A module for the course Management

Information System

CHAPTER ONE

INTRODUCTION TO MIS

Chapter objectives
After completing this chapter, students will be able to:
 Explain the importance of MIS
 Describe the evolution & characteristics of the information age
 Define IT & career side of information technology

Dear learners, what do you mean by MIS? Why it is important in management?

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1.1 Definition and Importance of MIS

Management: Management is the art of getting things done through and with the people in
formally organized groups. The basic functions performed by a manager in an organization
are: Planning, Organizing, Staffing, Directing, and Controlling.
Information: Information is considered as valuable component of an organization.
Information is data that is processed and is presented in a form which assists decision maker.

Data Processing Information

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Figure 1.1 Information Generation

System: A system is defined as a set of elements which are joined together to achieve a
common objective. The elements are interrelated and interdependent. Thus, every system is
said to be composed of subsystems. A system has one or multiple inputs, these inputs are
processed through a transformation process to convert these input(s) to output.

What is Management Information System?

A Management Information System (MIS) provides information that is needed to manage

organizations efficiently and effectively. Management information systems are not only
computer systems - these systems encompass three primary components: technology, people
(individuals, groups, or organizations), and data/information for decision making. However,
we can say that, Management Information System is a sub-system of organization that gives
the people in-charge of organization by providing right information that they need to take
decisions at right time.

In other words, MIS can be defined as is a planned system of collecting, storing and
disseminating data in the form of information needed to carry out the functions of
management.

MIS is an organized method of providing past, present and projection information relating to
internal operations and externals intelligence. It supports the planning, control and
operational functions of an organization by furnishing uniform information in proper time
frame to help the process of decision-making.

Management Information System is generally defined as an integrated user-machine system

for providing information to support operations, management and decision-making functions
in an organization. The system utilizes computer hardware and software, manual procedure,
models for analysis. Information is viewed as a resource much like land, labor and capital. It

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must be obtained, processed, stored, manipulated and analyzed, distributed etc. An
organization with a well-defined information system will generally have a competitive
advantage over organization with poor MIS and no MIS.
Importance of MIS
Although there are very many reasons and importance for MIS to be practiced in
organizations, some of the major importance for MIS are mentioned below:

 It Minimizes Information Overload: MIS change the larger amount of data into
summarized form and thereby avoids the confusion which may arise when
information officer are flooded with detailed facts.
 MIS Encourages Decentralization: Decentralization of authority is possible when
there is a system for monitoring operations at lower levels. MIS is successfully used
for measuring performance and making necessary change in the organization plans
and procedures.
 It Brings Co-ordination: MIS facilities integration of specialized activities by keeping
an organization aware of the problem and requirements of various kind of work. It
connects all decision centers in the organization.
 It Makes Control Easier: MIS serves as a link between planning and control by a
system manager in an organization. It improves the ability of management system of
an organization to evaluate and improve performance. The used computers has
increased the data processing and storage capabilities and reduced the cost.
 It Helps in Decision-Making: MIS is a decision support tool which stores, processes,
and provides valid information for the decision-makers at right time. It also helps
managers to evaluate the success of their decision.

Check point
1. Define MIS
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2. List at least three importance of MIS
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1.2 Components and Activities of MIS (Sub-Systems of MIS)

MIS is considered as a sub-system of an organization which has its own subsystems and
activities. The major subsystems of MIS are:
Input: For input in a system there is a need to collect the data. For collection of data there is
a need of raw material, energy and data.
Processing: The process includes manufacturing process, human ability process and
mathematical calculations but the data should be processed as follow:
- Entering the data.
- Modify and organize the data.
- Transforming the data.
- To make all data usable in form of information.
- Store the all data in secured form.
- Control the data and in a system there is no repetition of data and use of unnecessary
data.
Output: The third component of a system is output. The output of a data is to be very
important to work or to give information. The output of a data should be accurate and on
time.
Retrieval of Information: MIS retrieves information from its stores as and when required by
various users.
Dissemination of Information: Information, which is a finished product of MIS, is
disseminated to the users in the organization. It is periodic or online through computer
terminal.

Check point

1. What are the sub-systems of MIS?

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1.3 Resources of Management Information System

To work on a management information system there is a need of some resources. In MIS we
include all Kind of machine resources and human resources also but we listed the MIS
resources as follows:
A. People Resources: People are the essential ingredient for the successful operation of
all information systems. There is a need of people resources to operate and organize
all Management Information System. These people resources have two categories:
i. End Users: (also called users or clients) are people who use an information
system or the information it produces. They can be customers, salesperson,
engineers, clerks, accountants, or mangers. Most of us are information system end
users. And most end users in business are knowledge workers, that is, people
who spend most of their time communicating and collaborating in teams and
workgroups and creating, using, and distributing information.
ii. Information System Specialists: It is second category of people resource.
Specialists are those people who develop and operate a system; we can include
systems analysts, system operators and software developers in this category.
B. Hardware Resources: Hardware recourses are the one of the major resource in
Management Information System. In hardware resources we can include all kind of
physical device and material which used to process the information. Specifically, it
includes not only machines, such as computers and other equipment, but also all data
media, that is, tangible objects on which data are recorded, from sheets of paper to
magnetic or optical disks. For example: C.P.U., Key-Board, Mouse, Desktop, Printer,
Floppy, CD-ROM etc. Examples of hardware in computer-based information systems
are:

i. Computer Systems: Which consist of central processing units containing

microprocessors, and a variety of interconnected peripheral devices. Example
are handheld, laptop, or desktop microcomputer systems, midrange computer
systems, and large mainframe computer systems.
ii. Computer Peripherals: Which are devices such as a keyboard or electronic
mouse for input of data and commands, a video screen or printer for output of
information, and magnetic or optical disks for storage of data resources.

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 C. Software Resources: The concept of software resources includes all sets of
information processing instructions. This generic concept of software includes not
only the sets of operating instructions called programs, which direct and control
computer hardware, but also the sets of information processing instructions called
procedures that people need. The following are examples of software resources:
i. System Software: Such as operating system program, which controls and
supports the operations of a computer system.
ii. Application Software: are programs that direct processing for a particular
use of computers by end users. Examples are a sales analysis program, a
payroll program, and a word processing program.
iii. Procedures: are operating instructions for the people who will use an
information system. Examples are instructions for filling out a paper form or
using a software package.
D. Data Resources: Data is unorganized and raw material in an information system.
Data has been taken in any form like numerical, alphabetical or in any other form, but
the collection of data should be proper and meaningful. All the data organized and
stored as well as accessed properly by the users. Data are the lifeblood of today's
organizations and the effective and efficient management of data is considered an
integral part of organizational strategy.
Data versus Information: the word data is the plural form of datum, though data commonly
represents both singular and plural forms. Data are raw facts or observations, typically about
physical phenomena or business transactions. More specifically, data are objective
measurements of the attributes (the characteristics) of entities (such as people, places, things,
and events).
People often use the terms data and information interchangeably. However, it is better to
view data as raw material resources that are processed into finished information products.
Then, we can define information as data have been converted into meaningful and useful
context for specific end users. Thus, data are usually subjected to a value-added process (data
processing or information processing) where (1) its form is aggregated, manipulated, and
organized; (2) its content is analyzed and evaluated; and (3) it is placed in a proper context
for a human user.
E. Networking Resources: Telecommunications technologies and networks like the
Internet, intranets and extranets are essential to the successful electronic business and
commerce operations of all types of organizations and their computer-based

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 information systems. Telecommunications networks consist of computers,
communications processors, and other devices interconnected by communications
media and controlled by communications software. The concept of network
resources emphasizes that communications technologies and networks are a
fundamental resource component of all information systems. Network resources
include:
i. Communications Media: Examples include twisted-pair wire, coaxial and
fiber-optic cables; and microwave, cellular, and satellite wireless
technologies.
ii. Network Infrastructure: This generic category emphasizes that many
hardware, software, and data technologies are needed to support the
operation and use of a communications network. Examples, include
communications processors such as modems and internetwork processors,
and communications control software such as network operating systems
and Internet browser packages.

Check point
1. Dear learner, list out and briefly explain the resources that are needed in MIS.
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2. What is the difference between data and information?
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1.4 Contemporary Approaches to MIS

When an information system is being developed, much importance should be given to the
structure of the organization, culture of the organization, etc. But along with these, especial
attention should also be given to the technical side of MIS. The various contemporary
approaches to MIS development can be summarized as:

A. The Technical Approach

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The technical approach to information systems emphasizes mathematically based models to
study information systems, as well as the physical technology and formal capabilities of these
systems. The disciplines that contribute to the technical approach are computer science,
management science, and operations research.

Computer science is concerned with establishing theories of computability, methods of

computation, and methods of efficient data storage and access. Management science
emphasizes the development of models for decision-making and management practices.
Operations research focuses on mathematical techniques for optimizing selected parameters
of organizations, such as transportation, inventory control, and transaction costs.

B. The Behavioural Approach

An important part of the information systems field is concerned with behavioral issues that
arise in the development and long-term maintenance of information systems. Issues such as
strategic business integration, design, implementation, utilization, and management cannot be
explored usefully with the models used in the technical approach. Other behavioral
disciplines contribute important concepts and methods. For instance, sociologists study
information systems with an eye toward how groups and organizations shape the
development of systems and also how systems affect individuals, groups, and organizations.
Psychologists study information systems with an interest in how human decision makers
perceive and use formal information. Economists study information systems with an interest
in what impact systems have on control and cost structures within the firm and within
markets.

C. The Socio Technical Approach

It combined the Technical and Behavioural Approaches to make the base. In the beginning,
this approach was finding it hard to survive – but now it is being accepted worldwide and is
also being implemented at a very large scale. It stands for improving the performance of the
information system as a whole.

Check point

What are the main contemporary approaches in MIS? Briefly explain them.

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1.5 The Evolution and Characteristics of the Information Age

In the beginning human society consisted of individuals, families and small groups. There
was a high degree of self-sufficiency. Everyone had their own particular talents. Some were
better at hunting, some at cultivating the land, others at making equipment. In time larger
groups formed to benefit from specialization. Members could focus on what they did best,
trading their output with others. Net result was more and better output for all. Later groups
started to work as organized teams - villages, tribes, nations, and organizations.

With organizations and their developments came the effective management and its benefits.
Team-works and participative management received more popularity. Information started to
earn importance as competition and cooperation increased.

Late 20th Century saw rapid growth in information and communication technology.
Computers went from being locked away mainframes to personal desktop machines available
to all. Computers (and their users) went from isolation to being able to communicate with one
another. If knowledge is power, now we are all empowered. Significance and dignity of the
individual are restored.

Characteristics of Information Age are many, but the most dominant are:
- Many smaller businesses offering self-employment. On the other side, increased
globalization calls for big infrastructure for efficiency.
- Control of the organization system got efficient, improved hierarchy, and better
participation.
- Large corporations regained effectiveness through proper management of
Information.
- Moved from centralization to decentralization but keeping all strengths of
centralization.
- Effective communication, effective delegation of work, effective management of
projects.
- Global markets and dynamic nature of business at fast changing information age.

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Check point
Dear learners, How much did you know about the evolution as well as the characteristics of
the information age? Briefly explain your answer.
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1.6 What Is Information Technology?

Information Technology (IT) is the branch of engineering that deals with the use of
computers and telecommunications to retrieve, store and transmit information. In a business
context, the Information Technology Association of America has defined information
technology (IT) as "the study, design, development, application, implementation, support or
management of computer-based information systems".

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: the computer processing unit; various input,
output, and storage devices; and physical media to link these devices together.

The Career Side of Information Technology

Information technology is such a broad term that it is difficult to define it concisely – it
includes developing and supporting all computer software and even hardware. Information
technology is, therefore everywhere and since it has so completely transformed how we live,
jobs are numerous in this field.

Some of the careers in Information Technology include:

- Software engineers
- Software developers
- Programmers
- Systems engineers
- Information Technology consultants
- Information Technology managers
The field of information technology is a technical field and almost all jobs require at least a
bachelor’s degree in a relevant subject. However, professional growth is more favorable for

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people with postgraduate degrees in computer science and related fields. A further business
administration degree can lead to jobs in more decision-making capacities.
Check point

Dear learner, define information technology and list out its career opportunities.

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Chapter summary
Management Information System is a sub-system of organization that gives the people in-
charge of organization by providing right information that they need to take decisions at right
time. Management information systems are not only computer systems - these systems
encompass three primary components: technology, people (individuals, groups, or
organizations), and data/information for decision making. MIS is mainly important in that it
minimizes information overload, encourages decentralization, brings co-ordination among
organizational members, makes control easier and help managers in their decision making
task.
There are five main resources that we need in MIS namely people, hardware, software, data
and networking resources.
The technical approach, the behavioural approach and the socio-technical approaches are the
three contemporary approaches in MIS.
Information Technology (IT) is the branch of engineering that deals with the use of
computers and telecommunications to retrieve, store and transmit information. It is one of
many tools managers use to cope with change. Some of the careers in Information
Technology include Software engineers, Software developers, Programmers, Systems
engineers, Information Technology consultants, Information Technology managers

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 CHAPTER TWO

FOUNDATIONAL CONCEPTS IN MIS

Chapter objectives

After completing this chapter, students will be able to:

 Define the concept s of data information knowledge & wisdom

 Describe the information needs & source of manpower.

 Understand frame work for information systems

 Explain the business systems

Dear student, how can you define management? Take a moment and write your answer
briefly.

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Well! Compare your answer with what is available below.

2.1 Understanding Management

Management is the process of getting a work done effectively by using limited resources.
Although there are many definitions of management, some of the famous definitions are:
a) “Management is the art of getting things done through people” ~ By Mary Parker.

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b) “To manage is to forecast, to plan, to organize, to command, coordinate and control”
~ Henry Fayol (Father of Principles of Management).
c) “Management is knowing exactly what you want to do and then seeing that they do it
in the best and cheapest way.” ~ Frederick Winslow Taylor (Father or Scientific
Management).
d) “Management is a multipurpose organ that manages a business, manages managers
and manages worker and work.” ~ Peter Drucker.

Management is a vital aspect of the economic life of human being, which is an organized
group activity. A central directing and controlling agency is indispensable for a business
concern. The productive resources – material, labor, capital etc. are entrusted to the
organizing skill, administrative ability and enterprising initiative of the management. Thus,
management provides leadership to a business enterprise.

2.2 Business and Management Functions

Although different authors describe distinct set of managerial functions, the most accepted
set of managerial functions can be defined as POSDCoRB.

 P– Planning: Deciding what needs to happen in the future (today, next week, next
month, next year, over the next five years, etc.) and generating plans for action.
 O– Organizing: Arranging necessary resources for the work to be done, pattern of
relationships among resources, making optimum use of the resources required to enable
the successful carrying out of plans.
 S– Staffing: Assessing manpower requirements, recruiting and hiring for the available
job positions.
 D– Directing: Determining what needs to be done in a situation and getting people to do
it.
 Co– Coordinating: Checking progress against plans and linking the courses to a
common goal.
 R– Reporting: Give a spoken or written account of something that one has observed,
heard, done, or investigated.
 B– Budgeting: To provide a forecast of revenues and expenditure to be met by the
organization within a specific future.

Organizations differ considerably in their activities. However, their strategies and the way in
which they seek to add value we can identify some functions which they usually have in

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common. There may be many functions for an organization, like Production/Operations,
Marketing, Finance, Human Resource Management, Logistics, Information Technology &
Communications, etc. Some of the most common business functions in Organizations are
explained below:

A. Operations: This involves the actual production and delivery of the product or
service. In the primary sector this may mean growing the product (e.g. farming) or
extracting it (e.g. oil); in the secondary sector this involves activities such as
assembly, manufacture and construction and in the tertiary sector this involves
providing a service such as tourism, education and insurance. Operational decisions
include deciding where to produce, how to produce (e.g. what combination of
resources to use and how much to produce yourself compared to how much to buy in),
what volume and range of products to produce and what quality and cost targets to
achieve. It also involves research and development into new products and processes.

B. Marketing: The marketing activities of a business begin with identifying customer

needs and wants. This may be through primary market research (which involves
collecting new data e.g. through surveys) or secondary market research (which uses
data that already exists such as government statistics or industry surveys). Having
identified customers' requirements marketing activities aim to satisfy these needs
through ensuring the firm provides the right products, at the right place and price and
at the right time. Firstly, a marketing strategy must be decided: for example, managers
must decide on what markets to compete in and what range of products to offer.
Secondly, the strategy is implemented via the marketing mix. The marketing mix
involves the 4Ps: deciding on the product to be produced, the price, the promotion
(what is communicated about the product and how it is communicated) and the place
(i.e. how it is distributed from the firm to the customers).

C. Finance: Organizations need to raise finance to get started and to invest into new
projects. For example, a company may raise finance by selling shares to investors or
by taking out a loan. The former involves a loss of control as the number of owners is
increased. The latter will incur interest charges as the loan will have to be repaid.
Firms also need to set financial targets and allocate money within the business; this is
known as budgeting. Budgets will be set for a given period in the future and then
compared with the actual outcomes to examine why differences occurred; this is

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 known as variance analysis. Organizations will also produce financial reports to their
investors such as balance sheets (which show what a firm owns and owes on a given
day) and the profit and loss account (which shows the revenues and profit of a
company over the last year or operation period).

D. Human Resource Management (HRM): All organizations rely on their employees

and HRM refers to the way in which people are managed. HRM involves activities
such as the recruitment and selection of staff, the training of people and the
development and implementation of appropriate reward systems. The nature of these
activities can have a big impact on the way people perform. A payment system based
on commission, for example, will inevitably make employees focus on sales; a profit
sharing scheme might make them focus on costs as well. The way that people are
managed will influence whether they turn up for work, how productive they are and
their openness to change.

Check point

1. Dear student, can you mention some of the business functions?

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2. What are the functions of management?
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2.3 Data, Information, Knowledge and Wisdom (DIKW Pyramid)

The DIKW Pyramid, also known variously as the "DIKW Hierarchy", "Wisdom Hierarchy",
the "Knowledge Hierarchy", the "Information Hierarchy", and the "Knowledge Pyramid",
refers loosely to a class of models for representing purported structural and/or functional
relationships between data, information, knowledge, and wisdom.

The presentation of the relationships among data, information, knowledge, and sometimes
wisdom in a hierarchical arrangement has been part of the language of information science

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for many years. Although it is uncertain when and by whom those relationships were first
presented, the ubiquity of the notion of a hierarchy is embedded in the use of the acronym
DIKW as a shorthand representation for the data-to-information-to-knowledge-to-wisdom
transformation.

Data: is conceived as symbols or signs, representing stimuli or signals, that are of no use
until...in a usable (that is, relevant) form. Data consists of representations of events, people,
resources, or conditions. The representations can be in a variety of forms, such as numbers,
codes, text, graphs, or pictures.

Information: is useful facts extracted from data which is used for decision-making.
Information is contained in descriptions, and is differentiated from data in that it is "useful".
Information is defined as data that are endowed with meaning and purpose. Information is a
result of processing data. It provides the recipient with some understanding, insight,
conclusion, decision, confirmation, or recommendation. The information may be a report, an
analysis, data organized in a meaningful output, a verbal response, a graph, picture, or video.

Knowledge: is a fluid mix of framed experience, values, contextual information, expert

insight and grounded intuition that provides an environment and framework for evaluating
and incorporating new experiences and information. It originates and is applied in the minds
of knower's. In organizations it often becomes embedded not only in documents and
repositories but also in organizational routines, processes, practices and norms.

Wisdom: is the ability to increase effectiveness. Wisdom adds value, which requires the
mental function that we call judgment. The ethical and aesthetic values that this implies are
inherent to the actor and are unique and personal. We can say that wisdom is the practical
application of knowledge into problem-solving. In other words, knowledge is information
organized and processed to convey understanding, experience, accumulated learning, and
expertise. It provides the basis for action. Knowledge may be procedural (how to do
something), formal (general principles, concepts, and procedures), tacit (expertise from
experience that is somewhat hidden), and Meta knowledge (knowledge about where
knowledge is to be found).

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Figure 2.1 DIKW Pyramid

Characteristics of Information:

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The parameters of a good quality are difficult to determine for information. Quality of
information refers to its fitness for use, or its reliability. Following are the essential
characteristic features of information:
I) Timeliness: Timeliness means that information must reach the recipients within the
prescribed timeframes. For effective decision-making, information must reach the decision-
maker at the right time, i.e. recipients must get information when they need it. Delays destroy
the value of information. The characteristic of timeliness, to be effective, should also include
up-to-date, i.e. current information.
II) Accuracy: Information should be accurate. It means that information should be free from
mistakes, errors &, it should be clear. Accuracy also means that the information is free from
bias. Wrong information given to management would result in wrong decisions. As
managers’ decisions are based on the information supplied in MIS reports, all managers need
accurate information.
III) Relevance: Information is said to be relevant if it answers especially for the recipient
what, why, where, when, who and why? In other words, the MIS should serve reports to
managers which are useful and the information helps them to make decisions.
IV) Adequacy: Adequacy means information must be sufficient in quantity, i.e. MIS must
provide reports containing information which is required in the processes of decision-making.
The report should not give inadequate or for that matter, more than adequate information,
which may create a difficult situation for the decision-maker. Whereas inadequacy of
information leads to crises, information overload results in chaos.
V) Completeness: The information which is given to a manager must be complete and
should meet all his/her needs. Incomplete information may result in wrong decisions and thus
may prove costly to the organization.
VI) Explicitness: A report is said to be of good quality if it does not require further analysis
by the recipients for decision making.
VII) Impartiality: Impartial information contains no bias and has been collected without any
distorted view of the situation.
Check point

1. Dear learner, what do you mean by DIKW?

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2. Briefly explain the steps to reach the stage of wisdom.
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3. What are the essential characteristic features of information?
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2.4 The Information Needs and Sources of Managers

Businesses and other organizations need information for many purposes. Anyhow, we can
summarize the five main uses of information in business firms as below:

A. 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.
Hence, information regarding external environment and internal environment are
essential at planning stage.

B. Executing: Executing is the stage where the plans are being implemented at
organizations. Even during the phase of execution, managers require information
about the operational environment to make sure that the process of implementation is
taking place in the right path. Moreover, information is essential at this stage to assess
the effects of execution.

C. Reporting: Information is essential to be used at reporting, especially reporting to the

superiors within the organization and reporting to external bodies such as government
authorities.

D. Resource Appraisal: At the stage of resource appraisal, especially employee

appraisal, information about the resource performances are vital to managers and their
organization.

E. Decision-making: Information used for decision-making is often categorized into

three types:

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 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.
II. Tactical Information: this is used to decide how the resources of the business
should be employed.
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).

When it comes to the sources of information, we can broadly classify various sources of
information into Primary Sources and Secondary Sources. Although, neither of them is
superior to each other, depending on decision-making situations importance varies on them.
A. Primary Sources: are the original materials that the decision-maker has gathered
specifically for the purpose of solving the particular problem. This includes
information collected through surveys, observations, questionnaires, experiments,
opinion polls, etc.
B. Secondary Sources: are that information gathered by the decision-maker from
already existing sources. They are not specifically gathered for his existing problem,
but reused by the decision-maker from other sources such as magazines, newspapers,
reports, archives, databases, etc.

Check point

1. Why do organizations and managers need information?

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2. What could be the sources of information? Briefly explain

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2.5 Business Systems and e-Business

A business system, also known as a business information system, is a structure put in place
within an organization with the purpose of improving effectiveness and efficiency. There are
many kinds of business systems within an organization, with some touching on only one

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specific area of the business. Business systems help organizations function on a daily basis
and in the long term. Some of the most common Business Systems are as below:

A. Decision Support System (DSS): Also known as executive support systems, this
type of business system enables higher management and executives to make long-
term strategic decisions on the direction of the business. This type of system is
flexible as it is not required for the daily operation of the business and only applies to
particular situations. It collects, analyzes and sums up key internal and external data
that is then used in the business by senior executives when developing their strategic
plans.

