Definition of Information Systems
Information and Information Systems
When talking about information systems, first of all, they need to be defined what is considered under information and to define the difference between data and information. So, information can be defined as ”data converted into something valuable and usable for certain users“. Out of this definition the following can be concluded: Information is data sets that together offer new knowledge to data owners. For example, the currency exchange rate is, for the ordinary person, just data, but for financial analysts it is information because together with other historical currency exchange rates, it might give a certain predictability, new information, about short-term currency trends.
From this example, financial experts can analyze gathered data, compare it with other data like treasury and cash flow and to conclude level of profit or losses from effects of currency exchange rates. Such sets of analyzed data that, of course, need to be relevant to end users for acceptance of certain knowledge, is information.
Conditions that need to be fulfilled for information to become valuable information are the following:
1. Time precondition-must be available at time when needed. For example, information about delivery problems such as: No possibility of delivery of goods in less than two days may cause business failure for two days if requested information of delivery speed was not received on time, at least two days before the warehouse was emptied. Information also needs to be defined for a certain time period that is precisely determined for an event (event happened yesterday, two days, or three months ago) for responsible decision makers. In addition, information needs to be available in adequate time frequencies. It has to be available as often as defined. (Currency exchange needs to be available daily, for example, not monthly).
2. Content precondition-Information must be accurate (reliable) and significant (has to be of value for decision makers), completed (partial information may cause more harm than benefit), concrete (information should not cause information clutter) and must be possible to measure, must be quantified and of high quality). What is not measurable is hard to present.
3. Shaping precondition-Information must be presented in simple form, must be detailed, logically constructed, presented simply for the final user.
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As presented, many preconditions exist in conversion from data to information process. Task of data processing and modification is the job of the IT department. Nevertheless, data processing should never be considered as an information system. The same data and information should not be also considered as the same. A Data Processing System is just one part of a management information system.
When talking about information systems, the definition should be defined as a term system. The system can be defined as “a group of mutually related, cooperating elements working on reaching a common goal by taking inputs and producing outputs in organized transformation processes.”
From this statement the following can be concluded: Any system consists of minimally three components:
- Input on level of sales details,
- Processing the same material in production processes.
- Output, which is new product.
Based upon these three components, modern systems use two more components. Without them many modern systems could not work without:
- the process of feedback, where from previous examples can be seen the process of quality for new products or for used materials in production processes;
- control that analyzes data from feedback and based upon results makes conclusions. (Is company moving toward goals or not?)
If, in this case, feedback data shows low new-product quality and therefore lower revenue possibilities, controlling components must detect the source of the problem and must act on it. Control might, better to say must, act on input, processing, and output within the system in order to secure reaching goal/goals. Action of control is based on feedback information. The following should be highlighted: Closed information systems interact with the environment and cooperate with other systems, like for example, production systems – CRM, Customer Relationship System.
If you’d like to jump straight to advanced solutions for Information Systems and a Competitive Intelligence model, then consider Total Controlling Concept.
If you’d like to jump straight to advanced solution for Information System and Competitive Intelligence model then consider Total Controlling Concept.
After general introduction of systems and their functionalities with elements, the following text analyzes information systems and their components and specifics.
Components of Information System
Aim and purpose of each information system (definition of information system) is conversion of data into information. This process consists of four basic concepts:
- People, hardware, software, and data are four basic resources of information systems;
- Human resources consist of end users and IT specialists; hardware consists from machines and media; software resources consist of programs and procedures; data resources consist of data, model, and knowledge base;
- Data are converted in information process into many information products for end users;
- Information processes consist of input, processing, output, storage, and control processes.
All components of information systems are mutually connected and cannot exist individually and to perform role of informing. The relationship between separated components is defined for best process efficiency.
Components of information systems (basis for definition of information system) and their relations are presented in the following figures.
Source: O’Brien,J.: Management Information System, A Managerial End User Perspective, 2nd edition, IRWIN, 1993., Page.18, Figure 1.5.
