Computer Applications in Business

Lecture Notes

ACHARYA INSTITUTE OF GRADUATE STUDIES

DEPARTMENT OF MANAGEMENT
EVEN SEMESTER 2012 - 2013
Chapter 2
Information System
System:
A system is a group of interrelated components working together toward a common goal by
accepting inputs and producing outputs in an organized transformation process.
Information System:
An information system (IS) is typically considered to be a set of interrelated elements or
components that collect(input), manipulate(processes), and disseminate (output) data and
information and provide a feedback mechanism to meet an objective.
In other words, An information system is a system that accepts data resources as input and
processes them into information products as output.
Information System Benefits:

Empowers users:
An information system is there to empower its users. A database simply provides data,
but an information system is all about providing the best information to the user needs
to do their task more effectively. It also takes into account that different user doing
their own specific tasks may need to see their information presented in differing ways.

Powerful tool for business:

It can be a powerful tool for business. The key is having current data converted to
useful information and having that delivered to people who can act upon it before its
too late. If the information is delivered too slowly then it is only a lesson learned
rather that profitable opportunity.

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Impact of Business on Information System

The nature of business is another aspect that significantly influences the design of
information systems. The factors which influence on business are:
Size of organization:
A large multiplicand organization spread across the country needs information
systems with major communication components like WAN, round the clock
operation, natural hazards, etc... whereas a single location operation would call
for entirely different requirements for information systems.
Size of the user population:
The size of user population is another dimension that determines the nature of
information systems. Thousands of users must be contacted in time, trained and
prepared for any changes before they can be incorporated into systems.
Systems that are used by smaller user groups can change much faster without
seriously jeopardizing the operation.
Scale of operation:
The scale of operation of refers to the intensity and complexity of the
information system. Information technology permits even smaller size
organizations to operate on a large scale
Nature of business:
The nature of business carried out by the organization is another determinant of
the type and complexity of information systems that need to be developed. A
service sector organization will have a wide range of applications involving

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simple informal systems whereas the manufacturing sector would require far
more precise technical information processing and analytical tools.
User interaction:
The interaction of the users with the system is another attribute that affects the
design of information systems. The example for the user interaction is the
Transaction processing system. The primary goal of such systems is improved
customer service.
Level of automation:
Another determinant of the nature of information systems from the
organizational viewpoint is the level of automation that prevails in the
organization during the stage of the information system design. Existence of a
high proportion of low level automation tools like electronic security, bar code,
automatic material handling equipment, etc leads to one type of information
system design.
Organization culture:
Organizations vary in terms of organizational culture. An information system
that works well in a rigid organizational structure works well in the extremely
informal organizational structure. Another important behavioural aspect that
should be specifically addressed to by information systems professionals is the
resistance to change. The analyst should be mentally prepared for the change.

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Components of Information System / Information system resources

This information system model highlights the relationships among the components and
activities of information systems. It provides a framework that emphasizes five major
concepts that can be applied to all types of information systems:

CONTROL

INPUT

PROCESS

OUTPUT

MEMORY

An information system depends on the resources of people (end users and IS specialists),
hardware (machines and media), software (programs and procedures), data (data and
knowledge basis), and networks (communications media and network support) to perform
input, processing, output, storage, and control activities that convert data resources into
information products.
Information System Resources:
(i) People Resources:
People are required for the operation of all information systems. These people resources
include end users and IS specialists.

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End users (also called users or clients) are people who use an information system or
the information it produces. They can be accountants, salespersons, engineers, clerks,
customers, or managers. Most of us are information system end users.

IS Specialists are people who develop and operate information systems. They include
systems analysts, programmers, computer operators, and other managerial technical, and
clerical IS personnel. Briefly, systems analysts design information systems based on the
information requirements of end uses, programmers prepare computer programs based on the
specifications of systems analysts, and computer operators operate large computer systems.

(ii) Hardware Resources:

The concept of Hardware resources includes all physical devices and materials used in
information processing. Specially, it includes not only machines, such as computers and
other equipment, but also all data media, that is, all tangible objects on which data is
recorded, from sheets of paper to magnetic disks. Example of hardware in computer-based
information systems are:

Computer

systems, which

consist

of

central

processing

units

containing

microprocessors, and variety of interconnected peripheral devices. Examples are

microcomputer systems, midrange computer systems, and large mainframe computer
systems.

