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Short for management information system or management information services, and pronounced as separate letters, MIS refers broadly to a computer-based system that provides managers with the tools for organizing, evaluating and efficiently running their departments. In order to provide past, present and prediction information, an MIS can include software that helps in decision making, data resources such as databases, the hardware resources of a system, decision support systems, people management and project management applications, and any computerized processes that enable the department to run efficiently. Within companies and large organizations, the department responsible for computer systems is sometimes called the MIS department. Other names for MIS include IS (Information Services) and IT (Information Technology).
By Mr. Nishant Singhai
Information Systems (IS) enables new approaches to improve efficiency and efficacy of business models. This course will equip the students with understanding of role, advantages and components of an Information System. The objective of the course is to help students integrate their learning from functional areas, decision making process in an organization and role of Information Systems to have a vintage point in this competitive world.
Module I Role of data and information, Organization structures, Business Process, Systems Approach and introduction to Information Systems. Module II Resources and components of Information System, integration and automation of business functions and developing\ business models. Classification of Information System Module III Architecture, development and maintenance of Information Systems, Centralized and Decentralized Information Systems, Factors of success and failure, value and risk of IS. Module IV Decision Making Process, Decision Support Systems, Models and approaches to DSS Module V Introduction to Total Quality Management and Enterprise Resource Planning. ERP: role, advantages, reasons of success and failure, Module VI Financial Management Information Systems in Developing Countries by International Monetary Fund
Text & References:
Text: MIS: Managing the digital firm, Kenneth C.Landon, Jane P. Landon, Pearson Education. References: Management Information Systems, Effy OZ, Thomson Leaning/ Vikas Publications Management Information Systems, James A. O’Brein, Tata McGraw-Hill Management Information System, W.S Jawadekar, Tata Mc Graw Hill Publication. Management Information System, David Kroenke, Tata Mc Graw Hill Publication. MIS: Management Perspective, D.P. Goyal, Macmillan Business Books. MIS and Corporate Communications, Raj K. Wadwha, Jimmy Dawar, P. Bhaskara Rao, Kanishka
page no. value and risk of IS. Classification of Information System Module III . 135 Financial Management Information Systems in Developing Countries by International Monetary Fund Page 3 . Models and approaches to DSS Module V . 61 Architecture. Module VI . Module II . Decision Support Systems. ERP: role. reasons of success and failure. integration and automation of business functions and developing\ business models.Index Module I .page no.page no.118 Introduction to Total Quality Management and Enterprise Resource Planning. 35 Resources and components of Information System. 77 Decision Making Process.page no.page no. Organization structures. Business Process. Factors of success and failure.page no. 4 Role of data and information. Centralized and Decentralized Information Systems. Systems Approach and introduction to Information Systems. advantages. development and maintenance of Information Systems. Module IV .
Module 1 Page 4 .
images. Data are often viewed as the lowest level of abstraction from which information and knowledge are derived. data is a representation of a fact. images. but usage in scientific publications shows a divide between the United States and United Kingdom. Data is now often treated as a singular mass noun in informal usage. Some UK university style guides recommend using data for both singular and plural use and some recommend treating it only as a singular in connection with computers. Such data is typically further processed by a human or input into a computer. characters. data processing commonly occurs by stages. stored and processed there. though scientists and science writers more often maintain the traditional plural usage. and idea. Data (plural of "datum". figure. Raw data is a relative term. mathematics.DATA The term data means groups of information that represent the qualitative or quantitative attributes of a variable or set of variables. or transmitted (output) to another human or computer (possibly through a data cable). Such usage is the origin of data as a concept in computer science: data are numbers. British usage now widely accepts treating data as singular in standard English. In the United States the word data is sometimes used in the singular. as in These data do not support the conclusions. and so on. engineering. but many people now think of data as a singular mass entity like information and use the singular in general usage.. which is seldom used) are typically the results of measurements and can be the basis of graphs. the terms givens and data are used interchangeably. Also. or observations of a set of variables. etc. and the "processed data" from one stage may be considered the "raw data" of the next. words. In discussions of problems in geometry. images or other outputs from devices to convert physical quantities into symbols. that are unprocessed. In scientific writing data is often treated as a plural. In the New York Times the phrases "the survey data are still being analyzed" and "the first year for which data is available" have appeared on the same day. Some major newspapers such as the New York Times use it alternately in the singular or plural. UK scientific publishing still prefers treating it as a plural. Raw data refers to a collection of numbers. accepted as they stand. including everyday newspaper usage at least in non-scientific use. Page 5 .
Data is a set of unrelated information. Thus. meaning. and they show some relevance. However. The English word was apparently derived from the Latin accusative form (informationem) of the nominative (informatio): this noun is in its turn derived from the verb "informare" (to inform) in the sense of "to give form to the mind". it may be a truth or a lie. once there is some significant relation between data. Information is always about something (size of a parameter. mental stimulus. ethics. Upon evaluation. knowledge. data. Latin itself already contained the word informatio meaning concept or idea. and representation. they are actually very different. "teach": "Men so wise should go and inform their kings.Information Information as a concept has many meanings. Page 6 . communication. etc). then they are converted into information. generally speaking. Message is the information materialized. The concept of information is closely related to notions of constraint. but the extent to which this may have influenced the development of the word information in English is unclear. "instruct". value. Furthermore. perception. Even a disruptive noise used to inhibit the flow of communication and create misunderstanding would in this view be a form of information. form. if the amount of information in the received message increases. information does not have to be accurate. or just the sound of a falling tree." (1330) Inform itself comes (via French) from the Latin verb informare. to form an idea of. they are not useful and therefore not information. the message is more accurate. Viewed in this manner. instruction. from everyday usage to technical settings. till the data convey some information. control. Information is a quality of a message from a sender to one or more receivers. pattern. to give form to. Now this same data can be used for different purposes. occurrence of an event. Information is the state of a system of interest. and as such is of no use until it is properly evaluated. Even though information and data are often used interchangeably. "to discipline".
These patterns can be interpreted as truth. The main difference is in the level of abstraction being considered. These patterns are seen as information which can used to enhance knowledge. Data on its own carries no meaning. the height of Mt. As With all growing companies. mental stimulus. a book on Mt. It is people and computers who collect data and impose patterns on it. many production records. In other words. In order for data to become information. and representation. knowledge is the highest level among all three. data. form. information is the next level. Data is the lowest level of abstraction. the number of employees increased. Page 7 . Everest geological characteristics may be considered as "information". communication. knowledge. and are authorized as aesthetic and ethical criteria. perception. For example. factors outside the company become increasingly complex. new products are developed. and finally. meaning.Meaning of data. authority must be delegated and information needs expand. the concept of information is closely related to notions of constraint. and a report containing practical information on the best way to reach Mt. the business organizations started as a one-man show but with the passage of time. Everest is generally considered as "data". instruction. their size has increased manifold. control. it must be interpreted and take on a meaning. It now becomes necessary to handle many customer accounts. processing and distribution. Communications channels are more difficult. Marks are no longer considered data once the link between the mark and observation is broken. Generally speaking. the volume and complexity of operations have increased geometrically. Although the functions performed are basically the same. information and knowledge The terms information and knowledge are frequently used for overlapping concepts. when an occurrence leaves perceivable marks. those marks attain the status of data. Everest's peak may be considered as "knowledge". In many a case. The increase in company size results in the need for additional information collection. Information as a concept bears a diversity of meanings. and the managerial problems surrounding the operation of the organization generally expand more rapidly than the company size. from everyday usage to technical settings. Sales volume grows. Events that leave behind perceivable physical or virtual remains can be traced back through data. pattern.
The elements of a system may interact with each other towards a common goal i. However. achievement or probability of survival. Page 8 .and many more interrelation. production and marketing functions to achieve finished goods and their sale at a specified minimum per year. We define a system as a group of elements either physical or nonphysical in nature that exhibits a set of interrelationship among them..e. has to perform a lot of functions to achieve the objectives/ goals set and in the process deploys lot of resources viz. Other. we should give a general outline what a company's or how we can describe a company. which is part of company. the system is a goal (objective) seeking one. Business organizations are usually systems operating within larger systems (industry or economy) and interact with their environment. design. not all systems are goal seeking. It reacts with its environment in such a way as to improve its functioning. material. A business organization system consists of a group of people who process material and informational resources towards a set of multiple common goals including an economic profit for the business by performing financing. The systems concept is of immense use in understanding business organization and their functions. The company can be identified as an open system by its individually small influence on its environment or vice versa. machine money etc. In addition. men.ships among functions. whether it has developed from a one man show or otherwise.e... Before we come to our purpose to speak about MIS. hence they act as open systems i. large business organization. Hence. it becomes necessary to assign people to supervise other people.wise we would have problems to understand MIS. the individual business organizations are influenced by the changes in the environment or industry.
Secondly. To transform data into information.. knowledge and wisdom in Page 9 . Lastly. Also. Barabba. the historical perspective of management information systems cannot be ignored. processing is needed and it must be done while considering the context of a decision. objects. This is not to imply one effort is more important than another. We are often awash in data but lacking good information. some time-tested concepts should be reviewed. boundaries will be defined. the success achieved in supplying information to decision makers is highly variable. etc. This perspective gives a sense of how these systems have evolved. it indicates the difficult of capturing the key concepts of what is a management information system. Davis defines data as raw facts. what is viewed as an effective and useful management information system is one environment may not be of use or value in another. Before discussing management information systems.) and those used to support agribusiness firms that supply goods and services to agricultural producers and the supply chain beyond the production phase. Because more than one is used. there are several frameworks that can be used to define and describe management information systems. reflecting the author's viewpoint of the more common and interesting developments. been refined and adapted as new technologies have emerged. simulation or optimization models. geographic information systems. Those discussed here is only a partial sampling of activities. only selected ones will be used to illustrate concepts.Management Information Systems Management information systems encompass a broad and complex topic. and how changing economic conditions and other factors have influenced the use of information systems. Davis offers a commonly used concept in his distinction between data and information. First.g. More than one will be used to discuss important concepts. the main focus of this paper will be on information systems for use at the farm level and to some lesser extent systems used to support researchers addressing farm level problems (e. expands this concept by also adding inference. because of the vast number of activities relating to management information systems. Information is used to make decisions. However. a total review is not possible. etc. To make this topic more manageable. Likewise where there were multiple effects in a similar area of development. Indeed. figures.
Another important concept from Davis and Olsen is the value if information. test results. Thus. For example. Furthermore. if it does not change decisions to the better.his modification of Haechel's hierarchy which places wisdom at the highest level and data at the lowest. and it describes the state of the business at a specified point in time. as one acquires knowledge and wisdom the decision making process is refined. Descriptive information is very important to the business manager. They define information as one of four types and all these types are important component of a management information system. Descriptive information includes a variety of types of information including financial results. since before the investment is made. Many assume that investing in a ―better‖ management information system is a sound economic decision. less the cost of the information. Since it is possible that the better system may not change decisions or the cost of implementing the better system is high to the actual realized benefits. Also. production records. A common starting level is Descriptive information. it may have no value. As one move up the hierarchy. the investment should be viewed as one with risk associated with it. Another approach for describing information systems is that proposed by Harsh and colleagues. because without it. just supplying more data and information may actually be making the decision making process more difficult. As both Barabba and Haechel argue. It can also be used to identify problems Page 10 . This information portrays the ―what is‖ condition of a business. ―what is‖ information is needed for supplying restraints in analyzing farm adjustment alternatives. Descriptive information can also be used as inputs to secure other needed types of information. Management information systems attempt to address all levels of Haechel's hierarchy as well as convertingdata into information for the decision maker. it is hard to predict the benefits and costs of the better system. product marketing. the value of information is the value of the change in decision behavior caused by the information. it could be a bad investment. many problems would not be identified. They note that ―in general. and maintenance records. Furthermore. however. the various types build upon and interact with each other.‖ This statement implies that information is normally not a free good. Emphasis should be placed on increasing the value of information by moving up Haechel's hierarchy. the value is increased and volume decreased.
. a manager may choose an appropriate course of action for dealing with the problem (including doing nothing).‖ prediction is concerned with ―what if. Predictive information takes many forms. Diagnostic information has two major uses. Predictive information is needed by managers to reduce the risk and uncertainty concerning technology. and human relationships affecting the business.. when compared with the facts for a particular business. descriptive information must be available along with appropriate norms or standards for particular business situations. one either defines problems or avoids problems in advance. climate. Several pitfalls are involved for managers in obtaining diagnostic information. simulation models. will reveal an area of concern. yet be unable to recognize this type of problem. A manager may often be well supplied with facts about his business. and other tools to evaluate expected changes in the business. The second type of information is diagnostic information. Such information is vital in formulating production plans and examining related financial impacts.other than the ―what is‖ condition. this information portrays this ―what is wrong‖ condition. Prediction also assists in analysis. Descriptive information is necessary but not completely sufficient in identifying and addressing farm management problems. a manager will analyze the situation and specify at least one alternative (including doing nothing) to deal with it.‖ As description is concerned with ―what is‖ and diagnostics with ‖what is wrong. where ―what is wrong‖ is measured as the disparity between ―what is‖ and ―what ought to be.?‖ Predictive information is generated from an analysis of possible future events and is exceedingly valuable with ―desirable‖ outcomes. prices. Adequate. With predictive information. Once a problem has been identified. Page 11 . institutions. When a problem is recognized. The manager must provide norms or standards which. Are production levels too low? Is the rate earned on investment too low? These types of question cannot be answered with descriptive information alone (such as with financial and production records). It can first be used to define problems that develop in the business.‖ This assessment of how things are versus how they should be (a fact-value conflict) is probably our most common management problem. reliable. Information is inadequate for problem solving if it does not fully describe both ―what is‖ and ―what ought to be. Corrective measures may be taken so as to better achieve the manager’s goals. What are the expected prices next year? What yields are anticipated? How much capital will be required to upgrade production technologies? What would be the difference in expected returns in switching from a livestock farm to a cropping farm? Management has long used various budgeting techniques.
be measured in absolute terms. The decision as to whether to change plans depends upon the managers evaluation of the worth of additional income versus the commitment of Page 12 . the rightness of a decision can seldom. For every problem a manager faces. suppose that a manager is considering a new changing marketing alternative. Predictive information by itself is not adequate for decision making. and conditions he wishes to impose on the decision. if ever. An evaluation of the predicted outcomes together with the goals and values of the manger provides that basis for making a decision. the crux of management tasks is decision making. Provision of this information requires the utilization of the predictive information. Prescriptive information is directed toward answering the ―what should be done‖ question.Without detracting from the importance of problem identification and analysis in management. The choice is conditionally right. For example. The new alternative being considered has higher ―predicted‖ returns but also has higher risks and requires more management monitoring. there is a ―right‖ course of action. depending upon a farm manager’s knowledge. assumptions. However.
Because MIS supplies decision makers with facts. MIS in an INSTITUTION An institution's MIS should be designed to achieve the following goals: • Enhance communication among employees. It should be supportive of the institution's longer term strategic goals and objectives. accrual adjustments. At other levels. Page 13 . • Reduce expenses related to labor-intensive manual activities.additional time and higher risk. MIS also enhances job performance throughout an institution. • Support the organization's strategic goals and direction. However. A management information system (MIS) is a system or process that provides the information necessary to manage an organization effectively. At the most senior levels. MIS provides the means through which the institution's activities are monitored and information is distributed to management. • Provide an objective system for recording and aggregating information. it supports and enhances the overall decision making process. reconciling and correcting entries used to reconcile the financial systems to the general ledger are not always immediately entered into other MIS systems. the goals and values of a farm manager will ultimately enter into any decision. Financial accounting systems and subsystems are just one type of institutional MIS. For example. To the other extreme it is also those everyday financial accounting systems that are used to ensure basic control is maintained over financial recordkeeping activities. it provides the data and information to help the board and management make strategic decisions. MIS and the information it generates are generally considered essential components of prudent and reasonable business decisions. Financial accounting systems are an important functional element or part of the total MIS structure. • Deliver complex material throughout the institution. and customers. although MIS and accounting reconcilement totals for related listings and activities should be similar. they are more narrowly focused on the internal balancing of an institution's books to the general ledger and other financial accounting subsystems. they may not necessarily balance. Thus. Accordingly. MIS is viewed and used at many levels by management. employees.
manage resources. • Staff and management. The effective deliveries of an institution's products and services are supported by the MIS. MIS should be used to recognize. One example of this would be the managing and reporting of loans to insiders. monitor. MIS is a critical component of the institution's overall risk management strategy. Because data can be extracted from many financial and transaction systems. These systems should be accessible and useable at all appropriate levels of the organization. and the assignment of duties and responsibilities to staff and managers. Risk management involves four main elements: • Policies or practices. since MIS often originates from multiple equipment platforms including mainframes. MIS can also be used by management to provide feedback on the effectiveness of risk controls. limit. management can use MIS to measure performance. It should always be sufficient to meet an institution's unique business goals and objectives. Controls are developed to support the proper management of risk through the institution's policies or practices. controls must ensure that systems on smaller computers have processing controls that are as well defined and as effective as those commonly found on the traditionally larger mainframe systems. As such. technology also increases the potential for inaccurate reporting and flawed decision making. Frequently. Page 14 . Correspondingly. operational processes and feedback devices are intertwined and cannot easily be viewed separately. measure. Technology advances have increased both the availability and volume of information management and the directors have available for both planning and decision making. operational processes. MIS can be maintained and developed by either manual or automated systems or a combination of both. MIS supports management's ability to perform such reviews. and manage risks. • Operational processes. • Feedback devices. minicomputers.Effective MIS should ensure the appropriate presentation formats and time frames required by operations and senior management are met. The most efficient and useable MIS should be both operational and informational. and help an institution comply with regulatory requirements. and microcomputers. appropriate control procedures must be set up to ensure that information is correct and relevant. In addition.
Giessen University. Relationship between the perspective and actual yields and changing prices can be established. Kuhlmann. stated that: ―The advances that have taken place in calculating equipment and methods make it possible to determine the relationship between ultimate yields. there was an increased enthusiasm for information systems to enhance management decision processes. Simulation models for improving management skills and testing system interaction were developed. To put these early efforts into a management information system framework. These early systems relieved on large mainframe computers with the data being sent to a central processing center and the reports send back to the cooperating businesses.g. At an IBM hosted conference. By the mid 1960s it became clear that the accounting systems were fairly effective in supplying descriptive and diagnostic information but they lacked the capacity to provide predictive and prescriptive information.. when computer technology became more widely available in the late 1950s and early 1960s. made in 1963. However. milk per cow. return on assets. Even though there was much enthusiasm related to these early systems they basically concentrated on accounting activities and production records. reflects the optimism that prevailed with respect to information systems. Examples include the TelFarm electronic accounting system at Michigan State University and DHIA for dairy operations. a respected farm management economist. Thus.MIS for Farm Management The importance of management information systems to improve decision making has long been understood by farm management economists. With such information at hand the farmer should be in a position to make a decision on his prediction with a high degree of certainty at mid-season regarding his yield and income at harvest time. developed a very robust and comprehensive whole farm simulation model (SIMPLAN) that executed on a mainframe computer.). time of harvest and climatic conditions during the growing season. Ackerman. a new approach was needed – a method of doing forward planning or a management information system that was more models oriented. the one proposed by Alder is useful. etc. They would be defined as data oriented systems with limited data analysis capabilities beyond calculating typical ratios (e. As an example. This model was based on systems modeling methods that could be used to analyze different production Page 15 . Financial and production records have long been used by these economists as an instrument to measure and evaluate the success of a farm business.‖ This statement. (See Figure ).
Since this machine was shared by many users.strategies of the farm business.g.. they often demanded that the model developer work closely with them in using the model. least cost animal rations) budgeting and simulation models. Page 16 .g. Types of Information Systems Another important activity during this period was the ―Top-Farmer Workshops‖ developed by Purdue University. I became possible to remotely access the computer with a terminal and execute software. These advisors used these computer models at the farm or at their own office to provide advice to farm producers. however. Systems such TelPlan developed by Michigan State University made it possible for agricultural producers to run a farm related computer decision aids. These decision aids included optimization models (e. As mainframe timeshare computers emerged in the mid-1960's. To be used by managers. and other types of decision aids.. They used a workshop setting to run large linearprogramming models on mainframe computers (optimization models) to help crop producers find more efficient and effective ways to operate their business. Teletype machine or a touch-tone telephone). the cost for executing an agriculturally related decision aid was relatively inexpensive and cost effective. These decision aids could be accessed by agricultural advisor with remote computer terminals (e.
g. market prices). Lastly. ed. one of the more critical features of the system. production information. weather data and so forth. Because of the rapid changes occurring. a database/modelbase management system and a user interface (see Figure). The database has information related to financial transactions. One of the first of these was held in Germany in the mid-1980s. and Process Oriented Information Systems.. Computer technology continued to advance at a rapid pace. a cash-flow projection model was not able to directly use financial data contained in the accounting system. Information for the data oriented systems often did not match the data needed for the model oriented systems. particularly semi-structured problems. the resource base. The decision support system proposed by Sprague and Watson (House. the Page 17 . there were international conferences held where much of the knowledge learned in developing these systems was shared. the modelbase is able to link models together in order to solve larger and more complex problems. refining. testing. tactical and strategic decisions. It has the ability to extract data from the database and pass it to the modelbase and vice versa. is used to assist the decision maker in making more efficient and effective use of the system. financial transactions and production data) and external data (e. In most cases. For example. This was both a time consuming and error prone process. they were devoid of many of the desirable characteristics of an evolving concept describes as decision support systems (DSS). These data are stored in a common structure such that it is easily accessible by other database packages as well as the modelbase.. The user interface. marketing records. research data. It was also clear from these early efforts that the data oriented systems where not closely linked to the model oriented systems.) has as its major components a database. the data had to be manually extracted from the accounting system and re-entered into the planning model. In addition.g. Because of the lack of integration capabilities of various systems. The modelbase component of the system has decision models that relate to operational. for these systems to be effective in supporting management decision. These systems are also known as Executive Support Systems. The database/modelbase management system is the bridge between database and modelbase components. and Management Support System.These were exciting times with many people becoming involved in the development. and implementation of information systems for agriculture. a modelbase. new communication systems were evolving and the application of this technology to agriculture was very encouraging. It includes data internally generated by the business (e.
Decision Support System Page 18 . it was clear that the decision support systems approach had many advantages but the implementation in agriculture was going to be somewhat involved and complex because of the diversity of agricultural production systems. From these presentations. Several follow-up international conferences were held to reflect these new advances in management information systems.decision maker must have the skills and knowledge on how to correctly use these systems to address the unique problem situation at hand. Nevertheless. This conference discussed the virtues of these systems and the approach used to support decisions. The first of these conferences focused on decision support systems was held in Germany. Several prototype systems being developed for agriculture were presented. there was much optimism for the development of such systems.
