Functional Information System

One of the most widely used basis for organising activities in almost every organisation is
the business function. Business activities are grouped around functions such as production,
marketing, finance and personnel, etc., resulting in the respective department or an area of
the business organisation. These departments or functional areas are commonly known as the
functional areas of business. Each of these functional areas, as already discussed in previous
chapter, has unique information needs and thus requires information system support designed
specifically for it. Moreover, a management information system is essentially an integration
of information systems that are designed to support the functional sub-systems of the
business. Each sub-system requires applications to perform all information processing
related to the function. It may be noted that within each functional sub-system, there will be
applications for transaction processing, operational control,' management control and
strategic planning. Secondly, different functional systems should not, in any way, be
misunderstood as being independent, separate or distinct systems; rather they all are the parts
of the organisational system and interact with. other sub-systems through the medium of
information. Further, there is no standard classification of such sub-systems in an
organisation, but a typical set of functions in a manufacturing organisation includes:
(i)
Production,
(ii)
Marketing,
(iii)
Finance and accounting,
(iv)
Materials, and
(v) Personnel systems.

FINANCIAL INFORMATION SYSTEM

Financial information system, is a sub-system of organisational management information system.
This sub-system supports the decision-making process of financial functions at the level of an
organisation. The basic financial decisions, which an organisation usually takes, may include the
following.
(i)
Where to invest funds and to what extent?
(ii)
Where to raise funds and what amount?
(iii) How much to pay in dividends (in case, it is a public company)?
A brief description of each of the financial decisions, that a financial manager has to take, is given
below.
Capital Budgeting Decision
In this decision, funds are allocated to long-term assets which would yield benefits/returns in. the
future. For example, funds allocated for land, building, machinery, etc. Before committing funds,
it is very important for the financial manager to evaluate the prospective profitability of the new
investment.
Financing Decision
It relates to when, where and how to acquire funds to meet the investment needs of the
organisation. The financial manager has to decide about the proportion of equity capital and debt
capital. He has to determine areas where the use of debt capital affects the return and poses a risk
to shareholders. The return on equity may increase, but so will the risk. Thus, a proper balance
will have to struck between return and risk.
Dividend Decision
This decision relates to the dividend policy of the organisation.- A decision whether the
organisation should distribute all profits or retain them or distribute a portion and retain the
balance, has to be taken by the financial managers.

Current Asset Management

In order to safeguard the organisation against illiquidity or insolvency, current assets of the
organisation are also required to be efficiently managed. Investment in current assets affects the
organisation's profitability, liquidity and risk. If sufficient funds are not invested in current assets,
the organisation may become illiquid. But it would lose profitability as idle current assets would
not earn any profits. Thus, a suitable trade off is needed to be achieved between profitability and
liquidity.
Besides the above-mentioned managerial functions, the other functions of financial systems may
be summarised as below:
(i) Controlling the receipt and payments,
(ii) Maintaining statutory records, and
(iii) Preparation of periodic reports for statistics, performance and results for internal control and
audit.
Financial systems also include accounting systems as these systems are concerned with recording
the transactions of the business. Such transactions may include wages and salaries, purchases,
sales and all other types of income and expenditure. Obviously, records of these transactions
become the basis for the preparation of periodic or annual profit and loss accounts, balance
sheets, etc.
In order to perform the above activities and functions, financial information, which is accurate,
precise and timely has to be supplied to the financial manager. These systems involve large
amounts of data, concerned primarily with historical and internal information. However, in some
areas of financial planning, it is future-oriented also. For example, the exercise of budgeting is
wholly futuristic in nature.
Financial information systems are computerised
(i) to improve the speed and accuracy of reporting, and
(ii) to provide information and analytical support to financial managers to aid them in their
decision-making.
Transactional data is the basis of any type of analysis. This data may include credit applications,
billing, payment vouchers, stock transfers, cheques, journal and ledger entries, etc.
Financial intelligence data is collected from banks, government, stock markets, etc., which is
processed to determine its impact on the organisational economy.
Organisational plan is another important input in the financial information system, as it portrays
the objectives of the organisation. This needs to be reflected in the output of the financial
information system, which may be in the form of financial plans.
Many software packages on financial accounting are available in the market, which provide
complete financial accounting. Tally, BMS, etc., are the more common packages. Financial
planning software (e.g. IFPS, etc.) packages are used for managerial decision-making at higher
levels.

