MTP for MCA

MIS (MCA SEM-3) Syllabus and Question Bank
Page 0.1 | MIS Compiled by: SantY (SPIT)
MIS Syllabus (MCA SEM-3)
1. Managing the Digital Firm
o Why Information System?
o Perspectives on Information System
o Contemporary approach to Information System
o Learning to Use Information Systems: New Opportunities with Technology
2. Information System in the Enterprise
o Major Types of System in Organisation
o Systems from Functional Perspectives
o Integrating Functions and Business Processes: Introduction to Enterprise Application
3. Information Systems, Organisations, Management and Strategy
o Organisations and Information Systems
o How Information System impact Organisations and Business Firms
o The Impact of IT on Management Decision Making
o Information Business and Business Strategy
4. Decision making
o Decision Making Concepts
o Decision Methods, Tools and Procedures
o Behavioural concepts in Decision Making
o Organizational Decision Making
o MIS and Decision Making Concepts
5. Information
o Information Concepts
o Information: A quality Product
o Classification of Information
o Methods of Data and Information Collection
o Value of Information
o General Model of a Human as an Information Processor
o Summary of Information Concepts and their implications
o Organisation and Information
o MIS and Information Concepts

6. Development of MIS
o Development of Long Range Plans of MIS
o Ascertaining the class of Information
o Determining the Information Requirement
o Development and Implementation of MIS
o Management of Quality in MIS
o Organisation for development of MIS
o MIS: the Factors for Success and Failure
7. Choice of Information Technology
o Introduction: Nature of IT Decision
o Strategic Decision
o Configuration Decision
o Evaluation
o Information Technology Implementation Plan
o Choice of the Information Technology and the Management Information System
8. Enterprise Applications and Business Process Integration
o Enterprise Systems
o Supply chain Management Systems
o Customer Relationship Management Systems
o Enterprise Integration Trends
9. Decision Support System
o DSS: Concepts and Philosophy
o DSS: Deterministic Systems
o AI Systems
o Knowledge Based Expert System
o MIS and Role of DSS

MIS-QB (MCA SEM-III)
Chapter 1: Managing the Digital Firm
o MIS, TPS, ESS
o Why MIS is an integral part of management System? What if it is not there?
o MIS supports managers in their functional responsibilities
o Management by Control and Management by Exception
o Organization as a System (Leavitt’s Model)
o Relationship between Organisation and System
o E-Business Enterprise with E-Commerce, E-Communication, E-Collaboration
Chapter 2: Information System in Enterprise
o Enterprise System and its working
o Business Information System and Types (From Functional Point of View)
o Business Function
o Business Process
Chapter 3: Information Systems, Organisations, Management and Strategy
o Organisation and its Behavioural view and Features
o Levels of Management (Top, Middle, Operational)
o Distinguish Levels of management in terms of Goal, Scope and Content
o Matrix Organisation
o Business Strategy, Strategic Planning and Types of Strategies
o Parameters used in Organisation Strategy
o Can an Organisation have more than one strategy? Is it long range or short range?
o How IT in today’s time affect the Business Strategy?
Chapter 4: Decision Making
o Decision Making and its Types
o Stages in Decision Making Process
o Structured vs. Unstructured Decisions
o Organisational Decision Making
o Methods for dealing with uncertainty and conflict resolution
o Rational Decision making, Problems in it, Can decision be right or wrong?
o Simon’s Decision Model
o Porter’s Competitive Model
o Is it possible to automate ‘Decision Making’? Justify.

Chapter 5: Information
o Information and data concept
o Types of Information
o Quality of Information
o Parameters to measure the Quality of Information
o How information helps to improve knowledge and decision making capability?
o Perfect Information and is it worth to invest for perfect information?
o What is Exception? Types of reports generated in MIS that help managers to handle
the Exception
Chapter 6: Development of MIS
o Why is long term plan of MIS necessary? How it’s linked with Business Plan of MIS
o MIS Development is linked with business plan of an Organisation. Justify
o Content of MIS plan, purpose of each of them
o Role of System analyst in MIS Development
o Problems faced by system analyst in ascertaining info at various levels of mgmt.,
how to solve it?
o Prototype Approach and Life Cycle Approach
Chapter 7: Choice of Information Technology
o Selection of Information Technology is Strategic Decision in MIS. Explain
o Parameters used in Evaluation of IT before decision is made
Chapter 8: Enterprise Applications and Business Process Integration
o ERP (never asked yet)
o CRM, Analytical and Operation CRM, Features
o SCM, PUSH vs. PULL based SCM
o Bullwhip Effect, How to reduce it using SCM, Its value to Business
Chapter 9: Decision Support System
o DSS and DSS Components
o Expert System, Knowledge Based Expert System with Example

MIS (MCA SEM-3) Managing the Digital Firm
Page 1.1| MIS Compiled by: SantY (SPIT)
Chapter 1: Managing the Digital Firm
Syllabus:
o Why Information System?
o Perspectives on Information System
o Contemporary approach to Information System
o Learning to Use Information Systems: New Opportunities with Technology
Questions:
o MIS, ESS, TPS
o Why MIS is an integral part of management System? What if it is not there?
o MIS supports managers in their functional responsibilities
o Management by Control and Management by Exception
o Organization as a System (Leavitt’s Model)
o Relationship between Organisation and System
o MIS vs. DSS
o MIS vs. TPS
o E-Business Enterprise with E-Commerce, E-Communication, E-Collaboration

Management Information Systems (MIS)
o A Management Information System (MIS) is a system or process which provides information
needed to manage organizations effectively. Management information systems are regarded
to be a subset of the overall internal controls procedures in a business, which cover the
application of people, documents, technologies, and procedures by management accountants
to solve business problems such as costing a product, service or a business-wide strategy.
Management information systems are distinct from regular information systems in that they
are used to analyze other information systems applied in operational activities in the
organization. Academically, the term is commonly used to refer to the group of information
management methods tied to the automation or support of human decision making, e.g.
Decision Support Systems, Expert systems, and Executive information systems.
o At the start, in businesses and other organizations, internal reporting was made manually and
only periodically, as a by-product of the accounting system and with some additional
statistics, and gave limited and delayed information on management performance. Previously,
data had to be separated individually by the people as per the requirement and necessity of
the organization. Later, data was distinguished from information, and instead of the
collection of mass of data, important, and to the point data that is needed by the organization
was stored.
o Early on, business computers were mostly used for relatively simple operations such as
tracking sales or payroll data, often without much detail. Over time these applications became
more complex and began to store increasing amounts of information while also interlinking
with previously separate information systems. As more and more data was stored and linked
man began to analyze this information into further detail, creating entire management reports
from the raw, stored data. The term "MIS" arose to describe these kinds of applications, which
were developed to provide managers with information about sales, inventories, and other
data that would help in managing the enterprise. Today, the term is used broadly in a number
of contexts and includes (but is not limited to): decision support systems, resource and
people management applications, ERP, SCM, CRM, project management and database
retrieval application.
o An 'MIS' is a planned system of the collecting, processing, storing and disseminating data in
the form of information needed to carry out the functions of management. In a way it is a
documented report of the activities that were planned and executed.
o The terms MIS and information system are often confused. Information systems include
systems that are not intended for decision making. The area of study called MIS is sometimes
referred to, in a restrictive sense, as information technology management. That area of study

should not be confused with computer science. IT service management is a practitioner-
focused discipline. MIS has also some differences with Enterprise Resource Planning (ERP) as
ERP incorporates elements that are not necessarily focused on decision support.
o Management Information System (MIS) is a new technique. Using this different set of data
from various departments of an organization are processed to from reports called
Information.
o The smooth conduct and property of the organization depends on this information.
Management information system is very important in any organization because it helps to
avoid errors and complications.
Management Information System
Definition of MIS:
Management information system is defined as a system which provides,
1. Information to take decisions by the managers in the organization.
2. Support to management operations.
3. Information to the people in the organization for their day to day perfect functioning.
Structures of MIS:
o Management Information structures provide a central location in which to store
and manage the information from.

o The structure or system is fed by people (employees, vendors, suppliers,
customers) who input (provide) the data and output the data (creating reports and
disseminating the data).
o Software and hardware supply the equipment needed to process, store and
control access to the data.
o Business rules (how production cost is figured, formulas for vacation time, how
accounts payable are processed for payment) dictate how the software should
operate.
Objectives of MIS:
Managers play a key role in any organization. They are responsible for taking decisions
appropriate to the need of the market. Information systems have become the main tool
used by managers in decision making. Managers perceive information as the driving
force to achieve success in any business. Hence there is a need for MIS as:
o Support of its business process and operations
o Support of decision making by its employees and managers
o Support of its strategies for competitive advantage-Gaining a strategic advantage
The major roles of the business applications of a Management Information System may
be represented in the pyramid form as below:
o Support Strategies for Competitive Advantage
o Support Business Decision Making
o Support Business Process and Operations
Characteristics of MIS:
o MIS is mainly designed to take care of the needs of the managers in the organization.
o MIS aids in integrating the information generated by various departments of the
organization.
o MIS helps in identifying a proper mechanism of storage of data.
o MIS also helps in establishing mechanism to eliminate redundancies in data.
o MIS as a system can be broken down into sub systems.
The role and significance of MIS in business and its classification is explained. It is
possible to understand the various phases of development in MIS based on the type of
system required in any organization.
Impact of MIS:

1. MIS improves the performance and productivity of the organization.
2. It helps in the management of marketing, finance, production and improves the
skills of the employees.
3. It helps the employees to monitor the various department functions.
4. It gives the reports regarding progress, achievements and the errors in the day to
day functioning.
5. It is used to control the various operations involved in the smooth functioning of
the organization.
6. It helps to improve the discipline of the employees.
7. It helps to regulate the operations which complicate the day to day functioning.
8. It helps to yield good results by experimentation and modelling.
9. It motivates employees to spend more time for achieving efficiency in their
departments.
Advantages of MIS:
1. Facilitates Planning:
MIS improves the quality of plants by providing relevant information for sound decision -
making. Due to increase in the size and complexity of organizations, managers have lost
personal contact with the scene of operations.
2. Minimizes Information Overload:
MIS change the larger amount of data into summarized form and there by avoids the
confusion which may arise when managers are flooded with detailed facts.
3. Encourages Decentralization:
Decentralization of authority is possibly when there is a system for monitoring operations
at lower levels. MIS is successfully used for measuring performance and making necessary
change in the organizational plans and procedures.
4. Brings Coordination:
MIS facilitates integration of specialized activities by keeping each department aware of the
problem and requirements of other departments. It connects all decision centres in the
organization.
5. Makes Control Easier:
MIS serves as a link between managerial planning and control. It improves the ability of
management to evaluate and improve performance. The used computers has increased the
data processing and storage capabilities and reduced the cost.

6. MIS Assembles, Processes, Stores, Retrieves, Evaluates and Disseminates the
Information.
Disadvantages of MIS:
1. Highly Sensitive: requires constant monitoring
2. Budgeting of MIS extremely difficult
3. Quality of outputs governed by quality of inputs
4. Lack of flexibility to update itself
5. Effectiveness decreases due to frequent changes in top management
6. Takes into account only qualitative factors and ignores non-qualitative factors like morale
of worker, attitude of worker etc.

Transaction Processing System (TPS)
o A Transaction Information Systems is a type of information system. TPSs collect, store,
modify, and retrieve the transactions of an organization. A transaction is an event that
generates or modifies data that is eventually stored in an information system. It is
recommended that a transaction processing system should pass the ACID test (Atomicity,
Consistency, Isolation, and Durability).
o The essence of a transaction program is that it manages data that must be left in a consistent
state, e.g. if an electronic payment is made, the amount must be both withdrawn from one
account and added to the other; it cannot complete only one of those steps. Either both must
occur, or neither. In case of a failure preventing transaction completion, the partially
executed transaction must be 'rolled back' by the TPS. While this type of integrity must be
provided also for batch transaction processing, it is particularly important for online
processing: if e.g. an airline seat reservation system is accessed by multiple operators, after
an empty seat inquiry, the seat reservation data must be locked until the reservation is made,
otherwise another user may get the impression a seat is still free while it is actually being
booked at the time.
o Without proper transaction monitoring, double bookings may occur. Other transaction
monitor functions include deadlock detection and resolution (deadlocks may be inevitable in
certain cases of cross-dependence on data), and transaction logging (in 'journals') for 'forward
recovery' in case of massive failures.
o Transaction Processing is not limited to application programs. For example, Journaling file
systems also employ the notion of transactions.
Transaction Processing System TPS
Types of TPS:

1. Contrasted with batch processing
o Batch processing is a form of transaction processing. Batch processing involves processing
several transactions at the same time, and the results of each transaction are not immediately
available when the transaction is being entered;[1] there is a time delay. Transactions are
accumulated for a certain period (say for day) where updates are made especially after work.
Online transaction processing is the form of transaction processing that processes data as it
becomes available.
2. Real-time and batch processing
o There are a number of differences between real-time and batch processing. These are outlined
below:
o Each transaction in real-time processing is unique. It is not part of a group of transactions,
even though those transactions are processed in the same manner. Transactions in real-time
processing are stand-alone both in the entry to the system and also in the handling of output.
o Real-time processing requires the master file to be available more often for updating and
reference than batch processing. The database is not accessible all of the time for batch
processing.
o Real-time processing has fewer errors than batch processing, as transaction data is validated
and entered immediately. With batch processing, the data is organised and stored before the
master file is updated. Errors can occur during these steps.
o Infrequent errors may occur in real-time processing; however, they are often tolerated. It is
not practical to shut down the system for infrequent errors.
o More computer operators are required in real-time processing, as the operations are not
centralised. It is more difficult to maintain a real-time processing system than a batch
processing system.
Features of TPS:
1. Rapid response
Fast performance with a rapid response time is critical. Businesses cannot afford to have
customers waiting for a TPS to respond, the turnaround time from the input of the transaction to
the production for the output must be a few seconds or less.
2. Reliability
Many organizations rely heavily on their TPS; a breakdown will disrupt operations or even stop
the business. For a TPS to be effective its failure rate must be very low. If a TPS does fail, then
quick and accurate recovery must be possible. This makes well–designed backup and recovery
procedures essential.
3. Inflexibility
A TPS wants every transaction to be processed in the same way regardless of the user, the
customer or the time for day. If a TPS were flexible, there would be too many opportunities for

non-standard operations, for example, a commercial airline needs to consistently accept airline
reservations from a range of travel agents, accepting different transactions data from different
travel agents would be a problem.
4. Controlled processing
The processing in a TPS must support an organization's operations. For example if an
organization allocates roles and responsibilities to particular employees, then the TPS should
enforce and maintain this requirement. An example of this is an ATM transaction.
Components of TPS:
1. Input
2. Processing
3. Storage
4. Output
Pros and Cons:
o The advantage is that usually transaction processing is really fast, it takes up usually a few
seconds, however, if there a lot of files in queue, the time taken to process data might take a
long time. Another advantage is that it makes the process of booking fairer as files are
processed in order in which they had been queued. (e.g. ticket booking)
o The disadvantage is that there is a chance of double booking. Also, transaction processing
systems need to use direct access files, serial access media such as magnetic tape cannot be
used.

Executive Support Systems (ESS)
An Executive Support System is a class of information systems that supports business and
organizational decision-making activities. It is an interactive software-based system made to help
decision makers compile useful information from a combination of raw data to identify and solve
problems and make decisions.
o It supports the following:
1. An inventory of all of your current information assets.
2. Comparative sales figures between one week and the next.
3. Projected revenue figures based on new product sales assumptions.
o Its key points are:
1. Improves personal efficiency
2. Speed up the progress of problems solving in an organization.
3. Facilitates interpersonal communication
4. Promotes learning or training
5. Increases organizational control
6. Generates new evidence in support of a decision
7. Creates a competitive advantage over competition
8. Encourages exploration and discovery on the part of the decision maker
9. Reveals new approaches to thinking about the problem space
10. Helps automate the managerial processes.
Model of a typical executive support system
Advantages of ESS:
o Provides timely delivery of company summary information

o Provides better understanding of information
o Filters data for better time management
o Provides system for improvement in information tracking
Disadvantages of ESS:
o Computer skills required to obtain results
o Requires preparation and analysis time to get desired information
o Detail oriented Provides detailed analysis of a situation
o Difficult to quantify benefits of DSS How do you quantify a better decision?
o Difficult to maintain database integrity
o Provides only moderate support of external data and graphics capabilities

Why MIS is an integral part of management System? What if it is not there?
MIS supports managers in their functional responsibilities. Explain
MIS and Management
Functions of Management:
An individual who gets the thing done is a Manager. It is necessary to distinguish between the
task and the functions. While manager may perform the task such as accounting, selling,
manufacturing, purchasing, etc. These activities are called as tasks and not as functions. The
activities that are performed through the managerial functions are planning, organization,
staffing, directing coordinating and controlling.
1. Planning is a process of determining the goals and objectives and evolving strategies policies,
programmers and procedures for the achievement of these goals. The essence of the process is
decision making as there are a number of alternatives in each of these factors.
2. Organisation involves evolving the structure of the people working in the organization and
their roles. It specifies an authority structure and assigns activities to the people backed by
the delegation of authority. Building a meaningful effective structure of authority and the
relationship is known as organizing.
3. Staffing involves manning the positions in the organization structure. It requires defining the
manpower needs per position or centre of activity. It requires appropriate selection of the
person or persons ensuring that they together will achieve the goals and objectives of the
organization.
4. Directing is a complex task of implementing the process of management. In the process, the
manager is required to guide, clarify and solve the problems of the people and their activities.
It is necessary to motivate the people to work for the goal with an interest and a confidence.
5. Coordinating is the function which brings a harmony and smoothness in the various group
activities and individual efforts directed towards the accomplishment of goals. It is a process
of synchronizing individual actions and the efforts which may differ because of the
differences in the personal goals and the common goals, the differences in the interpretation
of methods and directions. It is, therefore, necessary to undertake centrally a process of
coordinating and reconciling the differences in the approach, timing, efforts and interests
towards a common goal. This task is to be carried out by the authority placed at a higher level
in the organization structure.

6. Controlling is a process of measurement of an output, comparing it with the goals, the
objectives and the target, and taking corrective actions, if the output is falling short of the
stated norms. Controlling ensures an achievement of the plan. The essence of the control lies
in good planning. It helps to evaluate the performance, highlights abnormal deviations, and
guides a manager to take specific corrective actions. This may call for a change of plan, a
reallocation of resources, a modification of methods, procedures and even the organization
structure. The control is central to the managerial function.
The manager’s main function, therefore, is planning and control of the business functions and
operations. While performing these functions, he resorts to the scientific approach to the
management.
MIS as a Tool Management Process:
o The process of management requires a lot of data and information for execution of
the plan. This requirement arises on account of that in each step of management, a
variety of decisions are taken to correct the course of development.
o The decisions or actions are prompted due to the feedback given by the control
system incorporated in the management system. The control of overall performance
is made possible by way of budget summaries and reports. The summary showing
sales, costs, profit and return on investment throws light on the direction the
organization is moving to. The exception reports identify the weaknesses in the
system of management.
o If effective management system is to be assured, it has to rest on business
information. The management performance improves if the business risk and
uncertainties are handled effectively. If the information provided is adequate, one
can deal with these factors squarely. The information support improves the lack of
knowledge, enriches experience and improves analytical abilities leading to better
business judgment.
o So, if efficient information support is to be provided, it calls for a system with the
goals of generating management information. A good MIS must furnish information
to the managers to expand their knowledge base.
o He must know the adverse trends in business, the shortfalls and failures in the
management process. The MIS should provide the support to act and decisively. It
should support management in terms of basic business information at the corporate
level and meet the specific needs of the managers. It should highlight on the critical
success factors and support key areas of management.

o MIS should have, wherever possible, support systems to help the manager in
decision making. Modern management systems rely on MIS. The complexity of
business operations with skill and foresight to avert the crisis. Modern business
management requires shift from the traditional controls to managerial control. The
shift requires the manager to become more efficient in handling the he is entrusted
with.
o The manager becomes more efficient if he is well informed, made richer in
knowledge, experience and analytical skills and is able to face the uncertainties and
the risk of business. This is possible only if he is supported by MIS in his specific
task of management of business.
o Modern business has business has become more technology- oriented wherein the
manager is required to be up- to- date on technological advancement not only in his
field of operations but also in the other technologies . The emerging new
technologies are posing threats to current business and are opening new
opportunities for new business ventures.
o The manager has to keep himself abreast on the information of how these
technologies affect his business prospects. A good MIS designed for such a support
is absolutely essential. MIS therefore, is a tool for effective execution of the
management process.
Types of Business Information System from functional point of view

Role of MIS in Management:
o The role of the MIS in an organization can be compared to the role of heart in the
body. The information is the blood and MIS is the heart. In the body the heart plays
the role of supplying pure blood to all the elements of the body including the brain.
o The MIS plays exactly the same role in the organization. The system ensures that an
appropriate data is collected from the various sources, processed, and sent further to
all the needy destinations. The system is expected to fulfil the information needs of
an individual, a group of individuals, the management functionaries: the managers
and the top management.
o The MIS helps the clerical personnel in the transaction processing and answers their
queries on the data pertaining to the transaction, the status of a particular record and
references on a variety of documents.
o The MIS helps the middle management in short them planning, target setting and
controlling the business functions. It is supported by the use of the management
tools of planning and control.
o The MIS plays the role of information generation, communication, problem
identification and helps in the process of decision making. The MIS, therefore, plays
a vital role in the management, administration and operations of an organization.
Uses of MIS in Management:
o It deals with transaction processing such as answering the questions, status of a
particular record and variety of documents.
o It gives operational data for planning, scheduling and control.
o It helps in decision making and to correct an out of control situation.
o It helps middle management in short term planning, target setting and control the
business functions.
o It helps top management in goal setting, planning business planes and its
implementations.
o It helps in generating information, communicating of the generated information,
problem identification and helps in the process of decision making.
MIS - A Support to the Management:
o The management process is executed through a variety of decisions taken at each
step of planning, organizing, staffing, directing coordinating and control. If the
management is able to spell out the decisions required to be taken, the MIS can be

designed suitably. The decisions required to be taken in these steps are tabulated in
Table below.
Steps in Management Decision
Planning A selection from various alternatives - strategies, resources,
methods, etc.
Organization A selection of a combination out of several combinations of
the goals, people, resources, method and authority.
Staffing Providing a proper manpower complement.
Directing Choosing a method from the various methods of directing the
efforts in the organization.
Coordinating Choice of the tools and the techniques for coordinating the
efforts for optimum results.
Controlling A selection of the exceptional conditions and the decision
guidelines
Table: Decisions in Management
The objective of the MIS is to provide information for a decision support in the process of
management. It should help in such a way that the business goals are achieved in the most
efficient manner. Since the decision making is not restricted to a particular level, the MIS is
expected to support all the levels of the management in conducting the business operations.
Unless the MIS becomes a management aid, it is not useful to the organization.
What if MIS is NOT there?

Management by Control and Management by Exception
Management by Control:
o A definition of control is the process through which managers assure that actual activities
conform to the planned activities, leading to the achievement of the stated common goals.
o The central process measures a progress towards those goals, and enables the manager to
detect the deviations from the original plan in time to take corrective actions before it is
too late.
o Planning, Organizing, Staffing, Coordinating, Directing, and Controlling are the various
step in management process.
Basic steps of the control process
o The management is a systematic effort to set the performance standards in line with the
performance objectives, to design the information feedback systems, to compare the
actual performance with these predetermined standards, to identify the deviations from
the standards, to measure its significance and to take corrective actions in case of
significant deviations.
o This systematic effort is undertaken through the management control system.
o The control system is essential to meet the environmental changes discussed earlier,to
meet the complexity of today's business, to correct the mistakes made by the people, and
to effectively monitor the delegation process. A reliable and effective control system has
the following features.
Early Warning Mechanism:
This is a mechanism of predicting the possibility of achieving the goals and the standards
before it is too late and allowing the manager to take corrective actions.
OK
NOT OK

Performance Standard:
The performance standard must be measurable and acceptable to all the organization. The
system should have meaningful standards relating to the work areas, responsibility, an d
managerial functions and so on. For example, the management would have standards
relating to the business performance, such as production, sales, inventory, quality, etc.
The operational management would have standards relating to the shift production,
rejections, down time, utilization of resources, sale in a typical market segment and so.
On. The chain of standards, when achieved, will ensure an achievement of the goals of the
organization.
Feedback:
The control system would be effective; it continuously monitors the performance and
sends the information to the control centre for action. It should not only highlight the
progress but also the deviations.
Accurate and Timely:
The feedback should be accurate in terms of results and should be communicated on time
for corrective action.
Realistic:
The system should be realistic so that the cost of control is far less than the benefits. The
standards are realistic and are believed as achievable. Sufficient incentive and rewards are
to be provided to motivate the people.
The Information Flow:
The system should have the information flow aligned with the organization structure and
the decision makers should ensure that the right people get the right information for
action and decision making.
Exception Principle:
The system should selectively approve some significant deviations from the performance
standards on the principle of management by exception. A standard is control system has
a set of objectives, standards to measure, a feedback mechanism and an action centre as
elements of the system. They need to be properly evolved and instituted in the
organization with due recognition to the internal and the external environment. The
system as a whole should be flexible to be change with ease so that the impact of changed
environment is handled effectively.

