• Role of information systems

Chapter 01 • Costs and benefits

• Controls and security
Managing
Information
 Roles of information systems

• Data vs Information
• Data processing
• Information systems

An information system is a
combination of hardware, software
and communications capability,
where information is collected,
processed and stored.

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 Roles of information systems

• Data vs Information
• Data processing
• Information systems
• Roles of Information systems
Information systems are vital for
companies. They help with managing
production, sales and marketing,
communicating both internally and externally,
improve efficiency, and provide information to
help with decision making.

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 Costs and Benefits of Information Systems

• Cost – Benefits analysis

Benefit examples Cost examples

๏
Hardware costs
๏ ๏ Software costs
Improved efficiency Training
๏ ๏
Cost reduction
๏ Testing
๏ Customer satisfaction
Better and faster
๏ decision making ๏ Maintenance
Staff disruption and
๏ resistance

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 How can information be shared?

๏
Networks
๏
Internet
๏ Wireless technology
๏ Intranet
๏ Extranet
๏ Cloud computing

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 Controls and security (1)

Controls over the generation of internal information

• In routine reports eg consistent format to ensure
accuracy
• In ad-hoc reports eg to ensure information does not
already exist in another format
• Over distributing internal information eg procedures
manuals

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 Controls and security (2)

Controls over the generation of internal information

(cont’d)
• Over information held on servers eg passwords
• Other controls eg email policy

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 Controls and security (3)

Procedures to ensure the security of highly confidential

information that is not for external consumption
• Passwords
• Logical access systems
• Database controls (inference controls, passwords)
• Personnel security planning

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 Controls and security (4)

Procedures to ensure the security of highly confidential

information that is not for external consumption (cont’d)
• Firewalls
• Encryption
• Authentication
• Dial back security

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 Question: Controls

Required
Suggest appropriate controls over the following risks of an IT
system.

Access – Computer (hardware)

– Information (software)

Hacking– Alteration of information

– Reading transmitted data

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 Answer: Controls

Access – Computer (hardware) Doors

Locks
– Information (software) Passwords
Supervision

Hacking– Alteration Logs

Job rotation
Anti-spyware software
– Transmitted dataFirewalls
Encryption
Anti-spyware software

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 Question: Information controls

The following are all types of control within an

organisation.
(i) Logical access controls
(ii) Database controls
(iii) Hierarchical passwords
(iv) Range checks
Required
Which of the above controls help to ensure the
security of highly confidential information?
A (i) and (ii) only C (i), (ii) and (iii) only
B (i) and (iii) only D All of the above

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 Answer: Information controls

C (i) , (ii) and (iii) only

• A range check is a control within specific IT applications to
check that an input item of data has a value within an
acceptable range, and any input items with a value outside
the range are reported as errors.
• The other checks are all methods of restricting access to
systems, data files or programs.

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Chapter 02: • Primary and secondary
data
Sources of management • Internal sources of
information and information
management reports • External sources of
information
• Controls and security
 Syllabus learning outcomes (1)
• Identify the principal internal and external sources of
management accounting information.
• Demonstrate how these principal sources of management
information might be used for control purposes.
• Identify and discuss the direct data capture and process costs of
management accounting information.
• Identify and discuss the indirect costs of producing information.
• Discuss the limitations of using externally generated
information.
• Discuss the principal controls required in generating and
distributing internal information.
 Syllabus learning outcomes (2)
• Discuss the procedures that may be necessary to ensure
security of highly confidential information that is not for
external consumption.
 Chapter overview
• In this chapter we look at internal and external sources of
management information including financial accounting
records, government agencies and consumer panels.
• We also consider the costs, benefits and limitations of external
information and the principal controls and procedures involved
in generating and distributing information.
Chapter summary diagram
Sources of management
information and
management reports

Internal/external Control

Costs Uses

Sources
 Tackling the exam
• This chapter could be examined as an MCQ in Section A and B
or by discussion requirements in Section C.
 Primary and secondary data
• Primary data is collected by the user, tailored to user's exact
needs.
• Secondary data is not collected by, or for, the user.
 Internal sources of information (1)
Principal internal sources of management accounting
information
• Financial accounting records
• Systems of control over transaction (eg inventory control
systems)
• Payroll, production records, timesheets
• Staff (collected formally or informally)
Internal sources of information (2)
In today's competitive market, where the pace of change in
information systems and technology is rapid, organisations
must be flexible enough to adapt to change quickly and must
plan for expansion, growth and innovation within information
systems.
 Internal sources of information (3)
Formal Informal
Accounting records Meeting minutes
Payroll records Questionnaires
Capacity
Timesheets
 Internal sources of information (4)
Costs
Costs of the collection, processing and production of internal data:
• Direct data capture costs eg use of barcoding
• Processing costs eg inputting data to the MIS
• Cost of inefficient use of information eg information
disseminated more widely than needed
 External sources of information (1)
• External information is used to different degrees depending on
the level and type of decision.

