Unit-2- Information Systems in Business and Decision Support

Process in Business
Business Process and role of Information Systems in Business Processes

Business processes
Business processes are a series of interrelated activities or tasks aimed at accomplishing particular
objectives in a company or organization. Business processes often involve the flow of knowledge,
information, or material through various departments or segments in a business in a set of connected
procedures or activities. Usually, the business processes are cross-functional but may be limited to a
specific functional area in cases where an organization is specialized in its operations. Some of the
common business processes include human resource management, finance and accounting, sales and
marketing, and manufacturing, among others.

Why Information Systems in Business Is Important

Data Storage and Analysis

The most critical role of business information systems is data processing. Today, it is rare to find a business that uses
hard copy registers and records to manage its data. If that’s how you do it, you may be losing out on a lot of potential
held by your business’s data.

Information systems help organizations make sense of their comprehensive and sophisticated data, which helps
advise decision-making. A reliable information system should allow the user to analyze company data
comprehensively to pinpoint appropriate solutions to present and future challenges.

Improved Internal Communication and Collaboration

Communication is critical to an organization’s success, and it is one area that information systems address.
Information systems achieve this by allowing for the storage of files and documents accessible by employees and
employers, making collaboration easier.

For example, if a particular document needs changes, the team leader will only need to add a comment on the
document, which reflects on the other end in real-time. Also, revisions and updates happen in real-time, ensuring that
every team member works on the latest version of a document or file.

Planning With Competition in Mind

The best thing about information systems is that they do more than gather internal company data to include external
and competitor data.

Many information systems come with a competitor analysis feature. That way, users can understand industry trends
and competitor strengths and weaknesses such as pricing, strategy, reach, etc.

This kind of information allows business managers and owners to make informed decisions based on internal and
external data to put their organization ahead of the competition.
Data Control

While data is a great resource for business, having access to customer data calls for a high level of responsibility.
This means that not everyone should have access to sensitive customer data.

Thankfully, a reliable business information system helps achieve data control by limiting the number of people
accessing company data.

In other words, you can set user privileges to allow different employees access to only the items they need, making it
easy to protect the most sensitive information at the top management level.

Types of Management Support Systems(Transaction Processing

System, Management Information System, Decision Support Systems, Executive Support
Systems and Strategic Information Systems)

MIS - Decision Support System

Decision support systems (DSS) are interactive software-based systems intended to help
managers in decision-making by accessing large volumes of information generated from
various related information systems involved in organizational business processes, such as
office automation system, transaction processing system, etc.

Programmed and Non-programmed Decisions

There are two types of decisions - programmed and non-programmed decisions.

Programmed decisions are basically automated processes, general routine work, where −

• These decisions have been taken several times.

• These decisions follow some guidelines or rules.

For example, selecting a reorder level for inventories, is a programmed decision.

Non-programmed decisions occur in unusual and non-addressed situations, so −

• It would be a new decision.

• There will not be any rules to follow.
• These decisions are made based on the available information.
• These decisions are based on the manger's discretion, instinct, perception, and judgment.

For example, investing in a new technology is a non-programmed decision.

Decision support systems generally involve non-programmed decisions.

Characteristics of a DSS
• Support for decision-makers in semi-structured and unstructured problems.
• Support for managers at various managerial levels, ranging from top executive to line managers.
• Support for individuals and groups. Less structured problems often require the involvement of several individuals from
different departments and organization level.
• Support for interdependent or sequential decisions.
• Support for intelligence, design, choice, and implementation.
• Support for variety of decision processes and styles.
• DSSs are adaptive over time.
Benefits of DSS
• Improves efficiency and speed of decision-making activities.
• Increases the control, competitiveness and capability of futuristic decision-making of the organization.
• Facilitates interpersonal communication.
• Encourages learning or training.
• Helps automate managerial processes.

