Introduction

An information system is a set of interrelated components that collect, manipulate,

process and transform data into information and provide feedback to meet a
specified objective. A computer based information system is an information system
that uses computer technology to perform input, processing and output activities.
Due to the massive computerization of manual information systems, computer
based information systems are simply referred to as information systems. They are
the subject of discussion in this chapter.

Common examples of information systems include: Automated Teller Machines

(ATMs), Point of Sale (POS) terminals used by supermarket checkout clerks, airline
reservation systems or flight schedule systems used by airlines, student
registration systems used by colleges etc.

2. Management structure and use of information

Information systems support different types of decisions at different levels of the
organizational hierarchy. While operational managers mostly make structured
decisions, senior managers deal with unstructured decisions and middle managers
are often faced with semi-structured decisions.

For each functional area in the organization, four levels of organizational hierarchy
can be identified: the operational level, knowledge level, management level and
strategic level. Different types of information systems serve each of these levels.
 TYPES OF INFORMATION SYSTEMS

KIND OF SYSTEM GROUPS SERVED

Strategic Level Senior Managers

Management Level ……… Middle Managers

Knowledge Level Knowledge & data

Workers

Operational Operational
Level Managers

Sales & Manufacturing Finance Accounting Human

Marketing Resources

3. Components of an information system

Components of an information system include:

 People – These use the system to fulfil their informational needs. They include
end users and operations personnel such as computer operators, systems
analysts, programmers, information systems management and data
administrators.

 Computer Hardware – Refers to physical computer equipment and devices,

which provide for five major functions.
o Input or data entry
o Output
o Secondary storage for data and programs
o Central processor (computation, control)
o Communication

 Computer Software – Refers to the instructions that direct the operation of the
computer hardware. It is classified into system and application software.

 Telecommunication System/Communication network

 Databases – Contains all data utilized by application software. An individual set
of stored data is referred to as a file. Physical storage media evidences the
physical existence of stored data, that is: tapes, disk packs, cartridges, and
diskettes.

 Procedures – Formal operating procedures are components because they exist

in physical forms as manuals or instruction booklets. Three major types of
procedures are required.

o User instructions – for application users to record data, to use a terminal

for data entry or retrieval, or use the result.
o Instructions for preparation of input by data preparation personnel.
o Operating instructions for computer operations personnel.

4. Functions of an information system

The functions of an information system can be generally classified into those
functions involved in:

 Transaction processing
 Management reporting
 Decision support

4.1 Transaction processing

Major processing functions include:

i. Process transactions – Activities such as making a purchase or a sale or

manufacturing a product. It may be internal to the organization or involve an
external entity. Performance of a transaction requires records to:

 Direct a transaction to take place

 Report, confirm or explain its performance
 Convey it to those needing a record for background information or
reference.
ii. Maintain master files – Many processing activities require operation and
maintenance of a master file, which stores relatively permanent or historical
data about organizational entities. E.g. processing an employee pay check
needs data items such as rate of pay, deductions etc. transactions when
processed update data items in the master file to reflect the most current
information.
iii. Produce reports – reports are significant products of an information system.
Scheduled reports are produced on a regular basis. An information system
should also be able to produce special reports quickly based on ‘ad hoc’ or
random requests.
iv. Process inquiries – Other outputs of the information system are responses to
inquiries using the databases. These may be regular or ad hoc inquiries.
 Essentially inquiry processing should make any record or item in the
database easily accessible to authorized personnel.
v. Process interactive support applications – The information system contains
applications to support systems for planning, analysis and decision making.
The mode of operation is interactive, with the user responding to questions,
requesting for data and receiving results immediately in order to alter inputs
until a solution or satisfactory result is achieved.

1. Management reporting
This is the function involved in producing outputs for users. These outputs are
mainly as reports to management for planning, control and monitoring purposes.
Major outputs of an information system include:
i. Transaction documents or screens
ii. Preplanned reports
iii. Preplanned inquiry responses
iv. Ad hoc reports and ad hoc inquiry responses
v. User-machine dialog results