EXTERNAL
INTERNAL

Operational Tactical Strategic

 External sources of information (2)
• External information can contribute to planning (eg market
research informing sales budgets), decision making (eg through
competitor research) and control (eg from benchmarking).
• External information is used in the management accounting
system depending on its quality.
• Quantitative data is easier to use.
• Benchmarking uses external information to help set targets.
 External sources of information (3)
Common external sources of information
• Business directories
• Associations
• Government agencies
• Consumer panels
• Customers
 External sources of information (4)
Common external sources of information (cont’d)
• Suppliers
• Internet
• Databases
• Market research
• Data warehouses (internal + external sources)
 External sources of information (5)
Costs associated with external sources
• Direct search costs eg subscriptions to magazines
• Indirect access costs eg spurious accuracy
• Management costs eg wasted time on excessive processing
• Infrastructure costs eg maintenance of computer server
• Time theft eg information overload
 External sources of information (6)
Disadvantages of external information
• May not be entirely accurate
• Bias
• Accuracy should be questioned
• May not be available in correct form
• Can be expensive
 External sources of information (7)
Advantages of external information
• Save time and money as secondary data is cheaper than
primary
 Question: Specimen exam
The following are all types of costs associated with
management information.
(i) Use of bar coding and scanners
(ii) Payroll department's processing of personnel costs
(iii) Completion of timesheets by employees
(iv) Input of data into the production system
Required
Which of the above are examples of direct data
capture costs?
A (i) and (iii) only C (ii) and (iii) only
B(i), (iii) and (iv) D (i) and (iv) only
 Answer: Specimen exam
A (i) and (iii) only
Direct data capture costs is a type of data input in which
there is no data entry but instead it is captured for a specific
purpose.
Therefore the use of bar coding and scanners and the
completion of timesheets are examples of direct data capture
costs.
 Chapter summary (1)
1. Primary and secondary data
• Data can be collected by an organisation or bought from third parties.
This is the difference between primary and secondary data.

2. Internal sources of information

• Financial accounting records
• Systems of control over transaction (eg inventory control systems)
• Payroll, production records, timesheets
• Staff (collected formally or informally)
 Chapter summary (2)
3. External sources of information
• Business directories
• Associations
• Government agencies
• Consumer panels
• Customers
• Suppliers
• Internet
• Databases
• Market research
• Data warehouses (internal + external sources)
Chapter 03 • Accounting information needs
• Management accounting
information
Performance • Management information systems
management
information systems

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 Syllabus learning outcomes

• Identify the accounting information requirements and

describe the different types of information systems used
for strategic planning, management control and
operational control and decision making.
• Define and identify the main characteristics of transaction
processing systems; management information systems;
executive information systems and; enterprise resource
planning systems.
• Define and discuss the merits of, and potential problems
with, open and closed systems with regard to the needs of
performance management.

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 Chapter overview

• This chapter introduces Part E of the syllabus and covers

issues relating to performance management information
systems and their design.
• We will look at the accounting information needs at all
levels of the organisation.
• We will also consider the characteristics of a range of
management information systems including transaction
processing systems and executive information systems.

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 Chapter summary

Performance management
information system

Information Systems Management

Levels Information
systems

• TPS
Strategic Operational
• MIS
• EIS
Tactical • ERP

Open Closed

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 Tackling the exam

• This chapter could be examined by MCQ in Section A and

B or as a discussion requirement in Section C.

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 Accounting information needs (1)

• Management accounting information can be used to

support strategic planning, control and decision making.
• Strategic management accounting differs from traditional
management accounting because it has external
orientation and a future orientation.