B. Management Information System (MIS): This type of business system is designed

to help middle and lower management make choices and solve problems. A
management information system is made of tools and techniques that help gather the
relevant information and analyze the options and alternative solutions. Managers then
use the results of this type of system to handle various queries as quickly as they can.

C. Knowledge Management System (KMS): A knowledge management system is put

in place in businesses to allow for easier creation and sharing of information. This
type of business system is typically used in organizations where employees create
new knowledge and expertise to be shared by their colleagues. A good knowledge
management system allows for efficient classification and distribution of knowledge.
Intranets are examples of knowledge management systems.

D. Transaction Processing System (TPS): As its name implies, a transaction

processing systems exists to process routine transactions. A single organization
usually has several types of transaction processing systems including a billing system,
an accounting system, a payroll system, an inventory control system and so on. They
normally help improve employee productivity, and are vital to the daily operations of
the business. This type of business system can be customized to the nature of the
organization.

e-Business or Electronic Business is a term used to describe businesses run on the Internet,
or utilizing Internet technologies to improve the productivity or profitability of a business. In
a more general sense, the term may be used to describe any form of electronic business - that

21
is to say, any business which utilizes a computer. This usage is somewhat archaic, however,
and in most contexts e-business refers exclusively to Internet businesses.

The most common implementation of e-business is as an additional, or in some cases

primary, storefront. By selling products and services online, an e-business is able to reach a
much wider consumer base than any traditional brick-and-mortar store could ever hope for.
This function of e-business is referred to as e-commerce, and the terms are occasionally used
interchangeably.
An e-business may also use the Internet to acquire wholesale products or supplies for in-
house production. This facet of e-business is sometimes referred to as e-procurement, and
may offer businesses the opportunity to cut their costs dramatically. Even many e-businesses
which operate without an electronic storefront now use e-procurement as a way to better track
and manage their purchasing.

In addition to buying and selling products, e-business may also handle other traditional
business aspects. The use of electronic chat as a form of technical and customer support is an
excellent example of this. An e-business which uses chat to supplement its traditional phone
support finds a system which saves incredible amounts of time while providing opportunities
unavailable through traditional support. By using virtual computer systems, for example,
technical support operators can remotely access a customer's computer and assist them in
correcting a problem. And with the download of a small program, all pertinent information
about the hardware and software specifications for a user's computer may be relayed to the
support operator directly, without having to walk a customer through personally collecting
the data.

Using e-mail and private websites as a method for dispensing internal memos and white
sheets is another use of the Internet by e-business. Rather than producing time-intensive and
costly physical copies for each employee, a central server or e-mail list can serve as an
efficient method for distributing necessary information.

In the past few years, virtually all businesses have become, to some degree or another, an e-
business. The pervasiveness of Internet technology, readily available solutions, and the
repeatedly demonstrated benefits of electronic technology have made e-business the obvious
path. This trend continues with new technologies, such as Internet-enabled cell phones and

22
Personal Digital Assistant (PDA), and the trend of e-business saturation will most likely
continue for some time.

Check point

1. What do you mean by a business system?

______________________________________________________________________
__________________________________________________
2. Mention and briefly discuss some of the business systems
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
__
3. What is e-Business? Explain briefly
______________________________________________________________________
______________________________________________________________________
__________________________________________________________

23
Chapter summary
Management is the process of getting a work done effectively by using limited resources. In
another word it employs the functions of planning, organizing, staffing, directing, co-
coordinating, reporting and budgeting function in order to achieve group and organizational
goals.

Operations, Finance, Marketing and Human Resource Management (HRM) are the most
common business functions in Organizations. DIKW is a pyramid composed of four
variables namely Data, Information, and Knowledge and at the top of the pyramid there is
Wisdom. The DIKW pyramid shows how the raw data will become precious wisdom.

In order to be quality information any information must fulfil timeliness, accuracy, relevance,
completeness, explicitness, and impartiality characteristics. Organizations and managers need
information for their planning, executing, reporting, resource appraisal and decision making
tasks. Moreover they can get such kind of information either from the primary or secondary
sources.

A business system, also known as a business information system, is a structure put in place
within an organization with the purpose of improving effectiveness and efficiency. There are
many kinds of business systems within an organization, but the most common Business
Systems are Decision Support System (DSS), Management Information System (MIS),
Knowledge Management System (KMS) and Transaction Processing System (TPS). DSS is
mainly used by top management bodies to make strategic and long term decisions whereas
the MIS is mainly utilized in the middle and lower levels of management. On the other hand
KMS is mainly used in organizations in which employees create new knowledge and
expertise that will be shared by their colleagues. The fourth business system, TPS is used to
facilitate and process the day to day routine transaction of the business. An Electronic

24
Business or e-Business is a term used to describe businesses run on the Internet, or utilizing
Internet technologies to improve the productivity or profitability of a business. In a more
general sense, the term may be used to describe any form of electronic business - that is to
say, any business which utilizes a computer. However, and in most contexts e-business refers
exclusively to Internet businesses. By selling products and services online, an e-business is
able to reach a much wider consumer base than any traditional brick-and-mortar store could
ever hope for. This function of e-business is referred to as e-commerce, and the terms are
occasionally used interchangeably.

CHAPTER THREE

INFORMATION TECHNOLOGY
Chapter objectives

At the end of this chapter, students will be able to:

 Understand the concept of IT

 Explain the main is concepts (hard ware programs
 Describe the communication technologies
 Explain the database management concepts.

Dear learners, define Information Technology (IT) before you look at the definition given below.
________________________________________________________________
____________________________________________________________

3.1 Introduction
Information Technology (IT) is the branch of engineering that deals with the use of computer and
telecommunication to handle data, information, and processes. IT plays a vital role in the lives of
people. Every field of human activity, may it be his/her daily life, official life, everything is now
influenced under the cover of information technology. Business process under the IT revolution which
is transforming the way we do the business. Basic business operations like decision making, customer
service, marketing strategies, human resource management, etc are being reformed with the use of
information technology.

Information technology can be defined in various ways, but is broadly considered to encompass the
use of computers and telecommunications equipment to store, retrieve, transmit and manipulate data.
In a business context, the Information Technology Association of America has defined information
technology (IT) as "the study, design, development, application, implementation, support or
management of computer-based information systems."

25
Businesses use IT in four ways. These are to support:

1. Information-processing tasks,
2. Decision-making tasks,
3. Shared information through decentralized computing, and
4. Innovation.

1. Supporting Information-Processing Tasks

First and foremost, businesses are using IT to support basic information-processing tasks. These tasks
range from computing and printing payroll checks, to creating presentations, to setting up web sites
from which customers can order products. The following are the 5 C's of information-processing
tasks:

Capturing information- at the point of origin with input devices.

Conveying information- in its most useful form with output devices.
Creating information- to obtain new information with the CPU and internal memory
(RAM).
Cradling information- for use at a later time with storage devices.
Communicating information- to other people or another location with
telecommunications technologies.

Table 3.1: The 5 C's: Categories of Information-Processing Tasks and IT Tools

Information-Processing Task Description IT Tools

Capturing information Obtaining Input technologies:

information at its  Mouse
point of origin  Keyboard
 Bar code reader
Conveying information Presenting Output technologies:
information on its  Screen
most useful form  Printer
 Monitor
Creating information Processing Computer’s brain:
information to create  CPU
new information  RAM
Cradling information Storing information Storage technologies:
for later use  Hard disk

26
  CD-ROM
 DVD
Communicating information Sending information Telecommunications
to other people or technologies:
another location  Modem
 Satellite
 Digital pager

2. Supporting Decision–Making Tasks

When businesses use IT to process information such as payroll or sales order, we refer to it as online
transaction processing. Online Transaction Processing (OLTP) involves gathering input
information, processing that information, and updating existing information to reflect the gathered
processed information. Businesses also use IT to support decision-making tasks, what we call online
analytical processing. Online Analytical Processing (OLAP) is the manipulation of information to
support decision making.

OLAP can range from performing simple queries on a database to determine which customers have
overdue accounts to employing sophisticated artificial intelligence tools such as neural networks and
genetic algorithms to solve a complex problem or take advantage of an opportunity. So, we say that
OLTP supports efficiency (doing things the right way-the cheapest, the fastest, and so on) while
OLAP supports effectiveness (doing the right things or making the right decisions).

3. Support Shared Information through Decentralized Computing

Decentralized computing is an environment in which an organization splits computing power and

locates it in functional business areas as well as on the desktops of knowledge workers. This is
possible because the proliferation of less expensive, more powerful, and smaller systems including
desktop computers, laptop computers, and minicomputers.

Shared information- is an environment in which an organization’s information is organized in one

central location, allowing anyone to access and use it as they need to.

4. Supporting Innovation

IT tools not only support information-processing tasks, decision-making tasks, and shared information
through decentralized computing, they also enable innovation. Consider FedEx-the first package
freight company to offer package of delivery software that its customers can use to electronically
request package pickup and check the status of packages during delivery. All the other major package

27
delivery services were forced to quickly develop similar software or risk losing their customer base to
a company that provided a more innovative and efficient way to handle information– processing tasks
related to delivering packages.

The Functions of Information Technology

Information Technology is made up of nine (9) major functions, namely; Capture, Verifying,
Processing/Manipulation, Storage, Retrieval, Data Update, Reproducing, Transmit /Communication,
and Generation.

 Capture: The process of compiling detailed records of activities. This could be by recording
of data from an event or occurrence, in some form such as sales slips, personnel forms,
purchase orders, meters, course registration forms, etc.

 Verifying: Is the operation for checking or validating of data to ensure it was captured and
recorded correctly.

 Processing/Manipulation: The process of converting, analyzing, computing, and

synthesizing all forms of data or information.

 Classifying: Is the operation for placing data elements into specific categories such as size,
type, customer, etc.

 Arranging (Sorting): This is placing data elements in a specified or predefined sequence.

 Calculating: This entails the arithmetic and/or logical manipulation of data e.g. computations
to derive employee’s pay, customer’s bills etc.

 Summarizing: Reducing data in logical sense. For example the school principal may only be
interested in the total amount of the development levies collected out of the total school fees.

 Storage: This entails placing data onto some storage media such as magnetic disk, etc where
it can be retrieved when needed.

 Retrieval: This entails searching out and gaining access to specific data elements from the
medium where it was stored for further processing or for transmission to another user.

28
  Transmission/Communication: The computer process of distributing information over a
communications network. This entails transfer of data from one place to another example data
can be transferred from a device to a user in form of a report or a display on the screen of a
computer controlled terminal.

 Electronic Mail, or E-Mail

 Voice Messaging, or Voice Mail

 Generation: The process of organizing information into a useful form, whether as numbers,
text, sound, or visual image

The Benefits of Information Technology

The benefits of IT are information processing speed, consistency, accuracy and reliability.

Figure 3.1 the benefits of IT

The Opportunities of Information Technology
• Helping People
• Solving Problems:

Problem is a perceived difference between an existing condition and a desired condition.

Problem Solving: The process of recognising a problem, identifying alternatives for solving
it, and successfully implementing the chosen solution.

Information technology is all around us, improving our lives especially in areas such as:
• Media
– Print (Newspaper, Magazines, Posters and Billboard).
– Electronic (Television, Radio and Internet).

29
 • Education, training, entertainment, shipping, paperwork, money and investments,
agriculture, taxation and accounting, health and medicine, manufacturing, journalism,
energy, and sports.

Computer: An electronic system that can be instructed to accept data as an input, process it
and gives a result as an output, and in turn stores the data for retrieval in the long run is a
computer. Computer is an electronic device operating under the control of instructions stored
in its memory. That is, a computer is a device that:

A. Is electronic- means it can do processing quickly

B. Can store data- data is available for processing when needed
C. Can store and follow a set of software instructions, called program, that tell the
computer what to do. That is, it can perform processing without human intervention.

Computer System: The computer system is made up of two component parts (Hardware and
Software). These components integrate and interrelate. They do this independently by
interacting together to perform the basic operations of the computer system. A system is a set
of components that interact to accomplish a purpose.
 Single-User System (Personal Computer): An IT system used by only one person.
A system that stands alone and is not interconnected with other companies or shared
by other people.

 Multi-user System: A communication system in which more than one user share
hardware, programs, information, people, and procedures.
 To share a computer
 To share hardware
 To share software
 To share information
 To share communications

Check point?

1. Define IT

___________________________________________________________________________
__________________________________________________________________________

2. What are the functions of IT?

30
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
_________

3. Mention the benefits of IT

___________________________________________________________________________
___________________________________________________________________________

3.2 Hardware: Computing, Storing and Communicating

Dear learners, what is computer hardware? Could you mention some of computer hardware
parts?

___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________
Well!
The hardware component is the physical component of a computer system, i.e., those parts of
the computer that can be touched, felt and seen physically. More or less, the hardware
component consists of a combination of different devices which play specific roles in the
operation of the computer system. A computer has 5 basic hardware components: the input
devices, output devices, primary storage, the mother board, and secondary storage.
a) Input devices: accept data from outside the computer and convert it into an electronic
form that the computer can understand. The data that it accepts is input data. For
example, to compute employee payment in a business, the input data would include the
employees’ names, pay rates, and hours worked. Common input devices are Keyboard,
Mouse, Scanner, Camera, Touch Screen, etc.

31
Figure 3.2 The Input Device
b) Output devices: perform the opposite of input devices. They convert data from
electronic form inside the computer to a form that can be used outside the computer. This
converted data is the output data or information. For example, the output from payroll
computation would include pay cheques, with employees’ names and pay. An output
device would produce this data in a form understandable to the user. Common output
devices are screens, monitors, printers, etc. Most computers have several input and
output devices attached at one time. For example, a multiple user computer may have
many keyboards & screens as well as several printers. A PC usually has two input
devices (a keyboard & a mouse) and two output devices (a screen & a printer).

32
 Figure 3.3 The Output Device

c) Primary Storage: also called internal storage, is the “memory” of the computer. Primary
Storage/Primary Memory/Main Memory/Internal Memory: Storage within the computer
itself. Primary memory holds data only temporarily, as the computer executes instructions.
Primary or main memory is always connected to the processor. In a computer it is usually in
the same box as the processor. When you type instructions on the keyboard of your computer,
they are put into the main memory. There are two parts of the main memory:
o Random Access Memory (RAM).
o Read Only Memory (ROM), and
 Random-Access Memory (RAM): Memory that permits data or information to be
written into or read from memory only as long as the computer is turned on. It is the
memory used to store instructions and data needed by the Central Processing Unit
(CPU).
 Read-Only Memory (ROM): A type of storage that offers random access to memory
and can hold data and information after the electric current to the computer has been
turned off.

33
An input device converts input data into electronic form and sends the data to the primary
storage, where the data is stored. It is a volatile storage, i.e., when if the power to the
computer is turned off, all data in the primary storage will be lost. Example, RAM (random
access memory).
d) The motherboard: The motherboard is the main component inside the computer. It is a large
rectangular board with integrated circuitry that connects the other parts of the computer including the
CPU, the RAM, the disk drives (CD, DVD, hard disk, or any others) as well as any peripherals
connected via the ports or the expansion slots.

The Central Processing Unit (CPU): the CPU, also called the processor, carries instructions in the
program. The CPU or processor is the computer hardware that executes program instructions and
performs the computer’s processing actions. The CPU is known to be the brain and the computational
unit of the System Unit (SU). It performs the following major functions:

– Coordinating the activities of all units or devices associated with the computer system.
– Accepting and executing instructions to cause the computer system unit to perform
tasks.
It contains electronic circuits that perform arithmetic (e.g., hrs*pay rate) and logical
operations (e.g., how much income tax each employee should pay). Data is brought from the
primary storage to the CPU, where it is processed by these circuits, and the results of
processing are sent back to the primary storage. The CPU also contains electronic circuits
that that control the other parts of the computer. These circuits perform their functions by
following the instructions in the program, which the computer stores in the primary storage.

34
Figure 3.4 The Motherboard
e) Secondary storage: also called auxiliary storage, which stores data not currently being
processed by the computer and programs not currently being performed. Its function differs
from that of the primary storage, which stores the data and instructions that are currently
processed by the computer. For example, if the computer is currently doing payroll
processing, it stores the employee data and the payroll computation program in the primary
storage. The computer stores other data and programs that are not currently being used in the
secondary storage and brings them into the primary storage when needed. Secondary storage
is permanent storage. Common types of secondary storage are magnetic disk (hard disk,
floppy disk, flash disk) and optical disk (CD-ROM). Secondary storage and input & output
device are often called peripheral equipment because they are located outside the central part
of the computer, that is the CPU and the primary storage.

The Differences between Storage and Memory

Although the functions of storage and memory are similar, they work in different ways.
• There is more room in storage than in memory, just as there is more space in a file cabinet
than on a table top.
• Contents are retained in storage when the computer is turned off, whereas the program or
data you put into memory disappear when you shut down the computer.
• Storage is very slow compared to memory, but it is much cheaper than memory.

Check point?

35
 1. mention and briefly explain about components of the computer hardware

________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
____________

2. What is the difference between RAM and ROM?

_______________________________________________________________
_______________________________________________________________
_____________________________________________________

3.3 Software (Programs): In Charge of the Hardware

Dear learners what is software? How much is it important in running computers?
________________________________________________________________
________________________________________________________________
__________________________________________________________
Well!

Computer software, or just software, is a collection of computer programs and related data that
provides the instructions for telling a computer what to do and how to do it. Software refers to one or
more computer programs and data held in the storage of the computer. In other words, software is a
set of programs, procedures, algorithms and its documentation concerned with the operation of a data
processing system. Program software performs the function of the program it implements, either by
directly providing instructions to the digital electronics or by serving as input to another piece of
software. The term was coined to contrast to the old term hardware (meaning physical devices). In
contrast to hardware, software "cannot be touched". Anything that can be stored electronically is
software.

Computer software is a computer program that govern/determine/control the operation of the

computer. A program is a set of instructions that tells the computer what to do. Software can be a
single program or a group of programs needed to perform several functions. The real power and use
of what the computer can do, however, is largely a function of the software that is installed into these
various systems. The most fundamental of the software functions is the operating system (OS) that

36
runs the computer. Examples of the operating system include Windows XP, Windows 2000, Linux,
Mac OC, and Unix. These provide different processes through which we operate and work on our
computer systems. The software directs the computer to perform very specific tasks such as creating a
financial spreadsheet/statement/model, preparing a slide presentation, or writing a document on a
word processing program.

The distinction between software and hardware is sometimes confusing because they are so integrally
linked. Clearly, when you purchase a program, you are buying software. But to buy the software, you
need to buy the disk (hardware) on which the software is recorded. Computer software is typically
classified into three major types of programs:

I. Systems Software: Programs that manage and support the resources and operations of a computer
system as it performs various information processing tasks. These programs can be classified as:

a) System Management Programs: programs that manage the hardware, software, and data
resources of the computer system during its execution of the various information processing jobs of
users. The most important system management programs are operating systems.

b) System Support Programs: programs that support the operation and management of a computer
system by providing a variety of support services. Major support programs are system utilities.

c) System Development Programs: programs that help users develop information system programs
and procedures and prepare user programs for computer processing. Major development programs are
language translators, programming tools, and CASE (Computer- Aided Software Engineering).

II. Applications Software: Programs that direct the performance of a particular use, or application of
computers that meet the information processing needs of end users. Application software can be
classified as:

a) General purpose application programs: are programs that perform common information
processing jobs for end users. For example, word processing programs, spreadsheet programs,
database management programs, and graphics programs.

b) Application specific programs: thousands of application software package are available to

support specific applications of end users. Major categories of such application specific programs are
Business application programs (Accounting, marketing-sales analysis, human resource management-
employee benefits analysis), Scientific application programs, also there are other application programs
in education, video game programs, and computer-generated music and art programs. Specific
applications software include programs such as Microsoft’s Word (word processing), Power Point
(presentations), and Excel (financial spreadsheets).

37
III. IT Procedures: Are operating instructions for the people who will use an information system.
Examples are instructions for filling out a paper form. A procedure is a step-by-step process or a set of
instructions for accomplishing specific results. Procedures include the strategies, policies, methods,
and rules for using the computer-based information systems.

The four types of procedures are: Operations, Backup and Recovery, Security, Development.
a) Operations Procedure: A procedure that describes how a computer system or application
is used, how often it can be used, who is authorized to use it, and where the results of
processing should go.
b) Backup Procedure: A procedure that describes how and when to make extra copies of
information or software to protect against losses.
c) Recovery Procedure: An action taken when information or software must be restored.
d) Security Procedure: A procedure designed to safeguard data centres, communications
networks, computers, and other IT components from accidental intrusion or intentional
damage.
e) Security Software: Software that is designed to protect systems and data.
f) Development Procedure: A procedure that explains how IT professionals should describe
user needs and develop applications to meet those needs.

Check point?
1. What is computer software?
_____________________________________________________________
____________________________________________________________
2. List out and briefly explain the three major types of computer software.
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_________

38
3.4 People: The Most Important Element; and Procedures
Dear students, how much do you think human beings are important in IT?
________________________________________________________________
________________________________________________________________
___________________________________________

The single most important resource in an organization is not technology, but it is people. Technology
is a tool that can help an organization produce and manage information more efficiently. In the end,
the most important thing to an organization is what its people decide to do with the information.
Therefore, it is important that you become a technology-literate knowledge worker. A technology-
literate knowledge worker is a person who knows how and when to apply technology. You cannot
apply technology to any given process and expect that process instantly efficient and effective. There
is a need of people resources to operate and organize all Management Information System. These
people resources have two categories:

iii. End User: End user is the client of a Management Information System. The people who
use an information system or produced information. In this category we include all kind
of a worker or employee of an organization or library users as an end users.

iv. Information System Specialists: It is second category of people resource. Specialists are
those people who developed and operate a system; we can include systems analysts,
system operators and software developers in this category.

Where there is importance for people as resources, there is also importance for procedures to practice
technology in the right manner to score right solutions. If people act as the proprietors of MIS,
procedures are the bounding norms of an MIS.

Check point?

1. Why peoples are the most important element in IT?

__________________________________________________________________________________
_____________________________________________________________

2. What are the two categories of people elements in IT?

39
 _______________________________________________________________
_______________________________________________________________
_____

3.5 Information: The Reasons for Using Information Technology

A popular approach for describing information systems is that proposed by Harsh and colleagues.
They define information as one of four types and all these types are important component of a
management information system. Furthermore, the various types build upon and interact with each
other. A common starting level is Descriptive Information. This type of information portrays the
“what is” condition of a business, and it describes the state of the business at a specified point in time.
Descriptive information is very important to the business manager, because without it, many problems
would not be identified. Descriptive information includes a variety of types of information including
financial results, production records, test results, product marketing, and maintenance records.

The second type of information is Diagnostic Information, This information portrays “what is
wrong” condition, where “what is wrong” is measured as the disparity between “what is” and “what
ought to be.” This assessment of how things are versus how they should be (a fact-value conflict) is
probably our most common management problem. Diagnostic information has two major uses. It can
first be used to define problems that develop in the business. Are production levels too low? Is the
rate earned on investment too low? These types of question cannot be answered with descriptive
information alone (such as with financial and production records). A manager may often be well
supplied with facts about his/her business, yet be unable to recognize this type of problem. The
manager must provide norms or standards which, when compared with the facts for a particular
business, will reveal an area of concern. Once a problem has been identified, a manager may choose
an appropriate course of action for dealing with the problem (including doing nothing). Corrective
measures may be taken so as to better achieve the manager’s goals. Several pitfalls are involved for
managers in obtaining diagnostic information. Adequate, reliable, descriptive information must be
available along with appropriate norms or standards for particular business situations. Information is
inadequate for problem solving if it does not fully describe both “what is” and “what ought to be.”