2. Decision support
Types of decisions
a) Structured/programmable decisions
These decisions tend to be repetitive and well defined e.g. inventory replenishment
decisions. A standardized pre-planned or pre-specified approach is used to make
the decision and a specific methodology is applied routinely. Also the type of
information needed to make the decision is known precisely. They are
programmable in the sense that unambiguous rules or procedures can be specified
in advance. These may be a set of steps, flowchart, decision table or formula on
how to make the decision. The decision procedure specifies information to be
obtained before the decision rules are applied. They can be handled by low-level
personnel and may be completely automated.
It is easy to provide information systems support for these types of decisions. Many
structured decisions can be made by the system itself e.g. rejecting a customer
order if the customer’s credit with the company is less than the total payment for
the order. Yet managers must be able to override these systems’ decisions
because managers have information that the system doesn’t have e.g. the
customer order is not rejected because alternative payment arrangements have
been made with the customer.
In other cases the system may make only part of the decision required for a
particular activity e.g. it may determine the quantities of each inventory item to be
reordered, but the manager may select the most appropriate vendor for the item
on the basis of delivery lead time, quality and price.
Examples of such decisions include: inventory reorder formulas and rules for
granting credit. Information systems requirements include:
o Clear and unambiguous procedures for data input
o Validation procedures to ensure correct and complete input
o Processing input using decision logic
o Presentation of output so as to facilitate action

b) Semi-structured/semi-programmable decisions
The information requirements and the methodology to be applied are often
known, but some aspects of the decision still rely on the manager: e.g. selecting
the location to build a new warehouse. Here the information requirements for
the decision such as land cost, shipping costs are known, but aspects such as
local labour attitudes or natural hazards still have to be judged and evaluated
by the manager.

c) Unstructured/non-programmable decisions
These decisions tend to be unique e.g. policy formulation for the allocation of
resources. The information needed for decision-making is unpredictable and no
fixed methodology exists. Multiple alternatives are involved and the decision
variables as well as their relationships are too many and/or too complex to fully
specify. Therefore, the manager’s experience and intuition play a large part in
making the decision.
In addition there are no pre-established decision procedures either because:
 The decision is too infrequent to justify organizational preparation cost
of procedure or
 The decision process is not understood well enough, or
 The decision process is too dynamic to allow a stable pre-established
decision procedure.
Information systems requirements for support of such decisions are:
 Access to data and various analysis and decision procedures.
 Data retrieval must allow for ad hoc retrieval requests
 Interactive decision support systems with generalized inquiry and
analysis capabilities.
Example: Selecting a CEO of a company.
Types of information systems: characteristics and differences
Major types of systems include:
1. Transaction Processing Systems (TPS)
2. Management Information Systems (MIS)
3. Decision Support Systems (DSS)
4. Executive Support Systems (ESS)
5. Expert Systems

1. Types of information systems: characteristics and

differences
Major types of systems include:
6. Transaction Processing Systems (TPS)
7. Management Information Systems (MIS)
8. Decision Support Systems (DSS)
9. Executive Support Systems (ESS)
10.Expert Systems

5.1 Transaction Processing System (TPS)

A transaction is any business related exchange, such as a sale to a client or a
payment to a vendor. Transaction processing systems process and record
transactions as well as update records. They automate the handling of data about
business activities and transactions. They record daily routine transactions such as
sales orders from customers, or bank deposits and withdrawals. Although they are
the oldest type of business information system around and handle routine tasks,
they are critical to business organization. For example, what would happen if a
bank’s system that records deposits and withdrawals and maintain accounts
balances disappears?

TPS are vital for the organization, as they gather all the input necessary for other
types of systems. Think of how one could generate a monthly sales report for
middle management or critical marketing information to senior managers without
TPS. TPS provide the basic input to the company’s database. A failure in TPS often
means disaster for the organization. Imagine what happens when an airline
reservation system fails: all operations stops and no transaction can be carried out
until the system is up and running again. Long queues form in front of ATMs and
tellers when a bank’s TPS crashes.

Transaction processing systems were created to maintain records and do simple

calculations faster, more accurately and more cheaply than people could do the
tasks.

Characteristics of TPS:
 TPS are large and complex in terms of the number of system interfaces with
the various users and databases and usually developed by MIS experts.
  TPS’s control collection of specific data in specific formats and in accordance
with rules, policies, and goals of organisation- standard format
 They accumulate information from internal operations o the business.
 They are general in nature—applied across organisations.
 They are continuously evolving.

The goals of TPS is improve transaction handling by:

 Speeding it up
 Using fewer people
 Improving efficiency and accuracy
 Integrating with other organizational information systems
 Providing information that was not available previously

Examples—Airline reservation systems, Automated Teller Machines (ATMs,) order

processing systems, registration systems, Payroll systems and point of sale
systems.

5.2 Management Reporting System (MRS)

Management Reporting Systems (MRS) formerly called Management information

systems (MIS) provide routine information to decision makers to make structured,
recurring and routine decisions, such as restocking decisions or bonus awards.
They focus on operational efficiency and provide summaries of data. A MRS takes
the relatively raw data available through a TPS and converts it into meaningful
aggregated form that managers need to conduct their responsibilities. They
generate information for monitoring performance (e.g. productivity information)
and maintaining coordination (e.g. between purchasing and accounts payable).

