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2. TYPES OF BUSINESS INFORMATION SYSTEMS An Information System should produce useful, accurate, and timely information to management on three levels: lower-level (operational), middle (tactical), and top
2. TYPES OF BUSINESS INFORMATION SYSTEMS An Information System should produce useful, accurate, and timely information to management on three levels: lower-level (operational), middle (tactical), and top (strategic). The primary objective of an information system is to satisfy the needs of management at the various levels. Generally the information needs to be (1) more summarized and relevant to the specific decisions that need to be made than the information normally produced in an organization and (2) available soon enough to be of value in the decision making process. The information flows up and down through the three levels of management and is made available in various types of reports. Each level of management can be differentiated by the types of decisions made, the time frame considered in the decisions, and the types of report information needed to make decisions. LOWER MANAGEMENT (Operational Level) The largest level of management, lower (operational) management, deals mostly with decisions that cover a relatively narrow time frame. Lower management, also called supervisory management, actualizes the plans of middle management and controls daily operations - the day-to-day activities that keep the organization humming. Examples of a lower-level manager are the warehouse manager in charge of inventory restocking and the materials manager responsible for seeing that all necessary materials are on hand in manufacturing to meet production needs. Most decisions at this level require easily defined information about current status and activities within the basic business functions - for example, the information needed to decide whether to restock inventory. This information is generally given in detail reports that contain specific information about routine activities. These reports are structured, so their form can usually be predetermined. Daily business operations data is readily available, and its processing can be easily computerized. Managers at this level typically make structured decisions. A structured decision is a predictable decision that can be made by following a well-defined set of predetermined, routine procedures. For example, a clothing store floor manager`s decision to accept your credit card to pay for some new clothes is a structured decision based on several well-defined criteria: 1. Does the customer have satisfactory identification? 2. Is the card current or expired? 3. Is the card number 011 on the store`s list of stolen or lost cards? 4. Is the amount of purchase under the cardholder`s credit limit? MIDDLE MANAGEMENT (Tactical Level) The middle level of management deals with decisions that cover a somewhat broader range of time and involve more experience. Some common titles of middle managers are plant manager, division manager, sales manager, branch manager, and director of personnel. The information that middle managers need involves review, summarization, and analysis of historical data to help plan and control operations and implement policy that has been formulated by upper management. This information is usually given to middle managers in two forms: (1) summary reports, which show totals and trends- for example, total sales by office, by product, by salesperson, and total overall sales-and (2) exception reports, which show out-of-theordinary data-for example, inventory reports that list only those items that number fewer than 10 in stock. These reports may be regularly scheduled (periodic reports), requested on a case-bycase basis (on-demand reports), or generated only when certain conditions exist (exception reports). Periodic reports are produced at predetermined times-daily, weekly, monthly, quarterly, or annually. These reports commonly include payroll reports, inventory status reports, sales reports, income statements, and balance sheets. On-demand reports are usually requested by a manager when information is needed for a particular problem. For example, if a customer wants to establish a large charge account, a manager might request a special report on the customer`s payment and order history. Exception reports indicate a change in conditions that requires immediate attention, such as an out-of-stock report or a report on an equipment breakdown. Managers at the middle level of management are often referred to as tactical decision makers who generally deal with structured and semistructured decisions. A semistructured decision is a decision that includes some structured procedures and some procedures that do not follow a predetermined set of procedures. In most cases, a semistructured decision is complex, requiring detailed analysis and extensive computations. For eg., deciding how much stock to maintain for a product will involve an analysis of prior usage (programmable) but this may then have to be adjusted if a competitor has recently gone out of business and we expect additional, but unknown, demand. At least some of the information requirements at this level can be met through computerbased data processing. TOP MANAGEMENT (Strategic Level) The top level of management deals with decisions that are the broadest in scope and cover the widest time frame. Typical titles of managers at this level are chief executive officer (CEO), chief operating officer (COO), chief financial officer (CFO), treasurer, controller, chief information officer (CIO), executive vice president, and senior partner. Top managers include only a few powerful people who are in charge of the four basic functions of a business - marketing, accounting and finance, production, and research and development. Decisions made at this level are mostly unstructured in nature they are unpredictable, long-range, and related to the future, not just past and/or current activities. Therefore, they demand the most experience and judgment. A company`s information system must be able to supply information to top management as needed - periodic reports, exception reports, and on-demand reports. The information must show on a much broader scale as compared to reports for the middle level, how all the company`s operations and departments are related to and are affected by one another. The major decisions made at this level tend to be directed toward (1) strategic planning - for example, how growth should be financed and which new markets should be tackled first; (2) allocation of resources, such as deciding whether to build or lease office space and whether to spend more money on advertising or