CHAPTER FOUR

4. COMMON BUSINESS APPLICATIONS OF INFORMATION

So far, you have learned about computer information systems, the decision making process, 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. 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.
4.1 FINANCIAL INFORMATION SYSTEMS
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.
4.2.1 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 paychecks, 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.
 Accounting Systems
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 subsystems that
may be used separately or in an integrated fashion. The subsystem modules include;
1. General ledger: The general ledger subsystem ties to other financial accounting systems
subsystems together, provides managers with periodic account reports and statements, such
as an income statement and a balance sheet, and provides support for budgeting.

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2. Fixed assets: The fixed assets subsystem maintains records of equipment, property, and other
long term assets an organization owns. The records include the original cost of the assets, the
depreciation rate on each asset or groups of assets. the accumulated depreciation to date, and
look value of the asset, which is the original cost less accumulated depreciation to date. The
general ledger subsystem uses this information to maintain up-to-date balances in the various
long-term asset accounts of the organization. The subsystem also may maintain and process
data on the gain or loss on the sale of fixed assets and prepare special income tax forms for
fixed assets required by the federal government.
3. The Sales Order Processing Subsystem: The sale order process subsystem, or order entry
subsystem, routinely records sales orders and provides the documents that other subsystems
use to fill those orders that maintain inventory levels and that bill the customers (sales
invoices). The subsystem provides sales tax data to the general ledger subsystem for updating
inventory balances, and sales invoice data to the accounts receivable subsystem for posting to
customer accounts.
A computerized sales order subsystem usually tracks the sales made by each sales person and
provides input to the payroll subsystem so that salesperson’s commissions can be
accumulated. The subsystem should also provide information to the shipping department to
ensure that the correct stock is sent to the customer; provide for backorders when there is not
enough stock on the shelves; accurately figure prices, totals, discounts, and taxes on the
order; and allow a quick and accurate response to customer inquiries about the status of the
order.
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.
Many accounts receivable subsystems produce aged accounts receivable reports. These
reports classify accounts balances into several categories (30, 60 or 90 days over due). An
aging report identifies customers with overdue balances to managers, allowing them to use
the computer system to prepare collection letters, start collection procedures, and disallow
additional credit to poor credit risks. Without aging data, an organization may continue to
grant credit to customers already long overdue on their payments.
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. For example, the
subsystem maintains creditor account information, prepares checks to creditors, and produces
the accounts payable schedule. The accounts payable subsystem provides data directly to the
general ledger subsystem and receives data from the purchase order subsystem.
The accounts payable subsystem may also find the due dates for purchases on account and the
last date on which cash discounts may be taken on those purchases. This subsystem provides
important operational level information that can be used to schedule cash payments to
creditors. The effect of such a subsystem is to allow the organization to keep its money
working for it as long as possible and yet ensure that all cash discounts are taken.
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

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 inventory costs fro the organization. The subsystem maintains information about each stock
item, such as stock numbers and stock descriptions, receipts and issues of stock, and stock
balances. The inventory subsystem may also trigger the purchase of stock when stock levels
reach certain points, maintain information about stock item costs, and maintain selling price
data on each stock item.
The inventory subsystem maintains stock balance data by obtaining stock receipts from the
purchase order system and stock issues from the order entry system. Updates for other stock
changes, such as damaged goods, lost stock, shrinkage, or spoilage are usually entered
directly into the subsystem by inventory clerks after a physical inventory has been completed.
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.
When these computerized accounting subsystems are integrated, each subsystem receives
data as input from other subsystems and provides information as output to other subsystems.
The accounting subsystems might be integrated.
4.2.2 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 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.

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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.
 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

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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 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.
4.2.3 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:
1. Financial condition analysis data or an analysis of internally generated information describing
the status of the organization,
2. Economic, demographic, and social data or an analysis of externally generated data
describing the present and future environment for the organization,
3. 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.
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.

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  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.
4.2 MARKETING INFORMATION SYSTEMS
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.
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.
4.2.1 Operational 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.
 Sales Information 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. There are many
information systems that support the salesperson in these activities. Among these information
systems are the following:
1. PROSPECT INFORMATION SYSTEMS

Locating potential customers is often a time-consuming and frustrating part of the salesperson's
work. The sources of information used to obtain leads about prospective customers are frequently
diverse and may include other customers, other vendors who sell supporting or ancillary products,
newspapers notices, telephone directories, and direct customer inquiries. The search of directories
and other lists of customers may be very time consuming and yield few customers.

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Files of sales leads are often called prospect files. When these files are stored on magnetic media,
they are easier for the salesperson to search or summarize. Outputs of prospect information
systems may include lists of prospects by location, by product category, by gross revenue, or by
other classifications important to the sales force.
2. CONTACT INFORMATION SYSTEMS

Customer contact information 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 of sales made per customer, per visit, and or per category.
3. INQUIRY INFORMATION SYSTMES

When customers make inquiries about the products and services the organization offers, the
inquiries need to be processed, recorded, and stored for analysis or for sales contact. It is
important that inquiries be associated with the actual or potential customer who made the inquiry,
what products or services the query pertained to, when the inquiry was made, and where the
potential customer was located. It is also very important to record these data on a medium that
will allow analysis easily at some future time.
4. DOCUMENT INFORMATION SYSTEMS

