BCOM304

Management Information System

"Information can be recorded as signs, or transmitted as signals. Information is any kind of

event that affects the state of a dynamic system that can interpret the information.
Conceptually, information is the message (utterance or expression) being conveyed.
Therefore, in a general sense, information is "Knowledge communicated or received,
concerning a particular fact or circumstance". Information cannot be predicted and resolves
uncertainty."

Information Vs Data

Data can be described as unprocessed facts and figures. Plain collected data as raw facts
cannot help in decision-making. However, data is the raw material that is organized,
structured, and interpreted to create useful information systems.
Data is defined as 'groups of non-random symbols in the form of text, images, voice
representing quantities, action and objects'.
Information is interpreted data; created from organized, structured, and processed data in a
particular context.
According to Davis and Olson −
"Information is a data that has been processed into a form that is meaningful to recipient and
is of real or perceived value in the current or the prospective action or decision of recipient."

Information, Knowledge and Business Intelligence

Professor Ray R. Larson of the School of Information at the University of California,

Berkeley, provides an Information Hierarchy, which is −
 Data − The raw material of information.
 Information − Data organized and presented by someone.
 Knowledge − Information read, heard, or seen, and understood.
 Wisdom − Distilled and integrated knowledge and understanding.
Scott Andrews' explains Information Continuum as follows −
 Data − A Fact or a piece of information, or a series thereof.
 Information − Knowledge discerned from data.
 Business Intelligence − Information Management pertaining to an organization's
policy or decision-making, particularly when tied to strategic or operational
objectives.
Information/Data Collection Techniques

The most popular data collection techniques include −

 Surveys − A questionnaires is prepared to collect the data from the field.
 Secondary data sources or archival data: Data is collected through old records,
magazines, company website etc.
 Objective measures or tests − An experimental test is conducted on the subject and
the data is collected.
 Interviews − Data is collected by the system analyst by following a rigid procedure
and collecting the answers to a set of pre-conceived questions through personal
interviews.
Information can be classified in a number of ways and in this chapter, you will learn two of
the most important ways to classify information.
Classification by Characteristic

Based on Anthony's classification of Management, information used in business for

decision-making is generally categorized into three types −
 Strategic Information − Strategic information is concerned with long term policy
decisions that defines the objectives of a business and checks how well these
objectives are met. For example, acquiring a new plant, a new product,
diversification of business etc, comes under strategic information.
 Tactical Information − Tactical information is concerned with the information
needed for exercising control over business resources, like budgeting, quality
control, service level, inventory level, productivity level etc.
 Operational Information − Operational information is concerned with
plant/business level information and is used to ensure proper conduction of specific
operational tasks as planned/intended. Various operator specific, machine specific
and shift specific jobs for quality control checks comes under this category.

