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TOPIC 2

TYPES OF INFORMATION SYSTEM

(BUSINESS OPERATION)

1. Introduction Information is one of the main resources in a business operation. Information can be managed just as any other resources, like employees, capital, bricks and mortar asset (buildings) and so on. And, interest in this topic stems from two influences. First, business has become more complex, and second, the computer has achieved improved capabilities. Workers at all levels, in all kinds of firms, and in all industries are using information systems to improve their own effectiveness. And, at each of those levels, firms and industries, there are Information Systems that were designed specifically to fulfill their functions and needs. Types of Information Systems can be classified into 2 categories. They are Information System for Business Operation and also Information System for Business Management.

2. Level of Management

Levels of Management refers to a line of demarcation between various managerial positions in an organization. The number of levels in management increases when the size of the business and work force increases and vice versa. The level of management determines a chain of command, the amount of authority & status enjoyed by any managerial position. The levels of management can be classified in three broad categories:

a. Strategic level / Top level / Administrative level

b. Tactical level / Middle level / Executive

c. Operational level / Low level / Supervisory / Operative / First-line managers

/ Low level / Supervisory / Operative / First-line managers Level of management hierarchy Managers at

Level of management hierarchy

Managers at all these levels perform different functions. The role of managers at all the three levels is discussed below:

Strategic Level of Management It consists of board of directors, chief executive or managing director.

Strategic Level of Management

It consists of board of directors, chief executive or managing director. The strategic level management is the ultimate source of authority and it manages goals and policies for an enterprise. It devotes more time on planning and coordinating functions. Require an extensive knowledge of management roles and skills.

The role of the strategic level management can be summarized as follows –

a. Strategic level lays down the objectives and broad policies of the enterprise.

b. It issues necessary instructions for preparation of department budgets,

procedures, schedules etc.

c. It prepares strategic plans & policies for the enterprise.

d. It appoints the executive for middle level i.e. departmental managers.

e. It controls & coordinates the activities of all the departments.

f. It is also responsible for maintaining a contact with the outside world.

g. It provides guidance and direction.

h. The strategic level is also responsible towards the shareholders for the performance of the enterprise.

i. They have to be very aware of external factors such as markets.

j. Their decisions are generally of a long-term nature

k. Their decisions are made using analytic, directive, conceptual and/or behavioral/participative processes

l. They are responsible for strategic decisions.

Tactical Level of Management

Tactical level management have a specialized understanding of certain managerial tasks. They are responsible for carrying out the decisions made by strategic level management. They are responsible to the top management for

the functioning of their department. They devote more time to organizational and directional functions. In small organization, there is only one layer of tactical level of management but in big enterprises, there may be senior and junior tactical level management. Their role can be emphasized as

a. They execute the plans of the organization in accordance with the policies and directives of the top management.

b. They make plans for the sub-units of the organization.

c. They participate in employment & training of operational level management.

d. They interpret and explain policies from strategic level management to operational level.

e. They are responsible for coordinating the activities within the division or department.

f. It also sends important reports and other important data to strategic level management.

g. They evaluate performance of junior managers.

h. They are also responsible for inspiring operational level managers towards better performance.

Operational Level of Management

This level of management ensures that the decisions and plans taken by the other two are carried out. Operational level managers' decisions are generally short-term ones. Operational level is also known as supervisory / operative level of management. It consists of supervisors, foreman, section officers, superintendent etc. They are concerned with direction and controlling function of management. Their role can be emphasized as –

a. Assigning of jobs and tasks to various workers.

b. They guide and instruct workers for day to day activities.

c. They are responsible for the quality as well as quantity of production.

d. They are also entrusted with the responsibility of maintaining good relation in the organization.

e. They communicate workers problems, suggestions, and recommendatory appeals etc to the higher level and higher level goals and objectives to the workers.

f. They help to solve the grievances of the workers.

g. They supervise & guide the sub-ordinates.

h. They are responsible for providing training to the workers.

i. They arrange necessary materials, machines, tools etc for getting the things done.

j. They prepare periodical reports about the performance of the workers.

k. They ensure discipline in the enterprise.

l. They motivate workers.

m. They are the image builders of the enterprise because they are in direct contact with the workers.