MARKETING INFORMATION SYSTEM

This sub-system of management information system provides information about various functions
of the marketing system of an organisation. Marketing is another functional area of the business
organisation, which is engaged in marketing (selling) of its products to its customers.
Philip Kotler has defined marketing as a social and managerial process by which individuals and
groups obtain what they need and want through creating, offering and exchanging products of
value with others.
Thus, marketing is a comprehensive term and includes many functions. All activities necessary to
direct and facilitate the production and usage of goods and services for a society are included in
marketing. Nowadays, marketing has assumed a great significance in all societies, irrespective of
the degree of industrialization. The concept of marketing has also undergone a sea change and
thus the traditional concept of marketing does not hold true today. Whereas traditional practices
of marketing start with production and consider marketing to be of use in selling and promotion
to attain sales at a profit, modern marketing focuses its attention on buyers/customers. It gets
profits through the creation of the buyers' satisfaction and, further, seeks to achieve it through an
integrated, corporate-wide set of marketing activities.
Modern marketing does not simply include activities like selling, advertising or distribution. It
involves the interaction of several business activities, whose objective is the satisfaction of the
customers' needs and desires. Thus, in this approach, even before the product is produced,
marketing comes into operation, i.e. the needs/ desires of its potential customers are understood
and the product is designed as per the preferences of its customers, whereas in the case of
traditional practice, the existing products are sought to be imposed on the market through
aggressive selling and promotional pressures.
Some of the important functions of the marketing process include the following:
i) The marketing identification function: The determination of potential buyers and their
characteristic is vital in order to satisfy their needs and desires. This enables the marketeer to
know
(a) where the buyers are located,
(b) when do they buy,
(c) how frequently do they buy, and
(d) in what' quantity do they buy.
(ii) The purchase motivation function: In this function, an assessment of various social, economic
and psychological forces, which influence the purchase behaviour of the market, is made.
(iii) The product adjustment function: This function includes all such activities which are
necessary to match the product/ services offerings with the market. As the needs/desires of
customers keep changing, a corresponding adjustment is required in terms of product planning.
(iv) The physical distribution function: The actual movement of goods from points of production
to points of consumption is considered in this function. It involves decisions regarding optimum
integration of transportation, warehousing and merchandising economics.
(v) The communication function: The information and messages between buyers and sellers are
required to be communicated. This function includes decisions on advertising, personal
selling, sales promotion, publicity, packaging issues, etc.
(vi) The transaction function: It includes all such activities which are needed to facilitate the
transfer of title of ownership of goods/services between the parties in a transaction. For example,
order handling, invoicing, billing, credit arrangement, insurance policy, guarantee, etc.

(vii) The post-transaction function: In this function, feedback about the performance of the
product/service is obtained from the customer, so that quality product/service may be assured for
the satisfaction of the customer.
The needed information is developed through internal company records, marketing intelligence
activities, marketing research, and marketing decision support analysis.
Transaction data, which includes reports on orders, sales, prices, inventory levels, receivables,
etc., is obtained from the internal records of the organisation. By analysing this information,
marketing managers can identify important opportunities and problems. Sometimes, marketing
managers need focused studies of specific problems and opportunities, for which they collect
marketing research data. Such data may be gathered through marketing survey, a productpreference test, a sales forecast by region or an advertising-effectiveness study.
Marketing intelligence data pertains to pertinent developments in the marketing environment.
This type of data may be collected by reading books, newspapers, and trade publications, talking
to customers, suppliers, distributors, and other outsiders.
To arrive at marketing decisions, a marketing manager needs information on different aspects of
marketing. Marketing information system, after collecting various types of data, processes it and
disseminates processed data (information) to marketing managers. Marketing managers at higher
levels are also being assisted in their decision-making by marketing decision support systems.
These systems consist of statistical techniques and decision models to assist in making better
analyses and decisions