As description is concerned with “what is” and diagnostics with”what is wrong,” prediction is
concerned with “what if...?” Predictive Information is generated from an analysis of possible future
events and is exceedingly valuable with “desirable” outcomes. With predictive information, one either
defines problems or avoids problems in advance. Prediction also assists in analysis. When a problem
is recognized, a manager will analyze the situation and specify at least one alternative (including
doing nothing) to deal with it. Predictive information is needed by managers to reduce the risk and

40
uncertainty concerning technology, prices, climate, institutions, and human relationships affecting the
business. Such information is vital in formulating production plans and examining related financial
impacts. Predictive information takes many forms. What are the expected prices next year? What
yields are anticipated? How much capital will be required to upgrade production technologies? What
would be the difference in expected returns in switching from a livestock farm to a cropping farm?
Management has long used various budgeting techniques, simulation models, and other tools to
evaluate expected changes in the business.

Without detracting from the importance of problem identification and analysis in management, the
crux of management tasks is decision making. For every problem a manager faces, there is a “right”
course of action. However, the rightness of a decision can seldom, if ever, be measured in absolute
terms. The choice is conditionally right, depending upon a farm manager’s knowledge, assumptions,
and conditions he/she wishes to impose on the decision. Prescriptive Information is directed toward
answering the “what should be done” question. Provision of this information requires the utilization
of the predictive information. Predictive information by itself is not adequate for decision making. An
evaluation of the predicted outcomes together with the goals and values of the manager provides that
basis for making a decision. For example, suppose that a manager is considering a new changing
marketing alternative. The new alternative being considered has higher “predicted” returns but also
has higher risks and requires more management monitoring. The decision as to whether to change
plans depends upon the managers evaluation of the worth of additional income versus the
commitment of additional time and higher risk. Thus, the goals and values of a farm manager will
ultimately enter into any decision.

41
Figure 3.5 Types of Information
Characteristics of Information
Quality information has 3 basic dimensions:

 Time dimension
 Content dimension
 Form dimension

Figure 3.5 Dimensions of Quality Information

42
 1. Time Dimension
A. Timeliness: Information should be provided when it's needed.
This means that information must reach the recipients within the prescribed timeframes. For
effective decision-making, information must reach the decision-maker at the right time, i.e.,
recipients must get information when they need it. A delay destroys the value of information.
The characteristic of timeliness, to be effective, should also include up-to-date, i.e. current
information.
 No older than the time period of the action it supports.

B. Currency: Information should be up to date when it's provided.

C. Frequency: Information should be provided as often as needed.
D. Time Period: Information can be provided about past, present, and future time periods.
2. Content Dimension
A. Accuracy: Information should be free from errors.
Information should be accurate. It means that information should be free from mistakes.
Wrong information given to management would result in wrong decisions. A sound system of
automated and manual internal controls must exist throughout all information systems
processing activities. Information should receive appropriate editing, balancing, and internal
control checks. A comprehensive internal and external audit program should be employed to
ensure the adequacy of internal controls.
 Free from material errors
B. Relevance: Information should be related to the information needs of a specific recipient
for a specific situation. Information is said to be relevant if it answers especially for the
recipient what, why, where, when, who and why? In other words, the MIS should serve
reports to managers which are useful and the information helps them to make decisions.
Information that is inappropriate, unnecessary, or too detailed for effective decision making
has no value. MIS must be appropriate to support the management level using it. The
relevance and level of detail provided through MIS systems directly correlate to what is
needed by the board of directors, executive management, departmental or area mid-level
managers, etc. in the performance of their jobs.
 Serves a purpose
C. Completeness: All the information that is needed should be provided.
The information which is given to a manager must be complete and should meet all his needs.
Incomplete information may result in wrong decisions and thus may prove costly to the

43
 organization. Decision makers need complete and pertinent information in a summarized
form. Reports should be designed to eliminate clutter and voluminous detail, thereby
avoiding "information overload."
 All information essential to a decision or task is present
D. Conciseness: Only the information that is needed should be provided.
E. Scope: Information can have a broad or narrow scope, or an internal or external focus.
F. Performance: Information can reveal performance by measuring activities accomplished,
progress made, or resources accumulated.
3. Form Dimension
A. Clarity: Information should be provided in a form that is easy to understand.
B. Detail: Information can be provided in detail or summary form.
C. Order: Information can be arranged in predetermined sequence.
D. Presentation: Information can be presented in narrative, numeric, graphic, or other forms.
E. Media: Information can be provided in the form of printed paper documents, video
displays, or other media.

Check point

1. Dear student, Mention and briefly explain the four types of information?

________________________________________________________________
________________________________________________________________
________________________________________________________________
_________________________________________________

2. What are the three dimensions of quality information?

_________________________________________________________________________________
_________________________________________________________________________________
________________________________________________________________

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3.6 Communication Technologies
Dear learner, what do you mean by telecommunication?

__________________________________________________________________________________
____________________________________________

Well! Compare your answer with what is available below.

Telecommunication is the exchange of information in any form (voice, data, text, images, audio, and
video) over networks. Early telecommunications networks did not use computers to route traffic and,
as such, were much slower than today's computer-based networks. Major trends occurring in the field
of telecommunications have a significant impact on management decisions in this area. You should
thus be aware of major trends in telecommunications industries, technologies, and applications that
significantly increase the decision alternatives confronting business managers and professionals.

Technology trends- Toward extensive use of Internet, digital fiber-optic, and wireless technologies to
create high-speed local and global internet works for voice, data, images, audio, and video
communications.

Application trends- Toward the pervasive use of the Internet, enterprise intranets, and inter
organizational extranets to support electronic business and commerce, enterprise collaboration, and
strategic advantage in local and global markets.

Communications Network (CN) Model

 Many organizations today could not survive without communications network to
service the information processing and communication needs of their end users.
 Communications network is becoming minimum requirement for organizations.
 As managerial end user you will be expected to participate in decisions regarding a
great variety of communications network options.
Generally, a communications network is any arrangement where a sender transmits a message
to a receiver over a channel consisting of some type of medium. A simple conceptual model
of a telecommunications network, which shows that it consists of five basic categories of
components:

45
  Terminals, such as networked personal computers, network computers, or
information appliances. Any input/output device that uses telecommunications
networks to transmit or receive data is a terminal, including telephones and the
various computer terminals.
 Telecommunications processors, which support data transmission and reception
between terminals and computers. These devices, such as modems, switches, and
routers, perform a variety of control and support functions in a telecommunications
network. For example, they convert data from digital to analog and back, code and
decode data, and control the speed, accuracy, and efficiency of the communications
flow between computers and terminals in a network.

Figure 3.6 Communication Networks

 Telecommunications channels, over which data are transmitted and received.

Telecommunications channels may use combinations of media, such as copper wires,
coaxial cables, or fiber-optic cables, or use wireless systems like micro-wave,
communications satellite, radio, and cellular systems to interconnect the other
components of a telecommunications network.
 Computers of all sizes and types are interconnected by telecommunications networks
so that they can carry out their information processing assignments. For example, a
mainframe computer may serve as a host computer for a large network, assisted by a

46
 midrange computer serving as a front-end processor, while a microcomputer may act
as a network server in a small network.
 Telecommunications control software consists of programs that control
telecommunications activities and manage the functions of telecommunications
networks. Examples include network management programs of all kinds, such as
telecommunications monitors for mainframe host computers, network operating
systems for network servers, and Web browsers for microcomputers.

Figure 3.7 Components of Communication Networks

Types of Telecommunications Networks

Many different types of networks serve as the telecommunications infrastructure for the
Internet and the intranets and extranets of internetworked enterprises. However, from an end
user's point of view, there are only a few basic types, such as wide area and local area
networks and client/server, network computing, and peer-to-peer networks.

1. Wide Area Networks: Telecommunications networks covering a large geographic area are
called remote network, long distance networks, or more popularly Wide Area Networks
(WANs). Networks that cover a large city or metropolitan area (Metropolitan Area Networks
MANs) can also be included in this category. Such large networks have become a necessity
for carrying out the day-to-day activities of many business and government organizations and
their end users. Thus, WANs are used by manufacturing firms, banks, transportation
companies, and government agencies to transmit and receive information among their

47
employee, customers, suppliers, and other organizations across cities, regions, countries, or
the world. Internet is world’s largest WAN.

Figure 3.8 Wide Area Networks

2. Local Area Networks (LANs): Connect computers and other information processing
devices within a limited physical area, such as an office, classroom, building, manufacturing
plant, or other work site. LANs have become commonplace in many organizations for
providing telecommunications network capabilities that link end users in offices,
departments, and other work groups.

LANs allow end users in a work group to communicate electronically; share hardware,
software, and data resources. For example, a project team of end users whose microcomputer
workstations are interconnected by a LAN can send each other electronic mail messages and
share the use of laser printers and hard magnetic disk units, copies of electronic spreadsheets
or word processing documents, and project databases. LANs have thus become a more
popular alternative for end user and work group computing than the use of terminals
connected to larger computers.
 Allow end users
Ø To communicate electronically

Ø To share hardware

Ø To share software

Ø To share data resources

48
Figure 3.9 Local Area Networks

3. Client/Server Networks: Have become the predominant information architecture of enterprise

wide computing. In a client/server network, end user PC or Network Computer (NC) workstations are
the clients. They are interconnected by local area networks and share application processing with
network servers, which also manage the networks. (This arrangement of clients and servers is
sometimes called a two-tier client/server architecture.) Local area networks are also interconnected to
other LANs and wide area networks of client workstations and servers. One or more computers act as
server and other computers, or clients, access server.

Figure 3.9 Client/Server Networks

4. Network Computing: The growing reliance on the computer hardware, software, and data
resources of the Internet, intranets, extranets, and other networks has emphasized that for many users,

49
"The network is the computer." This network computing or network-centric view networks as the
central computing resource of any computing environment.

Network computers and other thin clients provide a browser-based user interface for processing
small application programs called applets. Thin clients include network computers, Net PCs, and
other low-cost network devices or information appliances. Application and database servers provide
the operating system, application software, applets, databases, and database management software
needed by the end user in the network. Network computing is sometimes called a three-thin
client/server model, since it consists of thin clients, application servers, and database servers.

5. Peer-to-Peer Networks: The emergence of peer-to-peer (P2P) networking technologies and

applications for the Internet is being hailed as a development that will have a major impact on e-
business and e-commerce and the Internet Itself. Whatever the merits of such claims, it is clear that
peer-to-peer networks are a powerful telecommunications networking tool for many business
applications. It is a simple network that connects fewer than 10 computers. Each computer, or peer,
has equal capabilities.

Figure 3.10 Peer-to-Peer Networks

Network Topologies

In networking, the term topology refers to the layout of connected devices on a network. Topology is
the geometric arrangement of a computer system. The three basic network topologies are the bus, star,
and ring. Each topology has its advantages and disadvantages: usually related to cost, complexity,
reliability and traffic "bottlenecks".

50
 A. Star Topology: The star topology is widely used structure for data communications systems.
 All devices connect to a central device, called hub.
 All data transferred from one computer to another passes through hub.
 Collisions are prevented by the central device.
 If one connection with the hub goes down the rest can continue.
 The hub should be highly reliable.
 More centralized.
 Less reliable: heavy dependence on the central device. If it fails, the others are cut off from
each other.

Figure 3.11 Star Topology

A star network has a central connection point - like a hub or switch. While it takes more
cable, the benefit is that if a cable fails, only one node will be brought down. All traffic
emanates from the hub of the star. The central site is in control of all the nodes attached to it.
The central hub is usually a fast, self-contained computer and is responsible for routing all
traffic to other nodes. The main advantage of a star network is that one malfunctioning node
does not affect the rest of the network. However, this type of network can be prone to
bottleneck and failure problems at the central site.
B. Ring Topology
 Cable forms closed ring, or loop, with all computers and devices arranged along ring.
 Data travels from device to device around entire ring, in one direction.
 No central server.
 More decentralized.
 Messages flow in only one direction.

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 æ No danger of collisions.

 If a connection is broken, the entire network stops working.

The ring topology is another popular approach to configuring networks. As illustrated in figure, the
ring topology is so named because of the circular aspect of the data flow. In most instances data flow
is in one direction only, with one single node receiving the transmission and relaying it to the next
node in the ring. The ring topology is attractive because it is rarely subjected to the bottlenecks
associated with hierarchical and star configurations.

Figure 3.12 Ring Topology

C. Bus Topology
This arrangement is common in local area networks. The main drawback of this topology stems
from the fact that usually only one communications channel exists to service the whole network.
If this channel fails then the whole network may fail.

 All computers and devices connect to central cable, or bus.

 Local computers share the same bus, or communication channel.
 No central server.
 Each device transmits electronic messages to other devices
 More decentralized.
 If messages collide, the device waits and tries to retransmit.
 Transmission from any stations travels entire medium (both directions).
 Break in cable brings down entire bus.

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 Figure 3.13 Bus Topology

Many devices connect to a single cable "backbone". If the backbone is broken, the entire
segment fails. Bus topologies are relatively easy to install and don't require much cabling
compared to the alternatives.

Telecommunications Channels and Media

A telecommunications channel is the link over which data is transmitted when using data
communications. Data is transmitted over a channel as bits. (bit-byte-field-record-file-DB).
 Communication channels use combinations of media such as:
Ø Copper wire
Ø Coaxial cables
Ø Fiber optic cables
Ø Microwave systems and
Ø Communications satellites to interconnect the other network components.

Telecommunications Processors
A computer cannot communicate over a channel by itself; it needs special communications
processors between it and the channel. The two communications processors are:
A. Channel-Interface Devices: a channel cannot be plugged directly into a computer; a
channel interface device is needed to provide the connection between the computer

53
 and the channel. When a computer is connected to an analog channel, a modem is
needed provide the connection.
Computers transmit data using digital signals. To send data over an analog channel, the
digital signal from the computer must be converted to an analog form for transmission, a
process called modulation. The analog data when it reaches the other end of the channel,
must be converted to digital form, which is called demodulation. Modulation and
demodulation are performed by a modem, which stands for modulator-demodulator. There
must be a modem at each end of the channel-one to modulate the signal the other to
demodulate it.

Figure 3.14 Modulation-demodulation

B. Communication Control Units:

o Are used when several computers share channel.
o A device is needed to keep the communications from getting mixed up.
Example, multiplexer & controller.

Telecommunications Software
Software is a vital component of all telecommunications networks. Telecommunications and
network management software may reside in PCs, servers, mainframes, and communications
processors like multiplexes and routers. These programs are used by network servers and
other computers in a network to manage network performance. Network management
programs perform such functions as automatically checking client PCs for input/output

54
activity, assigning priorities to data communications requests from clients and terminals, and
detecting and correcting transmission errors and other network problems. Besides, it Provide
the capabilities for computers to communicate using communications processors and
channels.
 Sends data a computer to a communications processors, which provide special
[processing of the data before sending it over the channel].
 It also sends data for a computer from communications processors after the data has
been received from a channel and processed by the processors.
 Example, network operating system that provides communications capabilities over
a network.

Check point
1. Define communication networks.
___________________________________________________________________________
______________________________________________________
2. Mention and briefly explain about the components and types of communication
networks?
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
______________
3. What is the difference between telecommunications software and processors? Explain
briefly.__________________________________________________________________
________________________________________________________________________
________________________________________________________________________
_________
4. Mention and differentiate the three types of network topologies

__________________________________________________________________________________
__________________________________________________________________________________
______________________________________________________________________

55
3.7 Database Management (DBM)

Information is becoming as important as a business resource as money, material, and people. Even
though a company compiles millions of pieces of data doesn‘t mean it can produce information that
its employees, suppliers, and customers can use. Businesses are realizing the competitive advantage
they can gain by compiling useful information, not just data.

A more rigorous definition of a database is a collection of data organized to serve many applications
efficiently by centralizing the data and controlling redundant data. Rather than storing data in separate
files for each application, data are stored so as to appear to users as being stored in only one location.
A single database serves multiple applications. For example, instead of a corporation storing
employee data in separate information systems and separate files for personnel, payroll, and benefits,
the corporation could create a single common human resources database.

Examples of databases with which we are all familiar include:

• Personal address books

• Telephone books

• Card catalogs at libraries

• Online bookstores

• Personal finance software

• Road maps

A database is a single organized collection of structured data, stored with minimum duplication of
data items so as to provide a consistent controlled pool of data. It is a collection of information
organized in such a way that a computer program can quickly select desired pieces of data. It is a
good program to use to manage list that are entirely numbers, such as addresses and phone numbers,
inventories and membership rosters.

Database = a collection of related data with:

o Logically coherent structure (can be characterized as a whole).

o Some inherent meaning (represents some partial view of a portion of the real world).
o A specific purpose, an intended group of users and applications.

56
 o A largely varying size (from a personal list of addresses to the National Register of
Persons).
o A scope or content of varying breadth (from a personal list of addresses to a
multimedia encyclopaedia).
o A physical organization of varying complexity (from a manual personal list, managed
with simple files, to huge multi-user databases with geographically distributed data
and access).
o Logically-coordinated objectives, data is defined once for a community of users, and
accessed by various applications with specific needs.

You can think of a database as an electronic filing system. Traditional databases are organized by
fields, records, and files. A field is a single piece of information; a record is one complete set of
fields; and a file is a collection of records. For example, a telephone book is analogous to a file. It
contains a list of records, each of which consists of three fields: name, address, and telephone number.

Some basic components of a database are:

1. Entities and Attributes

 Entities: An entity is a business object that represents a group, or category of data. Entity
is basically the person, place, thing, event or condition about which data and information
are collected. For example, a category of information associated with an online bookstore
is book titles. Another category is authors because an author might have written many
books. Entities are objects that are used to logically separate data.

 Attributes: An attribute is a category of data or information that describes an entity.

Each attribute is a fact about the entity. Each characteristic or quality describing an
entity is called an attribute. In the table below, each column describes a characteristic
(attribute) of John Carlos' (who is the entity) address. For example, suppose you have
an entity for book titles. Within the book titles’ entity, several attributes are found, such
as the actual title of the book, the publisher of the book, the author, the date the book
was published, and so on. Attributes are used to organize specific data within an entity.

First Name Last Name Street City State Zip Telephone

John Carlos 111 Main St Centre City Ohio 22334 555-123-6666

 Data Items and Records

57
– Data Item: A specific detail of an individual entity that is stored in a database.
– Primary Key: In a database, a designated field used to distinguish one record from another.
– Relational Database: A database in which the data are structured in a table format
consisting of rows and columns.
– Relation/File: The table in a database that describes an entity.
– Tuples: The rows of a relation. Also called records.
– Fields: The column of a relation. Also called attributes.
Student Database

Course File Financial File

Database
Personal File

Course
File
Student_ID Course Date Grade

39044 IS 101 F06 B+

59432 IS 101 F06 A

64029 IS 101 F06 C

Student_ID Course Date Grade

Record
39044 IS 101 F06 B+

Field IS 101 (Course field)

Byte 0100 1001 (Letter I in ACSII)

Bit 0

Figure 3.15 The Data Hierarchy

What are the Uses of a Database?

58
One of the most traditional manual processes with which most of us are familiar is the management of
information in a file cabinet. Normally, folders are sorted within drawers in a file cabinet. Information
is stored in individual folders in each drawer. There might even be a sequence of file cabinets, or
several rooms full of file cabinets. In order to find a record on an individual, you might have to go to
the right room, and then to the right cabinet, to the right drawer, then to the right folder. Whether a
manual process or a database is utilized, organization is the key to managing information.

Other examples of manual processes might include:

• Working with customers over the phone.

• Taking orders from a customer.

• Shipping a product to a customer.

• Interviewing an employee.

• Searching for a particular resume in a file cabinet.

• Balancing a checkbook.

• Filling out and submitting a deposit slip.

• Counting today’s profits.

• Comparing accounts payable and accounts receivable.

• Managing time sheets.

As you can probably deduct on your own, many of the manual processes mentioned can be fully
automated. Some manual processes will always require manual intervention. A database is useful in
automating as much work as possible to enhance manual processes.

Some of the most common uses for a database include:

• Tracking of long-term statistics and trends.

• Automating manual processes to eliminate paper shuffling.

• Managing different types of transactions performed by an individual or business.

• Maintaining historic information.

A database might exist to minimize or eliminate the amount of paper shuffling. For instance, imagine
that you work in the human resources department for a company and that you are responsible for

59
hundreds of resumes. The traditional method for storing resumes is in a file cabinet. The resumes are
probably alphabetized by the individual’s last name, which makes a resume easy to find if you are
searching by name. What if you wanted to find all resumes for individuals who had a certain skill?
With a manual filing system, you would find yourself reading every resume looking for the desired
skill, which might take hours. If resume information was stored in a database, you could quickly
search for individuals with a particular skill, which might only take seconds.

Suppose you decide to create a database for your newspaper delivery business. In order to succeed,
you need to keep accurate, useful information for each of your customers. You set up a database to
maintain the information. For each customer, you create a record. Within each record you have the
following fields: Customer first name, customer last name, street address, city, state, zip, ID, and date
last paid. Smith, Jones, and Brooks are the records within a file you decide to call paper delivery. The
entities then are Smith, Jones, and Brooks, the people about whom you are maintaining information.
The attributes are customer‘s name (first and last), address (street, city, state, zip code), ID, and date
last paid. This is a very simplistic example of a database, but it should help you understand the
terminology.

The Database Approach to Data Management

The key to establishing an effective, efficient database is to involve the entire organization as much as
possible, even if everyone will not immediately be connected to it or use it. Perhaps they won't be a
part of it in the beginning, but they very well could be later on. Database management systems make
it easy, fast, and efficient to relate pieces of data together to compile useful information.

You've heard the old saying, "Don't put all your eggs in one basket." When it comes to data, just the
opposite is true. You want to put all your corporate data in one system that will serve the organization
as a whole. Doing so makes it easier, cheaper and more efficient to use the data across the entire
organization. It makes it easier to use in applications and makes it available through many different
delivery methods. To access information from a database, you need a database management system.

Database Management Systems (DBMS)

A database management system is simply the software that permits an organization to centralize data,
manage them efficiently, and provide access to the stored data by application programs. DBMS is a
general-purpose software system that facilitates the process of defining, constructing, and
manipulating databases for various applications. This is a collection of programs that enables you to
enter, organize, and select data in a database. DBMS is a system software package that controls the
development, use, and maintenance of the databases of computer-using organizations. A DBMS is
basically a software program like Word or Excel or e-mail.

60
A DBMS program helps organizations use their integrated collections of data records and files known
as databases. It allows different user application programs to easily access the same database. For
example, a DBMS makes it easy for an employee database to be accessed by payroll, employee
benefits, and other human resource programs. A DBMS also simplifies the process of retrieving
information from databases in the form of displays and reports. Instead of having to write computers
programs to extract information, end users can ask simple questions in a query language.

A DBMS is a collection of general-purpose, application-independent programs providing services to

define the structure of a database, i.e., data types and constraints that the data will have to satisfy:

o Manage the storage of data, safely for long periods of time, on some storage medium
controlled by the DBMS.
o Manipulate a database, with efficient user interfaces to query the database to retrieve
specific data, update the database to reflect changes in the world, generate reports
from the data.
o Manage database usage: users with their access rights, performance optimization,
sharing of data among several users, security from accidents or unauthorized use.
o Monitor and analyze database usage.
 DBMS have similarities with operating systems: both manage memory, process
scheduling, I/O, communication.
 In addition, DBMSs implement many data-management functions.
 Other name for DBMS: database system, database manager.
 DBMSs typically do not use the file system of the operating system of the machine
where they are installed. Instead, they define their own richer file organizations and
access methods.

Why Use a DBMS?

 Data independence and efficient access.

 Reduced application development time.
 Data integrity and security.
 Uniform data administration.
 Concurrent access, recovery from crashes.
The following table shows the difference between DBMS and the traditional file processing systems.