Classification by Application

In terms of applications, information can be categorized as −

 Planning Information − These are the information needed for establishing standard
norms and specifications in an organization. This information is used in strategic,
tactical, and operation planning of any activity. Examples of such information are
time standards, design standards.
 Control Information − This information is needed for establishing control over all
business activities through feedback mechanism. This information is used for
controlling attainment, nature and utilization of important processes in a system.
When such information reflects a deviation from the established standards, the
system should induce a decision or an action leading to control.
 Knowledge Information − Knowledge is defined as "information about
information". Knowledge information is acquired through experience and learning,
and collected from archival data and research studies.
 Organizational Information − Organizational information deals with an
organization's environment, culture in the light of its objectives. Karl Weick's
Organizational Information Theory emphasizes that an organization reduces its
equivocality or uncertainty by collecting, managing and using these information
prudently. This information is used by everybody in the organization; examples of
such information are employee and payroll information.
 Functional/Operational Information − This is operation specific information. For
example, daily schedules in a manufacturing plant that refers to the detailed
assignment of jobs to machines or machines to operators. In a service oriented
 business, it would be the duty roster of various personnel. This information is mostly
internal to the organization.
 Database Information − Database information construes large quantities of
information that has multiple usage and application. Such information is stored,
retrieved and managed to create databases. For example, material specification or
supplier information is stored for multiple users.
Information is a vital resource for the success of any organization. Future of an organization
lies in using and disseminating information wisely. Good quality information placed in right
context in right time tells us about opportunities and problems well in advance.
Good quality information − Quality is a value that would vary according to the users and
uses of the information.
According to Wang and Strong, following are the dimensions or elements of Information
Quality −
 Intrinsic − Accuracy, Objectivity, Believability, Reputation
 Contextual − Relevancy, Value-Added, Timeliness, Completeness, Amount of
information
 Representational − Interpretability, Format, Coherence, Compatibility
 Accessibility − Accessibility, Access security
Various authors propose various lists of metrics for assessing the quality of information. Let
us generate a list of the most essential characteristic features for information quality −
 Reliability − It should be verifiable and dependable.
 Timely − It must be current and it must reach the users well in time, so that important
decisions can be made in time.
 Relevant − It should be current and valid information and it should reduce
uncertainties.
 Accurate − It should be free of errors and mistakes, true, and not deceptive.
 Sufficient − It should be adequate in quantity, so that decisions can be made on its
basis.
 Unambiguous − It should be expressed in clear terms. In other words, in should be
comprehensive.
 Complete − It should meet all the needs in the current context.
 Unbiased − It should be impartial, free from any bias. In other words, it should have
integrity.
 Explicit − It should not need any further explanation.
 Comparable − It should be of uniform collection, analysis, content, and format.
 Reproducible − It could be used by documented methods on the same data set to
achieve a consistent result.
Information processing beyond doubt is the dominant industry of the present century.
Following factors states few common factors that reflect on the needs and objectives of the
information processing −
  Increasing impact of information processing for organizational decision making.
 Dependency of services sector including banking, financial organization, health care,
entertainment, tourism and travel, education and numerous others on information.
 Changing employment scene world over, shifting base from manual agricultural to
machine-based manufacturing and other industry related jobs.
 Information revolution and the overall development scenario.
 Growth of IT industry and its strategic importance.
 Strong growth of information services fuelled by increasing competition and reduced
product life cycle.
 Need for sustainable development and quality life.
 Improvement in communication and transportation brought in by use of information
processing.
 Use of information processing in reduction of energy consumption, reduction in
pollution and a better ecological balance in future.
 Use of information processing in land record managements, legal delivery system,
educational institutions, natural resource planning, customer relation management
and so on.
In a nutshell −
 Information is needed to survive in the modern competitive world.
 Information is needed to create strong information systems and keep these systems up
to date.

Implications of Information in Business

Information processing has transformed our society in numerous ways. From a business
perspective, there has been a huge shift towards increasingly automated business processes
and communication. Access to information and capability of information processing has
helped in achieving greater efficiency in accounting and other business processes.
A complete business information system, accomplishes the following functionalities −
 Collection and storage of data.
 Transform these data into business information useful for decision making.
 Provide controls to safeguard data.
 Automate and streamline reporting.
The following list summarizes the five main uses of information by businesses and other
organizations −
 Planning − At the planning stage, information is the most important ingredient in
decision making. Information at planning stage includes that of business resources,
assets, liabilities, plants and machineries, properties, suppliers, customers,
competitors, market and market dynamics, fiscal policy changes of the Government,
emerging technologies, etc.
  Recording − Business processing these days involves recording information about
each transaction or event. This information collected, stored and updated regularly at
the operational level.
 Controlling − A business need to set up an information filter, so that only filtered
data is presented to the middle and top management. This ensures efficiency at the
operational level and effectiveness at the tactical and strategic level.
 Measuring − A business measures its performance metrics by collecting and
analyzing sales data, cost of manufacturing, and profit earned.
 Decision-making − MIS is primarily concerned with managerial decision-making,
theory of organizational behavior, and underlying human behavior in organizational
context. Decision-making information includes the socio-economic impact of
competition, globalization, democratization, and the effects of all these factors on an
organizational structure.
In short, this multi-dimensional information evolves from the following logical foundations
−
 Operations research and management science
 Theory of organizational behavior
 Computer science −
o Data and file structure
o Data theory design and implementation
o Computer networking
o Expert systems and artificial intelligence
 Information theory
Following factors arising as an outcome of information processing help speed up of business
events and achieves greater efficiency −
 Directly and immediate linkage to the system
 Faster communication of an order
 Electronic transfer of funds for faster payment
 Electronically solicited pricing (helps in determining the best price)

MIS Need for Information Systems

Managers make decisions. Decision-making generally takes a four-fold path −

 Understanding the need for decision or the opportunity,
 Preparing alternative course of actions,
 Evaluating all alternative course of actions,
 Deciding the right path for implementation.
MIS is an information system that provides information in the form of standardized reports
and displays for the managers. MIS is a broad class of information systems designed to
provide information needed for effective decision making.
Data and information created from an accounting information system and the reports
generated thereon are used to provide accurate, timely and relevant information needed for
effective decision making by managers.
Management information systems provide information to support management decision
making, with the following goals −
 Pre-specified and preplanned reporting to managers.
 Interactive and ad-hoc support for decision making.
 Critical information for top management.
MIS is of vital importance to any organization, because −
 It emphasizes on the management decision making, not only processing of data
generated by business operations.
 It emphasizes on the systems framework that should be used for organizing
information systems applications.