Components of a DSS
• Database Management System (DBMS) − To solve a problem the necessary data may come from internal or
external database. In an organization, internal data are generated by a system such as TPS and MIS. External
data come from a variety of sources such as newspapers, online data services, databases (financial, marketing,
human resources).
• Model Management System − It stores and accesses models that managers use to make decisions. Such
models are used for designing manufacturing facility, analysing the financial health of an organization,
forecasting demand of a product or service, etc.
Support Tools − Support tools like online help; pulls down menus, user interfaces, graphical analysis, error
correction mechanism, facilitates the user interactions with the system.

Classification of DSS
There are several ways to classify DSS. Hoi Apple and Whinstone classifies DSS as
follows −
• Text Oriented DSS − It contains textually represented information that could have a bearing on
decision. It allows documents to be electronically created, revised, and viewed as needed.
• Database Oriented DSS − Database plays a major role here; it contains organized and highly
structured data.
• Solver Oriented DSS − It is based on a solver, which is an algorithm or procedure written for
performing certain calculations and particular program type.
• Rules Oriented DSS − It follows certain procedures adopted as rules.
• Rules Oriented DSS − Procedures are adopted in rules oriented DSS. Export system is the
example.
• Compound DSS − It is built by using two or more of the five structures explained above.

Types of DSS
Following are some typical DSSs −
• Status Inquiry System − It helps in taking operational, management level, or middle
level management decisions, for example daily schedules of jobs to machines or
machines to operators.
• Data Analysis System − It needs comparative analysis and makes use of formula or an
algorithm, for example cash flow analysis, inventory analysis etc.
• Information Analysis System − In this system data is analyzed and the information
report is generated. For example, sales analysis, accounts receivable systems, market
analysis etc.
 • Accounting System − It keeps track of accounting and finance related information, for
example, final account, accounts receivables, accounts payables, etc. that keep track of
the major aspects of the business.
• Model Based System − Simulation models or optimization models used for
decision-making are used infrequently and creates general guidelines for
operation or management.

MIS - Executive Support System

Executive support systems are intended to be used by the senior managers directly to provide support to non-
programmed decisions in strategic management.

These information are often external, unstructured and even uncertain. Exact scope and context of such information
is often not known beforehand.

This information is intelligence based −

• Market intelligence
• Investment intelligence
• Technology intelligence

Examples of Intelligent Information

Following are some examples of intelligent information, which is often the source of an ESS −

• External databases
• Technology reports like patent records etc.
• Technical reports from consultants
• Market reports
• Confidential information about competitors
• Speculative information like market conditions
• Government policies
• Financial reports and information
Features of Executive Information System

Advantages of ESS
• Easy for upper-level executive to use
• Ability to analyse trends.
• Enhance personal thinking and decision-making.
• Contribution to strategic control flexibility
• Enhance organizational competitiveness in the marketplace.
• Instruments of change
• Better reporting system
• Help improve consensus building and communication.
• Improve office automation.
• Reduce time for finding information.
• Early identification of company performance
• Detail examination of critical success factor
• Better understanding
• Time management
• Increased communication capacity and quality

Disadvantage of ESS
• Functions are limited.
• Hard to quantify benefits.
• Executive may encounter information overload
• System may become slow
• Difficult to keep current data
• May lead to less reliable and insecure data
• Excessive cost for small company

What is a transaction processing

system?
A TBS is a software that ensures the completion of a business transaction and also keeps track of transactions. An online transaction processing system (OTPS) is an
equivalent system that online merchants use for e-commerce.
The TPS ensures that each transaction is successful by storing, sending, and receiving information via a database. It supplements the business point of sale system
(POS), which is the unit that reads credit cards, prints receipts and accepts and stores cash.
For example, if a customer purchases a book from a shop, they might pay with a credit card. A TPS takes the customer's card information, communicates with their
bank and approves or declines the purchase based on their account balance.

