3. Information systems

Lecture 2–Types of Information Systems and their Use in various levels of Management

Information systems (IS) play a critical role in organizations by collecting, storing, processing, and distributing information necessary for decision-making and efficient operations. They are used at various levels of management to support different aspects of organizational activities. Here’s how information systems are used at different management levels:

Operational Level:

Transaction Processing Systems (TPS): At the lowest level, TPS capture and process day-to-day transactions and activities such as sales, inventory, and payroll. They ensure data accuracy and reliability.

Point-of-Sale (POS) Systems: These are used in retail and hospitality industries to process customer transactions in real-time, track inventory, and generate sales reports.

Inventory Management Systems: These help in tracking and managing inventory levels, ensuring timely restocking and minimizing stockouts or overstocking.

Employee Information Systems: They manage employee data, such as payroll, attendance, and benefits, streamlining HR operations.

Project Planning and Scheduling Software: At the operational level, project managers and team members use software like Microsoft Project, Asana, Trello, or Jira to create project plans, set tasks, assign responsibilities, and create timelines.

Time Tracking Systems: These systems allow team members to log their work hours, helping project managers monitor resource utilization and ensure that tasks are on track.

Document Management Systems: Systems like SharePoint or Google Drive help in organizing project-related documents, such as requirements, design documents, and meeting notes, making them easily accessible to team members.

Tactical Level (Middle Management):

Management Information Systems (MIS): These systems aggregate and summarize data from TPS to provide middle managers with reports and dashboards for decision-making. They help in monitoring performance and generating periodic reports.

Decision Support Systems (DSS): DSS assist middle managers in making semi-structured decisions by providing tools for data analysis and modeling, helping them explore different scenarios and evaluate alternatives.

Business Intelligence (BI) Systems: These systems use advanced analytics and data visualization to help middle managers identify trends, patterns, and insights from large datasets.

Supply Chain Management (SCM) Systems: SCM systems help in optimizing the supply chain by providing real-time visibility into inventory, demand forecasting, and supplier relationships.

Project Portfolio Management (PPM) Systems: Middle managers use PPM systems to oversee multiple projects, allocate resources effectively, and prioritize projects based on strategic goals.

Collaboration Tools: Tools like Slack, Microsoft Teams, or Zoom facilitate communication and collaboration among project teams, ensuring that everyone stays aligned and informed.

Risk Management Systems: These systems help identify and manage project risks by tracking risk assessments, mitigation strategies, and risk registers.

Strategic Level (Top Management):

Executive Information Systems (EIS): EIS are specialized systems designed for top executives to provide high-level strategic information and support unstructured decision-making.

Enterprise Resource Planning (ERP) Systems: ERPs integrate data and processes across various departments, providing top management with a holistic view of the organization. They help in strategic planning and resource allocation.

Customer Relationship Management (CRM) Systems: CRM systems help in managing customer interactions, analyzing customer data, and making strategic decisions to enhance customer satisfaction and loyalty.

Business Analytics and Big Data Systems: These systems utilize big data analytics and machine learning to uncover strategic insights, trends, and opportunities for the organization.

Dashboard and Reporting Systems: Top management relies on dashboards and reporting tools to gain high-level insights into project performance, budget utilization, and overall progress.

Business Intelligence (BI) and Analytics Tools: BI tools enable top management to analyze project data, identify trends, and make strategic decisions based on historical project performance.

Resource Management Systems: These systems help top management allocate resources across projects strategically, ensuring that the organization’s goals are met efficiently.

Portfolio Analysis Tools: Top management uses these tools to evaluate the overall health and alignment of the project portfolio with the organization’s strategic objectives.

Project Governance Systems: These systems help establish project governance frameworks, ensuring that projects are aligned with the organization’s strategic goals and comply with relevant policies and regulations.

Information systems are crucial at all management levels as they enable data-driven decision-making, improve efficiency, reduce errors, and enhance communication within the organization. The choice of the specific information systems and tools depends on the management level’s responsibilities and the organization’s goals and needs.

In project management, Information systems enable real-time monitoring, improve decision-making, enhance collaboration, and promote transparency. They allow organizations to adapt to changing project conditions, allocate resources effectively, and deliver projects on time and within budget. The choice of specific information systems depends on the organization’s size, industry, and the complexity of its projects.

Categories of Information, levels and types of Information systems in Organizations

There are three categories of information related to managerial levels and the decision management levels. The first level is strategic information, which relates to long–range planning policies that are of direct interest to upper/topmost management. Information such as sales growth, population growth, trends in financial investment and future human resources changes would be of interest to top management who are responsible for developing policies and determining strategic plans &long-range goals. This type of information system is achieved with the aid of Strategic Information system (SIS) &Decision Support System (DSS).

