Management Information

System
Week 5

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Management Information System
Management information system (also known as management accounting information)
 Converts financial and non-financial data from internal and external sources into
information that:
- Aids managers at all levels to make timely and effective decisions
- Enables managers and employees to operate efficiently in their daily tasks
- Provides performance feedback and performance measurement
 Usefulness of management information system depends on:
- Providing good information that is targeted at the right users/purpose, appropriate
format, accurate, timely, inspires user confidence
- Value-for-money service for users, i.e., cost of producing it matches the usefulness
- Availability of informed personnel or capable staff to answer queries & resolve
problems
- Flexibility and responsive to users’ requests and needs for useful information/reports
- Adopts technology that enables seamless real-time and accurate data flows

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Management Information System
Data silos

 A store of information which is controlled by one department or

group within an organisation and is not shared with the rest of the
organisation
 Reasons why data silos may exist:
- Standalone information system which is not networked/linked with
the rest of the organisation
- Politicking motives behind some managers’ actions not to share
information with the rest of the organisation
- Incompatible systems due to legacy systems implemented from the
past when an organisation acquires/merges with another
organisation

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Management Information System
Problems caused by data silos:
- Misleading management reports due to missing information
from certain parts of the organisation
- Gaps in management’s awareness or understanding of their
own organisation because data silos are excluded in the big
data analysis
- Time may be wasted consolidating data from separate systems
- Lack of coordination between different parts of the organisation
e.g., sales forecasts are not shared, causing lack of
preparedness by the production department

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Management Information System
Integration of management accounting information: e.g. SAP, Oracle

1) Enterprise Resource Planning Systems (ERPS)

 Automated flow of data/information that supports operational process flows
across the organization to improve upon value adding activities and
eliminate non-value adding activities, hence improving the cost efficiency
and flexibility of operations
 Integrated into one system of unified (or centralised) database that enables
accurate data to be available on a real-time basis to measure and control
performance, in order to meet customers’ demands and to reduce wastages
 Enables planning of resources across the organisation in all activities,
therefore, enabling smoother coordination between the activities in order to
plan resources more efficiently and to avoid ‘silo mentality’ and the problem
of data silos
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Management Information System
 Strong built-in internal controls enable automated controls on the
performance of managers and employees to ensure that they are aligned
with organizational strategy and risks are managed/mitigated within the
acceptable risk tolerance levels (or risk appetite)
 User input of data enables more efficient operations where users are
directly involved in the business operations are capturing transaction data
and updated on a real-time basis
 User-generated reports enables customised reports to be generated by
the users quickly in order to be flexible and adapt to the operational
needs of the business
 Interactive reports (i.e., dashboards) are customisable and user-created
screens, showing high-level indicators or charts which can be drilled
down for more details
 Ability to collect and store financial and non-financial data that supports
the measurement of performance targets to achieve the critical success
factors of the organization
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Management Information System
• Integrating many aspects of operations including manufacturing,
distribution, inventory, invoicing, accounting, human resource management
and marketing, as well as integrating with other softwares such as
customer relationship management (CRM) and supply chain management
(SCM), to enable more efficient and effective operations
• Analyses for strategic and operational planning due to the availability of a
vast amount of accurate data that are updated on a real-time basis
enables more robust and sophisticated analyses that assist in strategic
and operational planning

Limitations of ERPS:
- Costly and long time to implement, lack of scope for customisation, risk of
system breakdown, high switching costs, blurring of accountability due to
the difficulty to establish the boundary when one person’s scope of
responsibility ends

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Management Information System
2) Supply chain management (SCM) software (see next page)

3) Customer relationship management (CRM) software (see next page)

4) Data warehouse – contains data from a range of internal and external

sources to be used across the organisation for analysis and decision
making; it could be a single central data warehouse or a series of smaller
data marts.

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Management Information System
Lean system is under the TQM family of management
Lean information: models
 Getting the right information to the right people at the right time with the
minimum waste
 Developed in a collaborative manner
 Focused on the needs of the end user (by providing only relevant
information, useful for decision making, increasing quality/productivity of
operations)
 Avoids waste (i.e., unnecessary detail or unnecessary reports)
 Easy for the user to access and understand (by reducing the effort or
difficulty in retrieving information, reducing effort in correcting inaccurate
information)

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Management Information System
Lean management information system:
 Implemented using the 5S model (5S is also used to evaluate existing
systems):
- Seiri (or sort) – prioritise important items
- Seiton (or set in order) – arrange things so that they can be found easily
- Seiso (or shine) – keep the work environment tidy (avoid clutter)
- Seiketsu (or standardize) – set standards to help keep the work
environment sorted and simplified
Using charts, schedules,
lists etc.

