What is Information Systems?
An information system is a set of interrelated components that collects, stores, analyses and disseminates information for effective business decision-making. For example, an organisation wishes to increase its profits by boosting its sales.
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In such a case, an information system can help the organisation in making effective sales-related decisions by providing information on current market trends, needs and preferences of customers, availability of substitutes, etc.
Components of Information System
The following are the key components of information system:
- Hardware: It includes physical devices for information processing such as computers, keyboards, mouse, scanners, pen drives, etc.
- Software: It includes a set of instructions to direct the computer’s hardware. Software is broadly divided into two types: programs and procedures. Programs comprise operating system and application software, whereas procedures include instructions for data entry and information distribution.
- Data: It includes facts and observations (collected from various sources) used by programs to produce meaningful information. Data is stored in a machine-readable form on disk or tape.
- People: They are one of the main components of an information system. People are responsible for the development and operation of an information system. They can be categorised into two types: specialists and end users.
Specialists include system analysts, software developers, system operators, programmers and other IT personnel. On the other hand, end users are individuals (market researchers, production managers, customers and accountants) who use information produced by a system for various purposes.
Types of Information Systems
In an organisation, information systems are used at all levels. Let us discuss these different types of information systems in the subsequent sections.
- Transaction Processing System
- Management Information System
- Decision Support Systems
- Executive Information Systems
Transaction Processing System
Transaction Processing System (TPS) is a type of information system that is used to gather, record, manipulate and retrieve data related to the day-to-day business transactions of an organisation. In simple words, TPS is used by organisations to record the business transactions that take place with various parties such as vendors, suppliers and customers. Figure shows a model of TPS:
In TPS, there are two ways of processing transactions: batch processing and real-time processing. In batch processing, data related to transactions is collected over a period of time, say a week or a month, and processed from time to time. On the other hand, in real-time processing, data is processed immediately once a transaction takes place.
Advantages of Transaction Processing System
Some of the important advantages of TPS are discussed as follows:
- It processes transactions quickly and makes data available for performing various business processes.
- It integrates both comprehensive safeguards and disaster recovery systems to reduce the chances of failure.
- It ensures standardised transaction processing by obtaining identical data for all types of transactions
Management Information System
To facilitate effective decision making in an organisation, managers require accurate information. However, in an organisation, there is always a pool of information that needs to be managed. Therefore, most organisations use Management Information System (MIS), which collects data from various internal and external sources, processes it and provides meaningful information.
According to Davis and Olson, MIS is an integrated user-machine system designed for providing information to support operational control, management control and decision making functions in an organisation. Thus, MIS can be defined as an information system that:
- comprises various tools for data analysis
- delivers information to support managerial functions, such as planning, organising, etc
- gathers information as per the defined rules
Importance of MIS
The importance of MIS is explained in the following points:
- It provides access to useful and timely information to managers.
- It lays a basis for logical decision-making.
- It distributes integrated information among different departments of an organisation.
- It establishes a rational basis for developing business strategies.
Objective of MIS
The main objective behind using MIS is to help managers in making multifaceted business decisions with ease. Besides, an organisation implements MIS due to the following reasons:
- To operate in the dynamic business environment: The environment in which businesses operate is changing tremendously due to continuous advancement in technology. This leads to an increase in the complexities of different business functions.
For instance, if an organisation has its branches in various countries, it faces difficulties in controlling operations performed at all branches. In order to function efficiently in such a complex business environment, MIS offers integrated information to all the branches.
- To survive in competition: By providing accurate and updated information about the latest changes and market trends, MIS helps an organisation to sustain its position in the market. With the help of updated information, managers can make various strategic decisions effectively.
- To accomplish managerial functions efficiently: In the current business scenario, managers are responsible for performing various functions such as business planning, decision making, and forecasting. MIS provides information in a presentable form that can be easily understood by managers, thereby helping them in performing their functions effectively and quickly. For example, MIS helps managers in comparing the sales of the last five years with the sales of the current year by representing sales data in a graphical or tabular form.
Decision Support Systems
In the present business environment, decision making has become far more complicated than it was in the past. Moreover, if decisions are not made on time, organisations may not be able to exploit opportunities or defend against threats. The major problem that managers face while making decisions is the availability of abundant information.
Sometimes, abundance of information causes distortion of its accuracy, which makes it difficult for managers to make a complete analysis of the problem. This gives rise to a need for computerised decision support that can enable managers to make effective decisions on time.
Decision Support System (DSS) is an interactive information system that is developed to help managers in making critical business decisions by performing logical data analysis and testing hypothesis.
According to Hicks, DSS is an integrated set of computer tools that allow a decision-maker to interact directly with computers to create information useful in making decisions.
In the words of Keen and Scott-Morton, A DSS couples the intellectual resources of individuals with the capabilities of the computer to improve the quality of decisions. It is a computer-based support system for management decision-makers who deal with semi-structured problems.
DSS mainly gathers and presents information related to legacy and relational data sources, relative data figures, estimated figures based on assumptions and data available, and possible outcomes of different decision alternatives.
Characteristics of DSS
The main characteristics of DSS are explained as follows:
- It helps individuals in performing decision-making activities and processes.
- It is an interactive system designed to enable decision-makers or staff users to understand the procedure of interaction and operations performed.
- It is developed to be used as both routine and ad-hoc decision support task.
- It offers various tools to support multiple tasks related to decision making, such as data analysis, identification and design of alternatives, selection of alternatives and decision implementation.
- It is an independent system that gathers or duplicates data from other information systems or subsystems.
Executive Information Systems
Executive Information System (EIS) is a tool that supports decision making at the top level of an organisation. It presents information in the form of customised reports to help executive levels in making a comparison of trends. For instance, by providing a report on sales figures of an organisation in the past five years, EIS can help the top executives of the organisation in setting sales targets for the next three years. It presents a report in a graphical format that can be easily analysed by top-level executives in a short period of time.
In Figure, it is shown that. In 2008, the target sales level was higher than the actual sales volume. However, in 2009, the sales target declined considerably to motivate salespeople to make higher achievements. This information is useful for top-level managers to determine an optimum sales target for the succeeding year.
Advantages of EIS
As said earlier, EIS is basically designed for top-level executives to retrieve updated information in a graphical format so that they can understand the business scenario in less time.
The following are some important advantages of EIS:
- It enables top management to quickly access both internal and external information.
- It helps executive-level managers in handling strategic issues and making efficient decisions by providing updated information.
- It displays the relevant information in the form of graphics, tables, and equations, which helps top-level executives in making quick analysis.
- It establishes sync between executives working on different systems within an organisation.
- By providing correct and timely information, it helps executives in identifying critical success factors.
Disadvantages of EIS
Though EIS is highly competent in improving the strategic efficiency of an organisation, it is not free from faults. Some of the important disadvantages of EIS are as follows:
- Its functionality is limited as it is meant only for top-level management.
- Sometimes, the graphical representation may not answer the questions in the mind of top-level managers. This makes it difficult for top managers to perform complete analysis and arrive at a conclusion.
- In terms of functions, it is difficult to separate EIS from DSS as both offer similar decision-making tools.
- The organisations incur huge cost for its implementation.