Chapter 16 Information Systems for Managerial Decision

(I) Multiple Choice Questions

1. A 2. C 3. A 4. C 5. D 6. A 7. B 8. D 9. B 10. D 11. D 12. A

A16-1 (II) Examination Style Questions

Answer 1 Particular reasons for introducing a new MIS or changing the existing MIS include the following: (i) Changes in the external business environment Companies need to enhance their competitive advantage by increasing the quality and value of their products or services, and the speed of information available to managers. (ii) Changes in business strategy Strategy implementation requires alignment with information systems to track its progress and implementation status. (iii) Changes in user needs Information requirements change from time to time to cope with increased competition, business growth, and new regulations. (iv) Changes in technology Companies need to capitalize on technological advances and make use of new capabilities to reduce costs continuously. (v) Changes in business processes Companies need to re-engineer their business processes to improve the efficiency and effectiveness of operations.

Answer 2 The first type or level of information systems is transaction processing systems (TPS) which are operational level systems. TPS track the flow of the daily routine transactions that are necessary to conduct business and perform the major lower level work such as payroll, order entry, tracking and processing, sales and marketing management, machine control and scheduling, and accounting systems.

The second level of information systems is management information systems (MIS). MIS supports the management level by providing routine summary reports and exception reports (e.g. what was our profit per customer, or which students were here in the first semester who did not choose to return in the second semester). MIS deals with summarized and compressed data from the TPS. MIS provides the management control level reports and access to the organization’s current performance and historical records. Most MIS reports condense information from TPS and are not highly analytical. Examples include sales region analysis, cost analysis, production mix and scheduling, budgeting, and facility location.

The next level of information systems is executive support systems (ESS) that serve the strategic level or top level managers. ESS support senior managers with unstructured decision-making. They are very user-friendly and make minimum use of models such as linear programming or forecasting. Examples of ESS include sales trend forecasting, operating plan forecasting, profit planning, and strategic and manpower planning. ESS support management decisions when these decisions are unique, rapidly changing, and not specified easily in advance. They have more analytical models and data analysis

A16-2 capabilities than MIS and often draw on information from external as well as internal sources.

The above systems are not a hierarchy but a level of systems, with each type either formatting or processing the information from a lower level. For instance, ESS often uses other office systems in presenting information extracted from transaction processing systems and MIS. MIS depends on the data in TPS. These various types of systems in the organization exchange data with one another.

Answer 3 (a) Transaction processing system  TPS functions at the operational level of the organization and provide the basic business systems for data processing needs.  A TPS is a system that performs the records the daily, routine transactions necessary to conduct the business.  At the operational level, tasks resources, and goals are predefined and highly structured.  A TPS involves the updating of master file records using transaction file information.  Examples of TPS in organizations include sales system (sales order entry), production systems (material usage), accounting systems (general ledger processing), and human resources systems (payroll and employee records).

Management information system  MIS serves the organization’s management, providing managers with reports, and in some cases, with on-line access to the organization’s current performance and historical records.  Typically these systems are oriented almost exclusively to internal, not environmental or external, events and have limited flexibility.  MIS primarily serve the functions of planning, controlling, and decision-making at the management level.  Generally, these systems are dependent on underlying TPS are compressed and are usually presented in detailed reports that are produced on a regular schedule, such as daily, weekly, monthly, or yearly.  Examples of MIS in organizations include sales management, inventory control, summarized financial statements, and capital investment analysis.

(b) Characteristics of good information that make it useful to users include the following: (i) Relevance – the information must be related to a particular issue and should enable decision makers to make decisions. (ii) Reliability – the information must be free from errors or bias. It should be dependable. (iii) Completeness – complete information does not mean all information. Rather, it must contain the key content and not leave out anything this is important.

A16-3 (iv) Timeliness – the information must be updated and the user should receive it in time to make correct decisions. (v) Understandability – the information must be presented in an organized and intelligible format that the user can comprehend and use for making decisions. (vi) Verifiability – the information must be verified from various sources. The nature of the information should be such that different independent people would tend to produce the same result when using it.

Answer 4 (a) A TPS is a computerized package designed to record the basic transaction data within an organization. TPSs collect, store, modify, and retrieve the daily routine transactions of an organization. A transaction is an event that generates or modifies data that is eventually stored in an information system.

(b) Benefits and advantages (i) Fast performance with a rapid response time – the turnaround (轉向) time from the input of the transaction to the production for the output must be a few seconds or less, then customers need not wait too long. (ii) The failure rate of a TPS must be very low – reliability of TPS is critical because many organizations rely on the support of TPS on their daily operations. If a TPS does fail, then quick and accurate recovery must be possible. This makes well- designed backup and recovery procedures essential. (iii) The processing in a TPS must support an organization’s operations – for example if an organization allocates payroll processing to particular employees, then the TPS should enforce the requirements of payroll maintenance.

(c) Limitation: A TPS processes every transaction in the same way regardless of the user, the customer or time for day.

Answer 5 (a) A MIS is an integrated, computer-based, user-machine system that provides information for supporting operations and decision making functions.

(b) Benefits and advantages (i) support for structured decision making at all management levels. (ii) on-line access to the TPS of the organization, to give summary information on the performance of the organization. (iii) detail on the organization and its operations rather than competitors or the overall economic environment.

(c)

A16-4 Limitations and disadvantages (i) MIS is not aimed at the specific needs of the individual problem solvers. (ii) MIS does not provide the exact information needed to solve problems once they have been identified and understood. (iii) People may not get use to the computerized system and not want to share information.