The second level of information is managerial information. It is of direct use to middle management and department heads for implementation and control. Examples are sales analysis, cash flow projection and annual financial statements. This information is of use in short – and intermediate -range planning – that is months rather than years. It is maintained with the aid of management information systems (MIS).

The third information level is operational information, which is short-term, daily information used to operate departments and enforce the day-to-day rules and regulations of the business. Examples are daily employee absent sheets, overdue purchase orders and current stocks available. Operational information is established by Data processing systems (DPS)/Transaction processing system.

Diagram above is a pyramid model of different types of information systems based on different levels of hierarchy in an organization.

Therefore, in designing an information system, the analyst needs to determine the type of information needed at every level, how it is structured and in what format it is before deciding on the system needed to produce it. This is another reason for having a background in systems theory and organizations.

Relationship of Systems to One Another

 TPS are typically a major source of data for other systems, whereas ESS are primarily a recipient of data from lower-level systems. The other types of systems may exchange data with each other as well. Data may also be exchanged among systems serving different functional areas. For example, an order captured by a sales system may be transmitted to a manufacturing system as a transaction for producing or delivering the product specified in the order or to a MIS for financial reporting.

It is definitely advantageous to integrate these systems so that information can flow easily between different parts of the organization and provide management with an enterprise-wide view of how the organization is performing as a whole. But integration costs money, and integrating many different systems is extremely time consuming and complex. This is a major challenge for large organizations, however, ERP has provided a solution.

Home work

Explain the differences between Information Systems and Information Technology

Lesson 2 – Types of Information Systems notes

TRANSACTION PROCESSING SYSTEMS

Transaction processing systems (TPS) are the basic business systems that serve the operational level of the organization. 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. All that must be determined is whether the customer meets the criteria.

Figure 2-1 below depicts a payroll TPS, which is a typical accounting transaction processing system found in most firms. A payroll system keeps track of the money paid to employees. The master file is composed of discrete pieces of information (such as a name, address, or employee number) called data elements. Data are keyed into the system, updating the data elements. The elements on the master file are combined in different ways to make up reports of interest to management and government agencies and to send paychecks to employees. These TPS can generate other report combinations of existing data elements.

Transaction processing systems are often so central to a business that TPS failure for a few hours can lead to a firm’s demise and perhaps that of other firms linked to it. Imagine what would happen to UPS if its package tracking system were not working! What would the airlines do without their computerized reservation systems?  Managers need TPS to monitor the status of internal operations and the firm’s relations with the external environment. TPS are also major producers of information for the other types of systems. (For example, the payroll system illustrated here, along with other accounting TPS, supplies data to the company’s general ledger system, which is responsible for maintaining records of the firm’s income and expenses and for producing reports such as income statements and balance sheets.)

MANAGEMENT INFORMATION SYSTEMS

Management Information Systems is about information systems in business and management. The term management information systems (MIS) also designates a specific category of information systems serving management-level functions. Management information systems (MIS) serve the management level of the organization, providing managers with reports and often online access to the organization’s current performance and historical records. Typically, MIS are oriented almost exclusively to internal, not environmental or external, events. MIS primarily serve the functions of planning, controlling, and decision making at the management level. Generally, they depend on underlying transaction processing systems for their data.

 MIS summarize and report on the company’s basic operations. The basic transaction data from TPS are compressed and are usually presented in long reports that are produced on a regular schedule. Figure 2-5 shows how a typical MIS transforms transaction level data from inventory, production, and accounting into MIS files that are used to provide managers with reports. Figure 2-6 shows a sample report from this system.

MIS usually serve managers primarily interested in weekly, monthly, and yearly results, although some MIS enable managers to drill down to see daily or hourly data if required. MIS generally provide answers to routine questions that have been specified in advance and have a predefined procedure for answering them. For instance, MIS reports might list the total pounds of lettuce used this quarter by a fast-food chain or, as illustrated in Figure 2-6, compare total annual sales figures for specific products to planned targets. These systems are generally not flexible and have little analytical capability. Most MIS use simple routines such as summaries and comparisons, as opposed to sophisticated mathematical models or statistical techniques.

DECISION-SUPPORT SYSTEMS

Decision-support systems (DSS) also serve the management level of the organization. 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 a 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.