This was a topic of much discussion but there were few conclusions reached except the systems with the highest adaption rate were mainly data-oriented ones (e.. yields obtained) and to control production inputs (e. The international conference that followed in France focused on the low adaption rate of management information systems. suggests that we have not nearly harnessed the potential of the design concepts contained modern management information systems. To briefly summarize the historical developments.. Other conference addressed the use of information systems to more tightly control agriculture production such as those developed for greenhouse businesses. It was interesting to note that the prototype knowledge-based systems for the most part did not utilize the concepts of decisions support systems which were the focus of the earlier conference.A couple of years later. One of the major themes was precision agriculture with several conferences held. An examination of our current usage of management information systems. anaimal production and health records.g.) which provide mainly descriptive and diagnostic information. etc. There has been some movement toward integration of the data oriented systems and the model oriented systems. Using Alter’s scheme to describe information systems. Perhaps this was related to the fact that many of the applications were prototypes.g.g. fertilizer levels). there have been significant efforts devoted to improving the management information systems from the early computerized activities forty years earlier. The international conferences that followed had varying themes. another conference were held in Germany that focused on knowledge-based systems with a major emphasis on expert systems and to a lesser extent optimum control methods and simulation models. These conferences extolled the use of geographic information systems (GIS) in conjunction with geographic positioning systems (GPS) to record and display data regarding cropping operations (e. however. for the most part these would be described as suggestion models. The decision aids available have grown in number and they are more sophisticated.. accounting systems. Page 19 . field record systems.
functional. Such systems may depend only on rather simple mechanical devices operated directly by human hands. • General management • Financial Page 20 The basic classes of primary management information systems may be identified as follows: . such as pencils. procedures and files of information which operate to record. multi-functional projects. MIS IN GENERAL In this discussion. and so on. retrieve. process and display information useful in managing some aspect of an organized enterprise. and the types and sources of incompatibilities are discussed. but they are certainly no lighter to carry than the stone tablets of Moses' day. Project information systems more recently have emerged to serve temporary. such as slide rules. must handle more diverse information and be more predictive and integrative in nature over a longer time span. calculators and electronic data processing systems. and their implementation often reveals existing incompatibilities with and between the various organizational MIS which provide information to project systems. pens. store. or they may also depend on more complex devices and machines. I refer to management information systems (MIS) as identifiable sets of policies. The result is that project MIS are generally more difficult to implement. relatively short-lived. Suggested methods of minimizing the problems are briefly presented. At least today's reports carry more information per pound. Specific product and project planning and control functions and tools are identified in this paper. permanent organizations. compared to the various organizational MIS. The underlying thesis of this discussion is that a better understanding of the differences and interfaces between project and organizational MIS will help to resolve current problems and avoid future difficulties in the implementation of information systems to serve operating project managers. Project MIS.Traditional MIS have evolved to serve structured. manipulate. models. charts. ledgers. They all seem to depend on paper to a great extent! Perhaps Moses had the first MIS when he came down the mountain with the Ten Commandments chiseled into stone tablets.
and orders (contracts or sales). processing and billing. such as order booking. proposals and selling. integrative planning and direction of the total enterprise. competitors. and deal with the basic element of resource that we all understand (at least to some extent): Money.the tangible repetitious transactions or work -which generate the outflow and inflow of money. resulting from the basic operations of the enterprise. customers. work authorization and control. budgeting. capabilities. collections and contract administration. With these systems we are able to: • Translate the strategic. production and inventory planning and control. control and account for the production. These general management information systems depend heavily on the financial MIS. Page 21 .• Logistics • Business acquisition • Resources General management information systems are concerned with the overall. • Plan. distribution and inventory of money. market and product plans to achieve the objectives • Overall performance measurement and evaluation compared to objectives. In this class are found marketing and sales systems and procedures. Business acquisition management information systems include procedures for handling information related to markets. control and account for the acquisition. Financial management information systems are familiar to us all. Logistics management information systems enable us to plan. processing. and to a lesser extent on all other types of MIS. assembly and distribution of goods and services -. inventory. products. accounts and financial analysis. and product distribution. conversion. • Analyze the basic operations in monetary terms. market and product plans of the enterprise into the common denominator of money. This class includes systems for financial planning. Systems within this class include purchasing. recording and processing information related to: • Strategic objectives and goals • Financial objectives • Business. They include methods of generating. cash handling.
including people. as well as those dealing with the acquisition and utilization of capital facilities. execute and control projects -.those complex. know-how. plant facilities. conveys the fundamental purpose of various related PMIS: to predict how the project will come out. and which must achieve the specified results at a particular point in time and within a given cost of budget. The verb "to project" or to forecast or predict. Page 22 . schedule. installed equipment and other types of equipment and resources required to produce the goods and services which are delivered or sold by the organization. and equipment. Included here are personnel information systems. Projects may be viewed as temporary profit centers which subcontract most if not all of the actual work required to complete them.Resources management information systems deal with the basic resources of a company other than financial). unique efforts which cut across organizational and functional lines. based on progress to date and current plans for the future. Project management information systems (PMIS) enable us to plan.
Financial budgets and reports are provided for organizational sections.are structured and shaped to meet the needs of the primary purpose of each individual organization. This structure invariably results in some form of hierarchy or bureaucracy. size and sometimes on his history which departments it has. Each of these departments have different responsibilities and tasks. and as the raw materials are purchased. institutional.MIS FOR ORGANIZATIONS An organizational chart is a diagram that shows the structure of an organization and the relationships and relative ranks of its parts and positions/jobs.business. engineering. logistics. for example. processed and shipped to the customers. manufacturing. governmental . departments and divisions. A Company can have different subsystems (departments). For a given company it depends on its purpose. hierarchical organization which has a certain permanency associated with it. segregating and dividing the various functions such as marketing. Organizations of all types -. The financial. industrial. The organization structure. The organization structure of an organization manufacturing paperboard cartons for a wide variety of users and also paperboard used in the cartons is shown in Fig. perhaps all. of these management information systems are based. Information is provided to each functional manager concerning his limited segment of the total operation as orders are obtained and fed into production. portrayed by the familiar pyramidal chart of boxes and lines. Production control systems serve the manufacturing division and have nothing to do directly with engineering. and so on. business acquisition and resources management information systems which we have today are designed to serve the structural. forms a fairly stable skeleton on which most. Page 23 . The term is also used for similar diagrams. for example ones showing the different elements of a field of knowledge or a group of languages.
we shall not be in a position to evaluate the achievements of each of the functions. iv). warehousing expenses etc. As an example. Formulation of sales budget. Planning of safety stocks. their weak. Loss of sales due to poor advertising. Sales promotion expenses. ii). Personnel expenses and communication expenses. Requirement and utilization of equipment. we can identify the responsibilities of marketing function as followings: i) ii) iii). vii). The inventory of finished goods.nesses or strengths. Formulation of procurement budget. improper distribution etc. v). iv). outward freight expenses.The responsibilities of such of the functions should be clearly defined so as the objectives/goals of the organization are achieved. Similarly. Page 24 . advertising expenses. iii). Manpower planning for departmental requirement. vi). Selection of suppliers. v). Achieving the sales target. Unless and until the objectives of each of the function are identified properly. we can fix the responsibility for procurement function as given below: i). Cash receipts from sales and debtors.
Controlling of excess procurement expenses. viii). x). vii). in a manner so as to achieve the corporate objectives. In a similar manner. Controlling of budget expenses. Disposal of unwanted stocks. we can identify the responsibility of all functions. FUNCTIONAL ORGANIZATION CHART Page Information Technology Management Information Technology Training Systems Analysis and Systems Development Vendor Analysis/Software Package Procurement and Assistance Information Technology Resource Contracts Assistance GIS Data Administration GIS User Support GIS Systems Development 25 . Controlling of loss of sales due to lack of raw material. ix).vi). Controlling of receiving expenses.
STAFFING ORGANIZATION CHART Page 26 .
organizing and control of personnel and material resources of the company in order to achieve the established objectives. Developing alternatives. is assumed part of the control function hence the importance of management activities. An orderly process of deriving a decision contains following elements: i). directing. which may be either quantitative or qualitative) for achieving the objectives. The decision complexity may be because of: i) Variety ii) Uncertainty iii) Time Horizon. Increase in number of alternatives makes decisions more and more complex and this decision complexity decides the time of decision making. motivating and controlling of various resources. organizing. Tasks of Management Management tasks can be described as decision making. Constraints imposed. decisions are made for planning. Factors affecting the decision. ii). planning and controlling to achieve the objectives. training and motivating of people. Getting things done through people and selecting. iii). Criteria of evaluation. and iv) Implications. Decision Making Decision making is basic to all management activities and can be defined as the process of selecting a best alternative from among several alternatives. iv).MANAGEMENT Management can be defined as the planning. Page 27 . In an organization. Knowledge of situation. v).
At some point. such as the large engineering construction companies. which we have seen were designed to serve such structures. and governments presently concerned with managing projects. We know that many organizations. viii) Selection of best alternatives. because projects are essentially their only business. has led to the development of this new class of MIS specifically designed to manage projects. but even they are finding that it is more efficient to be able to handle a number of projects within one basic organization. and 15 universities located in 16 countries: Processing/manufacturing/producing 31% Engineer/constructor 20% Consultant (all fields) 20% Educational/government 11% Instruments/computers/electronics/electrical equipment 11% Page 28 . EVOLUTION OF MIS FOR PROJECTS The emergence in the past fifteen years of more numerous projects within most organizations. The large engineering-construction and aerospace firms continue this practice to a degree. Other industries of many types have found it even less practical to set up project organizations for their numerous projects. However. To illustrate the diversity of business. vii) Implications of the alternatives. my experience indicates that these companies typically form a pyramidal. representing 310 companies and organizations. and thus they are able to use the more traditional MIS. industries. hierarchical organization structure for each major project. execute and control temporary projects using management information systems designed to serve permanent organizations. we realized that we cannot always form a separate functional.vi) Method of evaluation. and the difficulties experienced in trying to plan. here is a breakdown of the more than 500 members of the Project Management Institute (PMI). and to retain the functional structure to the maximum extent possible. self-supporting organization for each project. 10 to 15 years ago. have had some form of PMIS in operation for as long as they have been in business.
We could characterize functional management as divisive (as it divides the work along functional lines) and project management as integrative (as its prime purpose is to manage the project as a whole. governmental programs and projects. Presently. the general term "Performance Measurement Systems" is used in U. It is through the PBS that we can create a skeleton or framework. in both. systematic subdivision of projects enables the development of truly integrative PMIS. and the concept went through a series of name changes and improvements. and identify deviations from plan on an exception basis. The PBS provides this capability for PMIS. schedule and control a large project without subdividing it into manageable tasks. This concept of a structured. which fulfills the same fundamental purpose (from the MIS viewpoint) as the organization structure. execute and control many projects as they passed through the functional. departments and sections.Other 7% So the need to be able to plan. We must also be able. where we developed an operating "PERT Cost" system in 19611. to summarize information at successively higher levels. just as the organization structure has enabled the development of organizational MIS. Network planning (both the activity-event and the procedure diagram techniques) emerged as a powerful tool. and the latter integrating the enterprise as a whole. specifically adapted to each project. its primary advantage is the ability to integrate the plans of many separate responsibilities and analyze both the logical sequences and the utilization of time and other resources in these plans. This tool is one form of PMIS. but the essential PMIS elements that were present in PERT Cost are still evident in the current documentation. similarly it is impossible to plan. Page 29 . divisionalized organization forced the evolution of PMIS in support of the project management capabilities of organizations. in fact. the concept of the "work breakdown structure" emerged. Just 10 years ago. budget.) In this respect. cases. in terms of the total project and. project management is identical to general management: the former dealing in an integrative manner with each project. From the project management viewpoint. It is impossible to budget and control the work of a large company without subdividing it into divisions. Department of Defense/NASA PERT COST document. if properly applied -. with the publication in 1962 of the U. PERT Cost became rather infamous in the next few years.S. many projects. A key concept which has emerged from this very expensive effort with the Defense/Space industry is the systematic definition of projects – the project breakdown structure (PBS)2.and as a great waste of time and effort if not properly used.S. This followed closely the work I was involved with at Hughes Aircraft Company.
Management processes. processes that constitute the core business and create the primary value stream. Marketing and Sales. 3. The outcome of a well designed business process is increased effectiveness (value for the customer) and increased efficiency (less costs for the company). The analysis of business processes typically includes the mapping of processes and sub-processes down to activity level. Typical management processes include "Corporate Governance" and "Strategic Management". Examples include Accounting. 2. A business process can be decomposed into several sub-processes. which support the core processes. but also contribute to achieving the goal of the super-process. Recruitment. Business Processes are designed to add value for the customer and should not include unnecessary activities. which have their own attributes. the processes that govern the operation of a system. structured activities or tasks that produce a specific service or product (serve a particular goal) for a particular customer or customers. Supporting processes. Process oriented organizations break down the barriers of structural departments and try to avoid functional silos. For instance. Page 30 . A business process begins with a customer’s need and ends with a customer’s need fulfillment. Business Processes can be modeled through a large number of methods and techniques. There are three types of business processes: 1. Operational processes. Typical operational processes are Purchasing. Manufacturing. the Business Process Modeling Notation is a Business Process Modeling technique that can be used for drawing business processes in a workflow. Technical support.Business process A business process or business method is a collection of related.
Many concepts of BPR changes organizational structure. mass customization. The entire business process of 31 . Page Reengineering is basically done to achieve cost reduction. This leads to the formation of interdisciplinary teams which can work better than mere functional teams. Reengineering involves changes in structure. Experts make use of applications with simulations tools for BPR. It is difficult to carry out BPR calculations using ordinary programs like spreadsheets etc. This process of change for the betterment of the organization is called as Business process reengineering. empowerment and telecommuting are some of the examples. Team based organization. provides flexibility in manufacturing permits quicker delivery to customers and supports rapid paperless transactions among suppliers. The coordination becomes easier and faster results can be achieved. Latest software is used and accordingly the business procedures are modified. the organizations have to change the workflow and business procedures for efficiency in the organization. so that documents are worked upon more easily and efficiently. Such changes are often necessary for profitability or even survival. DSS.The existing system in the organization is totally reexamined and radically modified for incorporating the latest technology. Business process reengineering is a major innovation changing the way organizations conduct their business. organizational culture and processes. Employees work in team comprising of managers and engineers to develop a product. The support system in any organization plays a important role in BPR. improvement in speed and service. BPR is employed when major IT projects such as ERP are undertaken. AI (discussed later) allows business to be conducted in different locations. ES. BPR enable a company to become more competitive in the market. Expert systems can enable organizational changes by providing expertise to non experts. With Business process being reengineered. This is called as workflow management. increase in quality. manufacturers and retailers.
the emerging concepts of data mining and data warehousing. it enables them to "drill down" into summary information to view detail transactional data. communication. and customer demographics. A database is typically made up of many linked tables of rows and columns. and "external" factors such as economic indicators. by companies with a strong consumer focus retail. For example. a retailer could use point of sale records of customer purchases to send targeted 32 . Database software. and marketing organizations. and MySQL is designed to help companies and individuals organize large amounts of information in a way where the data can be easily searched. Finally. such as Microsoft Access. customer satisfaction. Concept of Database – Database is a data structure used to store organized information. it enables them to determine the impact on sales. competition. sorted.developing a product gets a new dimension. And. financial. This has led to reengineering of many old functional processes in organizations. their employees. and updated. BPR – the current focus Apart from the usual ways of managing a process in any business information system. or staff skills.Data mining is primarily used as a part of information system today. FileMaker Pro. a company might use a database to store information about their products. Page Data Mining . Databases are now also used in nearly all ecommerce sites to store product inventory and customer information. With data mining. and corporate profits. It enables these companies to determine relationships among "internal" factors such as price. product positioning. it is necessary to enhance the value of the process and also the methods used in improving the process. Some of the concepts of information management for effective information systems are the traditional concept of database. and financial information.
stored under a unified scheme. the retailer could develop products and promotions to appeal to specific customer segments.promotions based on an individual's purchase history. Setting up queries on individual processes may be tedious and inefficient. Data Warehousing – A data warehouse is a copy of transaction data specifically structured for querying and reporting. The data stored and the subsequent report generated out of a querying process enables decision making quickly. The main output from data warehouse systems are either tabular listings (queries) with minimal formatting or highly formatted "formal" reports on business activities. Data warehouse is an archive of information collected from wide multiple sources. By mining demographic data from comment or warranty cards. Data warehouse may be considered under such situations. This data is stored for a long time permitting the user an access to archived data for years. This concept is useful for big companies having plenty of data on their business processes. This becomes a convenient way to handle the information being generated by various processes. Decision makers require access to information from all sources. Big companies have bigger problems and complex problems. at a single site. Page 33 .
Module 2 Page 34 .
output. 5. Hardware ( machines and media) Software (program and procedures) Data ( data and knowledge) Network ( communication Media) People ( end user and specialists) All five components and arranged and interrelated to perform input. 2.Components of Information Systems An information system has the following components: 1. 4. Software c. 3. Five basic operating elements of Information system are: a. The figure shows interrelation between these components From the figure it can be concluded that: 1. Network Page 35 . Hardware b. process. Databases d. feedback and control that converts data resources into information.
People 2. reports. also called personal computers. A modern computer system can be considered as a system with four main subsystem: inputs. 3. OUTPUT – Transaction documents and screen reports. from a few powerful mainframe machines (or even more powerful supercomputers) and minicomputers to widely deployed personal computers. Software includes programs and procedures. Process – Maintain master files. such as magnetic disks. interactive dialogues c. Basic concepts of resources and their roles in a system are discussed here. processing. and telecommunications gear. operating system and media devices.e. The cost of hardware has steadily and rapidly decreased. Information processing consists of input. Network includes communication media and network devices. these constitute the hardware of information systems. process. own or lease computers. output. Hardware includes processor. Page 36 . Database are processed to get the desired information for end user. Large organizations typically employ multiple computer systems. 4. 1) Computer systems a. I/O devices. data storage and control. People includes operating Personal and System specialists. Together with computer peripheral equipment. storage and output. input-output devices. as well as many households. INPUT – Data and instruction b. a. Information System Resources Any information system model has five major resources. process inquiries. The term hardware is generally associated with computers but it also includes peripherals or data media ( storage devices). These are usually microcomputers. Today even the smallest firms. while processing speed and storage capacity have increased vastly. Databases includes data and knowledge base. Hardware Resources Hardware resources comprises the physical aspect of information system.
Software Resources The term software is generally used to describe computer programs. images. c. Data for long-term is used in secondary storage. Input to a computer is achieved through variety of input devices. Typical output devices include sound based output devices. Programs must be written in some formal language known as programming language. mouse. and tracks package deliveries. graphics and movements. Computer peripherals can be any input devices. The principal system software is known as the operating system. routes. sound. Major types of computer systems are personal computers. Logic unit. minicomputers. e. an application that schedules. Data for shortterm use is stored in primary storage. Larger firms often develop their own application software or customize Page 37 . Data is stored in the storage system for short-term or long-term use. and other system resources and provides a systematic and consistent means for controlling the computer. image based and graphics-based output devices. mainframe computers. Primary storage. many of these programs are sold as ready-to-use packages. magnetic or optical disks. The Central Processing Unit can be subdivided into following components: Control Unit. keyboard. Output from computer is achieved through a variety of output devices. Examples include general-purpose spreadsheet and word processing programs. files. 2) Computer Peripherals: Computer peripherals are devices other than Computer. Computers are now able to capture data from multipLe media: Character based data. All software are essentially programs. most commonly via a graphical user interface (GUI). as well as ―vertical‖ applications that serve a specific industry segment—for instance. It manages the hardware. Computer software falls into two broad classes: system software and application software. output device or storage device. Registers. monitor. Special devices are used depending on type of data being captured. d.b.g. f. Processing subsystems is known as the Central Processing Unit (CPU). e. Application software is programs designed to handle specialized tasks. printer. Storage subsystem is used to store the processed data. A program is a sequence of instructions given to a computer.
This is special type of software used to enable intercommunication between different computing devices in a network.ie activities at hardware and all programs running on the computer system. System software acts as an interlace between application software and hardware.g. communication software and application software. C. enterprise resource planning software. controlling input and output to programs also managing files on secondary storage. The operating system undertakes tasks such as scheduling the running of programs. B. ii.g. have begun to rent specialized application software on a per-use basis over the Web. This forms the software architecture at some information system. System software refers to that collection of programs which coordinate . Application Software: a. Application software can be distinguished in terms of the number of people that use of software: i. known as application service providers (ASPs). Workgroup Software (Groupware): This software is designed to be used across the major part of the organization or the entire enterprise e. This is the piece of software that supervises the running of all other programs on some hardware. One most important type of system software is the operating system. System Software: a.system software. Some companies. word processing package. accounting software. b. A. Personal productivity Software: This is a software that is designed for individual use e. Page 38 . Types of Software: Three major levels of software are . Communication Software: a. Software application or application system is normally written using some language or tool set and designed to perform a particular set at tasks for some oganization.existing packages to meet specific needs. b.
bus networks. A database is a collection of interrelated data (records) organized so that individual records or groups of records can be retrieved that satisfy various criteria.Databases Databases are most important component of information system. and often within different organizations. The Internet is a network of networks. WAN. Anyone who has ever purchased something with a credit card—in person. or over the Web—is included within some of the numerous customer databases. Through networking. Various forms of data are alphanumeric data. Telecommunications network provide the telecommunication structure used to transmit data from one site to another. depending on the needs of an organization. connecting millions of computers located on every continent. Data is the basic raw material for information system. Wide area networks (WANs) connect machines located at different sites. Various computer network configurations are possible. or network. Many information systems are primarily delivery vehicles for databases. networks can be described in terms of their technology and coverage e. processors. transmission media and communication software. Telecommunications are used to connect. Particularly valuable are customer databases that can be ―mined‖ for information in order to design and market new products more effectively. audio data. LAN. such as large databases.g. Network Resources A network is any set of Computer systems joined by some communications technology. text data. Data has to he represented in specific manner (data structuring) for storage and manipulation by Computer hardware and software also for transmission by communication network. computer systems and transmit information. personal computer users gain access to information resources. image data. Telecommunications network consists of computers. Local area networks (LANs) join computers at a particular site. such as an office building or an academic campus. Effective data structuring will benefit all end users in organization. switches. MAN and ring. and Page 39 . Typical examples of databases include employee records and product catalogs. star. by mail order.
operating. Typically used communications networks are Internet. Various types of telecommunication devices are used in communication networks. co-axial cable. such as coworkers and people who share their professional or private interests. microwave transmission. These people may be end user or information system specialists. people (end user specialists) hardware (Computer. For example. multiplexers. processor). Hundreds of millions of people around the world are learning about information systems as they use the Web. In addition. workers in an organization must be trained to utilize the capabilities of information systems.g. intranet and extranets. and computer operators. Qualified people are a vital component of any information system.to human resources. systems analysts and designers. for example. modem. modems. A telecommunication device is a hardware set that allows electronic communication to occur. software (control software. B. Network Support: Network support includes all resources that support the operation and use of communication networks e. Technical personnel include development and operations managers. procedures need to be established to run a payroll 40 . infrared transmission. People Resources For proper operation of information system people resources are required. (I) Communication Media (ii) Network Support A. computer programmers. fiber optic cable. Communication Media: Various telecommunication media can be employed for transmission of data in communication networks: twisted pair cable. Network resources may be classified into two segments. operating system software). and maintaining an information system are part of its documentation. Page Procedures for using. front end processors.
doctor. who is authorized to run it. System analysts! specialists must design the information as per the requirements of end-user. End user are also called as clients. End-user: End users are people who uses information system. accountant or shopkeeper also an individual. Information system user may be any professional like engineer. and who has access to the output. B. The information system resources and their contents are summarized Page 41 . salesman. SystemSpecialists: System specialists are people who develop and operate information systems. The information products should fulfill the need of end-users.program. A. including when to run it. Information system specialists include system analysts programmers and administrators.
in table Page 42 .
