CHAPTER 1

Management Information System

An Overview

1.1 INTRODUCTION
An Information System consists of “hardware, software, data, citizens, and
actions”. When we start to think about this definition from the student’s point of view,
we see that it considers the key elements of the organization, such as people and business
processes, to be subsystems of an information system. If one were to diagram the
definition one would have a figure in which the information system is the inclusive super
system, whereas people and procedures – the stuff of business processes – and tools –
such as computers and programs – are the subordinated subsystems (see Figure 1). By
contrast, the would be MBA a future entrepreneur of CEO of an enterprise would
naturally draw the diagram shown in Figure 1.2. Here, the organization or enterprise is
the super system, containing, among other things, people, business processes, and
information systems.

We have found it most useful to embrace the latter view, and we therefore adopt
as the starting point for our model a perspective that focuses on the information system
within its organizational context. Rather than trying to have students adopt a view alien
to their own as a prerequisite for learning more about MIS, we have found it much easier
to build our pedagogical model around their natural worldview.

Hardware Software
Public

Data Environment

Information System Structure

 Figure 1.1

Publics

Business Information
Processes Systems

Business Environments & Organisational Structure

Figure 1.2
As Ackoff (1993) so eloquently states, it is not possible to understand a system by
analyzing is alone-that is, by simply decomposing it into its constituent parts. One must
first synthesize it-determine its function in the super system, the next higher level system
of which it is part. In the case of an information system, this super system is the
organizational (or inter-organizational) system to which it belongs. Briefly, the rule of
thumb one gleans from systems theory is “one level up, one level down”. This rule
translates to information systems as follows: One first asks, “What is the organizational
(or inter-organizational) super system of which this information system play in this super
system?” Only then should one ask, “What are the information system’s features and
component parts and how do they enable the system’s features and component parts and
how do they enable the system’s features and component parts and how do they enable
the system to serve its function in the super system?” Not only is this two-part synthesis
analysis procedure more consistent with the spirit of general systems theory than
straightforward decomposition into component parts, it is consistent with the manager’s
world view, in which the organization, not the information system, is the center of the
universe.

Taking general systems theory as a starting point, the fundamental theoretical assertion of
the IT Interaction Model is that the effects of an information system for an organization
emerge over time as the result of the interaction of the system with its organizational
context. This claim is based on a lare body of generally accepted theory, including web
models (kling and Scacchi, 1982), the interaction perspective (Markus, 1984; markus and
Robey, 1988), and structuration theory (Orlikowski and Robey, 1991; DeSanctis and
Poole, 1994). In addition, the model helps account for and makes sense of large body of
conflicting empirical findings about IT impacts (Attewell and Rule, 1984; Gurbaxani and
Whang, 1991; Markus, 1994).

1.2 DEFINITIONS OF MIS

The MIS has various definition, some of them are:
1. The MIS is defined as a system which provides information support for decision-
making in the organization.
2. The MIS is defined as an integrated system of man and machine for providing the
information to support the operations, the management and the decision-making
function in the organization.
3. The MIS is defined as a system based on the database of the organization evolved
for the purpose of providing information to the people in the organization.
4. The MIS is defined as a Computer-based Information System.

Though there are a number of definitions, all of them converge on one single point,
i.e., the MIS is a system to support the decision-making function in the organization. The
difference lies in defining the elements of the MIS. However, in today’s world, the MIS
is a computerized business processing system generating information for the people in the
organization to meet the information needs for decision making to achieve the corporate
objectives of the organization.

1.3 FEATURES OF MIS

The generic system concept provides a more appropriate foundation concept for
the field of information systems: A system is group of interrelated components, with a
clearly defined boundary, working together toward a common goal by accepting inputs
and producing outputs in an organized transformation process.
Such a system (sometimes called a dynamic system) has three basic interacting
components or functions:
  Input involves capturing and assembling elements that enter the system to be
processed. For example, raw materials, energy, data and human effort must be
Secured and organized for processing.
 Processing involves transformation processes that convert input into output.
Examples are a manufacturing process, the human breathing process, or
mathematical calculations.
 Output involves transferring elements that have been produced by a
transformation Process to their ultimate destination. For example, finished
products, human services, and management information must be transmitted to
their human users.
A manufacturing system accepts raw materials as input and produces finished goods
as output. An information system is a system that accepts resources (data) as input and
processes them into products (information) as output. A business organization is a
system where economic resources are transformed by various business processes into
their goods and services.

1.4 SYSTEM FEEDBACK AND CONTROL

The system concept becomes even more useful by including two additional
components: feedback and control. A system with feedback and control components is
sometimes called a cybernetic system, that is, a self –monitoring, self-regulating system.
 Feedback is data about the performance of a system. For example, data about
sales performance is feedback to a sales manager.
 Control involves monitoring and evaluating feedback to determine whether a
system is moving toward the achievement of its goal. The control function then
makes necessary adjustments to a system’s input and processing components to
ensure that it produces proper output. For example, a Sales manager exercises
control when reassigning salespersons to new sales territories after evaluating
feedback about their sales performance.
1.5 SYSTEM CHARACTERISTICS
A system does not exist in a vacuum; rather, it exists and functions in an
environment containing other systems. If a system is one of the components of a larger
system, it is subsystem, and the larger is its environment.
Several systems may share the same environment. Some of these systems may be
connected to one another by means of shared boundary, or interface. Figure 1.14 also
illustrates the concept of a common cybernetic system is a home temperature control
system. The thermostat accepts the desired room temperature as input and sends voltage
to open the gas valve which fires the furnace. The resulting hot air goes into the room
and the thermometer in the thermostat provides feedback to shut the system down when
the desired temperature is reached.
A business is an example of an organizational system where economic resources (input)
are transformed by various business processes (processing) into goods and services
(output).Information systems provide information (feedback) on the operations of the
system to management for the direction and maintenance of the system (control) as it
exchanges inputs and outputs with its environment.

1.6 STEPS IN IMPLEMENTATION OF MIS

Once a new information system has been designed, it must be implemented as a
working system and maintained to keep it operating properly. The implementation
process we will cover in this section follows the investigation, analysis, and design stages
of the systems development cycle we discussed in Section I. Implementation is a vital
step in the deployment of information technology to support the employees, customers,
and other business stakeholders of a company.

1.6.1 Implementing New Systems

The systems implementation stage involves hardware and software acquisition,
software development, testing of programs and procedures, conversion of data resources,
and a variety of conversion alternatives. It also involves the education and training of
end users and specialists who will operate a new system.
Implementation can be a difficult and time-consuming process. However, it is vital in
ensuring the success of any newly developed system, for even a well-designed system
will fail if it is not properly implemented. That is the implementation process typically
requires a project management effort on the part of IT and business unit managers. They
must enforce a project plan which includes job responsibilities, time lines for major
stages of development, and financial budgets. This is necessary if a project is to be
completed on time and within its established budget, while still meeting its design
objectives. FIGURE 1.3 An overview of the implementation process. Implementation
activities are needed to transform a newly developed information system into an
operational system for end users.

Implementing Processes
Figure 1.3

How do companies evaluate and select hardware, software and IT services, such
as those shown in Figure 12.17? Large companies may require suppliers to present bids
and proposals based on system specifications developed during the design stage of
systems development. Minimum acceptable physical and performance characteristics for
all hardware and software requirements are established. Most large business firms and all
government agencies formalize these requirements by listing them in a document called
an RFP (request for proposal) or RFQ (request for quotation). Then they send the RFP or
RFQ to appropriate vendors, who use it as the basis for preparing a proposed purchase
agreement.
Companies may use a scoring system of evaluation when there are several competing
proposals for a hardware or software acquisition. They give each evaluation factor a
certain number of maximum possible points. Then they assign each competing proposal
points for each factor, depending on how well it meets the user’s specifications. Scoring
evaluation factors for several proposals helps organize and document the evaluation
process. It also spotlights the strengths and weakness of each proposal.

Whatever the claims of hardware manufacturers and software suppliers, the performance
of hardware and software must be demonstrated and evaluated. Independent hardware
and software information services (such as Datapro and Auerbach) may be used to gain
detailed specification information and evaluations. Other users are frequently the best
source of information needed to evaluate the claims of manufacturers and suppliers.
That’s why Internet newsgroups established to exchange information about specific
software or hardware vendors and their products have become one of the best sources for
obtaining up-to-date information about the experiences of users of the products.

Large companies frequently evaluate proposed hardware and software by requiring the
processing of special benchmark test programs and test data. Benchmarking simulates
the processing of typical jobs on several computers and evaluates their performances.
Users can then evaluate test results to determine which hardware device or software
package displayed the best performance characteristics.

1.7 NEED FOR INFORMATION

The difficulty in handing this multiple requirement of the people is due to a
couple of reasons. The information is a processed product to fulfill an imprecise need of
the people. It takes time to search the data and may require a difficult processing path. It
has a time valve and unless processed on time and communicated, it has no value. The
scope and the quantum of information is individual-dependent and it is difficult to
conceive the information as a well-defined product for the entire organization. Since the
people are instrumental in any business transaction, a human error is possible in
conducting the same. Since a human error is difficult to control, the difficulty arises in
ensuring a hundred percent quality assurance of information in terms of completeness,
accuracy, validity, timeliness and meeting the decision-making needs.

