Topic 1
Management Information System
Information systems is a combination of hardware, software and communications
capability, where information is collected, processed and stores
Information systems provide the information required to assist management the the
following areas:
i) Planning- setting the organisation’s long term strategic, direction and
planning for the medium and short term
ii) Control- management needs to monitor how the organization againast the
plan and take actions
iii) Decision making- managers need to make decisions at many different
levels
iv) Processing and recording transactions
v) Performance measurement
Role of information
1. Automated systems for data collection and processing , free up employees to focus
on more core areas of their work
2. It provides users with information they need on timely basis supporting decision
making process
3. Software and telecommunication network is used to convert data collected into
sensible information in a format that is best suited to the user
4. Effective information systems ensures that different users can access different
information according to their needs
5. It can be accessed as and when needed for a particular purpose which helps the
business in need of immediate actions as part of their operational strategies
6. Business intelligence systems help convert data into valuable insights that aid in
data visualization
7. Enterprice Resource Planning(ERP) software provide users with a bird’s eye view of
business operations
Costs of an information system
The costs include:
1) Development costs analyzing current business operations and how they will be
automated in a system
2) Initial set-up cost: hardware ,software licensing and installation costs
3) Data conversion of historical information (eg from paper documents and
spreadsheets)
4) Staff and user training and IT support
5) Modification and systems upgrades
6) Communication charges (eg for internet purposes)
Communication of information
1) Internet
This is the interconnection of various networks that can be public, private or at
organizational level
Global devices are linked together using various technology to create on internet networks
These technologies include:
a) Optical fiber
b) Wired circuity
c) Wireless or electronic circuity
The internet comes huge amounts of data available on world wide web
Uses
1) Emails
2) Ease of research
3) Meetings help do away the need for the travelling for work
4) Sharing files, images, videos etc
2) Intranet
This is a network of devices which is private and not available to the public
Networked computers or devises are available only to a group of authorized users
Business can set security policies specific to users, group or device
The users within intranet can connect to internet through firewalls
Uses
1) Faster sharing of information within an organization which helps to streamline
activities
2) Improved internal communication leads to enhanced collaboration and promotion of
corporate culture
3) Business are able to centralize and organize company data into a single database
Internet Intranet
Available to all across the gate Only employees of organization can access
Intranet is more secure due to presence of robust
Data travelling across the internet is less secure
security systems
No login creditions are required to access the A user account is a must to access the devices of
internet services intranet
Any number of users can access the internet There is a limit for the number of users that can
services access internet resouces
No rules/polices are defined to access internet There are certain policies and regulations which
resources need to be completed
An extranet is an intranet that is accessible to authorised outsiders using a valid
NB username and password. The username will have access rights attached,
determing which parts of extranet can be viewed
Wireless technology and networks
1) Wireless technology
This is communication technology that is not depend and upon cables or wires as communication
mediums
Advantages
1) Communication has enhanced to convey the information quickly to customs
2) Professionals can work and access internet anywhere and anytime without carrying cables
or wires. This helps to complete work anywhere on time
3) Urgent situations can be alerted through wireless communication
4) Wireless networks are cheaper to install and maintain
2) Wireless networks
These are computer networks that are not connected by cables
This enables employees enterprice to avoid costly process of introducing cables into buildings or a
communication between two different equipment locations
The basis for wireless networks are radio waves, an implementation that takes place at physical level
of network structure
There are two main types of wireless networks:
a) WI-FI network: This is a technology that smart phones, tablets, printers to communicate
through the internet
b) Cellular network: The technology allows electronic devices to communicate over long
distances
Generating Information
a) Routine
1) Determine if the benefits of information generated will be higher than the costs incurred to
prepare it
2) Ensure that the desired information will be of use to decision makers before the information
is gathered
3) Standardized formats for the information to be prepared should be set especially if there are
multiple prepares of information. The formats should ideally focus on being user friendly for
the ultimate users
4) The limitations of the information gathered should be communicated to the users as well as
the details of the preparer so that any queries can be delivered directly
5) The usefulness of the information should be reviewed on a regular basis to access the need
for its continuity
b) Ad-hoc
These have additional measures which include:
1) Ensure that information is not being duplicated and that it’s relevant to the user requesting
it
2) Ensure that most up to date is utilized for the reports
Distributing information
A procedure manual should be in place, this would indicate what report are to be prepared and
issued
Confidential information should be highlighted as such and users guided on how to deal with
sensitive information
Email policy should be established specifying do’s and don’ts for online comparisons
Physical computer security internal security should be established, senior management should
specify which user can have access to which assets and information
External security should be established through firewalls as they can be used to protect data and
database from being accessed by unauthorized people
Security and confidential information
Information security: protects the intrest of those relying on information from hacking, operational
