activities of
marketing departments. Some of the typical subsystems of a marketing MIS
are marketing research, product development and delivery, promotion and
advertising, product pricing and sales analysis.
301
4) The output subsystems of the HRIS each address a particular aspect of HR

management: planning, recruiting, and managing the workforce;
compensating the employees; providing employee benefits; and preparing the
many HR reports that are required by the environment, primarily government
agencies. This is the way that output subsystems are determined-they
represent the major areas of interest to the users
5) A typical manufacturing MIS is used to monitor the flow of materials and
products throughout the organization. In a manufacturing process, raw
materials or parts are transformed to finished products, and a manufacturing
MIS is used at every stage.
6) The production and operations management (POM) function in an
organization is responsible for the processes that transform inputs into useful
outputs as well as for the overall operation of the business
7) A financial MIS provides financial information for managers to make daily
decisions on operations within the organization Computer based accounting
information systems:1. Record and report the flow of funds through an
organization on a historical basis and produce important financial statements
such as balance sheets and income statements.2. Produce forecasts of future
conditions such as projected financial statements and financial budgets.
1) Explain the organization information systems?
2) Define HRIS?
3) What is production and operations management?
4) Define financial management information system?
21.6. SUMMARY
Functional business information systems support the business functions of
marketing, production/operations, accounting, finance and human resource
management through a variety of e-business operational and management
information system. The marketing information system (MKIS) provides information
that relates to the firm's marketing activities. it consists of a combination of input
and output subsystems connected by a database. The human resources
information system (HRIS) provides information to managers throughout the firm
concerning the firm's human resources. The transaction processing system
provides input data, as does a human resources research subsystem that conducts
special studies and a human resources intelligence subsystem that gathers
environmental data that bear on HR issues. The manufacturing information system
provides information to managers throughout the firm concerning the firm's
manufacturing operations. The production and operations management (POM)
function in an organization is responsible for the processes that transform inputs
into useful outputs as well as for the overall operation of the business. Because
POM processes are many and varied, we discuss only four of them here; in-house
logistics and materials management, planning production and operation, computer
integrated manufacturing (CIM) and product life cycle management (PLM).
A financial MIS often has a number of subsystems, depending on the type of
302
organization. These include systems to analyze revenues, costs and profits, auditing
systems for both internal and external purposes and systems to manage funds.
A financial MIS can also be used to prepare reports for third parties, such as
external auditors or shareholders. Accounting information systems are the oldest
and most widely used information systems in business.
1) Explain the human resource management information system?
2) Describe manufacturing information system?
3) Discuss the accounting information system?
1) www.studylecturenotes.com.
2) dosen.narotama.ac.id/.../Marketing-Research-and-Information-Systems.
3) http://www.drososd.gr.
21.9. ASSIGNMENTS
Discuss the applications of information systems in the functional areas of
business ?
21.10. REFERENCES
2) United States Sentencing Commission, U.S.Sentencing Commision’s Source
book of federal sentencing statistics.http://www.ussc.gov/ANNRPT/2004.
3) www.utdallas.edu/
4) www.umsl.edu/~chewl/
Discuss the role of corporate internet in HRMIS
21.12. KEYWORDS
 Manufacturing Information System
 Human Resources Information System
 Marketing Information System
 Accounting Information Systems
 Financial Information System.
 Production/Operations Management.

303
LESSON – 22
MARKETING INFORMATION SYSTEM
22.1. INTRODUCTION
The business function of marketing is concerned with the planning,
promotion, and sale of existing products in existing markets, and the development
of new products and new markets to better serve present and potential customers.
Marketing information systems integrate the information flow required by many
marketing activities.
Marketing information systems provide information for:
1) Internet/intranet web sites and services make an interactive marketing
process possible where customers can become partners in creating,
marketing, purchasing, and improving products and services.
2) Sales force automation systems use mobile computing and Internet
technologies to automate many information processing activities for sales
support and management.
3) Other marketing systems assist marketing managers in product planning,
pricing, and other product management decision, advertising and sales
promotion strategies, and market research and forecasting.
4) Planning, control, and transaction processing in the marketing function.
5) Strategic, tactical and operational information systems assist marketing
managers in product planning, pricing decisions, advertising and sales
promotion strategies and expenditures, forecasting market potential for new
and present products, and determining channels of distribution.
6) Control Reporting Systems support the efforts of marketing managers to
control the efficiency and effectiveness of the selling and distribution of
products and services.
7) Analytical reports provide information on a firm's actual performance versus
planned marketing objectives.
22.2. OBJECTIVES
 A knowledge of the major components of a marketing information system
 Understanding of the components of Targeted Marketing.
 Describe the Marketing intelligence systems.
 Understanding of the Inputs and outputs to the Marketing MIS.
22.3. CONTENTS
22.3.1. Interactive Marketing
22.3.2. Sales Force Automation
22.3.3. Sales and Product Management
22.3.4. Targeted Marketing
22.3.5. Marketing Information System
22.3.6. Marketing Subsystem
304
22.3.1. INTERACTIVE MARKETING

The explosive growth of Internet technologies has had a major impact on the
marketing function. The term interactive marketing has been coined to describe
a type of marketing that is based on using the Internet, intranets, and extranets to
establish two-way interaction between a business and its customers or potential
customers. The goal of interactive marketing is to enable a company to profitably
use those networks to attract and keep customers who will become partners with
the business in creating, purchasing, and improving products and services.
Fig. 22.1 Interactive Marketing

Figure 22.1 summarizes several important ways that computer-based
information systems support the marketing function. These include:
1) Interactive Marketing
2) Sales Force Automation
3) Sales Management
4) Product Management
5) Advertising and Promotion
6) Sales Forecasting
7) Market Research
8) Marketing Management
Note: The Internet has become the primary distribution channel of the new
online marketing environment. Customers are not just passive participants who
receive media advertising prior to purchase, but are actively engaged in a network-
enabled proactive and interactive process.
Note that interactive marketing views prospective customers as belonging to
many distinct market segments that must be approached differently online through
targeted marketing techniques. Interactive marketing also encourages customers
to become involved in product development, delivery, and service issues. This is
enabled by various Internet technologies, including:
305
1) Usenet discussion groups

2) Web forms and questionnaires
3) E-mail correspondence
The expected outcomes of interactive marketing are a rich mixture of:
1) Vital marketing data
2) New product ideas
3) Volume sales
4) Strong customer relationships
22.3.2. SALES FORCE AUTOMATION
Increasingly, computers and networks are providing the basis for sales force
automation. In many companies, the sales force is being outfitted with notebook
computers that connect them to Web browsers, and sales contact management
software marketing Web sites on the Internet, extranets, their company intranets.
Characteristics of sales force automation include:
1) Increase in the personal productivity of salespeople
2) Dramatically speeds up the capture and analysis of sales data from the field
to marketing managers at company headquarters.
3) Allows marketing and sales management to improve the support they
provide their salespeople.
4) Many companies view sales force automation as a way to gain a strategic
advantage in sales productivity and marketing responsiveness.
22.3.3. SALES AND PRODUCT MANAGEMENT
Sales managers must plan, monitor, and support the performance of the
salespeople in their organizations. Computer-based systems produce sales analysis
reports that analyze sales by product, product line, customer, type of customer,
salesperson, and sales territory. Such reports help marketing managers monitor
the sales performance of products and salespeople and help them to develop sales
support programs to improve sales results.
Some of the benefits of Web-based sales force automation include:
1) Shorten the sales cycle through prequalification of prospects.
2) Increase revenue through targeted marketing
3) Automate the management and qualification of web leads.
4) Capture all customer information directly into sales databases.
5) Enhance order management with access to data on pricing, promotions,
availability, production schedules, export regulations, carriers, and
transportation schedules.
Product managers need information to:
 Plan and control the performance of specific products, product lines, and
brands.
 Computers help provide price, revenue, cost, and growth information for
existing products and new product development. Provide information and
analysis for pricing decision is a major function of this system.
306
 Information is also needed on the manufacturing and distribution resources

proposed products will require.
 Computer-based models may be used to evaluate the performance of
current products and the prospects for success of proposed products.
ADVERTISING AND PROMOTION
Marketing managers need information to help them maximize sales at the
lowest possible costs for advertising and promotion. Computers use market
research information and promotion models to help:
 Select media and promotional methods
 Allocate financial resources
 Control and evaluate results of various advertising and promotion
campaigns.
22.3.4. TARGETED MARKETING
Fig. 22.2 Targeted Marketing

Targeted marketing has become an important tool in developing advertising
and promotion strategies for a company’s electronic commerce web sites. Target
marketing is an advertising and promotion management concept that includes five
targeting components:
 Community. Companies can customize their web advertising messages
and promotion methods to appeal to people in specific communities. These
can be communities of interest, such as virtual communities.
 Content. Advertising such as electronic billboards or banners can be
placed on various web site pages in addition to a company’s home
page. These messages reach the targeted audience.
 Context. Advertising appears only in web pages that are relevant to the
content of a product or service. So advertising is targeted only at people
who are already looking for information about a subject matter that is
related to a company’s products.
 Demographic/Psychographic. Marketing efforts can be aimed only at
specific types or classes of people.
 Online behavior. Advertising and promotion efforts can be tailored to each
visit to a site by an individual. This strategy is based on “web cookie” files
recorded on the visitor’s disk drive from previous visits. Cookie files enable
307
a company to track a person’s online behavior at a web site so marketing

efforts can be instantly developed and targeted to that individual at
each visit to their web site.
MARKETING RESEARCH AND FORECASTING
Market research information systems provide marketing intelligence to help
managers make better marketing forecasts and develop more effective marketing
strategies. Marketing information systems help market researchers, collect,
analyze, and maintain an enormous amount of information on a wide variety of
market variables that are subject to continual change. This includes:
 Information on customers, prospects, consumers, and competitors.
 Market, economic, and demographic trends are continually analysed
 Data can be gathered from many sources, including a company’s
databases, data marts and data warehouses, World Wide Web sites,
and telemarketing services companies.
 Statistical software tools can help managers analyze market research data,
and forecast sales and other important market trends.
22.3.5. MARKETING INFORMATION SYSTEM
A marketing information system (MIS) is intended to bring together disparate
items of data into a coherent body of information. An MIS is, as will shortly be seen,
more than raw data or information suitable for the purposes of decision making.
An MIS also provides methods for interpreting the information the MIS provides.
Moreover, as Kotler's1 definition says, an MIS is more than a system of data
collection or a set of information technologies:
"A marketing information system is a continuing and interacting structure of
people, equipment and procedures to gather, sort, analyses, evaluate, and
distribute pertinent, timely and accurate information for use by marketing decision
makers to improve their marketing planning, implementation, and control".
22.3.6. THE MARKETING SUBSYSTEM
Traditionally, the marketing function has consisted of those activities designed
to goods from the manufacturer to the ultimate consumer. Since the early 1950s,
however. "the marketing function has grown in scope and importance to a point
where many companies now speak a “marketing orientation", a "total marketing
concept," or "integrated marketing" as their principal organizational philosophy. In
some prominent firms (General. Electric, for example), the marketing function even
includes inventory management, production scheduling, and the physical
distribution of finished goods. Not surprisingly, there are also many MIS in which
the M stands for marketing, rather than management.
Figure illustrates the explanation of this model of an MIS begins with a
description of each of its four main constituent parts: the internal reporting
systems, marketing research system, marketing intelligence system and marketing
models. It is suggested that whilst the MIS varies in its degree of sophistication -
with many in the industrialized countries being computerized and few in the
developing countries being so - a fully-fledged MIS should have these components,
308
the methods (and technologies) of collection, storing, retrieving and processing data
notwithstanding.
Figure 22.3 The marketing information systems and its subsystems

Internal Reporting Systems
All enterprises which have been in operation for any period of time nave a
wealth of information. However, this information often remains under-utilized
because it is compartmentalized, either in the form of an individual entrepreneur or
in the functional departments of larger businesses. That is, information is usually
categorised according to its nature so that there are, for example, financial,
production, manpower, marketing, stockholding and logistical data. Often the
entrepreneur, or various personnel working in the functional departments holding
these pieces of data, do not see how it could help decision makers in other
functional areas. Similarly, decision makers can fail to appreciate how information
from other functional areas might help them and therefore do not request it.
The internal records that are of immediate value to marketing decisions are:
orders received, stockholdings and sales invoices. These are but a few of the
internal records that can be used by marketing managers, but even this small set of
records is capable of generating a great deal of information. Below, is a list of some
of the information that can be derived from sales invoices?
 Product type, size and pack type by territory
 Product type, size and pack type by type of account
 Product type, size and pack type by industry
 Product type, size and pack type by customer
 Average value and/or volume of sale by territory
 Average value and/or volume of sale by type of account
 Average value and/or volume of sale by industry
 Average value and/or volume of sale by sales person
By comparing orders received with invoices an enterprise can establish the
extent to which it is providing an acceptable level of customer service. In the same
way, comparing stockholding records with orders received helps an enterprise
ascertain whether its stocks are in line with current demand patterns.
309
Marketing Research Systems