In order to get a better grip on the activity of information processing, it is necessary to

have a formal system which should take care of the following points:

1. Handling of a voluminous data.

2. Confirmation of the validity of data and transaction.
3. Complex processing of data multidimensional analysis.
4. Quick search and retrieval.
5. Mass Storage.
6. Communication of the information system to the user on time.
7. Fulfilling the changing needs of the information.
The management information system uses computers and communication
technology to deal with these points of supreme importance.
 CHAPTER 2
INFORMATION SYSTEM FOR DECISION MAKING
DECISION-MAKING CONCEPTS

2.1 INTRODUCTION
The word “decision” is derived from the Latin root decido, meaning to cut off. The
concept of decision therefore, is settlement, a fixed intention bringing to a conclusive
result, a judgment, and a resolution. A decision is the choice out of several options made
by the decision maker to achieve some objective in a given situation.
Business decisions are those, which are made in the process of conducting
business to achieve its objectives in a given environment. In concept, whether we are
talking about business decisions or any other decision, we assume that the decision maker
is a rational person.
The major characteristics of the business decision making are:
(a) Sequential in nature
(b) Exceedingly complex due to risks and trade offs.
(c) Influenced by personal values.
(d) Made in institutional settings and business environment.

The business decision-making is sequential in nature. In business, the decisions

are not isolated events. Each of them has relation to some other decision or situation.
The decision may appear as a “snap” decision but it is made only after a long chain of
developments and a series of related earlier decisions.
The decision-making process is a complex process in the higher hierarchy of
management. The complexity is the result of many factors, such as the inter-relationship
among the experts or decision makers, a job responsibility, a question of feasibility, the
codes of morals and ethics, and a probable impact on business.
The personal values of the decision maker play a major role in decision-making.
A decision otherwise being very sound on the business principle and economic rationality
may be rejected on the basis of the personal values, which are defeated if such a decision
is implemented. The culture, the discipline and the individual’s commitment to goals
will decide the process and success of the decision.
Whatever may be the situation, of one analyses the factors underlying the
decision-making process it would be observed that there are common characteristics in
each of them. There is a definite method of arriving at a decision; and it can be put in the
form of decision process model.
The decision-making process requires creativity, imagination and a deep
understanding of human behavior. The process covers a number of tangible and
intangible factors affecting the decision process. It also requires a foresight to predict the
post-decision implications and willingness to face those implications. All decisions solve
a ‘problem’ but over a period of time they give rise to a number of other ‘problems’.

2.2 RATIONAL DECISION MAKING

A rational decision is the one which, effectively and efficiently, ensures the
achievement of the goal for which the decision is made. If it is raining, it is rational to
look for a cover so that you do not get wet. If you are in business and want to make
profit, then you must produce goods and sell them at a price higher than cost of
production. In reality, there is no right or wrong decision but a rational or an irrational
decision. The quality of decision-making is to be judged on the rationality and not
necessarily on the result it produces.
The rationality of the decision made is not the same in every situation. It will
vary with the organization, the situation and the individual’s view of the business
situation. The rationality, therefore, is a multi-dimensional concept. For example, the
business decisions in a private organization and a Public Sector Undertaking differ under
the head of rationality. The reason for this difference in rationality is the different
objectives of the decision makers. Any business decision if review by a share-holder, a
consumer, an employee, a supplier and a social scientist, will result in a different
criticism due to difference individual’s rationality. This is because each one of them will
view the situation in different contexts and the motive with in different objectives.
Hence, whether a decision is right or wrong depends on a specific rational view. The
question which further arises: Is a decision “rational”? If it turns out to be wrong in terms
of the results it produces, can we cast doubts on the rationality?
Simon Herbert A * differentiates among the types of rationality. A decision, in a given
situation is:
 Objectively rational if it maximizes the value of the objective.
 Subjectively rational if it maximizes the attainment of value within limitation of
the knowledge and awareness of the subject.
 Consciously rational to the extent the process of the decision-making is deliberate
and a conscious one.
 Organizationally rational to the degree of the orientation towards the organization.
 Personally rational to the extent it achieves an individual’s personal goals.
In other words, so long as the decision maker can explain with logic and reason, the
objectivity and the circumstances in which the decision is made, it can be termed as a
rational decision. Whether the rationality applied is appropriate or not could be point for
debate. Gross Bertram M** suggests three dimensions of rationality. First the degree of
feasibility in achieving the objectives. Third, a consistent behavior in the process of
decision-making, then one can say that he meets the test of the rationality.

2.3 THE PROBLEMS IN MAKING DECISIONS IN THE MIS

(a ) Ascertaining the Problem
As Peter Drucker points out, “the most common source of mistakes in the
management decisions is the emphasis on finding the right answers rather than the right
questions”. The main task is to define the right problem in clear terms. The management
may define the problem may be somewhere else. For example the problem may be the
poor quality of the product and you may be thinking of improving the quality of
advertising.

(b ) Insufficient knowledge
For perfect rationality, total information leading to complete knowledge is
necessary. An important function of a manager is to determine whether the dividing line
is reached between insufficient knowledge and enough information to make a decision.
(c ) Not enough time to be rational
The decision maker is under pressure to make decisions. If time is limited, he
may make a hasty decisions which may not satisfy the test of rationality of the decision.

(d ) The environment may not cooperate

Sometimes, the timing of the decision is such that one is forced to make a
decision but the environment is not conducive for it. The decision may fail the test of
rationality as the environmental factors considered in the decision-making turn to be
untrue. For example, in a product pricing, the factor of oil petroleum product price is
considered as stable. But the porst-decision environment proves the consideration to be
wrong.

(e ) Other limitations
Other limitations are the need for a compromise amount the different positions,
misjudging the motives and values of people, poor communications, misappraisal of
uncertainties and risks, and inability to handle the available knowledge and human
behavior. How do we then ensure rationality? It is ensured, if the process of decision
making is carried out systematically, whereby all the aspects of the decision maker
follows the process of decision-making disregarding the decision or the type of decision
and the motive behind the decision. This process is followed consciously or without
knowing it. We can put this process in the Decision-making Model.

2.4 DECISION MAKING PROCESS

Decision-making is a process which the decision maker uses to arrive at a
decision. The core of this process is described by Herbert Simon in a model. He
describes the model in three phases as shown in (a) Intelligence; (b) Design; and (c)
Choice. MIS follow this model in its development stage.

Intelligence Model
Raw data collected, processed and examined. Identifies a problem calling for a decision.
Design model
Inventing, developing and analyzing the different decision alternatives and testing the
feasibility of implementation. Assess the value of the decision outcome.

Selection
Select one alternative as decision, based on the selection criteria. In the
intelligence phase, the MIS collects the data. The data is scanned, examined, checked
and edited. Further, the data is sorted and merged with other data and computations are
made, summarized and presented. In this process, the attention of the manager is drawn
to all problem situations by highlighting the significant differences between the actual
and the expected, the budgeted or the targeted.
In the design phase, the manager develops a model of the problem situation on
which he can generate and test the different decisions to facilitate its implementation. If
the model developed is useful in generating the decision alternatives, he then further
moves into phase of selection called as choice. In the phase of choice, the manager
evolves a selection criterion such as maximum profit, least cost, minimum waste, least
time taken, and highest utility. The criterion is applied to the various decision
alternatives and the one which satisfies the most is selected.
In these three phases, if the manager fails to reach a decision, he starts the process
all over again from the intelligence phase where additional data and information is
collected, the decision-making model is refined, the selection criteria is changed and a
decision for the manager.
The MIS achieves this in an efficient manner without repeated use of the Simon
Model again and again. An ideal MIS is supposed to make a decision for the manager.
The manager decide among the alternatives. The methods basically are search processes
to select the best alternative upon satisfying certain goals.

2.5 METHODS FOR SELECTION

There methods for selection of decision alternatives with the goals in view are: (a)
Optimization Techniques; (b) Payoff Analysis; and (c) Decision Tree Analysis.
All the operational research models use optimization techniques, to decide on the
decision alternatives. When a decision making situation can be expressed, in terms of
decision versus the probable event, and its pay-off value, then it is possible to construct a
matrix of the decision versus the events described by a value for each combination. The
manager An example of the Simon Model would illustrate further its use in the MIS. For
example, a manager finds on collection and through the analysis of the data that the
manufacturing plant is under-utilised and the products which are being sold are not
contributing to the profits as desired. The problem identified, therefore, is to find a
product mix for the plant, whereby the plant is fully utilized within the raw material and
the market constraints, and the profit is maximized. The manager having identified this
as the to evolve various decision alternatives. However, selection is made first on the
basis of feasibility, and then on the basis of maximum profit.
The product mix so given is examined by the management committee. It is
observed that the market constraints were not realistic in some cases, and the present
plant capacity can be enhanced to improve the profit. The same model is used again to
test the revised position. Therefore, additional data is collected and an analysis is made
to find out whether the average 20 percent utilization of the capacity can be increased. A
market research for some products is made and it is found that some constraints need to
be removed and reduced. Based on the revised data, LP model is used, and a better
optimum solution obtained.

2.6 DECISIONS- MAKING SYSTEMS: TYPES

The decision-making systems can be classified in a number of ways. There are two types
of systems based on the manager’s knowledge about the environment. If the manager
operates in a known environment then it is a closed decision-making system. The
Conditions of the closed decision-making system are:

 The manager has a known set of decision alternatives and knows their outcomes
fully in terms of value, if implemented.
 The manager has a model, a method or a rule whereby the decision alternatives
can be generated, tested, and ranked for selection.
  The manager can choose one of them, based on some goal or objective criterian.