All the 3 levels management decision can be summarize as below:

Characteristics

Operational

Tactical

Strategic

Time horizon affected by the decision

Affect the business for short term

Affect the business for intermediate term

Affect the business for long term

Frequency of repeating the same decision

Frequently (e.g.: Deciding whether to order more stock)

Less frequently (e.g.: Decision of whether to sell running shoes next winter is made only once each year)

Infrequently (e.g.: Deciding what business to be in may only make every 10 to 20 years)

Degree of structure in the decision process

Decision tends to be structured

Decisions are semi- structured

Decisions are

unstructured

Source of

Internal

Both internal and external

External

information

Degree of detail of information

Detailed

Detailed and

Summarized

summarized

Made by

Lower level

Middle level

Top level managers

managers

managers

3.

Information System for Business Operations

Computer information system can be used to increase the efficiency of business operation. Efficiency has to do with how much a system produces relative to the resources, such as people, money, and time. For example, if company A can process 20 customer orders per day by using a computer information system handled by 1 clerk, it is more efficient as compared to the company B that can process the same number of customer orders but using manual system handled by 5 clerks. To be competitive today, most businesses require some form of computer information system for their basic operations. Basically, the business operations are those activities in which the business engages on a daily basis to function. These activities include:

Provide goods and services for the business’s customers

Ensure payment for those goods and services

Keep track of the business’s goods

Acquire goods and services needed by the business

Pay the business’s obligations

Report on the business’s profits and losses.

Information systems support business operations by processing data related to these activities and by providing information to assist in their management.

and by providing information to assist in their management. Structure of Information System for Business Operation

Structure of Information System for Business Operation

3.1

Transaction Processing System (TPS)

The main type of information system used for operational support in a business is the transaction processing system (TPS). A TPS collects and stores information about transactions, and controls some aspects of transactions. A transaction is an event of interest to the organization. e.g. a sale at a store. It also a computerized system that performs and records the daily routine transactions necessary to conduct the business.

There are three elements of a transaction processing system:

Keep records about the state of the organization.

Process transactions that affect these records.

Produce outputs that report on transactions that have occurred, that report on the state of the organization, and that cause other transactions to occur.

Two basic approaches to processing data in a transaction processing system:

Batch processing – transactions to be processed are prepared in a form understandable by the computer before actual processing begins. On-Line Transaction Processing (OLTP) – permits a person to use a keyboard and screen at the time the processing is done.

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

The examples of TPS:

a. Online Banking System

Banking from home, booking a holiday on the net, shopping and working from home are all now readily available and less time consuming, thanks to transaction processing. For example, if an electronic payment is made, the amount must be either both withdrawn from one account and

added to the other or none at all. In case of a failure preventing transaction completion, the partially executed transaction must be 'rolled back' by the TPS. While this type of integrity must be provided also for batch transaction processing, it is particularly important for online processing.

b. Air-line Ticket Reservation System

An airline seat reservation system is accessed by multiple operators, after an empty seat inquiry, the seat reservation data must be locked until the reservation is made, otherwise another user may get the impression a seat is still free while it is actually being booked at the time.

c. Inventory System

An inventory control system keeps a file of records about the stock of goods that a business has on hand (the inventory) which is one aspect of the state of the business. When items are shipped or received, the state of the business is affected, and the inventory control system makes changes about the inventory in the stored records. Periodically, the system prints a list of the shipments and receipts - that is the transactions that have occurred. Below is the real example of inventory system in real world implementation.

d. Hotel Reservation System

A

booking process determines how the user navigates through a series

of

sequential phases in an online hotel reservation. For example, a user

might enter required city and stay-date, review options from available hotels, rooms, and rates, select a suitable hotel, room, and rate, enter guest and payment details and confirm reservation

e. Point of Sale (POS)

POS is the system that is in place for purchases involving EFTPOS (electronic funds transfer at point of sale). POS is just an abbreviation of the full name of EFTPOS. POS systems are found in many businesses now from major outlets such as Coles or Woolworths to many mixed businesses and petrol stations. The POS system is what allows the

convenience of an ATM at midnight. When a transaction takes place, goods are scanned from barcodes or details are typed in, any required credit card checks are made, a receipt is sent to the customer (displayed on the screen or printed on a receipt), coded inventory data is sent through to update the database and the inventory or bank balance is updated. It will also work out the change required and any receipt will normally itemize items.

f. Library Loans

The borrower will normally have a library membership card which will be scanned and checked for overdue books and fines, the borrowed items will be scanned and each item will then be placed under the borrowers name. The details about available books will then be updated on the database. The system will also allow reservations to be placed on the books.

