IT Application Tools in Business

Rogelio G. Panelo, Jr. CPA, MBA CTT, MRITax

Lesson 2 - Introduction to Information Systems (IS)

1. Definition and Types of Information Systems

 Definition of Information Systems (IS):

o An Information System is a combination of technology, people, and processes
that collect, store, and process data to provide useful information for decision-
making in an organization.
o It transforms raw data into meaningful information to support business operations
and decision-making.
 Key Functions of Information Systems:
o Data Collection: Gathers relevant data from business activities (e.g., sales,
inventory, transactions).
o Data Processing: Converts raw data into useful information through organizing,
filtering, and calculating.
o Information Storage: Safely stores data for retrieval and analysis.
o Information Dissemination: Distributes processed information to users within
the organization to aid in decision-making.
 Types of Information Systems:
o Transaction Processing Systems (TPS): Automate routine and repetitive tasks
such as sales order processing, payroll, and billing.
 Example: Point-of-Sale (POS) systems in retail.
o Management Information Systems (MIS): Provide managers with reports that
summarize data from Transaction Processing Systems, supporting decision-
making.
 Example: Sales summary reports for management.
o Decision Support Systems (DSS): Help managers make decisions by analyzing
data and presenting options. These systems are more analytical and offer
forecasting or “what-if” scenarios.
 Example: Financial forecasting tools.
o Enterprise Resource Planning (ERP) Systems: Integrate all core business
processes into one comprehensive system, allowing departments to share data and
coordinate activities.
 Example: SAP, Oracle.
o Customer Relationship Management (CRM) Systems: Focus on managing a
company’s interactions with current and potential customers by analyzing data
from customer interactions.
 Example: Salesforce.
2. Role of Information Systems in Accounting and Business

 In Accounting:
o Automating Accounting Processes: Information systems streamline the
recording of financial transactions, reducing manual data entry and human error.
o Real-Time Reporting: Information systems provide real-time access to financial
data, allowing accountants and management to generate accurate reports instantly.
o Audit Trail & Security: Information systems maintain a detailed record of all
transactions, ensuring accountability and facilitating audits. They also offer
security features such as data encryption and user access controls to protect
sensitive financial information.
 In Business:
o Improved Decision-Making: Information systems provide accurate, timely
information that supports business decision-making. Managers can make
informed decisions based on real-time data about sales, inventory, and financial
performance.
o Enhanced Communication: Information systems enable better communication
between departments, ensuring that everyone is working with the same data and
reducing miscommunication.
o Increased Efficiency: By automating routine tasks (e.g., billing, inventory
management), information systems save time, reduce costs, and improve overall
efficiency.
o Strategic Advantage: Businesses can use information systems to analyze market
trends, customer behavior, and competitor performance, gaining an advantage by
responding more quickly to changes in the market.

Components of Information Systems

1. Hardware

 Definition:
o The physical components of an information system, including computers, servers,
storage devices, and networking equipment.
 Role in Business:
o Processing Power: Hardware like computers and servers process and execute
business applications.
o Storage: Data storage devices store critical business information, such as
customer details, transaction records, and financial data.
o Networking: Networking hardware like routers and switches connects the entire
organization, allowing information to flow between departments and locations.
2. Software

 Definition:
o The programs and applications that run on hardware to process data. This includes
both system software (e.g., operating systems) and application software (e.g.,
accounting software, ERP systems).
 Role in Business:
o Business Applications: Software automates business processes (e.g., accounting,
sales, customer service) and increases efficiency.
o Customization: Businesses can use specific software tailored to their industry
(e.g., QuickBooks for accounting).
o System Software: Operating systems (e.g., Windows, Linux) allow applications
to interact with hardware, enabling the smooth operation of business systems.

3. Data

 Definition:
o Raw facts and figures collected from business activities (e.g., sales transactions,
customer records).
 Role in Business:
o Data Collection: Information systems collect data from day-to-day business
operations, such as sales, purchases, and inventory changes.
o Data Processing: Raw data is processed into meaningful information, such as
sales trends or financial reports.
o Decision Support: Processed data helps managers make informed decisions and
plan for the future based on accurate information.

4. Procedures

 Definition:
o The set of instructions or guidelines that govern how data is collected, processed,
and used within an organization.
 Role in Business:
o Standardization: Procedures ensure that data is consistently processed across the
organization, maintaining accuracy and reliability.
o Efficiency: Clearly defined procedures reduce errors, increase efficiency, and
ensure that everyone in the organization follows the same steps in handling
information.
o Compliance: Procedures help ensure that the business complies with legal
requirements, such as data privacy regulations and financial reporting standards.
5. People

 Definition:
o The individuals who use and manage the information system, including IT
professionals, end-users, managers, and decision-makers.
 Role in Business:
o End-Users: Employees who input data into the system (e.g., accountants, sales
staff) or retrieve information to make decisions (e.g., managers).
o IT Professionals: Responsible for maintaining and updating the system, ensuring
it runs smoothly and securely.
o Management: Uses the information provided by the system to make strategic
decisions for the organization.

How These Components Support Business Activities

 Integration: All components of an information system—hardware, software, data,

procedures, and people—work together to support business operations, enhance
communication, and improve decision-making.
 Business Processes: Information systems automate and streamline key business
processes, such as accounting, sales, inventory management, and customer service.
 Data-Driven Decisions: The combination of technology and human input helps
businesses collect, analyze, and act on data to improve performance and competitiveness.