Information Systems in Business
Systems
Information Systems in Business
Syllabus tag: KASNEB CPA | Foundation Level | CA16 Information Communication Technology | Topic 9 Information Systems in Business
Lesson objectives
By the end of this topic, you will be able to:
- Distinguish data from information
- Identify the qualities of useful information
- Classify information systems by the level they serve
- Describe accounting information systems and ERP
- Explain how information needs differ by management level
Why this matters
Organisations generate enormous quantities of data and remain short of information. This topic explains the difference, and why a system that reports everything reports nothing useful.
Data and information
Data is raw, unprocessed facts. Information is data processed into a form that has meaning and supports a decision.
A list of 4,000 invoice values is data. "Receivable days have risen from 45 to 62" is information — the same figures, arranged so a decision follows.
Knowledge goes further: information combined with experience and judgement about what to do.
Qualities of useful information
An examinable list, and a useful memory aid is ACCURATE:
- Accurate — free from error, to the degree the decision requires
- Complete — nothing material omitted
- Cost-effective — worth more than it costs to produce
- User-targeted — suited to who will use it
- Relevant — bears on the decision at hand
- Authoritative — from a reliable source
- Timely — available while it can still influence the outcome
- Easy to use — clearly presented
Two of these are routinely traded against each other. Waiting for perfect accuracy destroys timeliness, and an exactly correct figure that arrives after the decision is worthless. Management accounts are approximate on purpose.
Cost-effectiveness is the one candidates omit. Information is not free, and a report costing more to produce than the decisions it improves is worth should not be produced.
Systems by organisational level
| Level | System | Purpose |
|---|---|---|
| Operational | TPS — transaction processing | Record daily transactions: sales, payroll, receipts |
| Tactical | MIS — management information | Summarise TPS data into periodic reports |
| Tactical | DSS — decision support | Model alternatives; answer "what if" questions |
| Strategic | EIS — executive information | Highly summarised, with external data, for the board |
| All | KMS — knowledge management | Capture and share expertise |
| All | Expert systems | Apply encoded rules to give advice |
The pyramid explains the information needs. At the operational level the need is detailed, internal, frequent and certain — every transaction, every day. At the strategic level it is summarised, largely external, infrequent and uncertain — market trends, competitor behaviour, things that may not be knowable.
A board given operational detail cannot see the position. A supervisor given strategic summaries cannot do the job. Reporting the wrong level is as useless as reporting nothing.
:::checkpoint A managing director asks to receive every purchase invoice above KES 50,000 for approval. Explain what has gone wrong in terms of this topic and what would serve better. :::
Accounting information systems
An AIS records financial transactions and produces the accounts. Its modules usually include sales, purchases, general ledger, inventory, payroll and fixed assets.
Integration is the point. In an integrated system a sales invoice simultaneously updates the customer account, the sales ledger, inventory and the general ledger — entered once. In a non-integrated system it is entered several times, and the reconciliations that follow exist only to detect the errors that duplication creates.
Enterprise resource planning
ERP extends integration across the whole organisation — finance, procurement, manufacturing, human resources, distribution — on a single shared database.
| Advantages | Disadvantages |
|---|---|
| One version of the data | Expensive and slow to implement |
| Real-time visibility across functions | Requires the business to adapt to the software |
| Standardised processes | Disruptive; high failure rate |
| Better reporting | Dependence on one supplier |
The most common cause of ERP failure is not technical. It is the organisation attempting to reshape the software to match existing processes, rather than adopting the standard processes the software assumes. The customisation becomes unmaintainable, and the next upgrade breaks it.
Other business systems
- CRM — customer relationship management: sales, service and marketing history in one place
- SCM — supply chain management: procurement through to delivery
- Business intelligence — analysis and visualisation of accumulated data
- E-commerce systems — online ordering, payment and fulfilment
Cloud computing
Systems hosted by a provider and accessed over the internet.
| Advantages | Disadvantages |
|---|---|
| No capital outlay; pay as used | Continuing subscription cost |
| Scales with demand | Requires a reliable connection |
| Provider handles maintenance and backup | Data held by a third party |
| Accessible from anywhere | Dependence on the provider |
Cloud does not remove responsibility. A company remains accountable for its data and its statutory records even where a supplier holds them, which is why contract terms on location, access, and return of data on termination matter more than the monthly price.
:::checkpoint A company migrates its accounting system to a cloud provider and concludes that backup is no longer its concern. Explain what remains its responsibility and what it should have verified in the contract. :::