- Shitsuke (or sustain/ self-discipline) – ensure that staff are motivated to

continue to make improvements

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Management Information System
• 7 types of waste that lean systems try to eliminate:
– Transport – avoid unnecessary travelling around to get work done
– Inventory – using just-in-time systems e.g., data should be processed
immediately and old obsolete records should be purged regularly
– Motion – avoid unnecessary movements e.g., source documents are
within easy reach, eliminate duplication of data inputting into the system
– Waiting – avoid time wasted on waiting
– Overproduction – avoid producing reports that nobody reads, or providing
information before the recipient is ready for it
– Overprocessing – avoid doing more work than necessary to meet the
customer needs
– Defects – avoid errors in the reports, therefore, focusing on fixing the
system errors

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Management Information System
Developments in recording and processing systems:
 Unified corporate database that integrates data from subsystems,
allowing users to access the same information throughout the
organization – everyone has the same version and accurate information,
that is available real-time

 RFID (Radio frequency identification) are small radio receivers tagged to

assets to allow tracking and real-time transactions processing (e.g.
inventory updates); widely used in supply chain management that enables
real-time tracking of inventory movements between locations and real-
time counting of items coming into storage and held in storage

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Management Information System
 Network technology e.g., virtual public networks (VPNs) – allows remote
workers to connect to an organisation’s systems, therefore, increasing the
flexibility of workforce (e.g., enabling employees to work from home)

 Cloud technology enables on-demand network access to a shared pool

of resources (e.g. networks, servers, storage, applications and services)
that are operated by third party cloud-based service providers – provides
an organization with improved access to data that is accessible from
anywhere around the world where there is internet connectivity
 Increased collaboration between teams working in different locations
 However, increased risk of breach of data privacy and cybersecurity

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Management Information System
 Process automation
- Reduces human intervention and enables smooth steps in the sequential tasks,
so that employees can focus on other more value adding activities
- Increases speed, reduces costs and minimises errors, therefore, improving
efficiency
- Many repetitive business processes can be automated such as employee
recruitment, bookkeeping; boring tasks are automated, therefore, it is motivating
for employees

 Internet of things – any objects/devices containing sensors that are connected

to and share data over the internet e.g., computer printers enable printer
manufacturers to monitor the ink used by the customers
 Allow companies to better understand their own needs as well as customers’
needs
 However, increased risk of hackers stealing the data

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Management Information System
• Instant access to data – with the increased speed with which data is processed
and distributed, it is important that:
• Data is accessible in order to be analysed to improve understanding that
help managers to make effective decisions
• Knowledge and insights are shared within the organisations e.g., knowledge
management systems are developed using tools such as groupware (where
employees collaborate & share files), intranet (an internal company network
to share information), expert systems and data warehousing

• Customer relationship management (CRM) system – provides links with

customers in order to analyse the customers’ interactions throughout the
customer life cycle:
- Aims to improve the customer relationship and retention (or loyalty), driving
sales growth and increased customer profitability
- Data captured is mined for marketing and sales efforts e.g., tailored
marketing communication that is more precisely meeting the customers’
interests or requirements
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Management Information System

• Supply chain management (SCM) system – provides links with

suppliers in order to collaborate together to add value and gain
mutual benefits e.g., collaboration on the design of new
products prior to production enables suppliers’ input on the
suitability of raw materials and production methods, in order to
achieve high quality products at lowest costs

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Management Information System
Big Data and data analytics – ability to analyse and reveal insights in the vast
amounts of data (which had previously been too difficult or costly to analyse)
is an important strategic resource that confers competitive advantage for an
organization

 The 3 Vs of big data:

– High volume – very large amounts of data provide more potential for
insights in identifying trends/patterns to understand customers’ behaviour
and requirements
– High velocity – the increasing speed with which data is generated, captured
and analysed enables quick actions/decisions to attract and retain
customers
– High variety – diversity of source data to analyse, especially unstructured
data (e.g., key words from conversations on social media about a
product/service)
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Management Information System
 Big data analytics – is the process of collecting, organizing and
analysing large data sets, which involves:
– Data mining – analysing data to identify patterns and establish
relationships e.g., where and among which age groups is a product
selling well
– Predictive analytics – aims to predict future events e.g., having bought
one product, what other products might a consumer be interested in
buying

