Professional Documents
Culture Documents
Introduction
Role and Importance Of Management
Process of Management
Organisation Structure and Theory
Strategic Management of Business
Exercises
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CHAPTER-1
Introduction
1.1
The concept of the MIS has evolved over a period of time comprising many different
facets of the organizational function. MIS is a necessity of all the organizations.
The initial concept of MIS was to process data from the organization and present it in the
for of reports at regular intervals. The system was largely capable of handling the data
from collection to processing. It was more impersonal, requiring each individual to pick
and choose the processed data and use it for his requirements. This concept was further
modified when a distinction was made between data and information. The information is
a product of an analysis of data. This concept is similar to a raw material and the finished
product. What are needed are information and not a mass of data. However, the data can
be analyzed in a number of ways, producing different shades and specifications of the
information as a product. It was, therefore, demanded that the system concept be an
individual- oriented, as each individual may have a different orientation. Towards the
information. This concept was further modified, that the system should present
information in such a form and format that it creates an impact on its user, provoking a
decision or an investigation. It was later realized then even though such an impact was a
welcome modification, some sort of selective approach was necessary in the analysis and
reporting. Hence, the concept of exception reporting was imbibed in MIS. The norm for
an exception.
Was necessary to evolve in the organization. The concept remained valid till and to the
extent that the norm for an exception remained true and effective. Since the environment
turns competitive and is ever changing, fixation of the norm for an exception becomes ka
futile exercise at least for the people in the higher echelons of the organization. The
concept was then evolved that the system should be capable of handling a need based
exception reporting. This need maybe either of an individual or a group of people. This
called for keeping all data together in such a form that it can be accessed by anybody and
can be processed to suit his needs. The concept is that the data is one but it can be viewed
by different individuals in different ways. This gave rise to the concept of DA ABASE,
and the MIS based on the DATABASE proved much more effective.
Over a period of time, when these conceptual developments were taking place, the
concept of the end user computing using multiple databases emerged. This concept
brought a fundamental charge in MIS. The change was decentralization of the system and
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the user of the in formation becoming independent of computer professionals. When this
becomes a reality, the concept of MIS changed to a decision making system. The job in a
computer department is to manage the information resource and leave the task of
information processing to the user. The concept of MIS in todays world is a system
which handles the databases, databases, provides com-putting facilities to the end user
and gives a variety of decision making tools to the user of the system.
The concept of MIS gives high regard to the individual and his ability to use
information. An MIS gives information through data analysis. While analyzing the data,
it relies on many academic disciplines. These include the theories, principles and
concepts from the Management Science, Psychology and Human Behavior, making the
MID more effective and useful. These academic disciplines are used in designing the
MIS, evolving the decision support tools for modeling and decision - making.
The foundation of MIS is the principles of management and if its practices. MIS
uses the concept of management Information System can be evolved for a specific
objective if it is evolved after systematic planning and design. It calls for an analysis of a
business, management views and policies, organization culture and the culture and the
management style. The information should be generated in this setting and must be useful
in managing the business. This is possible only when it in conceptualized as system with
an appropriate design. The MIS, therefore, relies heavily on the systems theory offers
solutions to handle the complex situations of the input and output flows. It uses theories
of communication which helps to evolve a system design capable of handling data inputs,
process, and outputs with the lest possible noise or distortion in transmitting the
information form a source to a destination. It uses the principles of system Design, Viz.,
an ability of continuous adjustment or correction in the system in line with the
environmental change in which the MIS operates. Such a design help to keep the MIS
tuned with the business managements needs of the organization.
The concept, therefore, is a blend of principle, theories and practices of the
Management, Information and System giving rise to single product known as
Management Information System (MIS). The conceptual view of the MIS is shown as a
pyramid in Fig.1.1.
The Physical view of the MIS can be seen as assembly of several subsystems
based on the databases in the organization. These subsystems range from data collection,
transaction processing and validating, processing, analyzing and storing the information
in databases. The subsystem could be at a functional level or a corporate level. The
information is evolved through them for a functional or a department management and it
provides the information for the management of business at the corporate level. The
physical view of the MIS can be shown as in Fig.1.2.
The MIS is a product of a multi- disciplinary approach to the business
management. It is a product which needs to be kept under a constant review and
modification to meet the corporate needs of the information. It is prescribed product
design for the organization. The MIS differs since the people in two organizations
involved in the same business. The MIS is for the people in the organization. The MIS
model may be the same but it differs greatly in the contents.
The MIS, therefore, is a dynamic concept subject to change, time and again, with
a change in the business management process. It continuously interacts with the internal
and the external environment of the business and provides a corrective mechanism in the
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system so that the change needs of information are with effectively. The MIS, therefore,
is a dynamic design, the primary objectively. The MIS, therefore, is a dynamic design the
primary objective of which is to the information the information for decision making and
it is developed considering the organizational fabric, giving due regard to the people in
the organizational the management functions and the managerial and the managerial
control.
The MIS model of the organization changes over a time as the business passes
through several phases of developmental growth cycle. It supports the management of the
business in each phase by giving the information which is crucial in that phase. Every has
critical success factors in each phase of growth cycle and the MIS model gives more
information on the critical success factors for decision making.
1.2
MIS DEFINITION
control situation. The MIS helps the middle management in short them planning,
target setting and controlling the business functions. It is supported by the use of the
management tools of planning and control. The MIS helps the top management in
goal setting, strategic planning and evolving the business plans and their
implementation.
The MIS plays the role of information generation, communication, problem
identification and helps in the process of decision making. The MIS, therefore, plays
a vita role in the management, administration and operations of an organization.
1.4 IMPACT OF THE MANAGEMENT INFORMATION SYSTEM
Since the MIS plays a very important role in the organization, it creates an impact
on the organizations functions, performance and productivity.
The impact of MIS on the functions is in its management. With a good support,
the management of marking, finance, production and personnel become more
efficient. The tracking and monitoring of the functional targets becomes easy. The
functional, managers are informed about the progress, achievements and shortfalls in
the probable trends in the various aspects of business. This helps in forecasting and
long- term perspective planning. The managers attention is brought to a situation
which is exceptional in nature, inducing him to take an action or a decision in the
matter. A disciplined information reporting system creates a structured data and a
knowledge base for all the people in the organization. The information is available in
such a form that it can be used straight away or by blending analysis, saving the
managers valuable time.
The MIS creates another impact in the organization which relates to the
understanding of the business itself. The MIS begins with the definition of a data
entity and its attributes. It uses a dictionary if data, entity and attributes, respectively,
designed for information generation in the organization. Since all the information
system use the dictionary, there is common understanding of terms and terminology
in the organization brining clarity in the communication and a similar understanding
an even of the organization.
The MIS calls for a systemization of the business operation for an affective
system design.
A well designed system with a focus on the manger makes an impact on the
managerial efficiency. The fund of information motivates an enlightened manger to
use a variety of tools of the management. It helps him to resort to such exercises as
experimentation and modeling. The use of computers enables him to use the tools
techniques which are impossible to use manually. The ready-made packages make
this task simpler. The impact is on the managerial ability to perform. It improves the
decision making ability considerably.
Since the MIS works on the basic systems such as transaction processing and
databases, the drudgery of the clerical work is transferred to the computerized system,
relieving the human mind for better work. It will be observed that a lot of manpower
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is engaged in this activity in the organization. It you study the individuals time
utilization and its application; you will find that seventy per cent of the time is spent
in recording, searching, processing and communication. This is a large overhead in
the organization. The MIS has a direct impact on this overhead. It creates an
information- based work culture in the organization.
1.5 MANAGEMENT INFORMATION SYSTEM AND COMPTER
Translating the real concept of the MIS into reality is technically, an infeasible
proposition unless computers are used. The MIS relies heavily on the hardware and
software capacity of the computer and its ability to process, retrieve communicate
with no serious limitations.
The variety of the hardware having distinct capabilities makes it possible to
design the MIS for a specific situation. For example, if the organization needs a large
database and very little processing, a computer system is available for such a
requirement. Suppose the organization has multiple business location at long
distances and if the need is to bring the data at one place, process, and then send the
information to various location, it is possible to have a computer system with a
distributed data processing capability. If the distance is too long, then the computer
system can be hooked through a satellite communication system. The ability of the
hardware to store data and process it at a very fast rate helps to deal with the data
volumes, its storage and access effectively. The ability of the computer to sort and
merge helps to organize the data in a particular manner and process it for complex
lengthy computations. Since the computer is capable of digital, graphic, word image,
voice and text processing, it is exploited to generate information and present it in the
form which is easy to understand for the information user.
The ability of a computer system to provide security of data brings a confidence
in the management in the storage o data on a magnetic media in an impersonal mode.
The computer system provides the facilities such as READ ONLY where you cannot
delete to UPDATE. It provides an access to the selected information through a
password and layered access facilities. The confidence nature of the data and
information can be maintained in a computer system. With this ability, the MIS
become a safe application in the organization.
The software, an integral part of a computer system, further enhances the
hardware capability. The software is available to handle the procedural and
nonprocedural data processing. For example, if you want to use a formula to calculate
a certain result, an efficient language is available to handle the situation. If you are
not use a formula but have to resort every time to a new procedure, the nonprocedural
languages are available.
The software is available to transfer the data from one computer system to
another. Hence, you can compute the results at one place and transfer them to a
computer located at another place for some other use. The computer system being
able to configure to the specific needs helps to design a flexible MIS.
The advancement in computers and the communication technology has the
distance, speed, volume and complex computing an easy task. Hence, designing the
MIS for a specific need and simultaneously designing a flexible and open system
becomes possible, thereby saving a lot of drudgery of development and maintenance
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and maintenance of the system. The concept of user friendly systems and the end
user computing is possible, making information processing a personalized function.
However, the application of the management principles and practices in todays
complex business world is possible only when the MIS is based on computer system
support.
1.6 MANAGEMENT INFORMATION SYSTEM AND ACADEMICS
The managements information system draws a lot of support from other
academic disciplines too. The foundation of MIS is the management theory. It uses
the principles and practices of management while designing the system, ant gives due
regard to the theory of organizational behavior.
It considers the human mind as a processor of information. While designing the
report format and forming communication channels, MIS takes into account the
behavior of the manager as an individual and in a group. It gives due regard to the
personal factors such as bias, thinking with a fixed frame of reference, risk aversion,
strengths and weaknesses.
Another area of academics is operational research. The operational research is
used for developing the models of management and they are then incorporated in the
MIS as decision support systems. The inventory control, queuing theory, and resource
programming are used in the MIS as decision support systems. The network theory is
used for planning and controlling large projects. The application of PER / CPM to a
project planning is now easily possible through the MIS support.
In the area of accounting application, it uses the accounting principles to ensure that
the data is correct and valid. It uses the principles of double entry bookkeeping for
balancing the accounts. It uses the accounting methodology for generating a trial
balance sheet and other books of accounts.
The MIS uses the communication theory in a significant manner. The principle of
feedback is used while designing analysis. Systems. While designing the report
format, attention is paid to avoid noise and distortions in the communication process.
The MIS further relies heavily on the decision methodology. It uses different
mathematical techniques to handle the situation of decision making uses the method
of decision- making under certainty for decision- making and action.
The MIS is based on database structures, viz .hierarchical, network and relational
database have roots in the mathematics and the set theory.
The MIS becomes rich in content and more useful when it becomes more and more a
decision- making or decision- support system. The is possible when it builds decision
making systems in MIS which in turn is possible if it draws tools, techniques,
methods, rules and principles from pure and application science, and use them as an
integral part of the system. The MIS draws data from its own source and uses it in the
application of a variety of tools and techniques to solve the management,
mathematics, and accounting. Psychology, communication theory, operations
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research and probability theory for building processes, methods, and decision
support systems in designing business application.
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At the level of an officer and an executive, the MIS does the job the of data
manipulation and integration. It analyses the data in a predetermined manner. This
means that the knowledge of business is transferred from an individual to the MIS
and is made available to all in the organization. This change arising out of the MIS
creates a sense of being neglected for knowledge, information and advice. The
psychological impact is larger if the person is not able to cope up with this change by
expanding or enriching the job and the position held by him.
The manager holding a position in the top or middle management suffers from fear of
challenge and exposure. The MIS makes these competitors more effective as they
have access to the information and have an ability to interpret. This leads to a
situation where he is afraid that that his position, decision and defense will be
challenged and may be proved wrong sometime. The risk of adverse exposure to the
higher management also increases. The effects so far pointed out are all negative and
they are seen only in few cases.
The positive effects on the individuals at all levels are that they have become more
effective operators. The time and energy which was spent earlier in unproductive
work is now applied for a productive work. Some are able to use their analytical skills
and knowledge with the in formation support for improving their position in the
organization. Managers, having improved their decision making ability, are able to
handle the complex situations with relative ease. Some are benefited by improving
their performance and being held in high esteem by the higher management.
The enterprising managers are able to use the systems and the models for trying out a
Number of alternatives in a given problem situation. The impact of the MIS on
people
Of the organization is phenomenal as it has made the same body of people
collectively more effective and productive.
The recent major technological advances in communication such as Multimedia,
Imaging. Graphical User Interfaces (GUI), Internet, Web etc. and the ability to access the
data stored at different locations on the variety hardware of platforms would make MIS
more attractive and efficient proposition. An intelligent user of information can
demonstrate the ability of decision making, since his manipulative capability is
considerably increased, with the information now being available on his desktop.
Through the MIS, the information can be used as a strategic weapon to counter the threats
to business, make business more competitive, and bring about the organizational
transformation through integration. A good MIS also makes an organization seamless by
removing all the communication barriers.
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REVIEV QUESTIONS
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CHAPTER-2
INRODUCTION TO MANAGEMENT
Management as defined by Mary Follett is the art of getting things done through
people A manger is defined as a person who achieves the organizations goals by
motivating others to perform not by performing himself. Whether management is an
art or a science is a very subjective question. But it can be said without doubt that
modern management in the environment of technology is becoming more of a science
than an art. We define management for the purpose of Management information
Systems as the process of planning, organizing, staffing, coordinating and controlling
the efforts of the members of the organization to achieve common stated goals of the
organization.
In the process of management, a manager uses human skills, material resources and
scientific methods to perform all the activities leading to the achievement of goals.
The management process involves a continuous resolution of conflicts of one kind or
the other which affects the achievement of goals. In the management of any activity, a
manager comes across human conflict, conflict of goals, between alternative
resources, conflict of time, conflict of approach or method and the conflict of choice.
The manager uses a variety of tools, techniques and skills while executing the
management process of planning, organizing, staffing, coordinating and controlling.
An effective way of handling this process is to treat the organization as a system. The
result oriented management approaches the problem of management through the
system view of the organization.
The key concepts of the system theory used in the management are as follows:
1. A system is a comprehensive assembly of parts becoming an organization to
achieve the stated goals.
2. A system is called OPEN if it has interaction with the environment and
CLOSED if it not have an interaction with the environment.
3. A system is defined, described and understood by the boundaries within
which it performs.
4. The system are subject to entropy, i..e., the tendency to run down. Closed
systems suffer from entropy as they are cut off from the environment, while
open systems interact with the environment and draw upon the support of
resources to maintain a given condition.
5. Systems try to remain in an equilibrium or a steady state by taking recourse to
corrective action. This is possible when the system has its own feedback, i.e.,
an informational input about the state of the system.
The advantage of viewing the management as a system is that it enables us to see
the critical variables, constraints and their interaction with one another. It force
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the manager to look at the situation in such a way that due regard is given to the
consequences arising out of interaction with the related element or subjects. The
process of management explained earlier consists of steps which are relationally
linked and locked with each other.
In the context of the MIS, the systems approach to management is the most
efficient one. The understanding of the basic principle of management theory
evolved the scholars Henri Fayol, Chester Barnard and Alvin Brown is very much
essential. The application of management principles in an environment,
recognizing the specific situation, is the accepted practice of management.
Deviating from the principle to honour the situation and at the same time not
diluting the management principle is the managerial skill. The manager must have
a knowledge of management theory and principle as the skill to use them in a
particular environment.
2.2
APPROACHES TO MANAGEMENT
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effective and efficient incentives. He further said that the cooperation is more effective if
the members of the group communicate with one another, are willing to contribute to
groups action, and have a conscious common Purpose. He father said that a groups of
peoples in the system work as an organization is looked upon as a system of factions, a
system of in a system of incentives, a system of authority and a direction and a system of
logical decision making. The emergence of the modern management thought is credited
to the social scientists, the behavioral scientists, the systems scientists and the practicing
managers.
2.3 FUNCTIONS OF THE MANAGER
An individual who gets the thing done is a Manager. It is necessary to distinguish
between the task and the functions. While manager may perform the task such as
accounting, selling, manufacturing, purchasing, etc. These activities are called as tasks
and not as functions. The activities that are performed through the managerial functions
are planning, organization, staffing, directing coordinating and controlling.
Planning is a process of determining the goals and objectives and evolving strategies
policies, programmers and procedures for the achievement of these goals. The
essence of the process is decision making as there are a number of alternatives in each
of these factors.
Organisation involves evolving the structure of the people working in the
organization and their roles. It specifies an authority structure and assigns activities to
the people backed by the delegation of authority. Building a meaningful effective
structure of authority and the relationship is known as organizing.
Staffing involves manning the positions in the organization structure. It requires
defining the manpower needs per position or centre of activity. It requires appropriate
selection of the person or persons ensuring that they together will achieve the goals
and objectives of the organization.
Directing is a complex task of implementing the process of management. In the
process, the manger is required to guide, clarify and solve the problems of the people
and their activities. It is necessary to motivate the people to work for the goal with an
interest and a confidence.
Coordinating is the function which brings a harmony and smoothness in the various
group activities and individual efforts directed towards the accomplishment of goals.
It is a process of synchronizing individual actions and the efforts which may differ
because of the differences in the personal goals and the common goals, the
differences in the interpretation of methods and directions. It is, therefore, necessary
to undertake centrally a process of coordinating and reconciling the differences in the
approach, timing, efforts and interests towards a common goal. This task is to be
carried out by the authority placed at a higher level in the organization structure.
Controlling is a process of measurement of an output, comparing it with the goals, the
objectives and the target, and taking corrective actions, if the output is falling short of
the stated norms. Controlling ensures an achievement of the plan. The essence of the
control lies in good planning. It helps to evaluate the performance, highlights
abnormal deviations, and guides a manager to take specific corrective actions. This
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Price Changes
Price changes occur in the economy for various reasons. The changes occur because
of decrease in the demand and supply, the changes in the consumer behavior, in the
consumption pattern and the money supply, and so on. The price changes affect the
cost of raw material and labor and on these changes a manager has no control.
Productivity
Productivity is a result of the capital, labor and technology. Many a times an
organizations business are taken over by better technology. The costs are affected by
the technology changes affecting the productivity. The manager has to respond
quickly to the technological changes to save the business.
Fiscal and Monetary Policy
The Government announces fiscal policies and controls them. The organizations
profit position is affected by these policies. These policies affect the credit terms, the
price of the inputs and the money supply affecting the cash position of the
organization. A manager has a very little leverage to deal with these policy changes.
Customers
The customers rule the business, especially when the business operates in a buyers
market. In a competitive world, it is very difficult to predict the customer behavior.
The changes in the demands occur with growth and technology. The customer does
not show consistent preference to the product. The change in the business orientation
to suit the changes in the consumer demand is a difficult task for the manager. It is
not always possible to predict these changes well in advance in order to take any
managerial action to meet the changed situation.
Technological Environment
The technology has a major impact on the business. It affects the business prospects,
cuts down the profits and forces the management to change the course of the business
operations. It requires changes in the product design and promotes new concepts. It
generates new business opportunities. Any change in technology changes the work
culture, the methods and the systems. It affects the speed of the operations and gives a
boost to the productivity of the production systems. Examples of technological
changes are seen in aviation, electronics, energy, communication, consumer goods
industry, optics, medicines and manufacturing.
Social Environment
The social environment is built around the attitudes, the desires, the expectations, the
degree of intelligence and education, the beliefs and customs, the religion, the caste
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and creed of the people. The social environments are built in centuries and hence it is
deeply rooted in the society. The social environment has an important impact on the
business and the organizational productivity.
Social factors create an attitude towards the work, generate the product choices,
and manipulate the consumer behavior. It is well known that it took a lot of time to
convince the farmers in India about the use of fertilizers. It is recognized that rural
marketing is different from the urban marketing. In spite of the technological
advances, frozen foods are not finding consumer preferences. Introduction of
computers in the service industry is still a difficult proposition. A number of such
examples can be cited to prove that the social environment affects business and
makes the managers task very difficult and challenging.
Political Environment
The political factor is the most important factor which affects the business in Indian
environment. The unstable political environment brings stagnancy in the business
development. The changes in ruling party bring economic policy changes, affecting
the business. The sect oral preferences, such as an agricultural versus an industrial, an
educational versus a basic research, an investment in the service sector versus a core
sector come about with change in the ruling political party and its policies. Such
changes have a long-term impact on business performance. The manager has to deal
with such changes effectively.
Ethical Environment (Systems of a Moral Behavior)
Some business problems arise due to failing on the ethical grounds. The government
has enacted many laws and regulations to bring about harmonious operations in
business. However, some aspects of the business operations are left as ethics, called
the business ethics. The business ethics emerge from the professional conduct, the
business norms and codes on confidentiality, the payment and documentation, the
adherence to generally accepted standards of accounting and auditing. Business ethics
is a set of norms which are universally accepted as a business behavior.
All these factors discussed so far, are beyond the control of the manager. At best
he can predict, assess, evaluate and take such actions which will help him to control
the situation.
2.5
Planning, organizing, staffing, coordinating, directing and controlling are the various
Steps in a management process. All the steps prior to a control are necessary but are
not necessarily self-assuring the results unless it is followed by a strong control
mechanism. The management experts have viewed these steps as Management
Control System. They postulate the hypothesis that unless a control is exercised on
the process, the goals will not be achieved. They advocate a system of effective
control to ensure the achievement of the business objectives.
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A definition of control is the process through which managers assure that actual
activities conform to the planned activities, leading to the achievement of the stated
common goals. The control process measures a progress towards those goals, and
enables the manager to detect the deviations from the original plan in time to take
corrective actions before it is too late. Robert J Mockler defines and points out the
essential elements of the control process. The basic steps of the control process are
given in Fig. 2.1.
The management is a systematic effort to set the performance standards in line
with the performance objectives, to design the information feedback systems, to
compare the actual performance with these predetermined standards, to identify the
deviations from the standards, to measure its significance and to take corrective
actions in case of significant deviations. This systematic effort is undertaken through
the management control system.
Estabilsh
Standards of
Performance
Measure
Performance
Actual
vs.
STD.
Not O.K.
Corrective
Action
The control system is essential to meet the environmental changes discussed earlier,
to meet the complexity of todays business, to correct the mistakes made by the
people, and to effectively monitor the delegation process. A reliable and effective
control system has the following features.
Early Warning Mechanism.
This is a mechanism of predicting the possibility of achieving the goals and the
standards before it is too late and allowing the manager to take corrective actions.
Performance Standard
The performance standard must be measurable and acceptable to all the organization.
The system should have meaningful standards relating to the work areas,
responsibility, and managerial functions and so on. Fro example, the management
would have standards relating to the business performance, such as production, sales,
inventory, quality, etc. The operational management would have standards relating to
the shift production, rejections, down time, utilization of resources, sale in a typical
market segment and so. On. The chain of standards, when achieved, will ensure an
achievement of the goals of the organization.
Strategic Controls
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In every business there are strategic areas of control knows as the critical success
factors. The system should recognize them and have controls instituted on them.
Feedback
The control system would be effective; it continuously monitors the performance and
sends the information to the control centre for action. It should not only highlight the
progress but also the deviations.
Accurate and Timely
The feedback should be accurate in terms of results and should be communicated on
time for corrective action.
Realistic
The system should be realistic so that the cost of control is far less than the benefits.
The standers are realistic and are believed as achievable. Sufficient incentive and
rewards are to be provided to motivate the people.
The Information Flow
The system should have the information flow aligned with the organization structure
and the decision makers should ensure that the right people get the right information
for action and decision making.
Exception Principle
The system should selectively approve some significant deviations from the
performance standards on the principle of management by exception.
A standard is control system has a set of objectives, standards to measure, a
feedback mechanism and an action centre as elements of the system. They need to be
properly evolved and instituted in the organization with due recognition to the
internal and the external environment. The system as a whole should be flexible to be
change with ease so that the impact of changed environment is handled effectively.
2.6 MANAGEMENT BY EXCEPTION
Paretos principle of 80:20 applications to the management of enterprise. Several
terms have been coined on this principle such as management by objectives;
management methodology is the management by exception. When the management
operates under time constraint, each manager has to him to attend to the situation
where his attention is necessary. Such attention would lead to an action, a decision or
a wait and- see approach.
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If all the situations are considered in a routine manner, it consumes time and tends to
be neglected over a period of time. An efficient manager tries for selective attention
to manage within the available time resource. The principle evolved, therefore, is of
the management by exception. The exception is decided the impact a situation would
make on the performance, the process and the standards set in the management
control system.
The exception is defined as a significant deviation from the performance, or the
process and the standard. The deviation could be abnormal on a positive or on a
negative side of the standard. The deviation could be predictive or could be arising
out of random causes in the business operations. IT is, therefore, necessary to assess
whether the deviation is sporadic or consistently coming in, calling for managerial
attention. The manager is interested in knowing the significant deviation by the
yardsticks of consistency and not out of random causes. The significant deviations are
exceptional in nature and require to be attended to immediately. A manager is further
interested in knowing the reasons behind the exceptional nature of the situation. It is
possible to trace the reasons of deviation, and it is possible to take a corrective action.
The significant deviation can occur on account of wrong performance standards
and wrong management process. Many times standards are set very low and they
need to be looked in to avoid the misuse of resources. If the standards are set too
high, then the people fail to achieve them on account of de motivating factor of the
high standards.
A wrong management process refers to a variety of decisions a manager has taken in
the planning, organization, staffing, directing and controlling a given management
task. These decisions relate to the choice and the allocation of resources, the methods
of using resources, the application of the tools and the techniques, the use of
manpower by way of staffing and the manner in which the efforts are coordinated in
the organization. For an efficient and an effective management, without loss of time,
it is, therefore, necessary to report the significant deviations to the right person in the
organization. In this regard a manager himself has to provide the conditions of
exceptions in the control system so that they are highlighted and informed. The
management by exception commands grip on the management process. The
managerial effort gets directed towards the goal with the purpose of achievement.
2.7 MIS: A SUPPORT TO THE MANAGEMENT
The management process is executed through a variety of decisions taken at each step
of planning organizing, staffing, directing, coordinating and control. As discussed in
Chapter 1, the MIS aids decision making. If the management is able to spell out the
decisions required to taken in these steps are tabulated in Table 2.2.
Table 2.2 Decisions in Management
Steps in management
Planning
Decision
A selection from various alternatives- strategies,
resources, methods, etc.
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Organization
Staffing
Directing
Coordinating
Controlling
The objective of the MIS is to provide information for a decision support in the
process of management. It should help in such a way that the business goals are
achieved in the most efficient manner. Since the decision making is not restricted to a
particular level, the MIS is expected to support all the levels of the management in
conducting the business operations. Unless the MIS becomes a management aid, it is
not useful to the organization. Figure 2.2 illustrates the process discussed here.
MANAGEMENT AND MANAGEMENT
INFORMATION SYSTEMS
Environment
Management
Goal Setting
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REVIEW QUESTIONS
1. Trace the shift in management focus, starting from Frederick W Taylor to peter
Drucker.
2. Take a task which you often do, and map the processes in the task against the
processes involved in management process cycle. Are you following all the steps
in management process cycle?
3. MIS supports a manager in his functional responsibilities. Explain.
4. List the external environment in which a manager operates. How many of tem
have a direct impact on the management process and hence should be considered
in the MIS design?
5. Explain the importance of management by exception. Can it be the only approach
in managing the business?
6. List the decision involved in each phase of management process, starting from
planning to control.
7. Explain the role of performance standard and feedback in effective management
of business.
8. The word management is often used with other words is such as Management of
resource, Management of capacity. Etc. Explain with example three applications
in Resource Materials and capacity management.
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CHAPTER-3
Process of Management
3.1 MANAGEMENT EFFECTIVESS
Negandhi Estafen provides a good model ( Fig. 3.1) for the analysis of management
effectiveness which generates enterprise effectiveness in achieving the goals and
objectives. The model puts a lot of emphasis on the management philosophy and the
environment factors on which the effectiveness is dependent. The environment factors
provide the opportunities to survive and grow with certain constraints, while the
management philosophy sets the guidelines for deciding the management practices to run
the enterprise.
While the environment factors are difficult to control, it is left for the management to
change its philosophy towards the various players in the business, viz. the employees, the
consumers the suppliers, the government, the community and the shareholders. Basically,
It is a change in attitude towards these players. For example, how to look at the
employees?
If the attitude is to treat them as business partners, you will empower them and create a
sense of belonging to the organization. Such an attitude will have impact on the
management practices, where the employee will play a decisive critical role. It will affect
the organization structure by reducing its size and the reporting levels.
If the attitude towards the consumer is changed to fulfill the expectations giving rise to a
higher satisfaction, then the management practices in the product design, manufacturing
and marketing will undergo a significant change. The product life cycle will then be
short, and more features and functions will be added to the product fulfilling not only the
functional needs but also the service needs of the consumer.
The management practices therefore emerge out of the managements philosophy and the
environment, in which it operates. The management effectiveness would largely depend
on both these factors. The MIS design would therefore, be different depending upon the
management practices followed by several organization in the same industry. Such design
improves the management effectiveness leading to an improvement in the enterprise
effectiveness.
Goals, Objectives and Targets
The process of management begins with setting of goals, objectives and targets The
goals are long- term aims to be achieved by the organization objective are relatively short
term milestones to be accomplished, while the targets generally refer to physical
achievements in the organizations business. The goals, objectives and targets are so set
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they are consistent with each other and help to achieve each other and help to achieve
each other. The are to be achieved within a stipulated time and failing to achieve the
same, means loss of business profit and image. The difference between these entities can
be best understood by examples in the three types of organizations given in Table
The setting of goals, objectives and targets is a top management function. It has its
implications on the business operations and profits. These are set considering the
environment and changes expected to occur in about five to six years. The organization is
expected to consider and cater for these changes and translate them into business
operations. The setting of goals objective and targets helps to pull the resources of the
organization in one direction and solve. It help to build the strategies, frame the polices
and set the rules of conducting the business. It provides an efficient measure to monitor
the managerial process. The people in the organization can have common understanding
of the purpose of the business operations.
In an organization as time progresses, business goals, departmental goals, functional
goals and personal goals emerge, which create conflicting environment in the
organization. The goals, objective and targets from a network. Achievement of targets
helps in accomplishing objective and accomplishment of objectives leads to the
attainment of goals. Careful determination of these entities is therefore essential for a
successful management process. The goals objectives and targets become reference
points for strategic planning and operations planning.
If further helps the management to identify key areas of business and key areas of
management attention. It helps appropriates and consistent business review. The
performance appraisal of the manager becomes impersonal and unbiased as it is done
with reference to achievement of goals, objective and targets. McGreor saw appraisal
against the goals and objective are necessary in every area where performance and results
directly and vitally affect the survival growth and prosperity of business.
3.2 PLANNING
It helps to handle the change occurring in the environment and affecting the plan itself.
Planning helps to make operations economical as it continuously evaluates the costs and
outputs and forces optimum use resources. It further helps to control business operations
at all levels with
Common reference to goals, objectives and targets.
Planning is a process and hence it has a methodology. The first step in planning
forecasting the environment, in which the plan is to be made and operated. Forecasting
provides information on population, growth price trends, market changes, and new
opportunities, changes in technology the plan will be developed and implemented.
The second step in planning is determining alternative courses of action. The
managements ability lies in creating a number of alternatives. The effective way of
creating a number of alternatives is to build models of the situation and use it as a tool for
the generation of alternatives. These models. Are known as system models, operational
research model and mathematical models. Consequent o the development of alternative
courses of actions, the necessity is to analyze the feasibility of each. As, a modek can
give infinite alternatives, only some of them can be feasible in the given conditions and
constraints. The constraints may be man-made or environmental; but they affect the
feasibility of the action. Evaluating the feasibility of each alternative brings the infinite
number of alternatives to a limited number.
The third step in the planning process is to evaluate the best among all the feasible
alternatives. The analysis and evaluation is done with reference to the objectives such as,
minimization of cost, maximization of profit, yield, and productivity, etc. The right
choice of an objective is a crucial factor in the selection process. The planning begins
with the setting of goals and objectives and ends up in selecting the most rational course
of action.
As mentioned earlier, the organization has a network of goals, objectives and targets. It is
necessary to develop the network of plans corresponding to this network. The process
leads to the development of corporate plans, investment plans, marketing plans, and
advertising plans. Normally, the corporate plans are for a longer period and the derived
plans are for shorter periods. Since the plan has a commitment to time, it is necessary to
build a flexible plan capable of undergoing a suitable change to alter the goals and
objectives within the same time. The flexibility, as possible, should be built in, so that the
cost of changes is not very high and the implementation is still possible without loss of
time. The implementation of plans is made through developing the strategies, policies,
systems, rules, procedures, programmers and the budgets. The strategy shows the
direction, focus, emphasis and development of resources. Many a times good plans fail
because of strategic failure. The purpose of the strategy is not to outline a precise method
of implementation; but to provide a boost or thrust to the plans of implementation. An
appropriate strategy helps to cut down the use of resources and accelerates the process of
achieving the goals.
The policy is a statement of management which stands on the top of all plans or courses
of action. A rational plan or a decision can be rejected on the premise of policy .The
policies are evolved in the wider frame of strategies and are generally not questionable;
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but these can be changed. For example, the organization can have a policy of recruiting
personnel only with the qualification of MBA or it may have a policy of changing the
prices once a year and not too frequently. The policy, therefore, is a general guideline and
is to be followed by all.
The system is a vehicle for the implementation of a plan. The system provides pathways,
gates and structures for communication and control. The strategies and policies are
important for successful implementation of the plans. Depending upon the plans, systems
will be built as closed or open systems. The rules, procedures and programmers help to
implement the operational plans. They provide a common basis and an understanding of
conducting business operations. A strict adherence to the rules and the procedures builds
discipline in the organization. A smooth implementation of the plan calls for the rules,
procedures and programmers to be observed properly. When the organization becomes
bigger, the adherence to rules procedures and systems brings a higher degree of
formalization in the process of implementation.
The effectiveness of the plan depends on how it is implemented. A successful
implementation requires appropriate timing of launching the basic plan and its
derivatives. Lack of knowledge creates the problems of going away in a totally different
direction. The plan must be evolved by people who are going to implement it. Their
participation brings their involvement and commitment to the plan. For effective
planning, participation should be encouraged.
An effective planning should begin at the top and flow down the line. The effectiveness is
brought in by taking a series of decisions, committing resources, giving directions, and
executing controls to achieve the goals and objectives. The process planning, therefore, is
to develop the alternatives based on some choice about goals. It the situation is that of
uncertainty, then the evaluation is done through risk analysis ad preference theory using
utility as criteria.
3.3 ORGANISING
Organizing is an important step in the managerial process and relates to the people in an
enterprise. It deals with a quantitative and a qualitative aspect of manpower in terms of
placement, the roles they and the relations amongst them, with the aim that they work
together effectively towards accomplishing the goals, objectives and the targets of the
organization. In essence, it deals with organizing the manpower resources for a given
plan of execution.
The organization could be formal or informal. The organization is formal when the roles,
the relations of the people and the objectives they should achieve well defined. In an
informal organization, it is left to the people to understand and evolve suitable roles and
relationships to achieve the objectives.
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points for the top management. Each method of a departmentalizing has advantages and
disadvantages and, therefore, it is to be chosen based on the needs of the management.
Relations of Line and Staff Functions
The function of a department can be as a line or a staff. The functions which have a direct
responsibility of achieving the targets for production or sales are line functions. The staff
functions are those which do not participate directly in the activity but aid line functions
to achieve the targets. Production Planning, Marketing, Purchasing, etc, are staff
functions. The distinction is more clear and precise at higher levels. The staff function is
advisory but owns the responsibility for the results and is accountable for nonperformance.
The relationship between the line and the staff functions is always strained. The
performance of the line function depends upon how the staff function has planned the
activities. Deficient planning leads to an initialization of line capacity and non attainment
of targets. A line function does not have resources, leverages and powers to overcome the
problems arising out of the staff functions.
Delegation of Authority
The function either is a line function a staff function; but still it requires decision making.
As one person cannot plan, execute and control all the tasks in the functions, owing to the
limitations of time and capacity, it is necessary that the decision making is not centralized
at one point.
Handing over limited authority of decision making to the subordinated is called
delegation. The concept of delegation is based on the premise that an individual can take
decision if supported by information, knowledge and guidance, and is motivated enough
to perform. The concept of delegation accepts the responsibility of non-performance of
the delegated person or the mistakes made by him. Hence, most routine types of decisions
are delegated with the support of rules, conditions and the method of decision making.
The failures in delegation occur not because of the lack of understanding of the principle
of delegation, but because of the inability to implement it into practice. A lot depends
upon the ability of the manager to delegate and upon the capabilities of the subordinates
to use the authority. The manager is not able to delegate, if he does not have a positive
attitude towards delegation, if e is not receptive to the subordinates ideas and is not
welling to accept the risk of failure or mistake of his subordinates. A failure to use the
delegated authority emanates from a lack communication, guidance, training and
motivation.
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The person must be able to perform effectively. This is possible only if he has the
ability to communicate effectively. If not properly communicated, his ideas and
management plans cannot take off. For good communication skills, the person
must have a good command but due to the psychological barriers he cannot
communicate. These barriers come on account of personality conflicts, power
game and dissatisfaction on rewards and promotion.
The manager must be a person of integrity.
He should be honest, trustworthy and high achiever. This can be judged by the
track record of the person and his work experience and the extra curricular
activities he may be performing.
The staffing, therefore, deals with creation of human resource in the enterprise to achieve
goals, objectives and targets set by the top management.
3.5 COORDINATING AND DIRECTING
After organizing the resources and staffing the planned activities, the business plan is
launched. The process of implementing the plan is dynamic. It calls upon the manager to
perform a number of things in a coordinated manner so that the plan remains valid and
the development takes place as per the plan.
The process meets with a number of difficulties and the manager is supposed to resolve
them. There will be a lag and lead in many activities. There could be shortfalls and
overruns. There could be sudden developments which may disturb the plans and the
process of implementation. The managers role, in this situation, is to coordinate all the
activities and provide leadership to the group to keep the plan moving. Directing and
leading are the methods, whereby the subordinates are lead to understand the purpose of
the activity, and by way of guidance, a direction is given to them to march towards the
goals. Their difficult and conflicts are resolved, bottlenecks removed and a clear path is
created to progress on plan achievement.
The task of directing and leading becomes more effective if the human side of the
enterprise is taken care of by motivating the people. The manager is required to create an
environment in which everybody can perform their best. The work environment becomes
conducive to good performance if work becomes satisfying and provides an opportunity
to expand the scope of work and his influence.
The manager is a leader if he possesses the art of influencing the subordinates in such a
way that they willingly perform towards the achievement of the goals, objectives and
targets. The process of coordinating and directing takes place through communication.
Good communication has been defined by the American Society of Training Directives
as an interchange of thought or information to bring about mutual understanding and
confidence or good human relations. The coordinating and directing effect is more
effective if the manger is able to motivate the subordinates and provide leadership by way
of an affective communication.
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3.6 CONTROLLING
The last but the most important step in the process of management is controlling, the
successful execution of management plan. Without control, the process becomes
unproductive. The purpose of control is to regulate the process in such a way that the
management process continuously strives for the achievement of the goals, objectives and
targets.
The control is exercised through a system. The system measures the performance of the
management in terms of some predefined measures of output. It compares the output with
the standard, identifies the deviations from the standard, and corrects the management
process to ensure that the plan continues to be effective in terms of achieving goals,
objectives and targets.
The control system work on the principle of feedback. The feedback on the performance
should be quick without any loss of time, that corrective action can be taken immediately.
The process of correction involves change in the plan, reallocation of resources,
application of new system, procedures and rules. The best control is the one which brings
the process back into operation on the main track without outside intervention. The
control system must get into action automatically to correct the midstream adverse
development.
Time is the essence of control. If the corrective action is taken late on account of delayed
feedback, it is ineffective and may result in heavy losses. Most of the managers look for
real time control system, a system which provides an instant negative feedback from the
standard and an instantaneous corrective action without any time delay.
Since the management control systems are not physical system, where one can desire real
time control mechanism, the managers look for feed forward control. The feed forward
control gives an advance warning, an indication that the deviations are likely to occur in
near future calling for a corrective action. The techniques used in the feed forward
control are forecasting, trend analysis and judging the performance from the standpoint of
input versus output.
Auditing is also a tool of control. There are several types of audits possible in a business
organization. Managerial audit deals with how effectively the plans are made and
implemented. It is addressed to the managerial performance to judge whether it was up to
the mark, and whether there are any lapses, failures or weaknesses. The operational audit
deals with an adherence to the rules and the policies of the management. It identifies
whether the operations of the organization are being carried out as per the managerial
directives, rules and policies. The financial audit addresses the business and financial
transactions to find out whether they are carried out with due regard to the accounting
principle and statutes. It also examines whether all the transactions are covered
completely and for the year.
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technologies affect his business prospects. A good MIS designed for such a support is
absolutely essential. MIS therefore, is a tool for effective execution of the management
process.
__________ REVIEW QUESTIONS
1. Explain how management practices are influenced are influenced by the
Management philosophy.
2. Explain how practices change with the change in the environment.
3. Show the relationship of organization effectiveness to management effectiveness.
4. Can you state goal, objective and targets which you have set for career
management? What is the qualitative difference between them?
5. Can attitudes be changed? What role can MIS play in this endeavor?
6. A plan without a strong control feature is destined to fail. Why?
7. Where should be the control system strong in feedback loop or in measurement
of standards?
8. Distinguish between top management plan, middle management plan and
operations management plan in terms of goal scope and content.
9. The manager has a leadership role to play. How can MIS support this role?
10. Is it necessary that management should be efficient or effective, or both. Can
management afford to be one and not both?
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CHAPTER-4
Organisation Structure and Theory
4.1 BASIC MODEL OF ORGANISATION STRUCTURE
The word organization means two things. The first meaning of the word
organization is an institution or a functional group. A business organization a hospital, a
school a university is some such institution keeping in view the concept of division of
labor, authority, responsibility and decision making so that the institution as a stable
system, works coherently towards the achievement of goals.
.the level at which a person is holding position. The authority is measured on the basis of
command on control of resources, the risk of business, and the decision making power to
manage the risk and reward. When the authority. Is distributed in a vertical order in terms
of levels, the organization is built on the principle of hierarchy of authority. The
effectiveness of the authority is based on the span of control, i.e., the number of person
being managed and controlled by a person. Depending on the organization, and business,
the span may differ from four to seven. The span outside this range has proved to be
unproductive and inefficient.
Hierarchy of Authority
The authority rests with the individual in the organization. The degree and strength of
authority depends on the level at which a person is holding position. The authority is
measured on the basis of command on control of resources, the risk of business, and the
decision making power to manage the risk and rewards. When the authority is distributed
in a vertical order in terms of levels, the organization is built on the principle of hierarchy
of authority. The effectiveness of the authority is based on the span of control, i.e., the
number of persons being managed and controlled by a person. Depending on the
organization, and business, the span may differ from four to seven. The span outside this
range has proved to be unproductive and inefficient.
Speciallsation
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Centralization
Centralization refers to the location or position where the decision-making centre is
localized. In a highly centralized organization, the decision making is at the top and in a
decentralized organization; it is delegated down the lien in the organization hierarchy.
When business risks are high and difficult to manage, the organization emerges as
centralized.
The organization is structured on the basis of the above four principles. The blend of
these principal is decided on the nature of business, risk of business, size of business,
management style and the environment of business. The blending of these principles
would undergo a charge as the business grows. The organization is under a continuous
process of change to meet the changing needs of business, the organization will have a
different structure in its various business stages namely, inception, growth, maturity, and
decline. The structure of organization affects organizational productivity, individual
performance, growth of human resource, and the manpower itself. A considerable amount
of saving in manpower and overhead expenses is possible, if the organization is property
structured to the business needs and towards fulfilling the objectives.
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Independent of the blend of these principles, the effectiveness of the structure largely
depends on the quality of people ability, skills, knowledge attitude and motivation. The
basic model of the organization structure is shown in Fig. 4.1 it shows the arrangement of
the people in a reverse tree structure.
The basic model will have more levels if the size of the organization is very large. The
number of levels will be determined on the basis of the span of control and the nature of
work. The appropriateness of the structure can be decided based on the factors like
responsibility and authority, economy in conducting the business, the ability to achieve
the goals and objectives, a smooth flow of information exchange and communication.
There are four variations of the basic model which are widely used in real life.
4.2
MODIFICATIONS TO THE BASIC MODEL OF ORGANISATION
STRUCTURE.
There are four modifications to the basic model of organization as under.
1. Functional; 2.Product / Market / Service; 3. Project; and 4. Matrix.
Functional Organisation
The functional organization (Fig. 4.2) is most suitable where the organization business
can be split into clear divisions of activity and all of them are equally important. For
example, the business organization can be functionally organized into four or five
functions such as marketing manufacturing, finance, personnel, and materials.
they are not equipped to handle other functions if required. The people in a functional
organization develop a narrow outlook restricted to their own functions and
responsibilities. The corporate culture is difficult to imbibe in a functional set- up. Most
of the manufacturing, selling organisanisations in their initial period are structured on the
functional lines. The government departments and agencies are organized on the
functional principle.
Product / Market / service Organisation
When the organization grows large in turnover and strength, and when the decisionmaking relates to either the product or the market or the service the organizing structure
is built around one of these factors. In this structure (Fig.4.3), the total responsibility rests
with the product / market / service head. He is expected to take all the decisions regarding
finance material, etc. The people in the organization report to the product head.
MANAGING
DIRECTOR
PRODUCT
A
MANUFACTURING
PRODUCT
PRODUCT
PURCHASE
SALES
FINANCE
A project organization (Fig. 4.4) is a special case of product organization where the
common service like finance, purchase etc. are organized at the functional level. But
project resources are allocated to the project manager. Since the business resources. This
type of organization structure helps in making quick decisions for project control in terms
of cost resource and time. In a project organization some of the functions are of corporate
responsibility and some of them are the project managers responsibility.
MANAGING
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DIRECTOR
PROJECT
FINANCE
DIVISION- A
DESIGN
PROJECT
DIVISION- B
COMMIS
MANU
PURCHASE
FACTURING
DESIGN ERECTION
COMMISSIONING
ERECTION
PERSONNEL
In a project business, the activity is one at a time and has implications on the
subsequent activities in the project. Therefore, any problem or conflict relating to
the activity needs to be resolved immediately. This calls for quick decisions. This
is possible by organizing all the functional resources under one command of the
project manager.
Matrix Organisation
In all the three organization structures discussed so far, the communication
protocol is vertical in the hierarchy. The information flow is within the hierarchy.
The lateral communication between the functions is not permitted. In a matrix
organization (
(Fig.4.5) a vertical as well as a lateral communication and information flow is
allowed. The matrix organization integrates functional responsibility with product
responsibility. It is a combination. Of the functional and the product organization
structure. A product manager is responsible for the total performance of the
product and he will have the production manager, the marketing manager, the
accounts manager as his counterparts in the manufacturing, marketing and
accounting functions respectively. These functional managers report to the
functional head vertically and the product manager laterally.
The matrix organization structure is used in big companies having diverse
business activities. The business units, known as strategic business units, are
organized with a unit head at the top. The structure enjoys the advantages of a
functional as well as of a product organization. It should be noted be noted that
the organization structure is a dynamic model. It is effective for the purpose it is
set to fulfill under certain conditions. The moment the business conditions
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change, the structure should undergo a suitable change. The structural change
does not limit them from one type to the other but many other qualitative changes
are also desirable.
MANAGING
DIRECTOR
MANUFACTURING
PRODUCT
PRODUCTION
MANAGER-A
MGR- A
PRODUCT
MANAGAR-B
PRODUCTION
MGR- B
There has to be a change in the people in terms of strengths, skills and abilities. A
functional head in the functional organization may not be suitable to shoulder the
responsibility of the Product Manager in a product organization structure, because
of inherent limitations of narrow specialized experience as a functional head.
With the standardization and formalization drive in the organization, the span of
control can be enlarged than before. With the delegation of authority, backed by
the rules and policies the junior level personnel become more knowledgeable,
experienced and capable of shouldering higher responsibility. This would affect
the levels in hierarchy.
4.3
ORGANISATIONAL BEHAVIOUR
Though an organization is structured according to the goals and objective to be
achieved the actual performance is at variance for various reasons. There are some
factors, beyond the control of the management which affect the performance of the
organization. However there are some factors which relate to the organization
(independent of the type of structure). The behavior of the organization is a result of the
following factors:
1. Organizational Culture; 2. Organizational Power; 3. Organizational Change; 4.
Organizational Learning; and 5. Organizational Motivation.
ORGANISATIONAL CULTURE
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The cultural is a set of attitudes, beliefs, values, norms and understandings; the people
have in the organization. The culture is a collective behavioral result of the people who
man the organization. Depending upon the person, whether he is a manager, an officer or
a worker, the cultural pattern emerges and it is known as a managerial culture and a work
culture, etc. Long-term performance and managerial actions depend on the managerial
culture and the achievement of the targets depends on the work culture.
Let us take an example of quality of product which a particular organization
manufactures and markets. The attitude of the employees towards quality must be
positive and it must be seen in the organization in all the activities. Unless the attitude is
positive, it cannot be seen in the product as desired. The employees must believe and
show a concern towards quality. They commitment towards the achievement of quality
will come only if a high value tag is reserved for quality by the employees.
Above all, the organization must have norms of quality set in all its activities and they
must be understood by all the employees. When the organization has these factors set at a
high level, we say that the organization has a quality culture. Such a culture will be
reflected in the behavior of the organization.
The culture may be reflected in the philosophy, policy, strategy, goals and managerial
style of the organization. If the organization culture is generating a behavior which
affects the performance adversely, it can be changed by management actions such as
training, education, creating awareness, transferring people, encouraging young
recruitments and talent in the organization.
ORGANISATIONAL POWER
The organizational power is the ability of the organization structure to use human and
material resources to achieve the stated goals and objectives of the organization. The
power of the organization is distributed uniformly all over the organization but it may be
concentrated in small groups representing a function, a department or a section. It might
be localized with the individuals.
Some individuals by virtue of their position, responsibility and seniority, enjoy more
power than others. Some individuals by virtue of their nearness to the management and a
strong personality derive power in the organization structure. If what is meant to be the
organization structure in terms of authority, information flow, and responsibility, and
what actually emerges organization structure due to the power play, is at variance, then it
will reflect in the organizational behavior affecting the performance of the organization.
If the effect is adverse, it is better to make suitable changes in terms of positions and their
placement in the organization.
ORGANISATIONAL CHANGE
Even though the organization is structured properly, over the period of time it starts
failing slowly due to the change in the environment, the people and the business. Like a
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living organization, an organization undergoes a process of birth and death. The process
of organization outlives the purpose for which it is established moves much faster, if
proper corrective action is not taken. The organization structure in its life cycle, starting
from the introduction, growth, maturity and decline should change suitably in the
respective phases. The behavioral change through the organizational change is achieved
by creating a climate for change, deciding designing and implementing the change,
watching and institutionalizing the change.
ORGANISATIONAL LEARNING
The organizational behavior improves with the experience it gathers from all business
fronts. With experience, people are in a position to identify the cause and effect
relationship. It is possible to predict the errors and probable mistakes in the business
operations. The rules, systems and procedures are streamlined over a period of time. With
this learning experience, some changes in the organization structure are inevitable and
they should be carried out.
The individuals in the organization are able to assess the strength and weaknesses within
them and are able to take steps to improve. As organizational learning increase, the
organizations behavior shows maturity. With increased learning the organization moves
towards high degree of formalization affecting itself. The organizational learning is faster
if people and the management are dynamic and progressive.
Organizational Motivation
Organizational behavior can be monitored and directed if proper motivation is provided
to the people. Motivation inspires the people to perform. Monetary rewards, presentations
are the known methods of motivation. If a proper leadership is provided it is observed
that the people perform beyond expectations. The leadership is an interpersonal influence
on the subordinates which persuades or motivates them to perform to perform to achieve
the goal.
There are two leadership styles, autocratic and supportive. In an autocratic style, the
leader determines everything and dictates decisions. The decisions are enforced by the
power of authority. Under such a leadership style people are not trained to shoulder
higher responsibilities. The enterprising ones are frustrated under such a leadership style.
The supportive leadership style calls for participation consultation and respects the
opinion of the subordinates. The process evokes initiative amongst the subordinates and
gives them a feeling of importance and satisfaction.
Another method of motivation is though job environment. A job is to be designed in such
a way that it provides challenge to the skills of an employee. It should be a complete task
identifiable with the person and with a potential to create an impact on other people or on
the business. The person should feel autonomy in its operation and should get the direct
feedback of the result.
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STRUCTURE
GOALS
TECHNOLOGY
CULTURE
Fig. 4.6 Modified Model of the Organisation System.
In view of the nature of the task the organization is supposed to carry out it has to be
designed as an open system capable of adjusting itself to the changing environment. The
organization continuously exchanges the information with the environment and is
influenced by the changes in it. The origination therefore has to be built in such a fashion
that it adjusts with the changes in the environment and that the goals and objectives are
achieved.
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MATURITY
GROWTH
DECLINE
PROCESS
PHASE
INTRODUCTION
TIME
Fig. 4.7
Hence the organization is a socio- technical system whose sub- systems are task people
technology culture and structure each having its own input and output satisfying at first
its own objective and eventually the corporate organization goals and objectives If the
sub-systems goals and objectives are not congruent with the goals and objectives of the
corporate organization poor performance resistance to change and non- attainment of
corporate goals will be the consequences.
The systems and their goals are not stable. The goals change in response to the changes
in the business focus the environment and in the people in the organization. A significant
change calls for change in the organization structure A goals displacement is said to have
occurred when the system goals significantly. Another reason for goals change is due to
the
Natural process of growth and decline. This phenomenon is best described by a sigmoid
or S curve (Fig, 4.7).
All organizations and their business go through the different phases of growth cycle in
stages as Introduction Growth Maturity and Decline. Each phase generates new goals to
be served if the changed or displaced goals are not reflected in the organization as a
system the organization is bound to suffer from decay.
organization which can be ascertained very easily. But culture and people are very
difficult to assess from the design point of view. The structure of the five sub-systems
should be considered while designing the MIS. MIS design should give reports in line
with the organization structure. This means that the main decision makers and the power
centers must be recognized in the MIS. Let us discuss these aspects of the organization
structure and their implications.
In a tall hierarchy with a high degree of centralization, the MIS should give control
information to the higher management where decision making in concentrated. If the
system is structured on the functional basis where the functional head is a key decision
maker and all the functions have equally important role to play, then the MIS will have a
functional design with the information support to the functional head. Further, in such a
set-up, an integrated MIS would be necessary, reporting the corporate status of the
business to the top management.
If the organization works on a standardized system where rules, policies, systems and
procedures have been laid down, then these become part of the MIS. The processing
routines in the MIS incorporate these features as an integral part. This is safe as it has
already been approved by the management of the organization. Along with the
information, if the decision making responsibilities are also clearly defied and allocated,
then the MIS can produce information reports by processing the data and summarizing
the results in line with the decision makers position in the structure.
If the basic model of the organization is modified as a product or a project organization
system, then the MIS should focus on the management of planning and control of the
multiple functions. Besides these functions, he has to know the trouble spots and shows
the interconnection with the other functions. It must summaries all information relating to
the span of control of product or project manger. The MIS should be able to cater to the
view of the product or the project manager and also of the top management.
In the organization culture provides sufficient incentive for efficiency and results, the
MIS should support this culture by providing such information which will aid the
promotion of efficiency. If the culture encourages delegation of power and authority, then
the MIS should incorporate the decision making rules in the system.
The organization system is an open system and MIS should be so designed that it
highlights the critical business, operational, technological and environmental changes to
the concerned level in the organization, so that the action can be taken to correct the
situation. The principle of the feed forward control should be extensively used as a design
feature to provide a prior warning to the decision maker.
Since the organization system has a dynamic role to play to meet the changing needs of a
business, the MIS becomes a common support system for playing the dynamic role.
When an organization is moving through the business phases of introduction, growth,
maturity and decline, MIS should provide an information support, relevant to that phase
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of the business cycle. This means the designer of MIS should foresee such requirements
and make the design flexible enough to support such requirements.
The organizational learning helps to tone up the behavior of the organization. The MIS
should support the learning mechanism by identifying the cause and effect in a given
situation. It should keep the records of action and provide help to analyze the best action
in a given situation. It should be help to build various decision models for use by the
managers. The information support should be such that the group of enterprising manager
should be able to improve their capabilities to perform batter.
The design of the MIS, in isolation from organizational factors, is destined to fall as it
just does not fit into the structure. Since organization systems in the same business differ
for various reasons such as the leadership style, the management style, culture and group
of people as a body and so on, it is difficult to evolve a standard model of the MIS for a
business and/or an industry.
MIS plays a very important role in creating organization behavior which in turn sets the
goals for achievement. Technology and people decide the organization structure and style
of the management. Figure 4.8 explains the impact and relationship of MIS on the
organization behavior.
REVIEW QUESTIONS.
1.
2.
3.
4.
5.
6.
7.
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8.
9.
10.
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CHAPTER-5
Strategic Management of Business
5.1 THE CONCEPT OF CORPORATE PLANNING
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Long-range planning deals with resource selection, its acquisition and allocation. It deals
with the technology and not with the methods or the procedures. It talks about the
strategy of achieving the goals. The right strategy improves the chance of success
tremendously. At the same time, a wrong strategy means a failure in achieving the goals.
Corporate business planning deals with the corporate business goals and objectives. The
business may be a manufacturing or a service; it may deal with the industry or trade; may
operate in a public or a private sector; may be a national or an international business.
Corporate business planning is a necessity in all cases. Though the corporate business
planning deals with a company, its universe is beyond the company. The corporate
business plan considers the world trends in the business, the industry, the technology, the
international markets, the national priorities, the competitors, the business plans, the
corporate strengths and the weaknesses for preparing a corporate plan. Planning
therefore, is a complex exercise of steering the company through the complexities, the
difficulties, the inhibitions and the uncertainties towards the attainment of goals and
objective.
Dimensions of Planning.
The corporate business plan has five dimensions. These are time, entity, organization,
elements and characteristics.
Time
The plan may either be long-range or short-range, but the execution of the plan is, year
after year. The plan is made on a rolling basis where every year it is extended by one
year, keeping the plan period as the next five years. The rolling plan provides an
opportunity to correct or revise the plan in the light of any new information the planner
may receive.
Entity
The plan entity is the thing on which the plan is focused. The entity could be the
production in terms of quantity or it could be a new product. It could be about the
finance, the marketing, the capacity, the manpower or the research and development. The
goals and the objectives would be stated in terms of these entities. A corporate plan may
have several entities.
Organisation
The corporate plan would deal with the company as a whole, but it has to be broken down
for its subsidiaries, if any, such as the functional groups, the divisions, the product groups
and the projects. The breaking of the corporate business plan into smaller organizational
units helps to fix the responsibility for execution. The corporate plan, therefore, would be
a master plan and it would comprise several subsidiary plans.
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Elements
The plan is made out of several elements. The plan begins with the mission and goal
which the organization would like to achieve. It may provide a vision statement for all to
understand as also the purpose, focus, and direction the organization would like to move
towards. It would at the outset, place certain policy statements emerging out of
managements business philosophy, culture and style of functioning followed by policy
statements. Next it would declare the strategies in various business functions, which
would enable the organization to achieve the business objectives and targets. It would
spell out a program of execution of plan and achievements. It provides support on rules,
procedures and methods of plan implementation, wherever necessary. One important
element of the plan is a budget stipulated for achieving certain goals and business targets.
The budgets are provided for sales, production, stocks, resources, expenses which are
monitored against the time in execution period. The budgets and performance provide
meaningful measure about success and failure of the plan designed to achieve certain
goals.
Characteristics
There are no definite characteristics of a corporate plan. The choice of characteristics is a
matter of convenience helping to communicate to everybody concerned in the
organization and for an easy understanding in execution. The features of a plan could be
several and could have several parts. The plan is a confidential written document subject
to charge, and known to a limited few in the organization. It is described in the
quantitative and qualitative terms. The long-term plan is normally flexible while the
short-term one is generally not. The plan is based on the rational assumptions about the
future and gives weight age to the past achievements and corporate strength and weal
messes. The typical characteristics of a corporate plan are the goals, the resources, the
important milestones, the investment details and a variety of schedules.
5.2
There are some compelling reasons which force all the organizations to resort to strategic
business planning. The following reasons make planning an essential management
process to keep the business in a good shape and condition:
1. Market forces
2. Technological change
3. Complex diversity of business
4. Competition
5. Environment (Threats, Challenges, and Opportunities)
MARKET FORCES
It is very difficult to predict the market forces such as the demand and supply, the trend
of the market growth, the consumer behavior and the choices, the emergence of new
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product and the new product concepts. The ability of the organization to predict these
forces and plan the strategies is limited for the various reasons. The market forces affect
the sales, the growth and the profitability. With the problems arising out of market forces,
it is difficult to reorient the organization quickly to meet the eventualities adversely
affecting the business unless the business is managed through a proper business plan.
Technological Change
There are a number of illustrative cases throughout the world on the technological
breakthroughs and changes which have threatened the current business creating new
business opportunities. The emergence of the microchip, plastic, laser technology, fiber
optics technology, unclear energy, wireless communication, audio-visual transmission,
turbo engines, thermal conductivity and many more, are the examples which have made
some products obsolete, threatening the current business, but at the same time, have
created new business opportunities. The technological changes have affected not only the
business prospects but the managerial and operational styles of the organizations.
In the absence to any corporate plan, such a technological change can bring the
organization into some difficult problems and, in some cases, can pose a threat to its
survival. The corporate plan is expected to ensure the recovery of the business investment
before such a technological change takes over.
Complex Diversity of Business.
The scope of business is wide, touching many fronts. The variety of products, the
different market segments, the various methods of manufacturing the multiple locations,
the dependence on the external factors, such as the transport, the communications and the
manufacturing resources brings complexity in the management of business. Many factors
are uncontrollable and unless there is a plan, prepared with due consideration to the
diverse and complex nature of business, handling these factors is not possible. This might
lead to the loss of business opportunity.
As the business grows, it reaches a stage where the strategies such as the expansion
vertical or horizontal, integration-forward or backward, diversification-in the same line or
in the diverse line of business, are the issues which the management is required to handle.
These issues are investment-oriented and have a far-reaching effect on the business
growth, direction and profitability.
Competition
Facing competition in the business means fighting on a number of fronts. Competition
could be direct or indirect. It may share the marker or create a new product which will
shift the market affecting your business. Competitions could be solely in the management
of business, when there is hardly any product distinction or it may come from certain
sectors which are being promoted by the government. The companies compete on the
merits such as the know how, quality, prompt delivery, after sales service, etc.
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futurity organizing systematically the efforts needed to carry out these decisions and
measuring the results of these decisions against the expectations through organized
through systematic feedback. Planning is neither forecasting nor making future decisions
today it is making current decisions in the light of future.
Planning does not eliminate the risk but provides an effective tool to face it.
Comprehensive corporate planning is not an aggregate of the functional plans but it is a
systematic approach aiming to maneuver the enterprise direction over a period of time
through an uncertain environment to achieve the stated goals and the objective of the
organization.
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The next step in the planning process is to set targets for more detailed working and
reference The objective of the business is to be translated in terms of functional and
operational units for easy communication and decision making The targets may be
monthly for the sales production inventory and on The targets will be the direct
descendants of the objective(s)
The success in achieving the goals and objective is directly dependent on the
managements business strategies business is like a war where two or more business
competitors are set against each other to win and are constantly in search of a strategy
manner in which the resources, such as the men, the material, the money and the knowhow will be put to use over a period to achieve the goals. The resources of an
organization being faced by it the game is of evolving strategies and counter strategies to
win.
The development of the strategy also considers the environmental factors such as the
tech nology, the markets, the life style, the work culture, and the attitudes. The policies of
the Government and so on a strategy helps to meet the external forces affecting the
business development effectively and further ensures that the goals and the objectives are
achieved. The development of the strategy considers the strength of the organization in
deploying the resources and unstructured exercise of a complex nature riddled with the
uncertainties (see Fig. 5.1) it sets the guidelines for use of the resources in kind and
manner during the planning period.
ENVIRONMENT
SOCIO- ECONIMIC
PURPOSE
MISSION, GOALS
FACTORS FOR
STRATEGY FORMULATION
STRENGT AND
WEAKNESS OF
The ORGANISATION
BUSINESS
COMPETITION
FIG. 5.1
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If a strategy considers a single point of attack by a specific method .it is a mixed strategy.
If a strategy acts on many fronts by different means then it is a mixed strategy the
business strategy could be series of pure strategies handling several external forces
simultaneously.
Hence the strategy may fall in any area of the business and may deal with any aspects of
the business It could be aspects like price market product technology process quality
service finance management strength and so on when the management decides to fight
the external forces of a single area by choice it becomes a pure strategy if it uses or
operates in more then one area then it becomes a mixed strategy.
The success of an organization in spite of its strength depends on the strategic moves or
planning the management pursues. The strategy may be pure or mixed It can be classified
into four broad classes 1. Overall Company Strategy 2. Growth Strategy 3.Product
Strategy and 4. Marketing Strategy.
These strategies are applicable to all the types of businesses and industries.
Overall Company Strategy
This strategy a very long- term business perspective deals with the overall strength of the
entire company and evolves those policies of the business which will dominate the course
of the business movement it is the most productive strategy if chosen correctly and fatal
if chosen wrongfully the other strategies act under the overall company strategy. To
illustrate the overall company strategy following examples is given:
1. A two wheeler manufacturing company will have a strategy of mass production
and an aggressive marketing.
2. A computer manufacturer will have a strategy of adding new products every two
or three years.
3. A consumer goods manufacturer will have a strategy of maximum reach to the
consumer and exposure by way of a wide distribution network.
4. A company can have a strategy of remaining in the low price range and catering
to the masses.
5. Another company can have a strategy of expanding very fast to capture the
market.
6. A third company can have a strategy of creating a corporate brand image to build
a brand loyalty e.g. Escorts , kirloskar , Godrej ,Tata , Bajaj, BHEL , MTNL.
THE overall company strategy is broad- based having a far reaching effect on the
different facets of business and forming the basis for generating strategies in the other
areas of business.
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5.6
TOOLS OF PLANNING
Creativity
Creativity comes out of an experience, a judgment, an intuition of an individual or a
group of individuals. When decision making is called for a situation which has no
precedent then creativity is the only tool to resolve the problem of decision making.
Creativity is the result of the conceptual skills of an individual. The concept ional skills
comprise the following skills.
1. The ability to generate a number of ideas rapidly.
2. The ability to change quickly from one frame of reference to another.
3. Originality in interpreting an event and generating different views on the
situation.
4. The ability to handle with clarity and ease a complex relationship of various
factors in a given situation.
A person who possesses these skills in said to have a conceptual fluency. If an
organization has a number of people, at least at key positions, with conceptual
fluency, then it becomes a creative organization. Such an organization creates new
ideas and new strategies for development of business. The plans are made on the
strength of experience and conceptual fluency.
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Systems Approach
Systems approach to planning considers all the factors and their inter-relationship
relevant to the subject. It takes a course to an analytical study of the total system,
generates alternative courses of action and helps to select the best in the given
circumstances. It is uses in situation of risk or uncertainty, and examines the various
alternative courses of action. I help to find solutions to problems.
The systems approach helps to understand the situation with clarity. It helps to
sort out the factors on the principles of critical and non-critical, significant and
insignificant, relevant and irrelevant, and finally controllable and uncontrollable. It tests
the solutions for feasibility-technical, operational and economic. It further studies the
problems of implementation of the solution.
Broadly, the systems approach has the following characteristic:
1.
2.
3.
4.
5.
6.
7.
Sensitivity Analysis
The sensitivity analysis helps to test the validity of the solution in variable conditions.
The problem situation is handled with certain assumptions and conditions. Based on these
considerations, a rational solution is found. Sensitivity analysis requires to know whether
the solution will still remain valid if the assumptions changed, constraints were relaxed
and new condones emerged. It helps to assess the impact of change on the solution in
economic terms. If various factors are involved, the sensitivity analysis helps to assess
the criticality of the factor against the impact it makes on the solution. Some factors will
be highly sensitive and some will not be so. Most of the decision making problems are
resolved on the principle of optimality, where you are trying to balance the two aspects of
the problems, such as, inventory carrying cost versus ordering cost, waiting time cost
versus idle time cost, costs, verses benefits, opportunity loss versus investment cost and
so on. The sensitivity analysis helps to test the validity of the optimal solution under
changed conditions.
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Sensitivity analysis helps to test the solutions on the principle of utility. A solution
which is economically rational and is based on sound business principles may be rejected
on the principle of utility. The utility profiles of all the people in the organization are not
the same. The utility profile, alternately known as a preference curve, shows the attitude
and preference of the decision maker towards the gains and the losses against a time
scale. The profile shows indirectly the risk-taking ability of the decision maker. It uses
techniques such as the decision tree analysis, methods of discounting, payoff matrix,
simulation, and the modeling.
Modeling
A model is a meaningful representation of a real situation on a mini scale, where only the
significant factors of the situation are highlighted. The purpose of a model is to
understand the complex situation based on only the significant factors.
There are several types of models. The model could be a physical model, like a model
of a house, a park, a sports complex, etc. The model could be a scale model reducing a
large body to a small one. The model could be mathematical model like break even
analysis model, linear programming model, queuing model, network model, etc. Here a
situation is represented in a mathematical form such as equations, matrices graphs and
polynomials.
A complex situation is represented using variables, constants and parameters which
play a significant role in that situation. The model is based on the relations the variables
have. The relation among the variables may be linear or non-linear. The model only
considers the relation of high significance. The model, when a situation is complex, tries
to simplify the complexity by ignoring minor factors and emphasizing only minor
important factors.
A model could be static or dynamic. The physical models are static models. Some
business models like the break even analysis model, the statistical regression models and
some of the O.R.programming models are static models. The static model does not
change over a time period.
All the planning models and all the forecasting models are dynamic models. In a
dynamic model, in addition to the variables considered, time is a dimension of the
variables. The values of these variables change with the change in time. Such variables
are called the stochastic variables.
A model, physical or mathematical, static or dynamic, needs to be tested for its utility
or effectiveness. The model can be tested by using the control results already obtained.
This would show the difference between the result given by the model and the actual
result in a real life situation. If the difference is not significant, then one can say that the
model represents the real situation. Once the model is proved useful, it is used for testing
the various solution alternatives. The selection of a solution, from many alternative
solutions, depends on the objective chosen. In a linear programming model, a solution is
selected on the principle of maximization of the profit or minimization of the cost. In the
queuing model a solution is selected, when the cost of the waiting time of a customer is
less than the cost of the idle time of facility. The selection of a solution is based on the
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attainment of certain value of some aspect of the business, such as the turnover, the cost
and the profit and so on.
The planning model considers those business variables which affect the business
prospects and which show a significant impact on the business results. The long-range
strategic models are, generally, dynamic models and the short-range management and
operations models are mostly static models.
5.7
Business environment is prone to changes and this factor makes business planning very
complex. Some factors such as the market forces, technological changes, complex
diversity of business and competition have a significant impact on any business
prospects. MIS is designed to assess and monitor these factors. The MIS design is
supposed to provide some insight into these factors enabling the management to evolve
some strategy to deal with them. Since these factors are a part of the environment, MIS
design is required to keep a watch on environment factors and provide information to the
management for a strategy formulation.
Strategy formulation is a complex task based on the strength and the weakness of the
organization and the mission and goals it wishes to achieve. Strategy formulation is the
responsibility of the top management and the top management relies on the MIS for
information.
There are various business strategies such as overall company growth, product,
market, financing and so on. MIS should provide the relevant information that would
help the management in deciding the type of strategies the business needs. Every business
may not require all the strategies all the time. The type of strategy is directly related to
the current status of business and the goals it wishes to achieve. The MIS is supposed to
provide current information on the status of the business vis--vis the goals. MIS is
supposed to give a status with regard to whether the business is on a growth path or is
stagnant or is likely to decline, and the reasons thereof. If the status of the business shows
a declining trend, the strategy should be of growth. If business is losing in a particular
market segment, then the strategy should be a market or a product strategy.
The continuous assessment of business progress in terms of sales, market, quality,
profit and its direction becomes the major role of MIS. It should further aid the top
management in strategy formulation at each stage of business. The business does not
survive on a single strategy but it requires a mix of strategy operating at different levels
of the management. For example, when a business is on the growth path, it would require
a mix of price, product and market strategies. If a business is showing a decline, it would
need a mix of price-discount, sales promotion and advertising strategies.
The MIS is supposed to evaluate the strategies in terms of the impact they have on
business and provide an optimum mix. The MIS is supposed to provide a strategy-pay off
matrix for such an evaluation.
In business planning, MIS should provide support to top management for focusing its
attention on decision making and action. In business management, the focus shifts from
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one aspect to another. In the introductory phase, the focus would be on a product design
and manufacturing. When the business matures and requires and requires to sustain or to
consolidate, the focus would be on the post sales services and support. The MIS should
provide early warning to change the focus of the management from one aspect to the
other.
Evolving the strategies is not the only task the top management has to perform. It also
has to provide the necessary resources to implement the strategies. The assessment of
resource need, and its selection becomes a major decision for the top management. The
MIS should provide information on resources, costs, quality and availability, for deciding
the cost effective resource mix.
When the strategies are being implemented, it is necessary that the management gets
a continuous feedback on its effectiveness in relation to the objective which they are
supposed to achieve. MIS is supposed to give a critical feedback on the strategy
performance. According to the nature of the feedback, the management may or may not
make a change in the strategy mix, the focus and the resource allocation.
MIS has certain other characteristics for the top management. It contains forecasting
models to probe into the future-the business model for evaluation of the strategy
performance by simulation business conditions. It contains functional models such as the
model for a new product launching, budgeting, scheduling and the models using PERT /
CPM technique for planning.
MIS for the top management relies heavily on databases which are external to the
organization. The management also relies heavily on the internal data which is evolved
out of transaction processing. Management uses the standards, the norms, the rations and
the yardsticks while planning and controlling the business activities. They are also used
for designing strategies and their mix. The MIS is supposed to provide correct, precise
and unbiased standards to the top management for planning.
We can summaries the role of the MIS in the top management function as follows.
MIS supports by way of information, to
1.
2.
3.
4.
5.
6.
7.
Success of a business depends on the quality of support the MIS gives to the
management. The quality is assured only through an appropriate design of the MIS
integrating the business plan with the MIS plan. Figure 5.3 explains the role of the MIS in
strategic planning and its support in the execution and control of the management
processes.
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REVIEW QUESTIONS
1. What is corporate planning? Why is it necessary? It is long-range or short-range?
2. What is strategic planning? When does it assume importance in the business?
3. Why should companies resort to long-range strategic planning? How is it linked to
mission and goals of the company?
4. What are the different types of strategy? Can a business have more than one strategy?
How are different strategies related to each other? Explain with reference to a business of
your choice, a growth strategy, marketing strategy, product strategy.
5. What is sensitivity analysis? Why is it done on the solution or alternative strategies? What
benefits do you get after analysis?
6. Why is a business model necessary? How would you construct a model for following
subject :
Sales Model for forecasting,
Production Model for capacity forecasting,
Business Model for profitability analysis.
7. Construct models for the following :
Break-even analysis,
Cash flow,
Cost analysis,
Sales analysis.
8. What benefits does planning either long-range or short-range offers to the management?
9. Explain the systems approach to management planning. Also explain how the concept
of negative and position feedback is used effectively in this approach?
10. E essentially, all budgets, i.e., sales, production, materials, etc. are translated into financial
budgets, and a business plan is made. Does this mean that the organization is doing
planning for its business or does it mean through budget it is executing the plan? How are
budgets used in planning?
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Basics of
Management Information Systems
CHAPTER-6
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Decision Making
6.1
The word decision is derived from the Latin root decido, meaning to cut off. The concept of
decision, therefore, is settlement, a fixed intention bringing to a conclusive result, a judgment,
and a resolution. A decision is the choice out of several options made by the decision maker to
achieve some objective in a given situation.
Business decisions are those, which are made in the process of conducting business to
achieve its objectives in a given environment. In concept, whether we are talking about
business decisions or any other decision, we assume that the decision maker is a rational
person who would decide, with due regard to the rationality in decision making.
(a)
(b)
(c)
(d)
Sequential in nature.
Exceedingly complex due to risks and trade offs.
Influenced by personal vales
Made in institutional settings and business environment.
The business decision making is sequential in nature. In business, the decisions are not
isolated events. Each of them has a relation to some other decision or situation. The decision may
appear as a snap decision but it is made only after a long chain of developments and a series of
related earlier decision.
The decision making process is a complex process in the higher hierarchy of management.
The complexity is the result of many factors, such as the inter-relationship among the experts or
decision makers, a job responsibility, a question of feasibility, the codes of morals and ethics, and
a probable impact on business.
The personal values of the decision maker play a major role in decision making. A decision
otherwise being very sound on the business principle and economic rationality may be rejected on
the basis of the personal values, which are defeated if such a decision is implemented. The
culture, the discipline and the individuals commitment to the goals will decide the process and
success of the decision.
Whatever may be the situation, if one analyses the factors underlying the decision making
process, it would be observed that there are common characteristics in each of them. There is a
definite method of arriving at a decision: and it can be put in the form of decision process model.
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The decision making process requires creativity, imagination and a deep understanding of
human behavior. The process covers a number of tangible and intangible factors affecting the
decision process. It also requires a foresight to predict the post-decision implications and a
willingness to face those implications. All decisions solve a problem but over a period of time
they give rise to a number of other problems.
Decision making is a process which the decision maker uses to arrive at a decision. The core of
this process is described by Herbert Simon in a model. He describes the model in three phases as
INTELLIGENCE
DESIGN
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CHOICE
shown in Fig. 6.1 viz.: (a) Intelligence; (b) Design; and (c) Choice. MIS follows this model in its
development state.
Fig. 6.1
Intelligence
Raw data collected, processed and examined. Identifies a problem calling for a decision.
Design
Inventing, developing and analyzing the different decision alternatives and testing the feasibility
of implementation. Assess the value of the decision outcome.
Choice
Select one alternative as a decision, based on the selection criteria.
In the intelligence phase, the MIS collects the data. The data is scanned, examined, checked
and edited. Further, the data is sorted and merged with other data and computations are made,
summarized and presented. In this process, the attention of the manager is drawn to all the
problem situations by highlighting the significant differences between the actual and the
expected, the budgeted or the targeted.
In the design phase, the manager develops a model of the problem situation on which he can
generate and test the different decisions to facilitate its implementation. If the model developed is
useful in generating the decision alternatives, he then further moves into phase of selection called
as choice.
In the phase of choose, the manager evolves a selection criterion such as maximum profit,
least cost, minimum waste, least time taken, and highest utility. The criterion is applied to the
various decision alternatives and the one which satisfies the most is selected.
In these three phases, if the manager fails to reach a decision, he starts the process all over
again from the intelligence phase where additional data and information is collected, the decision
making model is refined, the selection criteria is changed and a decision is arrived at.
The MIS achieves this in an efficient manner without repeated use of the Simon Model
again and again. An ideal MIS is supposed to make a decision for the manager.
An example of the Simon Model would illustrate further its use in the MIS. For example, a
manager finds on collection and through the analysis of the data that the manufacturing plant is
under-utilized and the products which are being sold are not contributing to the profits as desired.
The problem identified, therefore, is to find a product mix for the plant, whereby the plant is fully
utilized within the raw material and the market constraints, and the profit is maximized. The
manager having identified this as the problem of optimization, now examines the use of Linear
Programming (LP) Model. The model used to evolves various decision alternatives. However,
selection is made first on the basis of feasibility, and then on the basis of maximum profit.
The product mix so given is examined by the management committee. It is observed that the
market constraints were not realistic in some cases, and the present plant capacity can be
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enhanced to improve the profit. The same model is used again to test the revised position.
Therefore, additional data is collected and an analysis is made to find out whether the average 20
per cent utilization of the capacity can be increased. A market research for some products is made
and it is found that some constraints need to be removed and some reduced. Based on the revised
data, LP Model is used, and the optimum solution obtained.
Types of Decisions
The types of decisions are based on the degree of knowledge about the outcomes or the events yet
to take place. If the manager has full and precise knowledge of the event or outcome which is to
occur, then his problem of the decision making is not a problem. If the manager has full
knowledge, then it is a situation of certainty. If he has partial knowledge or a probabilistic
knowledge, then it is decision making under risk. If the manager does not have any knowledge
whatsoever, then it is decision making under uncertainty.
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A good MIS tries to convert a decision making situation under uncertainty to the situation
under risk and further to certainty. Decision making in the operations management, is a situation
of certainty. This is mainly because the manager in this field has fairly good knowledge about the
events which are to take place, has full knowledge of environment, and has predetermined
decision alternatives for choice or for selection.
Decision making at the middle management level is of the risk type. This is because of the
difficulty in forecasting an event with hundred per cent accuracy and the limited scope of
generating the decision alternatives.
At the top management level, it is a situation of total uncertainty of account of insufficient
knowledge of the external environment and the difficulty in forecasting business growth on a
long-term basis.
A good MIS design gives adequate support to all the three levees of management.
Nature of Decision
Decision making is a complex situation. To resolve the complexity, the decisions are classified as
programmed and non-programmed decisions.
If a decision can be based on a rule, method or even guidelines, it is called the programmed
decision. If the stock level of an item is 200 numbers, then the decision to raise a purchase
requisition for 400 numbers is a programmed-decision-making situation. The decision maker here
is told to make a decision based on the instructions or on the rule of ordering a quantity of 400
items when its stock level reaches 200.
If such rules can be developed wherever possible, then the MIS itself can be designed to make
a decision and even execute. The system in such cases plays the role of a decision maker based on
a given rule or a method. Since the programmed decision is made through MIS, the effectiveness
of the rule can be analyzed and the rule can be revived and modified from time to time for an
improvement. The programmed decision making can be delegated to a lower level in the
management cadre.
A decision which cannot be made by using a rule or a model is the non-programmed decision.
Such decisions are infrequent but the stakes are usually larger. Therefore, they cannot be
delegated to the lower level. The MIS in the non-programmed-decision situation can help to some
extent, in identifying the problem, giving the relevant information to handle the specific decision
making situation. The MIS, in other words, can develop decision support systems in the nonprogrammed-decision-making situations.
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The requisite variety of situations means that for efficient programmed decision making, it is
necessary for the manager to provide.
(a) All the decision alternatives and the choices in each state
(b) The decision rules to handle the situation; and
(c) The system or the method to generate a decision choice.
It has been found that in a closed-decision-making situation, the programmed decision
making system works efficiently, while in the open-decision-making situation, it is not efficient.
With the advent of expert systems and the knowledge-based artificial intelligence systems, it is
now possible for a computer to develop the alternatives, test them and handle them on the criteria
of selection leading to a decision. The MIS is expected to provide the necessary information and
knowledge support to the computer based system.
Optimization techniques
Linear Programming, Integer Programming, Dynamic Programming, Queuing Models, Inventory
Models, Capital Budgeting Models and so on are the examples of optimization methods. These
methods are used in cases where decision making situation is closed, deterministic and requires
optimizing the use of resources under conditions of constraints. To handle these situations,
software packages are available. These methods are termed operational research (OR) methods.
All the OR methods attempt to balance the two aspects of business under conditions of
constraint. In the linear programming models, the use of resources versus demand is balanced to
maximize the profit. In the Inventory Model, the cost of holding inventory versus the cost of
procuring the inventory is balanced under the constraint of capital and meeting the demand
requirement. In the Queuing Model, the cost of waiting time of the customer versus the cost of an
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idle time of the facility is balanced under the constraint of investment in the facility and the
permissible waiting time for the customer. In the capital budgeting model, the return on
investment is maximized under the capital constraint versus the utility of the investment. The
MIS supports the formulation of a model, and then using it for the decision making.
Table 6.1
Payoff Matrix I
Competitors
probability
Your decision
No change
0.50
Increase
0.20
Decrease
0.30
Expected
gain
5.40
4.70
10
12
8.60
For example, if the decision chosen is no change in the price and the competition also
does not change the price, then your gain is 4. The decision is taken by choosing that
decision alternative which has the maximum expected value of outcome. Since, the
expected value in case of the third alternative is the highest; the decision would be to
decrease the price.
The concept of utility relates to the money value considered by the decision maker.
Utility is measured in terms of utile. Money has a value of a different degree to different
decision makers depending upon the amount, and also the manner in which it is received.
If rupee one is equal to one utile, then Rs 100 million is not 100 million utile but could be
much more. The utile value will be different if the money is received in one lot as against
in parts in several years. The utility function is different for different decision makers.
The utile value of utility has an influence on the risk taking ability of the decision maker.
A well placed manager with a sound business will tend to gamble or take more risk, than
a manager not so well placed in the business. In such decision making situations, the
monetary values of the outcomes are replaced by the utile values, suitable to the decision
makers utility function. In our example of pricing, if we replace the values by utiles, the
matrix would be as given below in Table 6.2.
Table 6.2
Decision
Payoff Matrix II
Competitors
choice
No change
Increase
Decrease
Expected
utility
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probability
0.50
0.20
0.30
50
200
72.00
200
400
220.80
100
20
54.12
Since the highest value of utility is 220.80 utiles, the decision would be to increase
the price.
DECISION POINT
CHANCE EVENT
( ) PROBABILITY
Let us take an example of investment in production capacity for a planning period of five years.
Collaboration
7.9
No collaboration
Large
Capacity
Collaboration 9.2
A
Small
Capacity
Ist Phase
9.2
8.2
No collaboration
F
Fig. 6.2
Decision Tree
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In this decision situation there are two decision points and six paths as given below.
The path which given maximum cash flow is the right decision path. The cash flow
values are the under.
Path
ABC -- Collaboration
ABD -- No Collaboration
ACEH -- Collaboration Ist Phase,
Collaboration IInd Phase
ACEI -- Collaboration Ist Phase,
No Collaboration IInd Phase
ACFJ -- No Collaboration Ist Phase,
Collaboration IInd Phase
ACFK -- No Collaboration Ist Phase,
No Collaboration IInd Phase
7.9
7.5
9.5
8.0
8.2
7.4
The problem is whether to expand now with a large capacity or to invest now in small
capacity and make a decision of expansion after one year with the help of collaboration
or without collaboration under certain demand conditions.
Since, the highest expected cash flow path is ACEH, the decision is to invest in a
small capacity in the Ist phase and invest in the remaining capacity in the second phase
with the assistance of the collaboration.
The decision tree approach is useful when you visualize a series of decisions having
alternative paths with the associated probabilities and the cash flows for each path for
more than one year.
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The managers personal values will definitely influence ultimately. Some of the
managers show a nature of risk avoidance. Their behavior shows a distinct pattern
indicating a conservative approach to decision making a path of low risk or no risk.
Further, even thought decision making tools are available, the choice of the tools may
differ depending on the motives of the manager. The motives are not apparent, and hence,
are difficult to understand. A rational decision in the normal course may turn out to be
different on account of the motives of the manager.
The behaviors of the manager are also influenced by the position he holds in the
organization. The behaviors are influenced by a fear and an anxiety that the personal
image may be tarnished and the career prospects in the organization may be spoiled due
to defeat or a failure. The managerial behavior, therefore, is a complex mix of the
personal values, the atmosphere in the organization, the motives and the motivation, and
the resistance to change. Such a behavior sometimes overrides normal rational decisions
based on business and economic principles.
The interplay of different decision making of all the managers in the organization
shapes up the organizational decision making. The rationale of the business decision will
largely depend upon the individuals, their positions in the organization and their interrelationship with other managers.
If two managers are placed in two decision making situations, and if their objectives
are in conflict, the managers will arrive at a decision objectively, satisfying individual
goals. Many a times, they may make a conscious decision, disregarding rationality
required in a business decision to meet their personal goals and to satisfy their personal
values. If the manager is enterprising, he will make objectively rational decisions. But if
the manager is averse to taking risk, he will make a decision which will be subjectively
rational as he would act with limited knowledge and also be influenced by the risk
averseness. Thus, it is clear that if the attitudes and the motives are not consistent across
the organization, the decision making process slows down in the organization.
6.4 ORGANISATION DECISION MAKING
An organization is an arrangement of individuals having different goals. Each individual
enjoys different powers and rights because of his position, function and importance in the
organization. Since there is an imbalance in the power structure, the different individuals
cannot equally influence the organizational behavior, the management process and the
setting of business goals. Ultimately, what emerges is a hierarchy of goals which may be
conflicting, self defeating and inconsistent.
The corporate goals and the goals of the departments/divisions or the functional
goals, may a time, are in conflict. If the organization is a system, and its departments /
divisions or functions are its subsystems, then unless the systems objective and the
subsystems objectives are aligned and consistent to each other, the corporate goals are
not achieved.
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In case of inconsistent goals, the conflict in the organization increases, affecting the
organizations overall performance. The organizational decision making should help in
the resolution of such conflicts. Otherwise, the organization suffers from indecision. The
organizational behavior theory provides different methods for resolution of avoiding such
conflicting goals as explained in Table 6.3
Table 6.3
Method
Explanation
Example
Table 6.4
Method
Explanation
Example
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Organisational Learning
The organizational decision making improves with learning by acquiring an additional
knowledge and experience, the training and development, the experience of implementation
and so on. Learning provides strength to review the goals and the objectives, and allows
setting them more correctly. It also helps to revise and improve the decision rules. The
improvements are carried out by adopting the policy of modernization, rationalization and
the application of the management science.
The process begins with small changes in the existing policy and guidelines. Then it
slowly comes to the changes in the strategic decision and planning. Further, it revamps the
decision rules and also provides a systems approach to decision making. As the time
progresses, the organization may have a new set of goals and objectives. It may go through a
process of rationalization of goals and objectives across the company. The organization may
take a fresh look at the alternatives, outcomes, implementation, methods, procedures and
systems.
Adopting such methods, the organization builds skills and capabilities in the
management. It creates the infrastructure to make all the decisions rational, which can be
implemented effectively and efficiently, to achieve the objectives.
The concept of programmed decision making is the finest tool available to the MIS
designer, whereby he can transfer decision making from a decision maker to the MIS and
still retain the responsibility and accountability with the decision maker or the manager. In
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case of non-programmed decisions, the MIS should provide the decision support systems to
handle the variability in the decision making conditions. The decision support systems
provide a generalized model of decision making.
The concept of decision making systems, such as the closed and the open systems helps
the designer in providing design flexibility. The closed systems are deterministic and rule
based; therefore, the design needs to have limited flexibility, while in an open system, the
design should be flexible to cope up with the changes required from time to time.
The methods of decision making can be used directly in the MIS provided the method to
be applied has been decided. A number of decision making problems call for optimization,
and OR models are available which can be made a part of the system. The optimization
models are static and dynamic, and both can be used in the MIS. Some of the problems call
for a competitive analysis, such as a payoff analysis. In these problems, the MIS can provide
the analysis based on the gains, the regrets and the utility.
The concepts of the organizational and behavioral aspects of decision making provide an
insight to the designer to handle the organizational culture and the constraints in the MIS.
The concepts of the rationality of a business decision, the risk averseness of the managers
and the tendency to avoid an uncertainty, makes the designer conscious about the human
limitations, and prompts him to provide a support in the MIS to handle these limitations. The
reliance on organizational learning makes the designer aware of the strength of the MIS and
makes him provide the channels in the MIS to make the learning process more efficient.
The relevance of the decision making concepts is significant in the MIS design. The
significance arises out of the complexity of decision making, the human factors in the
decision making, the organizational and behavior aspects, and the uncertain environments.
The MIS design addressing these significant factors turns out to be the best design.
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REVIEW QUESTIONS
__________
1.
2.
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CHAPTER-7
Information
7.1 INFORMATION CONCEPTS
The word information is used commonly in our day to day working. In MIS, information
has a precise meaning and it is different from data. The information has a value in decision
making while data does not have. Information brings clarity and creates an intelligent human
response in the mind.
In MIS a clear distinction is made between data and information. Data is like raw
materials while the information is equivalent to the finished goods produced after processing
the raw material. Information has certain characteristics. These are: Information
The quality of information could be called good or bad depending on the mix of these
characteristics. A sales report shows in Table 7.1 will highlight this point.
It can be noted in the above example that sales data is processed with the budget data and
further some results are computed, providing information of an exceptional nature that is the
sale of new product in the total sales. The sales data progressively becomes information
when processed with other data such as the budget and the new product sales.
Devis and Olson defines information as a data that has been processed into a form that is
meaningful to the recipient and is of real or perceived value in the current or the prospective
actions or decisions of the recipient. Data is defined as groups of non-random symbols in the
form of text, images or voice representing quantities, actions and objects.
Table 7.1
Sales information
(Rs. Lakhs)
Characteristics
Sales
10 / day
Budgeted sales
15 / day
Cumulative sales
510 / 60 days
Cumulative budget
600 / 60 days
85 %
80 / 60 days
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SOURCE
CHANNEL
ENCODER
RECEIVER
DECODER
DESTINATION
NOISE AND
DISTORTION
Fig. 7.1
The above model of communication is used in the MIS. The MIS is equivalent to the
transmitter which provides information and sends through reports (channel) to the various
receivers, which is decoded or interpreted by the receiver at the destination. The poor quality
of information due to various factors would create confusion and misunderstanding, which is
equivalent to a Noise and a Destortion in the communication model. A good MIS
communicates the information without a noise and a distortion to the user.
Information Presentation
Presentation of the information is an art. The data may be collected in the best possible
manner and processed analytically, bringing lot of value in the information; however, if it is
not presented properly, it may fail to communicate anything of value to the receiver. The
degree of communication is affected by the methods of transmission, the manner of
information handling and the limitations and constraints of a receiver as the information
processor and the organization as the information user.
The methods used for improving communication are summarization and message
routing. The concept of summarization is used to provide information which is needed in the
form and content. The information can be summarized in a number of ways as shown in
Table 7.2.
Table 7.2
Information Summarization
Key for
summarization
Focus of
information
Example
Management position
Responsibility
Production Top,
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Middle Operations.
Only those products,
Where sale is below the budget..
The principle behind summarization is that too much information causes noises and
distortions, i.e., confusion, misunderstanding and missing the purpose. The summarization
suppresses the noise and the distortions.
Another method of improving the degree of communication is through message routing.
The principle here is to distribute information to all those who are accountable for the
subsequent actions or decisions in any manner. That is if the information is generated with a
certain purpose for a primary user, then such information may have secondary purposes to
some other users in the organization. This is achieved by sending the copies of the reports or
documents to all the concerned people or users. The principle of the message routing
achieves the spread of information to the appropriate quarters.
Knowledge is a power and an intelligent person in the organization can misuse this
power to achieve personal goals undermining the functional and organizational goals. This
tendency should be curbed. Further, the decision maker may call for the information on the
grounds that, just in case required, he should readily have it. Apart from the misuse of
information, it has an impact on the cost of information processing.
In order to curb the misuse of information, a control is exercised on the content of
information and its distribution. The methods shown in Table 7.3 are available for use with
discretion.
Bias in information
While choosing the appropriate method of communicating information a care has to be taken
to see that is not biased. For example, while using the techniques of classification or filtering
the information, it should not happen that certain information gets eliminated or does not get
classified. That is, a deliberate bias in covering certain information is to be avoided. This
bias enters because people try to block sensitive information which affects them. To
overcome this problem, a formal structure of organization should be adopted and the type of
information and its receiver should be decided by the top management.
Many a times the data and the information are suppressed but the inferences are informed,
with no or little possibility of verification or rethinking. In this case one who draws
inferences may have a bias in the process of collection, processing and presentation of data
and information. Though the deliberate enforcement of the inference on the receiver avoids a
possibility of the multiple inferences, but in this case processors bias is forced on the
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receiver. For example, organizations have departments like Corporate Planning, Market
Research, R and D, HRD and so on, which collect the data and analyze it for the company
and communicate the inferences. In all these cases personal bias, organizational bias and
management bias may be reflected in the entire process of collection processing, and
communication inference.
Table 7.3
Method
Reason
Example
The presentation of the information will generate a bias and may influence the user. For
example, if the information is presented in an alphabetical order and if it is lengthy, the first
few information entities will get more attention. If the information is presented with a criteria
of exception, the choice of exception and deviation from the exception creates a bias by
design itself. For a quick grasp, the information is presented in a graphical form. The choice
of scale, the graphic size and the colour introduced a bias in the readers mind.
The base, which may creep in inadvertently because of the information system
design, can be tackled by making the design flexible, so far as reporting is concerned. Allow
the manager or the decision maker to choose his classification or filtering criteria, the scope
of information, the method of analysis and the presentation of inference. However,
somewhere balance needs to be maintained between the flexibility of the design and the cost,
and its benefits to the managers. Disregarding the bias in information, it must have certain
attributes to increase its utility as shown in Table 7.4
Table 7.4
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Attribute
Explanation
It may relate to the past, the current and the future and
can cover the entire time span.
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The utility dimension has four facets- the form, the time, the access and the
possession. If the information is presented in the form the manager requires, then its utility
increases. If it is available when needed, the utility is optimized. If the information is easily
and quickly accessible through the Online Access System, its utility gets an added boost.
Lastly, if the information is possessed by the manager who needs it, then its utility is the
highest. Many of the organizations suffer from the possessive nature of the managers an
access difficult for the other users of the information. Improving the quality through
increasing a utility means an increase in the cost. The balance, therefore, is to be maintained
between the cost and the utility.
The concept of the utility of the information is subjective to the individual manager,
at least in terms of the form, time and access. Since in the organization there are many users
of the same information, the subjective ness would vary. Therefore, the one common key for
measuring the quality could be the satisfaction of the decision maker. The degree of
satisfaction would determine the quality of the information. If the organization has a high
degree of satisfaction, then one can be safe in saying that information systems are designed
properly to meet the information needs of the managers at all the levels.
An error is the third dimension of the information. The errors creep in on account of
various reasons, namely:
1.
2.
3.
4.
5.
6.
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The computer system and programmers are prone to errors because of the
corrections, modifications and changes required by the decision makers. These errors
lead to wrong processing. A systematic effort should be made to keep the computer
system document up-to-date, for guidance to the user of the system.
The measures of auditing, the use of test data and conducting a physical audit
of the record versus the reality would help considerably to control the errors arising
out of wrong processing.
Parameters of Quality
The parameters of a good quality are difficult to determine, however, the information
can be termed as of a good quality if it meets the norms of impartiality, validity, reliability,
consistency and age. The quality of information has another dimension of utility from the
users point of view. The users being many, this is difficult to control. Therefore, if one can
develop information with due regards to these parameters, one can easily control the
outgoing quality of the information with the probable exception of the satisfaction at the
users end.
Impartiality
Impartial information contains no bias and has been collected without any distorted view of
the situation. The partiality creeps in, if the data is collected with a preconceived view, a
prejudice, and a pre-determined objective or a certain motive.
Validity
The validity of the information relates to the purpose of the information. In other words, it is
the answer to the question-dose the information meet the purpose of decision making for
which it is being collected?
The validity also depends on how the information is used. Since the information and
the purpose need not have one to one correspondence, the tendency to use it in a particular
situation may make the information invalid. For example, if the quality of the manufactured
product is deteriorating and it is decided to select the causes of poor quality, then one must
collect all the possible causes which may affect the quality. Quality is a function of the raw
material, the process of manufacture, the tools applied, the measures of the quality
assessment, the attitude of the people towards the control of quality. However, if the
information collected talks only about raw materials and the process of manufacture, then
this information is not sufficient and hence it is not valid for all the decisions which are
required to control the quality.
Reliability
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It is connected to the representation and the accuracy of what is being described. For
example, if the organization collects the information on the product acceptance in the
selected market segment, the size of the sample and the method of selection of the sample
will decide the reliability. If the sample is small, the information may not give the correct
and a complete picture and hence it is not reliable. The reliability is also affected from the
right source.
Consistency
The information is termed as inconsistent if it is derived form a data which dose not have a
consistent pattern of period. Somewhere, the information must relate to a consistent base or a
pattern.
For example, you have collected the information on the quantity of production for the
last twelve months to fix the production norms. If in this twelve months period, the factory
has worked with variable shift production, the production statistics of the twelve months for
comparison is inconsistent due to per shift production. The consistency can be brought in by
rationalizing the data to per shift production per month. The regularity in providing the
information also helps in assessing the consistency in the information.
Age
If the information is old, it is not useful today. The currency of the information makes all the
difference to the users. If the information is old then it does not meet any characteristics of
the information viz., the update of knowledge, the element of surprise and the reduction of
uncertainty, and the representation.
Maintaining these parameters at a high degree always poses a number of problems.
These problems are in the management of the operations, the sources, the data processing
and the systems in the organization. A failure to maintain the parameters to a high degree
affects the value of the information to the decision maker.
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The information generated at regular intervals is recurring information. The monthly sales
reports, the stock statements, the trial balance, etc. are recurring information. The financial
analysis or the report on the market research study is non-recurring information.
Internal versus external information
The information generated through the internal sources of the organization is termed as
internal information, while the information generated through the Government reports, the
industry surveys, etc. is termed as external information, as the sources of the data are
outside the organization.
The timing information, the recurring information and the internal information are the
prime areas for computerization and they contribute qualitatively to the MIS.
The timing and accuracy of the action information is usually important. The mix of
the internal and the external information changes, depending on the level of the management
decision. At the top management level, the stress is more on the external information and at
the operational and the middle management level; the stress is more on the information.
Figure 7.2 shows the source and kind of information required vis--vis of management in the
organization.
External
Source of
Information
Internal
TOP
MGT
Low
MIDDLE
MGT
OPERATIONAL
MGT
Structured
Information
High
ORGANISATION STRUCTURE
information. Such a collection is not directly connected to decision making, but the need of
knowledge is perceived as a power or strength of the organization.
The information can also be classified based on its usage. When the information is
used by everybody in the organization, it is called the organization information. When the
information has a multiple use and application, it is called the database information. When
the information is used in the operations of a business it is called the functional or the
operational information.
Employee and pay-roll information is organization information used by a number of
people in a number of ways. The material specifications or the supplier information is
database stored for multiple users. Such information may need security or an access control.
Information like sales or production statistics is functional, meeting the operational needs of
these functions.
7.4 METHODS OF DATA AND INFORMATION COLLECTION
Several methods are available for the collection of data. The choice of method will have an
impact on the quality of information. Similarly the design of data collection method also
decides the quality of data and information. The methods of data collection and processing
become a part of the MIS. The various methods of data collection are explained in Table 7.5.
An awareness of these methods is essential to the manager. Further, he should also
understand the potential problems of bias, currency, and the fact versus the opinion in the
various types of methods. The observation, the experiment, the survey and the subjective
estimation are the methods chosen for data collection and information about a specific
problem, while the remaining methods are chosen to collect data on a routine basis without
any particular problem whatsoever.
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decision behavior then the value of the additional information is zero. The value of the
additional information making the existing information perfect (VPI) is:
VPI = (V2 V1) (C2 C1)
Where V is the value of the information and C is the cost of obtaining the information. V1
And C1 relate to one set of information and V2, C2 relate to the new set. If the VIP is very
high, then it is beneficial to serve the additional information need.
Table 7.5
The Methods of Data and information Collection
Method
Example
Comment
Observation
Experiment
Survey
Subjective estimation
Transaction
Processing
Publications
Government agencies
A manager is faced with the problem of decision making under uncertainty or risk
conditions, if he does not know the perfect information about the decision situation.
Further his ability to generate decision alternatives owing to the imperfect information of
the situation and also the expected events in the future is limited. In other words, given a
set of possible decisions, a decision maker will select one on the basis of the available
information. If the new information causes a change in the decision, then the value of the
new information is the difference in the value between the outcome of the old decision
and that of new decision, less the cost of obtaining the new information.
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It may be noted that the information has a value only to those who have the
background knowledge to use it in a decision. The experienced manager generally uses
the information most effectively but he may need less information as experience has
already reduced uncertainty for him, when compared to a less experienced manager.
In MIS, the concept of the value of information is used to find out the benefit of
perfect information and if the value is significantly high, the system should prove it. If
the value is insignificant, it would not be worth collecting the additional information. The
decisions at the operational and the middle management level are such that the value of
the additional or new information is low, while at the higher levels of the management,
the decision being mainly strategic and tactical in nature, the value of additional
information is very high.
Apart from the monetary value of information, it has a value which is to be measured
as strength in promoting the functions of the management. Some information has the
strength of motivating the manager to think in futuristic terms. Some information has the
strength of confirming the beliefs or understanding the business process. It also reinforces
the right and wrong of a decision making process that the manager is following.
7.6
A manager or a decision maker uses his sensory receptors, normally eyes and ears, to
pick up information and transmit them to brain for processing and storage. The result of
this processing will be a response which may be a decision, an action or at least
recognition of the event for future use. Hence, a manager can be said to be an information
processor.
While processing the information for a managerial response, the manager also uses
accumulated knowledge from memory. The capacity of a manager to accept and process
inputs to produce output is variable and limited. That is why it is observed that all the
managers of the same level do not accept or absorb all the inputs which the information
may provide. The limitation arises sometimes on account of the information overload
which is external to the manager. This is a case of too much information or extra
information creating a problem for the user of the information to sort out the relevant
from the irrelevant or the appropriate from the inappropriate. The manager in such a
situation adopts the method of filtering the information.
Filtering is a process whereby a manager selectively accepts that much input, which his
mental ability can manage to process. The methods of filtering, which the information
processor adopts, are mentioned in the Table 7.6
Table 7.6
Methods of Filtering
Method
Example
Comment
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The filtering process blocks the unwanted or the inconsistent data or the data which
does not match the frame of reference. An inexperienced manager or a less
knowledgeable manager through filtering may omit data, distort data responses and,
therefore, may draw incorrect inferences.
The information processor establishes the filters based on experience, knowledge and
know-how. The choice of filters may be changed due to stress, urgency of decision
making and the confidence in a particular method of decision making. Many a times a
processor is required to perceive process and evaluate probabilistic information. The
processor may be deficient in the intuitive understanding of the information, in the ability
to identify the correlation and the causality, and in the capability for integrating the
information.
An experienced manager is a skillful information processor where he is able to
change the frame of reference or select the decision making tool for the available
information. He is also in a position to add more knowledge base information to the
current information to increase the value of the information. A generalized model of
information processor is shown in Fig. 7.3
BRAIN
USE OF STORED
KNOEDGE AND EXPERIENCE
INPUTS
FROM
EYES, EARS
FILTERING
AND
BLOCKING
OUTPUTS
MENTAL
PROCESSING
APPLICATION
SELECTION,
MANIPULATION
DECISION,
ACTION,
REGISTRATION
The managers may come to some decision in a given situation but they may not follow
the same decision process. This is because of the cognitive style of each manager. Each
manager has his own style, a method to perceive the data, organize and process the same
as per his frame of reference, confidence in the decision procedures and the time
available for the decision making. The managerial ability, skills and tools play a
considerable role in the cognitive style of the manager. These styles affect the
information system design and the satisfaction of the manager. An excellent review of a
research on the individual differences and the MIS can be found in Zmud, Individual
differences and the MIS success , Management Science, October 25, 1979. The reasons
of individual differences are given in Table 7.7.
7.7 SUMMARY OF INFORMATION CONCEPTS
AND THEIR IMPLICATIONS
Understanding of information concepts is very important and relevant to the system
designer and the information user. The concepts are summarized as follows.
Filtering
The system designer should provide an appropriate filtering mechanism so that the
information is not suppressed and relates to the frame of reference of the user. Care
should be taken in the process that certain valid information does not get blocked or over
emphasized. A filtering process is used to select and suppress the information.
Simon model and its application
The designer should attempt to provide such information that it clearly defines the
problem space and also takes cognizance of the users knowledge. The design of the
system should be such that an appropriate mix of these two sources should yield a
decision, leading to a solution of the problem.
Codes and representation
The system designer should evolve such coding system that is easy for the users of the
code to interpret. Secondly, the designer should report the data in such a manner that the
user can grasp it quickly.
Highlighting
The designer should the information in such a way that the significant differences
between the targets and the achievements, the standards and the performance, the budgets
and the actual, are highlighted, so that they become easily noticeable by the user without
search.
Statistical analysis
The designer should provide the information in such a way that the information not only
represents something meaningfully but also aids in the statistical analysis by the user. The
information should provide the additional results such as variance, correlation,
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coefficients, and futuristic estimates and give a measure of statistical significance for the
user to consider while decision making.
Table 7.7
Individual
Differences
Explanation
Effect on information
processing
Examples
The degree of
perception in assessing
the control which is
internal to the
organization.
More information
gathering and analysis, if
internal.
Personal dogmatism.
Risk propensity.
Level of clarity
required in the
information. The ability
to read through the
information.
Manager
constantly
asking
for
more
information.
Manipulative intelligence.
The ability to
manipulate the data and
information vis--vis
the stored information
and knowledge.
Experience
making.
decision
Extent of experience at
particular level of
decision making.
The extent of
knowledge in the
application of the tools
and technology.
The nature of
management decisions
differ from lower to
higher level
in
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(Source: MIS by Gordon B Davis and Margrethe H. Olson by McGraw-Hill duly modified)
Format
The designer should present the information in the form or format which is complete in
all respects and in which all data is processed as per the frame of reference of the user.
The user should not be required to do additional processing with other data set through
the computer systems or mentally by using the data set from the memory.
Referencing and adjustment
The design should evolve a system in such a way that it covers the valid system
boundaries and providers a reference to an acceptable point (the year, the product, the
norm, the standard, the knowledge), giving a facility to make an adjustment to results or
status which the information provides.
Cognitive style
Each user has his own style of resolving or reconciling his internal view and an
understanding of the problems or environment versus the actually perceived or seen or as
it exists. In line with his individual style, he also evolves a process of the decision making
which is personal to him. The designer of the system should provide the information in
such a manner that these individual styles are accommodated fully.
Learning theory
The designer should appreciate that the user inadvertently is learning through the
information and is building his knowledge set. Hence the information should be such that
the user is nit overloaded with the supply of information which is already known to him.
Feedback loop
The designer should provide the information feedback loop, so that user understands that
the process of decision implementation is smooth and the result is evaluated with
reference to the norms or the expectations, giving the user a sufficient motivation to
change, amend or act.
Perceived value of data
Some data or information may not have a value or an importance in the current
operations of the business but some time in the future or in a different context some value
is perceived for the information. The designer would keep this data out of the current
processing and reporting. However, the designer should provide a system whereby the
user can have access to this unused data, if required.
Information absorption
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The designer should provide only that amount of information which the user is able to
grasp and use. Any additional information, beyond the ability of the users absorption,
will be ignored or go unnoticed without any response.
Individual differences
The information needs of different managers will differ based on individual human
processing ability and cognitive style. The designer should support all such needs
effectively by making the separate information reports.
The concept discussed here are very important and the system designer should
take care of them while designing the data gathering and processing systems. The proper
incorporation of this concept while designing the MIS would call for a thorough
understanding of the business environment, the management process, the strengths and
weakness of the organization structure and the individual differences of the managers and
their cognitive styles of solving the problem.
The system designers managerial ability of the MIS development and a higher
relationship with the users of the information will help him steer though the system
development task. Since the MIS is a blueprint for the information supply, if he can work
on a plan with a vision and a foresight and provide continuous training to the users, the
designer will succeed in developing a near perfect MIS for an organization.
7.8 ORGANISANISATION AND INFORMATION
Management through decision making is a common feature to all the organizations. The
management consists of a group of people who are organization at various levels with an
assigned task, job and responsibility to achieve the goals. Depending upon the levels in
the organization, the nature and the complexity of the job is determined. These features
are common to all the organizations whether they are in the field of business, education,
health or social services, banks, Central Government bodies and so on.
Since information has a role to play in all the organizations, the concepts are
applicable to all of them. The people organization model may be designed on the basis of
the functions, the products, the projects and the communication matrix and the
information needs that are typical to each of them. The organization may be large or
small, performing at one or multi locations and the information need is typical to all of
them. It is, therefore, necessary to understand the use of the information, the nature of the
information, the value of the information, the media and the structure of reporting with
reference to the type and the level in the organization.
The MIS should acknowledge the problems and difficulties in various methods of
the data gathering and their sources in the organization. Each of these methods has a
bearing on the quality of the input data which will be processed by the MIS. The
necessary checks and controls should be introduced to control the quality of the input
data. The people organization, the business organization and the infrastructure of the
organization has an influence on the nature, the type and the quality of information.
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Also while attempting to achieve the best design of the MIS; the conflict between
the cost and the benefits arises. This can be resolved by applying the concept of a value
of the information. The information has a value if it causes changes in the decisions, the
actions or the behavior of the decision maker. With an additional cost of information, if
the value of information is not changing substantially then, it may not be worthwhile to
spend more money on the additional data and its processing.
The perfect information which helps in converting a situation of uncertainty or
risk to certainty is a myth and difficult to achieve. Since the information is related to the
decision maker, it is not possible to determine the exact nature and quantum of perfect
information. The MIS design should find an optimum point where the cost and the
benefits are balanced.
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MIS should make a distinction between the different kinds of information for the
purpose of communication. An action, a decision-oriented information should be
distinguished from a no-action/knowledge-oriented information. The information could
be of recurring type or an ad hoc type. The MIS also needs to give regard to the
information used for planning, performance control, and knowledge database. A
distinction between these factors will help make the decisions of communications,
storage and also the frequency of reporting.
Since the decision maker is a human, it requires recognizing some aspects of human
capabilities in the MIS design. These human capabilities differ from manager to manager
and the designer has to skillfully deal with them. The differences in the capabilities arise
on account of the perception in assessing the locus of the management control, the faith
and the confidence in the information versus knowledge, the risk propensity, the
tolerance for ambiguity, the manipulative intelligence, the experience in decision making
and the management style.
The MIS design should be such that it meets the needs of the total organization. For
design considerations and for the operational convenience, the organization is divided
into four levels, viz., the top, the middle, the supervisory and the operational. The top
management uses the MIS for goal-setting and strategic planning, deals with key
information of a higher degree of accuracy where the perceived value of the information
is very high. As against this, the lowest level management and the operational
management uses the MIS to know the status by calling information of the current period
in detail where the perceived value of information is the lowest and it usually insists on
getting the information in a fixed format.
The MIS design, therefore, should ensure the input data quality by controlling the data
for the factors, viz. impartiality, validity, reliability, consistency and age. The data
processing and the decision making routines should be developed in such a manner that
the data is processed after thorough validation and checking, and the analysis thereof is
further reported to the various levels and individuals with due regard to the differences in
the individual management style and human capabilities.
Recognizing that the information may be misused if it falls into wrong hands, the MIS
design should have the features of filtering, blocking, suppressions and delayed delivery.
Since, the MIS satisfies the information needs of the people in a particular
organization, the design of the MIS cannot be common or universal for all the
organizations. The principles of design and the use of the information concepts in design
does not change but when it comes to the applications, the design has to give a regard to
the organization structure, the culture, the attitudes and the beliefs of the people and the
strengths and the weaknesses of the organization.
The information concepts are shown in relation to the organization pyramid in the Fig.
7.4. It explains, with reference to the level of management, the use of the MIS, the value
of information the nature of information and its reporting.
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REVIEW QUESTIONS
__________
1. Since your school days, you have purchased number of books and your home library has
over two hundred books. Would you call this awareness of your as a data or information?
How would you call convert this awareness into information?
2. Explain why information has no specification but it has a character and value.
3. Can value of information be improved? Can information have a value which is person
independent?
4. Explain the difference between data processing and information processing.
5. What is information overload? How does it occur? And how would you control it?
6. The trend now is to improve data quality, increase storage and offer distributed access; and
leave the processing of data to the user of the information. Why?
7. The character and value of information is linked to the people in the organization and to
the management process in the organization. Explain.
8. Explain how quality of information improves the knowledge and decision making
capability of the people.
9. Is it worth to invest for obtaining perfect information? Is it possible to specify the perfect
information?
10. Take up a project in a known organization and identify the information in following
classes:
Organizational,
Strategic,
Knowledge,
Planning, and
Control.
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CHAPTER-8
Development of MIS
8.1 DEVELOPMENT OF LONG RANGE PLANS OF THE MIS
Introduction
Any kind of business activity calls for long range plans for success, the same being true
for MIS. The plan for development and its implementation is a basic necessity for MIS.
In MIS the information is recognized as a major resource like capital, time and capacity.
And if this resource is to be managed well, it calls upon the management to plan for it
and control it for the appropriate use in the organization. Most of the organization does
not recognize Information as a resource. They have looked at information as one of the
many necessities for conducting the business activity. Hence, due regard is often not
given for its planned development and use. Many organizations have spent financial
resources on computers purely to expedite the activity of data collection and processing.
Many organizations have purchased computers data processing and for meeting
the statutory requirement of filing the return and reports to the Government. Computers
are used mainly for computing and accounting the business transactions and have not
been considered as a tool for information processing.
The organizations have invested in computers and expanded its use by adding
more or bigger computers to take care of the numerous transactions in the business. In
this approach, the information processing function of the computers in the organization
never got its due regard as an important asset to the organization. In fact, this function is
misinterpreted as data processing for expeditious generation of reports and returns, and
not as information processing for management actions and decisions.
However, the scene has been changing since late eighties when the computers
became more versatile, in the function of Storage, Communications, Intelligence and
Language. The computer technology is so advanced that the barriers of storage, distance,
understanding of language and speed are broken.
The computers have become user-friendly. They can communicate to any distance
and share data, information and physical resources of other computers. Computers can
now be used as a tool for information processing and communication. It can be used for
storing large database or knowledge base. It can be used for knowing the current status of
any aspect of the business due to its on-line real time processing capability.
With the advancement of computer technology, it is now possible to recognize
information as a valuable resource like money and capacity. It is necessary to link its
acquisition, storage, use, and disposal as per the business needs for meeting the business
objectives. Such a broad-based activity can be executed only when it is conceived as a
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system. This system should deal with management information and not with data
processing alone. It should provide support for management planning, decision making
and action. It should support the needs of the lower management as well as that of the top
management. It should satisfy the needs of different people in the organization at
different levels having varying managerial capabilities. It should provide support to the
changing needs of business management.
In short, we need a Management Information System flexible enough to deal with
the changing information needs of the organization. It should be conceived as an open
system continuously interacting with the business environment with a built-in mechanism
to provide the desired information as per the new requirements of the management. The
designing of such an open system is a complex task. It can be achieved only if the MIS is
planned, keeping in view, the plan of the business management of the organization.
The plan of MIS is concurrent to the business plan of the organization. The
information needs for the implementation of the business plan should find place in the
MIS. To ensure such an alignment possibility, it is necessary that the business planstrategic or otherwise, states the information needs. The information needs are then traced
to the source data and the systems in the organization which generate such a data. The
plan of development of the MIS is linked with the steps of the implementation in a
business development plan. The system of information generation is so planned that
strategic information is provided for the strategic planning, control information is
provided for a short term planning and execution. The details of information are provided
to the operations management to assess the status of an activity and to find ways to make
up, if necessary. Once the management needs are translated into information needs, it is
left for the designer to evolve a plan of development and implementation.
Contents of the MIS Plan
A long range MIS plan provides direction for the development of the systems, and
provides a basis for achieving the specific targets or tasks against a time frame. The plan
would have the following contents which will be dealt by the designer under a support
from the top management. Table 10.1 shows equivalence of Business Plan and MIS plan.
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Provide online information on the stocks, markets and the accounts balances.
The query processing should not exceed more than three seconds.
The focus of the system will be on the end user computing and access facilities.
Information support will be the first in the strategic areas of management such as
marketing or service or technology.
Table 8.1
MIS plan
Such statements of the goals and objectives enable the designer to set the direction
and design implementation strategies for the MIS plan.
Strategy for the plan achievement.
The designer has to take a number of strategic decisions for the achievement of the MIS
goals and objectives. They are:
(a) Development strategy: An online, a batch, a real time.
(b) System development strategy: Any approach to the system development
Operational versus Functional; Accounting versus Analysis; Database versus
Conventional approach; Distributed versus Decentralized processing; one
Database versus Multiple databases SSAD vs OOT.
(c) Resource for system development: In-house versus external, customized
Development versus the use of packages.
(d) Manpower composition: Analyst, programmer skills and know-how.
Focus
Corporate information
Where are we ?
Corporate philosophy
Corporate mission/goals/objectives
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Information needs
Strategic/planning, operational.
Schedule of development
Budge
tools
for
User
Organizational
Functional
Functional heads.
Middle
and
Management.
Knowledge
Decision support
the
Middle
management
operations management.
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Top
and
receivables.
Operational
Table 8.4
Information
Entity
Employees
Attendance
Salary wages
And overtime
Human resources
Information
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The outstanding more than six months not to exceed Rs 0.2 million.
The functional goals and objectives are necessary to achieve overall corporate
achievements. Most of such goals and objectives are potentially achievable within the
managerial and physical resources that the manager has at his disposal. It is,
therefore, necessary to inform the manager on the achievements of these targets on a
continuous basis.
In summary, the functional information would emanate from the work design and
procedures, the managerial responsibility accounting, and with reference to the
functional goals and objectives. It would be determined by studying the work design
and procedures and the responsibility accounting, and with reference to the functional
goals and objectives. It would be determined by studying the work design and
procedures and the responsibility which the manager holds for the business
performance. That information, which measures the business activity and evaluates
the performance on the key target areas, is the functional information. The source of
such information is the managers and their functional heads who together execute the
business activity.
Knowledge Information
The knowledge information creates an awareness of those aspects of business where
the manager is forced to think, decided and act. Such information shows the trend of
the activity or a result against the time scale.
For example, whether the sales are declining and the trend is likely to continue in
the next quarter. The product is failing continuously on one aspect and the reason of
failure is the process of manufacturing. Such information pin-points the area or entity
and forces the manager to act. It highlights the deviations from the norm or standard
and also any abnormal development which are not in congruence with the forecasts or
expectations. Such information gives rise to business decisions, which will affect the
process of business significantly. In some situations the strategic decisions may be
necessary to solve the problem.
The knowledge information may cut across the functional boundaries of the
organization. The action or decision may fall in other functional areas of business
operations. The decision may fall in the domain of top management or the middle
management. The knowledge information is required by the middle and top
management as they are the ones who have conceived, planned and implemented the
business plan. Hence, the knowledge information supports the functions of the middle
and the top management. Knowledge information is tracked continuously and
reported in a fixed format, for consistency and at fixed intervals for updating the
knowledge base. The nature of this information is analytical and relates to the past,
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the current and the future. The knowledge information is reported in graphic formats
for a quick grasp and managerial response. It contains business result and
comparative analysis of the performance.
Decision Support Information
Most of the information required by the middle and the top management is for
decision making. The information does not act as a direct input to the decision
making procedure or formula but supports the manager in the efforts of decision
marking.
Information is used in a decision support system for model building and problem
solving. The support may act in two ways, in two ways, one for justifying the need of
a decision, and the other as an aid to decision making.
For example, the information on the non-moving inventory justifies the decision
of its disposal at throwaway prices. The demand forecasts information aids in the
decision on determining the economic order quantity for production or a sale.
The decision support information can be determined for the company at the entity
level leaving its use to the decision makers in a suitable manner. The source of this
information could be internal or external to the organization. It can be determined by
identifying the tools, techniques, models and procedures, used by the managers in the
decision making.
Operational Information
This information is required by the operational and the lower level of the
management. The main purpose of this information is fact finding and taking such
actions or decisions which will affect the operations at a micro level. The decisions
may be to stay on overtime, draw additional material, change the job from one
machine to the other, and send a reminder to the supplier for the supply of material.
These decisions are such that they make the routine administration of the business
smooth and efficient. These decisions do not fall in the category of the managerial
decisions.
The sources of operational information are largely internal through transaction
processing and the information relates to a small time span and is mostly current.
8.3
The sole purpose of the MIS is to produce such information which will reduce
uncertainty in a given situation. The moment what is unknown becomes known, the
decision makers problem simple. Methods have been evolved to handle the degree of
uncertainty the management is expected to deal with.
The difficulty to determine a correct and complete set of information is on
account of the factors given below:
1. The capability constraint of the human being as an information processor, a
problem solver and a decision maker.
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Method
Operations management.
Precise probabilistic
knowledge (A risk situation)
Middle management
Top management.
Determine
through
experimentation, modeling and
sensitivity analysis.
There are four methods of determining the information requirements. They are:
1.
2.
3.
4.
Asking or interviewing
Determining from the existing system
Analysing the critical success factors
Experimentation and modeling.
Asking or Interviewing
In this method a designer of the MIS puts questions or converses with the user of
information and determines the information requirements. Putting the questions is an art
and it should be used properly to seek information.
When the user has to select one answer from finite set of answer a closed question
should be asked. For example, Which are the raw materials used for making a product?
But an open question is put, when the user has no precise knowledge but has an ability to
determine all answer and to select one out of them? For example, Which are the raw
materials which can be used in a product? In open questions, the answers may not be
immediate but can be obtained by surveying the domain of knowledge of the user.
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becomes a critical factor. In a consumer industry, marketing and service become the
critical functions. The information requirements of such organizations largely relate to
these critical factors. The analysis of these functions or factors will determine the
information requirements.
Experimentation and Modelling
When there is total uncertainty, the designer and the user of the information resort to this
method for determining the information requirement. The experimentation would decide
the methodology for handling the complex situation. If the method is finalized, the
information needs are determined as they have been evolved through the
experimentation. Test marketing of a product is an approach of the experimentation to
decide the correct marketing strategy.
Sometimes models are used for deciding the initial information needs and they are
modified during the implementation stage. The information requirements determined
through such methods undergo a qualitative change as the users get the benefit of
learning and experience and the needs may undergo a change or get replaced completely.
8.4 DEVELOPMENT AND IMPLEMENTATION OF THE MIS
Having made the plan of the MIS, the development of the MIS calls for determining the
strategy of development. As discussed earlier the plan consists of various systems and
subsystems. The development strategy determines where to begin and in what sequence
the development can take place with the sole objective of assuring the information
support.
The choice of the system or the subsystem depends on its position in the total MIS
plan, the size of the system, the user understands of the system and the complexity and its
interface with other systems. The designer first develops systems independently and starts
integrating them with other systems, enlarging the system scope and meeting the varying
information needs.
Determining the position of the system in the MIS is easy. The real problem is the
degree of structure, and formalization in the system and procedures which determine the
timing and duration of development of the system. Higher the degree of structured ness
and formalization, greater is the stabilization of the rules, the procedures, decision
making and the understanding of the overall business activity. Here, it is observed that
the users and the designers interaction is smooth, and each others needs are clearly
understood and respected mutually. The development becomes approach with certainty in
inputs process and outputs.
Prototype Approach
When the system is complex, the development strategy is Prototyping of the system.
Prototyping is a process of progressively ascertaining the information needs, developing
methodology, trying it out on a smaller scale with respect to the data and the complexity,
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ensuring that it satisfies the needs of the users, and assess the problems of development
and implementation.
This process, therefore, identifies the problem areas, inadequacies in the prototype vis-vis fulfillment of the information needs. The designer then takes steps to remove the
inadequacies. This may call upon changing the prototype of the system, questioning the
information needs, streamlining the operational systems and procedures and more user
interaction. A typical process of the system development through prototyping is given in
fig. 8.1.
MISSION,
GOALS
IDENTIFY
INFORMATION
NEEDS
REFINE
THE NEEDS
MODIFY
PROTOTYPE
SPECIFICATION
DEFINE SYSTEM
BOUNDARIES
AND SCOPE
DEVELOP AND
TEST
DEVELOP
REVISED
PROTOTYPE
DEFINE SYSTEM
OBJECTIVE
INITIAL
RPOTOTYPE
IS
THE USER
SATISFIED ?
REVIEW
IMPLEMENT
IN PARALLEL
NO
TRAINING
YES
EXAMINE
FEASIBILITY
DEVELOP INITIAL
PROTOTYPE
SPECIFICATIONS
DEVELOP
APPLICATION
WITH FINAL
SPECIFICATIONS
DOCUMENTATION
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Brining the multiple users on the same platform and changing their attitudes
towards information, as a corporate resource, is the managerial task of the system
designer. The qualification, experience, knowledge, the state of art, and an understanding
of the corporate business, helps considerably, in overcoming the problem of changing the
attitudes of the multiple users and the originators of the data.
Life Cycle Approach
There are many systems or subsystems in the MIS which have a life cycle, that is, they
have birth and death. Their emergence may be a sudden or may be a part of the business
need, and they are very much structured and rule-based. They have hundred per cent
clarity of inputs and their sources, a definite set of outputs in terms of the contents and
formats. These details more or less remain static from the day the system emerges and
remains in that static mode for a long time. Minor modifications or changes do occur but
they are not significant in terms of handling either by the designer or the users of the
system. Such system, therefore, have a life and they can be developed in a systematic
manner, and can be reviewed after a year or two, for significant modification, if any.
Examples of such systems are pay roll, share accounting, basis financial
accounting, finished goods accounting and dispatching, order processing, and so on.
These systems have a fairly long duration of survival and they contribute in a big way as
sources of data to the Corporate MIS. Therefore, their role is important and needs to be
designed from the view point as an interface to the Corporate MIS. The life cycle
approach, therefore, has a method of its own as explained in the fig. 10.2.
Apart from the core systems, some decision support systems can be developed
through the life cycle approach. The choice of system design in the prototype and Life
Cycle approach is decided on the basis of the nature of the system or application. For
example, you have a choice of the database approach versus the conventional system
approach, the online real time versus the batch processing approach. You may also have
choice of hardware and software. All these technical decisions are more situation
dependent, requiring judicious application of and information technology.
SYSTEM
APPLICATION
PHYSICAL
DESIGN
INSTALL
THE SYSTEM
ASSESS
FEASIBILITY
SYSTEM
SPECIFICATIONS
INFORMATION
REQ.ANALYSIS
PROGRAM
SPECIFICATION
OPERATE THE
SYSTEM
CONCEPTUAL
DESIGN
DEVELOP
THE SYSTEM
REVIEW
AND AUDIT
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Table 8.6 shows the difference between the two approaches helping the designer select an
approach.
Table 8.6
Comparison of Approaches
Prototyping approach
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There are certain guidelines for the systems designer for successful
implementation of the system. The system designer should;
1. Not question beyond a limit the information need of the user.
2. Not forget that his role is to offer a service and not to demand terms.
3. Remember that the system design is for the use of the user and it is not the
designers prerogative to dictate the design features. In short, the designer
should respect the demands of the user.
4. Not mix up technical needs with the information needs. He should try to
develop suitable design with appropriate technology to meet the information
needs. The designer should not recommend modifications of the needs, unless
technically infeasible.
5. Impress upon the user the global nature of the system design which is required
to meet the current and prospective information need.
6. Not challenge the application of the information in decision making. It is the
sole right of the user to use the information the way he thinks proper.
7. Impress upon the user that the quality of information depends on the quality of
input which he provides.
8. Impress upon the user that he is one of the users in the organization and that
the information is a corporate resource and he is expected to contribute to the
development of the MIS.
9. Ensure that the user makes commitment to all the requirements of the system
design specifications. Ensure that he appreciates that his commitments
contribute largely to the quality of the information and successful
implementation of the system.
10. Ensure that the overall system effort has the managements acceptance.
11. Enlist the users participation from time to time, so that he is emotionally
involved in the process of development.
12. Realize that through serving the user, he is his best guide on the complex path
of development.
13. Not expect perfect understanding and knowledge from the user as he may the
user of a non-computerized system. Hence, the designer should be prepared to
change the system specifications or even the design during the course of
development.
14. Impress upon the user that the change, which is easily possible in manual
system, is not that easy in the computer system as it calls for changes in the
programs.
15. Impress upon the user that perfect information is non-existent; his role
therefore still has an importance in the organization.
16. Ensure that the problems in the organization are resolved first before the
system is taken for development.
17. Conduct a periodical user meeting on systems where you get the opportunity
to know the ongoing difficulties of the users.
18. Train the user in computer appreciation and systems analysis as his perception
of the computerized information system will fall short of the designers
expectation.
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Quality Parame
Example
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Timely information
same in all the organizations. Hence, the organization structure of the MIS would differ
from one organization to the other.
The type, the size and the structure of corporate organization becomes the basis
for the MIS organization for handling the MIS function and management alternatives.
The major is sues involved are:
1.
2.
3.
4.
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The MIS is integrated into the managerial functions. It sets clear objectives to
ensure that the MIS focuses on the major issues of the business. Also adequate
development resources are provided and the human and organizational barriers to
progress are removed.
An appropriate information processing technology required to meet the data
processing and analysis needs of the users of the MIS is selected.
The MIS is oriented, defined and designed in terms of the users requirements and
its operational viability is ensured.
The MIS is kept under continuous surveillance, so that its open system design is
modified according to the changing information needs.
MIS focuses on the results and goals, and highlights the factors and reasons for
non-achievement.
MIS is not allowed to end up into an information generation mill avoiding the
noise in the information and the communication system.
The MIS recognizes that a manager is a human being and therefore, the systems
must consider all the human behavioral factors in the process of the management.
The MIS recognizes that the different information needs for different objectives
must be met with. The globalization of information in isolation from the different
objectives leads to too much information and its non-use.
The MIS is easy to operate and, therefore, the design of the MIS has such features
which make up a user-friendly design.
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SELECTION, UPGRADE,
EXPANSION DECISIONS
HARDWARE AND
SOFTWARE
TECHNOLOGY
UPGRADE DECISIONS
MANAGING
DIRECTOR
INFORMATION SYSTEM
PLANNING
HEAD OF
M IS
CENTRALISED SYSTEM
DEVELOPMENT
TRAINING
MANAGEMENT AND
DEVELOPMENT
OPERATIONS,
MAINTENANCE
MANAGING
DIRECTOR
SELECTION OF
HARDWARE SOLUTION
HEAD OF
MIS
CORPORATE
DBMS
SELECTION OF
LANGUAGE, OS.
Note
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REVIEW QUESTIONS
__________
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1. Why is a long range plan of MIS necessary? How it linked with the business plan
of the organization?
2. What are the content of the MIS plan? What is the purpose of each of them?
3. Draw a matrix of the class of information versus users, and explain the nature of
use in each case.
4. What problems does the system analyst face in ascertaining the information
requirement at the various levels of management? How are these problems
tackled?
5. When should the analyst resort to prototype experimentation for judging the
requirement? How is modeling used in this approach?
6. When would you resort to prototype approach and when would you resort to the
life cycle approach in the development of the MIS?
7. In the guideline given for implementation identify the guidelines where user is
involved.
8. Before a full scale MIS development plan is undertaken, it is better to study and
improve rules, policies, procedures and practices. Explain.
9. A good MIS is an integral part of the management system. Why so? What would
happen if it is not?
10. User acceptance and dependence on MIS is a test of a good MIS. How would you
ensure that the user related issues are taken care of while designing the system?
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CHAPTER-9
Each configuration has certain technical merits and demerits, and, therefore, has
to be weighed on some other criteria for its selection. Each one of them covers a wide
cost spectrum. The wide cost spectrum results due to the different architecture options
in the hardware such as the RISC, the CISC and the different processing chips such as
the INTEL, the MOTOROLA or the PROPRIETARY Chip such as the Alpha of the
Digital and the POWER PC of the IBM, etc.
The third reason is the different operating systems for the different platforms, i.e.,
the DOS, Windows NT, the UNIX, the OSF, the MOTIF, the OS2, the VMS and their
proprietary versions such as the Ultrix, the HP UNIX, and the ORG UNIX, etc.
Several probable configuration options are further influenced by the available
software running under each of the operating systems. The software options, an
important dimension to the choice of the information technology, demand a certain
operating system as a critical requirement. Some software option is efficient on one
hardware platform and not on the other, so if the software is critical, then many times
the hardware is critical, then many times the hardware becomes a no option decision.
Another important factor which influences the information technology decision is
the organization and its infrastructural arrangement of the offices, warehouses,
factories and the customers. Much organization would demand hardware typical to
that particular location and also be able to communicate with other hardware-software
platforms. In such situations, the communication requirement becomes a dominating
factor in choice of the information technology.
For example, the warehouse may need just a PC or a PCLAN, the nearby factory
may need a mini computer system and the corporate office would need a large
Superman computer with special software suitable for its functioning. Each of these
platforms may have different operating systems, and the MIS of such an organization
requires data and information sharing between all these resources at various locations.
The information technology decision must consider the communication problem and
the interface between the two hardware options so that the data sharing is
operationally feasible. Many a times, the operational feasibility problems are solved
by writing the system utilities, the drivers, and the programmers so that these two
platforms become ready to share each others resources effectively.
The information technology decision is also influenced by people-related factors.
The choice of the information technology is made on the basis of the ability of the
people in the organization to run the hardware-software system. The place like
warehouse may not have highly qualified computer literate personnel and, therefore,
at such a location, PC systems would be an automatic choice or a dumb terminal of
the main computer system. But at the factory location, since the personnel are of the
higher skills, grade and qualifications, a Network or a mini system, capable of
offering different software solutions, would be required. In such a place, hardware
and software support in also required.
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If the decisions in the organization are of the following types, then the
information technology option would differ. These types are:
(a) The decisions affecting the operations management.
(b) The decisions affecting the execution and control of the business.
(c) The strategic business decisions.
In such cases, the information technology choice would be the Front End Processing
System connected to the Bank Office Central System. Hotels, hospitals and large
corporate bodies are the examples, where such a choice is desirable. The front end
systems take care of the operations management, while the back office systems take
care of the strategic and the operations planning and control of the business.
There is other business situation where due to sensitive nature of the business,
decision making is concentrated at one business location or in one of the business
functions such as marketing, research and development, manufacturing, etc. The
information technology choice is largely governed by the information needs of that
particular location or function. In other words, every business has one or more
mission critical applications serving the information needs of the critical strategic
decision. The entire management process revolves around this application. The
organizations information technology choice is, therefore, based on the requirement
of these applications serving the critical business functions.
Due to the organizations infrastructure and also due to the nature of the business
it so happens that there are data centers, where a large umber of transactions take
place and these are the decision centers. In such cases the information technology
choice will be in favor of the distributed high end data processing systems and the
dedicated information processing system at the decision centre using the distributed
data bases. Many service oriented business like the banks, the insurance companies,
etc. fall into this category.
It is, therefore, important to note that the information technology choice considers
the management process, the business organization, the decision making style and the
mission critical applications as the important dominating factors. The choice of
hardware details and the software mix will be decided on these factors.
Business Operations
There are many organizations, where the business operations are typical, voluminous
and their information needs are largely transaction processed. The typical example is
that of the banks where the banking operations are uniformly standard at almost all
branch locations. The transactions are large in number and need to be processed very
fast. The decision making process is rule based governed by the policy and the
guidelines issued by the statutory bodies in the banking industry. The information
technology choice in such cases would be the one which satisfies this need the best.
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In a Hospital, where the transaction processing is very low, the decision making
need is satisfied by query type applications. The information needs here are largely
the patient and doctor-oriented. The information technology choice, in such case, will
be of the front end processing system supported by the back office mini or main
frame system with a strong database system which is very powerful in data
management and the query processing.
Suppose there is an organization the main business of which is marketing of a
variety of product through a nationwide distribution channel system. The business
here operates mainly on satisfying the needs of the buyers by providing them what
they want. Hence, inventory management is the main business function here. The
information technology choice in such case will be the one where the sales and the
receipts data is processed very fast, the inventory related decisions are taken, stocks
are adjusted and the procurement action is also taken quickly. The hardware details in
such case will be decided based on the data volume, the speed and the communication
systems.
There are certain business organizations the operations of which are such that if
the organization takes care of one or two major functions, most of the information
needs and the MIS needs would be satisfied. Many a times these functions are special
and would be demanding special hardware and software. If the organization requires
mix of such special hardware and software, then the information technology choice
will be based on the integration possibility of the different information technology
platforms satisfying the organizational information needs.
For example, in the high-tech engineering organizations, a lot of engineering and
design activities, such as drafting, designing, modeling and analysis take place. Such
a function would need special hardware such as work stations and special CAD/
CAM/ CAE software, etc. However the data processed by such hardware-software
system needs to be integrated in the business and commercial systems of the
organizations. The information technology choice in such cases would be based on
the feasibility of sharing the resources and data of the two locations and having
special application and information needs.
A number of such possibilities emerge and unless these factors are properly
considered, the information technology choice may go wrong. The information
technology choice therefore is strategic to the business performance.
In all the business twenty per cent information set is critical and eighty per cent is
not so critical. If the information technology choice does not satisfy the critical
twenty percent need, then it can be said that the information technology choice is a
strategic mistake with concurrent business and financial implications.
11.3 CONFIGURATION DESIGN
The details of the information technology, such as architecture, communication,
RDBMS, storage media, and operating system are also strategic to the success of the
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MIS. These details are carefully worked out for effective implementation of the
information technology. The details are worked out based on the following features:
Data type
Words, Numeric, Image and Voice. The hardware and software should be capable of
handling these data types.
Data volume
The online storage capacity would be decided based on the processing needs. It will
be further increased due to the disk mirroring.
I/O operations
These would decide the controllers and the speed of I/O processing.
Data sharing
If the data is to be shared across the databases, then the storage capacity will be
decided based on the size of the databases.
Process speed
The speed needed for processing will decide the CPU, memory and the processing
architecture.
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11.4 EVALUTION
As we develop different choices of information technology and its configurations, the
decision making enters into the evaluation phase for selection. The selection criteria for
evaluation would have different dimensions to be satisfied simultaneously. These
dimensions are as follows:
1. Technical Evaluation
2. Operational Feasibility
3. Financial Consideration
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Technical evaluation can be carried out first by studying the literature of the
product in detail and then by conducting brain storming sessions with the vendors
specialists. In this phase a number of doubts are clarified and the vendors claims in the
areas of the system performance are confirmed. Technical evaluation can then be planned
by scheduling the activities such as the bench marking for a couple of key parameters.
The bench marking studies could be at a raw level where you test the vendors
specifications. Once these are confirmed, the specifications are put to test on a live
platform, i.e., the technical specification are tested by running live data in a particular
format. Such an experiment would be a prototype model of your information processing
need related to the mission critical applications. You may develop a mini representative
processing application and run it on a model configuration of the system. Such
experiment would confirm the vendors claims and your expectations and needs. This
would develop certain norms which can be used to configure the hardware details and
building the architecture. The bill of material of hardware and software can be worked
out with the help of these norms.
Following hardware software details are configured and the quality of each item is
also decided using the norms developed in a live experiment. The decisions on the
following points would facilitate the system configuration for a given requirement.
Memory and Cache
Disk Capacity, Features, Controllers
CPU Speed, Processing Architecture and Capabilities
Servers
Terminals-PCs, X Terminals Work Station
Network and Cabling, Internet and Intranet
EDI, E-Mail
Network Hardware
Output Devices
Monitors
Operating System
Standard: ASCII, ANSI, GUI
Hardware Architecture
System Software: OS, Gateways, Interfaces, Drivers, Utilities and Compilers
Media, Copying Devices
RDBMS, FEATURES
Packages
Technical evaluation and confirm the information technology approach to the
information processing needs of the organization. The issues like the centralized versus
distributed, the online versus the batch versus the real time, the network versus the mini
or the superman are also evaluated. Technical evaluation also helps in narrowing down
the hardware choices as all the vendors may not satisfy the requirement of the
organization.
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Having narrowed down the hardware configurations to two or three options, the
technical evaluation considers the performance related issues such as reliability,
dependability, performance on the volume scale, security, integrity and autonomy, etc.
All the option may not equally satisfy the evaluation standards set by the organization on
these factors. The performance related issues will help fine tune the configuration details
such as the memory, the number of ports, the specific input and output devices and the
hardware infrastructure. Technical evaluation also helps to break down the hardware on a
time scale, i.e., the minimum required in the initial stage and subsequent add-ons,
expansions and upgrades on a time scale.
In technical evaluation we are discussing information technology. The
information technology is constantly under development and the scale on which such
improvement takes place is phenomenal. Hence, it is necessary to select the latest
technology in all areas of information processing as it would take you a long way and
help you to protect the investment. The investment is protected, if the Information
Technology choice is scalable, upgradeable and also expandable with the growth of the
business.
Operational Feasibility
The options approved after the technical evaluation are tested on the operational
feasibility. What the technology offers may not be possible to operate at the practical
level and scale to obtain full benefits of the various inherent features. The operational
feasibility evaluation considers the people-related issues and whether the systems and the
procedures of the organization are complementary and conducive.
In a number of situations, the choice of technology determines automatically the
caliber, the competence, and the knowledge of the people in the organization. It is also
observed that the organization does not provide people support to implement technology
successfully. The shortcomings on peoples side would be the lack of requisite
qualification and the subject knowledge, the ability to absorb the technology, and use it
effectively. Many a times, the organization would require appointing a new set of
personnel to fulfill these needs.
Other areas affected would be the systems and the procedures currently operating
in the company. The shortcoming is observed right from the absence to the inefficient
systems and procedures. The modern information technology needs sophisticated back-up
of the data at a requisite point and time. If such a data support is not available then the
information technology would be underutilized or may not be worthwhile to implement.
For example, the information technology offers a solution of fast data transfer and
processing between the two platforms at two locations, i.e., the data source is at one
location and its need is at two other locations. Due to the systems and the procedures
prevailing at the source location, the arrival of the data at the required location is late and
hence not useful. Hence, the information technology solution is operationally infeasible
to obtain the best of the solution.
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Most of the issues in the operational feasibility evaluation are related to the
people and business processes (system and procedure). The environment must support
proper implementation of a new information technology.
If the environment does not support the new technology, it will be managerially
prudent to choose next best option by obtaining full benefits in its successful
implementation and further at a later date to switch over to the original best option.
Financial Evaluation
All the option can be evaluated in terms of the invested it calls for. It is always possible
to rank the option on the basis of the basis of the investment. All business investment is
evaluated in terms of return on the investment (ROI) or certain payback period. They are
also judged from budget considerations.
The information technology investments are difficult to judge on the ROI basis as some
aspect of the investment are intangible and are difficult to quantity in monetary terms.
The best approach in such cases is to judge the investment in terms of the value of
information it gives on an incremental scale. If the value of information in relation to its
investment is not significant, then it could be advisable the consider the next best lower
investment option.
In regard to the budget restrictions, it would be advisable to examine the
possibility of scaling the hardware and the software options. It is then possible to have a
solution implemented in terms of the budget provisions. The scaling can be done in terms
of the quality of hardware required in the option.
If may be possible to buy the requisite minimum in the first year and expand them
in the subsequent period. It may be possible to configure the hardware in terms of the
capabilities which are required now and which can be acquired later on. For example, one
can start on 32MB memory and over to 64MB. One need not buy all the software in the
first place. It can be phased out in terms of need, i.e., purchased the requisite software as
and when required.
The budget restrictions can handle by taking the benefit of the scalable and the
upgradeable technology. The scaling of the expansion can be done on two scales, viz.
horizontal and vertical expansion. The horizontal expansion relates to the quantity while
the vertical expansion relates to the quality and coverage.
Horizontal expansion
The memory, disk, terminals, peripheral equipment, etc. can be configured for the present
needs and then expanded as the coverage increased.
Vertical expansion
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The implementation of the information technology is a complex task and needs a detailed
and careful planning for successful implementation. It is necessary to prepare a plan of
implementation covering the following features. These features are:
1.
2.
3.
4.
5.
6.
Site preparation
System development plan
Information technology installation schedule
Recruitment and training of computer personnel
Training of the users
Investment plan
Site Preparation
This is a major activity, wherein you prepare the site for the physical installation of the
hardware i.e., the main computer system, the peripherals, the electrical and
communication cabling, the air conditioning system, the tape-disk consumable storage,
and the office layout for the professionals. The space allocation for each of these items is
based on present need with some allowance for the future.
The modern information technology needs site preparation at the users end as
well for the convenience and the ease of operations. Most of the information technology
installations need infrastructural facilities, such as a conference room, and training-cumpdfMachine - is a pdf writer that produces quality PDF files with ease!
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demonstration room with the modern aids of training. This process of site preparation
takes away 10 to 12 per cent of investment. In all these matters, guidance is available
from the hardware vendors. A committee consisting of the vendors representatives,
architect and interior designer, and in-change of the information technology
implementation would be ideal for a planned site preparation activity.
System Development Plan
This is generally prepared while assessing the hardware and software needs. Such a plan
gives the indication of the various locations of hardware in terms of quality and time
when needed. System development plan priorities the various steps in the site
preparation. One can make a site preparation plan for an immediate need and also for a
later date. This would help to make a long-term financing plan.
A system development plan also helps you in planning the other activities such as
recruitment and training. It also helps in deciding the procurement plan of the hardware
and software. A broad system development plan would go a long way preparing the
operational and implementation plans of the information technology in the organization.
Information Technology Installation Schedule
This schedule gives the item-wise details of the hardware arrival and its installation,
testing and acceptance. It also needs to be linked with the information system
development plan to synchronise the installation with the user of the hardware and the
software.
Many times the schedule also considers key issues like data conversion,
switching over from an old system to a new system, rewriting programmer for new
software environment and so on. Such schedule also helps in the smooth transition from
old to the new. It may be from one information technology to another information
technology environment or from the manual system to the computerized system.
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Training of Users
The latest development in the information technology requires its users to be well trained
for its effective use. The training may range from awareness to learning of the specific
tools. The users should be trained to accept the concept of end user computing. The users
should be trained to use the various information technology facilities.
The users should be trained to blend the information support in their day-to-day
activities. It is a change in work culture and an appropriate attitude needs to be developed
for the absorption of the new information technology solutions. Many software packages
are available which need to be learnt for its appropriate use to become IT literate.
With the support of the information technology, the user is becoming a
knowledge worker. It is a qualitative cultural change and it is, therefore, necessary to
prepare the user for this transformation through a comprehensive User Training
Programme. Such training is imparted across the organization to the workers, officers,
executives and the managers.
Investment Plan
When all the facets of the information technology implementation are ready, it is possible
to work out the monetary implications such an implementation. Summarizing the
estimates on the time scale would generate an investment plan. One can fit the investment
in the budget provisions by suitable modifications in the implementation plan of the
information technology. Since, the investment in the information technology is strategic;
at the most it can be deferred but cannot be curtailed. It is important to note that the
intermediate information technology solution to save on the investment is not effective. If
there are any bud-getary limitations, it is better to postpone the implementation.
A carefully worked out investment plan should be submitted for approval with the
implementation plan of the information technology. A presentation of an hour and a half
to the top management highlighting the investment, the productivity gains and the
competitive edge that the business of the organization acquires through the information
technology, would help in obtaining the approval, its involvement and support in
implementation of the information technology.
11.5 CHOICE OF THE INFORMATION TECHNOLOGY
AND THE MANAGEMENT INFORMATION SYSTEM
The choice of the information technology is a backbone of the Management Information
System. It is a critical, strategic decision affecting the business operations and prospects.
It affects the people, the processes and productivity and helps organization emerge with a
new work culture. Since, it is a high investment decision; the management would look at
it from the return it yields in the business.
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The success of the MIS lies in how the information technology is implemented in
the organization. A lot depends on the people and their ability to accept the new work
style and the new work culture. All the implementation of the information technology
leads to organizational transformation in the content and structure.
If the human face of the organization is not properly aligned to the information
technology, the best information technology would fail in its implementation, adversely
affecting effective development of the MIS. There is a risk in manipulating the
information technology beyond a limit to suit the personnel of the organization or the
budget limitation. Hence, the implementation of the information technology could be
slow on the time scale to accommodate a certain critical constraint, but it should not be
allowed to adversely influence the information technology decision itself.
The information technology changes are very rapid. To protect the investment in
the information technology, the selection criteria should include features such as scalable
architecture, upgradeable software, an open system environment, communication
capability through gateways and interfaces and so on. A good management information
system design requires a matching support from the information technology.
REVIEW QUESTIONS
__________
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CHAPTER-10
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These systems are not necessarily required for decision making but they are desirable
to keep track of the major aspects of the business or a function. The contents of these
systems are more data processing leading to formal reporting, with exceptions, if
necessary. These systems account items such as cash, inventory, and personnel and so
on and relate it to a norm or norms developed by the management, for control and
decision.
5. Model based systems
These systems are simulation models or optimization models for decision making.
These decisions, generally, are one time and infrequent and provide general
guidelines for operation or management. The product mix decision, the material mix,
the job scheduling rules, and the resources or asset or facilities planning systems are
the examples.
In order to illustrate these decision support systems, let us take the example of
Materials Management function and the variety of the decision and the type of
systems used therein to support and examine the decision
We can further analyze these systems in terms of the input source, the system, the
hardware and the type of user as shown in Table 10.1.
Some more facts about Decision Support Systems;
1. The decision support systems are developed by the users and System analysts
jointly.
2. The decision support system uses the principles of economics, science and
engineering, and also the tools and techniques of management.
3. The data used in the decision support system is drawn from the information
systems developed in the company.
4. The decision support systems are developed in isolation and from an independent
system subset of the management information system.
5. The most common use of the decision support system is to test the decision
alternatives and also to test the sensitivity of the result to the change in the system
and assumptions.
6. The data and information for the decision support system are used from the
internal sources such as the database and the conventional files, and from the
external sources.
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sciences, medicines, psychology and marketing. The behavioral analysis can be used to
set the points for alert, alarm and action for the decision maker.
2. Management science models
These models are developed on the principles of business management, accounting and
econometrics. In many areas of management, the proven methods of management control
are available which can be used for the management decision. There are also several
management systems, which can be converted into the decision support system models.
For example, the budgetary systems, the cost accounting systems, the system of
capital budgeting for better return on the investment, the ABC analysis, the control of
inventory through the maximum-minimum levels, the MRP system, etc., are the
examples of the use of the management science in the materials management. Production
planning and control scheduling and loading systems are the examples in Production
Management. Manpower planning and forecasting is the example in Personnel
Management.
Some of these models can be used straight away in the design of the decision
support system. While some others require the use of management principles and
practices, most of the procedure based decision making models belong to this category.
One can develop a model for selection of vendor for procurement of an item, based on
the complex logical information scrutiny. Such models take away the personal bias of the
decision maker.
2. Operations research (OR) models
The Operations Research (OR) models are mathematical models. These models.
These models represent a real life problem situation in terms of the variables,
constants and parameters expressed in algebraic equations. Since, the models are
mathematical; there is solution to these problems. In arriving the solution,
methods of calculus, matrix algebra, probability, and set theory are used. These
models have clarity to the extent that each of them has a set of assumptions which
must be true in real life. Further, if the assumptions are valid, the solutions offered
are realistic and practical; the model represents the real life problem situation.
The OR models address themselves to the resources usage optimization,
by balancing two or more aspects of the decision situation. The efforts are made
to find the optimum solution. In business and industry, there are a number of
situations where one type of cost is controlled, the other cost goes up. This play
between the two costs has to be balanced at a point, which is known as an
optimum point. The OR models generally try to find a solution which maximize
or minimize certain aspects of business, under the conditions of constraints.
In manufacturing business, the maximization of profit with an appropriate
product mix, within the capacity and the market constraint, is a common problem.
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is used; where more weight is given to the latest period and less weight to the
older period. If three period models are constructed, it would be as under:
Sales for period t + 1 = S t + 1
S t + 1 = aDt + (1 a)aDt - 1 + (1-a)2 aD + (1-a)3 a Dt - 3
a is weight expressed in a fraction and D is the actual demand at period t . The
larger value of a means the new average will be more influenced by the demand
of the latest period and less by the old period.
The forecasting model is a Decision support Information System, and
there are many models to choose from. The most important decisions are based on
forecasts. A forecasting model needs continuous scrutiny and, built-up on the
accurate data the variable and the parameter to be derived from the other
information system developed in the organization.
Market research methods
Several methods are available, whereby you can forecast or judge the behavior of
the consumer in respect of their buying decisions. The questionnaires are designed
and computerized to assess these aspects of the buying behavior.
For example, through a survey, the Marketing Manager can forecast the
response rate, the recall rate on the various advertising campaigns and its
influence on the buying decision. The survey methods are used to find the
influencing factors in the buying decisions.
Ratio analysis for financial assessment
The ratio analysis is a standard method of assessing the financial status of the
organization. A model of these ratios can be computerized and be readily used to
assess the status, if certain changes are expected. There are some ratio norms
prescribed by the financial condition of the organization. They are also used while
decision making for advancing loans to the companies. There are more than a
dozen ratios which deal with all aspects of business. They are the current ratio, the
quick ratio, the assets to liabilities, and the inventory turnover and so on.
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Budget, the Expense Budget, and the Inventory Budget, etc. Using these budgets
the profits re estimated.
Budgets are also used for planning and control. The system is used to find
out whether the performance is under the budget or over the budget. This gives
the manager a self evaluation tools for these assessing the current status and also
provides some insight into the operations of the Company.
The use of Spread Sheet, Lotus-1-2-3, VisiCalc, Framework and many
others, are a standards tool for these applications, where the planning, budgeting
and analysis is required. All these systems are based on the worksheet which has
column totals. It not only provides the totals but also summaries at the sub-heads.
It has also a facility that if one row or column changes, it computes the changes in
the rest of the worksheet, where it is affected. For example, the spread sheet of
Sales-profit model is given in Table 10.2.
The spread sheet packages can handle hundreds of rows and columns and provide
the analysis on the percentage basis. Each manager can prepare, simple spread
sheet for his areas of operations, where the data is drawn from a computerized
Mini or Mainframe Systems. These packages provide a graphical presentation in
the form of line charts, Bar chart and Histogram, etc. for visual impact.
Break-even analysis model
This model is simple but very useful for determining the volume of business
activity at which there is no loss or profit. The model is used to decide the
alternatives based on the cost, volume and price. The break-even model, as
expressed in the mathematical form, is as under:
This model can be built for the company, for the product groups or for any
activity, where you can identify the fixed cost, the variable cast and the revenue at
each activity level in terms of the units demanded. The advantages of this model
are that it tells you as to what the break-even point for the given level of costs and
revenue is. If there are possibilities of altering the costs, it would tell its impact on
the break-even point, i.e., if the price is reduced, the revenue will come down and
the break-even point will further go up.
The costs are generally not linear over the entire range of activity. The cost would
go up after a certain range and would remain steady till some level and further
increase is then expected. A break-even model can be built for the multiple
activities and for the non-linear costs. The computerized model helps in assessing
the various parameters of business and its sensitivity towards the profit/loss. The
model is very popular where the costs are known and are controllable. It is a very
handy tool for a quick decision on the price, cost considerations, etc. and can used
very effectively for commercial negotiations.
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Different criterion for selection, i.e., the payback period, the rate of return and
the internal rate of return.
maximizing the return by allocating limited funds to the several investment
proposals.
Corporate model of return on investment
This model is popularly known as Du-Pont model where the composition and the
analysis of the Return on investment are shown. This model is better than the
above discussed individual ratio model and its analysis as this model provides an
insight into the relationships of the various factors affecting the return on
investment. Du-Pont Model is shown in Fig. 14.3.
Suppose, you have to make a decision on buying a business. In such an
event this model will be useful. This model also gives the decision alternatives to
improve the return on investment in the current business.
Model for cash budgeting
Cash budgeting is a continuous process. With careful cash planning, a company
should be able to maintain sufficient cash balance for its needs, yet not be in
position where it is holding excessive cash. This kind of planning will help to
raise the short-term loans and simultaneously focus on the issues which are
affecting the financial management. A typical statement of cash budgeting is
given in Table 10.3.
This shows that in the month of March and April, additional funds procurement
through external sources will be needed.
With the use of computer, a model can be built with all the details of cash inflows
and outflows as shown in Fig.10.4
Procedural models
There are a number of decisions which are made on the basis of well defined rules
and procedures. Unless certain conditions are satisfied the decision rules will not
be applied.
The use of rules, formula or mathematical expressions is the basis for the model.
For example, the reordering procedure for an inventory items is as under. If the
stock level the Recorder level, then draw a purchase order of the quantity equal
to the Economic Order Quantity (EOQ).
This ordering rule is developed on the model of the Economic Order Quantity
(EOQ) - Required Order Level (ROL) system as shown in Fig. 10.5.
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EOQ
ROL
PERIOD
Fig. 14.5 EOQ Model
It is possible to control the inventory of some items based on such models. These
models can be computerized and be made a part of the Decision Support System.
The decision models can be developed by using the non-mathematical expression
or a formula. If the conditions are satisfied the decision is automatic.
Let us take a decision problem of selecting a vendor by using the nonmathematical expressions. The selecting of vendor is based on the following
conditions:
Vendor
:
:
:
Is he approved (AP) ?
What is the performance rating (PR) ?
How many orders are pending on him (ORD.PEN)
VENDOR CODE
NO
AP
YES
PR>1
NO
YES
YES
ORD.PND
NO
SELECT THE
VENDOR
OQ > 5N
YES
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CHAPTER-11
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Activity, O = Event
A
2
B
O
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Activity
Most likely
Duration
(Days)
5
8
6
11
7
A
B
C
D
E
Immediate
predecessors
to activity
D
A, D
A,C
D
5
Activity
A
B
C
D
E
Early start
(ES)
0
11
11
0
17
Early finish
(EF)
5
19
17
11
24
SLACK = LS - ES
or
Late start
(LS)
6
16
11
0
17
Late finish
(LF)
11
24
17
11
24
SLACK
6
5
0
0
0
LF - EF
Critical activities are those where the slack is zero. In the network D, X, C, E are
the critical activities : While A and B are non-critical. The slack is a time resource which
a project manager can use for manipulating the resource and start and finish of the
activity.
Project Completion Time = Sum of activity times on a critical path
= D+X+C+E
= 6 + 0 + 11 + 7 = 24 days.
Probability of completing the project
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Suppose this project is scheduled for completion in 24 days. We can estimate the
probability of completion in 24 days in the following manner.
Optimistic Dessimible
activity
Time tot
tp - to
Time tp
a2
a=
6
A
B
C
D
E
3
7
4
8
20
10
0.83
2.16
1.0
0.69
4.66
1.00
6.35
1.0
=
= 0.43
2.35
2.35
A normal probability curve table indicates against 0.43, that is, the project will be
completed in 24 days with 67% probability. (See these tables in any textbook of
statistics).
Activity crashing for control of time
Activity
A
B
C
D
E
Normal
duration
5
8
6
11
7
Cost for
normal
duration
500
800
900
1200
1000
Crash
duration
3
7
5
Crash
cost
Rs.
1000
1600
2000
Reduction
in duration
4
2
Cost
increase
400
1000
Cost
slope .
100
500
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The companies install these systems as the case may be and build a cost database for
support in decision making.
1. Job order cost system
In this system the costs are assigned to the jobs passing through the plant and are
accumulated by recording the basic job statistics on the job card. The order is broken into
three section materials, labor and overhead.
The direct materials are accounted through the material issues and the direct labor
through labor booking on the card. Direct overheads are also booked through
transactions. The indirect overheads are allocated, on some agreed basis such as manhours or machine- hours. All the costs are accumulated and the unit cost of the job is
computed.
These systems give due considerations to work in process (WIP) and the
rejections, etc. for costs for the three inputs mentioned above. Using these standards for
costs for the three inputs mentioned above are determined and the job cost is budgeted.
The costs are then used to find whether the actual cost is more than the budgeted cost. All
such over-runs are investigated with the purpose of cost control and in few cases the
standards may be modified.
2. Process cost system
In this system, the costs are accumulated by a department or an operation. In other words,
the emphasis is placed upon the department of manufacture. The number of units of
product completed in the department is used in the computation of a unit cost. The unit
costs are then applied to the number of units transferred in the manufacturing process and
ultimately identified with units completed and sold.
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REAL WORLD
PROBLEM
BUSINESS
RESULTS
ABSTRACTION
MATHEMATICAL
SYSTEM. (MODEL)
INTERPRETATION MATHEMATICAL
ARGUMENT
(SOLUTION)
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Linear programming is a special mathematical model. This model is applicable where the
decision variables assume the values which are non-zero, and the relationship among the
various variables is linear. There are limitations, called constraints to use the variables or
the combination thereof.
Suppose a company makes two products P1 and P2 from two types of raw
materials R1 and R2. The product P1 requires 2 units of R1 and 1 unit of R2 and the
product P2 requires 1 unit of R1 and 2 units of R2. The company has 500 units of R1 and
750 units of R2. the products P1 and P2 are to be produced to maximize the profit. The
contribution to overhead and profit is Rs 5 for the product P1 and Rs 4 for the product P2.
Let us define the decision variables for the products P1 and P2 and X1 and X2,
i.e. X1 and X2 are the quantities to be produced of P1 and P2 respectively. Then decision
problem can be expressed in the form given below.
Z = Profit = 5X1 + 4X2 = Maximum
Within the raw material constraint.
2X1 + X2 < 500
X1 + 2X2 < 750
X1 > 0, X2 > 0
This problem has a solution which is optimum. The problem is solved by the
Simplex Technique. The solution to this problem is :
X1 = 83.1/3 and X2 = 333.1/3, Profit = 1750
Computer based LP software packages are available almost on all the computer
systems. Besides solving, solving linear programming problems, the solution provides a
variety of management information through sensitivity analysis. For example, in this
problem, it would provide the information on the following.
(a) If profit of P2 is increased to Rs 6 what be the product mix of P1 and P2.
(b) If raw material constraint of R1 is improved to 800 and of R2 to 1000,
what would be the product mix and profit?
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100
%
Value
90
B
C
60
Zero
10%
20%
70%
Items
Table 11.4
Category of item
Control system
All these items can be brought under a computerized system. Such system will compute
the inventory control parameters for each item and make suitable decisions. In all three
systems, the cost of order or manufacture is balanced with the inventory carrying cost.
The inventory can be classified in other ways also. For example, the inventory is
classified from the manufacturing point of view taking ease of procurement as a basis.
The classification could be critical, semi-critical, and not critical from the production
point of view. The inventory control system recommended for this classification is as
shown in Table 14.5.
Table 11.5
Category of item
Critical (A)
Semi-critical (B)
Not-critical (C)
without affecting the demand of the items. In such cases the ordering cost, the inventory
carrying cost, and the cost of stock- out are considered in the system of control mentioned
above.
Material requirement planning (MRP) System
When the Company is following a fixed period production programming to maximize the
use of production capacity, the Material Requirement Planning systems are used to
minimize the inventory and simultaneously ensure the availability of the material. The
MRP system is feasible only when the company produces standard products for which
the Bill of Material or the Part List enumerating the items which go into the products, is
available.
The bill of material is exploded and summarized for the items disregarding where
it is used. Then it is compared with the stock available, the order placed and due for
delivery in the production period. The comparison will show the shortage which would
be faced in the execution of the production programme.
MRP system is also used when the production requirement is fluctuating from
period to period and also where the changes in the production programme are frequent. It
provides an excellent tool for planning, procurement, monitoring and control of the
inventory as well as the production programme.
11.2
All human beings have intelligence, which they use for problem solving. Intelligence
when supported by knowledge and reasoning abilities becomes an artificial intelligence.
When such an artificial intelligence is packed into a database as a system, then what we
have is AI system.
AI systems fall into three basic categories, viz., the Expert Systems (knowledge
based), the Natural Language (Native languages) Systems, and the Perception System
(vision, speech, touch). Figure 14.11 shows the structure of AI systems.
Artificial intelligence is a software technique applied to the non-numeric data
expressed in terms of symbols, statements and patterns. It uses the methods of symbolic
processing, social and scientific reasoning and conceptual modeling for solving the
problems. The AI systems are finding applications in configurations, design, diagnosis,
interpretation, analysis, planning, scheduling, training, testing and forecasting.
The AI systems do not replace people. They liberate experts from solving
common/simple problems, leaving the experts to solve complex problems. Artificial
intelligence systems help to avoid making same mistakes, and to respond quickly and
effectively to a new problem situation.
The knowledge-based Expert System is a special AI System. It has wide
applications in business and industry.
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NATURAL
LANGUAGE
USES
NATIVE LANGUAGE
KNOWLEDGE
APPLIES
LANGUAGE
REASONING
EXPERT
USES
KNOWLEDGE
APPLIES
HUMAN-LIKE
REASONING
PERCEPTION
USES
SIZE, SHAPE,
IMAGE, VOICE
APPLIES
SENSING ABILITIES
FOR REASONING
11.3
Decision making or problem solving is a unique situation riddled with uncertainty and
complexity, dominated by the resource constraints and a possibility of several goals. In
such cases, flexible systems (open systems) are required to solve the problems. Most of
such situations, termed as the unstructured situations, adopt two methods of problem
solving, generalized or the knowledge based expert system (KBES).
The generalized problem solving approach considers the generally applicable
constraints, examines all possible alternatives and selects one by trial and error method
with reference to a goal. The knowledge based problem solving approach considers the
specific constraints within a domain, examines the limited problem alternatives within a
knowledge domain and selects the one with knowledge based reasoning with reference to
a goal.
In a generalized approach, all alternatives are considered and the resolution of the
problem is by trial and error, with no assurance, whether it is the best or the optimum,
while, in the knowledge based approach, only limited alternatives are considered and
resolution is made by a logical reasoning with the assurance of the local optimum. The
generalized approach is dominated by a procedure or method, while the knowledge based
approach is dominated by the reasoning process based on the knowledge.
Since, the KBES considers knowledge as the base; the question arises whose
knowledge is to be considered as a basis. It is generally agreed that an expert has
knowledge, and therefore, he becomes the source of knowledge. An expert is difficult to
find and the difficulty of no-knowledge or limited knowledge on the subject is always
expressed. Knowledge is with experienced people and experience, is wide and
distributed. Hence, a system is required which will hold the knowledge of experienced
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people and provide an application path to solve the problem. Such a system eliminates
the knowledge bottleneck.
To build a knowledge-based system certain prerequisites are required. The first
prerequisite is that a person with the ability to solve the problem with knowledge-based
reasoning should be available. The second prerequisite is that such an expert should be
able to articulate the knowledge to the specific problem characteristics.
Knowledge in the KBES is defined as a mix of theory of the subject, knowledge
of its application, organized information and the data of problems and its solution, and an
ability to generate new avenues to solve the problem.
The KBES has three basic components which are necessary to build the system as
shows in Fig. 11.12
USER CONTROL
MECHANISM
INFERENCE
MECHANISM
KNOWLEDGE
BASE
Knowledge base
Inference mechanism
It is a tool to interpret the knowledge available and to perform logical deductions in a
given situation
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application, i.e., inference process. The KBES database, stores the data, the cause-andeffect relation rules, and the probability information on event occurrences.
For example, the knowledge base of Health Care would have knowledge such as
obesity leads to high blood pressure; there are 60 per cent chances that smokers may
suffer from cancer. The KBES, therefore, stores and uses knowledge, accepts
judgments, questions intelligently, draws inferences, provides explanation with reasons,
offers advice and prompts further queries for confirmation.
In the KBES, the knowledge data base uses certain methods of knowledge
representation. These methods are-Semantic Networks, Frames and Rules.
Semantic Networks
Knowledge is represented on the principle of predicate functions and the symbolic data
structures which have a meaning built into it are known as semantics. A semantic
network is a network of nodes and arcs connecting the nodes. The node represents and
entity and the arc represents association with a true and false meaning built into it. The
association and meaning uses the principle of inheritance. For example, all animals with
four legs have a tail and a dog has four legs, hence the dog has a tail. The system inherits
from the fact that the dog has four legs hence the dog is an animal and, therefore, a dog
has a tail or not.
KITCHEN
MADE
OF
BIG
STEEL
IN
MADE
OF
TABLE
SMALL
IN
DRAWING
ROOM
LAMINATED
WOOD
APPLIES
WRITING
TABLE
A knowledge database of the table is stored with the attributes like location,
function, size and shape. If a query is put on table through any of these attributes, one can
infer the specifications of table. The inference would be corret depending upon how the
knowledge is designed and structured into database. For example, if table in the room is
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big and made of wood with lamination and has elliptical shape, it would be inferred as
conference room table. This inference would be correct if the knowledge base has
elliptical shape as an attribute of the table.
The characteristics of a variety of tables are used to represent knowledge on table.
A table in a drawing room, inherits the characteristics of a table in a drawing room.
Frames
The second method of representing the knowledge is putting the same in frames (Fig.
14.14). The concept of frame is to put the related knowledge in one area called a frame.
The frame is an organized data structure of knowledge. The frames can be related to other
frames. A frame consists of the slots representing a part of the knowledge. Each slot has a
value which is expressed in the form of data, information, process and rules.
FRAME
ENGINE OVER HEATING
SLOT : SYMPTOMS VALUE
(TEMPERATURE MORE THAN 80 DEGREES)
(WATER BOILING)
(SPEED RETARDATION)
Inference Mechanism
Having created a knowledge database, it is necessary to create the inference mechanism.
The mechanism is based on the principle of reasoning. When reasoning is goal driven, it
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is called Backward Chaining to goal and when it is data driven it is called Forward
Chaining to goal.
For example, if there is a breakdown in the plant, then looking backward for the
symptoms and causes, based on the knowledge data base, is backward changing.
However, it the data which is being collected in the process of plant operations is
interpreted with the knowledge base, it can be predirect whether the plant will stop or
work at low efficiency. The data here is used to infer the performance of the plant and
this is called forward chaining.
The choice between backward or forward chaining really depends on the kind of
situation. To resolve a problem after the event, one has to go from goal (breakdown,
stoppage, etc) to data, i.e., it is a case of backward chaining. But if the question is of
preventing a breakdown, then the data would be monitored in such a way that if it is
directing towards a goal (breakdown, stoppage,) then it is a case of forward chaining.
The KBES uses both the methods of reasoning. The success of the knowledge
based expert system depends on a degree of knowledge, the confidence in the knowledge
and the quality of inference mechanism.
11.4 MIS AND THE ROLE OF DSS
The Decision Support System (DSS) is a special class of system which is used as a
support in decision making. Many of the decision making situations, at all levels of
management, are such that its occurrence is infrequent but the methodology of decision
making is known. Some of the methods are proven and are widely used. Such
applications are separated and are packed in the DSS.
These systems use data from the general MIS and they are used by a manager or a
decision maker for decision support. The basic characteristic of the decision support
system is that it is based on some tool, technique or model. These systems are used
sometimes for resting new alternatives, training and learning. They are also used for
sensitizing the various parameters of the model.
The DSS could be an internal part of the MIS. When the decision making need is
in real time dynamic mode, all such systems are designed to read, measure, monitor,
evaluate, analyze and act as per the decision guidance embedded in the system. For
example, in a simple case of order processing, the embedded DSS will accept or reject
the order based on the CRISIL, credit rating, availability of stock and so on. If the order
is accepted, the order acceptance is generated and the dispatch is scheduled for the
ordered quantity. The DSS, in all such cases, uses the data already present in the system
and gets it activated for action as per the guidelines.
The MIS designer has to look for all such situations and design the DSS for
integration in the system. The MIS would become more useful if the decision making is
made person-independent and executed with well-designed DSS. All such embedded
systems cover the normal variety of decision situations. If anything outside the
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considered variety crops up, DSS will bring to the notice of the decision makers that
action is called for in the situation.
When the decision situation requires multidimensional analysis using the internal
and external data, then such decision support systems are kept out of the main MIS
design scope. Most of this situation calls for the use of models and the nature of decision
is strategic, calling for planned activity.
Decisions like a new product launch, price revision, appointing new dealers,
change of product design or change in the manufacturing process are strategic decisions
which require critical analysis of data, careful evaluation of various alternatives and
selecting one of them for implementation on the given criteria.
The decision support system plays a dominant role in the management
information system, as a support to decision making.
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CHAPTER-12
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CU
SE
EDI
AMS
DMS
SMS
CMS
D
M OC
A
NA UM
G EN
E
ME T
NT
TY
RI
CAD/CAM
CAE
CE
AN
E
ND TUR
TE
AT C AP
TA
DA
EL
E
CO CTR
MM ON
ER IC
CE
DESIGN AND
ENGINEERING
COMMUNICATION
Fig. 151 Components of Enterprise Management Systems (EMS).
safety. It provides a support to the ERP by clearing the situation to act further. A truck
will not be allowed to enter unless it is an authorized one, and then it will be weighed and
its weight will be transferred to the ERP for processing further information. An employee
movement can be restricted or prohibited to select areas before his time is recorded and
sent to the ERP for further processing.
These six systems together act as the support systems to the ERP . All these
systems are extensively used for the main purpose for which they are installed. Each one
of them have a specific technology to handle the function and are equipped to capture,
store, process and transfer the data of the ERP. Each of these systems operate on their
native systems and are interfaced to the ERP through the gateway by using a specific
software. These systems are a part and parcel of the ERP System network.
The EMS therefore, can be defined as a Network System comprising the ERP, the
EDI, the CAD/ CAM/ CAE, the CMS, the SMS, and the DMS as shown in Fig. 15.2.
12.2 ENTERPRISE RESOURCE PLANING (ERP) SYSTEM
The ERP system deals with the planning and use of resources used in the business. The
resources are finance, materials, manufacturing capacity and human resource. The ERP
provides methodology of assessing the resource needs for a given business plan to
achieve certain business objectives. It also helps to execute the strategies, plan, decisions,
and actions in a time bound manner. The ERP provides a support system in the
transaction processing, updating, and reporting across the functions. The ERP is a
package encompassing all major functions of the business. The product is generic in
nature and is supposed to incorporate the best business practice, generally followed in
most of the companies.
The product philosophy is to implement the system as it is with some
customization which may be typical to the customer requirement. The system design of
the ERP is integrated with the features and functions providing an enterprise wide
solution to handle all the process functionalities. For example, it provides capability to
process the purchase order from ordering to bill processing, and also meets the
information needs of purchase, stores, manufacturing accounts and finance.
The ERP packages build information base and provide knowledge base for
planning and control of the business through the business function management. The
ERP is the main system,
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Interfaced or assisted by the other systems in the organization. These systems may stand
alone or from a part of the manufacturing or commercial processing systems.
These systems provide the database to the ERP or support the ERP by the basic
data input directly or through the data transfer, for example, the manufacturing system
module of the ERP is interfaced with the Drawing, Engineering database for query,
viewing and usage of the drawings and it accepts the data of work order by process
operations, for costing and for building the standards for the future.
The architecture is client/server and uses object oriented technology for design
and development of the system. These packages are RDBMS based with the front end
tools. The key benefit of the ERP is that it provides an integrated solution for all the
requirement of the business. It addresses the issue of data integrity, information
transparency, seamless integration and information communication. Simultaneously it
respects the organizational hierarchy of authority, while conducting the business
transactions through the system.
The implementation of most of the ERP packages begin with the enterprise
modeling which defines the enterprise structure, the authority function, the processes and
the business rules. The enterprise model is the platform the ERP system implementation.
The ERP solutions are available on the Unix Plstform and also on Windows NT.
The solution is structured in the modular fashion to cover the entire business operation. A
typical ERP package solution has following modules:
1.
2.
3.
4.
5.
6.
7.
8.
These modules are designed for data capture, data transaction validation, it analysis,
accounting updating and reporting. All the ERP solutions provide report writer for the
use to create the reports. The standard reports like the trial balance, the stores ledger,
the employee attendance report, the income tax return, eyc. Are provided with the
solution at a generic level.
The ERP features are many. The important ones are security authorization,
referencing responsibility, and the implementation of the business rules. These are
provided to safeguard the business of the organization from illegal practice and also
to protect the valuable information from misuse. These features help to keep the
system, the information and the data integrity at the highest level. The ERP is
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activated by its users. The security is built for authorized usage and also for selective
access.
The ERP usage can be controlled at all levels, viz., the data, transaction,
information and analysis level. The security system of the ERP is built around the OS
security and the additional features are provided while designing the system. It
provides access and updating rights to the users as per the control requirement of the
management.
Authorisation is a feature provided for ensuring that the transaction is completed
with regards to the business rules set by the management. The system provides the
mapping capability to tie the data, information or process to the user. This means that
only the aothorised user sign, the transaction is not posted in the system for further
processing and usage. For example, in the purchase order transactions the price and
discount are confirmed by one user, the terms are decided by the other users and the
purchase order is signed by the third user. The system provides defined levels to the
users and the purchase order is signed by the third user. The system provides defined
levels to the users and these are no limitations on the number of levels.
Referencing is a feature, provided for tracking the chain of events for monitoring,
progress cheking and control. For example, if one wants to check the status of
customer order, the referring feature helps to link the customer order to work order to
delivery note to Excise gate pass to bill. It is possible to establish the link through
cross reference of the transaction number or code of the previous transactions. For
example, a work order will give a reference of customer order, a delivery note would
give a reference of work order, a bill would give a reference to a delivery note and
customer order. The feature does not allow the transaction to proceed unless such
references are established.
The business organization runs through the rules and the responsibility allocation.
A strict adherence to them is essential for creation of the controlled environment. The
ERP satisfies this need of the business. It provides a facility to ensure that the userlocation (Department/Division) Transaction integrity is confirmed through check and
validation and then ERP allows to proceed. For example, a cash transaction is
allowed at the Finished Goods Store and in the Accounts Department by the
authorized users only. At any other place evolving cash transaction is prohibited.
The material indents are processable in the stores while the vouchers are
processable in the Account Department. The order entry is permissible in marketing.
The ERP provides such facilities to ensure that the business is operated on the rules
and the guidelines set by the management.
The ERP system provides a variety of technology supports to implement the
solution very fast in execution mode. The solution provides the E-mail facility for
communication of memos, reminders, and text to the selected list. It also sends copies
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to the concerned person as stipulated. Through the EID connectivity, it can transact
directly to the vendor or the customer in its own format.
ERP system provides an aid to create the transaction by a cut and paste
mechanism. It can raise a purchase order on the vendor by picking up and choosing
the old purchase orders, which saves the generation time. The ERP solutions are built
for a user friendly flexible approach to manage the business with the changing needs.
This requires processing in a different manner to assess the impact. The solution
provides facilities like the trial posting, the end of chosen period processing, the
posting by choice, the flexible valuation procedures, and the hold transaction, etc.
Through these facilities the management can conduct an impact analysis to judge the
financial results and makes the business decisions.
The ERP also provides an intelligent support in business management. It allows
the user to define the events, alert and schedule them at his choice.
These events alerts are triggered by the database inserts or updates. Having raised
the alert, it also allows you to define the action to respond to the alert. The ERP sends
the electronic mail and executors the SQL statement. It is also capable of taking
multiple actions through the stored procedures.
Take an example of an item receipt in stores. The receipt would update the
database and the system will have an updated stock status. This database update is an
event for using the alert. The alert in this case can be defined as, on receipt of an item
send E-mail to the purchase Manager, the Production Planner and further, show the
work orders which are scheduled where this items is in use. If the receipt of this item
closes the Purchase Order then raise an automatic Purchase Order on the same vendor
with the same terms and conditions.
All the ERP solutions provide Drill Down and Context Sensitive helps to use
the system. The drill down helps to run through the system to locate the weak spot for
action and control. Suppose, the sales manager is viewing the sales by region by
product line. Then he wishes to see the sales revenue over a time, in order to better
understand the seasonality in the business. The drill down facility helps him to use the
information the way he wants, to form the judgments on the business happenings. The
drill down could be multi-dimensional to analyse the critical business information.
The context sensitive help provides an access to help library which can be used by
user by calling help. The help could be information, guidance and understanding of
the term or process or formats. The help facilities make the ERP user-friendly and
easy to learn.
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ERP Architecture
Any information system has three basic components, viz., the Data Management, the
Application Logic, and the Presentation. These components can be built with the
client server role definitions. The client is a user and the server provides the services
required by the user the to run the system. Since, the information needs are
dynamically changing, the architecture required is to separate the data and its
management from its application. The user requires the choice of using the data as it
suits him the most. Hence the application logic has to be separate from the data.
There is also a variability in the manner how the application logic is developed and
presented.
The architecture could be a two tier or three tier as shown in Fig. 12.3.
DATA MANAGEMENT
DATA MANAGEMENT
DATA SERVER
FUNCTION
APPLICATION LOGIC
PRESENTATION
APPLICATION LOGIC
APPLICATION
SERVER FUNCTION
(a)
TWO TIER
PRESENTATION
(b)
THREE TIER
CLIENT FUNCTION
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The servers play two distinct roles of handling the data and the application logic.
This logic which deals with the data more is attached to the server platform, where
the data is being managed. The logic which deals with the presentation and the
specific needs of the user is left to the client platform as shown in Fig. 12.4.
DATA NABAGENEBT
SERVER
APPLICATION LOGIC
APPLICATION LOGIC
PRESENTATION
CLIENT
The business being complex requires a variety of systems to run efficiently. The
presence of existing systems is not challenged or minimized by the ERP solution. In
fact, most of the ERP solutions use open application programme interfaces that
enable easy coexistence and integration with the legacy and the third party systems.
The solutions also provides the gateways to the popular database which are used in
business.
The ERP solution are designed to make the office of the business paperless. It
keeps all the business information online. Then, the users use the Work Flow
Technology to move the process in a screen format from person to person for the
changes, the approvals and the execution. With the multi-media technology, the
servers can be configured to keep the business information online in any format,
including the text, the spreadsheet, the image audio and the network video.
The solution offers support for the electronic notifications, through the EDI, the
E-mail, or the internet to the business partners. For example, you can create a
purchase order, get it justified and approved by the authorized person sitting at the
other location, attach the engineering drawing to the purchase order by accesses to the
CAD system, assemble the documents of the purchase order, and have it sent through
the EDI to a vendor located at a distant location without creating any the paper
documents.
ERP Solution structure
The Enterprise Resource Planning solution structure is built in three layers namely,
technology, business and implementation as shown in Fig. 12.5.
Business Operations
On the business side, it provides solution for the data entry, data capture, transaction
processing and data base updates. It then support an analysis of the processed result in
single or the multi-dimensions for one period or successive periods. It offers a support
on the comparative analysis,
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The budget versus the actual, the target versus the actual, the target versus the actual,
the standard versus the actual and so on. The analysis also throws light on the
exception conditions, for immediate attention and action.
The ERP solution provides the decision making capabilities either built-in or
through the decision support systems when it comes to implementation. It provides
the database functionalities for data and information management. It then has the
front end tools to develop the application in an exclusive manner.
The ERP solution then handles the interfacing requirement to the legancy or the
third party systems as a support to the main ERP solution. Using various information
technology tools and application development tools, the application logic is
developed to the business functionality. The tools are-report writers, interfacing tools,
query processing tools, application development tools, the object oriented tools, etc.
Technology
The technology side of the ERP solution is managed through the database
management technology for data acquisition to data base creation, updation, and
maintenance. The application development is done through the client/server
technology, where the servers handle the specific or the general functions as the case
may be and the client play the role of processing interactively and locally for meeting
the information needs. The client/server implementation could be two tier or three
tier, based on the design and the implementation strategy. To reduce the development
effort and for ease of maintenance, the development approach is an object-oriented
approach, where the class and the object libraries are built for reusability of the object
and its code.
Implementation
The ERP implementation is multi-user and calls for the network usage for the work
flow, communication and the access to the database (s) which may be at one location
or distributed. The successful implementation of the ERP calls for a strong
technology component appropriate to the environment.
ERP Model and Modules
The generic ERP package represents the commonly operated business model of the
organization. It is built with the function models like the Finance, Materials,
Marketing, Sales, and Personnel and their sub-modules. These modules are then
integrated to perform ensuring data and information consistency and concurrency.
The seamless integration of the modules allows the user at any level to take a
micro and a macro view of the function and process view of the transaction across the
function. A typical ERP solution has the following modules:
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Materials
Purchase
Finance
Accounting
Personnel
Human
Resource
Planning
Planning
Order
Control
Inventory
Funds Mgt.
Payroll
Goals
Sales Budget
WIP
Stores
Balance
Sheet
Processing
Accounting
Objectives
Order
Processing
Quality
Valuation
Schedules
Skill Attendance
Inventory
Targets
Order Execution
Scheduling Analysis
Analysis
Analysis
Starategy
Control
Delivery
Invoicing
Despatch
Control
Control
Control
Business system
Business forecasting for products, groups, markets.
Target fixing and allocation by the key parameters.
Business planning in terms of the resources to execute.
Strategy formulation and implantation.
MIS for strategy monitoring and control.
Business modeling for the strategy development and testing. DSS for resource
planning.
Information base management for management application.
Sales
Basic data (master) management
Order processing
Despatching and invoicing
Order analysis, forecasting
Sales analysis, budgets and controls
Finished goods stores management
Dealer, distributor management system
Receivable analysis
Market/ Customer / Product analysis
Market research information database
Marketing personnel management
Sales forecasting and budgeting.
Production
Materials
Purchasing and procurement.
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Finance
Personnel
Personnel data management.
Personnel attendance system, time management.
Payroll accounting: salary, wages, incentives, bonus, income tax and other
deductions, and contribution to various public and provident funds.
Human resources management: Planning, recruitment, training and upgradastion.
Personnel cost, projection and planning.
Fixed Assets
Fixed assets accounting: Inventory, register.
Depreciation accounting.
Capital work in progress.
Fixed assets retirement and disposal.
Year end processing for balance sheet schedules.
Maintenance
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out newer versions of the product offering more facilities to the user to improve the
utility of the solution.
There are more than a dozen ERP solution available in the market each having its
own specialty. Though, they are characterized as described earlier, they differ in feel,
look presentation, processing efficiently and user-friendliness.
Some of these products are developed as an application in a particular
organization and then turned into a packaged solution. In view of this, some of ERP
solution is more useful and efficient in similar organization. The specific industry
features have been taken care of more efficiently as customized solutions. Since the
design / developer have a choice of RDBMS, front end tools, the interface tools, and
so on the package efficiency changes with the choice to tools. Some of these
packages run better, if installed on a particular hardware platform; and used by a
particular organization.
Though tools, technology and approach may be same or similar, the manner in
which they are used decides the efficiency of the solutions.
12.4
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13. Due to the client/server architecture, the application of object technology and use
of the front end tools, the process changes can be easily carried out in a short
duration of time. Hence, the user service can be maintained at higher level.
14. The ERP implementation automatically leads to the usage of the best business
procedures bringing the consistency of operation in the world of business.
15. With the use of the data warehousing and data reverse engineering, management
becomes knowledges driven and the organization becomes a learned one.
16. The ERP scope can be enlarged through the Internet/Intranet access, making the
ERP sensitive to the latest events in the business, market and technology.
17. The quality of decision making improve as the user decision maker is made alert
and he is made knowledgeable and better informed dynamically.
18. The tools available to the decision maker are friendly whereby he is equipped to
make decision and execute it simultaneously.
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CHAPTER-13
Technology Evaluation
Factors
1.
2.
3.
4.
5.
6.
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7.
8.
9.
10.
11.
Use of case tool, screen generators, report writers, screen painter and batch
processor.
Support system technologies like bar coding, EDI, imaging, communication
network.
Down loading to PC based packagers, MS-Office, lotus notes, etc.
Operating system and its level of usage in the system.
Hardware-software configuration management.
ERP fit for the business of the organization in terms of the functions, features
and processes, business scope versus application scope and so on.
The degree of deviation from the standard ERP product.
Ease of use; Easy to learn, implement and train.
The ability to migrate to the ERP environment from present status.
Flexible design.
The level of intelligent usage of help error messages, dictionaries.
The ability for a quick start on implementation.
Versatility of the solution for implementation on a platform with the project of
saving the investment.
Rating on performance, response and integration.
Product quality in terms of security, reliability, and precision in results.
Documentation for system handling and administration.
Product rating in its class of products.
Solution architecture and technology.
The methodology of selection will begin first with the study of organization in
terms of the business focus, critical application, sensitive business process, etc. Since,
the ERP solution is a tool to change the style of business management; it requires
thorough understanding of the business, the business issues, the management
criticalities, and the socio-cultural factors. Such a study will help find out if the ERP
is fit for the organization. It is a very important to find out that the ERP is fit or not,
as it is the most important and critical success factor.
The price of the ERP package is difficult to judge and often it is a negotiable point
in favor of the buyer in competitive scenario. Since the ERP implementation is a two
three yearss project, the ERP solution will sustain and be adequate for the current
and the future business needs for a period of five to seven years. After that, it would
become a platform for the future expansions and growth.
It is advisable for the organization to form a committee for selection of the ERP
SOLUTION. IT SHOULD HAVE IMPORTANT FUNCTIONAL HEAD, A
STRONG Information Technology person and a person from corporate planning
function. The committee should be headed by a CEO or his designated authority. This
committee should prepare a requirement document spelling out the business goals,
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and objectives, the futuristic scenario of business, the critical functions, processes,
business focus and customer deliverables. A note on the management philosophy,
procedures, practices and style will be a valuable input.
When such a document is ready, the selected ERP vendors should be called for
seeking the ERP offer. The document should be given to the vendors, and they should
be allowed to study the organization and its business. All the vendors should be asked
to submit a technical proposal explaining the fit of the ERP to the organization. The
submission of the vendors should be scrutinized by the committee for short-listing.
The short-listed vendors then should be asked to give the product presentation to the
selected group of decision makers to seek their opinion on the product.
When the product presentation is oven, product demonstration should be
arranged, for a detailed security and evaluation. In this process, the committee should
confirm whether the critical requirement of business, in terms of information, process
handling facilities, features, etc. are available or not. If some of them are not available
then there is a possibility of work around to achieve the same result.
A second evaluation note should be made for a comparative analysis of the ERP
solutions and then a critical evaluation of this analysis should lead to the choice list.
Simultaneously, the committee should gather information on the experience of the
other organization where the ERP is implemented. This information should be on
how successful the vendor is, in the implementation of the ERP? The strengths and
the weaknesses of the vendor, the product and the post sales processes should be
ascertained. The choice list should be weighed by these points.
Though such an approach is appropriate, it is not always possible to bring out a
clear win in the evaluation, as many factors are intangible in nature. In such an event,
the committee should examine the trade off involvement in the selection. It should not
happen that organizational issue dominates the choice of the ERP and in the process
the best product is rejected. Ideally, the organization should be carrying out business
process engineering and reengineering study, restructure the organization, modify the
processes functionalities before the ERP decision is made.
Once the committee makes the decision, the vendor should be asked to resubmit
the technical and commercial proposal with price and the terms of offer. The proposal
should have the following details.
1.
2.
3.
4.
5.
6.
7.
8.
9.
Scope of supply.
Objectives
Modules and deliverables
Implementation methodology.
Plan and schedules of hardware and software implementation.
Resource allocation
Responsibility division between the organization and the vendor.
Process of implementation
Organisation of implementation.
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Once the ERP decision is made, the vendor and organization enter into a legal
contract. Such legal contract should list the obligations, duties, responsibilities,
deliverables and the value components. It should also include the clauses on issues
arising out of unforeseen circumstances and how to resolve them with the legal remedy
available to both the parties. Since, the ERP is a product of several technologies, there
should be clauses relating to safeguarding the interests of each other to cover the risk
arising out of the technology failure.
The ERP is a tool to manage the enterprise resources to achieve the business
objective. It is a supporting system and does not solve all the problems of business
management. The success of the ERP lies in its implementation with commitment. It
requires full participation of the organization. It is to be appreciated as a managerial tool
and not as a labor saving device. Since, potentially the ERP is designed for productivity
rise, the management must exploit it to its advantage by adopting the best practices or
changing the practices through the business process reengineering.
13.2
ERP IMPLEMENTATION
The ERP implementation, generally, follows the waterfall mode approach. Once a firm
order is received the implementation begins with kick-off meeting between the vendor
and the organization. In such meeting the organizational issues are taken care of. Since it
is a long term activity a preliminary planning is done to start the implementation.
Requirement Definition and Description (RDD)
Though, initially, the study has been carried out by the vendor, more in-depth study is
taken up jointly by the vendor and the project in-charge of the organization.
In this phase of study the user are contacted for their requirement specifications.
These requirements may be of the data, information, function, features, processes or
reports. It is necessary to understand them to evaluate the ability of the ERP solution to
satisfy these requirements.
Since, the ERP is designed as a standard package, it after requires changes and
modifications to suit the requirements of the business.
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All the ERP packages provide standard features, functions lists of the package
used. These lists are examined vis--vis the requirements and new document is prepared
called as the deviation RDD.
Once the deviation RDD is made, it should be approved by the authorized person
in the organization. The purpose of such a document is to freeze any requirement to carry
out further changes in the package.
In the evaluation of standard RDD, two kinds of changes emerge, one major,
where the ERP design needs to be changed. Such changes are time consuming and the
vendor may charge additionally for such requirement fulfillment. Other changes may be
minor and may not affect the design of ERP. The minor changes are cosmetic and / or in
presentation, and they are generally at the lower end of the process. The changes are like
the field change, the report format modifications, and the computing process and so on.
The advantage of preparing the RDD and a deviation there from in that the users of the
ERP get committed to the solution as they have thought the standard requirement
provision of the ERP and the deviation required in the provision. In this process, the
resistance to change is eliminated, due to direct involvement of the users and the decision
makers.
The another distinct advantage of the RDD and the deviation from the RDD, is
that it provides the revised specifications clearly to the designer and the developer to
bring out the changes required in the design of the ERP. It also further helps to assess the
work load arising out of the changed requirement.
As soon as the new RDD is prepared, the process design starts implementing the
changes. The moment the changes are required the processes of design coding; testing,
etc. come into picture for execution. The changes of made, are then tested on a sample
data and other steps of unit testing, module testing and system testing for complete
integration are taken. After establishing the requirement definition and description (RDD)
and mapping it with the standard RDD of the ERP solution, the DRDD (Deviation RDD)
is prepared for changes in the solution and implementation. The implementation steps are
given as follows:
1.
2.
3.
4.
5.
6.
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7.
8.
9.
10.
11.
12.
13.
14.
The solution is then demonstrated to the users for their understanding and
confirmation.
The users are trained to run the solution and resolve the difficulties in
operations of the system solution.
The change over from the manual system to the ERP solution are meticulously
planned, taking care of the cut off dates, the opening balances, the data
transfer etc.
A logbook of the system usage is kept to note down the problems, solutions
and modifications carried out to make the solution more efficient and
effective.
Standard reports like checklists, ledger, trial balance, and sales analysis are
taken to confirm the integrity of the ERP solution.
The standard documentation of the ERP solution is changed to the changed
version of the ERP.
The system performance is checked in terms of speed, response, etc. and the
ERP solution and / or the hardware is turned for improving the performance of
the solution.
After three to four months working, a review meeting with the user is
conducted, taking the support of the log system for the purpose of
improvement, confirmation and finalization of the ERP implementation.
There is a qualitative change in the MIS design due to the complexity of the business
operations and the risk involved in handling the business.
The management focus is shifting from the function to the process, i.e., the
management requires the information support in the process management and not in
the function management.
The MIS is now required to maximize the process productivity and performance.
The decision making support is required for the process optimization. The decision
models are built across the business management functions. Besides the normal MIS
reports required for the top management, the Top Management also needs a set of the
additional reports, where the critical business processes and the critical success
factors are a focus area.
The ERP solution caters to this requirement very easily. The ERP solution is an
integrated solution. The solution operation is seamless, disregarding the hardware or
the software platform. The ERP solution takes care of data integrity and consistency
across the organization, which may have multiple locations.
In todays competitive world, the shift of decision making is towards strategic
management of the business. The ERP solution, due to its scope and coverage, and
supported by a variety of tools, enables Strategic Management based on the strategic
information for decision making.
The management attention on the focused area is easily possible. The
conventional MIS design is more or less embedded in the ERP solution. They provide
all the routine reports at any time for the middle management of the organization. The
ERP, over and above this, provides executive information for the strategic
management of business. It further helps to formulate the strategies to achieve these
goals taking its implementation further.
The ERP design provides transparency to the users of information giving them an
access to the sensitive information to locate, define and resolve the problems. The
ERP enables the work group management efficiently and effectively. The effective
uses of the variety of tools, like the data replication, the work flow automation, the
EDI/D-mail, the data warehousing, the EIS, the bar coding, and the paging systems
are built in ERP. The effective use of these variety of tools also speeds up processing,
cuts down the operation cycle time and raises the ability of the management to take
decisions. Once the ERP is built in the organization, it takes care of the data, the
information and its storage and, therefore, provides the capability to modify the
Management Information System from time to time as per the changing information
needs.
All the solutions use the client-server architecture in the solution, where the data
processing, and the application level processing logic is taken care in the server level
giving freedom to the user, as a client, to define the problem and evolve the solution
using the front-end tools. The front-end hardware and the tools are so powerful that
an individual can develop his own MIS based on his decision making information
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needs beside the usual MIS like corporate, functional, etc. the decision maker can
operate as an individual in isolation from the others, if need be.
The ERP through such an MIS design improves the decision making skills of the
individuals very effectively. It provides autonomy in global system operations. With
the ERP, the MIS design is more flexible highly decision intensive and efficient.
ERP along with other systems becomes an EMS, MIS design uses ERP which in
turn uses other systems for inputs in terms of data capture, transaction processing and
data base creation, MIS in ERP environment is a sophisticated design serving the
needs of the organization.
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EXERCISES
1.
Develop a system model for personnel situation, when Human Resource database
Is already available in the organization. The manager of the department should be
Able to select person(s) against a skill profile of his interest. He is also interested
In knowing the rejection of a number of persons against each skill factor in
Profile.
Assume that the Company maintains a human resource database in terms
Of the various skills, such as technical, mathematical, engineering, conceptual, etc.
and work experience of the candidated in each field.
2.
Explain as to how you would use Bar Code Technology in the personnel function.
The organization has issued bar coded identity cards with photographs to every
employee.
Explain the use of this card in
(a)
Shop floor control function.
(b)
Work order control
(c)
Personnel movement in the premises.
(d)
Stores management.
3.
The organization has a Credit Cooperative Society for the benefit of employees.
The society offers financial assistance by way of loan, towards housebuilding,
purchase of white goods, payment of education fees, and festival advances, etc.
The repayment of loan is through the salary paid to the employees every
month. Develop an application for loan management and build an interface to the
payroll system for loan installment deductions. In this regard, give a system
overview on the following lines:
(a)
(b)
(c)
(d)
(e)
(f)
System scope
System objectives
Output of the system
Inputs to bring out the outputs
Process design.
Interface mechanism.
What care would you take in both the systems, i.e., the loan management system
and the payroll system, so that the employee is not overburdened with the loan
obligation and every month after the instalment deduction seventy per cent of the
normal take home pay is maintained.
4.
Develop an application for bank reconciliation. Assume that the bank gives a soft
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copy of the bank statements, specifying the cheque clearances against the
accounts opened by the Company.
5.
In large commercial transactions, the normal payment terms are through the Letter
of Credit (L/C). Study the L/C documents and its processing from opening of the
L/C to the closure of the L/C Develop a small L/C Application to keep a track of
the L/C transactions and the L/C monitoring and its interface to the finance system.
6.
A company has for strategic business units (SBUs) responsible for the assigned
performance. At the end of the financial year, four balance sheets are consolidated
for the Company. Each SBU has a chart of account created for its business
management. The company has its own chart of account different than those of
the SBUs charts of account.
While designing the consolidated systems for the Company, what, design
steps would you take so that the consolidated results are available by the third of
the month ?
The company6 would also like to build the MIS reports around sensitive
accounts of the company, and also of those of the SBU.
7.
A production manager would like to have at the end of every shift, a production
report indicating the performance of the production shop. Design a report format
and the input sources for the production of such a report. What kind of technology
support is necessary to capture the data, and process the same at the end of the shift ?
The production shop is of the shop is of the following types:
(a)
(b)
(c)
(d)
8.
9.
A gift shop prepares gift boxes for sale at the time of New Year, Diwali Festival,
Christmas, and for marriages. The shop has over 1000 gift articles which are
uniquely identified by a bar code.
A customer places an order for a gift box packed with the assorted gift
articles. A box may contain one or more item but not exceeding four. Since, the
business is a seasonal one, a quick response to the enquiry and order processing is
necessary. An order of less than 100 boxes is not accepted.
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Masters
Transactions
Relations
Processes
Outputs
MIS reports
Design the system in such a way that a least paper work is necessary, the
communication is faster and the execution of the customer order is efficient.
Break the application in tow parts-front end and back end support.
10.
11.
A large pharmaceutical company has four factory locations and eight warehouses
for distribution of products to the wholesalers. The total number of items are over
10,000 stock keeping units.
Suggest the analysis of inventory, which would throw light on the
movement, aging, holding and disposal of the items. What methods you would
suggest in the materials management system os that it helps the warehouse
management, distribution management and production management
12.
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Enquiry processing and the order processing thereafter, are common application
systems in all the manufacturing and trading businesses. The main factor in these
systems is to provide quick response to the customer on his requirements.
Discuss the system parameters in the following business:
(a)
Spare parts for Airlines.
(b)
Manufacturing against the order.
(c)
Distribution of the white goods for sales.
(d)
Manufacture and sale from the stocks of a variety of products.
Also discuss the similarity and contrast in managing these applications.
14.
15.
16.
A company wants about 20 management trainees from the 1st of January for
supporting their growth plans of expansion and diversification. The programme of
recruiting the management trainees includes releasing the company advertisement,
application scrutiny, shortlisting, interviewing and appointing them. After the
appointments, they would undergo a Company induction programme and the general
management programme followed by a specific function management programme.
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An automobile manufacturer has eight distribution and service centers for four new
models it has just introduced in the market. These models differ from each other in
body and features; while the engine, chassis, transmission system, suspension
electrical, etc. are the same. The company wishes to create a knowledge database on
the Vendor-Complaint performance and reasons of the failure, and the other reliable
data for evaluation of the vendor performance, design performance and also for
designing a knowledge based expert system for repairs and service during the
warranty period of the vehicle.
Design the system scope in terms of subsystems and their relation and linkage
to each other. Suggest a data model for the knowledge database for using it to
improve the design and the manufacturing processes in the company.
18.
Design a Decision Support System for the vendor selection on the following basis.
The factors and the point weightages are given to use them effectively in the DSS.
The factors to be considered as follows.
Factor
Weightage
Technology
Quality
Reliability
Field performance
10
20
20
50
100
12345
12345
12345
12345
Lead time
Service
Price
Delivery
20
30
20
30
12345
12345
12345
12345
100
Evolve your own decision rules to design the DSS for selection of the
vendors. How would you collect the data on the various factors for using the same in the
DSS ?
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19.
Map the following technologies against the application and state its use in the
application :
Technology
Bar Code
Imaging
Hand held terminals.
Paging
EDI
20.
Personnel
Production
Materials
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