Level of management for TPS

Level of

Management

Activities

Operational

Data entry process

Tactical

Review daily business operations

Strategic

Review monthly business operations for future planning and coordinating function.

3.2

Accounting Information System (AIS)

Accounting information system (AIS) is all of the policies, rules, procedures, and practices as well as the physical elements that are used to record, process, and communicate the financial information of a firm. An accounting information system is the system of records a business keeps maintaining its accounting system. This includes the purchase, sales, and other financial processes of the business. AIS is subset of management information system (MIS), AIS is responsible for providing timely and accurate financial and statistical reports for internal management decision making, and for external parties such as creditors, investors, and regulatory and taxation authorities. The purpose of AIS also is to accumulate data and provide decision makers (investors, creditors, and managers) with information. Events that occur in a business can be grouped in few groups: acquisition of materials, labor, and capital assets and the disbursement of payment; exchange of materials into goods and services using labor and assets; and sales of goods and services and the payment.

Expenditure cycle - that can be considered subsystem for purchasing, accounts payables and cash disbursements. Conversion cycle - which is also a subsystem, for production planning and control cost accounting. Revenue cycle - for sales order processing and cash receipts for orders are processed. All these transactions must be recorded and posted in the information system. Understanding the accounting cycle will enhance the understanding of what occurs within the accounting information system. In accounting information system there are three primary transactions cycles.

Once transactions are processed and posted in the correct areas, the information system allows for an audit trail. Audits trails allow an individual like a manager to make sure corrective actions are taken when entering data into the system. An audit trail will allow a manager to be able to go from the original source document to the journal than to the general ledger and finally to the financial statements. This is an example of internal control system in an accounting information system.

The data structure of a particular accounting information system allows records to be located, stored and movement throughout the database. There are two components in a data structure. First, organization of a file, which is the physical arrangement of the records. Second, access method that is used to locate the records or navigate in the database.

Evolution of AIS

a. Manual Book-Keeping

The usage of document books and filing of accounting such as transactions journals, T-ledger books and others. The input data comes from receipts, invoices and others.

b. Computer-based accounting systems Computer-based accounting systems record and report the flow of funds through an organization on a historical basis and produced important statements such as balance sheets and income statements. A firm’s financial performance is measured against such forecast by other analytical accounting reports.

Operational accounting systems emphasize legal and historical record- keeping and the production of accurate financial statements. Typically, these systems include transaction processing systems such as order processing, inventory control, accounts receivable, account payable, payroll and general ledger systems. They emphasize cost accounting reports. The development of financial budgets and projected financial statements and analytical reports comparing actual to forecasted performance.

Figure below illustrate the interrelationship of several important accounting information systems commonly computerized by both large and small businesses. Many accounting software packages are available for these applications.

 
 

Sales

 

Cash receipts and

General ledger

transaction

transaction disbursements transaction processing systems processing and

disbursements transaction processing systems

transaction disbursements transaction processing systems processing and

processing and

processing

reporting system

systems (TPS)

     
Purchase   Payroll transaction

Purchase

 

Payroll transaction

 

transaction

processing system

processing system

(HRIS & AIS)

 

Relation of AIS with TPS and HRIS

c. Online accounting systems

Table below summarized the essential purpose of six common, but

important, accounting information systems used by both large and small

business firms. From the figure and table, it is no surprise that the

accounting information systems illustrated are being transformed by

Internet technologies. Using the internet and other networks changes

how AIS monitor and track business activities. 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. Now, these systems are directly involved in the processing of

transactions between a business and its customers and suppliers. So,

naturally many companies are using Internet and other network links to

these trading partners for such online TPS, for example an online

accounting report.