Table 3.2 the difference between DBMS and the traditional file processing systems

61
 DBMS File Processing Systems

Data redundancy & Reduced by ensuring physical Data is often duplicated causing higher
piece of data is storage and access cost, poor data integrity,
Inconsistency
and data inconsistency
available to all programs

Accessing data Allow flexible access to data Allow pre-determined access to data (i.e.,
(e.g., using queries for data complied programs); application programs
retrievals) are dependent on file formats

Concurrent access Designed to coordinate Designed to allow a file to be accessed by two

multiple users accessing the programs concurrently only if both programs
same data at the same time have read-only access to the file

Data security & High, enforced Low, not enforced

Integrity

How a DBMS Solves the Problems of the Traditional File Environment

A DBMS can reduce data redundancy and inconsistency by minimizing isolated files in which the
same data are repeated. The DBMS may not enable the organization to eliminate data redundancy
entirely, but it can help control redundancy. Even if the organization maintains some redundant data,
using a DBMS eliminates data inconsistency because the DBMS can help the organization ensure that
every occurrence of redundant data has the same values. The DBMS uncouples programs and data,
enabling data to stand on their own. Access and availability of information can be increased and
program development and maintenance costs can be reduced because users and programmers can
perform ad hoc queries of data in the database. The DBMS enables the organization to centrally
manage data, their use, and security.

Types of Databases

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Both spreadsheets and databases can be used to handle the same information, but each is
optimized to handle a different type of data most efficiently. The larger the number of
records, the more important the differences are. Some popular databases include MS Access,
dBase, FoxPro, Paradox, Approach, MySQL, and Oracle. Contemporary DBMS use different
database models to keep track of entities, attributes, and relationships. Each model has certain
processing advantages and certain business advantages.

Relational DBMS

The most popular type of DBMS today for PCs as well as for larger computers and mainframes is the
relational DBMS. The relational data model represents all data in the database as simple two-
dimensional tables called relations. Tables may be referred to as files. Information in more than one
file can be easily extracted and combined. Figure 3.16 shows a supplier table and a part table. In each
table the rows represent unique records and the columns represent fields, or the attributes that describe
the entities. The correct term for a row in a relation is tuple. Often a user needs information from a
number of relations to produce a report. Here is the strength of the relational model: It can relate data
in any one file or table to data in another file or table as long as both tables share a common data
element.

Figure 3.16 The Relational Data Model

Each table is a relation, each row is a tuple representing a record, and each column is an attribute
representing a field. These relations can easily be combined and extracted to access data and produce

63
reports, provided that any two share a common data element. In this example, the PART and
SUPPLIER files share the data element Supplier_Number.

To demonstrate, suppose we wanted to find in the relational database in Figure 3.16 the names and
addresses of suppliers who could provide us with part number 137 or part number 152. We would
need information from two tables: the supplier table and the part table. Note that these two files have a
shared data element: Supplier_Number.

Data in each table are broken down into fields. A field, or column, contains a single attribute for an
entity. A group of fields is stored in a record or tuple (the technical term for record). Each record
requires a key field, or unique identifier. The best example of this is your social security number:
there is only one per person. That explains in part why so many companies and organizations ask for
your social security number when you do business with them.

In a relational database, each table contains a primary key, a unique identifier for each record. To
make sure the tables relate to each other, the primary key from one table is stored in a related table as
a foreign key. For instance, in the customer table the primary key is the unique customer ID. That
primary key is then stored in the order table as the foreign key so that the two tables have a direct
relationship.

There are two important points you should remember about creating and maintaining relational
database tables. First, you should ensure that attributes for a particular entity apply only to that entity.
That is, you would not include fields in the customer record that apply to products the customer
orders. Fields relating to products would be in a separate table. Second, you want to create the
smallest possible fields for each record. For instance, you would create separate fields for a
customer‘s first name and last name rather than a single field for the entire name. It makes it easier to
sort and manipulate the records later when you are creating reports.

Check point
1. Dear learner, what do DBM and DBMS mean?
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
_________

2. Discuss the relationship between fields, records and files?

64
 ______________________________________________________________________________
______________________________________________________________________________
_____________________________________________________________________

Chapter summary
Information Technology (IT) is the branch of engineering that deals with the use of computer and
telecommunication to handle data, information, and processes. IT plays a vital role in the lives of
people. Information Technology is made up of nine (9) major functions, namely; Capture, Verifying,
Processing/Manipulation, Storage, Retrieval, Data Update, Reproducing, Transmit /Communication,
and Generation. Computer has two main components, namely hardware and software components.
The hardware component is the physical component of a computer system, i.e., those parts of the
computer that can be touched, felt and seen physically. More or less, the hardware component consists
of a combination of 5 basic components: the input devices, output devices, primary storage, the
mother board, and secondary storage. On the other hand, computer software is a collection of
computer programs and related data that provides the instructions for telling a computer what to do
and how to do it. In other words, software is a set of programs, procedures, algorithms and its
documentation concerned with the operation of a data processing system. Computer software has
three major types including systems software, application software and IT procedures. The single
most important resource in an organization is not technology, but it is people. Technology is a tool
that can help an organization produce and manage information more efficiently. In the end, the most
important thing to an organization is what its people decide to do with the information. There is a
need of people resources to operate and organize all Management Information System. These people
resources have two categories namely; end users and Information system specialists. Information can
be classified as descriptive, diagnostic, predictive and prescriptive information. In order to be quality
information, any information must have the time, content and form dimensions.

Telecommunication is the exchange of information in any form (voice, data, text, images, audio, and
video) over networks. Telecommunications network consists of five basic categories of components
including terminals, telecommunication processors, telecommunication channels, computers and
telecommunication control software. Telecommunication networks can be a Wide Area Network
(WAN), Local Area Network (LAN), Client/Server types, network computing and peer to peer
networks. There are three types of network topologies namely; star topology which is widely used
structure for data communications systems, ring topology which is about a cable forms closed ring, or
loop, with all computers and devices arranged along ring and bus topology by which all computers
and devices connect to central cable, or bus. Database is a collection of data organized to serve many
applications efficiently by centralizing the data and controlling redundant data. Rather than storing

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data in separate files for each application, data are stored so as to appear to users as being stored in
only one location. Traditional databases are organized by fields, records, and files. A field is a single
piece of information; a record is one complete set of fields; and a file is a collection of records. A
database management system is simply the software that permits an organization to centralize data,
manage them efficiently, and provide access to the stored data by application programs. A DBMS is
basically a software program like Word or Excel or e-mail and it helps organizations use their
integrated collections of data records and files known as databases as well as it allows different user
application programs to easily access the same database. Moreover, a DBMS can reduce data
redundancy and inconsistency by minimizing isolated files in which the same data are repeated.

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 CHAPTER FOUR

COMMON BUSINESS APPLICATIONS OF INFORMATION TECHNOLOGY

Chapter objectives

At the end of this chapter you will be able to:

 Understand the types of IS.
 Distinguish the difference between different types of IS.
 Describe the similarity between the types of IS.
 Explain the importance of IS.
 The purpose of studying about IS

Introduction

Dear students So far, you have learned about computer information systems and the basic
computer resources available to the manager. What you learned generally emphasized the
organizations as a whole, rather than the major areas of decision making commonly found in
organizations. So, you will apply what you have learned about information systems, decision
making, and computer system resources to problems in finance, marketing, manufacturing
and production and human resources. Furthermore, the discussions will highly emphasis the
application of various information systems at the operational, tactical and strategic levels.
The following diagram shows various informational systems across the three managerial
levels namely operational, tactical/middle management and strategic levels across the
different functional areas.

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Fig 4.1 Information systems pyramid across managerial levels and functional areas

Lower or Operational level Management

 They make structured decisions (Operational decisions).

 It is a predictable decision that can be made following a well defined set of routine
procedures.

 Most decisions at this level require easily defined information that relates to the
current status and activities within the basic business functions (Structured decision).

 Information is gained from detailed reports which contain information about routine
activities.

 Detailed tasks defined by middle management are carried out by people at operational
level.

Middle or Tactical Management

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  Acquire and arrange the resources (Computers, people etc) to meet the goals of an
organization.

 Define the detailed tasks to be carried out at the operational level.

 Information needed involves review, summarization and analysis of data to help plan
and control operations and implement policy that has been formulated by upper
management. Information is usually given to middle managers as summarized reports.

 Deals with semi structured decisions (Tactical decisions).

 Semi structured decisions that must be made without a base of clearly defined
informational procedures.

 In most cases a semi structured decision is complex, requiring detailed analysis and
extensive computations.

Upper or Top or Strategic Management

 Decides on the broad objectives of an organization

 Make unstructured decisions. (Strategic decision)

 Unstructured decisions are the most complex type of decisions and are rarely based on
predetermined routine procedures.

 They involve subjective judgments of the decision maker.

Dear students once you get some information about the nature of decisions across three
managerial levels i.e. operational, tactical and strategic, now it is the time to see various
information systems of functional areas within the organization across the above mentioned
managerial levels. The following paragraphs summarize these issues in detail.

4.1 FINANCIAL ACCOUNTING INFORMATION SYSTEMS (FAIS)

The finance function is responsible for managing the firm’s financial assets, such as cash,
stocks, bonds, and other investments to maximize the return on these financial assets. The

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finance function is also in charge of managing the capitalization of the firm (finding new
financial assets in stocks, bonds, or other forms of debt).

Whether you are the chief operating officer of a large international organization or merely the
supervisor of a small department at one location in that organization, you will find it
necessary to make financial decisions. The financial decisions you may encounter as a
manger are diverse and could include decisions similar to these:

Should you purchase a large new piece of equipment or lease it for a three-year period?

How much of your department's funds should you allocate to telephone usage rather than
travel?

Should you invest money in new computer equipment or additional merchandise for resale?

Should you allow a particular customer to make a large purchase on credit?

Should your organization decide to offer a new product or service, or should it provide the
same products and services in additional markets?

To make these and similar decisions, you need to understand the basic financial accounting
systems found in most organizations. You must also understand how financial information
systems can help you make improved decisions about the financial problems within your
purview.

4.1.1 Operational Financial Information Systems

Typically, the applications first computerized by many organizations are accounting systems
designed to produce operational-level output. The development of computerized financial
information systems for use in tactical decision making and strategic planning is usually
deferred until the basic operational-level information systems are in place and working.

Operational financial information systems produce the routine, repetitive information

products that every organization finds necessary. These products, or output, include pay
checks, checks to vendors, customer invoices, purchase orders, stocks reports, and other
regular forms and reports. Financial operating information systems are typically task
oriented. They focus on processing financial transactions to produce the financial products
just described.

The heart of an organization's financial operating information system is the accounting

system. A computerized accounting system is composed of a series of software modules or

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subsystems that may be used separately or in an integrated fashion. The subsystem modules
include;

1. General ledger 5. Accounts payable

2. Fixed assets 6. Inventory control
3. Sales order processing 7. Purchase order processing
4. Accounts receivable 8. Pay roll

1. General ledger: General Ledger System provides managers with periodic accounting
reports and statements such as the income statement and balance sheet.

2. Fixed assets: Fixed Assets System maintains records of equipment, property, and other
long--term assets that an organization owns. The records include the original cost of
the as-sets, their depreciation rates, the accumulated depreciation to date, and the
book value of the assets, or the original cost less accumulated depreciation.

3. The Sales Order Processing Subsystem: Sales Order Processing System or order-entry
system, routinely records sales orders and also provides data to other systems that fill
those orders, maintain inventory levels, and bill the customer. This system provides
sales tax data to the general ledger system for posting to taxing agency accounts, stock
data to the inventory sys-tem for updating inventory balances, and sales data to the
accounts receivable system for posting to customer accounts.

4. Accounts receivable Subsystem: The accounts receivable subsystem allows you to enter,
update, and delete customer information, such as charge sales, credit terms, cash
payments received, credit for returned or damaged merchandise, and accounts balances.

Inputs to the accounts receivable subsystem include sales invoices, credit memoranda,
and cash received from customers. Typical outputs are monthly customer statements of
account and a schedule of accounts receivable listing each account and its balance.

5. The Accounts Payable Subsystem: The accounts payable subsystem processes much of
the same routine, repetitive information as the accounts receivable subsystem, except that
the information is about organization’s creditors rather than customers.

6. The Inventory Control Subsystem: The inventory control subsystem provides input to
the general ledger subsystem and receives input from the purchase order and the sales
order subsystems. The basic purpose of the subsystem is to keep track of inventory levels
and inventory costs from the organization. The subsystem maintains information about

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 each stock item, such as stock numbers and stock descriptions, receipts and issues of
stock, and stock balances.

7. The Purchase order Processing Subsystem: The purchase order processing subsystem
processes purchase orders and tracks which purchase orders have been filled, which stock
items ordered are on backorder, which stock items have been damaged or do not meet the
specifications of the original order, and when orders are expected to be received.

The purchase order subsystem provides information to the accounts payable and
inventory subsystems. The subsystem produces a variety of reports, including a backorder
report listing all stock items on backorder and an open order report listing all purchase
orders not yet received and their expected arrival dates.

8. The Payroll Subsystem: The payroll subsystem processes wage and salary information,
such as payment to employees; deductions from employee checks; and payments to
government taxing agencies for taxes owed. The payroll subsystem produces weekly
payroll summary reports, overtime reports; forms for taxing agencies, such as wage and
tax statements; payroll checks for payroll taxes owed to taxing agencies.

Check point

Write some examples of outputs of a financial accounting information

system.---------------------------------------------------------------------------------------------------
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4.1.2 Tactical Financial Information Systems

The computerization of accounting systems usually changes the way managers view
accounting information. Because a large database of information becomes available in
computerized form and can easily be extracted or manipulated, this information begins to be
viewed as a resource for tactical planning. Suddenly, it becomes possible for managers to get
important summaries and comparisons of accounting data easily and swiftly. In the past this
information would have taken a great deal of time to extract from a manual accounting
system. The result is that managers view the accounting system as more than merely a
producer of checks, invoices, and statements. It becomes repository of important data that can
assist management in decision making. The computerization of accounting system has helped
to spawn the use by managers of corporate databases to support tactical decisions and

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strategic planning. This has led to the development of computer-supported financial
information systems for tactical decision-making and strategic planning information systems.

Tactical financial information systems support management decision making by providing

managers with regular summary reports, regular exception reports, ad hoc reports, and other
information that will help them

(1) Control their areas of responsibility and

(2) Deploy their resources to pursue organization goals. Whereas operational control systems
are focused on tasks, tactical information systems are focused on resource allocation.

It is possible to design many computer-supported tactical-level information systems for the

financial decisions that managers must make. Common systems include budgeting systems,
cash management systems, capital budgeting systems, investment management systems. Each
of these systems will be briefly described.

 Budgeting Systems

The general ledger subsystem of many computerized accounting systems permits the user to
enter budget amounts by account number. Periodically (weekly, monthly, quarterly, or
annually), the budgeted amounts (allocations) and the actual amounts spent or received
(actual) for each account are compared and various reports are prepared. For example, the
general ledger subsystem of a mainframe accounting system may provide the reports listed
below.

1. Current budget allocations by line item,

2. Budget variances by line item type, or the differences between allocations and actual
amounts,

3. Current budget allocations compared to the previous year's allocations,

4. Current revenues and expenditures compared to the previous year's revenues and
expenditures,

Reports such as these may be prepared for a department, a division, a subsidiary, or the entire
organization. The budgeting system permits managers to compare revenue and expense data
against the standard of the budget allocations. It also allows prior fiscal period, other division
or department, industry-wide data to be used as standards against which current budget
amounts may be compared.

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  Cash Management Systems

Important functions of financial management include ensuring that the organization has
sufficient cash to meet its needs, putting excess funds from any period to use through
investments, and providing borrowing power to meet the organization's cash needs in those
periods when there is an insufficient cash flow.

There are two major reasons why an organization needs cash: for working capital (cash
needed for day-to-day operations) and for the acquisition of long-term assets. To determine if
adequate cash is available for its working capital needs and its long term asset acquisition
plans, the organization must prepare a report of its expected cash flow for the time periods
being considered. Typically, this report shows the cash flow for each month of the coming
year.

A cash flow report shows the estimated amount of cash that will be received and spent each
month. The report shows in which months there will be cash received and spent. The report
shows in which months there will be excess funds that might be put to use, and in which
months there will be insufficient funds, requiring the organization to borrow cash to meet its
working capital or fixed asset acquisition needs.

The information provided by a cash flow helps the manager make decisions about investing,
purchasing, and borrowing money. If this information is placed on an electronic spreadsheet,
the manager may stimulate a number of possible business conditions, such as (1) increasing
or decreasing revenue, (2) increasing or decreasing customer credit problems, (3) deferring
the acquisition of an asset, or (4) repairing existing fixed assets instead of replacing them.

 Capital Budgeting Systems

A capital budget contains information about the planned acquisition or disposal of major
plant assets during the current year. The manager may wish to compare the various capital
spending plans in terms of three commonly used evaluation tools: net present value, internal
rate of return, and payback period. These tools can easily be calculated using computer
systems. "What if?" games are performed using software packages.

 Investment Management Systems

Investment management -- overseeing the organization's investments in stocks, bonds, and

other securities --- is an important part of cash management. Managing investment is also an
important part of an organization's pension plan management. Whatever the source of the

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funds for investments, most organizations invest money in securities of one kind or another.
Careful management of these investments is necessary to ensure the achievements of
organization goals.

Current information systems provide unique ways to manage stock and bond portfolios.
These ways typically involve the use of external databases that furnish immediate updating of
stock and bond prices, information about the history of each investment, and various portfolio
investment analysis tools to help the manager stay on top of the organization' s investments.
The system may be a simple one in which the manager's microcomputer is equipped with a
modem and he or she is provided with a subscription to an investment service. Possible
information that can be generated are current dividend, price history, price stability index,
projected changes earnings, current earnings per share, debt as a percent of capital, dividends
history, industry ranking, low price per year and the like. Tactical financial information
systems give the manager increased control over the financial resources of a department or an
entire organization, and provide considerable support when he or she is deciding the
allocation of financial resources to meet organizational goals.

4.1.3 Strategic Financial Information Systems

You have learned that operational control-level information systems are task oriented and that
tactical-level information systems are resource allocation oriented. In contrast, strategic
information systems are goal oriented. That is, these systems are concerned about goal and
direction setting for organizations.

Strategic information systems typically include several types of information flows:

 Financial condition analysis data or an analysis of internally generated information

describing the status of the organization,

 Economic, demographic, and social data or an analysis of externally generated data

describing the present and future environment for the organization,

 Forecasts of the future of that organization in those environments.

Two major outcomes of financial strategic planning are the setting of financial goals and
directions for the organization. The former may include setting investment goals and return
on investment goals. The latter may involve deciding on new investment opportunities or on
the mix of capital sources used to fund the organization.

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A major source of computerized information about the current and future status of the
organization is the organization's own financial accounting database. A promising source of
computerized information pertaining to the present and future environment in which the
organization must operate are on-line databases for economic, social, demographic,
technological, and political information. Projecting likely scenarios (minimum, base case and
maximum) for the organization using these two categories of data is the art of forecasting. A
major purpose of strategic decision making is to use long-range forecasts to reduce the risk
involved in major organization decisions.

 Financial Conditions Analysis Systems

Computerized accounting systems provide the user with a variety of reports on which many
ratios and analysis tools may be applied. Example, working capital = current assets - current
liabilities, return on assets = Profits after tax/Average assets.

 Long-Range Forecasting Systems

Strategic planners demand forecasts on a variety of factors that will affect organization
performance in the future.

Forecasting the sales revenue of a potential new product makes important information
available to planners considering the development and marketing of the new product.

The types of information used in forecasting the future environment of the organization are
many and diverse. They include descriptions of the present economy and forecasts of the
future economy, information on the present demographic structure of the region or country
and forecasts of the demographic structure of the region or country, and descriptions of the
current social structure and social mores and predictions on the future structure of society and
societal mores.

4.1.4 Importance of Financial Information SYSTEM (FIS)

The financial information system generates a lot of advantages for managers and operational
workers:
 Financial Information system that tracks financial events and summarizes information
 supports adequate management reporting, policy decisions, fiduciary responsibilities,
and preparation of auditable financial statements

 Should be designed with good relationships between software, hardware, personnel,

procedures, controls and data

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  provide decision makers with useful information

 record and track financial transactions to enable the production of various

Management Reports and Financial Statements

 prevent incorrect or incomplete information which may result in: additional time
required to correct the original transaction

 the possibility of incorrect decisions being made

Check point?

Mention some sub systems of financial information systems at tactical and strategic level.

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4.2 MARKETING INFORMATION SYSTEM (MKIS)

The basic goal of the marketing function in any organization is to satisfy the needs and wants
of existing and potential customers. The marketing functions includes planning, buying,
merchandising (standardization and grading and pricing), selling (advertising, sales
promotion, packaging, publicity and personal selling), physical distribution (transporting and
storing) and facilitating (financing, risk bearing and obtaining information). The strategic
decisions include new product design and development, target selection and old product
management. On other hand, tactical planning (marketing mix decisions) includes product
decisions, physical distribution decisions, adverting and promotion decisions and pricing
decisions.

A marketing information system (MKIS) is designed to support marketing decision making.

A marketing information system (MKIS) refers to the systematic collection, analysis,

interpretation, storage and dissemination of the market information, from both the internal
and external sources, to the marketers on a regular, continuous basis. It is designed to
support marketing decision making.
Jobber (2007) defines it as a "system in which marketing data is formally gathered, stored,
analysed and distributed to managers in accordance with their informational needs on a
regular basis."

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Furthermore, Kottler, et al, (2006) defined as “an overall Marketing Information System can
be defined as a set structure of procedures and methods for the regular, planned collection,
analysis and presentation of information for use in making marketing decisions”.

Marketing information systems support the major activities of a marketing organization. The
information systems collect data that describe marketing operations, process those data, and
make marketing information available to marketing managers to help them make effective
decisions across different managerial levels as discussed below.

4.2.1Operational Marketing Information Systems

Operational marketing information systems primarily produced routine, repetitive, expected,
and regular data that describe past marketing activities. The information they produce is
usually detailed, highly structured, and accurate, and is derived from internal sources.