Few examples are a product mix problem, an examination system to declare pass or fair,
or an acceptance of the fixed deposits.If the manager operates in an environment not
known to him, then the decision-making system is termed as an open decision-making
system. The conditions of this system in cqntrast closed decision-making systems are :
 The manager does not know all the decision alternatives.
 The outcome of the decision is also not known fully. The knowledge of the
outcome may be a probabilistic one.
 No method, rule or model is available to study and finalise one decision among
the set of decision alternatives.
 It is difficult to decide and objective or a goal and, therefore, the manager resorts
to that decision, where his aspirations or desires are met best.
Deciding on the possible product diversification lines, the pricing of a new product, and
the plant location, are some decision-making situations which fall in the category of the
open decision-making systems.
The MIS tries to convert every open system to a closed decision-making system
by providing information support for the best decision. The MIS gives the information
support, whereby the manager knows more and more about environment and the
outcomes, he is able to generate the decision alternatives, test them and select one of
them. A good MIS achieves this.

2.7 TYPES OF DECISIONS

The types if decisions are based on the degree of knowledge about the outcomes
or the events yet to take place. If the manager has full and precise knowledge of the
event or outcome which is to occur, then the decision making is not a problem. If the
manager has full knowledge, then it is a situation of certainty. If he has partial
knowledge or a probabilistic knowledge, then it is decision-making under risk. If the
manager does not have any knowledge whatsoever, then it is decision-making under
uncertainty.
A good MIS tries to convert a decision-making situation under uncertainty to the
situation under risk and further to certainty. Decision-making in the operations
management is a situation of certainty. This is mainly because the manager in this field,
has fairly good knowledge about the events which are to take place, has full knowledge
of environment, and has a predetermined decision alternatives for choice or for selection.
Decision-making at the middle management level is of the risk type. This is because of
the difficulty in forecasting an event with hundred per cent accuracy and the limited
scope of generating the decision alternatives.
At the top management level, it is a situation of total uncertainty on account of
insufficient knowledge of the external environment and the difficulty in forecasting
business growth on a long-term basis.
A good MIS design gives adequate support to all the three levels of management.

2.8 NATURE OF DECISIONS

Design-making is a complex situation. To resolve the complexity, the decisions are
classified as programmed and non-programmed decisions.
If the decision can be based on a rule, method or even guidelines, it is called the
programmed decision. If the stock level of an item is 200 numbers, then the decision to
raise a purchase requisition for 400 numbers, is a programmed-decision-making situation.
The decision maker here is to told to make a decision based on the instruction or on the
rule of ordering a quantity of 400 items when its stock level reaches 200.

If such rules can be developed wherever possible, then the MIS itself can be designed to
make a decision and even execute. The system in such cases plays the role of a decision
maker based on a given rule or a method. Since the programmed decisions are made
through MIS, the effectiveness of the rule can be analyzed and the rule can be reviewed
and modified from time to time for an improvement. The programmed decision-making
can be delegated to a lower level in the management cadre.
A decision which cannot be made by using a rule or a model is the non-programmed
decision. Such decisions are infrequent but the stakes are usually larger. Therefore, they
cannot be delegated to the lower level. The MIS in the non-programmed-decision
situation, can help to some extent, in identifying the problem, giving the relevant
information to handle the specific decision-making situation. The MIS, in other words,
can develop support systems in the non-programmed-decision-making situations.

The Law of Requisite Variety

In programmed decision-making, it is necessary for the manager, to enumerate all the
stages to the decision-making situation, and provide the necessary support through rules
and a formula for each one of them. The failure to provide the decision-making rule, in
each of them, will lead to a situation where the system will not be able to make a
decision. It is, therefore, necessary to cover a requisite variety of situations with
necessary decision response.
The requisite variety of situations means that for efficient programmed decision-making,
it is necessary for the manager to provide:
(a) All the decision alternatives and the choices in each probable state;
(b) The decision rules to handle the situation; and
(c) The system or the method to generate a decision choice.
It has been found that in a closed-decision-making situation, the programmed-decision-
making system works efficiently, while in the open-decision-making situation, it is not
efficient. With the advent of expert systems and the knowledge-based artificial
intelligence systems, it is now possible for a computer to develop the alternatives, test
them and handle them on the criteria of selection leading to a decision. The MIS is
expected to provide the necessary information and knowledge support to the computer
based system.

2.9 METHODS FOR DECIDING DECISION ALTERNATIVES

There are several methods to helpcan then apply the criteria such as the maximum
expected value, the maximum profit and the minimum loss or the minimum regrets.

The method of decision tree can be adopted, if the decision-making situation can be
described as a chain of decisions. The process of the decision-making is sequential and a
chain of decisions achieves the end objective.
The use of both the pay-off matrix and the decision tree requires a probabilistic
knowledge of the occurrence of events. In many situations this knowledge is not
available and the MIS has to provide the information support in this endeavor.

Organizational Learning
The organizational decision-making improves with learning by acquiring an additional
knowledge and experience, the training and development, the experience of
implementation and so on.

Methods Explanation

Decide for a limited short If the environment is reviewed at short intervals, the uncertainty
Period, and make a provision impact can be reduced providing a chance to correct the
To correct the decision previous decisions.

Negotiated decision making To reduce the impact of the risk, the uncertainty is converted to
With limited liability. certainty by making decisions binding, though the negotiated
contracts.

Table 2.1 Methods of Dealing with Uncertainty

Learning provides a strength to review the goals and the objectives, and allows to set
them more correctly. It also helps to revise and improve the decision rules. The
improvements are carried out by adopting the policy of modernization, rationalization
and the application of the management science.

The process brings with small changes in the existing policy and guidelines. Then it
slowly comes to the changes in the strategic decision and planning. Further, it revamps
the decision rules and also provides a systems approach to decision-making. As the time
progresses, the organization may have a new set of goals and objectives. It may go
through a process of rationalization of goals and objectives across the company. The
organization may take a fresh look at the alternatives, outcomes, implementation
strategies, methods, procedures and systems.
Adopting such methods, the organization builds skills and capabilities in the
management. It creates the infrastructure to make all the decisions rational, which can be
implemented effectively and efficiently, to achieve the objectives.

2.10 MIS AND DECISION-MAKING

It is necessary to understand the concepts of decision-making as they are relevant to the
design of the MIS. The Simon Model provides a conceptual design of the MIS and
decision-making, wherein the designer has to design the system in such a way that the
problem is identified in precise terms. That means the data gathered for data analysis
should be such that it provides diagnostics and also provides a path to bring the problem
to surface. In the design phase of the model, the designer is to ensure that the system
provides models for decision-making. These models should provide for the generation of
decision alternatives, test them and pave way for the selection of one of them. In a choice
phase, the designer must help to select to criteria to select one alternative amongst the
many.
The concept of programmed decision making is the finest tool available to the MIS
designer, whereby he can transfer decision-making from a decision maker to the MIS and
still retain the responsibility and accountability with the decision maker or the manager.
In case of non-programmed decisions, the MIS should provide the decision support
systems to handle the variability in the decision-making conditions. The decision support
systems provide a generalized model of decision making.
The concept of decision-making systems, such as the closed and the open systems, helps
the designer in providing a design flexibility. The closed systems are deterministic and
rule based: therefore, the design needs to have limited flexibility, while in an open
system, the design should be flexible to cope up with the changes required from time to
time.
The methods of decision-making can be used directly in the MIS provided the method to
be applied has been decided. A number of decision-making problems call for
optimization, and OR models are available which can be made a part of the system. The
optimization models are static and dynamic, and both can be used in the MIS. Some of
the problems call for a competitive analysis, such as a payoff analysis. In these problems,
the MIS can provide the analysis based on the gains, the regrets and the utility.
The concepts of the organizational and behavioural aspects of decision-making provide
an insight to the designer to handle the organizational culture and the constraints in the
MIS. The concepts of the rationality of a business decision, the risk averseness of the
managers and the tendency to avoid an uncertainty, makes the designer conscious about
the human limitations and prompts him to provide a support in the MIS a handle these
limitations. The reliance on organizational learning, makes the designer aware of the
MIS and makes him provide the channels in the MIS to make the learning process more
efficient.
The relevance of the decision-making concepts is significant in the MIS design. The
significance arises out of the complexity of decision-making, the human factors in the
decision-making, the organizational and behaviour aspects, and the uncertain
environments. The MIS design addressing these significant factors turns out to the best
design.

2.11 ADVANTAGES OF MIS

Information Technologies.
Major concepts, developments, and management issues in information technology – that
is, hardware, software, networks, data management, and many internet based
technologies. Chapter 3 and 4 provide an overview of computer hardware and software
technologies, while Chapters 5 and 6 provide coverage of key data resource management
and telecommunications network technologies for business.

Business Applications.
The major uses of information systems for the operations, management, and competitive
advantage of a business. Thus, Chapter 7 covers applications of information technology
in the functional enterprise applications like marketing, manufacturing, and accounting.
Cross-functional enterprise applications like customer relationship management and
enterprise resource planning are offered in Chapter 8. Chapter 9 focuses on electronic
commerce applications that most companies are using to buy and sell products on the
Internet, while Chapter 10 covers the use of information systems and technologies to
support decision making in business.
Development Processes.
How business professionals and information specialists plan, develop, and implement
information systems to meet business opportunities. Several developmental
methodologies are explored in Chapter 11, including the systems development life cycle
and prototyping approaches to business application development. Chapter 12 helps you
gain an appreciation of the business issues involved in IS development.
Management Challenges.
The challenges of effectively and ethically managing information technology at the end
user, enterprise, and global levels of a business. Thus, Chapter 13 focuses on security
challenges and security management issues in the use of information technology, while
Chapter 14 covers some of the key methods business managers can use to manage the
information systems function in a company with global business operations.