Decision-making becomes a challenging exercise especially when decisions are complex and
have implications on major stakeholders. Success of an organisation depends on corrective
decision-making.
Right decisions may bring success, whereas a wrong decision may ruin an organisation. For
the purpose of carrying out decision-making procedure, a wide variety of decision-making
techniques are adopted.
The techniques of decision making can be studied under the following heads:- 1. Qualitative
Techniques 2. Quantitative Techniques.

Some of the qualitative techniques of decision making are:-

1. Intuitive Approach 2. Delphi Technique 3. Brainstorming 4. Nominal Group Technique
(NGT) 5. Multi-Voting 6. Didactic Interaction.

Some of the quantitative techniques of decision making are:-

1. Management Information Systems (MIS) 2. Decision Support System (DSS) 3. Decision
Tree 4. The Delphi Technique 5. Decision Matrix 6. Cost Benefit Analysis 7. Payback
Analysis 8. Simulation 9. Network Analysis 10. Operations Research.

Techniques of Decision Making: Qualitative and Quantitative Techniques

Techniques of Decision Making
There are various techniques of decision making.
They fall into two broad categories:
1. Qualitative, and
2.Quantitative.
1. Qualitative techniques – Intuitive approach to decision making is qualitative in nature.
2. Quantitative techniques – Such techniques include MIS, DSS, decision-tree and the
Delphi method.
Intuition is an individual’s innate belief about something without conscious consideration.

1. Qualitative Techniques:
Intuition:
It is making a choice without the use of conscious thought or logical inference. It is important
for a manager to develop his intuitive skills because they are as important as rational analysis
in many decisions
The Intuitive Approach to Decision Making:
When managers make decisions solely on hunches and intuition they are practising manage-
ment as though it were wholly an art based only on feelings. The intuitive approach refers to
the approach used when managers make decisions based largely on hunches and intuitions.
Rational Approaches to Decision Making Revisited:
Approaches to decision making that attempt to evaluate factual information through the use
of some type of deductive reasoning are referred to as rational approaches.
The following points discuss two types of rational approaches:
The Optimising Approach:
The optimising approach (sometimes called the rational or scientific approach) to
decision making includes the following steps:

i. Recognise the need for a decision.

ii. Establish, rank and weigh the decision criteria.
iii. Gather available information and data.
iv. Identify possible alternatives.
v. Evaluate each alternative with respect to all criteria.
vi. Select the best alternative.
Once the need to make the decision is known, criteria must be set for expected results of the
decision. These criteria should then be ranked and weighed according to their relative
importance.
Next, factual data relating to the decision should be collected. After that, all alternatives that
meet the criteria are identified. Each is then evaluated with respect to all criteria. The final
decision is based on the alternative that best meets the criteria.
Limitations of the Optimising Approach:
The optimising approach to decision making is no doubt an improvement over the intuitive
approach. But it is not without its problems and limitations.
First, the assumptions on which the approach is based are often unrealistic; decision makers
do not always have clearly defined criteria for making decisions.
Second, many decisions are based on limited knowledge of the possible alternatives; even
when information is available, it is usually less than perfect.
Third, there is always a temptation to manipulate or ignore the gathered information and
choose a favoured (but not necessarily the best) alternative.
Due to limitations of the optimising approach, most decisions still involve some judgment.
Thus, in making decision, the manager generally uses a combination of intuitive and rational
approaches.
b. The Satisfying (Administrative) Approach Restated:
Believing the assumptions of the optimising approach to be generally unrealistic, Herbert Si-
mon, in attempting to understand how managerial decisions are actually made, formulated his
principle of bounded rationality. This principle states, “The capacity of the human mind for
formulating and solving complex problems is very small compared with the size of the prob-
lems whose solutions is required for objectively rational behaviour — or even for a
reasonable approximation to such objective rationality”. Basically, the principle of bounded
rationality states that human rationality has definite limits.
Based on this principle, Simon proposed a decision model of the administrative man,
which is based on following assumptions:
i. A person’s knowledge of alternatives and criteria is limited.
ii. In general people act on the basis of a simplified, ill-structured, mental abstraction of the
real world; this abstraction is influenced by personal perceptions, biases, and so forth.
iii. People do not attempt to optimise but will take the first alternative that satisfies their
current level of aspiration. This is called satisficing.
iv. An individual’s level of aspiration concerning a decision fluctuates upward and down-
ward, depending on the values of the most recently identified alternatives.
Optimising means selecting the best possible alternative; satisficing means selecting the first
alternative that meets the decision maker’s minimum standard of satisfaction. Assumption
four is based on the belief that the criteria for a satisfactory alternative are determined by the
person’s current level of aspiration. Level of aspiration refers to the level of performance a
person expects to attain, and it is impacted (influenced) by the person’s prior successes and
failures.
Fig. represents the satisficing approach to decision making. If the decision maker is satisfied
that an acceptable alternative has been found, she or he selects that alternative. Otherwise the
decision maker searches for an additional alternative. In Fig. 2 the double arrows indicate a
two-way relationship – The value of the new alternative is influenced by the value of the best
previous alternative.