Management by Exception:
o Pareto’s principle of 80:20 applications to the management of enterprise. Several terms have
been coined on this principle such as management by objectives; management methodology is
the management by exception. When the management operates under time constraint, each
manager has to him to attend to the situation where his attention is necessary. Such attention
would lead to an action, a decision or a wait and- see approach.
o If all the situations are considered in a routine manner, it consumes time and tends to be
neglected over a period of time. An efficient manager tries for selective attention to manage
within the available time resource. The principle evolved, therefore, is of the management by
exception. The exception is decided the impact a situation would make on the performance,
the process and the standards set in the management control system.
o The exception is defined as a significant deviation from the performance, or the process and
the standard. The deviation could be abnormal on a positive or on a negative side of the
standard. The deviation could be predictive or could be arising out of random causes in the
business operations. IT is, therefore, necessary to assess whether the deviation is sporadic or
consistently coming in, calling for managerial attention. The manager is interested in knowing
the significant deviation by the yardsticks of consistency and not out of random causes. The
significant deviations are exceptional in nature and require to be attended to immediately. A
manager is further interested in knowing the reasons behind the exceptional nature of the
situation. It is possible to trace the reasons of deviation, and it is possible to take a corrective
action.
o The significant deviation can occur on account of wrong performance standards and wrong
management process. Many times standards are set very low and they need to be looked in to
avoid the misuse of resources. If the standards are set too high, then the people fail to achieve
them on account of de motivating factor of the high standards.
o A wrong management process refers to a variety of decisions a manager has taken in the
planning, organization, staffing, directing and controlling a given management task. These
decisions relate to the choice and the allocation of resources, the methods of using resources,
the application of the tools and the techniques, the use of manpower by way of staffing and
the manner in which the efforts are coordinated in the organization. For an efficient and an
effective management, without loss of time, it is, therefore, necessary to report the significant
deviations to the right person in the organization. In this regard a manager himself has to
provide the conditions of exceptions in the control system so that they are highlighted and
informed. The management by exception commands grip on the management process. The
managerial effort gets directed towards the goal with the purpose of achievement.

Organization as a System (Leavitt’s Model)
OR
Relationship between Organisation and System
o Normally system is defined as a structure where the employees are placed in hierarchical
order according to their quality and ability, to achieve the goals of the management.
o A system is an assembly of elements arranged in a logical order to achieve corrective
objectives. The organization is also a system of people.
o This is the simplest justification for calling the organization a system.
o The management theorists however have seen organization in different views and
perspectives. They have identified more elements in the systems in the system besides the
people. The choice of technology and structure as additional three elements of the
organization system.
o He says that the task technology and people structure are dependent on each other and their
signification cannot be ignored as elements of the system.
o The arrangement of task in terms of process and work design is dependent on the people.
The choice of technology of handling the task is dependent on the people. You may choose
the best technology and well-designed task, but they have to be suited for the people.
o Over and above these are to be arranged in proper structure. Further a fourth Element has
been added as culture. According to Leavitt an organization should be viewed as a socio-
technical system consisting of people task technology culture and structure. The modified
Leavitt’smodel is shown in Fig.
Organisation as a System (Leavitt’s Model)
o In view the nature of the task the organization is supposed to carry out it has to be designed
as an open system capable of adjusting itself to the changing environment.
o The organization continuously exchanges the information with the environment and is
influenced by the changes in it.
o The organization therefore has to be built in such a fashion that it adjusts with the changes
in the environment and the goals and the objectives are achieved.

o Hence the organization is a socio-technical system whose sub-systems are task people
technology culture and structure each having its own input and output satisfying at first its
own objective and eventually the corporate organization goals and objectives.
o If the sub-system's goals and objectives are not congruent with the goals and objectives of
the corporate organization poor performance resistance to change and non-attainment of
corporate goals will be the consequences.
o The systems and their goals are not stable. The goals change in response to the changes in
the business focus the environment and in the people in the organization.
o A significant change calls for change in the organization structure a goals displacement is
said to have occurred when the system goals significantly. Another reason for goals change is
due to the Natural process of growth and decline.
o All organizations and their business go through the different phases of growth cycle in
stages as Introduction Growth Maturity and Decline.
o Each phase generates new goals to be served if the changed or displaced goals are not
reflected in the organization is bound to suffer from decay.

MIS vs DSS
o MIS and DSS are two abbreviations that are often heard in the field of Business
Management. They differ in a few aspects. It is important to know that MIS stands for
Management Information Systems whereas DSS stands for Decision Support Systems.
o It is interesting to note that MIS is a type of link that assists in the communication
between managers of various disciplines in a business firm or an organization. On the
whole it plays a very important role in building up communication among the corporate
people.
o DSS on the other hand is an improvement of the concept of MIS. It is true that both of
them differ in terms of their focus. DSS focuses more on leadership. It is all about senior
management in a firm providing innovative vision.
o On the other hand MIS focuses more on the information gathered and the information that
has poured from different quarters. Experts on managerial behavior say that DSS focuses
more on decision making. MIS on the other hand focuses more on planning the report of
various topics concerned with the organization that would assist the managers to take
vital decisions pertaining to the functioning of the organization.
o One of the finest differences between MIS and DSS is that MIS focuses on operational
efficiency whereas DSS focuses more on making effective decision or in other words
helping the company to do the right thing. Flow of information is from both sides, up and
down in the case of MIS. On the other flow of information is only upward in the case of
DSS.
o In the case of DSS the report can be flexible whereas in the case of MIS the report is
usually not flexible. MIS is characterized by an input of large volume of data, an output of
summary reports and process characterized by a simple model. On the other hand DSS is
featured by an input of low volume of data, an output of decision analysis and a process
characterized by interactive model.
o Experts would also say that MIS is a primary level of decision making whereas DSS is the
ultimate and the main part of the decision. This is one of the most talked about different
between the two.
o As a matter of fact MIS is all about theory whereas DSS is all about practice and analysis.
An organization should employ both the systems effectively.

MIS vs TPS (1)
TPS is an acronym describing Transaction Processing Systems. TPS systems are exactly what the
name implies - a system that processes transactions that occur within an organization or
business. TPS systems tend to perform routine operations and serve as a foundation for other
systems. Transactions are business operations such as customer orders, purchase orders,
receipts, time cards, invoices, payroll checks and, yes, college registrations.
A Transaction Processing System can consist of:
o Data Collection eg getting registration papers.
o Data Editingeg making the paper ready for input to the system.
o Data Correction eg sorting out incorrect dates of birth, postal codes etc.
o Data Manipulation eg assigning students to courses, car parking, halls of residence etc
o Data Storage eg where the data is physically located on disks/tapes etc.
o Document Production eg hard copy of registration forms, ID cards etc.
Here are some examples of TPS systems
o Sales/marketing systems for market research, pricing, promotion, new product
introduction.
o Manufacturing/production systems for scheduling, purchasing, shipping/receiving,
engineering, operations.
o Human resources systems for personnel records, benefits, compensation, labor relations,
training.
o Industry specialized systems such as university registration, freight shipping and rates,
property management and renting etc.
So you can see that a TPS covers a wide variety of both manual and automated tasks, in support
of an overall process or business.
MIS is an acronym for Management Information System, which is a system that provides periodic
and predetermined reports that summarize information. It is usually attached, and part of, a
bigger Transaction Processing system, and exists to give Management reports of activity eg an
MIS attached to a larger Student Registration system might give reports on numbers of students
registering, amounts of course fees defaulted etcetc, -- information that the college would require
to make management decisions.
So MIS supports the management level by providing routine summary reports and exception
reports (e.g. Which students were here in the Fall who did not choose to return in the Spring?)
and MIS differs from TPS in that MIS deals with summarized and compressed data from the TPS.

MIS vs TPS (2)
MIS: MIS, which stands for Management Information System, helps middle level management in
monitoring, controlling, decision making and administrative activities. MIS provides managers
with current performance of the organization. Managers make use of this information to monitor
and control business and also to devise strategies to better the performance in future.
The data which is available through MIS is summarized and presented in concise reports on a
regular basis. MIS serves the interests of managers on weekly, monthly and yearly results though
some MIS can produce results on a daily basis to be used by managers. A manager can get
answers to predefined set of questions through MIS regularly. MIS is not very flexible and also
does not have analytical capability. A vast majority of MIS systems make use of simple routines
and stay away from complex mathematical models.
TPS: Another type of information system that has become very popular is TPS. It stands for
Transaction Processing System and collects, stores, modifies and retrieves all information about
transactions in an organization. A transaction here is referred to any event that generates or
modifies the already stored information.
If an organization is using both MIS and TPS, there is regular exchange of data among these
systems. TPS becomes a major source of data for MIS. The data that is generated through TPS is
on the level of operations such as payroll or order processing. TPS tracks daily routine
transactions that are essential to conduct business. MIS makes heavy use of data from TPS though
it also utilizes data from other sources.
In Brief:
o Information systems have become very necessary for systems to remain competitive and
more productive today.
o MIS stands for Management Information System and helps in controlling, monitoring and
decision making at the middle level management.
o TPS generates data at the operational level and makes available information that is used
heavily my MIS.

E-Business Enterprise with E-Commerce, E-Communication, E-Collaboration
E-Business: E-business is the digital enablement of transactions and processes within a firm and
therefore does not include any exchange in value. E-commerce and e-business intersect at the
business firm boundary at the point where internal business systems link up with suppliers. For
instance, e-business turns into e-commerce when an exchange of value occurs across firm
boundaries.

E-Commerce: Transacting or facilitating business on the Internet is called ecommerce.
Ecommerce is short for "electronic commerce."
Types of Ecommerce:
Ecommerce can be classified based on the type of participants in the transaction:
Business to Business (B2B)
B2B ecommerce transactions are those where both the transacting parties are businesses,
e.g., manufacturers, traders, retailers and the like.
Business to Consumer (B2C)
When businesses sell electronically to end-consumers, it is called B2C ecommerce.
Consumer to Consumer (C2C)
Some of the earliest transactions in the global economic system involved barter -- a type
of C2C transaction. But C2C transactions were virtually non-existent in recent times until
the advent of ecommerce. Auction sites are a good example of C2C ecommerce.
Examples of Ecommerce:
Online Shopping
Electronic Payments
Online Auctions
Internet Banking
Online Ticketing
Features of E-Commerce:
E-commerce can provide the following features over non-electronic commerce:
o Reduced costs by reducing labour, reduced paper work, reduced errors in keying in data,
reduce post costs
o Reduced time. Shorter lead times for payment and return on investment in advertising,
faster delivery of product
o Flexibility with efficiency. The ability to handle complex situations, product ranges and
customer profiles without the situation becoming unmanageable.
o Improve relationships with trading partners. Improved communication between trading
partners leads to enhanced long-term relationships.
o Lock in Customers. The closer you are to your customer and the more you work with them
to change from normal business practices to best practice e-commerce the harder it is for
a competitor to upset your customer relationship.
o New Markets. The Internet has the potential to expand your business into wider
geographical locations.

Advantages and Disadvantages of Ecommerce
The invention of faster internet connectivity and powerful online tools has resulted in a new
commerce arena – Ecommerce. Ecommerce offered many advantages to companies and customers
but it also caused many problems.
Advantages of Ecommerce:
o Faster buying/selling procedure, as well as easy to find products.
o Buying/selling 24/7.
o More reach to customers, there is no theoretical geographic limitations.
o Low operational costs and better quality of services.
o No need of physical company set-ups.
o Easy to start and manage a business.
o Customers can easily select products from different providers without moving around
physically.
Disadvantages of Ecommerce:
o Any one, good or bad, can easily start a business. And there are many bad sites which eat
up customers’ money.
o There is no guarantee of product quality.
o Mechanical failures can cause unpredictable effects on the total processes.
o As there is minimum chance of direct customer to company interactions, customer loyalty
is always on a check.
o There are many hackers who look for opportunities, and thus an ecommerce site, service,
payment gateways, all are always prone to attack.

E-Communication: eCommunication or electronic communication refers to statements,
newsletters, marketing, reports, product change information and notices sent to you by
online methods including email and SMS.

MIS (MCA SEM-3) Information System in the Enterprise
Chapter 2: Information System in the Enterprise
Syllabus:
o Major Types of System in Organisation
o Systems from Functional Perspectives
o Integrating Functions and Business Processes: Introduction to Enterprise Application
Questions:
o Enterprise System and its working
o Business Information System and Types (From Functional Point of View)
o Business Function
o Business Process

Enterprise System and Its Working
Around the globe, companies are increasingly becoming more connected, both internally and
with other companies.They want to be able to react instantaneously when a customer places a
large order or when a shipment from asupplier is delayed. Managers want to know the impact of
these events on every part of the business and how thebusiness is performing at any point in
time. Enterprise systems provide the integration to make this possible. Let’slook at how they
work and what they can do for the firm.
Enterprise systems focus on integrating the key internal business processes of thefirm. These
systems, which are known as enterprise resource planning (ERP) systems, are based on a suite
ofintegrated software modules and a common central database. The database collects data from
and feeds the datainto numerous applications that can support nearly all of an organization’s
internal business activities. When newinformation is entered by one process, the information is
made immediately available to other business processes(see Figure below).
Enterprise system architecture

Enterprise systems feature a set of integrated software modules and a central database that
enable data to be shared by many different business processes and functional areas throughout
the enterprise.
If a sales representative places an order for tire rims, for example, the system would verify the
customer’s credit limit, schedule the shipment, identify the best route, and reserve the necessary
items from inventory. If inventory stock was insufficient to fill the order, the system would
schedule the manufacture of more rims, ordering the needed materials and components from
suppliers. Sales and production forecasts would be immediately updated. General ledger and
corporate cash levels would be automatically updated with the revenue and cost information
from the order. Users could tap into the system and find out where that particular order was at
any minute. Management could obtain information at any point in time about how the business
was operating. The system could also generate enterprise-wide data for management analyses of
product cost and profitability.
How Enterprise System works?
Both the value—and the challenge—of enterprise systems can be found in the integration they
force on firms’ information and business processes. Enterprise software consists of a set of
interdependent software modules that support basic internal business processes for
o Finance and Accounting,
o Human Resources,
o Manufacturing and Production (Including Logistics And Distribution), and
o Sales and Marketing.
The software enables data to be used by multiple functions and business processes for precise
organizational coordination and control. Table below describes some of the business processes
supported by enterprise software.
Business Processes Supported by Enterprise Systems
Business Value of Enterprise Systems:

Enterprise systems promise to integrate diverse internal business processes of a firm into a
single informationarchitecture, and that integration can have a very large payback if firms install
and use enterprise softwarecorrectly. Enterprise systems can produce value both by increasing
organizational efficiency and by providingfirm wide information to help managers make better
decisions.
Business Functions
Systems from a functional perspective:
Information systems can be classified by the specific organizational function they serve as well
as by organizational level. We now describe typical information systems that support each of the
major business functions and provide examples of functional applications for each
organizational level.
Traditional view of systems:
Traditional view of systems
In most organizations today, separate systems built over a long period of time support discrete
business processes and discrete segments of the business value chain. The organization’s
systems rarely include vendors and customers.
Enterprise systems:

Enterprise systems
Enterprise systems integrate the key business processes of an entire firm into a single software
system that enables information to flow seamlessly throughout the organization. These systems
focus primarily on internal processes but may include transactions with customers and vendors.
1. Sales and Marketing Systems
The sales and marketing function is responsible for selling the organization’s products or
services. Marketing is concerned with identifying the customers for the firm’s products or
services, determining what customers need or want, planning and developing products and
services to meet their needs, and advertising and promoting these products and services. Sales
is concerned with contacting customers, selling the products and services, taking orders, and
following up on sales. Sales and marketing information systems support these activities.
Table below shows that information systems are used in sales and marketing in a number of
ways. At the strategic level, sales and marketing systems monitor trends affecting new
products and sales opportunities, support planning for new products and services, and
monitor the performance of competitors.
At the management level, sales and marketing systems support market research, advertising,
promotional campaigns and pricing decisions. They analyze sales performance and the
performance of the sales staff. At the operational level, sales and marketing systems assist in
locating and contacting prospective customers, tracking sales, processing orders, and
providing customer service support.
Examples of Sales and Marketing Information Systems

Sales information report shows the output of a typical sales information system at the
management level. The system consolidates data about each item sold (such as the product
code, product description, and amount sold) for further management analysis. Company
managers examine these sales data to monitor sales activity and buying trends.
2. Manufacturing and Production Systems
The manufacturing and production function is responsible for actually producing the firm ’s
goods and services. Manufacturing and production systems deal with the planning,
development, and maintenance of production facilities; the establishment of production goals;
the acquisition, storage, and availability of production materials; and the scheduling of
equipment, facilities, materials, and labour required to fashion finished products.
Manufacturing and production information systems support these activities.
Strategic-level manufacturing systems deal with the firm’s long-term manufacturing goals,
such as where to locate new plants or whether to invest in new manufacturing technology. At
the management level, manufacturing and production systems analyze and monitor
manufacturing and production costs and resources. Operational manufacturing and
production systems deal with the status of production tasks.
Examples of Manufacturing and Production Information Systems
Most manufacturing and production systems use some sort of inventory system, as illustrated
in Figure below. Data about each item in inventory, such as the number of units depleted
because of a shipment or purchase or the number of units replenished by reordering or
returns, are either scanned or keyed into the system. The inventory master file contains basic
data about each item, including the unique identification code for each item, a description of
the item, the number of units on hand, the number of units on order, and the reorder point
(the number of units in inventory that triggers a decision to reorder to prevent a stock out).
Companies can estimate the number of items to reorder, or they can use a formula for
calculating the least expensive quantity to reorder called the economic order quantity. The
system produces reports that give information about such things as the number of each item
available in inventory, the number of units of each item to reorder, or items in inventory that
must be replenished.

Overview of an inventory system
This system provides information about the number of items available in inventory to
supportmanufacturing and production activities.
Product life cycle management (PLM) systems are one type of manufacturing and production
system that has become increasingly valuable in the automotive, aerospace, and consumer
products industries. PLM systems are based on a data repository that organizes every piece of
information that goes into making a particular product, such as formula cards, packaging
information, shipping specifications, and patent data. Once all these data are available,
companies can select and combine the data they need to serve specific functions. For,
example, designers and engineers can use the data to determine which parts are needed for a
new design, whereas retailers can use them to determine shelf height and how materials
should be stored in warehouses.
For many years, engineering-intensive industries have used computer-aided design (CAD)
systems to automate the modeling and design of their products. The software enables users to
create a digital model of a part, a product, or a structure and make changes to the design on
the computer without having to build physical prototypes. PLM software goes beyond CAD
software to include not only automated modeling and design capabilities but also tools to help
companies manage and automate materials sourcing, engineering change orders, and product
documentation, such as test results, product packaging, and postsales data. The Window on
Organizations describes how these systems are providing new sources of value.
3. Finance and Accounting Systems
The finance function is responsible for managing the firm’s financial assets, such as cash,
stocks, bonds, and other investments, to maximize the return on these financial assets. The
finance function is also in charge of managing the capitalization of the firm (finding new
financial assets in stocks, bonds, or other forms of debt). To determine whether the firm is

getting the best return on its investments, the finance function must obtain a considerable
amount of information from sources external to the firm.
The accounting function is responsible for maintaining and managing the firm’s financial
records—receipts, disbursements, depreciation, payroll—to account for the flow of funds in a
firm. Finance and accounting share related problems—how to keep track of a firm’s financial
assets and fund flows. They provide answers to questions such as these:
o What is the current inventory of financial assets?
o What records exist for disbursements, receipts, payroll, and other fund flows?
Table below shows some of the typical finance and accounting information systems found in
large organizations. Strategic-level systems for the finance and accounting function establish
long-term investment goals for the firm and provide long-range forecasts of the firm’s
financial performance. At the management level, information systems help managers oversee
and control the firm’s financial resources. Operational systems in finance and accounting
track the flow of funds in the firm through transactions such as paychecks, payments to
vendors, securities reports, and receipts.
Examples of Finance and Accounting Information Systems
4. Human Resources Systems
The human resources function is responsible for attracting, developing, and maintaining the
firm’s workforce. Human resources information systems support activities, such as identifying
potential employees, maintaining complete records on existing employees, and creating
programs to develop employees’ talents and skills.
Strategic-level human resources systems identify the manpower requirements (skills,
educational level, types of positions, number of positions, and cost) for meeting the firm’s
long-term business plans. At the management level, human resources systems help managers
monitor and analyze the recruitment, allocation, and compensation of employees. Human
resources operational systems track the recruitment and placement of the firm’s employees.

Examples of Human Resources Information Systems
Figure above illustrates a typical human resources TPS for employee record keeping. It
maintains basic employee data, such as the employee’s name, age, sex, marital status, address,
educational background, salary, job title, date of hire, and date of termination. The system can
produce a variety of reports, such as lists of newly hired employees, employees who are
terminated or on leaves of absence, employees classified by job type or educational level, or
employee job performance evaluations. Such systems are typically designed to provide data
that can satisfy federal and state record keeping requirements for Equal Employment
Opportunity (EEO) and other purposes.
An employee record keeping system
This system maintains data on the firm’s employees to support the human resources function.

Business Processes
Business Processes and Information Systems
o The new digital firm business environment requires companies to think more strategically
about their business processes. Business processes refer to sets of logically related activities
for accomplishing a specific business result. Business processes also refer to the unique ways
in which organizations and management coordinate these activities. A company’s business
processes can be a source of competitive strength if they enable the company to innovate
better or to execute better than its rivals. Business processes can also be liabilities if they are
based on out-dated ways of working that impede organizational responsiveness and efficiency.
o Some business processes support the major functional areas of the firm, others are cross-
functional. Table below describes some typical business processes for each of the functional
areas.
Examples of Functional Business Processes
o Many business processes are cross-functional, transcending the boundaries between sales,
marketing, manufacturing, and research and development. These cross-functional processes
cut across the traditional organizational structure, grouping employees from different
functional specialties to complete a piece of work. For example, the order fulfilment process
at many companies requires cooperation among the sales function (receiving the order,
entering the order), the accounting function (credit checking and billing for the order), and
the manufacturing function (assembling and shipping the order).

o Figure below illustrates how this cross-functional process might work. Information systems
support these cross-functional processes as well as processes for the separate business
functions.
The order fulfilment process
Generating and fulfilling an order is a multistep process involving activities performed by the
sales, manufacturing and production, and accounting functions.

Business Information System and Types
Because there are different interests, specialties, and levels in an organization, there are different
kinds of systems. No single system can provide all the information an organization needs. Figure
below illustrates one way to depict the kinds of systems found in an organization. In the
illustration, the organization is divided into strategic, management, and operational levels and
then is further divided into functional areas, such as
1. Sales and Marketing,
2. Manufacturing and Production,
3. Finance and Accounting, and
4. Human Resources
Systems are built to serve these different organizational interests.
Types of information systems
Organizations can be divided into strategic, management, and operational levels and into four
major functional areas: sales and marketing, manufacturing and production, finance and
accounting, and human resources. Information systems serve each of these levels and functions.