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.
(iii) 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 needed by people, called procedures.
It is important to understand that even information systems that dont use computers have a
software resource component. This is true even for the information systems of ancient times,
or the manual and machine-supported information systems still used in the world today. They

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all require software resources in the form of information processing instructions and
procedures in order to properly capture, process, and disseminate information to their users.
The following are the examples of software resources:

System Software, such as an operating system program, which con controls and
supports the operations of a computer system.

Application Software, which 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
work processing program.

Procedures, which 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.
(iv) Data Resources:
Data is more than the raw material of information systems. The concept of data resources has
been broadened by managers and information systems professionals. They realize that data
constitutes a valuable organization resource. Thus, you should view data as data resources
that must be managed effectively to benefit all end users in an organization.
Data can take many forms, including traditional alphanumeric data, composed of numbers
and alphabetical and other characters that describe business transactions and other events and
entities. Text data, consisting of sentences and paragraphs used in written communications;
image data, such as graphic shapes and figures; and audio data, the human voice and other
sounds, are also important forms of data.
The data resources of information systems are typically organized into:

Database that hold processed and organized data.

Knowledge bases that hold knowledge in variety of forms such as facts, rules, and
case examples about successful business practices.
For example, data about sales transactions may be accumulated and stored in a sales database
for subsequent processing that yields daily, weekly, and monthly sales analysis reports for
management. Knowledge bases are used by knowledge management systems and expert
systems to share knowledge and give expert advice on specific subjects.
Data Vs Information:

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The word data is the plural of datum, though data commonly represents both singular and
plural forms. Data are raw facts or observations, typically about physical phenomena or
business transactions. For example, a spacecraft launch or the sale of an automobile would
generate a lot of data describing those events. More specifically, data are objective
measurements of the attributes (the characteristics) of entities (such as people, places, things,
and events).
(v) Network Resources:
Telecommunications networks like the Internet, intranets, and extranets have become
essential to the successful operations of all types of organizations and their computer-based
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

resourcesemphasizes

that

communications networks are a fundamental resource component of all information systems.

Network resources include:

Communication media, Examples include twisted pair wire, coaxial cable, fiberoptic cable, microwave systems, and communication satellite systems.

Network Support, This generic category includes all of the people, hardware,
software, and data resources that directly support the operation and use of a communications
network. Examples include communications control software such as network operating
systems and Internet packages.
Types of Information System
Information system is mainly classifieds into seven types, are as follows.

Transaction processing system (TPS)

Office automation system(OAS)

Process control system(PCS)

Information reporting system(IRS)

Decision support system(DSS)

Executive support system(ESS)

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Expert system(ES)

Transaction processing system (TPS):

The transaction processing system (TPS) is the most important and rich source of data for
a business firm. This was partly replaced by machine assisted data processing systems. It
is very difficult to imagine an organization without a functional TPS. TPS is developed to
support day- day operations. Originally business transactions were processed manually.
The system maintains detailed records of all transactions and enables manager to track the
organizations activities. In business firm there are three types of flows in and out of the
firm, are as follows

Physical flow

Information flow

Money flow

Transaction processing cycle:

Transaction processing is a basic activity in organizations. The transaction processing
cycle consists of six steps such as:
1. Data entry
2. Input data validation
3. Transaction processing and validation of results
4. File and database maintains
5. Document and report generation
6. Inquiry processing
A sale order from a customer is followed by a number of activities; some of these are,

Checking whether the customer is an existing or a new customer

Checking customers credit limit to know whether the transaction is within the
permitted credit limit or not,

Checking inventory balance to know whether the order can be fulfilled within the
time the customer needs it,

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Checking production schedule to know how much will be added to finished the stock
at the and of the production period,

Checking of back orders to know how much stock will be left to meet this sale order.

The sales order is approved and the transaction is processed. This involves:

Debiting customer account with the value of goods

Crediting sales file with the value of goods

Updating inventory file with the quantity of stock sold

Generating a packing list for the dispatch department to assemble the order

Generating documents like sales invoice, bill of exchange etc.

Packing the goods and handling them to the delivery staff, and,

Delivering the goods

Features of TPS:
1. Integration tool
2. Links customer with the organization
3. Inputs
4. Output
5. The users
6. User department specific
7. Highly structured
8. Scope for cost saving
Transaction documents:

Information documents

Action oriented documents

Investigational documents

Reports by the TPS:

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Preplanned reports

Preplanned enquiry responses

Ad hoc reports and inquiry responses

User machine dialogue results

Lecture Notes

Transaction processing modes:

1. Batch processing online processing
2. Online real time processing
3. Distributed processing

Online transaction processing systems:

Airline reservation system, online securities trading system, electronic banking,
railway reservation system, hotel room booking system etc. are examples of online
transaction processing systems.
Functional TPS:
Each functional area is provided with a TPS to process transactions in that area. Thus an
organization will have functional transaction processing system like:

Sales and marketing TPS,

Manufacturing TPS,

Finance/accounting TPS,

HRM TPS, and,

Other types of TPS.