The value of the best previous alternative is, in turn, influenced by the value of the new
alternative. As is indicated by the arrows, a similar two-way relationship exists between the
value of the new alternative and the current level of aspiration. The end result of this
evaluation determines whether or not the decision maker is satisfied with the alternative.
Thus the decision maker (called the administrative man) selects the first alternative which
meets the minimum satisfaction criteria and makes no real attempt to optimise.

2.  Quantitative Techniques:

Armed with information managers can make better decisions. Frontline managers, for ex-
ample, who are supplied with direct activity cost information, can better manage revenue
margins (profits) and costs. Organisations can achieve more consistency between upper
management and lower-level managers by providing more information throughout the
organisation.
The quantitative decision-making techniques are:
i. Management Information System (MIS),
ii. Decision Support System (DSS),
iii. Decision tree and
iv. Delphi technique.
i. Management Information Systems (MIS):
Management information systems (MIS) are reporting systems which summarise, collate and
present information on a certain activity such as processing a transaction. An MIS is a
procedure which is concerned with getting appropriate information to managers as and when
they need it.
It is a comprehensive computer system for providing financial and qualitative information to
all levels of management. Access to data is by the need to know and is restricted to areas
regarded as useful for particular managers; confidential information is restricted to top
management.
Management information systems (MIS) provide support to an organisation’s managers by
providing daily reports, schedules, plans and budgets. A basic MIS is presented in Fig. 3. In-
formation activities of each functional manager vary depending on whether he is in
accounting department or marketing department as also the management level.
In general middle-level managers focus mainly on internal activities and information, higher-
and top-level managers also remain engaged in external activities. However, middle-
managers are the largest MIS user group. Since they use this technique extensively and
frequently they need networked information to plan such emerging activities as employee
training, materials handling and cash flows.

MIS produce reports which fall into three main categories.

First are periodic, scheduled reports. For example, an MIS may produce weekly reports
regarding sales activity broken down by region.
Second, MIS produce demand reports, which are generated on request by the managers.
Finally, some MIS produce exception reports, which are generated as warnings based on
certain business conditions. For example, an inventory system may produce an exception
report to warn managers of low stock levels for a particular product line. MIS are normally
highly structured since they involve highly repetitive, simple calculations with little
variability in their presentation.

Other Decision-Making Techniques:

i. Management Information System (MIS):
Management Information System or ‘MIS’ is a computer-based system of collecting, storing
and disseminating data in the form of information needed to carry out the functions of
management. MIS is a system to support the decision-making function in an organisation. It
helps the managers to discharge their functions of management efficiently and effectively.
With MIS, the quality of management enhances as it provides accurate, timely and relevant
information necessary for planning, organisation and control.
According to Dickey, “Management Information System is an approach to information
system design that conceives the business enterprise as an entity composed of interdependent
system and sub-systems, which with the use of automated data processing systems attempt to
provide timely and accurate management information which will permit optimum
management decision-making.”
Objectives of MIS:
(a) Capturing Data – The very first purpose of MIS is to capture and collect data from diverse
sources which will facilitate in organisational decision-making. Data may be specific,
general, and contextual or may be an operational information.
(b) Processing Data – The data captured is in its original form is not apt for the purpose of
making decision-making. Hence, it is processed to be converted into information. This
processed data is utilised for various organisational functional decision areas such as
planning, organising, coordinating, directing and controlling.
Data can be processed through:
(i) Making calculations
(ii) Sorting of data
(iii) Classifying data
(iv) Summarising data.
(c) Information Storage – MIS stores the processed or unprocessed data for future use. If any
information is not immediately required, it is saved as an organisation record, for later use.
(d) Information Retrieval – The system should be able to retrieve this information from the
storage as and when required by various users.
(e) Dissemination of Information – Information, which is an output or finished product of
MIS, is disseminated to the users in the organisation.
Characteristics of MIS:
(a) Systems Approach – MIS follows a systems approach. It means considering a systematic
and comprehensive outlook of various input and output sub-systems.
(b) Management-oriented – Management information system, being a very critical and
integral part of decision-making, focuses on catering to the decision-making requirements of
various managerial functions such as- planning, organising, staffing, etc.
(c) Need-based – Management information system is a means for effective decision-making.
Thus, it is designed and implemented according to the need and requirement of an
organisation or of specific level.
(d) Future Orientation – Being a tool for decision-making, MIS is essentially a future-
oriented technique. Collecting data and providing information for taking decisions is done by
MIS for future reference.
(e) Integrated approach – MIS, being a computer-based system aims at collection, processing
and dissemination of information on a unanimous basis. It adopts an integrated approach so
as to provide more meaningful information to the right person at the right time.
(f) Long-term Planning – MIS is a decision-making system which involves a complex set-up
and expertise to implement it. To reap the benefits of MIS, it is implemented in an
organisation for a long-term period.
Significance of MIS:
In the recent years, the need for management information system has increased
manifold due to the following reasons:
(a) Fosters Effective Planning – MIS is very useful for efficient and effective planning
function of an organisation. MIS by providing quick and timely information to the
management will be instrumental in developing plans more accurately and swiftly.
(b) Faster Communication – Management information system, with the computer-based
information system and usage of advanced techniques of information transfer, ensures that
information reaches the right person at the right time. With MIS, the formal communication
becomes fast and accurate.
(c) Globalisation and Reducing Cultural Gap – With the implementation of computer-based
information system in organisations, one can scale down the problems arising from the
linguistic, geographical and some cultural diversities. With MIS, sharing of information,
knowledge, communicating and building relationships between different countries become
much easier.
(d) Availability – Management information systems have made it possible for businesses to
be open 24 x 7 across the globe. This means that a business can be open anytime and
anywhere making trade between different countries easier and more convenient.
(e) Cost-Effectiveness and Productivity – MIS application promotes more efficient operation
of the company and also improves the supply of information to decision-makers. Applying
such systems can also play an important role in helping companies to put greater emphasis on
information technology in order to gain a competitive advantage.
(f) Effective Means of Control – MIS is instrumental in generation of various kinds of reports
indicating about the performance of men, materials, machinery, money and management.
MIS is helpful in controlling costs by giving information about idle time, labour turnover,
wastages and losses and surplus capacity. Furthermore, MIS makes comparison of actual
performance with the standard and budgeted performance very promptly, enabling mangers
to take remedial actions in no time.
Limitations of MIS:
MIS, although being a very sophisticated decision-making tool, has the following
limitations:
(a) Only Quantitative Inputs:
MIS considers primarily quantitative components and thus, in this manner, it disregards the
non-quantitative variables like assurance, motivation, dispositions of individuals from the
association, etc., which have an essential impact and influence on the organisation’s decision-
making process.
(b) Meant for Programmed Decisions:
MIS is less useful for making non-programmed decision-making. Such types of decisions are
not of routine type and thus they require information, which may not be available from
existing MIS to executives.
(c) Inflexibility:
With ever changing and dynamic environment, MIS may not be flexible enough to have
imperative adaptability to rapidly redesign itself with the changing needs of time.
(d) No Substitute for Effective Management:
MIS, despite being an important element in decision-making, does not replace the role and
function of managerial judgment in decision-making. It is simply a vital device in the hands
of decision-makers which facilitate in decision-making and problem-solving.
(e) Expensive:
Implementation of management information system in an organisation requires huge
investment in terms of installation of computers, appointment of specialised technical staff
and providing training to existing employees for effectively utilising it.

Cost Benefit Analysis:

Cost benefit analysis is a systematic process for evaluating the feasibility of projects or
proposals under consideration. As the name indicates, this method aims at comparing total
benefits derived from a project with the total costs incurred for the same.
Cost benefit analysis, as a decision-making technique, is useful in situations where:
(a) Benefits and costs from a project can be numerically identified.
(b) Evaluating and selection of a project among many alternatives.
(c) Determining the feasibility of a capital purchase.
Being a numeric decision-making technique, cost benefit analysis should normally be
undertaken for any project which involves policy development, capital expenditure, use of
assets or setting of standards.