mis mca sem3 preparedby mumbaiuniversity

7/28/2019 MIS Mca Sem3 PreparedBy MumbaiUniversity

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Management Information Systems

MCA - SEM 3

As per Mumbai University Syllabus

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CHAPTER-1

Introduction

1.1 MANAGEMENT INFORMATION SYSTEM ( MIS) CONCEPT

The concept of the MIS has evolved over a period of time comprising many different

facets of the organizational function. MIS is a necessity of all the organizations.

The initial concept of MIS was to process data from the organization and present it in thefor of reports at regular intervals. The system was largely capable of handling the datafrom collection to processing. It was more impersonal, requiring each individual to pick

and choose the processed data and use it for his requirements. This concept was further

modified when a distinction was made between data and information. The information isa product of an analysis of data. This concept is similar to a raw material and the finished

product. What are needed are information and not a mass of data. However, the data can

be analyzed in a number of ways, producing different shades and specifications of the

information as a product. It was, therefore, demanded that the system concept be anindividual- oriented, as each individual may have a different orientation. Towards the

information. This concept was further modified, that the system should present

information in such a form and format that it creates an impact on its user, provoking adecision or an investigation. It was later realized then even though such an impact was a

welcome modification, some sort of selective approach was necessary in the analysis and

reporting. Hence, the concept of exception reporting was imbibed in MIS. The norm foran exception.

Was necessary to evolve in the organization. The concept remained valid till and to the

extent that the norm for an exception remained true and effective. Since the environment

turns competitive and is ever changing, fixation of the norm for an exception becomes kafutile exercise at least for the people in the higher echelons of the organization. The

concept was then evolved that the system should be capable of handling a need based

exception reporting. This need maybe either of an individual or a group of people. Thiscalled for keeping all data together in such a form that it can be accessed by anybody and

can be processed to suit his needs. The concept is that the data is one but it can be viewed

by different individuals in different ways. This gave rise to the concept of DA ‘ABASE,and the MIS based on the DATABASE proved much more effective.

Over a period of time, when these conceptual developments were taking place, theconcept of the end user computing using multiple databases emerged. This concept

brought a fundamental charge in MIS. The change was decentralization of the system and




the user of the in formation becoming independent of computer professionals. When this

becomes a reality, the concept of MIS changed to a decision making system. The job in acomputer department is to manage the information resource and leave the task of

information processing to the user. The concept of MIS in today’s world is a system

which handles the databases, databases, provides com-putting facilities to the end user

and gives a variety of decision making tools to the user of the system.The concept of MIS gives high regard to the individual and his ability to use

information. An MIS gives information through data analysis. While analyzing the data,it relies on many academic disciplines. These include the theories, principles and

concepts from the Management Science, Psychology and Human Behavior, making the

MID more effective and useful. These academic disciplines are used in designing theMIS, evolving the decision support tools for modeling and decision - making.

The foundation of MIS is the principles of management and if its practices. MIS

uses the concept of management Information System can be evolved for a specific

objective if it is evolved after systematic planning and design. It calls for an analysis of abusiness, management views and policies, organization culture and the culture and the

management style. The information should be generated in this setting and must be usefulin managing the business. This is possible only when it in conceptualized as system withan appropriate design. The MIS, therefore, relies heavily on the systems theory offers

solutions to handle the complex situations of the input and output flows. It uses theories

of communication which helps to evolve a system design capable of handling data inputs,process, and outputs with the lest possible noise or distortion in transmitting the

information form a source to a destination. It uses the principles of system Design, Viz.,

an ability of continuous adjustment or correction in the system in line with the

environmental change in which the MIS operates. Such a design help to keep the MIStuned with the business managements needs of the organization.

The concept, therefore, is a blend of principle, theories and practices of the

Management, Information and System giving rise to single product known asManagement Information System (MIS). The conceptual view of the MIS is shown as a

pyramid in Fig.1.1.

The Physical view of the MIS can be seen as assembly of several subsystemsbased on the databases in the organization. These subsystems range from data collection,

transaction processing and validating, processing, analyzing and storing the information

in databases. The subsystem could be at a functional level or a corporate level. The

information is evolved through them for a functional or a department management and itprovides the information for the management of business at the corporate level. The

physical view of the MIS can be shown as in Fig.1.2.

The MIS is a product of a multi- disciplinary approach to the businessmanagement. It is a product which needs to be kept under a constant review and

modification to meet the corporate needs of the information. It is prescribed product

design for the organization. The MIS differs since the people in two organizationsinvolved in the same business. The MIS is for the people in the organization. The MIS

model may be the same but it differs greatly in the contents.

The MIS, therefore, is a dynamic concept subject to change, time and again, witha change in the business management process. It continuously interacts with the internal

and the external environment of the business and provides a corrective mechanism in the




system so that the change needs of information are with effectively. The MIS, therefore,

is a dynamic design, the primary objectively. The MIS, therefore, is a dynamic design theprimary objective of which is to the information the information for decision making and

it is developed considering the organizational fabric, giving due regard to the people in

the organizational the management functions and the managerial and the managerial

control.The MIS model of the organization changes over a time as the business passes

through several phases of developmental growth cycle. It supports the management of thebusiness in each phase by giving the information which is crucial in that phase. Every has

critical success factors in each phase of growth cycle and the MIS model gives more

information on the critical success factors for decision making.

1.2 MIS DEFINITION

The Management Information System (MIS) is a concept of the last decade ortwo. It has been understood and described in a number ways. It is also known as the

Information System, the Information and Decision System, the Computer- basedinformation System.

The MIS has more than one definition, some of which are give below.

1. The MIS is defined as a system which provides information support for decision

making in the organization.

2. The MIS is defined as an integrated system of man and machine for providing the

information to support the operations, the management and the decision makingfunction in the organization.

3. The MIS is defined as a system based on the database of the organization evolved

for the purpose of providing information to the people in the organization.4. The MIS is defined as a Computer – based Information System.

Thought there are a number of definitions, all of them converge on one singlepoint, i.e., the MIS is a system to support the decision making function in the

organization. The difference lies in defining the elements of the MIS. However, in

today’s world MIS a computerized .business processing system generating

information for the people in the organization to meet the information needs decisionmaking to achieve the corporate objective of the organization.

In any organization, small or big, a major portion of the time goes in data

collection, processing, documenting it to the people. Hence, a major portion of theoverheads goes into this kind of unproductive work in the organization. Every

individual in an organization is continuously looking for some information which is

needed to perform his/her task. Hence, the information is people-oriented and it varieswith the nature of the people in the organization.

The difficulty in handling this multiple requirement of the people is due to a

couple of reasons. The information is a processed product to fulfill an imprecise needof the people. It takes time to search the data and may require a difficult processing

path. It has a time value and unless processed on time and communicated, it has no




value. The scope and the quantum of information is individual-dependent and it is

difficult to conceive the information as a well-defined product for the entireorganization. Since the people are instrumental in any business transaction, a human

error is possible in conducting the same. Since a human error is difficult to control,

the difficulty arises in ensuring a hundred per cent quality assurance of information in

terms of completeness, accuracy, validity, timeliness and meeting the decisionmaking needs.

In order to get a better grip on the activity of information processing, it is necessary to

have a formal system which should take care of the following points:

Handling of a voluminous data.

Confirmation of the validity of data and transaction.

Complex processing of data and multidimensional analysis.

Quick search and retrieval.

Mass storage.

Communication of the information system to the user on time.

Fulfilling the changing needs of the information.The management information system uses computers and communication technology

to deal with these points of supreme importance.

1.3 ROLE OF THE MANAGEMENT INFORMATION SYSTEM

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.The heart works faster and supplies more blood when needed. It regulates and

controls the incoming impure blood, processes it and sends it to the destination in the

quantity needed. It fulfills the needs of blood supply to human body in normal courseand also in crisis.

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 toall the needy destinations. The system is expected to fulfill the information needs of

an individual, a group of individuals, the management functionaries: the managers

and the top management.

The MIS satisfies the diverse needs through a variety of systems such as Query

Systems, Analysis Systems, Modeling Systems and Decision Support Systems the

MIS helps in Strategic Planning, Management Control, Operational Control andTransaction Processing.

The MIS helps the clerical personnel in the transaction processing and answers theirqueries on the data pertaining to the transaction, the status of a particular record and

references on a variety of documents. The MIS helps the junior management

personnel by providing the operational data for planning, scheduling and control, andhelps them further in decision making at the operations level to correct an out of




control situation. The MIS helps the middle management in short them planning,

target setting and controlling the business functions. It is supported by the use of themanagement tools of planning and control. The MIS helps the top management in

goal setting, strategic planning and evolving the business plans and their

implementation.

The MIS plays the role of information generation, communication, problemidentification and helps in the process of decision making. The MIS, therefore, plays

a vita role in the management, administration and operations of an organization.

1.4 IMPACT OF THE MANAGEMENT INFORMATION SYSTEM

Since the MIS plays a very important role in the organization, it creates an impact

on the organization’s functions, performance and productivity.

The impact of MIS on the functions is in its management. With a good support,the management of marking, finance, production and personnel become more

efficient. The tracking and monitoring of the functional targets becomes easy. Thefunctional, managers are informed about the progress, achievements and shortfalls inthe probable trends in the various aspects of business. This helps in forecasting and

long- term perspective planning. The manager’s attention is brought to a situation

which is exceptional in nature, inducing him to take an action or a decision in thematter. A disciplined information reporting system creates a structured data and a

knowledge base for all the people in the organization. The information is available in

such a form that it can be used straight away or by blending analysis, saving the

manager’s valuable time.

The MIS creates another impact in the organization which relates to the

understanding of the business itself. The MIS begins with the definition of a dataentity and its attributes. It uses a dictionary if data, entity and attributes, respectively,

designed for information generation in the organization. Since all the information

system use the dictionary, there is common understanding of terms and terminologyin the organization brining clarity in the communication and a similar understanding

an even of the organization.

The MIS calls for a systemization of the business operation for an affective

system design.A well designed system with a focus on the manger makes an impact on the

managerial efficiency. The fund of information motivates an enlightened manger to

use a variety of tools of the management. It helps him to resort to such exercises asexperimentation and modeling. The use of computers enables him to use the tools

techniques which are impossible to use manually. The ready-made packages make

this task simpler. The impact is on the managerial ability to perform. It improves thedecision making ability considerably.

Since the MIS works on the basic systems such as transaction processing anddatabases, the drudgery of the clerical work is transferred to the computerized system,

relieving the human mind for better work. It will be observed that a lot of manpower




is engaged in this activity in the organization. It you study the individual’s time

utilization and its application; you will find that seventy per cent of the time is spentin recording, searching, processing and communication. This is a large overhead in

the organization. The MIS has a direct impact on this overhead. It creates an

information- based work culture in the organization.

1.5 MANAGEMENT INFORMATION SYSTEM AND COMPTER

Translating the real concept of the MIS into reality is technically, an infeasibleproposition unless computers are used. The MIS relies heavily on the hardware and

software capacity of the computer and its ability to process, retrieve communicate

with no serious limitations.The variety of the hardware having distinct capabilities makes it possible to

design the MIS for a specific situation. For example, if the organization needs a large

database and very little processing, a computer system is available for such a

requirement. Suppose the organization has multiple business location at longdistances and if the need is to bring the data at one place, process, and then send the

information to various location, it is possible to have a computer system with adistributed data processing capability. If the distance is too long, then the computersystem can be hooked through a satellite communication system. The ability of the

hardware to store data and process it at a very fast rate helps to deal with the data

volumes, its storage and access effectively. The ability of the computer to sort andmerge helps to organize the data in a particular manner and process it for complex

lengthy computations. Since the computer is capable of digital, graphic, word image,

voice and text processing, it is exploited to generate information and present it in the

form which is easy to understand for the information user.The ability of a computer system to provide security of data brings a confidence

in the management in the storage o data on a magnetic media in an impersonal mode.

The computer system provides the facilities such as READ ONLY where you cannotdelete to UPDATE. It provides an access to the selected information through a

password and layered access facilities. The confidence nature of the data and

information can be maintained in a computer system. With this ability, the MISbecome a safe application in the organization.

The software, an integral part of a computer system, further enhances the

hardware capability. The software is available to handle the procedural and

nonprocedural data processing. For example, if you want to use a formula to calculatea certain result, an efficient language is available to handle the situation. If you are

not use a formula but have to resort every time to a new procedure, the nonprocedural

languages are available.The software is available to transfer the data from one computer system to

another. Hence, you can compute the results at one place and transfer them to a

computer located at another place for some other use. The computer system beingable to configure to the specific needs helps to design a flexible MIS.

The advancement in computers and the communication technology has the

distance, speed, volume and complex computing an easy task. Hence, designing theMIS for a specific need and simultaneously designing a flexible and open system

becomes possible, thereby saving a lot of drudgery of development and maintenance




and maintenance of the system. The concept of user – friendly systems and the end

user computing is possible, making information processing a personalized function.However, the application of the management principles and practices in today’scomplex business world is possible only when the MIS is based on computer system

support.

1.6 MANAGEMENT INFORMATION SYSTEM AND ACADEMICS

The management’s information system draws a lot of support from other academic disciplines too. The foundation of MIS is the management theory. It uses

the principles and practices of management while designing the system, ant gives due

regard to the theory of organizational behavior.It considers the human mind as a processor of information. While designing the

report format and forming communication channels, MIS takes into account the

behavior of the manager as an individual and in a group. It gives due regard to the

personal factors such as bias, thinking with a fixed frame of reference, risk aversion,strengths and weaknesses.

Another area of academics is operational research. The operational research isused for developing the models of management and they are then incorporated in theMIS as decision support systems. The inventory control, queuing theory, and resource

programming are used in the MIS as decision support systems. The network theory is

used for planning and controlling large projects. The application of PER / CPM to aproject planning is now easily possible through the MIS support.

In the area of accounting application, it uses the accounting principles to ensure that

the data is correct and valid. It uses the principles of double entry bookkeeping forbalancing the accounts. It uses the accounting methodology for generating a trial

balance sheet and other books of accounts.

The MIS uses the communication theory in a significant manner. The principle of

feedback is used while designing analysis. Systems. While designing the report

format, attention is paid to avoid noise and distortions in the communication process.The MIS further relies heavily on the decision methodology. It uses different

mathematical techniques to handle the situation of decision making uses the method

of decisionmaking under certainty for decisionmaking and action.

The MIS is based on database structures, viz .hierarchical, network and relational

database have roots in the mathematics and the set theory.

The MIS becomes rich in content and more useful when it becomes more and more a

decisionmaking or decisionsupport system. The is possible when it builds decision

making systems in MIS which in turn is possible if it draws tools, techniques,methods, rules and principles from pure and application science, and use them as an

integral part of the system. The MIS draws data from its own source and uses it in the

application of a variety of tools and techniques to solve the management,mathematics, and accounting. Psychology, communication theory, operations




research and probability theory for building processes, methods, and decision –

support systems in designing business application.

1.7 MIS AND THE USER

Every person in the organization is a user of the MIS. The people in the organization

operate at all levels in the hierarchy. A typical user is a clerk, an assistant, an officer,an executive or a manager. Each of them has a specific task and a role to play in the

management of business. The MIS caters to the needs of all persons.

The main task of a clerk is to search the data, make a statement and submit it to thehigher level. A clerk can use the MIS for a quick search and reporting the same to

higher level. An assistant has the task of collecting and organizing the data, andconducting a rudimentary analysis of integrating the data from different anddisciplines to analyze it and make a critical comment if anything adverse is found.

The MIS offers the methods and facilities to integrate the data and report the same ina proper format. An executive plays the role of a decision maker. He is in of

responsibility and accountability a position of a planner and a decision maker. He is

responsible for achieving the target and goals of the organization. The MIS provides

facilities to analyze the data and offers the decision support systems to perform thetask of execution. The MIS provides an action – oriented information.

The manager has a position of responsibility and accountability for the businessresults. His management role expands beyond his management function. He is a

strategist and a long-term planner. He is a person with a foresight, an analytical

ability and is expected to use these abilities in the functions of top management. TheMIS provides information in a structured or unstructured format for him to react. The

MIS caters to his constant changing needs of information. The user of the MIS is

expected to be a rational person and the design of the MIS is based on this

assumption.

However, in reality the impact created on individuals by MIS is difficult to explain.

The nature of the impact in a few cases is negative. However, this negative impactcan be handled with proper training and counseling.

It is observed that at lower level, is a sense of insecurity. As the MIS takes away thedrudgery of search, collection, writing and reporting the data, the work vacuum, so

created is not easily filled, thus creating a sense of insecurity. To some extent the

importance of the person is also lost, giving rise to a fear of non-recognition in theorganization.




At the level of an officer and an executive, the MIS does the job the of datamanipulation and integration. It analyses the data in a predetermined manner. This

means that the knowledge of business is transferred from an individual to the MIS

and is made available to all in the organization. This change arising out of the MIS

creates a sense of being neglected for knowledge, information and advice. Thepsychological impact is larger if the person is not able to cope up with this change by

expanding or enriching the job and the position held by him.

The manager holding a position in the top or middle management suffers from fear of

challenge and exposure. The MIS makes these competitors more effective as theyhave access to the information and have an ability to interpret. This leads to a

situation where he is afraid that that his position, decision and defense will be

challenged and may be proved wrong sometime. The risk of adverse exposure to the

higher management also increases. The effects so far pointed out are all negative andthey are seen only in few cases.

The positive effects on the individuals at all levels are that they have become moreeffective operators. The time and energy which was spent earlier in unproductive

work is now applied for a productive work. Some are able to use their analytical skills

and knowledge with the in formation support for improving their position in theorganization. Managers, having improved their decision – making ability, are able to

handle the complex situations with relative ease. Some are benefited by improving

their performance and being held in high esteem by the higher management.

The enterprising managers are able to use the systems and the models for trying out a

Number of alternatives in a given problem situation. The impact of the MIS on

peopleOf the organization is phenomenal as it has made the same body of people

collectively more effective and productive.

The recent major technological advances in communication such as Multimedia,

Imaging. Graphical User Interfaces (GUI), Internet, Web etc. and the ability to access the

data stored at different locations on the variety hardware of platforms would make MIS

more attractive and efficient proposition. An intelligent user of information candemonstrate the ability of decision making, since his manipulative capability is

considerably increased, with the information now being available on his desktop.

Through the MIS, the information can be used as a strategic weapon to counter the threats

to business, make business more competitive, and bring about the organizational

transformation through integration. A good MIS also makes an organization seamless byremoving all the communication barriers.




REVIEV QUESTIONS

1) What is the scope of information system and Management Informationsystem?

2) Give three reasons for using computer for MIS in the organization?3) Designing an MIS for an organization?

4) Can you think of an MIS which could be user independent and business

dependent?5) State the difference between MIS and a computer system.

6) Take an organization of your knowledge and give a conceptual view of

MIS and physical view of MIS.

7) State which capabilities of a computer are used in MIS to create an impact.8) Identify the nature of impact of MIS on people, organization and the

management style.9) If application science and MIS can be brought together, the MIS designwould be realistic and useful. Discuss.

10) Why is MIS looked upon as a strategic need of management today?




CHAPTER-2

Role and Importance of Management

2.1 INRODUCTION TO MANAGEMENT

Management as defined by Mary Follett is “the art of getting things done throughpeople” A manger is defined as a person who achieves the organization’s goals bymotivating others to perform – not by performing himself. Whether management is an

art or a science is a very subjective question. But it can be said without doubt thatmodern management in the environment of technology is becoming more of a science

than an art. We define management for the purpose of Management information

Systems as the process of planning, organizing, staffing, coordinating and controllingthe efforts of the members of the organization to achieve common stated goals of the

organization.

In the process of management, a manager uses human skills, material resources and

scientific methods to perform all the activities leading to the achievement of goals.

The management process involves a continuous resolution of conflicts of one kind or

the other which affects the achievement of goals. In the management of any activity, amanager comes across human conflict, conflict of goals, between alternative

resources, conflict of time, conflict of approach or method and the conflict of choice.

The manager uses a variety of tools, techniques and skills while executing themanagement process of planning, organizing, staffing, coordinating and controlling.

An effective way of handling this process is to treat the organization as a system. The

result – oriented management approaches the problem of management through the

system view of the organization.

The key concepts of the system theory used in the management are as follows:

1. A system is a comprehensive assembly of parts becoming an organization toachieve the stated goals.

2. A system is called OPEN if it has interaction with the environment and

CLOSED if it not have an interaction with the environment.3. A system is defined, described and understood by the boundaries within

which it performs.

4. The system are subject to entropy, i..e., the tendency to “ run down”. Closedsystems suffer from entropy as they are cut off from the environment, while

open systems interact with the environment and draw upon the support of resources to maintain a given condition.5. Systems try to remain in an equilibrium or a steady state by taking recourse to

corrective action. This is possible when the system has its own feedback, i.e.,

an informational input about the state of the system.

The advantage of viewing the management as a system is that it enables us to see

the critical variables constraints and their interaction with one another It force




the manager to look at the situation in such a way that due regard is given to the

consequences arising out of interaction with the related element or subjects. Theprocess of management explained earlier consists of steps which are relationally

linked and locked with each other.

In the context of the MIS, the systems approach to management is the mostefficient one. The understanding of the basic principle of management theory

evolved the scholars Henri Fayol, Chester Barnard and Alvin Brown is very muchessential. The application of management principles in an environment,

recognizing the specific situation, is the accepted practice of management.

Deviating from the principle to honour the situation and at the same time notdiluting the management principle is the managerial skill. The manager must have

a knowledge of management theory and principle as the skill to use them in a

particular environment.

2.2 APPROACHES TO MANAGEMENT

Frederick W Taylor*, is recognized as the father of scientific management. Hisprinciples can be summarised as follows :

1. Replace the rules of thump with scientific rules.

2. Obtain a harmony in group action.3. Achieve cooperation of human beings, rather than chaotic individualism.

4. Work for a maximum output .

5. Develop all workers to the possible potential for their own highest possible

prosperity.Car George Barth, Henry L Gantt, Frank and Lillian Gilberth are the disciples of

Taylor, who promoted the thought of the scientific management.

The French industrialist Henri Fayol** promoted the theory of operational

management. Fayol is of the view that all the activities of an industrial or a

business or a business undertaking can be ____________* F W Taylor, The Principles of Scientific Management, Harper, New

York, 1911.

** Henri Fayol, General and Industrial Management, translated by Constance

Storrs, London, Sir Isaac Pitman and Sons Ltd, 1949.

Broken into operational functions such as technical, commercial, financial,

security, accounting, and so on. He evolved the principles of operationalmanagement. These are as given in Table 2.1.




Table 2.1 Principles of Operational Management Principle Comments

Division of work Authority and responsibility

DisciplineUnity of command

Unity of direction

Subordination of individual

to

Corporate interestRemuneration

Centralisation

Scalar chains

Order

Equity

Stability of tenure

Initiative

Efficient handling of work.Pinpoints accountability.

Adherence to rules, regulations, norms and priorities.Single source directed towards one objective.

Efforts should be directed towards one objective.

Ignore the individual interests for overall betterment of

the organization.

Should be fair for maximum satisfaction.Authority should be centralized just enough for control.

Overgeneralization is unproductive.

Chain of authority vested into the people should not beshort-circuited.Orderly arrangement of men, material and other

resources is necessary.

Subordinates should be dealt with kindliness and justiceto elicit loyalty and devotion.

It is necessary to ensure that the turnover of people is

controlled for stability.The initiative of subordinates should be encouraged,

sacrificing personal vanity of the superior.

Fayol regarded the elements of management as planning, organizing, commanding,coordinating and controlling. He believed that the operational management would

succeed through the elements of management. During the same period when Taylor,

Fayol and others were concentrating on the scientific management, another group of

scholars was concentrating on industrial psychology and social theory as the basis for thescientific management.

Robert Owen, Rountree, Lyndall Urwick are credited to evolve the managementwith a focus on the personal management. Max Weber, Vilfredo Pareto, Mayo Elton are

the scholars who thought that productivity can be improved through the social factors as

morale and satisfactory relation between the members of work group, and an effectivemanagement is possible only if human behavior and group behavior is managed through

the interpersonal skills, viz, motivating, counseling, leading and communication.

Hawthorne’s studies brought out the theory that man is a “Social Animal” operatingin the socio – technical system and, therefore, the emphasis in effective management is

on behavioral sciences. Chester Barnard advocated the theory od system as an approach

to the management. Barnard said that due to the physical and biological limitations of

individuals, they cooperate in the work environment. The cooperation increases with




effective and efficient incentives. He further said that the cooperation is more effective if

the members of the group communicate with one another, are willing to contribute togroup’s action, and have a conscious common Purpose. He father said that a groups of

peoples in the system work as an organization is looked upon as a system of factions, a

system of in a system of incentives, a system of authority and a direction and a system of

logical decision making. The emergence of the modern management thought is creditedto the social scientists, the behavioral scientists, the systems scientists and the practicing

managers.

2.3 FUNCTIONS OF THE MANAGER

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 functionsare planning, organization, staffing, directing coordinating and controlling.

Planning is a process of determining the goals and objectives and evolving strategiespolicies, 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. 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. 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 goalsand objectives of the organization.

Directing is a complex task of implementing the process of management. In the

process, the manger is required to guide, clarify and solve the problems of the peopleand their activities. It is necessary to motivate the people to work for the goal with an

interest and a confidence.

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, necessaryto 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. 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 thecontrol 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 themanagerial function.

The manager’s main function, therefore, is planning and control of the business

functions and operations. While performing these functions, he resorts to thescientific approach to the management.

2.4 MANAGERS AND THE ENVIRONMENT

All managers, whether they are managing a business, a school, a hospital,Government Department, or any enterprise, work in an environment in which the

organization operates. There are a number of forces which are generated in the

environment, which have an impact on the managerial performance. These forces

may be from within or from outside the organization. They affect, directly orindirectly, the process of the management and a manager is required to meet these

forces effectively. While to some extent the internal environment is controllable, theexternal environment is beyond his control. Since it is proven that the externalenvironment also has an impact on the business manager’s performance, it isnecessary to know and understand the environment. For the purpose of discussion, the

external environment is classified into five classes as the economic, the technological,the social, the political and the ethical environment.

Economic Environment

The economic environment comprises capital, labor, price changes, productivity,

fiscal and monetary policy and customers.

Capital

It is required to run the organization. The enterprise needs a long-term and a short-term capital. The capital required can be either from the internal sources or borrowed

from the financial institutions. When a capital is borrowed, it is borrowed at an

interest. The organization is forced to borrow for various reasons and the interest

charged by the lending financial institutions forms the cost of the capital. Hencemanagement of the capital is an important aspect of the business.

Labor

The next important cost of a business is the cost of labor. The cost of labor is

determined every two three years by a union agreement. The settlement of anagreement is based on the cost of living index, the industry wage standards, the

availability of labor, etc. These aspects are external to the organization and a manager

has no control on them.




Price Changes

Price changes occur in the economy for various reasons. The changes occur because

of decrease in the demand and supply, the changes in the consumer behavior, in the

consumption pattern and the money supply, and so on. The price changes affect the

cost of raw material and labor and on these changes a manager has no control.

Productivity

Productivity is a result of the capital, labor and technology. Many a time’s an

organization’s business are taken over by better technology. The costs are affected bythe technology changes affecting the productivity. The manager has to respond

quickly to the technological changes to save the business.

Fiscal and Monetary Policy

The Government announces fiscal policies and controls them. The organization’sprofit position is affected by these policies. These policies affect the credit terms, the

price of the inputs and the money supply affecting the cash position of the

organization. A manager has a very little leverage to deal with these policy changes.

Customers

The customers rule the business, especially when the business operates in a buyer’s

market. In a competitive world, it is very difficult to predict the customer behavior.The changes in the demands occur with growth and technology. The customer does

not show consistent preference to the product. The change in the business orientation

to suit the changes in the consumer demand is a difficult task for the manager. It isnot always possible to predict these changes well in advance in order to take any

managerial action to meet the changed situation.

Technological Environment

The technology has a major impact on the business. It affects the business prospects,

cuts down the profits and forces the management to change the course of the businessoperations. It requires changes in the product design and promotes new concepts. It

generates new business opportunities. Any change in technology changes the work

culture, the methods and the systems. It affects the speed of the operations and gives aboost to the productivity of the production systems. Examples of technological

changes are seen in aviation, electronics, energy, communication, consumer goods

industry, optics, medicines and manufacturing.

Social Environment

The social environment is built around the attitudes, the desires, the expectations, the

degree of intelligence and education, the beliefs and customs, the religion, the caste




and creed of the people. The social environments are built in centuries and hence it is

deeply rooted in the society. The social environment has an important impact on thebusiness and the organizational productivity.

Social factors create an attitude towards the work, generate the product choices,

and manipulate the consumer behavior. It is well known that it took a lot of time to

convince the farmers in India about the use of fertilizers. It is recognized that ruralmarketing is different from the urban marketing. In spite of the technological

advances, frozen foods are not finding consumer preferences. Introduction of computers in the service industry is still a difficult proposition. A number of such

examples can be cited to prove that the social environment affects business and

makes the manager’s task very difficult and challenging.

Political Environment

The political factor is the most important factor which affects the business in Indianenvironment. The unstable political environment brings stagnancy in the business

development. The changes in ruling party bring economic policy changes, affectingthe business. The sect oral preferences, such as an agricultural versus an industrial, aneducational versus a basic research, an investment in the service sector versus a core

sector come about with change in the ruling political party and its policies. Such

changes have a long-term impact on business performance. The manager has to dealwith such changes effectively.

Ethical Environment (Systems of a Moral Behavior)

Some business problems arise due to failing on the ethical grounds. The government

has enacted many laws and regulations to bring about harmonious operations in

business. However, some aspects of the business operations are left as ethics, calledthe business ethics. The business ethics emerge from the professional conduct, the

business norms and codes on confidentiality, the payment and documentation, the

adherence to generally accepted standards of accounting and auditing. Business ethicsis a set of norms which are universally accepted as a business behavior.

All these factors discussed so far, are beyond the control of the manager. At besthe can predict, assess, evaluate and take such actions which will help him to control

the situation.

2.5 MANAGEMENT AS A CONTROL SYSTEM

Planning, organizing, staffing, coordinating, directing and controlling are the various

Steps in a management process. All the steps prior to a control are necessary but are

not necessarily self-assuring the results unless it is followed by a strong control

mechanism. The management experts have viewed these steps as ManagementControl System. They postulate the hypothesis that unless a control is exercised on

the process, the goals will not be achieved. They advocate a system of effective

control to ensure the achievement of the business objectives.




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 statedcommon goals. The control 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. Robert J Mockler defines and points out the

essential elements of the control process. The basic steps of the control process aregiven in Fig. 2.1.

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 thedeviations from the standards, to measure its significance and to take corrective

actions in case of significant deviations. This systematic effort is undertaken through

the management control system.

Estabilsh ActualStandards of Measure vs. Not O.K. CorrectivePerformance Performance STD. Action

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 effectivecontrol 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.

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, and managerial functions and so on. Fro example, the managementwould have standards relating to the business performance, such as production, sales,

inventory, quality, etc. The operational management would have standards relating tothe 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.

Strategic Controls




In every business there are strategic areas of control knows as the critical successfactors. The system should recognize them and have controls instituted on them.

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 theprogress 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 standers 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 informationfor 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 bechange with ease so that the impact of changed environment is handled effectively.

2.6 MANAGEMENT BY EXCEPTION

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 ora wait – and- see approach.




