S T U D Y U NI T

Management of Business
Information Systems
In this study unit

What is information? Uses and users of information

Definition Internal users External users

The information
creating process

The characteristics
of information

1 Introduction

We are living in the information age where information is everywhere. No organisation

can function without information. It is one of the key elements in the support of any
business process and forms the basis of an organisation’s future planning and decisions.
Information Systems (IS) are used to process financial accounts, to manage human
resource and to reach their potential customers with online promoters. From the two
previous study units we have established that no organisation can function without
information. Thus, understanding the impact of information and effectiveness of IS on
an organisation is crucial in running a successful business. Such an understanding helps
managers to ensure that their organisation stays on track in a continuously changing
environment.

The most obvious reason for processing data is to reduce uncertainty and therefore most
organisations value information as a strategic asset (Booyse, NJ et al. 2017). In this
study unit, we look at information, the characteristics of information as well as the uses
and users of information.

2 What is information?

Information is derived from data or raw facts that represent real-world elements. To
understand information, it is important to first look at the term ‘‘data’’.
 Data are the raw materiaI available for processing into information. Data consists of
numbers, letters, symbols, raw facts, events and transactions, which have been
recorded but not yet processed into a form that is suitable for making decisions (ACC-
ACCAKP_BT, 2021:77).

2.1 Types of Data

According to ACC-ACCAKP_BT (2021:77) there are several types of data that an

organisation may gather:

• Quantitative data is that which is capable of being measured numerically, e.g. the
standard labour hours required to produce one unit of output.
• Qualitative data is not capable of being measured numerically but may reflect
distinguishing characteristics, e.g. the grade of labour used to produce the unit of
output.
• Data is said to be discrete when it can only take on specific fixed values, e.g. the
actual number of vehicles through a car wash per day could be 35 but not 35.3.
• Continuous data takes on any numerical value and we could, in an eight hour day,
measure the throughput of cars as 4.375 per hour, i.e. 35 cars/8 hours.
• Primary data is collected for a particular enquiry, for example by observation,
employees would be observed performing a ‘value adding’ activity when
establishing a standard time for the activity.

Therefore, Information is a set of facts or data organised and processed in such a way
that it provides additional value beyond that of the facts themselves. In other words,
information is data that have been processed in such a way as to be meaningful to the
person who receives it. This information provides knowledge that leads the user to make
decisions.

2.2 Information required for modern business

IS produces information to satisfy the needs of both the management and operating
subsystems, as well as the need of parties external to the organisation. This information
reflects the internal actions, environmental and sociological interests as well as political
and financial trends. It must represent what has happened, what is happening and most
importantly what will happen.

In a business environment, the creation of information for decision-making can be

illustrated as follows:

Activity Data Information Knowledge Decision-

making

FIGURE 3.1:The creation of information

 Example: Depicted in creation of information

Sale took place

Data are the number of sales for all

the days in the year

Information are these numbers processed in totals

per month and per year

Knowledge is recognising which month and areas are best

for business

Management makes decisions on where to focus and where to

discontinue the business

FIGURE 3.2:The creation of information (example)

2.3 The characteristics of information

According to ACC-ACCAKP_BT (2021:79-80) when using information for decision-

making purposes, it should comply with the characteristics described in the table
below:

Characteristics Explanation
Accurate Information should be sufficiently accurate for its intended purpose
and the decision-maker should be able to rely on the information.
Complete The more complete information is, the more reliable it will be.
Cost The information should not cost more to obtain than the benefit
derived from it
Understandable User friendly information is much more readily acted upon.
Relevance The information provided should concentrate on the essentials and
ignore trivia.
Adaptable Information should be tailored to the needs and level of understanding
of its intended recipients.
Reliability Information is reliable if one can depend on it. Reliability depends on
the source of information. A rumour is not reliable.
Timely Information should be delivered when it is needed. Information that is
out-of-date is a waste of time, effort and money.
Easy to use Information should be clearly presented and sent using the right
medium and communication channel. Information should not be
overly complex and should be supplied in the required format. Too
much information or information in the wrong format leads to difficulty
in determining what is important.
3 The uses and users of information

The users of information can be both internal and external users. These users of
information, both internal and external, first need to be identified before decisions on
information needs can be made. Such users need information in order to perform a
specific task or make specific decisions.