Let’s briefly examine some of the important components of Operational Marketing

Systems and their benefits in the following paragraphs.
Sales Force Automation Systems: Salespeople are responsible for many-sales activities.
They must identify potential customers, make the customer contact, call on the customer,
make the sales, close the sale, and follow up on the sale. These are the bread-and-butter sales
activities of the salesperson. Sales force automation systems are designed to increase the
productivity of salespeople. Typically, automating a sales force involves equipping
salespeople with notebook computers and software to support their activities.
Prospect information systems: Locating potential customers are often a time- consuming
and frustrating part of the salesperson’s work. The sources of information used to obtain
sales leads are diverse and may include other customers, other vendors who sell
supporting or ancillary products, newspaper notices, telephone directories, and customer
inquiries. Searching directories and other customer lists may take a lot of time and yield few
actual customers.
Contact management systems: Provide information to the sales force pertaining to
customers, their product or service preferences, sales history data, and a historical record
of sales calls and/or visits. One output of these systems may be a call report showing
the number of sales calls made by a salesperson categorized by size of organization,
previous sales, or some other characteristic, and the number or amount of sales made per
customer, per visit, and/or per category.
Telemarketing systems: Usually include support for the automatic dialing of parties
and/or delivering voice messages to the answering party under the control of a computer

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system.
Some systems allow you to make notes about the calls, to generate follow-up letters,
and to view a customer file while a call to that customer is in progress.
Direct Mail Advertising Systems: Many organizations generate sales by mailing sales
brochures and catalogues directly to customers using direct mail advertising systems. To
distribute sales documents rapidly to large numbers of potential customers, most marketing
departments maintain customer mailing lists that are used for mass mailings. The ‘lists may
be drawn from customer files; accounts receivable records; prospect files; commercial
databases of households, businesses, and organizations; or they can be purchased from
other firms.
Point of Sale System: Systems provide immediate updates to sales and inventory systems
and allow firms to monitor sales trends minute by minute. They also allow firms to
capture customer data and preferences and add the information to their data warehouses.
Delivery Tracking and Routine Systems: Customers like to receive their merchandise on
time. In a manual system, customers called in to a customer representative to check on the
delivery of their merchandise. The customer rep would then have to call the delivery vehicle
driver who uses a cell phone to tell the rep where he or she is and how soon the
merchandise might be delivered. That process took time, frequently frustrated the
customer, and cost the firm money to support.
Electronic Shopping and Advertising: Firms have been able to advertise and
customers to shop via TV; radio, and the telephone for many years. The computer age,
however, has made other avenues for shopping and advertising available, the most dramatic
of which is clearly the Internet.
Virtual shopping: When people view, select, and purchase products and services from a
store in another location using electronic means, they are virtually shopping at that store.
Virtual shopping, or electronic shopping, allows organizations to present information about
goods and services to potential customers who are connected to their electronic “store.”
Check point
Is Online order of goods is an example of virtual
shopping?----------------------------------------------------------------------------------------------------
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Mention some business entities in your locality that are using point of sale system?
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4.2.2 Tactical Marketing Information Systems

Tactical information systems differ from operational marketing information systems in that
they may provide information not only on a regular basis but also generate ad hoc reports,
create unexpected as well as expected output, produce comparative as well as descriptive
information, provide summary information as opposed to detailed data, include both internal
and external data sources, and processes subjective as well as objective data.

Examples of tactical marketing information systems that will be discussed in this part of the
paper include those that support the deployment and management of the sales force, the
management of advertising and promotion campaigns, the distribution and delivery of
products sold, and product pricing.

I. Sales Management Information Systems

A major objective of sales managers is to reach the sales goals set by top management. To
accomplish this objective, sales managers must make many tactical decisions, such as how
sales territories should be shaped, how the sales force should be allocated within those
territories, and what emphasis should be placed on each type of product offered and
customers served.

To make these decisions effectively, sales managers should have at their disposal a great deal
of data about the sales histories of each salesperson, territory, product and market segment.
These data -- provided by sales management information systems -- can be used to develop
reports analyzing sales activities in ways that help managers make decisions about the
salespeople, territories, products and customers. Analysis of past sales effort might reveal, for
instance, that the greatest volume of sales is obtained with certain market segments. This
information may be obtained from a report that correlates product or service categories with
customer categories.

II. Advertising and Promotion Information Systems

Advertising and promotional tactics also need to be developed by marketing managers to

implement strategic sales goals set by top management. Decisions have to be made pertaining
to which advertising media to use to reach the selected market segments, which promotional
devices to use, when these media and devices should be used, and what overall mix of

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promotional activities should be deployed to achieve sales goals. Advertising and promotion
information systems assist managers in these tasks.

To make decisions regarding the advertising and promotional tactics to use, marketing
managers will need such information as market segment history, the effectiveness of previous
advertising and promotional efforts on each market segment, and the sales history of product
by market segment.

Check point
In what ways tactical and strategic marketing information systems are different to each
other?
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4.2.3 Strategic Marketing Information Systems

To develop an overall marketing plan, an organization may engage in a variety of tactical and
strategic planning activities. The strategic activities include segmenting the market into target
groups of potential customers based on common characteristics or needs or wants, selecting
those market segments the organization wishes to reach, planning products and services to
meet those customers' needs, and forecasting sales for the market segments and products.

I. Sales Forecasting Information Systems

Strategic sales forecasting usually includes several varieties of forecasts: forecasts of sales for
the entire organization, forecasts of sales for each product or service, and forecasts of sales
for a new product or service. The results of these sales forecasts will often be further
categorized by sales territory and sales division. Regardless of the type of forecasts, sales
forecasts are usually based on more than historical data; they are not merely projections of
past trends. Sales forecasts are also based on assumptions about the activities of the
competition, government action, shifting customer demand, demographic changes and
movements, and a variety of other pertinent factors, including even the weather. Errors in
sales forecasting will have many implications in the other aspects of the organization.

II. Product Planning and Development Information Systems

The major objective of product planning and development information systems is to make
information about consumer preferences obtained from the marketing research system
available for the development of new products. The primary output of planning and

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development activities is a set of product specification. The specifications will serve as inputs
for other decisions such as product design.

III. Marketing Research Information Systems

In large organizations, research departments conduct and manage marketing research. In

small companies, marketing research may be completed by outside consultants or by
personnel who must wear several hats. Regardless of how the function is completed, the
results of marketing research provide important inputs to tactical and strategic decision
making.

Inputs to marketing research are heavily derived from sources external to the organization.
These inputs include such widely diverse sources of customers as customers, potential
customers, census and demographic data, industry or trade data, economic data, social trend
data, environmental data, and scientific and technological data. These data may be obtained
through such means as direct mail surveys of customers, personal and telephone interviews of
consumers, library searches of governmental and industry reports, searches of the databases
of information utilities, and reports filed by sales personnel.

Marketing research personnel make heavy use of statistical methodology in analyzing the
data collected and in reporting the information to the organization. Obtaining totals, counts,
and averages in terms of consumer responses to questions, correlating social and economic
characteristics of customers with their buying practices, completing times series analyses of
past industry-wide sales to determine the projected sales of a product, and testing hypotheses
about consumer response to differing product packaging represent only some of the statistical
procedures that are used to analyze information for marketing managers.

Typical of the activities of a marketing research department are:

 Conducting trend analyses of the sales of products and services identical or similar to
those offered by the organization to identify products or services that are on the ascent
or descent,

 Analyzing population and target group characteristics especially for trends or changes
in data that could affect the organization,

 Analyzing and identifying consumer preferences, including the testing of products

and services...

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The results of marketing research are often presented graphically, in the form of tables,
charts, and graphs.

IV. Competitive Tracking Information Systems

To ensure that the marketing mix offered by your organization will continue to be effective in
satisfying customers, you must keep abreast of major competitors and their marketing
activities. Market share is likely, in the end, to be the greatest for the organization that
provides the marketing mix most closely matching a given market segment's needs and
wants. Thus, knowledge of competitor prices, products, sales, advertising, and promotions
must be gathered if the organization is to avoid falling behind the competition in the eyes of
the customers. This task is carried out through competitive tracking information systems.

Information about competitor activities is also obtained from informal sources, through such
activities as reading trade journals and newspapers, visiting competitor distribution outlets,
and talking to competitor officers and employees at conventions. Salespeople in most
organizations are encouraged to provide feedback about competitor activities by filing field
reports. The information they obtain may be gathered through observation of competing
salespeople or by seemingly casual questions that addressed to customers. Information about
the competition may also be gathered more systematically by conducting keyword searches in
external databases or information utilities.

4.2.4 Importance of Marketing Information System (MKIS)

With an increasingly competitive and expanding market, the amount of information needed
daily by an organization is profound. Thus they have to establish a Marketing Information
system. There are several advantages of marketing information systems

1).Organized Data collection – Lots of data can be collected from the market. But the main
word here is “Organized”. Organizing data is very important else the data is
meaningless. Thus MIS helps you to organize your database thereby improving productivity

2). A broad perspective – With a proper MIS in place, the complete organization can be
tracked which can be used to analyze independent processes. This helps in establishing a
broader perspective which helps us know which steps can be taken to facilitate improvement.

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3) Storage of Important Data – Several times, for example, in pharmaceuticals, when one
drug is being produced they may need data of another drug which was produced years back.
Similarly in Media, photographs are stored in archives. This storage of important data plays a
crucial role in execution and thus proves again that MIS is not important only for information
but also for execution.

4) Avoidance of Crisis – The best way to analyze a stock (share market) is to see its
past performance. Top websites like money control thrive on MIS. Similarly MIS helps you
keep tracks of margins and profits. With an amazing information system established, you can
know where your organization is moving and probably avert a crisis long before it has taken
place. Ignoring hints received from MIS reports is foolhardy.

5) Co-ordination – Consumer durables providing companies have huge number of processes

which needs to be coordinated. These companies depend completely on MIS for the proper
running of the organization. There are dedicated people for marketing information systems in
such organizations. This is mainly because of the speed required to access information and
implement it.

6) Analysis and Planning – MIS is critical for planning. You cannot do planning without
information. For planning, the first thing which is needed is the organizations capabilities,
then the business environment and finally competitor analysis. In a proper MIS, all these are
present by default and are continuously updated. Thus MIS is very important for planning
and analysis.

7) Control – Just like MIS can help in a crisis, in normal times it provides control as you
have information of the various processes going on and what is happening across the
company. Thus it provides you with a sense of control.

4.3 MANUFACTURING AND PRODUCTION INFORMATION SYSTEMS (MAPIS)

A management information system that is targeted for use anywhere production is taking
place. Modern management information systems are generally computerized and are
designed to collect and present the data which managers need in order to plan and direct
operations within the company. The manufacturing and production function is responsible for
actually producing the firm’s goods and services.

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Manufacturing and production information systems refers to the planning, development, and
maintenance of production facilities; the establishment of production goals; the acquisition,
storage, and availability of production materials; and the scheduling of equipment, facilities,
materials, and labour required to fashion finished products. Manufacturing and production
information systems support these activities.

4.3.1 Operational Production Information Systems

There are numerous operational production information systems. Many are part of the
financial accounting system of organization. For example, purchasing, accounts payable,
inventory, order entry, accounts receivable, and payroll subsystems of the accounting system
provide information to support manufacturing and production activities. The next section
briefly describes some major operational production information systems.

 Purchasing Information Systems

To produce goods and services, you must have the right quantity of raw materials and
production supplies on hand. Furthermore, you will want to procure these materials and
supplies at the lowest cost and have them delivered at the right time. To assist in this
function, the purchasing information system has to maintain data on all phases of the
acquisition of raw materials and purchased parts used in production.

 Quality Control Information Systems

Quality control information systems provide information about the status or production of
goods as they move from the raw material state, through goods in process, to the finished
goods inventory.

 Cost Accounting Information Systems

A variety of operational information subsystems of the financial accounting system collect

and report information about the resources that are used in the production processes so that
accurate costs of production can be obtained on products and services. Cost accounting
systems monitor the three major resources used in production: personnel, materials, and
equipment and facilities. Payroll information systems and materials information systems
provide information about the cost s of these resources.

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4.3.2 Tactical manufacturing and production information systems
Tactical information systems include inventory management and control systems, capacity
planning, production scheduling, and product design and development.

 Inventory Management and Control Information Systems

The management and control of raw materials, goods-in-process, and finished goods
inventories is an important part of production system. Careful management and control of
these inventories will usually provide considerable savings to the organization. Inventory
management and control systems use information from operational information systems, such
as the shipping and receiving systems, purchasing systems, and order entry systems.

Maintaining inventories at their proper levels eliminates production shutdowns from lack of
materials and lost sales from lack of finished goods. Ordering too much and ordering too little
are costly in terms of inventory carrying costs and ordering costs respectively. Thus, the best
or economical order quantity (EOQ) strikes a balance between carrying costs and
procurement costs.

The computation of EOQ for each item in inventory would be a very large and tedious task if
done manually. Also, for many inventory items, the manager may wish to play "What If?"
games with the values in the EOQ formula. Without computers, these tasks would be
laborious and may prove too time consuming to keep the order process fine-tuned to current
data.

 Capacity Planning Information Systems

In addition to ensuring that there will be enough raw materials on hand for forecasted
production, the production manager must also see to it that there will be enough production
capacity available to meet production goals. The purpose of capacity planning is to make
certain that there is sufficient personnel, space, machines, and other production facilities
available at the right time to meet the organization's planned production. Managers also
utilize capacity to minimize capacity in excess of planned production needs.

 Production Scheduling Information Systems

The purpose of the production schedule is to allocate the use of specific production facilities
for the production of finished goods to meet current or forecasted orders. To manage the
scheduling process, a number of scheduling tools have been developed. Two of these are
Gantt and PERT charts and there are project software packages at this time.

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4.3.3 Strategic manufacturing information systems
As we just discussed, production information systems are primarily operational and tactical in
nature. They are concerned with providing information to monitor and control the production
of goods and services and to allocate resources to complete production processes.
Manufacturing information systems are typically strategic in nature.

For example, the decision to construct a plant addition or a totally new plant, the selection of
the plant site, and the creation of general plans for the design and layout of the facility are
top-management decisions. Decisions of this magnitude will require the commitment of a
large amount of capital and other resources over a long period of time and thus are strategic
planning decisions. Such decisions are not made lightly.

The decision to locate a plant site requires a great deal of information that is external to the
organization. Facilities planning information systems support top-management decisions in
this area. Some of the information needed is relatively quantitative -- for example, the
availability and cost of trained or experienced labour and the degree to which it is unionized,
the availability and cost of transportation for raw materials and finished goods, the
availability of suitable sites and the cost of land, the proximity of raw materials suppliers
and/or finished goods customers, the availability and costs of power, and the rate of property
and incoming taxation.

Other information used in locating a plant may be qualitative in nature -- for example,
community attitudes toward an organization of the type of wishing to locate there and the
quality of community services, such as education and training opportunities.

The final decision concerning plant location may be made using some form of weighted-
average technique, in which factors such as those listed above are ranked and the total scored
for several potential sites computed. It may also be made on largely emotional factors by top
management.

4.3.4 Importance of Manufacturing and Production Information systems

Companies undertake projects in manufacturing automation and computer-integrated
manufacturing for a variety of good reasons. Some of the reasons used to justify automation
are the following:

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 To increase labour productivity- Automating a manufacturing operation usually
increases production rate and labour productivity. This means greater output per hour
of labour input.

 To reduce labour cost- Ever-increasing labour cost has been and continues to be the
trend in the world’s industrialized societies. Consequently, higher investment in
automation has become economically justifiable to replace manual operations.
Machines are increasingly being substituted for human labour to reduce unit product
cost.

 To mitigate the effects of labour shortages- There is a general shortage of labour in

many advanced nations, and this has stimulated the development of automated
operations as a substitute for labour.

 To reduce or eliminate routine manual and clerical tasks- An argument can be put
forth that there is social value in automating operations that are routine, boring,
fatiguing, and possibly irksome (lack of interest). Automating such tasks serves a
purpose of improving the general level of working conditions.

 To improve worker safety- By automating a given operation and transferring the

worker from active participation in the process to a supervisory role, the work is made
safer. The safety and physical well-being of the worker has become a national
objective with the enactment of the Occupational Safety and Health Act (OSHA) in
1970. This has provided an impetus for automation.

 To improve product quality- Automation not only results in higher production rates
than manual operations; it also performs the manufacturing process with greater
uniformity and conformity to quality specifications. Reduction of fraction defect rate
is one of the chief benefits of automation.

 To reduce manufacturing lead time- Automation helps to reduce the elapsed time
between customer order and product delivery, providing a competitive advantage to
the manufacturer for future orders. By reducing manufacturing lead time, the
manufacturer also reduces work-in-process inventory.

 To accomplish processes that cannot be done manually- Certain operations cannot

be accomplished without the aid of a machine. These processes have requirements for

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 precision, miniaturization, or complexity of geometry that cannot be achieved
manually. Examples include certain integrated circuit fabrication operations, rapid
prototyping processes based on computer graphics (CAD) models, and the machining
of complex, mathematically defined surfaces using computer numerical control.
These processes can only be realized by computer controlled systems.

 To avoid the high cost of not automating. There is a significant competitive

advantage gained in automating a manufacturing plant. The advantage cannot easily
be demonstrated on a company’s project authorization form. The benefits of
automation often show up in unexpected and intangible ways, such as in improved
quality, higher sales, better labour relations, and better company image. Companies
that do not automate are likely to find themselves at a competitive disadvantage with
their customers, their employees, and the general public.

4.4 HUMAN RESOURCES INFORMATION SYSTEMS (HRIS)

The human resource management function is concerned with the individuals who constitute
the organization. From the standpoint of the organization, the function is responsible for the
acquisition and effective use of the individual, the function is concerned with the well-being,
growth, and development of each worker. The human resources function is responsible for
attracting, developing, and maintaining the firm’s workforce. Before discussing those
information systems let us review some definitions of HRIS.

Human resource information system (HRIS) refers to the system of gathering, classifying,
processing, recording and dismantling the information required for efficient and effective
management of human resource in an organization. Need for such a system arises due to
several factors.

Human Resource Information Systems (HRIS) is defined as a system used to acquire, store,
manipulate, analyze, retrieve, and distribute information regarding an organization’s human
resources. An HRIS is not simply computer hardware and associated HR-related software.
Although an HRIS includes hardware and software, it also includes people, forms, policies
and procedures, and data.

4.4.1 Operational Human Resource Information Systems

Operational human resource information systems provide the manager with data to support
the routine, repetitive personnel decisions that occur regularly. There are several operational-

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level information systems that collect and report personnel data. These include information
systems pertaining to the organization's positions and employees, and about governmental
regulations.

 Payroll Information Systems

The financial information system, through its payroll subsystems, collects and reports data
pertaining to human resources that is largely operational in nature. Payroll files often contain
a great deal of information about employees -- including information about employees’ pay
rates, wage classifications, and seniority -- that can be useful to managers making human
resource decisions.

 Position Information Systems

A job is usually defined as a group of like or similar positions. A position, on the other hand,
consists of tasks performed by one worker. The purpose of a position information system is to
identify each position in the organization, the job category in which the position is classified,
and the employee currently assigned to the position. Reference to the position information
system allows a personnel manager to identify the details about unfilled positions. Position
information systems also allow the personnel manager to identify human resource problems.

 Employee Information Systems

The personnel department must maintain information on each of the organization's employees
for a variety of reporting purposes. One part of this information system is a personnel file,
which usually contains personal and organization-related information such as name, address,
sex, marital status, citizenship, years of service or seniority data, education and training,
previous experience, employment history within the organization, salary rate, salary or wage
grade, and retirement plans.

Another part of an employee information system is an employee skills inventory. The skills
inventory contains information about every employee's work experience, work preferences,
test scores, interests, and special skills or proficiencies. The skills inventory system provides
information for many personnel decisions.

 Employee Evaluation Information Systems

Many organizations review the work of employees on a regular basis to make decisions
regarding merit pay, pay increases, transfer, or promotion. Typically, a new employee is
evaluated at the end of the first four months and other employees are evaluated semi-

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annually. These reviews provided by the employee evaluation information systems are often
called performance appraisals. The data for performance appraisals are frequently collected
by administering employee appraisals forms to each employee's immediate superior. The
forms may also be given to peers, the employees themselves, and even customers or clients.

4.4.2 Tactical human resource information systems

Tactical information systems provide managers with support for decisions that emphasize the
allocation of resources. Within the human resource management area, these decisions include
recruiting decisions, job analysis and design decisions, training and development decisions,
employee compensation plan decision, and labor negotiation decisions.

 Job Analysis and Design Information Systems

The information inputs to the job analysis and design information system include data
obtained from interviews of supervisors and workers and affirmative action guidelines. Inputs
also include information from sources external to the firm, such as labor unions, competitors,
and governmental agencies. The outputs of the job analysis information system are job
descriptions and job specifications.

 Recruiting Information Systems

To develop recruitment plan and monitor its success, a recruiting information system is
necessary to collect and process the many different types of information needed to construct
the plan. These include a list of unfilled positions; the duties and requirements of these
positions; lists of planned employee retirements, transfers or terminations; information about
the skills and preferences of current employees; and summaries of employee appraisals. The
sources of recruitment, affirmative action plans, information about the success of recent
recruitment activities must also be included in the information systems.

 Compensation And Benefits Information Systems

Fringe benefit is anything in addition to the basic salary and over-time pay to an employee.
Information on the benefits and compensation packages will help managers to make informed
decisions.

4.4.3 Strategic Human Resource Information Systems

Human resource planning is conducted to ensure that the organization has the right kinds and
the right numbers of people at the right places at the right time to achieve its objectives.

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There are two types of human resource planning that are strategic in nature. These are
manpower planning, or staffing planning, and program planning.

 Manpower Planning

Organizations that are involved in long-term strategic planning, such as those planning to
expand into new market areas, or to construct new factories or offices in new locations, or to
add new products, will need information about the quantity and quality of the work force that
is available to achieve their goal. Manpower planning serves this purpose. This type of
planning involves identifying the human resources needed to meet the organizational
objectives specified in the strategic plan. This means forecasting the supply and demand of
the required work force. These forecasts are estimates of the characteristics, quantity, and
pricing of the labour force needed to achieve the long-term plants of the organization.

Identifying the types and quantities of workers needed for the strategic plan is forecasting the
demand for human resources. Identifying the human resources available internally and
externally is forecasting the supply of those human resources. Forecasting demand and
supply can be done on a macroeconomic level or a microeconomic (more specific to the
organization) level.

 Program Planning

A second strategic planning function is to develop the policies, procedures, and activities that
will achieve the human resource needs spelled out in the manpower plan. Two key activities
in program planning are job analysis and design and recruiting. Job analysis and design is
essential to describe the work force required by the organization. Recruiting plans must be
developed to acquire the right kinds of workers in the right amounts to fill the jobs described.
Where there are insufficient workers with the right skills, training programs may have to be
developed, or the jobs may have to be redefined to fit the skills of the available work force.

4.4.4 Importance of Human Resource Information System (HRIS)

There are several advantages to firms in using HRIS. They include the following:

• Providing a comprehensive information picture as a single, comprehensive database; this

enables organizations to provide structural connectivity across units and activities and
increase the speed of information

• Increasing competitiveness by improving HR operations and improving management

processes

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• Collecting appropriate data and converting them to information and knowledge for
improved timeliness and quality of decision making

• Producing a greater number and variety of accurate and real-time HR-related reports

• Streamlining and enhancing the efficiency and effectiveness of HR administrative functions

• Shifting the focus of HR from the processing of transactions to strategic HRM

• Reengineering HR processes and functions

• Improving employee satisfaction by delivering HR services more quickly and accurately to

them

4.5 MANAGERIAL DECISION SUPPORT SYSTEMS

There are three kinds of management support systems each distinguished by the type of
decision and management level it supports.

I. Executive Support Systems (ESS)

It is the information system at the organizations strategic level designed to address

unstructured decision making through advanced graphic and communication. ESS is designed
to incorporate data about external events such as competitors. They filter, compares and track
critical data, emphasizing the reduction of time and effort required to obtain information
useful to executive. ESS employs the most advanced graphic software and can deliver graphs
and data from many sources immediately to a senior executive’s office or to a board room.

It supports the senior management of a firm and the strategic planning function. Senior
executives need information on changing government policies, demographics, the actions of
competitors, and changing market conditions now and in the future. Executive information
systems deliver news, reports prepared by external services, and broad overviews of the
performance of the company, and in some cases permit senior executives to "drill down" into
the company to discover how the numbers were produced, who was responsible for certain
actions, and who might have an answer for a problem.

II. Management Information systems (MIS)

It is the Information system at the management level of an organization that serve the
functions of planning, controlling and decision making by providing routine summary and

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exception reports. MIS serve the management level of organization as stated above with
online access to the organization’s current performance and historical records. Typically they
are oriented almost exclusively to internal, not environmental or external events. MIS depend
on TPS for their data. It summarize and report on the company’s basic operations. MIS
usually serve managers interest in weekly, monthly and yearly results not day to day
activities.

It supports middle managers whose job is to control the operations of the company on a daily,
monthly, and quarterly basis. An MIS can produce scheduled summary reports, exception
reports, and in some cases on-line ad hoc reports.

III. Decision support systems (DSS)

Decision support systems (DSS) are interactive, computer-based information systems that use
DSS software and a model base and database to provide information tailored to support semi
structured and unstructured decisions faced by individual managers. They are designed to
use a decision makers own insights and judgments in an ad hoc, interactive, analytical
modelling process leading to a specific decision.

