Kinds of Systems in Organizations part1

2.0 Introduction

Organizations utilize different types of information systems to take their business decisions for their operations. The hierarchy levels of the organizations in general are operational, knowledge, management, and strategic. Accordingly, the need of information required at different levels varies. Major type’s information systems in organizations include transaction processing systems, office systems, knowledge work systems, decision-support systems, management information systems, and executive support systems. Transaction processing systems function at the operational level of the organization. Knowledge work systems help create and integrate new knowledge within the organization. Management information systems provide managers with reports based primarily on data pulled from transaction processing systems, have an internal orientation, and have limited flexibility. . Decision-support systems function at the management level and provide analytical models and data analysis tools to provide support for semi structured and unstructured decision-making activities. Executive support systems function at the strategic level, support unstructured decision making, and use advanced graphics and communications. In this chapter the different types of information systems that are used by the business organizations are detailed.

2. 1 Kinds of Systems in Organizations

I. Operational-level systems
II. Management-level systems
III. Strategic-level systems

1. Operational-level systems: Information systems that monitors and support operational managers, keeping track of the elementary activities and business transactions of the organization.

E.g.Sales,receipts,cashdeposits, pay roll, credit decisions and flow of materials in a factory.

2. Management-level systems: Information systems that serves the monitoring, controlling, decision-making, and administrative activities of middle managers of the business organization

3. Strategic-level systems: Information systems that support the long-range planning activities of senior management and help senior management tackle and address strategic issues to keep the strategic growth of the business firm.

2.2 Categorisation on decisions

Categorisation on decisions on the basis of the characteristics in an organization may be classified as

1. Structured Decisions
2. Semi-structured Decisions
3. Unstructured Decisions

2.21 Structured Decisions: Decisions that are repetitive, routine, and have a definite procedure for handling them

2.22 Semi-structured Decisions: Decision where only part of the problem has a clear-cut

answer provided by an accepted procedure.

2.23 Unstructured Decisions: Non-routine decisions in which the decision maker must provide judgment, evaluation and insights into the problem definition; there is no agreed upon procedure for making such decisions.

Major Types of Systems in Organizations

Major type’s information systems in organizations include

1. Transaction Processing Systems (TPS)
2. Management Information Systems (MIS)
3. Decision-Support Systems (DSS)
4. Executive Support Systems (ESS)

Transaction processing systems function at the operational level of the organization. Knowledge work systems help create and integrate new knowledge within the organization. Management information systems provide managers with reports based primarily on data pulled from transaction processing systems, have an internal orientation, and have limited flexibility. . Decision-support systems function at the management level and provide analytical models and data analysis tools to provide support for semi structured and unstructured decision-making activities. Executive support systems function at the strategic level, support unstructured decision making, and use advanced graphics and communications. Major type’s information system in a typical organization is shown in figure 2.1 along with strategic levels and functional areas.

Figure 2.1 Major type’s information system in a typical organization

2.30 Transaction Processing System (TPS)

Transaction processing was one of the first business processes to be computerized and without information systems, recording and processing business transactions would consume huge amounts of an organizations resources. Transactions are events that occur as part of doing business, such as sales, purchases, deposits, withdrawals, refunds, and payments. TPS serve the operational level.

The transaction processing systems (TPS) is a computerized system that performs and records the daily routine transactions necessary to the conduct of the business. TPS also involve employees in business processes. Transaction Processing Systems are information systems that process data resulting from the occurrence of business transaction.

Every organization has manual and automated transacting processing systems (TPSs), which process the detailed data necessary to update records about the fundamental business operations of the organization. These systems include order entry, inventory control, payrolls, accounts payable, accounts’ receivable, and general ledgers to name a few. The input to these systems includes basic business transactions such as customer orders, purchase orders, receipts, time records, invoices and customer payments. The result of processing business transactions is that the organizations records are updated to reflect the status of the operation at the time of the last process transaction. Automated TPSs consist of all the components of Computer Based Information, including databases, telecommunications, people, procedure, software and hardware devices used to process transactions. The processing activities include data collection, data edit, data correction, data manipulation, data storage and document production.

For most organizations TPSs support the routine, day to day activities that occur in the normal course of business that help a company add value to its product and services depending on the customer, value may mean lower price, better service, higher quality or uniqueness of the product. By adding a significant amount of value to their products and services, companies ensure further organization success. Because the TPSs often perform activities related to customer contacts like order processing and invoicing – these information systems play a critical value to the customer.

2.31 Transaction processing methods and objectives

When computerized transaction processing system first evolved, only one method of processing was available. All transactions were collected in group called batches and processed together. In batch processing system, business transactions are accumulated over a period of time and then processed. The time period during which transactions are accumulated is length of time that is needed to meet the needs of the users of the system.