PRODUCTION/MANUFACTURING INFORMATION SYSTEM

Manufacturing or production information system provides information on production/operation
activities of an organisation and thus facilitates the decision-making process of production
managers of an organisation.
Manufacturing is another important functional area of an organisation that is engaged in
producing goods from raw materials. It is clear that manufacturing is not an activity for every
organisation selling goods. Some of these organisations may only be in the business of trading,
i.e. buying goods from one organisation and selling it to customers; thus performing the function
of either a retailer or a wholesaler. Such organisations are also called merchandising
organisations. The concept of production can also be extended to the service organisations, where
production is understood as a discharge of some function which has some utility, e.g. repair of an
automobile, legal advice to a client, etc. Broadly, we may define production as some act of
transformation, Le. inputs are processed and transformed into outputs. Production management
may be understood as an area that deals with decision-making related to the production process,
so that the resulting goods and services are produced in accordance with the quantitative
specifications and demand schedule with minimum cost. The main decisions to be taken in the
manufacturing system are given below.
(i)Product Design,
(ii) Plant Location and Layout,
(iii)Production Planning and Control, and

(iv) Quality Control.

Let us briefly discuss these functions.
Product Design
Product design, which is also known as Product Engineering, includes the entire development of
the product through all initial stages until actual manufacturing starts. Preparation of drawings,
specifications, experimental and developmental efforts are the activities involved in the product
design. Nowadays Computer Aided Design (CAD) and Computer Aided Engineering (CAE)
approaches are used in product design.
Plant Location and Layout
Plant location determines the establishment of an organisation at a particular place. It is an
important decision because
(i)

location of plant partially determines operating and capital costs.

(ii)

each prospective location implies a new allocation of capacity to respective market area.

However, it must be borne in mind that the decision of plant location is dynamic in nature and
thus location study needs continuous monitoring.
Plant layout is the method of arranging machines, equipment, and other services within a predesigned building, ensuring steady, smooth and economical flow of material. Just like plant
location, plant layout is also a continuous process as there is always scope for making
improvements over the existing design.
Plant layout designs can be prepared by using mathematical and simulation models, for which
computers play an important role. The layout software may be used to prepare altogether a new
plant or to improve upon a specified one.
Production Planning and Control
This function is responsible for planning, directing and controlling of the material supply and
other production processing activities. Production planning:
(i)

prepares procurement plans for materials and personnel,

(ii)

establishes inventory control procedures, and

(iii)

prepares work authorisation.

The task of production planning is accomplished through

(i) Routing: This is the determination of path or route over which each piece is to travel in the
process of transformation of raw materials into the finished product.
(ii) Scheduling: It is about deciding 'when' each operation in a production process is to be carried
out.

(iii) Loading: It is to know when a particular equipment/machine will be available for work on
each order or item. Loading provides information about whether the work load is greater or less
than the capacity of the equipment.
Production control is a procedure to regulate an orderly flow of ~ material and coordinate various
production operations so as to ensure that the desired items are produced in the right quantity of
the desired quality at the required time at the optimum cost.
Quality Control
It relates to activities that ensure that the finished product conforms to the standard (pre-set)
specifications laid down either by the manufacturer or the customer. Various techniques which are
used in controlling the quality of a product include inspection, statistical quality control, and
control charts, etc.
Information needed for manufacturing decisions is processed from data that is gathered from a
wide variety of sources as discussed below.
Production Data includes production orders, assembly orders, finished items, scrap, etc.
Inventory Data includes data on inventories of raw materials, goods in process and finished
goods.
Supplier Data provides information about the sources of raw materials. Nowadays, maintaining
this type of data is the responsibility of materials manager.
Work force Data includes data about the labour market, performance of workers, etc. This type of
data is essential for production scheduling and plant utilisation.
Environment Data includes data on technology trends, raw material prices, labour force
economics and dynamics. This helps the production manager in better planning and control of
activities of production processes.
Manufacturing information system gathers different types of data from various sources, processes
the data to transform it into meaningful information, which is provided to the production
managers to facilitate decision-making at various levels of management.