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 attentionto 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.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 anegative 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 managerialattention. 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 ispossible to trace the reasons of deviation, and it is possible to take a corrective action.

The significant deviation can occur on account of wrong performance standardsand wrong management process. Many times standards are set very low and theyneed 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.

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 methodsof 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. Themanagement by exception commands grip on the management process. The

managerial effort gets directed towards the goal with the purpose of achievement.

2.7 MIS: A SUPPORT TO THE MANAGEMENT

The management process is executed through a variety of decisions taken at each step

of planning organizing, staffing, directing, coordinating and control. As discussed inChapter 1, the MIS aids decision making. If the management is able to spell out the

decisions required to taken in these steps are tabulated in Table 2.2.

Table 2.2 Decisions in Management

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.

The objective of the MIS is to provide information for a decision support in theprocess 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 inconducting the business operations. Unless the MIS becomes a management aid, it is

not useful to the organization. Figure 2.2 illustrates the process discussed here.

MANAGEMENT AND MANAGEMENT

INFORMATION SYSTEMS

Environment

Management

Goal Setting

.




REVIEW QUESTIONS

1. Trace the shift in management focus, starting from Frederick W Taylor to peterDrucker.

2. Take a task which you often do, and map the processes in the task against the

processes involved in management process cycle. Are you following all the stepsin management process cycle?

3. MIS supports a manager in his functional responsibilities. Explain.

4. List the external environment in which a manager operates. How many of tem

have a direct impact on the management process and hence should be consideredin the MIS design?

5. Explain the importance of management by exception. Can it be the only approachin managing the business?6. List the decision involved in each phase of management process, starting from

planning to control.

7. Explain the role of performance standard and “feedback ” in effective managementof business.

8. The word management is often used with other words is such as Management of

resource, Management of capacity. Etc. Explain with example three applications

in Resource Materials and capacity management.




CHAPTER-3

Process of Management

3.1 MANAGEMENT EFFECTIVESS

‘ Negandhi Estafen’ provides a good model ( Fig. 3.1) for the analysis of managementeffectiveness which generates enterprise effectiveness in achieving the goals and

objectives. The model puts a lot of emphasis on the management philosophy and theenvironment factors on which the effectiveness is dependent. The environment factors

provide the opportunities to survive and grow with certain constraints, while the

management philosophy sets the guidelines for deciding the management practices to run

the enterprise.While the environment factors are difficult to control, it is left for the management to

change its philosophy towards the various players in the business, viz. the employees, the

consumers the suppliers, the government, the community and the shareholders. Basically,It is a change in attitude towards these players. For example, how to look at the

employees?

If the attitude is to treat them as business partners, you will empower them and create asense of belonging to the organization. Such an attitude will have impact on the

management practices, where the employee will play a decisive critical role. It will affect

the organization structure by reducing its size and the reporting levels.

If the attitude towards the consumer is changed to fulfill the expectations giving rise to ahigher satisfaction, then the management practices in the product design, manufacturing

and marketing will undergo a significant change. The product life cycle will then beshort, and more features and functions will be added to the product fulfilling not only the

functional needs but also the service needs of the consumer.

The management practices therefore emerge out of the management’s philosophy and theenvironment, in which it operates. The management effectiveness would largely depend

on both these factors. The MIS design would therefore, be different depending upon themanagement practices followed by several organization in the same industry. Such design

improves the management effectiveness leading to an improvement in the enterprise

effectiveness.

Goals, Objectives and Targets

The process of management begins with setting of goals, objectives and targets Thegoals are long- term aims to be achieved by the organization objective are relatively short

– term milestones to be accomplished, while the targets generally refer to physical

achievements in the organization’s business. The goals, objectives and targets are so set




they are consistent with each other and help to achieve each other and help to achieve

each other. The are to be achieved within a stipulated time and failing to achieve thesame, means loss of business profit and image. The difference between these entities can

be best understood by examples in the three types of organizations given in Table

The setting of goals, objectives and targets is a top management function. It has its

implications on the business operations and profits. These are set considering theenvironment and changes expected to occur in about five to six years. The organization is

expected to consider and cater for these changes and translate them into businessoperations. The setting of goals objective and targets helps to pull the resources of the

organization in one direction and solve. It help to build the strategies, frame the polices

and set the rules of conducting the business. It provides an efficient measure to monitorthe managerial process. The people in the organization can have common understanding

of the purpose of the business operations.

In an organization as time progresses, business goals, departmental goals, functionalgoals and personal goals emerge, which create conflicting environment in the

organization. The goals, objective and targets from a network. Achievement of targetshelps in accomplishing objective and accomplishment of objectives leads to theattainment of goals. Careful determination of these entities is therefore essential for a

successful management process. The goals objectives and targets become reference

points for strategic planning and operations planning.

If further helps the management to identify key areas of business and key areas of

management attention. It helps appropriates and consistent business review. The

performance appraisal of the manager becomes impersonal and unbiased as it is donewith reference to achievement of goals, objective and targets. McGreor saw appraisal

against the goals and objective are necessary in every area where performance and results

directly and vitally affect the survival growth and prosperity of business”.

3.2 PLANNING

Planning is basic to all managerial functions. It is a process of selecting one course of action from different alternatives, for achieving the stated goals, objective and targets. It

is a decision making process determining in advance what to do, when to do, how to do

what is to do. Planning creates a frame of activity and events which are to happen or arunway for achieving corporate goals, objective and targets. Planning process demands

resource allocation through decision making. The organization may have a plan; but

question is how effective the plan is.

The efficiency of a plan is measured by the amount it contributes towards achievement of

goals. The plan is efficient the goals with less investment or with less resourcesTherefore, efficient planning involves selecting a plan among several alternative plans.

An efficient plan enables the management to handle uncertainty and risk in the business.




It helps to handle the change occurring in the environment and affecting the plan itself.

Planning helps to make operations economical as it continuously evaluates the costs andoutputs and forces optimum use resources. It further helps to control business operations

at all levels with

Common reference to goals, objectives and targets.

Planning is a process and hence it has a methodology. The first step in planningforecasting the environment, in which the plan is to be made and operated. Forecasting

provides information on population, growth price trends, market changes, and newopportunities, changes in technology the plan will be developed and implemented.

The second step in planning is determining alternative courses of action. Themanagement’s ability lies in creating a number of alternatives. The effective way of

creating a number of alternatives is to build models of the situation and use it as a tool for

the generation of alternatives. These models. Are known as system models, operational

research model and mathematical models. Consequent o the development of alternativecourses of actions, the necessity is to analyze the feasibility of each. As, a modek can

give infinite alternatives, only some of them can be feasible in the given conditions andconstraints. The constraints may be man-made or environmental; but they affect thefeasibility of the action. Evaluating the feasibility of each alternative brings the infinite

number of alternatives to a limited number.

The third step in the planning process is to evaluate the best among all the feasiblealternatives. The analysis and evaluation is done with reference to the objectives such as,

minimization of cost, maximization of profit, yield, and productivity, etc. The right

choice of an objective is a crucial factor in the selection process. The planning begins

with the setting of goals and objectives and ends up in selecting the most rational courseof action.

As mentioned earlier, the organization has a network of goals, objectives and targets. It isnecessary to develop the network of plans corresponding to this network. The process

leads to the development of corporate plans, investment plans, marketing plans, and

advertising plans. Normally, the corporate plans are for a longer period and the derivedplans are for shorter periods. Since the plan has a commitment to time, it is necessary to

build a flexible plan capable of undergoing a suitable change to alter the goals and

objectives within the same time. The flexibility, as possible, should be built in, so that the

cost of changes is not very high and the implementation is still possible without loss of time. The implementation of plans is made through developing the strategies, policies,

systems, rules, procedures, programmers and the budgets. The strategy shows the

direction, focus, emphasis and development of resources. Many a time’s good plans failbecause of strategic failure. The purpose of the strategy is not to outline a precise method

of implementation; but to provide a boost or thrust to the plans of implementation. An

appropriate strategy helps to cut down the use of resources and accelerates the process of achieving the goals.

The policy is a statement of management which stands on the top of all plans or coursesof action. A rational plan or a decision can be rejected on the premise of policy .The

policies are evolved in the wider frame of strategies and are generally not questionable;




but these can be changed. For example, the organization can have a policy of recruiting

personnel only with the qualification of MBA or it may have a policy of changing theprices once a year and not too frequently. The policy, therefore, is a general guideline and

is to be followed by all.

The system is a vehicle for the implementation of a plan. The system provides pathways,

gates and structures for communication and control. The strategies and policies areimportant for successful implementation of the plans. Depending upon the plans, systems

will be built as closed or open systems. The rules, procedures and programmers help to

implement the operational plans. They provide a common basis and an understanding of conducting business operations. A strict adherence to the rules and the procedures builds

discipline in the organization. A smooth implementation of the plan calls for the rules,

procedures and programmers to be observed properly. When the organization becomes

bigger, the adherence to rules procedures and systems brings a higher degree of formalization in the process of implementation.

The effectiveness of the plan depends on how it is implemented. A successfulimplementation requires appropriate timing of launching the basic plan and its

derivatives. Lack of knowledge creates the problems of going away in a totally different

direction. The plan must be evolved by people who are going to implement it. Theirparticipation brings their involvement and commitment to the plan. For effective

planning, participation should be encouraged.

An effective planning should begin at the top and flow down the line. The effectiveness isbrought in by taking a series of decisions, committing resources, giving directions, and

executing controls to achieve the goals and objectives. The process planning, therefore, is

to develop the alternatives based on some choice about goals. It the situation is that of uncertainty, then the evaluation is done through risk analysis ad preference theory using

utility as criteria.

3.3 ORGANISING

Organizing is an important step in the managerial process and relates to the people in an

enterprise. It deals with a quantitative and a qualitative aspect of manpower in terms of placement, the roles they and the relations amongst them, with the aim that they work

together effectively towards accomplishing the goals, objectives and the targets of the

organization. In essence, it deals with organizing the manpower resources for a givenplan of execution.

The organization could be formal or informal. The organization is formal when the roles,the relations of the people and the objectives they should achieve well defined. In an

informal organization, it is left to the people to understand and evolve suitable roles and

relationships to achieve the objectives.




While creating the organization is given to an appropriate splitting of the enterprise

activities, by way of function, and grouping them in such a way that they form a division,a department, a section or a formal group. The people heading these entities should have

enough authority to decide, and should exercise a discretion in using the authority. The

people should and the members of the structure of roles and relationships that it is

designed to work effectively and the members of the structure are able to contributesubstantially towards the achievement of goals. The structure would be productive, if it is

manned properly. The process of manning involves selecting people in right number andplacing them at appropriate levels.

Peter Drucker recommends three ways to determine the structure:

Activity analysis,

Decision analysis, and

Relations analysis

Organizing is a process by which the manager can bring a smoothness of operations, by

way of conflict resolution, assigning work responsibility, and creating appropriate work environment of teamwork while deciding on the process of organizing. There are certain

important factors to which attention should be paid and which are discussed as follows.

Organisation Levels and the Span of Control

This factor deals with grouping the people in hierarchical form, determining the levels inthe organization. The levels get determined by the spa of control, i.e., in the organization

how many subordinates a superior can mange. This number can vary anywhere between

four to eight in higher levels of management and eight to fifteen in lower levels of

management to be taken, and the strengths and weaknesses of the people and the degree

of the delegation of the responsibilities that a superior is willing to attain. The span of control can be increased and the number the levels can be brought down by training the

subordinates, precise planning, use of objective standards, effective communications andformalizing the administration by way of rules, programmers and policies.

Departmentation

Departmentaton is a process of breaking an enterprise into smaller groups and levels.

There is a number of ways t break the enterprise. A widely accepted is by functions of theenterprise, viz., Marking , Production, Finance, Personnel, Materials, etc. The second

method is based on geographic area distribution. This method is resorted to when the

distances are long, the activities are many and the decision making is decentralized.Many organizations have divisions, branches and territories through which the businessoperations are conducted.

The third method to department is by way of the product or the services the organizationis providing. The department of the organization brings operational convenience, creates

appropriate responsibility centers, facilitates a formal and an informal communication,

permits an evaluation of activities by a smaller group, and provides control and decision




points for the top management. Each method of a departmentalizing has advantages and

disadvantages and, therefore, it is to be chosen based on the needs of the management.

Relations of Line and Staff Functions

The function of a department can be as a line or a staff. The functions which have a directresponsibility of achieving the targets for production or sales are line functions. The staff

functions are those which do not participate directly in the activity but aid line functionsto achieve the targets. Production Planning, Marketing, Purchasing, etc, are staff

functions. The distinction is more clear and precise at higher levels. The staff function is

advisory but owns the responsibility for the results and is accountable for non-performance.

The relationship between the line and the staff functions is always strained. The

performance of the line function depends upon how the staff function has planned theactivities. Deficient planning leads to an initialization of line capacity and non attainment

of targets. A line function does not have resources, leverages and powers to overcome theproblems arising out of the staff functions.

Delegation of Authority

The function either is a line function a staff function; but still it requires decision making.

As one person cannot plan, execute and control all the tasks in the functions, owing to the

limitations of time and capacity, it is necessary that the decision making is not centralized

at one point.

Handing over limited authority of decision making to the subordinated is called

delegation. The concept of delegation is based on the premise that an individual can takedecision if supported by information, knowledge and guidance, and is motivated enough

to perform. The concept of delegation accepts the responsibility of non-performance of

the delegated person or the mistakes made by him. Hence, most routine types of decisionsare delegated with the support of rules, conditions and the method of decision making.

The failures in delegation occur not because of the lack of understanding of the principle

of delegation, but because of the inability to implement it into practice. A lot dependsupon the ability of the manager to delegate and upon the capabilities of the subordinates

to use the authority. The manager is not able to delegate, if he does not have a positive

attitude towards delegation, if e is not receptive to the subordinates’ ideas and is notwelling to accept the risk of failure or mistake of his subordinates. A failure to use the

delegated authority emanates from a lack communication, guidance, training and

motivation.




Towards Effective Organisation

Organisation is an activity of building a structure of roles and relations of the people to

secure coordination of individual efforts to achieve common stated goals, objectives and

targets. The failure in organization occurs due to the failure to plan properly, to delegate

the authority and due to the confusion of relation and authority. The failure also occurs onaccount of imbalance in the line and staff function and their relation. Organisation

becomes effective, if it is designed for the unity of goals and objectives with preciseplanning and optimum span of control. It becomes further effective, if it works on the

principle of command, delegation and parity of authority and responsibility. It becomes

productive if it flexible enough to change and is headed by a manager with leadershipqualities.

3.4 STAFFING

The function of staffing deals with manning the enterprise as per the organization

structure so that they together implement the process of the management. Staffinginvolves not only selection of a person but also appraisal and development so that theyperform their designated roles. The selection of a person is a difficult task. However, the

chances of selecting a wrong person are very less if a proper method is used. Since

people cannot be easily replaced because of socio-political and legal reasons, theirselection, in terms of quality and, is of paramount importance.

Staffing of enterprise should be for todays as well as that of the future. The requirement

of the future is difficult to predict in precise and this requirement needs to be forecastedfor more than five to six years. So the purpose of staffing is not manning for the current

plan of business but to create a manpower potential capable of undergoing development,

so that the same manpower is able to perform the changed roles in the future.

Hence the selection of a person in terms of age, qualification and potential becomes an

important task in human resource development.

The selection of individuals for line functions is not that difficult because the role and the

asks are well defined and do not undergo any significant change over a period of time.

The difficult lies in the selection of management positions. The manager is a multi-faceted personality. A person is said to have good managerial potential, if he has the

following qualities apart from the function knowledge.

The person must have the desire to manage.

He must have the necessary drive and self- motivation to manage.

He must be able t identify himself with the corporate goals and be committed tothem.

The person must have the capability of applying knowledge to real life situationsin the right perspective, locating the problem areas and generating a number of alternate courses of action. In short, he must be a person with analytical ability.




The person must be able to perform effectively. This is possible only if he has theability to communicate effectively. If not properly communicated, his ideas andmanagement plans cannot take off. For good communication skills, the person

must have a good command but due to the psychological barriers he cannot

communicate. These barriers come on account of personality conflicts, power

game and dissatisfaction on rewards and promotion. The manager must be a person of integrity.

He should be honest, trustworthy and high achiever. This can be judged by thetrack record of the person and his work experience and the extra curricular

activities he may be performing.

The staffing, therefore, deals with creation of human resource in the enterprise to achieve

goals, objectives and targets set by the top management.

3.5 COORDINATING AND DIRECTING

After organizing the resources and staffing the planned activities, the business plan islaunched. The process of implementing the plan is dynamic. It calls upon the manager to

perform a number of things in a coordinated manner so that the plan remains valid and

the development takes place as per the plan.

The process meets with a number of difficulties and the manager is supposed to resolve

them. There will be a lag and lead in many activities. There could be shortfalls andoverruns. There could be sudden developments which may disturb the plans and the

process of implementation. The manager’s role, in this situation, is to coordinate all theactivities and provide leadership to the group to keep the plan moving. Directing and

leading are the methods, whereby the subordinates are lead to understand the purpose of

the activity, and by way of guidance, a direction is given to them to march towards thegoals. Their difficult and conflicts are resolved, bottlenecks removed and a clear path is

created to progress on plan achievement.

The task of directing and leading becomes more effective if the human side of the

enterprise is taken care of by motivating the people. The manager is required to create anenvironment in which everybody can perform their best. The work environment becomes

conducive to good performance if work becomes satisfying and provides an opportunity

to expand the scope of work and his influence.

The manager is a leader if he possesses the art of influencing the subordinates in such a

way that they willingly perform towards the achievement of the goals, objectives andtargets. The process of coordinating and directing takes place through communication.Good communication has been defined by the American Society of Training Directives

as an interchange of thought or information to bring about mutual understanding and

confidence or good human relations. The coordinating and directing effect is moreeffective if the manger is able to motivate the subordinates and provide leadership by way

of an affective communication.




3.6 CONTROLLING

The last but the most important step in the process of management is controlling, the

successful execution of management plan. Without control, the process becomesunproductive. The purpose of control is to regulate the process in such a way that the

management process continuously strives for the achievement of the goals, objectives andtargets.

The control is exercised through a system. The system measures the performance of themanagement in terms of some predefined measures of output. It compares the output with

the standard, identifies the deviations from the standard, and corrects the management

process to ensure that the plan continues to be effective in terms of achieving goals,

objectives and targets.

The control system work on the principle of feedback. The feedback on the performanceshould be quick without any loss of time, that corrective action can be taken immediately.The process of correction involves change in the plan, reallocation of resources,

application of new system, procedures and rules. The best control is the one which brings

the process back into operation on the main track without outside intervention. Thecontrol system must get into action automatically to correct the midstream adverse

development.

Time is the essence of control. If the corrective action is taken late on account of delayedfeedback, it is ineffective and may result in heavy losses. Most of the managers look for

real time control system, a system which provides an instant negative feedback from the

standard and an instantaneous corrective action without any time delay.

Since the management control systems are not physical system, where one can desire real

time control mechanism, the managers look for feed forward control. The feed forwardcontrol gives an advance warning, an indication that the deviations are likely to occur in

near future calling for a corrective action. The techniques used in the feed forward

control are forecasting, trend analysis and judging the performance from the standpoint of

input versus output.

Auditing is also a tool of control. There are several types of audits possible in a business

organization. Managerial audit deals with how effectively the plans are made andimplemented. It is addressed to the managerial performance to judge whether it was up to

the mark, and whether there are any lapses, failures or weaknesses. The operational audit

deals with an adherence to the rules and the policies of the management. It identifieswhether the operations of the organization are being carried out as per the managerial

directives, rules and policies. The financial audit addresses the business and financial

transactions to find out whether they are carried out with due regard to the accountingprinciple and statutes. It also examines whether all the transactions are covered

completely and for the year.




With the advancement of information technology and computers, a variety of planningand control tools have been developed. Planning and budget models, financial models,

risk analysis models, PERT/ CPM, operations research models are some of the examples

of the control tools.

3.7 MIS: A TOOL FOR MANAGEMENT PROCESS

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. The decisions or actions areprompted 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 exceptionreports identify the weaknesses in the system of management.

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 experienceand improves analytical abilities leading to better business judgment. 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. He must know the adverse trends in business, the shortfallsand failures in the management process.

The MIS should provide the support to act and decisively. It should support managementin 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. MIS should have, wherever possible, support systems to help themanager 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 fromthe traditional controls to managerial control. The shift requires the manager to become

more efficient in handling the he is entrusted with. The manager becomes more efficient

if he is well informed, made richer in knowledge, experience and analytical skills and isable 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.

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 areposing threats to current business and are opening new opportunities for new business

ventures. 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 managementprocess.

__________ REVIEW QUESTIONS

1. Explain how management practices are influenced are influenced by the

Management philosophy.2. Explain how practices change with the change in the environment.

3. Show the relationship of organization effectiveness to management effectiveness.

4. Can you state goal, objective and targets which you have set for careermanagement? What is the qualitative difference between them?

5. Can attitudes be changed? What role can MIS play in this endeavor?

6. A plan without a strong control feature is destined to fail. Why?

7. Where should be the control system strong – in feedback loop or in measurementof standards?

8. Distinguish between top management plan, middle management plan andoperations management plan in terms of goal scope and content.9. The manager has a leadership role to play. How can MIS support this role?

10. Is it necessary that management should be efficient or effective, or both. Can

management afford to be one and not both?




CHAPTER-4

Organisation Structure and Theory

4.1 BASIC MODEL OF ORGANISATION STRUCTURE

The word organization means two things. The first meaning of the word

organization is an institution or a functional group. A business organization a hospital, a

school a university is some such institution keeping in view the concept of division of labor, authority, responsibility and decision making so that the institution as a stable

system, works coherently towards the achievement of goals.

.the level at which a person is holding position. The authority is measured on the basis of

command on control of resources, the risk of business, and the decision making power to

manage the risk and reward. When the authority. Is distributed in a vertical order in terms

of levels, the organization is built on the principle of hierarchy of authority. Theeffectiveness of the authority is based on the span of control, i.e., the number of person

being managed and controlled by a person. Depending on the organization, and business,the span may differ from four to seven. The span outside this range has proved to be

unproductive and inefficient.

The organization structure is built by arrangement of organizational subsystems. The

organization structure is built on four basic principles, viz. hierarchy of authority,

specialization, standardization or formalization and, centralization. The structure is builtto achieve goals and objectives fitting into the environment. The structure built on any

principle shows division of work, managerial and non- managerial manpower allocationas well as flows of decision responsibility and exchange of information.

Hierarchy of Authority

The authority rests with the individual in the organization. The degree and strength of

authority depends on the level at which a person is holding position. The authority is

measured on the basis of command on control of resources, the risk of business, and thedecision making power to manage the risk and rewards. When the authority is distributed

in a vertical order in terms of levels, the organization is built on the principle of hierarchy

of authority. The effectiveness of the authority is based on the span of control, i.e., thenumber of persons being managed and controlled by a person. Depending on the

organization, and business, the span may differ from four to seven. The span outside this

range has proved to be unproductive and inefficient.

Speciallsation




The second principal of building organization structure is specialization. Specialization

can be decided in a number of ways, arranging all similar and associated tasks under onehead. For example, a business organization can be structured on the specialization such as

Manufacturing, Marketing, Accounting and Personal. A hospital can be structured on the

basis of specialization such as General Medicine, Surgery, function, helps to select right

people and group them properly, aids in functional planning and control of the activitiesof the organization.

Standardisation (Formalization)

The purpose of standardization or formalization is to make a person in an organizationindependent, whereby the interaction between the individuals in the organization is

minimum. The people work on the basis of rules. Procedures, systems, guidelines and

policies. If the degree of such specialization is very high a person can supervise more

number of people. In other words, it affects the of control. Favorably. Withspecialization, the delegation of work and its control has become easier. Where

standardization is not possible owing to the nature of business, the risk in business anddecision making complexity span of control is reduced as the number of people handlesimilar range of operations. Requirement of manpower then increases making the

organization top heavy.

Centralization

Centralization refers to the location or position where the decision-making centre islocalized. In a highly centralized organization, the decision making is at the top and in a

decentralized organization; it is delegated down the lien in the organization hierarchy.

When business risks are high and difficult to manage, the organization emerges ascentralized.

The organization is structured on the basis of the above four principles. The blend of these principal is decided on the nature of business, risk of business, size of business,

management style and the environment of business. The blending of these principles

would undergo a charge as the business grows. The organization is under a continuous

process of change to meet the changing needs of business, the organization will have adifferent structure in its various business stages namely, inception, growth, maturity, and

decline. The structure of organization affects organizational productivity, individual

performance, growth of human resource, and the manpower itself. A considerable amountof saving in manpower and overhead expenses is possible, if the organization is property

structured to the business needs and towards fulfilling the objectives.




Independent of the blend of these principles, the effectiveness of the structure largely

depends on the quality of people – ability, skills, knowledge attitude and motivation. The

basic model of the organization structure is shown in Fig. 4.1 it shows the arrangement of

the people in a reverse tree structure.

The basic model will have more levels if the size of the organization is very large. Thenumber of levels will be determined on the basis of the span of control and the nature of

work. The appropriateness of the structure can be decided based on the factors like

responsibility and authority, economy in conducting the business, the ability to achievethe goals and objectives, a smooth flow of information exchange and communication.

There are four variations of the basic model which are widely used in real life.

4.2 MODIFICATIONS TO THE BASIC MODEL OF ORGANISATIONSTRUCTURE.

There are four modifications to the basic model of organization as under.1. Functional; 2.Product / Market / Service; 3. Project; and 4. Matrix.

Functional Organisation

The functional organization (Fig. 4.2) is most suitable where the organization business

can be split into clear divisions of activity and all of them are equally important. For

example, the business organization can be functionally organized into four or fivefunctions such as marketing manufacturing, finance, personnel, and materials.

Fig. 4.2 Functional organization (Emphasis on functional Management)

The strength of the people and the hierarchy in each of the functional organizations

would vary depending upon the size and the number of activities. Decision making in any

functional organization is at the level of the functional head with accountability to the

chief of the organization. The implications of the decisions are largely on the functionsthemselves. A decision affecting other functions of the business, however, is referred to

the top management. The in formation flow is from the top to the bottom and in the

reverse order. The information flow across the functions is not expected. Accumulationof information is at the chief executives level and is shared by the others.

The functional organization is most suited where each function is a specialty and calls foran expertise in the field; and where coordination is of a very low order and can be

handled easily through the management process. The organization works efficiently when

the business is stable and is expected to grow in a steady manner. When the businessbecomes competitive and develops threats to its growth, the functional structure

undergoes a change. The development of people is on the specialized functions and hence




they are not equipped to handle other functions if required. The people in a functional

organization develop a narrow outlook restricted to their own functions andresponsibilities. The corporate culture is difficult to imbibe in a functional set- up. Most

of the manufacturing, selling organisanisations in their initial period are structured on the

functional lines. The government departments and agencies are organized on the

functional principle.

Product / Market / service Organisation

When the organization grows large in turnover and strength, and when the decision-

making relates to either the product or the market or the service the organizing structureis built around one of these factors. In this structure (Fig.4.3), the total responsibility rests

with the product / market / service head. He is expected to take all the decisions regarding

finance material, etc. The people in the organization report to the product head.

MANAGINGDIRECTOR

PRODUCT PRODUCT PRODUCT

A B C

MANUFACTURING PURCHASE SALES FINANCE

Flg. 4.3 Product Organisation (Emphasis on Product Management)

The decision making in this structure is faster and to some extent centralized. The inter

functional conflicts are avoided resulting in speedy business progress. In this structure,people work more for product goals then the corporate goals. The contribution to profit

by product can be easily measured as profit is earned by product business unit. In this

structure, the manpower requirement is higher and the people develop specializations in

the specific technology and management.

A project organization (Fig. 4.4) is a special case of product organization where thecommon service like finance, purchase etc. are organized at the functional level. But

project resources are allocated to the project manager. Since the business resources. This

type of organization structure helps in making quick decisions for project control in termsof cost resource and time. In a project organization some of the functions are of corporate

responsibility and some of them are the project manager’s responsibility.

MANAGING




DIRECTOR

PROJECT PROJECT MANU PURCHASE

FINANCE

DIVISION- A DIVISION- B FACTURING

DESIGN COMMIS DESIGN ERECTION COMMIS-SIONING

ERECTION PERSONNEL

Fig. 4.4 Project Organisation (Emphasis on Project Management).

In a project business, the activity is one at a time and has implications on the

subsequent activities in the project. Therefore, any problem or conflict relating to

the activity needs to be resolved immediately. This calls for quick decisions. Thisis possible by organizing all the functional resources under one command of the

project manager.

Matrix Organisation

In all the three organization structures discussed so far, the communicationprotocol is vertical in the hierarchy. The information flow is within the hierarchy.

The lateral communication between the functions is not permitted. In a matrix

organization ((Fig.4.5) a vertical as well as a lateral communication and information flow is

allowed. The matrix organization integrates functional responsibility with product

responsibility. It is a combination. Of the functional and the product organization

structure. A product manager is responsible for the total performance of theproduct and he will have the production manager, the marketing manager, the

accounts manager as his counterparts in the manufacturing, marketing and

accounting functions respectively. These functional managers report to thefunctional head vertically and the product manager laterally.

The matrix organization structure is used in big companies having diversebusiness activities. The business units, known as strategic business units, are

organized with a unit head at the top. The structure enjoys the advantages of a

functional as well as of a product organization. It should be noted be noted thatthe organization structure is a dynamic model. It is effective for the purpose it is

set to fulfill under certain conditions. The moment the business conditions




change, the structure should undergo a suitable change. The structural change

does not limit them from one type to the other but many other qualitative changesare also desirable.

MANAGINGDIRECTOR

MANUFACTURING FINANCE PERSONAL MATERIL

PRODUCT PRODUCTION FINANCE PERSONAL MATERIALS

MANAGER-A MGR- A MGR- A MGR- A MGR- A

PRODUCT PRODUCTION FINANCE PERSONAL MATERIALS

MANAGAR-B MGR- B MGR- B MGR- B MGR- B

Fig. 4.5 Matrix Organisation (Emphasis on Product / Functional

Management.)

There has to be a change in the people in terms of strengths, skills and abilities. A

functional head in the functional organization may not be suitable to shoulder the

responsibility of the Product Manager in a product organization structure, becauseof inherent limitations of narrow specialized experience as a functional head.

With the standardization and formalization drive in the organization, the span of control can be enlarged than before. With the delegation of authority, backed by

the rules and policies the junior level personnel become more knowledgeable,

experienced and capable of shouldering higher responsibility. This would affectthe levels in hierarchy.

4.3 ORGANISATIONAL BEHAVIOUR

Though an organization is structured according to the goals and objective to beachieved the actual performance is at variance for various reasons. There are some

factors, beyond the control of the management which affect the performance of the

organization. However there are some factors which relate to the organization(independent of the type of structure). The behavior of the organization is a result of the

following factors:

1. Organizational Culture; 2. Organizational Power; 3. Organizational Change; 4.

Organizational Learning; and 5. Organizational Motivation.

ORGANISATIONAL CULTURE




The cultural is a set of attitudes, beliefs, values, norms and understandings; the people

have in the organization. The culture is a collective behavioral result of the people whoman the organization. Depending upon the person, whether he is a manager, an officer or

a worker, the cultural pattern emerges and it is known as a managerial culture and a work

culture, etc. Long-term performance and managerial actions depend on the managerial

culture and the achievement of the targets depends on the work culture.