 Clearly, by design, DSS have more analytical power than other systems. They use a variety of models to analyze data, or they condense large amounts of data into a form in which they can be analyzed by decision makers. DSS are designed so that users can work with them directly; these systems explicitly include user-friendly software. DSS are interactive; the user can change assumptions, ask new questions, and include new data.

 An interesting, small, but powerful DSS is the voyage-estimating system of a subsidiary of a large American metals company that exists primarily to carry bulk cargoes of coal, oil, ores, and finished products for its parent company. The firm owns some vessels, charters others, and bids for shipping contracts in the open market to carry general cargo. A voyage-estimating system calculates financial and technical voyage details. Financial calculations include ship/time costs (fuel, labor, capital), freight rates for various types of cargo, and port expenses. Technical details include a myriad of factors, such as ship cargo capacity, speed, port distances, fuel and water consumption, and loading patterns (location of cargo for different ports).

 The system can answer questions such as the following: Given a customer delivery schedule and an offered freight rate, which vessel should be assigned at what rate to maximize profits? What is the optimal speed at which a particular vessel can optimize its profit and still meet its delivery schedule? What is the optimal loading pattern for a ship bound for the U.S. West Coast from Malaysia? Figure 2-7 illustrates the DSS built for this company. The system operates on a powerful desktop personal computer, providing a system of menus that makes it easy for users to enter data or obtain information. 

 This voyage-estimating DSS draws heavily on analytical models. Other types of DSS are less model-driven, focusing instead on extracting useful information to support decision making from massive quantities of data. For example, Intrawest—the largest ski operator in North America—collects and stores vast amounts of customer data from its Web site, call center, lodging reservations, ski schools, and ski equipment rental stores. It uses special software to analyze these data to determine the value, revenue potential, and loyalty of each customer so managers can make better decisions on how to target their marketing programs. The system segments customers into seven categories based on needs, attitudes, and behaviors, ranging from “passionate experts” to “value-minded family vacationers.” The company then e-mails video clips that would appeal to each segment to encourage more visits to its resorts. 

Executive Support Systems

Senior managers use executive support systems (ESS) to help them make decisions. ESS serves the strategic level of the organization. They address non-routine decisions requiring judgment, evaluation, and insight because there is no agreed-on procedure for arriving at a solution. ESS is designed to incorporate data about external events, such as new tax laws or competitors, but they also draw summarized information from internal MIS and DSS. They filter, compress, and track critical data, displaying the data of greatest importance to senior managers. For example, the CEO of Leiner Health Products, the largest manufacturer of private-label vitamins and supplements in the United States, has an ESS that provides on his desktop a minute-to-minute view of the firm’s financial performance as measured by working capital, accounts receivable, accounts payable, cash flow, and inventory.

 ESS employ the most advanced graphics software and can present graphs and data from many sources. Often the information is delivered to senior executives through a portal, which uses a Web interface to present integrated personalized business content from a variety of sources. You will learn more about other applications of portals in Chapters 4, 11, and 12.  Unlike the other types of information systems, ESS are not designed primarily to solve specific problems. Instead, ESS provides a generalized computing and communications capacity that can be applied to a changing array of problems. Although many DSS are designed to be highly analytical, ESS tends to make less use of analytical models.

 Questions ESS assists in answering include the following: In what business should we be? What are the competitors doing? What new acquisitions would protect us from cyclical business swings? Which units should we sell to raise cash for acquisitions? Figure 2-8 illustrates a model of an ESS. It consists of workstations with menus, interactive graphics, and communications capabilities that can be used to access historical and competitive data from internal corporate systems and external databases such as Dow Jones News/Retrieval or Standard & Poor’s. Because ESS are designed to be used by senior managers who often have little, if any, direct contact or experience with computer-based information systems, they incorporate easy-to-use graphic interfaces. 

Relationship of Systems to One Another

 TPS are typically a major source of data for other systems, whereas ESS are primarily a recipient of data from lower-level systems. The other types of systems may exchange data with each other as well. Data may also be exchanged among systems serving different functional areas. For example, an order captured by a sales system may be transmitted to a manufacturing system as a transaction for producing or delivering the product specified in the order or to a MIS for financial reporting.

 It is definitely advantageous to integrate these systems so that information can flow easily between different parts of the organization and provide management with an enterprise-wide view of how the organization is performing as a whole. But integration costs money, and integrating many different systems is extremely time consuming and complex. This is a major challenge for large organizations, which are typically saddled with hundreds, even thousands of different applications serving different levels and business functions. Each organization must weigh its needs for integrating systems against the difficulties of mounting a large-scale systems integration effort.