Business Information System

(BIS)
Chapter I: Fundamentals of Information System

(Contents)
 Information
- Definition
- Data, Information, Knowledge & Wisdom Hierarchy
- Characteristics of Information
 Systems
- What is System?
- System Types: Simple/Complex, Open/Closed, Adaptive/Non-Adaptive
- System Features and Approaches
- System Performance Measures: Efficiency, Effectiveness, Productivity
 Information Systems
- Definition
- Dimensions of Information System -
. Organizational, Management, Technology
 Business
• The term business is a broad, all-inclusive term that can be applied to
many kinds of enterprises.
• A business can be defined as an organization or enterprising entity
engaged in commercial, industrial, or professional activities.
- Businesses can be both profit or non-profit organizations that function to
gain profits or achieve a social cause respectively.
- Business types range from limited liability companies to sole
proprietorships, corporations, and partnerships.
• A firm is an organization which sells or produces something or which
provides a service which people pay for.
Note:
Before we can understand the idea of a business information system, it is
necessary to look at both the concept of -
- information, and
- a system
 Data vs. Information
 Data: it is a raw fact and can take the form of a number, figures, pictures or
statement such as a date or a measurement.

• A business deals with a wide variety of data.

Data consist of raw facts and figures that may or may not be relevant to a
business decision.
It is necessary for business to put in place procedures to ensure data are
recorded. Some of this concerns financial transactions.
• An example of an item of transaction data is the record of the sale of a
product to a customer by the business.
- This fact might be recorded on a piece of paper, such as in a sales day book, or
as a series of laser-burned impressions on a compact disk.
Data are facts obtained through reading, observation, calculation, measurement, etc.

The information derived from this data is used for making decisions, of which
planning decisions and control decisions are the most important.
 cont.…
 Information:- collection of facts organized in such a way that they have value
beyond the facts themselves
- Information is data processed for a purpose.
 Information is generated through the transformation of data.
This can be achieved by a number of different information or data processing methods:
Data processes includes:-
 Classification of data - places data into categories such as on-time and late
deliveries.
 rearranging/sorting data - organizes data so that items are placed in a
particular order, for example listing orders by delivery date.
 summarizing/aggregating data - which summarizes data by such means as
taking an average value of a group of numbers.
 Performing Calculations on data - can be made on data such as calculating an
employee’s pay by multiplying the number of hours worked by the hourly rate of pay.
 Selection of data - finally data can be chosen based on a set of selection criteria,
such as the geographical location of customers.
Examples of each types of data process
.
Type of data process Example
Classification of data Transaction data may be classified as invoice data,
payment data, order data
Rearranging/sorting data Data on employees may be ordered according to
ascending employee number
Summarizing/aggregating Data on the performance of various departments may be
data aggregated to arrive at a summary of performance
Performing calculations on Data on the total hours worked by an employee may be
data multiplied by the hourly wage rates to arrive at a
gross wage
Selection of data Total yearly turnover data on customers may be used to
select high-spending customers for special treatment by
sales personnel
 …

• Although information is useful resource for individuals and organizations not

all information can be considered useful.
The difference between “good” and “bad” information can be identified by
considering whether or not it has some or all of the attributes of information
quality.
Attributes can be related to the timing, content, and form of the information.
 …
• The forms of information processed include:
• Data – e.g. invoices, sales ledger, purchase ledger, payroll, stock controls,
etc.
• Text – widely available in many offices with microcomputers
• Graphics – e.g. business graphs, symbols
• Images – e.g. pictures
• Voice – e.g. telephone
 Figure 1.2 Data and Information
In an Excel cell, you can store a single piece Data become information when they take on meaning.
of data. Here, the cell contains the number Here, information is a list of ages of all customers, which
21, which we’re assuming to be your age. starts to provide insight into your customers.
A B C D A B C D
1 1
2 2
3 3 AGE Average age: 22.8
4 4 21
5 5 23
6 6 24
7 7 22 Youngest age: 21
8 21 8 21
9 9 23
10 10 25
11 11 21 Oldest age: 25
12 12 22
13 13 24
14 14 23
15 15 22
16 16 23
17 17 21
18 18 25
19 19 23
20 20 24
21 21 22
22 22 21
23 23 24
24 24 23
25 25 25
26 26 22
27 27
28 28