Let us take an example of quality of product which a particular organizationmanufactures and markets. The attitude of the employees towards quality must be

positive and it must be seen in the organization in all the activities. Unless the attitude is

positive, it cannot be seen in the product as desired. The employees must believe andshow a concern towards quality. They commitment towards the achievement of quality

will come only if a high value tag is reserved for quality by the employees.

Above all, the organization must have norms of quality set in all its activities and theymust be understood by all the employees. When the organization has these factors set at a

high level, we say that the organization has a quality culture. Such a culture will bereflected in the behavior of the organization.

The culture may be reflected in the philosophy, policy, strategy, goals and managerial

style of the organization. If the organization culture is generating a behavior whichaffects the performance adversely, it can be changed by management actions such as

training, education, creating awareness, transferring people, encouraging young

recruitments and talent in the organization.

ORGANISATIONAL POWER

The organizational power is the ability of the organization structure to use human andmaterial resources to achieve the stated goals and objectives of the organization. The

power of the organization is distributed uniformly all over the organization but it may be

concentrated in small groups representing a function, a department or a section. It mightbe localized with the individuals.

Some individuals by virtue of their position, responsibility and seniority, enjoy more

power than others. Some individuals by virtue of their nearness to the management and astrong personality derive power in the organization structure. If what is meant to be the

organization structure in terms of authority, information flow, and responsibility, and

what actually emerges organization structure due to the power play, is at variance, then itwill reflect in the organizational behavior affecting the performance of the organization.

If the effect is adverse, it is better to make suitable changes in terms of positions and their

placement in the organization.

ORGANISATIONAL CHANGE

Even though the organization is structured properly, over the period of time it starts

failing slowly due to the change in the environment, the people and the business. Like a




living organization, an organization undergoes a process of birth and death. The process

of organization outlives the purpose for which it is established moves much faster, if proper corrective action is not taken. The organization structure in its life cycle, starting

from the introduction, growth, maturity and decline should change suitably in the

respective phases. The behavioral change through the organizational change is achieved

by creating a climate for change, deciding designing and implementing the change,watching and institutionalizing the change.

ORGANISATIONAL LEARNING

The organizational behavior improves with the experience it gathers from all businessfronts. With experience, people are in a position to identify the cause and effect

relationship. It is possible to predict the errors and probable mistakes in the business

operations. The rules, systems and procedures are streamlined over a period of time. With

this learning experience, some changes in the organization structure are inevitable andthey should be carried out.

The individuals in the organization are able to assess the strength and weaknesses withinthem and are able to take steps to improve. As organizational learning increase, the

organization’s behavior shows maturity. With increased learning the organization moves

towards high degree of formalization affecting itself. The organizational learning is fasterif people and the management are dynamic and progressive.

Organizational Motivation

Organizational behavior can be monitored and directed if proper motivation is provided

to the people. Motivation inspires the people to perform. Monetary rewards, presentations

are the known methods of motivation. If a proper leadership is provided it is observedthat the people perform beyond expectations. The leadership is an interpersonal influence

on the subordinates which persuades or motivates them to perform to perform to achieve

the goal.

There are two leadership styles, autocratic and supportive. In an autocratic style, the

leader determines everything and dictates decisions. The decisions are enforced by the

power of authority. Under such a leadership style people are not trained to shoulderhigher responsibilities. The enterprising ones are frustrated under such a leadership style.

The supportive leadership style calls for participation consultation and respects theopinion of the subordinates. The process evokes initiative amongst the subordinates and

gives them a feeling of importance and satisfaction.

Another method of motivation is though job environment. A job is to be designed in such

a way that it provides challenge to the skills of an employee. It should be a complete task

identifiable with the person and with a potential to create an impact on other people or onthe business. The person should feel autonomy in its operation and should get the direct

feedback of the result.




The organizational behavior is an independent phenomenon in relation to theorganization

Structure. Having selected a proper type of structure the management of the organization

Should take the requisite steps to regulate the behavior of the group towards the achieve

Mint of goals and objectives of the organization.

4.4 ORGANISATIONS AS A SYSTEM

A system is an assembly of elements arranged in a logical order to achieve correctives

Objectives the organization is also a system of people. The individuals in the organizationAre selected in terms of number quality and ability and are placed in hierarchical order to

Plan and execute the business activities to achieve certain goals and objectives. This is

the

Simplest justification for calling the organization a system.

The management theorists however have seen organization in different views andperspectives. They have identified more elements in the systems in the system besides thepeople. The choice of technology and structure as additional three elements of the

organization system. 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.

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 thepeople. 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 andstructure. The modified Leavitt’s model is shown in Fig. 4.6.

TASKS

PEOPLE STRUCTURE

GOALS

TECHNOLOGY CULTUREFig. 4.6 Modified Model of the Organisation System.

In view of 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. The

organization continuously exchanges the information with the environment and isinfluenced by the changes in it. The origination therefore has to be built in such a fashion

that it adjusts with the changes in the environment and that the goals and objectives are

achieved.




MATURITY

GROWTH DECLINE

PROCESS

PHASE

INTRODUCTION TIME

Fig. 4.7

Hence the organization is a socio- technical system whose subsystems are task peopletechnology culture and structure each having its own input and output satisfying at first

its own objective and eventually the corporate organization goals and objectives If the

sub-system’s goals and objectives are not congruent with the goals and objectives of thecorporate organization poor performance resistance to change and non- attainment of

corporate goals will be the consequences.

The systems and their goals are not stable. The goals change in response to the changesin the business focus the environment and in the people in the organization. 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 tothe

Natural process of growth and decline. This phenomenon is best described by a sigmoid

or S curve (Fig, 4.7).

All organizations and their business go through the different phases of growth cycle in

stages as Introduction Growth Maturity and Decline. Each phase generates new goals to

be served if the changed or displaced goals are not reflected in the organization as asystem the organization is bound to suffer from decay.

4.5 MIS : ORGANISATION

Management information systems (MIS) should be designed, viewing the organization asdiscussed earlier. MIS design should give due weight age to the human side of the

organization and its culture. The task and technology are the physical aspects of the




organization which can be ascertained very easily. But culture and people are very

difficult to assess from the design point of view. The structure of the five sub-systemsshould be considered while designing the MIS. MIS design should give reports in line

with the organization structure. This means that the main decision makers and the power

centers must be recognized in the MIS. Let us discuss these aspects of the organization

structure and their implications.

In a tall hierarchy with a high degree of centralization, the MIS should give controlinformation to the higher management where decision making in concentrated. If the

system is structured on the functional basis where the functional head is a key decision

maker and all the functions have equally important role to play, then the MIS will have afunctional design with the information support to the functional head. Further, in such a

set-up, an integrated MIS would be necessary, reporting the corporate status of the

business to the top management.

If the organization works on a standardized system where rules, policies, systems and

procedures have been laid down, then these become part of the MIS. The processingroutines in the MIS incorporate these features as an integral part. This is safe as it hasalready been approved by the management of the organization. Along with the

information, if the decision making responsibilities are also clearly defied and allocated,

then the MIS can produce information reports by processing the data and summarizingthe results in line with the decision maker’s position in the structure.

If the basic model of the organization is modified as a product or a project organization

system, then the MIS should focus on the management of planning and control of themultiple functions. Besides these functions, he has to know the trouble spots and shows

the interconnection with the other functions. It must summaries all information relating to

the span of control of product or project manger. The MIS should be able to cater to theview of the product or the project manager and also of the top management.

In the organization culture provides sufficient incentive for efficiency and results, theMIS should support this culture by providing such information which will aid the

promotion of efficiency. If the culture encourages delegation of power and authority, then

the MIS should incorporate the decision making rules in the system.

The organization system is an open system and MIS should be so designed that it

highlights the critical business, operational, technological and environmental changes to

the concerned level in the organization, so that the action can be taken to correct thesituation. The principle of the feed forward control should be extensively used as a design

feature to provide a prior warning to the decision maker.

Since the organization system has a dynamic role to play to meet the changing needs of a

business, the MIS becomes a common support system for playing the dynamic role.

When an organization is moving through the business phases of introduction, growth,maturity and decline, MIS should provide an information support, relevant to that phase




of the business cycle. This means the designer of MIS should foresee such requirements

and make the design flexible enough to support such requirements.

The organizational learning helps to tone up the behavior of the organization. The MIS

should support the learning mechanism by identifying the cause and effect in a given

situation. It should keep the records of action and provide help to analyze the best actionin a given situation. It should be help to build various decision models for use by the

managers. The information support should be such that the group of enterprising managershould be able to improve their capabilities to perform batter.

The design of the MIS, in isolation from organizational factors, is destined to fall as it just does not fit into the structure. Since organization systems in the same business differ

for various reasons such as the leadership style, the management style, culture and group

of people as a body and so on, it is difficult to evolve a standard model of the MIS for a

business and/or an industry.

MIS plays a very important role in creating organization behavior which in turn sets thegoals for achievement. Technology and people decide the organization structure and styleof the management. Figure 4.8 explains the impact and relationship of MIS on the

organization behavior.

REVIEW QUESTIONS.

1. Draw an organization chart of a company known to you. How would you

describe it product, project Functional, or Matrix?2. What are the parameters on which an organization is structured?

3. Explain the term: Span of control and Line of authority.

4. What is the meaning of formal organization and informal communication?5. Can any business be organized only in one or the other organization model?

Justify your answer.

6. Which all factors will you take up for change if the organization behavior is tochange for the better? Which factor is easy to handle and which is most

difficult?

7. Why does an organization need periodical review? Which factors would suggestthat the organization needs a change?




8. Explain how is organization a system where inputs are processed to gat a

desired output?9. What is a goal displacement? Why does it occur? How does the organization

handle goal displacement?

10. Why does the organization structure differ from company to company even

though they are in same business and industry?




CHAPTER-5

Strategic Management of Business

5.1 THE CONCEPT OF CORPORATE PLANNING

A plan is a predetermined course of action to be taken in the future. It is a document

containing the details of how the action will be executed and it is made agaist a timescale. The goals and the objective that a plan is supposed to achieve are the pre-

requisites of a plan. The setting of the goals and the objective is the primary task of the

Management without which planning cannot begin.

Planning means taking a deep look into the future and assessing the likely events in the

total business environment and taking a suitable action to meet any eventuality. It furthermeans generating the courses of action to meet the most likely eventuality. Planning is a

dynamic process. As the future becomes the present reality, the course of action decided

earlier may require a change. Planning, therefore, calls for a continuous assessment of the

predetermined course of action versus the current requirements of the environment. Theessence of planning is to see the opportunities and the threats in the future and

predetermine the course of action to convert the opportunity into a business gain, and to

meet the threat to avoid any business loss.

Planning involves a chain of decisions, one dependent on the other, since it deals withalong term period. A successful implementation of a plan means the execution of thesedecisions in a right manner one after another.

Planning, in terms of future, can be long-range or short-range. Long-range planning is for

a period of five years or more, while short-range planning is for one year at the most. Thelong-range planning is more concerned about the business as a whole, and deals with

subject like the growth and the rate of growth, the direction of business, establishing

some position in the business world by way of a corporate image, a business share and soon. On the other hand, short-range planning is more concerned with the attainment of the

business results of the year. It could also be in terms of action by certain business tasks,

such as lunching of a new product, starting a manufacturing facility, completing theproject, achieving intermediate milestones on the way to the attainment of goals. The

goals relate to long-term planning and the objective relate to the short-term planning.

There is a hierarchy of objectives which together take the company to the attainment of goals. The plans, therefore, relate to the objectives when they are short-range and to goals

when they are the long-range.




Long-range planning deals with resource selection, its acquisition and allocation. It deals

with the technology and not with the methods or the procedures. It talks about thestrategy of achieving the goals. The right strategy improves the chance of success

tremendously. At the same time, a wrong strategy means a failure in achieving the goals.

Corporate business planning deals with the corporate business goals and objectives. Thebusiness may be a manufacturing or a service; it may deal with the industry or trade; may

operate in a public or a private sector; may be a national or an international business.Corporate business planning is a necessity in all cases. Though the corporate business

planning deals with a company, its universe is beyond the company. The corporate

business plan considers the world trends in the business, the industry, the technology, theinternational markets, the national priorities, the competitors, the business plans, the

corporate strengths and the weaknesses for preparing a corporate plan. Planning

therefore, is a complex exercise of steering the company through the complexities, the

difficulties, the inhibitions and the uncertainties towards the attainment of goals andobjective.

Dimensions of Planning.

The corporate business plan has five dimensions. These are time, entity, organization,

elements and characteristics.

Time

The plan may either be long-range or short-range, but the execution of the plan is, yearafter year. The plan is made on a rolling basis where every year it is extended by one

year, keeping the plan period as the next five years. The rolling plan provides an

opportunity to correct or revise the plan in the light of any new information the plannermay receive.

Entity

The plan entity is the thing on which the plan is focused. The entity could be the

production in terms of quantity or it could be a new product. It could be about the

finance, the marketing, the capacity, the manpower or the research and development. Thegoals and the objectives would be stated in terms of these entities. A corporate plan may

have several entities.

Organisation

The corporate plan would deal with the company as a whole, but it has to be broken downfor its subsidiaries, if any, such as the functional groups, the divisions, the product groups

and the projects. The breaking of the corporate business plan into smaller organizational

units helps to fix the responsibility for execution. The corporate plan, therefore, would bea master plan and it would comprise several subsidiary plans.




Elements

The plan is made out of several elements. The plan begins with the mission and goal

which the organization would like to achieve. It may provide a vision statement for all to

understand as also the purpose, focus, and direction the organization would like to move

towards. It would at the outset, place certain policy statements emerging out of management’s business philosophy, culture and style of functioning followed by policy

statements. Next it would declare the strategies in various business functions, whichwould enable the organization to achieve the business objectives and targets. It would

spell out a program of execution of plan and achievements. It provides support on rules,

procedures and methods of plan implementation, wherever necessary. One importantelement of the plan is a budget stipulated for achieving certain goals and business targets.

The budgets are provided for sales, production, stocks, resources, expenses which are

monitored against the time in execution period. The budgets and performance provide

meaningful measure about success and failure of the plan designed to achieve certaingoals.

Characteristics

There are no definite characteristics of a corporate plan. The choice of characteristics is a

matter of convenience helping to communicate to everybody concerned in theorganization and for an easy understanding in execution. The features of a plan could be

several and could have several parts. The plan is a confidential written document subject

to charge, and known to a limited few in the organization. It is described in the

quantitative and qualitative terms. The long-term plan is normally flexible while theshort-term one is generally not. The plan is based on the rational assumptions about the

future and gives weight age to the past achievements and corporate strength and weal

messes. The typical characteristics of a corporate plan are the goals, the resources, theimportant milestones, the investment details and a variety of schedules.

5.2 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 business4. Competition

5. Environment (Threats, Challenges, and Opportunities)

MARKET FORCES

It is very difficult to predict the market forces such as the demand and supply, the trend

of the market growth, the consumer behavior and the choices, the emergence of new




product and the new product concepts. The ability of the organization to predict these

forces and plan the strategies is limited for the various reasons. The market forces affectthe sales, the growth and the profitability. With the problems arising out of market forces,

it is difficult to reorient the organization quickly to meet the eventualities adversely

affecting the business unless the business is managed through a proper business plan.

Technological Change

There are a number of illustrative cases throughout the world on the technological

breakthroughs and changes which have threatened the current business creating new

business opportunities. The emergence of the microchip, plastic, laser technology, fiberoptics technology, unclear energy, wireless communication, audio-visual transmission,

turbo engines, thermal conductivity and many more, are the examples which have made

some products obsolete, threatening the current business, but at the same time, have

created new business opportunities. The technological changes have affected not only thebusiness prospects but the managerial and operational styles of the organizations.

In the absence to any corporate plan, such a technological change can bring theorganization into some difficult problems and, in some cases, can pose a threat to its

survival. The corporate plan is expected to ensure the recovery of the business investment

before such a technological change takes over.

Complex Diversity of Business.

The scope of business is wide, touching many fronts. The variety of products, thedifferent market segments, the various methods of manufacturing the multiple locations,

the dependence on the external factors, such as the transport, the communications and the

manufacturing resources brings complexity in the management of business. Many factorsare uncontrollable and unless there is a plan, prepared with due consideration to the

diverse and complex nature of business, handling these factors is not possible. This might

lead to the loss of business opportunity.

As the business grows, it reaches a stage where the strategies such as the expansion

vertical or horizontal, integration-forward or backward, diversification-in the same line or

in the diverse line of business, are the issues which the management is required to handle.These issues are investment-oriented and have a far-reaching effect on the business

growth, direction and profitability.

Competition

Facing competition in the business means fighting on a number of fronts. Competitioncould be direct or indirect. It may share the marker or create a new product which will

shift the market affecting your business. Competitions could be solely in the management

of business, when there is hardly any product distinction or it may come from certainsectors which are being promoted by the government. The companies compete on the

merits such as the know how, quality, prompt delivery, after sales service, etc.




Competition is a natural phenomenon in business, and it has to be dealt with in a propermanner to protect business interests. This means that the management has to continuously

evolve new strategies to deal with the competition. Evolving strategies and their

implementation, calls for forward thinking and planning, without which it is not possible

to handle competition.

Competition forces the management to look for new products, new markets, and newtechnologies to keep the market share intact, the process controlled and the quality

improved. Strategies also have to be implemented in a proper sequence as business

competition demands an intricate planning, testing and implementation of the strategies.The competition should never be underestimated and has to be met squarely through

corporate planning.

Environment

The environment is beyond the control of the management. Depending upon theorganizations business and its purpose, different environments have bearing on thefortunes of business. It could be one of the social, businesses, economic, industrial,

technological environments affecting the business. Many a times, it could be a mix of

different environments. The environmental changes are difficult to predict and aregenerally slow. Therefore, many times the managements are caught unaware by the

environmental changes. To illustrate the environment’s impact on business, someexamples of recent origin are mentioned as follows.

Widespread education programmers have created new opportunities for knowledge

processing and communication. The introduction of television has adversely affected the

film industry and its immense popularity has considerably retracted other amusementactivities like going for a picnic or to a circus. Personal computers are fast replacing the

typewriters on account of changing office environment.

Values and attitudes make the penetration in the market difficult. The difference in the

values and attitudes of the rural and urban consumers calls for separate products with

different advertising strategies for them. The attitude of the consumer towards fast food

or frozen food decides its spread and popularity. Similarly continuous increase in the costof transport affects the tourism and hotel industry but promotes the home entertainment

industry. The policies of the Government also affect the business and the industry. The

international laws and agreement create new opportunities and threats to the business.

Forecasting the probable environment changes like the change in population population

mix consumer preferences and their behavior government policies new opportunities andso on and forth is a major task.

Business planning therefore is absolutely essential for the survival of the business PeterDrucker defines long-range planning as the process of making the present managerial

(risk taking) decisions systematically and with the best possible knowledge of their




futurity organizing systematically the efforts needed to carry out these decisions and

measuring the results of these decisions against the expectations through organizedthrough systematic feedback. Planning is neither forecasting nor making future decisions

today it is making current decisions in the light of future.

Planning does not eliminate the risk but provides an effective tool to face it.Comprehensive corporate planning is not an aggregate of the functional plans but it is a

systematic approach aiming to maneuver the enterprise direction over a period of timethrough an uncertain environment to achieve the stated goals and the objective of the

organization.

5.3 DEVELOPMENT OF THE BUSINESS STRATEGIES

Long- range Strategic planning

Like any other business activity planning also has a process and methodology. It goeswithout any extra emphasis that the corporate planning is a top management

responsibility. It begins with deciding the social responsibility and proceeds to spell out

the business mission and goals and the strategies to achieve them.

In the very beginning of the planning process it is necessary to establish and

communicate to all concerned the social and economic responsibilities of the

organization In order to discharge these responsibilities it is necessary to decide thepurpose of the organization for which it works. Many organizations call it a mission.

The mission or the aim of an organization is a broad statement of the organization’sexistence which sets the direction of the organization and decides the scope and the

boundaries of the business.

The task after deciding the mission or the aim is to set the goal (s) for the organization.

The goal is more specific and has a time scale of three to five years. It is described in the

quantitative terms in the form of a ratio a norm or a level of certain business aspect such

as the largest share leader in the industry dominant in certain product quality reach anddistribution etc. The goals become a reference for the top management in planning the

business activities.

After determining the mission and the goals the next task is to set various objectives for

the organization The objectives are described in terms of business results to be achieved

in a short duration of a year or two The objectives are measurable and can be monitoredwith the help of business tools and technologies Objective may be the profitability the

sales the quality standard the capacity utilization etc. When achieved the objectives will

contribute to the accomplishment of the goals and subsequently the mission.




The next step in the planning process is to set targets for more detailed working and

reference The objective of the business is to be translated in terms of functional andoperational units for easy communication and decision making The targets may be

monthly for the sales production inventory and on The targets will be the direct

descendants of the objective(s)

The success in achieving the goals and objective is directly dependent on the

managements business strategies business is like a war where two or more businesscompetitors are set against each other to win and are constantly in search of a strategy

manner in which the resources, such as the men, the material, the money and the know-

how will be put to use over a period to achieve the goals. The resources of anorganization being faced by it the game is of evolving strategies and counter strategies to

win.

The development of the strategy also considers the environmental factors such as thetech nology, the markets, the life style, the work culture, and the attitudes. The policies of

the Government and so on a strategy helps to meet the external forces affecting thebusiness development effectively and further ensures that the goals and the objectives areachieved. The development of the strategy considers the strength of the organization in

deploying the resources and unstructured exercise of a complex nature riddled with the

uncertainties (see Fig. 5.1) it sets the guidelines for use of the resources in kind andmanner during the planning period.

ENVIRONMENT SOCIO- ECONIMIC MISSION, GOALS

PURPOSE

FACTORS FORSTRATEGY FORMULATION

STRENGT ANDWEAKNESS OF

The ORGANISATION BUSINESS COMPETITION

FIG. 5.1

5.4 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 strategybeats 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 thebusiness 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 fightthe external forces of a single area by choice it becomes a pure strategy if it uses or

operates in more then 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 and 4. Marketing Strategy.

These strategies are applicable to all the types of businesses and industries.

Overall Company Strategy

This strategy a very long- term business perspective deals with the overall strength of theentire 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 theconsumer 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 themarket.

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 otherareas of business.




5.6 TOOLS OF PLANNING

Planning, long-range or short-range, strategic or tactical, involves a series of decisions tobe 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.

Decisions relate to several aspects of corporate business planning. There are number of

alternatives, choices and options available while planning the business. Further, there isselection of resources and their allocation in an optimum manner to maximize the gains.

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-makingwith the help of tools. These tools are based on one or more factors. These factors are:

Creativity: Systems approach: Sensitivity analysis: and Modeling.

Creativity

Creativity comes out of an experience, a judgment, an intuition of an individual or agroup 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 concept ional skillscomprise 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 thesituation.

4. The ability to handle with clarity and ease a complex relationship of various

factors in a given situation.

A person who possesses these skills in said to have a conceptual fluency. If anorganization has a number of people, at least at key positions, with conceptual

fluency, then it becomes a creative organization. Such an organization creates new

ideas and new strategies for development of business. The plans are made on thestrength of experience and conceptual fluency.




Systems Approach

Systems approach to planning considers all the factors and their inter-relationshiprelevant 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. It is uses in situation of risk or uncertainty, and examines the variousalternative courses of action. I help to find solutions to problems.

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. It teststhe 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, andaccepts 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 theactivities.

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 tosolve the problem.

Sensitivity Analysis

The sensitivity analysis helps to test the validity of the solution in variable conditions.

The problem situation is handled with certain assumptions and conditions. Based on theseconsiderations, 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 ineconomic terms. 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 willbe highly sensitive and some will not be so. Most of the decision making problems areresolved 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. The sensitivity analysis helps to test the validity of the optimal solution underchanged conditions.




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 rejectedon the principle of utility. The utility profiles of all the people in the organization are not

the same. 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. It usestechniques such as the decision tree analysis, methods of discounting, payoff matrix,

simulation, and the modeling.

Modeling

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.

There are several types of models. The model could be a physical model, like a modelof 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 evenanalysis model, linear programming model, queuing model, network model, etc. Here asituation is represented in a mathematical form such as equations, matrices graphs and

polynomials.

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 variableshave. The relation among the variables may be linear or non-linear. The model only

considers the relation of high significance. The model, when a situation is complex, tries

to simplify the complexity by ignoring minor factors and emphasizing only minorimportant factors.

A model could be static or dynamic. The physical models are static models. Somebusiness models like the break even analysis model, the statistical regression models andsome of the O.R.programming models are static models. The static model does not

change over a time period.

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 thevariables. The values of these variables change with the change in time. Such variables

are called the stochastic variables.

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 actualresult in a real life situation. 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 testingthe various solution alternatives. The selection of a solution, from many alternative

solutions, depends on the objective chosen. 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 isless 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.

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.

5.7 MIS: BUSINESS PLANNING

Business environment is prone to changes and this factor makes business planning very

complex. Some factors such as the market forces, technological changes, complexdiversity of business and competition have a significant impact on any business

prospects. MIS is designed to assess and monitor these factors. The MIS design is

supposed to provide some insight into these factors enabling the management to evolve

some strategy to deal with them. Since these factors are a part of the environment, MISdesign is required to keep a watch on environment factors and provide information to the

management for a strategy formulation.

Strategy formulation is a complex task based on the strength and the weakness of theorganization and the mission and goals it wishes to achieve. Strategy formulation is the

responsibility of the top management and the top management relies on the MIS for

information.

There are various business strategies such as overall company growth, product,market, financing and so on. MIS should provide the relevant information that would

help the management in deciding the type of strategies the business needs. Every business

may not require all the strategies all the time. The type of strategy is directly related tothe current status of business and the goals it wishes to achieve. The MIS is supposed to

provide current information on the status of the business vis-à-vis the goals. MIS issupposed to give a status with regard to whether the business is on a growth path or isstagnant or is likely to decline, and the reasons thereof. If the status of the business shows

a declining trend, the strategy should be of growth. If business is losing in a particular

market segment, then the strategy should be a market or a product strategy.

The continuous assessment of business progress in terms of sales, market, quality,profit and its direction becomes the major role of MIS. It should further aid the top

management in strategy formulation at each stage of business. The business does not

survive on a single strategy but it requires a mix of strategy operating at different levels

of the management. For example, when a business is on the growth path, it would requirea mix of price, product and market strategies. If a business is showing a decline, it would

need a mix of price-discount, sales promotion and advertising strategies.

The MIS is supposed to evaluate the strategies in terms of the impact they have onbusiness and provide an optimum mix. The MIS is supposed to provide a strategy-pay off

matrix for such an evaluation.

In business planning, MIS should provide support to top management for focusing its

attention on decision making and action. In business management, the focus shifts from




one aspect to another. In the introductory phase, the focus would be on a product design

and manufacturing. When the business matures and requires and requires to sustain or toconsolidate, the focus would be on the post sales services and support. The MIS should

provide early warning to change the focus of the management from one aspect to the

other.

Evolving the strategies is not the only task the top management has to perform. It alsohas to provide the necessary resources to implement the strategies. The assessment of

resource need, and its selection becomes a major decision for the top management. TheMIS should provide information on resources, costs, quality and availability, for deciding

the cost effective resource mix.

When the strategies are being implemented, it is necessary that the management gets

a continuous feedback on its effectiveness in relation to the objective which they aresupposed to achieve. MIS is supposed to give a critical feedback on the strategy

performance. According to the nature of the feedback, the management may or may not

make a change in the strategy mix, the focus and the resource allocation.

MIS has certain other characteristics for the top management. It contains forecastingmodels to probe into the future-the business model for evaluation of the strategy

performance by simulation business conditions. It contains functional models such as the

model for a new product launching, budgeting, scheduling and the models using PERT / CPM technique for planning.

MIS for the top management relies heavily on databases which are external to the

organization. The management also relies heavily on the internal data which is evolved

out of transaction processing. Management uses the standards, the norms, the rations andthe yardsticks while planning and controlling the business activities. They are also used

for designing strategies and their mix. The MIS is supposed to provide correct, precise

and unbiased standards to the top management for planning.

We can summaries the role of the MIS in the top management function as follows.MIS supports by way of information, to

1. decide the goals and objectives,

2. determine the correct status of the future business and projects,3. provide the correct focus for the attention and action of the management,

4. evolve, decide and determine the mix of the strategies,

5. evaluate the performance and give a critical feedback on the strategic failures,6. Provide cost-benefit evaluation to decide on the choice of resources, the

mobilization of resources, and the mix of resources.

7. Generate the standards, the norms, the ratios and the yardsticks for measurementand control.

Success of a business depends on the quality of support the MIS gives to the

management. The quality is assured only through an appropriate design of the MIS

integrating the business plan with the MIS plan. Figure 5.3 explains the role of the MIS instrategic planning and its support in the execution and control of the management

processes.




REVIEW QUESTIONS

1. What is corporate planning? Why is it necessary? It is long-range or short-range?2. What is strategic planning? When does it assume importance in the business?

3. Why should companies resort to long-range strategic planning? How is it linked to

mission and goals of the company?

4. What are the different types of strategy? Can a business have more than one strategy?

How are different strategies related to each other? Explain with reference to a business of

your choice, a growth strategy, marketing strategy, product strategy.

5. What is sensitivity analysis? Why is it done on the solution or alternative strategies? What

benefits do you get after analysis?

6. Why is a business model necessary? How would you construct a model for followingsubject :

Sales Model for forecasting,

Production Model for capacity forecasting,

Business Model for profitability analysis.

7. Construct models for the following :

Break-even analysis,

Cash flow,

Cost analysis,

Sales analysis.

8. What benefits does planning either long-range or short-range offers to the management?

9. Explain the systems approach to management planning. Also explain how the concept

of negative and position feedback is used effectively in this approach?10. E essentially, all budgets, i.e., sales, production, materials, etc. are translated into financial

budgets, and a business plan is made. Does this mean that the organization is doing

planning for its business or does it mean through budget it is executing the plan? How are

budgets used in planning?




Basics of Management Information Systems




Decision Making g

6.1 DECISION MAKING CONCEPTS

The word decision is derived from the Latin root decido, meaning to cut off. The concept of decision, therefore, is settlement, a fixed intention bringing to a conclusive result, a judgment,

and a resolution. A decision is the choice out of several options made by the decision maker to

achieve some objective in a given situation.

Business decisions are those, which are made in the process of conducting business to

achieve its objectives in a given environment. In concept, whether we are talking about

business decisions or any other decision, we assume that the decision maker is a rational

person who would decide, with due regard to the rationality in decision making.

The major characteristics of the business decision making are:

(a) Sequential in nature.(b) Exceedingly complex due to risks and trade offs.

(c) Influenced by personal vales

(d) Made in institutional settings and business environment.

The business decision making is sequential in nature. In business, the decisions are not

isolated events. Each of them has a relation to some other decision or situation. The decision may

appear as a “snap” decision but it is made only after a long chain of developments and a series of

related earlier decision.

The decision making process is a complex process in the higher hierarchy of management.

The complexity is the result of many factors, such as the inter-relationship among the experts ordecision makers, a job responsibility, a question of feasibility, the codes of morals and ethics, and

a probable impact on business.

The personal values of the decision maker play a major role in decision making. A decision

otherwise being very sound on the business principle and economic rationality may be rejected onthe basis of the personal values, which are defeated if such a decision is implemented. The

culture, the discipline and the individual’s commitment to the goals will decide the process andsuccess of the decision.