The general topic of marketing research has been the prime ' subject of the
textbook and only a little more needs to be added here. Marketing research is a
proactive search for information. That is, the enterprise which commissions these
studies does so to solve a perceived marketing problem. In many cases, data is
collected in a purposeful way to address a well-defined problem (or a problem which
can be defined and solved within the course of the study). The other form of
marketing research centers not around a specific marketing problem but is an
attempt to continuously monitor the marketing environment. These monitoring or
tracking exercises are continuous marketing research studies, often involving
panels of farmers, consumers or distributors from which the same data is collected
at regular intervals. Whilst the ad hoc study and continuous marketing research
differs in the orientation, yet they are both proactive.
Marketing Intelligence Systems
Whereas marketing research is focused, market intelligence is not.
A marketing intelligence system is a set of procedures and data sources used by
marketing managers to sift information from the environment that they can use in
their decision making. This scanning of the economic and business environment
can be undertaken in a variety of ways.
Marketing intelligence is the province of entrepreneurs and senior managers
within an agribusiness. It involves them in scanning newspaper trade magazines,
business journals and reports, economic forecasts and other media. In addition it
involves management in talking to producers, suppliers and customers, as well as
to competitors. Nonetheless, it is a largely informal process of observing and
conversing.
Some enterprises will approach marketing intelligence gathering in a more
deliberate fashion and will train its sales force, after-sales personnel and
district/area managers to take cognizance of competitors' actions, customer
complaints and requests and distributor problems. Enterprises with vision will also
encourage intermediaries, such as collectors, retailers, traders and other
middlemen to be proactive in conveying market intelligence back to them.
Marketing Models
Within the MIS there has to be the means of interpreting information in order
to give direction to decision. These models may be computerized or may not. Typical
tools are:
 Time series sales modes
 Brand switching models
 Linear programming
 Elasticity models (price, incomes, demand, supply, etc.)
 Regression and correlation models
 Analysis of Variance (ANOVA) models
 Sensitivity analysis
310
 Discounted cash flow

 Spreadsheet 'what if models
These and similar mathematical, statistical, econometric and financial models
are the analytical subsystem of the MIS. A relatively modest investment in a
desktop computer is enough to allow an enterprise to automate the analysis of its
data. Some of the models used are stochastic, i.e. those containing a probabilistic
element whereas others are deterministic models where chance plays no part.
Brand switching models are stochastic since these express brand choices in
probabilities whereas linear programming is deterministic in that the relationships
between variables are expressed in exact mathematical terms.
Marketing Subsystem Modules
The scope of marketing activities assumed for this MIS model represents a
compromise between the traditional and "total" roles. Inventory and production
scheduling are assigned to the production subsystem, but some pre-production
activities, such as product development, are carried out in marketing. Other
activities included in the marketing function here are pricing, promotion, sales, and
marketing research. Figure 22.4 shows how each of these activities is represented
by an application module in the marketing subsystem of MIS.
Macroeconomic environment Besides the information about the forces in the
market the marketer has to have at his/her disposal information on the factors
which he may not influence. This category names information ranging from a)
demographic trends (e.g. number or age of inhabitants), b) socio-economic trends
(connected to culture, un/employment, and leisure time), c) ecological trends, d)
technological factors (fast progress in production) up to e) political factors
(restructuring programs, taxation). Although these qualitative information items are
less convenient for entry into the system, it may include legislation norms,
information resources and secondary resources of information.
Market analysis : The market may be characterized and analyzed in the
following ways: a) market in units (e.g. money, visitors), b) effective demand, i.e. a
total number of really sold products, c) potential demand, that is number of items
which might be sold. The system should be able to count the market volumes in
different ways and units as well as provide with the figures on penetration (also
cumulative) and market share.
311
Figure 22.4 The Marketing Subsystems

Customer’s behavior: The decisive factor in this category is whether we operate
at a consumer or industrial market. When operating on the industrial market we
will tend to specify in which stage of purchase the customer is at the given point
(specification of the problem, product, searching for suppliers and so on). We will
classify three stages of purchase: a) initial (original market), b) alternative, modified
or c) direct repeated, routine. Another decision is whether to produce or purchase,
the manager will specify possibilities of external supply, risk rate, quality
requirements and others. The individual customer will be classified and described
according to the following criteria [3]: a) culture and subculture (divided according
to e.g. age, religion), b) social status (based for instance on occupation, education),
c) social impacts (family, life cycle), d) individual factors (income, personality), and
e) psychological factors, such as physiological needs, social security and so on.
Additionally, it is important to identify the purchase role, for instance initiator,
decision-maker, customer or user.
312
Distribution analysis: Information gathered in this section concerns the

alternative distribution channels, analysis of customer’s preferences and a sort of
the product (everyday, luxurious). Distribution, similarly to other company
activities, has to be revised regularly in order to ensure a continuous improvement.
Marketing strategy: Finally the manager will need information on the company
activities compared in different times, compared to competition, plan and marketing
strategy. This information will be provided based on a) analysis of the sales, b)
analysis of the market share, the whole market or a sector where the company
operates, c) analysis of the sales, costs and profit, d) analysis of the marketing
policy, e) analysis of the target group, f) analysis of the marketing mix (policy of
product, prices, distribution, marketing communication) and last but not least g)
analysis of marketing activities.
Marketing Research
An important contribution of the total marketing concept is the notion that
marketing take place before production as well as after production. In other words,
the marketing not merely sell what the production department produces; it also
helps determine what those products will be. Marketing .research contributes to
this determination by ascertaining consumer needs, preferences, and behaviour
with respect to planned products.
Inputs to the marketing research module are bas d almost exclusively on
external data. Some secondary data, in the form of published institutional
governmental research on consumer activities, are available, but most marketing
research data are primary; that is, they are collected by the using organization (or
an agent of the organization) to meet specific information needs. Telephone or mail
surveys, interview, experiments, and direct observation are all means of obtaining
data on consumer preferences and buying habits. Like engineering, marketing
research is open-ended and is not limited by other organisational activities in the
way that, for example, quality control is. There is a delicate balance between
marketing research and the additional revenues that such information may bring.
The concept of expected value of sample information (EVSI), used in decision
theory, is useful in placing limits on marketing research expenditure.
Process in marketing research rely heavily on statistical models. Much of the
analysis is descriptive: tabulating findings, classifying data, constructing frequency
distributions, preparing graphic displays, computing measures of central tendency,
and so forth. But much of the analysis is also inferential estimating population
means from sample data, testing hypotheses about product success, and projecting
consumer ltaviour from past activities (trend analysis) or from other, related
variables (regression analysis). These greater processes are more typical of DSS, but
because they are used in a structured, recurring manner in marketing research
applications, it is appropriate to include them in the MIS.
Most marketing research output is used internally to prepare written reports
on consumer preferences, market targets for promotional campaigns, and the value
the public places on various products acrd services. In an automatic manufacturing
313
firm, for example, marketing research may determine that mull, fuel-efficient cars
are desired; that "two-car" families represent the largest potential market, and that,
for an extra $800, the average buyer would rather have velour upholstery and a
stereo radio than air bags and crash-resistant bumpers. Information like this is
rarely used by other MIS applications and need not be placed in the data base. It is
of interest to planners, however, and is conveyed to them in document form.
Inputs to the Marketing MIS
As compared to other management information systems, the marketing MIS
relies on external sources of data. The sources include the Internet, competition,
customers, journals and magazines, and other publications.
Strategic Plan and Corporate Policies
 Marketing relies on the organization’s strategic plan for sales targets and
projections.
 A sales projection of a firm might be that it is expected to increase sales by
steady 10% for the next five years. A marketing MIS report from such a
firm might organize current sales performance as compared to the sales
projection.
 Strategic plan can also contain information about projected needs for the
sales force, product and service pricing, distribution channels, promotion, and
new product features.
Transaction Processing System
 The transaction processing system and E-commerce of an organization
contains a large amount of data on products, customers, and sales force.
 Sales data on products can reveal which products are selling and which
ones are slow sellers. Reports summarizing order data might include sales
activity by customer, product, and geographical region.
 The marketing MIS might use the product information to formulate future
sales, develop advertisements, or make product development decisions.
 Customer data may be used to develop customer incentive programs such
as frequent flyer mileage in airlines.
External Sources
 Data on competitors such as new products and services, pricing strategies,
strengths and weaknesses of existing product lines, packaging, marketing
and distribution methodology- is important.
 Knowing what the competitors are doing or are likely to do is helpful in
designing new products and services, and marketing an existing product
line.
 Competitive data on competitors can be obtained from their marketing
materials, brochures, sales promotions, and the web.
 The process of obtaining competitive market information is termed as
marketing intelligence.
 Information on the target market of a farm’s product is also important.
314
Product Development
Product development is the second marketing module involved in the "front
end" of production. The product development function is to translate consumer
preferences (from the marketing research module) into general product
specifications, which are refined into detailed product design and material
specifications by the engineering section.
It is the responsibility of the product development section to provide
information about the legality, exclusivity (patent rights), competition (similar
products), performance, appearance, reliability, customer benefits and company
benefits of a proposed product. Although many of the inputs required to generate
this information come from external sources - patent right information, for example
- many others are made available by other MIS subsystems or modules; the
engineering module of the production subsystem provides product performance and
reliability data; the marketing research module can provide consumer reaction to
the appearance of the product; the finance subsystem can furnish data on the
profitability of similar products; and so on.
The primary outputs of the product development module are specifications for
new products Specifications developed by marketing personnel are concerned more
with product attributes than with design characteristics. For example, product
design may specify that a portable hair dryer be hand held, fold to fit in a 6" by 8"
by 3" case, have variable fan and heat controls, use no more than 1,000 watts of
electricity, and cost less than Rs.800 to produce in quantities of 100,000 or more.
An artist's conception of the finished product may accompany the specifications.
These specifications may be changed to accommodate the working mechanisms,
materials, and assembly processes proposed by engineering. The exchange of
information between product development and engineering is particularly important
when several products are under development concurrently or products require
may cycles between these two sections. Graphic representations and the technology
for producing them, which are characteristic of DSS, are very helpful in both
product development and engineering.
Pricing
The role of the pricing module is to fix an appropriate price for each product
made by the firm. In micro economic theory, prices are determined in the
marketplace and cannot be controlled by the seller alone In practise, however, the
underlying economic assumptions (rational behaviour by consumers, perfect
competition on product differentiation, and so on) are not met, and the seller has
considerable say in sew price- Advertising, in particular, permits variances from the
market price by modifying consumer for a particular brand.
Puce are based on marketing research output on public opinion, the prices of
competitive products, anti the costs of production (from the production subsystem).
The processes used to determine price can lac as simple as a percentage markup on
costs, or they may be based on a simulation of profit for various prices under
315
assumed demand functions. Whatever the process, the output becomes an

important input to promotion module and the finance subsystem.
Promotion
The promotion of a firm's product, one of the most important functions of
marketing, is based on creative activities - commercial art script writing, radio and
television production, and so forth- carried on outside the realm of MIS. Nevertheless,
there are certain inputs and outputs of the promotion module integral to MIS_
Promotion is another open-ended activity in which there are no inherent spending
limits (such as some maximum amount of resources needed by, say, production, to
manufacture a given volume of output) and that must be monitored closely to ensure
that the firm will not become "promotion poor" more than it can afford to become
"engineering poor" or "marketing-research poor." The control mechanism, of course,
is a promotion or advertising budget that establishes the standard data with which t#
actual cost data, a promotion module output, are compared.Inputs to the promotion
module include price schedules from the MIS application base, the management of
advertising activities is supported by the MIS. Linear programming models can be
used to develop a "media mix" that shows how to allocate limited advertising budget
among the various media in order to maximize sales.
Outputs of a Marketing MIS
Fig. 22.5 output of marketing MIS