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 Accounting information needs (2)

Long term

Strategic

Medium term

Tactical

Day to day

Operational

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 Accounting information needs (3)

Strategic management accounting

AAform
formofofmanagement
managementaccounting
accountingin in
which
whichemphasis
emphasisis isplaced
placedon oninformation
information
about
aboutfactors
factorswhich
whichare
areexternal
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tothe
the
organisation,
organisation,as aswell
wellas
asnon-financial
non-financialandand
internally
internallygenerated
generatedinformation
information

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 Accounting information needs (4)

Examples of strategic management accounting

• Analysis of competitors' costs
• Product profitability
• Customer profitability
• Pricing decisions
• Cost/benefits of capacity expansion

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 Accounting information needs (5)

Examples of strategic management accounting (cont’d)

• Analysis of decisions to enter (or leave) a business area
• Brand values
• Shareholder wealth
• Impact of acquisitions and mergers
• Analysis of competitors' potential reactions to a strategy

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 Accounting information needs (6)

• Management control is the process by which managers

ensure that resources are obtained and used effectively
and efficiently in the accomplishment of the organisation's
objectives. It is sometimes called tactics or tactical
planning.
• Management control decisions need to support an
organisation's strategic plans.

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 Accounting information needs (7)

Characteristics of management control

• Short-term and non-strategic
• Management control planning activities include preparing
annual sales budget
• Management control activities include ensuring budget
targets are (at least) reached
• Carried out in a series of routine and regular planning and
comparison procedures

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 Accounting information needs (8)

Characteristics of management control (cont’d)

• Management control information covers the whole
organisation, is routinely collected/disseminated, is often
quantitative and commonly expressed in money terms
(cash flow forecasts, variance analysis reports, staffing
levels).
• Source of information likely to be endogenous (from
within the organisation)

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 Accounting information needs (9)

Management control and strategic planning compared

Example
• The decision to launch a new brand of frozen foods is a
strategic plan, but the choice of ingredients for the meals is
a management control decision.

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 Accounting information needs (10)

Conflict
• Long-term strategic plans can conflict with the shorter-term
objectives of management control
• Performance measures/control measures do not take
strategic direction into account
• Strategic imperatives might not be properly communicated
to middle management
• Strategic planning information might be difficult to measure

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 Accounting information needs (11)

Operational control/planning
• The process of ensuring that specific tasks are carried out
effectively and efficiently
Management control v operational control
• Operational control decisions are more narrowly focused,
carried out within a shorter time frame and taken by
managers less senior in the organisation.
• Operational control focuses on individual tasks whereas
management control is concerned with the sum of all
tasks.

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 Accounting information needs (12)

Example
Strategic plan
• Senior management decide sales should increase by 5%
pa for at least five years.
Management control decision
• Sales quotas are assigned to each sales territory.
Operational control decision
• Management of sales territories specify weekly targets for
each sales representative.

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 Accounting information needs (13)

Characteristics
• Short-term and non-strategic
• Occurs in all aspects of an organisation's activities and
needed for day to day implementation of plans
• Often carried out at short notice

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 Accounting information needs (14)

Characteristics (cont’d)
• Information likely to have an endogenous source, to be
detailed transaction data, quantitative and expressed in
terms of units/hours
• Includes customer orders and cash receipts

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 Management accounting information (1)

Good information
• Relevant
• Complete
• Accurate
• Clear
• Usable with confidence

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 Management accounting information (2)

Good information (cont’d)

• Appropriately communicated (to the right person using the
correct method)
• Manageable volume
• Timely
• Cost effective
Information requirements vary significantly across different
types of organisational structure (eg functional basis vs
network organisation).

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 Management accounting information (3)

What management accounting information helps

managers to do (its objectives)
• Measure performance
• Control the business
• Plan for the future
• Make decisions
Management accounting information is used for score
keeping, problem solving and attention directing.

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 Management accounting information (4)

Features that characterise management accounting

information in particular
• Forward looking
• Neutral (free from bias)
• Financial, non-financial, quantitative or qualitative

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 Types of information system (1)

• Transaction processing systems (TPS)

• Management information systems (MIS)
• Executive information systems (EIS)
• Enterprise resource planning systems (ERP systems)
• Customer relationship management systems (CRM
systems)

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 Types of information system (2)

Transaction processing systems (TPS)

• Transaction processing systems collect, store, modify and
retrieve the transactions of an organisation

Key characteristics
• Controlled processing
• Inflexibility
• Rapid response
• Reliability

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 Types of information system (3)

Management information systems (MIS)

• Generate information for monitoring performance (eg
productivity information) and maintaining co-ordination (eg
between purchasing and accounts payable)