Today, computer technology allows another processing method called online, real time or online transaction processing (OLTP), with this form of data processing, each transaction is processed immediately, without the delay of accumulating transactions in to batch.

Real-time Processing Transaction data are processed immediately after they are generated and can provide immediate output to end-users.

As soon as the input is available, a computer programme performs the necessary processing and updates the records affected by the single transaction. Consequently at any time the data in an online system always reflect the current status. Many companies have found that OLTP helps them provide faster, more efficient service- one way to add value to their activities in the eyes of the customer increasingly, companies are using the internet to perform man OLTP functions.

A third type of transaction processing called online entry with delayed processing is a compromise between batch and online processing. With this type of system, the transactions are entered into the computer system when they occur, but they are not processing immediately.

Advantages and Limitations of Real-time Processing

Advantages

1. Immediate updating of files and immediate responses to user queries
2. Needed for applications where a high frequency of changes must be made to a database during a short time
3. Good security control
4. Several databases can be processed or updated concurrently

Limitations

1. Only the specific records affected by transactions or inquiries need to be processed.
2. High frequency updating incurs higher cost.

Advantages and Limitations of Batch processing Advantages

1. Economical when large volumes of transaction data must be processed.

2. Ideally suited for applications where it is not necessary to update databases as transaction occur and where documents and reports are required only at the specified scheduled intervals.

Limitations

1. Master files are frequently out of date between scheduled processing

2. Immediate updated responses to inquiries cannot be made.

Applications of TPS

a. Order processing systems - includes order entry, sales configuration, shipment planning, shipment execution, inventory control, invoicing, customer relation management etc.

1. Order entry system captures the basic data needed to process a customer order
2. Sales configuration system ensures that the product and services ordered are sufficient to accomplish the customers objectives and will work well together
3. Shipment planning system determine which open orders will be filled and forms which location they will be shipped
4. Shipment execution system coordinates the outflow of all products and goods from the organization
5. Inventory control system that updates the computerized inventory records to reflect the exact quantity on hand of each stock keeping unit
6. An output of the invoicing system, a customer invoice reflects the value of the current invoice, as well as which products customer purchased.
7. Customer relationship management systems – a collection of people, processes, software and internet capabilities that helps an organization manage customer relationships efficiently and systematically

b. Purchasing systems includes inventory control, purchase order processing, receiving and accounting

c. Accounting systems includes budget, accounts receivable, payroll, asset management and general ledger.

2.4 Transaction Processing System (TPS)

TPS is the basic business systems that serve the operational level of the organization. Any transaction processing system goes through a five stages cycle:

1. Data entry activities
2. Transaction processing activities
3. File and data processing
4. Document and report generation
5. Inquiry processing activities

Stage 1: Data entry activities

The input activity in TPS involves a data entry process. In this process, data is captured or collected by recording, coding and editing activities. Then data may be converted to a form that may be entered into a computer system. Traditional Data Entry, Source Data Automation like OCR, MICR and EDI etc.

Stage 2: Transaction processing activities

IS will capture data on source documents such as purchase orders, pay roll , time sheets and sales order forms. Reduces or eliminates many of the activities, people, and data media required by traditional data entry methods.

Transaction data are processed immediately after they are generated and can provide immediate output to end-users adopting Real-time Processing or in Batch processing system, business transactions are accumulated over a period of time and then processed.

Stage 3: TPS File and Database Processing

One of the major functions of TPS is to make changes to an organisation’s corporate databases and to provide the data resources that can be processed and used by MIS, DSS and EIS

Stage 4 of TPS Document and Report Generation

Following documents will be generated by TPS as desired the end-user. Document and Reports produced by TPS are called Transaction documents.

1. Action Documents: Documents that initiate actions or transactions on the part of their recipient. Eg. Purchase Order, Pay Cheque.
2. Information Documents: These documents relate, confirm, or prove to their recipients that transactions have occurred (Control document). They document the fact that a transaction has occurred. Eg. Sales Receipts, Sales Order confirmation.
3. Turnaround Documents: They are designed to be returned to the sender. A turnaround document combines the functions of an action document and an information document.
4. Control Listings: Reports that describe each transaction occurring during a period (transaction logs) E.g.. A pay roll register.

Stage 5 : Editing / Inquiry processing activities

Editing and providing the reports as per the end user requirement and processes the corrections that describe errors detected during processing (invalid account numbers).

