Information Systems
“Information systems are interrelated components working together to collect, process, store, and
disseminate information to support decision making, coordination, control, analysis, and visualization
in an organization.”
Information Systems
Information System may be defined as a set of devices, procedures, and operating systems designed
around user based criteria to produce information and communicate it to the user for planning, control
and performance.
Formal Information Systems
•It is based on the organization represented by organization chart.
•The chart is a map of positions and their authority relationships, indicated by boxes and connected by
straight lines.
Informal Information Systems
•It is an employee based system designed to meet personnel and vocational needs and to help solve,
work related problems.
Computer Based Information System
•It relies on computer for handling business applications.
A computer (-based) information system is essentially an IS using computer technology to carry
out some or all of its planned tasks.
The main components of computer base information systems are computer
hardware and software, telecommunications, databases and data warehouses, human
resources, and procedures.
There are some general types of information systems. For example, a
database management system (DBMS) is a combination of software and data
that makes it possible to organize and analyze data. DBMS software is typically
not designed to work with a specific organization or a specific type of analysis.
Pyramid Diagram of Organizational levels and
information requirements
Understanding the various levels of an organization is essential to understand the
information required by the users who operate at their respective levels.
The following diagram illustrates the various levels of a typical organization.
Operational management level
The operational level is concerned with performing day to day business transactions of
the organization.
Examples of users at this level of management include cashiers at a point of sale, bank
tellers, nurses in a hospital, customer care staff, etc.
Users at this level use make structured decisions. This means that they have defined rules
that guides them while making decisions.
For example, if a store sells items on credit and they have a credit policy that has some
set limit on the borrowing. All the sales person needs to decide whether to give credit to a
customer or not is based on the current credit information from the system.
Tactical Management Level
This organization level is dominated by middle-level managers, heads of departments,
supervisors, etc. The users at this level usually oversee the activities of the users at the
operational management level.
Tactical users make semi-structured decisions. The decisions are partly based on set
guidelines and judgmental calls. As an example, a tactical manager can check the credit
limit and payments history of a customer and decide to make an exception to raise the
credit limit for a particular customer. The decision is partly structured in the sense that
the tactical manager has to use existing information to identify a payments history that
benefits the organization and an allowed increase percentage.
Strategic Management Level
This is the most senior level in an organization. The users at this level make unstructured
decisions. Senior level managers are concerned with the long-term planning of the
organization. They use information from tactical managers and external data to guide
them when making unstructured decisions.
Transaction Processing System (TPS)
Transaction processing systems are used to record day to day business transactions of the
organization. They are used by users at the operational management level. The main
objective of a transaction processing system is to answer routine questions such as;
How printers were sold today?
How much inventory do we have at hand?
What is the outstanding due for John Doe?
By recording the day to day business transactions, TPS system provides answers to the
above questions in a timely manner.
The decisions made by operational managers are routine and highly structured.
The information produced from the transaction processing system is very detailed.
For example, banks that give out loans require that the company that a person works for
should have a memorandum of understanding (MoU) with the bank. If a person whose
employer has a MoU with the bank applies for a loan, all that the operational staff has to
do is verify the submitted documents. If they meet the requirements, then the loan
application documents are processed. If they do not meet the requirements, then the client
is advised to see tactical management staff to see the possibility of signing a MoU.
Examples of transaction processing systems include;
Point of Sale Systems – records daily sales
Payroll systems – processing employees salary, loans management, etc.
Stock Control systems – keeping track of inventory levels
Airline booking systems – flights booking management
Management Information System (MIS)
Management Information Systems (MIS) are used by tactical managers to monitor the
organization's current performance status. The output from a transaction processing
system is used as input to a management information system.
The MIS system analyzes the input with routine algorithms i.e. aggregate, compare and
summarizes the results to produced reports that tactical managers use to monitor, control
and predict future performance.
For example, input from a point of sale system can be used to analyze trends of products
that are performing well and those that are not performing well. This information can be
used to make future inventory orders i.e. increasing orders for well-performing products
and reduce the orders of products that are not performing well.
Examples of management information systems include;
Sales management systems – they get input from the point of sale system
Budgeting systems – gives an overview of how much money is spent within the
organization for the short and long terms.
Human resource management system – overall welfare of the employees, staff
turnover, etc.
Tactical managers are responsible for the semi-structured decision. MIS systems provide
the information needed to make the structured decision and based on the experience of
the tactical managers, they make judgement calls i.e. predict how much of goods or
inventory should be ordered for the second quarter based on the sales of the first quarter.
Decision Support System (DSS)
Decision support systems are used by senior management to make non-routine decisions.
Decision support systems use input from internal systems (transaction processing systems
and management information systems) and external systems.
The main objective of decision support systems is to provide solutions to problems that
are unique and change frequently. Decision support systems answer questions such as;
What would be the impact of employees' performance if we double the production
lot at the factory?
What would happen to our sales if a new competitor entered the market?
Decision support systems use sophisticated mathematical models, and statistical
techniques (probability, predictive modeling, etc.) to provide solutions, and they are very
interactive.
Examples of decision support systems include;
Financial planning systems – it enables managers to evaluate alternative ways of
achieving goals. The objective is to find the optimal way of achieving the goal. For
example, the net profit for a business is calculated using the formula Total Sales less
(Cost of Goods + Expenses). A financial planning system will enable senior
executives to ask what if questions and adjust the values for total sales, the cost of
goods, etc. to see the effect of the decision and on the net profit and find the most
optimal way.
Bank loan management systems – it is used to verify the credit of the loan
applicant and predict the likelihood of the loan being recovered.