2.12 THE FUNDAMENTAL ROLES OF IS IN BUSINESS

There are three fundamental reasons for all business applications of information
technology. They are found in the three vital roles that information systems can perform
for a business enterprise.
● Support of its business processes and operations.
● Support of decision making by its employees and managers.
● Support of its strategies for competitive advantage.
The three major roles of the business applications of Information systems. Information
systems provide an organization with support for business processes and operations,
decision making and competitive advantage. Illustrates the three major roles of the
business applications of information systems. Let’s look at a retail store as a good
example of how these three fundamental roles can be implemented by a business.
 Three steps of Business application
Figure 2.1

Trends in Information Systems

The business applications of information systems have expanded significantly over the
years. Until the 1960’s the role of most information systems was simple: transaction
processing, record-keeping, and other electronic data processing (EDP) applications.
Then another role was added, as the concept of management information systems (MIS)
was conceived. This new role focused on developing business applications that provided
managerial end users with predefined management reports that

The Major Roles IS : Examples

Support Business Processes. As a consumer, you regularly encounter information
systems that support the business processes and operations at the many retail stores where
you shop. For example, most retail stores now use computer-based information systems
to help them record customer purchases, keep track of inventory, pay employees, buy
new merchandise, and evaluate sales trends. Store operations would grind to a halt
without the support of such information systems.

Support Decision Making. Information systems also help store managers and
other business professionals make better decisions. For example, decisions on what lines
of merchandise need to be added or discontinued, or on what kind of investment they
require, are typically made after an analysis provided by computer-based information
systems. This not only supports the decision making of store managers, buyers, and
others, but also helps them look for ways to gain an advantage over other retailers in the
competition for customers.

Support Competitive Advantage. Gaining a strategic advantage over competitors

requires innovative application of information technologies. For example, stores, with
links to their e-commerce website for online shopping. This might attract new customers
and build customer loyalty because of the ease of shopping and buying merchandise
provided by such information systems. Thus, strategic information systems can help
provide products and services that give a business a comparative advantage over its
competitors.

Control
Information Information

INPUT PROCESSING OUTPUT

Role of business application of IS

Figure 2.2

The expanding roles of the business applications of information systems. Note

how the roles of Computer-based information systems have expanded over time.
Also, note the impact of these changes on the end users and managers of an
organization.

MIS STRUCTURES
This Management Information System provides information on selected conservation and
production issues for the tussock grasslands of New Zealand. You can either use the site
index to find the issue you wish to look at, or you can follow through from chosing a
broad vegetation community, to deciding what your managment goal is for the
community, and then to providing you with suggested management guidelines to achieve
that goal. These guidelines were developed with existing scientific information, and land
manager's observations.

However, these guidelines should not be seen as final. In fact the total MIS is not a final
product. New knowledge will continuously become available that could be added to the
system. This new information will not only come from scientists through their ongoing
research activities, but also from land managers and policy makers who are continuously
implementing the strategies and then monitor the outcomes of their actions. This new
information will either confirm the usefulness of the existing guidelines, or could be used
to develop new, or refine the existing guidelines in the MIS. It is important that you share
your ideas with others, and the MIS makes provision for you to do so. You may have
ideas, observations or actual results from your monitoring programme that don't agree
with information held in the MIS. Please share these with others, by using the discussion
forum provided on most of the pages in the MIS.

2.13 TYPES OF INFORMATION SYSTEM

Information systems differ in their business needs. Also depending upon different levels
in organization information systems differ. Three major information systems are

1. Transaction processing systems

2. Management information systems

3. Decision support systems

Figure 1.2 shows relation of information system to the levels of organization. The
information needs are different at different organizational levels. Accordingly the
information can be categorized as: strategic information, managerial information and
operational information.Strategic information is the information needed by top most
management for decision making. For example the trends in revenues earned by the
organization are required

Relation of information systems to levels of organization

Figure 2.3
by the top management for setting the policies of the organization. This information is
not required by the lower levels in the organization. The information systems that provide
these kinds of information are known as Decision Support Systems.

The second category of information required by the middle management is known as

managerial information. The information required at this level is used for making short
term decisions and plans for the organization. Information like sales analysis for the past
quarter or yearly production details etc. fall under this category. Management information
system (MIS) caters to such information needs of the organization. Due to its capabilities
to fulfill the managerial information needs of the organization, Management Information
Systems have become a necessity for all big organizations. And due to its vastness, most
of the big organizations have separate MIS departments to look into the related issues and
proper functioning of the system.

The third category of information is relating to the daily or short term information needs
of the organization such as attendance records of the employees. This kind of information
is required at the operational level for carrying out the day-to-day operational activities.
Due to its capabilities to provide information for processing transaction of the
organization, the information system is known as Transaction Processing System or Data
Processing System. Some examples of information provided by such systems
areprocessing of orders, posting of entries in bank, evaluating overdue purchaser orders
etc.

Transaction Processing Systems

TPS processes business transaction of the organization. Transaction can be any activity of
the organization. Transactions differ from organization to organization. For example, take
a railway reservation system. Booking, canceling, etc are all transactions. Any query
made to it is a transaction. However, there are some transactions, which are common to
almost all organizations. Like employee new employee, maintaining their leave status,
maintaining employees accounts, etc.

This provides high speed and accurate processing of record keeping of basic operational
processes. These include calculation, storage and retrieval.

Transaction processing systems provide speed and accuracy, and can be programmed to
follow routines functions of the organization.

Management Information Systems

These systems assist lower management in problem solving and making decisions. They
use the results of transaction processing and some other information also. It is a set of
information processing functions. It should handle queries as quickly as they arrive. An
important element of MIS is database.

A database is a non-redundant collection of interrelated data items that can be processed

through application programs and available to many users.

Decision Support Systems

These systems assist higher management to make long term decisions. These type of
systems handle unstructured or semi structured decisions. A decision is considered
unstructured if there are no clear procedures for making the decision and if not all the
factors to be considered in the decision can be readily identified in advance.

These are not of recurring nature. Some recur infrequently or occur only once. A decision
support system must very flexible. The user should be able to produce customized reports
by giving particular data and format specific to particular situations.

Summary of Information Systems

Categories of Information System Characteristic’s
Substitutes computer-based processing for
Transaction Processing System
manual procedures.
 Deals with well-structured processes. Includes
record keeping applications.

Provides input to be used in the managerial

Management information system
decision process. Deals with supporting well
structured decision situations. Typical
information requirements can be anticipated.

Provides information to managers who must

Decision support system
make judgements about particular situations.
Supports decision-makers in situations that are
not well structured.
 MI
S

2.14 MIS FOR BUSINESS PLANNING:

Business environment is prone to changes and this factor makes business planning very
complex. Some factors such as the market forces, technological changes, complex
diversity of business and competition have a significant impact on any business
prospects. MIS is designed to assess and monitor these factors. The MIS design is
supposed to provide some insight into these factors enabling the management to evolve
some strategy to deal with them. Since these factors are a part of the environment, MIS
design is required to keep a watch on environment factors and provide information to the
management for a strategy formulation.
 Strategy formulation is a complex task based on the strength and the weakness of the
organization and the mission and goals it wishes to achieve. Strategy formulation is the
responsibility of the top management and the top management relies on the MIS for
information.

There are various business strategies such as overall company growth, product,market,
financing and so on. MIS should provide the relevant information that would help the
management in deciding the type of strategies the business needs. Every business may
not require all the strategies all the time. The type of strategy is directly related to the
current status of business and the goals it wishes to achieve. The MIS is supposed to
provide current information on the status of the business goals.

MIS is supposed to give a status with regard to whether the business is on a growth
path or is stagnant or is likely to decline, and the reasons thereof. If the status of the
business shows a declining trend, the strategy should be of growth. If business is losing in
a particular market segment, then the strategy should be a market or a product strategy.

The continuous assessment of business progress in terms of sales, market, quality,profit

and its direction becomes the major role of MIS. It should further aid the top management
in strategy formulation at each stage of business. The business does not survive on a
single strategy but it requires a mix of strategy operating at different levels of the
management. For example, when a business is on the growth path, it would require a mix
of price, product and market strategies. If a business is showing a decline, it would need a
mix of price-discount, sales promotion and advertising strategies.

The MIS is supposed to evaluate the strategies in terms of the impact they have on
business and provide an optimum mix. The MIS is supposed to provide a strategy-pay off
matrix for such an evaluation.
 In business planning, MIS should provide support to top management for focusing its
attention on decision making and action. In business management, the focus shifts from
one aspect to another. In the introductory phase, the focus would be on a product design
and manufacturing. When the business matures and requires and requires to sustain or to
consolidate, the focus would be on the post sales services and support. The MIS should
provide early warning to change the focus of the management from one aspect to the
other.

Evolving the strategies is not the only task the top management has to perform. It also
has to provide the necessary resources to implement the strategies. The assessment of
resource need, and its selection becomes a major decision for the top management. The
MIS should provide information on resources, costs, quality and availability, for deciding
the cost effective resource mix.

When the strategies are being implemented, it is necessary that the management gets a
continuous feedback on its effectiveness in relation to the objective which they are
supposed to achieve. MIS is supposed to give a critical feedback on the strategy
performance. According to the nature of the feedback, the management may or may not
make a change in the strategy mix, the focus and the resource allocation.

MIS has certain other characteristics for the top management. It contains forecasting
models to probe into the future-the business model for evaluation of the strategy
performance by simulation business conditions. It contains functional models such as the
model for a new product launching, budgeting, scheduling and the models using PERT
/CPM technique for planning.
MIS for the top management relies heavily on databases which are external to the
organization.
 CHAPTER- 3
MANAGEMENT INFORMATION AND CONTROL SYSTEMS

SYSTEM

 The term system can be defined as a set of interrelated elements that operate
collectively to accomplish some common purpose or goal
 A system can be described by specifying its parts, the way in which they are
related, and the goals which they are expected to achieve.
 Systems can be abstract or physical.
 An abstract system is an orderly arrangement of independent constructs.
 A physical system is a set of elements which operate together to accomplish an
objective. E.g. Transportation system, computer system. Physical systems are
more than conceptual construct, they display activity ore behavior. The parts
interact to achieve an objective.