Administrative/ tactical c. Transportation E.e. Information b. Information System is classified according to the role it plays i. Basis of classification: A. By usage a. Transaction processing b. Financial c. By resources a. By type of processing a. Distribution c. Marketing In business organization. By application a. Batch b.Classification of Information system Information system can be classified into various ways. These can be further divided into few categories: Page 43 . Serials e. Management Information c. Planning and Control/ Strategic Planning B. operation support systems and management support systems. Manufacturing b. Decision support D. Online / Real time c. Banking f. Marketing d. Distributed C. Personal d. Operations b. By function a.
For example.by information system for the use of end user. marketed. produced. This involves sending orders to the firm’s Page 44 . In today’s leading organizations. the information systems that support various functional units—marketing. or value chain. production. ERP systems support the entire sequence of activities. and delivered. Variety of information products (reports) are to be generated from Internal and external users. These systems accumulate information in databases that form the foundation for higher-level systems. At the operational level are transaction processing systems through which products are designed.Operations Support Systems In business organization the data generated is processed . through which a firm may add value to its goods and services. Such a system is called Operations support system. an individual or other business may submit a custom order over the Web that automatically initiates ―just-in-time‖ production to the customer’s exact specifications through an approach known as mass customization. finance. and human resources—are integrated into what is known as an enterprise resource planning (ERP) system.
Suppliers can also access a retailer’s inventory database over the Web to schedule efficient and timely deliveries. This includes all of the various firms involved in designing. and securities trading. as an infrastructure for electronic commerce is emerging on a global scale.warehouses and suppliers to deliver materials just in time for a custom-production run. Along with helping to integrate a firm’s own value chain. educational services. Thus. control industrial process. purchasing an item at a Wal-Mart store generates more than a cash register receipt. marketing. movies. interorganizational information systems are essential to supply-chain management. support communications and to update corporate databases. price discovery (for example. transaction processing systems can also serve to integrate an organization’s overall supply chain. music. financial accounts are updated accordingly. and billing is initiated. Yet other systems serve to support the search for products with desired attributes. and delivering the goods and services—from raw materials to final delivery. Among these are systems for on-line shopping. banking. Process Control System (PCS) 3. Finally. and entertainment on demand. producing. For example. A growing array of specialized services and information-based products are offered by various organizations on the Web. Three major types of operations support systems are 1. or greeting cards). it also automatically sends a restocking order to the appropriate supplier. Operations Support System is employed for efficient processing of business transactions. Other systems deliver information. via an auction). and delivery of products in an electronic form (software. Enterprise Collaboration System (FCS) - Page 45 . Many transaction processing systems support electronic commerce over the Internet. Transaction Processing Systems (TPS) 2.
modifies and retrieves the data transactions of an enterprise. a TPS will exhibit the following characteristics: Rapid Processing The rapid processing of transactions is vital to the success of any enterprise – now more than ever. TPS systems must be designed to ensure that not only do transactions never slip past the net. TPS systems are designed to process transactions virtually instantly to ensure that customer data is available to the processes that require it. but that the systems themselves remain operational permanently. Transaction processing systems offer enterprises the means to rapidly process transactions to ensure the smooth flow of data and the progression of processes throughout the enterprise. has become a vital part of effective business management. in the face of advancing technology and customer demand for immediate action.Transaction Processing Systems (TPs) A Transaction Processing System (TPS) is a type of information system that collects. therefore. led by such organisations as the Association for Work Process Improvement and the Transaction Processing Performance Council. A transaction is any event that passes the ACID test in which data is generated or modified before storage in an information system Features of Transaction Processing Systems The success of commercial enterprises depends on the reliable processing of transactions to ensure that customer orders are met on time. TPS systems are therefore designed to Page 46 . Reliability Similarly. and that partners and suppliers are paid and can make payment. The field of transaction processing. customers will not tolerate mistakes. stores. Typically.
TPS interfaces are designed to acquire identical data for each transaction. access must be restricted to only those employees who require their use. when a fund Page 47 Isolation . These measures keep the failure rate well within tolerance levels. For example. Standardization Transactions must be processed in the same way each time to maximize efficiency. Controlled Access Since TPS systems can be such a powerful business tool. The ACID tests refers to the following four prerequisites: Atomicity Atomicity means that a transaction is either completed in full or not at all. If an integrity constraint states that all transactions in a database must have a positive value. Transactions must appear to take place in isolation. it does not qualify as a transaction. any transaction with a negative value would be refused. Consistency TPS systems exist within a set of operating rules (or integrity constraints).incorporate comprehensive safeguards and disaster recovery systems. regardless of the customer. transactions made by the system must pass the ACID test. Transactions Processing Qualifiers In order to qualify as a TPS. if funds are transferred from one account to another. Restricted access to the system ensures that employees who lack the skills and ability to control it cannot influence the transaction process. TPS systems ensure that transactions take place in their entirety. this only counts as a bone fide transaction if both the withdrawal and deposit take place. For example. To ensure this. If one account is debited and the other is not credited.
transfer is made between two accounts the debiting of one and the crediting of another must appear to take place simultaneously. The funds cannot be credited to an account before they are debited from another. Durability Once transactions are completed they cannot be undone. To ensure that this is the case even if the TPS suffers failure, a log will be created to document all completed transactions. These four conditions ensure that TPS systems carry out their transactions in a methodical, standardised and reliable manner.
Types of Transactions
While the transaction process must be standardised to maximise efficiency, every enterprise requires a tailored transaction process that aligns with its business strategies and processes. For this reason, there are two broad types of transaction:
Batch Processing Batch processing is a resource-saving transaction type that stores data for processing at pre-defined times. Batch processing is useful for enterprises that need to process large amounts of data using limited resources. Examples of batch processing include credit card transactions, for which the transactions are processed monthly rather than in real time. Credit card transactions need only be processed once a month in order to produce a statement for the customer, so batch processing saves IT resources from having to process each transaction individually. Real Time Processing In many circumstances the primary factor is speed. For example, when a bank customer withdraws a sum of money from his or her account it is vital that the transaction be processed and the account balance updated as soon as possible, allowing both the bank and customer to keep track of funds.
Components of TPS There are several types of transaction processing systems. Likewise, TPS in a Manufacturing firm can be: TPS Sales Cash Accounts receivables Cost accounting Materials inventory Plant and machinery Engineering Personnel Purchase Marketing Research Typical Transactions Sales order, Sales return Cash receipts Credit sates, credit slips Accounting for labour and material used in production Materials receipts & delivery Depreciation, additions & dispositions Engineering systems New employees. promotions, Transfers Purchase orders Consumer Survey results
Process Control System (PCS)
Operations Support System is also used to control operational processes by making suitable decisions. The inCormation System that helps to control operational process is called Process Control System. It helps to control production process by taking decisions automatically by Computers. Typical example of process control system is chemical process for measuring level. The chemical process is monitored by electronic sensors attached to computer system.
The Computer monitors the process capture the process data sensed by sensors and
takes suitable decisions.
Enterprise Collaboration System (ECs)
• Enterprise Collaboration System is a type of information system that uses different information technologies to help people so that they can work together. • Enterprise collaboration system helps to communicate data, share resources. In a business organization ECs uses information technology to improve productivity and creativity of teams. Different workgroups of internal and external members may be formed for improvement and new product development. They can make use of Internet, intranet and extranets also collaboration software known as groupware may be used. For more efficient way of communication data and video conferencing may be employed.
Management Support Systems
Management support system helps managers in effettive decision making by providing information in required format. In an organization, management information system (MIS) is used for efficient and effective data processing. There are two important reasons of using MIS. a) Management orientation - In business, the Mis emphasis the management orientation of information technology. A Computer based information system must not only process the data generated by business transaction but it should support in decision making. b) System Framework:. A system Framework must be used for organizing information system applications. Applications of information technology are interrelated and integrated computer based information system (CBIS). The figure shows this interrelated and integrated computer based information subsystem.
Different information system focuses on different areas of aspects of business organization.CBIS provides information and support to all levels of management in required form. Page 51 . Table shows important types of information systems and the area it is related to.
for managers. MIS provides information to the managers to help in routine decision making process. o Whenever sales target is not achieved or any sales person tails to produce sales report. o On demand o Periodically o Whenever exceptional conditions occur A Sales Manager can obtain information – o instantly about sales at his workstation o by accessing weekly sales report. from experts Information. users Management Information System (MIS) MIS is the most common type of management support system. for managers & end users Decision making. It uses internal data bases and transaction processing system to update the information.Types of Information System Management Information System Decision support system (DSS) Expert system (ES) Accounting Information System Area Information. Various information products are available in different forms. Page 52 . it can be generated on any at the following conditions. Sometimes data from external sources are also used. for managers Knowledge. It provides reports in different formats as desired by the managers.
53 . and the promotion expense—to the projected sales volume over the first five years on the market. Analytical modelling 2.Decision Support System (DSS) DSS is an improved form of information reporting system and transaction processing system (TPS). — DSS is an interactive computer based information system (CBIS) which uses specialized databases for decision making models. the manager can compare predicted results and select the most profitable selling price. such as a sales database for the present quarter. Data retrieval 4. in order to establish a selling price for a new product. DSS is also different than MIS because it does not provide information in prescribed form that is used for routine decisions. Managers are able to tailor the computer output to participate quality related problems. Decision support system has following features . a preprogrammed model is applied to a limited data set. Simulation 3. 1. By supplying different product prices to the model. Page All information systems support decision making. DSS provides information in interactive session on adhoc or temporary basis. the cost of goods. But DSS is different than TPS since it does not focuses on data generated by transactions Operations. In a model-driven decision support system. During a typical session. the sales manager may use a marketing decision support system. Such a system contains a preprogrammed model relating various factors—the price of the product. an analyst or sales manager will conduct a dialog with this decision support system by specifying a number of ―what-if‖ scenarios. The two principal varieties of decision support systems are model-driven and data-driven. For example. however indirectly. but decision support systems are expressly designed for this purpose. Information presentation capability.
It can be observed that top executives receives major information from non. Telephone calls and social activities.‖ in a process known as data mining. one can easily establish a pattern of discrimination. such as expert systems. Another category. Executive information system EIS. neural networks. Data-driven decision support systems include a variety of statistical models and rely on various artificial intelligence techniques. can help analyze and display data by using digitized maps. Executive receives the necessary information from letters. Examples of unstructured decision-making are selecting personnel and determining investment. geographic information systems. periodicals and by Computer System. . accumulated over long periods of time in ―data warehouses. such as sequences (buying a new house. A decision is unstructured it the decision making process can not be described in details. DSs and EIs generally are proposed for providing data in support of unstructured decision making. Data mining searches for significant patterns. By looking at a geographic distribution of mortgage loans. Other information sources are meetings. This may be because the problem has not arisen before. followed by a new dinner table) and clusters (large families and van sales). reports. An important category of decision support systems enables a group of decision makers to work together without necessarily being in the same place at the same time. memos. These group decision systems include software tools for brainstorming and reaching consensus. and intelligent agents. for example. with which decisions can be made. It is characterized by incomplete an uncertain knowledge or uses non-quantifiable data.computer sources. The objective of computer based executive information systems is to provide top management an easy access to selective information about firm's strategy EIS are easy to understand and operate.The primary objective of data-driven decision support systems is to analyze large pools of data. Page 54 Executive information system is a type of management information system. Executive Information System is a reporting application targeted for use by executives. EIs are designed to meet the strategic information needs of top level management.
Ease of use is an important feature so that enquiries can be made without a detailed knowledge of the underlying data structures. Tactical information system. Classification Based on Activities • Depending on activities of an organization information system can be classified into three types. Operational information system. Ad hoc enquiries provide performance data and trend analysis for top level management. Also EIs provides information to executives in easily usable formats or in graphical patterns. Senior managers characteristically employ many informal sources of information. For this. executive information systems give their users an opportunity to ―drill down‖ from summary data to increasingly detailed and focused information. however. Graphical interfaces (GUI) make it possible to request reports and queries without resorting to programming EIS provides information about current status and projected trends for certain important factors. Often relying on multiple media. and develop strategic directions for the future. 1. Page 55 . 2. senior and executive vice presidents. this assistance is important for the chief executive officer.EIS make a variety of critical information readily available in a highly summarized and convenient form. computerized information systems are of limited assistance. and the board of directors to monitor the performance of the company. 3. Nevertheless. these executives need to compare their organization’s performance with that of its competitors and investigate general economic trends in regions or countries for potential expansion. In particular. Strategic planning information system. so that formal. access for internal and external database is provided. assess the business environment. Executive Information Systems (EIS) provide high level views of an organization by aggregating data from various sources from within the organization and also external sources.
2. sales.1. These include expert systems. inventories. A. knowledge management systems. Strategic planning information system: Strategic planning systems arc designed for top level management. Top level management uses these information systems for long term organizational planning. Other classification of Information Systems Many different information systems are being used for either operations or management applications. accounts. Management uses the system for day to day operations e. transportation.Expert Systems Page 56 . Middle level management uses tactical system for monitoring and control operations and to allocate resources effectively. strategic management systems and business information systems. Operational Systems: Operational system is designed for Ievel managcment.g. 3. Tactical information system: Tactical systems are designed for middle level management.
creating new business knowledge and creating new business services or products.Unlike DSS. B. An expert system is also known as knowledge based system i. sciences. Prototyping is especially applicable to the development of an expert system. An expert system consists of four main components: a user interface a knowledge base an inference engine a development engine The knowledge base uses rules to express the logic of the problem that the expert system is designed to help solve. Expert system is being applied in various fields such as engineering. expert systems have the potential to extend a manager's problem solving ability beyond his or her normal capabilities. The development engine consists of either programming languages or prewritten inference engines called expert system shells. Artificial intelligence is applied in expert system. In todays competitive business environment companies are trying to become knowledge creating companies’ i. Tacit knowledge is clearly Page 57 .e. Knowledge Management system (KMS) Knowledge management system (KMS) are a group of information technologies used for managing knowledge within organizations. Such as reasoning. Heuristic is rule of good guessing.e. a computer program that attempts to represent the knowledge of human experts in the form of heuristics. The inference engine uses reasoning similar to human in processing the contents of knowledge base. This is essential in order to survive and to sustain in rapidly changing environment. medicines and in business. Artificial intelligence (AT) . KMS involves integrating tacit (stored in mind) with explicit (stored in database) knowledge. Knowledge is information in a network of relations with rules for the use of information.is the activity of providing computers within the ability to display behaviour that is regarded as intelligence observed in humans. learning and problem solving.
knowledge from books. Page 58 .understood knowledge in individual. knowledge from experience while explicit knowledge is process and procedures.
Existing system: Potential use of existing system for strategic advantage can be recognized. human resource management. Sources of SIS 1. Business Information system (BIS) The information systems required for smooth operations and management activities (accounting. They are systems that directly support organizational strategy and are critical elements of an organizations informatics strategy.making for Page 59 . 0SS. 1. New Technology: New developed technology can be adopted to get competitive advantage. SIS must not be owned by any one departmental but must belong to all departments. 2. The business information system provides variety of information products to the managers for decision . TPS. 2.e. D. Any type of IS can be strategic information system i. marketing) are business information systems. SIS must have support from top management. SISs are information systems that impact on competitive Position of the organization.C. SIS can be used to improve competitive advantage in terms of cost. 3. Essentials of SIS Essential of strategic information system are mentioned here . finance. 3. differentiation and location SIS generally have a short life .span because competitors soon replicate the system. Excess information: Excess information collected previously may turn out to be a source of strategic information. SIS must be a Part of strategic plan of the organization. MIS. Strategic Information System (SIS) A strategic information system (SIS) may be defined as any information system which directly assists on organization in achieving its organization strategy.
area wise sales etc. These functional roles are interrelated hence it is necessary to use cross functional information systems. Integrated Information Systems In real world application an integrated form of information systems are used. For example. E. sales order processing that is a operation support system and sales analysis which is marketing information system. target and individual Performance. Page 60 . Generally classification of information system is done as per their functional roles. These two information system are integrated information system. Marketing manager requires information about sales volume. Sales order processing data is input for sales analysis system.example.
but the portrayal of a business as a one large system showing the inter connections and the sequence of the business subsystem or processes that comprise it. The database is the source of information and drive the IS. The information system is developed to provide the required information to the organization to manage the processes that are part of the business model. The planning is accomplished from the top down while the implementation is from the bottom up.Business model The approach to information system is to first develop a business model comprised of the business processes or activities that are the essence of the business. B2C 3. C2C Page 61 . B2B 2. Based on business strategy and objectives. Examples for business model: 1. This is not the mathematical model. a business model comprised of business processes are managed and controlled by various organization.
Module 3 Page 62 .
Creating and maintaining such a complex infrastructure requires extensive planning and consistent implementation to handle strategic corporate initiatives. Views differ from components in the sense that they do not occur as a system on their own. mergers. When organized into a coherent whole. The variety of models describes different components (parts) and different views (aspects) of the system. the foundation consists of core telecommunications networks. Known as the information system infrastructure. such as the Internet. an organization’s long-term general strategic plans must be considered when designing an information system infrastructure and architecture. information systems frequently incorporate the use of general information and telecommunication utilities. transformations. Components are building blocks: a system can be constructed by gluing together the components according to some rules. In information systems the database (sub) system and user-interface (sub) system are examples of components and the Page 63 . databases. hardware. To illustrate this we consider the building industry. an organization’s infrastructure often crosses many national boundaries. management. Clearly. the specific information systems that support operations. Managed by various specialists. Each floor of a building can be seen as a different component and the water supply system or the electricity systems are examples of views. Owing to business globalization. and acquisitions. and procedures. The latter systems are realized in parts that belong to components. and knowledge work constitute the system architecture of an organization. Architecture We define architecture of a system as a set of related models that describe the essentials of a system.Information system infrastructure and architecture A well-designed information system rests on a coherent foundation that supports modifications as new business or administrative initiatives arise. software.
So we divide the architecture of an information system into four levels: 1. the set of states the systems might be in).g the database management system. We distinguish between static models and dynamic models. the workflow engine and the connectivity software (middleware) 4. Functional architecture. Each of these views can be split into parts. A computer and communications network together with their operating systems In case of a system that is implemented on a stand alone computer the network architecture is trivial: just one node.e.structure of the communication and data are two examples of views. Business architecture. a functional view and a technical view. The technical view is split into a software view and a network view. Business processes and the object classes that play a role considered from the perspective of the information system 2. The models architecture consists of may be of different type. In some other life cycle models the business architecture is considered to be part of the requirements analysis. the possible sequences of transitions a system can make. The logical decomposition of the system into (logical) components and the assignment of processes and object classes to these components 3. i. A verbal description can be a model. Software architecture. which means that these systems can be viewed as transition systems that have a (finite or countable infinite) state space and that make transitions through that state space at discrete points in time. Static models describe the structure of a system or the state space (i. Informal models have a (often sloppy) syntax and an intuitive semantics.e. Information systems are a discrete dynamic system. We distinguish informal and formal models. Formal models have besides a syntax Page 64 . Usually we distinguish several standard views of a system: a business view. like verbal models and many diagram techniques. all sorts of diagrams can be models and a set of mathematical or logical formulas can be a model. In our life cycle we recommend that all architecture is designed in the second phase. Software components that realize the functional architecture. Network architecture. e. Dynamic models describe the behavior of the system.
by means of experiments with the system itself or with a model of the system. One simple but important consistency property is that a model is syntactically correct. "Consistency" means that all models are consistent internally and that they do not imply any contradiction or conflict when they are put together. Formal models are meant for systems engineers. These properties should be checked by testing methods. The simulation model is supposed to behave as the modeled system.e.g. There are modeling tools that can generate a simulation model from a description of the modeling framework. programmers and for software tools that are able to analyze or interpret the models. e. It is well-known that the cost of correction of errors increases with the discovery in later stages of development. Informal models are used in communications with stakeholders of a system (persons who have some say in the development of the system. We call the checking of properties by means of testing: validation. The combination of a modeling syntax and a formal semantics is called a modeling framework. A practical test for completeness is that from the set of models the external behavior of the system is fully defined and that a simulation model of the system can be generated and tested in the environment where the real system should operate. such as the response times and scalability. i. An example of a property that can not be verified by formal methods is "user friendliness" of a system. A more advanced consistency property that is often required is that the systems are free of deadlocks. For the verification of the consistency and completeness we have several formal methods. With completeness. We mean that all models together provide sufficient information for constructing a system with the same functionality as the modeled system. Note that in general the simulation model is not the same as the real system because the simulation model captures only the functional requirements of a system and not necessarily the non-functional requirements. Mathematical and logical formulas are examples of formally models. Therefore it is important to try to verify and validate a system as much as possible in the design stage. Internal consistency should be defined in terms of the modeling framework. In Page 65 . potential users). Architecture should have two important properties: consistency and completeness. The architecture is a base for verification.a formal defined semantics. Although the quality and scope of these methods are increasing rapidly there are many properties that can not be verified in a formal way.
this course we focus on a particular way of verification: correctness by construction. Page 66 . This method is not a panacea for all verification issues. In this approach we construct models using predefined patterns from which it is known that they imply correct behavior. However a nice feature of this approach is that it does not require searching the state space but only the diagrams of the models. System architecture is the base for the development of the software and for the maintenance of a system.
and maintaining information systems for the entire organization. Electronic funds transfer systems (EFTS) handle immense amounts of money that exist only as electronic signals over telecommunications lines or as magnetized spots on computer disks.Organization of information services An information services unit is typically in charge of an organization’s information systems. the very fabric of societies often depends on this security. a variety of intermediate organizational forms are possible. Additionally. The activities of information services are usually supervised by a steering committee. consisting of the executives representing various functional units of the organization. Most organizations in developed countries are dependent on the secure operation of their information systems. As described in the next section. Where information services are centralized. operating. while business and administrative specialists provide systems and services for their own units. In decentralized structures the central unit is responsible only for planning and maintaining the infrastructure. Information systems are vulnerable to a number of threats. which require strict controls as countermeasures and regular audits to ensure that the system remains secure. Information systems are at the heart of intensive-care units and air-traffic-control systems. Financial institutions could not survive a total failure of their information systems for longer than a day or two. information systems are headed by a chief information officer (CIO). In fact. acquiring. Information systems security and control. a vital responsibility of information services is to ensure uninterrupted service in the face of many security threats. this unit is responsible for planning. Information systems security and control Information systems security Information systems security is responsible for the integrity and safety of system resources and activities. In many organizations. The relationship between security measures is shown in the figure Page 67 .
logic bombs. often introduced with the Trojan horse technique. yet it involves some unethical use of a computer. Impersonation. involves gaining access to a system by impersonating a legitimate user—a feat that usually requires knowing or guessing a legitimate user’s password. Trojan horse attack. human error is estimated to cause greater losses in information systems operation. Computer abuse does not rise to the level of crime. A contingency scheme is also necessary to cover the failure of corporate servers or telecommunications networks. and fires are the particular concern of disaster recovery planning. Although instances of computer crime and abuse receive extensive media attention. Disasters such as earthquakes. at which time the instructions are activated. which is a part of a corporate business continuation plan.. as the name implies. Some of the more widespread security threats related to computer crime or abuse include impersonation. Computer crime and abuse Computer crime—illegal acts in which computers are the primary tool—costs the world economies many billions of dollars annually. the malefactor conceals unauthorized instructions within an authorized program. a programmer placed a logic bomb in his company’s Page 68 . In one well-known case. floods. and computer viruses and worms. In a Trojan horse attack. A logic bomb consists of hidden instructions. that stay dormant until a specific event occurs.