 Sales form letters for salespeople are used so that they can mail well-written, clear and
effective letters,
 Quotation documents are frequently produced. A document information system provides
marketing personnel with ready-to-adapt documents for their operations. The system also
improves the quality of the documents developed by marketing personnel, and is likely to
increase sales revenue.
5. ORDER ENTRY SYSTEMS

A great deal of marketing data is created through the financial accounting system of the
organization. For example, the order entry system provides the marketing manager with the raw
data from which to obtain gross sales by time period, salesperson, product, and territory. This
information may be used for a variety of marketing decisions at several marketing decision levels.
Analysis of product sales through analysis of the sales orders provides the marketing managers
with some of the information on which sales forecasts can be based, for instance.
6. TELEMARKETING SYSTEMS

Using the telephone for selling is referred to as telemarketing. Using telemarketing has become a
very important means by which companies have improved the productivity of their sales force.
Using the telephone to initiate contacts, offer products and services, follow up on sales eliminates
travel costs and travel time and lets salespeople reach many more customers in a given time
period than they could have through conventional means.
Some telemarketing systems include computer support for the automatic calling of parties and/or
the automatic delivering of a voice message to the answering party under the control of computer
system.
MDSS is A system used to manipulate a collection of data to interpret and explore potential
business scenarios in order to make management decisions. Marketing decision support systems
(MDSS) are considered by some businesses a key tool in gaining the edge over competitors. 
MDSS can be used to assist, rather than supersede, employee decision makers in the complicated
scenarios which are common in marketing.

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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.
 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.
 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 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.
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.
 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

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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.
 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 development activities
is a set of product specification. The specifications will serve as inputs for other decisions such as
product design.
4.2.4 Tactical and Strategic Marketing Information Systems
Two important information-gathering systems provide support for both tactical and strategic
marketing decisions. These two information systems are marketing research systems and
information systems that collect data about the organization's competitors.
 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
1. 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,
2. Analyzing population and target group characteristics, especially for trends or changes in data
that could affect the organization.
3. Analyzing and identifying consumer preferences, including the testing of products and
services, ...
The results of marketing research are often presented graphically, in the form of tables, charts,
and graphs.

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  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.
4.3 MANUFACTURING AND PRODUCTION INFORMATION SYSTEMS
PURPOSE: Manufacturing systems encompasses all the activities necessary to ensure
production. These activities may include the evaluation of sites for production; the planning,
development, and maintenance of production facilities; and the setting of production goals to
meet the requirements of the sales forecast generated by the marketing system. On the other
hand, production systems typically focus on these aspects of the business:
1. Acquisition, storage, and availability of raw materials and production supplies.
2. Scheduling the necessary equipment, facilities and workforce to process these raw
materials into finished goods ready fro the marketing system to sell.
3. Designing and testing the products and services.
4. Producing the correct quantity at the require level of quality within the projected cost
parameters of the budget at the times required by the production goals.
Manufacturing and production information systems provide the data necessary to plan, organize,
operate, monitor, control and otherwise manage production systems.
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.

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  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.
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.
4.3.3 Strategic planning 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

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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 labor 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.
4.4 HUMAN RESOURCE INFROAMTION SYSTEMS
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. To achieve these ends, human resource management
departments perform a variety of activities. The major activities of the personnel/human resources
function in an organization include
1. Recruiting employees,
2. Evaluating applicants and employees,
3. Selecting, placing, promoting, terminating, and transferring employees,
4. Analyzing and designing jobs,
5. Training and development reports,
6. Producing required governmental reports,
7. Managing employee wage and benefit plans,
8. Planning short-and long-term staffing needs,
To perform these activities, managers rely on a number of operational, tactical, and strategic
information systems
4.4.1 Operational 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-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.

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  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 semiannually. 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.

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  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. 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 labor 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.
4.5 MANAGERIAL DECISION SUPPORT SYSTEMS
There are three kinds of management support systems each distinguished by the type of decision
and management level it supports.
(a) Executive Support Systems (ESS) support 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

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 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.
(b) Management Information systems (MIS) support 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.
(c) Decision support systems (DSS) support middle management and information workers who
need assistance with semi-structured 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. The focus of this part of the discussion is on the DSS.
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.
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.
The other two attributes that account for differences in decision-making behavior 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 an 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, "satisficing", or incrementalizing strategy (MacGrimmon
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.

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Satisficing 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 satisficing because the decision maker will terminate his or her search as soon as
a satisfactory alternative is found.
Incrementalizing 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 "satisficing" 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
related to a one-time-only situation.
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 Important Features of Decision Support Systems
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
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.

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  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 decision support
system should provide them. Workspaces for displaying data representations or for preserving
intermediate results from operations are useful.
4.5.6 Capabilities of DSS
Because there is no exact definition of DSS, there is obviously no agreement on the standard
characteristics and 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:
1. Support for decision makers in semi-structured and unstructured problems.
2. Support managers at all levels.
3. Support individuals and groups.
4. Support for interdependent or sequential decisions.
5. Support intelligence, design, choice, and implementation phases.
6. Support variety of decision processes and styles.
7. DSS should be adaptable and flexible.
8. DSS should be interactive and provide ease of use.
9. Effectiveness balanced with efficiency (benefit must exceed cost).
10. Complete control by decision-makers.
11. Ease of development by (modification to suit needs and changing environment) end
users.
12. Support modeling and analysis.
13. Data access.
14. Standalone, integration and Web-based

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