COMMON BUSINESS ACCOUNTING SYSTEMS

Order processing Captures and processes customer orders and produced data for inventory control and accounts receivable.

Inventory control Processes data reflecting changes in inventory and provides shipping and reorder information.

Accounts receivables Records amounts owed by customers and produces customer invoices, monthly customer statements and credit management reports.

Accounts payable Records purchases from amounts owed to, and payment to suppliers, and produces cash management reports

Payroll Records employee word and compensation data and produces paychecks and other payroll documents and reports.

General ledger Consolidates data from other accounting systems and produces the periodic financial statements and reports of the business.

Level of management for AIS

Level of

 

Activities

Management

 

Operational

Clerical work (data entry)

-

Capture and process order

Tactical

Validate the accounting report

Strategic

Review for business planning

-

Investment

-

Expanding the business

-

Growing up capital Budget

-

-

etc

3.3

Human Resource Information System(HRIS)

Human resource information system (HRIS) is defined as a computer based application for assembling and processing data related to the human resource management (HRM) function. HRIS is a management system which is designed specifically to provide managers with information to make Human Resource decisions.

HRIS deals with all aspects human resource management – staff planning, selection & recruitment, training & skills assessment, job placement, performance appraisal and compensation administration. The need for this kind of information has increased in the last few years, especially in large and/or diverse companies, where decision-making has been moved to lower levels. Large companies generally have the advantage when they come to HRIS. The cost to develop an HRIS for 200 people is usually close to that for 2000 people. So it is a better investment for the large companies.

HRIS (Human Resource Information System) or

Management System) help managers track their work force. Major activities include:

HRM (Human Resource

a.

Recruiting employees

Applicant tracking, interviewing, and selection.

Management of all employee information.

b.

Reporting and analysis of employee information.

disciplinary action received,

personal employee information, and occasionally,

management and key employee succession plans,

high potential employee identification

c.

Evaluating applicants and employees

d.

Selecting, placing, promoting, terminating, transferring employees

e.

Analyzing and designing jobs

f.

Training and developing employees

g.

Producing required governmental reports

h.

Managing employee wage/benefit plans (tied to payroll system)

i.

Planning for short and long-term staffing need

j.

Company-related documents such as employee handbooks, emergency evacuation procedures, and safety guidelines.

k.

Benefits administration including enrollment, status changes, and personal information updating.

attendance and PTO use,

pay raises and history,

pay grades and positions held,

performance development plans,

training received,

HRIS sub system

a. Staff planning

This function is strategic in nature and is concerned with determining the future manpower needs of an organization as well as information on the labor market. It forecasts the number of people required to perform the various tasks as well as the skills that they must have.

b. Recruitment and staffing

This function is concerned with advertising for staff, interviewing and recruiting suitable candidates, and adding them to the personnel database. It keeps track of all employee details. It also maintains skills inventory so that right people are assigned to the right projects.

c. Training & career development

This function is concerned with providing initial training as well as continual training. The training may take the form of short courses, seminars or it can be computer-based training. It also concerned with defining career paths for employees.

d. Performance appraisal

Evaluates

the

performance

of

employees,

rewarding

those

who

demonstrate

initiative

and

excellence

and

firing

those

who

are

unproductive.

e. Compensation administration

Deals with rewarding employees for the work they perform. Takes the form of wages and salaries, bonuses and incentive payments.

The software used to support HRIS includes:

Human Resources Information System (HRIS)

HRMIS

HRMS

Level of management for HRIS

Level of

Activities

Management

Operational

Managing of all employee information

records information for operational management

- manpower planning

- compensation analysis / management system

- performance management system

- promotions

Tactical

Manage employee training

Analyzing and designing jobs and recruitment

Evaluate employee performance

Managing employee wage

records information for first line managers/supervisors

- jobs descriptions

- job evaluations

- staff appraisals

Strategic

manpower planning

Review for human resource planning

- Promotions

- Bonus

- Benefit

- Etc

3.3

Marketing Information System

A marketing information system is a continuing and interacting structure of people, equipment and procedures to gather, sort, analyze, evaluate, and distribute pertinent, timely and accurate information for use by marketing decision makers to improve their marketing planning, implementation, and control.