GENERAL MODEL OF A SYSTEM

1. SIMPLE SYSTEM MODEL

INPUT--------------------> PROCESS--------------------> OUTPUT

1. SYSTEM WITH MULTIPLE INPUTS AND OUTPUTS

INPUT 1---------------------------------> ---------------------------------> OUTPUT 1

INPUT 2---------------------------------> PROCESS ---------------------------------> OUTPUT 2

INPUT 3---------------------------------> ---------------------------------> OUTPUT 3

SYSTEM ENVIRONMENT

 All systems function within some sort of environment which surround the system
and often interact with it.
  For any given problem there are many types of systems and many types of
environments.
 BOUNDARY à The feature that defines and delineates a system forms its
boundary. The system is inside the boundary and the environment is outside it.
 SUB SYSTEM à A subsystem is a part of a larger system. Each system is
composed of subsystems which in turn are made up of other subsystems, having
own boundaries.
 The interconnections and interactions between subsystems are called
INTERFACES. They occur at boundary and take the forms of inputs and
outputs.
 SUPRA- SYSTEMS à it refers to the entity formed by a system and other
equivalent systems with which it interacts.

TYPES OF SYSTEMS

1. DETERMINISTIC SYSTEM

It operates in a predictable manner. The interaction among the parts is known with
certainty. In a deterministic system one can accurately describe:

1. state of the system at given point of time,

2. its operation, and
3. the next state of the system

2. PROBABILISTIC SYSTEM

It can be described in terms of probable behavior, but a certain degree of error is always
attached to the prediction of what the system will do.

3. CLOSED SYSTEM

A closed system is self contained and does not interact or make exchange across its
boundaries with its environment. Since they are isolated, they don’t get feedback from
the environment and tend to deteriorate.
  Relatively Closed System

A relatively closed system is one that has only controlled and well defined inputs and
outputs. It is NOT subject to disturbances from outside the system. They are relatively
isolated from the environment, but not completely closed in physical sense.

4. OPEN SYSTEMS

They actively interact with other systems and establish exchange relationship. They tend
to have form and structure to allow them to adapt to changes in their external
environment for survival and growth.

SUB SYSTEMS

DECOMPOSITION >

> To understand a complex system in a better manner, it is decomposed/ factored

into subsystems. The boundaries and interfaces are also defined.

- Such process is continued till smallest subsystems are of manageable size.

- The subsystems resulting from this process generally form hierarchical structures.

- In such a hierarchy, a subsystem is one element of supra system (i.e. the level before it)

> Decomposition into the subsystems is used to analyze an existing system and/or
to design and implement a new system.

> The general principle in decomposition (which assumes that system objects
dictate the process) is:-

+ FUNCTIONAL COHESION>Components are considered to be a part of the

same system if they perform or are related to the same function. The boundary
then needs to be clearly specified, interfaces simplified and appropriate
connections established among the subsystems.
SIMPLIFICATION >

- It’s the process of organizing subsystems so as to reduce the number of

interconnections. Clusters of subsystems are established which interact with each
other. Then a single interface path is defined from one cluster to other subsystems
or cluster

PREVENTING SYSTEM ENTROPY >

System entropy > an increase in entropy takes place when a system run down and decay
or become disordered or disorganized. Preventing or offsetting the increase of entropy
requires input of matter and energy to repair, replenish and maintain the system. The
maintenance of input is called “Negative Entropy”.

SYSTEM STRESS AND SYSTEM CHANGE

- System change when they undergo stress.

- Stress is a force transmitted by the system’s supra system that causes the system
to change, so that the supra system can better achieve its goals.

TYPES OF STRESS

1. A change in the goal set for the system

2. A change in the achievement levels desired for existing goals.

These stresses can be applied separately or concurrently.

CONSEQUENCES OF STRESS

When a supra system exerts stress on a system,

1. It will change to accommodate the stress, or

2. It will decay and terminate
PROCESS OF ADAPTATION

Systems accommodate change either through a Structural Change or through a

Process Change.

It is likely that those responsible for change will attempt to localize it by

confining the adjustment process to only one or some of its subsystems instead of
making global changes to structure and process of the system.

INFORMATION

 Information is “Data that has been processed into a form that is meaningful to the
recipient and is of real or perceived value in current or progressive decision”
 Information is the substance on which business decisions are based. Therefore the
quality of the information determines the quality and effectiveness of
action/decision. This principle is known as GIGO i.e. Garbage In, Garbage Out.

CHARACTERISTICS OF INFORMATION

1. TIMELINESS: Information to be of any use has to be timely.

2. PURPOSE: Information must have a purpose at the time it is transmitted. The
basic purpose of information is to inform, evaluate, persuade and organize.
3. MODE AND FORMAT: Format of information should be so designed that it
assists in-
o decision making,
o solving problems,
o initiating planning,
o controlling, and
o Searching.
 Reports should be supplied on an exception basis. Data should be classified into
those groups which have relevance to problem at hand. It should be simple,
relevant and highlight important points.

1. REDUNDANCY: It means the excess of information carried per unit of data. In a

business situation redundancy maybe sometimes necessary to safeguard against
error in communication process.
2. RATE: The rate of transmission/reception of information maybe represented by
the time required to understand a particular situation.
3. FREQUENCY: Frequency with which information is transmitted or received
affects its value.
4. COMPLETENESS: Information should be as complete as possible.
5. RELIABILITY: information should have an indication of confidence level.
6. COST BENEFIT ANALYSIS: The benefits that are arrived or derived from the
information must justify the cost incurred in procuring information. Costs can be
easily determined. But assessment of benefits is very subjective and its conversion
into objective units of measurement is impossible. So to bypass this problem,
managerial statements are classified into following categories with ref. to the
degree of importance attached:
1. Absolutely essential Statements
2. Necessary statements
3. Normal statements, and
4. Extra statements.
7. VALIDITY: It measures the closeness of the information to the purpose which it
purports to serve. The measure suiting the organization may have to be carefully
selected and evolved.
8. QUALITY: Quality refers to correctness of information. Information is likely to
be spoiled by personal bias. Errors maybe the result of :
1. in correct data measurement and calculation methods
2. failure to follow processing procedure
3. Loss or no processing of data.
 To get rid of errors, internal controls should be developed and procedure for
measurement prescribed.

VALUE OF INFORMATION

It is defined as the “difference between the values of change in decision behaviors caused
by the information and the cost of the information”. From a possible set of decisions, a
decision maker will select one on the basis of information at hand.

BUSINESS INFORMATION SYSTEMS

A business is also a system. A business system depends on an abstract entity called the
“information system”. It is the means by which data flows from one person or department
to another person or department. It serves all the systems of business, linking the different
components in such a way that they effectively work towards same purpose.

The purposes of business information system are to:

1. process input
2. maintain files of data about the organization, and
3. Produce information, reports and other outputs.

The particular set of subsystems used – the specific equipments, programs, files and
procedures constitute an information system application.

CATEGORIES OF BUSINESS INFORMATION SYSTEMS

1. Transaction Processing Systems (TPS)

o This is the most fundamental, computer based system in an organization.

o Transaction processing systems are aimed at expatiating and improving
the routine business activities that all organizations engage.
 o Transaction processing systems, if computerized provide speed and
accuracy and can be programmed to follow routine without any variance.
o Transaction processing systems are operation oriented.
o Transaction processing systems thus can handle routine tasks effectively
and efficiently.

2 . Management Information Systems (MIS)

o Management information system assists managers in decision making and

problem solving.
o They use results produced by transaction processing systems and also
other information systems.

3. Decision Support Systems (DSS)

o Decision support systems are aimed at assisting managers who are faced
with unique, non recurring decision problems. In this case often the
decision determines the kind of information required
o In an unstructured environment, it is difficult to identify information in
advance.
o A decision support system should have therefore greater flexibility.
o A decision support system is of much more use when decisions are of an
unstructured or semi structured nature. In this situation problem area can
be modeled and various alternatives are explored.
o Decision support systems should be seen as an integrated piece of
software incorporating database, model base and user interface.
o Decision support systems are used both at a tactical level and a strategic
level.

4. Executive Information Systems (EIS)

 o Executive information systems are designed primarily for the strategic
level of the management.
o Executive information systems use high end graphical interfaces and
multimedia technology to present information in summarized forms. They
also use higher end computer systems which can interact with other
systems both inside and outside the business.
o Executive information systems tend to be externally focused, strategically
based systems using both internal and external data. Other computer based
systems mainly concentrate on internal control aspects of the organization.

5. Expert Systems (ES)

o These are designed to replace human experts.

o They are important where expertise is scarce and expensive.
o Expert systems are not general.
o They have arisen largely from academic research into AI
o These would be of greater use in tactical and strategic level.
 CHAPTER 4
INFORMATION SYSTEM FOR DECISSION MAKING

4.1 INTRODUCTION

Today’s managers depend on information systems for decision making. The

managers have handful of data around them but manually they cannot process the data
accurately and with in the short period of time available to them due to heavy
competition in modern world. Therefore mangers depend on information systems.

The concept of MIS:

Management: Management has been defined in a variety of ways, but for our purposes it
comprises the process or activities what managers do in the operation of their
organization: Plan, Organize, Initiate and Control operations.