You can use it to create

Data can become information when … meaningful intellectual assets.
 Figure 1.3 Business Intelligence
A B C D E F G
1
2
3 CUSTOMER ID AGE GENDER PLAN SALESPERSON TOTAL SALES NUM COUPONS Total sales for all customers on
4 1 21 M A S1 $ 600 1 Plan A: $6,600
5 2 23 M B S2 $ 100 0
6 3 24 F A S2 $ 450 4 Total sales for all customers on
7 4 22 M A S2 $ 900 3 Plan B: $2,650
8 5 21 F B S3 $ 200 2
9 6 23 F A S3 $ 300 3
10 7 25 F B S1 $ 500 5
11 8 21 M B S3 $ 150 0
12 9 22 F A S1 $ 750 6
Average age of customer
13 10 24 F A S2 $ 600 5 preferring salesperson S3: $22.3
14 11 23 M B S3 $ 250 0
15 12 22 F A S3 $450 1
16 13 23 M B S2 $ 100 0
17 14 21 F B S1 $ 250 2
18 15 25 M B S2 $ 300 1 Average coupons women use: 2.7
19 16 23 M A S2 $ 600 2 Average coupons women use: 1.0
20 17 24 M B S1 $ 200 2
21 18 22 F A S1 $ 700 8
22 19 21 F B S3 $ 400 4
23 20 24 F A S2 $ 900 6
24 21 23 F B S1 $ 100 1
25 22 25 M A S3 $ 350 1
26 23 22 F B S3 $100 1
27
28

When you start to combine multiple sets of information, you can generate a
considerable amount of business intelligence.
Business intelligence helps you make effective strategic business decisions.
 Data, Information, knowledge & Wisdom Hierarchy

• Data  processing  Information

• Information  intelligence  Knowledge
• Knowledge  experience  Wisdom
 …
.
 What is the function of the DIKW pyramid?

• The pyramid is a linear model.

- Each DIKW stage in the pyramid answers questions about the initial data and
adds value to it.

• Data
Data are symbolic representations of the properties of objects and events.
Know: Nothing.
DIKW example: It's raining (= observation).

• Information
When we add context to data, it transforms into information and becomes more
useful.
Know: Who, what, when, where (= description).
DIKW example: The temperature dropped and the humidity went up in Addis A.,
Ethiopia at 10 am.
 …
• Knowledge
If information is understood in such a way that it explains how and why it became
knowledge.
Know: How (= instruction), why (= understood).
DIKW example:
– How? Temperature drop + quickly increase humidity + lower pressure area
= rain
– Why? Interactions between evaporation, pressure areas, temperature
gradients, changes, and raining.

• Wisdom
Wisdom involves guiding one's future actions.
Know: What is best (= judge and apply knowledge).
DIKW example: Based on the observations and math model, we can predict why
and when it will rain in the future.
Wisdom is concerned with the future (doing the right thing).

Computers provide the most input at the bottom of the pyramid and little at the
top; for humans, the opposite is true.
 Characteristics of Information

. Relevance -Information must be relevant to the problem being considered

. Simple - without complexity, inf. Overload …
. Timeliness - How current …
. Accessible - when needed …
. Secure - not to be access by unauthorized users …
. Accuracy - Information should be sufficiently accurate for it to be relied upon
. Completeness - all the information required for a decision should be available.
. Reliable – trusted …
. Verifiable - check its correctness …
. Economical … relatively economical to produce …
. Flexible … used for a variety of purposes ..
 Why Do People Need Information in
Business/organization?

• Businesses and other organizations need information for many

purposes/: Some of the roles of Information are listed below
 Planning:
− To plan properly, a business needs to know what resources it has (e.g.
cash, people, machinery and equipment, property, customers).
− It also needs information about the markets in which it operates and
the actions of competitors.
− At the planning stage, information is important as a key ingredient in
decision-making.
 Recording:
− Information about each transaction or event is needed.
− Much of this is required to be collected by law - e.g. details of financial
transactions.
− Just as importantly, information needs to be recorded so that the
business can be properly managed.
 Cont.…