Office automation system (OAS):

Office automation system include application of computer based office oriented

technologies such as word processing, desktop publishing, electronic mail, teletext , voice
mail, image storage, FAX, fund transfer, multimedia and teleconferencing.

Process control system (PCS):

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In process industries such as those producing cement, steel p, paper and chemical products,
the physical production flow is controlled by computerized process control systems.

Information reporting system (IRS):

This system generates reports in pre-planned formats summarizes the data generated by the
transaction processing subsystem in creating these reports. These reports may be regular, adhoc and exception. Management information (MIS) as a discipline is a study of generation,
storage and communication of information and its impact on people and organizations. The
fast growth of MIS in the last few decades has been largely due to the following factors:
Growth of management theory and techniques.
Growth of management accounting and its applications in business.
Changes in the production and distribution methods and the consequent
changes in organizational structure.
Development of management science.
Introduction of computer into business data processing and the advantages
in information technology.
Growth of the internet and popularity of WWW.
Characteristics of MIS:
1. MIS is management oriented/directed.
2. Business driven
3. Integrated system
4. Avoids redundancy in data storage.
5. Heavy planning
6. Common database
7. Flexibility and ease of use.
8. Distributed system
9. Information as a resource.
There are two types in information reporting system.
1. Regular reports
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2. Ad-hoc reports
3. Exception reports

Decision support system (DSS):

The system enables them to interact with the data base, model base and other software and
generate the information they need rather than depend on some reports produced information
needs. A decision supporting system is a computer application that helps users analyze
problems and make business decisions more confidently. This DSS system includes database,
various models, and an interface for the manager. The manager takes a data from the
database, selects appropriate model or models and analyzes the data using these models to
know the probable results of various actions.
Characteristics of DSS:
1. It is designed and run by managers
2. It contains a database drawn from internal files and external
environment.
3. It focuses on decision processes rather than on transaction
processing.
4. It is concerned with a small area of managerial activity or a
small part of a large problem.
5. It permits manager to test the probable results of alternative
decisions.
6. It supports decision making, usually in solving semi-structured
complex problems.
7. It helps in refining managerial judgment applied to problem
solving.
8. It improves the managerial decisions and thereby managerial
effectiveness.
9. The decision maker retains control over decisions throughout
the decision process.
Components of DSS:
1. DSS database

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2. Model base
3. The hardware
4. The user interface
5. Analyses tools

DSS tools for different levels of management:

The tools used at the three levels of management in an organization are as follows.
DSS tools for operational management:

The operational management level requires assistance for day-day operations. The
areas where DSS can support operational management includes:

Material requirement planning.

Linear programming.

Queuing theory.

Analysis of variance.

Correlation analysis.

Descriptive statistics like mean, median etc.

DSS tools for Tactical planning and management control:

Dynamic programming.

Regression analysis.

Correlation analysis.

Factor analysis.

Multidimensional scaling.

Game theory.

Discriminate analysis.

Non linear programming.

Network analysis.

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DSS tools for Strategic planning:

Expert systems.

Natural language systems.

Different types of analysis:

a. Sensitivity analysis
b. Risk analysis
c. Goal seeking analysis
d. Exception reporting analysis
Typical GDSS (group discussion supporting system) capabilities include:

Display

Electronic brainstorming

Topic commenting

Issue analysis

Voting

Alternative evaluation.

Expert system (ES):

Expert systems have evolved out of the work on artificial intelligence over the past several
years and are finding increasing applications in business. Expert systems are particularly
useful in dealing with unstructured problems.
Executive support system (ESS):
It is designed for the top level managers of an organization.
Role of information system:
According to James Obrien management information system performs three major roles
such as:
1. Support to business operations

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2. Support to managerial decisions

3. Gaining strategic competitive advantage
The systems which support business operations include TPS, PCS, and OAS. The
system which support managerial operations include IRS, DSS, ESS, ES.
POTENTIAL RISKS OF INFORMATION SYSTEMS:

Deskilling of workers

Information overload

Employee mistrust

Increased competitive pressure

Poor returns from IT investment

Challenge in developing information system

security breaches

5. DECISION SUPPORTING SYSTEM

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