Information systems are safeguarded through a combination of general and application controls. The most important general controls are the measures that control access to computer systems and the information stored there or transmitted over telecommunications networks. when his name was later deleted from the company’s employee database. Users. General controls apply to information system activities throughout an organization. General controls include administrative measures that restrict employee access to only those processes directly relevant to their duties. and ensuring that information is disseminated only to authorized users. Application controls are specific to a given application and include such measures as validating input data. as well as interlopers. Fault-tolerant computer systems installed in critical environments. Securing information Controlling access to information systems became profoundly more difficult with the spread of wide area networks (WANs) and the Internet. the entire database was erased.human resources system. Computer viruses are a particularly common form of attack. may access systems from any unattended computer within an Page 69 . from which they may spread to other computer systems. These are program instructions that are able not only to perform malicious acts but also to insert copies of themselves into other programs and e-mail and onto diskettes placed in the ―infected‖ personal computers. these controls limit the damage that any individual employee or employee impersonator can do. Similar to viruses. Information systems controls To ensure secure and efficient operation of information systems. such as in hospital information systems or securities marketplaces. As a result. are designed to control and isolate problems so that the system can continue to function. regularly archiving copies of various databases. worms are complete computer programs that replicate through telecommunications networks. an organization institutes a set of procedures and technological measures called controls.
It is a part of a more general financial audit that verifies an organization’s accounting records and financial statements. In other words. Many systems combine these types of measures—such as automatic teller machines. hand geometry. or signature). retinal pattern. One security measure is to require some form of physical authentication. For example. Security measures placed between an organization’s internal network and the Internet are known as firewalls. Similar means are available to ensure that parties to an electronic exchange cannot later repudiate their participation. which rely on a combination of a personal identification number (PIN) and a magnetic-strip identification card. Information systems audit The effectiveness of an information system’s controls is evaluated through an information systems audit. Some messages require additional attributes. A type of antitampering code can also be attached to a message to indicate interception or corruption. authentication of both parties in an electronic transaction is possible through the use of digital signatures—an additional code attached to the message to verify its origin—and by digital certificates issued to both parties by a trusted third party. Furthermore. Another common security measure is to assign a unique password to each legitimate user. and sometimes encryption is used to ensure the purchaser’s anonymity. only the intended addressee has the key needed to decrypt messages. To ensure confidentiality. A different way to prohibit access to information is via data encryption.organization or from virtually anywhere over the Internet. an audit trail must exist that can establish where each transaction originated and how it was processed. such as an object (a key or a smart card) or a personal characteristic (fingerprint. Impacts of information systems Page 70 Organizational impacts of information systems . electronic cash is a type of message as well. operational audits are used to evaluate the effectiveness and efficiency of information systems operations. Information systems are designed so that every financial transaction can be traced. Aside from financial audits. which has gained particular importance in electronic commerce.
Information systems bring new options to the way companies interact, the way organizations are structured, and the way workplaces are designed. In general, use of network-based information systems can significantly lower the costs of communication among workers and firms and enhance coordination on collaborative projects. This has led many organizations to concentrate on their core competencies and to outsource other parts of their value chain to specialized companies. The capability to communicate information efficiently within a firm has also led to the deployment of flatter organizational structures with fewer hierarchical layers. Nevertheless, information systems do not uniformly lead to higher profits. Success depends on both the skill with which information systems are deployed and the availability of other assets. In particular, ―virtual‖ organizations have emerged that do not rely on physical offices and standard organization charts. Two notable forms are a network organization and a cluster organization. In a network organization, long-term corporate partners supply goods and services to and through a central firm. Together, a network of small companies can present the appearance of a large corporation. Indeed, at the core of such an organization may be nothing more than a single entrepreneur supported by only a few employees. Thanks to information systems, product specifications in an electronic form can be modified during computerized video conferences between employees throughout an organization—after which supplies can be secured and distribution coordinated, using automatic electronic forms as sales orders are received. Wide area networks, and the Internet in particular, help partnering organizations to facilitate the interaction of widely dispersed business units. In a cluster organization, the principal work units are permanent and temporary teams of individuals with complementary skills. Team members, who are often widely dispersed around the globe, are greatly assisted in their work by the use of corporate intranets and groupware. Information systems built around portable computers, mobile telecommunications, and groupware have enabled employees to work not just outside the corporate offices but virtually anywhere. ―Work is the thing you do, not the place you go to,‖ has become the slogan of the emerging new workplace. Virtual workplaces include
home offices, regional work centres, customers’ premises, and mobile offices of people such as insurance adjusters. Employees who work in virtual workplaces outside their company’s premises are known as telecommuters.
Information systems in the economy and society
Along with the global transportation infrastructure, network-based information systems have been a factor in the growth of international business and corporations. Although studies have yet to show a relationship between the deployment of information systems and higher productivity, it is widely believed that such a relationship exists. In addition to investing in other information systems, a large and growing number of organizations have embraced electronic commerce over the Internet. As the use of information systems has become pervasive in advanced economies and societies at large, several ethical and social issues have moved into the forefront. The most important are issues of individual privacy, property rights, universal access and free speech, information accuracy, and quality of life. Individual privacy involves the right to control personal information. While invasion of privacy is generally perceived as an undesirable loss of autonomy, government and business organizations do need to collect data in order to facilitate administration and exploit marketing opportunities. Electronic commerce presents a particular challenge to privacy, as personal information is routinely collected and disseminated in a largely unregulated manner. Preventing abusive invasions of privacy is complicated by the lack of an international legal standard. Intellectual property, such as computer software, books, music, and movies, is protected, albeit imperfectly, by patents, trade secrets, and copyrights. However, such essentially intangible goods can be easily copied and transmitted electronically over the Web for unlawful reproduction and use. Combinations of legal statutes and technological safeguards, such as antipiracy encryption and electronic watermarks, are emerging. Access to public information systems, such as the World Wide Web, is increasingly necessary for full participation in modern society. In particular, it is necessary to avoid the emergence of ―digital divides‖ between nations and between
social and ethnic groups. Open access to the Internet as a medium for human communication and as a repository for shared knowledge is treasured. Indeed, many people consider free speech a universal human right and the Internet the most widely accessible means to exercise this right. Yet legitimate concerns arise about protecting children without resorting to censorship. Technological solutions, such as software that filters out pornography, are partially successful. Of concern to everyone is the accuracy and security of information contained in databases—whether in health and insurance records, credit bureau records, or government files—as misinformation can adversely affect personal safety, livelihood, and everyday life. Individuals must cooperate in reviewing and correcting their files, and organizations must ensure appropriate access to and use of such files. Information systems have affected the quality of personal and working lives. In the workplace, information systems can be deployed to eliminate tedious tasks and give workers greater autonomy, or they can be used to eliminate jobs and subject the remaining workforce to pervasive electronic surveillance. Consumers can use the Internet to comparison shop for everything from manufactured goods to financial services or even to participate in auctions—but at the cost of contending with spam (unsolicited e-mail), intercepted credit card numbers, and malicious computer viruses. Information systems can expand participation by ordinary citizens in government through electronic elections, referendums, and polls and also provide electronic access to government services and information—permitting, for instance, electronic filing of taxes, direct deposit of government checks, and distant viewing of current and historical government documents and photographs. Yet information systems have also conjured Orwellian images of government surveillance and intrusion into private lives. It remains for society to harness the power of information systems by strengthening legal, social, and technological controls.
Risks Associated With MIS Risk reflects the potential. Management decisions based upon ineffective. completeness. summarize results. Since management requires information to assess and monitor performance at all levels of the organization. market/pricing. Timeliness To simplify prompt decision making. interest rate. or foreign currency. and interdependent feedback tool for management and staff. MIS risk can extend to all levels of the operations. or other compliance-related activities. consumer." The five elements of a useable MIS system are: timeliness. Management uses MIS to help in the assessment of risk within an institution. MIS must be "useable. Assessing Vulnerability to MIS Risk To function effectively as an interacting. Additionally. and relevance. fair lending. and be able to adjust and correct errors promptly. interrelated. liquidity. Information systems should be designed to expedite reporting of information. Bank Secrecy Act. consistency. The system should be able to quickly collect and edit data. inaccurate. Accuracy Page 74 . accuracy. poorly programmed or non-secure systems in which data can be manipulated and/or systems requiring ongoing repairs can easily disrupt routine work flow and can lead to incorrect decisions or impaired planning. or the expectation of events that could adversely affect earnings or capital. A flawed MIS causes operational risks and can adversely affect an organization's monitoring of its fiduciary. the likelihood. an institution's MIS should be capable of providing and distributing current information to appropriate users. The usefulness of MIS is hindered whenever one or more of these elements is compromised. or incomplete MIS may increase risk in a number of areas such as credit quality.
Reports should be designed to eliminate clutter and voluminous detail. Page 75 . and should include an effective monitoring system. and internal control checks. clearly communicated to appropriate employees. because data collection and reporting processes will change over time. executive management. or too detailed for effective decision making has no value. The relevance and level of detail provided through MIS systems directly correlate to what is needed by the board of directors. departmental or area mid-level managers. Building "ownership" promotes pride in institution processes and helps ensure accountability. An "owner" is a system user who knows current customer and constituent needs and also has budget authority to fund new projects. balancing. Information should receive appropriate editing. Achieving Sound MIS The development of sound MIS is the result of the development and enforcement of a culture of system ownership. Variations in how data is collected and reported can distort information and trend analysis. thereby avoiding "information overload. MIS must be appropriate to support the management level using it. in the performance of their jobs. In addition. unnecessary. Completeness Decision makers need complete and pertinent information in a summarized form.A sound system of automated and manual internal controls must exist throughout all information systems processing activities. Consistency To be reliable." Relevance Information provided to management must be relevant. Information that is inappropriate. A comprehensive internal and external audit program should be employed to ensure the adequacy of internal controls. etc. data should be processed and compiled consistently and uniformly. management must establish sound procedures to allow for systems changes. These procedures should be well defined and documented.
Management also should ensure that managers and staff receive initial and ongoing training in MIS. and task organization. Without the development of an effective MIS. • Program development and negotiation of contracts with equipment and software vendors. Management should also consider use of "project management techniques" to monitor progress as the MIS system is being developed. Management needs to ensure that MIS systems are developed according to a sound methodology that encompasses the following phases: • Appropriate analysis of system alternatives.and long-range planning efforts. MIS which meets the five elements of useability is a critical ingredient to an institution's short. This may result in an adverse impact on earnings and/or capital. Erroneous decisions invariably misallocate and/or waste resources. at a tactical level MIS systems and report output should support the annual operating plan and budgetary processes. it is more difficult for management to measure and monitor the success of new initiatives and the progress of ongoing projects. user manuals should be available and provide the following information: Page • A brief description of the application or system. training. • Development of user instructions. the organization's planning process should include consideration of MIS needs at both the tactical and strategic levels. Two common examples of this would be the management of mergers and acquisitions or the continuing development and the introduction of new products and services. To achieve sound MIS. approval points as the system is developed or acquired. will lessen the probability that erroneous decisions will be made because of inaccurate or untimely information. the development of meaningful systems.Although MIS does not necessarily reduce expenses. In addition. and their proper use. and testing of the system. They should also be used in support of the long term strategic MIS and business planning initiatives. • Installation and maintenance of the system. Internal controls must be woven into the processes and periodically reviewed by auditors. For example. 76 .
unit managers. • Balancing and reconciliation procedures. an institution may need to use different manuals for different users such as first-level users. • A complete listing of output reports.• Input instructions. including samples. and programmers. Depending on the size and complexity of its MIS system. including collection points and times to send updated information. Page 77 .
Module 4 Page 78 .
A brief look at some of the "Greatest Management Decisions" as described in 1988 by Management Review. The module not only summarizes management decision as a function of time span. Making Decisions: Decision Process Collect Data Identify Problems & Opportunities Make Choices Decision behaviour: Stage Intelligence Activities Awareness of problem Awareness that a decision must be made Page 79 .Decision Making Decision making is the process of choosing alternatives to achieve a desired goal. can use similar tools in the decision making process. but also implies that evaluation of a given scenario may be a function of our position in the management structure. information characteristics and structure. may provide context to the decision making disciplines involved. an individual professional faces a similar environment. According to Hebert Simon (1977. The New Science of Management Decision) managerial decision making is synonymous with the whole process of management. Given the Information Age.
or quantitative method.Design Identify all possible solutions Examine possible solutions Examine implications of possible solutions Choice Implementation Evaluation Select best solution Implement solution Evaluate effectives/success of decision Decision Types: Programmed decisions A decision made using a rule. procedure. Easy to computerize using traditional information systems Non-programmed decisions decisions that deal with unusual or exceptional situations Not easily quantifiable Problem Solving Approaches: Page 80 Optimization Model .
we can rarely evaluate all outcomes with sufficient precision. find the best solution. He pointed out that human beings lack the cognitive resources to maximize: we usually do not know the relevant probabilities of outcomes. usually the one that will best help the organization meet its goals Satisficing Model find a good (but not necessarily the best) solution to a problem The word satisfice was coined by Herbert Simon. and our memories are weak and unreliable. Heuristics: Commonly accepted guidelines or procedures that usually find a good solution Decision characteristics: Management Decision level type Strategic Tactical Operational Timescale Impact Decision frequency Infrequent Unstructured Long Both Structured Medium Short Large Medium Both Page Small Frequent 81 .
and Knowledge: Data: raw facts Information: collection of facts organized in such a way that they have value beyond the facts themselves Knowledge: awareness and understanding of a set of information and ways that information can be made useful to support a specific task or reach a decision Data Manipulation: Data is manipulated to make useful information A survey is a common method of collecting data Raw data is hard to read Information is more useful to business than data Generating Information: A process: Is manipulation of data Usually produces information Page 82 May produce more data and often useless . Information.Data.
A piece of information in one context may be considered data in another context Page 83 .
not every one is going to be made using these tools. How does a team select the right tool to use? Try Multivoting if you need to: o Reduce a long list of ideas and assign priorities quickly and with a high degree of team agreement o Identify the important items on a list Try Nominal Group Technique if you need a more structured approach to: o Generate. problems. and evaluate a sizable list of ideas. Of those decisions that are made by teams. Because Multivoting provides a quick and easy way for a team to identify the most popular or highest Page 84 . clarify. When should a team use Multivoting? Use Multivoting whenever a Brainstorming session has generated a list of items that is too extensive for all items to be addressed at once. Multivoting and Nominal Group Technique help to identify the important or popular items or prioritize the items on a list NOTE: It is important to remember that not all decisions are made in a team situation.Decision-Making Tools Two tools frequently used by teams to make decisions are Multivoting and Nominal Group Technique. While idea-generating tools such as Brainstorming produce a list of possible alternatives. or issues o Prioritize the items on a list What is Multivoting? Multivoting is a group decision-making technique used to reduce a long list of items to a manageable number by means of a structured series of votes The result is a short list identifying what is important to the team.
If the team has 6 to 15 members. each person should choose the 20 items (one third of the total) he or she thinks are most important.priority items on a list—those that are worthy of immediate attention—this tool can be helpful when you need to. Scholtes. Retain the items with the most votes for the next round of voting. What are the procedures for Multivoting? Follow these steps to conduct Multivoting: Step 1 . Identify the important or popular items on a large list. with limited discussion and little difficulty. depending on the size of the group: If the team has 5 or fewer members. Place a checkmark next to each item for each vote it received.Work from a large list of items developed by Brainstorming or another appropriate idea-generating technique. if there are 60 items. eliminate those items that receive 2 or fewer votes.Tally the votes. Each team member may cast only one vote per idea and must cast all allotted votes. Step 2 .Vote Each team member selects the most important one-third (or no more than one half of the items) by listing the letters which appear next to those items. Voting may be done either by a show of hands or by paper ballot when the team chooses to preserve confidentiality. Step 4 .Assign a letter to each item to avoid confusion of item designations with the vote tally. Prioritize a large list without creating a situation in which there are winners and losers in the group that generated the list. in The Team Handbook provides the following Rule of Thumb for deciding how many items to eliminate in each round. For example. Reduce a large list of items to a workable number quickly. Page 85 . Step 3 . eliminate all items that receive 3 or fewer votes.
let's walk through an example adapted from the U. eliminate all items that receive 4 or fewer votes.Repeat. Step 5 . Air Force Process Improvement Guide. The XO led a Brainstorming session which produced the following list: Page 86 . Never multivote down to only one item. each person again selects the top one-third of the items. The XO called a meeting to identify the reasons for the lack of meeting productivity and to determine which reasons the team thought most important. In the second round.If the team has more than 15 members. The items that were not identified as priorities should be retained as backup data or for future use by the team in its improvement efforts. Repeat steps 3 and 4 until only a few items remain. But first. EXAMPLE: Members of a Command's Planning Board for Training conducted meetings which were not always as productive as they might have been. How can our team practice Multivoting? Three exercises that will enable teams to practice this tool are on the following pages.S.
and the top 8 items were carried forward to the second round. Going off on tangents F. as shown in Viewgraph 6. No agenda B. No clear objectives D. Meetings extended beyond from meeting allotted time M. Vital members missing L. Interrupted by visitors I. G. No administrative support K. Too much "dog and pony" P. The votes were tallied. Extraneous topics H. Members distracted by for meetings pressing operations O. The group chose to focus on problems F.Lack of Meeting Productivity A. Few meaningful metrics G. Too many "sea stories" J. Problems not mentioned C. H. Page 87 . Unclear charts The team used Multivoting to reduce this list to a manageable size: Each of the 6 members of the team was allowed 8 votes (half the number of items). Not enough preparation N. Interrupted by phone calls E. and J. The items that had 4 or more votes in the first round were reduced to 4 in a second round of voting.
What Is Nominal Group Technique? Page 88 .
Nominal Group Technique, or NGT, is a weighted ranking method that enables a group to generate and prioritize a large number of issues within a structure that gives everyone an equal voice (Viewgraph 12). The tool is called nominal because there is limited interaction between members of the group during the NGT process.
When should a team use NGT?
When a team needs to create a list of options and rank them, using NGT effectively neutralizes the domination of the loudest person, or the person with the most authority, over the decision-making process. This tool can also help a team achieve consensus about the relative importance of issues. The final result may not be everyone's first priority, but they can live with it. NGT is a good tool to use when dealing with controversial or emotional issues, or when a group is stuck. It is particularly useful when you need to: Reduce the number of issues for easier handling. Get input from all team members. Rank items in priority order.
What are the procedures for NGT?
NGT is a facilitated process that has two parts. The following description of how to conduct an NGT session is adapted from The Team Handbook: NGT PART I - The issue is defined and the team generates ideas. Introduce and clarify the issue to be addressed by the team. Write the issue on a chartpack where everybody can see it. Allow for clarification, but do not let the group engage in a discussion of the issue itself. Remember to define unclear terms. Generate ideas to address the issue at hand. o Working in silence, each team member writes down his or her ideas on a piece of paper. People should not confer with each other and should sit quietly until everyone finishes writing. o Depending on the complexity of the topic, 5 to 10 minutes should be allowed for the silent process. People need to have enough time to get the broad, general ideas down, but not enough to create long, detailed lists.
o Collect the team's ideas. Each team member in turn reads out one of his or her ideas. Write each idea on the chartpack. This round robin should continue until all of the ideas have been offered and recorded. There should be no discussion or side conversations during this part of the session. NOTE: If post-are available, you may want to ask the participants to write each of their ideas on a separate sheet and hand them in. You can display the ideas randomly, rather than writing them down. These post- can be used later to create an Affinity Diagram. Clarify ideas. Read each idea out loud. If clarification is needed, the person who provided the idea should explain it now. This is an opportunity to clean up the wording of any unclear statements. Others may contribute if necessary. Combine ideas. Combine like ideas when feasible, but only if both o Originators agree to it. If they cannot agree, leave the two ideas separate. Assign a letter designation to each separate idea. As with Multivoting, the facilitator assigns a letter to avoid confusion with the vote tally. Rank the ideas independently. Each team member writes down the items by their letter designations and assigns them a numeric value based on his or her judgment of what is most important and what is least important. The highest number is assigned to the most important idea and the lowest to the least important idea. For example, if there are 8 items lettered A to H, the most important receives an 8 and the least important, a 1. NOTE: An alternative approach is to use the one-half-plus-one rule described in The Memory Jogger. When there is a list with many items to rank, you may want to limit the number of items to consider. Team members then rank one-half the number of items on the list plus one. For example, if there were 20 items on the list, team members would rank 11 ideas. The most important item receives the highest value—in this case, 11. Collate the rankings. The facilitator transcribes the team members' rankings onto a chartpack, writing each number next to the corresponding idea.
Add the rankings. The facilitator adds the numbers across. The idea with the highest point total is the one of most importance to the whole team. It is the highest priority item. Rewrite the list. The facilitator rewrites the list of ideas in the order of their importance to the team. Perform a sanity check. Does the prioritization make sense?
Determine if decision-maker can solve the problem.Decision: Making up your mind to do something Making a judgment on what ought to be done To do nothing and wait for things to happen can also be a decision Decision Making vs. Within scope of influence Fully define the problem by gathering more information about the problem. intuitive Decision making is usually systematic and based on thinking Decision taking may usually rely on gut feeling Decision making vs. Decision Taking: Decision making involves a series of steps that ultimately culminates in a resolution Decision taking may be instantaneous. unconscious. Page Design: Decision maker identifies alternative courses of action to solve a problem 92 . impulsive. Problem solving: Problem solving and Decision making are inter-twined Information is required for both problem solving and decision making Why decision making is difficult? Too many options/ alternatives from which to decide High cost of wrong decisions Increasingly dynamic environment with greater uncertainties Competitor moves and counter-moves at extremely fast pace Herbert Simon’s Model of decision making: Decision making is a rational process comprising three major phases: Intelligence Design Choice Simon’s Model: Intelligence Phase: Scan the environment for a problem.
Phases of Decision-Making: Simon’s original three phases: Intelligence Design Choice He added fourth phase later: Implementation Book adds fifth stage: Monitoring Typology of Decisions: Robert Anthony’s Classification: Strategic Planning Management Control Operational Control Simon’s Classification Programmed/ structured decisions Nonprogrammed/ Unstructured decisions Properties of Programmed/ structured decisions: Well-defined decision situation Some specified procedure or decision rule can be applied Routine and repetitive Can be modeled as a quantitative model Can be delegated to lower levels or automated Page Properties of Non-programmed/ unstructured decisions: Not well-defined 93 . Verify initial conditions. Not all alternatives are clearly visible. Analyze proposed solution against real-world constraints. analogies. This can be a creative activity requiring brain storming. they have to be unearthed from a heap of possibilities Only a finite and limited number of alternatives can be finally evaluated Choice Phase: Select the solution to implement. More detailed analysis of selected solutions might be needed. checklists etc.
memory.Knowledge of Outcomes: Decisions under certainty Outcome of each alternative is fully known Only one outcome for each alternative Decisions under risk Possibility of multiple outcomes Probability of occurrence can be attached Decisions under uncertainty Number of outcomes for each alternative and their probabilities of occurrence not known Roadblocks to Good Decision Making: Human cognition Our mental ability to comprehend and understand something Human perception Difficulty isolating problems Tend to think of only narrow range of possible solution Human bias Tendency to shape responses based on stereotypes.: catastrophe) Or it may be related to recurring problems where conditions change very frequently and so substantially that no decision rule can be specified Can’t be delegated to lower levels and can’t be automated Semi-structured/ partially programmed decisions: Decisions falling within the two extremes Some semblance of structuring is possible.g. Have no pre-specified procedure or decision rule Decision situation may be novel one (e. which is then programmed Human judgment is applied to the situational factors which are not structured and thus not programmed Classifying Decisions on the basis of . and current position How to Overcome the Roadblocks: Decision support systems (DSS) are one tool A computer-based system that supports and improves human decision making Helps analyze complex problems Process vast amounts of analytical data Group decision support systems (GDSS) Page 94 .