PDI (Processing Data into Information) is only one component of Information systems. Without Input PDI would have nothing to process. Without output data to consumers, system would be without functionality. Due to named reasons it is important to mention that each component vital part (without it system would be without functionalities and purpose).
Information Systems are conisted of two basic components (Figure…. )
- Operational Information Systems, supporting daily activities
- Management Information System, supporting Managerial Decision Making
Source: O’Brien,J.: Management Information System, A Managerial End User Perspective, 2nd edition, IRWIN, 1993, page 38.
Role and necessity of information for management decision making and role of controlling
First of all following question should be raised, what is the reason why managers need information?
Today in world of everlasting changes, on time and precise information is key of success for all and especially for managers. Without information manager would be faced with risk of not fulfilling tasks and roles. Information are basis for each decision.
For example, in staffing process historical data are being used to determine levels of skills of employee had on certain job position for asking same skills of new candidate that applies for the same job. Based on this information managers can conclude also which skills former employee did not had and to ask them from new candidate. In addition they use data from external sources to determine do candidates exist and which candidates best fit into required criteria.
Examples are many for such information and of raised demand for certain skills can be seen daily.
Volume and type of information depands on management level and to type of decisions. For example top management that basically generates strategic decisions demands aggregated, non-planed and fast projections. Based on such information they can scan company status and to direct company. Top management needs short reports that will not consume too much time for analysis and understanding.
On a contrary to top management, low management has a strong need for pre defined and detailed (even daily) reports in order to compare with past data to make short-term plan for daily and monthly business. Tactical and operative (low) management is focused on middle and short-term plans and for this reason need detailed reports for right on time corrective actions on spoted deviations. In all phases information have crucial role and that is the reason of deployment and implementation of Management Information systems.
Management Information systems
As already stated, information are basis for any management decision and strong need for information is main cause of development of Management Information Systems, system with task to provide right on time of adequate information for management decision making.
Starts of Management Information Systems are in 60s years of 20-th century. Information provided by those information systems were not adequate for management decision making purposes. Systems developed till 1960 were based on electronic processing of data from accounting, sales and other services. This data were gathered and stored on media. Unfortunately, this data were not adequate for management as final data customer in time when changes on market were more and more frequent. Information was not adequate and of high quality.
Changes in environment and raising demand for information pushed management to demand information system for its own needs. This was the trigger for development of Management Information System (MIS). In scope of this system special reports were generated whose prime reason was to provide needed information to management. In this phase MIS functions as Information Reporting System (IRS) from where reports for management decision making are being made of data from different departments.
This system was sufficient only in cases were projections, information about future, were not required. Reason is this system only process data about historic events and delivers it to management. Oil crisis in 70s caused further development of MIS. IRS is used at lower levels of management (operative management), for daily decisions and for tracking of short term plans.
Decision Support System (DSS)
Environment development in 1970s and faster market changes stimulated management to demand further development of management information system form information reporting system toward Decision Support System. Unlike IRP, Decision Support System is a system that allows management interactive modeling to support decision making. This system uses data from internal and external company environment to show management possible impact on company performance. Analytic models, specialized data bases, thoughts and opinions of decision makers and interactive models based on information are support for making structured and half structured management decisions.
In DSS there is a possibility to use different analytic models serving to support tactical and strategy decision making process. For example what-if analysis in which managers can change variables (production rate, material consumption, tax rate and similar) and relations between them and track impact of change on company. Another example is sensitivity analysis that uses repetitive influences on one variable or reaching analysis that uses changes of variables set until goal is reached. Last is optimisation analysis that calculates best combiantion of variables for company business performance.
As stated, changes on market lead from statical information analysis to dynamic where models try to find best company performance direction.
Further technology development and growing inforatization lead to new systems, systems that support business decision making.
Late 80′s of the 20th century with raised information and environment complexity management urged for new systems to support management. One of them is Executive Information system that was product of need to develop further DSS. EIS goal is to provide strategic information to top management about critical performance indicators as information that show fulfillment of strategic company goals. While in old information systems, information processing and analysis were made within group for data processing…
 O’Brien,J.:op.quote page.21