316
Reports generated by the marketing MIS can help marketing mangers make
good sales decisions. Refer figure 22.5.
 The sales-by-product report lists all major products and their sales for a
period, such as a week or month. This report shows which product is doing
well and which ones need improvement or should be discarded altogether.
 The sales-by-salesperson report lists total sales for each salesperson for a
period, such as a week or month. This report can be subdivided to include
products sold by each salesperson.
 The sales-by-customer report lists sales for each customer for a period,
such as a week or month. This report can be used to identify high and low-
volume customers
Sales Management
The entire marketing effort ultimately culminates in sales, and the success or
failure of marketing is often (unjustly, perhaps) attributed to sales personnel. In a
typical manufacturing firm, where products are not sole directly to-consumers, the
sales personnel deal with the purchasing agents of other organizations and must
rely more on a technical and professional knowledge of their products than on the
stereotyped “sales pitch” frequently associated with consumer products.the sale of
industrial products is much more compatible with an MIS sales management
module. Sales managemnt is less open-ended than some other modules, but it is
still subject to budget control and receives, from the financ subsystem, a sales
budget input. Othe inputs includde the plans for promotion of each product and
sales estimate order ( from the sales force)
As usual, budget constraints on the input side must be complemented by
appropriate outputs. l,tt this case, the actual cost and volume of sales complete the
information needed for management control. The processing implied.by the budget
is relatively simple; expenditure, balances, and projected surpluses x deficits are
computed for various accounts, and the results are conveyed to managers via
reports. Another important output of the sales management module is a projection
of the sales volume for ssequent periods. Such projections often become the basis
for organizational objectives, which may come back to haunt the sales management
section. Overly optimistic projections cannot be met, and overly pessimistic ones
reflect badly on the ability and/or the integrity of the manager who submits them.
The techniques of developing sales projections range from the purely intuitive to the
highly mathematical. Although there is much to be said for intuition, experience,
"gut feelings," and other intangibles, they are sat be found in the MIS data base or
application base. Instead, MIS can assist in projections of this type through
multiple regression analysis, simulation, exponential smoothing, and other
management science bols of forecasting. Economic conditions, historical sales data,
performance evaluation of salespersons, rind the promotion budget can all be
incorporated into predictive models. And if Bayesian analysis is there are even ways
to combine a manager's subjective, intuitive estimates with empirical data.
317
Table 22.1 shows that information systems are used in sales and marketing in
a number of ways. At the strategic level, sales and marketing systems monitor trends
affecting new products and sales opportunities, support planning for new products
and services, and monitor the performance of competitors. At the management level,
sales and marketing systems support market research, advertising and promotional
campaigns, and pricing decisions. They analyze sales performance and the
performance of the sales staff. Knowledge-level sales and marketing systems support
marketing analysis workstations. At the operational level, sales and marketing
systems assist in locating and contacting prospective customers, tracking sales,
processing orders, and providing customer service support.
Table 22.1 Examples of Sales and Marketing Information Systems
System Description Organizational Level
Order processing Enter, process, and track orders Operational
Market analysis Identify customers and markets using Knowledge

data on demographics, markets,
consumer behavior, and trends
Pricing analysis Determine prices for products and Management

services
Sales trend forecasting Prepare 5-year sales forecasts Strategic
Management Activities In Marketing

Like production, marketing involves different management activities at
different organizational eels: operational control in marketing is concerned
primarily with sales-oriented tasks, management control deals with the human and
financial resources necessary to develop information on products and markets; and
strategic planning is involved in the establishment of sales objectives and
promotional strategy. The information needed to support these activities in
marketing are shown in Table 22.2.
Table 22.2 Examples of Information Requirements in
Marketing Requirements in Marketing
Operational Control Management Control Strategic Planning
Sales quotas Consumer preferences Sales projections
Price schedules Actual sales Public opinion
Orders Market targets (Competition)
Budget data
Institutional data
IMPORTANCE OF MARKETING INFORMATION SYSTEM
Marketing information includes all the date, in terms of facts, opinions, views,
guidelines and policies, which are necessary to make vital marketing decisions. The
data is collected from customers, competitors, company sales force and other staff,
government sources, specialized agencies and sources.
318
MIS provides relevant, reliable and required information in respect of business

environment-both internal and external environments. Such information is vital for
successful decision making.
The following are the benefits or advantages of MIS
1) Helps to Recognize Trends: MIS helps managers to recognize marketing
trends. The changing trends may be in respect of prices, product design,
packaging, promotion schemes, etc. managers can take effective decisions in
respect of prices, product designs, etc., in response to changing trends in the
environment.
2) Facilitates Marketing Planning and Control: Effective market planning is
required in terms of product planning, pricing, promotion and distribution.
Such planning will be possible only f the company is possessing adequate and
relevant information.
3) Quick Supply of Information: A firm has to take quick decision for this
purpose; it requires fast flow of information which is facilitated by a properly
designed MIS. Due to timely supply of marketing information, the marketing
managers can make quick and effective decisions.
4) Quality of Decision Making: In every aspect of marketing, there is need to
make constant and correct decisions. A properly designed marketing
information system promptly supplies reliable and relevant information. With
the help of computers and other data processing equipments, the marketing
managers can make the right decisions at the right time.
5) Tapping of Business Opportunities: There are number of business
opportunities which have remained untapped for various reasons are due to
unavailability of sufficient information. MIS makes it possible to tap business
opportunities as it can supply required and reliable data.
6) Provides Marketing Intelligence: Marketing intelligence refers to information
of the events that are happening in the external environment, i.e., changes in
customer tastes, expectations, competitors’ strategies, government policies,
international environment, etc. with the help of MIS specialists, it is possible
to collect marketing intelligence which is vital to make effective marketing
decisions.
7) Help Managers to Recognize Change: A business firm may be handling or
marketing a wrong line of products. As such the company will not be able to
make profits. And if it is does, profits may not be adequate. A firm which is
well equipped with MIS will be able to realize the need to change the line of
business.
8) Integration of Information: Firms, which are largely decentralized can
gather information which is scattered at many centers or departments and
integrate it for effective decision making. Such integration is possible if there
is a centralized MIS.
1) The marketing mix consists of four main ingredients that management
manages in order to meet customers' needs at a profit. The product
319
subsystem provides information about the firm's products. The place

subsystem provides information about the firm’s distribution network. The
promotion subsystem provides information about the firm's advertising and
personal selling activities. The price subsystem helps the manager make
pricing decisions. In addition, there is a fifth subsystem, the integrated-mix
subsystem, which enables the manager to develop strategies that consider the
combined effects of the ingredients.
2) "A marketing information system is a continuing and interacting structure of
people, equipment and procedures to gather, sort, analyses, evaluate, and
distribute pertinent, timely and accurate information for use by marketing
decision makers to improve their marketing planning, implementation, and
control".
1) Define is Marketing information system?
2) What is manufacturing information system?
3) What is marketing mix?
4) Define target marketing
5) Interactive Marketing
22.6. SUMMARY
A marketing information system has four components: the internal reporting
system, the marketing research systems, the marketing intelligence system and
marketing models. Internal reports include orders received, inventory records and
sales invoices. Marketing research takes the form of purposeful studies either ad
hoc or continuous. By contrast, marketing intelligence is less specific in its purposes,
is chiefly carried out in an informal manner and by managers themselves rather than
by professional marketing researchers. Three levels of decision making can be
distinguished from one another: strategic, control (or tactical) and operational. Again,
MIS has to support each level. Strategic decisions are characteristically one-off
situations. Strategic decisions have implications for changing the structure of an
organization and therefore the MIS must provide information which is precise and
accurate. Control decisions deal with broad policy issues and operational decisions
concern the management of the organization’s marketing mix.
1) What differences are there between marketing research and marketing
intelligence?
2) Discuss the marketing subsystems?
3) Explain the management activities in marketing?
1) Kotler, P., (1988) Marketing Management: Analysis Planning and Control,
Prentice-Hall p. 102.
2) Agnilar, F.. (1967) Scanning The Business Environment, Macmillan, New York,
p.47.
320
3) http://study.com/academy/lesson/applications-of-management-information-
systems-mis-financial-marketing-manufacturing-human-resources.html
4) http://elearning.vtu.ac.in/17/e-Notes/12MBA15/Unit5veena.pdf
22.9. ASSIGNMENTS
1) Discuss how marketing information system assist marketing managers in e-
commerce, product development and customer relationship.
2) What are the three types of input subsystems that exists in an information
system for a business area?
22.10. REFERENCES
Tenth Edition, PHI Learning Private limited, New Delhi, 2008.
3) Raymond Mcleod, Jr and George P. Schell, “Management Information System”
Tenth Edition, Pearson Prentice Hall, New Delhi, 2009.
Draw a diagram of an information system for your college or university. Use
the format of input subsystems, databases and output subsystems. Hint: In
specifying the output subsystem, identify information that would be of interest to
the users-members of the university or college administration.
22.12. KEYWORDS
 Marketing information system
 Marketing Intelligence System
 Marketing mix
 Order processing
 Pricing
 Product development
 Promotion.

321
LESSON - 23
PRODUCTION SYSTEM AND ACCOUNTING SYSTEM
23.1. INTRODUCTION
A management information system that is targeted for use any
where production is taking place. Modern management information systems are
generally computerized and are designed to collect and present
the data which managers need in order to plan and direct operations within
the company. Production involves the conversion of resource inputs into goods and
service outputs. Automobile manufacturers cover labour, capital, and raw material
into finished automobiles. Law firms "produce" legal services with the time and the
progression expertise of their partners. And military units provide national security
using labour, ships, tanks, aircraft, and other military hardware. Although these
examples show that a production function can be identified in a variety of
organizations, it is more common to think of production in terms of the manufacture
of goods. The study of accounting information systems (AISs) is, in large part, the
study of the application of information technology (IT) to accounting systems. This
chapter describes the ways that information technology affects financial accounting,
managerial accounting, auditing, and taxation. Answering the question ‘‘what are
accounting information systems’’ and then look at some new developments in the
field. Following this, we will examine some traditional roles of AISs in commerce.
23.2. OBJECTIVES
 Understand the concept of production system.
 Describers the material requirement planning.
 Discuss the operations of shipping and receiving.
 Be able to distinguish between such terms as ‘‘systems,’’ ‘‘information
systems,’’ ‘‘information technology,’’ and ‘‘accounting information systems.’’
 Learn how information technology (IT) influences accounting systems.
23.3. CONTENTS
23.3.1. The Production Subsystem
23.3.2. Material Requirements Planning
23.3.3. Management Activities in Production
23.3.4. Accounting Information Systems
23.3.5. Subsystems of Accounting Information System
23.3.1. THE PRODUCTION SUBSYSTEM
Manufacturing involves a number of activities not typically found in the
production of services inventory management, for example and will serve as a more
complete example of the production function. A diagram of the production
subsystem of an MIS for a manufacturing firm is shown in Figure 23.1.
Production Subsystem Modules
Modules in the production subsystem reflect the organizational structure of
the production department in the same manner as the subsystems reflect overall
322
organizations structure. For example, a purchasing module reflects the presence of

a purchasing section responsible for the acquisition of raw materials. Other
production modules in this model include shipping and receiving, engineering,
material requirements planning, operations, and quality control.
23.3.2. MATERIAL REQUIREMENTS PLANNING
Material requirements planning (MRP) combines two of the most important
activities in a manufacturing operation. Scheduling and the control of materials
Scheduling can be viewed as very short term planning in which specific times are
assigned for various production activities. MRP integrates material control with
scheduling by making materials available for production in a timely manner,
without undue inventory buildup or delays in the production schedule, MRP is
most appropriate when the demand for a manufactured product is subject to a
great deal of variation and the product is assembled from sub components.
There are three basic inputs to the MRP module; the master production
schedule, inventory status, and the bill of materials. The master production
schedule defines what finished products are needed and when they are needed. It is
based on orders and forecasts from the marketing department. The bill of materials
is developed in engineering and is based on the product specifications (also from
marketing) and engineering design principles. Inventory status shows both the
quantity of materials and the finished products on hand or on order. MRP itself is
not an inventory system, but is helps reduce inventory levels by resolving
uncertainty over the demand for materials.
Processing in MRP involves a computation of the total material requirements
for all finished products. A comparison of these requirements with on-hand or on-
order quantities and the desired safety stock level gives the additional quantity to
order. A further analysis involving the order and shipping time and the production
schedule results in the output of an order release notice, which gives the
purchasing section instructions to place the order. A second output, planned
orders, serves as an early warning to alert the purchasing section of impending
material requirements; and order rescheduling changes open orders as a result of
expenditure or expediting.
Operations
Operations involve the actual conversion of resources into goods or services.
Although operations are "where the action is" in production, it is actually one of the
simpler modules in this subsystem. Of course, many manufacturing processes are
fully or partially automated. And use computer-based methods such as numeric
control or robotics. The computer applications in these processes are certainly not
simple, but neither are they greatly involved in the creation of management
information. For this reason, we will not consider further the role of computers in
automation.
The operations module in this model receives orders and demands forecasts
from the marketing subsystem, budgetary data from finance, and product design
information from engineering. The operations module also receives a very important
feedback input (from the duality control module) in the form of quality reports.
323
Although these reports are shown as documents in Figure 23.1 quality information
is also furnished in more immediate form, verbally or by a mechanical signal, when
deviations from quality standards require the cessation of production operations.
Obviously, a manufacturing process cannot be permitted to continue out of control
during the time it takes to prepare and deliver a printed report, it must be corrected
as soon as possible after the problem is detected. The exact method of altering
operations personnel to quality discrepancies varies with different manufacturing
processes and products. Some Japanese manufacturing firms have installed pull
cords at work stations that permit any employee who discovers a quality problem to
signal for the shutdown of the manufacturing process.
Many operations inputs are actually transaction data and reflect basic
activities such as the consumption of materials, labour time, machine time, and
quantities of output. at makes the inputs somewhat unusual in operations is the
variety of data collection devices that may be employed. Sensors that record the
starting and stopping of machines, special purpose terminals that log in the arrival
and departure of employees, scanners that. measure raw material usage, counters
that record the volume of output, and similar devices are commonly used to collect
data in operations.
Classification, summarization, computation, and other TPS• and MIS process
convert operational data into management information that is used throughout the
MIS. For example, information on resource consumption is made available to
finance for cost accounting purposes, employee activities are reported to personnel
for the payroll, finished goods production is reported to shipping and receiving so
that orders may be filled, and so on. One of the more important outputs is not
based on transaction data but is prepared on the basis of resource availability and
marketing input; the master production schedule, which is used-internally for
scheduling operations and in the MRP module for planning material requirements.
Engineering
The engineering section - whether included in the production department, as
it is in this model, or organized as a separate department, as it is in many large
manufacturing firms - is chiefly responsible for the design of the product and the
production facilities. Engineering works closely with marketing in product design
and with other sections in the production department, notably operations, in
facility design. Engineering, especially when it has a research and development
function, can be a very expensive activity if not closely controlled. Budget in puts
are particularly important to engineering for this reason. Other than the budget
and the product specifications developed in the marketing subsystem, the
engineering module receives few MS inputs. More likely, the engineering section will
depend on environmental inputs relating to new developments in materials, health
and safety standards, and basic research. Also, many engineering data are
generated internally through product and materials testing.
The complexity of the processes found in engineering applications and the
increased likelihood of external data suggest the use of derision support systems
rather than MIS. DSS, or, at least, DSS technology - microcomputers. Mathematical
324
models, independent data bases, graphics displays, and the like - is used
extensively in engineering, but marry MS implications remain. The bill of materials
used by the MRP module is engineering based, as are the product design followed
by operations and the standards used in quality control. Although engineering may
use independent hardware for many internal applications, it is still possible,
through data communications, to make engineering available to other modules and,
in turn, to use MIS applications and/or data for DSS applications in engineering.
Shipping and Receiving
The dominant CBIS activity in the shipping and receiving section is
transaction processing MIS module is interesting nonetheless for its interface with
two enormously important environmental elements; vendors and customers. The
vendors are the suppliers of the raw material, components and subassemblies used
to manufacture finished products, and the customer, of course, are those finished
products. The customers of a manufacturing firm may be wholesalers, retailers or
other manufacturers and should not be confused with consumers, who are the
ultimate users of manufactured goods.
In the absence of a separate inventory module in this model, we will assume
that data on the inventory of both materials and finished goods are maintained by
shipping and receiving. Inventory applications require inputs on the addition of raw
materials (from receiving) and finished operations (from operations) as well as on
the consumption of raw materials (by operations) and the shipping of finished
goods (to customers). Because this model incorporates on MRP module, some of the
more traditional inventory processes - the computations of EOQ, for example - are
not required. The very important MRP input of inventory status replaces traditional
inventory reports and is a major output of this module.
Two additional inputs to the shipping and receiving module are the shipping
instruction from the finance subsystem and invoices from vendors. Shipping
instructions give the authority to ship finished goods to customers, after billing
actions have been initiated in finance, and invoices are notification that raw
materials or other physical resource inputs are in transit to the manufacturer.
Other outputs of the shipping and receiving module include invoices from the
manufacturer (which advise customers that goods have been shipped) and due-out
notices( which inform customers of temporary delay in shipping).
The processing in these other shipping and receiving applications reflects the
transaction processing orientation and consists largely of data maintenance. In
particular, data on unfilled orders, for which due out notices have been sent, must be
maintained to ensure shipment when the inventory is replenished. Other data, such
as the description and quantity of the goods shipped and received, are important to
certain financial application. Although the TPS processes in the shipping and
receiving module like those elsewhere, can be carried out in any data management
environment, the dependence of MIS applications on the timeliness and the
availability of these data require data they be stored and maintained in the database.
325
Purchasing
The purchasing function in this model appears to be just an extension of MRP_
Indeed, all of the internal inputs to purchasing shown in Figure 23.1 are MRP
outputs; order release notices planes orders and rescheduled orders. These inputs
are processed into purchase orders issued to the materials or components used in
production. But purchasing agents, in order to make intelligent decisions
concerning the choice of vendors, must also have data on the type, quality, price,
delivery availability of raw materials offered by various vendors. These data are not
normally found in the MIS data base; they must be provided by the user from
external sources. This is another situation in which a decision support system may
be more appropriate than an MIS.
Fig. 23.1 Production Subsystems