Different Kinds of Systems:
Three main categories of information systems serve different organizational levels:
1. Operational-Level Systems,
2. Management-Level Systems, And
3. Strategic-Level Systems.
o Operational-level systems support operational managers by keeping track of the elementary
activities and transactions of the organization, such as sales, receipts, cash deposits, payroll,
credit decisions, and the flow of materials in a factory. The principal purpose of systems at
this level is to answer routine questions and to track the flow of transactions through the
organization. How many parts are in inventory? What happened to Mr. Williams’s payment?
To answer these kinds of questions, information generally must be easily available, current,
and accurate. Examples of operational-level systems include a system to record bank
deposits from automatic teller machines or one that tracks the number of hours worked each
day by employees on a factory floor.
o Management-level systems serve the monitoring, controlling, decision-making, and
administrative activities of middle managers. The principal question addressed by such
systems is this: Are things working well? Management-level systems typically provide
periodic reports rather than instant information on operations. An example is a relocation
control system that reports on the total moving, house-hunting, and home financing costs for
employees in all company divisions, noting wherever actual costs exceed budgets.
Some management-level systems support non-routine decision making. They tend to focus
on less-structured decisions for which information requirements are not always clear. These
systems often answer “what-if” questions: What would be the impact on production
schedules if we were to double sales in the month of December? What would happen to our
return on investment if a factory schedule were delayed for six months? Answers to these
questions frequently require new data from outside the organization, as well as data from
inside that cannot be easily drawn from existing operational-level systems.
o Strategic-level systems help senior management tackle and address strategic issues and
long-term trends, both in the firm and in the external environment. Their principal concern is
matching changes in the external environment with existing organizational capability. What
will employment levels be in five years? What are the long-term industry cost trends, and
where does our firm fit in? What products should we be making in five years?
Information systems also serve the major business functions, such as sales and marketing,
manufacturing and production, finance and accounting, and human resources. A typical
organization has operational-, management-, and strategic-level systems for each functional

area. For example, the sales function generally has a sales system on the operational level to
record daily sales figures and to process orders. A management-level system tracks monthly
sales figures by sales territory and reports on territories where sales exceed or fall below
anticipated levels. A system to forecast sales trends over a five-year period serves the
strategic level. We first describe the specific categories of systems serving each
organizational level and their value to the organization. Then we show how organizations use
these systems for each major business function.
Four Major Types of Systems:
Figure below shows the specific types of information systems that correspond to each
organizational level. The organization has
1. Executive Support Systems (ESS) at the strategic level
2. Management Information Systems (MIS) at the management level
3. Decision-Support Systems (DSS) at the management level
4. Transaction Processing Systems (TPS) at the operational level
Systems at each level in turn are specialized to serve each of the major functional areas. Thus,
the typical systems found in organizations are designed to assist workers or managers at each
level and in the functions of sales and marketing, manufacturing and production, finance and
accounting, and human resources.
The four major types of information systems

This figure provides examples of TPS, DSS, MIS, and ESS, showing the level of the organization
and business function that each supports.
Table below summarizes the features of the four types of information systems. It should be
noted that each of the different systems may have components that are used by organizational
levels and groups other than its main constituencies. A secretary may find information on an MIS,
or a middle manager may need to extract data from a TPS.
Characteristics of Information Processing Systems

MIS (MCA SEM-3) Information Systems, Organisations, Management and Strategy
Chapter 3: Information Systems, Organisations, Management and Strategy
Syllabus:
o Organisations and Information Systems
o How Information System impact Organisations and Business Firms
o The Impact of IT on Management Decision Making
o Information Business and Business Strategy
Questions:
o Organisation and its Behavioural view and Features
o Levels of Management
o Distinguish Levels of management in terms of Goal, Scope and Content
o Matrix Organisation
o Business Strategy, Strategic Planning and Types of Strategies
o Parameters used in Organisation Strategy
o Can an Organisation have more than one strategy? Is it long range or short range?
o How IT in today’s time affect the Business Strategy?

Organisation and its Behavioural view and Features
Organization:
o An organization is a stable, formal social structure that takes resources from the environment
and processes them to produce outputs. This technical definition focuses on three elements
of an organization. Capital and labour are primary production factors provided by the
environment. The organization (the firm) transforms these inputs into products and services
in a production function. The products and services are consumed by environments in return
for supply inputs (see Figure below).
The technical microeconomic definition of the organization
o In the microeconomic definition of organizations, capital and labour (the primary production
factors provided by the environment) are transformed by the firm through the production
process into products and services (outputs to the environment). The products and services
are consumed by the environment, which supplies additional capital and labour as inputs in
the feedback loop.
o An organization is more stable than an informal group (such as a group of friends that meets
every Friday for lunch) in terms of longevity and routineness. Organizations are formal legal
entities with internal rules and procedures, which must abide by laws. Organizations are also
social structures because they are a collection of social elements, much as a machine has a
structure—a particular arrangement of valves, cams, shafts, and other parts.
o This definition of organizations is powerful and simple, but it is not very descriptive or even
predictive of real-world organizations. A more realistic behavioural definition of an
organization is that it is a collection of rights, privileges, obligations, and responsibilities that
is delicately balanced over a period of time through conflict and conflict resolution.

Behavioural view of Organization:
The behavioural view of organizations emphasizes group relationships, values, and structures.
The behavioral view of organizations
o In this behavioural view of the firm, people who work in organizations develop customary
ways of working; they gain attachments to existing relationships; and they make
arrangements with subordinates and superiors about how work will be done, the amount
of work that will be done, and under what conditions work will be done. Most of these
arrangements and feelings are not discussed in any formal rulebook.
o How do these definitions of organizations relate to information systems technology? A
technical view of organizations encourages us to focus on how inputs are combined to
create outputs when technology changes are introduced into the company. The firm is
seen as infinitely malleable, with capital and labour substituting for each other quite
easily. But the more realistic behavioural definition of an organization suggests that
building new information systems, or rebuilding old ones, involve much more than a
technical rearrangement of machines or workers. Some information systems change the
organizational balance of rights, privileges, obligations, responsibilities, and feelings that
have been established over a long period of time.
o Changing these elements can take a long time, be very disruptive, and require more
resources to support training and learning. For instance, the length of time required to
implement effectively a new information system is much longer than usually anticipated
simply because there is a lag between implementing a technical system and teaching
employees and managers how to use the system. Technological change requires changes
in who owns and controls information; who has the right to access and update that
information; and who makes decisions about whom, when, and how. This more complex
view forces us to look at the way work is designed and the procedures used to achieve
outputs.

o The technical and behavioural definitions of organizations are not contradictory. Indeed,
they complement each other: The technical definition tells us how thousands of firms in
competitive markets combine capital, labour, and information technology, whereas the
behavioural model takes us inside the individual firm to see how that technology affects
the organization’s inner workings. Section 3.2 describes how each of these definitions of
organizations can help explain the relationships between information systems and
organizations.
Features of Organization:
Authority - the right to make decisions and carry out tasks
Span of control - the number of people a superior is responsible for
Chain of Command - the relationship between different levels of authority in the business
Hierarchy - shows the line management in the business and who has specific responsibilities
Delegation - authority to carry out actions passed from superior to subordinate
Empowerment- giving responsibilities to people at all levels of the business to make decisions

Levels of Management
The term “Levels of Management’ refers to a line of demarcation between various managerial
positions in an organization. The number of levels in management increases when the size of the
business and work force increases and vice versa. The level of management determines a chain of
command, the amount of authority & status enjoyed by any managerial position. The levels of
management can be classified in three broad categories:
1. Top level/Administrative level
2. Middle level/Executor Level
3. Low level/Supervisory/Operative/First-line managers
Managers at all these levels perform different functions. The role of managers at all the three
levels is discussed below:
Levels of Management
1. Top Level of Management:
It consists of board of directors, chief executive or managing director. The top management is the
ultimate source of authority and it manages goals and policies for an enterprise. It devotes more
time on planning and coordinating functions.
The role of the top management can be summarized as follows:
Top management lays down the objectives and broad policies of the enterprise.
It issues necessary instructions for preparation of department budgets, procedures,
schedules etc.
It prepares strategic plans & policies for the enterprise.
It appoints the executive for middle level i.e. departmental managers.
It controls & coordinates the activities of all the departments.

It is also responsible for maintaining a contact with the outside world.
It provides guidance and direction.
The top management is also responsible towards the shareholders for the performance of
the enterprise.
2. Middle Level of Management:
The branch managers and departmental managers constitute middle level. They are responsible
to the top management for the functioning of their department. They devote more time to
organizational and directional functions. In small organization, there is only one layer of middle
level of management but in big enterprises, there may be senior and junior middle level
management. Their role can be emphasized as:
They execute the plans of the organization in accordance with the policies and directives
of the top management.
They make plans for the sub-units of the organization.
They participate in employment & training of lower level management.
They interpret and explain policies from top level management to lower level.
They are responsible for coordinating the activities within the division or department.
It also sends important reports and other important data to top level management.
They evaluate performance of junior managers.
They are also responsible for inspiring lower level managers towards better performance.
3. Lower Level of Management:
Lower level is also known as supervisory/operative level of management. It consists of
supervisors, foreman, section officers, superintendent etc. According to R.C. Davis, “Supervisory
management refers to those executives whose work has to be largely with personal oversight and
direction of operative employees”. In other words, they are concerned with direction and
controlling function of management. Their activities include:
Assigning of jobs and tasks to various workers.
They guide and instruct workers for day to day activities.
They are responsible for the quality as well as quantity of production.
They are also entrusted with the responsibility of maintaining good relation in the
organization.
They communicate workers problems, suggestions, and recommendatory appeals etc to
the higher level and higher level goals and objectives to the workers.
They help to solve the grievances of the workers.
They supervise & guide the sub-ordinates.
They are responsible for providing training to the workers.
They arrange necessary materials, machines, tools etc for getting the things done.

They prepare periodical reports about the performance of the workers.
They ensure discipline in the enterprise.
They motivate workers.
They are the image builders of the enterprise because they are in direct contact with the
workers.

Matrix Organisation Structure
o Matrix Organisation was introduced in USA in the early 1960's. It was used to solve
management problems in the Aerospace industry. Matrix Organisation is a combination of two
or more organisation structures. For example, Functional Organisation and Project
Organisation.
o The organisation is divided into different functions, e.g. Purchase, Production, R & D, etc.
Each function has a Functional (Departmental) Manager, e.g. Purchase Manager, Production
Manager, etc.
o The organisation is also divided on the basis of projects e.g. Project A, Project B, etc. Each
project has a Project Manager e.g. Project A Manager, Project B Manager, etc.
o The employee has to work under two authorities (bosses). The authority of the Functional
Manager flows downwards while the authority of the Project Manager flows across (side
wards). So, the authority flows downwards and across. Therefore, it is called "Matrix
Organisation".
An example of matrix organisation is shown in the following diagram:
Features of Matrix Organisation:
1. Hybrid Structure : Matrix organisation is a hybrid structure. This is so, because it is a
combination of two or more organisation structures. It combines functional organisation with
a project organisation. Therefore, it has the merits and demerits of both these organisation
structures.

2. Functional Manager : The Functional Manager has authority over the technical (functional)
aspects of the project.
The responsibilities of functional manager are:
o He decides how to do the work.
o He distributes the project work among his subordinates.
o He looks after the operational aspects.
3. Project Manager : The Project manager has authority over the administrative aspects of the
project. He has full authority over the financial and physical resources which he can use for
completing the project.
The responsibilities of project manager are:
o He decides what to do.
o He is responsible for scheduling the project work.
o He co-ordinates the activities of the different functional members.
o He evaluates the project performance.
4. Problem of Unity of Command : In a matrix organisation, there is a problem of the unity of
command. This is so, because the subordinates receive orders from two bosses viz., the
Project Manager and the Functional Manager. This will result in confusion, disorder,
indiscipline, inefficiency, etc. All this will reduce the productivity and profitability of the
project.
5. Specialisation :In a Matrix organisation, there is a specialisation. The project manager
concentrates on the administrative aspects of the project while the functional manager
concentrates on the technical aspects of the project.
6. Suitability :Matrix organisation is suitable for multi-project organisations. It is mainly used by
large construction companies, that construct huge residential and commercial projects in
different places at the same time. Each project is looked after (handled) by a project manager.
He is supported by many functional managers and employees of the company.
Advantages of Matrix Organisation:
1. Sound Decisions : In a Matrix Organisation, all decisions are taken by experts. Therefore, the
decision are very good.
2. Development of Skills : It helps the employees to widen their skills. Marketing people can
learn about finance, Finance people can learn about marketing, etc.

3. Top Management can concentrate on Strategic Planning :The Top Managers can spend more
time on strategic planning. They can delegate all the routine, repetitive and less important
work to the project managers.
4. Responds to Changes in Environment :Matrix Organisation responds to the negative changes
in the environment. This is because it takes quick decisions.
5. Specialisation : In a matrix organisation, there is a specialization. The functional managers
concentrate on the technical matters while the Project Manager concentrates on the
administrative matters of the project.
6. Optimum Utilisation of Resources : In the matrix organisation, many projects are run at the
same time. Therefore, it makes optimum use of the human and physical resources. There is no
wastage of resources in a matrix organisation.
7. Motivation : In a matrix organisation, the employees work as a team. So, they are motivated to
perform better.
8. Higher Efficiency :The Matrix organisation results in a higher efficiency. It gives high returns
at lower costs.
Limitations of Matrix Organisation:
1. Increase in Work Load :In a matrix organisation, work load is very high. The managers and
employees not only have to do their regular work, but also have to manage other additional
works like attending numerous meetings, etc.
2. High Operational Cost :In a matrix organisation, the operational cost is very high. This is
because it involves a lot of paperwork, reports, meetings, etc.
3. Absence of Unity of Command :In a matrix organisation, there is no unity of command. This
is because, each subordinate has two bosses, viz., Functional Manager and Project Manager.
4. Difficulty of Balance :In a matrix organisation, it is not easy to balance the administrative and
technical matters. It is also difficult to balance the authority and responsibilities of the project
manager and functional manager.
5. Power Struggle :In a matrix organisation, there may be a power struggle between the project
manager and the functional manager. Each one looks after his own interest, which causes
conflicts.

6. Morale :In a matrix organisation, the morale of the employees is very low. This is because they
work on different projects at different times.
7. Complexity :Matrix organisation is very complex and the most difficult type of organisation.
Shifting of Responsibility : If the project fails, the project manager may shift the responsibility on
the functional manager. That is, he will blame the functional manager for the failure.

Business Strategy and Types of Strategies
Business Strategy:
A strategy is a plan of action designed to achieve a specific goal. Strategy is all about gaining (or
being prepared to gain) a position of advantage over adversaries or best exploiting emerging
possibilities. As there is always an element of uncertainty about future, strategy is more about a
set of options ("strategic choices") than a fixed plan. It derives from the Greek "στρατηγία"
(strategia), "office of general, command, generalship".
Strategy: A detailed plan for achieving success, the bundle of decisions and activities that we
choose to achieve our long-term goals. Strategy is the path we choose. Every organization has to
figure out what it wants to achieve and then how it is going to make it happen, with its products,
customers, and operations.
We can break down strategy into three components:
o Create the strategy—What should we do?
o Implement the strategy—How do we do it?
o Evaluate the strategy—How well are we doing in meeting our long-term goals?
Formulating a business strategy is a complex task even for the smallest of organizations.
Furthermore, whether you’re the manager of a small group in an organization or the CEO of a
large company, you’ll be working with strategic issues. Creating the business strategy begins with
the business idea.
In the case of our Italian restaurant, our business idea is authentic Italian cooking, based upon
Grandma’s recipes. But as we know, the idea is not enough.
We cannot raise capital simply by presenting samples of Grandma’s cooking to the loan
committee down at the bank. Rather, we must present a comprehensive plan to our lenders that
details the complete picture of our restaurant, so that the bank may judge whether we’ll be able
to acquire the assets we need and generate enough income to completely repay our debt.
We also won’t be able to hire good cooks without fully explaining how our ideas for the business
will provide a good place to work now and into the future. If these people cannot see a viable
business in our idea, they’re not likely to commit to working to prepare the foods that will turn
our recipes into revenues.
Also, without a good idea of what we want our restaurant to be, we won’t be able to inspire our
waiters and waitresses to provide the service that will make our restaurant a special experience
that will delight our customers and keep attracting business.

So formulating a strategy requires us to develop a complete picture of the business in operation,
even before we implement our plan. The development of this vision of the business requires that
we address a series of questions that will lead to a successful strategy.
Types of Strategies:
A strategy means a specific decision (S) usually but not always regarding the deployment of the
resources to achieve the mission or goals of the organization The right strategy beats
competition and ensures the attainment of goals while a wrong strategy fails to achieve the goals
Correction and improvement in case of a wrong strategy is possible at a very high cost .such a
situation is described as a strategic failure.
If a strategy considers a single point of attack by a specific method .it is a mixed strategy. If a
strategy acts on many fronts by different means then it is a mixed strategy the business strategy
could be series of pure strategies handling several external forces simultaneously.
Hence the strategy may fall in any area of the business and may deal with any aspects of the
business It could be aspects like price market product technology process quality service finance
management strength and so on when the management decides to fight the external forces of a
single area by choice it becomes a pure strategy if it uses or operates in more than one area then
it becomes a mixed strategy.
The success of an organization in spite of its strength depends on the strategic moves or
planning the management pursues. The strategy may be pure or mixed It can be classified into
four broad classes:
1. Overall Company Strategy
2. Growth Strategy
3. Product Strategy
4. Marketing Strategy
These strategies are applicable to all the types of businesses and industries.
1. Overall Company Strategy:
This strategy a very long- term business perspective deals with the overall strength of the
entire company and evolves those policies of the business which will dominate the course of
the business movement it is the most productive strategy if chosen correctly and fatal if
chosen wrongfully the other strategies act under the overall company strategy.
To illustrate the overall company strategy following examples is given:

1. A two wheeler manufacturing company will have a strategy of mass production and an
aggressive marketing.
2. A computer manufacturer will have a strategy of adding new products every two or three
years.
3. A consumer goods manufacturer will have a strategy of maximum reach to the consumer
and exposure by way of a wide distribution network.
4. A company can have a strategy of remaining in the low price range and catering to the
masses.
5. Another company can have a strategy of expanding very fast to capture the market.
6. A third company can have a strategy of creating a corporate brand image to build a brand
loyalty e.g. Escorts ,Kirloskar , Godrej ,Tata , Bajaj, BHEL , MTNL.
The overall company strategy is broad- based having a far reaching effect on the different
facets of business and forming the basis for generating strategies in the other areas of
business.
2. Growth strategy:
There are two types of business growth:
1. Growth of existing business turn over year by year
2. Expansion and diversification of business
The growth strategy must include the above two growths into account, so that the
organization attains the goals.
Normally growth strategy concentrates mainly on the selection of product with a very fast
growth potential.
3. Product strategy:
Product strategy must contain plans for producing family of products from the existing
product. For example a company producing coconut oil must have a strategy of entering into
the business of coconut oils in sachets, small bottles and cans.
4. Market strategy:
Market strategy deals with distribution, services, market research, pricing, advertising,
packing and the choice of market.

Strategic Planning
Strategic planning is an organization's process of defining its strategy, or direction, and making
decisions on allocating its resources to pursue this strategy. In order to determine the direction
of the organization, it is necessary to understand its current position and the possible avenues
through which it can pursue a particular course of action. Generally, strategic planning deals with
at least one of three key questions:
o "What do we do?"
o "For whom do we do it?"
o "How do we excel?"
In many organizations, this is viewed as a process for determining where an organization is goin g
over the next year or—more typically—3 to 5 years (long term), although some extend their vision
to 20 years.
Key components:
The key components of 'strategic planning' include an understanding of the firm's vision,
mission, values and strategies. (Often a "Vision Statement" and a "Mission Statement" may
encapsulate the vision and mission).
1. Vision: outlines what the organization wants to be, or how it wants the world in which it
operates to be (an "idealised" view of the world). It is a long-term view and concentrates on the
future. It can be emotive[citation needed] and is a source of inspiration. For example, a charity
working with the poor might have a vision statement which reads "A World without Poverty."
2. Mission: Defines the fundamental purpose of an organization or an enterprise, succinctly
describing why it exists and what it does to achieve its vision. For example, the charity above
might have a mission statement as "providing jobs for the homeless and unemployed".
3. Values: Beliefs that are shared among the stakeholders of an organization. Values drive an
organization's culture and priorities and provide a framework in which decisions are made. For
example, "Knowledge and skills are the keys to success" or "give a man bread and feed him for a
day, but teach him to farm and feed him for life". These example maxims may set the priorities of
self-sufficiency over shelter.
4. Strategy: Strategy, narrowly defined, means "the art of the general" - a combination of the ends
(goals) for which the firm is striving and the means (policies) by which it is seeking to get there. A
strategy is sometimes called a roadmap - which is the path chosen to plow towards the end
vision. The most important part of implementing the strategy is ensuring the company is going in
the right direction which is towards the end vision.

o Organizations sometimes summarize goals and objectives into a mission statement and/or a
vision statement. Others begin with a vision and mission and use them to formulate goals and
objectives.
o Many people mistake the vision statement for the mission statement, and sometimes one is
simply used as a longer term version of the other. However they are meant[according to
whom?] to be quite different, with the vision being a descriptive picture of a desired future
state, and the mission being a statement of a business rationale, applicable now as well as in
the future. The mission is therefore the means of successfully achieving the vision.
o For an organisation's vision and mission to be effective, they must become assimilated into
the organization's culture. They should also be assessed internally and externally. The
internal assessment should focus on how members inside the organization interpret their
mission statement. The external assessment — which includes all of the businesses
stakeholders — is valuable since it offers a different perspective. These discrepancies
between these two assessments can provide insight into their effectiveness.
o A vision statement is a declaration of where you are headed—your future state - to formulate
a picture of what your organization's future makeup will be, and where the organization is
headed.
Strategic planning process:
There are many approaches to strategic planning but typically one of the following approaches is
used:
1. Situation-Target-Proposal
Situation - evaluate the current situation and how it came about.
Target - define goals and/or objectives (sometimes called ideal state)
Path / Proposal - map a possible route to the goals/objectives
2. Draw-See-Think-Plan
Draw - what is the ideal image or the desired end state?
See - what is today's situation? What is the gap from ideal and why?
Think - what specific actions must be taken to close the gap between today's situation and the
ideal state?
Plan - what resources are required to execute the activities?