Types of transaction processing systems

There are two types of transaction processing systems:
Batch processing
Through batch processing, a TPS interprets sets, or batches, of data by grouping items based on similarities. Batch processing can create a time delay because it
reviews several sets of data simultaneously, requiring more computing power.
Example: A customer pays for a subscription service at the end of the month, The TPS system processes the transactions as a batch because they occur at the same time. In
this case, a delay in processing transactions is acceptable because the system only interprets batches once per month.
Real-time processing
Real-time processing is a method to process transactions as they appear. This helps prevent delays in processing and can provide a more accurate result.
Example: An e-commerce website might use a TPS to process credit card transactions in real-time to ensure payment before the company starts its fulfillment process.
Processing transactions in real-time also helps the company identify and address errors quickly, as well as increase its overall response times.

Transaction processing system components

Each TPS has four major components that help it function:
1. Inputs
An input is an original request for a product or payment that an outside party sends to a company's TPS. If your company uses batch processing, its TPS stores groups
of inputs and then processes them at a later time. In comparison, if your company uses a real-time system, it processes each input as it arrives.
Inputs typically include:

• Invoices
• Bills
• Coupons
• Custom orders

2. Processing system
The processing system reads each input and creates a useful output, such as a receipt. This element can help you define the input data and what the output should
be. Based on the kind of TPS your company is using, processing times can vary.
3. Storage
The storage component of TPS refers to where a company keeps its input and output data. Some companies store these documents in a database. The storage
component ensures the organization, security and accessibility of every document for later use.
For example, if a vendor would like to confirm that your company has paid an invoice, you can check your system's storage to find the invoice and determine if you
delivered a payment.
4. Outputs
TPS outputs are documents the system generates once it completes processing all inputs, such as receipts the company stores in its records. These documents can
help validate a sale or transaction and provide important reference information for tax and other official purposes.
For example, if a vendor sends your company an invoice, you can pay the invoice and send the vendor confirmation of your payment. Then, you can amend the
original invoice and mark it as "paid" in the company's TPS.

TPS benefits
Here are some common benefits of using a TPS:
Increased transaction speeds
With a TPS in place, businesses can effectively increase the speed of each transaction to minimize wait times for customers. Some systems process transactions in
real-time, while others collect transaction information during a set period and then process it at a later time, often after business hours.
Improved cost efficiency
A TPS can potentially conduct and organize thousands of transactions throughout the day. This can save a company money by reducing the need to upgrade the
system or use more than one system to meet demand.
Improved reliability
Using a TPS can ensure that you process customer transactions quickly and accurately. A reliable TPS can also help your organization save money on potential
troubleshooting or coding costs for malfunctioning systems.
Automated management
ATPS automates much of a company’s internal resource and revenue management. By increasing automation, employees can spend less time reviewing transactions.
Automation is an important part of increasing the profitability of a business because it offers employees more time to focus on engaging tasks that require critical
thinking.

Management Information System (MIS)

Management Information System (MIS) is one of the five major Computer Based Information Systems (CBIS). Its purpose is to meet the general
information needs of the managers in firm or organization. MIS is a computer based system that makes information available to users with similar
needs. Management Information System (MIS) consists of following three pillars: Management, Information, and System. These are explained as
following below.
Management: art of getting things done through and with the people of in formally organized groups. Managerial functions:
(i) Planning (ii) Organizing (iii) Staffing (iv) Directing (v) Controlling

1. Information: data that have a meaning with a context ,where data is raw facts about an entity (entity is the object of interest).
2. System: set of inter-related components with a clearly defined boundary working together to achieve a common goal.
Why one should study MIS: It may be a student aspiring to become a manager in some organisation, an entrepreneur or a professional. Information system and information
technology is a vital component of any successful business and is regarded as a major functional area like any other functional area of a business organization like marketing,
finance, production, human resources (HR) etc. Information systems play following 3 vital roles for a business organisation:

1. Supports the business processes and operations of an organisation.

2. Support of decision making by employees and managers of an organisation.
3. Support the strategies of an organisation for competitive advantage.