Internal users may need information for future planning and forecasting, for measuring
performance or for control in the organisation or about specific processes. External
users, such as investors or financiers, may need information on the performance of the
organisation for possible future investment, while clients may need information on
products and services.

According to ACC-ACCAKP_BT (2021:77) Information is vital to an organisation and is

required both internally and externally. Management requires information:
• to provide records, both current and historical
• to analyse what is happening in the business
• to provide the basis for decision-making in the short and long-term
• to monitor the performance of the business by comparing actual results with plans
and forecasts.
This can be illustrated as follows:

Users of information

Internal users External users

FIGURE 3.3: The user of information

3.1 Internal users

Internal users use information to assist them in performing their daily tasks. This
information can be from an internal or an external source. Internal users and the
information needed by them are the following:

• Financial managers: Financial managers need information on the financial

performance of the organisation to make decisions on cash flow and financing.
Hence, management financial statements are an internal source of information.
Financial managers also need external information on possible sources of finance
to make financing decisions.

• Production managers: Internal information on sales quantities and sales

forecasting is needed to control and plan the production process. Production
managers use external information on new technology and production processes to
improve the performance of the department.

• Staff managers: Staff managers use internal information on qualifications needed

and salary levels. External information on employees and their qualifications should
also be available to place employees in appropriate jobs.
 • Marketing managers: Internal information needed relates to products, target
markets and prices to make decisions on possible promotions and advertising
methods.

• Sales managers: Internal information is needed on production costs and all

overhead costs to make decisions on sales prices. External information on clients
and their spending patterns is used to approach the clients and determine opening
times for retail outlets.

• Purchase manager: Internal information is necessary on the quantity of the various

products or raw material needed by the production department. The purchase
manager also needs external information on suppliers and prices to make informed
decisions on the best quality and prices.

3.2 External users

Users outside the organisation may also need information from internal and external
sources for various reasons. Financial statements form one of the most important
sources of information in this regard. According to ACC-ACCAKP_BT (2021:78)
information will be used by various third parties, including:

• the shareholders or owners – who will want to know how their investment is
performing

• customers and suppliers – who will want to know how stable the business is and
therefore whether it will be a reliable trading partner

• Government agencies – The most important need for information by the government
is for use by the South African Revenue Services (SARS). SARS needs internal
financial information to determine the tax liability of the organisations

4 Structure of organisation IS

Information Systems consist of three layers as follows:

• Operational support: which forms the base of an IS and contains various
transaction processing systems for designing marketing producing, and delivering
products and services

• Support of knowledge work: forms the middle layer and contains subsystems for
sharing information within an organisation.

• Management support: contains sub-systems for managing and evaluating an

organisation’s resources and goals

5 Business information system

A business information system obtains data and other resources of IT Infrastructure as

input from environment and process them to satisfy the information needs of different
entities associated with business enterprise. While individuals use business productivity
software such as word processing, spreadsheets and graphics programs to accomplish
a variety of tasks, the job of managing a company’s information needs, fall to
 management system users, hardware, and software that support decision-making. IS
collect and stores the company’s key data and produce the information managers need
for analysis, control and decision making. For example, factories use computer-based
IS to automate production processes and order and monitor inventory. Most companies
use them to process customer orders and handle billing and vendor/supplier payments.
Banks use a variety of IS to process transactions such as deposits, ATM withdrawals
and loan payments. Most consumers’ transactions also involve IS when checking out at
supermarket, booking a hotel room online, or downloading music over the internet. IS,
record and track the transaction and transmit the date to the necessary places.