Information:
Data are facts and figures that are not currently being used in a decision processes and
usually take the form of historical records that are recorded and filed without immediate
intent to retrieve for decision making. Information consists of data that have been
retrieved, processed or otherwise used for information or inference purposes, argument,
or as a basis for forecasting or decision making. System can be described simply as a set
of elements joined together for a common objective. A subsystem is is part of a larger
system with which we are concerned. All systems are part of larger systems.

The objective of an MIS (Management Information System) is to provide information for

decision making on planning, initiating, organizing, and controlling the operations of the
subsystems of the form and to provide a synergetic organization in the process. Decision
Support System: It is sometimes described as the next evolutionary step after
Management Information Systems (MIS) . MIS support decision making in both
structured and unstructured problem environments.. It supports decision making at all
levels of the organization .IS (Information Systems) are intended to be woven into the
fabric of the organizations , not standing alone. IS support all aspects of the decision
 making process.MIS are made of people, computers, procedures, databases, interactive
query facilities and so on. They are intended to be evolutionary/adaptive and easy for
people to use.

Methods of Decision Making

Type of Decision Methods of decision making

OLD NEW
Programmed Habit Management Information
Repetitive and Routine Standard operating procedure System
Organization structure, policy etc
Non-Programmed Judgement, Intution, InsightSystematic Approach to
experience problem solving & Decision
Training and Learning making

MIS is a technique for making programmed decisions. If we include the computer and
management science as integral parts or tools of computer –based information systems,
the prospects for a revolution in programmed decision making are very real. Just as a
manufacturing process is becoming more and more automated so is the automation of
programmed decisions increasing to support this production and other information needs
through out the organization.

Information Systems for competitive strategy:

The strategic role of information systems involves using information technology
todevelop products, services, and capabilities that give a company strategic
advantagesover the competitive forces it faces in the global marketplace. This creates
strategicinformation systems, information systems that support or shape the competitive
positionand strategies of an enterprise. So a strategic information system can be any kind
ofinformation system (TPS, MIS, DSS, etc.) that helps an organization gain a
competitiveadvantage, reduce a competitive disadvantage, or meet other strategic
enterpriseobjectives. Let's look at several basic concepts that define the role of such
strategicinformation systems.
  How should a managerial end user think about competitive strategies? How can
 Competitive strategies be applied to the use of information systems by an
organization?
Several important conceptual frameworks for understanding and applying
competitivestrategies have been developed by Michael Porter, Charles Wiseman and
others.. A firm can survive and succeed in the long runif it successfully develops
strategies to confront five competitive forces that shape thestructure of competition in its
industry.

These are:
(1) rivalry of competitors within itsindustry,
(2) threat of new entrants,
(3) threat of substitutes,
(4) the bargaining power ofcustomers,
(5) the bargaining power of suppliers.

A variety of competitive strategies can be developed to help a firm confront

thesecompetitive forces. For example, businesses may try to counter the bargaining
power oftheir customers and suppliers by developing unique business relationships with
them.This effectively locks in customers or suppliers by creating "switching costs" that
make It expensive or inconvenient for them to switch to another firm. Thus, competitors
are also locked out by such strategies. Companies may use other strategies to protect
themselves from the threat of new businesses entering their industry, or the development
of substitutes for their products or services. For example, businesses may try to develop
legal, financial, or technological requirements that create barriers to entryto discourage
firms from entering an industry.
 The competitive environment of an industry
The five basic competitive strategies to be implemented in any business are:

1. Cost Leadership Strategy. Becoming a low-cost producer of products and services

in the industry. Also, a firm can find ways to help its suppliers or customers reduce their
costs or to increase the costs of their competitors.

2. Differentiation Strategy. Developing ways to differentiate a firm's products and

services from its competitors' or reduce the differentiation advantages of competitors.This
may allow a firm to focus its products or services to give it an advantage inparticular
segments or niches of a market.

3. Innovation Strategy. Finding new ways of doing business. This may involve the
development of unique products and services, or entry into unique markets or
marketniches. It may also involve making radical changes to the business processes
forproducing or distributing products and services that are so different from the
waybusiness has been conducted that they alter the fundamental structure of an industry.

4. Growth Strategies. Significantly expanding a company's capacity to produce goods

and services, expanding into global markets, diversifying into new products and services,
or integrating into related products and services.
5. Alliance Strategies. Establishing new business linkages and alliances with
customers, suppliers, competitors, consultants, and other companies. These linkagesmay
include mergers, acquisitions, joint ventures, forming of "virtual companies," orother
marketing, manufacturing, or distribution agreements between a business and itstrading
partners.

4.2 STRATEGIC ROLE OF INFORMATION SYSTEMS:

How can the preceding competitive strategy concepts be applied to the strategic
role of information systems in an organization? or, How can managers use investments in
information technology to directly support a firm's competitive strategies?
These questions can be answered in terms of the key strategic roles that
informationsystems can perform in a firm. Following table summarizes how information
technologycan be used to implement a variety of competitive strategies.
These include not only the five basic competitive strategies, but also other ways that
companies can use information systems strategically to gain a competitive edge.
Following table has examples of how companies used information technology to
implement five competitive strategies for strategic advantage.
4.3 STRATEGIC USE OF INFORMATION SYSTEMS:
(1) Improving Business Process:
One of the strategic business values of information technology is its role in making major
improvements in a company's business processes. Investments in information technology
can help make a firm's operational processes substantially more efficient, and its
managerial processes much more effective. Making such improvements to it business
processes could enable a company to cut costs, improve quality and customer service,
and develop innovative products for new markets. For example, manufacturing processes
for everything from automobiles to watches have been automated and significantly
improved by computer-aided design, engineering, production, and manufacturing
resource management technologies. In the automobile industry, the process for the
production, distribution, and sales of cars and parts and the sharing of vital business data
by managers and others has been substantially improved by using the Internet, extranets,
and other networks that electronically connect an automobile manufacturer’s production
and distribution facilities with car dealers and suppliers. Following table outlines many of
the ways that information technology can improve business processes

Chrysler's CATIA Pipeline : Chrysler Corporation has reorganized its vehicle

development process into multidisciplinary platform teams interconnected by the
CATIAPipeline, a telecommunications network that connects nearly every part of
thecompany's "extended enterprise" to every other, including external suppliers
andcontractors. The software engine that moves data through the network and manages
itsdatabase is CATIA (Computer-Aided Three-Dimensional Interactive Application),
anintegrated computer-aided design, development, engineering, and
manufacturingexecution system from Dassault Systems of France. Product information
flowsinstantaneously from all directions and in all directions, linking managers,
designers,engineers, marketers, service technicians, suppliers, and manufacturing.
The 1998 Dodge Intrepid and Chyrsler Concorde were the first products developed
withthe CATIA Pipeline. The cars and almost all of their components were
electronicallydesigned, tested, and stored in the CATIA database before any physical
models orprototypes were made. Chyrsler designers and engineers are able to design and
testevery part thousands of times, simulate crashes, test air conditioners, plan
productionprocesses, and practice servicing procedures-all electronically. More
importantly, CATIAdetermines how any design change affects any others and instantly
notifies everyoneaffected. CATIA has thus made significant improvements to Chrysler's
business process.The payoff to Chrysler has been dramatic reductions in costs, and major
improvementsin production efficiency and in product quality and performance.
Investments in information systems technology can result in the development of
uniqueproducts and services or processes. This can create new business opportunities
andenable a firm to expand into new markets or into new segments of existing markets.
The use of automated teller machines (ATMs) in banking is another classic example of
an innovative investment in information systems technology

Characteristics
There are three common characteristics in all Strategic MIS. They are :
(a) telecommunications as a central part of SMIS
(b) reliance on a number of vendors fro providing information technologies
(c) (c) cooperation among a number of organizations
Telecommunications is a vital part of SMIS. Successful organizations transcended
traditional organizational boundaries and eliminated the barriers of time and space
through the use of telecommunications. However, developing and implementing
information systems that rely heavily on telecommunications is a challenging task and
often becomes one of the bottlenecks for the development of SMIS.
For integration of complex technologies to develop an SMIS, a number of vendors are
needed in many cases. Therefore, one of the ingredients of an SMIS of an SMIS is the
ability to identify, coordinate and manage transactions with a number of vendors and
effectively bring together diverse technologies to achieve a goal.
Inter organizational systems are those systems which are shared by more than two
organizations, in terms of cooperation and collaboration rather than competition.
Suchventures often result in powerful systems enhancing productivity, reduction in
operatingcosts, increased market share, creating new partnerships, especially for
organizationsthat conduct business transactions in the global market.

4.4 BARRIERS OF SIMS

Researchers, Chris Kemerer and Glen Sosa, both from the Sloan school of
management, identified 12 barriers to successful development of SMIS. These barriers
fall into 3categories
(a) Problem definition
(b) Implementation
(c) Maintenance

Problem definition barriers

• Generating workable idea require leadership and team work
• Many innovative ideas are technically infeasible
• Many innovative ideas are prohibitively expansive
• Many ideas die because they lack a sufficient market

Implementation barriers
• Telecommunications increases the complexity of implementing SMIS
• Multiple systems are difficult to integrate
• SMIS systems often require inter organizational cooperation
• State of the art technologies are difficult to implement

Maintenance barriers
• Competitors can copy SMIS
• Unanticipated demand can overwhelm the usefulness of an SMIS
• Applications can be expensive to maintain or enhance
• High exit barriers can cause devastating losses
4.5 SUCCESS AND FAILURE OF MIS
Most organizations use MIS more successfully than other organizations. Through
hardware, software and technology available are the latest and the best, its use is more for
the collection and storage of data and its elementary processing. There are some factors,
which make MIS, a success while there are some factors, which make it a failure.