Advantages of MIS:
Improves quality of an organization or an information content by providing relevant information for sound decision making.
MIS change large amount of data into summarize form and thereby avoid confusion which may an answer when an information officer are flooded with detailed fact.
MIS facilitates integration of specialized activities by keeping each department aware of problem and requirements of other departments.
MIS serves as a link between managerial planning and control. It improves the ability of management to evaluate and improve performance.
Disadvantages:
Too rigid and difficult to adapt.
Resistance in sharing internal information between departments can reduce the effectiveness.
Hard to quantify benefit to justify implementation of MIS.
Quality of output of an MIS is directly proportional to quality of input and processes.
Major System in an Organizational Systems: Organizational information system are logical rather than physical way of thinking about MIS. The following are the management
levels:
1. Strategic Planning Level: Plan 2. Management Control Level: Organize 3. Operational Control Level: Direct
Operational control level includes:

1. Marketing: It is the area in which considerable effort as spent in describing how the computer could be applied to the entire range of marketing operations.
2. Finance: It does not embrace title of financial information system although computer based information system in that area are common.For ex-payroll,taxation.
3. Human Resource: It represents area where most current attention is being focused. Terms Human Resource Information System (HRIS), and Human Resource
Management System (HRMS) are common.
4. Manufacturing: It describes how the computer could be applied to the entire range of information collection.
5. Information Resource: It also embraced computer processing and applied the technology as both conceptual information system and physical manufacturing
system. For example: quality control, cost control.

Strategic information system

Strategic information management (SIM) is a salient feature in the world of information technology (IT). SIM helps businesses and
organizations categorize, store, process and transfer the information they create and receive. It also offers tools for helping
companies apply metrics and business analytics tools to their information repositories, allowing them to recognize opportunities for
growth and identify ways to improve operational efficiency.

Importance and advantages of Strategic information system

• Strategic information system provides a connection between demands of organization and latest information
technology. This tactic helps an organization to get hold of the market by utilizing Information tech to meet its
challenging requirements to the continuous variation in the corporate environment. Helps them evolve their
business strategy, helps with knowledge management and operations management.

• Information system strategy is a critical aspect of an organization’s management decision for its growth, expansion,
and supply chain management.

• Information technology and competitive intelligence can work wonders for a business. The integration of the data
system and its function within the organization can be handled easily by enabling open access and use of
management systems.

• It gives the surety that only useful resources or the use of resources which are less are allocated to the applications
and to use the scarce resources in a sustainable way and have a better impact factor.

• With the System Information Strategy, it ensures that the Information system functions accordingly and supports
the business goals and objectives of the organization at the different levels.

• There are several instances of strategic planning which have helped the organizations to help create and sustain the
resources in this competitive market over the past years and has allocated several effective benefits and simply
continued to provide for the survival of these organizations which have used these systems.

Uses of Strategic Information System

• Creating Hurdles for the Entry of a Competitor: In this, a firm uses information systems to
supply products and services that are hard to duplicate or that are used primarily to aid highly
specialized networks of business. This strategy stops the entry of competitors in the market as
they find the cost of giving such services at a very high price.
 • Locking customers and suppliers.: It is an essential way of getting the advantage of
competition by making the customers and suppliers permanent. In this information systems
strategy are implemented to provide benefits to the customer and the suppliers so that it may
change their mind and it becomes hard for them to switch over to the other competitor so
that they continue to provide the services.
• Lowering the costs of the products: It may help the firms lower their costs and allowing
them to give products and services at a much smaller cost than their competitors. Thus, such
a strategy can provide the expansion and growth of the firm.
• Leveraging technology in the value chain: In this way, the organizations pinpoint the
activities in the business, where competitive market strategies can be applied and where the
strategical information systems can be more effective.

Components Of Information System

An Information system is a combination of hardware and software and telecommunication networks that people build to collect,
create and distribute useful data, typically in an organization. It defines the flow of information within the system. The objective of an
information system is to provide appropriate information to the user, to gather the data, process the data and communicate
information to the user of the system.