326
Quality Control
Quality Control (QC) ensures that materials, work in process, and finished
goods meet acceptable standards of quality. Although quality control is part of the
production subsystem in this model, care must be exercised to avoid any conflict of
interest between QC, which measures quality, and operations, which is responsible
for quality; To a lesser extent, QC is also kept at arm's length from engineering,
which may have some responsibility for establishing the standards against which
quality is measured.
'Inputs to quality control from the MIS include only the quality standards.
However, as in some other modules we have discussed, there may be decision
support applications. In this case, DSS models may be used to develop sampling
plans for selecting items to be inspected, simulating the cost of various inspection
plans for hypothetical quality levels, and performing statistical analyses on the
results of quality inspections.
Output from the QC module is in the form of quality reports, with the
provision, as noted earlier, that some more expeditious means may be necessary to
call serious quality control problems to the attention of operations managers.
Inputs to the Manufacturing MIS
 Strategic plan or corporate policies.
 The TPS:
 Order processing
 Inventory data
 Receiving and inspecting data
 Personnel data
 Production process
 External sources
Manufacturing MIS Subsystems and Outputs
 Design and engineering
 Master production scheduling
 Inventory control
 Manufacturing resource planning
 Just-in-time inventory and manufacturing
 Process control
 Computer-integrated manufacturing (CIM)
 Quality control and testing
327
23.3.3. MANAGEMENT ACTIVITIES IN PRODUCTION

Table 23.1 Examples Of Information Requirements In Production
Operational Control Management Control Strategic Planning
Production schedule Budget Sales forecasts
Bill of materials Inventory status Production reports
Shipping instructions Planned orders (Competition)
Order release notices Order resche- (The economy)
Quality standards duling
Sales orders
Product design
Quality reports
(Technology)
We saw that activities at each level of management have a unique orientation:
operational control is task oriented, management control is resource oriented, and
strategic planning has a goal orientation. This orientation holds for individual
functions as well as for the overall organization. In production, we find that
operational control is concerned with tasks such as the assembly of finished goods
from components or raw materials, the maintenance of inventory, and the shipment
of goods to customers. Management control is production is exercised over the
resources of equipment, materials, and personnel through scheduling, purchasing,
and the preparation of job specifications, respectively. Strategic planning does not
ordinarily deal with a single function, but typical production concerns in strategic
planning include future lets of production, the quality image of the organization,
and the extent of automation. .
Different management activities call for different information needs. Table 23.1
shows representative required by production managers at the three activity levels.
Items in parentheses indicate needs that cannot be satisifed by MIS and that must
come from external sources.
What are accounting information systems?
What do the following have in common: (1) a shoebox filled with a lawyer’s
expense receipts, (2) the monthly payroll spreadsheet in the computer of an auto-
repair shop, (3) the Peachtree accounting system for a small chain of dry-cleaning
stores, and (4) the ERP (Enterprise Resource Planning) system of a large
manufacturer? The answer is that they are all examples of accounting information
systems. How can such a wide range of accounting applications each qualify as an
accounting information system? The answer is that this is the essence of what AISs
are—collections of raw and stored data (that together typically serve as inputs),
processing methods (usually called ‘‘procedures’’), and information (outputs) that
serve useful accounting purposes. Do such systems have to be computerized? The
first example—the shoebox—suggests that they do not. Can they be complicated?
The last example-an ERP system-illustrates one that is.
328
Fig. 23.2 : Accounting Information Systems—A Definition
Figure 23.2 suggests that accounting information systems (AISs) stand at the
crossroads of two disciplines: ‘‘accounting’’ and ‘‘information systems.’’ Thus, the
study of AISs is often viewed as the study of computerized accounting systems. But
because we cannot define.
Definition: An accounting information system is a collection of data and
processing procedures that creates needed information for its users.
Accounting
You probably have a pretty good understanding of accounting subjects
because you have already taken one or more courses in the area. Thus, you know
that the accounting field includes financial accounting, managerial accounting, and
taxation. Accounting information systems are used in all these areas—for example,
to perform tasks in such areas as payroll, accounts receivable, accounts payable,
inventory, and budgeting. In addition, AISs help accountants maintain general
ledger information, create spreadsheets for strategic planning, and distribute
financial reports. Indeed, it is difficult to think of an accounting task that is not
integrated, in some way, with an accounting information system.
The challenge for accountants is to determine how best to provide the
information required to support business and government processes. For example,
in making a decision to buy office equipment, an office manager may require
information about the sources of such equipment, the costs of alternate choices,
and the purchasing terms for each choice. Where can the manager obtain this
information? That’s the job of the accounting information system.
AISs don’t just support accounting and finance business processes. They often
create information that is useful to non-accountants—for example, individuals
working in marketing, production, or human relations. Figure 23.2 provides some
examples. For this information to be effective, the individuals working in these
subsystems must help the developers of AIS identify what information they need for
their planning, decision making, and control functions. These examples illustrate
why an AIS course is useful not only for accounting majors, but also for many non-
accounting majors.
Information (versus Data)
Although the terms data and information are often used interchangeably, it is
useful to distinguish between them. Data (the plural of datum)are raw facts about
events that have little organization or meaning—for example, a setoff raw scores on
329
a class examination. To be useful or meaningful, most data must be processed into

useful information—for example, by sorting, manipulating, aggregating classifying
them. An example might be by taking the raw scores of a class examination and
computing the class average.
Do raw data have to be processed in order to be meaningful? The answer is
‘‘not at all.’’ Imagine, for example, that you take a test in a class. Which is more
important to you—the average score for the class as a whole (a processed value) or
your score (a raw data value)? Similarly, suppose you own shares of stock in a
particular company. Which of these values would be least important to you: (1) the
average price of a stock that was traded during a given day (a processed value), (2)
the price you paid for the shares of stock (an unprocessed value), or (3) the last
price trade of the day (another unprocessed value)?
Raw data are also important because they mark the starting point of an audit
trail— i.e., the path that data follow as they flow through AIS. In a payroll system,
for example, an employee’s time card for a given pay period indicates how many
hours he worked, and therefore (when combined with his hourly pay rate), his gross
pay. An auditor can verify the information on a paycheck by following the audit trail
backwards—for example, to make sure that the final value reflects the correct
payment for the number of hours worked
23.3.4. ACCOUNTING INFORMATION SYSTEMS (AIS)
AIS subsystems process financial transactions and nonfinancial transactions
that directly affect the processing of financial transactions. For example, changes to
customers’ names and addresses are processed by the AIS to keep the customer file
current. Although not technically financial transactions, these changes provide vital
information for processing future sales to the customer.
The AIS is composed of three major subsystems: (1) the transaction processing
system (TPS), which supports daily business operations with numerous reports,
documents, and messages for users throughout the organization; (2) the general
ledger/financial reporting system(GL/FRS),which produces the traditional financial
statements, such as the income statement, balance sheet, statement of cash flows,
tax returns, and other reports required by law; and(3)them management reporting
system (MRS), which provides internal management with special-purpose financial
reports and information needed for decision making such as budgets, variance
reports, and responsibility reports.
23.3.5. AIS SUBSYSTEMS
We devote separate chapters to an in-depth study of each AIS subsystem
depicted in Figure 23.3. At this point, we briefly outline the role of each subsystem.
330
Fig. 23.3
Transaction Processing System
The TPS is central to the overall function of the information system. It
converts economic events into financial transactions, records financial transactions
in the accounting records (journals and ledgers), and distributes essential financial
information to operations personnel to support their daily operations.
The TPS deals with business events that occur frequently. In a given day, a
firm may process thousands of transactions. To deal efficiently with such volume,
similar types of transactions are grouped together into transaction cycles. The TPS
consists of three transaction cycles: the revenue cycle, the expenditure cycle, and
the conversion cycle. Each cycle captures and processes different types of financial
transactions.
331
General Ledger/Financial Reporting Systems

The general ledger system (GLS) and the financial reporting system (FRS) are
two closely related subsystems. However, because of their operational
interdependency, they are generally viewed as a integrated system—the GL/FRS.
The bulk of the input to the GL portion of the system comes from transaction cycle
subsystems. Summaries of transaction activity are processed by the GLS to update
the general ledger control accounts. Other, less frequent, events such as stock
transactions, mergers, and lawsuit settlements, for which there may be no formal
processing cycle in place, enter the GLS through alternate sources. The FRS
measures and reports the status of financial resources and the changes in those
resources. The FRS communicates this information primarily to external users.
This type of reporting is called non discretionary reporting because the organization
has few or no choices in the information it provides. Much of this information
consists of traditional financial statements, tax returns, and other legal documents.
Management Reporting System
The MRS provides the internal financial information needed to manage a
business. Managers must deal immediately with many day-to-day business
problems, as well as plan and control their operations. Managers require different
information for the various kinds of decisions they must make. Typical reports
produced by the MRS include budgets, variance reports, cost-volume-profit
analyses, and reports using current (rather than historical) cost data. This type of
reporting is called discretionary reporting because the organization can choose
what information to report and how to present it.
A GENERAL MODEL FOR MIS
Figure 23.4 presents the general model for AIS. This is a general model because
it describes all information systems, regardless of their underlying technology. The
elements of the general model are end users, data sources, data collection, data
processing, database management, information generation, and feedback.
Fig. 23.4 presents the general model for AIS