the hiring of new staff members; and (3) policy formulation, such as determining the company`s policy on hiring and providing employee incentives. Managers at this level are often called strategic decision makers. Examples of unstructured decisions include deciding five-year goals for the company, evaluating future financial resources, and deciding how to react to the actions of competitors. At the higher levels of management, much of the data required to make decisions comes from outside the organization (for example, financial information about other competitors). Types of Information Systems We will now briefly look at the most common types of CBIS in business today. These are transaction processing systems, management information systems, decision support systems, executive support systems, and expert systems. Together, these systems help employees in organizations accomplish both routine and special tasks from recording sales, to processing payrolls, to making decisions in various departments. Transaction Processing Systems Since the 1950 s computers have been used to perform common business application. The objective of many of these early systems was to reduce costs. This was done by automating many routine, labor-intensive business systems. A transaction is any business-related exchange such as payments to employees, sales to customers, and payments to suppliers. Thus, processing business transactions was the first application of computers for most organizations. A transaction processing system (TPS) is an organized collection of people, procedures, databases and devices used to record business transactions. One of the first business systems to be computerized was the payroll system. The primary inputs for a payroll TPS could be the numbers of employee hours worked during the week and pay rate. The primary output consists of paychecks. Early payroll systems were able to produce employee paychecks, along with important employee-related reports required by agencies such as the Internal Revenue Service. Simultaneously, other routine processes, including customer billing, and inventory control, were being computerized as well. Because these early systems handled and processed daily business exchanges, or transactions, they were called transaction processing systems (TPSs). In improved form, these TPSs are still vital to most modern organizations. Consider what would happen if an organization had to function without its TPS for even one day. How many sales would be recorded and processed? Transaction processing systems represent the application of information concepts and technology to routine, repetitive, and usually ordinary business transactions, but transactions that are critical to the daily functions of that business. Management Information Systems Most organizations realized that transaction processing systems were worth their cost in computing equipment, computer programs, and specialized personnel and supplies. They sped the processing of business activities and reduced clerical costs. Although early accounting and financial transaction processing systems were available, it soon became clear that the data stored in these systems could be used to help managers make better decisions in their respective business area, whether human resources, marketing, or administration. A management information system (MIS) is an organized collection of people, procedures, databases, and devices used to provide routine information to managers and decision makers. The focus of an MIS is on operational efficiency, ie., doing routine tasks faster or more cheaply. Marketing, production, finance, administration are linked by management information systems and linked through a common database. Management information systems typically provide standard reports generated with data and information from the transaction processing system. Decision Support Systems By the 1970s and 1980s, dramatic improvements in technology resulted in information systems that were less expensive but more powerful than earlier systems. People at all levels of organizations began using personal computers to do a variety of tasks; they were no longer dependent on the information systems department for all their information needs. During this time, people recognized that computer systems could support additional decision-making activities. A decision-support system (DSS) is an organized collection of people, procedures, databases, and devices used to support problem-specific decision making. The focus of a DSS is on decision-making effectiveness helping to making sure that the right decisions are made. A DSS goes beyond a traditional MIS which merely produces reports. A DSS can provide immediate assistance in solving complex problems that were not supported by a traditional MIS. Many of these problems are unique and not straightforward. For instance, an auto manufacturer might try to determine the best location to build a new manufacturing facility, or an oil company might want to discover the best place to explore for oil. Traditional MIS systems are seldom of use in solving these types of problems; a DSS can help by suggesting alternatives and assisting final decision making. Executive Support Systems An executive Support system (ESS), also referred to as executive information system (EIS) is a type of information system that facilitates and supports senior management in their information and decision making needs. The decisions that they make are generally unstructured, and the problems and situations that they face are fluid and changing constantly. The EIS provides flexibility and ease of manipulation. It provides easy access to internal and external information relevant to their needs. The EIS emphasizes graphical displays and easy-to-use user interfaces. It not only supplies summarized information that executives need, but also provides the ability to drill down to more detail, if necessary. In general, ESS are enterprise-wide DSS that help top-level executives analyze, compare, and highlight trends in important variables so that they can monitor performance and identify opportunities and problems. As we move from transaction processing to management information systems, decision support systems, executive support systems and expert systems, we see less routine, more decision support, less input and output, and more sophisticated and complex processing and analysis. Dashboards and Scorecards Dashboards Business managers and owners use a number of different tools to track their progress and determine how well the business is performing. The business dashboard is one of these tools that provides a snapshot of most of the important numbers needed to conduct effective business