Situational analysis:
When developing strategies, analysis of the organization and its environment as it is at the
moment and how it may develop in the future, is important. The analysis has to be executed at an
internal level as well as an external level to identify all opportunities and threats of the external
environment as well as the strengths and weaknesses of the organizations.
There are several factors to assess in the external situation analysis:
1. Markets (customers)
2. Competition
3. Technology
4. Supplier markets
5. Labour markets
6. The economy
7. The regulatory environment
o It is rare to find all seven of these factors having critical importance. It is also uncommon
to find that the first two - markets and competition - are not of critical importance.
o Analysis of the external environment normally focuses on the customer. Management
should be visionary in formulating customer strategy, and should do so by thinking about
market environment shifts, how these could impact customer sets, and whether those
customer sets are the ones the company wishes to serve.
o Analysis of the competitive environment is also performed, many times based on the
framework suggested by Michael Porter.
o With regard to market planning specifically, researchers have recommended a series of
action steps or guidelines in accordance to which market planners should plan.
Essentiality of Strategic Planning:
There are some compelling reasons which force all the organizations to resort to strategic
business planning. The following reasons make planning an essential management process to
keep the business in a good shape and condition:
1. Market forces
2. Technological change
3. Complex diversity of business
4. Competition
5. Environment (Threats, Challenges, and Opportunities)

Parameters used in Strategic Planning
o Planning, long-range or short-range, strategic or tactical, involves a series of decisions to be
taken by the managers in the organization. So when we talk about the tools of planning, we
are talking about the tools of decision-making with reference to planning.
o Decisions relate to several aspects of corporate business planning. There are number of
alternatives, choices and options available while planning the business. Further, there is
selection of resources and their allocation in an optimum manner to maximize the gains.
o Then there is selection of method whereby the efforts at all the levels are coordinated
towards a common goal and direction. The planning, therefore, involves decision-making
with the help of tools. These tools are based on one or more factors.
These factors are:
1. Creativity
2. Systems approach
3. Sensitivity analysis
4. Modelling
1. Creativity
o Creativity comes out of an experience, a judgment, an intuition of an individual or a group
of individuals. When decision making is called for a situation which has no precedent then
creativity is the only tool to resolve the problem of decision making. Creativity is the
result of the conceptual skills of an individual. The conceptional skills comprise the
following skills.
1. The ability to generate a number of ideas rapidly.
2. The ability to change quickly from one frame of reference to another.
3. Originality in interpreting an event and generating different views on the situation.
4. The ability to handle with clarity and ease a complex relationship of various factors in a
given situation.
o A person who possesses these skills in said to have a conceptual fluency. If an
organization has a number of people, at least at key positions, with conceptual fluency,
then it becomes a creative organization.
o Such an organization creates new ideas and new strategies for development of business.
The plans are made on the strength of experience and conceptual fluency.
2. Systems Approach:
o Systems approach to planning considers all the factors and their inter-relationship
relevant to the subject. It takes a course to an analytical study of the total system,

generates alternative courses of action and helps to select the best in the given
circumstances.
o It is uses in situation of risk or uncertainty, and examines the various alternative courses
of action. I help to find solutions to problems.
o The systems approach helps to understand the situation with clarity. It helps to sort out
the factors on the principles of critical and non-critical, significant and insignificant,
relevant and irrelevant, and finally controllable and uncontrollable.
o It tests the solutions for feasibility-technical, operational and economic. It further studies
the problems of implementation of the solution.
Broadly, the systems approach has the following characteristic:
1. It uses all the areas and the branches of knowledge.
2. It follows a scientific analysis to identify the problem.
3. It uses a model of a complex situation to handle the problem.
4. It weighs cost against benefit for assessment of the alternatives.
5. It deals with the problems where time context is futuristic.
6. It considers the environment and its impact on the problem situation.
7. Every solution is tested on the grounds of rationality and feasibility, and accepts a
given criterion for selection of the most preferred alternative.
8. It uses operations research models if the problem is well defined. Alternately, it uses a
simulation approach to solve the problem. It uses tools such a Gantt chart, PERT/CPM,
Network analysis for scheduling and coordinating the activities.
o The systems approach is a way of looking at a problem in a systematic manner using the
scientific methods and applying the principles of a rational decision making to solve the
problem.
3. Sensitivity Analysis:
o The sensitivity analysis helps to test the validity of the solution in variable conditions.The
problem situation is handled with certain assumptions and conditions.
o Based on these considerations, a rational solution is found. Sensitivity analysis requires to
know whether the solution will still remain valid if the assumptions changed, constraints
were relaxed and new condones emerged. It helps to assess the impact of change on the
solution in economic terms.
o If various factors are involved, the sensitivity analysis helps to assess the criticality of the
factor against the impact it makes on the solution. Some factors will be highly sensitive
and some will not be so.
o Most of the decision making problems are resolved on the principle of optimality, where
you are trying to balance the two aspects of the problems, such as, inventory carrying cost
versus ordering cost, waiting time cost versus idle time cost, costs, verses benefits,
opportunity loss versus investment cost and so on.

o The sensitivity analysis helps to test the validity of the optimal solution under changed
conditions.
o Sensitivity analysis helps to test the solutions on the principle of utility. A solution which
is economically rational and is based on sound business principles may be rejected on the
principle of utility. The utility profiles of all the people in the organization are not the
same.
o The utility profile, alternately known as a preference curve, shows the attitude and
preference of the decision maker towards the gains and the losses against a time scale.
The profile shows indirectly the risk-taking ability of the decision maker.
o It uses techniques such as the decision tree analysis, methods of discounting, payoff
matrix, simulation, and the modeling.
4. Modelling
o A model is a meaningful representation of a real situation on a mini scale, where only the
significant factors of the situation are highlighted. The purpose of a model is to
understand the complex situation based on only the significant factors.
o There are several types of models. The model could be a physical model, like a model of a
house, a park, a sports complex, etc. The model could be a scale model reducing a large
body to a small one. The model could be mathematical model like break even analysis
model, linear programming model, queuing model, network model, etc.
o Here a situation is represented in a mathematical form such as equations, matrices graphs
and polynomials.
o A complex situation is represented using variables, constants and parameters which play a
significant role in that situation. The model is based on the relations the variables have.
The relation among the variables may be linear or non-linear. The model only considers
the relation of high significance.
o The model, when a situation is complex, tries to simplify the complexity by ignoring
minor factors and emphasizing only minor important factors.
o A model could be static or dynamic. The physical models are static models. Some business
models like the break even analysis model, the statistical regression models and some of
the OR Programming models are static models. The static model does not change over a
time period.
o All the planning models and all the forecasting models are dynamic models. In a dynamic
model, in addition to the variables considered, time is a dimension of the variables. The
values of these variables change with the change in time. Such variables are called the
stochastic variables.
o A model, physical or mathematical, static or dynamic, needs to be tested for its utility or
effectiveness. The model can be tested by using the control results already obtained. This
would show the difference between the result given by the model and the actual result in a
real life situation.

o If the difference is not significant, then one can say that the model represents the real
situation. Once the model is proved useful, it is used for testing the various solution
alternatives. The selection of a solution, from many alternative solutions, depends on the
objective chosen.
o In a linear programming model, a solution is selected on the principle of maximization of
the profit or minimization of the cost. In the queuing model a solution is selected, when
the cost of the waiting time of a customer is less than the cost of the idle time of facility.
The selection of a solution is based on the attainment of certain value of some aspect of
the business, such as the turnover, the cost and the profit and so on.
o The planning model considers those business variables which affect the business
prospects and which show a significant impact on the business results. The long-range
strategic models are, generally, dynamic models and the short-range management and
operations models are mostly static models.

Can an Organisation have more than one strategy?
Is it long range or short range?
Although organizations usually have just one vision and mission statement, they usually require
more than one strategy to achieve it. Strategies are the steps implemented to achieve the goals
and objectives that ultimately fulfill a mission. It is rare for an organization to successfully
address its reason for being in one step. Multiple strategies are basically a given.
Strategies:
Strategies are the plans for how to advantageously approach achieving objectives. Unlike the
objectives and mission statement, strategies consider internal and external factors that affect the
organization, including budgeting restrictions, government laws and regulations and available
resources. Strategies allocate the organization’s funds, define the staff’s tasks and schedule
actions to ensure that deadlines are met.
Objectives:
Objectives are the goals that must be met to fulfill the company’s mission. Objectives define the
deadlines and quality assessments that must be met to successfully complete the objectives.
Objectives often include budget information and restrictions but do not allocate how the funds
will be used to directly support the objectives. Similar to strategies, an organization often
requires more than one objective to attain the company’s mission which also results in multiple
strategies.
Mission Statement:
The mission statement defines the organization’s reason for existence and introduces its ultimate
goal. It is the organization’s personalized statement. It is generally short in nature and is written
without consideration of financial budgets and industry guidelines.
Considerations:
The mission statement provides the organization’s big picture. The objectives define the goals
that must be met to achieve the mission statement and the strategies define the actions needed
to meet each objective. There is no minimum or maximum number of allowable or necessary
strategies. It is quite common, however, for an organization to have multiple strategies. While
strategies may be implemented one at a time, it is also common for organizations to implement
multiple strategies simultaneously.
An Example:
The vast national and international presence of the Walmart Corporation makes it a good
example. The Walmart corporate mission statement is “We save people money so they can live
better.” Meeting the criteria, Walmart’s mission statement is vast and provides no restrictions or
references on resources or regulations. The organization defines various objectives to help meet
the organization’s mission of saving people money, including health and wellness initiatives,
sustainability initiatives and supplier diversity, as well as lower prices in their retail locations.
The actual steps Walmart implements to achieve its defined objectives include building
relationships with local suppliers and distributors, donating to and working with local
communities, as well as establishing lower prices. These multiple steps are the strategies
Walmart uses to meet its objectives and achieve its mission.

How IT in today’s time affect the Business Strategy?
Technology is a broad term that encompasses many tools and innovative processes that
employees use to help a company achieve its goals. A company uses the strategic management
process, or planning how to use resources for goal achievement, and specific types of technology
to ensure the best use of resources in each operational area.
Knowledge:
If you look at technology as knowledge, employees are both producers of knowledge and keepers
of knowledge. Their knowledge is an asset that managers seek to develop through the strategic
management process, including identifying what the organization will do to develop employees
through training and professional development. Strategic managers also decide how employee
knowledge will be stored electronically in the company knowledge base, such as an information
system.
Product Innovations:
Employees can also affect the attainment of strategic goals by suggesting product innovations.
This occurs when employees apply their ideas to fix problems with products or make them
better. Employees must receive the right amount of input in the product development process to
be utilized effectively in a strategically managed company. For example, managers use
nonmanagers as members of cross-functional product development teams in some organizations.
Competitiveness in Fluctuating Markets:
Technology also refers to information systems that businesses use to maintain their competitive
advantage by responding to their business markets. If a company uses an order tracking system
to manage customer orders, it must meet the needs of the company in a changing market and in a
stable market. Therefore, a strategic manager plans the ordering system to accommodate many
more requests than the present level of production so that the system will still serve the
company if it experiences massive growth.
New Capabilities:
A strategically managed organization sets goals for developing new technologies, or new
capabilities, to introduce in a target economy, not just product innovations. This relates to
expanding the organization's market position, another goal of strategic management. A firm can
create new markets when it introduces new technologies if it believes in front-end investment in
technology development.

With technology, organizations can easily scan the external business environment to collect data
that could be used for making decisions on allocation resources in a way that is up to societal
standards and makes maximum use of available resources. With technology, information is easily
communicated, ideas shared and decisions are faster. With the use of the internet, organizations
can also benchmark form other companies strategies that could be used to reach objectives.
IT helps organization in:
Plan for change - it is the only constant
Try new ways to provide services as appropriate for the organization
Consistently gather client requirements and adjust services accordingly
Maximize use of all resources (people, space, money, technology, professional
connections)
Form alliances with other information-related and technology-based services within your
organization
Make sure you have cohesive intra- and interdepartmental "buy in"
Keep abreast of the big picture of your organization. Along with technology, many
organizations are undergoing major shifts and changes. The mission and goals of the
organization two years ago may not be what is intended for the next few years.
Be proactive in aligning proof of organizational successes with information services
provided

MIS (MCA SEM-3) Decision Making
Chapter 4: Decision Making
Syllabus:
o Decision Making Concepts
o Decision Methods, Tools and Procedures
o Behavioural concepts in Decision Making
o Organizational Decision Making
o MIS and Decision Making Concepts
Questions:
o Decision Making and its Types
o Organisational Decision Making
o Structured vs. Unstructured Decisions
o Stages in Decision Making Process
o Rational Decision making, Problems in it, Can decision be right or wrong?
o Simon‘s Decision Model
o Porter‘s Competitive Model
o Is it possible to automate ‗Decision Making‘? Justify.
o Methods for dealing with uncertainty and conflict resolution

Decision Making and its Types
o Decision making is the developing concepts leading to the selection of a course of action
among variations. Every decision making process produces a final choice.It can be an action
or an opinion. It begins when we need to do something but we do not know what.
Example: Decision to raise a Purchase Order.
o Before making improvements in corporate decision making with system investments, you
must understand more about the nature of decisions and the decision-making process. There
are different information requirements at different levels of responsibility in the organization
that affect the types of decisions made at each level.
MIS and Decision making Concepts:
o It is necessary to understand the concepts of decision making as they are relevant to the
design of the MIS. The Simon Model provides a conceptual design of the MIS and decision
making, wherein the designer has to design the system in such a way that the problem is
identified in precise terms. That means the data gathered for data analysis should be such
that it provides diagnostics and also provides a path to bring the problem to surface.
o In the design phase of the model, the designer is to ensure that the system provides models
for decision making. These models should provide for the generation of decision alternatives,
test them and pave way for the selection of one of them. In a choice phase, the designer must
help to select the criteria to select one alternative amongst the many.
o The concept of programmed decision making is the finest tool available to the MIS designer,
whereby he can transfer decision making from a decision maker to the MIS and still retain the
responsibility and accountability with the decision maker or the manager. In case of non -
programmed decisions, the MIS should provide the decision support systems to handle the
variability in the decision making conditions. The decision support systems provide a
generalized model of decision making.
o The concept of decision making systems, such as the closed and the open systems helps the
designer in providing design flexibility. The closed systems are deterministic and rule based;
therefore, the design needs to have limited flexibility, while in an open system, the design
should be flexible to cope up with the changes required from time to time. The methods of
decision making can be used directly in the MIS provided the method to be applied has been
decided. A number of decision making problems call for optimization, and OR models are
available which can be made a part of the system. The optimization models are static and
dynamic, and both can be used in the MIS. Some of the problems call for a competitive

analysis, such as a payoff analysis. In these problems, the MIS can provide the analysis based
on the gains, the regrets and the utility.
o The concepts of the organizational and behavioural aspects of decision making provide an
insight to the designer to handle the organizational culture and the constraints in the MIS.
The concepts of the rationality of a business decision, the risk averseness of the managers
and the tendency to avoid an uncertainty, makes the designer conscious about the human
limitations, and prompts him to provide a support in the MIS to handle these limitations. The
reliance on organizational learning makes the designer aware of the strength of the MIS and
makes him provide the channels in the MIS to make the learning process more efficient.
o The relevance of the decision making concepts is significant in the MIS design. The
significance arises out of the complexity of decision making, the human factors in the
decision making, the organizational and behaviour aspects, and the uncertain environments.
The MIS design addressing these significant factors turns out to be the best design.
Types of Decisions
The characteristics of decisions faced by managers at different levels are quite different.
Decisions can be classified as
o Structured,
o Semistructured, and
o Unstructured.
o Unstructured decisions are those in which the decision maker must provide judgment,
evaluation, and insights into the problem definition. Each of these decisions is novel,
important, and nonroutine, and there is no well-understood or agreed-on procedure for
making them.
o Structured decisions, by contrast, are repetitive and routine, and decision makers can follow
a definite procedure for handling them to be efficient.
o Many decisions have elements of both and are considered Semi-structured decisions, in
which only part of the problem has a clear-cut answer provided by an accepted procedure.
o In general, structured decisions are made more prevalently at lower organizational levels,
whereas unstructured decision making is more common at higher levels of the firm.
o Senior executives tend to be exposed to many unstructured decision situations that are open
ended and evaluative and that require insight based on many sources of information and
personal experience. For example, a CEO in today‘s music industry might ask, ―Whom should

we choose as a distribution partner for our online music catalog— Apple, Microsoft, or Sony?‖
Answering this question would require access to news, government reports, and industry
views as well as high-level summaries of firm performance. However, the answer would also
require senior managers to use their own best judgment and poll other managers for their
opinions.
o Middle management and operational management tend to face more structured decision
scenarios, but their decisions may include unstructured components. A typical middle level
management decision might be ―Why is the order fulfilment report showing a decline over the
last six months at a distribution center in Minneapolis?‖ This middle manager could obtain a
report from the firm‘s enterprise system or distribution management system on order activity
and operational efficiency at the Minneapolis distribution center. This is the structured part
of the decision. But before arriving at an answer, this middle manager will have to interview
employees and gather more unstructured information from external sources about local
economic conditions or sales trends.
o Rank-and-file employees tend to make more structured decisions. For example, a sales
account representative often has to make decisions about extending credit to customers by
consulting the firm‘s customer database that contains credit information. In this case the
decision is highly structured, it is a routine decision made thousands of times each day in
most firms, and the answer has been pre-programmed into a corporate risk management or
credit reporting system.
o The types of decisions faced by project teams cannot be classified neatly by organizational
level. Teams are small groups of middle and operational managers and perhaps employees
assigned specific tasks that may last a few months to a few years. Their tasks may involve
unstructured or semi-structured decisions such as designing new products, devising new
ways to enter the marketplace, or reorganizing sales territories and compensation systems.

Organisational Decision Making
o An organization is an arrangement of individuals having different goals. Each individual
enjoys different powers and rights because of his position, function and importance in the
organization.
o Since there is an imbalance in the power structure, the different individuals cannot equally
influence the organizational behaviour, the management process and the setting of business
goals. Ultimately, what emerges is a hierarchy of goals which may be conflicting, self-
defeating and inconsistent.
o The corporate goals and the goals of the departments/divisions or the functional goals, may
a time, are in conflict. If the organization is a system, and its departments /divisions or
functions are its subsystems, then unless the system‘s objective and the subsystem‘s
objectives are aligned and consistent to each other, the corporate goals are not achieved.
o Managers can be trained to make better decisions. They also need a supportive environment
where they won‘t be unfairly criticised for making wrong decisions (as we all do sometimes)
and will receive proper support from their colleague and superiors. A climate of criticism and
fear stifles risk-taking and creativity; managers will respond by ‗playing it safe‘ to minimise
the risk of criticism which diminishes the business‘ effectiveness in responding to market
changes. It may also mean managers spend too much time trying to pass the blame around
rather than getting on with running the business.
o Decision-making increasingly happens at all levels of a business. The Board of Directors may
make the grand strategic decisions about investment and direction of future growth, and
managers may make the more tactical decisions about how their own department may
contribute most effectively to the overall business objectives. But quite ordinary employees
are increasingly expected to make decisions about the conduct of their own tasks, responses
to customers and improvements to business practice. This needs careful recruitment and
selection, good training, and enlightened management.
Levels of Decision-Making

Decision-Making Levels:
There are different levels in an organization. Each of these levels has different information
requirements for decision support and different constituencies or groups that information
systems need to serve (see Figure below). The four different decision-making constituencies in a
firm are the following:
Decision making Levels
Various levels of management in the firm have differing information requirements for decision
support because of their different job responsibilities and the nature of the decisions made at
each level.
o Senior management: Senior management is concerned with general yet timely information
on changes in the industry and society at large that may affect both the long-term and
near-term future of the firm, the firm‘s strategic goals, short-term and future performance,
specific bottlenecks and trouble affecting operational capabilities, and the overall ability of
the firm to achieve its objectives.
o Middle management and project teams: Middle management is concerned with specific,
timely information about firm performance, including revenue and cost reduction targets,

and with developing plans and budgets to meet strategic goals established by senior
management. This group needs to make important decisions about allocating resources,
developing short-range plans, and monitoring the performance of departments, task
forces, teams, and special project groups. Often the work of middle managers is
accomplished in teams or small groups of managers working on a task.
o Operational management and project teams: Operational management monitors the
performance of each subunit of the firm and manages individual employees. Operational
managers are in charge of specific projects and allocate resources within the project
budget, establish schedules, and make personnel decisions. Operational work may also be
accomplished through teams.
o Individual employees: Employees try to fulfill the objectives of managers above them,
following established rules and procedures for their routine activities. Increasingly,
however, employees are granted much broader responsibilities and decision-making
authority based on their own best judgment and information in corporate systems.
Employees may be making decisions about specific vendors, customers, and other
employees. Because employees interact directly with the public, how well they make their
decisions can directly impact the firm‘s revenue streams.
Types of Business Decisions:
1. Programmed Decisions: These are standard decisions which always follow the same routine.
As such, they can be written down into a series of fixed steps which anyone can follow. They
could even be written as computer program
2. Non-Programmed Decisions: These are non-standard and non-routine. Each decision is not
quite the same as any previous decision.
3. Strategic Decisions: These affect the long-term direction of the business eg whether to take
over Company A or Company B
4. Tactical Decisions: These are medium-term decisions about how to implement strategy eg
what kind of marketing to have, or how many extra staff to recruit
5. Operational Decisions: These are short-term decisions (also called administrative decisions)
about how to implement the tactics eg which firm to use to make deliveries.

Stages in Decision Making Process
The General Approach in Decision Making
General Decision Making Process
1. Defining and Analysing the real problem: The manager should first find out what is the real
problem. The problem may be due to bad relations between management and employees,
decrease in sales, increase in cost, etc. After finding out the true problem manager must analyse
it carefully. He should find out the cause and effect of the problem.
2. Developing Alternative Solutions: After defining and analysing the real problem, the manager
should develop (make) alternative (different) solutions for solving the problem. Only realistic
solutions should be considered. Group participation and computers should be used for
developing alternative solutions.
3. Evaluating the Alternative Solutions: The manager should carefully evaluate the merits and
demerits of each alternative solution. He should compare the cost of each solution. He should
compare the risks involved. He should also compare the feasibility of each solution. He should
find out which solution will be accepted by the employees.
4. Selecting the best Solution: After evaluating all the solutions, the manager should select the
best solution. He should select a solution which is less costly and less risky. He should select a

solution which is most feasible and which is accepted by the employees. In short, the manager
should select a solution which has the most merits and least demerits. The best solution is called
the "Decision".
5. Implementing the Decision: After making the decision, the manager should implement it.
That is, he should put the decision into action. He should communicate the decision to the
employees. He should persuade the employees to accept the decision. This can be done by
involving them in the decision making process. Then the manager should provide the employees
with all the resources, which are required for implementing the decision. He should also motivate
them to implement the decision.
6. Follow Up: After implementing the decision, the manager must do follow up. That is, he must
get the feedback about the decision. He should find out whether the decision was effective or
not. This is done by comparing the decision with the action, finding out the deviations
(differences) and taking essential steps to remove these deviations. So, follow-up is just like the
control function. It helps to improve the quality of future decisions.
The Organizational Approach in Decision Making
Making decisions consists of several different activities. Simon (1960) describes four different
stages in decision making:
1. Intelligence
2. Design
3. Choice and
4. Implementation
The decision-making process can be described in four steps that follow one another in a logical
order. In reality, decision makers frequently circle back to reconsider the previous stages and
through a process of iteration eventually arrive at a solution that is workable.
1. Intelligence consists of discovering, identifying, and understanding the problems occurring
in the organization—why is there a problem, where, and what effects is it having on the firm.
Traditional MIS that deliver a wide variety of detailed information can help identify problems,
especially if the systems report exceptions.
2. Design involves identifying and exploring various solutions to the problem. Decisionsupport
systems (DSS) are ideal in this stage for exploring alternatives because they possess analytical
tools for modelling data, enabling users to explore various options quickly.

Stages in decision making
3. Choice consists of choosing among solution alternatives. Here, DSS with access extensive firm
data can help managers choose the optimal solution. Also group decisionsupport systems can
be used to bring groups of managers together in an electronic online environment to discuss
different solutions and make a choice.
4. Implementation involves making the chosen alternative work and continuing to monitor how
well the solution is working. Here, traditional MIS come back into play by providing managers
with routine reports on the progress of a specific solution. Support systems can range from
full-blown MIS to much smaller systems, as well as projectplanning software operating on
personal computers.
In the real world, the stages of decision making described here do not necessarily follow a linear
path. You can be in the process of implementing a decision, only to discover that your solution is

not working. In such cases, you will be forced to repeat the design, choice, or perhaps even the
intelligence stage. For instance, in the face of declining sales, a sales management team may
strongly support a new sales incentive system to spur the sales force on to greater effort. If
paying the sales force a higher commission for making more sales does not produce sales
increases, managers would need to investigate whether the problem stems from poor product
design, inadequate customer support, or a host of other causes, none of which would be ―solved‖
by a new incentive system.

Structured vs. Unstructured Decisions
Structured Decisions:
o ―Structured‖ means having processes in place to handle a situation. The implication is that
structured problems are recurring ones. Because they recur, we put processes and
procedures in place to handle them. The hiring process is a good example. The process is in
place. What you have to do to bring in an additional resource is well defined. While
justifying the additional head count may require some work and persuasion, the process to
follow is defined.
o Note that structure creates a box within which we begin to think. The box allows us to
quickly and confidently make decisions and implement them. Knowing that the process
you‘ve used is a well-known and approved process creates a bit of justification for the
decision.
o In order to present an example of this, let‘s look at an emergency room where patients have
potential heart problems. In these cases, the cost of a wrong diagnosis, either type one or
type two, is very large. Running diagnostic tests and keeping a patient in a room until the
tests have definitively answered the question is a very expensive process. And, letting a
patient go home that really does have a heart problem is potentially deadly. By evaluating
large numbers of patients across large quantities of data, we can find the key variables that
will reduce our chance for error. The key variables can be checked very quickly and a
decision made in confidence. We may not be able to spend a lot of time in evaluating a time-
sensitive, critical situation, but we can spend time in preparing for that situation, creating
structure and confidence for a defensible solution.
o Matching up structured with time, we want to look at handling repetitive tasks. As we watch
how an Emergency Medical Technician (EMT) responds to a situation, they immediately begin
checking specific things; heartbeat, breathing, blood pressure, etc. They know that specific
items ―trump‖ other issues. The training around checking vitals helps the EMT make
decisions about how to treat the patient.
o We‘ve discussed creating structure around critical events, but it is just as important to create
structure around repetitive situations so that we do not spend a lot of time on very minor
decisions. As an example a fast-food manager may create a rule around giving free fries or a
drink to a customer if their order was slow in arriving.