HUMAN RESOURCE INFORMATION SYSTEM

This functional information system supports the functions of human resource management of an
organisation. The human resource management function, in its narrow sense, is also known as
personnel management. The function involves:
(i)

manpower planning,

(ii)

staffing,

(iii)

training and development,

(iv)

performance evaluation, and

(v) separation activities.

It is also concerned with employee compensation, wages and salary administration, employee
services and benefits, and labour relations, etc.
To better understand human resource information system, let us briefly review the important
functions of the human resource management.
.
Manpower Planning
It is about deciding the present and future needs of manpower in the organisation.
Staffing
This function includes recruitment, selection and placement of employees. Recruitment refers to
attracting qualified and competent people for different jobs. It includes the identification of
existing sources of the labour, the development of new sources and the need for attracting a large
number of potential applicants. Recruitment is followed by selection that concerns selecting the
right persons out of a large number of potential candidates. Selection process involves the
development of application blanks, valid and reliable tests, interview techniques, employee
referral systems, evaluation and selection of personnel in terms of job specifications. Putting the
right person at the right job is the responsibility of placement function, which stresses upon the
matching of job requirements with the qualification and personality traits of an employee.
Training and Development
The need to train and develop the employees is felt due to
(a) a gap between the job requirements and competence/ability of the employee.
(b) the need to develop lower level managers to assume higher level responsibilities when
required.
As the organisation exists in a dynamic environment and the organisational jobs keep changing,
training and development of employees is a continuous activity, it includes:
(a) the identification of training and development needs of personnel at all levels.
(b) development of suitable training programmes and employee development
programmes.
Performance Evaluation
This task is concerned wjth evaluating employee performance at work in terms of pre-determined
standards/norms. Evaluation or performance appraisal includes the formulation of performance
appraisal plans, development of appraisal techniques and programmes, etc.
Separation Activities
The employee-employer relations may come to an end due to the resignation of an employee, layoff, death or retirement. Causes of an increased labour turnover are also analysed in this function
of human resource management.

Human resource management, besides the above-mentioned functions, is also responsible for the
wages and salary administration, sustaining and maintaining the work force in an organisation and
maintenance of healthy and peaceful labour-management relations.
Transaction Data is a basis for various types of output information or analysis. This data includes
employee number, name, qualification, experience, joining date, etc., categories and grades of
posting and daily performance, etc.
Environmental Data includes data about the availability of personnel, trends in the labour force,
competition, market offerings to the employees, government and labour laws, etc. Human
resource information system thus gathers such data from journals, news items, research studies,
seminars, informal talks of managers, etc.
Organisational Plans also provide an important input in human resource information system, on
the basis of which future planning for recruitment, job, assignment, etc. is made. Human
resource information system processes all these types of data to convert it into information,
which supports decision-making of human resource managers. Figure 2.16 illustrates Human
Resource Information System support for human resource functions at the three different levels
of management hierarchy.
Management Staffing
Levels

Training and
Development

Performance Employee
Appraisal
Compensation

Strategic
planning

Succession
planning

Performance Wages and

evaluation
salary
planning
forecasting
and plans
Performance/ Compensation
training
effectiveness
correlation
benefit models

Manpower
planning labour
force monitoring

Management Budget analysis

control level turnover analysis
absenteeism,
performance
Operational Recruiting,
control level structured
interview/
assessment workforce planning
scheduling, etc.

Training
effectiveness
Career
matching
Skill
assessment

Structured
evaluation
programs

Compensation
equality