DSS or decision support systems are usually computer applications along with a human component that can sift through large amounts of data and pick between the many choices. such as industry data. spreadsheet DSS and Group DSS in the early and mid 80s. A decision support system is a way to model data and make quality decisions based upon it. OLAP and Business Intelligence evolved in the late 1980s and early 1990s. Finally. the chronicle ends with knowledge-driven DSS and the implementation of Web-based DSS in the mid-1990s. Executive Information Systems. and the implementation of financial planning systems. the term refers to an interactive computerized system that gathers and presents data from a wide range of sources. theory developments in the 1970s. typically for business purposes. The DSS will collect and analyze the data and then present it in a way that can be interpreted by humans. DSS applications are systems and subsystems that help people make decisions based on data that is culled from a wide range of sources. Page 95 . Tool for supporting team decision making Executive information system (EIS) Decision Support System Abbreviated DSS. DSS applications are not single information resources. to determine if there is indeed a demand to meet. This paper chronicles and explores the developments in DSS beginning with building modeldriven DSS in the late 1960s. For example: a national on-line book seller wants to begin selling its products internationally but first needs to determine if that will be a wise business decision. Some decision support systems come very close to acting as artificial intelligence agents. The vendor can use a DSS to gather information from its own resources (using a tool such as OLAP) to determine if the company has the ability or potential ability to expand its business and also from external resources. Making the right decision in business is usually based on the quality of your data and your ability to sift through and analyze the data to find trends in which you can create solutions and strategies for. but the combination of integrated resources working together. Information Systems researchers and technologists have built and investigated Decision Support Systems (DSS) for approximately 40 years. such as a database or a program that graphically represents sales figures. Data warehouses.
another popular DSS model takes into consideration the mode of assistance as the underlying basis of the DSS model. It is important to note that although computers and artificial intelligence is at work or in play with data. they do not suggest a specific decision. Because of there are many working theories in the topic of DSS. one of the DSS models available is with the relationship of the user in mind. For instance. many organizations would be hard pressed to put all their faith into a computer model without any human intervention. Page 96 . It means that both a human component and computer component work together to come up with the best solution. Decision support systems have a definite structure in businesses. many companies constantly download and analyze sales data. there are many ways to classify DSS. budget sheets and forecasts and they update their strategy once they analyze and evaluate the current results. While there are many systems that are able to be active. Document Driven DSS. databases or people are involved usually doesn't matter. An active decision support system actually processes data and explicitly shows solutions based upon that data. analyze and shape the data that is collected and then try to make sound decisions or construct strategies from analysis. the data and decisions that are based on it are fluid and constantly changing. It is important to note that the field of DSS does not have a universally accepted model. containing and collecting it and then using it to help aid decision making. For instance. but in reality. and Knowledge Driven DSS. Whether computers. A cooperative decision support system is when data is collected. most companies have actually integrated this system into their day to day operating activities. active and cooperative DSS models. meaning that there are many theories vying for supremacy in this broad field. Data Driven DSS. however it is this process of taking raw or unstructured data. Decision support systems that just collect data and organize it effectively are usually called passive models. Communications Driven DSS. This includes the Model Driven DSS.While many people think of decision support systems as a specialized part of a business. analyzed and then is provided to a human component which then can help the system revise or refine it. The key to decision support systems is to collect data. While the above DSS model takes the relationship of the user in mind. and they only reveal the data. This model takes into consideration passive. it is ultimately up to humans to execute these strategies or comprehend the data into a usable hypothesis.
Turban. A Knowledge Driven DSS model uses special rules stored in a computer or used by a human to determine whether a decision should be made. A Document Driven DSS model uses documents in a variety of data types such a text documents. 1967. This communications driven DSS model can be in an office environment or on the web. simulations or financial models to come up with a solution or strategy. Scott Morton's (1967) dissertation field research at Harvard University. external and in a variety of formats. inventory levels over the previous year. Brief History In the 1960s. a major historical turning point was Michael S. such as daily sales. In retrospect. however they do not have to be overwhelming data intensive. Holt and Huber. implementing and then testing an interactive.Model Driven DSS is when decision makers use statistical. Ferguson and Jones (1969) reported the first investigational study using a computer aided decision system. This data can be internal. A Communications Driven DSS models is when many collaborators work together to come up with a series of decisions to set in motion a solution or strategy. 1966. 97 . an organizational wide decision. These rules or facts are used in order to make a decision. can be seen in the scope wide model. operating budgets from one quarter to the next. model-driven management decision system. Keep in mind that these decisions are based on models. Fellow Harvard Ph. You can also look at the scope in which decisions are made as a model of DSS. 1969). researchers began analytically studying the use of computerized quantitative models to assist in decision making and planning (Raymond. 1967. Urban.D. for many day traders a stop loss limit can be seen as a knowledge driven DSS model. For instance. spreadsheets and database records to come up with decisions a well as further manipulate the information to refine strategies. For instance. department decision or single user decision. They investigated a production scheduling application running on an IBM 7094. etc. Page Scott Morton’s study involved building. It is important that usually data is collected and categorized as a time series which is a collection of data that forms a sequence. A Data Driven DSS model puts its emphasis on collected data that is then manipulated to fit the decision maker's needs.
SAGE is probably the first computerized data-driven DSS. NLS facilitated the creation of digital libraries and the storage and retrieval of electronic documents using hypertext. but the systems did not provide interactive support to assist managers in decision making. Forrester was involved in building the SAGE (Semi-Automatic Ground Environment) air defense system for North America completed in 1962. Professor Forrester started the System Dynamics Group at the Massachusetts Institute of Technology Sloan School. The pioneering work of George Dantzig. He conducted an research in which managers actually used a Management Decision System (MDS). Marketing and production managers used an MDS to coordinate production planning for laundry equipment. Scott Morton (1971) studied how computers and analytical models could help managers make a recurring key business planning decision. a general simulation compiler. Dantzig became a research mathematician at the Rand Corporation. Page 98 .‖ He saw mancomputer interaction as enhancing both the quality and efficiency of human problem solving and his paper provided a guide for decades of computer research to follow. Douglas Engelbart and Jay Forrester likely influenced the feasibility of building computerized decision support systems. Davis. periodic reports and the information was primarily from accounting and transaction processing systems.student Andrew McCosh asserts that the ―concept of decision support systems was first articulated by Scott Morton in February 1964 in a basement office in Sherman Hall. In 1960. By April 1964. J.C. In 1952. These early MIS focused on providing managers with structured. Harvard Business School‖ (McCosh email. His work on corporate modeling led to programming DYNAMO. 2002) in a discussion they had about Scott Morton’s dissertation. Licklider was the architect of Project MAC at MIT that furthered the study of interactive computing. Licklider published his ideas about the future role of multi access interactive computing in a paper titled ―Man-Computer Symbiosis. During 1966. The MDS ran on an IDI 21 inch CRT with a light pen connected using a 2400 bps modem to a pair of Univac 494 systems. Also.. Engelbart and colleagues developed the first hypermedia—groupware system called NLS (oNLine System). In the mid-1960s. where he began implementing linear programming on its experimental computers.R. the development of the IBM System 360 and other more powerful mainframe systems made it practical and cost-effective to develop Management Information Systems (MIS) for large companies (cf. NLS also provided for on-screen video teleconferencing and was a forerunner to group decision support systems. 1974).
By 1975. a Professor at the University of Minnesota. management. dissertation. He defined a Management Information System as "an integrated. T. Gerrity. John D. a media planning support system. Jr. All four criteria remain relevant in evaluating modern Decision Support Systems. focused on Decision Support Systems design issues in his 1971 Sloan Management Review article titled "The Design of Man-Machine Decision Systems: An Application to Portfolio Management". strategic planning systems and decision support systems (cf. mainly carried out at the Massachusetts Institute of Technology in the 1960s Page 99 . His four criteria included: robustness. For example. Scott Morton and colleagues McCosh and Stephens published decision support related articles in 1968. and completeness of relevant detail. published his influential text on Management Information Systems. was studying DSS for marketing. simplicity.D. His system was designed to support investment managers in their daily management of a clients' stock portfolio. Little(1970) identified criteria for designing models and systems to support management decision-making. Peter Keen and Charles Stabell claim the concept of decision support systems evolved from "the theoretical studies of organizational decision making done at the Carnegie Institute of Technology during the late 1950s and early '60s and the technical work on interactive computer systems.Around 1970 business journals started to publish articles on management decision systems. also at Massachusetts Institute of Technology. Little was expanding the frontiers of computer-supported modeling. The article was based on his MIT Ph.. His DSS called Brandaid was designed to support product. The first use of the term decision support system was in Gorry and ScottMorton’s (1971) Sloan Management Review article. Little and Lodish (1969) reported research on MEDIAC. pricing and advertising decisions. Little also helped develop the financial and marketing modeling language known as EXPRESS. Gordon Davis.C. ease of control. Little. man/machine system for providing information to support the operations. and decision-making functions in an organization. They argued that Management Information Systems primarily focused on structured decisions and suggested that the supporting information systems for semi-structured and shapeless decisions should be termed ―Decision Support Systems‖. In 1974. Also. promotion.P. Sprague and Watson 1979)..
Power. This hypertext document is a starting point in explaining the origins of the various technology threads that are converging to provide integrated support for managers working alone. query and reporting tools. Business Intelligence. software companies and in organizations to build and use DSS. multidimensional data analysis. timeshare operating systems and distributed computing. group DSS. It seems that the first DSS papers were published by PhD students or professors in business schools. 2003. Silver. This document traces decision support applications and research studies related to model and data-oriented systems. spatial DSS and Executive Information Systems as the technologies emerge. and the first DSS papers were published by professors of the School in 1970. Different people perceive the field of Decision Support Systems from various vantage points and report different accounts of what happened and what was important (cf. Computerized decision support systems became practical with the development of minicomputers. converge and diverge. management expert systems. McCosh & CorreaPerez. 2006. Researchers used multiple frameworks to help build and understand these systems. conferencing and groupware. The history of the implementation of such systems begins in the mid-1960s. History is both a guide to future activity in this field and a record of the ideas and actions of those who have helped advance our thinking and practice. Arnott & Pervan. In France. 2005. 2004a.In 1995. Power. HEC was the first French business school to have a time-sharing system (installed in 1967). Page 100 . As technology evolved new computerized decision support applications were developed and studied. All of these technologies have been used to support decision making. chronicling history is neither neat nor linear. Historical facts can be sorted out and better understood. Eom & Lee.. In a technology field as diverse as DSS. document management. 1990b. in teams and in organization hierarchies to manage organizations and make more rational decisions. but more information gathering is necessary. who had access to the first time-sharing computer system: Project MAC at the Sloan School. 1991). This web page is a starting point in collecting more first hand accounts and in building a more complete mosaic of what was occurring in universities. online analytical processing (OLAP). Hans Klein and Leif Methlie noted ―A study of the origin of DSS has still to be written. the Dartmouth Time Sharing Systems at the Tuck School.
many DSS research questions have been examined because they were of concern to people who were building and using specific DSS. and data marts Comparative sales figures between one week and the next Projected revenue figures based on new product sales assumptions The consequences of different decision alternatives. cubes. documents. given past experience in a context that is described Page The best decision support systems include high-level summary reports or charts and allow the user to drill down for more detailed information. and/or business models to identify and solve problems and make decisions. Some professional say Decision Support Systems (DSS) are a specific class of computerized information system that supports business and organizational decision-making activities. A properly designed DSS is an interactive softwarebased system intended to help decision makers compile useful information from raw data. data warehouses.The study of decision support systems is an applied discipline that uses knowledge and especially theory from other disciplines. For this reason. personal knowledge. 101 . including legacy and relational data sources. Typical information that a decision support application might gather and present would be: Accessing all of your current information assets.
in conjunction with 2-dimensional hydraulic modeling.This set of tools. Holsapple and Whinston classify DSS into the following six frameworks: Textoriented DSS. but a mix of two or more architecture in one. Page 102 . Database-oriented DSS. and Compound DSS. Rule-oriented DSS. Solver-oriented DSS. A compound DSS is the most popular classification for a DSS. It is a hybrid system that includes two or more of the five basic structures described by Holsapple and Whinston. Spreadsheet-oriented DSS. is being used to estimate the effects of reservoir level and water discharge fluctuations on aquatic and terrestrial habitats in John Day Reservoir. Different scenarios being studied now range from typical reservoir levels at high and low discharges to a simulation of what things might be like if the river were to return to natural conditions Classifying DSS There are several ways to classify DSS applications. Not every DSS fits neatly into one category.
Inputs: Factors. Group Support. DSS components may be classified as: 1. User Knowledge and Expertise: Inputs requiring manual analysis by the user 3. and characteristics to analyze 2. and applies engineering principles such as Design and Quality assurance to an explicit representation of the elements that make up a decision. and Organizational Support. interrelated categories: Personal Support. Outputs: Transformed data from which DSS "decisions" are generated 4. The nascent field of Decision engineering treats the decision itself as an engineered object.The support given by DSS can be separated into three distinct. Page 103 . numbers. Decisions: Results generated by the DSS based on user criteria DSSs which perform selected cognitive decision-making functions and are based on artificial intelligence or intelligent agents technologies are called Intelligent Decision Support Systems (IDSS).
These can be categorized into five types: Communication-driven DSS Most communications-driven DSSs are targetted at internal teams. It may be aimed at business executives or some other group of knowledge workers. Data-driven DSS Most data-driven DSSs are targeted at managers. data. documents. online collaboration and net-meeting systems. or for users to collaborate. including legacy and relational data sources. Typical information that a decision support application might gather and present would be. (c) Projected figures based on new data or assumptions. staff and also product/service suppliers. It is deployed via a main frame system. Examples: chats and instant messaging softwares. The most common technology used to deploy the DSS is a web or client server. A decision support system may present information graphically and may include an expert system or artificial intelligence (AI). given past experience in a specific context. including partners. (a) Accessing all information assets. It is used to query a database or data warehouse to seek specific answers for specific purposes. There are a number of Decision Support Systems. Examples: computer-based Page 104 . DSS are interactive computer-based systems and subsystems intended to help decision makers use communications technologies. or via the web.Types of Decision Support Systems (DSS) Decision Support Systems (DSS) are a class of computerized information system that support decision-making activities. (d) Consequences of different decision alternatives. (b) Comparative data figures. client/server link. knowledge and/or models to complete decision process tasks. Its purpose are to help conduct a meeting.
these reports – which are normally provided to the General Manager should not. These are used by managers and staff members of a business. Document-driven DSS Document-driven DSSs are more common. The usual technology used to set up such DSSs are via the web or a client/server system. for a number of purposes depending on how the model is set up . decision analyses etc. in my view. Model-driven DSS Model-driven DSSs are complex systems that help analyse decisions or choose between different options. the web. targeted at a broad base of user groups. They are too detailed and. or people who interact with the organization. a single supplier. are a catchall category covering a broad range of systems covering users within the organization seting it up. Examples: Knowledge-driven DSS: Knowledge-driven DSSs or 'knowledgebase' are they are known. thus. disturbing financial data and other irregularities. A General Manager must have a bird's eye view of his company. However. be used by them at all. or the web. DSS in accounting firms by Dr. Page 105 . tend to obscure the true picture. a single day.databases that have a query system to check (including the incorporation of data to add value to existing databases. client/server systems. It is essentially used to provide management advice or to choose products/services. consumers of a business. or software runnung on stand-alone PCs. These DSSs can be deployed via software/hardware in stand-alone PCs. The typical deployment technology used to set up such systems could be slient/server systems. SHMUEL (SAM) VAKNIN Many companies in developing countries have a very detailed reporting system going down to the level of a single product.scheduling.for example. but may also include others interacting with the organization . He must be alerted to unusual happenings. The purpose of such a DSS is to search web pages and find documents on a specific set of keywords or search terms.
based on wrong data. or at the end of the fiscal year. The budget allocates amounts of money to every activity and / or department of the firm. they can not serve as day to day guides to the General Manager. or IAS). Daily ratios report. Put together. That the company will pay excessive taxes on its earnings and / or d. That the management will highly leverage the company by assuming excessive debts burdening the cash flow of the company and / or b. To assist in overcoming the above. Page 106 . the following phenomena could happen: a.both on the single product level . During the year. These financial statements. c. As time passes. the balance sheet. provide a better sense of the dynamics of the operation and should be constructed on the basis of Western accounting principles (GAAP and FASBs. the firm generates its financial statements: the income statement. However. however inaccurate. 2. That the wrong cash flow picture will distort the decisions of the management and lead to wrong (even to dangerous) decisions. fully updated and fully integrated: 1.As things stand now. That the inventory will not be fully controlled and appraised centrally and / or e. the actual expenditures are compared to the budget in a feedback loop. That a false Profit and Loss (PNL) picture will emerge . This could lead to wrong decision making.and generally. these four documents are the formal edifice of the firm's finances. there are four levels of reporting and flows of data which every company should institute: The first level is the annual budget of the company which is really a business plan. But the Manager should be able to open this computer daily and receive two kinds of data. The second tier of financial audit and control is when the finance department (equipped with proper software – Solomon IV is the most widely used in the West) is able to produce pro forma financial statements monthly. Daily financial statements. the cash flow statement.
It enables the Manager to instantly analyse dozens of important aspects of the functioning of his company. or where the ratios warn about problems in the future – management intervention may be required. Where there is a strong deviation from historical patterns. These pro forma financial statements should include all the future flows of money whether invoiced or not. the Manager will not be able to see only a present situation of his company. It also allows him to compare the performance of his company to the performance of his competitors. the Manager will be able to type a future date into his computer and get the financial reports and statements relating to that date.The daily financial statements The Manager should have access to continuously updated statements of income. spot the alerts. The most important statement is that of the cash flow. at each and every stage. The daily ratios report This is the most important part of the decision support system. Instead of sifting through mountains of documents. In other words. the Manager will only have to look at four computer screens in the morning. The Manager can review these financial and production ratios. and a balance sheet. fully analysed and fully updated. Using today's technology .as opposed to the theoretical cash situation which includes accounts payable and account receivable in the form of expenses and income.a wireless-connected laptop – managers are able to access all these data from anywhere in the world. cash flow. while traveling. from home. The manager should be able to know. other firms in his branch and to the overall performance of the industry that he is operating in. what his real cash situation is . This way. and so on. but its future situation. read the explanations Page 107 . It allows him to compare the behaviour of these parameters to historical data and to simulate the future functioning of his company under different scenarios.
c. The management knows exactly how much credit it could take. It specially helps in following areas: 1. for how long (for which maturities) and in which interest rate. h. interest coverage ratio and other liquidity and coverage ratios. non cash outlays are controlled. ROE . l. j.offered by the software. Examples of the ratios to be included in the decision system a. inventory and inflation policies. e. ATO . Debt to equity ratios. It warns the management against impending crises and problems in the company. d. ROA . The effects of using a decision system A decision system has great impact on the profits of the company. m. SUE measure . Valuation price ratios. 2. quick ratio. b. Profits go up. Current ratio. check what is happening and better prepare himself for the future. n.the return on the adjusted equity capital. Tax burden and interest burden ratios. It forces the management to rationalize the depreciation. k. f. It has been proven that without proper feedback. The financial average.the profit margin on the sales. and many others. Page 108 . Sales to fixed assets ratios. A decision system allows for careful financial planning and tax planning. managers tend to take too much credit and burden the cash flow of their companies. As a result of all the above effects the value of the company grows and its shares appreciate.deviation of actual profits from expected profits.asset turnover. g. tax liabilities are minimized and cash flows are maintained positive throughout. ROS . Days receivable and days payable. Inventory turnover ratios.the return on the assets. Compounded leverage. 3. how efficiently assets are used. i.
Decision Support Systems cost as little as 20. They are one of the best investments that a firm can make. Page 109 . hardware.4.000 USD (all included: software. So. and training). the establishment of a decision system does not hinder the functioning of the company in any way and does not interfere with the authority and functioning of the financial department. The decision system is an integral part of financial management in the West. It is completely compatible with western accounting methods and derives all the data that it needs from information extant in the company.
Observing how repeated changes to a single variable affect other variables.more abstract mathematical or other quantitative models. Example.least abstract. Example: What happens to sales if we cut advertising by 10%? Sensitivity analysis .Observing how changes to selected variables affect other variables.000.Making repeated changes to selected variables until a chosen variable reaches a target value. to see how sales change Goal-seeking analysis . Models are classified according to the degree of abstraction: Iconic . a physical replica of a system Analog model .Finds an optimum value for selected variable given certain constraints: Example: What is the best amount of advertising to have. TYPES OF ANALYTICAL MODELS What if analysis .000 USD. but does not look like the system Mathematical/Quantitative .Models A major element of a Decision Support System (refer to decision making process) is a Model. Optimization analysis .functional equivalent. Increase advertising until sales reaches $5. a simplified representation of reality. Example: If advertising is cut by $100 repeatedely. given budget and media choice? QUANTITATIVE MODEL COMPONENTS Decision variables Un-controllable variables Result variables Mathematical Relationship Page 110 .
us/plan/green/models/models.Un-controllable variables Decision variables Mathematical Relationship Result variables DESCRIPTIVE MODELS – Descriptive Models are mathematically-based and include" Information Flow Scenario Analysis Financial Planning Inventory Decisions Predictions (Markov analysis) Simulation ( Optimization Modeling) Technological Forecasting Queuing Management SPREADSHEET MODELS For example. wet.html The spreadsheet models were developed to determine average monthly streamflow in the Green River Basin during normal.state.Surface Water Models are available online at http://waterplan. and dry years. In addition.wy. The Green River Basin Water Plan . and help to assess impacts of future water supply alternatives. assist in determining timing and location of water available for future development. Page 111 . these models aid in validating existing basin uses.
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flexible and adaptable format Analytical modeling of data processing of data Page 114 .them is an online game in which the student takes the role of American President.S. The site works mostly in text. Virtual Stock Exchange . Berkeley This simulation challenges the user to balance the 1995 US Budget by making a serious of choices from drop-down menus. Distinction between MIS and DSS: MIS Decision support provided Provide information about organisation’s performance for general control DSS Provide support in analyzing specific problems and arriving at decision options Information form & frequency Information format Information processing methodology Periodic. setting rates of taxes and government spending and viewing the effects on a variety of indicators National Budget Simulation . exception. fixed format Ad hoc. U.VirtualStockExchange is a simulated securities broker that provides mock trading of all securities listed on the major U. so you can choose the level of detail.C. but has an optional graphing feature. There are "short" and "long" lists of choices. demand Interactive queries and and push/ routine reports responses Pre-specified. exchanges.Center for Community Economic Research.Anders Schneiderman and Nathan Newman .
Earlier Versions of DSS: Stand-alone systems Model-driven Usually developed by end-user divisions Newer Versions of DSS: Data from various enterprise-based systems/ TPS collected in data warehouses (DWH) Include a large pool of customer related data and any other relevant external data Analyze DWH data through Online Analytical Processing (OLAP) and Data mining Characteristics of a DSS: System Description: Common Decision Support Systems Page 115 .
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passenger demand forecasting . advertising. Inc. and promotion selection Burlington Coat Factory:Store location and inventory mix Keycorp: Targeting direct mail marketing customers National Gypsum: Corporate planning & forecasting Southern Railway: Train dispatching and routing Texas Oil & Gas: Evaluation of potential drilling sites Page 117 United Airlines: Flight scheduling.DSS Process: DSS Examples: General Accident Insurance: Customer buying patterns and fraud detection Bank of America: Customer profiles Frito-Lay.: Price.
RMS. and SCM Choice Phase Identification of best alternative Identification of good enough alternative What-if analysis Goal-seeking analysis May use KMS. law enforcement. neural networks Manual OLAP KMS Reporting Routine and ad hoc Design Phase Financial and forecasting models Generation of alternatives by expert system Relationship identification through OLAP and data mining Recognition through KMS Business process models from CRM. CRM.Geographic Information Systems (GIS): Computer system with software that can analyze and display data using digitized maps. Enables display and analysis of spatial information. CRM. and SCM systems Implementation Phase Improved communications Collaboration Page 118 . identifying efficient delivery routes Decision Support Systems: Intelligence Phase Automatic Data Mining Expert systems. Examples – Location analysis. GDSS. ERP. ERP.
Training Supported by KMS. GDSS Page 119 . expert systems.
a pivot table is a tool for taking a large and complete amount of data and formatting it in a table that makes that same information easier to understand and assimilate.Why use DSS? Perceived benefits decision quality improved communication cost reduction increased productivity time savings improved customer and employee satisfaction Pivot Table: A PivotTable Report (commonly called a pivot table) is a specialized report in Microsoft Excel that summarizes and analyzes data from an outside source like a spreadsheet or similar table. Groups Decision Support Systems: Having multiple participants in the decision process adds potential problems Production blocking Evaluation apprehension Social loafing Group think GDSS tools contain special tools to overcome these problems GDSS Tools: Page 120 . You generally will create a pivot table when you want to do one of the following: extract a smaller amount of data from a larger set of data sum up a large amount of data and compare one section of the original data with another or organize sub-categories of data within larger categories.
Brainstorming tools Commenter tools Categorizing tools Idea-ranking tools Electronic-voting tools Group facilitator Page 121 .
Module 5 Page 122 .
ERP systems are used in almost any type of organization . ERP systems were used in larger more industrial types of companies. that is of value to the customer.large or small. ERP stands for Enterprise Resource Planning. Today's ERP systems can cover a wide range of functions and integrate them into one unified database. ERP is a way to integrate the data and processes of an organization into one single system. Customer Relations Management.What is ERP? Enterprise Resource Planning (ERP) programs are core software used by companies to coordinate information in every area of the business. However. ERP (pronounced E-R-P) programs how to manage company. usually housed with their own database and network. logistics. it must provide an organization with functionality for two or more systems. no matter what industry it falls in. While some ERP packages exist that only cover two functions for an organization (QuickBooks: Payroll & Accounting). In order for a software system to be considered ERP. ERP software supports the efficient operation of business processes by integrating throughout a business tasks related to sales. functions such as Human Resources. For instance. Financials.the ERP system Page 123 . Manufacturing functions and Warehouse Management functions were all once stand alone software applications. and staffing. the use of ERP has changed and is extremely comprehensive. Such as a report or forecast. business processes. manufacturing. Usually ERP systems will have many components including hardware and software. in order to achieve integration. using a common database and shared management reporting tools. A business process is a collection of activities that takes one or more kinds of input and creates an output. today the term can refer to any type of company. today. This chapter provides a background for learning about ERP software. In fact. most ERP systems use a unified database to store data for various functions found throughout the organization. they can all fit under one umbrella . marketing. accounting. The term ERP originally referred to how a large organization planned to use organizational wide resources. most ERP systems cover several functions. Supply Chain Management. In the past.
Although the ideal configuration would be one ERP system for an entire organization. Integration is Key to ERP That integrated approach can have a tremendous payback if companies install the software correctly. a throwaway term. It attempts to integrate all departments and functions across a company onto a single computer system that can serve all those different departments' particular needs. and all the keying into different computer systems invites errors. But ERP combines them all together into a single. All that lounging around in in-baskets causes delays and lost orders. when a customer places an order. for example. that order begins a mostly paper-based journey from inbasket to in-basket around the company. ERP's usually accomplish integration by creating one single database that employs multiple software modules providing different areas of an organization with various business functions. But remember the enterprise part. Each of those departments typically has its own computer system. building a single software program that serves the needs of people in finance as well as it does the people in human resources and in the warehouse. no one in the company truly knows what the status of the order is at any given point because there is no way for the finance department. This is ERP's true ambition. "You'll have to call the warehouse. Typically. ERP's main goal is to integrate data and processes from all areas of an organization and unify it for easy access and work flow. Take a customer order. Integration is an extremely important part to ERP's. integrated software program that runs off a single database so that the various departments can more easily share information and communicate with each other. That is a tall order.Enterprise Resource Planning software. Forget about planning—it doesn't do that—and forget about resource. Meanwhile. or ERP. doesn't live up to its acronym. many larger organizations usually create and ERP system and then Page 124 . each optimized for the particular ways that the department does its work. for example." is the familiar refrain heard by frustrated customers. often being keyed and re-keyed into different departments' computer systems along the way. to get into the warehouse's computer system to see whether the item has been shipped.
time and attendance. The Ideal ERP System An ideal ERP system is when a single database is utilized and contains all data for various software modules. payroll. fixed assets. purchasing. Human Resources: Benefits. etc. time and expense. These software modules can include: Manufacturing: Some of the functions include. supplier scheduling. billing. customer contact. service. training. engineering. order entry. supply chain planning. etc. Financials: Accounts payable. Page 125 Customer Relationship Management: sales and marketing. workflow management. commissions.build upon the system and external interface for other stand alone systems which might be more powerful and perform better in fulfilling an organizations needs. etc Supply Chain Management: Inventory. Usually this type of configuration can be time consuming and does require lots of labor hours. . calls center support. quality control. etc. capacity. activity management. accounts receivable. Projects: Costing. etc. etc. bills of material. claim processing. general ledger and cash management. manufacturing process.
Page 126 . which involves taking an order from a customer. usually all aspects of an organization can work in harmony instead of every single system needing to be compatible with each other. shipping it and billing for it. making it more intensive and complicated to process certain functions. the company's inventory levels and the shipping dock's trucking schedule). ERP can apply that same magic to the other major business processes. ERP Improves Productivity Before ERP systems. suppliers and employees. increased productivity and less types of software are a result. when a customer service representative takes an order from a customer.Data Warehouse: Usually this is a module that can be accessed by an organizations customers. For instance. many of these systems would not be able to communicate with one another or need to store or rewrite data to make it possible for cross computer system communication. at least. Everyone else in the company sees the same computer screen and has access to the single database that holds the customer's new order. When one department finishes with the order it is automatically routed via the ERP system to the next department. Once an ERP system is in place. With luck. and customers get their orders faster and with fewer errors than before. one need only log into the ERP system and track it down. data and database. is the dream of ERP. he or she has all the information necessary to complete the order (the customer's credit rating and order history. How can ERP improve a company's business performance? ERP automates the tasks involved in performing a business process—such as order fulfillment. Unfortunately. For large organizations. such as employee benefits or financial reporting. the financials of a company were on a separate computer system than the HR system. That. With ERP. To find out where the order is at any point. the order process moves like a bolt of lightning through the organization. The reality is much harsher. each department in an organization would most likely have their own computer system.
and if anything went wrong outside of the department's walls. the warehouse did its job. Accountability.Let's go back to those inboxes for a minute. If they don't. It flickers with the customer's credit rating from the finance department and the product inventory levels from the warehouse. customer service will see low inventory levels on their screens and tell customers that their requested item is not in stock. But it's not just the customer service representatives who have to wake up. the customer service representatives are no longer just typists entering someone's name into a computer and hitting the return key. With ERP. Finance did its job. The ERP screen makes them business people. but it was simple. That process may not have been efficient. Will the customer pay on time? Will we be able to ship the order on time? These are decisions that customer service representatives have never had to make before and which affect the customer and every other department in the company. People in the warehouse who used to keep inventory in their heads or on scraps of paper now need to put that information online. Not anymore. responsibility and communication have never been tested like this before. it was somebody else's problem. Page 127 .
How long will an ERP project take? Companies that install ERP do not have an easy time of it. the ways you do business will need to change and the ways people do their jobs will need to change too. ERP creates a single version of the truth that cannot be questioned because everyone is using the same system. Standardizing those processes and using a single. Finance has its own set of revenue numbers. and the different business units may each have their own versions of how much they contributed to revenues. increase productivity and reduce headcount. your ways of doing business are working extremely well (orders all shipped on time. HR may not Page 128 . on average—but rather to understand why you need it and how you will use it to improve your business. in which case there is no reason to even consider ERP. or the implementation was limited to a small area of the company. Those short (that's right. customers completely satisfied). To standardize manufacturing processes. —As the CEO tries to understand the company's overall performance. six months is short) implementations all have a catch of one kind or another: the company was small. To do ERP right. or the company only used the financial pieces of the ERP system (in which case the ERP system is nothing more than a very expensive accounting system). Don't be fooled when ERP vendors tell you about a three or six month average implementation time. The important thing is not to focus on how long it will take—real transformational ERP efforts usually run between one to three years. To standardize HR information. —Especially in companies with multiple business units. of course. sales has another version. productivity higher than all your competitors. —Manufacturing companies—especially those with an appetite for mergers and acquisitions—often find that multiple business units across the company make the same widget using different methods and computer systems. And that kind of change doesn't come without pain. integrated computer system can save time. he or she may find many different versions of the truth. Unless. What will ERP fix in my business? There are three major reasons why companies undertake ERP: To integrate financial data.
ERP can fix that.have a unified. financial executives should plan to write checks to cover consulting. The most common reason that companies walk away from multimillion dollar ERP projects is that they discover that the software does not support one of their important business processes. and the price tags on the front end are enough to make the most placid CFO a little twitchy. simple method for tracking employee time and communicating with them about benefits and services. In the race to fix these problems. Each of these industries has struggled with the different ERP vendors to modify core ERP programs to their needs. chemical and utility companies that measure their products by flow rather than individual units) out in the cold. because the customizations will need to be torn apart and rewritten to fit with the new version. Most ERP systems were designed to be used by discreet manufacturing companies (who make physical things that can be counted). which will slow down the project. In addition to budgeting for software costs. Needless to say. integration testing and a long laundry list of other expenses before the benefits of ERP start to manifest themselves. which immediately left all the process manufacturers (oil. each industry has its quirks that make it unique. So can failure to consider data warehouse integration Page 129 . the move to ERP is a project of breathtaking scope. introduce dangerous bugs into the system and make upgrading the software to the ERP vendor's next release excruciatingly difficult. Underestimate the price of teaching users their new job processes can lead to a rude shock down the line. which will mean deep changes in long-established ways of doing business (that often provide competitive advantage) and shake up important peoples' roles and responsibilities (something that few companies have the stomach for). Will ERP fit the ways I do business? It's critical for companies to figure out if their ways of doing business will fit within a standard ERP package before the checks are signed and the implementation begins. While most packages are exhaustively comprehensive. companies often lose sight of the fact that ERP packages are nothing more than generic representations of the ways a typical company does business. Or they can modify the software to fit the process. process rework. At that point there are two things they can do: They can change the business process to accommodate the software.
consulting and in most cases 3 months to 1 year +. trouble shooting and assistance with ERP issues.requirements and the cost of extra software to duplicate the old report formats. improve ERP's use in the specific organization. Customization and Support. One of the most important traits that an organization should have when implementing an ERP system is ownership of the project. Consulting Services . Implementing an ERP system is not an easy task to achieve. For instance. Support Services. Implementing an ERP system will ultimately require significant changes on staff and work practices. due to the fact that consultants are usually more cost effective and are specifically trained in implementing these types of systems. Usually organizations use ERP vendors or consulting companies to implement their customized ERP system.usually consulting services are responsible for the initial stages of ERP implementation. it is important to make sure that everyone is on board and will help make the project and using the new ERP system a success. Because so many changes take place and its broad effect on almost every individual in the organization. in fact it takes lots of planning. Page 130 . they are Consulting. Customization Services . ERP systems are extraordinary wide in scope and for many larger organizations can be extremely complex. they help an organization go live with their new system. There are three types of professional services that are provided when implementing an ERP system. workflow. there are still some needs that need to be built or customized for an organization. it is widely advised that ERP implementation consultants be used. with product training. A few oversights in the budgeting and planning stage can send ERP costs spiraling out of control faster than oversights in planning almost any other information system undertaking.Support services include both support and maintenance of ERP systems. While it may seem reasonable for an in house IT staff to head the project.Customization services work by extending the use of the new ERP system or changing its use by creating customized interfaces and/or underlying application code. While ERP systems are made for many core routines. etc.
Yet the navel gazing has a pretty good payback if you’re willing to wait for it—a Meta group study of 63 companies found that it took eight months after the new system was in (31 months total) to see any benefits. Among the 63 companies surveyed— including small. When will I get payback from ERP—and how much will it be? Don’t expect to revolutionize your business with ERP. software. here are a few of them: A totally integrated system The ability to streamline different processes and workflows The ability to easily share data across various departments in an organization Better tracking and forecasting Page 131 Improved efficiency and productivity levels . and internal staff costs. including hardware. professional services. Advantages of ERP Systems There are many advantages of implementing an EPR system. But the median annual savings from the new ERP system was $1.000). suppliers or partners. While it’s hard to draw a solid number from that kind of a range of companies and ERP efforts. which is when the real costs of maintaining. The TCO for a ―headsdown‖ user over that period was a staggering $53. medium and large companies in a range of industries—the average TCO was $15 million (the highest was $300 million and lowest was $400. The TCO numbers include getting the software installed and the two years afterward. upgrading and optimizing the system for your business are felt.320. It is a navel gazing exercise that focuses on optimizing the way things are done internally rather than with customers.6 million per year. Meta came up with one statistic that proves that ERP is expensive no matter what kind of company is using it.What does ERP really cost? Meta Group recently did a study looking at the Total Cost of Ownership (TCO) of ERP.
the approach can also lessen power consumption expenses. files. Disadvantages of ERP Systems While advantages usually outweigh disadvantages for most organizations implementing an ERP system. success does depend on skills and the experience of the workforce to quickly adapt to the new system. Customization in many situations is limited The need to reengineer business processes ERP systems can be cost prohibitive to install and run Technical support can be shoddy ERP's may be too rigid for specific organizations that are either new or want to move in a new direction in the near future. and activities of companies stored in software allows employees to access information that are significant to monitor the supply chain. In this regard. as well as the production chain. however. companies are encouraged to assign IT employees to maintain and provide support services for the ERP system. here are some of the most common obstacles experienced: Usually many obstacles can be prevented if adequate investment is made and adequate training is involved. To maximize the implementation of this process.Lower costs Improved customer service Enterprise Resource Planning is very essential to enhance corporate effectiveness in providing the demands and expectations of customers and clients. it is important that corporations create a policy that Page 132 . ERP helps corporations save money since they do not have to allot a budget for the database management software that each department uses. The integration of the functions. the approach can affect the functionalities and efficiency of departments. When firms fail to allot sufficient investment for the Enterprise Resource Planning software that they use. Additionally. Aside from this.
these are the simple steps to follow.will protect the files stored in the system to prevent experiencing the common problems associated with ERP. and employee morale. Since the files. the implementation of this approach is very expensive and very risky. Planning is important before firms start with this process. Prepare a timeline for data migration. 3. activities. A few things to ponder when planning for ERP • Which processes are most important now and why? • Does this sytem meet our needs or go beyond them? • Who will be the change champion(s)? • What subcultures do we have and what are their strengths? Page 133 • Who are the stakeholders? • What is the business culture at our company and what are its strengths? . Assess the efficiency and reliability of archiving settings to be implemented. competitive advantage. To ensure successful transfer of business files. Create templates for the data. there is a high possibility that some important and confidential files could be lost. 4. 5. Do not forget to freeze and secure computer tools that will be used in the migration. and corporate reports are centralized. One of the disadvantages of Enterprise Resource Planning is that the use of software that will manage the activities of a firm can affect the workflow. 2. In addition. Instructions to Migrate Data to an ERP System Data migration is a significant and sensitive process related to the implementation of Enterprise Resource Planning in companies. Determine which of the corporate records should be transferred to the new system. 1.
Just 13 percent listed cost savings as the main motivator. ―It all has to do with the attitude that companies take with their ERP system. On average.‖ Page 134 For the most part. The most popular were portals. Internet-based procurement applications. AMR analyst.‖ Bacon says.‖ says Judy Bijesse. is that companies are finally accepting ERP as a strategic part of the business. ―Increasingly.‖ says Alison Bacon. Accordingly. The bad news? ERP is still costly and time consuming. self-service HR and business intelligence. AMR analysts say. people are not looking at ERP systems as just a big piece of software. business intelligence—those are applications that extend beyond what we would deem to be traditional ERP systems. AMR Analyst Allison Bacon says ERP is taking on an even broader set of applications today than before. ―The business people have to be involved and realize that it’s not an IT-only issue any more. ―The vendors have done a great job upselling to their existing client base. actual costs exceeded expected costs by about $100.000. additional functionality and improved collaboration as the primary benefits to an ERP upgrade.‖ AMR Research surveyed 109 companies (70 percent of which have annual revenues exceeding $1 billion) and found that 85 percent of them listed improved ease of use. the survey found that cost expectations hit the mark.• How can we apply those strengths to business change? • What cultural attributes are weak or will interfere with the change? • What will be the toughest changes. though. Most (76 percent) respondents said the costs of upgrading met their expectations. further investments in the technology will require sound business reasoning beyond the cost-saving arguments that initially brought ERP to life. . but it's being seen as a core strategic asset of the company. But the good news. and how will we address them? • Who will be responsible for change management? Cost savings alone won’t justify an ERP upgrade. AMR analyst.‖ Half of the companies surveyed added an average of three new functional areas to their ERP systems. ―It’s much more important that the system remains relevant and adds functionality. ―Portals. according to recent research by Boston-based AMR Research.
Training expenses are high because workers almost invariably have to learn a new set of processes. ERP pros vote the following areas as most likely to result in budget overrun. Companies that were able to upgrade efficiently learned from their initial implementations. most companies surveyed (65 percent) handled their ERP upgrades through an in-house group. those who have implemented ERP packages agree that certain costs are more commonly overlooked or underestimated than others. The Hidden Costs of ERP Although different companies will find different land mines in the budgeting process. The survey also found that small. ―The success of the planning phase determines the success of the overall project. A typical manufacturing company may have add-on applications for Page 135 . Armed with insights from across the business. ―Companies that were able to maintain competency in–house were in much better shape. Planning consumes about 24 percent of the total time while testing requires another 22 percent. In fact. incremental ERP upgrades drove costs higher.‖ According to the survey. Integration and Testing Testing the links between ERP packages and other corporate software links that have to be built on a case-by-case basis is another often underestimated cost. says Bijesse. Training Training is the near-unanimous choice of experienced ERP implementers as the most elusive budget item. ―Undertaking a big. not just a new software interface. Testing was ranked the most difficult stage of ERP upgrading by 29 percent of respondents. the average upgrade takes about seven months from planning to the launch date. Another 28 percent said data conversion/migration was the most difficult. 1. big project like that requires internal expertise. Larger upgrades (those that affect the most users) provided better economy of scale.5 million or 18 percent of the cost of the initial ERP implementation.‖ says Bijesse.‖ Bijesse says. It's not so much that this cost is completely overlooked as it is consistently underestimated.The average cost of an ERP upgrade in this survey was $1. 2.
Although few CIOs will admit it. Consequently. If this laundry list also includes customization of the core ERP package. a specific number of the user company's staff should be Page 136 . Users with heavy analysis needs should include the cost of a data warehouse in the ERP budget—and they should expect to do quite a bit of work to make it run smoothly. Data conversion It costs money to move corporate information. testing ERP integration has to be done from a processoriented perspective. tax. testing and maintaining the system to skyrocket.logistics. 5. To avoid this. such as customer and supplier records. The upshot is that the wise will check all their data analysis needs before signing off on the budget. 4. Consultants Ad Infinitum When users fail to plan for disengagement. the data from the ERP system must be combined with data from external systems for analysis purposes. 3. expect the cost of integrating. But even cleandata may demand some overhaul to match process modifications necessitated—or inspired—by the ERP implementation. veterans recommend running a real purchase order through the system. Include metrics in the consultants' contract. making selective warehouse updates tough. and ERP systems do a poor job of indicating which information has changed from day to day. Companies often deny their data is dirty until they actually have to move it to the new client/server setups that popular ERP packages require. Data analysis Often. from old systems to new ERP homes. for example. from order entry through shipping and receipt of payment-the whole order-to-cash banana-preferably with the participation of the employees who will eventually do those jobs. Instead of plugging in dummy data and moving it from one application to the next. Users are in a pickle here: Refreshing all the ERP data in a big corporate data warehouse daily is difficult. those companies are more likely to underestimate the cost of the move. As with training. most data in most legacy systems is of little use. product design data and the like. production planning and bar coding. consulting fees run wild. One expensive solution is custom programming. companies should identify objectives for which its consulting partners must aim when training internal staff.
Implementation Teams Can Never Stop Most companies intend to treat their ERP implementations as they would any other software project. Many are forced to beg for more money and staff immediately after the go-live date. their eyes often get as big as silver dollars. you'll wind up hiring them—or someone like them—back as consultants for twice what you paid them in salaries. they know more about the sales process than the salespeople do and more about the manufacturing process than the manufacturing people do. and fewer still build it into their budgets when they start their ERP projects. Companies can't afford to send their project people back into the business because there's so much to do after the ERP software is installed. And it is in analysis—and. To reassure themselves that their math isn't completely out of whack. a company must be prepared to replace many of those people when the project is over. consulting firms and other companies that have lost their best people will be hounding yours with higher salaries and bonus offers than you can afford—or that your HR policies permit. Replacing Your Best and Brightest It is accepted wisdom that ERP success depends on staffing the project with the best and brightest from the business and IS. you can't go home again.able to pass a project-management leadership test—similar to what Big Five consultants have to pass to lead an ERP engagement. Because they have worked intimately with ERP. insight—that companies make their money back on an ERP implementation. But after ERP. Unfortunately. few IS departments plan for the frenzy of post-ERP installation activity. they figure. The bad news is. If you let them go. the team will be scuttled and everyone will go back to his or her day job. Huddle with HR early on to develop a retention bonus program and to create new salary strata for ERP veterans. long before the ERP project has demonstrated any benefit. The software is too complex and the business changes too dramatic to trust the project to just anyone. Just writing reports to pull information out of the new ERP system will keep the project team busy for a year at least. most companies want to compare notes Page 137 . one hopes. 7. 6. Though the ERP market is not as hot as it once was. Once the software is installed. You're too valuable. What does the company get? When CFOs look at enterprise resource planning (ERP) spending projections.
however." says Chris Jones. "Never use a rule of thumb. says the overall price tag for ERP can be intimidating. One attempt at a useful comparison is to look at the total cost as a multiple of the software cost. on what that multiple should be. A different benchmark compares the cost per user. the number of corporate divisions and users. There is no such thing as a standard cost to implement ERP. noting that Monsanto has invested a lot of time in choosing the processes and business models best suited for the company. However. other than serving as a red flag for users who anticipate spending $15 per software dollar." says Banks. says ERP implementation costs should fall in the range of $3 to $10 per dollar spent on the software itself.'s Barry Wilderman. depending on hundreds of variables. a total cost number-even if you can find a company willing to share its figures-won't necessarily mean much." says Gartner's Jones. Page 138 . Unfortunately. "I'm sure it could be done for less with a more aggressive implementation. This nonsense about one-to-one. Again. Such a wide range offers little predictive value. for example. two-to-one-that's exactly what it is: nonsense. remember that many variables affect the cost-per-user number.'s Gary Banks. Meta Group Inc. including the existing hardware and network infrastructure.with someone who has already lived through an ERP project. users want to gutcheck with someone else. a vice president of application delivery strategies. The cost of the software itself is universally known to be a small slice of the total project outlay. Jones notes that everyone delves into ERP from a unique situation. IT lead for the company's SAP implementation. There's no consensus. research director of business applications at Gartner Group Inc. his unscientific survey indicates that while other software projects typically have a lower overall price. the cost per user is higher than with ERP because fewer employees benefit from other kinds of software. the specific functions targeted for the ERP system and the amount of process redesign. And even the use of such broad numeric ranges has skeptics. Monsanto Co. "Total installed cost is probably the hottest issue in the market right now.
Module 6 Introducing Financial Management Information Systems in Developing Countries By Jack Diamond and Pokar Khemani Page 139 .
and other external agencies. governments have found it difficult to provide an accurate. monitoring. and misallocation of resources. often resulting in a large buildup of arrears. and transparent account of their financial position to parliament or to other interested parties. including donors and the general public. First. it provides the information to ensure improved efficiency and effectiveness of government Page 140 . purchase.THE IMPORTANCE OF FINANCIAL MANAGEMENT INFORMATION SYSTEMS (FMISS) In most developing countries (DCs). This allows a comprehensive picture of budget execution. or have been pressed into. expenditure control. facilitating a full and updated picture of commitments and expenditure on a continuous basis. This lack of information has hindered transparency and the enforcement of accountability in government. adopting financial management information system (FMIS) projects to strengthen their PEM systems. In light of these adverse developments. The results have been a poorly controlled commitment of government resources. the general public. the improved recording and processing of government financial transactions also allows prompt and efficient access to reliable financial data. often regarded as a precondition for achieving effective management of the budgetary resources. it is perhaps not surprising that many DCs have pressed for. pushing up interest rates and crowding out private-sector investment. Although it is not a panacea. This has had deleterious effects on the functioning of their public expenditure management (PEM) systems. and accounting of expenditure. the system should be able to trace all the stages of the transaction processing from budget releases. and reporting has negatively impacted budget management. reconciliation of bank statements. Second. complete. excessive borrowing. that are often not adequately appreciated. payment request. Once a commitment is made. the benefits of an FMIS could be argued to be profound. Third. an FMIS strengthens financial controls. This supports enhanced transparency and accountability of the executive to parliament. and has only contributed to the perceived governance problems in many of these countries. The establishment of an FMIS has consequently become an important benchmark for the country’s budget reform agenda. The consequent lack of reliable and timely revenue and expenditure data for budget planning. undermining the effectiveness and efficiency of service delivery. Further. budget execution and accounting processes were/are either manual or supported by very old and inadequately maintained software applications. commitment.
However. FEATURES OF AN FMIS In terms of terminology. three guiding characteristics for a well-designed FMIS: • It is a management tool When developing an FMIS it is important that it cater to management needs—not just those of the central agencies. and the relevant financial flows. the FMIS is commonly characterized as an integrated financial management information system (IFMIS). and should be. and accounting with the help of a fully integrated system for financial management of the line ministries (LMs) and other spending agencies. increased availability of comprehensive financial information on current and past performance assists budgetary control and improved economic forecasting. and Page 141 . In many functional areas specialized information systems are in place and will still be required even with the implementation of an FMIS. As the name implies. an FMIS usually refers to computerization of public expenditure management processes including budget formulation. • It should provide a wide range of nonfinancial and financial information As a tool of management it should provide the information required for decision making. Unfortunately. The full system should also secure integration and communication with other relevant information systems. Moreover. It should be noted that in this paper the term FMIS has been used generically to include an IFMIS. the complexity of information systems within the government sector is. budget execution. Generally. but also to support those needs that are likely to arise as parallel budget reforms are implemented. and budgeting. using the term ―integrated financial management information system‖ can sometimes be erroneously interpreted as describing a system that can capture all the functional processes. there are. For this purpose it is anchored in the government accounting system. Because of the integration requirement. It must be viewed as an integral part of budget system reform—hence not be designed just to meet present requirements. due to the multiplicity of functions and policy areas. as a management tool it should support the management of change. but also line agencies. to a large extent. planning.financial management. within public expenditure management.
Further. such as the identification of programs. and will cease to fulfill its central function as a system. for adding to and accessing the information database (in its absence each agency will have the incentive to develop ―its own‖ FMIS to meet its currently perceived needs). has not the right functionality—it will not be used. if the FMIS does not provide the required information—that is. and capable of progressive upgrading to cater to future needs. Managers will require other nonfinancial information. as well as indicators by which to judge the efficiency and effectiveness of programs. need to be able to access the system. cash balances and floats. short-term (one to three months) and longer-term (three months to end of year) forward estimates of . their grade within the organizational structure and rates of remuneration. therefore.should be designed to perform all necessary accounting functions as well as generate custom reports for internal and external use. • maintain a historical database of budget and expenditure plans. Page 142 • have dedicated modules to handle monthly. However. The converse is also true. the objectives or outcomes of programs. For example. accumulate. and paid. personnel information such as numbers of employees. • It is a system Its role is to connect. process. cash flows and bank account operations including checks issued. it strengthens financial controls and promotes accountability. and then provide information to all parties in the budget system on a continuous basis. and to derive the specific information they require to carry out their different functions. the types of goods and services produced. Attributes of a Well-Designed FMIS The FMIS should: • be modular. cancelled. by automating procedures and internal controls. • offer a common platform and user interface to the stakeholders in different agencies responsible for financial management. All participants in the system. For performance-based budgets. transaction data at the highest level of detail. performance information will be important to managers. this does not mean that it should exclusively concentrate on financial information. rolling.
outputting hard copies of key registers and statements. aggregated at the desired level of detail. cash balances reflected in the agency ledgers with the cash balances in the banks. • enable real-time reconciliation of parallel but related streams of transaction data—at the agency level: checks issued with those paid by the banks. and • be flexible enough to provide user-defined management information. hence securing the capture of all related information flows. checks. • have built-in analytical tools to offer trend analysis of various elements of fiscal operations to permit a forward look at the emerging events bearing on the fiscal stance. from the database. and expenditures prepared by agencies. • mechanize all possible routine tasks at the central and spending agencies— generating various forms/authorizations.. avoiding the need to duplicate data entry for accounting purposes. etc. • compile formal government accounts from the database of authorizations and cash allocations. and treasury operations. primary revenue and expenditure transactions of the agencies. Page 143 .revenues. adopting a comprehensive approach in the development of the project is fundamental to ensure that all functional interdependencies are identified. and corresponding estimates of the resulting cash flows. at treasury: receipts from banks with the checks paid by taxpayers. Although the FMIS does not capture all the information flows.
Institutional Framework.Figure 1 sets the FMIS in a broader context of interrelated information systems. Processes and Information Flows Page 144 . and illustrates the main functional processes from medium-term planning and budget preparation to budget execution and accounting.
This process takes years to fully implement. • Budgetary accounting • Accounts payable • Accounts receivable The noncore or other modules are. commitment control and financial reporting. namely budget execution. costs millions of dollars. payment processing. design. which are presented in Figure 2: preparation. that will usually start with the core functions. inter alia: • Payroll system • Budget development • Procurement • Project ledger • Asset module. STRATEGIC FRAMEWORK FOR INTRODUCING AN FMIS IN A DEVELOPING COUNTRY The introduction of an FMIS in a developing country should be regarded as part of a long process of reform. Thus FMIS should be regarded as a major project requiring a structured project management approach. procurement. accounting. The core of an FMIS could be expected to include the following modules and systems: • General ledger. and has a substantial recurring operating cost.An FMIS will consist of several elements with different functions.1 Viewed in this way there are four main stages in the process of introducing an FMIS. Page 145 . It is important to set priorities for the system implementation. and pilot and roll-out. In the description that follows. the term ―module‖ will imply that the system is a subelement in a FMIS.
Preliminary concept design including an institutional and organizational assessment .Prepare tender documents Stage 3: Procurement .Evaluation of bids and award contract Page 146 .Outline information technology (IT) strategy.Design project and draft project proposal .Formal approval of the project-securing government approval and donors’ funding Stage 2: Design .Main Steps in Introducing an FMIS Stage 1: Preparatory .Feasibility study . including hardware and organizational issues .Analysis of the key problem areas and ongoing reform programs .Develop functional specification .Issue tenders for hardware and software and associated requirements .
Page 147 . Project Management As explained earlier. (iii) Parallel reforms. it is useful to specify in some detail the essential requirements that should be met. (ii) Organizational development.Agreed customization and configuration of the system .Stage 4: Implementation .Detailed action plan for phased implementation and the pilot-run of the system .Detailed business process and gap analysis mapping required functionality to package and identifying and specifying detailed parameterization. changes .Phased implementation of additional modules . adequate resources and complementary organizational development. procurement.Determine training needs and conduct training of personnel . resolve initial problems and evaluate system performance for roll-out . IV. As indicated. customization. and parallel improvements in business procedures and practices supported by a suitable legal and regulatory framework. These supporting reforms should not be neglected in FMIS design and implementation.Configuration analysis and specify any additional IT. The essential elements of a sound project management are described below.Roll-out system to other ministries and agencies . and communication requirements .Strengthening of internal system support and phasing out consultant/contractor support These four stages describe the main process followed in the design. and implementation of an FMIS.Pilot run—parallel run of the system. procedural etc. these requirements have been grouped in three categories: (i) Project management. the successful implementation of this process also requires three supporting elements: sound project management. infrastructure. REQUIREMENTS FOR INTRODUCING AN FMIS Given the problems often encountered in FMIS projects. and without them it will not be possible to achieve the full benefits of an FMIS. the whole process of developing an FMIS should be regarded as a major project requiring a structured project management approach. A. As indicated in Figure 2.
the accountant general (AG)—is a key institution. procurement. It is also necessary that the project planning methodologies are used to plan. and implementation processes. and should meet on a monthly/quarterly basis depending on the project progress. and management model The implementation of a government-wide FMIS is a substantial undertaking for any administration. The cabinet and the parliament also need to be informed periodically by the steering committee on the progress in the implementation of the FMIS. is necessary in all phases of the project. Page 148 . the office of the auditor general. development. the central bank and other banks handling government business. Under PS direction. which usually are the ministry of finance and other central agencies. and implementation of the FMIS. implement. The finance minister. it would be useful to set up a steering committee under the chairmanship of the finance minister to manage and coordinate the entire process of design. the treasury that is in charge of this function—or in the Anglophone countries. Typically the AG must also collaborate with the head of the central information technology (IT) department in the design. budgetary and accounting processes. the AG is usually asked to take the lead role in the design. and monitor the project. and it is essential that the participants are fully aware of the magnitude of the undertaking. Necessary measures should also be taken to strengthen the capacity in the project team as well as the AG’s office and the budget office through all project phases. development. with project management responsibilities clearly identified. The committee should have considerable and authoritative influence. The PS/Finance and the AG should be assisted by a well-staffed project management team headed by a full-time project manager. Since accounting is the backbone of the information system. and continuous participation from the direct users of the system and other stakeholders. participation. development. with specializations in IT. training. assisted by the permanent secretary (PS/Finance) needs to take primary responsibility for overall management of the project. It is critical to mobilize internal management resources. and local governments. Ensuring project commitment at the highest levels of the political system and bureaucracy. The management model needs to ensure broad in-house participation and involvement of all the relevant stakeholders. and implementation processes relating to the FMIS. The project manager should be supported by a full-time technical team consisting of a number of assistant project managers. LMs. To ensure continuous commitment participation of top politicians and key stakeholders.Commitment.
and operation of government accounting.Simultaneously. implementation. They should be required to make extensive use of local consulting or training organizations and in-house resources. technical implementation skills for both hardware and software. • Experience in the management and operation of modern computerized financial systems in a government budgeting and accounting environment. working in the advisory and training capacity in developing countries. The time schedule for the entire project can be expected to be approximately four to five years after all the resources. human resource management. The external consultants need to be managed closely because they may tend to pursue their own interests. This disruption may last for a period of 9 to 12 months. an FMIS project requires careful choice of external technical assistance during different parts of the process. The external consultant should have extensive experience in public sector financial management including: • The design. and financial management systems in a developing country environment. is appointed. Comprehensive perspective maintained with a modular approach Page 149 Although the implementation of an FMIS should be carried out in a modular way. The in-house resources should be fully involved in the project design and planning. management. etc. International experience in implementing FMISs indicates that these projects often lead to temporary disruptions of the normal functions in the budget and accounts departments. including consultants. to avoid too much strain on the capacity of organizations. . user support skills. • Experience in project management and implementation. depending on the absorptive capacities of the organizations involved. budget. Strategy for use of external consultants In addition to in-house resources. it is also necessary to develop the necessary skills and capacity of the central IT department to provide strong support to the system. • Complementary experience in training. and organizational change in developing countries. Continuity of key personnel involved in the development and implementation processes is also important for the success of the project. it is important to keep a strategic and comprehensive view in the overall process of its planning and development. management development.
In addition. and the development of an auditing system. • Wide consultation and acceptance. Organizational Development At the outset of an FMIS project. and provinces. there are some other initiatives for donor funded projects in individual LMs and local governments. It is essential that all of these initiatives be coordinated at a senior central level. The civil service should be willing to accept that the FMIS would significantly change their influence and responsibilities. the operations in the processing of financial transactions will change dramatically from manual book-keeping to Page 150 . procedures. the design. Experience has shown that the lack of sufficient resources can serve as a serious obstacle to the successful implementation of the project. B. new job descriptions or working processes should be formalized. procurement and implementation of a payroll and personnel administration system. The continuous consultation within government departments is essential. To be successful. Further. As an example. so as to avoid duplication of effort and to ensure consistency of outputs. As a consequence of these changes. This could be achieved by developing a national IT strategy. An FMIS will induce changes in the working environment. departments. Some of these critical functions are given below: • System and data administration.Coordination with other development projects The development of an FMIS in a country is typically part of a comprehensive PEM reform strategy. and standards are in place for managing data and systems government-wide. it is necessary to ensure the availability of adequate financial resources. the organization needs to be prepared for the introduction of the FMIS and be willing to recognize and accept the benefits that the changes will bring about and the costs of implementation in their widest sense. Coordinating mechanisms should be created to ensure that a common set of policies. including the use of Information Technology and Information Systems (IT/IS) in the public service. • New job descriptions in ministries. Other important components relating to PEM reform are the development of a medium-term budget framework (MTBF). there is a need to clarify the future roles and responsibility for different functions. It is also equally important to relate PEM reforms to other reforms in the public sector and the improved delivery of public services. This would be possible with the help of a strong champion for the reforms.
Participation. but also training in the new legal and regulatory framework. • Motivation. C. or in the process of being implemented. In developing countries there often is a lack of financial discipline.‖ This implies decentralized on-the-job trainers deployed throughout the implementation period. Defining and deciding upon new structures and working practices is one thing. The challenges in organizational development are multiple. there is a need to develop new practices. The role of both the head of finance and accounting functions. User support is also necessary as a permanent service. no major gain will accrue from an FMIS. For successful implementation. and be focused on ―super-users. The training for the staff will not only include training in use of the FMIS for their respective operations and functions. There is little advantage in introducing an FMIS that merely follows existing PEM working processes and practices. • Training. The FMIS steering committee needs to develop a change strategy and establish a clear and agreed approach and timetable for implementing the various changes associated with the system. and the associated training requires a great deal of innovation and tailoring to the specific features and capacity of the organization. but implementing them is another. and the new business procedures put in place. and the auditors (internal as well external) will also clearly change. Motivation and support for the decision of implementing the new FMIS are critical. the stakeholders need to participate and be motivated. information. A large proportion of the training should be on-the-job training. Implementation needs to be phased and flexible. which also Page 151 .automated operations and processes. and adequate training will often strengthen this support. Restructuring of working processes and practices requires new procedures to be formalized and unified throughout the government. In the initial stage of implementation. the new codes and classifications. Donors are inevitably required to provide technical and financial support for the entire process. • Change management. and it is necessary for the ministry of finance to take a lead coordinating role in the whole process. Parallel Reforms and Improvements to Business Processes Another significant concern is that without the essential PEM reforms in place.
The design of the FMIS should introduce an improved system of internal and external controls for financial management. thus allowing for a gradual move toward an accrual basis. • Control structure. An FMIS is effective only if the underlying budgetary and accounting systems are robust and well managed. The internal controls regulate the cycle of recording. financial transactions will be entered into the accounts payable and accounts receivable modules with the due dates. classifying. Experience indicates that an FMIS will induce several reforms in existing systems. • Cash management. summarizing. a number of DCs use a single-entry accounting system in a manual mode. communicating. Page 152 . The FMIS could also aim at rationalizing the government banking arrangements and establishing a treasury single account for optimizing the management of government cash balances. With the implementation of an FMIS. These should be maintained at a central level. Legal framework. it is essential that all the cash flows be channeled through the FMIS. The internal audit function helps the management in evaluating and assessing compliance with these controls. The reporting requirements are the basis for defining the structures of these codes and classifications. At the same time an FMIS can be a vehicle for change. including the payroll payments. The new budget classification structure and chart of accounts should be compliant with the classification framework in the IMF’s Government Finance Statistics Manual 2001 Main budgeting and accounting principles. and interpreting financial information. To ensure that the budget and accounts are comprehensive.represents an important challenge. are processed by the FMIS. with the budgeting and accounting system on a cash basis. while keeping the budget on a cash basis in the early stages of implementing the FMIS. The DCs could take a step toward modified cash basis accounting. Off-the-shelf systems are normally designed for accrual accounting. Introducing an FMIS necessitates unifying the codes and classifications (both the budget classification and the chart of accounts). both receipts and payments. including: • Structure of the budget and the accounts. The external control system is exercised through external auditing carried out by the supreme audit institution. Typically. analyzing. and hence that all transactions.
submission and approval of estimates and the procedures for release of funds. ministry of finance (MOF). Tanzania Since 1994 the government of Tanzania has implemented an ambitious reform program to improve public sector financial management. borrowing and investment. the annual process. (iii) the basis of accounting and the form of annual accounts for audit and presentation to Parliament. In 1996. A legislative framework (Constitution. Page 153 . departments. V. two projects financed by the Swedish International Development Agency (SIDA) were designed—the Government Accounting Development Project (GADP) focusing on budget execution and the Interim Budget Development Project (IBDP) focusing on budget formulation. it is necessary to review the regulatory and legal framework and agree on the necessary modifications to the overall framework for government fiscal management. which initially focused on introducing effective and efficient budget formulation and expenditure management systems and processes. and agencies (MDAs). Finance Act and Regulations) needs to include: (i) the roles and responsibilities of the treasury. Specifically. and (iv) asset management and control. and other stakeholders responsible for the control and management of public finance. and establish a central payment system.While designing the FMIS. and thereby obviate the need for MDAs to have individual bank accounts. a decision was taken to abolish all payment offices in the ministries. it is perhaps not surprising that these have proved particularly demanding on DC administrations. receipt and custody of public funds. other ministries. A. A small sample of project experience in Anglophone African countries highlights some of the critical factors determining success or failure. following chronic problems in the financial management of the government. COUNTRY EXPERIENCES WITH THE IMPLEMENTATION OF FMISS Given the extensive requirements for successful implementation of FMIS projects. (ii) the main form of government funds.
restructuring. The system has now become the generic public sector financial management system used by the entire public sector. Purchase Order. Also work stations were provided for each of the MDAs from which they could access the system. and a substantial reduction in domestic arrears. the system has been introduced to 32 local authorities. • Embedding the reform process in the MOF combined with an emphasis on capacity building. The benefits of the IFMS have been extensive. though the authorities are planning to use other modules like Asset and Inventory Management. Under this system.In 1998/99. the government decided to introduce an Integrated Financial Management System (IFMS) in ten selected MDAs. Multi-currency. Each MDA had its own database held in the omnibus database in the central server. a central server was placed at the treasury (in the Office of the Accountant General (AG)) to which users were connected by a dedicated network. The Commitment Control System has led to the elimination of overspending. The software package for the IFMS is a medium-sized financial management and accounting package (Platinum SQL Financials from EPICOR). Currently. and the lag in reconciliation with banking data has been reduced from up to two years to automatic reconciliation on a daily basis. and are working toward accrual accounting. Accounts Payable. and the introduction of an improved expenditure control framework and chart of accounts. and Crystal report writer. particularly in the AG’s department. Comprehensive and fully reconciled fiscal data and reports are available on a continuous basis. Page 154 . At present. Foreign exchange report writer. and thus the general ledgers reflect the real position of balances at any particular point. At the local government level. Its implementation was distinguished by: • An initial review of the PEM processes affecting budget execution. through training. Accounts Receivable. MDAs’ transactions automatically update the database in real time. with the restoration of expenditure control and improved levels of transparency and accountability. and a roll-out to an additional 30 authorities was expected to be completed by the end of 2004. the IFMS is only using a few modules. and computerization. By the end of 2000 there were over 500 users of the system at more than 85 sites throughout Tanzania. Budget Module. namely General Ledger. A number of government bank accounts have been reduced to treasury single accounts maintained at the central bank. Cash Management. the IFMS in Tanzania appears to be the most successfully implemented system in Anglophone African countries. The accounts are essentially maintained on a cash basis.
supported by a high quality local consultancy company. • A solid backing at the political level. combined with very experienced international and local consultants. • Availability of adequate donors’ resources. an EPICOR partner. systems and organizational arrangements necessary for the management of government budgetary and accounting systems. However there is a need to consolidate and deepen the system and build the capacity to ensure its long-term sustainability. which trickled down to the management level. In Tanzania both the authorities and donors perceive the IFMS as a critical tool for achieving accountability in the public sector. The system is primarily performing basic budgeting and accounting functions. and other modules like Asset Management and Inventory Management need to be implemented. accounting principles. Donors are now more receptive to the idea of using government systems to channel funds than ever before. with both political and management commitment being strong throughout the entire reform process. that provided a strong support to the implementation process including training. Further.• Revising. • Selecting a mid range commercial software package. the system also needs to be interfaced and achieve integration with other main systems like Personnel Management and Debt Management systems Page 155 . developing and managing enabling legislation.
The MOF and the CAGD are not fully satisfied with the BPEMS reporting system.B. However significant progress has been made in strengthening the budget and expenditure management processes over the past five years. the experience of the design. development. although this was rectified after a period of almost two years. In the early years of the reform program. In the design of the BPEMS. the pilot implementation and the roll-out of the system has not progressed well. Despite substantial time spent in developing and customizing the software application. The main components of the PUFMARP include the introduction of a medium-term expenditure framework (MTEF) and the development of a computerized government financial management information system. to meeting 7 of 16 benchmarks in 2004. including building a sound regulatory and institutional framework under PUFMARP. termed the Budget and Public Expenditure Management System (BPEMS). at the MOF and the Controller and Accountant General’s Department (CAGD) in January 2003. The original plan to roll out the system by the end of fiscal year 2001 was not achieved due to a number of factors. the authorities have progressed from satisfying 1 of 15 Heavily Indebted Poor Countries (HIPC) Assessment and Action Plan (AAP) benchmarks in 2001. and this has been a major area of dispute between the Page 156 . In particular. The new chart of accounts introduced by the MTEF was not coordinated with a similar change in the then existing accounting system. and pilot implementation of the BPEMS has not been satisfying. on a pilot basis. caused significant accounting and reporting problems. After considerable delays. Ghana The government of Ghana launched an ambitious multi-faceted Public Financial Management Reform Program (PUFMARP) in 1996. without consideration of whether there was a better and more efficient method of achieving the required result. In Ghana. there was a mismatch between the (fast) rate of progress with the MTEF and the (slow) progress on the BPEMS. which aimed to introduce comprehensive reforms to the budget and expenditure management processes. the system was installed. The roll-out for additional ministries of Education and Health (planned before the end of 2003) was carried out in March/April 2004. the existing manual budget execution and accounting processes seem to have been automated to a large extent. relative to the BPEMS. The faster development of the MTEF.
and encountered significant design and implementation problems and delays. and there have been a number of changes in the program coordinator and program manager. The BPEMS had to be restructured several times. Page 157 . and limited involvement and ownership of the BPEMS by the various stakeholders in the design and development of the BPEMS. Local capacity and know-how has always been and is still the major issue. There were also problems with the new managers (Close Communications) hired by the government for implementing the system. and the government still relies on the assistance of local vendors.7 Consequently several significant issues need to be addressed before BPEMS can be made fully functional and rolled out. The overarching concern is the significant delay. The project implementation unit was also restructured several times.government and the software team. the development process was largely driven by consultants and donors in the formative period of the project. Somehow.
there were considerable delays in the completion of the design and development phase of the FMIS. and (ii) progressively extending and deepening the functionality and utilization of the system. The pilot-run has brought out a number of issues in the system functionality. The implementation of the system began in March 2003 with the mapping and necessary configuration followed by user acceptance and testing operations in February 2004. a Wide Area Network (WAN). Purchase Order. namely Budget Management. The software package is essentially accrual based. The pilot implementation phase is currently in progress in six line ministries and four local governments. Accounts Payable. and Financial Reporting. The pilot implementation covers the core modules of the application. application software. Finally. however the system provides a facility to allow the generation of cash based year-end financial statements to meet the audit requirements. Accounts Receivable. The roll-out9 has been planned in two phases—the second phase will cover all line ministries and six additional local governments. General Ledger. the procurement and evaluation process was completed in February 2003 with the award of a contract8 for the provision of a turnkey solution including hardware. Uganda The government of Uganda is in the process of implementing a comprehensive financial management reform program to improve the budget and expenditure management processes at the central and decentralized government levels. and the third phase will cover the remaining local governments. and these need to be resolved before closing the pilot phase. for a number of reasons. In the early years. Cash Management. as well as treasury procedures. An assessment of the pilot implementation is in progress before the system is rolled out to other line ministries. and supporting training/change management. It is necessary to complete the roll-out of the system to the whole government and ensure long term sustainability to reap the full benefits of the system by: (i) ensuring the availability of adequate resources in terms of staff capacity and maintenance budget. Page 158 .C. The full implementation may take another three to four years.
These problems included serious deficiencies in expenditure control and tracking processes. There are several significant issues to be addressed before the system can be made fully functional and rolled out. and the Integrated Financial Management Information System (IFMIS) to computerize the budgetary and accounting processes. Change management and communication activities did not receive adequate attention. The auditing aspects of the system have not been adequately planned and tested for live operations. A fast review of the system conducted by the AG with the help of an outside expert in July 2004 revealed a number of problems with the functionality of the system. In the latter case. The design and procurement process was completed in 2000 with the purchase of a package solution. including the MOF. the implementation phase has not progressed well. Some of the contractual work has not been properly fulfilled. In general. primarily because of clearly limited involvement and some neglect of the system by the main players. The pilot implementation did not follow the standard implementation methodology for this type of software. the government of Malawi has introduced a number of initiatives to improve public expenditure management. and there have been various contracts for implementation activities. most notably the medium-term expenditure framework to improve the budget process. The software support arrangements have changed over the years. while others have not been implemented at all. The governance structures including the steering committee. and was dismantled even before the implementation was completed. and the pilot run of the customized software started in 2001. the project management team. The project implementation team was not well resourced. and the pilot implementation is yet to be approved by the government as successful. There have been significant implementation delays. the conceptual framework including technical specifications was completed in time. Page 159 . and the implementation structure between the contractor and the government were properly set up.D. Some of the planned core modules for implementation have not been completed. Malawi Since 1995. AG and pilot ministries. so that the roll-out has been delayed until the problems have been resolved. and there are inconsistent views within the implementation team and implementing ministries. This project has encountered numerous difficulties.
Most important. the fiscal year 2004/05 continues to be a pilot testing period. the new classification structure is still to be adopted for compilation of the budget estimates. and it is necessary to eliminate inconsistencies and ensure conformity with that rubric. resulting in limited quality control assurance. Kenya Since 1997. and being utilized for resolving the current outstanding software and IT issues. Given this situation. Further. the government of Kenya has been implementing a project for the ―strengthening of government finance and accounting functions‖ to improve financial management. accountability. and their pilot testing may commence with the 2005/06 budget cycle. a number of diagnostic reviews were conducted and a Financial Management Information Systems Strategy was developed.E. The engagement of internal and external audit staff has been inadequate. Further. leadership. and the roll-out of the system is stalled due to lack of IT and communications wide-area network architecture. The revised classification and chart of accounts developed for FMIS is not fully consistent with the IMF’s GFSM 2001 standards. The pilot implementation has raised a number of issues. a contract for the purchase of the software implementation was finally awarded during late 2002. the project management needs to be strengthened to ensure strategic direction. The project is still in the final stages of pilot testing. the implementation of the budgeting and cash management modules has been delayed for a number of reasons. Following a procurement delay of almost two years. Hardware procurement was undertaken separately from the software. and communication. The pilot phase started with the setting up of core procurement and accounting modules in the treasury as well as two pilot ministries during 2003/04. and transparency of public funds. Page 160 . During the first two phases over the first three years.
Lack of clarity in ownership of the system and unclear authority to implement Public expenditure management in DCs is often segmented institutionally on vertical rather than horizontal lines. and also highlights some risks that should be avoided. and does not receive the attention it merits. say the minister of finance or his deputy. while the Budget Department has the dominant role in resource allocation. This is important not only to resolve the identified ―ownership‖ problems.WHY DO FMIS PROJECTS STALL IN DEVELOPING COUNTRIES? The above review of past experience in introducing an FMIS in DCs gives some guidance on the key issues to be addressed. Although. Both bodies could be considered as sharing a central role in the development and running of the new FMIS. Page 161 . The functional requirements document serves as the blueprint for later phases of the FMIS project. typically institutionally separated. and a plan for developing any necessary programming. the operating environment. the agency’s information requirements. at the same time joint ownership may involve a loss in accountability and real ownership of the system.the MOF proper. that have contributed to the limited success of FMIS projects may be worth noting in the DC context. Failure to clearly specify the basic functionality As a tool of management. in particular. or functional requirements. Often this original design phase is the most difficult part of an FMIS project. but in DCs to signal authority to push through governmentwide reforms in the face of strong ministries that may feel threatened by the level of transparency that a FMIS imposes on them. It describes the accounting and financial management tasks the system must perform. an FMIS must be carefully designed to meet agencies’ needs. in charge of budget management. The AG has significant regulatory and control functions. it could be recommended that these two bodies be nominated as joint owners of the new FMIS to ensure balanced requirements for the system. For example. or the Accountant General’s Department. even when the MOF has been given clear leadership. To counter this it is important to get support for and commitment to the project at the highest level. The following issues. in charge of government accounting. in Anglophone Africa it is not immediately clear who should be in charge of an FMIS project.
it should be the rule that any outside consultancy at this stage should be independent of potential vendors. undertaken by business rather than IT experts. In the DC context this model approach poses some problems. It also must be recognized that it is unusual for one system to service the information requirements of all users. a detailed analysis can take three months to a year. This part of the planning phase is time consuming but is essential if the building of the system is to proceed smoothly. Failure to reengineer procedures Page 162 . what can be realistically expected of managers in specifying such requirements? Often computerization is being introduced with fundamental changes to current work practices. it is difficult to rectify the situation later. Without a degree of exposure to a modern PEM environment. Ideally. It is usual for all users of the system initially to simply list all possible information requirements that they seek from the FMIS.The failure to spend enough time on the design phase The functional requirements document that serves as the blueprint for later phases of the system project is critical—if wrong. managers should tell vendors what is required and not the other way round. Most important. and be developed in conjunction with the staff in the ministry to cater for local conditions. it cannot be allowed to run too long and encroach on the time available for the actual building of the system. Without prior experience. how can these managers anticipate the implications of these reforms? Can managers really be expected to plan for these changes and be capable of mapping out how their organization will get from where it is now to where it has to be in a computerized environment? Not surprisingly. Although this phase is crucial to the success of the project. and much influenced by the vendors. A process of review by a panel of major users would result in a rationalizing of the requirements to a manageable level. It cannot be rushed: for the accounting function alone. It is essential that sufficient time be taken during the planning of the project to list all user requirements for information to be derived from the FMIS. In practice in DCs there may be a lack of capacity in the host MOF to fully operationalize this approach. Requirements analysis is important but tends to be an often neglected step. in these circumstances the system requirements document is often externally generated.
not simply more efficient. it may be important to review government accounting standards well in advance. The failure to undertake parallel reforms required by the FMIS As argued before. and hence it should not be surprising that such innovation is resisted. but too often there exists a blind belief that computers will solve all problems. there is a tension in going for state of the art computerization that will protect the investment against early obsolescence. familiarity. For example. but subsequently capable of enhancement as user skills.Establishing an FMIS should not be viewed as merely computerizing existing procedures. Clearly. Introducing an FMIS should thus be viewed as an organizational reform. Strassmann (1985) contends that the real payoff from IT is when it makes organizations more effective. At a minimum. and used for decisions—usually requires changing operating procedures. Peterson et al. Accordingly. more substantial reforms will take more time. However. managed.12 Inevitably. as opposed to the need for initially introducing systems that are user friendly with modest achievable goals. reform requires substantial groundwork to standardize manual procedures. a new FMIS is likely to be most productive when it incorporates major upgrades in accounting. and perhaps to consult national accounting bodies regarding the consistency of public and private sector standards in regard to the accounting system. The neglect to ―sell‖ the system to agencies Page 163 . In DCs this resistance is compounded by the lack of experience with computers. including documentation used and processing rules across all users. (1996) make the case that computerization promotes two kinds of reform: efficiency reforms that accelerate the operation of existing procedures and effectiveness reforms that change existing procedures. and redesigning reports and other analytical outputs. The reform of business practices should be a top priority. Often the degree of IT sophistication has assumed too steep a learning curve for DC users. distributed. and confidence grow. The tendency to leave system development to the computer supplier often means that these organizational issues are downplayed. The result is often a tendency for over sophistication at the expense of user friendliness. redesigning and strengthening internal controls. the disruption of well-established operating procedures can feel threatening to individuals who operate them. Redesigning information flows—the way those flows are processed. and technical considerations dominate in the design and implementation of the project. the aim of an FMIS should not be to computerize the present processes but to improve work practices.
advisable that those agencies be included on the previously mentioned steering committee. it is also well known that the time required for the completion of each step is often grossly underestimated. The user specification stage discussed earlier should be used to determine what are the critical requirements for the initial version of the system and what could be left to later versions or removed from the user requirements. development and testing. However. Any agencies that currently have welldeveloped management information systems should be particularly targeted for selling the advantages of the new system. especially in DCs. This is reinforced by top managers’ short political time horizon when judging reform payoffs. If the FMIS is seen as a centrally imposed tool to further control agencies. In the past. coupled with delays inherent in the implementation of complex IT systems. It is. While this might be one reason for the underestimation of time required. it will take them much longer to introduce IT systems than in more advanced countries— experience suggests perhaps two to three times as long. As indicated. The required management input is often underestimated The experience of advanced countries is that managing complex FMIS projects requires considerable management skill. this is typically in short supply in DCs. there has been a tendency to tell top management what they want to hear. owing to the human resource shortages faced by DCs. additionally. then its successful implementation will be threatened. system design. procurement and installation. Moreover. of course. is a disastrous combination. Senior managers in DCs rarely delegate responsibility and frequently are overloaded with work.It is crucial for the successful implementation of the new FMIS that agencies accept the need for the new system and that it will provide useful information to assist managers in the management of their agencies. Overestimating the information to be included in the system There is often a tendency to be too ambitious so that the intended scope of the FMIS is too wide and attempts to service all the requirements of potential users. training and conversion. Page 164 . since they are not regarded as essential for a cross-agency FMIS. Unrealistically short project timetable Implementing complex FMIS projects takes time. the inertia of development agency bureaucracies. The steps in the project are well known: preparatory requirements analysis. testing of the full system in the user environment.
Basing a reform on conditions imposed by donors. and they are confined to the manager’s area of concern. The consequence is that often the binding constraint when introducing FMISs is not the technical capacity to create them but the capacity to manage them. At the same time. and will not have a required level of management ownership. However. Second. Bugler and Bretchsneider (1993). even hostility.Moreover. therefore. in DCs the IT is usually introduced by expatriates. will not match the needs of the managers. decision makers must first be sold the idea that the benefits exceed risk. and it needs procedural changes. managers may steer away from difficult personnel issues.e. in most DCs managers in government cannot reduce staff and are severely limited in their capacity to change them. from the experience of IT reforms in state and local governments in the United States. i. In DCs in the absence of computer literacy there is a tendency to leave the system development to the computer supplier. as has sometimes been the case in Africa. Almost inevitably. Lack of incentives for reform To get FMIS reforms accepted. that there is a problem that exists and. However. There is plenty of evidence of past failure. so there is room for distrust. Page 165 . if anything from human resource viewpoint it could make their task greater and more complex. In such situations IT is not necessarily seen as a benefit to management. it demands skilled staff. they address an external reporting requirement by the manager. where top managers lack experience in computerized accounting and are therefore unable to grasp its possibilities for financial management. decision makers must be convinced it is needed. with minimal user involvement. concluded that the reforms were most likely to succeed if they have the following features: they are easy to use by the manager. moving from manual systems to an FMIS allows government to fulfill the same function with fewer staff. decision makers should recognize the urgency of the reform or the need for prompt implementation—often this perception is lacking at the top. Nor is it clear that there is always a good alignment in the incentive structure facing managers. officials tend to be risk averse—introducing computer technology is an innovation that is perceived as risky. In such an environment there is every likelihood that systems will not be user friendly. needs to be addressed. Third. To operate the new system will also typically require different types of skill. top managers may not be computer literate. does not increase success.. Fourth. It is complex. These requirements are hard to attain in an DC.
information on which to base FMIS project decisions is often inadequate.Prerequisites do not exist To successfully develop an FMIS. and efforts to improve skills in government are often frustrated by the migration of labor to the private sector for higher pay when workers have acquired sufficient skills. perhaps a greater constraint on sustainability arises from inadequate human resources. another to outsource the management of IT to a local firm. which tend to be exacerbated in the DC context. A computerized system’s greater reliance on communications. there is also a need for IT capacity in government. Is it necessary to get the pay structure right before embarking on such a training program? This consideration is particularly important for in-house IT capacity. In most DCs there is a general shortage of skilled labor. It is also important to ensure that measures are taken for the project to be sustainable. None of these solutions is without problems. which must first be built up before such projects are truly viable. to maintain the system and to have adequate data management skills to optimize the system once established. Faced with the poor pay scales mentioned previously. While most FMIS tenders specify a requirement for the vendor to maintain the system for an initial period (usually up to three years). Also there is a low level of computer literacy in the country. and sustainable. the project must be solidly based on some basic data on how the present system operates. However. which again will take time. It should be recognized that there are recurrent costs associated with the maintenance and operation of major FMISs that must be covered in budgets and that often are not considered. In the DC context. but may not necessarily deliver the pay-off anticipated. which are admittedly poor in many DCs. and yet another is to establish a dedicated government unit to provide IT services to the public sector that allow higher salaries than the average in the public sector. Thus. where there is often a lack of competition in this area. Expertise is required for interacting with vendors. and is a concern faced by developed and developing countries alike. especially when applied government-wide. Often this is insufficient to provide the required service to users. one solution is simply to pay retention bonuses to IT staff. while recognizing FMISs may be the medium-term solution to many Page 166 . may be another constraint. To overcome this constraint may require a major training program. although a leading cause of this is more fundamental: the lack of capacity within implementing agencies.
The system should facilitate simultaneous posting of all the transactions in the general ledger accounts and in all appropriate subledgers following the rules imposed by a chart of accounts. the system should allow recording of interim budget appropriations per subhead and allow for its replacement in due course by the approved budget appropriations. as well as associated financial flows. if any. Budgetary accounting This module should assist in accurate recording of the approved budget. 2. The system should link the budget classification with the standard functional and economic classifications for economic analysis purposes. that process government financial transactions. The G/L should record all financial transactions—starting with the allocation of budget funds through the commitments to the payment of goods and services. The Functions of Different Modules in a Typical FMIS A. In the case where the approved budget is not available at the beginning of the year. it is likely to be important to first spend the time in the short run in creating a solid base for success. budget transfers. I. and virements should also be maintained. The system must include facilities for automatic consolidation of accounts of different budget units at different levels of government. Core Functions 1. Page 167 . prepared on the basis of the approved budget and updated through the year based on the revisions. and virements.PEM problems. transfers. This module should provide a complete picture of assets and liabilities of the government. with a facility to incorporate further enhancements to classifications. The system should record the transfers between appropriations and reallocations/virements between different subheads as approved by the MOF during the course of the year. The system should be highly integrated with all other modules of the FMIS as well other systems. A historic record of the original budget. both for use by internal management and external agencies. The system should facilitate maintenance of cash flow forecasts. General ledger The general ledger (G/L) module is the foundation of an integrated FMIS. The system should follow the full classification of the budget. as well as revisions to the approved budget authorized by the legislature. The G/L system must have a strong reporting facility to produce all types of financial reports.
In many systems the above functions are performed by the G/L module itself, and the separate budget module is more comprehensive, dealing more with the development of budget estimates rather than merely recording the budget estimates. 3. Accounts payable The main function of accounts payable (A/P) module is to process invoices and vouchers for government expenditure, authorize payments, and maintain a record of liabilities. The module must have necessary features to monitor and manage payments efficiently to utilize discounts and avoid arrears, interest payments, and penalties. In some systems the A/P ledger is the subledger of the G/L and interfaces with all relevant systems, such as procurement. The payment processing should be controlled by the approved commitments and the satisfactory delivery of goods and services. 4. Accounts receivable This module must be able to handle all types of inflows that are received by budget units, including nontax revenues such as sales of goods and services, as well as fees and commissions. The module should be able to produce bills, process and record receipts, and record payments.
Noncore/other modules have the following functionality:
5. Payroll system Some personnel and payroll systems are integrated modules of an FMIS. Another option is to keep the payroll system as a separate system with an interface with the FMIS. The minimum requirements are that the payroll systems must contain the information needed to process payments of the payroll through the FMIS. All payments and receipts should be captured in the IFMIS. Some of the data needed are: • Benefit items for each employee: basic salary, professional or family allowances, and deductions such as for income tax, health insurance, pensions; • Budget information: expected increases, budget salaries for next year, overtime rates; • Bank accounts information on employees, bank code, branch code, accounts number, etc. 6. Cash management The system should assist in maintaining an up-to-date picture of the government's liquidity position and cash requirements. The system could reside in the Budget
Department of the MOF, and collect data from revenue agencies on revenue collections, and debt from the debt management system. These could be supplemented by information flows from external sources like the central bank for consolidation and preparation of cash management plans. In view of the different information flows required for cash management at a central level, some of the information flows will be interfaced with the information retrieved from the IFMIS. 7. Budget planning The FMIS should include functionality for preparation of annual budgets. This module should be able to exchange data with separate applications for macroeconomic analysis and projections, and facilitate the top-down and bottom-up approach for the formulation of budget estimates. Hence, a separate budget preparation system with an interface to the FMIS should assist in the evaluation of the budget proposals. This system should be able to access and generate data from the previous years. While time-series and compatibility of codes and classifications are vital features, the budget planning system should also be supplemented with tools for assessing the actual performance of ongoing projects, evaluations, and cost benefit analysis for new proposals. 8. Debt management A separate debt management system maintaining information on public domestic and external borrowings is required. This includes information on loan documents and transactions and issues of government securities. Some of the financial information from the FMIS is vital for debt management. In addition to accounting information, these systems also provide information required in the formulation of fiscal policy, such as forecasts of drawdown and debt-servicing liabilities. Payments related to government borrowings are carried out in the central debt management system. Loan receipts recorded in government accounts are processed by the central FMIS and central treasury general ledger, and are subsequently used to update the debt database. 9. Revenue administration Revenue administration is generally supported by a system that has two main objectives: • The formulation of tax and tariff policies and the subsequent collection of tax and nontax revenue; and • The assurance that the system should assist in capturing all sources of revenue and ensuring that they are properly accounted for.
The system should interface with the G/L for updating the ledger accounts, and should also provide input data to cash management system for preparation of cash flow forecasts. The system should facilitate the monitoring and evaluation of the revenue performance against the projections and set targets for future. 10. Purchase or procurement The system allows the input of commitment approval levels, records the full or partial discharge of commitments, and shows outstanding commitments at any given time. (The discharge of commitments would be controlled by the A/P module). This module should have the ability to generate local payment orders (LPOs) after the necessary checks and balances have been met. In particular, an essential feature is that the system must have the capacity to reject procurements (at the LPO issuance stage) when funds are unavailable—that is, where commitment and cash controls would be breached should the purchase proceed. 11. Project ledger This is an optional module that records the listing of projects approved, the total cost of the budget allocation for the current year, previous years’ cumulative expenditures, and the balance remaining to project completion. There would need to be provision to deal with price increases and approved contract variations. This module would need to agree with the expenditure records of the cashbooks, as well as have an interface with the budget preparation module. 12. Assets module This is an optional module and should record all assets purchased or built by the government, as well as their disposal when this occurs. Information in this module would come from both the cashbook and the projects modules. Government holdings in public enterprises would also be recorded here.
com/ This portal to ERP issues links to trade publication articles as well as B2B..com At this Yahoo-style portal. SAM Vaknin http://samvak.erphub. IT Toolbox – ERP http://www.html Page 171 . white papers. non-IT executives will still find useful feature articles and case studies on topics like ERP implementation strategies. IL 60611.erpassist. extensive links to ERP books. vendor information and the like.erpfans. ERP Fan Club http://www. Wireless and e-Business information.com/nm046.erpcentral. Suite 2400. articles and other resources are organized by vendor and by broad topic themes. 401 North Michigan Ave. The IT Industry Portal – ERP http://www.com Yes.aitp.References ERPCentral http://www. infrastructure and system performance. Internet: http://www. Association of Information Technology Professionals.org DSS in accounting by Dr. with links to news. Chicago. ERP does have its own fan-club site on the Web.com Even though this site is a subsection of EarthWeb. another IT industry portal.tripod. CRM.
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