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Management Information System
• Impact on performance management:
– Better understanding of customer behaviour (e.g., identifying what
customers are saying on social media about a product/service could
help to identify how well it is meeting customers’ needs and what
potential changes to the products/services that are needed to meet
customers’ needs)
– Targeted marketing messages (e.g., sending a tailored
recommendation to customers while they are shopping)
– Decision making (e.g., decisions on inventories and pricing could be
based on the trends and predictions)
– New products and services (e.g., decisions on new innovations or
product launches based on the trends and predictions)

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Management Information System
• Potential risks and challenges of big data:
– Quality of data – outdated and irrelevant
– Veracity – inaccurate and not reliable or trustworthy
– Value – not able to add value, or the cost exceeds the benefit of
obtaining the data
– Cost – too expensive to establish the hardware and analytical software,
as well as to comply with data protection regulations
– Skills – lack of analytical skills to process and interpret the data
– Loss and theft of data – risk of legal actions, regulatory sanctions and
negative public reputation

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Management Information System
Problems of information overload
 With the increase in information from the development in IT systems, comes
the risk of information overload
 Information overload means the difficulty that managers face in understanding
an issue or making a decision due to the presence of too much information
that can be confusing and unable to focus on the relevant information (or even
overlook important information because of too much information)
 Moreover, there is a danger that senior managers may start to micro-manage
and lose sight of the strategic side of management
 Solutions to overcome the problem include data visualisation, dashboards
(interactive reports that are customisable and user-created screens, showing
high-level indicators or charts which can be drilled down for more details) and
providing exception reports (reports that are only triggered when a situation is
unusual or requirement management action)

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Management Information System
Data visualisation
 Presentation of data in a pictorial or graphical format which is easier for
recipients to process than detailed written data
 Can also be an interactive experience where recipients can create their
customised dashboard of data, with the ability to drill down into areas of
particular interest to them
 Benefits of data visualisation:
– Structured and unstructured data could be presented in such a way that
facilitates interpretation and drawing of meaningful conclusions
– Improves clarity of the report, hence, overcoming the problem of
information overload

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Management Information System
Methods of data analysis
1)Descriptive data analysis – analyses data to summarise what
has happened
 This is usually the first stage in the data analysis process
 It involves taking a data set and turning it into a form that can
be understood
 Typical information is provided about the average value (or
mean), dispersion (or standard deviation), coefficient of
variation (standard deviation divided by the mean) and the
distribution of the data (e.g. frequency chart)

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Management Information System
2) Diagnostic data analysis – aims to analyse data to find out why
something has happened
 Typically looks for patterns in data to identify relationships
 Regression uses statistical analysis of data to examine the cause and
effect relationships between the variables and expressed as an
equation:
– Univariate regression measures the changes in the variable that
depends on only one independent variable (e.g., sales depend only on
footfall in the store)
– Multi-variate regression measures the changes in the variable that
depends on a number of independent variables (e.g., sales depend on
footfall, prices, disposable incomes, etc.)

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Management Information System
 Correlation coefficient indicates how well the regression analysis explains
the data
– If the value is minus, the dependent variable and independent variable
are inversely related, i.e., move together in the opposite direction
– If the value is plus, the dependent variable and independent variable
move together in the same direction
– At a value of 1 (either -1 or +1), the dependent variable is totally
explained by the independent variable
– As the value moves toward zero, the relationship becomes weaker

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Management Information System
3) Predictive data analysis – aims to analyse data to predict future trends i.e.
what will happen
 Statistical methods used are similar to diagnostic data analysis and the
relationships are used to predict what will occur in the future in different
scenarios

Potential problems with data analysis

 Historic data used to create forecasts may not be accurate because the
underlying relationships identified in the data may change in the future
 The relationship identified between the variables may be pure
coincidence
 The sample data used in the statistical analysis may not be representative
of the population, i.e., a biased sample

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Management Information System
Alternative methods of data analytics
 Over the last 20 years, businesses have been storing a whole range of
new, unstructured data that does not fit into traditional databases e.g.,
discussions on social media, images (digital photographs or videos) and
information about the behaviour of visitors to a website
 Technology such as AI and machine learning cannot analyse unstructured
data directly. The data has to be tagged and descriptions (or metadata)
added (e.g., date, name, age, location, summary of the content), then,
this metadata can be stored as structured data