Factors contributing to success of MIS

If MIS is to be a success, then it should have all the features listed below :
• MIS is integrated into the management function. It sets clear objectives to ensurethat
MIS focuses on the major issues of the business. Also adequate developmentresources
are provided and human & organizational barriers to progress areremoved.
• An appropriate information processing technology required to meet the data
processing and analysis needs of the users of MIS is selected.
• MIS is oriented, defined and designed in terms of the users requirements and its
operational viability is ensured.
• MIS is kept under continuous surveillance, so that its open system is modified
according to the changing information needs.
• MIS focuses on results and goals, and highlights the factors and reasons for non
achievements.
• MIS is not allowed to end up into an information generation mill avoiding the noise in
the information and the communication system.
• MIS recognizes that a manager is a human being and therefore, the systems must
consider all the human behavioral aspects in the process of management.
• MIS recognizes that the different information needs for different objectives must bemet
with. The globalization of information in isolation from the different objectivesleads to
too much information and its non use.
• MIS is easy to operate and therefore, the design of MIS has such good features
which make up a user friendly design.
• MIS recognizes that the information needs become obsolete and new needs emerge.The
MIS design, therefore, has a potential capability to quickly meet newer andnewer needs
of information.
• MIS concentrates on developing the information support to manage critical
successfactors. It concentrates on the mission critical applications serving the needs of
the top management.
management.

Factors contributing to failures

Many times, MIS is a failure. The common factors which are responsible for this are as
follows :
• MIS is conceived as a data processing and not as an information system.
• MIS does not provide that information which is needed by managers but it tends
toprovide the information generally the function calls for. MIS then becomes
animpersonal function.
• Underestimating the complexity in the business systems and not recognizing it in the
MIS design leads to problems in the successful implementation.
• Adequate attention is not given to the quality control aspects of the inputs, the
process and the outputs leading to insufficient checks and controls in MIS.
• MIS is developed without streamlining the transaction processing systems in the
organizations.
• Lack of training and appreciation that the users of the information and the generators
of the data are different, and they have to play an important role in the MIS
MIS does not meet certain critical and key factors of its users, such as a response tothe
query on the database, an inability to get the processing done in a particularmanner, lack
of user friendly system and the dependence on the system personnel.
• A belief that the computerized MIS can solve all the management problems of
planning and control of the business.
• Lack of administrative discipline in following the standardized systems andprocedures,
wrong coding and deviating from the system specifications result inincomplete and
incorrect information.
• MIS does not give perfect information to all the users in the organization. Anyattempt
towards such a goal will be unsuccessful because every user has a humaningenuity, bias
and certain assumptions not known to the designer. MIS cannot makeup these by
providing perfect information.
 CHAPTER - 5
PLANNING FOR MIS

5.1. Introduction :
Complexity of the information resource environment suggests that the planningfor
information systems is vital for their success. Companies that plan tend toachieve better
results than those that do not or plan poorly. In spite of this fact,many companies do not
put proper emphasis on information system planning,particularly for developing long-
range information systems. With the result,information systems in such companies create
chaos and confusion rather thansupporting the managerial decision making. Therefore, it
is essential thatcompanies develop information system plan to guide in initial
development ofinformation systems and making subsequent changes in these systems.

5.2 . Planning for Information :

An information system plan describes the structure and content of the informationsystems
and how these can be developed. Since all projects relating toinformation systems cannot
be developed and implemented concurrently,priorities must be set. Since in a dynamic
organization, there are moreopportunities for information system applications than can be
handled at one time,an allocation process must be worked out. Further, a very important
fundamentalconcept of information system planning is that the organization’s strategic
planshould be the basis for the information system strategic plan. Therefore, thereshould
be integration of information system plan to organizational plan.
An information system plan has two time perspectives-long range and shortrange. The
long-range plan, which usually covers three to five years, providesgeneral guidelines for
direction. The short-range plan provides a basis forspecific accountability as to
operational and financial performance. Since theshort-range plan is derived out of the
long-range plan, both the plans should befully integrated. An information system plan
usually, contains the following foursections:
Information system objectives and architecture.
Inventory of existing information systems.
Forecast of developments affecting the plan.
Specific plan.

Information System Objectives and Architecture

At the starting level of developing a plan of any type, its objectives should bedefined so
that those who are responsible for developing the plan are clear as towhat they have to
achieve through planning exercise. This is true for developinga plan for information
systems too. However, information system objectives are not ends in themselves from the
organization’s point of view because theseobjectives contribute to the achievement of
organizational objectives which areends in themselves.

Therefore, while defining the information system objectives,following factors should be

considered :
1. Organizational objectives particularly the long term.
2. Organizational strategies to achieve those objectives,
3. External environment affecting the operation of the organization (such as nature of
industry, government regulations, customers, suppliers),
4. Internal organizational constraints (such as management philosophy, organizational
culture, etc.), and
5. Assumptions about business risks and potential consequences.

Thus, the information system objectives are defined within the overallorganizational
objectives. These objectives, in turn, provide the direction fordeveloping information
systems. While defining the information system objectives,these should be defined in
both broad and operational ways. A broad objectivedefines what the information systems
are going to achieve; how they wouldcontribute to the achievement of organizational
objectives. An Operationalobjective defines what the information systems are going to
achieve in a specifictime frame. For example, while the overall objective of the
information systemsmay be defined in terms of 'providing information on a timely basis
to allorganizational units', the operational objective may be defined in terms of'providing
periodic financial reports within 24 hours after the end of the period’. Based on the
objectives, information system architecture is defined. Informationsystem architecture
provides a framework for detailed planning. It defines majorcategories of information and
the major information subsystems or applicationsfor the organization as a whole.

Inventory of Existing Information Systems

Inventory of existing information systems indicates the current status ofinformation
systems in use. Inventory includes such items as hardware, software,and applications (if
the information systems are computerized); analysis ofexpenses, hardware and software
utilization, and personnel utilization; andassessment of strengths and weaknesses of the
existing information systems.
The basic objective of inventory is to determine the extent to which the existingsystems
would contribute to the proposed systems. For example, when anorganization is
switching from centralized computing to client/server computing, itmust identify which
of the hardware and software (both system and application)can be used in the latter.
Similar is the case with personnel utilization. However,in the case of personnel, some
additional problems arise specially when there isa change of manual to computerized
information systems. In such a case, manyexisting personnel may become redundant
unless suitable training is provided to them. Further, the organization has to develop plan
to utilize surplus personnel which may result because of computerization.

Forecast of Developments Affecting the Plan

While developing an information system plan, it is necessary that futuredevelopments
which may affect the implementation of the plan are taken intoaccount. Such
developments may be. in the area of information technology,methodology, and
environment. Information technology has the greatestinfluence on the effectiveness of
any information system. Therefore, howinformation technology, both in terms of
hardware and Software, would shape infuture should be given adequate consideration.
Though it is very difficult topredict the nature of technological development at the time
of preparing the plan,organizations acting on proactive basis can plan the assimilation of
newtechnology easily because of time lag between technology development and
itsapplication. Usually, it happens that technology development is announced muchearlier
than its commercial use.
Besides information technology, methodology change can also be forecast inadvance. In
order to incorporate methodology change, it is better to consideralternative system
development methodologies in place of or in addition totraditional life cycle methods.
Environmental changes, such as change ingovernment regulations, tax laws, competitors'
actions, etc. should also beincluded in so far as they affect information systems.

Specific Plan
After determining the above three factors, the organization can draw a specificplan for
information systems. At the initial level, a specific plan may be preparedfor a longer
term, say up to five years. Based on this, plan may be prepared forshorter term, say for
the next year or two years. However, these two-period plansshould not be prepared
independent of each other but both of these should befully integrated. This integration
can be achieved if the shorter-term plan isderived from the longer-term plan. The specific
plan should include hardwareacquisition schedule, purchased software schedule for both
system software andapplication software, application software development schedule,
softwaremaintenance and conversion schedule, personnel resources required and
theirrecruitment and training schedule, and financial resources required-
capitalexpenditure for acquiring hardware, Software, and other accessories;
operatingexpenditure for operations, maintenance, and new development.

There should be a provision for updating the plan as each year passes, theinformation
system plan requires updating. Future plans are affected by changesin technology,
experience with the systems that have been developed, changingneeds for new systems,
and changes in the organization itself. The plan shouldbe updated in anticipation of these
changes rather than the actual changes. Thisfacilitates the organization to be ready to face
challenges emerging out of thesechanges.
5.3 INFORMATION SYSTEM GROWTH CYCLE
Every system has a life cycle In which a system develops Into stages.
Forexample, human beings have life cycle consisting of birth, adolescence, youth,adult,
maturity, and decay. In the same way, an Information system has a lifecycle with
different stages. Nolan has presented a stage model of Informationsystem life cycle.
Nolan stage model is a framework for Information systemplanning that matches various
features of Information systems to stages ofgrowth. It is a contingency theory which
states-if these features exist, then theinformation system Is In this stage. It states that an
organization must go througheach stage of growth before It can progress to the next one.
Thus, the stagemodel provides a set of limits if the organization’s current stage of growth
can bediagnosed.

Information System Growth Stages

Nolan originally presented four stages of Information system life cycle-
Initiation,expansion (or contagion), formalization (or control), and maturity (or
Integration).In a subsequent model, Nolan expanded these four stages into six stages-
initiation, contagion, control, Integration, data administration, and maturity.Management
responses to growth in computing are reflected In different levels ofcontrol or slack with
each stage. Control is characterized by managementpolicies and systems which ensure
efficiency of computing use. Slack is the lackof control and the availability of resources
to experiment with application featuresnot required to perform basic processing. Table
3.1 shows the levels of control orslack In different stages of Information system growth
model.