 Controlling:
− Once a business has produced its plan it needs to monitor
progress against the plan - and control resources to do so.
− So information is needed to help identify whether things are
going better or worse than expected, and to spot ways in which
corrective action can be taken
 Measuring:
− Performance must be measured for a business to be successful.
− Information is used as the main way of measuring performance.
− For example, this can be done by collecting and analyzing
information on sales, costs and profits
 Cont.…
 Decision-making:
Information used for decision-making is often categorized into three
types:
I. Strategic information: used to help plan the objectives of the business
as a whole and to measure how well those objectives are being
achieved. Examples of strategic information include:
 Profitability of each part of the business
 Size, growth and competitive structure of the markets in which
a business operates
 Investments made by the business and the returns (e.g. profits,
cash inflows) from those investments
II. Tactical Information: this is used to decide how the resources of the
business should be employed. Examples include:
 Information about business productivity (e.g. units produced per
employee; staff turnover)
 Profit and cash flow forecasts in the short term
 Pricing information from the market
 cont.…

III. Operational Information: this information is used to make sure that

specific operational tasks are carried out as planned/intended (i.e. things
are done properly).
 For example, a production manager will want information about the
extent and results of quality control checks that are being carried out
in the manufacturing process.
 What is the role of information in organization?
 Role of Information:
 Decision making and problem solving – the right information
- Strategic decision: SWOT analysis – Internal and external position
- Forecasting: more accurate
- Validation of actions taken

 Dealing with competitors

- 5 competitive forces: Competitive Rivalry, Supplier power, buyer
power, threats of substitution, threats of new entry.
- Influencing strategies

 Customers: needs, perceptions, preferences

- The right product or service
 Cont.…

 Suppliers: ability to supply

- dealing: surplus/shortage

 Employees: needs/perspectives; information seeking

(profitability, problems, what others do)

- motivational, engaging

- cross-sectional team
 1.2 Systems
 Definition of system:
A system is an interrelated set of components that work together
within an identifiable boundary to achieve common objectives
(purposes).
Systems have:
 Component – One part/group of parts (sub-systems)
 Interrelationships – the function of one component depends on
the function & existence of the other (output of one – the input for
the other)
 Objective/purpose – the main reason for the existence of a
system: set of defined objectives
 Boundary – Conceptual line drawn around the system that
separates the system from the environment
 What is inside and outside of the system
 scope of operation/functional boundary: what the system can
and cannot do
 Def. (Cont’d.) …
 Environment – everything outside a system & interact with a system
 Systems interact with the environment
 Events in the environment affect the system
 Interface: the points at which two systems, subjects, organizations,
etc. meets and interact (e.g. menu in computer system)
 set of rules/procedures for how a system interacts
(communicates) with the environment
 Input - whatever the system takes in from the environment
 Output – whatever returned to the environment (product/service)
 Constraints - limits or restrictions to what a system can accomplish
(capacity, resources, …)
Feedback: The reaction or response of the environment to the output is known
as feedback. Feedback is useful in evaluating and improving the functioning of
the system.

Therefore,
System = C + I + O + B + E + I + I/O + C + F
 Def. (Cont’d.) …
• Large number of Interconnections/Interactions  Problem  Reduce
– Decomposition: breaking  hierarchical subsystem (manageable
size)  defining boundary & interfaces

– Simplification: organizing subsystems

 Clustering: forming a group
 Decoupling: reducing direct dependence or the need for
communication (slack capacity, use of standards, buffering)
 Def. (Cont’d.) …
 The entire system is broken into three parts namely - input, process and
output.
 …

• An information system contains information about an organization and its

surrounding environment. Three basic activities - input, processing, and output -
produce the information organizations need.
Feedback is output returned to appropriate people or activities in the organization
to evaluate and refine the input.
Environmental actors, such as customers, suppliers, competitors, stockholders, and
regulatory agencies, interact with the organization and its information systems.
 …

.
 1.2.3 System Approach/system Theory
 The Systems Approach or Systems Theory is set of ideas with which we
can view systems.
This set of ideas can be summarized as follows:
 All systems are composed of inter-related parts or sub-systems
• The components form an indissoluble whole – change in one
part affects other parts of the overall system
• Sub-systems need to work towards the goals of the system
(not to their own goals independently)