Marketing information system also is a set of procedures and practices employed in analyzing and assessing marketing information, gathered continuously from sources inside and outside of a firm. Timely marketing information provides basis for decisions, distribution, media selection , and promotion such as product development or improvement, pricing, packaging. This system supports the operation / production function of a typical manufacturing firm

Marketing information systems are found predominantly at the tactical level, although other systems such as order entry systems and systems associated with product sales activities such as telemarketing are also marketing information systems. These latter systems are at the operational level.

The Marketing Function

Basic Goal: Satisfy the needs of existing and potential customers. To meet

this goal, marketing must: (These activities are referred to as the marketing

mix)

Sell goods.

Advertise and promote goods/services.

Identify potential customers.

Determine customer needs and wants.

Plan and develop products and/or services.

Price products/services appropriately.

A marketing information system is a continuing and interacting structure of people, equipment and procedure to gather, sort, analyze, evaluate and distribute pertinent, timely and accurate information for use by marketing decision makers to improve their marketing planning, implementation and control.

Marketing information systems are found predominantly at the tactical level, although other systems such as order entry systems and systems associated with product sales activities such as telemarketing are also marketing information systems. These latter systems are at the operational level.

Figure below illustrates how marketing information system provides information technologies that support major components of the marketing function. For example, Internet/intranet websites and services make an interactive marketing process possible where customers can become partners in creating, marketing, purchasing and improving products and services. Sales force automation systems use mobile computing and Internet technologies to automate many information processing activities for sales support and management. Other marketing information systems assist marketing managers in customer relationship management, product planning, pricing and other product management decisions, advertising, sales promotion, and targeted marketing strategies, and market research and forecasting.

Marketing Information System Interactive Sales force Customer Sales marketing automation relationship management
Marketing
Information
System
Interactive
Sales force
Customer
Sales
marketing
automation
relationship
management
management
Market research &
forecasting
Advertising &
Product
promotion
management

Content of Marketing Information System

a. Interactive marketing

The term interactive marketing has been coined to describe a customer- focused marketing process that is based on using the Internet, intranet and extranet to establish two-way transactions between a business and its customers or potential customer.

The goal of interacting 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.

In interacting marketing, customers are not just passive participants who receive media advertising prior to purchase, but are actively engaged in network-enabled proactive and interactive processes. Interactive marketing encourages customers to become involve in product development, delivery and services issues. This is enabled by various Internet technologies, including chat and discussing groups, web forms and questionnaires, instant messaging and e-mail correspondence. Finally, the expected outcomes of interactive marketing are a rich mixture of vital marketing data, new productive ideas, volume sales and strong customer relationship.

b. Sales force automation (SFA)

Sales force management systems are information systems used in marketing and management that help automate some sales and sales force management functions. They are frequently combined with a Marketing Information System, in which case they are often called Customer Relationship Management (CRM) systems.

Sales Force Automation Systems (SFA), typically a part of a company’s customer relationship management system, is a system that automatically records all the stages in a sales process. SFA includes a contact management system which tracks all contact that has been made with a given customer, the purpose of the contact, and any follow up that might be required. This ensures that sales efforts are not duplicated, reducing the risk of irritating customers. SFA also includes a sales lead tracking system, which lists potential customers through paid phone lists, or customers of related products.

Other elements of an SFA system can include sales forecasting, order management and product knowledge. More developed SFA systems have features where customers can actually model the product to meet their required needs through online product building systems. Advantages to the sales manager

Sales Force.com interface c. Customer Relationship Management (CRM) Customer relationship management (CRM) consists of the

Sales Force.com interface

c. Customer Relationship Management (CRM)

Customer relationship management (CRM) consists of the processes a company uses to track and organize its contacts with its current and prospective customers. CRM software is used to support these processes; information about customers and customer interactions can be entered, stored and accessed by employees in different company departments. Typical CRM goals are to improve services provided to customers, and to use customer contact information for targeted marketing. Managing the full range of the customer relationship involves two related involves two related objectives:

To provide the organization and all of its customer-facing employees with a single, complete view of every customer at every touch point and across all channels

To provide the customer with a single, complete view and its extended channels.