332
End Users
End users fall into two general groups: external and internal. External users
include creditors, stockholders, potential investors, regulatory agencies, tax
authorities, suppliers, and customers. Institutional users such as banks, the SEC,
and the Internal Revenue Service (IRS) receive information in the form of financial
statements, tax returns, and other reports that the firm has a legal obligation to
produce. Trading partners (customers and suppliers) receive transaction oriented
information, including purchase orders, billing statements, and shipping
documents.
Internal users include management at every level of the organization, as well
as operations personnel. In contrast to external reporting, the organization has a
great deal of latitude in the way it meets the needs of internal users. Although there
are some well-accepted conventions and practices, internal reporting is governed
primarily by what gets the job done. System designers.
Accounting and Finance Subsystems Modules
One of the most obvious ways in which the, finance department becomes
involved in the activities of others departments is through the administration of the
budget, a fact represented by the manner in which the budget module overlaps all
four subsystems. Other finance modules, shown in figure 23.5, include-cost
accounting, funds management, financial accounting accounts receivable, and
accounts payable.
Budget
The budget provides control over an organization's financial resources, and
because other resources can be expressed. in monetary terms, the budget is a
control measure over those resources as well. The budget is also a planning tool - a
means of implementing plans by allocating, resources (or the funds to acquire
resources) to various activities in the organization for specific purposes. A plan to
introduce a new product, for example, is implemented by a budget (and other
directives)authorizing funds for research and development, the acquisition of new
equipment and material, the hiring and training of production personnel,
promotional campaigns, and so forth.
Budgeting, is a cyclical process that starts with budget guidance from ,top
management. The various profit centers in the organization then submit projected
costs and incomes for the coming budget period. These inputs are refined during
budget preparation as both the budget guidance and the expectations of functional
managers are modified to approach a common level. As shown in figure 23.5.
inputs to this process are both -internal (in the form of historical data) and external
(environmental data).
The development of a budget involves some unstructured decision making,
particularly on the part of top management. Electronic spread sheets ,can be of
assistance in the budgeting process. The development of income and cost
projections may require forecasting model. The capacity may be provided by a DSS,
although the recurring nature of the budget process may lead to the incorporation
333
of such models into the MIS. The remaining processes by. which data are
exchanged between those who ,formulate guidance and those who prepare the
projections, and by which the budget document itself is -prepared are largely a
matter or record keeping and report generation. In large organizations, however, the
sheet volume of the data associated with the budget can make even these routine
functions a challenging MIS application.
Although budgets are prepared and distributed as documents, they dynamic
nature of the budget requires that it be maintained in the data base, where it is
available to both planners and users. Planners must have the capability, of
modifying the budget as environmental conditions change, and users must have
access to the current .Status of their accounts.
Cost Accounting
In financial control, the budget provides projected data, whereas actual data
are furnished by the cost accounting module. As noted earlier, not all resource
expenditures are measured in monetary terms, and some control over labour;
machine time, and raw materials, for example - is exercised outside the finance
subsystem. 'Even these resources expenditure, however, are converted to dollar
amounts and .serve as input data to the cost accounting module.
Process in cost accounting involves the maintenance of cost data and the
comparison of actual costs to standards. For example, if the standard .time for
performing a certain job is 3 hours at a standard wage of Rs. 6,50 an hour, an
actual, time of 3 1/2 hours would result in a labour variance of (Rs.6.50x3)- (6 X
3.5), or - Rs.3.25. If the criteria for an exception report is 10 percent over standard,
this particular performance, which is (3.5-3)/3, or 16.67 percent, over standard,
would be called to the attention of management: for eorrecti.ve action. Although
this example results in a negative variance, management should, also be made
aware of large positive variances, which might indicate inappropriate standards, an
unexpected learning curve effect, or an unusually. efficient operation that could be
adopted in other areas.
Funds Management
Another financial module with close ties to budgeting is funds management.
The purpose of funds management is to ensure that funds will be available to meet
the financial obligations of the organization while at the same time maximizing the
returns on invested funds not needed to meet current obligations.
Funds management, also referred as capital budgeting, is an upper level
management activity in an organisation and, not unexpectedly, relies heavily on
data from external, as well as internal, sources. External data for these applications
come primarily from the financial community: investment opportunities, interest
rates, bond ratings and so on. Internal data center on projected sources (interest
and dividends on investments, accounts receivable due, wages, accounts payable,
and so on) of funds.
334
Fig. 23.5 The finance subsystems

There are a number of management science tools that are useful in the
management of funds. Linear programming can be used to develop an optimum mix
of long-and short-term investments to meet constraints on acceptable risk and the
availability of funds. Simulation can be used to determine the acts of various
investment plans. And, of course, the ability to compute present values, internal
rates of Turn, amortization schedules, and compound interest is now a common
feature on hand-held calculators well as being part of the financial planning models
in the MIS application base. The combination of anal data and management science
models also suggests the use of DSS in funds management.
335
Financial Accounting
The classification, recording, and summarization of monetary transactions is
referred to as financial as opposed to managerial - accounting. Although there is
some management information generated in financial accounting, the primary
purpose is to paint a financial picture of the organization for investors and creditors
and to satisfy legal requirements. This is in marked contract to a purely managerial
activity such as cost accounting, although financial and cost accounting may share
certain input data.
Monetary transactions, receipts and expenditures of funds are made available
to the financial accounting module through the data be and are maintained in
journals. Periodically, journal data are used update basic financial statements,
such as the balance sheet and the income statement. The processes involved in the
preparation of these statements rarely go beyond simple calculation and report
generation.
Although the accounting department is a traditional computer user,
accounting applications have art somewhat constrained by long-standing
"Generally Accepted Accounting Principles" (GAAP), some of which can be traced
back to the fifteenth century? One particular problem facing automated accounting
s the need for an audit trail to back up accounting entries. Random access files and
data bases are particularly difficult to audit, and in many cases, processing and
storage efficiencies must be sacrificed for compliance with GAAP.
Billing
The billing module receives input in the form of sales data (orders) from the
marketing subsystem a d sets in motion the process of filling those orders and
obtaining payment for them. The first step in this process involves a credit check
that compares the amount of the order with the limits imposed when the accounts
was established and modified by account status feedback from the accounts
receivable module, if credit can be extended, the order is further processed to
generate output for the customer, the accounts receivable module, and the
production subsystem. The customer receives a statement containing the amount
and terms of the payment due; similar data are provided the accounts receivable
module, and slopping instructions are sent to shipping and receiving module of the
production subsystem.
Billing is essentially a transaction processing activity, although some routine,
structured decisions such as the approval of credit) are made. Management
information based on billing data is more likely to be reflected in reports from other
modules - accounts receivable, for example - than from the billing module itself.
Accounts Receivable
The accounts receivable module is a logical extension of the billing module. At
the transaction - processing level, inputs from the billing module are added to a
customer's accounts balance, and payments are subtracted. Outputs from
accounts receivable include sales income data for budgeting and financial
accounting as well as account status feedback to billing.
336
At the MIS level, accounts are analyzed to provide information used in the
determination of credit ratings and payment terms. For example, if an analysis
shows that very few customers are taking advantage of discounts for early payment,
consideration should be given to increasing the discount. Simulation or other
techniques of financial analysis can weigh the loss of income from discounts
against the benefits of receiving early payment and can help financial managers to
make the discount decision. In the case of decisions regarding discounts, the MIS
analysis is subject to modification on the basis of external data that are not found
in the MIS data base, general economic factors affecting payment, the discounting
practices of competitors, and current interest rates. Other analyses classify
accounts by risk, age accounts by their due dates, or compute ratios for turnover
and collection.
Accounts Payable
The accounts payable module is the "cost counterpart" of the accounts
receivable module. The purpose of accounts payable is to pay vendors for the
materials ordered by the production subsystem and to settle other payable
accounts - except the payroll - in the organization. For simplicity, only payments for
materials are shown in Figure 23.5.
Payments are made on the basis of statement or invoice data entered into the
data base by the shipping and receiving module of the production department, or
on receipt of the material, depending on payment terms. The timing of payments is
also influenced by discounts and the availability of funds Discounts, such as "2-10,
net 30" (which means, "2 percent discount if paid within ten days, or the full
amount if paid between eleven and thirty days"), are usually taken if funds for the
budget period have not been expended or can be made available from other
sources.
Accounts payable is also a good example of how legal requirements and
generally accepted accounting practices complicate an MIS. Although payment data
can be stored almost definitely in electronic media in relatively little physical space,
state statutes of limitations require the maintenance of canceled checks for an
average of six years. This is just one example of the legal requirements for retaining
records that influence many modules within an MIS.
Order Processing
Captures and processes customer orders and produces data for inventory
control and accounts receivable.
Inventory Control
Process data reflecting changes in inventory and provides shipping and reorder
information.
Payroll
Records employee work and compensation data and produces paychecks and
other payroll documents and report
337
General ledger
Consolidates data from other accounting systems and produces the periodic
financial statements and reports of the business.
The Role of the Accountant
The different roles that accountants play with regard to the information system
are
1) Accountants as users must decide what information must be collected, how it
must be processed, and how it must be reported.
2) Accountants as systems designers must work with computer professionals in
designing the conceptual system while the computer professionals handle the
physical system. Keep in mind that the AIS is the custodian of the
accountant’s data and the processor of his or her information. The AIS cannot
be ignored.
3) Accountants as auditors must form opinions of the fairness of a company’s
financial statements. In recent years the profession has broadened this attest
function. Assurance services include traditional auditing but are also
concerned with the quality of information used by decision makers. Formation
of that opinion is dependent on the auditor’s ability to evaluate the accounting
system and have confidence that its output is reliable. IT auditing is
performed as part of the financial audit to determine the integrity of the
organization’s information system. Internal auditors are employees of the
organization.
Inputs to the Financial Information System
 Strategic plan or corporate policies
 Contains major financial objectives and often projects financial needs.
 Transaction processing system (TPS)
 Important financial information collected from almost every TPS -
payroll, inventory control, order processing, accounts payable,
accounts receivable, general ledger.
 External sources
 Annual reports and financial statements of competitors and general
news items.
Financial MIS Subsystems and Outputs
 Financial subsystems
 Profit/loss and cost systems
 Auditing
 Internal auditing
 External auditing
 Uses and management of funds
Management Activities in Finance
Operational control is concerned with tasks. In finance, those tasks include
preparing billing documents, recording receipts, and making payments.
338
Management control is exercised over resources and is especially important in

finance, where the resource to be controlled is money. The preparation of the
budget is the primary means of control, but it is followed closely in importance by
funds management Cost accounting provides a means of exercising control over
other resources, such as time and material& and the aging of accounts and other
analyses help to control receivable resources. Strategic planning objectives. In
finance, those objectives establish criteria for funds management, discounting and
won policies, and budget guidance. The information needs of financial managers at
different activity leek are shown.
Examples of Information Requirements in Finance
Operational Management Strategic
Control Control Planning
Actual Projected income data Income statements
Actual income data Funds requirements (Interest rates)
Receivable Account status (Investment
Funds availability opportunities)
Cost reports

1) A management information system that is targeted for use
anywhere production is taking place. Modern management information
systems are generally computerized and are designed to collect and present
the data which managers need in order to plan and direct operations within
the company.
2) There are three basic inputs to the MRP module; the master production
schedule, inventory status, and the bill of materials.
3) Two additional inputs to the shipping and receiving module are the shipping
instruction from the finance subsystem and invoices from vendors. Shipping
instructions give the authority to ship finished goods to customers, after
billing actions have been initiated in finance, and invoices are notification that
raw materials or other physical resource inputs are in transit to the
manufacturer.
4) Quality Control (QC) ensures that materials, work in process, and finished
goods meet acceptable standards of quality.
5) An accounting information system is a collection of data and processing
procedures that creates needed information for its users.
6) The AIS is composed of three major subsystems: (1) the transaction
processing system (TPS), which supports daily business operations with
numerous reports, documents, and messages for users throughout the
organization; (2) the general ledger/financial reporting system(GL/FRS),which
produces the traditional financial statements, such as the income statement,
339
balance sheet, statement of cash flows, tax returns, and other reports
required by law; and(3)the management reporting system (MRS), which
provides internal management with special-purpose financial reports and
information needed for decision making such as budgets, variance reports,
and responsibility reports.
1) What is production information system?
2) Define accounting information system.
3) Explain the management activities in finance.
23.6. SUMMARY
Computer based manufacturing information system help a company achieve
Computer integrated manufacturing (CIM) and thus simplify automate and
integrate many of the activities needed to quickly produce high quality products to
meet changing customer demands .manufacturing resource planning system help
plan the types of resources needed in the production process. Manufacturing
execution system monitors and controls the manufacturing of products on the
factory floor through shop floor scheduling and control system, controlling the
physical process, a machine tool or machines with some humanlike work
capabilities. Accounting information system record, report, and analyze business
transaction events for the management of the business enterprises. Six essential
accounting system including order processing, inventory control, accounts
receivable, accounts payable, payroll and general ledger. Information system in
finance supports manager in decision regarding the financing of a business and the
allocation of financial resources within a business.
1) Discuss the subsystems of production information system.
2) Discuss the subsystems of accounting information system.
3) Explain the role of accountant regard to information system.
1) Cheney, Glenn. ‘‘Are Auditors Patriot Act Ready?’’ Accounting Today Vol. 21,
No. 22 (December 17,2007), p. 14.
2) Coustan, Harvey, Linda M. Leinicke, W. Max Rexroad, & Joyce A. Ostrosky,
‘‘Sarbanes-Oxley: What it Means to the Marketplace’’ Journal of Accountancy
(February 2004), pp. 43–47.
3) Hannon, Neal J., ‘‘The Lead Singer Gets a Chorus,’’ Strategic Finance, Vol. 87,
Iss. 11 (May 2006),pp. 59–60.
4) http://www.businessdictionary.com/definition/manufacturing-information-
system.html#ixzz3Zqj1UOiY
23.9. ASSIGNMENTS
Take a survey of the students in your class to find out what jobs their parents
hold. How many are employed in manufacturing? How many are employed in
service industries? How many could be classified as knowledge workers?
340
23.10. REFERENCES
Limited, New Delhi, 2010.
2) Kenneth C. Laudon and Jane P. Laudon, “Management Information System”,
3) James A. Hall, “Accounting Information Systems”, Eight Edition, South-
Western, Cengage Learning, 2013.
Hiring an employee and taking a sales order are business activities but are not
accounting transactions requiring journal entries. Make a list of some other
business activities that would not be captured as journal entries in traditional AIS.
Do you think managers or investors would be interested in knowing about these
activities? Why or why not?
23.12. KEYWORDS
 Accounting information system
 General Ledger
 Inventory control
 JIT
 Management reporting system
 Manufacturing information system
 Material requirements planning
 Order processing
 payroll
 Quality control
 Shipping.