Whatever may be the situation, if one analyses the factors underlying the decision makingprocess, it would be observed that there are common characteristics in each of them. There is a

definite method of arriving at a decision: and it can be put in the form of decision process model.

CHAPTER-6




The decision making process requires creativity, imagination and a deep understanding of

human behavior. The process covers a number of tangible and intangible factors affecting the

decision process. It also requires a foresight to predict the post-decision implications and a

willingness to face those implications. All decisions solve a problem but over a period of time

they give rise to a number of other problems.

Rational Decision Making

A rational decision is the one which, effectively and efficiently, ensures the achievement of the

goal for which the decision is made. If it is raining, it is rational to look for a cover so that you do

not get wet. If you are in business and want to make profit, then you must produce goods and sell

them at a price higher than the cost of production. In reality, there is no right or wrong decision

but a rational or an irrational decision. The quality of decision making is to be judged on the

rationality and not necessarily on the result it produces.

The rationality of the decision made is not the same in every situation. It will vary with the

organization, the situation and the individual’s view of the business situation. The rationality,

therefore, is a multi-dimensional concept. For example, the business decisions in a privateorganization and a Public Sector Undertaking differ under the head of rationality. The reason for

this difference in rationality is the different objectives of the decision makers. Any business

decision if asked to be reviewed by a share-holder, a consumer, an employee, a supplier and a

social scientist, will result in a different criticism with reference to their individual rationality.

This is because each one of them will view the situation in different contexts and the motive withthe different objectives. Hence, whether a decision is right or wrong depends on a specific

rational view.

The question which further arises: Is a decision “rationales”? If it turns out to be wrong in

terms of the results it produces, can we cast doubts on the rationality?

Simon Herbert A* differentiates among the types of rationality. A decision, in a givensituation is:

Objectively rational if it maximizes the value of the objective.

Subjectively rational if it maximizes the attainment of value in relation to the

knowledge and awareness of the subject.

* Herbert Simon A, Top Management Planning, The Macmillan Company by George A

Steiner.

Consciously rational to the extent the process of the decision making is a conscious one.

Organizationally rational to the degree of the orientation towards the organization.

Personally rational to the extent it achiever’s an individual’s personal goals.

In other words, so long as the decision maker can explain with logic and reason, the

objectivity and the circumstances in which the decision is made, it can be termed as a rational

decision. Whether the rationality applied is appropriate or not could be a point for debate. Gross

Bertram M* suggests three dimensions of rationality. First, the degree of satisfaction of human

interest. Second, the degree of feasibility in achieving the objectives. Third, a consistency in

decision making. If a decision maker shows a consistent behavior in the process of decision

making, then one can say that he meets the test of the rationality.




The Problems in Making Rational Decisions

(a) Ascertaining the problem

As Peter Drucker points out, “the most common source of mistakes in the management decisionsis the emphasis on finding the right answers rather than the right questions ”. The main task is todefine the right problem in clear terms. The management may define the problem as the “Sales

are declining”. Actually, the decline of sales is symptomatic; the real problem may be somewhereelse. For example the problem may be the poor quality of the product and you may be thanking of

improving the quality of advertising.

(b) Insufficient knowledge

For perfect rationality, total information leading to complete knowledge is necessary. An

important function of a manager is to determine whether the dividing line is reached between

insufficient knowledge and the enough information to make a decision.

(c) Not enough time to be rational

The decision maker is under pressure to make decisions. If time is limited, he may make a hasty

decision which may not satisfy the test of rationality of the decision.

(d) The environment may not cooperate

Sometimes, the timing of the decision is such that one is forced to make a decision but the

environment is not conducive for it. The decision may fail the test of rationality as theenvironmental factors considered in the decision-making turn out to be untrue. For example, in a

product pricing, the factor of oil and petroleum product price is considered as stable. But the post-

decision environment proves the consideration to be wrong.

(e) Other limitations

Other limitations are the need for a compromise among the different positions, misjudging the

motives and values of people, poor communications, misappraisal of uncertainties and risks, an

inability of a human mind to handle the available knowledge and human behavior.

How do we then ensure rationality? It is ensured, if the process of decision making is carried

out systematically, whereby all the aspects of the decision making discussed above are taken care

of. Herbert Simon said that a decision maker follows the process of decision making disregarding

the decision or the type of decision and the motive behind the decision. This process is followedconsciously or without knowing it. We can put this process in the Decision Making Model.

6.2 DECISION METHODS, TOOLS AND PROCEDURES

Decision making is a process which the decision maker uses to arrive at a decision. The core of this process is described by Herbert Simon in a model. He describes the model in three phases as

DESIGN

!

A.Sarras








shown in Fig. 6.1 viz.: (a) Intelligence; (b) Design; and (c) Choice. MIS follows this model in itsdevelopment state.

Fig. 6.1 Herbert Simon Model

Intelligence

Raw data collected, processed and examined. Identifies a problem calling for a decision.

Design

Inventing, developing and analyzing the different decision alternatives and testing the feasibility

of implementation. Assess the value of the decision outcome.

Choice

Select one alternative as a decision, based on the selection criteria.

In the intelligence phase, the MIS collects the data. The data is scanned, examined, checked

and edited. Further, the data is sorted and merged with other data and computations are made,summarized and presented. In this process, the attention of the manager is drawn to all the

problem situations by highlighting the significant differences between the actual and the

expected, the budgeted or the targeted.

In the design phase, the manager develops a model of the problem situation on which he can

generate and test the different decisions to facilitate its implementation. If the model developed is

useful in generating the decision alternatives, he then further moves into phase of selection called

as choice.

In the phase of choose, the manager evolves a selection criterion such as maximum profit,

least cost, minimum waste, least time taken, and highest utility. The criterion is applied to the

various decision alternatives and the one which satisfies the most is selected.

In these three phases, if the manager fails to reach a decision, he starts the process all over

again from the intelligence phase where additional data and information is collected, the decision

making model is refined, the selection criteria is changed and a decision is arrived at.

The MIS achieves this in an efficient manner without repeated use of the Simon Model

again and again. An ideal MIS is supposed to make a decision for the manager.

An example of the Simon Model would illustrate further its use in the MIS. For example, amanager finds on collection and through the analysis of the data that the manufacturing plant is

under-utilized and the products which are being sold are not contributing to the profits as desired.

The problem identified, therefore, is to find a product mix for the plant, whereby the plant is fullyutilized within the raw material and the market constraints, and the profit is maximized. The

manager having identified this as the problem of optimization, now examines the use of LinearProgramming (LP) Model. The model used to evolves various decision alternatives. However,

selection is made first on the basis of feasibility, and then on the basis of maximum profit.

The product mix so given is examined by the management committee. It is observed that the

market constraints were not realistic in some cases, and the present plant capacity can be




enhanced to improve the profit. The same model is used again to test the revised position.Therefore, additional data is collected and an analysis is made to find out whether the average 20

per cent utilization of the capacity can be increased. A market research for some products is made

and it is found that some constraints need to be removed and some reduced. Based on the revised

data, LP Model is used, and the optimum solution obtained.

Decision Making Systems

The decision making systems can be classified in a number of ways. There are two types of

systems based on the manager’s knowledge about the environment. If the manager operates in aknown environment then it is a closed decision making system. The conditions of the closed

decision making system are:

(a) The manager has a known set of decision alternatives and knows their outcomes fully in

terms of value, if implemented.(b) The manager has a model, a method or a rule whereby the decision alternatives can be

generated, tested, and ranked.

(c) The manager can choose one of them, based on some goal or objective.

A few examples are a product mix problem, an examination system to declare pass or fail, oran acceptance of the fixed deposits.

If the manager operates in an environment not known to him, then the decision making

system is termed as an open decision making system. The conditions of this system are:

(a) The manager does not know all the decision alternatives.

(b) The outcome of the decision is also not known fully. The knowledge of the outcome

may be a probabilistic one.

(c) No method, rule or model is available to study and finalize one decision among the set

of decision alternatives.

(d) It is difficult to decide an objective or a goal and, therefore, the manager resorts to thatdecision, where his aspirations or desires are met best.

Deciding on the possible product diversification lines, the pricing of a new product, and the

plant location, are some decision making situations which fall in the category of the open decision

making systems.

The MIS tries to convert every open system to a closed decision making system by

providing information support for the best decision. The MIS gives the information support,

whereby the manager knows more and more about the environment and the outcomes, he is able

to generate the decision alternatives, test them and select one of them. A good MIS achieves this.

Types of Decisions

The types of decisions are based on the degree of knowledge about the outcomes or the events yet

to take place. If the manager has full and precise knowledge of the event or outcome which is to

occur, then his problem of the decision making is not a problem. If the manager has full

knowledge, then it is a situation of certainty. If he has partial knowledge or a probabilistic

knowledge, then it is decision making under risk. If the manager does not have any knowledge

whatsoever, then it is decision making under uncertainty.




A good MIS tries to convert a decision making situation under uncertainty to the situation

under risk and further to certainty. Decision making in the operations management, is a situation

of certainty. This is mainly because the manager in this field has fairly good knowledge about the

events which are to take place, has full knowledge of environment, and has predetermined

decision alternatives for choice or for selection.

Decision making at the middle management level is of the risk type. This is because of the

difficulty in forecasting an event with hundred per cent accuracy and the limited scope of

generating the decision alternatives.

At the top management level, it is a situation of total uncertainty of account of insufficient

knowledge of the external environment and the difficulty in forecasting business growth on a

long-term basis.

A good MIS design gives adequate support to all the three levees of management.

Nature of Decision

Decision making is a complex situation. To resolve the complexity, the decisions are classified asprogrammed and non-programmed decisions.

If a decision can be based on a rule, method or even guidelines, it is called the programmed

decision. If the stock level of an item is 200 numbers, then the decision to raise a purchase

requisition for 400 numbers is a programmed-decision-making situation. The decision maker hereis told to make a decision based on the instructions or on the rule of ordering a quantity of 400

items when its stock level reaches 200.

If such rules can be developed wherever possible, then the MIS itself can be designed to make

a decision and even execute. The system in such cases plays the role of a decision maker based on

a given rule or a method. Since the programmed decision is made through MIS, the effectivenessof the rule can be analyzed and the rule can be revived and modified from time to time for an

improvement. The programmed decision making can be delegated to a lower level in the

management cadre.

A decision which cannot be made by using a rule or a model is the non-programmed decision.

Such decisions are infrequent but the stakes are usually larger. Therefore, they cannot be

delegated to the lower level. The MIS in the non-programmed-decision situation can help to some

extent, in identifying the problem, giving the relevant information to handle the specific decision

making situation. The MIS, in other words, can develop decision support systems in the non-

programmed-decision-making situations.

The Law of Requisite Variety

In programmed decision making, it is necessary for the manager, to enumerate all the stages of

the decision making situation, and provide the necessary support through rules and a formula for

each one of them. The failure to provide the decision making rule, in each of them, will lead to a

situation where the system will not be able to make a decision. It is, therefore, necessary to cover

a requisite variety of situations with the necessary decision response.




The requisite variety of situations means that for efficient programmed decision making, it isnecessary for the manager to provide.

(a) All the decision alternatives and the choices in each state’

(b) The decision rules to handle the situation; and

(c) The system or the method to generate a decision choice.

It has been found that in a closed-decision-making situation, the programmed decision

making system works efficiently, while in the open-decision-making situation, it is not efficient.

With the advent of expert systems and the knowledge-based artificial intelligence systems, it is

now possible for a computer to develop the alternatives, test them and handle them on the criteriaof selection leading to a decision. The MIS is expected to provide the necessary information and

knowledge support to the computer based system.

Methods for Deciding Decision Alternatives

There are several methods to help the manager decide among the alternatives. The methods

basically are search processes to select the best alternative upon satisfying certain goals.

Three methods for selection of decision alternatives with the goals in view are: (a)

Optimization Techniques; (b) Payoff Analysis; and (c) Decision Tree Analysis.

All the operational research models use optimization techniques, to decide on the decision

alternatives. When a decision making situation can be expressed, in terms of decision versus the

probable event, and its pay-off value, then it is possible to construct a matrix of the decisionversus the events described by a value for each combination. The manager can then apply the

criteria such as the maximum expected value, the maximum profit and the minimum loss or the

minimum regrets.

The method of decision tree can be adopted, if the decision making situation can be describedas a chain of decisions. The process of the decision making is sequential and a chain of decisions

achieves the end regrets.

The use of both pay-off matrix and the decision tree requires a probabilistic knowledge of

the occurrence of events. In many situations this knowledge is not available and the MIS has to

provide the information support in this endeavor.

Optimization techniques

Linear Programming, Integer Programming, Dynamic Programming, Queuing Models, Inventory

Models, Capital Budgeting Models and so on are the examples of optimization methods. These

methods are used in cases where decision making situation is closed, deterministic and requires

optimizing the use of resources under conditions of constraints. To handle these situations,

software packages are available. These methods are termed operational research (OR) methods.

All the OR methods attempt to balance the two aspects of business under conditions of

constraint. In the linear programming models, the use of resources versus demand is balanced to

maximize the profit. In the Inventory Model, the cost of holding inventory versus the cost of

procuring the inventory is balanced under the constraint of capital and meeting the demand

requirement. In the Queuing Model, the cost of waiting time of the customer versus the cost of an




idle time of the facility is balanced under the constraint of investment in the facility and thepermissible waiting time for the customer. In the capital budgeting model, the return on

investment is maximized under the capital constraint versus the utility of the investment. The

MIS supports the formulation of a model, and then using it for the decision making.

The payoff analysis

When all the alternatives and their outcomes are not known with certainty, the decision is made

with the help of payoff analysis. The payoff matrix is constructed where the rows show the

alternatives and the columns show the conditions or the states of nature with the probability of occurrence. The intersection of column and row shows the value of an outcome resulting out of

the alternative and the state of the nature. A typical payoff matrix in pricing decision is as given

in Table 6.1.

Table 6.1 Payoff Matrix I

No change Increase DecreaseYour decision Competitor’sprobability

0.50 0.20 0.30

Expected

gain

No change in the price

Increase the price

Decrease the price

4

6

10

5

4

12

8

3

4

5.40

4.70

8.60

For example, if the decision chosen is no change in the price and the competition alsodoes not change the price, then your gain is ‘4’. The decision is taken by choosing that

decision alternative which has the maximum expected value of outcome. Since, the

expected value in case of the third alternative is the highest; the decision would be to

decrease the price.

The concept of utility relates to the money value considered by the decision maker.

Utility is measured in terms of utile. Money has a value of a different degree to different

decision makers depending upon the amount, and also the manner in which it is received.If rupee one is equal to one utile, then Rs 100 million is not 100 million utile but could be

much more. The utile value will be different if the money is received in one lot as against

in parts in several years. The utility function is different for different decision makers.

The utile value of utility has an influence on the risk taking ability of the decision maker.A well placed manager with a sound business will tend to gamble or take more risk, than

a manager not so well placed in the business. In such decision making situations, the

monetary values of the outcomes are replaced by the utile values, suitable to the decisionmaker’s utility function. In our example of pricing, if we replace the values by utiles, thematrix would be as given below in Table 6.2.

Table 6.2 Payoff Matrix II

No change Increase Decrease Decision Competitor ’ s

choice

Expected

utility




probability 0.50 0.20 0.30

No change in the price

Increase the price

Decrease the price

4

200

100

50

4

20

200

400

4

72.00

220.80

54.12

Since the highest value of utility is 220.80 utiles, the decision would be to increase

the price.

Decision tree analysis

When a decision maker must make a sequence of decisions, the decision tree analysis is

useful in selecting the set of the sequence decisions.

The method of analysis can be explained by an example. The decision tree is drawn in

Fig. 6.2 with the help of symbols.

DECISION POINT CHANCE EVENT ( ) PROBABILITY

Let us take an example of investment in production capacity for a planning period of five years.

Collaboration High Demand (HD)

7.9 Low Demand (LD)

No collaboration Large

CapacityCollaboration 9.2

9.2 Small 8.2

Capacity No collaboration

Ist Phase

Fig. 6.2 Decision Tree

C

B

A E

F




In this decision situation there are two decision points and six paths as given below.

The path which given maximum cash flow is the right decision path. The cash flowvalues are the under.

Path Exp. Cash flow

ABC -- Collaboration

ABD -- No Collaboration

ACEH -- Collaboration Ist Phase,

Collaboration IInd Phase

ACEI -- Collaboration Ist Phase,

No Collaboration IInd Phase

ACFJ -- No Collaboration Ist Phase,

Collaboration IInd Phase

ACFK -- No Collaboration Ist Phase,

No Collaboration IInd Phase

7.9

7.5

9.5

8.0

8.2

7.4

The problem is whether to expand now with a large capacity or to invest now in small

capacity and make a decision of expansion after one year with the help of collaboration

or without collaboration under certain demand conditions.

Since, the highest expected cash flow path is ACEH, the decision is to invest in a

small capacity in the Ist phase and invest in the remaining capacity in the second phase

with the assistance of the collaboration.

The decision tree approach is useful when you visualize a series of decisions havingalternative paths with the associated probabilities and the cash flows for each path for

more than one year.

6.3 BEHAVIOURAL CONCEPTS IN DECISION MAKING

A manager, being a human being, behaves in a peculiar way in a given situation. The

response of one manager may not be the same as that of the two other managers, as they

differ on the behavioral platform. Even thought tools, methods and procedures are

evolved, the decision is many a times influenced by personal factors such as behavior.

The manager differ in their approach towards decision making in the organization,

and, therefore, they can be classified into two categories, viz., the achievement-oriented,i.e., looking for excellence and the task-oriented, i.e., looking for the completion of the

task some-how. The achievement-oriented manager will always opt for the best and,therefore, will be enterprising in every aspect of the decision making. He will endeavor to

develop all the possible alternatives. He would be scientific, and, therefore, more rational.

He would weigh all the pros and then conclude.




The manager’s personal values will definitely influence ultimately. Some of the

managers show a nature of risk avoidance. Their behavior shows a distinct patternindicating a conservative approach to decision making a path of low risk or no risk.

Further, even thought decision making tools are available, the choice of the tools may

differ depending on the motives of the manager. The motives are not apparent, and hence,

are difficult to understand. A rational decision in the normal course may turn out to bedifferent on account of the motives of the manager.

The behaviors of the manager are also influenced by the position he holds in theorganization. The behaviors are influenced by a fear and an anxiety that the personal

image may be tarnished and the career prospects in the organization may be spoiled due

to defeat or a failure. The managerial behavior, therefore, is a complex mix of the

personal values, the atmosphere in the organization, the motives and the motivation, andthe resistance to change. Such a behavior sometimes overrides normal rational decisions

based on business and economic principles.

The interplay of different decision making of all the managers in the organization

shapes up the organizational decision making. The rationale of the business decision willlargely depend upon the individuals, their positions in the organization and their inter-

relationship with other managers.

If two managers are placed in two decision making situations, and if their objectivesare in conflict, the managers will arrive at a decision objectively, satisfying individual

goals. Many a times, they may make a conscious decision, disregarding rationality

required in a business decision to meet their personal goals and to satisfy their personal

values. If the manager is enterprising, he will make objectively rational decisions. But if the manager is averse to taking risk, he will make a decision which will be subjectively

rational as he would act with limited knowledge and also be influenced by the risk

averseness. Thus, it is clear that if the attitudes and the motives are not consistent acrossthe organization, the decision making process slows down in the organization.

6.4 ORGANISATION DECISION MAKING

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. Since there is an imbalance in the power structure, the different individualscannot equally influence the organizational behavior, 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.

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 thesubsystem’s objectives are aligned and consistent to each other, the corporate goals are

not achieved.




In case of inconsistent goals, the conflict in the organization increases, affecting the

organization’s overall performance. The organizational decision making should help inthe resolution of such conflicts. Otherwise, the organization suffers from indecision. The

organizational behavior theory provides different methods for resolution of avoiding such

conflicting goals as explained in Table 6.3

Table 6.3 Methods of Conflict Resolution

Method Explanation Example

Allowing local rationality in

the setting of goals.

Permission to set goals which

can be achieved with an

acceptable decision making

rule and systems.

Permission to achieve the

goals in a sequential manner.

Where the functional interdependence

is minimum and the goals /objectives

/ targets do not significantly influence

the corporate goals

Where there is functional dependence,

to set local goals which will not

adversely affect the goals of

dependent functions.

If the goals are conflicting, they are

resolved in a sequential manner one at

a time. It is a deliberate decision to

ignore the conflicting goals within a

bounded rationality.

Security, Time office functions, Legal,

Commercial, Administrative functions.

Production versus Sales versus

Materials functions can evolve

decision rules to meet the local goals

and affect the goals of the dependentfunctions, or the corporate goals.

Maximization of profit, quality, level,

customer satisfaction, leadership

image, etc.

Dealing with Uncertainty

The organizations perform in an environment of uncertainty. The market uncertainty, 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. Organizational behavior will, therefore, be towards minimizingthe risk in decision making. The trend will be for risk avoidance with the available

information support.

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 behavior in decision making tends to avoid risk and minimize cost. Themethods for dealing with uncertainty are given in Table 6.4.

Table 6.4 Methods of Dealing with Uncertainty

Method Explanation Example

Decide for a limited short If the environment is reviewed at Purchasing of smaller quantity more




period, and make a provision

to correct the decision..

Negotiated decision making

with limited liability.

short intervals, the uncertainty can be

reduced providing a chance to correct

the previous decision.

To reduce the impact of the risk, the

uncertainty is converted to certainty

by making decisions binding, through

the negotiated contracts.

frequently. Adopting the policy of

enhancement in place replacement by

new plants and equipment.

International price agreements, supply

assurances and sharing the risks.

Organisational Learning

The organizational decision making improves with learning by acquiring an additional

knowledge and experience, the training and development, the experience of implementation

and so on. Learning provides strength to review the goals and the objectives, and allowssetting them more correctly. It also helps to revise and improve the decision rules. The

improvements are carried out by adopting the policy of modernization, rationalization and

the application of the management science.

The process begins with small changes in the existing policy and guidelines. Then itslowly comes to the changes in the strategic decision and planning. Further, it revamps the

decision rules and also provides a systems approach to decision making. As the time

progresses, the organization may have a new set of goals and objectives. It may go through aprocess of rationalization of goals and objectives across the company. The organization may

take a fresh look at the alternatives, outcomes, implementation, methods, procedures and

systems.

Adopting such methods, the organization builds skills and capabilities in themanagement. It creates the infrastructure to make all the decisions rational, which can be

implemented effectively and efficiently, to achieve the objectives.

6.5 MIS AND DECISION MAKING CONCEPTS

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 thatit provides diagnostics and also provides a path to bring the problem to surface.

In the design phase of the model, the designer is to ensure that the system providesmodels 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.

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 andstill 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 systemsprovide a generalized model of decision making.

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, thedesign 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 providethe analysis based on the gains, the regrets and the utility.

The concepts of the organizational and behavioral 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 managersand 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 andmakes him provide the channels in the MIS to make the learning process more efficient.

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 thedecision making, the organizational and behavior aspects, and the uncertain environments.

The MIS design addressing these significant factors turns out to be the best design.




__________REVIEW QUESTIONS

1. Why do decision making situations arise?

2. Identify few decisions in your life, where the outcomes were known with certainty, risk

And uncertainty.3. Why do two people disagree on the choice of a decision? Is it then better to resort to?

Programmable decision making?

4. Why is more time spent in problem analysis and problem definition as compared to theTime spent on decision analysis?

5. If a person is indecisive, is it due to lack of information support or some human factors

Or both?6. Why does the decision maker resort to bounded rationality in a decision making situation?

Can a decision be called as right or wrong? What is the measure of correct decision?

7. Can you automate the process of decision making? The answer is ‘Yes’ and ‘ No’.

Explain. What best must be aimed at?8. Explain the role of a model in problem solving. Explain the process of abstraction used

In constructing the model.

9. List the different criteria which can be used in decision making.10. Can the quality of decision making be improved? Explain how it can be improved.




CHAPTER-7

Information 7.1 INFORMATION CONCEPTS

The word ‘information’ is used commonly in our day to day working. In MIS, informationhas 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 humanresponse 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 processingthe raw material. Information has certain characteristics. These are: Information

Improves representation of an entity

Updates the level of knowledge.

Has a surprise value. Reduces uncertainty.

Aids in decision making.

The quality of information could be called good or bad depending on the mix of these

characteristics. A sales report shows in Table 7.1 will highlight this point.

It can be noted in the above example that sales data is processed with the budget data and

further some results are computed, providing information of an exceptional nature that is the

sale of new product in the total sales. The sales data progressively becomes informationwhen processed with other data such as the budget and the new product sales.

Devis and Olson defines information as a data that has been processed into a form that ismeaningful to the recipient and is of real or perceived value in the current or the prospective

actions or decisions of the recipient. Data is defined as groups of non-random symbols in theform of text, images or voice representing quantities, actions and objects.

Table 7.1 Sales information

Particulars of sales data (Rs. Lakhs) CharacteristicsSales 10 / day Represents sales / day

Budgeted sales 15 / day Represents budget / day

Cumulative sales 510 / 60 days Updates the knowledge about sales as on date.

Cumulative budget 600 / 60 days Makes the information meaningful by a

comparison with budgets and has a surprise value

as it is significantly below the budget.

Ratio of sales performance 85 % 15 per cent less than budget. Represents

To the budget. Performance of Sales vs. Budget.

Sales of new products 80 / 60 days Reduces the uncertainty of sales of new product

as expected sales were only Rs 70 lakhs




Whether an entity is a data or information, it must be transferred through communication

from the ‘Source’ to the ‘Destination’ without loss of content. The general model for such

communication is given in Fig. 7.1.

Fig. 7.1 Conceptual Model of Communication

The above model of communication is used in the MIS. The MIS is equivalent to the

transmitter which provides information and sends through reports (channel) to the various

receivers, which is decoded or interpreted by the receiver at the destination. The poor qualityof information due to various factors would create confusion and misunderstanding, which is

equivalent to a ‘ Noise’ and a ‘Destortion’ in the communication model. A good MIS

communicates the information without a noise and a distortion to the user.

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 isnot 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 limitations and constraints of a receiver as the information

processor and the organization as the information user.

The methods used for improving communication are summarization and message

routing. The concept of summarization is used to provide information which is needed in theform and content. The information can be summarized in a number of ways as shown in

Table 7.2.

Table 7.2 Information Summarization

Key for

summarizationFocus of

information

Example

Management position

Management functions Levels

Responsibility

Performance, Goals, Targets

General Manager, Divisional Head

Marketing, Materials...

Production Top,

SOURCE TRANSMITTER

ENCODERCHANNEL

RECEIVER

DECODERDESTINATION

NOISE AND

DISTORTION




in the organization Selective

on condition.

Relevance to the level

Exceptions

Middle Operations.

Only those products,

Where sale is below the budget..

The principle behind summarization is that too much information causes noises anddistortions, i.e., confusion, misunderstanding and missing the purpose. The summarization

suppresses the noise and the distortions.

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 thesubsequent actions or decisions in any manner. That is if the information is generated with a

certain purpose for a primary user, then such information may have secondary purposes to

some other users in the organization. This is achieved by sending the copies of the reports ordocuments 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 thegrounds 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.

In order to curb the misuse of information, a control is exercised on the content of

information and its distribution. The methods shown in Table 7.3 are available for use with

discretion.

Bias in information

While choosing the appropriate method of communicating information a care has to be taken

to see that is not biased. For example, while using the techniques of classification or filtering

the information, it should not happen that certain information gets eliminated or does not getclassified. That is, a deliberate bias in covering certain information is to be avoided. This

bias enters because people try to block sensitive information which affects them. To

overcome this problem, a formal structure of organization should be adopted and the type of information and its receiver should be decided by the top management.

Many a times the data and the information are suppressed but the inferences are informed,

with no or little possibility of verification or rethinking. In this case one who drawsinferences may have a bias in the process of collection, processing and presentation of data

and information. Though the deliberate enforcement of the inference on the receiver avoids a

possibility of the multiple inferences, but in this case processor’s bias is forced on the




receiver. For example, organizations have departments like Corporate Planning, Market

Research, R and D, HRD and so on, which collect the data and analyze it for the companyand communicate the inferences. In all these cases personal bias, organizational bias and

management bias may be reflected in the entire process of collection processing, and

communication inference.

Table 7.3 Methods to Avoid Misuse of information

Method Reason Example

Delayed delivery of information

Change in the format and contentof the report

Suppression and filtering of the

information of confidential and

sensitive nature

Suppress the details and references

of data and information

Truncated or lopsided presentation

A possibility of immediate action

or decision is reduced. It will

have only a knowledge value

Provide only that informationwhich may be needed, hence the

misuse is averted.

To avoid the risk of exposure and

the misuse of information for

achieving the undesirable goals.

Make it difficult to collect, and

process the data at the user end to

meet the personal needs of

information.

Make it difficult to read through

the information and avoid its

probable misuse.

Sales report to the sales representative

or a copy of invoice to the sales

representative.

Sales information to operationsmanagements, sales versus target for

the middle management sales with a

trend analysis to the top management.

The price, the cost information.

Drawing and design information.

Statistical reports with no references.

A focus on high value sales and

production and suppress the details.

The presentation of the information will generate a bias and may influence the user. For

example, if the information is presented in an alphabetical order and if it is lengthy, the firstfew information entities will get more attention. If the information is presented with a criteria

of exception, the choice of exception and deviation from the exception creates a bias by

design itself. For a quick grasp, the information is presented in a graphical form. The choice

of scale, the graphic size and the colour introduced a bias in the reader’s mind. The base, which may creep in inadvertently because of the information system

design, can be tackled by making the design flexible, so far as reporting is concerned. Allowthe manager or the decision maker to choose his classification or filtering criteria, the scopeof information, the method of analysis and the presentation of inference. However,

somewhere balance needs to be maintained between the flexibility of the design and the cost,

and its benefits to the managers. Disregarding the bias in information, it must have certainattributes to increase its utility as shown in Table 7.4

Table 7.4 Attributes of the information




Attribute Explanation

The accuracy in representation

The form of presentation

The frequency of reporting

The scope of reporting

The scope of collection

The time scale

The relevance to decision making

Complete for the decision considerations

The timeliness of reporting

The test of accuracy is how closely it represents a

situation or event. The degree of precision will decide

the accuracy in representation.

Forms are qualitative or quantitative, numeric orgraphic, printed or displayed, summarized or detailed.

How often the information is needed? How often it

needs to be updated.

The coverage of information in terms entities, area

and range, and the interest shown by the recipient or

the decision maker.

Internal form organization or external to organization.

It may relate to the past, the current and the future and

can cover the entire time span.

The information has relevance to a situation and also

to a decision making. The irrelevant information is a

data.

The information which covers all the aspects of the

decision situation by way of the scope, transactions

and period is a complete.

The receipt of information on time or when needed is

highly useful. The information arriving late loses its

utility as it is outdated.

Redundancy is the repetition of the parts or messages in order to circumvent the

distortions or the transmission errors. The redundancy, therefore, sometimes is considered as

an essential feature to ensure that the information is received and digested.

In MIS the redundancy of data and information, therefore, is inevitable on a limited

scale. Its use is to be made carefully so that the reports are not crowded with information.

7.2 INFORMATION: A QUALITY PRODUCT

Information is a product of data processing. Even if we take care of the aspects discussed in

the above section, the manager will determine the quality of the information based on thedegree of motivation it provided for action, and the contribution it provided for effective

decision making. The quality of information is high, if it creates managerial impact leading

to attention, decision and action. The quality of information can be measured on the fourdimensions, viz., utility, satisfaction, error and bias.




The utility dimension has four facets- the form, the time, the access and the

possession. If the information is presented in the form the manager requires, then its utilityincreases. If it is available when needed, the utility is optimized. If the information is easily

and quickly accessible through the Online Access System, its utility gets an added boost.

Lastly, if the information is possessed by the manager who needs it, then its utility is the

highest. Many of the organizations suffer from the possessive nature of the managers anaccess difficult for the other users of the information. Improving the quality through

increasing a utility means an increase in the cost. The balance, therefore, is to be maintainedbetween the cost and the utility.

The concept of the utility of the information is subjective to the individual manager,at least in terms of the form, time and access. Since in the organization there are many users

of the same information, the subjective ness would vary. Therefore, the one common key for

measuring the quality could be the satisfaction of the decision maker. The degree of

satisfaction would determine the quality of the information. If the organization has a highdegree of satisfaction, then one can be safe in saying that information systems are designed

properly to meet the information needs of the managers at all the levels.

An error is the third dimension of the information. The errors creep in on account of

various reasons, namely:

1. An incorrect data measurement

2. An incorrect collection method

3. Failure to follow the prescribed data processing procedure

4. Loss of data or incomplete data5. Poor application of data validation and control systems

6. A deliberate falsification

An erroneous information is a serious problem because the decision maker

cannot make the adjustments as he is not aware of it in terms of the location and

quantum of error. To control errors, it is necessary to follow the methods of systemsanalysis and design. The approach should be that the error should be prevented,

failing that they should be detected, and if not, they should be controlled.

The processing of data for the information processing should be allowed onlyafter a thorough validation of the transactions and the contents, as a whole, on a

logical plane. Care should be taken that the information is processed after ensuring

the correctness of the data in terms of the time and the number of document, and thetransactions in the period. The data should be checked against the master data

wherever possible and balance should be controlled through logical processing by

using rules, formulae, the principles, etc., which will ascertain the correctness of thecontents.

If the information is processed out of a biased data it will have a bias. Theprocedure of communicating the information should be such that the system is able to

detect the degree and the nature of the bias and correct the information accordingly.




The computer system and programmers are prone to errors because of thecorrections, modifications and changes required by the decision makers. These errors

lead to wrong processing. A systematic effort should be made to keep the computer

system document up-to-date, for guidance to the user of the system.

The measures of auditing, the use of test data and conducting a physical audit

of the record versus the reality would help considerably to control the errors arisingout of wrong processing.

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. The quality of information has another dimension of utility from theuser’s point of view. The users being many, this is difficult to control. Therefore, if one can

develop information with due regards to these parameters, one can easily control theoutgoing quality of the information with the probable exception of the satisfaction at theuser’s end.

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.

Validity

The validity of the information relates to the purpose of the information. In other words, it is

the answer to the question-dose 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. For example, if the quality of the manufacturedproduct is deteriorating and it is decided to select the causes of poor quality, then one must

collect all the possible causes which may affect the quality. Quality is a function of the raw

material, the process of manufacture, the tools applied, the measures of the qualityassessment, the attitude of the people towards the control of quality. However, if the

information collected talks only about raw materials and the process of manufacture, then

this information is not sufficient and hence it is not valid for all the decisions which arerequired to control the quality.

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 theselected market segment, the size of the sample and the method of selection of the sample

will decide the reliability. If the sample is small, the information may not give the correct

and a complete picture and hence it is not reliable. The reliability is also affected from the

right source.

Consistency

The information is termed as inconsistent if it is derived form a data which dose not have a

consistent pattern of period. Somewhere, the information must relate to a consistent base or apattern.

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 forcomparison is inconsistent due to per shift production. The consistency can be brought in by

rationalizing the data to per shift production per month. The regularity in providing theinformation also helps in assessing the consistency in the information.

Age

If the information is old, it is not useful today. The currency of the information makes all thedifference to the users. If the information is old then 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.

Maintaining these parameters at a high degree always poses a number of problems.

These problems are in the management of the operations, the sources, the data processing

and the systems in the organization. A failure to maintain the parameters to a high degreeaffects the value of the information to the decision maker.

7.3 CLASSIFICATION OF THE INFORMATION

The information can be classified in a number of ways provide to a better understanding.

John Dearden of Harvard University classified information in the following manner:

Action versus no-action information

The information which induces action is called action information. The information whichcommunicates only the status of a situation is no-action information. `No Stock ’ reportcalling a purchase action is an action information but the stock ledger showing the store

transactions and the stock balances is a No-action information.

Recurring versus non-recurring information




The information generated at regular intervals is recurring information. The monthly sales

reports, the stock statements, the trial balance, etc. are recurring information. The financialanalysis or the report on the market research study is non-recurring information.

Internal versus external information

The information generated through the internal sources of the organization is termed as

internal information, while the information generated through the Government reports, theindustry surveys, etc. is termed as external information, as the sources of the data are

outside the organization.

The timing information, the recurring information and the internal information are the

prime areas for computerization and they contribute qualitatively to the MIS.

The timing and accuracy of the action information is usually important. The mix of

the internal and the external information changes, depending on the level of the management

decision. At the top management level, the stress is more on the external information and at

the operational and the middle management level; the stress is more on the information.Figure 7.2 shows the source and kind of information required vis-à-vis of management in the

organization.

TOPMGT

MIDDLEMGT

OPERATIONALMGT

ORGANISATION STRUCTURE

External

Source ofInformation

Internal

Low

StructuredInformation

High

Fig. 7.2 Organisation and Information

The information can also be under, in terms of its application.

Planning information

Certain standards, norms and specifications are used in the planning of any activity. Hence,

such information is called the planning information. The time standards, the operational

standards, the design standards are the examples of the planning Information.

Control information

Reporting the status of an activity through a feedback mechanism is called the controlinformation. When such information shows a deviation from the goal or the objective, it

will induce a decision or an action leading to control.

Knowledge information

A collection of information through the library reports and the research studies to build up aknowledge base as an information source for decision making is known as Knowledge




information. Such a collection is not directly connected to decision making, but the need of

knowledge is perceived as a power or strength of the organization.

The information can also be classified based on its usage. When the information is

used by everybody in the organization, it is called the organization information. When the

information has a multiple use and application, it is called the database information. Whenthe information is used in the operations of a business it is called the functional or the

operational information.

Employee and pay-roll information is organization information used by a number of

people in a number of ways. The material specifications or the supplier information isdatabase stored for multiple users. Such information may need security or an access control.

Information like sales or production statistics is functional, meeting the operational needs of

these functions.

7.4 METHODS OF DATA AND INFORMATION COLLECTION

Several methods are available for the collection of data. The choice of method will have an

impact on the quality of information. Similarly the design of data collection method also

decides the quality of data and information. The methods of data collection and processing

become a part of the MIS. The various methods of data collection are explained in Table 7.5.

An awareness of these methods is essential to the manager. Further, he should also

understand the potential problems of bias, currency, and the fact versus the opinion in thevarious types of methods. The observation, the experiment, the survey and the subjective

estimation are the methods chosen for data collection and information about a specific

problem, while the remaining methods are chosen to collect data on a routine basis without

any particular problem whatsoever.

7.5 VALUE OF THE 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 thedecision 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 uncertaintyor a risk. The information is called perfect information, if it wipes out uncertainty or risk

completely. However, perfect information is a myth.

The decision theory stipulates that the value of the additional information is the value

of the change in the decision behavior, resulted by the information, less the cost of obtaining the information. If the additional information does not cause any change in the




decision behavior then the value of the additional information is zero. The value of the

additional information making the existing information perfect (VPI) is:

VPI = (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 VIP is veryhigh, then it is beneficial to serve the additional information need.

Table 7.5 The Methods of Data and information Collection

Method Example Comment

Observation

Experiment

Survey

Subjective estimation

Transaction

Processing

Purchased from outside

Publications

Government agencies

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.

The information on a specific parameter

can be obtained through a control over

variables. The quality of informationdepends on the design of the experiment.

One time. Enables to cover the interested

population on specific aspects. The quality

of questionnaire will decide the quality of

information.

In the absence of all the three above, the

expert opinions may be called to collect

the information.

The data exists but needs a processing and

integration for reporting.

Easily available at a price. May beexpensive and may have a bias depending

on the source.

Low cost but may project or emphasis one

view or the other. Information may be

lopsided.

Available but may not be directly useful

not knowing the details of collection

analysis and is usually not the latest.

Visit to the customer for assessing the

customer complaints. A visit to assess

the accidental damage...

Assessing the yield of a new fertilizer

by a design of the control experiment.

Assessing the market response to anew packaging through test marketing.

Market survey, opinion polls, and

cencus.

Data pertaining to future like the

alternate source of energy, the life

style in the 21st

century.

Ledgers, payroll, stock statements,

sales reports.

Databases on the specific subject,

research studies. Market and

technology studies.

The government publications, the

industry publications, the institutional

publications such as NCL, NCACER,

BANKS, UNO, the various public

forums

The Reserve Bank of India

publications. The Tax publications, the

reports and findings.

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 aset of possible decisions, a decision maker will select one on the basis of the available

information. If the new information causes a change in the decision, then the value of the

new information is the difference in the value between the outcome of the old decisionand that of new decision, less the cost of obtaining the new information.




It may be noted that the information has a value only to those who have the

background knowledge to use it in a decision. The experienced manager generally usesthe information most effectively but he may need less information as experience has

already reduced uncertainty for him, when compared to a less experienced manager.

In MIS, the concept of the value of information is used to find out the benefit of perfect information and if the value is significantly high, the system should prove it. If the value is insignificant, 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

the 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.

Apart from the monetary value of information, it has a value which is to be measured

as strength in promoting the functions of the management. Some information has thestrength of motivating the manager to think in futuristic terms. Some information has the

strength of confirming the beliefs or understanding the business process. It also reinforcesthe right and wrong of a decision making process that the manager is following.

7.6 GENERAL MODEL OF A HUMAN AS ANINFORMATION PROCESSOR

A manager or a decision maker uses his sensory receptors, normally eyes and ears, to

pick up information and transmit them to brain for processing and storage. The result of

this processing will be a response which may be a decision, an action or at leastrecognition of the event for future use. Hence, a manager can be said to be an information

processor.

While processing the information for a managerial response, the manager also usesaccumulated knowledge from memory. The capacity of a manager to accept and process

inputs to produce output is variable and limited. That is why it is observed that all the

managers of the same level do not accept or absorb all the inputs which the informationmay provide. The limitation arises sometimes on account of the information overload

which is external to the manager. This is a case of too much information or extra

information creating a problem for the user of the information to sort out the relevantfrom the irrelevant or the appropriate from the inappropriate. The manager in such asituation adopts the method of filtering the information.

Filtering is a process whereby a manager selectively accepts that much input, which his

mental ability can manage to process. The methods of filtering, which the informationprocessor adopts, are mentioned in the Table 7.6

Table 7.6 Methods of Filtering

Method Example Comment




The frame of reference by using

knowledge and experience.

Universally acclaimed normal

decision procedure.

Select data babes on proven

methods.

Period, products, market segments,

decision rules or procedures.

Break even analysis, methods of

fixing inventory levels.

Pricing, introduction of a new

product, selection of technology.

Critical decisions.

Ignore the past data, consider only

some products. Select only the relevant

market segments. Select that data

whereby a specific decision rule can be

applied.

Ignore the intangible factors.

Ignore the demand variation based on

experience.

Consider only the important factors

affecting the decision. Use the known

decision models.

The filtering process blocks the unwanted or the inconsistent data or the data which

does not match the frame of reference. An inexperienced manager or a less

knowledgeable manager through filtering may omit data, distort data responses and,

therefore, may draw incorrect inferences.

The information processor establishes the filters based on experience, knowledge and

know-how. The choice of filters may be changed due to stress, urgency of decisionmaking and the confidence in a particular method of decision making. Many a times a

processor is required to perceive process and evaluate probabilistic information. The

processor may be deficient in the intuitive understanding of the information, in the abilityto identify the correlation and the causality, and in the capability for integrating the

information.

An experienced manager is a skillful information processor where he is able tochange the frame of reference or select the decision making tool for the available

information. He is also in a position to add more knowledge base information to the

current information to increase the value of the information. A generalized model of information processor is shown in Fig. 7.3

Fig. 7.3 Generalized Model of Information Processor.

Managers’ individual Differences

BRAIN

USE OF STORED

KNOEDGE AND EXPERIENCE

INPUTSFROM

EYES, EARS

FILTERINGANDBLOCKING

MENTALPROCESSING

APPLICATIONSELECTION,

MANIPULATION

OUTPUTS

DECISION,

ACTION,REGISTRATION




The managers’ may come to some decision in a given situation but they may not follow

the same decision process. This is because of the cognitive style of each manager. Eachmanager has his own style, a method to perceive the data, organize and process the same

as per his frame of reference, confidence in the decision procedures and the time

available for the decision making. The managerial ability, skills and tools play a

considerable role in the cognitive style of the manager. These styles affect theinformation system design and the satisfaction of the manager. An excellent review of a

research on the individual differences and the MIS can be found in Zmud, “Individualdifferences and the MIS success” , Management Science, October 25, 1979. The reasons

of individual differences are given in Table 7.7.

7.7 SUMMARY OF INFORMATION CONCEPTSAND THEIR IMPLICATIONS

Understanding of information concepts is very important and relevant to the system

designer and the information user. The concepts are summarized as follows.

Filtering

The system designer should provide an appropriate filtering mechanism so that theinformation is not suppressed and relates to the frame of reference of the user. Careshould be taken in the process that certain valid information does not get blocked or over

emphasized. A filtering process is used to select and suppress the information.

Simon model and its application

The designer should attempt to provide such information that it clearly defines the

problem space and also takes cognizance of the user’s knowledge. The design of the

system should be such that an appropriate mix of these two sources should yield adecision, leading to a solution of the problem.

Codes and representation

The system designer should evolve such coding system that is easy for the users of the

code to interpret. Secondly, the designer should report the data in such a manner that the

user can grasp it quickly.

Highlighting

The designer should the information in such a way that the significant differences

between the targets and the achievements, the standards and the performance, the budgets

and the actual, are highlighted, so that they become easily noticeable by the user without

search.

Statistical analysis

The designer should provide the information in such a way that the information not only

represents something meaningfully but also aids in the statistical analysis by the user. The

information should provide the additional results such as variance, correlation,




coefficients, and futuristic estimates and give a measure of statistical significance for the

user to consider while decision making.

Table 7.7 Reasons of Individual Differences

Individual

Differences

Explanation Effect on information

processing

Examples

Locus of control internal or

external to the situation.

Personal dogmatism.

Risk propensity.

Tolerance for ambiguity.

Manipulative intelligence.

Experience in decision

making.

Knowledge of the task, tools

and technology.

The management level from

lower to higher.

The degree of

perception in assessing

the control which is

internal to the

organization.

The degree of faith in

beliefs, opinions and

past experience.

The ability to take the

risk.

Level of clarity

required in the

information. The ability

to read through the

information.

The ability to

manipulate the data and

information vis-à-vis

the stored information

and knowledge.

Extent of experience at

particular level of

decision making.

The extent of

knowledge in the

application of the tools

and technology.

The nature of

management decisions

differ from lower to

higher level

More information

gathering and analysis, if

internal.

Low dogmatism, then

more information

collection and processing.

Higher, then more

information gathering andanalysis.

Tight tolerance then more

information collection and

analysis.

High ability, then less

information and more self

analysis.

High, then correct

filtering of data and

appropriate choice of

decision making process.

Higher, then less

information relevant to

and tools correct analysis.

Higher, then the

unstructured information

different analysis, and the

use of the new decision

models. Factual

information at lower

level.

The production decisions,

selection of tools and

materials etc.

The pricing, advertising in

a competitive

environment.

The top management

decision making in astrategic planning.

Manager constantly

asking for more

information.

Experienced and skill full

managers rely on the

manipulative intelligence.

The managers with a wide

experience in the different

fields of management call

for precise and less but

pertinent information.

The Technocrats scientists

and managers of

technology have definite

information needs based

on tools, models, methods

used for decision making.

The top management

decisions regarding

expansion, and

diversification and the

strategic business

decisions.




(Source: MIS by Gordon B Davis and Margrethe H. Olson by McGraw-Hill duly modified)

Format

The designer should present the information in the form or format which is complete in

all respects and in which all data is processed as per the frame of reference of the user.The user should not be required to do additional processing with other data set through

the computer systems or mentally by using the data set from the memory.

Referencing and adjustment

The design should evolve a system in such a way that it covers the valid systemboundaries and providers a reference to an acceptable point (the year, the product, the

norm, the standard, the knowledge), giving a facility to make an adjustment to results orstatus which the information provides.

Cognitive style

Each user has his own style of resolving or reconciling his internal view and an

understanding of the problems or environment versus the actually perceived or seen or asit exists. In line with his individual style, he also evolves a process of the decision making

which is personal to him. The designer of the system should provide the information in

such a manner that these individual styles are accommodated fully.

Learning theory

The designer should appreciate that the user inadvertently is learning through the

information and is building his knowledge set. Hence the information should be such that

the user is nit overloaded with the supply of information which is already known to him.

Feedback loop

The designer should provide the information feedback loop, so that user understands that

the process of decision implementation is smooth and the result is evaluated withreference to the norms or the expectations, giving the user a sufficient motivation to

change, amend or act.

Perceived value of data

Some data or information may not have a value or an importance in the currentoperations of the business but some time in the future or in a different context some value

is perceived for the information. The designer would keep this data out of the current

processing and reporting. However, the designer should provide a system whereby theuser can have access to this unused data, if required.

Information absorption




The designer should provide only that amount of information which the user is able tograsp and use. Any additional information, beyond the ability of the user ’s absorption,will be ignored or go unnoticed without any response.

Individual differences

The information needs of different managers will differ based on individual human

processing ability and cognitive style. The designer should support all such needs

effectively by making the separate information reports.

The concept discussed here are very important and the system designer should

take care of them while designing the data gathering and processing systems. The proper

incorporation of this concept while designing the MIS would call for a thoroughunderstanding of the business environment, the management process, the strengths and

weakness of the organization structure and the individual differences of the managers and

their cognitive styles of solving the problem.

The system designer’s managerial ability of the MIS development and a higher

relationship with the users of the information will help him steer though the systemdevelopment task. Since the MIS is a blueprint for the information supply, if he can work

on a plan with a vision and a foresight and provide continuous training to the users, the

designer will succeed in developing a near perfect MIS for an organization.

7.8 ORGANISANISATION AND INFORMATION

Management through decision making is a common feature to all the organizations. The

management consists of a group of people who are organization at various levels with an

assigned task, job and responsibility to achieve the goals. Depending upon the levels in

the organization, the nature and the complexity of the job is determined. These featuresare common to all the organizations whether they are in the field of business, education,

health or social services, banks, Central Government bodies and so on.

Since information has a role to play in all the organizations, the concepts are

applicable to all of them. The people organization model may be designed on the basis of

the functions, the products, the projects and the communication matrix and theinformation needs that are typical to each of them. The organization may be large or

small, performing at one or multi locations and the information need is typical to all of

them. It is, therefore, necessary to understand the use of the information, the nature of theinformation, the value of the information, the media and the structure of reporting with

reference to the type and the level in the organization.The MIS should acknowledge the problems and difficulties in various methods of

the data gathering and their sources in the organization. Each of these methods has a

bearing on the quality of the input data which will be processed by the MIS. Thenecessary checks and controls should be introduced to control the quality of the input

data. The people organization, the business organization and the infrastructure of the

organization has an influence on the nature, the type and the quality of information.




Also while attempting to achieve the best design of the MIS; the conflict between

the cost and the benefits arises. This can be resolved by applying the concept of a valueof the information. The information has a value if it causes changes in the decisions, the

actions or the behavior of the decision maker. With an additional cost of information, if

the value of information is not changing substantially then, it may not be worthwhile to

spend more money on the additional data and it’s processing.

The perfect information which helps in converting a situation of uncertainty or

risk to certainty is a myth and difficult to achieve. Since the information is related to the

decision maker, it is not possible to determine the exact nature and quantum of perfect

information. The MIS design should find an optimum point where the cost and thebenefits are balanced.

7.9 MIS AND THE INFORMATION CONCEPT

The goal of the MIS should be to provide the information which has a surprise value and

which reduces the uncertainty. It should simultaneously build the knowledge base in theorganization by processing the data obtained from different sources in different ways.

The designer of the MIS should take care of the data problems knowing that it may

contain bias and error by introduction of high level validations, checking and controllingthe procedures in the manual and computerized systems. While designing the MIS, due

regard should be given to the communication theory of transmitting the information from

the source to the destination.

A special care should be taken to handle a noise and a distortion on the way to

destination. The presentation of information plays a significant role in controlling thenoise and distortion which might interrupt, while communicating information to the

various destinations. The principles of summarization and classification should becarefully applied giving regard to the levels of management. Care should be taken in theprocess that no information is suppressed or overemphasized.

The utility of information increases if the MIS ensures that the information possesses

the necessary attributes. The redundancy of the data and the information is inevitable ob alimited scale. MIS should use the redundancy as a measure to control the error in

communication.

The information is a quality product for the organization. The quality of information as

an outgoing product can be measured on four dimensions, viz., the utility, the

satisfaction, the error and the bias. The MIS should provide specific attention to thesequality parameters. A failure to do so would result in a wasteful expenditure in the

development of the MIS and poor usage of investment in the hardware and software.

The quality can be ensured if the inputs to the MIS are controlled on the factors of impartiality, validity, reliability, consistency and age.




MIS should make a distinction between the different kinds of information for the

purpose of communication. An action, a decision-oriented information should bedistinguished from a no-action/knowledge-oriented information. The information could

be of recurring type or an ad hoc type. The MIS also needs to give regard to the

information used for planning, performance control, and knowledge database. A

distinction between these factors will help make the decisions of communications,storage and also the frequency of reporting.

Since the decision maker is a human, it requires recognizing some aspects of human

capabilities in the MIS design. These human capabilities differ from manager to manager

and the designer has to skillfully deal with them. The differences in the capabilities ariseon account of the perception in assessing the locus of the management control, the faith

and the confidence in the information versus knowledge, the risk propensity, the

tolerance for ambiguity, the manipulative intelligence, the experience in decision making

and the management style.

The MIS design should be such that it meets the needs of the total organization. Fordesign considerations and for the operational convenience, the organization is dividedinto four levels, viz., the top, the middle, the supervisory and the operational. The top

management uses the MIS for goal-setting and strategic planning, deals with key

information of a higher degree of accuracy where the perceived value of the informationis very high. As against this, the lowest level management and the operational

management uses the MIS to know the status by calling information of the current period

in detail where the perceived value of information is the lowest and it usually insists on

getting the information in a fixed format.

The MIS design, therefore, should ensure the input data quality by controlling the data

for the factors, viz. impartiality, validity, reliability, consistency and age. The dataprocessing and the decision making routines should be developed in such a manner that

the data is processed after thorough validation and checking, and the analysis thereof is

further reported to the various levels and individuals with due regard to the differences inthe individual management style and human capabilities.

Recognizing that the information may be misused if it falls into wrong hands, the MIS

design should have the features of filtering, blocking, suppressions and delayed delivery.

Since, the MIS satisfies the information needs of the people in a particular

organization, the design of the MIS cannot be common or universal for all theorganizations. The principles of design and the use of the information concepts in design

does not change but when it comes to the applications, the design has to give a regard to

the organization structure, the culture, the attitudes and the beliefs of the people and thestrengths and the weaknesses of the organization.

The information concepts are shown in relation to the organization pyramid in the Fig.7.4. It explains, with reference to the level of management, the use of the MIS, the value

of information the nature of information and its reporting.





1. Since your school days, you have purchased number of books and your home library hasover two hundred books. Would you call this awareness of your as a data or information?

How would you call convert this awareness into information?

2. Explain why information has no specification but it has a character and value.3. Can value of information be improved? Can information have a value which is person

independent?

4. Explain the difference between data processing and information processing.5. What is information overload? How does it occur? And how would you control it?

6. The trend now is to improve data quality, increase storage and offer distributed access; and

leave the processing of data to the user of the information. Why?7. The character and value of information is linked to the people in the organization and to

the management process in the organization. Explain.

8. Explain how quality of information improves the knowledge and decision making

capability of the people.9. Is it worth to invest for obtaining perfect information? Is it possible to specify the perfect

information?

10. Take up a project in a known organization and identify the information in followingclasses:

● Organizational,

● Strategic,

● Knowledge,

● Planning, and

● Control.




CHAPTER-8

Development of MIS

8.1 DEVELOPMENT OF LONG RANGE PLANS OF THE MIS

Introduction

Any kind of business activity calls for long range plans for success, the same being truefor 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 itand control it for the appropriate use in the organization. Most of the organization does

not recognize ‘Information’ as a resource. They have looked at information as one of themany necessities for conducting the business activity. Hence, due regard is often not

given for its planned development and use. Many organizations have spent financialresources on computers purely to expedite the activity of data collection and processing.

Many organizations have purchased computers data processing and for meetingthe statutory requirement of filing the return 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.

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 ismisinterpreted as data processing for expeditious generation of reports and returns, and

not as information processing for management actions and decisions.

However, the scene has been changing since late eighties when the computers

became more versatile, in the function of Storage, Communications, Intelligence andLanguage. The computer technology is so advanced that the barriers of storage, distance,

understanding of language and speed are broken.

The computers have become user-friendly. They can communicate to any distance

and share data, information and physical resources of other computers. Computers can

now be used as a tool for information processing and communication. It can be used forstoring large database or knowledge base. It can be used for knowing the current status of any aspect of the business due to its on-line real time processing capability.

With the advancement of computer technology, it is now possible to recognizeinformation as a valuable resource like money and capacity. It is necessary to link its

acquisition, storage, use, and disposal as per the business needs for meeting the business

objectives. Such a broad-based activity can be executed only when it is conceived as a




system. This system should deal with management information and not with data

processing alone. It should provide support for management planning, decision makingand action. It should support the needs of the lower management as well as that of the top

management. It should satisfy the needs of different people in the organization at

different levels having varying managerial capabilities. It should provide support to the

changing needs of business management.

In short, we need a Management Information System flexible enough to deal withthe 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. Thedesigning of such an 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.

The plan of MIS is concurrent to the business plan of the organization. Theinformation 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 then tracedto 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 thatstrategic information is provided for the strategic planning, control information is

provided for a short term planning and execution. The details of information are provided

to the operations management to assess the status of an activity and to find ways to make

up, if necessary. Once the management needs are translated into information needs, it isleft for the designer to evolve a plan of development and implementation.

Contents of the MIS Plan

A long range MIS plan provides direction for the development of the systems, and

provides a basis for achieving the specific targets or tasks against a time frame. The planwould have the following contents which will be dealt by the designer under a support

from the top management. Table 10.1 shows equivalence of Business Plan and MIS plan.

MIS Plan is linked to the Business Plan

MIS goals and objectives

It is necessary to develop the goals and objectives for the MIS which will support thebusiness 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 the they can be measured.

The typical statements of the goals are as under.




Provide online information on the stocks, markets and the accounts balances. The query processing should not exceed more than three seconds. The focus of the system will be on the end user computing and access facilities.

Information support will be the first in the strategic areas of management such as

marketing or service or technology.

Table 8.1 Business Plan Versus MIS Plan

Business plan MIS plan

Business goals and objectives.

Business plan and strategy.

Strategy planning and decisions.

Management plan for execution and control.

Operation plan for the execution.

Management information system, objectives,

consistent to the business goals and objectives.

Information strategy for the business plan

implementation playing a supportive role.

Architecture of the Management Information System

to support decisions.

System development schedule, matching the plan

execution.

Hardware and software plan for the procurement and

the implementation.

Such statements of the goals and objectives enable the designer to set the direction

and design implementation strategies for the MIS plan.

Strategy for the plan achievement.

The designer has to take a number of strategic decisions for the achievement of the MIS

goals and objectives. They are:

(a) Development strategy: An online, a batch, a real time.(b) System development strategy: Any approach to the system development –

Operational versus Functional; Accounting versus Analysis; Database versus

Conventional approach; Distributed versus Decentralized processing; oneDatabase versus Multiple databases SSAD vs OOT.

(c) Resource for system development: In-house versus external, customized

Development versus the use of packages.

(d) Manpower composition: Analyst, programmer skills and know-how.

The architecture of the MIS

The architecture of the MIS plan provides a system structure and their input, output and

linkages. It also provides a way to handle the systems or subsystems by way of simplification, coupling and decoupling of subsystems by way of simplification, coupling

and decoupling of subsystems. It spells out in detail the subsystems from the data entry to

processing, analysis to modeling, and storage to printing.




The system development schedule

A schedule is made for the development of the system. While preparing the schedule due

consideration is given to the importance of the system in the overall information

requirement. Due regard is also given to logical system development. For example, it isnecessary to develop the accounting system first and then the analysis.

Further, unless the systems are fully developed their integration is not possible.

This development schedule is to be weighed against the time scale for achieving a certain

information requirement linked to a business plan. If these are not fully met, it isnecessary to revise the time schedule and also the development schedule, whenever

necessary.

Hardware and software plan

Giving due regard 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 investment starting from the

lower configuration of hardware going over to higher as development takes place. Theprocess is to match the technical decision with the financial decision. The system

development schedule is linked with the information requirement which in turn, is linked

with the goals and objectives of the business.

The selection of the architecture, the approach to the information system

development and the choice of hardware and software are the strategic decision in the

design and development of the MIS in the organization. The organizations which do notcare to take proper decisions in these areas suffer from over-investment, under-utilization

and are not able to meet the critical information requirement.

It is important to note the following points:1. The organization’s strategic plan should be the basis for the MIS strategic plan 2. The information system development schedule should match with the

implementation schedule of the business plan.

3. The choice of information technology is a strategic business decision and not afinancial decision.

A model of MIS plan is giving in table 10.2

Table 8.2 A Model of the MIS Plan

Contents Particulars Focus

Corporate information

Corporate philosophy

Corporate mission/goals/objectives

Business risk and rewards

Business environment and currentoperation.

Policy, guidelines, culture.

Current and new mission/goals/objectives.

Clear quantitative statements on these

factors showing a trade off between the risk

and rewards.

Where are we ?

What is the foundation of

business ?

Where do we want to reach ?

What is the risk ? is it worth

the risk ?




Business policy and strategy

Information needs

Architecture of the plan

Schedule of development

Organisation of the plan

Budge

Details of the strategic and policy decisions

affecting the business.

Strategic/planning, operational.

Information Technology details.

Details of the systems and subsystems andtheir linkages charted against the time

scales.

Manpower and delegation details. Internal

and external resources.

Details on the investment schedule and

benefits.

How do we achieve the goals

and objectives ?

What is the key in formation ?

What are the tools for

achievement ?

When and how will it beachieved ?

Who will achieve it ?

How much will it cost ?

8.2 ASCERTAINING THE CLASS OF INFORMATION

Ascertaining the information needs of the management for the business execution is

a complex task. The complexity can be handled if the information is classified on the

basis of its application and the user, which becomes the basis for the ascertainment.

The classification could be as shown in Table 10.3.

The design of the MIS should consider the class of information as a whole and

provide suitable information system architecture to generate the information for

various users in the organization. Let us now proceed to ascertain to the informationneeds of each class.