Components of the information system are as follows:

1. Computer Hardware:
Physical equipment used for input, output and processing. The hardware structure depends upon the type and size of the
organization. It consists of an input and an output device, operating system, processor, and media devices. This also includes
computer peripheral devices.
2. Computer Software:
The programs/ application program used to control and coordinate the hardware components. It is used for analysing and
processing of the data. These programs include a set of instruction used for processing information.
Software is further classified into 3 types:

1. System Software
2. Application Software
3. Procedures

3. Databases:
Data are the raw facts and figures that are unorganized that are later processed to generate information. Softwares are used for
organizing and serving data to the user, managing physical storage of media and virtual resources. As the hardware can’t work
without software the same as software needs data for processing. Data are managed using Database management system.
Database software is used for efficient access for required data, and to manage knowledge bases.

4. Network:
Networks resources refer to the telecommunication networks like the intranet, extranet and the internet.
These resources facilitate the flow of information in the organization.
Networks consists of both the physical devices such as networks cards, routers, hubs and cables and software such as operating
systems, web servers, data servers and application servers.
Telecommunications networks consist of computers, communications processors, and other devices interconnected by
communications media and controlled by software.
5.Human Resources:
It is associated with the manpower required to run and manage the system. People are the end user of the information system, end-
user use information produced for their own purpose, the main purpose of the information system is to benefit the end user. The end
user can be accountants, engineers, salespersons, customers, clerks, or managers etc. People are also responsible to develop and
operate information systems. They include systems analysts, computer operators, programmers, and other clerical IS personnel,
and managerial techniques.

Meaning of Centralization
Centralization is a form of organizational structure where the decision making capability rests with the top management. A couple of hand-picked members are entitled to
create strategies, determine the goals and objectives based on which an organisation will function.
In a centralized organisation, the top management sets rules and procedures which are then communicated to the lower-level employees, who are expected to carry out the
same without questioning the authority.
The advantage of such a structure is, it allows employees to have a well-defined framework within which all work needs to carried out.
The disadvantage of such a structure is that it increases the time taken to arrive at a decision. As decision-making authority lies with selected people from top management, it
may result in biased decision making.
Meaning of Decentralization
Decentralization is another form of organizational structure that functions by delegating decision-making capabilities to multiple teams across geographies.
In such an organization, most of the planning, strategy and decision to implement them are taken by the people in the middle and lower level of management.
The advantage of decentralization is that the employees are empowered to make their own decisions that will benefit the organization, which results in a high level of employee
satisfaction and boosts the productivity of an organization.
Decentralization enables low-level employees to gain leadership skills, which can contribute to the growth of the organization in the long run.
Let us look at the most crucial points of difference between centralization and decentralization in the following table.
Decentralization Centralization
Definition
Decision-making capabilities delegated across multiple levels Decision-making capability rests with the top management
Flow of Information
Open and free Vertical
Ideal for
Decentralization is ideal for large-sized organizations Centralization is ideal for small-sized organizations
Decision-making speed
Significantly faster Comparatively slow
People Involved
In decentralization, a higher number of people from each level are involved in In centralization, only a few handpicked people are involved in the
the decision-making process decision-making process
Employee Motivation
Highly motivated employee Demotivated employee
Conflict in Decision
Most likely to occur Least likely to occur
Burden
The burden gets shared among many levels Only one group is carrying the burden
Stability
Relatively stable as decisions are made by a central authority sharing
Prone to instability due to multiple conflicting decisions
a common ideology

Role of Information in Decision Making Process

Stages of Decision- Role of Information
making
Identification and One needs information to identify a problem and put it in a structured manner. Without information about a problem or
structuring of opportunity, the decision-making process does not even start.
problem/opportunity
Putting the problem/ Without information about the context in which the problem has occurred, one cannot take any decision on it. In a way, the
opportunity in context .information about the context defines the problem.
Generation of alternatives Information is a key ingredient in the generation of alternatives for decision-making. One must have information about
possible solutions to generate alternatives.
Choice of best alternative Based on the information about the suitability of the alternatives, a choice is made to select the best alternative.
Steps of the Decision Making Process
The following are the seven key steps of the decision making process.