Unstructured Decisions:
o ―Unstructured‖ means ―decision processes that have not been encountered in quite the same
form and for which no predetermined and explicit set of ordered responses exists in the
organization‖. This means that the company does not have a process in place to handle this.
If a process is not in place to help the decision-maker through making a decision, she is more
susceptible to censure post-decision. She is less confident in knowing she has considered all
of the options and variables. She is hesitant to start the process because of her lack of
confidence and fear of repercussions of making a bad decision. She would enter into the
decision-making process knowing that she was going to learn as she went and have to repeat
steps as she learns.
o There are a number of mitigating tactics to help with unstructured decisions. Rarely is a
situation completely unique. A more robust decision-making process may be required, but
can the company assist with guidelines to help the process? As an example, one company
has a number of ―rules of thumb‖ that are not necessarily universally true, but are
preferences built over time. One of these rules is ―buy‖ verses ―make‖. In the absence of an
obvious, right choice, this eases the decision-making process by reducing the variables to be
considered.
o A decision-maker‘s experience may assist in limiting the solution set or the selection
variables. But, she does not have to content herself with personal experience. As an example,
in choosing an overseas flight, she may want to consult with a frequent international
traveller.

Is it possible to automate ‘Decision Making’?
Systems for Decision Support OR Automation of Decision Making):
There are four kinds of systems used to support the different levels and types of decisions just
described (see Table below).
1. Management information systems (MIS) provide routine reports and summaries of
transaction- level data to middle and operational-level managers to provide answers to
structured and semi-structured decision problems.
2. Decision-support systems (DSS) are targeted systems that combine analytical models with
operational data and supportive interactive queries and analysis for middle managers who face
semi-structured decision situations.
3. Executive support systems (ESS) are specialized systems that provide senior management
making primarily unstructured decisions with a broad array of both external information
(news, stock analyses, industry trends) and high-level summaries of firm performance.
4. Group decision-support systems (GDSS) are specialized systems that provide a group
electronic environment in which managers and teams can collectively make decisions and
design solutions for unstructured and semi-structured problems.
Organizational Level and Systems for Decision Support

Rational Decision making
Rational decision making brings a structured or reasonable thought process to the act of
deciding. The choice to decide rationally makes it possible to support the decision maker by
making the knowledge involved with the choice open and specific. This can be very important
when making high value decisions that can benefit from the help of tools, processes, or the
knowledge of experts.
Characteristics of rational decision making:
o Decision making will follow a process or orderly path from problem to solution.
o There is a single best or optimal outcome. Rational decisions seek to optimize or
maximize utility.
o The chosen solution will be in agreement with the preferences and beliefs of the
decision maker.
o The rational choice will satisfy conditions of logical consistency and deductive
completeness.
o Decision making will be objective, unbiased and based on facts.
o Information is gathered for analysis during the decision making process.
o Future consequences are considered for each decision alternative.
o Structured questions are used to promote a broad and deep analysis of the situation or
problem requiring a solution.
o Risk and uncertainty are addressed with mathematically sound approaches.
In the ideal case, all rational decision makers would come to the same conclusion when presented
with the same set of sufficient information for the decision being made. This would suggest
that collaborative decision making will often employ a rational decision making process.
More on decision making models:
o As with any ideal, additional models have been developed to address the problems with
realizing the full rational model. The Bounded Rationality model acknowledges our cognitive
and environmental limits and suggests that we act rationally within these constraints.
Many decision making theories are a result of looking at the consequences of bounded
rationality.
o Rational ignorance takes a similar approach to looking at the cost of gathering information.
In this model, it is suggested that if the cost to acquire information exceeds the benefits that
can be derived from the information, it is rational to remain ignorant. This aligns with our
concept of using decision value to limit the decision effort, ensuring an appropriate return
from using a rational decision making process.

The benefits of Rational Decision Making:
Within the limitations described above, choosing rationally can provide a number of benefits that
include:
o Addressing complex decisions by breaking them down
o Characterizing decision problems and goals to ensure addressing all needs and desires
o Being aided by structured techniques, mathematics, and computers
o Ongoing improvement when codified in a process, procedure, or program
o A long list of decision making techniques and tools with proven usefulness
o A growing capability to analyze and access the information that can improve guidance
based on the facts
Problems and limitations of Rational Decision Making:
Most of the issues and limitations associated with rational choice result from falling short of the
ideal proscribed in the full rational decision making model. Here are three areas that generate
much of the concern.
o Limits of human capabilities - The limits on our human ability to gather, process, and
understand all the information needed to optimize a decision outcome make it impractical
to meet the ideal except in very constrained or simple situations. We have limits in our
ability to formulate as well as solve very complex problems. Our desire to optimize is also
limited, and we will usually "sacrifice", or be content with acceptable solutions when
confronted with obstacles.
o Limits on information and knowledge - The model assumes we should or can gather
sufficient information in terms of quantity, quality, accuracy, and integrity. It also
assumes that we have access to the required knowledge of the cause and effect
relationships that are important to the evaluation of alternative solutions, particularly
with respect to projecting future consequences.
o Limits in time - Search for the optimum solution will generate a delay that could
negatively impact the benefits of the chosen alternative. In essence, if the decision
alternatives are not properly discounted for changes due to decision timing, the chosen
alternative may not be optimum
While unable to meet the requirements of the full rational decision making model, this ideal
serves as a valuable approximation that supports predictions and decision making with
increasingly broad application. Rational approaches continue to provide the standard for
effective decision making when considered in light of current limitations. Coping with complexity
and information overload will place greater demand on enhancing capabilities that support
rational choice.

Simon’s Decision Model
Decision-making, in organizations, is regarded as a rational process. Herbert A.Simon has given a
model to describe the decision–making process. The model comprises of 3 major phases, namely,
1. Intelligence
2. Design, and
3. Choice
Simon’s Model of Rational Decision-Making
1. Intelligence Phase:In this phase, the decision maker scans the environment & identifies the
problem or opportunity. The scanning of environment may be continuous or non-continuous.
Intelligence phase of decision-making process involves:
Problem Searching
Problem Formulation
Problem Searching: For searching the problem, the reality or actual is compared to some
standards. Differences are measured & the differences are evaluated to determine whether
there is any problem or not.
Problem Formulation: When the problem is identified, there is always a risk of solving the
wrong problem. In problem formulation, establishing relations with some problem solved
earlier or an analogy proves quite useful.
2. Design Phase:In this phase, the decision maker identifies alternative courses of action to solve
the problem. Inventing or developing of various alternatives is time consuming and crucial
activity, as the decision maker has to explore all the possible alternatives.
3. Choice Phase:At this stage, one of the alternatives developed in design phase is selected & is
called a decision. For selecting an alternative, detailed analysis of each and every alternative is
made. Having made the decision, it is implemented. The decision maker in choice phase may
reject all the alternatives and return to the design phase for developing more alternatives.

Porter’s Competitive Model
Five Forces model of Michael Porter is a very elaborate concept for evaluating company's
competitive position. Michael Porter provided a framework that models an industry and therefore
implicitly also businesses as being influenced by five forces. Michael Porter's Five Forces model
is often used in strategic planning.
Need of Porter’s Competitive Forces Model:
o In general, any CEO or a strategic business manager is trying to steer his or her business in a
direction where the business will develop an edge over rival firms. Michael Porter's model of
Five Forces can be used to better understand the industry context in which the firm operates.
Porter's Five Forces model is a strategy tool that is used to analyze attractiveness of an
industry structure.
o Porter's Five Forces model provides suggested points under each main heading, by which you
can develop a broad and sophisticated analysis of competitive position. This can be then used
when creating strategy, plans, or making investment decisions about your business or
organization.
Porter's competitive five forces model is probably one of the most commonly used business
strategy tools and has proven its usefulness in numerous situations. Porter‘s Five Forces model is
made up by identification of 5 fundamental competitive forces:
1. Barriers to entry
2. Threat of substitutes
3. Bargaining power of buyers
4. Bargaining power of suppliers
5. Rivalry among the existing players
Some later economists also consider government as the sixth force in this model.
When putting all these points together in a graphical representation, we get Porter's Five Forces
model which looks like this:

Porter’s competitive forces model
Force 1: Barriers to entry
Barriers to entry measure how easy or difficult it is for new entrants to enter into the industry.
This can involve for example:
o Cost advantages (economies of scale, economies of scope)
o Access to production inputs and financing,
o Government policies and taxation
o Production cycle and learning curve
o Capital requirements
o Access to distribution channels
o Patents, branding, and image also fall into this category.
Force 2: Threat of substitutes
Every top decision makes has to ask: How easy can our product or service be substituted? The
following needs to be analyzed:
o How much does it cost the customer to switch to competing products or services?
o How likely are customers to switch?
o What is the price-performance trade-off of substitutes?
o If a product can be easily substituted, then it is a threat to the company because it can
compete with price only.

Force 3: Bargaining power of buyers
Now the question is how strong the position of buyers is. For example, can your customers work
together to order large volumes to squeeze your profit margins? The following is a list of other
examples:
o Buyer volume and concentration
o What information buyers have
o Can buyers corner you in negotiations about price
o How loyal are customers to your brand
o Price sensitivity
o Threat of backward integration
o How well differentiated your product is
o Availability of substitutes
o Having a customer that has the leverage to dictate your prices is not a good position.
Force 4: Bargaining power of suppliers
This relates to what your suppliers can do in relationship with you.
o How strong is the position of sellers?
o Are there many or only few potential suppliers?
o Is there a monopoly?
o Do you take inputs from a single supplier or from a group? (concentration)
o How much do you take from each of your suppliers?
o Can you easily switch from one supplier to another one? (switching costs)
o If you switch to another supplier, will it affect the cost and differentiation of your product?
o Are there other suppliers with the same inputs available? (substitute inputs)
o The threat of forward integration is also an important factor here.
Force 5: Rivalry among the existing players
Finally, we have to analyze the level of competition between existing players in the industry.
o Is one player very dominant or all equal in strength/size?
o Are there exit barriers?
o How fast does the industry grow?
o Does the industry operate at surplus or shortage?
o How is the industry concentrated?
o How do customers identify themselves with your brand?
o Is the product differentiated?
o How well are rivals diversified?
o Rivalry is the fifth factor in the Five Forces model but probably the one with the most
attention.

Methods for dealing with uncertainty and conflict resolution
Dealing with Uncertainty:
o The organizations perform in an environment of uncertainty. The market uncertainly, the
price fluctuations, the changers in the Government policy, not knowing the moves of the
competitors, the technology changes are some of the factors which make the business
environment uncertain.
o Organizational behaviour will, therefore, be towards minimizing the risk in decision making.
The trend will be for risk avoidance with the available information support.
o The organization will vote for a decision which has 90 per cent chance of earning Rs 1
million as against a decision which has 10 per cent chance of earning Rs 10 million. The
organizational behaviour in decision making tends to avoid risk and minimize cost.
Dealing with Conflict Resolution:

MIS (MCA SEM-3) Information
Chapter 5: Information
Syllabus:
o Information Concepts
o Information: A quality Product
o Classification of Information
o Methods of Data and Information Collection
o General Model of a Human as an Information Processor
o Summary of Information Concepts and their implications
o Organisation and Information
o MIS and Information Concepts
Questions:
o Information and data concept
o Types of Information
o Quality of Information
o Parameters to measure the Quality of Information
o How information helps to improve knowledge and decision making capability?
o Perfect Information and is it worth to invest for perfect information?
o What is Exception? Types of reports generated in MIS that help managers to handle the
Exception

Information & Data Concept
Data that has been verified to be accurate and timely, is specific and organized for a purpose, is
presented within a context that gives it meaning and relevance, and that can lead to an increase
in understanding and decrease in uncertainty.
The value of information lies solely in its ability to affect a behaviour, decision, or outcome. A
piece of information is considered valueless if, after receiving it, things remain unchanged.
Information Concept:
The word “information” is used commonly in our day to day working. In MIS, information has a
precise meaning and it is different from data. The information has a value in decision making
while data does not have. Information brings clarity and creates an intelligent human response in
the mind. In MIS a clear distinction is made between data and information. Data is like raw
materials while the information is equivalent to the finished goods produced after processing the
raw material. Information has certain characteristics.
o Improves representation of an entity
o Updates the level of knowledge.
o Has a surprise value.
o Reduces uncertainty.
o Aids in decision making.
The quality of information could be called good or bad depending on the mix of these
characteristics.
Information Presentation:
Presentation of the information is an art. The data may be collected in the best possible manner
and processed analytically, bringing lot of value in the information; however, if it not presented
properly, it may fail to communicate anything of value to the receiver. The degree of
communication is affected by the methods of transmission, the manner of information handling
and the limitation and constraints of a receiver as the information user.
The methods used for improving communication are summarization and message routing. The
concept of summarization is user to provide information which is needed in the form and
content. The information can be summarized in a number of ways as shown in Table below.
The principle behind summarization is that too much information causes noises and distortions,
i.e., confusion, misunderstanding and missing and purpose. The summarization suppresses the
noise and the distortions.

Key for summarization Focus of information Example
Management position Responsibility General Manager,
Divisional Head Marketing,
Materials
Management functions
Levels in the organization
Performance, Goals,
Targets Relevance to the
level
Production Top, Middle
Operations
Selective on condition Exceptions Only those products,
where sale is below the
budget
Table: Information Summarization
Another method of improving the degree of communication is through message routing. The
principle here is to distribute information to all those who are accountable for the subsequent
actions or decisions in any manner. That is if the information is generate with a certain purpose
for a primary user, the information may have secondary purposes to some other users in the
organization. This is achieved by sending the copies of the reports or documents to all the
concerned people or users. The principle of the message routing achieves the spread of
information to the appropriate quarters.
Knowledge is a power and an intelligent person in the organization can misuse this power to
achieve personal goals undermining the functional and organizational goals. This tendency
should be curbed. Further, the decision maker may call for the information on the grounds that,
just in case required, he should readily have it. Apart from the misuse of information, it has an
impact on the cost of information processing.

Types of Information
The following are the different classifications of information:
1. Action and No action Information
2. Recurring and Non-Recurring Information
3. Internal and External Information
4. Planning Information
5. Control Information
6. Knowledge
1. Action and No-action Information
Action Information are information which simulates an action.
Example: No stock information calls a purchase action.
No action Information are information which communicates the status of the information.
Example: Stock balance
2. Recurring and Non-Recurring Information
Recurring Information are information generated at regular intervals.
Example: Monthly sales report, Stock statements etc.
Non Recurring Information are information regarding the financial analysis or report on the
market analysis study.
Example:
3. Internal and External Information
Internal Information are information generated within the organization.
Example: Daily absentee report
External Information are information generated through government reports, industry surveys
etc.
Example:
4. Planning Information:
Planning Information are information needed to plan any activity connected with the
organization.
Example: Fixing the time standard, operational standard etc.,
5. Control Information:
Control Information are information in the form of feedback to control an activity.
Example:

6. Knowledge:
Knowledge is defined as a collection of information. Knowledge is not connected directly with
the decision making. But it is considered as strength of any organization. Knowledge is very
much useful during urgent situation and to attack the unsolved problems.
Example: Knowledge about the day to day operations of an organization is got by collecting
and storing the internal information from the various departments of the organization.
Quality of information
An information is said to be a quality of information, when it is directly applicable to take a
decision without analyzing it. Quality information must contain the following factors.
1. Utility
2. Satisfaction
3. Error
4. Bias
1. Utility:
If the information needed by the manager is given to his satisfaction, then that information is
having a high degree of utility.
If the needed information reaches the manager in the correct form, in vorrect time and if it is
easily accessible through on line then the utility is maximized.
2. Satisfaction:
All organization consists of employees in different departments in different levels. The
information given should satisfy each and every employee in the departments.
3. Error:
Information given to the employees must be free from errors. If the information contains
errors the whole system will collapse. The common errors are:
 Incorrect data measurement
 Incorrect collection method
 Failure in following the correct data processing procedure
 Loss of data or incomplete data collection
 Poor data validation and quality control
 Deliberately giving wring data
4. Bias:
Presented information must be free from any external or internal pressure.

Parameters used to measure Quality of Information
Quality of information refers to its fitness for use or its reliability. Some of the attributes of
information which influence the quality of information are as follows:
1.Timeliness: Timeliness means that information must reach the recipients within the
prescribed time frame. Timely information can ensure correct executive action at an early
stage. The characteristic of timeliness, to be effective, should also include current
information.
2. Accuracy: Accuracy is another key-attribute of management information. It means that
information is free from mistakes and errors, is clear and accurately reflects the meaning of
data on which it is based. It conveys an accurate picture to the recipient, who may require a
presentation in graphical form rather than tabular form.
3. Relevance: Relevance is yet another key attribute of management information. Information is
said to be relevant if it answers specifically for the recipient what, why, where, who and why?
In other words, the MIS should serve reports to managers, which are useful, and the
information helps them make decisions.
4. Adequacy: Adequacy means information must be sufficient in quantity. MIS must provide
reports containing information, which is required in deciding processes of decision-making.
5. Completeness: The information, which is provided to a manager, must be complete and
should meet all his needs. Incomplete information may result in wrong decisions and thus may
prove costly to the organization.
6. Explicitness: A report is said to be of good quality if it does not require further analysis by the
recipient for decision-making. Thus the reports should be such that a manager does not waste
any time on the processing of the report, rather he should be able to extract the required
information directly.
7. Exception based: Top managers need only exception reports regarding the performance of the
organization. Exception reporting principle states that only those items of information, which
will be of particular interest to a manager, are reported. This approach results in saving
precious time of the top management and enables the managers to devote more time in
pursuit of alternatives for the growth of the organization.

Parameters of Quality
The parameters of a good quality are difficult to determine, however, the information can be
termed as of a good quality if it meets the norms of impartiality, validity, reliability, consistency
and age.
1. Impartiality: Impartial information contains no bias and has been collected without any
distorted view of the situation. The partiality creeps in, if the data is collected with a
preconceived view, a prejudice, and a pre-determined objective or a certain motive.
2. Validity: The validity of the information relates to the purpose of the information. In other
words, it is the answer to the question – does the information meet the purpose of decision
making for which it is being collected?
The validity also depends on how the information is used. Since the information and the purpose
need not have one to one correspondence, the tendency to use it in a particular situation may
make the information invalid.
3. Reliability: It is connected to the representation and the accuracy of what is being described.
For example, if the organization collects the information on the product acceptance in the
selected market segment, the size of the sample and the method of selection of the sample will
decide the reliability.
4. Consistency: The information is termed as inconsistent if it is derived from a data which does
not have a consistent pattern of period. Somewhere, the information must relate to a consistent
base or a patter.
For example, you have collected the information on the quantity of production for the last twelve
months to fix the production norms. If in this twelve months period, the factory has worked with
variable shift production, the production statistics of the twelve months for comparison is
inconsistent due to the variable shift production. The consistency can be brought in by
rationalizing the date to per shift production per month. The regularity in providing the
information also helps in assessing the consistency in the information.
5. Age: If the information is old, it is not useful today. The currency of the information makes all
the difference to the users. If the information is old it does not meet any characteristics of the
information viz., the update of knowledge, the element of surprise and the reduction of
uncertainty, and the representation.

Value of Information
The decision theory suggests the methods of solving the problems of decision making under
certainty, risk and uncertainty. A decision making situation is of certainty when the decision
maker has full knowledge about the alternatives and its outcomes. This is possible when perfect
information is available. Therefore, the information has a perceived value in terms of decision
making. The decision maker feels more secured when additional information is received in case
of decision making under an uncertainty or a risk. The information is called perfect information,
if it wipes out uncertainty or risk completely. However, perfect information is a myth.
Method Example Comment
Observation The first-hand knowledge avoids
a response bias. An accuracy of
observation will decide the
response. It is dependent on the
observer and is influenced by the
bias.
Visit to the customer for assessing
the customer complaints. A visit to
assess the accidental damage.
Experiment The information on a specific
parameter can be obtained
through a control over variables.
The quality of information
depends on the design of the
experiments.
Assembly the yield of a new
fertilizer by a design of the control
experiment. Assessing the market
response to a new packaging
through test marketing.
Survey One time. Enables to cover the
interested population on specific
aspects. The quality of
questionnaire will decide the
quality of information.
Market survey, opinion polls, and
census.
Subjective Estimation In the absence of all the three
above, the expert options may be
called to collect the information.
Data pertaining to future like the
alternate sources of energy, the
life style in the 21st
century.
Transaction
Processing
The data exists but needs a
processing and integration for
reporting.
Ledgers, payroll, stock statements,
sales report.
Purchased from
outside
Easily available at a price. May be
expensive and many have a bias
depending on the source.
Databases on the specific subject,
research studies. Market and
technology studies.
Publications Low cost but may project or
emphasize one view or the
other. Information may be
lopsided.
The government publications, the
industry publications, the
institutional publications such as
NCAER, NCL, BANKS, UNO the
various public forums.
Government agencies Available but may not be directly
useful not knowing the details of
collection analysis is usually not
the latest.
The Reverse Bank of India
publications. The Tax publications,
the reports and findings.
Table: The Methods of Data and Information Collection

The decision theory stipulates that the value of the additional information is the value of the
change in the decision behaviour, resulted by the information, less the cost of obtaining the
information. If the additional information does not cause any change in the decision behaviour
then the value of the additional information is zero. The value of the additional information
making the existing information perfect (VPI) is:
VP1 = (V2 - V1) - (C2 – C1)
Where V is the value of the information and C is the cost of obtaining the information. V1 and C1
relate to one set of information and V2, C2 relate to the new set. If the VP1 is very high, then it is
beneficial to serve the additional information need.
A manager is faced with the problem of decision making under uncertainty or risk conditions, if
he does not know the perfect information about the decision situation. Further, his ability to
generate decision alternatives owing to the imperfect information of the situation, and also the
expected events in the future is limited. In other words, given a set of possible decisions, a
decision maker will select one on the basis of the available information. If the new information
cause a change in the decision, then the value of the new information is the difference in the
value between the outcome of the old decision and that of new decision, less the loss of
obtaining the new information.
In MIS, the concept of the value of information is used to find out benefit of perfect information
and if the value is significantly high, the system should provide it. If the value is in signification,
it would not be worth collecting the additional information. The decisions at the operational and
the middle management level are such that the value of additional or new information is low,
while at the higher levels of the management, the decision being mainly strategic and tactical in
nature, the value of additional information is very high.

Management of Quality in MIS
Information is a corporate resource, as important as the capital, labour, know-how, etc. and is
being used for decision making. Its quality, therefore, is required to be very high. Low quality
information would adversely affect the organizational performance as it affects decision making.
The quality of information is the result of the quality of the input data, processing design,
system design, system procedure which generate such a data, and the management of the data
processing function. Quality, unlike any other product, is not an absolute concept. Its level is
determined with reference to the context and its use, and the user. Perfect quality just as perfect
information is non-achievable and has cost benefit implications.
However, it is possible to measure the quality of information on certain parameters. All these
parameters need not have a very high value in terms of the unit of measure. Some parameters
may have lesser importance in the total value on account of their relevance in the information
and its use.
The quality of the parameters is assured if the following steps are taken:
o All the input is processed and controlled.
o All updating and corrections are completed before the data processing begins.
o Inputs (transactions, documents, fields and records) are subjected to validity checks.
o The access to the data files is protected and secured through an authorization scheme.
o Intermediate processing checks are introduced to ensure that the complete data is
processed right through, I.e., run to run controls.
o Due attention is given to the proper file selection in terms of data, periods and so on.
o Back-up of the data and files are taken to safeguard corruption or loss of data.
o The system audit is conducted from time to time to ensure that the computer system
specification is not violated.
o The system modifications are approved by following a set procedure which begins with
authorization of a change to its implementation followed by an audit.
o Systems are developed with a standard specification of design and development.
o Computer system processing is controlled through programme control, process control
and access control.
Proper people organization is basic to the management of any activity or function. The same
thing is true for the development of the MIS. The principle of the organization and structuring
the organization to the specific needs of the function is a prime necessity. When we talk with
reference to the MIS a number of issues come up and they are not the same in all the
organizations. Hence, the organization structure of the MIS would differ from one organization
to the other.