error, sabotage and other threats
Security: Protection of the system from harm
Privacy: restriction of knowledge to unauthorized persons
Internal sources of data collection
1) Formal communication channels
2) Informal communication between management and staff
3) Communication between managers
4) The financial accounting records
External sources of data collection
1) Legal/tax experts
2) Research and development and marketing departments
3) Directors and other published sources
4) Assosiation and government agencies
5) Information from customers
6) Information from suppliers (produced details, pricing etc)
7) Internet and online
8) Database information
9) Data warehouse
Information systems and data analytic
Level Key Characteristics Example
Takes place at the top of the organization
Strategic
planning Concerned with setting a future coarse of action for Long term forecasts
the organization
Budgetory measures
Managenent Concerned with effective use of resources to
Productivity measures
control achieve targets set at strategic planning
Labour statistics eg Hours
Capacity utilization
Detailed, short-term transactional
Operational Concerned with day to day implementation of the date
Control plans of the organization
Management accounting information
This is information that is used to support strategic planning control and decision making
Strategic plan: These are long term planning decision that defines the objectives of the organization
Features of management information
1) It is primarily used for strategic planning ie plans for longer periods of future and so relief
on future costs and estimates
2) Incorporate some and uncertainty analysis
3) It primarily derives from internal sources but also takes into impact of external factors
4) The management accountant requires information for:
a) Project assessments: at time of decision making and post implementation feedback
b) Handling cash in operational matters
Limitations of management accounting information
1) It may provide misleading information leading to ineffective decisions
2) It is internally focused on performance targets and ignores competition and demand
3) Data is inflexible as it is often just based on historical performance, so the challenge lies in
providing more relevant information for strategic planning control and decision making
Strategic management accounting
This is a form of management accounting in which emphasis is placed on information about factors
which are external to the organization as well as non-financial and internally generated information
It differs from traditional management accounting because it has an external and future orientation
1) External orientation
Towards: consumers, competitors, suppliers and other stockholders
Traditional management accounting will report on organization’s own revenue, the strategic
management would report on market share or trend in market size and growth
2) Future orientation
Traditional management accounting and backwards looking:
a) Decision making is a forward and outward looking process
b) Accounts are based on costs whereas decisions making is concerned with values
Strategic management accounting will use relevant costs (incremental and opportunity cost) for
decision making
It takes into account the following:
a) Competitive edge by understanding customer’s demands and competitive USP (unique
selling price)
b) Input from many different areas of organization to ensure that goals and targets linked
together smoothly
c) Brings together comparable information regarding different strategies
d) Ensures business operations are focused on meeting shareholders needs
It provides information about:
1) Competitors cash
2) Product profitability
3) Pricing decisions
4) Brand values
5) Effect of acquisition and mergers
6) Financial effect of competitors response
7) The value of market share
8) Decision to enter or leave a business area
9) Cash flow
10) Consumer profitability
11) Capacity expansion
12) Shareholders wealth
Management control (Tactical planning)
This is the process of utilizing resources efficiently and effectively to the aim of achieving the
strategic objective of the organization
Managers are required to ensure that their decision making reflects the following:
1) Efficiency in the use of resources (optimum output is achieved from input)
2) Effectiveness in the use of resources (Outputs obtained are according to the set targets)
Features of management control information
1) Primarily generated internal (may have limited external components)
2) Lowers entire organization
3) Summarized at relatively low
4) Routinely collected and disseminated
5) Relative to short and medium term
6) Often quantitative (labour hours, volume of sales and production)
7) Collected in a standard manner
8) Commonly expressed as money times
Type of information
a) Productivity measurement
b) Budgetary control/ variance analysis reports
c) Cash flow report
d) Staffing levels
e) Profit results within a particular department of organizations
f) Labor revenue statistics within a department
g) Short term purchasing requirements
Operational control
This is routine processing of transactions as per directions laid down in the tactical plans
This includes scheduling of unexpected or ad hoc work as this must be done at short notice
These decisions are termed as short term and non-strategic activities
Information requirements for decisions taken at this level include:
a) Transaction data which is needed for the conduct of day to day implementation of plans
b) Details of information provided depends upon the purpose it is required
c) Operational information although qualitative is expressed in terms of unit, hours, quantities
of material and so on
Types of information system
1) Transaction processing system
These systems collect, share, modify and retrieve the transaction of the organization
Characteristics of Transaction processing system are:
a) Controlled processing: as it supports organizational operations
b) Inflexibility: All transactions are recorded in a pre-defined
c) Rapid response: To support customer satisfaction
d) Reliability: back-up and recovery procedures are in place as organizations rely heavily on
traditional processing systems
Traditional processing systems are used by operational staff and data in traditional processing
systems likely to be high frequency and short term
Examples included:
I) Sales/marketing systems: recording sales transactions and providing details on marketing
and promotional activities
II) Manufacturing production system: Recording details of purchases production and shipping
of goods
III) Finance and accounting system: purchase Ledger sales Ledger and payroll systems
There are two mainly 2 types: