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MIS Final Study Material For BBA II Sem.
MIS Final Study Material For BBA II Sem.
BBA-IInd SEM.
GDIB-JN-206
STUDY MATERIAL ON
CONTENTS:
Unit 1
Introduction: Definition, Purpose, Objectives and Role of MIS in Business Organization with
particular reference to Management Levels, Location of MIS in the Organization concept and
design.
Information Concepts: Data and Information meaning and importance, Relevance of
Information in Decision Making, Sources and Types of Information, Assessing Information needs
of the Organization.
Unit 2
System Development: Concept of System, Types of Systems Open, Closed, Deterministic,
Probabilistic, etc. Relevance of choice of System in MIS, Integration of Organization Systems and
Information Systems, System Development Life Cycle, System Analysis, Design and
Implementation, MIS Applications in Business.
Unit 3
Types of information systems: definition, basic features and components of Transaction
Processing System, Decision Support System, Executive Information System, Expert System
Unit 4
Introduction To ERP: Evolution of ERP, Reasons for the growth of ERP, Advantages and
limitations of ERP.
Basic Modules of ERP:- Personnel Management, Training and Development, Material Planning
and Control, Manufacturing, Production Planning, Production Control, Sales and Distribution
Unit 5
ERP and Related Technologies: Business Process Reengineering (BPR), Management
Information System (MIS), Executive Information System (EIS), Decision support System (DSS),
Supply Chain Management (SCM), OLAP (Online Analysis and Processing)
UNIT 1
______________________________________________
Introduction to MIS & Information Concepts
Learning Objectives:
After studying this unit, you will learn:
1.1 Introduction:
MIS DEFINITION:
The Management Information System (MIS) is a concept of the last decade or two. It has been
understood and described in a number ways. It is also known as the Information System, the
Information and Decision System, the Computer- based information System.
The MIS has more than one definition, some of which are give below.
1. The MIS is defined as a system which provides information support for decision making in the
organization.
2. The MIS is defined as an integrated system of man and machine for providing the information to
support the operations, the management and the decision making function in the organization.
3. The MIS is defined as a system based on the database of the organization evolved for the purpose
of providing information to the people in the organization.
4. The MIS is defined as a Computer based Information System.
Thought there are a number of definitions, all of them converge on one single point, i.e., the MIS is
a system to support the decision making function in the organization. The difference lies in defining
the elements of the MIS. However, in today.s world MIS a computerized .business processing
system generating information for the people in the organization to meet the information needs
decision making to achieve the corporate objective of the organization. In any organization, small or
big, a major portion of the time goes in data collection, processing, documenting it to the people.
Hence, a major portion of the overheads goes into this kind of unproductive work in the
organization. Every individual in an organization is continuously looking for some information
which is needed to perform his/her task. Hence, the information is people-oriented and it varies with
the nature of the people in the organization.
The difficulty in handling this multiple requirement of the people is due to a couple of reasons. The
information is a processed product to fulfill an imprecise need of the people. It takes time to search
the data and may require a difficult processing path. It has a time value and unless processed on
time and communicated, it has no value. The scope and the quantum of information is individual
dependent and it is difficult to conceive the information as a well-defined product for the entire
organization. Since the people are instrumental in any business transaction, a human error is
possible in conducting the same. Since a human error is difficult to control, the difficulty arises in
ensuring a hundred per cent quality assurance of information in terms of completeness, accuracy,
validity, timeliness and meeting the decision making needs.
In order to get a better grip on the activity of information processing, it is necessary to have a
formal system which should take care of the following points:
Handling of a voluminous data.
Confirmation of the validity of data and transaction.
Complex processing of data and multidimensional analysis.
Quick search and retrieval.
Mass storage.
Communication of the information system to the user on time.
Fulfilling the changing needs of the information.
The management information system uses computers and communication technology to deal with
these points of supreme importance.
1.2 Objectives of MIS :
1. Data Capturing : MIS capture data from various internal and external sources of organization.
Data capturing may be manual or through computer terminals.
2. Processing of Data : The captured data is processed to convert into required information.
Processing of data is done by such activities as calculating, sorting, classifying, and summarizing.
3. Storage of Information : MIS stores the processed or unprocessed data for future use. If any
information is not immediately required, it is saved as an organization record, for later use.
4. Retrieval of Information : MIS retrieves information from its stores as and when
required by various users.
5. Dissemination of Information : Information, which is a finished product of MIS, is
disseminated to the users in the organization. It is periodic or online through computer terminal.
1. Systems Approach : The information system follows a systems approach. Systems approach
means taking a comprehensive view or a complete look at the interlocking sub-systems that operate
within an organization.
2. Management Oriented : Management oriented characteristic of MIS implies that the
management actively directs the system development efforts. For planning of MIS, top-down
approach should be followed. Top down approach suggests that the system development starts from
the determination of managements needs and overall business objective. To ensure that the
implementation of systems polices meet the specification of the system, continued review and
participation of the manager is necessary.
3. Need Based : MIS design should be as per the information needs of managers at different levels.
4. Exception Based : MIS should be developed on the exception based also, which means that in
an abnormal situation, there should be immediate reporting about the exceptional situation to the
decision makers at the required level.
5. Future Oriented : MIS should not merely provide past of historical information; rather it should
provide information, on the basis of future projections on the actions to be initiated.
6. Integrated : Integration is significant because of its ability to produce more meaningful
information. Integration means taking a comprehensive view or looking at the complete picture of
the interlocking subsystems that operate within the company.
7. Common Data Flow : Common data flow includes avoiding duplication, combining similar
functions and simplifying operations wherever possible. The development of common data flow is
an economically sound and logical concept, but it must be viewed from a practical angle.
8. Long Term Planning : MIS is developed over relatively long periods. A heavy element of
planning should be involved.
9. Sub System Concept : The MIS should be viewed as a single entity, but it must be broken down
into digestible sub-systems which are more meaningful.
10.Central database : In the MIS there should be common data base for whole system
1.4 ROLE OF THE MANAGEMENT INFORMATION SYSTEM:
The role of the MIS in an organization can be compared to the role of heart in the body. The
information is the blood and MIS is the heart. In the body the heart plays the role of supplying pure
blood to all the elements of the body including the brain. The heart works faster and supplies more
blood when needed. It regulates and controls the incoming impure blood, processes it and sends it
to the destination in the quantity needed. It fulfills the needs of blood supply to human body in
normal course and also in crisis. The MIS plays exactly the same role in the organization.
(1) The system ensures that an appropriate data is collected from the various sources, processed,
and sent further to all the needy destinations. The system is expected to fulfill the
information needs of an individual, a group of individuals, the management functionaries:
the managers and the top management.
(2) The MIS satisfies the diverse needs through a variety of systems such as Query Systems,
Analysis Systems, Modeling Systems and Decision Support Systems the MIS helps in
Strategic Planning, Management Control, Operational Control and Transaction Processing.
(3) The MIS helps the clerical personnel in the transaction processing and answers their queries
on the data pertaining to the transaction, the status of a particular record and references on a
variety of documents. The MIS helps the junior management personnel by providing the
operational data for planning, scheduling and control, and helps them further in decision
making at the operations level to correct an out of control situation.
(4) 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.
(5) 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.
To facilitate the management decision making at all levels of company, the MIS must be integrated.
MIS units are company wide. MIS is available for the Top management. The top management of
company should play an active role in designing, modifying and maintenance of the total
organization wide management information system. Information system and Information
technology have become a vital component of any successful business and are regarded as major
functional areas just like any other functional area of a business organization like marketing,
finance, production and HR. Thus it is important to understand the area of information system just
like any other functional area in the business. MIS is important because all businesses have a need
for information about the tasks which are to be performed. Information and technology is used as a
tool for solving problems and providing opportunities for increasing productivity and quality.
Information has always been important but it has never been so available, so current and so
overwhelming. Efforts have been made for collection and retrieval of information, However,
challenges still remain in the selection analysis and interpretation of the information that will
further improve decision making and productivity.
MIS for a Business Organization :
1. Support the Business Process : Treats inputs as a request from the customer and outputs as
services to customer. Supports current operations and use the system to influence further
way of working.
2. Support Operation of a Business Organization : MIS supports operations of a business
organization by giving timely information, maintenance and enhancement which provides
flexibility in the operation of an organizations.
3. To Support Decision Making : MIS supports the decision making by employee in their
daily operations. MIS also supports managers in decision making to meet the goals and
objectives of the organization. Different mathematical models and IT tools are used for the
purpose evolving strategies to meet competitive needs.
4. Strategies for an Organization : Today each business is running in a competitive market.
MIS supports the organization to evolve appropriate strategies for the business to assented
in a competitive environment.
6. Business Expert Systems:These systems are one of the main types of knowledge-based
information systems. These systems are based on artificial intelligence, and are advanced
information systems. A business expert system is a knowledge based information system that uses
its knowledge about a specific, complex application area to act as an expert. The main components
of an expert system are:
a. Knowledge Base
b. Interface Engine
c. User Interface
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.
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 .
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.
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 processor.s bias is forced on the 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.
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 reader.s 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.
Redundancy is the repetition of the parts or messages in order to circumvent the distortions or the
transmission errors. The redundancy, therefore, sometimes is considered as an essential feature to
ensure that the information is received and digested. In MIS the redundancy of data and
information, therefore, is inevitable on a limited scale. Its use is to be made carefully so that the
reports are not crowded with information.
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 user.s 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.
Following are the essential characteristic features :
(i) Timeliness : Timeliness means that information must reach the recipients within the prescribed
timeframes. For effective decision-making, information must reach the decision-maker at the right
time, i.e. recipients must get information when they need it. Delays destroys the value of
information. The characteristic of timeliness, to be effective, should also include up-to-date, i.e.
current information.
(ii) Accuracy : Information should be accurate. It means that information should be free from
mistakes, errors &, clear Accuracy also means that the information is free from bias. Wrong
information given to management would result in wrong decisions. As managers decisions are
based on the information supplied in MIS reports, all managers need accurate information.
(iii) Relevance : Information is said to be relevant if it answers especially for the recipient what,
why, where, when, who and why? In other words, the MIS should serve reports to managers which
is useful and the information helps them to make decisions..
(iv) Adequacy : Adequacy means information must be sufficient in quantity, i.e. MIS must provide
reports containing information which is required in the deciding processes of decision-making. The
report should not give inadequate or for that matter, more than adequate information, which may
create a difficult situation for the decision-maker. Whereas inadequacy of information leads to
crises, information overload results in chaos.
(v) Completeness : The information which is given to a manager must be complete and should
meet all his needs. Incomplete information may result in wrong decisions and thus may prove
costly to the organization.
(vi) Explicitness : A report is said to be of good quality if it does not require further analysis by the
recipients for decision making.
(Vii) 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.
(viii)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.
(ix) Reliability: 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.
(x)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.
(xi)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.
(i) Planning Information : Certain standard norms and specifications are used in planning of any
activity. Hence such information is called the Planning Information. e. g. Time standard, design
standard.
(ii) Control Information : Reporting the status of an activity through a feedback mechanism is
called the Controlling Information. When such information shows a deviation from the goal or the
objective, it will induce a decision or an action leading to control.
(iii) Knowledge Information : A collection of information through the library records and the
research studies to build up a knowledge base as an information is known as Knowledge
Information.
(iv)Organization Information : When the information is used by everybody in the organization, it
is called Organization Information. Employee and payroll Information is used by a number of
people in an organization.
(v) Functional/ Operational Information : When the information is used in the operation of a
business it is called Functional/Operational Information.
(vi) Database Information : When the information has multiple use and application, it is called as
database information. Material specification or supplier information is stored for multiple users.
Data Processing : Data Processing is a process that converts data into information or knowledge.
The processing is usually assumed to be automated and running on a computer. Because data are
most useful when well-presented and actually informative, data-processing systems are often
referred to as information systems to emphasize their practicality. Nevertheless, both terms are
roughly synonymous, performing similar conversions; data-processing systems typically manipulate
raw data into information, and likewise information systems typically take raw data as input to
produce information as output. Data processing is that a business has collected numerous data
concerning an aspect of its operations and that this multitude of data must be presented in
meaningful, easy-to-access presentations for the managers who must then use that information to
increase revenue or to decrease cost. That conversion and presentation of data as information is
typically performed by a data-processing application.
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 . An awareness of these
methods is essential to the manager. Further, he should also nunderstand 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.
Following are the methods of data collection :
i. Observation
ii. Experiment
iii. Survey
iv. Subjective Estimation
v. Transaction Processing
vi. Purchase from Outside
vii. Publication
viii. Government Agencies
An office information system supports a range of business office activities such as creating and
distributing graphics and/or documents, sending messages, scheduling, and accounting. All levels
of users from executive management to nonmanagement employees utilize and benefit from the
features of an OIS.
The software an office information system uses to support these activities include word processing,
spreadsheets, databases, presentation graphics, e-mail, Web browsers, Web page authoring,
personal information management, and groupware. Office information systems use
communications technology such as voice mail, facsimile (fax), videoconferencing, and electronic
data interchange (EDI) for the electronic exchange of text, graphics, audio, and video. An office
information system also uses a variety of hardware, including computers equipped with modems,
video cameras, speakers, and microphones; scanners; and fax machines.
A transaction processing system (TPS) is an information system that captures and processes data
generated during an organizations day-to-day transactions. A transaction is a business activity
such as a deposit, payment, order or reservation.
Clerical staff typically perform the activities associated with transaction processing, which include
the following:
3. Maintaining data, which involves adding new data, changing existing data, or removing
unwanted data.
Transaction processing systems were among the first computerized systems developed to process
business data a function originally called data processing. Usually, the TPS computerized an
existing manual system to allow for faster processing, reduced clerical costs and improved customer
service.
The first transaction processing systems usually used batch processing. With batch processing,
transaction data is collected over a period of time and all transactions are processed later, as a
group. As computers became more powerful, system developers built online transaction processing
systems. With online transaction processing (OLTP) the computer processes transactions as they
are entered. When you register for classes, your school probably uses OLTP. The registration
administrative assistant enters your desired schedule and the computer immediately prints your
statement of classes. The invoices, however, often are printed using batch processing, meaning all
student invoices are printed and mailed at a later date.
Today, most transaction processing systems use online transaction processing. Some routine
processing tasks such as calculating paychecks or printing invoices, however, are performed more
effectively on a batch basis. For these activities, many organizations still use batch processing
techniques.
While computers were ideal for routine transaction processing, managers soon realized that the
computers capability of performing rapid calculations and data comparisons could produce
meaningful information for management. Management information systems thus evolved out of
transaction processing systems. A management information system, or MIS (pronounced em-
eye-ess), is an information system that generates accurate, timely and organized information so
managers and other users can make decisions, solve problems, supervise activities, and track
progress. Because it generates reports on a regular basis, a management information system
sometimes is called a management reporting system (MRS).
Management information systems often are integrated with transaction processing systems. To
process a sales order, for example, the transaction processing system records the sale, updates the
customers account balance, and makes a deduction from inventory. Using this information, the
related management information system can produce reports that recap daily sales activities; list
customers with past due account balances; graph slow or fast selling products; and highlight
inventory items that need reordering. A management information system focuses on generating
information that management and other users need to perform their jobs.
An MIS generates three basic types of information: detailed, summary and exception. Detailed
information typically confirms transaction processing activities. A Detailed Order Report is an
example of a detail report. Summary information consolidates data into a format that an
individual can review quickly and easily. To help synopsize information, a summary report
typically contains totals, tables, or graphs. An Inventory Summary Report is an example of a
summary report.
Exception information filters data to report information that is outside of a normal condition.
These conditions, called the exception criteria, define the range of what is considered normal
activity or status. An example of an exception report is an Inventory Exception Report is an
Inventory Exception Report that notifies the purchasing department of items it needs to reorder.
Exception reports help managers save time because they do not have to search through a detailed
report for exceptions. Instead, an exception report brings exceptions to the managers attention in
an easily identifiable form. Exception reports thus help them focus on situations that require
immediate decisions or actions.
A decision support system (DSS) is an information system designed to help users reach a decision
when a decision-making situation arises. A variety of DSSs exist to help with a range of decisions.
A decision support system uses data from internal and/or external sources.
Internal sources of data might include sales, manufacturing, inventory, or financial data from an
organizations database. Data from external sources could include interest rates, population trends,
and costs of new housing construction or raw material pricing. Users of a DSS, often managers,
can manipulate the data used in the DSS to help with decisions.
Some decision support systems include query language, statistical analysis capabilities,
spreadsheets, and graphics that help you extract data and evaluate the results. Some decision
support systems also include capabilities that allow you to create a model of the factors affecting a
decision. A simple model for determining the best product price, for example, would include
factors for the expected sales volume at each price level. With the model, you can ask what-if
questions by changing one or more of the factors and viewing the projected results. Many people
use application software packages to perform DSS functions. Using spreadsheet software, for
example, you can complete simple modeling tasks or what-if scenarios.
A special type of DSS, called an executive information system (EIS), is designed to support the
information needs of executive management. Information in an EIS is presented in charts and
tables that show trends, ratios, and other managerial statistics. Because executives usually focus on
strategic issues, EISs rely on external data sources such as the Dow Jones News/Retrieval service or
the Internet. These external data sources can provide current information on interest rates,
commodity prices, and other leading economic indicators.
To store all the necessary decision-making data, DSSs or EISs often use extremely large databases,
called data warehouses. A data warehouse stores and manages the data required to analyze
historical and current business circumstances.
5. Expert Systems
An expert system is an information system that captures and stores the knowledge of human
experts and then imitates human reasoning and decision-making processes for those who have less
expertise. Expert systems are composed of two main components: a knowledge base and inference
rules. A knowledge base is the combined subject knowledge and experiences of the human
experts. The inference rules are a set of logical judgments applied to the knowledge base each
time a user describes a situation to the expert system.
Expert systems are one part of an exciting branch of computer science called artificial intelligence.
Artificial intelligence (AI) is the application of human intelligence to computers. AI technology
can sense your actions and, based on logical assumptions and prior experience, will take the
appropriate action to complete the task. AI has a variety of capabilities, including speech
recognition, logical reasoning, and creative responses.
Experts predict that AI eventually will be incorporated into most computer systems and many
individual software applications. Many word processing programs already include speech
recognition.
, there are a variety of requirements for information. Senior managers need information to help
with their business planning. Middle management need more detailed information to help them
monitor and control business activities. Employees with operational roles need information to help
them carry out their duties.
As a result, businesses tend to have several "information systems" operating at the same time. This
revision note highlights the main categories of information system and provides some examples to
help you distinguish between them.
I II III IV V VI
Nolan (1979) indicated that there are six stages in the information system evolutionary process. It is
an improvement over the four-stage model. The stages are:
1. Initiation- in which the organization has an operational focus and tries to get operational
efficiency and thereby limited value from the information systems.
2. Contagion-in which the organization moves towards online systems after having tasted
success in the initiation stage. More users are added.
3. Control-in which the management exercises control and makes a cost-benefit type of
assessment.
4. Integration-in which the organization moves away from an ad hoc isolated solutions based
on information system to a service based information system. This is the stage when the
organization transitions from a data processing outlook about information systems to more
holistic information-based decision-making approach towards information systems. A more
comprehensive approach towards information systems results in changes in the
organization's behavior towards information systems and initiates a new appreciation for
data and information.
5. Data administration-in which the organization begins to appreciate the value of
information and makes efforts to centralize the data management to take advantage of the
benefits of information based decision-making.
6. Maturity-in which the organization creates synergies in its corporate objectives and
information systems planning so that the two can work in a synchronized manner.
These are the stages as Nolan has described in this research. However, no empirical proof exists of
this stage growth model of information system maturity.
1.19 ROLE OF MIS IN IMPROVING DECISION MAKING:
Decision making is an essential part of any business. This is because a majority of operations in an
organization turn around decisions made by the management. In order to make decisions more
effectively, it is very important to have a good management information system since decisions are
based on information available. The effectiveness of every business information is dependent on
the timing and content of the business information presented and management actions. The need for
management information system is felt when the managers have to make proper business decisions,
the manger will have to rely on his judgment but he must have information on the basis which he
arrives at business decisions. If an organization have a significant management information system,
it is easy for an organization to take decision on the basis of available information. Good MIS
ensures good decision making just in the same way bad MIS drive the making of bad decisions.MIS
plays a crucial role in decision making through its systematic tools, timely information and
adequate managerial policies and regulations. The quality of managerial decision-making depends
upon the qualitative information and the managers should therefore develop an environment that
encourages the growth and quality information. Management information systems give managers
fast component to information. It includes interaction with other decision support systems,
information examination, cross referencing of external information and possible data removal
techniques. These systems provide information and strategic technique with practical decisions.
Finally, Management Information systems play the crucial role of providing a wide range of
alternatives from which decision makers are able to make their preferred decision. This is important
for companies in the modern day generation where any minor fall in decision making can lead to
very infinite losses.
Since the MIS plays a very important role in the organization, it creates an impact on the
organization.s 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 manager.s 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 manager.s 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 is
engaged in this activity in the organization. It you study the individual.s 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 a information- based work culture in the organization.
Management information systems (MIS) should be designed, viewing the organization as discussed
earlier. MIS design should give due weight age to the human side of the organization and its
culture. The task and technology are the physical aspects of the 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 maker.s position in the structure.
If the basic model of the organization is modified as a product or a project organizationnsystem,
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 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.
The goal of the MIS should be to provide the information which has a surprise value and which
reduces the uncertainty. It should simultaneously build the knowledge base in the organization by
processing the data obtained from different sources in different ways.
The designer of the MIS should take care of the data problems knowing that it may contain bias and
error by introduction of high level validations, checking and controlling the procedures in the
manual and computerized systems. While designing the MIS, due regard should be given to the
communication theory of transmitting the information from the source to the destination.
A special care should be taken to handle a noise and a distortion on the way to destination. The
presentation of information plays a significant role in controlling the noise and distortion which
might interrupt, while communicating information to the various destinations. The principles of
summarization and classification should be carefully applied giving regard to the levels of
management. Care should be taken in the process that no information is suppressed or
overemphasized.
The utility of information increases if the MIS ensures that the information possesses the necessary
attributes. The redundancy of the data and the information is inevitable ob a limited scale. MIS
should use the redundancy as a measure to control the error in communication.
The information is a quality product for the organization. The quality of information as an outgoing
product can be measured on four dimensions, viz., the utility, the satisfaction, the error and the bias.
The MIS should provide specific attention to these quality parameters. A failure to do so would
result in a wasteful expenditure in the development of the MIS and poor usage of investment in the
hardware and software.
The quality can be ensured if the inputs to the MIS are controlled on the factors of impartiality,
validity, reliability, consistency and age. 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.
Concept of System
Types of Systems Open, Closed, Deterministic, Probabilistic, etc.
Relevance of choice of System in MIS
Integration of Organization Systems and Information Systems
System Development Life Cycle
System Analysis, Design and Implementation
MIS Applications in Business
Definition of System :
"A system is an orderly grouping of interdependent components linked together according to a
plan to achieve a specific objective".
In most cases, systems analysts operate in a dynamic environment where change is a way of life.
The environment may be a business firm, a business application, or a computer system. To
reconstruct a system, the following key elements must be considered:
1. Outputs and inputs.
2. Processor(s).
3. Control.
4. Feedback.
5. Environment.
6. Boundaries and interface.
1 ) Outputs and Inputs : A major objective of a system is to produce an output that has value to its
user. Whatever the nature of the output (goods, services, or information), it must be in line with the
expectations of the intended user. Inputs are the elements (material, human resources, and
information) that enter the system for processing. Output is the outcome of processing. A system
feeds on input to produce output in much the same way that a business brings in human, financial,
and material resources to produce goods and services. It is important to point out here that
determining the output is a first step in specifying the nature, amount, and regularity of the input
needed to operate a system. For
example, in systems analysis, the first concern is to determine the users requirements of a
proposed computer system that is, specification of the output that the computer is expected to
provide for meeting user requirements.
2) Processor(s) : The processor is the element of a system that involves the actual transformation of
input into output. It is the operational component of a system. Processors may modify the input
totally or partially, depending on the specifications of the output. This means that as the output
specifications change so does the processing. In some cases, input is also modified to enable the
processor to handle the transformation.
3) Control : The control element guides the system. It is the decision making subsystem that
controls the pattern of activities governing input, processing, and output. In an organizational
context, management as a decision making body controls the inflow, handling and outflow of
activities that affect the welfare of the business. In a computer system, the operating system and
accompanying software influence the behaviour of the system. Output specifications determine
what and how much input is needed to keep the system in balance.
In systems analysis, knowing the attitudes of the individual who controls the area for which a
computer is being considered can make a difference between the success and failure of the
installation. Management support is required for securing control and supporting the objective of
the proposed change.
4 )Feedback: Control in a dynamic system is achieved by feedback. Feedback measures output
against a standard in some form of cybernetic procedure that includes communication and control.
Output information is fed back to the input and / or to management (Controller) for deliberation.
After the output is compared against performance standards, changes can result in the input or
processing and consequently, the output.
Feedback may be positive or negative, routing or informational. Positive feedback reinforces the
performance of the system. It is routine in nature. Negative feedback generally provides the
controller with information for action. In systems analysis, feedback is important in different ways.
During analysis, the user may be told that the problems in a given application verify the initial
concerns and justify the need for change.
Another form of feedback comes after the system is implemented. The user informs the analyst
about the performance of the new installation. This feedback often results in enhancements to meet
the users requirements.
5) Environment
The environment is the suprasystem within which an organization operates. It is the source of
external elements that impinge on the system. In fact, it often determines how a system must
function. For example, the organizations environment, consisting of vendors, competitors, and
others, may provide constraints and, consequently, influence the actual performance of the business.
6 ) Boundaries and interface
A system should be defined by its boundaries the limits that identify its components, processes
and interrelationship when it interfaces with another system. For example, a teller system in a
commercial bank is restricted to the deposits, withdrawals and related activities of customers
checking and savings accounts. It may exclude mortgage foreclosures, trust activities, and the like.
Each system has boundaries that determine its sphere of influence and control. For example, in an
integrated banking wide computer system design, a customer who has a mortgage and a checking
account with the same bank may write a check through the teller system to pay the premium that
is later processed by the mortgage loan system. Recently, system design has been successful in
allowing the automatic transfer of funds form a bank account to pay bills and other obligations to
creditors, regardless of distance or location. This means that in systems analysis, knowledge of the
boundaries of a givensystem is crucial in determining the nature of its interface with other systems
for successful design.
2.4 Types of systems
The frame of reference within which one views a system is related to the use of
the systems approach for analysis. Systems have been classified in different ways.
Common classifications are: (1) physical or abstract, (2) open or closed, and (3) man
made information systems.
Physical System These are tangible entities that may be static or dynamic in operation. For
example- parts of a computer center are the desks, chairs etc. that facilitate operation of the
computer. They are static and a programmed computer is dynamic. Physical systems are tangible
entities that may be static or dynamic in operation. For example, the physical parts of the computer
center are the officers, desks, and chairs that facilitate operation of the computer. They can be seen
and counted; they are static. In contrast, a programmed computer is a dynamic system. Data,
programs, output, and applications change as the users demands or the priority of the information
requested changes.
Abstract System These are conceptual or non physical entities. For example- the abstract
conceptualization of physical situations. A model is a representation of a real or planned system. A
model is used to visualize relationships. Abstract systems are conceptual or non-physical entities.
They may be as straightforward as formulas of relationships among sets of variables or models
the abstract conceptualization of physical situations. A model is a representation of a real or a
planned system. The use of models makes it easier for the analyst to visualize relationships in the
system under study. The objective is to point out the significant elements and the key
interrelationships of a complex system.
1. Preliminary study
2. Feasibility study
3. Detailed system study
4. System analysis
5. System design
6. Coding
7. Testing
8. Implementation
9. Maintenance
The different phases of system development life cycle is shown in Fig.below.
(6) Coding:
The system design needs to be implemented to make it a workable system. This demands the coding
of design into computer understandable language, i.e., programming language. This is also called
the programming phase in which the programmer converts the program specifications into
computer instructions, which we refer to as programs. It is an important stage where the defined
procedures are transformed into control specifications by the help of a computer language. The
programs coordinate the data movements and control the entire process in a system. It is generally
felt that the programs must be modular in nature. This helps in fast development, maintenance and
future changes, if required.
(7) Testing:
Before actually implementing the new system into operation, a test run of the system is done for
removing the bugs, if any. It is an important phase of a successful system. After codifying the whole
programs of the system, a test plan should be developed and run on a given set of test data. The
output of the test run should match the expected results. Sometimes, system testing is considered a
part of implementation process. Using the test data following test run are carried out:
Program test
System test
Program test: When the programs have been coded, compiled and brought to working conditions,
they must be individually tested with the prepared test data. Any undesirable happening must be
noted and debugged (error corrections)
System Test: After carrying out the program test for each of the programs of the system and errors
removed, then system test is done. At this stage the test is done on actual data. The complete system
is executed on the actual data. At each stage of the execution, the results or output of the system is
analysed.
During the result analysis, it may be found that the outputs are not matching the expected output of
the system. In such case, the errors in the particular programs are identified and are fixed and
further tested for the expected output. When it is ensured that the system is running error-free, the
users are called with their own actual data so that the system could be shown running as per their
requirements.
(8) Implementation:
After having the user acceptance of the new system developed, the implementation phase begins.
Implementation is the stage of a project during which theory is turned into practice. The major steps
involved in this phase are:
Acquisition and Installation of Hardware and Software
Conversion
User Training
Documentation
The hardware and the relevant software required for running the system must be made fully
operational before implementation. The conversion is also one of the most critical and expensive
activities in the system development life cycle. The data from the old system needs to be converted
to operate in the new format of the new system. The database needs to be setup with security and
recovery procedures fully defined.
During this phase, all the programs of the system are loaded onto the users computer. After loading
the system, training of the user starts. Main topics of such type of training are:
How to execute the package
How to enter the data
How to process the data (processing details)
How to take out the reports
After the users are trained about the computerized system, working has to shift from manual to
computerized working. The process is called Changeover. The following strategies are followed
for changeover of the system.
(i) Direct Changeover: This is the complete replacement of the old
system by the new system. It is a risky approach and requires
comprehensive system testing and training.
(ii) Parallel run: In parallel run both the systems, i.e., computerized and manual, are executed
simultaneously for certain defined period. The same data is processed by both the systems. This
strategy is less risky but more expensive because of the following:
Manual results can be compared with the results of the computerized system.
The operational work is doubled.
Failure of the computerized system at the early stage does not affect the working of the
organization, because the manual system continues to work, as it used to do.
(iii) Pilot run: In this type of run, the new system is run with the data from one or more of the
previous periods for the whole or part of the system. The results are compared with the old
system results. It is less expensive and risky than parallel run approach. This strategy builds the
confidence and the errors are traced easily without affecting the operations.
The documentation of the system is also one of the most important activity in the system
development life cycle. This ensures the continuity of the system. There are generally two types of
documentation prepared for any system. These are:
User or Operator Documentation
System Documentation
The user documentation is a complete description of the system from the users point of view
detailing how to use or operate the system. It also includes the major error messages likely to be
encountered by the users. The system documentation contains the details of system design,
programs, their coding, system flow, data dictionary, process description, etc. This helps to
understand the system and permit changes to be made in the existing system to satisfy new user
needs.
(9) Maintenance:
Maintenance is necessary to eliminate errors in the system during its working life and to tune the
system to any variations in its working environments. It has been seen that there are always some
errors found in the systems that must be noted and corrected. It also means the review of the system
from time to time. The review of the system is done for:
knowing the full capabilities of the system
knowing the required changes or the additional requirements
studying the performance.
If a major change to a system is needed, a new project may have to be set up to carry out the
change. The new project will then proceed through all the above life cycle phases.
Its this concept that the adept leader can use to get a more holistic view of his
organization. Understanding how the company relates to the larger system in which it exists and
operates, and then how the companys internal systems contribute or detract from that larger
relationship can provide a more relevant analysis.
It really isnt as esoteric as it may sound. Once you grasp the concept it will be easy to see how it
applies to your organization. Lets spend a moment on a definition and then we can address
application.
So for a leader, the first step in developing a holistic view of the organization is to define the
higher-level system in which it exists/operates, and its role/purpose in that higher-level
system. Where does it fit? What kind of role does it play and what value does it bring to the purpose
of the higher-level system? If a company does not have a role to play in the higher-level system,
then it does not belong in that system; and if it cannot find a role in any higher-level system, it is in
effect redundant and will ultimately die. Additionally, and sadly more common, if a company
cannot accurately define what its role is in the higher-level system, even if it has something relevant
to offer, it will be treated as if it had no role at all.
If a higher-level system cannot perceive value by including a particular sub-system, it will ignore
that sub-system. This typically means the end of that sub-level systems participation in the higher-
level system. Thats the reason nobody makes buggy whips or vinyl music records anymore.
Once you have defined the higher-level system in which your company operates, and established
your companys purpose within it, then its time to look at the components or subsystems of your
organization. These subsystems and components, knowingly or unknowingly, all interact and play
a part in achieving or detracting from the companys purpose. Ideally of course, these subsystems
and their interrelationships should be designed and organized in a way that collectively promotes
the organizations purpose, and achieve zero or sustainable negative entropy for the
organization. While there is much to discuss about entropy and organizations, a simple macro
explanation is that entropy occurs when a systems resources are depleted over time and its
subsystems descend into chaos. Zero entropy is thus a state where resources do not deplete over
time, and negative entropy where resources increase over time; in both cases with the subsystems
maintaining current relevance and focus on the system purpose.
In the auto company example, it needs to define its market, the range of products and services for
that market, and how to produce and deliver those products and services in an exchange with the
auto market, in a way that its resources do not get depleted. When it achieves that, the auto
company will have reached a state of business sustainability. Of course all companies would like to
grow, and not just maintain the business; however we all know that growth needs to be kept
sustainable or the result could be detrimental. For example, if the auto company increases its market
share so rapidly, that it is unable to match that pace with getting the people and systems it needs in
place to ensure good quality control, then it could get into problems. In Systems Theory, when we
talk about negative entropy in successful systems, it is always about sustainable negative entropy.
It can be argued that assuming the organization knows its true purpose, then how that organizations
subsystems are organized will determine the success or failure of the organization. Subsystems,
functions, and their inter-relationships are thus optimized to achieve the organizations purpose; this
is distinct from optimization of subsystems for their own purposes. Consequently, if a subsystem
does not have a role in the organizations purpose, then it does not belong in the organization
system.
It kind of sounds like we are back to the traditional response of auditing departments doesnt it? But
did you note the difference? This time we defined a purpose first. We identified what our role is in
the higher-level system. We know what we must do to succeed in that higher-level system. Its only
after we have that firmly established that we use it to determine the organization and effectiveness
of our subsystems.
UNIT 3
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Information systems (TPS, DSS, EIS, ES)
Learning Objectives:
___________________________________________________________________________________
DEFINITION OF TPS:
TPS Process daytoday transactions of an organisation to carry on its business
operations.According to Laudon and Laudon:
TPS are computerised systems that perform and record the daily routine transactions necessary to
conduct the business.
Transaction processing systems were among the earliest computerized systems. Their
primary purpose is to record, process, validate, and store transactions that take place in the various
functional areas/of a business for future retrieval and use. A transaction processing system (TPS) is
an information system that records company transactions (a transaction is defined as an exchange
between two or more business entities).
Transaction processing systems (TPS) are cross-functional information systems that process
data resulting from the occurrence of business transactions.
Transactions are events that occur as part of doing business, such as sales, purchases,
deposits, withdrawals, refunds, and payments. Transaction processing activities are needed to
capture and process data, or the operations of a business would grind to a halt.
Let us look at a simple example of a business transaction. McDonald's, which sells a large
number of hamburgers every day, orders raw materials from its suppliers. Each time the company
places an order with a supplier, a transaction occurs and a transaction system records relevant
information, such as the supplier's name, address, and credit rating, the kind and quantity of items
purchased, and the invoice amount.
Types of Transactions
Note that the transactions can be internal or external.
When a department orders office supplies from the purchasing department, an internal
transaction occurs, when a customer places an order for a product, an external transaction occurs.
Internal Transactions: Those transactions, which are internal to the company and are
related with the internal working of any organization. For example Recruitment Policy,
Promotion Policy, Production policy etc
External Transactions: Those transactions, which are external to the organization and are
related with the external sources, are regarded as External Transaction. For example sales,
purchase etc.
1. In many cases organizations are required to process transactions in a way that is required by
its external stakeholders.e. a large business organisation is required to maintain its financial
transactions as prescribed by Incomr Tax Act.
2. TPS are major procedure of information for other types of systems.e.g. purchase processing
systems supply data to the organizations general ledger systems which are responsible for
maintaining records of the organization for producing reports,such as trail balance,profit and
loss account,and balance sheet.
3. TPS handel detail of data and these data shows the result of various activities usually on
historical basis.TPS reflect what has already happened rather than projecting what is likelt to
happen in future.
4. TPS span the boundary of the organization and connect the elements of its environment.TPS
connects the organization with its customers and suppliers.This connectivity ensures faster
transaction processing which results into increased operational efficiency.
5. TPS serve the basic need of operational level of the organization.At the operational level,
objectives. tasks. and resources are pre-defined and are highly structured. Therefore. the
decisions are made on the basis of predefined criteria. For example. a decision' regarding
granting credit to a customer can be made by the superior concerned as the criteria for
allowing credit are pre-defined by higher:level managers.
6. TPS are relevent to all the four functional areas of a business organization-production
,marketing,finance,and human resource-because each functional area needs some kind of
transaction processing.
7. A TPS supports different tasks by imposing a set of rules and guidelines that specify how to
record, process, and store a given transaction. There are many uses of transaction processing
systems in our everyday lives, such as when we make a purchase at retail store, deposit or
withdraw money at a bank, or register for classes at a university. Almost all organizations,
regardless of the industry in which they operate, have a manual or automated TPS
8. A TPS is the data life-line for a company because it is the source of data for other
information systems, such as MIS and DSS (Decision Support Systems). Hence, if the TPS
shuts down, the consequences can be serious for the organization
9. A TPS is also the main link between the organization and external entities, such as
customers suppliers, distributors, and regulatory agencies
10. TPS exist for the various functional areas in an organization, such as finance, accounting,
manufacturing, production, human resources, marketing quality control, engineering, and
research and development. Until a few years ago, many companies viewed the TPS for each
business function as separate entity with little or no connection to other systems in the
company. Today, however, many companies are trying to build cross-functional TPS to
promote the free exchange of information among different business units. This is a desirable
goal, but is still very difficult to achieve
3.4 COMPONENTS OF TRANSACTION PROCESSING SYSTEMS
A computer-based transaction processing system has the following sixcomponents:
1. Input.
2. Data capture
3. Data validation
4. ProcessIng and revalidation
5. Storage and Output generation
6. Query support
1. Input :- Various Inputs of a TPS are in the form of source documents such as customer
orders,purchase orders, invoices, employee time cards, etc.These documents serve the following
purposes in a TPS:
capturing of data.
Facilitating operations by communicating data and authorising another operation in the
process.
Statidardising operations by indicating what data are required for recording and what actions
need to be taken.
Providing a permanent file for future use if documents are retained.
We could capture transaction data as close as possible to the source that generates the data.
Salespersons capture data that rarely changes by prerecording it on machine-readable media, or by
storing it on the computer system.
Capture data by using machine-readable media initially (bar-coded and magnetic stripe
credit cards), instead of preparing written source documents
Captures data directly without the use of data media by optical scanning of bar codes
printed on product packaging. It ensures the accuracy and reliability of data by
comparing
3. Data Validation
There are two steps in validation: error detection and error correction, Error detection is
performed by one set of control mechanisms, error correction is performed by another
Some commonly used error detection procedures are checking the data for appropriate font (text,
numbers, etc), checking for aberrations (values that are too low or too high), and checking for
missing data, invalid data, and inconsistent data. Missing data refers to fields that are missing a
mandated data value.
For example, if the number of hours worked by a part-time employee is missing on a payroll form;
that is a missing-data error.
Invalid data is data that is outside the range .For example, if the number of hours worked by a part-
time employee is 72 hours per week instead of the 1120 hours, then we have invalid data
Inconsistent data means that the same data item assumes different values in different places
without a valid reason. For example, if payroll records show that an employee worked 25 hours per
day.
4. Processing:- Processing involves the use of journals (books of primary entry) and, registers to
provide a chronological record of inputs. Journals are used record financial accounting transactions,
and registers are used to record other types of data not directly related to accounting. Some of the
more common journals that are kept are as follows:
All the above books are often used in conjunction with a separate general ledger to proVide a
complete book keeping system. Special columns can b{' used in these books of original entry to
facilitate recording transc4:tions and their classification.
5. Storage:- The computer stores various records in files.There are several type of files which are
classified as transaction file and master file. A transaction file is a collection transaction input
data.Transaction files usually contain data that are of temporary nature. A master file contains data
that are of a more permanent nature or of continuing interest. For exarnple,credit sales file is a
chronologicro record osf sales on account.There may be several on account sales made to a single
customer during a period. However. the total amount standing due in the name of the customer
cannot be ascertained unless these transactions are processed.The process of posting sales to the
accounts receivable ledger summarises credit sales to the customer.
Output:- Variety of outputs can be generated from a TPS which can be used for various purposes.
These outputs are in the form of documents.Some of these outputs can be used as inputs for further
processing. For example. a customer invoice is an output of the order-entry application system but
the same invoice can be used as input for processing customer account. Some common outputs of a
TPS are trial balance, profit and loss account, balance sheet,etc. Besides various reports can be
prepared for plannIng and control at operational level .
6. Query Support
The last step in processing a transaction is querying (asking questions of) the system. Query
facilities allow users to process data and information that may otherwise not be readily available.
For example, a sales manager may query the system about the number of damaged items in a given
store
Many transaction processing systems allow you to use the Internet, intranets, extranets, and web
browsers or database management query languages to make inquiries and receive responses
concerning the results of transaction processing activity. Typically, responses are displayed in a
variety of pre-specified formats or screens. Examples of queries include:
Checking on the status of a sales order
Checking on the balance in an account
Checking on the amount of stock in inventory
3.5 METHODS FOR PROCESSING TRANSACTIONS
There are three different methods commonly used for processing transactions and updating master
files:
1. On-line entry with immediate processing:- In this processing transactions are entered on-
line,validated, and if found valid valid, are processed imediately.A response with the result
of processing or confirmation of completion or processing is generally provided to user at
the input terminal.
There are many situations in which on-line entry with immediate processing is required, for
example ,railway/airline reservation,share trading etc.The main advantage of this approach
of processing is that of the transaction is known immediately.Beside the master files are kept
up to date every time.
2. On-line Entry with Subsequent Processing:- In on-line entry with subsequent processing
method,data are entered on-line and validated, but their their processing is done on periodic
batch basis.In on-line entry with immediate processing. transactions are validated a
processed at the time of entry while in subsequent processing method transactions are
processed after certain time gap.The main advantage of this type of processing is that
computer capacity is used for on-line entries and after this process is over, the computet
capacity can be used for imput processing. In super markets and similar situations on-line
entry with subsequent processing method is followed.
3. Batch processing:- In batch processing which is the most conventional method of
transacton processing, transactions are accumulated over a period of time.when sufficient
number of transactions are accumulated, these are processed in batches.the process of
batches can be daily,weekly, or even monthly,depending on the volume of transactions and
other considerations.other considerations may be in the form of reporting cycle, action
initiating etc. for example transaction involving inventory control may be processed on daily
or weekly basis,depending on the volume of transactions.the major disadvantage of batch
processing is the delay in detecting and correcting errors.
Out of three methods of transaction processing. which method should be adopted depends on a
number of factors. specially the computer capacity and nature of transactions. When computers
were first introduced for transaction processing. batch processing method was in use because of the
capacity limitations of computers. However. with increas~d capacity of computers. on-line
processing is becoming more common. Besides the computer capacity. nature of transactions
should also be taken into account.
"Decision support systems (DSS) represent a different approach to information system support for
semi-structured and unstructured decisions. They support a variety of unstructured decision
processes.
A decision support system is a computer system at the management level of an organization that
combines data, sophisticated analytical tools, and user-friendly software to support semi-structured
and unstructured decision making.
Decision Support Systems (DSS) help executives make better decisions by using historical
and current data from internal Information Systems and external sources. By combining massive
amounts of data with sophisticated analytical models and tools, and by making the system easy to
use, they provide a much better source of information to use in the decision-making process.
Decision Support Systems (DSS) are a class of computerized information systems that
support decision-making activities. DSS are interactive computer-based systems and subsystems
intended to help decision makers use communications technologies, data, documents, knowledge
and/or models to successfully complete decision process tasks.
3.7 Features of Decision Support Systems
There are several features of decision support systems that distinguish them from other
information systems of an organization. These features are as follows:
1. The philosophy of decision support systems is to give users the tools necessary to
analyze important blocks of data, using easily controlled sophisticated models in flexible
manners are designed to deliver capabilities, not simply to respond to information
needs.
2. DSS are tightly focused on a specific decision or set of decisions, such as routing,
queuing, and evaluating and so on. Thus they are not used for general purpose.
3. DSS are aimed at higher-middle and top management with emphasis on change,
flexibility and quick response. A greater emphasis is placed on models, graphics, and
assumptions.
4. The design of DSS applies a different set of skills than the design of structured,
operational systems. DSS designers must not only be technically competent but also be
able to observe, understand and identify with the decision makers' world.
5. The technology required DSS is based on the need for flexible access. Reliable
communication networks, availability of computer terminals, and even stand-alone
microcomputers are more important than large-scale data processing systems.
6. DSS are through evolutionary process- that requires extensive participation by the end
users. More emphasis is placed on prototyping and end-user system development rather
than using system development life cycle approach.
3.8 COMPONETS (OR) ARCHITECTURE OF DSS
There are three components of a typical DSS though a DSS cannot altogether be isolated
from other information systems of an organization because all of them use a common
database.
DSS has three major component:-database, model base, and DSS software.
Some large organizations do not provide direct access to a central database to DSS because
of two reasons. First organization wants to protect data from accidental or inappropriate
changes in database. Second it is a slow and expensive process for the DSS to search
through large database.
The process affects not only the performance of the DSS but also all the other systems using
the database. Therefore such organizations create separate DSS database extracting relevant
data from both internal and external sources.
2. Model Base: - A model base is a collection of mathematical and analytical models that
can be made made accessible to the DSS users. A model is an abstract representation that
illustrates the various components or relationships of a phenomenon.
Most common models available in a model base are optimization models, Forecasting
models and sensitivity analysis models.
ii) Forecasting models are used to forecast an organizations business prospects particularly
in terms of sales. Forecasting model use historical data and extrapolate the likely behavior of
these data in future. Organizations often use forecasting software to predict the likely actions
of competitors.
iii) Sensitivity analysis models study the impact of discrete changes in parameters of
optimal solution. a discrete change is one that happens on irregular basis .sensitivity
analysis, working forward from known or assumed conditions, allows the users to vary
certain values to test results in order to better predicts outcomes if changes occur in those
values.
3. DSS Software:- The third component of a DSS is DSS software systems software
system permits easy interaction between the users and database and model base. DSS
software system manages the creation, storage and retrieval of models from the model base
and integrates them with data in the database. DSS software system also provides
gkkhlo8y96yokjb graphic, easy to use flexible user interface that supports interaction
between the user and DSS. Since DSS are meant for higher level managers who are not
experts in computer handling, the. User-DSS interface must be easy so that relevant
information is extracted without much pain. Since each manager may have his own unique
working style, the DSS software system must offer this flexibility. Desktop spreadsheet
software, such as Lotus 1-2-3 or MS Excel provides such facilities.
Architecture of DSS
In programmed decision making there will be no error in the decisions because it is a routine and
managers usually have the information they need to create rules and guidelines to be followed by
others. But sometimes it can cause error but not of big kind. Programmed decision making are
always used in daily routine to keep the organization running smooth. That is why they have rules
and guidelines to make a decision.
Non-programmed decision has more chance of errors and difficult for managers to handle as it is
inherently challenging. Managers must rely on their intuition to quickly respond to a urgent
concern. Also these errors are of dangerous kind, they affect organization badly. For example if mc
Donalds decided to invest in a new menu. Their customers did not like the new menu and they do
not consume mc Donalds anymore. This will affect mc Donalds revenue and profit. Non-
programmed decision making are not always used but it will give impact to an organizations
effectiveness. This decision is made on reasonable judgment and the circumstances if we proceed
with the decision.
1. MIS functions to produce routine reports,DSS employ sophisticated data modelling &
analysis tools for the purpose of resolving structured problems.
2. MIS is used by a limited group (staff managers & professionals), DSS are used by
groups,individuals & managers at various levels.
4. DSS data sources are much more varied comprising inventory, accounting & production
sources & not just internal business ones & its analytical tools are more
sophisticated(simulation,atatistical analysis).
6. DSS: Focus on finding making, unstructured and available on request, immediate, friendly
MIS: Plan report on variety of subject, reports are standard, structured, routine, constraint by
organizational system.
7. The terms MIS and DSS stand for Management Information Systems and Decision Support
Systems respectively. There has been greatly of talk regarding these two, whether they are
actually impossible to tell apart thing or if there are any significant differences between the
two.
DSS, many consider, is an advancement from the original MIS. However,this is not the sole
difference between the two. While there may not be too much separating the two, the
difference is still within,as is apparent when we say DSS is an advancement over MIS.
9. The essential difference between the two is in focus. DSS, as the permanent status indicates,
is about leadership and senior management surrounded by an organization providing good,
reliable judgment as ably as vision. MIS, on the other hand, is about focusing on the actual
flow of information itself.
Thus, MIS & DSS are differentiated in terms of components, dynamics , analytical tools & general
properties
A group decision support system is an interactive computer-based system to facilitate the solution
of unstructured problems by a set of decision rankers working together as a group.
Features of GDSS
There are a number of features of a GDSS because of which it can be differentiate from a DSS.
These features are as follows:
1. There is high level of interaction among decision makers who work collectively on a
problem. In this attendees from various organizational levels free freedom to contribute
appositely to solve the problem.
2. Emphasis is put on creating an atmosphere where an idea will be evaluated on its merits
rather than on the basis of the source idea.
3. Priorities are set and decisions are made which require finding ways to encompass the
thinking of all the members in making these decisions.
4. Each member of the decision-making group has access to relevant internal and external
information which allows the members to emphasis their own views, appreciate the views of
others, and settle their differences in order to arrive at an acceptable decision with in given
in frame of time.
5. Information about the problem on which a group is working is stored so that those who fail
to attend meeting can work on the problem.
COMPONENTS OF GDSS
1. Decision maker
2. Database and model base
3. Groupware
Through these programs or computer based information system, company or individual decision
making capacities will be enhanced and hasten. This allows not only good communication system
but also a positive outcome within a department, group, or company.
Some decisions are very structured while others are very unstructured. You may wake up in the
morning and make the structured, routine decision to get out of bed. Then you have to make the
unstructured decision of what clothes to wear that day (for some of us this may be a very routine
decision!). Structured decisions involve definite procedures and are not necessarily very complex.
The more unstructured a decision becomes, the more complex it becomes.
3.12 Concept of Decision Making
Everybody makes decisions. It's a natural part of life, and most of the time we don't even
think about the process. In an organization, decisions are made at every level. The level at which the
decision is made can also determine the complexity of the decision in relation to the input of data
and output of information.
A decision is an end or the final product of the decision-making process that represents a behaviour
selected from a number of possible alternatives.
Strategic Decision Making. These decisions are usually concerned with the major objectives of
the organization, such as "Do we need to change the core business we are in?" They also concern
policies of the organization, such as "Do we want to support affirmative action?"
Management Control. These decisions affect the use of resources, such as "Do we need to find a
different supplier of packaging materials?" Management-level decisions also determine the
performance of the operational units, such as "How much is the bottleneck in Production affecting
the overall profit and loss of the organization, and what can we do about it?"
Operational control. These decisions determine specific tasks that support decisions made at the
strategic or managerial levels. An example is "How many candy bars do we produce today?"
These studies show the important and role of MIS during managers' decision making process.
1. Intelligence phase
2. Design phase
3. Choice phase
1.)Intelligence phase :
A decision-making studies the environment and identifies the problem or opportunity. The scanning
of environment may be continuous or intermittent. For example,
Reviewing of daily scrap report by a production manager to check the problems related to
quality control. This is an example for continuous scanning.
Periodic visiting of a sales executive to the key customers to review possible problems and
to identify new customer needs. This s an example for intermittent scanning.
Problem searching refers to the differences between the expected and real result obtained
after making a decision, which is given by the following formula:
For example, a sales manager sets a sales target of certain amount say five lakhs in a particular
month as his expected target, which is expected but he could achieve only four lakhs worth of sales
for that particular month, which is a reality. Therefore, the difference between the expected and
reality value of the target, that is , one lakh is the problem. This difference worries the sales
manager.
In actual practice, the reality or actual value is compared to some standard desired model. Then the
differences are measured and are evaluated to determine the problem or difference. Various types
of models that are used to compare reality are:
Problem formulation refers to the proper identification of the problem to avoid the risk of
solving the wrong problem. To avoid such a risk, it is very important to understand the
problem well and state it clearly. Sometimes, the process of clearly defining the problem is
sufficient ;but in other cases , we have to simplify the problem by determining its
boundaries. Boundaries are simplified by breaking the problem into smaller manageable
sub-problems. In problem formulation, establishing relations with some problems that are
solved earlier prove quite useful.
2.) Design phase includes inventing or developing various alternatives in order to get the best
possible alternative . Developing alternatives is a time-consuming and crucial activity, as the
decision-maker has to explore all the possible alternatives. Decision-maker should not take risk of
missing any given alternatives since the missed-out alternative might be the best one from the given
alternatives. Developing alternatives is a creative activity, which can be enhanced by various aids
such as brainstorming , checklists and analogies.
3.) Choice phase refers to the selection of an alternative developed in the design phase as the
decision-maker. A decision-maker makes a detailed analysis of each and every alternative for
performing this selection. After making a decision, the decision is implemented . However, at any
phase, the decision-maker may return to the previous phase. For example, the decision-maker in the
choice phase may reject all alternatives and return to the design phase for developing more
alternatives.
Executive Information Systems (EIS) supplies the necessary tools to senior management. This
system provides relevant information to top management for strategic planning and control. The
decisions at this level of the company are usually never structured and could be described as
"educated guesses." Executives rely as much, if not more so, on external data than they do on data
internal to their organization. Decisions must be made in the context of the world outside the
organization. The problems and situations senior executives face are very fluid, always changing, so
the system must be flexible and easy to manipulate.
An EIS can supply the summarized information executives need and yet provide the
opportunity to drill down to more detail if necessary.
As technology advances, EIS are able to link data from various sources both internal and
external to provide the amount and kind of information executives find useful. As common software
programs include more options and executives gain experience using these programs, they're
turning to them as an easy way to manipulate information. Many executives are also turning to the
Web to provide the flexibility they need.
2. These systems may derive data from different functional areas but the decisions that are made by
integrating these data are not meant for any specific functional area but for the organization as a
whole.
3. The information generated through EIS are in t he form of summary reports and graphics.
Through these reports executives draw conclusion quickly without waste in their time.
4. Executives are helped by EIS coaches and chauffeurs. An EIS coach is a member of the
executive's staff, information services, or an outside consultant who provides help in settil1g up the
EIS. An EIS chauffeur is a member of the executive's staff who operates the equipment for the
executive.
5. EIS combines both internal and external information for the top management.
EIS must support many of the executive's informational requirements or she will find other
ways to supplement her decision-making tasks. If the system doesn't provide the flexibility to scout
out problems, new opportunities, or keep an eye on the competition, executives will ignore the
system and seek other ways of getting the information they need--mainly other people.
An EIS is a computer-based system that serves the information needs to top executives. It
provides rapid access to timely information and direct access to management reports. EIS is very
user-friendly, supported by graphics, and provides exceptions reporting and" drill-down"
capabilities. It is easily connected with online information services and electronic mail.
Some factors that contributed to the development of EIS are as follows. These are also the
factors that tell us why to use ESS for higher management.
1. Executive's staff
2. Database
Data warehouse
Data mart
3. EIS software
Personal productivity software
Prewritten EIS software
Customized EIS software
4. EIS Output
1. Executive:-An executive is the end-user of output derived from EIS.Though executives may
retrieve desired information on their own specially when database contains tailored information,
most of the executives prefer to get this job done by their staff either because they are busy in their
work or they do not prefer to work on computers. Thus executives staff personnel work as
intermediaries between executives and EIS.These personnel do the job of retrieving information,
making analysis, and interpreting results to the executives. Thus executives do not require to know
how their staff personnel use the EIS to get the desired information.
Data warehouse: - it is a collection of current and historical operational data stored for use
in EIS. The data in the data warehouse may be updated daily, weekly or monthly depending
on the need of data users.
Through data warehousing in large organizations, data are spread at various points in different
forms because of this it ids difficult to locate and retrieve data at a time when these are needed.
Growing demands of executives for easy and quick access to relevant data for planning and
control have generated the need for storing data in a manner that serves the needs of executives
and other decision makers.
In most of the organizations information systems are developed as evolutionary process with
application-specific databases. With the result an organization may have a number of databases
consisting of files, hierarchical databases and relational databases. This system results into
difficulty in data location and retrieval. Data warehousing overcomes this difficulty.
Data mining:-It is an activity which involves finding relevant data from data warehouse. It
discovers various patterns which are followed by available data automatically.
3. EIS software:-EIS software is in dedicated from that is used for data manipulation fro database.
Personal productivity software:-it is general purpose software that any one can use to
develop hi own application. EIS use them to provide status information about organizational
performance.
Prewritten EIS Software:- It is designed to meet the information needs of executives Some
prewritten EIS software contains external information in the form of industry trend,
competition analysis, proposed legislation changes etc.
Customized EIS Software: - If an organization does not want to use prewritten software, it
can develop EIS software on its own according to its specific requirements.
4. EIS output:-This may be in the form of report and graphics. These may be either through
hard copy or screen display. The report remains brief because executives require so many
reports in a single day and if these reports are not brief these ay not be handled effectively
by the executives. These reports are called summary reports.
Advanced internal control and communication are typical focuses of an ESS. The ability to
view exception reporting on the computer screen is an example of an EIS-facilitated management
control technique. Most Executive Support Systems highlight the areas of the business that are
going astray. Color codes are used to display data that are in an acceptable or unacceptable range as
defined by the executive. This technique allows the computer to track important project
assignments within a company using the executive information system. An EIS allows access to
external as well as company internal information.
Advantages
Simple for high-level executives to use Operations do not require extensive computer
experience
Provides timely delivery of company summary information
Provides better understanding of information
Filters data for better time management
Provides system for improvement in information tracking
Disadvantages
Examples of EIS
The examples of EIS provided in the lesson offer interesting contrasts of how each
organization uses its system to aid in the decision-making process.
The organization uses mostly external data, including information from the Internet, in its
EIS. It organizes the information in order to help executives make decisions based on trends in the
marketplace. The information includes data on competitors and information from market research.
Organization uses its system output to determine sales forecasts, marketing campaigns, and
investment plans.
Managers in an organization are able to choose their own criteria to drill down and navigate
data through easy-to-use interfaces. They don't have to accept data in formats chosen by someone
else who may not understand individual manager's needs. Data analysis is more timely because the
information is quicker to obtain and more convenient than before.
Expert systems are a common form of artificial intelligence. They are used to assist humans
in the decision-making process, but they don't replace humans. Many of the decision we make are
based on past experience, but we have the added benefit of reasoning and intuition. Expert systems
ask questions, then give you advice and reasons why you should take a certain course of action
based on hard data, not on hunches. Again, they don't make the final decision.
Most of the problems an expert system helps resolve can in fact be solved by a human. But
since the computer is faster or safer, businesses choose to use them instead.
Yes, we used a very simplified example. Most expert systems require thousands of rules and
frames in which to operate. The knowledge must be specific. In the example above, you wouldn't
take any action if the only information you had was "It rains 350 days a year in the Amazon rain
forest." Neither would an expert system.
The AI shell (the programming environment of an expert system) uses rules, frames, and an
inference engine to accomplish its tasks. The inference engine uses forward chaining or backward
chaining to move through the rules and the frames.
In our example, using a forward chaining inference engine, you would start with the idea
that it's raining. You'd move through a series of decisions until you reached a conclusion and acted
on it. You would determine that it's raining, then you'd decide how much, then you'd decide how
wet you don't want to be, then you'd decide to take an umbrella. As long as the answer continues to
be yes, you keep moving forward.
In a backward chaining inference engine, you'd start with a hypothesis and work backward
until your hypothesis is proved or disproved. You got wet because it was raining; using an umbrella
would have prevented that from happening.
Reduced errors
Improved decisions
Most problems solved by expert systems are mundane situations. "If it's raining then take an
umbrella." But what happens if it's cloudy and only looks like it will rain? That's the exception to
the rule about which the human being should make the final decision. The expert system might
advise taking the umbrella along or leaving it home based on the input. The human makes the final
decision to take or leave the umbrella.
Expert systems should not replace managers. They can aid managers in the decision-making process, but
managers have to make the final call. For instance, you suggest to your boss that you should receive a pay
raise. You have many subjective reasons why you should receive the raise; you arrive early and stay late,
your work is always (well almost always) turned in on time, you filled in for Sam while he was on vacation.
What happens if your boss feeds that into an expert system that uses only facts? You may or may not get the
raise. Your boss still needs to use intuition, reasoning, and gut reaction to make the final decision.
The key element for all these systems is integration. The Cybernuts candy bar wouldn't be near the
success it is if all systems didn't work together and help each other. If the information from the
Transaction Processing System didn't feed into the Management Information System which
incorporated information from the Knowledge Work System which fed into the Office Automation
System which helped the Decision Support System which then worked with the Executive Support
System, then the Cybernuts candy bar would just be another junk food.
The main kinds of information systems in business are described briefly below:
Information Description
System
A good way to think about an ESS is to imagine the senior management team in
an aircraft cockpit - with the instrument panel showing them the status of all the
key business activities. ESS typically involve lots of data analysis and modelling
tools such as "what-if" analysis to help strategic decision-making.
Knowledge Knowledge Management Systems ("KMS") exist to help businesses create and
Management share information. These are typically used in a business where employees create
Systems new knowledge and expertise - which can then be shared by other people in the
organisation to create further commercial opportunities. Good examples include
firms of lawyers, accountants and management consultants.
KMS are built around systems which allow efficient categorisation and
distribution of knowledge. For example, the knowledge itself might be contained
in word processing documents, spreadsheets, PowerPoint presentations. internet
pages or whatever. To share the knowledge, a KMS would use group
collaboration systems such as an intranet.
Transaction As the name implies, Transaction Processing Systems ("TPS") are designed to
Processing process routine transactions efficiently and accurately. A business will have
Systems several (sometimes many) TPS; for example:
The word enterprise is chosen to convey that it encompasses the larger business community
covering all the players and their participation in the business. The system is extended beyond the
corporate boundaries. In such a scenario, the system which you are designing is an enterprise wide.
It must catch an event, interpret it and trigger the action, and communicate it across to the
enterprise. Since, business is information hungry, it must have an ability to sense the situation and
act accordingly. When the business requires on-line information to make the informed, knowledge-
based decisions and have them executed in the business operations in a coordinated manner, it has
to take support of many other systems.
Introduction to Enterprise Resource Planning Systems:
The ERP system deals with the planning 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, plans, 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 practices, generally followed in
mist 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.
Since, the ERP is a generic solution for the business operations, in each case of implementation;
customization should suit the specifics of the business or customer. The architecture choice is
influenced by this requirement.
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:
General Features
Command language
Application logic
Common service functions such as the currency, date, editing and help
Diagnostic functions
Help functions
Business System
Business modeling for the strategy development and testing, DSS for resource planning
Sales
Order processing
Receivable analysis
Production
Materials
Inventory analysis
Excise/customs interface
Finance
Subsidiary ledgers
Cash-flow management
Assets accounting
Personnel
Payroll Accounting: salary, wages, incentives, bonus, income tax and other deductions, and
contributions to various public and provident funds
Fixed Assets
Depreciation accounting
Maintenance
Contract management
Quality Control
Monitoring quality across the organization from input to output for operating decisions
and business decisions
Scalable architecture
RDBMS independent
Interface capabilities
PC download/upload facility
Planning at functional and process level. Simultaneous increase in the productivity of the
business possible
Customer satisfaction increased due to shorter delivery cycle. Closer contact with the customer.
Simultaneous activisation of the decision centers because of instant inducement through triggers
or updates.
Business operations transparency between business partners cutting down the execution time of
critical business operations.
Intelligent ERP downloads the decision making at lower level, releasing the burden on the
middle management.
Due to faster processing technology and SQL, management can see the information in their
perspective and take different view of the business.
Due to strong interface capabilities, the human resource can be utilized better due to access to
information across the database distributed over the organization.
Since, the ERP design is proactive; it makes the management alert at a number of points
demanding the decision or action.
The process becomes faster due to work group technology and application of workflow
automation.
Reduced workforce
Reduced errors
In view of the need and the benefits from such a system, a large number of organizations have
already acquired and implemented these systems and many more are in the process of acquiring
such a system. However, ERP systems to prove beneficial, must be planned well, selected carefully,
implemented judiciously and used efficiently. The ERP systems which are poorly conceived and/or
poorly implemented are bound to fail and would not be able to yield the desired result and
sometimes may even prove to be fatal for an organization.
Flexibility: Different languages, currencies, accounting standards etc. can be covered in one
system, and functions that comprehensively manage multiple locations of a company can be
packaged and implemented automatically.
Better analysis and planning capabilities: ERP allows management to manage operations
not just monitor them. The ERP systems already has all the data, allowing the manager to
focus on improving processes.
Technology Evaluation
Client server architecture and its implementation two tier or three tier.
Application and use of standards in all the phases of development and in the product.
Front end tools and back end data based management system tools for the data, process
presentation 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.
Flexible design
A. Finance Module
B. Manufacturing & Production Planning Module
C. Sales & Distribution Module
D. Plant Maintenance Module
E. Quality Management Module
F. Material Management Module
A. FINANCE MODULE
1. A set of processes are required so that they can provide the financial information in the form
that is required by the user, such financial solution is provided by the ERP package.
2. The financial application component of the ERP provides us with the information of
financial functionality across the different business area.
3. The finance business of ERP also provides analysis support to the business.
4. The finance module of the most ERP system will have the following subsystems:
a. Financial Accounting (General Ledgers, Accounts Receivable / Payable, Fixed Asset
Accounting)
b. Investment Management (Investment Planning / Budgeting / Controlling)
c. Controlling (Cash Management, Treasury Management)
d. Enterprise Controlling (EIS, Business Planning and Budgeting)
1. FINANCIAL ACCOUNTING
The financial accounting system objective is to provide company-wide control and integration
of financial information which is required for strategic decision making.
The Financial Accounting Module of an ERP system, gives you the ability to centrally track
financial accounting data within an international framework of multiple currencies, companies
and languages.
Eg: When raw material moves from inventory into manufacturing, the system reduces quantity
values in inventory and subtracts value for inventory account in the balance sheet.
I. GENERAL LEDGER
a. The general ledger is essential to both financial accounting system and to strategic
decision making.
b. The general ledger supports all the functions which are required in financial
accounting system. It contains of sub-ledgers.
c. The GL provides document parking, posting, reporting, and an integrated financial
calendar for automating periodic activities.
d. It provides the summary information from the other components at the user defined
level of detail.
e. According to the company requirements, the general ledger is structured in a number
of accounts, according to the requirement.
f. The output generated by the general ledger is the data summary that can be used in
planning, distribution and reporting.
g. In the general ledger we can also create our own database table and non standard
fields as per the requirement of the business organization.
PURCHASING SALES
EMPLOYEES
FIXED ASSETS
(SALARY AND WAGES)
GENERAL LEDGER
a. All the financial statements should be integrated effectively with the operational data.
b. The legal consolidation helps in the direct data transfer from individual statements into the
consolidated report.
c. The legal consolidation helps to create multiple views of consolidated data and thus we can
generate separate reports for the different functions of an organization.
2. CONTROLLING:
a) This module gathers the functions required for effective internal cost accounting.
b) It offers a versatile information system, with standard reports and helps in analysis.
a) This system collects and analyses costs and also checks and monitors the budget that has
been assigned.
a) This module gives a response to the growing need for monitoring and controlling cross-
departmental business processes.
b) This system automatically determines the utilization of business processes by products,
customers and other cost objects based on the cost drivers taken from the integrated
accounting environment.
V. PRODUCT COST CONTROLLING:
3. INVESTMENT MANAGEMENT:
a) Investment management process starts from the planning of an organization till the
settlement of an organization.
b) The investment programs are carried out in each and every department and it also tells us the
up to date information about funds, plant cost and actual cost from external and internal
activities.
c) The investment program allows to distribute budgets which help us to monitor the budget
and avoid over run.
e) The investment measures that need to be monitored are done from time to time according to
the internal order.
4. TREASURY MODULE
a) The organization can gain a significant competitive advantage by efficiently managing the
short term, medium term and long term payment flows and managing the risk.
b) All these operating divisions are linked so that the financial transactions can be planned and
these positions in treasury have a significant impact on the organizations success.
c) It also helps in management and control of cash flow.
d) Manages the risk among all the division of organization.
e) The treasury component provides us with the following sub components:
1. Cash Management
2. Treasury Management
3. Market Risk Management
4. Funds Management
I.CASH MANAGEMENT
II.TREASURY MANAGEMENT
a. The treasurer takes the result of current liquidity, currency and the risk position on the
money and the capital market before taking decision in the form of financial
instruments in treasury management.
b. The treasury management component offers functions for managing financial deal and
position.
c. It also supports flexible reporting and evaluation structure for analyzing position.
IV.FUNDS MANAGEMENT
This module supports the subsystems of fund management process from budgeting all the
way through payment including monitoring expenditures, activities, resources and revenues.
5. ENTERPRISE CONTROLLING
a. Enterprise controlling comprises of those functions that will optimize share-holder value, while
meeting internal objectives for growth and investment.
b. This module includes:
i. Executive Information Systems
ii. Business Planning and Budgeting.
iii. Profit Centre Accounting.
a) Business Planning and Budgeting supports the management team of business units and
groups in the calculation of business targets such as return on investment.
b) It also supports central investment planning, budget release and tracking.
c) It automatically transfers data about investment requirements from transaction applications
and provides extensive analysis functions for budget monitoring.
Here, increased efficiency in sales and distribution is a key factor to insure that companies
retain a competitive edge and improve both profit margins and customer service.
During sales order processing, the following basic functions are carried out:
Inquiry handling
Quotation preparation and processing
Contracts and contract management(order management)
Monitoring the sales transactions
Checking for availability
Transferring requirements to material planning(MRP)Scheduling the delivery
Calculating pricing and taxes
Checking credit limits
Invoicing/Billing
Creating printed or electronically transmitted documents(confirmations and so on)
The sales and distribution module very actively interacts with the material management and
financial accounting modules for delivery and billing.
Typically, a sales and distribution module will contain the following sub systems:
1. Every company will have products, customers and will require raw materials and will have
suppliers.
2. The task of the Master data management module is to keep information about all these
entities, so that these can be made available to the decision makers and also for the
automatic generation of reports, contracts, invoices and so on.
Inquiry
Quotation
Sales
Contracts
Order
FINANCIAL ACCOUNTING
3. Automatic sales processing, using ERP system, requires that the master data has been stored
in the system.
4. In addition to sales and distribution, other departments of the company, such as accounting or
materials management access the master data.
ORDER MANAGEMENT
This module usually includes sales order management and purchase order management and
supports the entire sales and purchase processes from start to finish.
1. Applications in sales order management represents a companys most important point of contact
with the customer.
2. These applications allow a company to manage sales operations quickly and efficiently and
provide comprehensive solutions for the management of quotes, orders, contracts, prices, and
customer discounts.
Margin Analysis
Inventory commitment
Invoicing
Order
Entry
Change order
Monitoring
Returns handling
SALES ORDER MANAGEMENT.
Purchase Purchase
Order Schedule
PURCHASE CONTRACTS
Warehouse Orders
PURCHASE FLOW
Purchase order Analysis enables historical as well as statistical data to be used to assist in the
analysis of purchase activities.
This module provides real time information about inventory levels across the enterprise and
tools to manage the daily operational needs of single-site or multiple-site four wall warehouses.
SHIPPING
BILLING
A business transaction is completed for sales and distribution once it has been billed. The
ERP systems support billing functions like issue of invoices on the basic of goods and services,
issuing f debit and credit memos.
PRICING
2. The pricing module keeps the information about the prices of the various items, the details
about the quantity discounts, the discounts to the different customer categories and so on
and enables the organization to generate documents like quotations, delivery notes, invoices
and so on.
3. Also, since this information is available to all the sales people, they can make better
decisions thus improving the sales performance.
SALES SUPPORT
1. The sales support component helps the sales and marketing department to support your
existing customers and, at the same time, to develop new business.
2. Sales support provides an environment where all sales personnel-both the field sales people
and the staff in the sales office-can contribute to and access valuable information about
customers, sales prospects, competitors and their products and contact people.
3. The sales support component functions, both as a source of information for all other areas of
sales and distribution and as an initiating force for acquiring business.
TRANSPORTATION
FOREIGN TRADE
1. The entire logistics chain, from the import of raw materials, finished and unfinished goods,
to the sale of goods and the transfer of data to materials management and financial accounts,
is significantly influenced by foreign trade activities.
2. These main tasks in foreign trade processing can be carried out using the foreign trade
system.
PERSONNEL MANAGEMENT
Personnel management includes numerous software components, which allow you to deal
with human resources tasks more quickly, accurately and efficiently. You can use these components
not only as part of the company wide ERP solution but also as stand alone systems.
i. Personnel Administration
1. Human resource module has a centralized database with integration to multiple components
for processing employee information.
2. The system provides tools to save time and help you tailor the system to fit your needs.
3. The HR module contains features for storing any desired information about your employees.
4. Most systems have the facility to scan the original documents for optical Storage.
5. The HR Information system displays graphical information such as organization charts or
employee data.
6. The system can produce charts and reports-both standard and customer defined.
iii.Recruitment management
1. This function helps in hiring the right people with the right skills.
2. Reducing the cost of recruiting and hiring new employees is a challenge for the HR
professional, who is responsible for placing people in the right job, at the right time, and
with the right skills and education.
3. These requirements are fulfilled only through effective automation of the entire recruitment
process.
4. The recruitment component is designed to help meet every facet of this challenge.
5. This component includes processes for managing open positions/requisitions, applicant
screening, selection and hiring, correspondence, reporting and cost analysis.
iv.Travel Management
1. This module helps you in processing the travel expenses effortlessly, in several currencies
and formants.
2. HR Travel management allows you to process a business trip from start to finish-from the
initial travel request right through to posting in financial accounting and controlling.
3. This includes any subsequent corrections and all retroactive accounting requirements.
4. Travel management automatically calculates the tax.
5. It automatically processes credit card transactions for a particular trip.
6. You reimburse costs incurred during a trip through a payroll accounting, accounts payable
accounting or by data medium exchange.
7. In addition, Travel management provides multiple report formats.
8. You can enter receipts in any currency and then print reports in your native currency.
Benefits Administration
1. Using the benefits administration component, you can define eligibility groups and rules
based on a wide range of factors.
2. You can determine the variables, rules and costs formulas for each benefits plan.
Salary Administration
1. This function helps you in simplifying the process of rewarding your employees.
2. Administration of salaries is an ongoing process within your human resource department.
3. It is particularly important during the review processes, when your goal is to justify reward
good performance.
4. The salary administration module assists you in the salary review process by taking into
account standard salary changes within the company as well as individual competition
exceptions.
ORGANIZATIONAL MANAGEMENT
This module will assist you in maintaining an accurate picture of your organizations
structure, no matter how fast it changes. In many cases, graphical environments make it easy to
review any moves, additions, or changes in employee positions.
PAYROLL ACCOUNTING
1. The payroll accounting system can fulfill the payroll requirements and provide you with the
flexibility to respond to your changing needs.
2. Payroll accounting should address payroll functions from a global point of view.
3. You should be able to centralize your payroll processing, or decentralize the data based on
country or legal entities.
4. Most payroll accounting systems give you the options and capabilities to establish business
rules without modifying the existing payroll.
5. Many systems have the features to remind you when transactions are due for processing.
6. With payroll accounting, you have the ability to tailor the system to your organization
requirement.
7. With country specific versions of payroll accounting, you can fulfill language, currency and
regulatory requirements.
TIME MANAGEMENT
1. It is a flexible tool designed to handle complicated evaluation rules to fulfill regulatory
requirements and determine overtime and other time related data.
2. The time evaluation component stores your organizations business rules and automatically
validates hours worked and wage types.
i. Shift Planning
1. Shift planning module helps you to plan your workforce requirements quickly and
accurately.
2. You can plan your shifts according to your requirements taking into consideration all
criteria, including absences due to leave or sickness, and employee requests for time off.
3. Shift planning keeps you informed at all times of any staff excess or deficit.
4. Another advantage of shift planning is that it enables you to temporarily assign an employee
or employees to another organizational unit where they are needed, allowing for a temporary
change of cost centre.
PERSONNEL DEVELOPMENT
Effective personnel development planning ensures that the goals of the organization and the
goals of the employee are in harmony. The benefits of such planning include improvements in
employee performance, employee potential, staff quality, working climate and employee morale.
1. A good HR system will have scheduled seminars, training courses and business events.
2. On completion of a training course, appraisal forms can be automatically issued.
3. Appraisals can be carried out for instructors, attendees, business events and training courses.
EQUIPMENT TRACKING
COMPONENT TRACKING
1. Components are typically subsets of larger equipment and deserve the same amount of cost
controlling scrunity.
2. Component tracking enables equipments managers to identify components with chronic
repair problems.
3. They can determine whether a repair or replacement should be covered by warranty.
4. Planning component replacements, rather then waiting for components failures to occur,
reduces unscheduled equipment downtime.
5. Component tracking includes repair/exchange history and component service life.
4. It handles the traditional tasks of quality planning, quality inspection and quality control.
5. The quality management modules internal functions do not directly interact with the data or
processes of other modules.
1. QUALITY PLANNING: Management of basic data for quality planning and inspection
planning, material specifications, etc.
2. QUALITY INSPECTION : Trigger inspections, inspection processing with inspection plan
selection and sample calculation etc.
3. QUALITY CONTROL.: Dynamic sample determination on the basis of the quality level
history, quality management information system for inspections and inspection results and
quality notifications, etc.
COMPUTER INTEGRATED QUALITY MANAGEMENT (CIQ)
1. The integration of Quality management in the ERP system provides considerable advantages
because only an integrated system can support all the elements of quality mgmt system.
2. This integration allows the quality mgmt to influence all processes within a company,
thereby affecting all phases of a products life-cycle.
3. The quality management module is integrated with the master data and processes of the
following applications:
i. MATERIAL MANAGEMENT: Purchasing, Inventory mgmt, Warehouse mgmt, Material
Requirement Planning.
ii. PRODUCTION: Work scheduling, shop floor control.
iii. SALES AND DISTRIBUTION: Delivery, creation of quality certificates.
4. The quality management module supports the exchange of data with the other applications
in order to prevent related data from being recorded and stored redundantly.
5. For example, the information provided by a goods receipt posting relating to the material,
vendor and lot size is automatically transferred to the inspection lot data record when an
inspection is triggered.
The material management module optimizes all purchasing processes with workflow-driven
processing functions, enables
automated supplier evaluation, lowers procurement and warehousing costs with accurate inventory
and warehouse management and integrates invoice verification.
ii. Purchasing.
I. PRE-PURCHASING ACTIVITIES:
1. This system supports the complete cycle of bid invitation, award of contract and acceptance
of services and also include maintaining a service master database, in which the descriptions
of all services that are to be procured can be stored.
2. The system also keeps separate sets of service specifications that can be created for each
concrete procurement project or proposed procurement in the purchasing documents.
3. Set of service specifications may include both items with services and items with materials.
4. The steps that are followed in the pre-purchasing activity are shown in the diagram that
follows:
REQUIREMENTS CALCULATION
VENDOR RATINGS
QUOTATION EVALUATION
VENDOR SELECTION
CONTRACTS
II. PURCHASING:
1. The vendor evaluation system supports the optimization of the procurement process in the
case of both material and service.
2. By evaluating vendors, you can improve your enterprises competitive-ness.
3. Most of the vendor evaluation systems offer you a point-based evaluation system, based on
certain selection criteria. Most systems have their own pre-defined set of criteria, but will
allow the user-defined set of criteria also.
4. Using these criteria, the performance of the vendors is measured and points are given.
5. The main criteria that are usually used are price, quality, delivery, service and support,
replacement of returns, lead time and so on.
6. The vendor evaluation system ensures that evaluation of vendors is objective, since all
vendors are assessed according to uniform criteria and the scores are computed
automatically.
1. Inventory management systems allow you to manage your stocks on a quantity and value
basis, plan, enter and check any goods movements and carry out physical inventory.
2. In the inventory management system the physical stocks reflect all transactions resulting in a
change in stock and thus in updated inventory levels.
3. The user can easily obtain an overview of the current stocks of any given material.
4. For each material not only are the stocks in the warehouse shown , but also the stocks
ordered but not yet delivered, reserved for production or for customer, and the stocks in
quality inspection can be monitored.
5. Special stocks from the vendor or from the customer are managed separately from the
companys own stock.
6. Most inventory management systems support inventory methods like periodic inventory,
continuous inventory, inventory sampling and cycle counting.
The invoice verification component is part of the material management system. It provides
the link between materials management components and the financial accounting, controlling and
asset accounting components.
Invoice verification material management serves the following purposes:
i. It completes the materials procurement process- which starts with the purchase requisition,
continues with purchasing and goods receipt and ends with the invoice receipt.
ii. It allows invoices that do not originate in materials procurement (services, expenses, etc)
to be processed.
iii. It allows credit memos to be processed, either as invoice cancellations or discounts.
Invoice verification does not handle the payment or the analysis of invoices. The
information required for these processes is passed on to other departments.
G. MANUFACTURING MODULE:
1. A good manufacturing system should provide for multi mode manufacturing applications
that encompass full integration of resource management.
2. These manufacturing applications should allow an easier exchange of information
throughout the entire global enterprise, or at a single site within a company.
3. The manufacturing module should enable an enterprise to marry technology with business
processes to create an integrated solution.
4. It must provide the information base upon which the entire operation should be run.
5. It should contain the necessary business rules to manage the entire supply chain process
whether within a facility, btwn facilities or across the entire supply chain.
1. Process reengineering efforts and the elimination of waste have necessitated greater reliance
upon powerful, user friendly, flexible shop floor planning and control systems.
2. Management needs timely, accurate information and the ability to manage the shop floor by
exception.
3. A shop order can be reprinted at any time with user selection of weather to relocate material
4. This reprinting gives a shop foreman flexibility to print a duplicate copy when an order is
split between operators.
5. This feature also gives the shop scheduler, the ability to reprint the shop packet and to
reflect new material allocations that correct previous shortages.
6. Every shop order can be maintained throughout its life.
7. All systems provide a full function shop order maintenance capability, allowing the user to
evaluate and adjust operation steps and components.
8. Orders can be re scheduled either backward or forward.
QUALITY MANAGEMENT
1. All manufacturing modules track quality control activities. These systems allow a wide
variety of characteristics and parameters to be specified in a test and inspection operations
and maintain an extensive history to improve product quality and identify recurring
problems.
2. The quality management systems usually support the bench marking on optimal product
design, process engineering and quality assurance data by all functional departments within
the manufacturing enterprise thereby facilitating definitions of repeatable processes, route
cause analysis and a continuous improvement of manufacturing methods.
3. This documentation supports the job functions of quality assurance and production
managers in validating the manufacturers conformance to ISO 9000, good manufacturing
practices GMP world wide, MIL-Q-9858 in the United States and a variety specific industry
standards of quality assurance.
4. Many systems not only provide high volumes repetitive manufacturing functionality, but
also provide for the transition to rate based production by allowing the use of repetitive
scheduling, even for the products are not rate based.
5. This allows a production facility to transition products from the discreet manufacture into a
JIT/repetitive focus. For eg. When the demand pattern for an item begins to stabilize and
shown a repeatable/ predictable pattern, then a productive schedule can be initiative even
though the item may not be designated as rate based.
6. Overtime, as the items demand pattern grows, the item can be switched to full rate based
production scheduling.
7. This transition capability enables production facility to adopt process reengineering, set up
production, single minute exchange of die(SMED)programs employee empowerment work
teams etc. with the confidence of knowing that the planning and control system will
effectively support the efforts.
8. GIT/repetitive includes strong analytic capabilities.
COST MANAGEMENT
1. ERP packages provide extensive cost information at several levels that have businesses
identify drivers and reduce product cost. You can choose the costing method that best
reflects your companys business.
2. FILO (Last in First out) FIFO (First in first out), moving average unit or lot costing methods
can be assigned by items.
3. Many vendors all support ACTIVITY BASED COSTING (ABC) with activities visibility
by cost object as well as cost for user defined groupings such as departments.
4. Manufacturing system provides extensive information about production costs at several
levels, which gives you the visibility that you need to identify costs drives and reduce
product costs.
1. The 1st step to shorter product development activities. Engineering Data Management is
designed to help your company trim data transfer time, reduce errors & increase design
productivity an automated link bwtn engineering and production information.
2. Most packages allow a smooth integration, with popular CAD packages, to simplify the
exchange of information abt drawings, items BOMs and routings.
1. By using Engineering Change control, business can give effective control over engineering
change orders.
2. Your company can define the authorization steps for improving and implementing an
engineering Change Orders.
3. When these steps are completed, the system automatically the change in the production
database.
CONFIGURATION MANAGEMENT
1. The Configuration management dramatically reduce order cycle time by eliminating the
lengthy engineering review, typically associated with determining feasibility and the costs
associated with the configured end item.
2. This reduction is achieved by creating a flexible user-defined knowledge base that is
accessed by a powerful analytic engine.
1. The lot control system provides for the pre-allocation of lot numbers.
2. This Feature is available throughout the product offerings and includes MRP, shop floor
control, order processing and JIT.
TOOLING
1. For many manufacturers, ensuring that proper tooling is available is just as critical to
production schedules as the availability of material.
2. The ERP system extends capacity and inventory management to include these valuable
resources.
3. These systems help to ensure that tools and materials arrive together at scheduled operations
by storing tools in inventory and planning and allocating the required tools as part of the
production order.
In this phase of study the users 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 often requires changes and modifications to
suite the requirements of the business.
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.
The RDD and the DRDD is explained for understanding and approval.
The resource to carry out the changes in the system, generally, known as customization is
provided. This could be business specific and customer specific.
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 solutions more efficient and effective.
The management focus is shifting form the function to the process, i.e., the management requires
the information support in the process management and not in the functions management.
The process definition now goes beyond the organization boundary. It connects the organization to
other agencies. The emphasis is on the automation of processes with a strong Information
Technology implementation.
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 early. 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.
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 effect uses of the variety of tools, like the data
replication, the work flow automation, the EDI/E-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.
categorized the applications through the tasks addressed offi ce automation system (OAS), online
transaction processing (OLTP), and Decision Support System (DSS). Unfortunately, these
approaches missed out the key issue of integration. The EDP, MIS, DSS and KBS based
classification assumes a compartmentalization across the layers of management (Sadagopan
S.,1999). The OAS, OLTP, DSS classification assumes that the tasks are independent. Both
assumptions are invalid in the real-world scenario.ERP systems capture the essence of the business
processes. It is driven by bbusiness needs and not IT needs. An IT driven solution often attempts to
formulate a way of using a technique to solve a known business problem. The emphasis is on the
usage of a technique or a technology. ERP systems take a business driven view and solve the
business problem using a combination of tools and implement the best practices using
contemporary technology. ERP systems are often called a software package because many vendors
like SAP-AG, Oracle Corporation, Infor, Epicor and so on developed these systems on the basis of
the best industry practices and implemented these in an organization after some customization
either in the ERP package or in the business processes.
Information technology, System Design, ERP & MIS
The increasing importance and role of IT in business planning and operations needs hardly be
stated. Companies have begun adopting IT and systems in practically every aspect of their
operations. A major area with respect to teh use of IT is in Enterprise Resource Planning (ERP)
systems.
ERP, the enterprise-wide system that had gone out of vogue in the 90s, is now back with a bang.
Though the benefits of an ERP a companywide transaction-based approach to systems (for eg
procurement to payment and order to billing), the dissolution of functional boundaries in the
handling of transactions, an integrated database and the reliability, accuracy and speed of data
across functions for decision making were known then, as they are now, the earlier attempts at
ERP suffered in the implementation.
Companies, consultants and software vendors were a little overambitious and tried to get in very
expensive, gargantuan ERP systems that took several years in the making with very little clear
visible outcomes. There was also no clear realisation that implementing an ERP is a major business
transformation exercise, necessitating the close involvement of the senior management over an
extended period of time in the implementation and the re-examination of the current business
policies and practices, which was a necessary precondition to get the best out of an ERP roll out.
All that has now changed. ERP systems are available to suit varying budgets and in modular forms
across the vendor spectrum SAP / Oracle / Microsoft and a number of small- and medium-sized
software companies in addition to open source. SAAS is emerging as a major delivery option. There
is an increasing involvement of the top management as they realise the extent of business
transformation necessary to reap the full benefits of ERP, including the benefits of adopting best
business practices driven by the ERP software, data integration and single-point data capture.
Enterprises, across the industrial spectrum have now gone further than just a pure vanilla
transaction-based ERP. Having made the data capture and transaction integrity secure, the next
logical step is to look at MIS, reporting and ready information for decision-making and the power
of exception reporting. A manager, by definition, is required to act when things are not going the
way they should be, that is under exceptional conditions. Business intelligence systems, using
metadata such as Cognos are now becoming more and more common.
KenTree has a team of domain experts who are skilled in systems design and analysis, and work
with IT partners across all platforms to provide vendor-independent ERP and MIS turnkey
solutions.
KenTree offers the following services in IT, Systems Design, ERP & MIS:
Determination of the hardware and infrastructure required to host the ERP and MIS
Identification of a suitable ERP and MIS system that fits the needs and budget of the
enterprise
Supervision of software development / modifications as required
Negotiations and finalisation of the hardware and software required with vendors
Coordinating with the ERP steering committee and the staff in the organisation in the
milestone-based ERP implementation
Systems study, including identification of policy, business process and methods, and
procedure changes required to arrive at the optimal SRS framework
Training staff on ERP and associated IT systems
Review Questions:
1. Do you think ERP systems are important for any type of the organization? Discuss.
2. How is the role of ERP System different from traditional information systems? Can an ERP
System support all levels of management? Discuss.
3. Discuss the evolution of ERP systems. Do you think ERP systems overcome the limitations of
traditional information systems? How?
4. Briefly discuss the concept of ERP systems. How are they different from ERP-II?
6. Illustrate the role of ERP systems in business. Do you also think that ERP systems act as a
backbone for the organizations? Justify your answer.
7. Do you think Business Process Re-engineering is a pre requisite for the implementation of an
ERP
System? Why?
8. What are the main challenges for implementing an ERP System in an organization? Discuss.
UNIT 5
________________________________________________
BRP, SCM, OLAP
____________________________________________________________________
Learning Objectives:
Similar terms for Business Process Reengineering (BPR) are Business Process Redesign,
Business Transformation or Business Process Change Management. BPR seeks for factors that
can be re-organized, re-designed in order to make the business processes effective to the customers
as well as efficient to the workers and profitable for the company or the business organization. It
basically provides the answers for following questions.
Its necessary to understand what is meant by mission ? Mission describes what the reason of the
company for existing. In other words, it reflects the purpose of the company. Its just like a target
by which some sort of service or some kind of product is offered to the society. A companys
mission statement circumferences the business strategies used by the company.
BPR addresses the methods of improving the quality of the product or service within the predefined
and fair time frame, the ways of reducing cycle time (the whole time taken for producing a
deliverable) and finally making the business dramatically profitable.
Business Process Reengineering allows the business to dramatically improve in many perspectives
such as productivity, standardization and so on.
Either the organization must reengineer business processes before implementing ERP or directly
implement ERP and avoid reengineering.
In the first option of reengineering business processes, before implementing ERP, the organization
needs to analyze current processes, identify non-value adding activities and redesign the process to
create value for the customer, and then develop in-house applications or modify an ERP system
package to suit the organizations requirements. In this case, employees will develop a good sense of
process orientation and ownership.
This would also be a customized solution keeping with line of the organization's structure, culture,
existing IT resources, employee needs and disruption to routine work during the change
programmer likely to be the least. It could have a high probability of implementation. The drawback
of this option is that the reengineered process may not be the best in the class, as the organization
may not have access to world-class release and best practices. Moreover, this may be the only
chance to radically improve in the near future and most attention should be paid while choosing the
right ERP. Also, developing an in-house application or implementing a modified ERP is not
advisable.
The second option of implementing ERP package is to adopt ERP with minimum deviation from
the standard settings. All the processes in a company should conform to the ERP model and the
organization has to change its current work practices and switch over to what the ERP system
offers. This approach of implementation offers a world-class efficient and effective process with
built-in measures and controls, and is likely to be quickly installed.
But if the employees do not have good understanding of their internal customer needs or current
processes, or if these processes are not well defined and documented, then it is quite possible that
while selecting the standard process from the ERP package, employees may not be able to perceive
the difficulties likely to be encountered during the implementation stage. Employees would lack
process ownership and orientation. Other than technical issues, issues like organization structure,
culture, lack of involvement of people etc. can lead to major implementation difficulties, and full
benefits of standard ERP package may not be achieved. It may lead to a situation where the
organization may have to again reengineer its processes. This could be a very costly mistake.
There is also a third option of reengineering business process during implementation of ERP. But it
does not considered to be a practical option and is likely to cause maximum disruption to existing
work. It should not be forgotten that during BPR and ERP initiatives, routine work is still to be
carried out and customers need to be served.
The goal of business process re-engineering is to determine what changes can be made in the way
the business operates to improve aspects of a business. Often, BPR will focus on a specific part of
the business, like costs, customer service or marketing and advertising. Using BPR does not
necessarily lead to ERP. Though ERP and BPR are related, a well-conducted BPR may find that
there is no need for an ERP platform in the business. A business conducting BPR may determine to
drop an ERP method for reasons including cost, effectiveness, or maintenance.
As an integrated type of software that performs in multiple departments of business, an ERP
platform handles a number of tasks. Generally, ERP programs help business owners manage their
finances, keep employee records and schedule the use of their assets, whether the assets include
buildings, machinery, work, or money. Because an ERP addresses not only one business task, but a
number of business tasks, ERP and BPR are most often used together to improve operations in a
business with a fundamental problem in organizing its processes and resources.
Implementing business process analysis usually starts with examining how well the company is
meeting the goals set out in its mission statement. Effective BPR usually involves subdividing
existing business tasks into smaller units and improving processes within the subdivided task units.
Generally, goals during BPR include improving process effectiveness and efficiency, improving
adherence to regulations or specifications set for the product or service, and improving control over
variables in each process.
Just like ERP and BPR can be used together to improve an existing ERP platform, a business
executive can benefit from using an existing ERP to enhance the effectiveness of BPR. One of the
advantages to an ERP is that it stores integrated data from all parts of the program, allowing an
executive to access and examine data to plan the most effective business process changes. An
executive can use company information like resource and financial data to make the best decisions
for change within the company.
ERP and BPR can also be used together to facilitate change management. Once BPR is completed
and the course of change has been determined, ERP can be used to facilitate communication and
information exchange for staff members affected by the readjustment process. BPR can also be used
to help establish the most effective way of implementing ERP use for an existing workforce.
Depending on the size of the organization and the number of products that are manufactured, a
supply chain may be complex or simple.
It entails the storage and transport of raw materials, the process of inventory and the storage and
transportation of the final goods from the point of manufacture to the point of consumption.
The organization and the customers both have sets of conditions to consider when building the
relationship, such as wants and needs of both parties;
Customers are the foundation of every organization, the beginning and the end of any business, any
product, and any service. In the new age of information customers are becoming more relevant in
many entrepreneurial decision-making and strategy-defining processes. Nevertheless, many
marketing strategies implemented in organizations lack the means of delivering it in a consistent
way, thus losing its value when executed. It is because of this, including strong competition
and difficulty in building customer loyalty, that organizations are focusing their attention on finding
new ways to manage, in a more efficient manner, the relationship and opportunities that can be
established with their current customers and/or prospects.
The potential provided by CRM systems allow organizations to expand their customer base,
increase customer satisfaction, and optimize their sales cycles. Some of the functionalities provided
by CRM systems are:
Sales - CRM systems help organizations accelerate their sales cycle and reduce setbacks,
therefore increasing productivity. Sales agents will be able to followup on customers,
opportunities and contracts, as well as work on projections and monitor their progress.
Marketing - CRM systems correlate in a clever way the marketing processes to sales efforts,
allowing the opportunity to create, execute, and monitor the performance of sales
campaigns.
Customer Care - Getting new customers is much more expensive than maintaining existing
ones vc, thus, it is imperative to offer suitable customer support to existing customers. CRM
systems provide functionality to manage incidents reported by customers, track the
workflow of the incident until closed, and measure statistics such as frequency and time-to-
completion among others.
Reports - With the reports provided, it is possible to determine the different customer
profiles, as well as reports to elaborate on the performance of the organization, its
corresponding departments, or even a contracted marketing agency for instance; all with the
purpose of analyzing information for improving proactively the overall performance. A
suitable integration of the CRM system with a Business Intelligence suite will provide a
more advance set of tools for achieving this.
Collaboration - CRM systems provide tools for scheduling phone calls, meetings, and even
emails from within the application. Also, it is possible to assign and control projects and
workflows, simplifying team work, insuring up-to-date information being handled by
multiple personnel. Collaboration within these systems allow extending the scope of
collaboration beyond the organization's personnel, to include other organizations that add
value to the services provided to the customers.
Organization is the key to running a successful business, and by taking some time out of
every day to do some simple administrative tasks, planning and arrangement, youd be
surprised at how quickly your companys efficiency, productivity, andmost importantly
profits, could increase.
But the question is: How do businesses go about improving their organization skills? The
answer is simple, but it may not be the first thing that springs to mind. Most people think of
Client Relationship Management (CRM) software as a way of improving sales, but what
they may not know is that it could prove to be an invaluable tool to boost your companys
productivity, sales tracking and internal collaboration, by streamlining all your
communications into one database.
Still not sold? Well, if youre not ready to upgrade that trusty spreadsheet just yet, here are
five benefits that CRM software can offer your business that may just change your mind.
Using a CRM often leads to greater customer satisfaction. All communicationswhether theyre
from marketing, sales or accounts departmentscan be handled in a systematic manner. Youll also
gain a better understanding of your customers wants, needs and preferences, which in turn will
help increase customer loyalty and decrease customer dissatisfaction. And whats more is that as a
byproduct, youll find that your buyers will share their positive stories about your company with
their friends and family membersand as any business will know, word-of-mouth is the most
powerful form of advertising for any business.
2. Increased revenues
So we know that putting a CRM system in place improves customer relationships, but did you know
that it could also lead to an increase in revenue? Using the data you collect, you will be able to
target certain products to your customers more strategically, meaning your efforts will be more
effective. With the help of customer relation management software, you can create targeted
promotions to specific segments within your client base, thus encouraging more sales, and in turn,
an uptick in profits. Which leads us to our third benefitmarketing.
3. Easier marketing
CRM can help you understand whos purchased what and how much they spent when they
purchased itessential data when it comes to launching an effective marketing campaign as it
allows you to pinpoint the right potential buyers. Without CRM, this is a near-impossible task
your marketing department would have to go back over old invoices and POs to manually track
this information and pull their target buyers contact details. With CRM, you can segment your
customer database by a number of criterion to help you refine your marketing message and ensure it
reaches the right people.
Often businesses spend a great deal of time and money trying to acquire brand new customers so
much so that they neglect to pay proper attention to their best source of revenue: their existing
customer base. A CRM system not only facilitates up selling, but it also allows easy cross-selling
the practice of suggesting related products or services to a customer based on their previous
purchases. In order to do this, salespeople need a good idea of their customers requirements and
buying patterns, and CRM software provides just this. Any details about your clients are stored in a
central database accessible by all members of your organization, meaning that when an opportunity
arises, staff can cross-promote products to customers, and as a consequence, maximize sales.
Before you implement a CRM system (and ideally, before you even select one), be sure to do plenty
of research and preparation. Begin by thinking strategically about your companys mission and
goals, and how you will measure your progress. Then start to think strategically about your
customer segments and what you are doing with each of these constituentsthis will help you
define what information needs to be stored in your CRM system, what types of functionalities it
will need to have, and what sort of processes people within your organization will need to carry out
when using the system.
Remember: CRM is a dynamic application than can be used by more or less everyone in your
company, and when used to its full effect, can hold vast amounts of data to create a pool of valuable
information that can be used to prospect new business, identify leads, define customer segments,
and much more. So, now are you ready to ditch that old spreadsheet?
Supply chain management has emerged as the new key to productivity and competitiveness of
manufacturing and service enterprises. The importance of this area is shown by a significant spurt
in research in the last five years and also proliferation of supply chain solutions and supply chain
companies (e.g. i2, Manugistics, etc.). All major ERP companies are now offering supply chain
solutions as a major extended feature of their ERP packages.
Supply chain management (SCM) is concerned with the flow of products and information between
supply chain members' organizations. Recent development in technologies enables the organization
to avail information easily in their premises. These technologies are helpful to coordinates the
activities to manage the supply chain. The cost of information is decreased due to the increasing
rate of technologies. In the integrated supply chain model (Fig.1) bi-directional arrow reflect the
accommodation of reverse materials and information feedback flows. Manager needs to understand
that information technology is more than just computers. Except computer data recognition
equipment, communication technologies, factory automation and other hardware and services are
included.
Integrated supply chain model
Bi-directional arrow reflects the accommodation of reverse materials and information feedback
flows.
Managers need to understand that information technology is more than just computers. Except
computer, data recognition equipment, communication technologies, factory automation and other
hardware and services are included.
Planning: Once the customer has made his/her sales order, the planning department will
create a production plan to produce the product adhering to the needs of the customer. At
this stage, the planning department will be aware of raw materials needed.
Purchasing: If raw materials are required, the purchasing department will be notified and
they in turn send purchasing orders to the suppliers asking for the deliverance of a specific
quantity of raw materials on the required date.
Inventory: Once the raw materials have been delivered, they are checked for quality and
accuracy and then stored in a warehouse till they are required by the production department.
Production: Raw materials are moved to the production site, according to the specifics laid
out in the production plan. The products required by the customer are now manufactured
using the raw materials supplied by the suppliers. The completed products are then tested
and moved back to the warehouse depending on the date of delivery required by the
customer.
Transportation: When the finished product is moved into storage, the shipping department
or the transportation department determines when the product leaves the warehouse to reach
the customer on time.
There are three levels of activities Supply Chain Management in that different departments of an
organization focus on to achieve the smooth running of the supply chain. They are:
Strategic: At this level, senior management is involved in the supply chain process and
makes decisions that concern the entire organization. Decisions made at this level include
the size and site of the production area, the collaborations with suppliers, and the type of
that product that is going to be manufactured and so forth.
Tactical: Tactical level of activity focuses on achieving lowest costs for running the supply
chain. Some of the ways this is done is by creating a purchasing plan with a preferred
suppliers and working with transportation companies for cost effective transport.
Operational: At the operational level, activity decisions are made on a day-to-day basis and
these decisions affect how the product shifts along the supply chain. Some of the decisions
taken at this level include taking customer orders and the movement of goods from the
warehouse to the point of consumption.
Though things could go grievously wrong at times, at others, IT can still be a life-saver for a firm.
There have been instances when IT has pulled a firm back from the brink of disaster. One very good
example would be that of the Dallas based Aviall Inc. which was saved from financial catastrophe
by a controversial multi-million dollar IT project which included developing the firms website
(www.aviall.com). That one investment was instrumental in turning Aviall from a catalog business
into a full-scale logistics business. But the going was not that easy. When the firm invested 30-40
million dollars on building the infrastructure, both competitors and investors came down as a ton of
bricks on it. But Joseph Lacik, VP of Information Systems at Aviall Services, paid no heed to the
criticisms pouring in and went ahead with the project. The website developed provided big benefits.
It brought down the order-taking costs, and also freed the companys sales force from routine tasks,
thus allowing them to spend more time developing relationships with customers.
IT infrastructure even helped a firm gain a key competitive advantage and emerge as the best
supply chain operator of all time. The firm in question is none other than Wal-Mart. By investing
early and heavily in cutting-edge technology to identify and track sales on the individual item level,
the retail giant made its IT infrastructure a key competitive advantage that has since been studied
and copied by companies throughout the world. Wal-Mart saw the value of sharing data with its
suppliers and moved relevant information online on its retail link website. While its competition
guarded sales information closely, Wal-Mart approached its suppliers as if they were partners, not
adversaries. By implementing a collaborative planning, forecasting and replenishment (CPFR)
program, it began a just-in-time inventory program, which reduced carrying costs for both the
retailer and its suppliers.
In the development and maintenance of Supply chain's information systems both software and
hardware must be addressed. Hardware includes computer's input/output devices and storage media.
Software includes the entire system and application programme used for processing transactions
management control, decision-making and strategic planning.
Electronic Commerce:
It is the term used to describe the wide range of tools and techniques utilized to conduct business in
a paperless environment. Electronic commerce therefore includes electronic data interchange, e-
mail, electronic fund transfers, electronic publishing, image processing, electronic bulletin boards,
shared databases and magnetic/optical data capture. Companies are able to automate the process of
moving documents electronically between suppliers and customers.
Though the use of EDI supply chain partners can overcome the distortions and exaggeration in
supply and demand information by improving technologies to facilitate real time sharing of actual
demand and supply information.
Bar code scanners are most visible in the checkout counter of super market. This code specifies
name of product and its manufacturer. Other applications are tracking the moving items such as
components in PC assembly operations, automobiles in assembly plants.
Data warehouse:
1. Base Rate, Carrier select & match pay (version 2.0) developed by Distribution Sciences Inc.
which is useful for computing freight costs, compares transportation mode rates, analyze cost and
service effectiveness of carrier.
2. A new software programme developed by Ross systems Inc. called Supply Chain planning which
is used for demand forecasting, replenishment & manufacturing tools for accurate planning and
scheduling of activities.
3. P&G distributing company and Saber decision Technologies resulted in a software system called
Transportation Network optimization for streamlining the bidding and award process.
4. Logitility planning solution was recently introduced to provide a programme capable managing
the entire supply chain.
World is shrinking day by day with advancement of technology. Customers' expectations are also
increasing and companies are prone to more and more uncertain environment. Companies will find
that their conventional supply chain integration will have to be expanded beyond their peripheries.
The strategic and technological innovations in supply chain will impact on how organizations buy
and sell in the future. However clear vision, strong planning and technical insight into the Internet's
capabilities would be necessary to ensure that companies maximize the Internet's potential for better
supply chain management and ultimately improved competitiveness. Internet technology, World
Wide Web, electronic commerce etc. will change the way a company is required to do business.
These companies must realize that they must harness the power of technology to collaborate with
their business partners. That means using a new breed of SCM application, the Internet and other
networking links to observe past performance and historical trends to determine how much product
should be made as well as the best and cost effective method for warehousing it or shipping it to
retailer.
On-Line Analytical Processing (OLAP) allows users to perform quick and effective analysis on
large amounts of data. The data are stored in a multi-dimensional fashion that more closely models
real business data. OLAP also allows users to access summary data faster and easier. They can then
drill down into the summary figures to get more detailed data, if need be.
Online Analytical Processing is used to answer the complex queries posted on data warehouse. In
order to solve the queries of nature 'who?' and 'what?' we can use the simple tools but to answer the
advanced queries like 'what if?' and 'why?', we require special tool that can support online analytical
processing (OLAP).
Online analytical processing (OLAP) is defined as "The dynamic synthesis, analysis, and
consolidation large volumes of multi-dimensional data."
OLAP is a term that describes a technology that uses a multi-dimensional view of aggregate data to
provide quick access to strategic information for the purposes of advanced analysis. OLAP enables
users to gain a deeper understanding and knowledge about various aspects of their corporate data
through fast, consistent, interactive access to a wide variety of possible views of the data.
OLAP enables decision-making about future actions. Atypical OLAP calculation can be more
complex than simply aggregating data, for example, 'What would be the effect on property sales in
the different regions of Punjab if legal costs went up by 3.5% and Government taxes went down by
1.5% for properties over Rs 1OO,OOO?'.
Analytical Queries per Minute (AQM) is used as a standard benchmark for comparison of
performances of different OLAP tools. OLAP systems should as much possible hide users from the
syntax of complex queries and provide consistent response times for all queries no matter how
complex.
OLAP tools enable users to analyze multidimensional data interactively from multiple perspectives.
OLAP consists of three basic analytical operations: consolidation (roll-up), drill-down, and slicing
and dicing.[6] Consolidation involves the aggregation of data that can be accumulated and computed
in one or more dimensions. For example, all sales offices are rolled up to the sales department or
sales division to anticipate sales trends. By contrast, the drill-down is a technique that allows users
to navigate through the details. For instance, users can view the sales by individual products that
make up a regions sales. Slicing and dicing is a feature whereby users can take out (slicing) a
specific set of data of the OLAP cube and view (dicing) the slices from different viewpoints.
Databases configured for OLAP use a multidimensional data model, allowing for complex
analytical and ad hoc queries with a rapid execution time. [7] They borrow aspects of navigational
databases, hierarchical databases and relational databases.
The core of any OLAP system is an OLAP cube (also called a 'multidimensional cube' or a
hypercube). It consists of numeric facts called measures which are categorized by dimensions. The
measures are placed at the intersections of the hypercube, which is spanned by the dimensions as a
Vector space. The usual interface to manipulate an OLAP cube is a matrix interface like Pivot
tables in a spreadsheet program, which performs projection operations along the dimensions, such
as aggregation or averaging.
The cube metadata is typically created from a star schema or snowflake schema or fact constellation
of tables in a relational database. Measures are derived from the records in the fact table and
dimensions are derived from the dimension tables.
Each measure can be thought of as having a set of labels, or meta-data associated with it. A
dimension is what describes these labels; it provides information about the measure.
A simple example would be a cube that contains a store's sales as a measure, and Date/Time as a
dimension. Each Sale has a Date/Time label that describes more about that sale.
Any number of dimensions can be added to the structure such as Store, Cashier, or Customer by
adding a foreign key column to the fact table. This allows an analyst to view the measures along
any combination of the dimensions.
For example:
Sales Fact Table
+-------------+----------+
| sale_amount | time_id |
+-------------+----------+ Time Dimension
| 2008.10| 1234 |---+ +---------+-------------------+
+-------------+----------+ | | time_id | timestamp |
| +---------+-------------------+
+---->| 1234 | 20080902 12:35:43 |
+---------+-------------------+
Time intelligence
Time intelligence
Time intelligence is used to judge the performance of almost any analytical application over time.
For example, this month versus last month or this month versus the same month last year or a user
may require to view, the sales of the month of Mayor the sales for the first five months of 2007.
Concepts such as year-to-date and period-over-period comparisons should be easily defined in an
OLAP system.
Information systems cannot deliver value from the first day in an organization. The organization
needs time and maturity to be able to leverage the information system. Various organizations are at
different levels of maturity in dealing with information systems. Nolan has provided a model for
such information systems using maturity in organizations. However, empirical evidence is not
available in favour of such models but intuitively, it seems correct. To leverage the benefits of
information, an organization has to first appreciate the usefulness of information. This requires a
change in the mindset and way of working. Organization culture needs to change to accommodate
this kind of information-based working. Changing organizations takes time and hence,
organizations pass through stages of maturity in dealing with information systems.
5.13 Types of OLAP
OLAP systems have been traditionally categorized using the following taxonomy.
Advantages of MOLAP
Fast query performance due to optimized storage, multidimensional indexing and caching.
Smaller on-disk size of data compared to data stored in relational database due to
compression techniques.
Disadvantages of MOLAP
Within some MOLAP Solutions the processing step (data load) can be quite lengthy,
especially on large data volumes. This is usually remedied by doing only incremental
processing, i.e., processing only the data which have changed (usually new data) instead of
reprocessing the entire data set.
MOLAP tools traditionally have difficulty querying models with dimensions with very high
cardinality (i.e., millions of members).
Some MOLAP products have difficulty updating and querying models with more than ten
dimensions. This limit differs depending on the complexity and cardinality of the
dimensions in question. It also depends on the number of facts or measures stored. Other
MOLAP products can handle hundreds of dimensions.
MOLAP generally delivers better performance due to specialized indexing and storage
optimizations. MOLAP also needs less storage space compared to ROLAP because the
specialized storage typically includes compression techniques.
Since ROLAP relies more on the database to perform calculations, it has more limitations in
the specialized functions it can use.
HOLAP encompasses a range of solutions that attempt to mix the best of ROLAP and
MOLAP. It can generally pre-process swiftly, scale well, and offer good function support.
5.15 MAJOR FEATURES AND FUNCTIONS of OLAP
OLAP is much more than an information delivery system for data warehouse. OLAP focus is on the
end-users analytical requirements. Goal of OLAP is to support ad-hoc querying for the business
analyst. OLAP features generally include Calculations and modeling across dimensions, trend
analysis, slicing subsets, drilldown, drill-through and rotation.
c) Flexibility
d) Multi-End-User Support
Role of distribution in SCM
u Distribution: the steps taken to move and store a product from the supplier stage to the
customer stage in a supply chain
u Distribution directly affects cost and the customer experience and therefore drives
profitability
u Choice of distribution network can achieve supply chain objectives from low cost to high
responsiveness
u Examples: Wal-Mart, Dell, Proctor & Gamble, Grainger