While MIS can be used by any and every level of management, the decision of which
system to implement generally falls upon the Chief Information Officer (CIO) and Chief
Technology Officer (CTO) These Officers are generally responsible for the overall
technology strategy of an organisation including evaluating how well technology can
help their organisation. They act as decision makers in the implementation process of
new MIS. This means that once decisions have been made, the IT director including
MIS director oversee the technical implementation of the system. They are also in
charge of implementing policies affecting MIS. These are either new specific policies
passed down by the CIO and CTO or policies that align the new systems with the overall
IT Policy. It is also their role to ensure the availability of data and network services as
well as security of the data involved by coordinating IT activities.
On implementation the assigned users, will have the appropriate access to relevant
information. Notwithstanding, not everyone is inputting data into MIS necessarily need
to be at management level and it is common practice that inputs to MIS are done by
non-managerial employees. However, they rarely have access to the reports and
decision-making support platforms offered by these systems.

6 Management information system (MIS)

MIS provides information which is needed to manage organisations efficiently and

effectively. Management information System (MIS) collects data from different company
units and functions. Some data however, is collected on its own through connected
computer counters and remailing data entered into the system periodically. Reports are
generated on intervals and can also be obtained on-demand using built-in query
language. The role of MIS is described and analysed considering its capability for
decision-making. The decision-making process and its impact on top level management
in a business organisation is explained with an emphasis on automated decision-
making. MIS is concerned with processing data into information which is then
communicated to various Departments in an organisation for appropriate decision-
making. MIS are distinct from other information systems as they are used to analyse
operational activities in the organisation. Organisations still need different types of MIS
serving various organisational levels, functions and business processes.

7 Objectives of MIS

a. To provide an overview of the information requirements of an organisation.

b. To analyse the role of management and its dependency on information.

c. To discuss the role of information in the decision making process.

d. To identify the need for information in the day-to-day operations of the organisation.
8 Advantages of using MIS

The following are some of the benefits that can be attained using MIS:

a. Improve an organisation’s operating efficiency, add value to existing products

engender innovation and new product development, and help managers make
better decisions.

b. Companies can identify their strengths and weaknesses due to the presence of
revenue reports, employee performance records amongst others. Identifying these
aspects can help a company improve its business processes and operations.

c. Giving an overall picture of the company.

d. Acting as a communication and planning tool.

e. The availability of customer data and feedback can help the company t align its
business processes according to the needs of its customers. The effective
management of customer data can help the company to perform direct marketing
and promotion activities.

f. IS can help a company gain a competitive advantage

g. MIS reports can help with decision making as well as reduce downtime for
actionable items.

9 Disadvantages of using MIS

These are some of the disadvantages:

a. Retrieval and dissemination are dependent on technology hardware and software.

b. Potential for inaccurate information.

Activity 3.1

Go to your e-tutor site and complete this activity.

Twenty-five employees from the finance department of a large organisation took an

introductory course in Computing. The test at the end of the course resulted in the marks
shown below. The marks were out of 50 and the pass mark was 20 out of 50.

12 19 8 21 32

25 34 22 30 20

43 21 16 45 32

27 38 39 21 18

33 11 28 26 27
At the moment, this data is simply not useful.

To give it meaning, you are required process it and turn it into information.

Application - SPCE

SPCE is a manufacturing organisation that manufactures specialist portable

communication equipment. In recent years, the development of new technology such as
wireless mobile telephones, infrared thermal imaging and global positioning has allowed
competitors to create new products. The market for such equipment has
– at the same time – grown significantly in the private and public sectors. Accordingly,
SPCE recognised that its market share is decreasing and that it does not know as much
about its competitors and the needs of its clients as it should.
Required:

As the management accountant of SPCE, you are required to advise the board on what
internal and external information it needs in order to solve the problem that SPCE is
facing.
Go to the Discussion forum for study unit 3 and discuss this with your fellow
students.

10 Summary

Information is a key resource within the organisation and forms the basis of decisions
made by internal users such as management and external users such as customers and
suppliers. It is essential to keep the characteristics of information in mind when collecting
information and to ensure that the information obtained is useful.