Example: TPS of a payroll system

2.5 Management Information Systems (MIS)

BASIC CONCEPTS:

Five resources are 1. Men 2. Machine 3.Materials 4. Money 5.Methods. Information is considered as sixth resources

Management information system (MIS) is an organized collection of people, procedures, software, databases and devices used to provide routine information to the managers and decision makers. The focus of an MIS is primarily an operational efficiency, marketing, production, finance and other functional areas are supported by MIS and linked through a common data base.

The scope and purpose of MIS is better understood when each term is explained.

Management is a process consisting of planning, organizing, to achieve organizational objectives.

Various functions of management are briefly defined as follows:

1. Planning – process of deciding in advance the cause of action

2. Organizing – forming formal group of people and activities to facilitate achieving its objectives

3. Controlling – checking the progress of plans and correcting any deviations

4. Directing – processing of activating the plans, structure and group efforts in the desired direction.

According to schedule ‘MIS is a system of people, equipment procedures, documents and communication that collects validates, operates on transformers, stores and present data for use in planning, budgeting, accounting and controlling and other management process’. Frederick B Cornish defines MIS as ‘Structure to provide the information needed and where needed’. Further, the system represents the internal communication network of the business providing the necessary intelligence to plan, execute and control. Information Systems at the management level of an organization that serve the functions of planning, controlling, and decision making by providing routine summary and exception reports.

MIS supports the management level by providing routine summary reports and exception reports for various purposes of management control process, including planning, controlling, and decision making.

Examples are sales and profit per customer and per region, relocation summary and analysis, inventory control, capital investment analysis, and even a report on students who were here in the autumn but did not to return in the spring.

MIS differs from TPS in that MIS deals with summarized and compressed data from the TPS and sometimes analysis of that summarized data.

MIS is “vital” in any organization for two reasons:

1. It emphasizes the management orientation of IT in business (not merely the processing of data).
2. It emphasizes that a systems framework should be used for information systems applications.

2.51 Objectives of MIS

1. To provide managerial end users with information to make decisions
2. To provide a variety of reports and displays to management
3. To provide information required by managers
4. To retrieve information about internal operation from databases
5. To obtain data about business environment from external sources.

2.52 Characteristics of MIS

Various characteristics of MIS may be consolidated as following points.

1. MIS support structured and semi-structured decisions at the operational and management control levels. They are also useful for planning purposes of senior management staff.
2. MIS are generally reporting and control oriented. They are designed to report on existing operations and therefore to help provide day-to-day control of operations.
3. MIS rely on existing corporate data and data flows.
4. MIS have little analytical capability.
5. MIS generally aid in decision making using past and present data.
6. MIS are relatively inflexible.
7. MIS have an internal rather than an external orientation.
8. Information requirements are known and stable.
9. MIS require a lengthy analysis and design process (in the order of one to two years)
10. Demand, key indicator and drill down reports have all helped managers and executives make better, timely decisions.
11. Provide reports with fixed and standard formats – for example – scheduled reports for inventory control may contain the same type of information placed in the same locations on the reports.
12. MIS reports use primarily internal source of data that are contained in the computerized databases. The internet and extranets are frequently used sources for external data.

2.53 MIS versus Data Processing

MIS and Data processing goes hand in hand and their relationship is mentioned below.

1. A data processing system processes transactions and produces reports. It represents the automation of fundamental, routine processing to support operations.
2. Every MIS will also include transaction processing as one of its functions.
3. MIS has the capability to provide analysis, planning and decision making support.
4. Users have the methods for querying the database on an ad hoc basis.
5. Information resources are utilized to improve decision making and achieve improved organizational effectiveness.

2.54 Reports of MIS

Reports of MIS are classified under four different kinds. They are mentioned below.

1. Scheduled reports
2. Exception Reports
3. Demand Reports and Responses
4. Push Reporting

1. Scheduled reports

Uses a prescribed format designed to provide managers with information on a regular basis. Eg. Daily or weekly sales analysis reports and monthly financial statements

2. Exception Reports

Reports are produced only when exceptional conditions occur or Reports are produced periodically but contain information only about exceptional conditions. Eg. Credit reports on customers who exceed their credit limits.

3. Demand Reports and Responses

Information is available whenever a manager demands (using web browsers, DBMS query languages and report generations)

4. Push Reporting

Information is pushed to manager’s networked workstation. Eg. Companies use web casting software to selectively broadcast reports and other information to the networked PCs of managers and specialists over their corporate intranets.

A Sample MIS Report is presented in Figure 2.2 showing summarized annual sales data produced by the MIS

View of Management Information Systems from the system’s perspective is shown in below Table 2.2 and Figure 2.3 presents the relationship between TPS and MIS. MIS uses TPS as a functional supportive element to process and to provide required information at different levels of the organization.

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