The type, the size and the structure of corporate organization becomes the basis for the MIS
organization for handling the MIS function and management alternatives. The major issues
involved are:
o Whether the function should be handled as a centralized or decentralized activity.
o The allocation of the hardware and software resources.
o The maintenance of the service level at an appropriate level.
o Fitting the organization of the MIS in the corporate organization, its culture and the
management philosophy.
The question of centralization versus decentralization is resolved by assessing the status of
information resource in the organization, i.e., whether the status is the information system
management or the information resource management.
In a centralized set, the responsibility of acquisition of the data, of providing the information to
the users, becomes the centralized function. The centralized organization is also recommenced
when the information needs are more or less static.
Depending upon the situation, hardware and software solutions are available. In a decentralized
set-up the allocation the hardware is a centralized decision but the collection of data and its
processing becomes the user's responsibility. Training, problem solving and system
development, however, is a centralized function. In all such situations, the information
processing is based on the database management system. Therefore, the management of the
database becomes the centralized responsibility and its use becomes the responsibility of users.
The MIS functions in any organization would vary on account of the issues mentioned earlier and
too that extent the variations of these two models would be the organization of the MIS.

Perfect Information
Perfect information in Game theory:
In game theory, perfect information describes the situation when a player has available the same
information to determine all of the possible games (all combinations of legal moves) as would be
available at the end of the game.
In game theory, a game is described as a game of perfect information if perfect information is
available for all moves. Chess is an example of a game with perfect information as each player
can see all of the pieces on the board at all times. Other examples of perfect games include tic tac
toe, irensei, and go. Games with perfect information represent a small subset of games. Card
games where each player's cards are hidden from other players are examples of games of
imperfect information.
Perfect information in Microeconomics:
In microeconomics, a state of perfect information is assumed in some models of perfect
competition. That is, assuming that all agents are rational and have perfect information, they will
choose the best products, and the market will reward those who make the best products with
higher sales. Perfect information would practically mean that all consumers know all things,
about all products, at all times (including knowing the probabilistic outcome of all future events),
and therefore always make the best decision regarding purchase. This is physically impossible,
however, as the Bekenstein Bound provides a physical limit to the amount of information that can
be stored in a given physical system (in this case, a market participant). Still, perfect information
is a common assumption in economic models because it allows mathematical derivation of
desirable results.
The pervasive effects of information asymmetry in markets have been documented and studied
in numerous contexts. In his 2001 Nobel Prize lecture, economist Joseph E. Stiglitz spoke to the
faults of standard economic models and the faulty policy implications and recommendations that
arise from their unrealistic assumptions, writing:
"I only varied one assumption – the assumption concerning perfect information – and in ways
which seemed highly plausible. ... We succeeded in showing not only that the standard theory
was not robust – changing only one assumption in ways which were totally plausible had drastic
consequences, but also that an alternative robust paradigm with great explanatory power could
be constructed."

Is it worth to invest for perfect information…?
In order to know about „is it worth to invest for perfect information‟ we must know the expected
value of perfect information (EVPI) of corresponding information.
In decision theory, the expected value of perfect information (EVPI) is the price that one would
be willing to pay in order to gain access to perfect information.
The problem is modeled with a payoff matrix Rij
in which the row index i describes a choice that
must be made by the payer, while the column index j describes a random variable that the payer
does not yet have knowledge of, that has probability pj
of being in state j. If the payer is to
choose i without knowing the value of j, the best choice is the one that maximizes the expected
monetary value:
Where: is the expected payoff for action i i.e. the expectation value, and
is choosing the maximum of these expectations for all available actions.
On the other hand, with perfect knowledge of j, the player may choose a value of i that optimizes
the expectation for that specific j. Therefore, the expected value given perfect information is
Where; is the probability that the system is in state j, and
is the pay-off if one follows action i while the system is in state j.
Here indicates the best choice of action i for each state j.
The expected value of perfect information is the difference between these two quantities,
This difference describes, in expectation, how much larger a value the player can hope to obtain
by knowing j and picking the best i for that j, as compared to picking a value of i before j is
known. Note: EV|PI is necessarily greater than or equal to EMV. That is, EVPI is always non-
negative.
EVPI provides a criterion by which to judge ordinary mortal forecasters. EVPI can be used to
reject costly proposals: if one is offered knowledge for a price larger than EVPI, it would be better
to refuse the offer. However, it is less helpful when deciding whether to accept a forecasting
offer, because one needs to know the quality of the information one is acquiring.

Example:
Suppose you were going to make an investment into only one of three investment vehicles: stock,
mutual fund, or certificate of deposit (CD). Further suppose, that the market has a 50% chance of
increasing, a 30% chance of staying even, and a 20% chance of decreasing. If the market increases
the stock investment will earn $1500 and the mutual fund will earn $900. If the market stays
even the stock investment will earn $300 and the mutual fund will earn $600. If the market
decreases the stock investment will lose $800 and the mutual fund will lose $200. The certificate
of deposit will earn $500 independent of the market's fluctuation.
Question:
What is the expected value of perfect information?
Solution:
Expectation for each vehicle:
The maximum of these expectations is the stock vehicle. Not knowing which direction the market
will go (only knowing the probability of the directions), we expect to make the most money with
the stock vehicle.
Thus,
On the other hand, consider if we did know ahead of time which way the market would turn.
Given the knowledge of the direction of the market we would (potentially) make a different
investment vehicle decision.
Expectation for maximizing profit given the state of the market:
That is, given each market direction, we choose the investment vehicle that maximizes the profit.
Hence,
Conclusion:
Knowing the direction the market will go (i.e. having perfect information) is worth $350.

What is Exception?
Types of reports generated in MIS that help managers to handle the Exception
Management information systems process raw data from office processing systems, such as
desktop computers and mobile applications, and transaction processing systems, such as retail
point-of-sale systems. The output is sometimes in the form of reports that present aggregated data,
which facilitates analysis and decision making. The reports could be summaries of daily sales or
detailed sales trends organized by product and business units.
MIS and Reports
1. Summary Reports:
o Summary reports aggregate data by accounting periods, geographic regions, business units
or product categories. The reports consolidate information in a format that makes it easy
for managers to review and analyze.
o For example, an inventory summary report could include the number of items in stock,
recent purchases and total inventory value. Similarly, a sales summary report could provide
information on daily sales and group the information by product category and geographic
regions. MIS applications, including even basic spreadsheet applications, usually allow users
to specify different report formats.

2. Trend Reports:
o Trend reports allow managers to compare the performance of business units or product
categories and to evaluate historical results.
o For example, a sales trend report for a retailer could show the sales of different product
categories over a year, broken down by weeks or months. The report could also include
historical year-over-year comparisons, which would allow management to identify possible
problem areas and implement corrective actions. If a business unit or product category is
showing declining sales compared to the company average, a management change might be
required. Similarly, if a product is not selling well, the company could redesign or
discontinue it.
3. Exception Reports:
o An exception refers to data that are outside of normal ranges. Exception reports aggregate
these unusual conditions and present them separately. A timely reporting of exception
conditions makes it easier for a manager to isolate cases that require immediate attention.
The manager does not have to pore through other reports looking for these exception
conditions.
o For example, an MIS exception report could notify a store manager when his inventory is
running low so that he can reorder supplies. For a large organization, a human resources
exception report could flag unusual levels of sick days for certain employees and business
units.
4. On-Demand Reports:
o On-demand reports provide specific information as and when needed. The content of these
reports depends on the circumstances and the requesting manager's requirements. These
reports can be in a custom format or in one of the regular summary or trend formats.
o For example, a small business owner might want to know how her products are selling
around certain holidays, in specific geographic areas or a combination. A marketing
manager can perform a scenario analysis to see how a pricing change could affect sales and
profitability.

MIS (MCA SEM-3) Development of MIS
Chapter 6:Development of MIS
Syllabus:
o Development of Long Range Plans of MIS
o Ascertaining the class of Information
o Determining the Information Requirement
o Development and Implementation of MIS
o Organisation for development of MIS
o MIS: the Factors for Success and Failure
Questions:
o Why is long term plan of MIS necessary? How it’s linked with Business Plan of MIS
o MIS Development is linked with business plan of an Organisation. Justify
o Content of MIS plan, purpose of each of them
o Role of System analyst in MIS Development
o Problems faced by system analyst in ascertaining information at various levels of mgmt.How
to solve it?
o Prototype Approach and Life Cycle Approach

Why is long term plan of MIS necessary?
o Any kind of business activity calls for long range plans for success, the same being true for
MIS. The plan for development and its implementation is a basic necessity for MIS. In MIS
the information is recognized as a major resource like capital, time and capacity. And if this
resource is to be managed well, it calls upon the management to plan for it and control it for
the appropriate use in the organization. Most of the organizations do not recognize
`Information’ as a resource. They have looked at information as one of the many necessities
for conducting the business activity. Hence, due regard is often not given for its planned
development and use. Many organizations have spent financial resources on computers
purely to expedite the activity of data collection and processing.
o Many organizations have purchased computers for data processing and for meeting the
statutory requirements of filing the returns and reports to the Government. Computers are
used mainly for computing and accounting the business transactions and have not been
considered as a tool for information processing.
o The organizations have invested in computers and expanded its use by adding more or
bigger computers to take care of the numerous transactions in the business. In this approach
the information processing function of the computers in the organization never got its due
regard as an important asset to the organization. In fact, this function is misinterpreted as
data processing for expeditious generation of reports and returns, and not as information
processing for management action and decisions.
o However, the scheme has been changing since late eighties when the computers became more
versatile, in the function of Storage, Communication, Intelligence and Language. The
computer technology is so advanced that the barriers of storage, distance, understanding of
language and speed are broken.
o With the advancement of computer technology, it is now possible to recognize information as
valuable resources like money and capacity.
o In short, we need a Management Information System flexible enough to deal with the
changing information needs of the organization. It should be conceived as an open system
continuously interacting with the business environment with a built-in mechanism to provide
the desired information as per the new requirements of the management. The designing of
such as open system is a complex task. It can be achieved only if the MIS is planned, keeping
in view, the plan of the business management of the organization.

o The plan of MIS is concurrent to the business plan of the organization. The information needs
for the implementation of the business plan should find place in the MIS. To ensure such an
alignment possibility, it is necessary that the business plan – strategic or otherwise, states
the information needs. The information needs are the traced to the source data and the
systems in the organization which generate such a data. The plan of development of the MIS
is linked with the steps of the implementation in a business development plan. The system of
information generation is so planned that strategic information is provided for the strategic
planning, control information is provided for a short term planning and execution.
o MIS controls the overall development of any organization. Its main objective is to behave like
an open system that interacts continuously with the business environment and provides the
needed information for achieving the organizations objectives.
o Therefore a good planning is needed for development and implementation of a good MIS.

MIS Development is linked with business plan of an Organisation. Justify
Content of MIS Plan
o The plan for development and its implementation is a basic necessity for MIS. In MIS the
information is recognized as major resource like capital and time. If this resource has to be
managed well, it calls upon the management to plan for it and control it, so that the
information becomes a vital resource for the system.
o The management information system needs good planning. This system should deal with the
management information not with data processing alone. It should provide support forthe
management planning, decision making and action. It should provide support to the changing
needs of business management.
o A long range MIS plan provides direction for the development of the system and provides a
basis for achieving the specific targets or tasks against time frame.
Following are the contents of MIS planning:
1. MIS goals and objectives:
It is necessary to develop the goals and objectives for the MIS which will support the business
goals. The MIS goals and objectives will consider management philosophy, policy constraints,
business risks, internal and external environment of the organization and the business. The
goals and the objectives of the MIS would be so stated that they can be measured. The typical
statements of the goals can be providing online information on the stock and market; the
query processing should not exceed more than three seconds and the like.
The typical statements of the goals are as under:
1. Provide on-line information on the stocks, markets and the accounts balances.
2. The query processing should not exceed more than three seconds.
3. The focus of the system will be on the end user computing and access facilities.
4. Information support will be the first in the strategic areas of management such as
marketing or service or technology.
2. Strategy for Plan Achievement:
The designer has to take a number of strategic decisions for the achievement of MIS goals and
objectives. They are
o Development Strategy: Ex. an online, batch, a real time.
o System Development Strategy: Designer selects an approach to system development like
operational verses functional, accounting verses analysis.
o Resources for the Development: Designer has to select resources. Resources can be in-
house verses external, customized or use of package.
o Manpower Composition: The staff should have the staffs of an analyst, and programmer.

3. The Architecture of MIS:
The architecture of the MIS plan provides a system and subsystem structure and their input,
output and linkage. It spells out in details the subsystem from the data entry to processing,
analysis to modelling and storage to printing.
4. The System Development Schedule:
A schedule is made for development of the system. While preparing a schedule due
consideration is given to importance of the system in the overall information requirements.
This development schedule is to be weighed against the time scale for achieving certain
information requirements.
5. Hardware and Software Plan:
Giving due regards to the technical and operational feasibility, the economics of investment is
worked out. Then the plan of procurement is made after selecting the hardware and software.
One can take the phased approach of investing starting from the lower configuration of
hardware going to the higher as development take place. The process needs matching the
technical decisions with the financial decisions.
Business Plan MIS Plan
Business goals and objectives Management information system, objectives, consistent
to the business goals and objectives.
Business plan and strategy Information strategy for the business plan
implementation playing a supportive role.
Strategy planning and decisions. Architecture of the Management Information system to
support decisions.
Management Plan for execution
and control
System development schedule, matching the plan
execution.
Operation plan for the execution Hardware and software plan for the procurement and
the implementation.
Table: Business Plan versus MIS Plan

Prototype Approach and Life Cycle Approach
Alternative Systems-Building Approaches:
Systems differ in terms of their size and technological complexity and in terms of the
organizational problems they are meant to solve. A number of systems-building approaches have
been developed to deal with these differences. This section describes these alternative methods:
o The Traditional Systems Life Cycle,
o Prototyping,
o End-User Development,
o Application Software Packages, And
o Outsourcing.
Traditional Systems Life Cycle Approach:
o The systems life cycle is the oldest method for building information systems. The life cycle
methodology is a phased approach to building a system, dividing systems development into
formal stages. Systems development specialists have different opinions on how to partition
the systems-building stages, but they roughly correspond to the stages of systems
development that we have just described.
o The systems life cycle methodology maintains a very formal division of labour between end
users and information systems specialists. Technical specialists, such as system analysts and
programmers, are responsible for much of the systems analysis, design, and implementation
work; end users are limited to providing information requirements and reviewing the
technical staff’s work. The life cycle also emphasizes formal specifications and paperwork, so
many documents are generated during the course of a systems project.
o The systems life cycle is still used for building large complex systems that require a rigorous
and formal requirements analysis, predefined specifications, and tight controls over the
systems-building process. However, the systems life cycle approach can be costly, time
consuming, and inflexible. Although systems builders can go back and forth among stages in
the life cycle, the systems life cycle is predominantly a “waterfall” approach in which tasks in
one stage are completed before work for the next stage begins.
o Activities can be repeated, but volumes of new documents must be generated and steps
retraced if requirements and specifications need to be revised. This encourages freezing of
specifications relatively early in the development process. The life cycle approach is also not
suitable for many small desktop systems, which tend to be less structured and more
individualized.

Prototyping Approach:
o Prototyping consists of building an experimental system rapidly and inexpensively for end
users to evaluate. By interacting with the prototype, users can get a better idea of their
information requirements. The prototype endorsed by the users can be used as a template to
create the final system.
o The prototype is a working version of an information system or part of the system, but is
meant to be only a preliminary model. Once operational, the prototype will be further refined
until it conforms precisely to users’ requirements. Once the design has been finalized, the
prototype can be converted to a polished production system.
o The process of building a preliminary design, trying it out, refining it, and trying again has
been called an iterative process of systems development because the steps required to build a
system can be repeated over and over again. Prototyping is more explicitly iterative than the
conventional life cycle, and it actively promotes system design changes. It has been said that
prototyping replaces unplanned rework with planned iteration, with each version more
accurately reflecting users’ requirements.
Steps in prototyping:
Step 1: Identify the user’s basic requirements. The system designer (usually an information
systems specialist) works with the user only long enough to capture the user’s basic
information needs.
Step 2: Develop an initial prototype. The system designer creates a working prototype quickly,
using tools for rapidly generating software.
Identify Basic
Requirements
Develop a
Working
Prototype
Use the
Prototype
User
satisfied?
Operational
Prototype
Yes
No
Revise and
Enhance the
Prototype
STEP 1
STEP 2
STEP 3
STEP 4
The Prototyping Process

Step 3: Use the prototype. The user is encouraged to work with the system to determine how well
the prototype meets his or her needs and to make suggestions for improving the
prototype.
Step 4: Revise and enhance the prototype. The system builder notes all changes the user requests
and refines the prototype accordingly. After the prototype has been revised, the cycle
returns to step 3. Steps 3 and 4 are repeated until the user is satisfied.
o The process of developing a prototype can be broken down into four steps. Because a
prototype can be developed quickly and inexpensively, systems builders can go through
several iterations, repeating steps 3 and 4, to refine and enhance the prototype before
arriving at the final operational one.
o When no more iterations are required, the approved prototype then becomes an operational
prototype that furnishes the final specifications for the application. Sometimes the prototype
is adopted as the production version of the system.
Types of prototyping:
1. Throwaway Prototyping:
Throwaway or Rapid Prototyping refers to the creation of a model that will eventually be
discarded rather than becoming part of the finally delivered system. After preliminary
requirements gathering is accomplished, a simple working model of the system is constructed
to visually show the users what their requirements may look like when they are implemented
into a finished system. The most obvious reason for using Throwaway Prototyping is that it
can be done quickly.
2. Evolutionary Prototyping:
Evolutionary Prototyping (also known as Breadboard Prototyping) is quite different from
Throwaway Prototyping. The main goal when usingEvolutionary Prototyping is to build a very
good prototype in a structured manner so that we can refine it or make further changes to it.
The reason for this is that the Evolutionary prototype, when built, forms the heart of the new
system, and the improvements and further requirements will be built on to it. It is not
discarded or removed like the Throwaway Prototype. When developing a system using
Evolutionary Prototyping, the system is continually refined and rebuilt.
3. Incremental Prototyping:
The final product is built as separate prototypes. At the end the separate prototypes are
merged in an overall design.

Advantages of Prototyping:
1. Reduced Time and Costs:
Prototyping can improve the quality of requirements and specifications provided to
developers. Early determination of what the user really wants can result in faster and less
expensive software.
2. Improved and Increased User Involvement:
Prototyping requires user involvement and allows them to see and interact with a prototype;
allowing them to provide better and more complete feedback and specifications. Since users
know the problem better than anyone, the final product is more likely to satisfy the users
desire for look, feel and performance.
Disadvantages of Prototyping:
1. Insufficient Analysis:
Since a model has to be created, developers will not properly analyse the complete project.
This may lead to a poor prototype and a final project that will not satisfy the users.
2. User Confusion of Prototype and Finished System:
Users can begin to think that a prototype, intended to be thrown away, is actually a final
system that merely needs to be finished or polished. Users can also become attached to
features that were included in a prototype for consideration and then removed from the
specification for a final system.
3. Excessive Development Time of the Prototype:
A key property to prototyping is the fact that it is supposed to be done quickly. If the
developers forget about this fact, they will develop a prototype that is too complex.
4. Expense of Implementing Prototyping:
The start-up costs for building a development team focused on prototyping may be high. Many
companies have to train the team for this purpose which needs extra expenses.

MIS (MCA SEM-3) Choice of Information Technology
Chapter 7:Choice of Information Technology
Syllabus:
o Introduction: Nature of IT Decision
o Strategic Decision
o Configuration Decision
o Evaluation
o Information Technology Implementation Plan
o Choice of the Information Technology and the Management Information System
Questions:
o Selection of Information Technology is Strategic Decision in MIS. Explain
o Parameters used in Evaluation of IT before decision is made

Selection of Information Technology is Strategic Decision in MIS. Explain

Parameters used in Evaluation of IT before decision is made

MIS (MCA SEM-3) Enterprise Applications and Business Process Integration
Chapter 8: Enterprise Applications and Business Process Integration
Syllabus:
o Enterprise Systems
o Supply chain Management Systems
o Customer Relationship Management Systems
o Enterprise Integration Trends
Questions:
o CRM, Analytical and Operation CRM, Features
o SCM, PUSH vs. PULL based SCM
o Bullwhip Effect, How to reduce it using SCM, Its value to Business
o ERP (never asked yet)

Customer Relationship Management (CRM)
Customer Relationship Management is defined as a process of creating and maintaining
relationship with customers. CRM is not a technology, but it is are approach which satisfies the
customers. A good CRM system should cover the following:
o Identify the factors important to customers
o Adopt customer based measures
o Develop end-to-end processes to serve customers
o Provide successful customer support
o Handle customer complaints
o Track all sales process
CRM Cycle
o Customer relationship management is a broadly recognized, widely-implemented strategy for
managing and nurturing a company’s interactions with customers and sales prospects. It
involves using technology to organize, automate, and synchronize business processes—
principally sales related activities, but also those for marketing, customer service, and
technical support. The overall goals are to find, attract, and win new customers, nurture and
retain those the company already has, entice former customers back into the fold, and reduce
the costs of marketing and customer service.
o CRM, or Customer relationship management, is a number of strategies and technologies that
are used to build stronger relationships between companies and their customers. A company
will store information that is related to their customers, and they will spend time analysing it
so that it can be used for this purpose.

o Some of the methods connected with CRM are automated, and the purpose of this is to create
marketing strategies which are targeted towards specific customers. The strategies used will
be dependent on the information that is contained within the system. Customer relationship
management is commonly used by corporations, and they will focus on maintaining a strong
relationship with their clients.
o There are a number of reasons why CRM has become so important in the last 10 years. The
competition in the global market has become highly competitive, and it has become easier for
customers to switch companies if they are not happy with the service they receive. One of the
primary goals of CRM is to maintain clients. When it is used effectively, a company will be
able to build a relationship with their customers that can last a lifetime. Customer
relationship management tools will generally come in the form of software. Each software
program may vary in the way it approaches CRM. It is important to realize that CRM is more
than just a technology.
o Customer relationship management could be better defined as being a methodology, an
approach that a company will use to achieve their goals. It should be directly connected to the
philosophy of the company. It must guide all of its policies, and it must be an important part
of customer service and marketing. If this is not done, the CRM system will become a failure.
There are a number of things the ideal CRM system should have. It should allow the company
to find the factors that interest their customers the most. A company must realize that it is
impossible for them to succeed if they do not cater to the desires and needs of their
customers. Customer relationship management is a powerful system that will allow them to
do this.
o It is also important for the CRM system to foster a philosophy that is oriented towards the
customers. While this may sound like common sense, there are a sizeable number of
companies that have failed to do it, and their businesses suffered as a result. With CRM, the
customer is always right, and they are the most important factor in the success of the
company. It is also important for the company to use measures that are dependent on their
customers. This will greatly tip the odds of success in their favour. While CRM should not be
viewed as a technology, it is important to realize that there are end to end processes that
must be created so that customers can be properly served. In many cases, these processes
will use computers and software.
o Customer support is directly connected to CRM. If a company fails to provide quality
customer support, they have also failed with their CRM system. When a customer makes
complaints, they must be handled quickly and efficiently. The company should also seek to
make sure those mistakes are not repeated. When sales are made, they should be tracked so
that the company can analyze them from various aspects. It is also important to understand
the architecture of Customer relationship management. The architecture of CRM can be
broken down into three categories, and these are collaborative, operational, and analytical.