It supports middle management and information workers who need assistance with semi-
structured and unstructured problems. Decision support systems usually contain analytic
models that permit the users to stimulate the business and to understand how to react to a
change in business conditions.

DSS help managers make decisions that are unique, rapidly changing, and not easily
specified in advance. They address problems where the procedure for arriving at solution
may not be fully predefined in advance. Although DSS use internal information from TPS
and MIS, they often bring in information from external sources, such as current stock prices
or product prices of competitors.

In order to better understand a decision support system, let’s compare the characteristics of
MIS system with those of a DSS system:

Table 4.1 differences between MIS and DSS

MIS DSS

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Structured & Semi-structured decisions Un-structured decisions

Reports based on routine flows of Focused on specific decisions /

data classes of decisions

General control of organization End-user control of data, tools, and

sessions

Structured information flows Emphasizes change, flexibility,

quick responses

Presentation in form of reports Presentation in form of graphics

Greater emphasis on models Assumptions, ad hoc queries

Traditional systems development Develop through prototyping;

iterative process

Check point?

MIS and DSS are similar in terms of the nature of decisions they address. True or
False?---------------------------------------------

4.5.1 Characteristics of the Decision Making Process

Before learning about the purpose and features of decision support systems, you should
become acquainted with the decision making process, the types of problems addressed in
decision making, the attributes of decision makers, and the strategies for decision making. All
of these concepts have implications for the design of decision support systems.

Intelligence

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Is there a problem?

Yes No

Design
What are the alternatives?

Which should you choose? Choice

Is this choice correct?

Implementatio
n

Fig. 4.2 Stages of Decision Making

4.5.2 Attributes of the Decision Maker

The attributes of decision makers also affect the types of decision strategies used. These
attributes include perceptual ability, information capacity, risk-taking propensity, and
aspiration level (MacGrimmon and Taylor, 1976).

Perceptual ability refers to the ways a decision maker perceives a decision problem. If a
decision maker has experience dealing with a similar problem, the problem-solving situation
will not seem as complex and as uncertain as in a case where his or her background with a
similar situation is limited.

Information capacity is important, because all decision making requires an information base.
In complex decision-making situations, decision makers who are receptive to new
information are better prepared to handle the cognitive demands of information search when
they are faced with difficult or uncertain tasks. In contrast, dogmatic decision makers tend to
make rapid decisions based on little information. In either case, decision makers resist
changing a decision once it has been made.

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The other two attributes that account for differences in decision-making behaviour are risk-
taking propensity and aspiration level. In risky situations, decision makers are more uncertain
about outcomes and possible loss of resources. The aspiration level of decision makers also
influences their effectiveness in identifying problems, evaluating alternatives, and making
choices. In general, decision makers attempt to achieve optimal standard and prior
experiences of success or failure and knowledge of results both influence this standard.

4.5.3 Strategies for decision making

The types of decision problem and the attributes of the decision-maker influence whether the
decision-maker will use a “maximizing”, "satisfying", or “incrementalzing” strategy (Mac
Grimmon and Taylor, 1976).

Maximizing when the outcome of a decision is clear, and the alternatives are well
established, the decision maker will make the decision that maximizes the desired outcome.
The maximizing approach assumes that the decision maker is rational and is aware of the
probabilities of each alternative.

Satisfying Since many decisions are made in situations of uncertainty, decision makers are
willing to settle for less than maximum utility. According to Simon (1960), decision makers
display rationality only within limits imposed by their experience, background, and
awareness of alternatives in a given decision situation. A decision maker will set up a
reasonable aspiration level and will reach for possible alternatives until she or he finds one
that achieves this level. Simon calls this satisfying because the decision maker will terminate
his or her search as soon as a satisfactory alternative is found.

Incrementalzing In the third decision-making strategy, the decision maker attempts to take
small steps away from the existing state toward a desired state. This approach may neglect
important outcomes because the alternatives considered are generally familiar to the decision
maker.

4.5.4 Implications of decision making for decision support systems

Decision support systems are designed to support semi-structured and unstructured decisions
in situations in which information is incomplete and where "satisfying" is a goal. They are
developed to support decisions that are so different each time that it would be hard to develop
a standard set of procedures for programming them. Such decisions may be specific and may
relate to a one-time-only situation.

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A decision support system should enable the decision maker to apply the right decision rules
to a problem, rather than using standard rules that may not apply because of changing
conditions. For example, it would be ineffective to apply an inventory reorder model assigned
for slow-moving items to a problem situation involving fast-moving items. As you will see in
the next section, a decision support system provides the decision maker with the flexibility to
explore alternatives by using appropriate data and models.

4.5.5 Types of DSS

1. Data-Driven DSS

The first generic type of Decision Support System is a Data-Driven DSS. These systems
include file drawer and management reporting systems, data warehousing and analysis
systems, Executive Information Systems (EIS) and Spatial Decision Support Systems.
Data-Driven DSS take the massive amounts of data available through the company’s TPS
and MIS systems and cull from it useful information which executives can use to make
more informed decisions.
Data- Driven DSS emphasize access to and manipulation of large databases of
structured data and especially a time-series of internal company data and sometimes external
data.
2. Model-Driven DSS
A second category, Model-Driven DSS, includes systems that use accounting and
financial models, representational models, and optimization models. Model-Driven DSS
emphasize access to and manipulation of a model. Simple statistical and analytical tools
provide the most elementary level of functionality.
Model-Driven DSS were isolated from the main Information Systems of the
organization and were primarily used for the typical “what-if” analysis. That is, “What
if we increase production of our products and decrease the shipment time?” These systems
rely heavily on models to help executives understand the impact of their decisions on the
organization, its suppliers, and its customers.

3. Knowledge-Driven DSS
Knowledge-Driven DSS can suggest or recommend actions to managers. These DSS are
personal computer systems with specialized problem solving expertise. The “expertise”

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consists of knowledge about a particular domain, understanding of problems within
that domain, and “skill” at solving some of these problems. A related concept is Data
Mining. It refers to a class of analytical applications that search for hidden patterns in
a database.

4. Document-Driven DSS
It integrates a variety of storage and processing technologies to provide complete
document retrieval and analysis. The Web provides access to large document databases
including databases of hypertext documents, images, sounds and video. Examples of
documents that would be accessed by a Document-Based DSS are policies and procedures,
product specifications, catalogues, and corporate historical documents, including minutes of
meetings, corporate records, and important correspondence. A search engine is a powerful
decision aiding tool associated with a Document-Driven DSS.

5. Communications-Driven and Group DSS

This fifth generic type of Decision Support System includes communication,

collaboration and decision support technologies that do not fit within those DSS types
identified. Therefore, we need to identify these systems as a specific category of DSS.
A Group DSS is a hybrid Decision Support System that emphasizes both the use of
communications and decision models. A Group Decision Support System is an interactive
computer-based system intended to facilitate the solution of problems by decision-makers
working together as a group. Groupware supports electronic communication, scheduling,
document sharing, and other group productivity and decision support enhancing
activities We have a number of technologies and capabilities in this category in the
framework of Group DSS, two-way interactive video, White Boards, Bulletin Boards,
and Email.
6. Inter-Organizational or Intra-Organizational DSS

A relatively new targeted user group for DSS made possible by new technologies and the
rapid growth of the Internet is customers and suppliers. We can call DSS targeted for external
users. An Inter organizational DSS, the public Internet is creating communication links for
many types of inter-organizational systems, including DSS. An Inter-Organizational DSS

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provides stakeholders with access to a company’s intranet and authority or privileges to use
specific DSS capabilities.
Companies can make a Data-Driven DSS available to suppliers or a Model-Driven DSS
available to customers to design a product or choose a product. Most DSS are Intra-
Organizational DSS that are designed for use by individuals in a company as “standalone
DSS” or for use by a group of managers in a company as a Group or Enterprise-Wide DSS.
7. Function-Specific or General Purpose DSS

Many DSS are designed to support specific business functions or types of businesses and
industries. We can call such a Decision Support System a function-specific or industry-
specific DSS. A Function-Specific DSS like a budgeting system may be purchased from a
vendor or customized in-house using a more general-purpose development package. Vendor
developed or “off-the-shelf” DSS support functional areas of a business like marketing or
finance; some DSS products are designed to support decision tasks in a specific industry like
a crew scheduling DSS for an airline. A task-specific DSS has an important purpose in
solving a routine or recurring decision task. Function or task-specific DSS can be further
classified and understood in terms of the dominant DSS component that is as a Model-
Driven, Data-Driven or Suggestion DSS. A function or task-specific DSS holds and derives
knowledge relevant for a decision about some function that an organization performs (e.g., a
marketing function or a production function). This type of DSS is categorized by purpose;
function-specific DSS help a person or group accomplish a specific decision task. General
purpose DSS software helps support broad tasks like project management, decision analysis,
or business planning.
Check point?
List down the types of DSS in their generic order?
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4.5.6 Components of DSS
Academics and MIS staffs have discussed building Decision Support Systems in terms of
three major components:

1. The user interface- It is an interactive graphical interface which makes the

interaction easier between the DSS and its users. It displays the results (output) of the
analysis in various forms, such as text, table, charts or graphics. The user can select
the appropriate option to view the output according to his requirement.

A manager, for example, would like to view comparative sales data in tabular form whereas
an architect creating a design plan would be more interested in viewing the result of analysis
in a graphical format. The present-day decision support system built using the Web-based
interface provides its users some special capabilities like better interactivity, facility for
customization and personalization, and more ease of use.

2. The data base: The DSS database is a collection of current or historical data from a
number of applications or groups. It may be a small database residing on a PC that
contains a subset of corporate data that has been downloaded and possibly combined
with external data.
Alternatively, the DSS database may be a massive data warehouse that is continuously
updated by major corporate TPS (including enterprise systems and data generated by Web
site transactions). The data in DSS databases are generally extracts or copies of production
databases so that using the DSS does not interfere with critical operational systems. Generally
it provides:
 Very well organized data.
 Very easy access for a large variety of the applications needed.
 Data integrity that is to be maintained in a very efficient way.
3. The DSS software system -The DSS software system contains the software tools that
are used for data analysis. It may contain various OLAP tools, data-mining tools, or a
collection of mathematical and analytical models that easily can be made accessible to
the DSS user. A model is an abstract representation that illustrates the components or
relationships of a phenomenon. A model can be a physical model (such as a model
airplane), a mathematical model (such as an equation), or a verbal model (such as a
description of a procedure for writing an order). Each decision-support system is built

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 for a specific set of purposes and makes different collections of models available
depending on those purposes.
Perhaps the most common models are libraries of statistical models. Such libraries usually
contain the full range of expected statistical functions, including means, medians, deviations,
and scatter plots. The software has the ability to project future outcomes by analyzing a series
of data. Statistical modeling software can be used to help establish relationships, such as
relating product sales to differences in age, income, or other factors between communities.
Optimization models, often using linear programming, determine optimal resource allocation
to maximize or minimize specified variables, such as cost or time. A classic use of
optimization models is to determine the proper mix of products within a given market to
maximize profits.
Forecasting models often are used to forecast sales. The user of this type of model might
supply a range of historical data to project future conditions and the sales that might result
from those conditions. The decision maker could vary those future conditions(entering, for
example, a rise in raw materials costs or the entry of a new, low-priced competitor in the
market) to determine how new conditions might affect sales. Companies often use this
software to predict the actions of competitors. Model libraries exist for specific functions,
such as financial and risk analysis models.

Fig.4.3 Components of the DSS

4.5.7 Important Features of Decision Support System

Decision support systems are designed to support semi-structured and unstructured decisions
in situations in which information is incomplete and where "satisficing" is a goal. They are

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developed to support decisions that are so different each time that it would be hard to develop
a standard set of procedures for programming them. Such decisions may be specific and may
relate to a one-to-only situation. An effective decision support system needs to incorporate
the following features.

 Support of Unstructured Decisions

To begin with, a decision support system must support semi structured and unstructured
decisions. Semi structured and unstructured problems involve a decision-making process that
can't be defined before actually going through the process of making the decision. For
example, budget analysis is a structured problem but budget preparation is unstructured
problem.

 Support For All Phases Of The Decision-Support Process

An effective decision support system should support the three phases of the decision making
process: intelligence, design and choice. At each phase of the decision-making process,
different operations occur. During the intelligence phase, data are collected as a basis for
diagnosing a problem or a situation requiring a decision. When alternatives are weighted
during the design phase, data may be manipulated or values may be assigned to each
alternative. A simulation of the results of the alternatives or statistics describing them may be
useful operations for choosing the best option.

 Support For Communications Among Decision Makers

Decision support systems must support decision making at all levels of the organization.
Since some decisions require communications among decision makers at all levels, decision
support systems need to support group decision making. In some cases, decisions are made
sequentially, with each decision maker responsible for part of the decision before passing it to
on to the next decision maker. Other decisions require a pooling of knowledge and result
from negotiation and interaction among decision makers. A decision support system should
support interaction among decision makers.

 Availability of Memory Aids

In making decisions, managers constantly have to recall information or the results of

operations conducted at previous times. Decision makers need memory aids, and so a

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decision support system should provide them. Workspaces for displaying data representations
or for preserving intermediate results from operations are useful.

4.5.8 Capabilities of DSS

Turban, E.,Aronson, J.E., and Liang, T.P. constitute an ideal set of characteristics and
capabilities of DSS. The key DSS characteristics and capabilities are as follows:

 Support for decision makers in semi-structured and unstructured problems.

 Support managers at all levels.

 Support individuals and groups.

 Support for interdependent or sequential decisions.

 Support intelligence, design, choice, and implementation phases.

 Support variety of decision processes and styles.

 DSS should be adaptable and flexible.

 DSS should be interactive and provide ease of use.

 Effectiveness balanced with efficiency (benefit must exceed cost).

 Complete control by decision-makers.

 Ease of development by (modification to suit needs and changing environment) end

users.

 Support modeling and analysis.

 Data access.

 Standalone, integration and Web-based

4.5.9 Types of DSS analytical modelling

Using a decision support system involves four basic types of analytical modelling activities
as:

 What-if analysis
 Sensitivity analysis
 Goal-seeking analysis
 Optimization analysis

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Let’s briefly look at each type of analytical modelling that can be used for decision support:

I. What if Analysis: In What if Analysis, an end user makes changes to variables, or

relationships among variables, and observes the resulting changes in the values of other
variables. Assume, if you were using a spreadsheet, you might change a revenue amount (a
variable) or a tax rate formula (a relationship among variables) in a simple financial
spreadsheet model. Then you could command the spreadsheet program to instantly
recalculate all affected variables in the spreadsheet. A managerial user would be very
interested in observing and evaluating any changes that occurred to the values in the
spreadsheet, especially to a variable such as net profit after taxes. To many managers, net
profit after taxes is an example of the bottom line, that is, a key factor in making many types
of decisions. This type of analysis would be repeated until the manger was satisfied with
what the results revealed about the effects of various possible decisions.

II. Sensitivity Analysis: Sensitivity analysis is a special case of what if analysis. Typically,
the value of only one variable is changed repeatedly, and the resulting changes on other
variables are observed. So, sensitivity analysis is really a case of what-if analysis involving
repeated changes to only one variable at a time. Some DSS packages automatically make
repeated small changes to a variable when asked to perform sensitivity analysis. Typically,
sensitivity analysis is used when decision makers are uncertain about the assumptions made
in estimating the value of certain key variables. In our previous spreadsheet example, the
value of revenue could be changed repeatedly in small increments, and the effects on other
spreadsheet variables observed and evaluated. This would help a manager understand the
impact of various revenue levels on other factors involved in decisions being considered.

III. Goal-seeking analysis: Goal-seeking analysis reverses the direction of the analysis done
in what-if and sensitivity analysis. Instead of observing how changes in a variable affect
other variables, goal-seeking analysis (also called how analyses can) sets a target value or a
goal for a variable and then repeatedly changes other variables until the target value is
achieved. For example, you could specify a target value or goal of 2 Million Birr for net
profit after taxes for a business venture. Then you could repeatedly change the value of
revenue or expenses in a spreadsheet model until a result of 2 Million Birr is achieved. Thus,
you would discover what amount of revenue or level of expenses the business venture needs
to achieve in order to reach the goal of 2 Million Birr in after-tax profits. Therefore, this

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form of analytical modelling would help answer the question, “How can we achieve 2
Million Birr in net profit after taxes?” instead of the question, “What happens if we change
revenue or expenses?” Thus, goal seeking analysis is another important method of decision
support.

IV. Optimization Analysis: Optimization analysis is a more complex extension of goal-

seeking analysis. Instead of setting a specific target value for a variable, the goal is to find
the optimum value for one or more target variables, given certain constraints. Then one or
more variables are changed repeatedly, subject to the specified constraints, until the best
values for the target variables are discovered. For example, you could try to determine the
highest possible level of profits that could be achieved by varying the values for selected
revenue sources and expense categories. Changes to such variables could be subject to
constraints such as the limited capacity of a production process or limits to available
financing. Optimization, typically, is accomplished by special-purpose software packages for
optimization techniques such as linear programming, or by advanced DSS generators.

Table 4.2 Activities and Examples of the Major Types of Analytical Modelling

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 Type of analytical Activities and Examples
Modelling in DSS

What-if analysis Observing how changes to selected variables affect other

variables.

Example: What if we cut advertising by 10 percent?

What would happen to sales?

Sensitivity analysis Observing how repeated changes to a single variable affect

other variables.

Example: Lets cut advertising by 1000 Birr repeatedly so we

can see its relationship to sales.

Goal-seeking analysis Making repeated changes to selected variables until a chosen

variable reaches a target value.

Example: Let’s try increase in advertising until sales reach 1

Million Birr.

Optimization analysis Finding an optimum value for selected variables, given certain
constraints.

Example: What’s the best amount of advertising to have,

given our budget and choice of media?

4.6. TRANSACTION PROCESSING SYSTEMS (TPS)

A transaction may be defined as routine business event an exchange that affects the financial
well-being of an organization.

Dear students before proceeding to the concept of computerized transaction processing

system let us discuss about the drawbacks of manual/traditional transaction processing
system

Deficiencies of manual transaction system

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To most businesses, manual systems present numerous problems that are solvable by
customer and communications technologies:

Error Level: with manual systems, an uncomfortable level of error often exists. Frequently,
clerks look up the wrong prices, add prices incorrectly on invoices, or produce garbled
journal entries or source documents. Sickness, worry moodiness, and other inherently human
variables can also contribute to high error rates in manual systems.

Temporary or Permanent Loss Of Data: source documents and file folders are easily lost
or misplaced. This often results in lost customer payments and delayed purchases or
payments.

Labour Intensity: manual systems are labour intensive and, therefore, costly. For instance,
data from a single transaction often have to be transcribed several times, and many types of
low-volatility data (data that change infrequently, such as product descriptions and customer
names or addresses) have to be re-recorded by clerks every time a new transaction takes
place. Additionally, a lot of time is wasted coordinating data from department; for instance
making phone calls to trace the status of a customer order.

Poor Level of Service: as can be surmised from the last example, the level of service
support in manual systems is often inferior. For instance, customers like to know
immediately if goods are in stock, when goods are not in stock in stock will be arriving, when
they can expect and order to arrive, what their current status is regarding payments, and so
on. This level of information support is difficult to achieve with a manual system.

Poor Response: virtually everything takes longer to do with a manual system. For example,
when orders are taken, the order-entry department might have to contact the accounts
receivable department for a credit check before an order can be validated. Today, many
computerized order-entry operations are connected to a centralized database and, when a
customer telephones, credit status can be verified immediately. As another example, if a
manager wants to find out if a customer has ordered a specific type of product in the last
month, the manager might have to search through mounds of documents to find the answer.

So what is transaction processing system?

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A transaction processing system is a computerized system that performs and records the daily
routine transactions necessary to conduct business. Examples are sales order entry, hotel
reservation systems, payroll, employee record keeping, and shipping. At the operational level,
tasks, resources, and goals are predefined and highly structured. The decision to grant credit
to a customer, for instance, is made by a lower level supervisor according to predefined
criteria.

A transaction processing system supports the processing of a firms business transaction. For
example, the TPS of a department store can record customer purchases, prepare billings to
customers, and order merchandise from suppliers-as well as interrelate these task and others
into an overall accounting system. The TPS of a college or university, on the other hand,
helps perform such tasks as enrolling students in courses, billing students for tuition, and
issuing pay checks to faculty.

Transaction processing systems keep an organization running smoothly by automating the

processing of the voluminous amounts of paperwork that must be handled daily. These
systems includes the accurate recording of transactions, as well as the control procedures
used in issuing such documents as pay checks, invoices, customer statements, payment
reminders, tuition bills, and student schedules.

4.6.1 Features of TPS

1. A TPS supports different tasks by imposing a set of rules and guidelines that
specify how to record, process, and store a given transaction.

2. A TPS is the data life-line for a company because it is the source of data for other
information systems, such as MIS and DSS (Decision Support Systems). Hence,
if the TPS shuts down, the consequences can be serious for the organization

3. A TPS is also the main link between the organization and external entities,
such as customers suppliers, distributors, and regulatory agencies

4. TPS exist for the various functional areas in an organization, such as finance,
accounting, manufacturing, production, human resources, marketing quality
control, engineering, research and development. Until a few years ago, many
companies viewed the TPS for each business function as separate entity with little or
no connection to other systems in the company. Today, however, many companies

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 are trying to build cross-functional TPS to promote the free exchange of
information among different business units.

Check point

Dear learners, MIS is dependent on TPS for its data. Explain why?

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4.6.2 Types of Transactions

Unlike other MIS components, the TPS of an organization may be far reaching, extending
completely through and out of the organization, linking together the entire financial system,
factory, customers, and suppliers. Hence, the transactions can be internal or external. When a
department orders office supplies from the purchasing department, an internal
transaction occurs, when a customer places an order for a product, an external
transaction occurs.

1. Internal Transactions: Those transactions, which are internal to the company and are
related with the internal working of any organization. For example, Recruitment Policy,
Promotion Policy, Production policy etc.

2. External Transactions: Those transactions, which are external to the organization and
are related with the external sources, are regarded as External Transaction. For example
sales, purchase etc.

4.6.3 Process of Transaction Processing System

The seven steps in processing a transaction are:

1. Data entry
2. Data Capture
3. Data validation
4. Processing and revalidation
5. Storage
6. Output generation
7. Query support

1st .DATA ENTRY

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The first step in the transaction processing cycle involves data entry. To be processed,
transaction data must first be entered into the system. Documents generated at the point
where a transaction occurs are called source documents and become input data for the
system. The use of automated methods of data entry is known as source data automation.

Devices for Data Entry

 Keyboard and mouse

 Optical character recognition (OCR) devices, such as optical scanning wands and
grocery checkout scanners.

 Magnetic ink character recognition (MICR) devices, such as MICR reader/sorters

used in banking for check

 Other technologies, including electronic mice, light pens, magnetic stripe cards, voice
input, and tactile.

2nd DATA CAPTURE

We could capture transaction data as close as possible to the source that generates the data.
Salespersons capture data that rarely changes by prerecording it on machine-readable
media, or by storing it on the computer system.

Devices for data capture

 machine-readable media (bar-coded and magnetic stripe credit cards)

 optical scanning of bar codes
3rd DATA VALIDATION

There are two steps in validation: error detection and error correction. Error detection is
performed by one set of control mechanisms, error correction is performed by another.
Some commonly used error detection procedures are checking the data for appropriate
font (text, numbers, etc.), checking for aberrations (values that are too low or too high), and
checking for missing data, invalid data, and inconsistent data.

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Missing data refers to fields that are missing a mandated data value. For example, if the
number of hours worked by a part-time employee is missing on a payroll form; that is a
missing-data error.