Organizational Information

One can define the organizational information as a whole and provide suitableinformation system architecture to generate the information for various users in the

organization. Such information can be determined by constructing a matrix of

information versus as shown in Table 10.4It can be observed from the table that the information entity is one, but its usages are

different. For example, the employee attendance information would be used by the personnel

Table 8.3 Classes of information

Information Class Example of information User

Organizational

Functional

Knowledge

Decision support

The number of employees, products, services.

Locations, the type of business, turnover and variety of

the details of each one of these entities.

Purchases, sales, production, stocks receivables,

payables, outstanding, budgets, statutory information.

The trends in sales, production technology. The

deviations from the budgets, targets, norms etc.

competitors’ information, industry and target; and its

analysis.

Status information on a particular aspect, such as

utilization, profitability standard. requirement versus

availability. Information for problem solving and

modeling. Quantitative information on the business

status. Non-moving inventory, overdue payments and

Many users at all the levels.

Functional heads.

Middle and the Top

Management.

Middle management and

operations management.




Operational

receivables.

Information on the production, sales, purchase,

dispatches consumptions, etc. in the form of planned

versus actual. The information for monitoring of

execution schedules.

Operational and management

Supervisor, Section Officers.

Table 8.4 Matrix of of information versus User for a Personnel Function Information Manager Manager Manager Manager

Entity (Personnel) (Production) (Administration) (Accounts) Employees X X X

Attendance

Salary wages X X X X

And overtime

Human resources X X X

Information

Department for legal compliance of maintaining the muster recommended by the

Factory Inspector. The production manager would use it for scheduling, reschedulingand loading of the jobs on the shop floor depending upon the persons present. The

corporate planning and administration will use it for manpower assessment andcontrol and manpower forecasting.

The organizational information requirement needs to be studied thoroughly and

critically as it is used across the organization. It is necessary, therefore, to map theinformation in terms of the data source, generation and usage, so that the designer can

provide a path from the acquisition to the generation and the storage.

Since the usage of the organizational information is at different levels for different

purposes, it is advisable to store the data in the form of the database which will be

used by the users for generating their respective information needs. The determinationof the information can be done by taking each business function, such as Personnel,Sales, Marketing, Production, Commercial, etc. and develop the information versus

the user matrix.

Functional Information

The functional information is defined as a set of information required by thefunctional head in conducting the administration and management of the function.

This information is purely local to that function and by definition, does not have a use

elsewhere. This information is used by a manager to plan and control his function.

Functional information is largely factual, statistical and detailed in multi-

dimensions of the function. For example, if you take the sales information, it can be

processed in seven ways, viz. the product, the product groups, the market segment,the geographic zones, the locations, the customer, and the sales organization

structure.




The functional information is normally generated at equal time intervals; say

monthly, quarterly, etc. for understanding the trend and making comparisons againstthe time scale. Such information is used for planning, budgeting and controlling the

operations of the function.

Functional information is also used for assessing particular aspects of thebusiness. For example, the stocks of finished goods, receivables, and orders on hand

throw a light on marketing function of the organization. The raw material stocks,WIP, orders pending and payable throw light on the purchase function. These

information sets have a functional utility and required in detail revolving around

several dimensions.

The functional information can be assessed on the following three parameters-the

work design, the responsibility and functional objectives.

Work design

For example, for the customer order scrutiny the available stock, the price, the termsof payment and the probable delivery is an information set evolved out of the work

design of customer order processing. The procedure of the order processing requires

this information.

Responsibility

The managers in the functional areas of management are responsible for achieving the

targets and accomplishing the goals and objectives. It is, therefore, necessary toinform and update the information on targets at regular intervals to enable him to

make or change decisions in his domain of operations. Most of these targets are

business targets such as the turnover, production, utilization, stocks and so on.

For example, the marketing manager has a monthly targets of Rs 1 million order

booking, half a million invoicing, and not more than two months receivables. Since,he is responsible for achieving the targets, it would be necessary to inform him on

these aspects at regular intervals. This information is used for the responsibility

accounting and decision making for achieving the targets. The manager would be

assessed on the basis of responsibility he discharges in conducting the business.

Functional objectives

Each function has its own objectives which are derived out of the corporate goals.

For example, the overall business plan objectives give rise to the objectives foreach business function. Some of the business plan objectives are given below based

on which each function in the organization derives its objectives.

■ The total sales per month is Rs 10 million.




■ The finished goods inventory, not to exceed Rs 1 million.

■ The outstanding more than six months not to exceed Rs 0.2 million.

■ The capacity utilization should be minimum 85 per cent.

■ The employee attendance per month should be 99 per cent.

The functional goals and objectives are necessary to achieve overall corporate

achievements. Most of such goals and objectives are potentially achievable within the

managerial and physical resources that the manager has at his disposal. It is,therefore, necessary to inform the manager on the achievements of these targets on a

continuous basis.

In summary, the functional information would emanate from the work design andprocedures, the managerial responsibility accounting, and with reference to the

functional goals and objectives. It would be determined by studying the work designand procedures and the responsibility accounting, and with reference to the functionalgoals and objectives. It would be determined by studying the work design and

procedures and the responsibility which the manager holds for the business

performance. That information, which measures the business activity and evaluatesthe performance on the key target areas, is the functional information. The source of

such information is the managers and their functional heads who together execute the

business activity.

Knowledge Information

The knowledge information creates an awareness of those aspects of business where

the manager is forced to think, decided and act. Such information shows the trend of the activity or a result against the time scale.

For example, whether the sales are declining and the trend is likely to continue in

the next quarter. The product is failing continuously on one aspect and the reason of

failure is the process of manufacturing. Such information pin-points the area or entityand forces the manager to act. It highlights the deviations from the norm or standard

and also any abnormal development which are not in congruence with the forecasts or

expectations. Such information gives rise to business decisions, which will affect theprocess of business significantly. In some situations the strategic decisions may be

necessary to solve the problem.

The knowledge information may cut across the functional boundaries of the

organization. The action or decision may fall in other functional areas of business

operations. The decision may fall in the domain of top management or the middle

management. The knowledge information is required by the middle and topmanagement as they are the ones who have conceived, planned and implemented the

business plan. Hence, the knowledge information supports the functions of the middle

and the top management. Knowledge information is tracked continuously andreported in a fixed format, for consistency and at fixed intervals for updating the

knowledge base. The nature of this information is analytical and relates to the past,




the current and the future. The knowledge information is reported in graphic formats

for a quick grasp and managerial response. It contains business result andcomparative analysis of the performance.

Decision Support Information

Most of the information required by the middle and the top management is fordecision making. The information does not act as a direct input to the decision

making procedure or formula but supports the manager in the efforts of decision

marking.

Information is used in a decision support system for model building and problem

solving. The support may act in two ways, in two ways, one for justifying the need of a decision, and the other as an aid to decision making.

For example, the information on the non-moving inventory justifies the decisionof its disposal at throwaway prices. The demand forecasts information aids in the

decision on determining the economic order quantity for production or a sale.

The decision support information can be determined for the company at the entity

level leaving its use to the decision makers in a suitable manner. The source of this

information could be internal or external to the organization. It can be determined byidentifying the tools, techniques, models and procedures, used by the managers in the

decision making.

Operational Information

This information is required by the operational and the lower level of the

management. The main purpose of this information is fact finding and taking such

actions or decisions which will affect the operations at a micro level. The decisionsmay be to stay on overtime, draw additional material, change the job from one

machine to the other, and send a reminder to the supplier for the supply of material.

These decisions are such that they make the routine administration of the businesssmooth and efficient. These decisions do not fall in the category of the managerialdecisions.

The sources of operational information are largely internal through transactionprocessing and the information relates to a small time span and is mostly current.

8.3 DETERMNING THE INFORMATION REQUIREMENT

The sole purpose of the MIS is to produce such information which will reduce

uncertainty in a given situation. The moment what is unknown becomes known, the

decision maker’s problem simple. Methods have been evolved to handle the degree of uncertainty the management is expected to deal with.

The difficulty to determine a correct and complete set of information is onaccount of the factors given below:

1. The capability constraint of the human being as an information processor, aproblem solver and a decision maker.




2. The nature and the variety of information.

3. Reluctance of decision makers to spell out the information for the political and thebehavioral reasons.

4. The ability of the decision makers to specify the information.

In spite of these difficulties, methods are evolved based on the uncertainty scale,starting from the low to the high level of uncertainty. If the uncertainty is low,

seeking information requirement or needs is easy as against a very high level of uncertainty. Based on the uncertainty scale the following methods, shown in

Table 10.5, have been suggested.

Table 8.5 Methods of Handing Uncertainty

Leval of uncertainty Level of management Method

Low (Near certainty)

Precise probabilisticknowledge (A risk situation)

Not able to determine in

probabilistic terms precisely

(Very risky)

High (Total uncertainty)

Operations management.

Middle management

Middle and top management.

Top management.

Ask Questions such as, what do

you need ?

Determine from the existingsystems and methods of decision

making and problem solving.

Determine through the critical

success factors, decision

parameters and decision

methodology.

Determine through

experimentation, modeling and

sensitivity analysis.

There are four methods of determining the information requirements. They are:

1. Asking or interviewing

2. Determining from the existing system

3. Analysing the critical success factors4. Experimentation and modeling.

Asking or Interviewing

In this method a designer of the MIS puts questions or converses with the user of

information and determines the information requirements. Putting the questions is an artand it should be used properly to seek information.

When the user has to select one answer from finite set of answer a closed question

should be asked. For example, “Which are the raw materials used for making a product?” But an open question is put, when the user has no precise knowledge but has an ability to

determine all answer and to select one out of them? For example, “Which are the raw

materials which can be used in a product?” In open questions, the answers may not beimmediate but can be obtained by surveying the domain of knowledge of the user.




When multiple users or several decision makers in similar functions or positions

are involved, a brain storming session is performed to cover all possible answer to thequestions. When several users are involved, group consensus can be sought to get the

most feasible set of answer.

The experts or experienced users are asked to give their best answer- thisapproach is called the Delphi method. In all these methods, the systems designer has to

test the validity of all the answer independently. An experienced designer is able toanalyze critically the answers given to the questions and to determine the correct

information requirement.

Determining from the Existing System

In a number of cases the existing system, which has been evolved after a number of

years, and has been designed out of experience given straightaway the requirement of information. In many situations, system from other companies can give additional

information requirements.The fund of knowledge is available from the textbooks, handbooks, researchstudies which can determine the information requirement. For example, systems such as

the accounts receivables, the accounts payables, the pay roll, the inventory control, the

financial accounting, etc., have well determined information requirements.Irrespective of the type of organization and business, ninety per cent of the

information requirement is common and the balance ten per cent may be typical to the

organization or the business, which needs to be determined separately. The managers in

the operations and the middle management use the existing system as a reference fordetermining the information requirement.

This method is adopted when the rules and decision methods are outside thepurview of the decision maker. They are determined or imposed by external sources such

as the Government, the Authority, the principles, etc. for example, the information

required to manager shares of the company are determined through the rules andregulations laid down by the Company Law Board. The manager of the shares

department has very little additional information need.

In all such functions, the manager determines the information needs and the

designer of the MIS can always fall back on the prescribed law books, manuals, theoryand textbooks, hand books, etc. to confirm the informational needs

Analyzing the Critical Factors

Every business organization performs successfully on the basis of certain critical factors.

Other factors are important and play a support role in the functioning of the organization.Many times a function is singularly critical to the successful functioning of a business

organization.

For example, in a high technology business, the management of the technology

becomes the critical function. Or in a service organization, the management of service




becomes a critical factor. In a consumer industry, marketing and service become the

critical functions. The information requirements of such organizations largely relate tothese critical factors. The analysis of these functions or factors will determine the

information requirements.

Experimentation and Modelling

When there is total uncertainty, the designer and the user of the information resort to thismethod for determining the information requirement. The experimentation would decide

the methodology for handling the complex situation. If the method is finalized, the

information needs are determined as they have been evolved through theexperimentation. Test marketing of a product is an approach of the experimentation to

decide the correct marketing strategy.

Sometimes models are used for deciding the initial information needs and they aremodified during the implementation stage. The information requirements determined

through such methods undergo a qualitative change as the users get the benefit of learning and experience and the needs may undergo a change or get replaced completely.

8.4 DEVELOPMENT AND IMPLEMENTATION OF THE MIS

Having made the plan of the MIS, the development of the MIS calls for determining the

strategy of development. As discussed earlier the plan consists of various systems and

subsystems. The development strategy determines where to begin and in what sequence

the development can take place with the sole objective of assuring the informationsupport.

The choice of the system or the subsystem depends on its position in the total MISplan, the size of the system, the user understands of the system and the complexity and its

interface with other systems. The designer first develops systems independently and starts

integrating them with other systems, enlarging the system scope and meeting the varyinginformation needs.

Determining the position of the system in the MIS is easy. The real problem is the

degree of structure, and formalization in the system and procedures which determine thetiming and duration of development of the system. Higher the degree of structured ness

and formalization, greater is the stabilization of the rules, the procedures, decision

making and the understanding of the overall business activity. Here, it is observed thatthe user’s and the designer ’s interaction is smooth, and each other ’s needs are clearlyunderstood and respected mutually. The development becomes approach with certainty in

inputs process and outputs.

Prototype Approach

When the system is complex, the development strategy is Prototyping of the system.Prototyping is a process of progressively ascertaining the information needs, developing

methodology, trying it out on a smaller scale with respect to the data and the complexity,




ensuring that it satisfies the needs of the users, and assess the problems of development

and implementation.

This process, therefore, identifies the problem areas, inadequacies in the prototype vis-à-vis fulfillment of the information needs. The designer then takes steps to remove the

inadequacies. This may call upon changing the prototype of the system, questioning the

information needs, streamlining the operational systems and procedures and more userinteraction. A typical process of the system development through prototyping is given in

fig. 8.1.

MISSION,GOALS

IDENTIFYINFORMATIONNEEDS

REFINETHE NEEDS

MODIFYPROTOTYPESPECIFICATION

REVIEW

DEFINE SYSTEMBOUNDARIESAND SCOPE

DEVELOP ANDTEST

DEVELOPREVISEDPROTOTYPE

IMPLEMENTIN PARALLEL

DEFINE SYSTEMOBJECTIVE

INITIALRPOTOTYPE

ISTHE USER

SATISFIED ?TRAINING

EXAMINEFEASIBILITY

DEVELOP INITIALPROTOTYPESPECIFICATIONS

DEVELOPAPPLICATIONWITH FINAL

SPECIFICATIONS

DOCUMEN-TATION

NO

YES

Fig. 8.1 Information System Development Model; Prototyping Approach.

In the prototyping approach, the designer’s task becomes difficult, when there aremultiple users of the same system and the inputs they use are used by some other users

well. For example, a lot of input data comes from the purchase department, which is usedin accounts and inventory management.

The attitudes of the various users and their role as the originators of the data needs to be

developed with a high degree of positivism. It requires, of all the personnel, to appreciatethat the information is a corporate resource, and all have to contribute as per the

designated role by the designer to fulfill the corporate information needs. When it comesto information the functional, the departmental, the personal boundaries do not exist.

These calls upon each individual to comply with the design needs and provide without

fail the necessary data inputs whenever required as per the specification discussed and

finalized by the designer.




Brining the multiple users on the same platform and changing their attitudes

towards information, as a corporate resource, is the managerial task of the systemdesigner. The qualification, experience, knowledge, the state of art, and an understanding

of the corporate business, helps considerably, in overcoming the problem of changing the

attitudes of the multiple users and the originators of the data.

Life Cycle Approach

There are many systems or subsystems in the MIS which have a life cycle, that is, they

have birth and death. Their emergence may be a sudden or may be a part of the business

need, and they are very much structured and rule-based. They have hundred per centclarity of inputs and their sources, a definite set of outputs in terms of the contents and

formats. These details more or less remain static from the day the system emerges and

remains in that static mode for a long time. Minor modifications or changes do occur but

they are not significant in terms of handling either by the designer or the users of thesystem. Such system, therefore, have a life and they can be developed in a systematic

manner, and can be reviewed after a year or two, for significant modification, if any.Examples of such systems are pay roll, share accounting, basis financial

accounting, finished goods accounting and dispatching, order processing, and so on.

These systems have a fairly long duration of survival and they contribute in a big way assources of data to the Corporate MIS. Therefore, their role is important and needs to be

designed from the view point as an interface to the Corporate MIS. The life cycle

approach, therefore, has a method of its own as explained in the fig. 10.2.

Apart from the core systems, some decision support systems can be developedthrough the life cycle approach. The choice of system design in the prototype and Life

Cycle approach is decided on the basis of the nature of the system or application. For

example, you have a choice of the database approach versus the conventional system

approach, the online real time versus the batch processing approach. You may also havechoice of hardware and software. All these technical decisions are more situation

dependent, requiring judicious application of and information technology.

SYSTEM

APPLICATION

ASSESSFEASIBILITY

INFORMATIONREQ.ANALYSIS

CONCEPTUAL

DESIGN

PHYSICAL

DESIGN

SYSTEMSPECIFICATIONS

PROGRAMSPECIFICATION

DEVELOPTHE SYSTEM

INSTALLTHE SYSTEM

CONDUCT AWARE-NESS AND TRAINING

OPERATE THESYSTEM

REVIEWAND AUDIT




Fig. 8.2 Life Cycle Approach to the Development of MIS

Table 8.6 shows the difference between the two approaches helping the designer select an

approach.

Table 8.6 Comparison of Approaches

Prototyping approach Life cycle approach

Open system with a high degree of uncertainty about

the information needs.

Necessary to try out the ideas, application and

efficiency of the information as a decision support.

Necessary to control the cost of the design and

development before the scope of the system and its

application is fully determined. Experimentation is

necessary.

User of the system wants to tryout the system before he

commits the specification and the information

requirements.

The system and application is highly custom oriented.

Closed systems with little or no uncertainty about the

information needs. The system remains valid for a long

time with no significant change. The design would

remain stable.

No need to try out the application of the information as it

is already proven.

Scope of the design and the application is fully

determined with clarity and experimentation is not

necessary.

The user is confident and confirms the specifications and

the information needs.

The system and application is universal and governed by

the principles and practices.

Implementation of the management information system

The implementation of the system is a management process. It bring about organizationalchanges, it affects people and change their work style. The process evokes a behavior

Response which could be either favorable or unfavorable depending upon the strategy of

the system implementation.

In the process of implementation, the system designer acts as a change agent or a

catalyst. For a successful implementation he has to handle the human factors carefully.

The user of the system has a certain fear complex when a certain cultural work change is occurring. The first system has foremost fear is about the security to the

change-over form the old to new is not a smooth one. Care has to be taken to assure theuser that such fears are baseless and the responsibility, therefore, rests with the designer.

The second fear is about the role played by the person in person in the

organization and how the change affects him. On many occasions, the role may reducehis importance in the organization, the work design may make the new job impersonal,

and a fear complex may get reinforced that the career prospects may be affected.




There are certain guidelines for the systems designer for successful

implementation of the system. The system designer should;

1. Not question beyond a limit the information need of the user.

2. Not forget that his role is to offer a service and not to demand terms.

3. Remember that the system design is for the use of the user and it is not thedesigner’s prerogative to dictate the design features. In short, the designer

should respect the demands of the user.4. Not mix up technical needs with the information needs. He should try to

develop suitable design with appropriate technology to meet the information

needs. The designer should not recommend modifications of the needs, unlesstechnically infeasible.

5. Impress upon the user the global nature of the system design which is required

to meet the current and prospective information need.

6. Not challenge the application of the information in decision making. It is thesole right of the user to use the information the way he thinks proper.

7. Impress upon the user that the quality of information depends on the quality of input which he provides.8. Impress upon the user that he is one of the users in the organization and that

the information is a corporate resource and he is expected to contribute to the

development of the MIS.9. Ensure that the user makes commitment to all the requirements of the system

design specifications. Ensure that he appreciates that his commitments

contribute largely to the quality of the information and successful

implementation of the system.10. Ensure that the overall system effort has the management’s acceptance.

11. Enlist the user’s participation from time to time, so that he is emotionally

involved in the process of development.12. Realize that through serving the user, he is his best guide on the complex path

of development.

13. Not expect perfect understanding and knowledge from the user as he may theuser of a non-computerized system. Hence, the designer should be prepared to

change the system specifications or even the design during the course of

development.

14. Impress upon the user that the change, which is easily possible in manualsystem, is not that easy in the computer system as it calls for changes in the

programs.

15. Impress upon the user that perfect information is non-existent; his roletherefore still has an importance in the organization.

16. Ensure that the problems in the organization are resolved first before the

system is taken for development.17. Conduct a periodical user meeting on systems where you get the opportunity

to know the ongoing difficulties of the users.

18. Train the user in computer appreciation and systems analysis as his perceptionof the computerized information system will fall short of the designer’sexpectation.




Implementation of the MIS in an organization is a process where organizationaltransformation takes place. This change can occur in a number of ways.

The Lewin’s model suggests three steps in this process. The first step is

unfreezing the organization to make the people more receptive and interested in the

change. The second step is Choosing a course of action where the process begins andreaches the desired level, and the third step is Refreezing, where the change is

consolidated and equilibrium is reinforced. Many a times, this process is implementedthrough an external change agent, such as a consultant, playing the role of a catalyst.

The significant problem in this task is the resistance to change. The resistance can

occur due to three reasons, viz., the factors internal to the user of information, the factorsinherent in the design of the system and the factors arising out of the interaction between

the system and its users. The problem of resistance can be handled through education,

persuasion, and participation. This itself can be achieved by improving the human

factors, and providing incentives to the users, and eliminating the organizationalproblems before implementing the system.

8.5 MANAGEMENT OF QUALITY IN THE MIS

Information is a corporate resource, as important as the capital, labour, know-how, etc.

and is being used for decision making. Its quality information would adversely affect theorganizational 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 and

procedures 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 isdetermined 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 parameter 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 parameters which are generally

considered are as shown in Table 8.7.

Table 8.7 Quality Parameters

Parameter of Quality Example Comments

Complete data of all the

transaction

Valid transacation and

input data

Accuracy and precision

All invoices of the month. All vouchers of

the month.

Only correct transaction types are permitted

in the system. Only that data which meet the

design specifications can be used.

Correct use of the formula or procedure and

relevant data.

This achieves integrity of data with

respect to the time period.

Ensures the validity of the data and in

turn, assures valid information.

Assures that the results are accurate and

precisely correct based on rule, act or

law using complete data.




Relevance to the user

Timely information

Meaningful and complete

information.

It should be relevant to the user for a

decision making.

Information on the sales dispatch, pending

position.

Production information should be reported

in terms of quantity, quality and groups, or

family, and refection and reasons. It should

be given in a proper format, with references.

If the relevance is appropriate, the

quality required is high.

If the information is received late it

becomes useless from a point of view

of decision making.

Incomplete information forces the user

to infer or interpret erroneously leading

to a wrong decision.

The quality of this important parameter is ensured by conducting a propersystems analysis, designing a suitable computer system and ensuring its maintenance

from time to time, and also subjecting it to audit checks to ensure the system integrity.

The quality of the parameters is assured if following steps are taken.

1. All the input is processed and controlled.2. All updating and corrections are completed before the data processing begins.3. Inputs (transactions, documents, fields and records) are subjected to validity

checks.

4. The access to the data files is protected and secured through an authorizationscheme.

5. Intermediate processing checks are introduced to ensure that the complete data is

processed right through, i.e., run to run controls.6. Due attention is given to the proper file selection in terms of data, periods and so on.

7. Back-up of the data and files are taken to safeguard corruption or loss of data.

8. The system audit is conducted from time to time to ensure that the computer system

specifications are not violated.9. The system modifications are approved by following a set procedure which begins

with authorization of a change to its implementation followed by an audit.

10. Systems are developed with a standard specification of design and development.11. Computer system processing is controlled through programme control, process

control and access control.

The assurance of quality is a continuing function and needs to be evolved over a

period and requires to be monitored properly. It cannot be assessed in physical units of

measure. The user of the information is the best judge of the quality. Utility of informationand its relevance are the two other measures of quality.

8.6 ORGANISATION FOR DEVELOPMENT OF THE MIS

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 principles of the organization andstructuring the organization to the specific needs of the function are 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 is sues involved are:

1. Whether the function should be handled as a centralized or decentralized activity.2. The allocation of the hardware and software resources.

3. The maintenance of the service level at an appropriate level.

4. Fitting the organization of the MIS in the corporate organization, its culture andthe 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 theinformation systems management or the information resource management. When it is a

case of information systems management then the organization of the MIS would becentralized, but if it is a case of information resource management, it will bedecentralized organization.

In a centralized set, the responsibility of acquisition of the data, of providing the

information to the users, becomes the centralized function. The centralized organizationis also recommended when the information needs are more or less static. In such cases,

the user of the information is free from the responsibility of designing the systems and

also from deciding the hardware and the software. However, if the information needs are

varying and is more strategic in nature, the reliance on the centralized set-up becomes adifficult workable proposition. When such a situation exists, a decentralized organization

is more effective.

Depending upon the situation, hardware and software solutions are available. In a

decentralized set-up the allocation of hardware is a centralized decision but the collection

of data and its processing becomes the user’s responsibility. Training, problem solvingand 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.

In a real life situation, the variations of these two approaches are found, mainly on

account of the variety of hardware, software solutions. One can develop two models of the MIS organization (as shown in Fig. 8.3 and Fig. 8.4), and its variations can be further

developed suitable to the corporate culture, the management style and philosophy of the

management.

The MIS functions in any organization would vary on account of the issues

mentioned earlier and to that extent the variations of these two models would be theorganization of the MIS.




8.7 MIS: THE FACTORS OF SUCCESS AND FAILURE

Many organizations use MIS successfully, others do not. Though the hardware and the

software is the latest and has appropriate technology, its use is more for the collection and

storage of data and its elementary processing. There are some factors which make the

MIS a success and some others, which make it a failure. These factors can besummarized as follow.

Factors Contributing to Success

If a MIS is to be a success then it should have all the features listed as follows.

The MIS is integrated into the managerial functions. It sets clear objectives to

ensure that the MIS focuses on the major issues of the business. Also adequate

development resources are provided and the human and organizational barriers toprogress are removed.

An appropriate information processing technology required to meet the dataprocessing and analysis needs of the users of the MIS is selected. The MIS is oriented, defined and designed in terms of the user’s requirements and

its operational viability is ensured.

The MIS is kept under continuous surveillance, so that its open system design ismodified according to the changing information needs.

MIS focuses on the results and goals, and highlights the factors and reasons for

non-achievement. MIS is not allowed to end up into an information generation mill avoiding the

noise in the information and the communication system.

The MIS recognizes that a manager is a human being and therefore, the systems

must consider all the human behavioral factors in the process of the management. The MIS recognizes that the different information needs for different objectives

must be met with. The globalization of information in isolation from the different

objectives leads to too much information and its non-use. The MIS is easy to operate and, therefore, the design of the MIS has such features

which make up a user-friendly design.




MANAGINGDIRECTOR

HEAD OF

MIS

HARDWARE AND

SOFTWARE

CENTRALISED SYSTEMDEVELOPMENT

OPERATIONS,MAINTENANCE

SELECTION, UPGRADE,

EXPANSION DECISIONS

TECHNOLOGYUPGRADE DECISIONS

INFORMATION SYSTEMPLANNING

TRAINING

MANAGEMENT AND

DEVELOPMENT

RUNNING DAY TO DAY

OPERATIONS, BACK UP

SYSTEM MAINTENANCE,SOFTWARE MAINTENANCE

Fig. 8.3 Centralized Organizations of MIS. *

* Supplier of hardware, software and applications, and solution.

Note Information is considered as corporate resource and hence generated centrally by the head of theMIS and made available to all the users on conditions and needs. The function of the head of the

MIS is to manage the information centrally as a corporate resource from the data to the

Information and its technology requirement.

MANAGINGDIRECTOR

HEAD OFMIS

MANAGEMENT OFHARDWARE

ADVISE ON HARD-WARE AND SOFTWARE

TECHNOLOGY

TRAINING ANDSUPPORT

DISTRIBUTED ORDECENTRALISED DECISION

MAINTENANCE OFHARDWARE AND SOFTWARE

SELECTION OFHARDWARE SOLUTION

SELECTION OFLANGUAGE, OS.

ASSIST USERS IN SYSTEM

DEVELOPMENT

TRAINING ANDPROBLEM SOLVING

CORPORATEDBMS

Fig. 8.4 Decentralized Organisation of MIS *

Note Information is considered as a resource for a department, group of individuals or

In other words, it is considered specific to the business function. The head of theMIS provides support to the users of the information in their task of Development. The major responsibility is the data management and the

technology.

MIS recognizes that the information needs become obsolete and new needsemerge. The MIS design, therefore, has a basic potential capability to quickly

meet new needs of information.




The MIS concentrates on developing the information support to manager critical

success factors. It concentrates on the mission critical applications serving theneeds of top management.

Factors Contributing to Failures

Many a times MIS is a failure. The common factors which are responsible for this are

listed as follows.

The MIS is conceived as a data processing and not as an information processing

The MIS does not provide that information which is needed by the managers butit tends to provide the information generally the function calls for. The MIS then

becomes an impersonal system.

Underestimating the complexity in the business systems and not recognizing it in

the MIS design leads to problems in the successful implementation. Adequate attention is not given to the quality control aspects of the inputs, the

process and the outputs leading to insufficient checks and controls in the MIS. The MIS is developed without streamlining the transaction processing systems inthe organization.

Lack of training and appreciation that the users of the information and the

generators of the data are different, and they have to play an important responsiblerole in the MIS.

The MIS does not meet certain critical and key factors of its users such as a

response to the query on the database, an inability to get the processing done in a

particular manner, lack of user-friendly system and the dependence on the systempersonnel.

A belief that the computerized MIS can solve all the management problems of

planning and control of the business. Lack of administrative discipline in following the standardized systems and

procedures, wrong codings and deviating from the system specifications result in

incomplete and incorrect information. The MIS does not give perfect information to all the users in the organization.

Any attempt towards such a goal will be unsuccessful because every user has a

human ingenuity, bias, certain assumption not known to the designer. The MIS

cannot up these by providing perfect information.





1. Why is a long range plan of MIS necessary? How it linked with the business plan

of the organization?2. What are the content of the MIS plan? What is the purpose of each of them?

3. Draw a matrix of the class of information versus users, and explain the nature of

use in each case.

4. What problems does the system analyst face in ascertaining the informationrequirement at the various levels of management? How are these problems

tackled?5. When should the analyst resort to prototype experimentation for judging the

requirement? How is modeling used in this approach?

6. When would you resort to prototype approach and when would you resort to thelife cycle approach in the development of the MIS?

7. In the guideline given for implementation identify the guidelines where user is

involved.

8. Before a full scale MIS development plan is undertaken, it is better to study andimprove rules, policies, procedures and practices. Explain.

9. A good MIS is an integral part of the management system. Why so? What wouldhappen if it is not?10. User acceptance and dependence on MIS is a test of a good MIS. How would you

ensure that the user related issues are taken care of while designing the system?




CHAPTER-9

CHOICE OF INFORMATION TECHNOLOGY

11.1 NATURE OF IT DECISION

A business enterprise or an organization requires making a decision of choosing

appropriate information Technology (IT), as a vehicle, to handle the managementinformation system. The choice of IT is a strategic decision, making long-term impact

on the effectiveness of the MIS of the enterprise. The information technology affects

the people, the processes and the productivity of the organization. It is a strategicbusiness decision and not a financial decision to be taken on the least cost approach.