Key characteristics
• Report on existing operations
• Little analytical capability
• Relatively inflexible
• Internally focussed

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 Types of information system (4)

Executive information systems (EIS)

• Provide a generalised computing and communication
environment to senior managers to support strategic
decisions

Key characteristics
• Menu driven used friendly interfaces
• Interactive graphics
• Communication capabilities linking the executive to
external databases

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 Types of information system (5)

Enterprise resource planning systems (ERP)

• Software systems designed to support and automate the
business processes of medium-sized and large
organisations
• Aid the flow of information between functions within an
organisation and can manage connections to outside
suppliers
• All departments that are involved in operations or
production are integrated in one system

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 Types of information system (6)

Enterprise resource planning systems (ERP) (cont’d)

Key characteristics
• Work in real-time
• Multiple languages and currencies
• Integrate the key processes in an organisation
• Decision support features
• Extranet links to major suppliers and customers

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 Types of information system (7)

Open
Opensystems
systemsare areconnected
connectedto toand
andinteract
interact
with
withthe
theenvironment
environmentandandare
areinfluenced
influencedbybyit.it.
All
Allsocial
socialsystems,
systems,including
includingbusiness
business
organisations
organisationsareareopen
opensystems.
systems.

Closed
Closedsystems
systemsare areisolated
isolatedand
andshut
shutoff
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from
fromthe
theenvironment.
environment.Information
Informationisisnot
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providedtotothe
the
environment,
environment,this
thismakes
makesthem
themless
lessuseful
usefulforfor
strategic
strategicmanagement
managementaccounting.
accounting.

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 The internet

• The internet is a global network connecting millions of

computers.
• The internet offers efficient, fast and cost effective email,
and massive information search and retrieval facilities.
• There is a great deal of financial information available and
users can also access publications and news releases
issued by government departments.
• Businesses are also using it to provide information
(cheaply) about their own products and services and to
conduct research into their competitors.

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 Question: System benefits

Fix It is a chain of garages with eight branches in the South

West of China and one warehouse which supplies spare part
to the garages. Mechanics are assigned to a particular
garage but can work in different locations. As well as repairs
the company also carries out vehicle tests for which
specialist testing equipment is required.
Fix It has decided to implement an ERP system.
Required
What benefits could management hope to see following the
implementation of the system?

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 Answer: System benefits

• Scheduling of repair jobs

• Scheduling of vehicle tests, ensuring that the testing
equipment and trained testing staff are available at the
correct garage; reducing the need to have some at every
site all day
• Invoicing customers

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 Answer: System benefits (cont'd)

• Ordering parts from the central warehouse for individual

garages
• Reordering inventory from suppliers to replenish the
warehouse
• Planning preventative maintenance for machinery
• Staff rota

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 Question: MIS

The following statements have been made about

management information systems.

(1) They are designed to report on existing operations.

(2) They have an external focus.

Which of the above statements is/are true?

A 1 only C Neither 1 nor 2
B 2 only D Both 1 and 2

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 Answer: MIS

A
Management information systems provide information to
management about existing operations, and have an
internal focus.

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 Big data

• Big data are extremely large collections of data that may

be analysed to reveal patterns and trends, especially
relating to human behaviour.
• Characteristics of Big data
Volume
๏ The amount of data being stored by the likes of Amazon is enormous - many times
the amount of data that can be stored on a normal PC.
Velocity
๏ For the data to be useful, the data needs to be analysed and information provided
quickly enough. In the case of Amazon, suggestions need to be presented to
customers immediately they access the website.
Variety
๏ The data being stored will come from a large variety of sources - All of this
information needs special software and algorithms that collates the different data
into useful information.

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 Big data

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 Chapter summary (1)

1. Accounting information needs

• Management accounting information can be used to support
strategic planning, control and decision making.
• Strategic management accounting differs from traditional
management accounting because it has external orientation and
a future orientation.

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 Chapter summary (2)

2. Management accounting information

• Good information
─ Relevant
─ Complete
─ Accurate
─ Clear
─ Usable with confidence
─ Appropriately communicated (to the right person using the
correct method)
─ Manageable volume
─ Timely
─ Cost effective

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 Chapter summary (3)

3. Management information systems

• Provide information at different levels for different purposes:
─ TPS
─ MIS
─ EIS
─ ERP
• Systems can be open or closed.
• Open systems are capable of responding to changes in the
environment.
• Most business systems need to be open systems.

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