Answer 6 (a) DSS are computer-based systems that help decision makers confront ill-structured problems through direct interaction with data and analysis models. DSS give the decision maker access to these types of models but the intelligence, intuition and judgement of the decision maker are an integral part of the system.

(b) Benefits and advantages (i) Produce output in a variety of forms – the users can often specify output and design reports on the screen for a specific purpose, as individual decisions are often specialized and infrequent. (ii) Broad-based approach to supporting decision making – they help to identify important future trends, adapting the organization to changing conditions. (iii) Decision maker retains control over the decision making process – visual display unit (VDU) (Computer terminal consisting of a keyboard for input data and a screen for displaying output. The screen and its housing are now more usually termed a monitor.) allows the capability to retrieve, manipulate, present, and store data. (iv) Utilisation of appropriate mathematical and statistical models – DSS assist the decision maker in evaluating alternative solutions. (v) Query capabilities to obtain information by request – this interactive mode of the system extends the individual’s reasoning process. (vi) Output directed to organization personnel at all levels – it can also provide lower management and their operating personnel with the necessary output for supporting decisions or controlling current operations. (vii) Integrated sub-systems – this allows managers and personnel to retrieve and manipulate information to support decisions. (viii) User-friendly – the individual feels comfortable with the system rather than intimidated (脅迫) by it. (ix) Adaptive system – system changes may be effected within weeks or months.

(c) Limitations and disadvantages DSS is not concerned with the routine processing of data; as a result, the outputs from it may not support the decision for daily operations.

A16-5 Answer 7 (a) An expert system is a computerized package designed to allow non-expert users to make expert decisions. Expert systems provide useful information to the operational or management levels of the information hierarchy (層級).

(b) Benefits and advantages (a) ES facilitates a manager’s decision making process in terms of: (i) considering more alternatives (ii) applying high level of logic (iii) devoting more time to evaluating decision results (iv) making more consistent decisions (b) ES improves performance of an organization by means of: (i) providing consistent answers for repetitive decisions, processes and tasks (ii) holding and maintaining significant levels of information and maintain controls over the firm’s knowledge (iii) reviewing transactions that human experts may overlook

(c) Limitations and disadvantages (i) ES can only function effectively in areas where rules and frames or programmable decisions can be applied to the knowledge in that area. (ii) Simple systems use simple true/false logic to evaluate data, but more sophisticated systems are capable of performing at least some evaluation taking into account real- world uncertainties, using such methods as fuzzy logic. The lack of flexibility and ability to adapt to changing environments as questions are standard and cannot be changed. (iii) ES cannot apply the judgement and intuition that are important ingredients when solving semi-structured or unstructured problems. (iv) They cannot learn in the sense of finding new data and are not artifical intelligence systems.

Answer 8 (a) An EIS or executive support system (ESS) is a type of decision support system which gives the executive easy access to key internal and external data.

(b) Benefits and advantages (i) The emphasis of EIS is on graphical displays and easy-to-use user interfaces. This makes it user-friendly and extensive computer experience is not required in operations. (ii) EIS provides timely delivery of company summary information and it provides information that is provided is better understood since it filters data for management. For example, if sales are down last month, he/she can quickly find out

A16-6 the area which requires action. This helps the executive keep the organization within budget. (iii) EIS offer strong report and drill-down capabilities that help top-level executives analyze, compare, and highlight trends in important variables so that they can monitor performance and identify opportunities and problems. (iv) EIS can provide easy access to both internal and external information relevant to meeting the strategic goals of the organization.

Answer 9 (a) ERPS integrate data and processes of an organization into a unified system. A key ingredient of most ERPS is the use of a unified database to store data for the various system modules. ERPS delivers a single database that contains all data for the software modules.

(b) Benefits and advantages (i) lead to costs reduction in inventory handling, employee deployment and information collection, etc. (ii) improved asset management and decision-making. (iii) resolved data redundancy and integrity problems. (iv) increased flexibility and responsiveness so as to improve customer services and satisfaction. (v) make different software applications within an organization effectively interface. (vi) computer security is included within an ERPS to protect against both outsider crime.

(c) Limitations and disadvantages (i) higher costs to set up the system. (ii) inadequate investment in ongoing training for involved personnel as well as a lack of corporate policy protecting the integrity of the data in the ERP system. (iii) customization o the ERP software is limited. Some customization may involve changing of the ERP software structure which is usually not allowed. (iv) once a system is established, switching costs are very high for any one of the partners. (v) resistance in sharing sensitive internal information between departments can reduce the effectiveness of the software.

Answer 10 (a) An ES can facilitate a manager’s decision making process in terms of: (i) Considering more alternatives. (ii) Applying a high level of logic. (iii) Devoting more time to evaluating decision results. (iv) Making more consistent decisions.

A16-7 [Any two items, 1 mark each, maximum 2 marks] (b) An ES improve performance of an organization by: (i) Providing consistent answers for repetitive decisions, processes and tasks. (ii) Holding and maintaining significant levels of information and maintaining controls over the firm’s knowledge. (iii) Reviewing transactions that human experts may overlook. [Any two items, 1 mark each, maximum 2 marks]

(c) The limitations or disadvantages of an ES are: (i) An ES can only function effectively in areas where rules and frames of reference or programmable decisions can be applied. (ii) The lack of flexibility and ability of an ES to adapt to changing environments because questions are standard and cannot be easily changed. (iii) An ES cannot apply the judgement and intuition that are important ingredients when solving semi-structured or unstructured problems. (iv) Although expert systems can store the results of a previous analysis to assist in making responses to similar questions in the future more accurate, they cannot learn in the sense of finding new data and are not artificial intelligence systems. [Any 3 items, 1 mark each, maximum 3 marks]

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