analysis. Dashboards can be used in all levels of business management but are typically most important to higher level managers who need a quick glimpse at how the company is performing. The primary function of the dashboard used in business is similar to the function of a dashboard used in an automobile. Business dashboards provide various gauges that are readouts of how the business engine is performing. These gauges read what business analysts and managers call key performance indicators, or measurable numbers that are used to determine business success and failure. Key performance indicators need special consideration because they are high-level measurements of how well an organization is doing in achieving critical success factors in other words, the goals or targets set by an organization in their strategic plan For instance, it is possible to track profitability by examining revenue forecasts and achievements during each quarter of the business year. Some of the most useful key performance indicators that can be tracked include improvements or decline in sales numbers and total revenue, and profitability by product or region or department... Many different sectors of many different businesses benefit from dashboards.. From the production line worker on the manufacturing plant floor, to the sales force in the field, and all the way up to the CEO deciding where to channel funds, everyone can benefit from dashboard use. Dashboards can provide an effective solution to the overwhelming amount of data that business users experience every day. A dashboard is composed of data visualization tools like charts, tables, and maps that display the current status of metrics and key performance indicators (KPIs) for an enterprise. Dashboards consolidate and arrange numbers, metrics and sometimes performance scorecards on a single screen. The essential features of a dashboard product include a customizable interface and the ability to pull real-time data from multiple sources. Features of an effective executive dashboard include: An intuitive graphical display that is thoughtfully laid-out and easy to navigate. A logical structure behind the dashboard that makes accessing current data easy and fast. Displays that can be customized and categorized to meet a user s specific needs. Information from multiple sources, departments or markets. Oracle and Microsoft are among the vendors of business intelligence dashboards. BI dashboards can also be created through other business applications, such as Excel. Due to the incredible array of available dashboard technologies, definitive categorization of dashboards is a difficult task. One can categorize dashboards in terms of role, or strategic, analytic, and operational dashboards. Vendors are probably most used to referring to dashboards in these terms; though there are several other categorizations that are very common as well. Most often, dashboards are used for strategic purposes. The common executive dashboard, designed for a strategic manager, is a strategic dashboard. The strategic dashboard allows for a quick overview of an organization s health, so to speak; assisting with executive decisions such as the formation of long-term goals. The strategic dashboard, therefore, doesn t require real-time data: what is going on right now is not important, what is pressing is what has been going on. The analytic dashboard, as the name suggests, assists with data analysis. This can include making comparisons, reviewing extensive histories, and evaluating performance. When using an analytic dashboard, a tactical manager can go beyond what is going on as with the strategic dashboard and drill into the causes. They can determine why sales targets were not met; why problems keep occurring. Through exploring these patterns, goals can be set to correct these issues over time. The operational dashboard monitors functions which need constant, real-time, minute-by-minute attention, from a blood pressure monitor in an operating room to an assembly line in a refrigerator factory. They are generally used by those on a departmental, rather than executive level. Real Life Examples of Dashboards (Source: Performance Scorecards The business intelligence dashboard is often confused with the performance scorecard. The main difference between the two, traditionally, is that a business intelligence dashboard, like the dashboard of a car, indicates the status at a specific point in time. A scorecard, on the other hand, displays progress over time towards specific goals. Dashboard and scorecard designs are increasingly converging. For example, some commercial dashboard products also include the ability to track progress towards a goal. A product combining elements of both dashboards and scorecards is sometimes referred to as a scoreboard. Performance scorecards are often said to be a visual answer to the question, How are we doing? For example, the vice president of manufacturing might be interested in such items as: The number of units produced The number items that fail quality control The amount of byproduct generated Inventory levels Raw materials inventory levels The current price of raw materials Each KPI is typically displayed as a symbol indicating the health of that particular number. For example, the number of items failing quality control might be 50. If the company is making two million items a day, this is a low percentage and might be acceptable. If, on the other hand, the company is producing only 75 expensive products a day, 50 failed products probably indicate a serious issue that must be addressed. A KPI icon may use colored indicators (green/yellow/red), smiley faces, gauges, dials, and so forth that provide an at-a-glance view of a measure s performance. This way, at a glance, an individual can determine whether things are good for each particular KPI without having to see the exact number or translate a number into an indicator of overall health. Source: Artificial Intelligence and Expert Systems In addition to TPS, MIS, and DSS, organizations also use systems based on the notion of artificial intelligence (AI) where the computer system takes on the characteristics of human intelligence. The field of AI includes several subfields: Robotics is an area of AI where machines take over complex, routine, or boring tasks, such as welding car frames. Vision systems allow robots and other devices to have sight and process visual images. Such systems could be used in the area of Quality Control in a manufacturing environment where they can find defects in the products. Natural language processing involves the ability of computers to understand and act on verbal or written c
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