341
LESSON – 24
INVENTORY CONTROL AND HUMAN RESOURCE INFORMATION
SYSTEMS
24.1. INTRODUCTION
The inventory control system is a database used to describe in detail the
products sold by a company. A transaction history file is maintained automatically
so that detailed review of the receipts and shipment of products is available
throughout the system Minimum Stock Point, Order Point, and Maximum Stock
Point can be automatically computed based on various sales usage averaging
formulas, thereby reducing investment in Inventory Stock while reducing out of
stock and dead stock conditions. Various reports ranging from a master listing, to
different price lists, stock labels, valuation reports and reorder/overage reports are
available. Price files, supplied by your vendors/manufacturers, can be used to
automatically upload price/cost changes into the Inventory database. The effective
management of human resources in a firm to gain a competitive advantage in the
marketplace requires timely and accurate information on current employees and
potential employees in the labor market. With the evolution of computer technology,
meeting this information requirement has been greatly enhanced through the
creation of HRIS.
24.2. OBJECTIVES
 Understand the concept of inventory information system
 Describers the types of inventory reports.
 Explain the purpose and nature of an HRIS as well as the differences
between the types of information systems functionality in an HRIS
 Discuss how the information from an HRIS can assist in decision making in
organizations
24.3. CONTENTS
24.3.1. Inventory Management
24.3.2. Reports
24.3.3. Physical Counting
24.3.4. Human resource information system
24.3.5. Why Do We Need HRIS?
24.3.6. Model of an Organizational System Centered on HRIS
24.3.7. Designing of MIS for Attendance Capturing & Recording System
24.3.1. INVENTORY MANAGEMENT
1) Inventory management systems allow you to manage your stocks on a
quantity and value basis, plan, enter and check any goods movements and
carry out physical inventory.
342
2) In the inventory management system the physical stocks reflect all

transactions resulting in a change in stock and thus in updated inventory
levels.
3) The user can easily obtain an overview of the current stocks of any given
material.
4) For each material not only are the stocks in the warehouse shown , but also
the stocks ordered but not yet delivered, reserved for production or for
customer, and the stocks in quality inspection can be monitored.
5) Special stocks from the vendor or from the customer are managed separately
from the company‘s own stock.
6) Most inventory management systems support inventory methods like periodic
inventory, continuous inventory, inventory sampling and cycle counting.
Inventory Control
The edit inventory part file program is used to add, change, view or delete
part records in the Inventory database. This program is also used to review
quantities in each warehouse and to interactively review and/or adjust the stocking
control factors (averaging formula, minimum days/quantity, buy point
days/quantity, and maximum days/ quantity to stock) interactively on a part-by-
part basis.
 The edit inventory prices program is used to establish branch warehouse
pricing overrides.
 The post inventory receipts program is used to post inbound inventory
manually if no purchase control system is being used.
 The post inventory transfers program is used to transfer inventory
between warehouses if no purchase control system is being used.
24.3.2. REPORTS
 The inventory master listing program lists all data associated with a part
including pricing, product type, G/L codes, current quantities, detailed
transaction history, stock control averaging formulas with minimum, buy
point and maximum.
 The condensed list displays the data in a more compact format.
 The price listing shows only the List Price, Quantity Discounts, and
Current Stocking Quantities.
Labels
The label printing programs print stock labels in three sizes including
specialized barcode labels.
Valuations
The valuation reports compute the list price, average and latest cost value of
the parts on hand at a given time.
343
Fig. 24.1 Inventory Control Menu

Stocking Reports
 The stocking reports list the current Quantity On Hand, Available, and On
Order, along with the Minimum, Buy Point, and Maximum stocking level
and suggested Reorder Quantity.
 The reorder report lists only those items which have fallen below their
order point while the overage report lists only those items over their
established Maximum.
 The inventory stocking list shows all items, regardless of reorder status,
as long as there is some kind of quantity and/or history associated
with the part number.
 The inventory shippable list shows only items that have some “Shippable”
activity.
 The inventory unshippable list shows only items that have some
“UnShippable” activity upcoming.
The inventory history list shows only items that have had some activity in
the history file within the prescribed transaction date range.
The inventory in activity list shows only items that have had no activity
in the history file within the prescribed transaction date range and have a
current quantity on hand or available.
The inventory unused list shows only items which have had no activity in
the history file for any warehouse within the prescribed date range and have no
quantities.
24.3.3. PHYSICAL COUNTING
The physical counting programs are a series of programs used to assist the
process of taking an offline physical inventory and reconciling the results with the
database figures.
344
Miscellaneous
 The verify inventory data program is a maintenance program to ensure
internal data integrity in the Inventory database.
 The increase prices/cost program is used to make changes(increase or
decrease) in either selling price or latest cost by either a flat fixed amount,
or a percentage.
 The recompute stocking controls program automatically recomputed the
minimum, buy point ,and maximum based on pre-established averaging
formulas for a selected range of parts.
 The change part id program is a maintenance program used to change a
Part ID throughout the entire system.
 The purge inventory part file program is a maintenance program used to
remove parts from the Inventory database.
 The purge inventory history program deletes old Inventory History records
from the system. Usually, six month’s worth of history is adequate to
provide automatic stock controls (minimum, buy point, maximum)
computation.
 The price file upload menu provides access to a third level menu of Price
File Upload Menu programs.
Setup Part File
 The establish product type codes program is used to assign a new
Product Type code to selected part records. It also assigns the G/L
Accounts based on the defaults established in the icTypefile editor as per
the new Product Type code assigned.
 The establish manufacturer codes program is used to assign a new
Manufacturer code to selected part records
 The establish g/l account defaults program is used to assign the
G/LAccounts for selected part records based on the defaults established in
the icType file editors
 The establish preferred vendor program is used to assign a new Preferred
Vendor code to selected part records
 The establish discount tables program is used to clone an existing
Quantity Discount Pricing Table from an established Part onto other
selected parts.
 The establish stock formulas program is used to assign a Stock Formula
to selected warehouse quantity records
 The roll subcost into master program is used to recalculate the current
Average, Latest, and Book Cost for a master part record based on the costs
of its Sub-Assembly Table. This program is used to periodically correct cost
figures on master/kit parts based on more recent costing information in the
subassembly parts.
 The roll average cost to book cost program is used on a yearly basis, after
the year end Inventory Valuation has been computed and finalized, to
roll the current Average Cost into the Book Cost field. This is a common
method for setting aside a Last In First Out (LIFO) cost figure in preparation
for the next year end valuation.
345
File Editors
 File editors provide low level access to the database for
programmer/system administrator use only.
 The EDIT INVENTORY PART FILE program is used to add, change, view or
delete part records in the Inventory database
 Each part is identified by a upto 15 character Part Id and can also be located
by its description. additional description lines are available ,along with non-
printing note lines for cross-reference or product sourcing information.
 The Product Type code groups similar items into logical groups for
pricing/discounting considerations
 Manufacturer is a three character code designating the manufacturer
and/or vendor which groups parts together for use in customer pricing
schemes and is also useful for sorting reports/listings by manufacturer
 General Ledger asset, Sales and Cost of Sales account numbers are used to
produce daily and monthly invoice journals, and to update the General Ledger.
 The Volume is used for converting quantity sold to common factor (for
example, cubic feet of gas per cylinder, pounds to tons).
 The Multiplier is a pricing conversion factor used to convert between
stocking units and pricing units, (for example, sold by the pound, but
priced per ton).
 The file includes List Price, along with average, latest cost and book cost
figures.
Figure 24.2 Edit Screen: Inventory Part File Master Screen

346
 The MSdS Id indicates which Material Safety data Sheet is required for this
part. As Orders/Invoices are created, a customer’s MSDS file is
automatically monitored and updated as new MSDS sheets are triggered for
distribution.
 The Vendor Part Id is a secondary index used to locate a part via the code
encrypted INVENTORY CONTROL SYSTEM in its barcode label.
 Seven (7) Y/N flags are used to determine tax status, whole units versus
decimals, on-line editing options and pricing combination status
 Stocking information for an unlimited number of stores and warehouses is
maintained, including the bin Location, quantities On Hand, available for
sale, Back Ordered (hard goods)/ Empty (cylinders), On Order from vendor,
Minimum, Buy Point and Maximum stocking levels
The Warehouse Quantity
Screen (located behind the master part screen) is used to interactively review
and/or adjust the stocking control factors.
 Built-in controls exist for:
 Averaging formula
 Minimum days/quantity to stock
 Buy point days/quantity to stock
 Maximum days/quantity to stock
Fig. 24.3 View Screen : Inventory History File

 Monthly sales usage subtotals are displayed with quarterly subtotals and a
Year-To-date grand total
 Spikes in the usage subtotals (usage this month greater than previous 5
months combined) are flagged and can be overridden to correct averaging.
347
 Transaction history can be viewed on-line to review who’s buying the

product.
 Formulas can be established to govern a variety of stocking situations.
From hot moving items, to expensive slow movers, non-stock and seasonal.
 Minimum, Buy Point and Maximum can be frozen at current level by
zeroing out the days control points.
 Manual formula can be entered, superseding standard formulas in formula
file.
The Edit inventory prices program is used to establish branch warehouse
pricing overrides.
 Screenlay out allows quick editing of Quantity Breakpoints, Price and Cost.
 Branch Prices can be established as a percentage or flat amount off of list
price or a firm, fixed amount.
 Displays Effective Price (changed price) with Latest Cost for monitoring
margin.
Fig. 24.4 Editing Screen : Edit Inventory Prices

The posting inventory receipts program is used to post inbound inventory
manually.
The posting inventory transfers is a related program used to transfer
inventory between warehouse(Stores).
 Audit journal produced automatically at end of posting session listing
posted entries, dollar value adjusted and totals.
 Output can be directed to the screen,. PDF preview, any printer or a
network hard drive on the server
The reset physical quantity program erases any quantity that may have been
left over in the physical counting bucket from some prior counting. The physical
348
count as it is posted will be accumulated in this physical count bucket; therefore it

is necessary to clear/erase this field. As the physical count is reset, a copy of an
“Inventory Physical Count” sheet is produced.
The inventory physical count program is used to produce additional copies
of counting sheets for a batch of selected parts if more than one person is to be
doing the counting. Note: since a given part could be located in multiple places
throughout a warehouse, it can be noted on multiple count sheets. The count sheet
itself is a double spaced document showing the part number, description, units and
a large underlined space for writing in the physical count. It specifically does not
show the current “On-Hand” count as that would allow warehouse personnel to
simply confirm the number rather than actually counting the items. This program
also establishes the physical selection file.
The inventory stocking lists are a series of sophisticated reports based on
the Warehouse Quantities and Transaction History files. They can be used to
produce listings of only those parts which need reordering, or conversely only those
parts which are currently “shippable” or “unshippable” to customers. Finally,
variations exist to recap all history for any selected range of parts or even for only
inactive parts.
24.3.4. HUMAN RESOURCE INFORMATION SYSTEM (HRIS)
A HRIS is a software solution for small to mid-sized businesses to help
automate and manage their HR, payroll, management and accounting activities.
A HRIS generally should provide the capability to more effectively plan, control
and manage HR costs; achieve improved efficiency and quality in HR decision
making; and improve employee and managerial productivity and effectiveness.
Most are flexibly designed with integrated databases, a comprehensive
array of features, and powerful reporting functions and analysis capabilities that
you need to manage your workforce. This can give back hours of the HR
administrator’s day previously spent attending to routine employee requests.
A HRIS also facilitates communication processes and saves paper by
providing an easily-accessible, centralized location for company policies,
announcements, and links to external URL’s. Employee activities such as time-off
requests and W-4 form changes can be automated, resulting in faster approvals
and less paperwork.
An affordable Human Resource Information System (HRIS), for example Sage
HRMS’s e-capabilities, allows companies to manage their workforce through two
powerful main components: HR & Payroll. In addition to these essential software
solutions, HRIS offers other options to help companies understand and fully utilize
their workforce’s collective skills, talents, and experiences.
Some of the most popular modules are:
 Organization charts (Create professional looking, dynamic organization
charts)
349
 Employee self service (Employees can update personal information and

view benefits elections, absence transactions, time-off balances and payroll
information)
 Benefits Administration (Save paper and postage, take weeks off the
benefits open enrollment period, reduce administration time, and improve
data accuracy)
 Track training for employees
A HRIS offers HR, payroll, benefits, training, recruiting and compliance
solutions.
Labour Relations
Fig. 24.5 The Personnel Subsystems