Now days, companies are turning to customer relationship management (CRM) to improve their customer focus. CRM uses information technology to create a cross-functional enterprise system that integrates and automates many of the customer-serving process in sales, marketing and customer services that interact with a company’s customer. CRM systems also create an IT framework of Web-enabled

software and databases that integrates these processes with the rest of

a company’s business operations. CRM systems include a family of

software modules that provides the tools that enable a business and its

employees to provide fast, convenient, dependable, and consistent service to its customers.

Marketing & fulfillment Customer Sales (cross- service and sale, up-sell) support Fax E-Mail Prospect or
Marketing &
fulfillment
Customer
Sales (cross-
service and
sale, up-sell)
support
Fax
E-Mail
Prospect or
Customer
Contact & Account
Management
Retention and
loyalty
Telephone
web
program

The major application clusters in CRM

Marketing Information System Subsystems

a. Planning Helps sales executive to plan, monitor and support sales. It includes information on new markets and products, sales forecasting, distribution channels, pricing, advertising and promotion

b. Advertising & promotion Deals with selecting the media mix and promotional strategies and allocation of funds for these

c. Sales management

Is concerned with planning and monitoring sales personnel, analyzing

sales by customers, products and regions. Information on these will help improve sales

d.

Sales forecasting These uses statistical forecasting models to provide information on short-term and long-term demand for a firm’s product

Level of management for MS

Level of

Management

Marketing Information System examples

Operational

Contact Information System, Prospect Information System, Telemarketing System, Inquiry Information System, Sales Order Processing Systems

Tactical

Sales Force Management Systems, Advertising and Promotion Systems, Product Pricing Information Systems

Strategic

Sales Forecasting Information Systems

3.4 Manufacturing Information System

Manufacturing systems are concerned with supporting the production of physical products; however, services may also be produced. As such, they focus on managing raw materials purchasing, machine and labor usage and schedule, and productivity measurement. They also seek to provide competitive advantages.

A typical Manufacturing and Production Decisions includes:

University decisions on courses to offer, number of Instructors needed, sections, etc., for next year.

Word Processing Supervisor deciding on number of WP clerks, editors, and typists needed for a shift next week.

Retail store planner selecting criteria for new retail store sites.

Inventory manager/production planner deciding numbers of units of raw materials needed for production to ensure assembly line stoppages do not occur.

PURPOSE of Manufacturing and Production Systems

Manufacturing Systems encompass all activities necessary to ensure production including:

a. Evaluate Site includes planning, developing, and maintaining production facilities.

b. Set Production Goal these systems provide answers to questions about the quantity to be produced and the timing of the production process.

c. Produce Goods Goods are produced by Production Systems. Production Systems are concerned with activities such as:

Raw Material Acquisition, Storage, and Availability.

Scheduling Equipment, Facilities, Workforce to meet production goals set by the marketing system

Design and Testing of Products - engineering & geometric data.

Producing the correct quantity at a set level of quality within projected cost parameters at the times required by production goals.

Example Of Software Used In Manufacturing Information System

Material Requirements Planning (MRP) is software based production planning and inventory control system used to manage manufacturing processes. Although it is not common nowadays, it is possible to conduct MRP by hand as well. An MRP system is intended to simultaneously meet three objectives:

a. Ensure materials and products are available for production and delivery to customers.

b. Maintain the lowest possible level of inventory.

c. Plan manufacturing activities, delivery schedules and purchasing activities.

Level of management for Manufacturing And Production Information Systems

Level of

 

Activities

 

Management

 

Operational

Purchasing raw materials from suppliers (making orders)

Receiving ordered items- with receipt, inspection & verification slip. (All slips will be passed to Accounts Payable, Inventory & Production Subsystems)

Quality control- makes sure that the status of raw materials, goods-in-process, finished goods inventory in good quality.

Shipping- Finished goods are placed in inventory or shipped to customer.

Cost Accounting- monitors cost of personnel, materials and equipment & facilities used in production.

Tactical

Includes decisions like capacity planning and production scheduling.

Usage of the Material Requirement Planning (MRP)

 

Strategic

decisions

Includes

like

plant

design

or

plan

site

selection