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Management Information System
1) Image analytics – computer analytics programmes that can review online
images and videos and identify what is in them, such as using facial
recognition techniques, tag these images with information about what is
included and store within the metadata
2) Text analytics – machines are trained using machine learning techniques
to understand the meaning behind the text, such as emails, comments
on social media and even the content of websites; examples: text
analytics on discussions on social media to inform management on the
content that may be of interest to them, automatic analysis of customer
feedback forms, where scanned forms are ‘read’ by the machines, which
pick up on key terms, and can provide summaries of what customers are
saying

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Management Information System
3) Sentiment analysis – a tool that analyses text, such as emails or posts on
social media or recordings of telephone conversations in the customer
service department, to identify the mood behind the text/conversation,
which is useful for companies who might want to understand the general
mood of customers about their products
4) Voice analytics – use of machine learning to extract the meaning from
recordings of conversations, such as call centres in the customer service
department, to identify key words or phrases, in order to provide feedback
on the key issues that customers are calling about or analyse how well
the call centre operators deal with customer issues

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Management Information System
Ethical issues
 Privacy of individuals may be violated when companies hold vast
quantities of information about them where they may be concerned that
the information is shared with the wrong people, which could lead to
harm, such as identity theft and fraud; or people may simply feel
uncomfortable about companies knowing so much about them
 Artificial intelligence or machines are making decisions based on their
own analysis, without human input, which may lead to bad decisions that
humans would not make
 Transparency becomes more difficult when organisations use artificial
intelligence, and the algorithms are so complex that humans cannot
understand them. A black box algorithm is one where owners of the
systems know what information goes into the systems, and what comes
out, but they do not know what happens inside the system itself

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 Management Information System
Data protection regulations to protect individuals from being harmed are based on
some principles that are best practices:
(1) Lawfulness, fairness and transparency – data should be collected only for
lawful purposes and processed in a transparent manner
(2) Purpose limitation – data should be collected only for specified, legitimate
purposes and should not be further processed in a manner incompatible with
those purposes
(3) Data minimization – data should be adequate, relevant and limited to what is
necessary for the specified purposes
(4) Accuracy – data held about individuals should be accurate and kept up to date
(5) Storage limitation – data which permits identification of the data subjects
should not be kept for longer than is necessary for the specified purposes
(6) Integrity and confidentiality – there should be security controls to ensure that
the personal data cannot be accessed by unauthorized parties, and protection
against unauthorized processing and accidental loss
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Management Information System
Artificial intelligence (AI) are systems that are capable to sense,
comprehend, act and learn i.e., analysing Big Data to solve problems for
themselves
 Examples of applications of AI:
– New product development process that tests the digital prototypes before
producing the real, physical prototype
– Manufacturing robotic arms that learn and develop their own approach in
production
– Delivery of products using robots
– Quality management using machine learning to predict when machines
require maintenance and identify when parts may fail or deal with
customer complaints

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Management Information System
– Data security using AI to detect malicious software by detecting unusual
network traffic behaviour and learning from each issue that is identified
– Customer interactions using AI (e.g., Siri) to better understand customer
behaviour and generate predictions of what customers want to purchase
in the future
– Reporting using AI to present and report business performance
objectively, without the problem of human bias

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Management Information System
• Drawbacks of AI:
– Distrust – customers and staff may react adversely and feel threatened
 opportunities for collaboration between machines and humans
should be explored
– System malfunctions – AI may operate in ways that is not predicted
(e.g. use of inappropriate language)  therefore, some controls, such
as content filters, may be useful
– Misuse – AI systems may be ignored or misused by human operators
 AI systems should explain their course of action to encourage buy-in
from the human operators
– Data problems – the learning may be less effective if they use data
generated from within a business  Big Data should be sourced from a
wide variety of media

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Management Information System
Management reports – issues to look for when evaluating the design of a
performance report:
(1) Strategic relevance – measuring achievement of strategic goals (incl.
CSFs)
(2) Analytical information (e.g. percentage of change, financial ratios)
(3) Narrative explanations to provide reasons for the changes
(4) Financial and non-financial information and performance measures
(5) User-friendly presentation of figures (e.g. rounding, pie charts, tables)
(6) Too many details causing the problem of information overload
(7) Trend analysis to show progress of performance over several periods
(8) Benchmarking to improve performance (e.g. against ‘best-in-class’ or
industry average)
(9) Whether the actual performance is meeting its budget? (e.g. budget
variance analysis)
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Management Information System
Other issues to consider:
 Meeting the objectives of the report?
 Meeting the needs of the readers? (timely, accurate, tailored to suit the
users)
 Whether the audience will be sophisticated enough to understand the
information presented?

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