The main input to an MRS is data collected and stored by transaction processing
systems. A MRS further processes transaction data to produce information useful
for specific purposes. Generally, all MIS output have been pre-programmed by
information systems personnel. Outputs include:

a) Scheduled Reports – These were originally the only reports provided by

early management information systems. Scheduled reports are produced
periodically, such as hourly, daily, weekly or monthly. An example might
be a weekly sales report that a store manager gets each Monday showing
total weekly sales for each department compared to sales this week last
year or planned sales.
b) Demand Reports – These provide specific information upon request. For
instance, if the store manager wanted to know how weekly sales were
going on Friday, and not wait until the scheduled report on Monday, she
could request the same report using figures for the part of the week
already elapsed.
c) Exception Reports – These are produced to describe unusual
circumstances. For example, the store manager might receive a report
for the week if any department’s sales were more than 10% below
planned sales.
Characteristics of MRS
 MIS professionals usually design MRS rather than end users- using life cycle
oriented development methodologies.
 They are large and complex in terms of the number of system interfaces with
the various users and databases.
 MRS are built for situations in which information requirements are reasonably
well known and are expected to remain relatively stable. This limits the
informational flexibility of MRS but ensures that a stable informational
environment exists.
 They do not directly support the decision making process in a search for
alternative solutions to problems. Information gained through MRS is used in
the decision making process.
 They are oriented towards reporting on the past and the present, rather than
projecting the future. Can be manipulated to do predictive reporting.
 MRS have limited analytical capabilities. They are not built around elaborate
models, but rather rely on summarisation and extraction from the databases
according to the given criteria.

5.3 Decision Support System (DSS)

Decision support systems provide problem-specific support for non-routine,
dynamic and often complex decisions or problems. DSS users interact directly with
the information systems, helping to model the problem interactively. DSS basically
provide support for non-routine decisions or problems and an interactive
environment in which decision makers can quickly manipulate data and models of
business operations. A DSS might be used for example, to help a management
team decide where to locate a new distribution facility. This is a non-routine,
dynamic problem. Each time a new facility must be built, the competitive,
environmental, or internal contexts are most likely different. New competitors or
government regulations may need to be considered, or the facility may be needed
due to a new product line or business venture.

When the structure of a problem or decision changes, or the information required

to address it is different each time the decision is made, then the needed
information cannot be supplied by an MIS, but must be interactively modelled using
a DSS. DSS provide support for analytical work in semi-structured or unstructured
situations. They enable mangers to answer ‘What if’ questions by providing
powerful modelling tools (with simulation and optimization capabilities) and to
evaluate alternatives e.g. evaluating alternative marketing plans.

DSS have less structure and predictable use. They are user-friendly and highly
interactive. Although they use data from the TPS and MIS, they also allow the
inclusion of new data, often from external sources such as current share prices or
prices of competitors.

DSS components include:

a) Database (usually extracted from MIS or TPS)
b) Model Base
c) User Dialogue/Dialogue Module
5.4 Executive information system (EIS) / Executive Support Systems
(ESS)
EIS provide a generalized computing and communication environment to senior
managers to support strategic decisions. They draw data from the MIS and allow
communication with external sources of information. But unlike DSS, they are not
designed to use analytical models for specific problem solving. EIS are designed to
facilitate senior managers’ access to information quickly and effectively.

ESS has menu-driven user-friendly interfaces, interactive graphics to help

visualization of the situation and communication capabilities that link the senior
executives to the external databases he requires.

Top executives need ESS because they are busy and want information quickly and
in an easy to read form. They want to have direct access to information and want
their computer set-up to directly communicate with others. They want structured
forms for viewing and want summaries rather than details.

5.5 Expert System (ES)

 It is an advanced DSS that provides expert advice by asking users a sequence of
questions dependent on prior answers that lead to a conclusion or
recommendation. It is made of a knowledge base (database of decision rules
and outcomes), inference engine (search algorithm), and a user interface.
 ES use artificial intelligence technology.
 It attempts to codify and manipulate knowledge rather than information
 ES may expand the capabilities of a DSS in support of the initial phase of the
decision making process. It can assist the second (design) phase of the decision
making process by suggesting alternative scenarios for "what if" evaluation.
 It assists a human in the selection of an appropriate model for the decision
problem. This is an avenue for an automatic model management; the user of
such a system would need less knowledge about models.
 ES can simplify model-building in particular simulation models lends itself to this
approach.
 ES can provide an explanation of the result obtained with a DSS. This would be
a new and important DSS capability.
 ES can act as tutors. In addition ES capabilities may be employed during DSS
development; their general potential in software engineering has been
recognised.

5.6 Other Information Systems

These are special purpose information systems. They are more recent types of
information systems that cannot be characterized as one of the types discussed
above.