Just as the MIS handles the decision support applications, the choice of theInformation Technology makes a qualitative difference in the decision making

process. Hence, a wrong choice of the IT would kill a good MIS design as the

information technology would not support the user on the aspects and the

requirements such as speed, response, access, security, autonomy and integration of the information processing on the different hardware software platforms.

A wrong choice of the information technology would also kill the MIS designer’sability to develop a user-friendly end user computer system, providing all capabilities

of the data and the information handling with flexibility and speed.

The choice of information technology can be compared to a decision of

constructing a house. Through the cost of construction is a major decision parameter,

many other factors such as the living comfort and convenience, accommodation of

the family members with their respective living styles, etc. are equally important.Besides a house should have a privacy, should be aesthetic to look at, airy and well lit

and also the maintenance of facilities and utilities should be easy. A wrong choice of

house, therefore, affects the buyer for the lifetime, both, in terms of the cost and alsoin terms of comfort. The decision is usually irreversible and very costly, and may not

satisfy all the needs of the members of the family.

The modern information technology offers a number of different systemconfigurations, each being a candidate, as a solution to satisfy the needs of the MIS.

The information technology decision, therefore, is a technical decision, where it is

required to decide between the various configuration alternatives made of a variety of

hardware and software option. The configurations are the LAN or the WAN, the Minior the Superman, and the front end and the Back Office Systems, Internet/Intranet,

OOT, Client Server Systems.

The configurations could be evolved on the basis of the approach to the

information processing. It could either be distributed or centralized, local processingor centralized processing, etc. It could be a conventional data processing approach

versus the database management approach.




Each configuration has certain technical merits and demerits, and, therefore, hasto be weighed on some other criteria for its selection. Each one of them covers a wide

cost spectrum. The wide cost spectrum results due to the different architecture options

in the hardware such as the RISC, the CISC and the different processing chips such as

the INTEL, the MOTOROLA or the PROPRIETARY Chip such as the‘Alpha

’of theDigital and the POWER PC of the IBM, etc.

The third reason is the different operating systems for the different platforms, i.e.,

the DOS, Windows NT, the UNIX, the OSF, the MOTIF, the OS2, the VMS and their

proprietary versions such as the Ultrix, the HP UNIX, and the ORG UNIX, etc.

Several probable configuration options are further influenced by the available

software running under each of the operating systems. The software options, an

important dimension to the choice of the information technology, demand a certainoperating system as a critical requirement. Some software option is efficient on one

hardware platform and not on the other, so if the software is critical, then many timesthe hardware is critical, then many times the hardware becomes a no option decision.

Another important factor which influences the information technology decision is

the organization and its infrastructural arrangement of the offices, warehouses,factories and the customers. Much organization would demand hardware typical to

that particular location and also be able to communicate with other hardware-software

platforms. In such situations, the communication requirement becomes a dominating

factor in choice of the information technology.

For example, the warehouse may need just a PC or a PCLAN, the nearby factory

may need a mini computer system and the corporate office would need a largeSuperman computer with special software suitable for its functioning. Each of these

platforms may have different operating systems, and the MIS of such an organization

requires data and information sharing between all these resources at various locations.The information technology decision must consider the communication problem and

the interface between the two hardware options so that the data sharing is

operationally feasible. Many a times, the operational feasibility problems are solved

by writing the system utilities, the drivers, and the programmers so that these twoplatforms become ready to share each others resources effectively.

The information technology decision is also influenced by people-related factors.The choice of the information technology is made on the basis of the ability of the

people in the organization to run the hardware-software system. The place like

warehouse may not have highly qualified computer literate personnel and, therefore,at such a location, PC systems would be an automatic choice or a dumb terminal of

the main computer system. But at the factory location, since the personnel are of the

higher skills, grade and qualifications, a Network or a mini system, capable of offering different software solutions, would be required. In such a place, hardware

and software support in also required.




Though training the personnel to become computer literates is a solution to suchproblems it may not be always possible and operationally feasible to solve such

problems and give a high-tech information technology solution which is uniform

across the organization. The work culture and the people culture become the critical

decision inputs for any information technology decision.

Finally the information technology choice is governed by the requirement of themission critical application(s) of the organization. The hardware choice and its

configuration in terms of memory, disk and communication are decided on the base

of processing needs of the mission critical applications. The other requirement of theorganization is to be fitted to this configuration.

For example, if the main business of an organization is service to the customer,

then the mission critical application is the inventory management of a variety of itemsmanufactured and distributed at different locations. Such an application would need

resource sharing at different locations-of hardware, software and database. It could bea case of sharing between the UNIX DP network and the minis with different DBMSsystems. The sharing of each other’s resources may be for input acquisition andprocessing for integrating the data on a higher plane and sending the result to

different locations, and for presenting on the different output devices such as the laserprinters and plotter, and also on the storage devices available at the different

locations.

The information technology decision is made for the current needs as well as forthe futuristic needs of the organization. Hence, the decision is influenced by the

technology forecast and the business forecast. It requires some valid assumptions

about the growth of the business, the manner in which it will be conducted and theinformation needs of the organization to conduct the business. Such a probing in the

futuristic needs helps to size up the various options and to weigh them critically on

the various criteria.

The information technology decision, therefore, is a decision to be taken at a

particular point of time and implemented over a period of time considering the

various soft and hard options experienced from time to time. If the organization isunder a financial pressure as the budget is not adequate to implement the best

information technology opted for should be upgradeable, expandable and scalable.

Such organizations can start with a smaller configuration and migrate to a bigger onewith no risk of technological obsolescence no loss of development effort.

The nature of IT decision is complex and is governed by a number of factors asshown in Fig. 11.1. Since, this decision has long-term business and financial

implications and affects the entire organization, it is a strategic decision.




11.2 STRATEGIC DECISION

The information technology choice is a strategic decision and, therefore, it should betaken after considering a number of factors. The information technology offers a

number of alternatives which have varying costs. The costs differ due to the

difference in the architecture of the hardware, capability of the software and differentconfigurations but achieving more or less the same results. Apart from the cost factor

there are other factors, such as data management, organization infrastructure and

satisfying its information needs which influence the information technology decision.

These factors are discussed at length in the following sections.

Management Process or Style

The information needs of the people in the organization arise from the process or the

style by which the management ‘runs’ the business. The quality of management

process depends on the people culture and the culture predominantly affects thedecision making process.

If the decision processes are centralized at a higher level and the delegation of

responsibilities and authorities is not proper, then the information technology choicewill weigh heavily in favor of the distributed data acquisition systems and the

centralized high end information processing systems for decision support.

If the decision processes are decentralized, the information technology choice will

weigh in favor of those systems, where the acquisition, processing, analysis and

decision making will be at distributed nodal points. The organization which operatesthrough a number of locations and on the basis of the Strategic Business Units (SBU)

will opt for such an option. In such cases the typical nature of the concerned SBU will

decide the hardware-software platform for the particular location.




If the decisions in the organization are of the following types, then the

information technology option would differ. These types are:(a) The decisions affecting the operations management.

(b) The decisions affecting the execution and control of the business.

(c) The strategic business decisions.

In such cases, the information technology choice would be the Front End Processing

System connected to the Bank Office Central System. Hotels, hospitals and largecorporate bodies are the examples, where such a choice is desirable. The front end

systems take care of the operations management, while the back office systems take

care of the strategic and the operations planning and control of the business.

There is other business situation where due to sensitive nature of the business,

decision making is concentrated at one business location or in one of the business

functions such as marketing, research and development, manufacturing, etc. Theinformation technology choice is largely governed by the information needs of that

particular location or function. In other words, every business has one or moremission critical applications serving the information needs of the critical strategicdecision. The entire management process revolves around this application. The

organizations’ information technology choice is, therefore, based on the requirement

of these applications serving the critical business functions.

Due to the organizations’ infrastructure and also due to the nature of the businessit so happens that there are data centers, where a large umber of transactions take

place and these are the decision centers. In such cases the information technologychoice will be in favor of the distributed high end data processing systems and the

dedicated information processing system at the decision centre using the distributed

data bases. Many service oriented business like the banks, the insurance companies,etc. fall into this category.

It is, therefore, important to note that the information technology choice considersthe management process, the business organization, the decision making style and the

mission critical applications as the important dominating factors. The choice of

hardware details and the software mix will be decided on these factors.

Business Operations

There are many organizations, where the business operations are typical, voluminousand their information needs are largely transaction processed. The typical example is

that of the banks where the banking operations are uniformly standard at almost all

branch locations. The transactions are large in number and need to be processed veryfast. The decision making process is rule based governed by the policy and the

guidelines issued by the statutory bodies in the banking industry. The information

technology choice in such cases would be the one which satisfies this need the best.




In a Hospital, where the transaction processing is very low, the decision making

need is satisfied by query type applications. The information needs here are largelythe patient and doctor-oriented. The information technology choice, in such case, will

be of the front end processing system supported by the back office mini or main

frame system with a strong database system which is very powerful in data

management and the query processing.

Suppose there is an organization the main business of which is marketing of avariety of product through a nationwide distribution channel system. The business

here operates mainly on satisfying the needs of the buyers by providing them what

they want. Hence, inventory management is the main business function here. Theinformation technology choice in such case will be the one where the sales and the

receipts data is processed very fast, the inventory related decisions are taken, stocks

are adjusted and the procurement action is also taken quickly. The hardware details in

such case will be decided based on the data volume, the speed and the communicationsystems.

There are certain business organizations the operations of which are such that if the organization takes care of one or two major functions, most of the informationneeds and the MIS needs would be satisfied. Many a times these functions are special

and would be demanding special hardware and software. If the organization requires

mix of such special hardware and software, then the information technology choicewill be based on the integration possibility of the different information technology

platforms satisfying the organizational information needs.

For example, in the high-tech engineering organizations, a lot of engineering anddesign activities, such as drafting, designing, modeling and analysis take place. Such

a function would need special hardware such as work stations and special CAD/

CAM/ CAE software, etc. However the data processed by such hardware-softwaresystem needs to be integrated in the business and commercial systems of the

organizations. The information technology choice in such cases would be based on

the feasibility of sharing the resources and data of the two locations and havingspecial application and information needs.

A number of such possibilities emerge and unless these factors are properly

considered, the information technology choice may go wrong. The informationtechnology choice therefore is strategic to the business performance.

In all the business twenty per cent information set is critical and eighty per cent isnot so critical. If the information technology choice does not satisfy the critical

twenty percent need, then it can be said that the information technology choice is a

strategic mistake with concurrent business and financial implications.

11.3 CONFIGURATION DESIGN

The details of the information technology, such as architecture, communication,

RDBMS, storage media, and operating system are also strategic to the success of the




MIS. These details are carefully worked out for effective implementation of the

information technology. The details are worked out based on the following features:

Data type

Words, Numeric, Image and Voice. The hardware and software should be capable of handling these data types.

Data volume

The online storage capacity would be decided based on the processing needs. It willbe further increased due to the disk mirroring.

I/O operations

These would decide the controllers and the speed of I/O processing.

Data sharing

If the data is to be shared across the databases, then the storage capacity will be

decided based on the size of the databases.

Process speed

The speed needed for processing will decide the CPU, memory and the processingarchitecture.

RDBMS and 4GL

These will be chosen on the basis of the volume, special handling of the data, and the

level of security and the integrity required. All RDBMS are not same and are notequally efficient on all the platforms.

Query processing

The decides the SQL or standard SQL and 4GL.

Communication protocols

If different platforms need to be connected, then the software such as the TCP/ IPneeds to be considered.




Interface and gateways

These will be decided on the basis of data transfer needs between the locations and

between the hardware-software platforms.

Security and Integrity

The level of security and integrity required will decide the hardware, the software andthe operating system. All the hardware and software do not satisfy these needs fully.

Languages and packages

The requirement, often, is of a special language and packages besides the main

software. The hardware and operating system will be decided based on this need.

The information technology choice is translated into a variety of details based on

the above factors. When all these factors and the associated choices of theinformation technology details are worked out, we can say that the configuration of the computer system is designed. Several configurations are possible and they need to

be thoroughly evaluated before selection.

11.4 EVALUTION

As we develop different choices of information technology and its configurations, the

decision making enters into the evaluation phase for selection. The selection criteria forevaluation would have different dimensions to be satisfied simultaneously. These

dimensions are as follows:

1. Technical Evaluation

2. Operational Feasibility

3. Financial Consideration

Technical Evaluation (TE)

Technical evolution deals with the testing parameters, such as data transfer needs, the

response level, the successful connectivity of the different hardware platforms, and the

degree of meeting the overall system performance standards.




Technical evaluation can be carried out first by studying the literature of the

product in detail and then by conducting brain storming sessions with the vendors’ specialists. In this phase a number of doubts are clarified and the vendors ’ claims in theareas of the system performance are confirmed. Technical evaluation can then be planned

by scheduling the activities such as the bench marking for a couple of key parameters.

The bench marking studies could be at a ‘raw’ level where you test the vendors’

specifications. Once these are confirmed, the specifications are put to test on a liveplatform, i.e., the technical specification are tested by running live data in a particular

format. Such an experiment would be a prototype model of your information processing

need related to the mission critical applications. You may develop a mini representativeprocessing application and run it on a model configuration of the system. Such

experiment would confirm the vendors’ claims and your expectations and needs. Thiswould develop certain norms which can be used to configure the hardware details and

building the architecture. The bill of material of hardware and software can be workedout with the help of these norms.

Following hardware software details are configured and the quality of each item isalso decided using the norms developed in a live experiment. The decisions on the

following points would facilitate the system configuration for a given requirement.

■ Memory and Cache

■ Disk Capacity, Features, Controllers

■ CPU Speed, Processing Architecture and Capabilities

■ Servers

■ Terminals-PCs, X Terminals Work Station

■ Network and Cabling, Internet and Intranet

■ EDI, E-Mail

■ Network Hardware■ Output Devices

■ Monitors

■ Operating System

■ Standard: ASCII, ANSI, GUI

■Hardware Architecture

■ System Software: OS, Gateways, Interfaces, Drivers, Utilities and Compilers

■ Media, Copying Devices

■ RDBMS, FEATURES

■ Packages

Technical evaluation and confirm the information technology approach to the

information processing needs of the organization. The issues like the centralized versusdistributed, the online versus the batch versus the real time, the network versus the mini

or the superman are also evaluated. Technical evaluation also helps in narrowing down

the hardware choices as all the vendors may not satisfy the requirement of theorganization.




Having narrowed down the hardware configurations to two or three options, the

technical evaluation considers the performance related issues such as reliability,dependability, performance on the volume scale, security, integrity and autonomy, etc.

All the option may not equally satisfy the evaluation standards set by the organization on

these factors. The performance related issues will help fine tune the configuration details

such as the memory, the number of ports, the specific input and output devices and thehardware infrastructure. Technical evaluation also helps to break down the hardware on a

time scale, i.e., the minimum required in the initial stage and subsequent add-ons,expansions and upgrades on a time scale.

In technical evaluation we are discussing information technology. Theinformation technology is constantly under development and the scale on which such

improvement takes place is phenomenal. Hence, it is necessary to select the latest

technology in all areas of information processing as it would take you a long way and

help you to protect the investment. The investment is protected, if the InformationTechnology choice is scalable, upgradeable and also expandable with the growth of the

business.

Operational Feasibility

The options approved after the technical evaluation are tested on the operationalfeasibility. What the technology offers may not be possible to operate at the practical

level and scale to obtain full benefits of the various inherent features. The operational

feasibility evaluation considers the people-related issues and whether the systems and the

procedures of the organization are complementary and conducive.

In a number of situations, the choice of technology determines automatically the

caliber, the competence, and the knowledge of the people in the organization. It is alsoobserved that the organization does not provide people support to implement technology

successfully. The shortcomings on peoples’ side would be the lack of requisite

qualification and the subject knowledge, the ability to absorb the technology, and use iteffectively. Many a times, the organization would require appointing a new set of

personnel to fulfill these needs.

Other areas affected would be the systems and the procedures currently operating

in the company. The shortcoming is observed right from the absence to the inefficientsystems and procedures. The modern information technology needs sophisticated back-up

of the data at a requisite point and time. If such a data support is not available then the

information technology would be underutilized or may not be worthwhile to implement.

For example, the information technology offers a solution of fast data transfer and

processing between the two platforms at two locations, i.e., the data source is at onelocation and its need is at two other locations. Due to the systems and the procedures

prevailing at the source location, the arrival of the data at the required location is late and

hence not useful. Hence, the information technology solution is operationally infeasibleto obtain the best of the solution.




Most of the issues in the operational feasibility evaluation are related to the

people and business processes (system and procedure). The environment must supportproper implementation of a new information technology.

If the environment does not support the new technology, it will be managerially

prudent to choose next best option by obtaining full benefits in its successfulimplementation and further at a later date to switch over to the original best option.

Financial Evaluation

All the option can be evaluated in terms of the invested it calls for. It is always possibleto rank the option on the basis of the basis of the investment. All business investment is

evaluated in terms of return on the investment (ROI) or certain payback period. They are

also judged from budget considerations.

The information technology investments are difficult to judge on the ROI basis as some

aspect of the investment are intangible and are difficult to quantity in monetary terms.The best approach in such cases is to judge the investment in terms of the value of information it gives on an incremental scale. If the value of information in relation to its

investment is not significant, then it could be advisable the consider the next best lower

investment option.

In regard to the budget restrictions, it would be advisable to examine the

possibility of scaling the hardware and the software options. It is then possible to have a

solution implemented in terms of the budget provisions. The scaling can be done in termsof the quality of hardware required in the option.

If may be possible to buy the requisite minimum in the first year and expand themin the subsequent period. It may be possible to configure the hardware in terms of the

capabilities which are required now and which can be acquired later on. For example, one

can start on 32MB memory and over to 64MB. One need not buy all the software in thefirst place. It can be phased out in terms of need, i.e., purchased the requisite software as

and when required.

The budget restrictions can handle by taking the benefit of the scalable and theupgradeable technology. The scaling of the expansion can be done on two scales, viz.

horizontal and vertical expansion. The horizontal expansion relates to the quantity while

the vertical expansion relates to the quality and coverage.

Horizontal expansion

The memory, disk, terminals, peripheral equipment, etc. can be configured for the present

needs and then expanded as the coverage increased.

Vertical expansion




The system integration, backward or forward, concentrates on the mission critical

applications, covering only the main key business functionalities.

However, in all these matters the total decision is to be taken first and then broken

down into components and in terms of the budget provisions for the next two years or

more.

In all these matters, a thought should be given to protect the informationtechnology investment. If certain technological advances are round the corner, then it is

better to defer the investment. The choice of hardware and software should be such that it

should facilitate the integration of new technology into the old one. The new version of upgrades should be independent of the hardware. The application languages should be

such that any open system can absorb it without many changes. The software choices

should be independent of the hardware configurations such as the LAN, the WAN, the

MINI etc.

Many a times, the packages cannot run on all the platforms because of the chipand the architecture of the hardware platform. The open system architecture is not alwaysthat ‘open’ to accept all the software. These issues should be discussed squarely so thatthe investment though good at a point of time is not wasted at a later date.

11.5 INFORMATION TECHNOLOGY IMPLEMENTATION PLAN

The implementation of the information technology is a complex task and needs a detailedand careful planning for successful implementation. It is necessary to prepare a plan of

implementation covering the following features. These features are:

1. Site preparation

2. System development plan

3. Information technology installation schedule4. Recruitment and training of computer personnel

5. Training of the users

6. Investment plan

Site Preparation

This is a major activity, wherein you prepare the site for the physical installation of thehardware i.e., the main computer system, the peripherals, the electrical and

communication cabling, the air conditioning system, the tape-disk consumable storage,

and the office layout for the professionals. The space allocation for each of these items isbased on present need with some allowance for the future.

The modern information technology needs site preparation at the user’s end aswell for the convenience and the ease of operations. Most of the information technology

installations need infrastructural facilities, such as a conference room, and training-cum-




demonstration room with the modern aids of training. This process of site preparation

takes away 10 to 12 per cent of investment. In all these matters, guidance is availablefrom the hardware vendors. A committee consisting of the vendors’ representatives,architect and interior designer, and in-change of the information technology

implementation would be ideal for a planned site preparation activity.

System Development Plan

This is generally prepared while assessing the hardware and software needs. Such a plan

gives the indication of the various locations of hardware in terms of quality and time

when needed. System development plan priorities the various steps in the sitepreparation. One can make a site preparation plan for an immediate need and also for a

later date. This would help to make a long-term financing plan.

A system development plan also helps you in planning the other activities such asrecruitment and training. It also helps in deciding the procurement plan of the hardware

and software. A broad system development plan would go a long way preparing theoperational and implementation plans of the information technology in the organization.

Information Technology Installation Schedule

This schedule gives the item-wise details of the hardware arrival and its installation,

testing and acceptance. It also needs to be linked with the information system

development plan to synchronise the installation with the user of the hardware and the

software.

Many times the schedule also considers key issues like data conversion,

switching over from an old system to a new system, rewriting programmer for newsoftware environment and so on. Such schedule also helps in the smooth transition from

old to the new. It may be from one information technology to another information

technology environment or from the manual system to the computerized system.

Recruitment and Training of Information Technology Personnel

The implementation of the information technology needs specific skills in the manpower

responsible for effective implementation. The skills may fall in the area of languages,

tools of development and also acquiring the precise know-how on the emergingtechnologies and its application in the information systems.

The technology is changing at a very fast pace and it is necessary to upgrade theskills of the existing manpower by providing a need-based training. There are occasions

where the skills are not available and a specific recruitment is called for. Such a

recruitment and training then calls for restructuring of the information technologyorganization.




Training of Users

The latest development in the information technology requires its users to be well trained

for its effective use. The training may range from awareness to learning of the specific

tools. The users should be trained to accept the concept of end user computing. The usersshould be trained to use the various information technology facilities.

The users should be trained to blend the information support in their day-to-day

activities. It is a change in work culture and an appropriate attitude needs to be developed

for the absorption of the new information technology solutions. Many software packagesare available which need to be learnt for its appropriate use to become IT literate.

With the support of the information technology, the user is becoming a

knowledge worker. It is a qualitative cultural change and it is, therefore, necessary toprepare the user for this transformation through a comprehensive ‘User Training

Programme’. Such training is imparted across the organization to the workers, officers,executives and the managers.

Investment Plan

When all the facets of the information technology implementation are ready, it is possible

to work out the monetary implications such an implementation. Summarizing the

estimates on the time scale would generate an investment plan. One can fit the investment

in the budget provisions by suitable modifications in the implementation plan of theinformation technology. Since, the investment in the information technology is strategic;

at the most it can be deferred but cannot be curtailed. It is important to note that the

intermediate information technology solution to save on the investment is not effective. If there are any bud-getary limitations, it is better to postpone the implementation.

A carefully worked out investment plan should be submitted for approval with theimplementation plan of the information technology. A presentation of an hour and a half

to the top management highlighting the investment, the productivity gains and the

competitive edge that the business of the organization acquires through the information

technology, would help in obtaining the approval, its involvement and support inimplementation of the information technology.

11.5 CHOICE OF THE ‘INFORMATION TECHNOLOGY’ AND THE ‘MANAGEMENT INFORMATION SYSTEM’

The choice of the information technology is a backbone of the Management InformationSystem. It is a critical, strategic decision affecting the business operations and prospects.

It affects the people, the processes and productivity and helps organization emerge with a

new work culture. Since, it is a high investment decision; the management would look atit from the return it yields in the business.




The success of the MIS lies in how the information technology is implemented in

the organization. A lot depends on the people and their ability to accept the new work style and the new work culture. All the implementation of the information technology

leads to organizational transformation in the content and structure.

If the human face of the organization is not properly aligned to the informationtechnology, the best information technology would fail in its implementation, adversely

affecting effective development of the MIS. There is a risk in manipulating theinformation technology beyond a limit to suit the personnel of the organization or the

budget limitation. Hence, the implementation of the information technology could be

slow on the time scale to accommodate a certain critical constraint, but it should not beallowed to adversely influence the information technology decision itself.

The information technology changes are very rapid. To protect the investment in

the information technology, the selection criteria should include features such as scalablearchitecture, upgradeable software, an open system environment, communication

capability through gateways and interfaces and so on. A good management informationsystem design requires a matching support from the information technology.


1. The selection of information technology is a strategic decision in MISdevelopment. Explain.

2. What are the technology decisions? And what is their relevance?

3. What is a configuration of IT platform when it comes to MIS? Why should theconfigurations be determined?

4. Which are the three parameters used in the evaluation of the IT before decision is

made?5. Why is the operational feasibility of the IT system important?6. What methods are available to contain the investment in IT to the budget

availability without compromise on the plan or quality of the MIS?

7. MIS implementation is use of IT in business processes is a cultural change in theorganization. How would you handle it for smooth changes over from

conventional to technology-based management?

8. Technology obsolescence is a fact of life when it comes to IT. While decidingconfiguration, what care should be taken so that the investment is protected for a

reasonable period of time; application development effort is not wasted and

organization is not required to learn a new technology again and again.

9. Top management always asks for return on investment (ROI) made in IT. Howwould you calculate ROI in IT? What other measures would you suggest for

evaluating the investment in IT?

10. How does the work culture, management style and the organization’s learningcapability have a bearing on the IT or MIS decision?




CHAPTER-10

Decision Support Systems-I

10.1 DECISION SUPPORT SYSTEM (DSS):CONCEPT AND PHILOSOHY

Decision Support Systems are an application of Herbert Simon Model. As explained

earlier, the model has three phases, viz. Intelligence, Design and Choice. The decisionsupport system basically helps the information system in the intelligence phase where

the objective is to identify the problem and then go to the design phase for solution.

The choice of selection criterion varies from problem to problem. It is therefore,required to go through these phases again and again till a satisfactory solution is

found. In the following three phase cycle, you may use inquiry, analysis, and models

or accounting system to come to a rational solution.

These systems are helpful where the decision maker calls for complex

manipulation of data and use of several methods to reach an acceptable solution usingdifferent analysis approach.

The decision support system helps in making a decision and also in its

performance evaluation. These systems can be used to validate the decision byperforming sensitivity analysis on various parameter of the problem.

In decision making, we know that there are two types of decisions- Programmableand Non-programmable. The programmable decision, because of its rule base

structure, can be computerized, as inputs, processing methodology; analysis andchoice of decision making are predetermined. Decision support system can be builtaround the rule in case of programmable decision situation. While in Non-

programmable decisions, the rule are not fixed or predetermined, and requires every

time the user to go through the decision making cycle as indicated in the Herbert

Simon Model.

The decision support refers to a class of systems which support in the process of

decision making and does not always give a decision itself. The nature of the decisionis such that the decision makers need a variety of information, when same or similar

types of decisions are to be made. These needs are such that wider additional

demands on information would be made, the moment a piece of information isreceived. The calls on the information are continuously made till the decision maker

is fully satisfied. The reason for changing the demands is also because the methods of

decision making undergo a change from time to time. The quantum and the scope of information also changes depending upon the risk in decision making. The higher the

risk, more the information sought.




Attributes of Decision Support System

1. flexibility

The systems are flexible so that any semi-structured or unstructured decision making

situation can be tackled with ease and speed.

2. Simple models

The systems use simple models of decision making. The only change is that a

different set of information is sought for the use of different models. The choice of amodel depends upon the complexity of decision making.

3. Database

The decision support system needs database(s). The system calls for several inputs

from database(s) for decision making. The use of information being common, input tothe system is from the database.

Types of Decision Support System

1. Status inquiry system

The number of decisions in the operational management and some at the middle

management are such that they are based on one or two aspects of a decision makingsituation. It does not call any elaborate computations, analysis, choice etc. for

decision making. If the status is known, the decision is automatic, i.e., the status and

solution is unique relation.

2. Data analysis system

These decision systems are based on comparative analysis, and use of a formula or a

logarithm. But, these processes are not structured and, therefore, vary. The cash flow

analysis, the inventory analysis and the personal inventory systems are examples of

the analysis systems. The use of simple data processing tools and business rules arerequired to develop this system.

3. Information analysis system

In this system, the data is analyzed and information reports are generated. The reports

might be having exceptions as a feature. The decision makers use these reports forassessment of the situation for decision making. The sales analysis, the accounts

receivable systems, the market research analysis, the MRP systems are examples of

this system.

4. Accounting system




These systems are not necessarily required for decision making but they are desirableto keep track of the major aspects of the business or a function. The contents of these

systems are more data processing leading to formal reporting, with exceptions, if

necessary. These systems account items such as cash, inventory, and personnel and so

on and relate it to a norm or norms developed by the management, for control anddecision.

5. Model based systems

These systems are simulation models or optimization models for decision making.These decisions, generally, are one time and infrequent and provide general

guidelines for operation or management. The product mix decision, the material mix,

the job scheduling rules, and the resources or asset or facilities planning systems are

the examples.

In order to illustrate these decision support systems, let us take the example of Materials Management function and the variety of the decision and the type of systems used therein to support and examine the decision

We can further analyze these systems in terms of the input source, the system, thehardware and the type of user as shown in Table 10.1.

Some more facts about Decision Support Systems;

1. The decision support systems are developed by the users and System analysts

jointly.

2. The decision support system uses the principles of economics, science andengineering, and also the tools and techniques of management.

3. The data used in the decision support system is drawn from the information

systems developed in the company.4. The decision support systems are developed in isolation and from an independent

system subset of the management information system.

5. The most common use of the decision support system is to test the decision

alternatives and also to test the sensitivity of the result to the change in the systemand assumptions.

6. The data and information for the decision support system are used from the

internal sources such as the database and the conventional files, and from theexternal sources.




10.2 DSS: DETERMINISTIC SYSTEMS

There are a number of situations, where the management has to make a decision based

on the analysis of business statistic. Since, the organization would have the database

information, these decision situation draw data from the database(s). Most of these

decision situation are fairly structured and, therefore, can be put in the from of thebusiness models. A fair assumption is made that the model has business and decision

making validity.

If the management can design such models duly tested, they can be used by the

decision makers, whenever the need arises. All such tools and models act as the supportsystems for decision making. The tools and the models are generally standard but have to

have a custom design to suit the organization’s specific needs in the specif ic situation.

The decision support systems based on such tools or models have found extensive use, as

a number of computer based software tools and packages are available at a veryreasonable price. These packages are hardware independent and have proven the

application areas. The range of packages is available from the PC main frame computersystems. The packages are available on popular network systems, as well.

The origins of these tools and models lie in the Business Management, the

Management Science and the Operations Research. Some are universally known andproven tools and have application in the Business Management. While designing the

models, a flexible approach is taken to solve varied decision making problems. They

undergo a change over a period of time. The most significant advantage of the decision

support system is its use in sensitizing the decision and assessing its implications on theresult or business performance. The second advantage of such system is in focusing on

the critical issues in business. The third advantage of the decision support system is that it

provides higher management ability to delegate decision making to the lower level oncethe tools and the models are tested.

Type of Tools/Models

The decision support system can be based on the different types of tools and models.

They are as given in Fig. 10.1.

1. Behavioral models

These models are useful in understanding the behavior amongst the business variables.The decision maker can then make decisions giving due regard to such behavioral

relationships.