 Holism or synergy: The systems approach takes the view that the
whole is greater than the sum of the parts
• Mutual interaction adds something more OR
• A system as whole has properties that non of the
parts/components/subsystems have OR It can do something
that individual components/ subsystems can not.
 Sys. App (Cont’d) …
 Structure-hierarchical structure of subsystems within a given system
(a system divided into subsystem) functioning as a whole to achieve
its objective
• Subsystem: integrated set of components or subsystems. Different
subsystems when combined together form a system
• Supra System: large system made up of two or more smaller
systems

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 Sys. App (Cont’d) …

• A company as an interconnected
. purposive system consists of
several business sections
working for a common goal or
success

• Each sub-system influence the

other sub-system and the system
as a whole

• Only when all these subsystems

work together, that the system is
said to function effectively.
 Sys. App (Cont’d) …

 Advantages of Systems approach:

• managers have a good view of the organization.
• It gives importance to interdependence of the different parts of an
organization and its environment.
• It forecast consequences and plans action
• Goal oriented

 Disadvantages of Systems Approach:

• Does not offer specific tools and techniques for practicing manager
• It cannot be easily and directly applied to practical problem
 1.2.2 System Types

 Simple vs. Complex

 Simple: easily define system’s output from known inputs; no need
of high level system analysis
- E.g. A college classroom system – Instructors, Students, Text,
Facility – educated citizen

 Complex: Multitude of components and relationships; processes

are not describable with single rule; unpredictable occurrence of
features from the current specification
- Example: organisms, human brain, social & economic system
 Sys. Typ. (Cont’d) …
 Open vs. Closed System
 Open: dynamically interact to their environments
 taking inputs and transforming them into outputs to be
distributed into their environments
 exchange of feedback with its external environment
− Analyzed & used for adjusting internal systems & necessary
information is transmitted back to the environment
E.g. Living Organism, organizations

• Closed: nearly no interaction with and not influenced by the

environment; stands alone, with no connection to another system:
nothing flows in from another system; nothing flows out to another
system.
 its operation is relatively independent of its environment
E.g. Dry Battery, Watch
 Sys. Typ. (Cont’d) …

 Adaptive vs. Non-Adaptive

 Adaptive System – changing behavior based on its environment; react
to what other agents are doing; tailoring the response based on the
problem

 Non-Adaptive System - fail to adopt to the environment;

steady/stable/fixed

 Natural/Artificial(man-made) (solar system/organization)

 Natural - Occur in nature without human intervention.
- Biological systems- immune systems, digestive
 Artificial - Human made or modified
- Information systems, stereo
 Conceptual/physical (social system or theory/production system)
 ….
.
 1.2.4 System Performance Measures

 Efficiency
 A measure of the use of inputs (or resources) to achieve results.

 Achieved output divided by consumed input

 Effectiveness
 A measure of the extent to which a system achieves its goals (achieved
output divided by expected output)
 Perfo. Measure (Cont’d)…
 Two elements built into the system: Control & Feedback
 System Control:
• Purpose:
 proper operation & achievement of objectives
 conformity with standards
• Steps:
 Standard – expected performance (measurable)
- Measurement – performance (Sensors)
- Comparison – actual with standard (Comparator)
- Reporting deviation
- Corrective actions – adaptations (Input/Process/both)
 Perfo. Measure (Cont’d)…
 Feedback
• flow of information from the output back to input concerning
the system's performance.
• Purpose: control and modification of output
• Control system  feedback information

• Types:
- Negative feedback: deviations from standard (to reduce
fluctuations)  self-regulating and self-monitoring system
- Positive feedback: repeat or amplify adjustment or
action; reinforcing the way the system is moving
 1.3 Information systems
What is IS?
 Information system (IS) is the set of interrelated components of Hardware
and Software and formal procedures by which data are collected, processed,
Stored and distributed to users.
- IS transforms data into information.
- The purpose of an information system is to turn raw data into
useful information that can be used for decision making in an
organization.

- The role of the Information systems to provide information to management

which will enable them to make decisions which ensure that the organization
is controlled.
Many businesses use information technology to complete and manage their
operations, interact with their consumers, and stay ahead of their
competition.
 …

• Information systems can be tailored to assist many business

functions and departments -
- from marketing and manufacturing to finance and accounting.
- They can manage the overwhelming flood of information by
organizing data in a logical and accessible manner.