Invalid data is data that is outside the range for example, if the number of hours worked by a
part-time employee is 72 hours per week instead of the 1120 hours, then we have invalid
data.

Inconsistent data means that the same data item assumes different values in different
places with-out a valid reason.

4th PROCESSING AND REVALIDATION

Once the accuracy and reliability of the data are validated, the data are ready for processing.
There are two methods to process the transactions:

I. Online transaction processing (OLTP) is the almost instantaneous processing of data. The
term online means that the input device is directly linked to the TPS and therefore the data

are processed as soon as it is entered into the system. Input device may be at a remote
location and be linked to the system by networks or by telecommunications systems. Some
examples of online transaction processing are ATM transactions, student registration for
classes. The processing of flight reservations is another good example of an online
system in which data are processed.

II. Batch Processing, in which transactions are accumulated over time and processed
identically. Batch processing may be done on a daily, weekly, or monthly basis or any
other time period appropriate to the application. For example, a company may process the
travel expenses of its employees on a monthly basis, whereas Batch processing usually
involves.

5th DATA STORAGE

Processed data must be carefully and properly stored for future use. Data storage is a critical
consideration for many organizations because the value and usefulness of data diminish if
data are not properly stored. The kind of processing and the type of storage medium are, to
some extent, related issues. For example, magnetic tape is often used to store data that is

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Batch processed. However, online transaction processing cannot be done on magnetic tape; it
relies on other types of storage media, such as magnetic disks.

6th OUTPUT GENERATION

Once data has been input, validated, processed, revalidated and stored, the output can be
communicated to decision makers in two ways:

 Documents and reports- A document is usually a record of one transaction, whereas a

report is a summary of two or more transactions. For example, the manager of a retail
store may receive an invoice (i.e., a document) from a supplier indicating the
quantity and type of each item ordered and the total cost of the order. A report, on the
other hand, may summarize all the invoices from a given supplier.

 Forms (screens or panels)- Computer output need not always be presented in

hard-copy form (such as reports, documents, and printouts), but can also appear on
computer screens and panels. Such soft-copy presentations are known as forms.

7th QUERY SUPPORT

The last step in processing a transaction is querying (asking questions of) the system. Query
facilities allow users to process data and information that may otherwise not be readily
available. For example, a sales manager may query the system ‘find the number of
damaged items in a given store’. Many transaction processing systems allow you to make
inquiries and receive responses concerning the results of transaction processing activity.
Typically, responses are displayed in a variety of pre-specified formats or screens.

Check point?
What do you understand by inconsistent
data?----------------------------------------------------------------------------------------------------------
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Give some examples for internal and external transactions that may be carried out at Wollo
University.---------------------------------------------------------------------------------------------------
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Chapter summary
In this chapter, you looked at the operational, tactical and strategic levels of information
systems across financial production/manufacturing, marketing and human resource functional
areas of the organization. In doing so, you examined the nature, features and benefits of
the information systems across various levels of the organizations functional areas.
Subsequently, you examined the Decision Support System. Under which you examined the
usefulness of the DSS to managers and its difference with MIS. You also highlighted the
different types of DSS and the components of DSS. Furthermore you continue the discussion
about the capabilities of DSS and the four important types of DSS analytical modelling
namely What-if analysis, Sensitivity analysis, and Goal-seeking analysis and Optimization
analysis

Finally, you described the Transaction Processing System. You began the session by
explaining what the TPS means. Thereafter, you described the different types and
characteristics of the Transaction processing systems. You brought the session to an end by
discussing the various steps involved in the process of the TPS.

REVIEW QUISTIONS

1. Discuss the subsystems of operational level accounting information systems?

2. What are the importances of implementing manufacturing and production information
system?
3. Differentiate between management information system (MIS) and decision support
systems (DSS).
4. Define transactional processing system and describe its main types and features.
5. Describe the devices used for data entry and data capture in TPS

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 CHAPTER FIVE

INTRODUCTION TO KNOWLEDGE MANAGEMENT

Chapter objectives
At the end of this unit students will be able to
 Define the term knowledge management
 Describe the theory knowledge management.
 Explain KM sharing.
 Explain technologies to support KM
 Evaluate KM application in organizations.

INTRODUCTION
Dear students before proceeding to knowledge management, let us start with one basic
question.
What is knowledge?
Knowledge refers to interconnected information on what something is, why something
happens, and how to do something.
- What: definitions of concepts and relationships, taxonomies
- Why: understanding cause-effect relationships
- How-to, know-how: analysis/synthesis; methods, procedure for generating new knowledge

Knowledge can be thought of as information in action. “Knowledge will remain information

unless attitudes, systems, and skills exist to retrieve the information and share it in a new
context”

Fig 5.1 - From Data to Wisdom: a hierarchy of knowledge

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There is an important distinction between data, information, knowledge, and wisdom. In the
information technology context, knowledge is very distinct from data and information.
Whereas data are a collection of facts, measurements, and statistics, information is organized
or processed data that are timely (i.e., inferences from the data are drawn within the time
frame of applicability) and accurate (i.e., with regard to the original data). Knowledge is
information that is contextual, relevant, and actionable.

For example:
 Data: 32, 3, 15, 2019
 Information: 32 new cases of tuberculosis have been reported in the last three
months which is up from 15 from the same time in 2019.
 Knowledge: You know this trend is alarming and signals a need to understand it and
take corrective action.
Wisdom: You undertake a literature review; convene an expert panel to generate
recommendations for immediate and long-term action.

5.1 HISTORY OF KNOWLEDGE MANAGEMENT (KM)

The origins of knowledge management can be traced back to the late 1970s. Everett Rogers
and Thomas Allen’s work in information transfer laid the foundation to the concept of how
knowledge is created, implemented, and integrated throughout an organization.
 In the 1980s, knowledge became a focal point to increasing the competitive
edge for companies. People like Senge and Sakaiya discussed the advantages
of creating learning and knowledge based organization. The primary object
during this time was improving business in general.
 In the 1990s, knowledge management was introduced into mainstream
business management publications. Authors like Tom Stewart, Ikujiro
Nonaka, and Hirotaka Takeuchi brought formality to the managing of
knowledge.
 In the mid 1990’s, the Internet became the channel where knowledge
management expanded greatly.
 2000 the first KM programs is started in universities
 The history of knowledge management has many prominent theorists like Karl
Wiig, Peter Drucker, and Paul Strassmann. From information technology to
improving how an organization learns, knowledge

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5.2 DEFINITIONS OF KNOWLEDGE MANAGEMENT(KM)

Knowledge Management efforts have a long history, to include on-the-job discussions,

formal apprenticeship, discussion forums, corporate libraries, professional training and
mentoring programs. More recently, with increased use of computers in the second half of the
20th century, specific adaptations of technologies such as knowledge bases, expert systems,
knowledge repositories, group decision support systems, intranets, and computer-supported
cooperative work have been introduced to further enhance such efforts.
DEFINITIONS
 "Knowledge Management is the discipline of enabling individuals, teams and entire
organizations to collectively and systematically create, share and apply knowledge, to
better achieve their objectives" ~ Ron Young.
 Knowledge management is a collaborative and integrated approach to the creation,
capture, organization, access, and use of an enterprise’s intellectual assets. ( Grey
1996)

 A knowledge management system (KMSs) is the Information systems “developed to

support and enhance the organizational knowledge processes of knowledge creation,
storage, retrieval, transfer, and application (Alavi & Leidner).
 Knowledge management (KM) is the process of capturing, developing, sharing, and
effectively using organizational knowledge. It refers to a multi-disciplinary approach
to achieving organizational objectives by making the best use of knowledge.
 Knowledge Management (KM) comprises a range of strategies and practices used in
an organization to identify, create, represent, distribute, and enable adoption of
insights and experiences. Such insights and experiences comprise knowledge, either
embodied in individuals or embedded in organizations as processes or practices.

 "The capabilities by which communities within an organization capture the

knowledge that is critical to them, constantly improve it and make it available in the
most effective manner to those who need it, so that they can exploit it creatively to
add value as a normal part of their work" ~ GlaxoSmithKline.

 Knowledge management (KM) is a process that helps organizations identify, select,

organize, disseminate, and transfer important information and expertise that are part
of the organization’s memory and that typically reside within the organization in an

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 unstructured manner. This structuring of knowledge enables effective and efficient
problem solving, dynamic learning, strategic planning, and decision making.
 KM is the systematic process by which knowledge needed for an organization to
succeed is created, captured, shared and leveraged.
 KM is a process used by organizations and communities to improve how business is
conducted by leveraging data and information that are gathered, organized, managed,
and shared.
 KM is regarded as collection, distribution and efficient use of knowledge resources. It
is a process of knowledge creation, validation, presentation, distribution and
evaluation.
 KM is a set of procedures, infrastructures and technical and managerial tools,
designed towards creating, sharing, leveraging information and knowledge within and
across organizations.
 KM is a systematic and integrative process of coordinating organization wide
activities of acquiring, creating, storing, sharing, diffusing and deploying knowledge
by individuals and groups, in pursuit of organizational goals.
KM initiatives focus on identifying knowledge, explicating it in such a way that it can be
shared in a formal manner, and leveraging its value through reuse. KM is understood to be an
umbrella term encompassing the many unique but related facets of knowledge – exchange,
transfer and uptake among them.

5.3 KNOWLEDGE MANAGEMENT THEORIES

In the early 1990s, knowledge management emerged as a formal scientific discipline
supported by scholars in academia, practitioners in corporate environments, and consultants.
There are several methods and applications of knowledge management, and each approach
varies by the scholar, author, or practitioner. The central knowledge management theories are
categorized as organizational, ecological, and techno-centric.

Organizational knowledge management theory primarily focuses on organizational

structures and how an organization is designed culturally and hierarchically to manage
knowledge and knowledge processes.

Ecological knowledge management theory focuses on people, relationships, and learning

communities, including interactions among individuals and organizations and the internal and
external factors that draw people together to share knowledge.

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Techno-centric theory focuses on technology and the process of designing technology
enablers to help facilitate the flow of knowledge and the storage of information

5.4 UNDERSTANDING TYPES OF KNOWLEDGE

As knowledge has been identified as one of the most important resources that contribute to
competitive advantage of an organization, many organizations have reached the conclusion
that effective knowledge management is the only way to lever their core competencies and
achieve competitive sustainability.
Understanding the different forms that knowledge can exist in, and thereby being able to
distinguish between various types of knowledge, is an essential step for knowledge
management (KM).

KM and organizational learning theory almost always take root in the interaction and
relationship between these two types of knowledge (explicit and tacit). This concept has been
introduced and developed by Nonaka in the 90's (e.g. Nonaka, 1994) and remains a
theoretical cornerstone of this discipline.

I. Explicit Knowledge:

This type of knowledge is formalized and codified, and is sometimes referred to as know-
what (Brown & Duguid 1998). It is therefore fairly easy to identify, store, and retrieve
(Wellman 2009). This is the type of knowledge most easily handled by KMS, which are very
effective at facilitating the storage, retrieval, and modification of documents and texts.

It deals with more objective, rational, and technical knowledge (data, policies, procedures,
software, documents, etc.). Explicit knowledge examples are the policies, procedural guides,
white papers, reports, designs, products, strategies, goals, mission, and core competencies of
the enterprise and the information technology infrastructure. It is the knowledge that has been
codified (documented) in a form that can be distributed to others or transformed into a
process or strategy without requiring interpersonal interaction. From a managerial
perspective, the greatest challenge with explicit knowledge is similar to information. It
involves ensuring that people have access to what they need; that important knowledge is
stored; and that the knowledge is reviewed, updated, or discarded.

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Explicit knowledge has also been called leaky knowledge because of the ease with which it
can leave an individual, document, or the organization, after it has been documented.
II. Tacit Knowledge

This type of knowledge was originally defined by Polanyi in 1966. It is sometimes referred to
as know-how is usually in the domain of subjective, cognitive, and experiential learning; it is
highly personal and difficult to formalize. Tacit knowledge is the cumulative store of the
experiences, judgement, mental maps, insights, acumen, expertise, know-how, trade secrets,
skill sets, rule of thumb, understanding and learning that an organization has. Tacit
knowledge is found in the minds of human stakeholders. It includes cultural beliefs, values,
attitudes, mental models, etc. as well as skills, capabilities and expertise (Botha et al 2008).

Tacit knowledge has been called sticky knowledge because it may be relatively difficult to
pull it away from its source. Successful transfer or sharing of tacit knowledge usually takes
place through associations, internships, apprenticeship, conversations, other means of social
and interpersonal interactions, or even through simulations.

Table 5.1 Properties of Tacit and Explicit Knowledge

Explicit Knowledge Tacit Knowledge

Tangible Intangible

Physical objects, e.g. in documents or databases Mental objects, i.e. it's in people's head's

Context independent Context affects meaning

Easily shared Sharing involves learning

Reproducible Not identically replicated

The goal of knowledge management is for an organization to be aware of individual and

collective knowledge so that it may make the most effective use of the knowledge it has.
Historically, MIS has focused on capturing, storing, managing, and reporting explicit
knowledge. Organizations now recognize the need to integrate both explicit and tacit
knowledge in formal information systems.

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Generally Most KM systems deal with explicit knowledge (e.g., tangible knowledge that can
be categorized and organized). Tacit knowledge tends to be more valuable, but also more
challenging to manage, than explicit knowledge. Social networking attempts to make
knowledge more accessible by to cataloguing an organization’s human capital. By making
that catalogue available to individuals in an organization, tacit knowledge can be captured
and transformed into discrete information that can searched and organized.

Check point

1. List the characteristics of explicit

knowledge-------------------------------------------------------------------------------------------
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2. List the characteristics of tacit

knowledge-------------------------------------------------------------------------------------------
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3. Which types of knowledge is suitable for knowledge management systems?--------------

5.5 KNOWLEDGE MANAGEMENT SYSTEMS

Knowledge management systems (KMS) refer to a class of information systems applied to
managing organizational knowledge. That is, they are IT-based systems developed to support
and enhance the organizational process of knowledge creation, storage and retrieval, transfer,
and application.

Knowledge management systems developed to support and enhance the organizational

knowledge processes of knowledge creation, storage, retrieval, transfer and application.

There are four different types of knowledge support systems that will be discussed in this
section. These are related to:
 The creation of knowledge
 The distribution of knowledge
 The capture and codification of knowledge, and
 The sharing of knowledge

Create Distribute

Capture Share
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Fig 5.2. Knowledge management support systems

I. Creation of knowledge

Knowledge creation is one of the main activities of knowledge workers. The following are
facilities required to help knowledge workers actually create knowledge. To help knowledge
workers create knowledge, the organization must provide the appropriate software as well as
the correct working environment to support those workers.

Computer requirements include:

1. External knowledge base to provide appropriate input for the knowledge worker.
Information concerning the activities of competitor, requirements of the market and
deficiencies in existing products are all necessary items to help the worker improve
existing products and create new knowledge.
2. A user-friendly interface allowing quick access to appropriate information as well as
software applications such as MS projects and CAD tools to help design new
products.
3. Appropriate computer hardware, with large memory and sufficient processing power
to run the more advanced software applications.
II. Capture and codification of knowledge

Capturing knowledge involves entering knowledge into the computer systems. Codifying
involves finding the rules that explain how that knowledge is used. Both data and knowledge
workers can be involved in capturing and codifying knowledge, because either group of
workers could start to provide the knowledge to be entered into the computer system.
Similarly, both types of workers could use the output from a computer system that has
specific knowledge entered into it. However, programming and establishing the computer
system itself is likely to be a specialist task, and will therefore apply to knowledge workers
only.

The idea of capturing and codifying knowledge in a computer system is to try and mimic
human thought and decision-making processes. One of the objectives of computer research is
to have a computer, or an artificial intelligence (AI), that can think like a human being.

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However, the range of possibilities shows that some form of computer system could replace
both data and knowledge workers. See the following Artificial Intelligence areas.

Expert systems

Expert systems are information systems used to make choices that would normally be
performed by a domain expert such as in the diagnosis of a problem. Knowledge to assist in
these problems or other similar applications can be captured in an expert system. The expert
system is a computer program that makes decisions based on the rules provided in the
application itself. These rules are contained in a rule base, and are derived from human
experts in a specific area of knowledge.

Rules take on the IF-THEN format found in many computer programs. So IF one condition is
true, THEN a particular action takes place. However, if the condition is not true, a different
action or no action at all may occur. For example, a human may look out of the widow before
going a walk and use the rule IF it is raining THEN takes an umbrella; however, if it is not
raining, then no umbrella will be taken. This is called an inference engine.

Intelligent agents

Intelligent agents are software programs that are given to undertake a specific task. The
program is then left running while the human operator carries on with other tasks, the
program reports back to the operator either when the task is complete or when future
information is needed in order to complete the task. One of the main examples of intelligent
agents currently in use is a search program for the internet. The agent is not necessarily a
simple search carried out in a search engine such as Yahoo or Google, but a more detailed
program that reviews web pages in detail and monitors new information being added to the
Internet. When information is found matching the search criteria, than the agent then
continues searching for more web pages that meet the search criteria.

Some web agents are available to help with task such as shopping. Some web sites such as
Yahoo have agents to locate products you may be interested to purchase and provide
comparative prices for those products. The internet bookstore, Amazon has a product called
'eyes' which monitors your book purchases and emails you with a review of similar new
books in case you wish to purchase these as well.

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Check point

What is the difference between capturing knowledge and codification of

knowledge?--------------------------------------------------------------------------------------------------
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III. Distribution of knowledge

Within an organization, knowledge is distributed using some form of Office Automation

System (OAS). The main function of OAS is to distribute knowledge with in a specific
organization. However, this distribution normally takes place on different levels:

 Firstly, co-coordinating work within one department or work group in the

organization. Both data and knowledge workers will need to share information on a
regular basis with their peers and the OAS will provide this basic communication
medium.
 Secondly, distributing knowledge between the different departments of an
organization. These departments may be located within different buildings, cities or
even countries, but again the OAS provides the basic communication system to allow
knowledge to be shared.
 Finally, providing connections to the external environment such as customers,
suppliers, contract staff, bankers, etc. almost all external links from an organization
are electronic or computerized in nature, meaning that the OAS is an ideal system to
manage the sharing of knowledge with third parties, as a lot of the data to be shared is
already captured in the OAS.

Office automation systems are generally established and maintained by data workers.
However, one aim of the OAS is to increase the productivity of information workers.

The main activities carried out within the OAS will include:

 Documents management including creating appropriate documents, storing them

within the OAS, retrieving the documents, when required and sending those
documents to the appropriate workers.

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  Scheduling the work of data and knowledge workers.
 Managing the different types of communication, such as digital, document and voice
messages, between workers.
 Obtaining and managing data on the different groups such as employees, customers
and suppliers.
IV. Sharing of knowledge

Sharing knowledge within organization involves using the existing network systems to
provide access to database and a communication system to send knowledge to other workers
within the organization. Two specific software systems normally allow for the sharing of
knowledge, namely groupware and intranets. These systems are explained in this section.

i. Groupware fundamentals

Groupware products allow for the sharing of information between different workers within an
organization. Groupware systems will provide a variety of services to workers, as explained
below.

Group writing and commenting

Individuals documents authored on a word-processor can be shared by placing the document

on a central file server, so that more than one author can look at and amend a document.
However, within this configuration, only one person is allowed access to that document at
once, depending on the groupware products being used. Also, the document will be shareable
across an entire WAN, rather than being limited to a LAN. These features enable more
workers to access documents and make comments and amendments, by placing makers on
each amendment showing who made that change. The author of an amendment can be easily
identified, when required.

Electronic mail distribution

Part of groupware involves fast and efficient communication systems between workers in
many diverse locations. Groupware provides an email system across the whole WAN in the
organization. However, email is not simply sending message, the software will also maintain
a track, or 'thread' of comments and responses to a message. Similarly, messages can be
posted on to "bulletin boards" so all members on the board. Again, the thread principle means
that all workers back to that message in the board. Again, the thread principle means that all
workers can easily see who posted the initial message, and who has responded to that
message.

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Scheduling meetings

Many workers maintain electronic diaries. Within groupware, these diaries will still be
available, but they will also be viewable via the network by all other workers, it dose enable
group meetings to be booked without having to contact all members individually.

Meetings and conferences

Wide geographical distribution of workers has other problems such as actually attending
meetings. Groupware will allow the use of video conferencing so that meetings can take
place over the WAN. Each workstation is equipped with a small TV camera, and the software
combines each image on the computer screen to provide the impression of a real-time
meeting.

ii. Intranets
It uses by data and knowledge workers. An internet is essentially a private internet. The
internet uses the same technology as the internet, including a web browsers and pages written
in HTML (Hyper-text Markup language) but is kept secure by a firewall, which prevents
members of the public viewing the intranet pages. The firewalls consist of hardware and
software packages. It intercepts all managers between the intranet and the external internet
and only allows authorized communication to pass between the two systems.

Intranets do not require any special hardware to run, and so can be established over an
existing network relatively quick. The only software required is a web browser, such as
Internet explorer or Netscape navigator, and a computer to act as a wave server. Where some
form of group support is required in a hurry, an internet may provide a temporary, and in
some cases a lasting, solution.

An extension of the intranet idea is an extranet. In this system, some third party access is
allowed to the internal web sites. As mentioned above, intranets provide a relatively quick
and easy method of providing an information sharing system within organization where a
network has placing information that requires multiple accesses into some form of web-based
documentation. However, when this has been done the documents can be accessed from any
computer with browser software anywhere on the organization's network. Any information
that needs to be shared can be placed onto the intranet-this information can range from basic
reports through to technical documentation and procedures manuals. The intranet therefore
supports the work of data and knowledge workers.

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 Check point
Name two specific soft ware systems that are available and used to share
knowledge?-----------------------------------------------------------------------------------------
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5.6 KNOWLEDGE MANAGEMENT TECHNOLOGIES

Knowledge Management requires technologies to support the new strategies, processes,
methods and techniques to better create, disseminate, share and apply the best knowledge,
anytime and anyplace, across the team, across teams, across the organization and across
several organizations, especially its clients, customers, partners, suppliers and other key
stakeholders.

The key technologies are communication and collaboration technologies that are web based
for internet and intranet usage, as well as mobile technologies such as PDA’s, PC’s,
telephone and videoconferencing. New technologies are rapidly emerging that act as
intelligent agents and assistants to search, summaries, conceptualize and recognize patterns of
information and knowledge. The following are common technologies that support
Knowledge management

 Communication Technology
 Collaboration technology
 Information technology
 Data storing Technology – Database Management System and Data Warehouses
 Data Retrieval Technology – Database Management System and Data Mining
 Artificial Intelligence
 Decision Support System

Communication technologies allow users to access needed knowledge, and to communicate

with each other—especially with experts. E-mail, the Internet, corporate intranets, and other
Web-based tools provide communication capabilities. Even fax machines and the telephone
are used for communication, especially when the practice approach to knowledge
management is adopted.

Collaboration technologies provide the means to perform group work. Groups can work
together on common documents at the same time (synchronous) or at different times
(asynchronous), in the same place, or in different places. This is especially important for

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members of a community of practice working on knowledge contributions. Collaborative
computing capabilities such as electronic brainstorming enhance group work, especially for
knowledge contribution. Additional forms of group work involve experts working with
individuals trying to apply their knowledge. This requires collaboration at a fairly high level.
Other collaborative computing systems allow an organization to create a virtual space so that
individuals can work online anywhere and at any time.

Information technology- IT is the acquisition, processing, storage and dissemination of

information by a technological based combination of computing and communications. IT is
important in its own right and remains a key success factor in the improvement of an
effective KM. In the business world, IT has become a common force and from that time until
now, IT can be used for information storage, information protection, information process,
information transferring.