Labour relations provide the interface between management and unions or
other worker organizations. Although labour relations are not normally thought of
as an MIS application, management representatives must have access to MIS data
concerning wage rates, production schedules, job specifications, and other matters
350
typically discussed in contract negotiations. Even accounting statements showing

company profits or losses in the past can become a basis for negotiating wage
packages. Access to this information and to the analytical tools of the MIS or a DSS
gives management representatives the ability to determine quickly and accurately
the effect of a proposal by either side.
The retrieval processes used by labour relations to obtain information for
negotiations are mirrors by storage processes that make the results of negotiation
available to other MIS users. Wage rates, fringe benefits, work conditions,
provisions for training, and other such data are entered into the data base, where
they may escalate during the term of the contract, are of great importance to the
finance modules of budge and funds management, as well as to the personnel
module of payroll. Work conditions - safety requirements, rest periods, shift
schedules, and the like - are inputs to the production subsystem. An. commitments
to train or retrain employees are an important input to the budget module and,
along with the requirements specified by operations, to the training module.
Personnel Actions
Personnel actions can be thought of as transactions involving personnel.
Hiring, classification, notion, taking vacation or sick leave, participation in group
health and life insurance, transfers, and termination are all examples of personnel
actions. Inputs to the personnel actions module include the sour contract, which
often contains provisions or restrictions on personnel actions' organizational
policies, request from employees; and requests from supervisors. Outputs are in the
form of summary or detail reports - summary to managers to show, for example,
the number and percentage of employees participating in the health insurance
program and detail to the personnel records and payroll modules to show that, for
ale, John Jones is participating.
Personnel Records
The maintenance of personnel records is still a manila-folder operation in
many organization, although it is well suited to MIS and data base management.
There is a great deal of redundancy in panel records that can be eliminated in a
data base environment. If you were to examine the personnel ids of a typical
employee in a large organization (or the records of a typical student in a university,
for matter), you might find his or her name and social security number on eight or
ten separate documents. An MIS personnel records module using a data base
would need to state that information only once.
But you can't examine the personnel records of that employee. Or any but
your own student ids Privacy laws prohibit it. This would not be a problem were it
not for the freedom of information ire that require access to an individual's own
records. Now the personnel and MIS managers must a way to let you see your own,
but no one else's records. It is difficult to give this assurance when individuals,
some of whom may be quite knowledgeable about data base procedures, are
allowed to sit at a al and scan their records. As a result, most personnel sections
print out records when there is a rest to examine them. Many organizations have
351
adopted the attitude that it is just as easy to maintain “hardcopy" files in the first
place and do not use computer files for personnel records. Privacy and freedom of
information requirements aside, personnel records require inputs on name, security
number, address, telephone number, pext of kin, training, education, age,
employment skills, job title, wage rate, and other similar data for every employee. In
addition to maintaining dating these data through normal transaction processing
methods, the personnel records module management reports summarizing relevant
information, such as an age or educational profile of Special reports may be used to
find "in-house" candidates for job openings = such as the b-al engineering example
cited at the beginning of this section on the personnel subsystem.
Training
In-house training in modem organizations can range from none at all to the
operation of college facilities Programs of instruction also vary greatly from very
specific, job-oriented skills to very management development programs. And much
training is conducted by outside agencies on a basis or simply by the
reimbursement of employees for educational expenses. For MIS purposes, we are
concerned not so much about the conduct of training but about the of training
information. The training activity is normally a profit center. That is, other
departments are "charged" for training services and have the option not to use them
or to go elsewhere for training. The training section is motivated to provide high
quality training at low cost and reasonable prices in order to show a profit. In this
context, training is like production or marketing or any other profit center and has
similar information needs.
The training module also has some unique MIS applications. Inputs are
received on purely training matters, such as job specifications, management
development requirements, contractual obligations to train or retrain employees,
employee qualifications and skill levels, and the availability of instructors and
training facilities. These data are used to develop and schedule programs of
instruction in almost the same way that the production subsystem develops
production schedules. In a DSS environment, some of the same scheduling
algorithms could be used for both applications. Outputs from the training module
include summary reports of training activities, detail reports for the updating of
personnel records, cost data for cost accounting, and projections of future
requirements for budget planning.
Payroll
The last module in this MIS module is also the first - or at least one of the first
- business data processing application; the payroll. You are probably already
familiar with payroll operations. The inputs consist of wage rates, hours of labour,
deductions, withholdings, and other similar data, from which pay is computed,
paychecks are printed, and reports are produced for state and federal tax agencies.
Although the computations of pay is largely a transaction processing activity, the
payroll represents so great a portion of the budget that even slight changes in pay
must be considered in financial planning. In this regard, analyses of the payroll to
352
show age, seniority, wage differentials, overtime, and other factors can be used to
determine the effect of wage demands during labour negotiations, the burden of
future retirement benefits, or the impact of changes in tax laws, such as a change
in the employer's contribution to social security.
24.3.5. WHY DO WE NEED HRIS?
Using HRIS gives firms several advantages (Beckers & Bsat, 2002). They
include the following:
 Providing a comprehensive information picture as a single, integrated
database; this enables organizations to provide structural connectivity
across units and activities and to increase the speed of information
transactions (Lengnick-Hall &Lengnick-Hall, 2006)
 Increasing competitiveness by improving HR operations and management
processes
 Collecting appropriate data and converting them to information and
knowledge for improved timeliness and quality of decision making
 Producing a greater number and variety of accurate and real-time HR-
related reports
 Streamlining and enhancing the efficiency and effectiveness of HR
administrative functions
 Shifting the focus of HR from the processing of transactions to strategic
HRM
 Reengineering HR processes and functions
 Improving employee satisfaction by delivering HR services more quickly and
accurately
The ability of firms to harness the potential of HRIS depends on a variety of
factors, such as
 The size of the organization, with large firms generally reaping greater
benefits;
 The amount of top management support and commitment;
 The availability of resources (time, money, and personnel);
 The HR philosophy of the company as well as its vision, organizational
culture, structure, and systems;
 Managerial competence in cross-functional decision making, employee
involvement, and coaching; and
 The ability and motivation of employees in adopting change, such as
increased automation across and between functions (Ngai&Wat, 2004).
24.3.6. A Model of Organizational System Centered on HRIS
The documentation and evaluation of HRIS development and
implementation are critical since we envision the effective functioning of any
organization as dependent on the effective management of its employees. The use of
computer technology to improve the management of employees is centered on the
creation and maintenance of an HRIS. Figure 24.6 depicts a model of an
353
organizational system centered on an HRIS. This model shows the interrelatedness

of the parts of an organization that can affect the functioning of the organization. It
indicates the interrelatedness between the strategic management system, the
strategic HRM system, and the performance, business, and HR goals that are
generated during the strategic planning process. Note particularly how the business
goals directly affect the HR goals; this relationship should be an ongoing process in
an organization, with adjustments made to either set of goals as needed. The HR
goals drive the HR programs that provide management the tools for the efficient and
effective use of employees. As will be emphasized throughout this book, the
alignment between the strategic management system, the strategic HR management
system, the business goals, the HR goals, and the HR programs is critical to the
organization’s maintenance of its competitiveness in the market (Evans & Davis,
2005; Huselid, Jackson, & Schuler, 1997).
Fig. 24.6 Model of an Organizational System Centered on HRIS

There are several aspects of this model that are critical. First, this model is a
framework to use in reading, organizing, and understanding the information given
in this book. Second, this is a systems model; that is, it is organic and can
changeover time, as represented by the feedback loops from goal achievement to
other parts of the model. Third, the model is centered on the use of an HRIS as
354
critical to the efficient operation of an organization. Note that, if the HRIS were
removed, it would still be a model of organizational functioning. However, it is our
contention that an organization operating in accordance with this model would run
more slowly and less efficiently, and this could hurt its competitiveness in the
marketplace. Fourth, the HRIS and the HR program evaluation results, in terms of
HR metrics and cost-benefit results (value added and return on investment—ROI),
are in continual interaction. This emphasis is consistent with current thinking in
the HRM field (Cascio, 2000; Fitz-enz, 2000, 2002) and has generated the HR
workforce scorecard (Becker et al., 2001; Huselid et al., 2005). Finally, it is
important to note that the successful design, development, and implementation of
Other aspects of this model are important. First, all the factors in the external
environment will influence the internal functioning of the organization. The most
important of these factors is national culture. National culture will affect all the
factors in the external environment: government regulations, the labor market,
societal concerns, technology, HRM research, and competition. These factors, in
turn, will have an impact on the organization.
24.3.7. DESIGNING OF MIS FOR ATTENDANCE CAPTURING & RECORDING SYSTEM
The main objective of Attendance Recording System (ARS) is to ensure that
the attendance (i.e. presence or absence) of employees is accurately recorded and
reported for computation of payable days, overtime hours, festival allowances and
payable ESI contributions etc.
Responsibilities
Following are the responsibilities assigned at various levels in the
organization-
1) Employing Activity’s Responsibilities
2) Approving official’s Responsibility
3) Timekeeping Responsibilities
Employing Activity’s Responsibilities
Time keepers shall ensure that:
1) Worker’s shift punch times are according to shifts allotted by corresponding
department HOD.
2) The recording and approval of time and attendance are performed timely and
accurately as required by worker’s allotted shift.
3) All required supporting documentation is available for audit purpose.
4) Procedural guidance manual is clear and adequate to ensure that time
keeping are correctly performed.
5) All corrections and adjustments are in accordance with corresponding
department list provided by department HOD.
Approving official’s Responsibility
1) Normally, timekeeping responsibilities shall be assigned to individuals who
are aware of employee’s attendance and absence each day.
2) Timekeeper shall ensure that exceptions to the worker’s normal tour of duty
are recorded in a timely and accurate manner.
355
3) An alternate timekeeper shall be appointed to maintain time and attendance