The collaborative aspect of CRM deals with communication between companies and their
clients.
o The operational aspect of the architecture deals with the concept of making certain processes
automated. The analytical aspect of CRM architecture deals with analysing customer
information and using if for business intelligence purposes. Each one of these elements are
critical for the success of a CRM system. A company must learn how to use all three properly,
and when they do this proficiently, they will be able to build strong customer relationships
and ensure their profits for a long period of time. As more businesses continue to compete on
a global level, it will become more important for them to use successful Customer
relationship management techniques.
Types/Variations of CRM:
1. Sales force automation:
Sales force automation (SFA) involves using software to streamline all phases of the sales
process, minimizing the time that sales representatives need to spend on each phase. This
allows a business to use fewer sales representatives to manage their clients. At the core of SFA
is a contact management system for tracking and recording every stage in the sales process for
each prospective client, from initial contact to final disposition. Many SFA applications also
include insights into opportunities, territories, sales forecasts and workflow automation.
2. Marketing
CRM systems for marketing help the enterprise identify and target potential clients and
generate leads for the sales team. A key marketing capability is tracking and measuring
multichannel campaigns, including email, search, social media, telephone and direct mail.
Metrics monitored include clicks, responses, leads, deals, and revenue. Alternatively, Prospect
Relationship Management (PRM) solutions offer to track customer behaviour and nurture them
from first contact to sale, often cutting out the active sales process altogether.
In a web-focused marketing CRM solution, organizations create and track specific web
activities that help develop the client relationship. These activities may include such activities
as free downloads, online video content, and online web presentations.
3. Customer service and support
CRM software provides a business with the ability to create, assign and manage requests made
by customers. An example would be Call Centre software which helps to direct a customer to
the agent who can best help them with their current problem. Recognizing that this type of
service is an important factor in attracting and retaining customers, organizations are
increasingly turning to technology to help them improve their clients’ experience while aiming
to increase efficiency and minimize costs. CRM software can also be used to identify and
reward loyal customers which in turn will help customer retention. Even so, a 2009 study

revealed that only 39% of corporate executives believe their employees have the right tools
and authority to solve client problems.
4. Appointment
Creating and scheduling appointments with customers is a central activity of most customer
oriented businesses. Sales, customer support, and service personnel regularly spend a portion
of their time getting in touch with customers and prospects through a variety of means to
agree on a time and place for meeting for a sales conversation or to deliver customer service.
Appointment CRM is a relatively new CRM platform category in which an automated system is
used to offer a suite of suitable appointment times to a customer via e-mail or through a web
site. An automated process is used to schedule and confirm the appointment, and place it on
the appropriate person's calendar. Appointment CRM systems can be an origination point for a
sales lead and are generally integrated with sales and marketing CRM systems to capture and
store the interaction.
5. Analytics
Relevant analytics are often interwoven into applications for sales, marketing, and service.
These features can be complemented and augmented with links to separate, purpose-built
applications for analytics and business intelligence. Sales analytics let companies monitor and
understand client actions and preferences, through sales forecasting and data quality.
6. Integrated/collaborative
Departments within enterprises — especially large enterprises — tend to function with little
collaboration. More recently, the development and adoption of these tools and services have
fostered greater fluidity and cooperation among sales, service, and marketing. This finds
expression in the concept of collaborative systems that use technology to build bridges
between departments. For example, feedback from a technical support center can enlighten
marketers about specific services and product features clients are asking for. Reps, in their
turn, want to be able to pursue these opportunities without the burden of re-entering records
and contact data into a separate SFA system.
7. Small business
For small business, basic client service can be accomplished by a contact manager system: an
integrated solution that lets organizations and individuals efficiently track and record
interactions, including emails, documents, jobs, faxes, scheduling, and more. These tools
usually focus on accounts rather than on individual contacts. They also generally include
opportunity insight for tracking sales pipelines plus added functionality for marketing and
service. As with larger enterprises, small businesses may find value in online solutions,
especially for mobile and telecommuting workers.

8. Social media
Social media sites like Twitter, LinkedIn, Facebook and Google Plus are amplifying the voice of
people in the marketplace and are having profound and far-reaching effects on the ways in
which people buy. Customers can now research companies online and then ask for
recommendations through social media channels, as well as share opinions and experiences on
companies, products and services. As social media is not as widely moderated or censored as
mainstream media, individuals can say anything they want about a company or brand, positive
or negative.
9. Non-profit and membership-based
Systems for non-profit and membership-based organizations help track constituents and their
involvement in the organization. Capabilities typically include tracking the following: fund-
raising, demographics, membership levels, membership directories, volunteering and
communications with individuals.
Strategies for CRM:
For larger-scale enterprises, a complete and detailed plan is required to obtain the funding,
resources, and company-wide support that can make the initiative of choosing and implementing
a system successful. Benefits must be defined, risks assessed, and cost quantified in three
general areas:
1. Processes: Though these systems have many technological components, business processes
lie at its core. It can be seen as a more client-centric way of doing business, enabled by
technology that consolidates and intelligently distributes pertinent information about clients,
sales, marketing effectiveness, responsiveness, and market trends. Therefore, a company
must analyze its business workflows and processes before choosing a technology platform;
some will likely need re-engineering to better serve the overall goal of winning and satisfying
clients. Moreover, planners need to determine the types of client information that are most
relevant, and how best to employ them.
2. People: For an initiative to be effective, an organization must convince its staff that the new
technology and workflows will benefit employees as well as clients. Senior executives need to
be strong and visible advocates who can clearly state and support the case for change.
Collaboration, teamwork, and two-way communication should be encouraged across
hierarchical boundaries, especially with respect to process improvement.
3. Technology: In evaluating technology, key factors include alignment with the company’s
business process strategy and goals, including the ability to deliver the right data to the right
employees and sufficient ease of adoption and use. Platform selection is best undertaken by a
carefully chosen group of executives who understand the business processes to be automated

as well as the software issues. Depending upon the size of the company and the breadth of
data, choosing an application can take anywhere from a few weeks to a year or more.
Uses of CRM:
o It provides on-line access to product information and technical assistance around the
clock
o It identifies the customer value and device correct service for each customer
o It provides mechanisms for managing and scheduling follow-up sales calls
o It provides mechanism for handling problems and complaints
o It provides mechanism for correcting service difficulties
o It provides facilities for maintaining information about the repair and on going support
given to customers
o It has facilities to identify problems before they appear
o It provides user-friendly methods to register customer complaints
Advantages of CRM:
1. Streamlined sales and marketing processes
2. Higher sales productivity
3. Added cross-selling and up-selling opportunities
4. Improved customer service, loyalty, and retention
5. Increased call center efficiency
6. Higher close rates
7. Better customer profiling and targeting
8. Reduced expenses
9. Increased market share
10.Higher overall profitability
Disadvantages of CRM:
1. Difficult to work with
2. Require additional work inputting data
3. Dehumanize a process that should be personal
4. Require continuous maintenance, information updating, and system upgrading costly
5. Difficult to integrate with other management information systems

CRM Architecture
The Customer relationship management architecture can be broken down into three categories,
and these are:
1. Operational,
2. Analytical, and
3. Collaborative.
CRM Architecture
Each plays an important role in Customer relationship management, and a company that wants to
success must understand the importance of using these three components successfully.
1. Operational CRM:
o Operational CRM deals with the automation of certain business processes. An example of
business processes that are connected to operational CRM are marketing and sales. When a
connection is made to a customer, the information related to this interaction will be
automatically stored in a database, and the company can pull up specific information on that
customer when it is needed.
o Operational CRM can further be broken down into three components. These components are
Enterprise marketing automation, Customer service automation, and Sale force automation.
The Enterprise marketing automation will give the company information about the business
climate, and it will also provide them with crucial data on their competitors, as will as trends
within the industry and other important variables. As the name implies, Enterprise marketing
automation deals with strategies a company can use to strengthen their marketing tactics.

Customer service and support will automate specific processes that are connected to service.
An example of this could be item returns or customer complaints.
2. Analytical CRM:
o By enhancing its customer service capability, a company will build a stronger relationship
with its customers. There are a number of common ways that Analytical CRM is used to
achieve this. A number of companies will use the data they've collected and analyzed to
cross-sell products to their customers, as well as retaining customers that may normally
switch to another company. Analytical CRM can also be used to provide important
information to customers within a short period of time. In addition to building stronger
relationships with customers, Analytical CRM can be an important tool for fraud prevention
and detection. It can analyze the patterns of sales, inventory, and profits in order to find any
patterns that are not consistent.
o Analytical CRM is also important when it comes to both product development and risk
management. It is important to realize that Analytical CRM is an ongoing process. The
company may need to alter its strategies or methods based on the information that is
analyzed through this process. The third important aspect of CRM architecture is
Collaborative CRM. Collaborative CRM is important because it places an emphasis on the
interactions that a company will make with its customers. These interactions could be
personal, or they could come through mediums such as the telephone or the Internet.
Collaborative CRM will give companies a powerful form of communication that will utilize
multiple technologies.
o It will also be responsible for providing services over the Internet so that the costs of the
service can be reduced. When interactions are made with customers, Collaborative CRM will
allow the company to provide them with useful information. At the highest level, CRM should
be an important part of all interactions that a company makes with its customers.
When this done, a company can become highly successful. The goal of CRM is to find out what
customers need, and to make sure those needs are filled. Once a company is making interactions
with their customers, they can collect and analyze information. This information can be used to
strengthen interactions.
Customer relationship management can also be used to stop problems before they occur. A
number of companies strive to solve problems once they occur, but CRM can be used to stop
potential problems before they occur. Preventing problems is much easier than solving it.

Supply Chain Management (SCM)
o Supply chain management (SCM) is the combination of art and science that goes into
improving the way your company finds the raw components it needs to make a product or
service and deliver it to customers.
o A supply chain is a set of network facilities and distribution options that perform functions
like procurement of raw material and their transformation into finished products. The
management of interconnected business activities that are involved in the provision of
product and service packages is referred to as supply chain management. It is defined as the
management and coordination of a product's supply chain in order to increase efficiency and
portability. It consists of all the stages involved in fulfilling customer requests. According to
an American professional association, supply chain management comprises the planning and
management of all the activities involved in sourcing, procurement, conversion and logistics.
o The customer and customer service are an integral part of the process of supply chain
management. The primary purpose of this process is to satisfy customer needs. The main
objective of supply chain management is to maximize the product value. The product value is
the numerical difference between the worth of the efforts taken for production and the actual
price of the product. The process of coordinating with the parties involved in the supply
chain also forms a part of supply chain management. It includes the coordination with
retailers, wholesalers, manufacturers and customers. It aims at integrating relevant activities
between the trading partners and customers in order to reduce the system-wide costs of
moving the product from a pre to a post-production stage.
Components of SCM:
The following are five basic components of SCM:
1. Plan: This is the strategic portion of SCM. Companies need a strategy for managing all the
resources that go toward meeting customer demand for their product or service. A big piece of
SCM planning is developing a set of metrics to monitor the supply chain so that it is efficient,
costs less and delivers high quality and value to customers.
2. Source: Next, companies must choose suppliers to deliver the goods and services they need to
create their product. Therefore, supply chain managers must develop a set of pricing, delivery
and payment processes with suppliers and create metrics for monitoring and improving the
relationships. And then, SCM managers can put together processes for managing their goods
and services inventory, including receiving and verifying shipments, transferring them to the
manufacturing facilities and authorizing supplier payments.

Components of Supply Chain
3. Make: This is the manufacturing step. Supply chain managers schedule the activities necessary
for production, testing, packaging and preparation for delivery. This is the most metric-
intensive portion of the supply chain—one where companies are able to measure quality
levels, production output and worker productivity.
4. Deliver: This is the part that many SCM insiders refer to as logistics, where companies
coordinate the receipt of orders from customers, develop a network of warehouses, pick
carriers to get products to customers and set up an invoicing system to receive payments.
5. Return: This can be a problematic part of the supply chain for many companies. Supply chain
planners have to create a responsive and flexible network for receiving defective and excess
products back from their customers and supporting customers who have problems with
delivered products.
Decision Areas in SCM:
There are four major decision areas in supply chain management:
1. Location,
2. Production,
3. Inventory, and
4. Transportation (distribution),
And there are both strategic and operational elements in each of these decision areas.

o The first type of decision is the location decision. The location is dependent on
determination of customer satisfaction and the prevalent and predicted market demands for
the product of service. Having the right projections is critical so that the strategic decisions
may correctly focus on the placement of production plants, distribution and stocking
facilities, and placing them in prime locations to the market served. Once customer markets
are determined, long-term commitment must be made to locate production and stocking
facilities as close to the consumer as is practical. In industries where components are
lightweight and market driven, facilities should be located close to the end-user. In heavier
industries, careful consideration must be made to determine where plants should be located
so as to be close to the raw material source. Decisions concerning location should also take
into consideration tax and tariff issues, especially in when the distribution is to be outside
the city.
o Strategic decisions regarding production focus on what customers want and the market
demands. This first stage in developing supply chain flexibility takes into consideration what
and how many products to produce, and what parts or components should be produced at
which plants or outsourced to capable suppliers. These strategic decisions regarding
production must also focus on capacity, quality and volume of goods, keeping in mind that
customer demand and satisfaction must be met. Operational decisions, on the other hand,
focus on scheduling workloads, maintenance of equipment and meeting immediate
client/market demands. Quality control and workload balancing are issues, which need to be
considered when making these decisions.
o Third strategic decisions focus on inventory and how much product should be in-house. A
delicate balance exists between too much inventory, which can cost anywhere between 20 and
40 percent of their value, and not enough inventory to meet market demands. This is a critical
issue in effective supply chain management. Operational inventory decisions revolved
around optimal levels of stock at each location to ensure customer satisfaction as the market
demands fluctuate. Control policies must be looked at to determine correct levels of supplies
at order and reorder points. These levels are critical to the day-to-day operation of
organizations and to keep customer satisfaction levels high.
o Strategic transportation decisions are closely related to inventory decisions as well as
meeting customer demands. Using air transport obviously gets the product out quicker and to
the customer expediently, but the costs are high as opposed to shipping by boat or rail. Yet
using sea or rail often times means having higher levels of inventory in-house to meet quick
demands by the customer. It is wise to keep in mind that since 30% of the cost of a product is
encompassed by transportation, using the correct transport mode is a critical strategic
decision. Above all, customer service levels must be met, and this often times determines the
mode of transport used. Often times this may be an operational decision, but strategically, an
organization must have transport modes in place to ensure a smooth distribution of goods.

Functions of SCM:
o The process of supply chain management can be divided into three distinct flows; the product
flow, the information flow and the finances flow. The product flow includes the movement of
goods from a supplier to a customer. The flow of information related to the status of product
delivery is referred to as the information flow while the finances flow involves payment
schedule, credit terms and title ownership arrangements.
o The strategic activities that are a part of the supply chain management involve strategic
network optimization, the establishment of partnerships with suppliers, distributors and
customers, planning for the integration of existing products into the supply chain and the
design of a business strategy. Taking inventory and production decisions, devising
transportation strategies, benchmarking of operations and focusing on customer demand are
some of the other activities involved in the supply chain management. Planning of daily
production and distribution, planning and scheduling of inbound and outbound operations
are some of the important operational activities involved in supply chain management.
Business Value of SCM:
Supply chain management systems enable firms to streamline both their internal and external
supply chain processes and provide management with more accurate information about what to
produce, store, and move. By implementing a networked and integrated supply chain
management system, companies can match supply to demand, reduce inventory levels, improve
delivery service, speed product time to market, and use assets more effectively. Companies that
excel in supply chain management have been found to produce higher rates of growth in their
market value than the average for their industries. Effective supply chain management systems
enhance organizational performance in the following areas:
1. Improved customer service and responsiveness:
If a product is not available when a customer wants it, that customer will likely try to purchase
it from someone else. Having the right product at the right place at the right time will increase
sales.
2. Cost reduction:
Supply chain management helps companies contain, and often reduce, some or all of the costs
associated with moving a product through the supply chain. These costs include material
acquisition, inventory carrying, transportation, and planning costs. (Inventory carrying costs
may amount to 30 or 40 percent of the value of the entire inventory.) Total supply chain costs
represent the majority of operating expenses for many businesses and in some industries
approach 75 percent of the total operating budget (Handfield, 1999). Reducing supply chain
costs can thus have a major impact on firm profitability.

3. Cash utilization:
The sooner a company delivers a product, the sooner that company will get paid. Companies
leading in supply chain efficiency have cash available two to three months faster than
companies that do not have this capability.
Advantages of SCM:
1. Reduce Costs
o Increased automation maximizes the efficiency of order processes.
o Integrate with public or private e-marketplaces to quickly and easily compare suppliers on
a global basis.
o Sophisticated planning tools allow you to precisely match supply and demand.
o Reduce inventories, free up resources without reducing your ability to meet unexpected
demand.
o Improved visibility and collaborative planning improves forecasts.
o Shorter planning cycles and reduced lead times means less guessing, reduced safety
stocks and faster response times.
2. Increase Revenue
o Higher utilization of capacity helps you increase revenues.
o Collaborate with partners and optimize supply planning and execution across enterprise
boundaries.
o Achieve faster responsiveness to unanticipated demand.
o Reduce order cycle times, enhancing the conversion of materials to revenue.
o Improve asset use and reduce unnecessary capital expenditures.
o Introduce new products and promotions with efficiency and accuracy.
3. Retain Customers
o Accurate planning improves customer service and in turn customer retention.
o Detailed order-status information results in higher customer satisfaction
o Provide quality products and services at competitive prices.
o Have the ability to respond to unanticipated demand so you can commit to more orders.
o Respond to changing customer requirements quickly and efficiently.
o Share performance information and common goals among partners.
Disadvantages of SCM:
1. Distribution Network Configuration
2. Distribution Strategy
3. Trade-Offs in Logistical Activities
4. Information
5. Inventory Management and Cash Flow

PUSH and PULL based CSM
Do we have Retail supply chain, FMCG supply Chain, automotive supply chain, IT supply chain
etc? In my opinion, no and what we have is “PULL” Supply Chain and “Push” Supply Chain”.
Supply chain processes fall into one of two categories depending on the timing of their execution
relative to customer demand. All the above industries fall under Pull or Push supply chain. We
have also seen hybrid new model called “Pull and Push” supply chain. Whatever is the industry,
as long as you make supply chain efficient using either pull techniques or push techniques or
both, that is what matters to the business.
PUSH and PULL based Supply Chain
Pull Supply Chain:
o Under pull supply chain, products are manufactured or procured based on specific customer
requests. We also know it as “Built to Order” or “Configured to Order” model. We often see
this model operating in IT/High Tech Industries, where customization is the competitive
advantage. Briefly, we have seen this model in automotive industry and it is being used in
high end luxury market segment. The objective of this model is to minimize the Inventory
carrying and optimize supply. Pull model are is as a response to growing uncertainty in
demand and short product cycle. Some of the characteristics of this model include:
1. Volatile demand situation;
2. High rate of Customization;
3. Minimal Inventory Carrying;
4. Not a off the shelf product;
5. Highly dynamic and effective distribution network.
o Even though there are many challenges in implementing a pull supply chain in a globalized
environment, converting a push supply chain into a pull supply chain is considered as next
frontier of innovation and lean thinking. Particularly if we are able to implement pull process
for procurement activity and take advantage of Point of Sale information to provide the
demand visibility to suppliers, it would be a great innovation. Again supply chain visibility is
a very challenging aspect and costly proposition as well. However, if we are able to achieve
overcoming all hurdles, the business would be saving costs (warehousing, inventory carrying;
capital costs etc.) and also could introduce JIT or Cross Dock Operation which are again cost
efficient models. As the pull of material is linked to POS data and store inventory data, the

buffer inventory if any in the supply chain will get corrected automatically from time to time
eliminating excess inventory. This process would eliminate waste and save costs and also
known as agile supply chain model. Internet becomes the backbone of this model. This model
could work very well in FMCG industry if the business model is well understood and a
solution is developed and implemented efficiently.
Push Supply Chain:
o Under Push model, products are manufactured or procured based on anticipated customer
orders (speculative). This model is also known as Built to Inventory or Built to Sock. The name
itself reveals its functionality. Products are manufactured in anticipation of customer needs.
There are no prizes for identifying industries that use push model, it is obvious that retail
heavily uses push model. Even though direct to store or cross docks are implemented, overall
retail supply chain is based on push model. Some of the big names in the retail industry are
trying to adopt the hybrid model which is a combination of pull and push. Some of the key
challenges and characteristics could include:
1. High inventory costs,
2. Challenging working capital requirements due to low inventory turns;
3. Huge warehousing and distribution costs;
4. Inability to meet dynamic market conditions and
5. Seasonal demand and off the shelf product.
o Push programs represent a top down approach. The core assumption of push programs is that
demand can be anticipated and that it is more efficient and reliable to mobilize resources in
pre-specified ways to serve this demand. However, in reality globalization posed several
challenges and one of them is hyper-competition. Hyper-competition is a state, in which the
rate of change in the competitive rules of the game are evolving rapidly and business survival
is becoming a challenge. As the customers are becoming demanding, if the product is not
available in the store, they are willing to look at other options in the market place. This is
forcing retailers carry huge inventories and opt for low cost sourcing models which in turn
increase the procurement cycle time. In case of demand slump due to financial recession or
change buying habits or seasonal weather conditions, businesses are forced to create artificial
demand by unleashing promotions in a scale never seek in market place. To objective is to
draw the customer to the store and try to sell the product. Product proliferation and
Scrambled Merchandising is further making push model more complex and challenging for
the retail industry and for push model.
o The world is becoming a complex place to do business. It is up to the Supply Chain managers
to come forward and take the responsibility of aligning supply chain to business needs and
objectives. There is an urgent need for Supply Chain experts who can customize supply
chains to need of the hour. Do away with recycling supply chain professionals within the

industry. Embrace change in order to innovate and improve supply chain health. A true
supply chain professional should be comfortable working in a pull or push environment as
long as S/he is functionally and professionally trained using both models. Having said that,
supply chain is a not a rocket science, it is all about common sense and thinking outside the
box.
Push vs Pull Strategies

Bullwhip Effect
Bullwhip Effect also known as whiplash effect is a phenomenon observed in forecast driven
distribution channels. It is basically the amplification of the demand variance up the supply
chain, from the customer to factory, as demand information passes back through the supply
chain. The issues associated with bull whip effect are excess inventory, quality problems,
increased raw material costs, increased shipping costs, lost sales and lost customer service.
The example given below can help us in understanding the Bullwhip Effect better
1. Company X produces widgets for sale on the open market
2. Customer demand for Company X’s widgets become stagnant
3. Retailers offer a sale promotion to boost sales of Company X widgets
4. Retailers fail to notify manufacturers of sales promotion
5. Company X assumes that the demand for widgets has increased
6. Company X increases inventory to allow for increased manufacturing of widgets
7. Company X notifies part suppliers of increased demand
8. Suppliers increase inventory to meet demand.
Therefore distorted information along the supply chain caused the inventory levels to increase
along the supply chain which may result in increased inventory costs, poor customer service,
adjusted capacity and other problems which are associated with the Bullwhip Effect.
The Bullwhip Effect

Causes of Bullwhip Effect:
1. Demand Forecast Updating
Demand forecast updating refers to the situation where demand is non-stationary and one uses
past demand information to update forecasts.
2. Rationing Gaming
The rationing gaming refers to the strategic ordering behavior of buyers when supply shortage is
anticipated.
3. Order Batching
When fixed order cost is nonzero, ordering in every period would be uneconomical, and batching
of orders would occur.
4. Price Variations
Price variations refer to non-constant purchase prices of the product.
Bullwhip effect as seen in a traditional supply chain:
Bullwhip Effect on Traditional Supply Chain

Impact of Vendor Managed Inventory(VMI) on causes of Bullwhip effect

Reducing Bullwhip Effect
1. Improve information flow: The most obvious way to reduce the bullwhip effect is to improve
communication and forecasting along the supply chain. While end-user demand is more
predictable, it should not be the only source of information for forecasting. Supply chain
managers should be a part of the forecast. Ignoring supply chain supply-and-demand signals
when forecasting ignores day-to-day fluctuations.
2. Reduce delays along the supply chain: The best way to achieve this is by cutting order-to-
delivery time. This also reduces inventory carry and operating costs as less capacity is needed to
respond to fluctuations.
3. Focus on point of sale data collection:
By focusing on the end user via electronic data interchange, supply chain mangers can
reduce misleading signals sent from sales and marketing (distribution).
4. Create smaller purchase orders:
By reducing the order increments and order "batching," supply chain managers can focus
on ordering according to need rather than vendor promotions to cut costs. The bullwhip
effect has a greater cost to the overall organization than any discount achieved from
making a bulk order.
5. Maintain consistent pricing:
Pricing fluctuations change forecasts by spurring purchases when prices are low and
reducing purchases when prices are high. This invariably leads to increased fluctuations
for the supply chain to manage, which increases the bullwhip effect.