(i) Office Automation Systems (OAS)

Office automation systems support general office work for handling and managing
documents and facilitating communication. Text and image processing systems
evolved as from word processors to desktop publishing, enabling the creation of
professional documents with graphics and special layout features. Spreadsheets,
presentation packages like PowerPoint, personal database systems and note-taking
systems (appointment book, notepad, card file) are part of OAS.
In addition OAS include communication systems for transmitting messages and
documents (e-mail) and teleconferencing capabilities.

(ii) Artificial Intelligence Systems

Artificial intelligence is a broad field of research that focuses on developing
computer systems that simulate human behaviour, that is, systems with human
characteristics. These characteristics include, vision, reasoning, learning and
natural language processing.
Examples: Expert systems, Neural Networks, Robotics.

(iii) Knowledge Based Systems/ Knowledge Work Systems (KWS)

Knowledge Work Systems support highly skilled knowledge workers in the creation
and integration of new knowledge in the company. Computer Aided Design (CAD)
systems used by product designers not only allow them to easily make
modifications without having to redraw the entire object (just like word processors
for documents), but also enable them to test the product without having to build
physical prototypes.
Architects use CAD software to create, modify, evaluate and test their designs;
such systems can generate photo-realistic pictures, simulating the lighting in rooms
at different times of the day, perform calculations, for instance on the amount of
paint required. Surgeons use sophisticated CAD systems to design operations.
Financial institutions use knowledge work systems to support trading and portfolio
management with powerful high-end PCs. These allow managers to get
instantaneous analysed results on huge amounts of financial data and provide
access to external databases.
Workflow systems are rule-based programs - (IF ‘this happens’ THEN ‘take this
action’)- that coordinate and monitor the performance of a set of interrelated
tasks in a business process.

(iv) Geographic Information Systems (GIS)

Geographic information systems include digital mapping technology used to store
and manipulate data relative to locations on the earth. An example is a marketing
GIS database. A GIS is different from a Global Positioning System (GPS). The latter
is a satellite-based system that allows accurate location determination.
(v) Virtual Reality Systems
Virtual reality systems include 3-dimensional simulation software, where often the
user is immersed in a simulated environment using special hardware (such as
 gloves, data suits or head mounted displays). Sample applications include flight
simulators, interior design or surgical training using a virtual patient.
(vi) E-Commerce/E-Business Systems
E-Commerce involves business transactions executed electronically between
parties. Parties can be companies, consumers, public sector organizations or
governments.

(vii) Enterprise Resource Planning (ERP) systems

ERP systems are a set of integrated programs that handle most or all organization’s
key business processes at all its locations in a unified manner. Different ERP
packages have different scopes. They often coordinate planning, inventory control,
production and ordering. Most include finance and manufacturing functions, but
many are now including customer relationship management, distribution, human
resource as well as supply chain management. ERP systems are integrated around
a common database. Some well known ERP vendors are ORACLE, SAP and
PeopleSoft.
For instance a manufacturing company may prepare a demand forecast for an item
for the next month. The ERP system would then check existing items inventory to
see if there is enough on hand to meet the demand. If not, the ERP system
schedules production of the shortfall, ordering additional raw material and shipping
materials if necessary.
(viii) Electronic Funds Transfer (EFT)
EFT is the exchange of money via telecommunications without currency actually
changing hands. EFT refers to any financial transaction that transfers a sum of
money from one account to another electronically. Usually, transactions originate
at a computer at one institution (location) and are transmitted to a computer at
another institution (location) with the monetary amount recorded in the respective
organization’s accounts. Because of the potential high volume of money being
exchanged, these systems may be in an extremely high-risk category. Therefore,
access security and authorization of processing are important controls.
Security in an EFT environment is extremely important. Security includes methods
used by the customer to gain access to the system, the communications network
and the host or application-processing site. Individual customer access to the EFT
system is generally controlled by a plastic card and a personal identification
number (PIN). Both items are required to initiate a transaction.

(ix) Automated Teller Machine (ATM)

An ATM is a specialized form of point of sale terminal designed for the unattended
use by a customer of a financial institution. These customarily allow a range of
banking and debit operations, especially financial deposits and cash withdrawals.
ATMs are usually located in uncontrolled areas and utilize unprotected
telecommunications lines for data transmissions. Therefore the system must
provide high levels of logical and physical security for both the customer and the
machinery.

Recommended internal control guidelines for ATMs include the following:

 Review measures to establish proper customer identification and

maintenance of their confidentiality
 Review file maintenance and retention system to trace transactions
 Review and maintain exception reports to provide an audit trail
 Review daily reconciliation of ATM machine transactions.