Internet, data mining, browsers, data warehouses, and useful program can arrange and
improve organization KM as well as gains competitive advantages. The role of information
technology (IT) in sharing, transfer and storage knowledge is very important. KM without IT
is useless for competitive ends. Knowledge formation and distribution are upgraded by IT
that improves communication, transfer, storage and sharing of organizational knowledge.
Thus, many organizations utilize IT, especially to store and transfer explicit knowledge.

Storage and retrieval technologies originally meant using a database management system to
store and manage knowledge. This worked reasonably well in the early days for storing and
managing most explicit knowledge, and even explicit knowledge about tacit knowledge.
However, capturing, storing, and managing tacit knowledge usually requires a different set of
tools. Electronic document management systems and specialized storage systems that are part
of collaborative computing systems fill this void.

Artificial Intelligence- is an area of computer science that emphasizes the creation of

intelligent machines that work and reacts like humans. It is the intelligence demonstrated
by machines, in contrast to the natural intelligence displayed by humans and animals. It
supports knowledge management in four ways:
 It simplifies knowledge discovery
 It connects data from disparate sources

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  It helps you keep your knowledge base content up-to-date
 Its tools provide important knowledge management metrics
Decision Support Systems (DSS)- Decision Support Systems are popular tools that assist
decision-making in an organisation. The importance of Knowledge Management (KM) is also
recognised due to its contributions in decision-making in organisations. On the other hand the
organizations knowledge management system depends on its DSS.

Fig 5.3. Knowledge management supportive technologies

5.7 THE KNOWLEDGE MANAGEMENT SYSTEM CYCLE

A functioning knowledge management system follows six steps in a cycle. The reason the
system is cyclical is that knowledge is dynamically refined over time. The knowledge in a
good KM system is never finished because, over time, the environment changes, and the
knowledge must be updated to reflect the changes. The cycle works as follows:
1. Create knowledge. Knowledge is created as people determine new ways of doing things or
develop know-how. Sometimes external knowledge is brought in.

2. Capture knowledge. New knowledge must be identified as valuable and be represented in

a reasonable way.

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3. Refine knowledge. New knowledge must be placed in context so that it is actionable. This
is where human insights (tacit qualities) must be captured along with explicit facts.

4. Store knowledge. Useful knowledge must then be stored in a reasonable format in a

knowledge repository so that others in the organization can access it.

5. Manage knowledge. Like a library, the knowledge must be kept current. It must be
reviewed to verify that it is relevant and accurate.

6. Disseminate knowledge. Knowledge must be made available in a useful format to anyone

in the organization who needs it, anywhere and anytime.

Create Capture

Refine
Knowledge

Disseminate
Disseminate Manage Store
Store
Manage

Fig 5.4 The knowledge management cycle

5.8 BENEFITS OF A KNOWLEDGE MANAGEMENT SYSTEM

Creating an enterprise-wide knowledge management system is not a simple task. However,
the benefits of a well-designed system are immense:

Awareness: Everyone knows where to go to find the organization’s knowledge, saving

people time and effort.

Accessibility: All individuals can use the organization’s combined knowledge and
experience in the context of their own roles.

Availability: Knowledge is usable wherever it is needed whether from the home office, on
the road or at the customer’s side. This enables increased responsiveness to customers,
partners and co-workers.

Timeliness: Knowledge is available whenever it is needed, eliminating time-wasting

distribution of information, just in case, people are interested.

Check point?

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List the steps in knowledge management cycle.

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5.9 KNOWLEDGE MANAGEMENT APPLICATION IN ORGANIZATION

The value of a firm’s products and services is based not only on its physical resources but
also on intangible knowledge assets. Some firms perform better than others because they
have better knowledge about how to create, produce, and deliver products and services. This
firm knowledge is difficult to imitate, unique, and can be leveraged into long-term strategic
benefit. Knowledge management systems collect all relevant knowledge and experience in
the firm and make it available wherever and whenever it is needed to support business
processes and management decisions. They also link the firm to external sources of
knowledge. The following are knowledge management applications in the organization:

Knowledge Acquisition
Organizations acquire knowledge in a number of ways, depending on the type of knowledge
they seek. The first knowledge management systems sought to build corporate libraries of
documents, reports, presentations, and best practices and encouraged employees to create
documents based on their experiences. These efforts have been extended to include
unstructured documents (such as e-mail). In other cases organizations acquire knowledge by
developing online expert networks so that employees can “find the expert” in the company
who has the knowledge in his or her head.

Knowledge Storage
Once they are discovered, documents, patterns, and expert rules must be stored so they can be
retrieved and used by employees. Knowledge storage generally involves the creation of a
database. Document management systems that digitize, index, and tag documents according
to a coherent framework are large databases adept at storing collections of documents.
Management must support the development of planned knowledge storage systems,

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encourage the development of corporate-wide schemas for indexing documents, and reward
employees for taking the time to update and store documents properly.

Knowledge Dissemination
Portal, e-mail, instant messaging, and search engine technology have resulted in an explosion
of “knowledge” and information dissemination. These technologies have added to an existing
array of groupware technologies and office systems for sharing calendars, documents, data,
and graphics. Rather than a shortage of information and knowledge, contemporary
technology seems to have created a deluge of information and knowledge. Here, management
and organizational activities play a critical role. Training programs, informal networks, and
shared management experience communicated through a supportive culture help managers
focus their attention on the important knowledge and information.

Knowledge Application
Regardless of what type of knowledge management system is involved, knowledge that is not
shared and applied to the practical problems facing firms and managers does not add business
value. To provide a return on investment, organizational knowledge must become a
systematic part of management decision making and become situated in existing and new
decision support systems. Ultimately, new knowledge must be built into a firm’s business
processes and key application systems, including enterprise applications for managing key
internal business processes and relationships with customers and suppliers. Management
supports this process by creating-based on new knowledge-new business practices, new
products and services, and new markets for the firm. More important, management helps to
create a cultural environment where decisions and processes are based on informed
knowledge, not guesswork.

Chapter summary

Knowledge Management system is an information system created to enabling individuals, teams

and entire organizations to collectively and systematically create, share and apply knowledge,
to better achieve their objectives.

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There are two types of knowledge namely, explicit and tacit. The type of knowledge that Most KM
systems deal with is explicit knowledge that is tangible knowledge that can be categorized and
organized easily since tacit knowledge is more challenging to manage, than explicit knowledge.

There are four different types of knowledge support systems namely the creation of
knowledge; the distribution of knowledge; the capture and codification of knowledge, and the
sharing of knowledge.

Common technologies that support Knowledge management are technologies related to

Communication, Collaboration, Information, Data storing and Data Retrieval, Artificial
Intelligence and Decision Support System. Developing Knowledge management system
involves six steps.

Some of the applications of knowledge management system in organization are knowledge

acquisition, knowledge storage, knowledge dissemination and knowledge application to
practical business problems arise within the organization.

REVIEW QUISTIONS
1. What is knowledge management? Define it by referring different authors.
2. Write the applications of knowledge management in the organizations.
3. Discuss at least four types of knowledge management support technologies.

CHAPTER SIX

ETHICAL AND SECURITY ISSUES

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Chapter objectives

After completing this chapter, students will be able to

 Define the term ethical and security issues in information system.
 Describe information system threats.
 Explain about computer viruses.
 Explain technologies used to protect information system threats.

Introduction

Business information technology poses both security risks and ethical challenges. Personal
information stored in data banks may be used for criminal purposes. The anonymity of some
communication systems may lead to unethical behavior. Information technology isn’t all bad; it offers
many new ways to communicate and store information, but business managers must balance the
business potential with the possible adverse effects. Several laws govern information systems, but the
law often lags behind the technology. Businesspeople use ethics to bridge the gaps between new
technologies and eventual laws.

Business managers and those with access to information systems have the responsibility to act
ethically when using the technology. Some basic ideological rules govern the convergence of
technology and ethics. For example, many people believe that benefits involved in a technological
endeavour should outweigh the risks for all involved stakeholders. Some believe that business
managers have the ethical duty to ensure that anyone who could be affected by the technology is able
to understand and accept any risks involved.

6.1 Information system Security and Ethics

Information system security- refers to measures put in place to protect information system
resources from unauthorized access or being compromised. Security vulnerabilities are
weaknesses in a computer system, software, or hardware that can be exploited by the attacker
to gain unauthorized access or compromise a system.

Information system Ethics refers to rules of right and wrong that people use to make
choices to guide their behaviors in using information system. It is Moral guidelines that
govern use of computers and information systems. Ethics in IS seek to protect and safeguard
individuals and society by using information systems responsibly. Most professions usually
have defined a code of ethics or code of conduct guidelines that all professionals affiliated
with the profession must adhere to.

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Information privacy is the right of individuals and companies to restrict collection and use
of information about them. The following are some issues under information privacy

Employee monitoring- is using computers to observe employee computer use. Legal for
employers to use monitoring software programs

Electronic profile- Data collected when you fill out form on Web Merchants sell your
electronic profile often you can specify whether you want personal information distributed

cookie- Small file on your computer that contains data about you, Some Web sites sell or
trade information stored in your cookies, Set browser to accept cookies, prompt you to accept
cookies, or disable cookies

Spyware- is program placed on computer without user’s knowledge where as spam is

unsolicited e-mail message sent to many recipients.

In a nutshell, a code of ethics makes individuals acting on their free will responsible and
accountable for their actions.

6.2 Information system threats

Threats to Security, Threats to computers and information systems are quite real. Identifying threats
are only part of the picture; once threats are identified, it is up to everyone to find the vulnerabilities
of information system and find ways to keep these threats from occurring.

Although threats to information systems are evolving and abundant, they can all be broken down
under three categories:

Natural Threats: These can best be thought of as threats caused by nature like floods, quakes,
tornadoes, temperature extremes, hurricanes, and storms are all examples.

Unintentional Threats: These threats basically include system failure and the unauthorized or
accidental modification of software. Have you ever accidentally deleted an important file, or tripped
over a power cord?

Intentional Threats: these threats cover when someone purposely damages property or information.
Computer crimes are the best examples of intentional threats. Computer crimes include espionage,
identity theft, child pornography, and credit card crime. In addition, computer virus, Hardware Theft
and Vandalism, soft ware theft, information theft, and unauthorized access are commonly mentioned
threats. We will see them in the following section in detail.

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6.2.1 Computer Virus
A Computer Virus is a malicious software program “Malware” that can infect a computer
by modifying or deleting data files, boot sector of a hard disk drive or causes a software
program to work in an unexpected manner.
A computer virus is a malicious program that self-replicates by copying itself to another
program. In other words, the computer virus spreads by itself into other executable code or
documents. The purpose of creating a computer virus is to infect vulnerable systems, gain
admin control and steal user sensitive data. Hackers design computer viruses with malicious
intent and prey on online users by tricking them.

A computer virus resides on a host computer and can replicate itself when executed. Virus
can steal user data, delete or modify files & documents, records keystrokes & web sessions of
a user. It can also steal or damage hard disk space, it can slowdown CPU processing. It
disturbs the normal working of a computer system. Virus attaches itself to files stored on
floppy disks, USBs, email attachments and hard disks. A file containing a virus is called
infected file. If this file is copied to a computer, virus is also copied to the computer.

6.2.1.1 Causes of Computer Virus

The following are the main causes of a Computer Virus.
I. Infected Flash Drives or Disks
Flash drives and disks are the main cause of spreading viruses. Flash drives and disks are
used to transfer data from one computer to other. A virus can also be copied from one
computer to other when the user copies infected files using flash drives and disks.
II. Email Attachments
Most of the viruses spread through emails. Email attachment is a file that is sent along with
an email. An email may contain an infected file attachment. Virus can spread if the users
open and download an email attachment. It may harm the computer when it is activated. It
may destroy files on the hard disk or may send the virus automatically to all email addresses
saved in the address book.
III. Infected Websites
Thousands of insecure websites can infect computer with viruses. So by visiting these
websites the user’s computer also gets infected by virus. These websites are developed to
spread viruses or other unethical material. The virus is transferred to the user’s computer

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when this material is downloaded. These websites may access the computer automatically
when the users visit them.
IV. Networks
Virus can spread if an infected computer is connected to a network. The internet is an
example of such network. When a user downloads a file infected with virus from the internet,
the virus is copied to the computer. It may infect the files stored on the computer.
V. Pirated Software
An illegal copy of software is called pirated software. Virus can spread if user installs
pirated software that contains a virus. A variety of pirated software is available in CDs and
from the internet. Some companies intentionally add virus in the software. The virus is
automatically activated if the user uses the software without purchasing license.

6.2.1.2 Protection from Computer Virus

Virus infects computer system if latest and updated version of an Antivirus program is not installed.
Latest Antivirus software should be installed on Computer to protect it from viruses. A computer
system can be protected from virus by following these precautions.

 The latest and updated version of Anti-Virus and firewall should be installed on the computer.
 The Anti-Virus software must be upgraded regularly.
 USB drives should be scanned for viruses, and should not be used on infected computers.
 Junk or unknown emails should not be opened and must be deleted straightaway.
 Unauthorized or pirated software should not be installed on the computer.
 Back up of data. The backup is used if the virus deletes data or modifies it. So back-up your
data on regular basis. There are some great soft wares that can back up your data
automatically.
 Freeware and shareware software from the internet normally contain viruses. It is important to
check the software before using them.
 Your best protection is your common sense. Never click on suspicious links, never download
songs, videos or files from suspicious websites. Never share your personal data with people
you don’t know over the internet.

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6.2.2 Unauthorized access

It is use of a computer or network without permission. Hackers typically break into

computer by connecting to it and then logging in as a legitimate user Hacker, or cracker, is
someone who tries to access a computer or network illegally

6.2.3 Hardware and soft ware theft and vandalism

Hardware theft is act of stealing computer equipment where as Soft ware theft Act of stealing or
illegally copying software or intentionally erasing programs. Hardware vandalism is act of defacing or
destroying computer equipment. Software piracy is illegal duplication of copyrighted software

6.3 TOOLS AND TECHNOLOGIES TO PROTECT INFORMATION SYSTEM FROM

THREATS

6.3.1 The Information Security components: Confidentiality, Integrity, Availability

(CIA).
Check point

When can you say the information is not

secured?----------------------------------------------------------------------------------------------------------------
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The following are the components of secured information:

Confidentiality-When protecting information, we want to be able to restrict access to those

who are allowed to see it; everyone else should be disallowed from learning anything about
its contents. This is the essence of confidentiality. For example, federal law requires that
universities restrict access to private student information. The university must be sure that
only those who are authorized have access to view the grade records.

Integrity-Integrity is the assurance that the information being accessed has not been altered
and truly represents what is intended. Just as a person with integrity means what he or she
says and can be trusted to consistently represent the truth, information integrity means
information truly represents its intended meaning. Information can lose its integrity through
malicious intent, such as when someone who is not authorized makes a change to
intentionally misrepresent something. An example of this would be when a hacker is hired to
go into the university’s system and change a grade.

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Availability- Information availability is the third part of the CIA triad. Availability means
that information can be accessed and modified by anyone authorized to do so in an
appropriate timeframe. Depending on the type of information, appropriate timeframe can
mean different things. For example, a stock trader needs information to be available
immediately, while a sales person may be happy to get sales numbers for the day in a report
the next morning. Companies such as Amazon.com will require their servers to be available
twenty-four hours a day, seven days a week. Other companies may not suffer if their web
servers are down for a few minutes once in a while.

6.3.2 Technologies for Information Security

In order to ensure the confidentiality, integrity, and availability of information, organizations

can choose from a variety of tools. Each of these tools can be utilized as part of an overall
information-security policy, which will be discussed in the next section.

I. Authentication

The most common way to identify someone is through their physical appearance, but how do
we identify someone sitting behind a computer screen or at the ATM? Tools for
authentication are used to ensure that the person accessing the information is, indeed, who
they present themselves to be.
Authentication can be accomplished by identifying someone through one or more of three factors:
something they know, something they have, or something they are. For example, the most common
form of authentication today is the user ID and password. In this case, the authentication is done by
confirming something that the user knows (their ID and password). But this form of authentication is
easy to compromise (see sidebar) and stronger forms of authentication are sometimes needed.

II. Access Control

Once a user has been authenticated, the next step is to ensure that they can only access the information
resources that are appropriate. This is done through the use of access control. Access control
determines which users are authorized to read, modify, add, and/or delete information. Several
different access control models exist.

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 III. Encryption

Many times, an organization needs to transmit information over the Internet or transfer it on external
media such as a CD or flash drive. In these cases, even with proper authentication and access control,
it is possible for an unauthorized person to get access to the data. Encryption is a process of encoding
data upon its transmission or storage so that only authorized individuals can read it. This encoding is
accomplished by a computer program, which encodes the plain text that needs to be transmitted; then
the recipient receives the cipher text and decodes it (decryption). In order for this to work, the sender
and receiver need to agree on the method of encoding so that both parties can communicate properly.
Both parties share the encryption key, enabling them to encode and decode each other’s messages.

IV. Backups

Another essential tool for information security is a comprehensive backup plan for the entire
organization. Not only should the data on the corporate servers be backed up, but individual
computers used throughout the organization should also be backed up. A good backup plan
should consist of several components.

V. Firewalls

Another method that an organization should use to increase security on its network is a
firewall. It is Security system consisting of hardware and/or software that prevents
unauthorized network access

A firewall can exist as hardware or software (or both). A hardware firewall is a device that is
connected to the network and filters the packets based on a set of rules. A software firewall
runs on the operating system and intercepts packets as they arrive to a computer. A firewall
protects all company servers and computers by stopping packets from outside the
organization’s network that do not meet a strict set of criteria. A firewall may also be
configured to restrict the flow of packets leaving the organization. This may be done to
eliminate the possibility of employees watching YouTube videos or using Face book from a
company computer.

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 VI. Intrusion Detection Systems

Another device that can be placed on the network for security purposes is an intrusion
detection system, or IDS. An IDS does not add any additional security; instead, it provides
the functionality to identify if the network is being attacked. An IDS can be configured to
watch for specific types of activities and then alert security personnel if that activity occurs.
An IDS also can log various types of traffic on the network for analysis later. An IDS is an
essential part of any good security setup.

VII. Surge protector

Sorry, the computer is down is a well-known phrase to many end users. A variety of controls can
prevent such computer failure or minimize its effects. Computer systems fail for several reasons-
power failure, electronic circuitry malfunctions, telecommunications network problems, hidden
programming errors, computer viruses, computer operator errors, and electronic vandalism. Surge
protector protects computer and equipment from electrical power disturbances. Uninterrupted power
supply is the surge protector that provides power during power loss

VIII. Sidebar: Virtual Private Networks

Using firewalls and other security technologies, organizations can effectively protect many of
their information resources by making them invisible to the outside world. But what if an
employee working from home requires access to some of these resources? What if a
consultant is hired who needs to do work on the internal corporate network from a remote
location? In these cases, a virtual private network (VPN) is called for.
A VPN allows a user who is outside of a corporate network to take a detour around the
firewall and access the internal network from the outside. Through a combination of software
and security measures, this lets an organization allow limited access to its networks while at
the same time ensuring overall security.

VI. Biometric controls

Biometric controls are a fast-growing area of computer security. These are security measures
provided by computer devices that measure physical traits that make each individual unique.
This includes voice verification, fingerprints, hand geometry, signature dynamic, keystroke
analysis, retina scanning, face recognition, and genetic pattern analysis. Biometric control

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devices use special-purpose sensors to measure and digitize a biometric profile of an
individual’s fingerprints, voice, or other physical trait. The digitalized signal is processed
and compared to a previously processed profile of the individual stored on magnetic disk. If
the profiles match, the individual is allowed entry into a computer facility or given access to
information system resources.

IX. Security Policies

Besides the technical controls listed above, organizations also need to implement security
policies as a form of administrative control. In fact, these policies should really be a starting
point in developing an overall security plan. A good information-security policy lays out the
guidelines for employee use of the information resources of the company and provides the
company recourse in the case that an employee violates a policy. It code of conduct is a
Written guideline that helps determine whether computer action is ethical.

X. Physical Security

An organization can implement the best authentication scheme in the world, develop the best
access control, and install firewalls and intrusion prevention, but its security cannot be
complete without implementation of physical security. Physical security is the protection of
the actual hardware and networking components that store and transmit information
resources. To implement physical security, an organization must identify all of the vulnerable
resources and take measures to ensure that these resources cannot be physically tampered
with or stolen. These measures include the following.
 Locked doors: It may seem obvious, but all the security in the world is useless if an intruder
can simply walk in and physically remove a computing device. High-value information assets
should be secured in a location with limited access.
 Physical intrusion detection: High-value information assets should be monitored through the
use of security cameras and other means to detect unauthorized access to the physical
locations where they exist.

 Secured equipment: Devices should be locked down to prevent them from being stolen. One
employee’s hard drive could contain all of your customer information, so it is essential that it
be secured.

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 Environmental monitoring: An organization’s servers and other high-value equipment should
always be kept in a room that is monitored for temperature, humidity, and airflow. The risk of
a server failure rises when these factors go out of a specified range.

 Employee training: One of the most common ways thieves steal corporate information is to
steal employee laptops while employees are travelling. Employees should be trained to secure
their equipment whenever they are away from the office.

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Chapter summary

Dear students could do summarize some of the main issues covered in this chapter?

Well, let us revise together. We begin the discussion by defining information system security
and ethics. Information system security refers to measures put in place to protect information
system resources from unauthorized access or being compromised. Whereas Information
system ethics refers to rules of right and wrong that people use to make choices to guide their
behaviors in using information system.

Next, we identify the various threats to information system including to computer virus
causes and its protection mechanisms, unauthorized access, hard ware and soft ware
vandalism.

Then after, we have discussed about the components of secured information that are
Confidentiality, Integrity and Availability.

Finally we concluded our discussion by elaborating various technologies that can be used to
ensure information security such as authentication, access control, encryption, backups,
firewalls intrusion detection systems, surge protector, sidebar biometric controls, security
policies and physical security.

REVIEW QUESTIONS

1. Differentiate between information system security and information system ethics.

2. Discuss the sources of information system threats

3. What is computer virus and in what condition your computer may get infected?

4. Discuss at least five technologies or tools that can be used to ensure information security.

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ASSIGNMENT FOR THE COURSE MANAGEMENT INFORMATION SYSTEM

Part I. True/False

1. Data-driven DSS came before model-Driven DSS

2. Recruitment policy is a form of internal transactions
3. In batch method, transaction is processed immediately as it occurs.
4. DSS and MIS are similar in terms of their presentation formats
5. Though an antivirus is useful in stopping virus attack, it is only effective for a known
virus.
6. A virus always multiplies by copying its own source code.

Part II. Fill the correct answer in the blank space

1. -------------------------------and --------------------------are the types of knowledge

management systems used to capture and codify knowledge.
2. The type of knowledge management system used to distribute knowledge with in a
specific organization is------------------------------.
3. Two specific software systems normally allow for the sharing of knowledge
are------------------------------------------and -----------------------------------------------

Part III. Short answer questions

4. Write a short note about management information system (MIS)

5. List and explain in detailed about components of transaction processing system
6. Identify the types of knowledge and indicate which type is more suitable for
developing knowledge management system.
7. Discuss the difference between batch processing and online (real time) data
processing.
8. List and describe the components of DSS.
9. Name and describe the types of software systems that are available for sharing of
knowledge.
10. Differentiate between Data driven and Model driven DSS.
11. Explain how to stop a virus from a computer system.
12. List the physical facilities available for information security attacks
13. Describe the essential features of TPS.
14. Describe in detail about the components of DSS.

Part IV. Essay type questions

15. Information could be classified on the basis of the purpose for which it is
utilized, into three main categories namely strategic, tactical and operational

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 information. Mention and describe the sub systems of following information systems
at strategic, tactical and operational level.
I. Financial accounting information system
II. Marketing informational system
III. Manufacturing/production information system
IV. Human resource information system
16. List the threats to information that you knew of and state your experience in how
would you avoid the attack?

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