Enterprise Resource Planning (ERP)
o Enterprise resource planning (ERP) is a term usually used in conjunction with ERP software or
an ERP system which is intended to manage all the information and functions of a business
or company from shared data stores.It is a commercial software package that promotes
seamless integration of all the information flowing through a company.
o An ERP system typically has modular hardware and software units and "services" that
communicate on a local area network. The modular design allows a business to add or
reconfigure modules (perhaps from different vendors) while preserving data integrity in one
shared database that may be centralized or distributed.
What is an ERP?
o An ERP system spans multiple departments in a corporation, and in some cases an ERP will
also transcend the corporate boundary to incorporate systems of partners and suppliers as
well, to bring in additional functions like supply chain management. Because it is so vast and
all-encompassing, the ERP system goes far beyond being just a simple piece of software. Each
implementation is unique and is designed to correspond to the implementer's various
business processes. An ERP implementation can cost millions of dollars to create, and may
take several years to complete.
o An ERP system likely represents a company's largest IT investment, so some companies
prefer to implement ERP in a more incremental fashion rather than all at once. Some ERP
vendors provide modular software units together with a unified interface to allow for this
gradual approach.
ERP System

ERP Implementation:
o Companies providing IT services have to clearly know what enterprise resource is planning
before thinking of implementing them. The catch word of ERP implementation is speed. The
faster it is implemented the quicker and better are the advantages and delivery in terms of
results. For example, cheap no teletrack payday loans as well as small business credit cards
are issued much faster, teleconferencing with the help of online credit card application forms
and verifying through teleconferencing.
o This early process has another hold on liquidation. The returns are sought at a shorter
period. This deviation from the conventional practice has become the order of the day as far
as many companies are concerned for legal recruitment. According to Curtis Pope, business
process reengineering played a vital role with respect to implementation. It is important to
know the promotional product of Enterprise resource planning .Merely defining enterprise
resource planning will not help in this. This naturally paved way to development of gaps
between the actual results and the one derived during the process of foreseeing.
ERP Components:
o Enterprise Resource Planning (ERP) is a term used to describe when a business merge all
functions, operations and departments into one computer system and database.
o A successful ERP system needs to be universal so the entire company can use it but it must
also be modular so that individual departments within the business have their particular
needs met.
o This is accomplished through ERP software specially designed for the particular company.

ERP Components
Need for ERP:
ERP systems are totally changing the way in which the organizations do business. ERP cannot be
neglected, because it is giving huge impact on both the business and information technology
world.
The following points insist the need for ERP in any organization.
1. Integrate organizations activities:
ERP access are cross functional. So it forces the firm to come out of traditional business
process. It integrates the data spread in different areas into a single system.
So decision making becomes very easy. This is the first and important need for an ERP.
2. Force the use of best practice:
ERP has number of different best business process to follow. By using any one of the best
practice in trail method the business process of an organization can be improved.
3. Enables organizational standardization:
ERP helps to standardize the methods followed in departments speeded in different locations.
Because of this, the departments with poor standards can be brought in line with other
efficient departments. This helps the firms to show single image to the outside world.
4. Allows simultaneous access to data for planning and control:
ERP uses a single database. In this, almost all the data regarding different departments are
stored directly. Since the data are available to all the users in the organization, it is very much
helpful for planning and control.

Objectives of ERP:
1. Speed: Speed is defined as the time taken to implement the ERP system in an organization.
While designing ERP, the time taken by the organization to implement ERP must be taken into
account.
2. Scope: ERP should consider and include all the functional and technical characteristics
required by the organization.
3. Resources: Resources are everything that is needed to support the project. This includes
people, hardware, systems, software, technical support etc.
All these resources must be taken into account.
4. Risk: Risk is defined as the factors that resists the overall success of ERP implementation.
Therefore, all the risks that will arise must be taken into account while developing ERP.
5. Complexity: Complexity is the degree of difficulty anticipated during implementation,
operation and maintaining the ERP systems.
Care must be taken to minimize the complexity while designing ERP.
6. Benefits: Benefits are the extent to which the company uses the functions of the ERP software.
To get the maximum benefit from ERP, care must be taken to design the ERP by following the
procedures followed by the organization.
Advantages of ERP:
1. Integration:
Integration can be the highest benefit of them all. The only real project aim for implementing
ERP is reducing data redundancy and redundant data entry.
If this is set as a goal, to automate inventory posting to G/L, then it might be a successful
project.
Those companies where integration is not so important or even dangerous tend to have a hard
time with ERP.
ERP does not improve the individual efficiency of users, so if they expect it, it will be a big
disappointment. ERP improves the cooperation of users.
2. Efficiency:
Generally, ERP software focuses on integration and tends to not care about the daily needs of
people. I think individual efficiency can suffer by implementing ERP.
The big question with ERP is whether the benefit of integration and cooperation can make up
for the loss in personal efficiency or not.

3. Cost reduction:
It reduces cost only if the company took accounting and reporting seriously even before
implementation and had put a lot of manual effort in it.
If they didn't care about it, if they just did some simple accounting to fill mandatory
statements and if internal reporting did not exists of has not been financially-oriented, then no
cost is reduced.
4. Accuracy:
No. People are accurate, not software. What ERP does is makes the lives of inaccurate people or
organization a complete hell and maybe forces them to be accurate (which means hiring more
people or distributing work better), or it falls.
Disadvantages of ERP:
1. Expensive:
This entails software, hardware, implementation, consultants, training, etc. Or you can hire a
programmer or two as an employee and only buy business consulting from an outside source,
do all customization and end-user training inside. That can be cost-effective.
2. Not very flexible:
It depends. SAP can be configured to almost anything. In Navision one can develop almost
anything in days. Other software may not be flexible.

MIS (MCA SEM-3) Decision Support System
Chapter 9: Decision Support System
Syllabus:
o DSS: Concepts and Philosophy
o DSS: Deterministic Systems
o AI Systems
o Knowledge Based Expert System
o MIS and Role of DSS
Questions:
o DSS and DSS Components
o Expert System, Knowledge Based Expert System with Example

Decision-Support System (DSS)
o A Decision Support System (DSS) is an interactive computer-based information system that
supports business or organizational decision-making activities. DSSs serve the management,
operations, and planning levels of an organization and help to make decisions, which may be
rapidly changing and not easily specified in advance.
o DSSs include knowledge-based systems. A properly designed DSS is an interactive software-
based system intended to help decision makers compile useful information from a
combination of raw data, documents, personal knowledge, or business models to identify and
solve problems and make decisions.
o Decision support systems constitute a class of computer-based information systems
including knowledge-based systems that support decision-making activities.
o A Decision Support System (DSS) is a class of information systems (including but not limited
to computerized systems) that support business and organizational decision-making
activities. A properly designed DSS is an interactive software-based system intended to help
decision makers compile useful information from a combination of raw data, documents,
personal knowledge, or business models to identify and solve problems and make decisions.
Typical information that a decision support application might gather and present are:
1. Inventories of information assets
(including legacy and relational data sources, cubes, data warehouses, and data marts),
2. Comparative sales figures between one period and the next,
3. Projected revenue figures based on new product sales assumptions.

o Decision-support systems (DSS) also serve the management level of the organization. DSS
help managers make decisions that are unique, rapidly changing, and not easily specified in
advance. They address problems where the procedure for arriving at a solution may not be
fully predefined in advance. Although DSS use internal information from TPS and MIS, they
often bring in information from external sources, such as current stock prices or product
prices of competitors.
o Clearly, by design, DSS have more analytical power than other systems. They use a variety of
models to analyse data, or they condense large amounts of data into a form in which they can
be analysed by decision makers. DSS are designed so that users can work with them directly;
these systems explicitly include user-friendly software. DSS are interactive; the user can
change assumptions, ask new questions, and include new data.
o Sometimes you‟ll hear DSS systems referred to as business intelligence systems because they
focus on helping users make better business decisions.
Types of DSS:
Since the definition of Decision Support Systems can be stretched to include almost any
application that processes data there is some confusion as to exactly what constitutes a DSS. In
an effort to clarify the term, DS systems can be separated into seven broad categories, each
aiding decision making by different methods.
1. Communications Driven DSS:
A C-D DSS is a type of DSS that enhances decision-making by enabling communication and
sharing of information between groups of people. At its most basic level a C-D DSS could be a
simple threaded e-mail. At its most complex it could be a web-conferencing application or
interactive video.
Communication-Driven DSS will exhibit at least one of the following characteristics:
 Supports coordination and collaboration between two or more people;
 Facilitates information sharing;
 Enables communication between groups of people;
 Supports group decisions.
2. Data-Driven DSS:
Data-driven DSS are a form of support system that focuses on the provision of internal (and
sometimes external) data to aid decision making. Most often this will come in the form of
a data warehouse – a database designed to store data in such a way as to allow for its querying
and analysis by users.
Another example of a data-driven DSS would be a Geographic Information System(GIS), which
can be used to visually represent geographically dependant data using maps.

3. Document-Driven DSS:
Document-driven DSS are support systems designed to convert documents into valuable
business data. While data-driven DSS rely on data that is already in a standardised format that
lends itself to database storage and analysis, document-driven DSS makes use of data that
cannot easily be standardised and stored.
The three primary forms of data used in document driven DSS are:
 Oral (i.e. transcribed conversations);
 Written (i.e. reports, memos, e-mail and other correspondence);
 Video (i.e. TV commercials and news reports).
None of these formats lend themselves easily to standardised database storage and analysis,
so managers require DSS tools to convert them into data that can be valuable in the decision
making process.
Document-driven DSS is the newest field of study in Decision Support Systems. Examples of
document-driven tools can be found in Internet search engines, designed to sift through vast
volumes of unsorted data through the use of keyword searches.
4. Knowledge-Driven DSS:
Knowledge-driven DSS are systems designed to recommend actions to users. Typically,
knowledge-driven systems are designed to sift through large volumes of data, identify hidden
patterns in that data and present recommendations based on those patterns.
5. Model-Driven DSS:
Model-driven support systems incorporate the ability to manipulate data to generate statistical
and financial reports, as well as simulation models, to aid decision-makers. Model-based
decision support systems can be extremely useful in forecasting the effects of changes
in business processes, as they can use past data to answer complex „what-if‟ questions for
decision makers.
In addition to these basic types of DSS there are also two additional factors: whether the DSS is
spreadsheet-based, web-based or something else entirely.
6. Spreadsheet-based DSS:
Model- and Data-driven DS systems can be built using spreadsheets. Spreadsheets offer
decision-makers easy to understand representations of large amounts of data. Additionally,
spreadsheet data is arranged in such a way as to make it easy to convert the data
into visualisations to further aid decision-makers.
7. Web-based DSS:
Any type of DSS can be web-based. The term simply describes any decision support system
that is operated through the interface of a web browser, even if the data used for decision
support remains confined to a legacy system such as a data warehouse.

Attributes of DSS:
1. Performance data
2. Flow rates
3. Degree of replication
4. Experimental control
5. Environmental condition
6. Level of O & M Provided
7. Independence of the study
8. Degree of peer review
Objective of DSS:
There are three decisions to be achieved by the decision support system, namely:
1. Increase the effectiveness of the manager's decision-making process.
2. Supports the manager in the decision-making process but does not replace it.
3. Improve the directors‟ effectiveness of decision making.
Comparison between computer systems and decision support systems:
Computer systems are Management Information Systems that are programmed using the
computer, to help departments in their daily work and solve recurring problems with the
extraction of the required reports and statistics on a regular basis.
While decision support systems offer different alternatives to solve new and non-repeated
problems ( semi-programmed) clarifying the advantages and disadvantages and the financial cost
of each alternative, this is done by building separate data warehouses.
Advantages of DSS:
1. Improves personal efficiency
2. Expedites problem solving (speed up the progress of problems solving in an organization)
3. Facilitates interpersonal communication
4. Promotes learning or training
5. Increases organizational control
6. Generates new evidence in support of a decision
7. Creates a competitive advantage over competition
8. Encourages exploration and discovery on the part of the decision maker
9. Reveals new approaches to thinking about the problem space
10. Helps automate the managerial processes.

Disadvantages of DSS:
Decision Support System can create advantages for organizations and can have positive benefits,
however building and using Decision Support System can create negative outcomes in some
situations.
1. Monetary cost:
The decision support system requires investing in information system to collect data from
many sources and analyze them to support the decision making. Some analysis for Decision
Support System needs the advance of data analysis, statistics, econometrics and information
system, so it is the high cost to hire the specialists to set up the system.
2. Overemphasize decision making:
Clearly the focus of those of us interested in computerized decision support is on decisions
and decision making. Implementing Decision Support System may reinforce the rational
perspective and overemphasize decision processes and decision making. It is important to
educate managers about the broader context of decision making and the social, political and
emotional factors that impact organizational success. It is especially important to continue
examining when and under what circumstances Decision Support System should be built and
used. We must continue asking if the decision situation is appropriate for using any type of
Decision Support System and if a specific Decision Support System is or remains appropriate
to use for making or informing a specific decision.
3. Assumption of relevance:
According to Wino grad and Flores (1986), "Once a computer system has been installed it is
difficult to avoid the assumption that the things it can deal with are the most relevant things
for the manager's concern." The danger is that once Decision Support System become common
in organizations, that managers will use them inappropriately. There is limited evidence that
this occurs. Again training is the only way to avoid this potential problem.
4. Transfer of power:
Building Decision Support System, especially knowledge-driven Decision Support System, may
be perceived as transferring decision authority to a software program. This is more a concern
with decision automation systems than with Decision Support System. We advocate building
computerized decision support systems because we want to improve decision making while
keeping a human decision maker in the "decision loop". In general, we value the "need for
human discretion and innovation" in the decision making process.
5. Unanticipated effects:
Implementing decision support technologies may have unanticipated consequences. It is
conceivable and it has been demonstrated that some Decision Support System reduce the skill

needed to perform a decision task. Some Decision Support System overload decision makers
with information and actually reduce decision making effectiveness. We are sure that other
such unintended consequences have been documented. Nevertheless, most of the examples
seem correctable, avoidable or subject to remedy if and when they occur.
6. Obscuring responsibility:
The computer does not make a "bad" decision, people do. Unfortunately some people may
deflect personal responsibility to a Decision Support System. Managers need to be continually
reminded that the computerized decision support system is an intermediary between the
people who built the system and the people who use the system. The entire responsibility
associated with making a decision using a Decision Support System resides with people who
built and use the system.
7. False belief in objectivity:
Managers who use Decision Support System may or may not be more objective in their
decision making. Computer software can encourage more rational action, but managers can
also use decision support technologies to rationalize their actions. It is an overstatement to
suggest that people using a Decision Support System are more objective and rational than
managers who are not using computerized decision support.
8. Status reduction:
Some managers argue using a Decision Support System will diminish their status and force
them to do clerical work. This perceptual problem can be a disadvantage of implementing a
Decision Support System. Managers and IS staff who advocate building and using
computerized decision support need to deal with any status issues that may arise. This
perception may or should be less common now that computer usage is common and accepted
in organizations.
9. Information overload:
Too much information is a major problem for people and many Decision Support System
increase the information load. Although this can be a problem, Decision Support System can
help managers organize and use information. Decision Support System can actually reduce and
manage the information load of a user. Decision Support System developers need to try to
measure the information load created by the system and Decision Support System users need
to monitor their perceptions of how much information they are receiving. The increasing
ubiquity of handheld, wireless computing devices may exacerbate this problem and
disadvantage.

Components of DSS
The major components of DSS are:
1. Hardware: A personal computer or computer network
2. Software: Database programs , management programs
3. Human Resource: Trained and experienced staff for the areas of operations research,
decision support, analysis, statistical analysis, computer technology, networking and
communications.
4. Procedures
5. The user interface: dialogue with the program
6. Database
7. Forms and models database
Figure below illustrates the components of a DSS. They include a database of data used forquery
and analysis; a software system with models, data mining, and other analytical tools; and a user
interface.
Overview of a decision-support system
o The main components of the DSS are the DSS database, the DSS software system, and the user
interface. The DSS database may be a small database residing on a PC or a massive data
warehouse. and milk.
o The DSS database is a collection of current or historical data from a number of applications
or groups. It may be a small database residing on a PC that contains a subset of corporate
data that has been downloaded and possibly combined with external data. Alternatively, the
DSS database may be a massive data warehouse that is continuously updated by major
corporate TPS (including enterprise systems and data generated by Website transactions).

The data in DSS databases are generally extracts or copies of production databases so that
using the DSS does not interfere with critical operational systems.
o The DSS software system contains the software tools that are used for data analysis. It may
contain various OLAP tools, data-mining tools, or a collection of mathematical and analytical
models that easily can be made accessible to the DSS user. A model is an abstract
representation that illustrates the components or relationships of a phenomenon. A model
can be a physical model (such as a model airplane), a mathematical model (such as an
equation), or a verbal model (such as a description of a procedure for writing an order). Each
decision-support system is built for a specific set of purposes and makes different
collections of models available depending on those purposes.
o Perhaps the most common models are libraries of statistical models. Such libraries usually
contain the full range of expected statistical functions, including means, medians, deviations,
and scatter plots. The software has the ability to project future outcomes by analysing a
series of data. Statistical modelling software can be used to help establish relationships, such
as relating product sales to differences in age, income, or other factors between
communities. Optimization models, often using linear programming, determine optimal
resource allocation to maximize or minimize specified variables, such as cost or time. A
classic use of optimization models is to determine the proper mix of products within a given
market to maximize profits.
o Forecasting models often are used to forecast sales. The user of this type of model might
supply a range of historical data to project future conditions and the sales that might result
from those conditions. The decision maker could vary those future conditions (entering, for
example, a rise in raw materials costs or the entry of a new, low-priced competitor in the
market) to determine how new conditions might affect sales. Companies often use this
software to predict the actions of competitors. Model libraries exist for specific functions,
such as financial and risk analysis models.
o The DSS user interface permits easy interaction between users of the system and the DSS
software tools. A graphic, easy-to-use, flexible user interface supports the dialogue between
the user and the DSS. The DSS users can be managers or employees with no patience for
learning a complex tool, so the interface must be relatively intuitive. Many DSS today are
being built with Web-based interfaces to take advantage of the Web‟s ease of use,
interactivity, and capabilities for personalization and customization. Building successful DSS
requires a high level of user participation to make sure the system provides the information
managers need.

Expert System, Knowledge Based Expert System
Knowledge-based expert systems, or simply expert systems, use human knowledge to solve
problems that normally would require human intelligence. These expert systems represent
the expertise knowledge as data or rules within the computer. These rules and data can be
called upon when needed to solve problems. Books and manuals have a tremendous amount
of knowledge but a human has to read and interpret the knowledge for it to be used.
Conventional computer programs perform tasks using conventional decision-making logic --
containing little knowledge other than the basic algorithm for solving that specific problem
and the necessary boundary conditions. This program knowledge is often embedded as part
of the programming code, so that as the knowledge changes, the program has to be changed
and then rebuilt. Knowledge-based systems collect the small fragments of human know-how
into a knowledge-base which is used to reason through a problem, using the knowledge that
is appropriate. A different problem, within the domain of the knowledge-base, can be solved
using the same program without reprogramming. The ability of these system to explain the
reasoning process through back-traces and to handle levels of confidence and uncertainty
provides an additional feature that conventional programming don't handle.
Most expert systems are developed via specialized software tools called shells. These shells
come equipped with an inference mechanism (backward chaining, forward chaining, or both),
and require knowledge to be entered according to a specified format (all of which might lead
some to categorize OPS5 as a shell). They typically come with a number of other features,
such as tools for writing hypertext, for constructing friendly user interfaces, for
manipulating lists, strings, and objects, and for interfacing with external programs and
databases. These shells qualify as languages, although certainly with a narrower range of
application than most programming languages
Expert system is an artificial intelligence program that has expert-level knowledge about a
particular domain and knows how to use its knowledge to respond properly. Domain refers to
the area within which the task is being performed. Ideally the expert systems should
substitute a human expert. Edward Feigenbaum of Stanford University has defined expert
system as “an intelligent computer program that uses knowledge and inference procedures to
solve problems that are difficult enough to require significant human expertise for their
solutions.” It is a branch of artificial intelligence introduced by researchers in the Stanford
Heuristic Programming Project.
The expert system is a branch of AI designed to work within a particular domain. As an
expert is a person who can solve a problem with the domain knowledge in hands it should be
able to solve problems at the level of a human expert. The source of knowledge may come

from a human expert and/or from books, magazines and internet. As knowledge plays a key
role in the functioning of expert systems they are also known as knowledge-based systems
and knowledge-based expert systems. The expert‟s knowledge about solving the given
specific problems is called knowledge domain of the expert.
Expert System
Components Of Expert System:
The expert system consists of two major components:
1. Knowledge base and
2. Inference engine.
Knowledge base contains the domain knowledge which is used by the inference engine to
draw conclusions.
The inference engine is the generic control mechanism that applies the axiomatic knowledge
to the task-specific data to arrive at some conclusion.
When a user supplies facts or relevant information of query to the expert system he receives
advice or expertise in response. That is given the facts it uses the inference engine which in
turn uses the knowledge base to infer the solution.
Characteristics of expert systems:
1. High performance: They should perform at the level of a human expert.
2. Adequate response time: They should have the ability to respond in a reasonable amount
of time. Time is crucial especially for real time systems.
3. Reliability: They must be reliable and should not crash.
4. Understandable: They should not be a black box instead it should be able explain the steps
of the reasoning process. It should justify its conclusions in the same way a human expert
explains why he arrived at particular conclusion.

Shell:
A shell is a special purpose tool designed based on the requirements of particular applications.
User should supply the knowledge base to the shell.
Example for the shell is EMYCIN (Empty MYCIN) shell. Shell manages the input and output. It
processes the information given by the user, relates it to the concepts contained in the
knowledge base, and provides solution for a particular problem.
Well-functioning Expert Systems can mean:
 Increased distribution of expertise
 Broader job description for individual workers
 New services
 A new communication channel for knowledge
 More efficient education
 Faster adaptation to changing condition
Advantages of expert systems:
1. Availability: Expert systems are availabe easily due to mass production software.
2. Cheaper: The cost of providing expertise is not expensive.
3. Reduced danger: They can be used in any risky environments where humans cannot work
with.
4. Permanence: The knowledge will last long indefinitely.
5. Multiple expertise: It can be designed to have knowledge of many experts.
6. Explanation: They are capable of explaining in detail the reasoning that led to a
conclusion.
7. Fast response: They can respond at great speed due to the inherent adavantages of
computers over humans.
8. Unemotional and repsonse at all times: Unlike humans, they do not get tense, fatigue or
panic and work steadily during emergency situations.
More Advantages:
 Provides consistent answers for repetitive decisions, processes and tasks
 Holds and maintains significant levels of information
 Encourages organizations to clarify the logic of their decision-making
 Never "forgets" to ask a question, as a human might
 Can work round the clock
 Can be used by the user more frequently
 A multi-user expert system can serve more users at a time
Disadvantages:
 Lacks common sense needed in some decision making

 Cannot make creative responses as human expert would in unusual circumstances
 Domain experts not always able to explain their logic and reasoning
 Errors may occur in the knowledge base, and lead to wrong decisions
 Cannot adapt to changing environments, unless knowledge base is changed
Examples of Expert System Applications:
1. An example of the application of expert systems in the financial field is expert systems for
mortgages. Loan departments are interested in expert systems for mortgages because of the
growing cost of labour, which makes the handling and acceptance of relatively small loans
less profitable. They also see a possibility for standardized, efficient handling of mortgage
loan by applying expert systems, appreciating that for the acceptance of mortgages there are
hard and fast rules which do not always exist with other types of loans. Another common
application in the financial area for expert systems are in trading recommendations in various
marketplaces. These markets involve numerous variables and human emotions which may be
impossible to deterministically characterize, thus expert systems based on the rules of thumb
from experts and simulation data are used. Expert system of this type can range from ones
providing regional retail recommendations, like Wishabi, to ones used to assist monetary
decisions by financial institutions and governments.
2. Another 1970s and 1980s application of expert systems, which we today would simply call AI,
was in computer games. For example, the computer baseball games Earl Weaver Baseball and
Tony La Russa Baseball each had highly detailed simulations of the game strategies of those
two baseball managers. When a human played the game against the computer, the computer
queried the Earl Weaver or Tony La Russa Expert System for a decision on what strategy to
follow. Even those choices where some randomness was part of the natural system (such as
when to throw a surprise pitch-out to try to trick a runner trying to steal a base) were decided
based on probabilities supplied by Weaver or La Russa. Today we would simply say that "the
game's AI provided the opposing manager's strategy".
3. A new application for expert systems is automated computer program generation. Funded by
a US Air Force grant, an expert system-based application (hprcARCHITECT) that generates
computer programs for mixed processor technology (FPGA/GPU/Multicore) systems without a
need for technical specialists has recently been commercially introduced.

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