1. Identify the decision

The first step in making the right decision is recognizing the problem or opportunity and deciding to address it. Determine why this decision
will benefit your customers or fellow employees.

2. Gather information
Next, it’s time to gather information so that you can make a decision based on facts and data. This requires making a value judgment,
determining what information is relevant to the decision, and how you can get it

3. Identify alternatives
Once you have a clear understanding of the issue, it’s time to identify the various solutions at your disposal. You likely have many options
when deciding, so it is essential to come up with a range of options. This helps you determine which course of action is the best way to achieve
your objective.

4. Weigh the evidence

In this step, according to management experts Phil Higson and Anthony Sturgess, you’ll need to “evaluate for feasibility, acceptability and
desirability” to know which alternative is best. Managers need to be able to weigh the pros and cons, then select the option that has the
highest chance of success. It may be helpful to seek a trusted second opinion to gain a new perspective on the issue.

5. Choose among alternatives

When it’s time to make your decision, be sure you understand the risks involved with your chosen route. You may also select a combination of
alternatives now that you fully grasp all relevant information and potential risks.

6. Take action
Next, you’ll need to create an implementation plan. This involves identifying what resources are required and gaining support from
employees and stakeholders. Getting others on board with your decision is a key component of executing your plan effectively, so be prepared
to address any questions or concerns.

7. Review your decision

An often overlooked but important step in the decision making process is evaluating your decision for effectiveness. Ask yourself what you did
well and what can be improved next time.

Levels of Decision Making

Levels of Deci sion Makin g
(On decis ions that affect the group )

1. Leader decides a nd communicates decision to the group

(L ead er d oes not req ui re gro up m em b er inp ut )

2. Leader decides a nd communicates decision to the group

(Leader does require group member input )

3. We decide
(Cons ensus – with leader included)

4. Group decides and communicates deci sion to the l eader

(Group members requir e leader input – Group member cons ensus )
5. Group decides and communicates thei r decisio n to l eader
(Group members do not requir e input from leader )

Problems aris e when leaders are not clear with their group, or group members are not clear with their leader about which leve l they are
assuming.

Types of Decisions (Structured,

Semi structured & Non
Structured Decisions)

Unstructured Decisions: At the other end of the continuum are unstructured decisions. While these have the same
components as structured ones—data, process, and evaluation—there is little agreement on their nature. With
unstructured decisions, for example, each decision maker may use different data and processes to reach a
conclusion. In addition, because of the nature of the decision, there may only a limited number of people within the
organization qualified to evaluate the decision.
Semi-Structured Decisions: Decisions in the middle between structured and unstructured decisions, requiring some
human judgment and at the same time with some agreement on the solution method. Area of focus for most DSSs. In
the middle of the continuum are semi-structured decisions – where most of what are true decision support systems
are focused. Decisions of this type are characterized as having some agreement on the data, process, and/or
evaluation to be used, but are also typified by efforts to retain some level of human judgment in the decision-making
process. An initial step in analysing which support system is required is to understand where the limitations of the
decision maker may be manifested (i.e., the data acquisition portion, the process component, or the evaluation of
outcomes).

Structured Decisions: Structured or Programmed decisions are the ones where the organization has already faced
such decisions. And the employees are used to solving such problems. For instance, the hiring of new IT specialists
in a firm. Many analysts categorize decisions according to the degree of structure involved in the decision-making
activity. Business analysts describe a structured decision as one in which all three components of a decision – the
data, process, and evaluation are determined. Since structured decisions are made on a regular basis in business
environments, it makes sense to place a comparatively rigid framework around the decision and the people making it.