during the absence of the primary timekeeper.
Timekeeping Responsibilities
1) Timekeeping is a critical function, which may be performed by the individual
employee, Timekeeper, department’s HOD ,or a combination of these individuals.
The timekeeping Function requires the accurate and timely recording of time and
attendance data and the maintenance of related documentation.
2) Timely and accurate recording of all exceptions to the employee’s normal tour
of duty.
An efficient employee Attendance Recording system makes for a smoother-
running organization. The ARS can contribute to an organization’s overall harmony
and efficiency. This automated system saves time for managers and employees,
improving their productivity. By eliminating manual record keeping, it reduces
errors, avoiding disputes. ARS integrates a company’s accrual policies and
consistent awarding of employee attendance. The primary goals of ARS are to:
1) Establish an efficient workflow process for attendance authorization.
2) Integrate time and leave data with HR, payroll and ERP systems, or to APIs for
electronic processing.
3) Ensure accurate and consistent implementation of pay and leave policies.
4) Quickly and simply request leave or other scheduled absences.
5) Receive automatic notification of leave balances, as well as available vacation
and personal time, sick days another leave benefits.
Decision Making at Top Level
A decision is basically resource allocation process that is irreversible except
that a fresh decision may reverse it or it may overrule the earlier one. A decision is
a reasoned choice among alternatives. The decision maker having authority over
the resources being allocated makes a decision. The decision can be of various
types like simple decision in which there is only one decision is to be made with
many alternatives, decision may be goal oriented; decision may be strategic or
tactical. The decision capacity involves intelligence, design, choice and
implementation of decision maker.
The MIS designed in the study for Attendance Capturing &Recording for Birla
Corporation Limited mainly generates the reports like Daily Attendance, Monthly
Attendance, and Sick Report etc. on which the top management by receiving these
reports analyses and the decisions regarding shifting the priority of the job,
observing the performance and corrective measures are taken.
MIS Designed for Attendance Capturing & Recording System
The main purpose of this system is to capture the data and recording the
attendance of the employee’s working in the organization. For completion of this
task a punching machine i.e. Punch Card Reader is used. Each employee punched
his card into the punching machine. The punching machine reads his card no. And
that particular time, on which the card is to be punched. After that the whole data
which is stored on the machine are captured by a software i.e. Auto Data Capture
356
CP/IP (version 7.3.1). It describes the Machine No., location, memory used, status,
record no., and last update time. Captured data is to be load by using either
Windows 2000 or Telnet through the use of loader. When the captured data is to be
completely loaded then we requires to the processing of punched data. During the
processing of punched data the processed data is to be transferred in the database.
In the proper working of this system the Punch Card Reader machine, Auto
data Capture software, loader, Processing of punched data and transferring the
processed data into the database plays an important role. Firstly the employee
punched his card into the punching machine. The card is to be punched in the
machine according to the shift on which employee do work. Therefore the card is to
be punched in the time of shift started, lunch in, lunch out and when the shift
ended. The punching machine reads employees card no. and that particular time,
on which the card is to be punched. After that the whole data is captured by the
Auto Data Capture software that, describes machine number, on which the card is
to be punched, location, memory used, status, record no. and last update time. The
captured data is to be loaded by the loader. We can load captured data by using
either Windows 2000 or Telnet through the use of loader.
When the captured data is to be completely loaded then we requires to the
processing of captured data. For processing of punched data we need to give the
process start date i.e. the date of processing loaded data, process unit i.e. the unit
that is to be processed and process day of employee. After giving these values it
starts processing of punched data automatically. If in any date the data is not
exists then it displays a message that punched data is not available on that date. If
any employee punched his card more than one times instantly then it automatically
deletes double punched card. After processing of captured data it displays the
message that punched data processing have in completed. If there are any mistakes
in the processed data i.e. missing punched time etc. then it can be eliminated by
using missing punch correction form.
If missing punching exists in processed data then we required the transferring of
punched data. In the process of transferring the punched data we need to key in
payment day of employee, pay unit and the date of employee attendance. If the data is
to be not processed on that date then it does not transferred the data in the database.
It transferred whole data in the database. After transferring of processed data into the
monthly attendance database we can perform various operations on it i.e.
1) Getting daily attendance of employee according to their unit on which they are
working.
2) Getting attendance of employee in a range.
3) Getting monthly attendance of employee.
Reporting from the Designed MIS
The reports which are used by top management are generated from the
above MIS like Monthly Attendance, Card Replacement, Sick Report, and Monthly
Voucher Correction which are submitted to HR Manager and he takes proper
357
decisions related with Attendance Capturing & Recording. The proposed system has
following advantages:
1) Worker’s individual information is stored separately.
2) Searching of particular information became faster.
3) Generation of various reports made review processes.
4) Due to user friendly interface the matter became easy to understand.
5) Password oriented system increased security of data.
6) There are facilities of full database backup and central control of user.
7) Well-defined authorization and security levels.
8) The developed system is on-line.
9) Economical.
Management Activities in Personnel
Personnel operations are perhaps more dominated by operational control
activities than any of the other functions considered in this model. The tasks over
which operational control is exercised in personnel are those of maintaining
records, processing pay, and conducting training. Management control is exercised
over the very important human resources with which personnel activities deal,
primarily through hiring and the management of training resources - instructors,
equipment, and other facilities. At the strategic planning- level, top managers
establish policies and objectives for hiring, promotion, training, and other personnel
activities. And although labour negotiations are technically a task, the importance
and the long intervals between negotiations make them a strategic responsibility as
well. Examples of the information needs of personnel managers at the three
management activity levels are shown in Table 2.4.
Examples of Information Requirements in Personnel
Operational Management Strategic
Control Control Planning
Training schedules Training requirements Projected labour costs
Wage rates Labour costs
Pesonnel actions Personnel reports (Labour law)
Labour contracts
Labour markets
Training reports
(Privacy Acts)
(Freedom of
Information Acts)
1) The inventory control system is a database used to describe in detail the
products sold by a company.
2) The edit inventory part file program is used to add, change, view or delete
part records in the Inventory database.
3) The stocking reports list the current Quantity On Hand, Available, and On
Order, along with the Minimum, Buy Point, and Maximum stocking level and
suggested Reorder Quantity.
358
4) The physical counting programs are a series of programs used to assist the
process of taking an offline physical inventory and reconciling the results
with the database figures.
5) The inventory master listing program lists all data associated with a
part including pricing, product type, G/L codes, current quantities, detailed
transaction history, stock control averaging formulas with minimum, buy
point and maximum
6) The inventory physical count program is used to produce additional copies
of counting sheets for a batch of selected parts if more than one person is to
be doing the counting. Note: since a given part could be located in multiple
places throughout a warehouse.
7) A HRIS is a software solution for small to mid-sized businesses to help
automate and manage their HR, payroll, management and accounting
activities. A HRIS generally should provide the capability to more effectively
plan, control and manage HR costs; achieve improved efficiency and quality
in HR decision making; and improve employee and managerial productivity
and effectiveness.
1) What is inventory control system?
2) What are the components of human resource information system?
24.6. SUMMARY
Transaction processing systems are operations information systems that
process data resulting from business transactions. They involve the basic activities
of data entry, transaction processing, file and database processing etc. .Finance
and Accounting information system take care of inventory control, accounts
payable, receivable, budget and general ledger systems .Human resource
information system support for staffing, training and development, compensation
and performance appraisal .A model of organizational functioning centered on an
HRIS was discussed briefly, with the discussion focusing on how the feedback from
results generated by an HRIS can influence the operation of the entire organization
1) Explain the Stocking Reports.
2) Discuss inventory control system.
3) What is required for the effective management of human resource in a firm to
gain a competitive advantage in the market place?
4) Explain the subsystem of HRIS.
1) Mohan ThiTe, Michael J. Kavanagh, and Richard d. Johnson, “Evolution of
Human Resource Management and Human Resource Information systems”
The Role Of Information Technology.
2) Information and management
3) International journal of information management.
359
24.9. ASSIGNMENT
What are the most important HR applications a company should offer to its
employees via a Web based system? Why?
24.10. REFERENCES
1) Cascio, W.F. (2000). Costing human resources: The financial impact of
behavior in organizations (4th ed.). Cincinnati, OH: South-Western
College.
2) Fitz-enz, J. (2000). The ROI of human capital: Measuring the economic value
of employee per formance. New York: AMACOM/American Management
Association.
3) Beckers, A.M., & Bsat, M. Z. (2002).A DSS classification model for research in
human resource information systems. Information Systems Management,
19(3), 41-50.
4) Huselid, M.A., Becker, B. E., & Beatty, R. W. (2005). The workforce scorecard:
Managing human capital to execute strategy. Boston: Harvard Business
School Press.
5) www.infonetx.com.
6) K.P. Tripathi (2011),” Role of Management Information System (MIS) in
Human Resource”, IJCST Vol. 2, issue 1, march 2011.
Case Study: Position Description and Specification for an HRIS Administrator
One way to assess the nature and importance of a particular function or
position in an organization is to examine the job description and job specifications
for this position, as they tell us what activities, duties, and tasks are involved in the
job as well as what knowledge, skills, and abilities (KSA) are required to perform the
job. The following is an actual advertisement for an HRIS administrator. A large
corporation placed this ad in the “Job Central” section of the Internet site for the
International Association for Human Resources Information Management
(http://ihrim.hrdpt.com/cgi-bin/a/searchjobs_quick.cgi, accessed July 10, 2010).
HRIS Administrator
Job Level: Senior (5+ Years), Full time.
Reports to: Sr. Director of Human Resources Operations.
Position Summary
MOMIRI, LLC is an Alabama Native Owned Corporation, providing shared
services to the MOMIRI family of companies and planning and incubating the next
generation of companies serving federal and commercial customers. MOMIRI
companies offer core expertise in telecommunications, information technology,
product development, major program management, open source software,
construction management, facility operations, and operations support. MOMIRI
companies realize that quality personnel are the key to our success. An excellent
benefits package, professional working environment, and outstanding leaders are
all keys to retaining top professionals.
360
Primary Function
The incumbent will serve as a key member of the HR Support Services
department and provide professional human resources support in specific functions
or disciplines to management and staff for the MOMIRI family of companies. This
position is viewed as going to a midlevel professional who assists management and
staff with HR programs at the tactical level and performs all essential duties and
responsibilities at the direction of the Manager of HR Operations.
Essential Duties and Responsibilities
1) Provides technical assistance to senior-level HR staff and management on
several HR programs to include employee relations, compensation, EEO
compliance, company policies and procedures, disability programs (STD, LTD,
FMLA, ADA), federal and state employment laws, and personnel actions as
needed.
2) Supports and maintains the Human Resources Information System (HRIS) in
addition to other systems supported by the management of enterprise
applications.
3) Serves as technical point-of-contact for assigned functional areas and assists
subject matter experts with ensuring data integrity, testing of system
changes, report writing and analyzing data flows for process improvement
opportunities.
4) Supports HRIS and other enterprise systems’ upgrades, patches, testing and
other technical projects as assigned.
5) Recommends process/customer service improvements, innovative solutions,
policy changes and/or major variations from established policy.
6) Serves as key systems liaison with other departments and process
stakeholders (e.g., Payroll).
7) Writes, maintains, and supports a variety of reports or queries utilizing
appropriate reporting tools. Assists in development of standard reports for on
going customer needs.
8) Maintains data integrity in ATS, HRIS, and other enterprise systems by
running queries and analyzing and fully auditing data across all HR
departments.
9) Conducts new hire in-processing to include systems training for new
employees and entering new employee information in Cost point.
10) Conducts termination out-processing to include entering employee separation
information in Cost point and reporting attrition data.
11) Develops user procedures, guidelines, and documentation for HR-related
systems. Trains system users on new processes/functionality.
12) Provides HR tools and resources for management and staff to accomplish
their goals and objectives.
13) Processes personnel actions (hires, terminations, pay & title changes,
promotions, Employment status, etc.) to include entering data into HRIS.
14) Assists with special HR-related projects and provides training to other staff
members as required.
361
15) Performs other duties as assigned.

Requirements
Specialized Knowledge and Skills
 Experience working with a multiple-site workforce.
 Working knowledge of federal and state employment laws and related acts.
 Advanced to expert level computer skills.
 Excellent verbal and written communication and presentation skills.
 Great interpersonal skills.
 Strong time-management and prioritization skills.
Qualifications
 Bachelor’s degree in HR and/or equivalent professional experience.
 3-5 years of technical HRIS experience in professional HR environment.
 Self-directed, highly responsive, and detail oriented.
 Ability to maintain absolute confidentiality in all business matters.
 Government contracting experience is a plus.
Case Study Questions
1) How does this position help the HR function become a strategic partner of the
organization?
2) From the position description, identify the traditional, transactional, and
transformational HR activities that this position is involved with.
3) Using the key responsibilities identified for this position, explain why and how
the HRIS function plays a pivotal role in the organizational model as described
in this lesson.
24.12. KEYWORDS
 Human Resource Information System
 Inventory Control
 Inventory Receipts
 Inventory Stocking
 Inventory Transfers
 Payroll
 Physical Counting
 Recruiting
 Training
 Warehouse Quantity.

362
178EN1220, 346E2320, 349E2330

ANNAMALAI UNIVERSITY PRESS: 2021-2022

Annamalai University: Directorate of Distance Education

Uploaded by

Copyright:

Available Formats

You might also like

Annamalai University: Directorate of Distance Education

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Annamalai University: Directorate of Distance Education

Uploaded by

Copyright:

Available Formats

178E1220

Master of Business Administration

MANAGEMENT INFORMATION SYSTEM

Dr. R. Singaravel Dr. P. Vijayan

Dr. G. Udayasuriyan Dr. A. Selvarasu

Dr. G.S. Subashini Dr. S. Tamil Selvan

Units: I - III Units: IV - VI

WHAT IS MANAGEMENT INFORMATION SYSTEM (MIS)?

Information is a set of data transformed in such a way that it helps to reduce

Figure 1.3. Classification of Information

Control Information: This information is needed for establishing control over

Input Proces sing Output

Input Processing Output

subsystems is considered for analysis. In the process of Systems Analysis and

1.4. REVISION POINTS

1.9. ASSIGNMENT QUESTIONS

Management Level Management

Knowledge Level Office Information System

office systems in presenting information extracted from transaction processing

Decision Support Systems

 Human resources information systems maintain employee records, track

Transaction Processing System Management Information System

Material Unit product

2.3.4. PRODUCTION INFORMATION SYSTEM

Fig. 2.3 Production Information System

Sales and Marketing Information System

Examples of human resource information system

2.7. TERMINAL EXERCISES

3.3.2. VALUE CHAIN MODEL

A value web is a collection of independent firms who use information system to

Inbound Operations Sales and Service Outbound

Logist ics firm

analysis might recommend a system to reduce marketing costs by targeting

Supply chain management Intra firm strategy Efficient customer response

Stock less inventory Product differentiation Point of sale system

Core Competency is concept for firm-level strategy involves focusing on an

COMPETITIVE FORCES MODEL

3.7. TERMINAL EXERCISES

ii. Design Stage

4.3.3 DSS DEFINITION AND CLASSIFICATION

4.3.4. DSS DESIGN AND DEVELOPMENT

knowledge contained in a specialized knowledge base. In other words it can be

Expert System Softw are

User Interface Interface Engine

Fig. 4.1 : The Expert System

4) Expert system cannot handle the variables generated due to uncertain

TYPE OF ORGANIZATIONAL LEVEL

TPS - Transaction Processing system DSS - Decision Support System

Simon four stages of decision making model

Problem identification Intelligence

Scan alternatives Design

Choosing the best Choice

Verify the w orking Implementation

groups of non-random symbols in the form of text, images or voice representing

Sales 10 / day Represents sales / day

Budgeted sales 15 / day Represents budget / day

Cumulative sales 510 / 60 days Updates the knowledge about sales as on

Cumulative budget 600 / 60 days Makes the information meaningful by a