Levels of control or slack in different stages

While proposing stage model of information system growth cycle, Nolan hasmade certain
assumptions about the growth dynamics of movement through thestages.

These assumptions are as follows

1. Organizational learning permits movement through stages. Organizationallearning is
the process by which an organization identifies action-outcomerelationships, identifies
and corrects errors, stores the experience inorganizational personnel who teach new
employees, and stores the systems,procedures, rules, computer programs, and other forms
of transferringexperience. Thus, organizational learning exhibits adaptive behaviour.
Thisadaptive behaviour is useful in moving from one stage to another stage ofinformation
system growth cycle. For example, limited experimentation of stageone (initiation) is the
basis for the second stage (contagion), and contagion stage allows diffusion of the
technology before controls are applied.

2. Various stages of information system growth cycle cannot be skipped because

experience is necessary before the organization is ready for the next stage. If
experimentation is not performed. there are no early users to promote contagion. If the
organization goes from initiation to control directly, technology diffusion does not occur
because the control stifles widespread trial-and-error use.

3. Although there are certain natural growth processes involved, various stages of growth
model can be planned, coordinated, and managed to move through stages efficiently and
effectively. Organizational culture, leadership styles, and power relationships shift to
meet the needs of each stage. Thus, various stages represent a sequence for planned and
managed change.
Nolan has also proposed that major changes in information technology eliminate the
maturity stage. With the introduction of new hardware, software, and system design, the
organization starts on a new growth curve as shown.

Using Stage Model in Information System Planning

The stage model has significant relevance in information system planning. It can be used
in diagnosis of current stage of growth and in planning changes in controlled way to
move to the next stage. In an organization, usually, not allapplication subsystems grow at
the same rate: for example, financial information system may be in stage three (control)
with controlled growth, while marketingmay require encouragement for new applications
which need more slacks. Thus.in practice, shifts in stages and their accompanying
features occur gradually andat different paces. The stage model describes the logic of
change and thedestination that is to be achieved. It presents the logic of information
systemgrowth over different stages. However, the stage model does not specify
themechanisms of change from one stage to another stage. To that extent, themodel lacks
specificity. Therefore, the diagnostic measurements and prescriptiveelements of the
model should be viewed as general guidelines for informationsystem planning.

Techniques for Information Systems Planning :

A number of techniques have been proposed for information system planning.
Each of these techniques tries to identify the flow of activities for developing a
long-rage information system plan. These techniques are as follows:

1. Derivation of information system plan from organizational plan.

2. Strategic grid.
3. Strategy set transformation.

(1) DERIVATION OF INFORMATION SYSTEM PLAN FROM

ORGANISATIONAL PLAN:
One of the most useful techniques of information system planning is derivation of
information system plan from organizational plan. Every organization has some kind of
plan that reflects its objectives and strategy to achieve those objectives. The
implementation of strategy brings results and control system analyses whether the results
are in tune with objectives: If not what additional efforts are required. By aligning the
information system plan to organizational plan, objectives and strategy for developing
information system plan may be adopted. It implies that those who are responsible for
developing information system plan must be aware of planning process and various
activities involved in it so that information systems are geared to these activities.

Organizational planning process

Various activities involved in organizational planning process should not be taken

as independent activities and their flow only in one direction. Rather these should be
taken in an integrated way in which two activities should be conside redmutually
interacting having two-way impact. The information system plan should be such that it
provides relevant information at each activity level and its mutual interaction with other
activities. A brief discussion of various activities of planning, process and their
information requirements is presented below.

Defining Organizational Mission: Organizational mission is the fundamental purpose

that explains why an organization exists and sets it apart from otherorganizations. It is a
general enduring statement of the organization’s intent andembodies the strategic
decision makers' business philosophy. Organizationalmission becomes the cornerstone
for organizational operations. The scope of these operations is defined in terms of
markets and products, that is, which markets will be served by the organization by
offering which products. Organizational mission is enduring and, therefore, it changes
over a long period of time depending on the environmental and internal organizational
factors. Information systems play little role in defining organizational mission.

Analysis: The second element of organizational planning process is

environmental analysis. Since an organization operates in a society, it has to interact with
various factors lying in the society, such as customers, suppliers, financiers, competitor,
government, and other organs of the society. In the planning process, forecast is made
about the likely future behavior of these factors. However, this forecast is not made in
vacuum rather it is based on information. Here the role of information systems is vital
because that make relevant information available. If an organization scans its
environment intensively, the information systems must be able to provide relevant
mechanism for such scanning.

Organizational Analysis : Organizational analysis identifies the strengths

weaknesses of the organization so that the organization is able to take advantages by
using its strengths, and at the same time, taking measures to overcome its weaknesses.
Organizational strengths and weaknesses are measured in all the functional areas-
production, marketing, finance, and personnel-as well as its operating systems,
procedures, etc. Here, information systems play significant role in identifying such
strengths and weaknesses by collecting and analyzing internal information.

Setting Long-term Objectives: Based on organizational mission, environmental

analysis, and organizational analysis, long-term objectives of the organizations are set.
These long-term objectives may be set for a plan period (five years or so) or even beyond
that. Some organizations define their objectives beyond a plan period which provide
guidelines for setting objectives for plan periods. By analyzing the information from
different sources, long-term objectives are set so that they are more realistic and
meaningful.
Identifying Alternative Plans : Combination of organizational mission, environmental
analysis, and organizational analysis enables the organization to generate various
alternative plans which may help it achieve its long-term objectives. At this level, the aim
is to generate as many alternatives as possible so that the organization has flexibility in
choosing a plan for implementation. Information systems help in identifying such
alternative plans by providing relevant information.

Evaluating Alternative Plans: After identification of various alternative plans, these are
evaluated to find out which one is best in the given circumstances. Since all the plans
cannot be implemented, it is desirable to select the one that meets the criteria of various
decision factors. For evaluating different alternatives, successive step method is followed.
Those plans which do not meet the initial decision criteria, (investment requirements,
degree of risks, profitability, etc.) are eliminated at the first step of evaluation. The
remaining plans go to the next step where the same process is repeated. Thus, screening
out the plans results into only few plans which require detailed evaluation in terms of
their payoff, risk involved, and so on. Information systems provide help in evaluating
various alternative plans by analyzing their impact on the organization.

Risks in Information Systems :

Defining the values must be supplemented by assessment of the risks associated
with the realization of values from the IT infrastructure. Broadly, there are four types of
risks, namely, organizational risk, IT infrastructure risk, definitional risk and technical
feasibility risk.

1. Organizational risk: The value of the IT infrastructure to the performance of the

enterprise depends upon a host of environmental factors in the organization. The
availability of necessary skills for implementation of information system projects and
exploitation of IT infrastructure is sometimes a major constraint in the success of a
information system project. Many organizations find resistance to the use of IT
infrastructure within the organization, even when the necessary skills are available or are
not very difficult to develop. Such a resistance, generally, is caused by the fears that
might be created due to communication gap regarding implications of using IT
infrastructure for a given application on the achievements of personal goals of the
personnel associated with the application. For example, use of IT infrastructure in Indian
banking industry faced a lot of resistance in the beginning from staff at various levels.
The resistance was caused primarily due to the fear of possible retrenchments when the
automation results in reduced manpower requirement.
Such resistance causes non-utilization or underutilization of IT infrastructure resulting in
failures of applications in delivering the benefits of IT. The success in realization of
benefits also depends upon the work culture in the enterprise. Installation of e-mail
facility did not improve the communication system in the organization and the
infrastructure remained grossly underutilized in some organizations where interpersonal
communication was restricted. In other cases, where there existed an environment of
openness in communication, it was complete success.

2. IT infrastructure risks: Sometimes, the architecture of the existing IT infrastructure

and the strategies of the on-going information systems are such that they are not in tune
with the proposed information system project. Some projects have greater degree of
dependence on the existing IT infrastructure. The degree of IT infrastructure risk is
greater in such cases. However, if the proposed projects fit easily into the overall plan of
the existing IT infrastructure, the probability of success is even higher. For example, the
success of a customer information support system will depend upon the strength of the
sales information system, production information system, financial accounting
information system,etc. If these information systems are not mature, there is a greater risk
of customer information system not realizing the anticipated benefits. Rather, it may add
more confusion to the existing chaos.

3. Definitional risk: The specific objectives that are sought to be achieved through the
proposed, information system projects are to be defined properly or communicated to and
received by the information system designers. Any ambiguity in the objectives and
related details regarding the project may cause the projects not to deliver what was
evaluated at the time of acceptance of the proposal. The definitional risks are greater in
the case of projects that are complex in nature and relate to less tried processes. The
definitional risks are lower in case of well established process, other things remaining
equal. There is no dearth of cases wherein there is huge gap between what was targeted
and what was finally delivered by the information systems. A market intelligence system,
for example, aims at offering information regarding the rivals' plans may finally turn out
to be a simple application aggregating the sales figures and analyzing trends in market
shares. This may happen due to communication gap at the time of designing the
application and definitional problems relating to what constitutes a market intelligence.

4. Technical risk: The rapid advancements in the information technology occurring in

hardware; software and data organization make the new technologies very attractive in
terms of stated return to cost ratios. There is always a temptation to jump into to new
technology bandwagon. In fact, adoption of new technology in most of the cases is the
obvious decision as the new technology seems to be distinctly superior to the old one.
However, there is always a risk of adopting new and untried technologies. The projects
that involve use of untried technologies are more risky than the ones that use well-
established and commercially tried technologies. Thus, the process of evaluating
information system proposals involves definition and measurement of values for the
tangible and intangible benefits of the system. These values are matched against the
potential sources of risks of failures of information systems in achieving these values.