• Through the system, a company can monitor all components of its

operations and business strategy, identifying problems and
opportunities.

• Information systems gather data from inside and outside the

organization; they then process the data to produce information
that is relevant to all aspects of the organization.

• Processing steps could involve storing data for later use, classifying
and analyzing it, and retrieving it easily when needed.
 Components of information System
• All information systems use people, hardware, software, data, and network
resources to perform input, processing, output, storage, and control activities
that transform data resources into information products.
- The information system model
expresses a fundamental conceptual
framework for the major components
and activities of information systems.

FIGURE . The components of an information system.

 Cont.…
• In an organization, the IS model shows that an information system
consists the following major resources:
. people,
. hardware,
Systems analyst, developer,
. software, consultant, IS manager, DB
. Communications Administrators, webmasters, users
. data, and
. Procedure
computer
systems,
Operating peripherals
Systems &
Application
Software communication media,
corresponding hardware
& software, Internet,
Intranet, Extranet
 …
 People resources include the end users and developers of an
information system and those who help maintain and operate the
system such as IS managers and technical support staff.
 Hardware resources include computers and other items such as
printers.
 Software resources refer to computer programs known as software
and associated instruction manuals.
 Network resources refer to Communications media, communications
processors, network access, control software.
 Data resources cover the data that an organization has access to
such as computer databases and paper files.
 Procedure rule for achieving optimal and secure operation in data
processing. Procedure include priorities in dispensing software
applications and security measure
 Business information system:

 Business information system:

• Input – data & instruction
– Source – data files,

• Process – Data are manipulated into information using

mathematical, statistical, and other tools
- Calculate, Compare, Sort, Classify, Summarize

• Output – Reports, Message, Forms, Graphic Images, etc.

• Storage – databases, devices
• Control of system performance
- Monitoring & Evaluating feedback

• Example: ATMs, airline reservation systems, Registrar

systems, etc.
 1.3.2 Dimensions of Information Systems
• Information System consists of three dimensions, organization,
management and Technology.
• Using information systems effectively requires an understanding of
the organization, management, and information technology shaping
the systems.
• An information system creates value for the firm as an
organizational and management solution to challenges posed by the
environment.
 …
 Organizations
• Information systems are an integral part of organizations.
• Indeed, for some companies, such as credit reporting firms, there
would be no business without an information system.
• The key elements of an organization are its people, structure,
business processes, politics, and culture.
• Parts of an organization’s culture can always be found embedded
in its information systems.
- For instance, XYZ’s company first priority is customer service,
which is an aspect of its organizational culture that can be found
in the company’s package tracking systems.
 Different levels and specialties in an organization create different
interests and points of view.
 These views often conflict over how the company should be run
and how resources and rewards should be distributed.
 …
 Conflict is the basis for organizational politics.
 Information systems come out of this cauldron of differing
perspectives, conflicts, compromises, and agreements that are a
natural part of all organizations.

 Management
• Management’s job is to make sense out of the many situations
faced by organizations, make decisions, and formulate action plans
to solve organizational problems.
• Managers perceive business challenges in the environment; they
set the organizational strategy for responding to those challenges;
and they allocate the human and financial resources to coordinate
the work and achieve success.
• Throughout, they must exercise responsible leadership.
 …

• But managers must do more than manage what already exists.

• They must also create new products and services and even re-
create the organization from time to time.
• A substantial part of management responsibility is creative work
driven by new knowledge and information.
• Information technology can play a powerful role in helping
managers design and deliver new products and services and
redirecting and redesigning their organizations.
 …

 Information Technology
• Information technology is one of many tools managers use to cope
with change.
• Computer hardware is the physical equipment used for input,
processing, and output activities in an information system.
- It consists of the following: computers of various sizes and
shapes (including mobile handheld devices); various input, output,
and storage devices; and telecommunications devices that link
computers together.

• Computer software consists of the detailed, preprogrammed

instructions that control and coordinate the computer hardware
components in an information system.
 …

• Exercise
- Make a list of the different information systems you interact
with every day.
- Identify the technologies (HW, SW), Input used, the processes
involved and type of outputs.
 …

Thank you !