The trend analysis, forecasting, and the statistical analysis models belong to thiscategory. The trend analysis indicates how different variable behave in trend setting in

the past and hence in the future. A regression models shows the correlation between one

or more variables. It also helps in identifying the influence of one variable on the other.These types of models are largely used in process control, manufacturing, agricultural




sciences, medicines, psychology and marketing. The behavioral analysis can be used to

set the points for alert, alarm and action for the decision maker.

2. Management science models

These models are developed on the principles of business management, accounting andeconometrics. In many areas of management, the proven methods of management control

are available which can be used for the management decision. There are also severalmanagement systems, which can be converted into the decision support system models.

For example, the budgetary systems, the cost accounting systems, the system of capital budgeting for better return on the investment, the ABC analysis, the control of

inventory through the maximum-minimum levels, the MRP system, etc., are the

examples of the use of the management science in the materials management. Production

planning and control scheduling and loading systems are the examples in ProductionManagement. Manpower planning and forecasting is the example in Personnel

Management.

Some of these models can be used straight away in the design of the decision

support system. While some others require the use of management principles and

practices, most of the procedure based decision making models belong to this category.One can develop a model for selection of vendor for procurement of an item, based on

the complex logical information scrutiny. Such models take away the personal bias of the

decision maker.

2. Operations research (OR) models

The Operations Research (OR) models are mathematical models. These models.These models represent a real life problem situation in terms of the variables,

constants and parameters expressed in algebraic equations. Since, the models are

mathematical; there is solution to these problems. In arriving the solution,methods of calculus, matrix algebra, probability, and set theory are used. These

models have clarity to the extent that each of them has a set of assumptions which

must be true in real life. Further, if the assumptions are valid, the solutions offered

are realistic and practical; the model represents the real life problem situation.

The OR models address themselves to the resources usage optimization,

by balancing two or more aspects of the decision situation. The efforts are madeto find the optimum solution. In business and industry, there are a number of

situations where one type of cost is controlled, the other cost goes up. This play

between the two costs has to be balanced at a point, which is known as anoptimum point. The OR models generally try to find a solution which maximize

or minimize certain aspects of business, under the conditions of constraints.

In manufacturing business, the maximization of profit with an appropriate

product mix, within the capacity and the market constraint, is a common problem.




The allocation of an inventory to the various destinations with the least

transportation costs is another well known problem. The minimization of capitalblocked in the inventory and simultaneously meeting the market demand or the

production requirement is also a problem constantly met with. The inventory

control models offer an optimum solution, where the cost of inventory and the

cost of ordering or set up are balanced.

In facility designing problem, the cost of facility, its running cost, the ideltime of the facility, and the waiting time of the customer are considered. These

problems are solved by application of the Queuing Theory. The theory considers

two costs, viz, the cost of waiting time of customer and the cost of idle time of thefacility and decide on the facility design with a predetermined service standard.

Some problem do not precisely fall in the category of the standard OR

models. In such cases, the problems are solved by using a simulation approach.This approach uses a random occurrence of a large number of events, determines

the status of the system and evaluates its cost of operations. The simulationtechniques help to assess the quality of the facility design before the investment ismade in building such facility.

Examples of Behavioral Models

Forecasting: Regression models

In the regression models, we are trying to find the relational impact of onevariable on the other*. For example, bodyweight can be estimated with the helps

of food in-take, since they show a strong relationship. Or the sale of two wheelers

can be forecasted with the following regression models:________

*A typical two variable regressions model is Y = C + R . X, where C is constantand R is regression coefficient.

Y = 600 + 0.6 ÷

where

Y = Sale of two wheelersX = Surplus disposable income

The statistical packages are available for variety of regression models which canbe used for developing and testing the regression model.

Forecasting: Time series analysis and exponential smoothing

It is possible a statistics for the next period demand with the help of a simple

average of two previous periods. However, the simple average of past two periodsto forecast the next period may not be correct. In such cases, exponential average




is used; where more weight is given to the latest period and less weight to the

older period. If three period models are constructed, it would be as under:Sales for period t + 1 = S t + 1

S t + 1 = aDt + (1 – a)aDt - 1 + (1-a)2

aD + (1-a)3

a Dt - 3

‘a’

is weight expressed in a fraction and D is the actual demand at period t . Thelarger value of ‘a’ means the new average will be more influenced by the demand

of the latest period and less by the old period.

The forecasting model is a Decision support Information System, and

there are many models to choose from. The most important decisions are based onforecasts. A forecasting model needs continuous scrutiny and, built-up on the

accurate data the variable and the parameter to be derived from the other

information system developed in the organization.

Market research methods

Several methods are available, whereby you can forecast or judge the behavior of

the consumer in respect of their buying decisions. The questionnaires are designed

and computerized to assess these aspects of the buying behavior.

For example, through a survey, the Marketing Manager can forecast the

response rate, the recall rate on the various advertising campaigns and its

influence on the buying decision. The survey methods are used to find theinfluencing factors in the buying decisions.

Ratio analysis for financial assessment

The ratio analysis is a standard method of assessing the financial status of the

organization. A model of these ratios can be computerized and be readily used toassess the status, if certain changes are expected. There are some ratio norms

prescribed by the financial condition of the organization. They are also used while

decision making for advancing loans to the companies. There are more than a

dozen ratios which deal with all aspects of business. They are the current ratio, thequick ratio, the assets to liabilities, and the inventory turnover and so on.

Management Science Models

Budgeting models

Controlling the business performance through the budget system is an accepted

management practice. In this approach, various budget are prepared, viz., theSales Budget, the Production Budget, the Capacity Budget, the Manpower




Budget, the Expense Budget, and the Inventory Budget, etc. Using these budgets

the profits re estimated.

Budgets are also used for planning and control. The system is used to find

out whether the performance is under the budget or over the budget. This gives

the manager a self evaluation tools for these assessing the current status and alsoprovides some insight into the operations of the Company.

The use of Spread Sheet, Lotus-1-2-3, VisiCalc, Framework and many

others, are a standards tool for these applications, where the planning, budgeting

and analysis is required. All these systems are based on the worksheet which hascolumn totals. It not only provides the totals but also summaries at the sub-heads.

It has also a facility that if one row or column changes, it computes the changes in

the rest of the worksheet, where it is affected. For example, the spread sheet of

Sales-profit model is given in Table 10.2.The spread sheet packages can handle hundreds of rows and columns and provide

the analysis on the percentage basis. Each manager can prepare, simple spreadsheet for his areas of operations, where the data is drawn from a computerizedMini or Mainframe Systems. These packages provide a graphical presentation in

the form of line charts, Bar chart and Histogram, etc. for visual impact.

Break-even analysis model

This model is simple but very useful for determining the volume of business

activity at which there is no loss or profit. The model is used to decide thealternatives based on the cost, volume and price. The break-even model, as

expressed in the mathematical form, is as under:

This model can be built for the company, for the product groups or for any

activity, where you can identify the fixed cost, the variable cast and the revenue at

each activity level in terms of the units demanded. The advantages of this modelare that it tells you as to what the break-even point for the given level of costs and

revenue is. If there are possibilities of altering the costs, it would tell its impact on

the break-even point, i.e., if the price is reduced, the revenue will come down and

the break-even point will further go up.

The costs are generally not linear over the entire range of activity. The cost would

go up after a certain range and would remain steady till some level and furtherincrease is then expected. A break-even model can be built for the multiple

activities and for the non-linear costs. The computerized model helps in assessing

the various parameters of business and its sensitivity towards the profit/loss. Themodel is very popular where the costs are known and are controllable. It is a very

handy tool for a quick decision on the price, cost considerations, etc. and can used

very effectively for commercial negotiations.




Return on investment analysis

The investment decisions are very common in the business organizations and they

are of two types. First, one has to invest in one among the several alternatives

which are competing with each other. For example, you want to buy a machine

for which three alternatives are available, and each alternative has a differentinvestment amount and a different flow of gains or savings. Then, the second

decision the management has to take is how to allocate the total funds to thevarious investment projects. For example, the organization may have Rs 100

million and the investment projects are worth Rs 150 million. The management,

therefore, has to take a decision as to how to allocate Rs 100 million to theseprojects?

Therefore, in the investment decisions, the investment are evaluated on the

basis of discounting the value of the money of the future cash flow to the currentperiod and the net gains are compared.

For example, you are going to receive one rupee next year. This flow of money, if it is to be evaluated as on today and discount rate is say 10 per cent,

then this one rupee of the next year is worth Re 0.90 this year. The Re

0.90 is the net present value of one rupee expected in the year 1997.

In investment analysis, the Net Present Value (NPV) is calculated and

compared with all the investment alternatives.

NPV = (PV of future cash flow) - Investment =PV - I

The formula used for the present value (PV) is

Where T is a number of period, in which an amount S for each period is

going to be received and I is a discount rate.

If the system of cash inflow (savings or gains) are unequal each ‘S’ will beevaluated separately to compute the NPV.

Let us consider the following problem of selecting an investment plan

Since Plan A has more NPV we should select plan A.

Using this concept of the present value of future cash flow a decision support

system model can be built considering the following factors.

■ the number of investment proposals.

■ Differential investments.

■ Different cash inflows savings.




■ Different criterion for selection, i.e., the payback period, the rate of return and

the internal rate of return.

■ maximizing the return by allocating limited funds to the several investment

proposals.

Corporate model of return on investment

This model is popularly known as Du-Pont model where the composition and theanalysis of the Return on investment are shown. This model is better than the

above discussed individual ratio model and its analysis as this model provides an

insight into the relationships of the various factors affecting the return oninvestment. Du-Pont Model is shown in Fig. 14.3.

Suppose, you have to make a decision on buying a business. In such an

event this model will be useful. This model also gives the decision alternatives toimprove the return on investment in the current business.

Model for cash budgeting

Cash budgeting is a continuous process. With careful cash planning, a company

should be able to maintain sufficient cash balance for its needs, yet not be inposition where it is holding excessive cash. This kind of planning will help to

raise the short-term loans and simultaneously focus on the issues which are

affecting the financial management. A typical statement of cash budgeting is

given in Table 10.3.This shows that in the month of March and April, additional funds procurement

through external sources will be needed.

With the use of computer, a model can be built with all the details of cash inflowsand outflows as shown in Fig.10.4

Procedural models

There are a number of decisions which are made on the basis of well defined rules

and procedures. Unless certain conditions are satisfied the decision rules will not

be applied.

The use of rules, formula or mathematical expressions is the basis for the model.For example, the reordering procedure for an inventory items is as under. If the

stock level ≤ the Recorder level, then draw a purchase order of the quantity equal

to the Economic Order Quantity (EOQ).This ordering rule is developed on the model of the Economic Order Quantity

(EOQ) - Required Order Level (ROL) system as shown in Fig. 10.5.




ROLEOQ

PERIOD

Fig. 14.5 EOQ Model

It is possible to control the inventory of some items based on such models. These

models can be computerized and be made a part of the Decision Support System.The decision models can be developed by using the non-mathematical expression

or a formula. If the conditions are satisfied the decision is automatic.

Let us take a decision problem of selecting a vendor by using the non-

mathematical expressions. The selecting of vendor is based on the following

conditions:

Vendor : Is he approved (AP) ?

: What is the performance rating (PR) ?: How many orders are pending on him (ORD.PEN)

?

: What is the level of order quantity (OQ) ?

These conditions can be put in a model as shows Fig. 10. 6

AP

P R > 1

ORD.PND

OQ > 5N

VENDOR CODE

SELECT THEVENDOR

NO

NO

NO

YES

YES

YES

YES

TAKE THE NEXT VENDOR.

TAKE THE NEXT VE NDOR.

TAKE THE NEXT VE NDOR.

TAKE THE NEXT VENDOR.

Fig. 14.6 Vendor Selection Process Model.




Network drawing rules : Activity, O = Event

O

O

O

O

O

1

2

3

4

5

6

7

8

A B

A

B

C

A C

B D

X

Activity, A must be completed before B starts.

Activity, C can start when A and B are completed.

A and B are parallel activities,C and D are parallel activi ties.Activity X is a dummy, not requiring

any resource. The dummy activity X shows onlydependency and does not consume time or resource.It is shown by a dotted line.

Activity D is not dependent on the activity X .Activity C is dependent on the activi ty B.

Fig. 14.7 Network Drawing

Estimating activity time

When the network is completed, every event is assigned a number for reference andidentity. Then, the next step is to estimate the completion time of each activity. Two time

estimates are suggested.

(a) The most likely time of completion of the activity.

(b) The time estimate (te) based on “three” time estimates :

The optimistic, the most likely and the pessimistic.

to = The optimistic time estimate.

tm = the most likely time estimate.tp = The pessimistic time estimate.

Then, the activity time estimate, te = to + tm + tp

Drawing the PERT network

The next step is to draw a network of the project from start to finish.

The critical path is that path which takes the longest time from start to end. Let us

take a sample project as under :




Activity Most likely Immediate

Duration predecessors

(Days) to activity

A 5 -

B 8 D

C 6 A, DD 11 -

E 7 A,C

1

3

4

52

A

B

D

C

EX

Fig. 14.8 Critical Path.

Activity Early start Early finish Late start Late finish

(ES) (EF) (LS) (LF) SLACK

A 0 5 6 11 6B 11 19 16 24 5

C 11 17 11 17 0D 0 11 0 11 0E 17 24 17 24 0

SLACK = LS - ES or LF - EF

Critical activities are those where the slack is zero. In the network D, X, C, E are

the critical activities : While A and B are non-critical. The slack is a time resource which

a project manager can use for manipulating the resource and start and finish of theactivity.

Project Completion Time = Sum of activity times on a critical path

= D + X + C + E

= 6 + 0 + 11 + 7 = 24 days.

Probability of completing the project




Suppose this project is scheduled for completion in 24 days. We can estimate the

probability of completion in 24 days in the following manner.

Optimistic Dessimible tp - to

activity Time tot Time tp a = a2

6

A - - - -B - - - -

C 3 8 0.83 0.69

D 7 20 2.16 4.66

E 4 10 1.0 1.00

6.35

Sum a2= 6.35, therefore, a = 2.35

25.0 – 24.0 1.0Z = = = 0.43

2.35 2.35

A normal probability curve table indicates against 0.43, that is, the project will be

completed in 24 days with 67% probability. (See these tables in any textbook of

statistics).

Activity crashing for control of time

Activity Normal Cost for Crash Crash

duration normal duration costduration Rs.

A 5 500 3 1000B 8 800 - -

C 6 900 - -

D 11 1200 7 1600

E 7 1000 5 2000

Activity B and C cannot be crashed. Activity A can be crashed to 3 days and it

will cost Rs. 1000 as against Rs. 500. If the project is to be controlled in time, it is

necessary to crash the activities which are on the critical path.

Critical Reduction Cost Cost

activity in duration increase slope .

C - - -

D 4 400 100

E 2 1000 500




So if the project is to be completed in 20 days as against 24 days, it is economicalto crash the activity D and not E as the cost increase per day in case of D is Rs 100 and as

that of E is Rs. 500. MS Project and PRIMAVERA are the standard packages for Project

Management.

Cost Accounting Systems

The cost data is an important data which is used in many business decisions, such as

pricing, make or buy, purchasing, allocation of overtheads, etc. Most of the companies

which are in competitive business, rely on the formal cost accounting systems used forbusiness decisions and also for the cost control. There are three cost accounting systems :

Job order cost system

Process cost system Period cost system.

The companies install these systems as the case may be and build a cost database forsupport in decision making.

1. Job order cost system

In this system the costs are assigned to the jobs passing through the plant and are

accumulated by recording the basic job statistics on the job card. The order is broken into

three section materials, labor and overhead.

The direct materials are accounted through the material issues and the direct labor

through labor booking on the card. Direct overheads are also booked throughtransactions. The indirect overheads are allocated, on some agreed basis such as man-

hours or machine- hours. All the costs are accumulated and the unit cost of the job is

computed.

These systems give due considerations to work in process (WIP) and therejections, etc. for costs for the three inputs mentioned above. Using these standards for

costs for the three inputs mentioned above are determined and the job cost is budgeted.

The costs are then used to find whether the actual cost is more than the budgeted cost. Allsuch over-runs are investigated with the purpose of cost control and in few cases the

standards may be modified.

2. Process cost system

In this system, the costs are accumulated by a department or an operation. In other words,

the emphasis is placed upon the department of manufacture. The number of units of product completed in the department is used in the computation of a unit cost. The unit

costs are then applied to the number of units transferred in the manufacturing process and

ultimately identified with units completed and sold.




3. Period cost system

In this system, no distinction is made between direct materials and indirect materials with

respect to product. Materials are not requisitioned for a particular order or a product.

Instead, the direct material and the indirect material are identified with the department or

the process. The material consumed is accounted over a period for cost considerations.The labor costs are also accumulated by the department or process with no distinction

made between the direct and the indirect labor.

The wages paid to the employees in the department are fully accounted.

Manufacturing overheads are assigned to the department or the processes directly,wherever possible, and if they cannot be directly identified with the department, they are

allocated by using the various methods of allocation. The costs so computed are then

transferred to the final product on unit basis giving due regard to the work in progress

(WIP).

The variation in the product cost is not caused by any basic change in the type of product manufactured or by any change in the cost structure, it merely result from thevariations in the quantities produced at different times during the year and from the

variations in manufacturing overheads. When the product completion time is very large,

the application of the job costing or the process costing is not possible. In such cases thecost data is accumulated on the basis of the period against the job and summed up to

arrive at the actual cost when the job is completed.

All the three systems can be computerized for cost control by using the costbudgeting systems.

Operations Research Models

Mathematical programming techniques

Mathematical Programming Technique is a vast area of application. The programming

techniques are applicable when certain conditions are met and the problem can be

expressed in a mathematical form in terms of the decision variables. The programming

techniques are based on such mathematical models which give unique feasible solutionssatisfying the constraints on resource, capacity, demand, etc. The process of

mathematical programming is given in Fig.14.9.

ABSTRACTION

INTERPRETATION

REAL WORLD

PROBLEM

MATHEMATICAL

SYSTEM. (MODEL)

BUSINESS

RESULTS

MATHEMATICAL

ARGUMENT

(SOLUTION)




Fig. 11.9 Mathematical Programming Model.

Linear programming model (LP)

Linear programming is a special mathematical model. This model is applicable where the

decision variables assume the values which are non-zero, and the relationship among the

various variables is linear. There are limitations, called constraints to use the variables or

the combination thereof.

Suppose a company makes two products P1 and P2 from two types of rawmaterials R1 and R2. The product P1 requires 2 units of R1 and 1 unit of R2 and theproduct P2 requires 1 unit of R1 and 2 units of R2. The company has 500 units of R1 and

750 units of R2. the products P1 and P2 are to be produced to maximize the profit. The

contribution to overhead and profit is Rs 5 for the product P1 and Rs 4 for the product P2.

Let us define the decision variables for the products P1 and P2 and X1 and X2,

i.e. X1 and X2 are the quantities to be produced of P1 and P2 respectively. Then decision

problem can be expressed in the form given below.

Z = Profit = 5X1 + 4X2 = Maximum

Within the raw material constraint.2X1 + X2 < 500

X1 + 2X2 < 750

X1 > 0, X2 > 0

This problem has a solution which is optimum. The problem is solved by the

Simplex Technique. The solution to this problem is :

X1 = 83.1/3 and X2 = 333.1/3, Profit = 1750

Computer based LP software packages are available almost on all the computer

systems. Besides solving, solving linear programming problems, the solution provides avariety of management information through sensitivity analysis. For example, in thisproblem, it would provide the information on the following.

(a) If profit of P2 is increased to Rs 6 what be the product mix of P1 and P2.

(b) If raw material constraint of R1 is improved to 800 and of R2 to 1000,what would be the product mix and profit?




(c) If instead of 2 units of R2 in P2 and 1 unit of R2 in P1, we succeed in

reducing this use by 20 per cent, what would be the product mix and theprofit?

(d) Suppose if only P2 is to what action should be taken?

Quadratic programming, integer programming are all special cases of themathematical programming model. These models can be used as Decision

Support System in business decisions.

The typical mathematical programming problems which can be solved by

applying the optimization techniques are listed as follows:

1. The design of aircraft and aerospace structures for minimum weight.2. The design of water resources system for maximum benefit.

3. The shortest route of travel.

4. The optimum product mix.5. The minimization of cost by raw material mix.

6. Assigning jobs to workers.7. The selection of site for an industry.

Inventory Control Models

Materials management is an important function in Business Management. Apart from the

commercial aspect of the Materials Management, its major objective is to controlinventory in such a manner that the capital blocked in the inventory is minimum and the

demand on the inventory is met without any time loss. The inventory control models are

developed for each kind of conceivable situation in business.

A-B-C analysis

The inventory items are analysed in a number of ways by some aspects of the inventory.

One of the classification is the A-B-C analysis based on the capital blocked in theinventory.

It means that when the inventory, it will be observed that 10% items of the

inventory contribute to 60% inventory capital, 20% contributed to 30% inventory capital,

and 70% items contributed only to 10% capital. This immediately suggests themanagement control focus on ‘10%A’ category items. Figure 14.10 shows A-B-C

analysis In graphical form.

The system of control for these items is normally as shown in Table 14.4.




A

B

C

Zero 10% 20% 70% Items

100

90

60

%Value

Fig. 14.10 A-B-C Analysis.

Table 11.4

Category of item Control system

A

B

C

ROL system or ordering in smaller quantities on review of the inventory.

Fixed period ordering system. Maximum-Minimum System.

Annual review and ordering system.

All these items can be brought under a computerized system. Such system will compute

the inventory control parameters for each item and make suitable decisions. In all three

systems, the cost of order or manufacture is balanced with the inventory carrying cost.

The inventory can be classified in other ways also. For example, the inventory is

classified from the manufacturing point of view taking ease of procurement as a basis.The classification could be critical, semi-critical, and not critical from the production

point of view. The inventory control system recommended for this classification is as

shown in Table 14.5.

Table 11.5

Category of item System of control based on ease of procurement

Critical (A)Semi-critical (B)

Not-critical (C)

Bulk procurement and control on stock variationsPeriodic ordering

But very frequently, keep minimum stock.

The management control focus is on undisturbed supply of raw material to

manufacturing.

Each item in the inventory is planned, monitored and controlled through one

system or the other, based on the category of the item.

Periodically the parameter of the control change; but by and large the system of

control remains the same because the objective is to control the capital blocked in the

inventory. The main issue is how to allocate the capital amongst thousands of items




without affecting the demand of the items. In such cases the ordering cost, the inventory

carrying cost, and the cost of stock- out are considered in the system of control mentionedabove.

Material requirement planning (MRP) System

When the Company is following a fixed period production programming to maximize the

use of production capacity, the Material Requirement Planning systems are used tominimize the inventory and simultaneously ensure the availability of the material. The

MRP system is feasible only when the company produces standard products for which

the Bill of Material or the Part List enumerating the items which go into the products, isavailable.

The bill of material is exploded and summarized for the items disregarding whereit is used. Then it is compared with the stock available, the order placed and due for

delivery in the production period. The comparison will show the shortage which wouldbe faced in the execution of the production programme.

MRP system is also used when the production requirement is fluctuating fromperiod to period and also where the changes in the production programme are frequent. It

provides an excellent tool for planning, procurement, monitoring and control of the

inventory as well as the production programme.

11.2 ARTIFICIAL INTELLIGENCE (AI) SYSTEM

All human beings have intelligence, which they use for problem solving. Intelligence

when supported by knowledge and reasoning abilities becomes an artificial intelligence.

When such an artificial intelligence is packed into a database as a system, then what wehave is AI system.

AI systems fall into three basic categories, viz., the Expert Systems (knowledge

based), the Natural Language (Native languages) Systems, and the Perception System

(vision, speech, touch). Figure 14.11 shows the structure of AI systems.

Artificial intelligence is a software technique applied to the non-numeric dataexpressed in terms of symbols, statements and patterns. It uses the methods of symbolic

processing, social and scientific reasoning and conceptual modeling for solving the

problems. The AI systems are finding applications in configurations, design, diagnosis,interpretation, analysis, planning, scheduling, training, testing and forecasting.

The AI systems do not replace people. They liberate experts from solving

common/simple problems, leaving the experts to solve complex problems. Artificial

intelligence systems help to avoid making same mistakes, and to respond quickly andeffectively to a new problem situation.

The knowledge-based Expert System is a special AI System. It has wide

applications in business and industry.




NATURAL

LANGUAGE

NATIVE LANGUAGEKNOWLEDGE

LANGUAGEREASONING

USES

APPLIES

EXPERT

KNOWLEDGE

HUMAN-LIKEREASONING

USES

APPLIES

PERCEPTION

SIZE, SHAPE,IMAGE, VOICE

SENSING ABILITIESFOR REASONING

USES

APPLIES

ARTIFICIAL INTELLIGENCE SYSTEM

Fig. 14.11 Categories of AI Systems.

11.3 KNOWLEDGE BASED EXPERT SYSTEM (KBES)

Decision making or problem solving is a unique situation riddled with uncertainty and

complexity, dominated by the resource constraints and a possibility of several goals. In

such cases, flexible systems (open systems) are required to solve the problems. Most of such situations, termed as the unstructured situations, adopt two methods of problem

solving, generalized or the knowledge based expert system (KBES).

The generalized problem solving approach considers the generally applicable

constraints, examines all possible alternatives and selects one by trial and error methodwith reference to a goal. The knowledge based problem solving approach considers the

specific constraints within a domain, examines the limited problem alternatives within a

knowledge domain and selects the one with knowledge based reasoning with reference toa goal.

In a generalized approach, all alternatives are considered and the resolution of the

problem is by trial and error, with no assurance, whether it is the best or the optimum,

while, in the knowledge based approach, only limited alternatives are considered andresolution is made by a logical reasoning with the assurance of the local optimum. The

generalized approach is dominated by a procedure or method, while the knowledge based

approach is dominated by the reasoning process based on the knowledge.

Since, the KBES considers knowledge as the base; the question arises whoseknowledge is to be considered as a basis. It is generally agreed that an expert has

knowledge, and therefore, he becomes the source of knowledge. An expert is difficult to

find and the difficulty of no-knowledge or limited knowledge on the subject is alwaysexpressed. Knowledge is with experienced people and experience, is wide and

distributed. Hence, a system is required which will hold the knowledge of experienced




people and provide an application path to solve the problem. Such a system eliminates

the knowledge bottleneck.

To build a knowledge-based system certain prerequisites are required. The first

prerequisite is that a person with the ability to solve the problem with knowledge-based

reasoning should be available. The second prerequisite is that such an expert should be

able to articulate the knowledge to the specific problem characteristics.

Knowledge in the KBES is defined as a mix of theory of the subject, knowledge

of its application, organized information and the data of problems and its solution, and an

ability to generate new avenues to solve the problem.

The KBES has three basic components which are necessary to build the system as

shows in Fig. 11.12

USER CONTROLMECHANISM

KNOWLEDGEBASE

INFERENCEMECHANISM

Fig. 14.12 KBSE Model.

Knowledge base

It is a database of knowledge consisting of the theoretical foundations, facts, judgments,

rules, formulae, intuition, and experience. It is a structural storage with facilities of easyaccess.

Inference mechanism

It is a tool to interpret the knowledge available and to perform logical deductions in agiven situation

User control mechanism

Its is a tool applied to the inference mechanism to select, interpret and deduct or infer.

The user control mechanism user the knowledge base in guiding the inference process.

In the KBES, three components are independent of each other. This helps in modifying

the system without affecting all the components. Like in the database application, wherethe data is independent of its application, in KBES, knowledge is independent from




application, i.e., inference process. The KBES database, stores the data, the cause-and-

effect relation rules, and the probability information on event occurrences.

For example, the knowledge base of Health Care would have knowledge such as

“obesity leads to high blood pressure”; there are 60 per cent chances that smokers may

suffer from cancer”. The KBES, therefore, stores and uses knowledge, accepts judgments, questions intelligently, draws inferences, provides explanation with reasons,

offers advice and prompts further queries for confirmation.

In the KBES, the knowledge data base uses certain methods of knowledge

representation. These methods are-Semantic Networks, Frames and Rules.

Semantic Networks

Knowledge is represented on the principle of predicate functions and the symbolic data

structures which have a meaning built into it are known as semantics. A semanticnetwork is a network of nodes and arcs connecting the nodes. The node represents andentity and the arc represents association with a true and false meaning built into it. The

association and meaning uses the principle of inheritance. For example, all animals with

four legs have a tail and a dog has four legs, hence the dog has a tail. The system inheritsfrom the fact that the dog has four legs hence the dog is an animal and, therefore, a dog

has a tail or not.

A knowledge base on ‘Table’ is presented in a Semantic network in Fig. 14.13

KITCHEN

TABLE

DRAWINGROOM

IN

BIG

SMALL

WRITINGTABLE

MADEOF

APPLIES

STEEL

LAMINATEDWOOD

Fig. 14.13 Semantic Network of Knowledge Database on ‘Table’.

IN

MADEOF

DINING TABLE

A knowledge database of the table is stored with the attributes like location,

function, size and shape. If a query is put on table through any of these attributes, one caninfer the specifications of table. The inference would be corret depending upon how the

knowledge is designed and structured into database. For example, if table in the room is




big and made of wood with lamination and has elliptical shape, it would be inferred as

conference room table. This inference would be correct if the knowledge base haselliptical shape as an attribute of the table.

The characteristics of a variety of tables are used to represent knowledge on table.

A table in a drawing room, inherits the characteristics of a table in a drawing room.

Frames

The second method of representing the knowledge is putting the same in frames (Fig.14.14). The concept of frame is to put the related knowledge in one area called a frame.

The frame is an organized data structure of knowledge. The frames can be related to otherframes. A frame consists of the slots representing a part of the knowledge. Each slot has a

value which is expressed in the form of data, information, process and rules.

FRAMEENGINE OVER HEATING

Fig. 11.14 Knowledge in ‘Frames’.

Rules

The third method of representing the knowledge is rule based. A rule is a conditional

statement of an action that is supposed to take place, under certain conditions. Some rules

can be constructed in the form of If Then statements. An example of If-Thendecision/action statement is given below:

IF AN ITEM IS MADE OF TUNGSTEN CARBIDE THEN THE ITEM IS EXCISABEL.IF AN ITEM IS HIGH SPEED TOOL THEN THE EXISE DUTY IS 20%

IF AN ITEM IS NOT HIGH SPEED TOOL THEN THE EXCISE DUTY IS 5%

Inference Mechanism

Having created a knowledge database, it is necessary to create the inference mechanism.

The mechanism is based on the principle of reasoning. When reasoning is goal driven, it

SLOT : SYMPTOMS VALUE(TEMPERATURE MORE THAN 80 DEGREES)(WATER BOILING)

(SPEED RETARDATION)

SLOT : INSPECTION VALUE( CHECK WATER LEVEL)(CHECK OIL IN ENGINE)

(CHECK CARBURETTOR)

SLOT : TREATMENT VALUE( STOP ENGINE & DRAIN WATER)(START ENGINE & POUR COLD WATER)

(INCREASE OIL LEVEL)(ADJUST CARBURETTOR)




is called Backward Chaining to goal and when it is data driven it is called Forward

Chaining to goal.

For example, if there is a breakdown in the plant, then looking backward for the

symptoms and causes, based on the knowledge data base, is backward changing.

However, it the data which is being collected in the process of plant operations isinterpreted with the knowledge base, it can be predirect whether the plant will stop or

work at low efficiency. The data here is used to infer the performance of the plant andthis is called forward chaining.

The choice between backward or forward chaining really depends on the kind of situation. To resolve a problem after the event, one has to go from goal (breakdown,

stoppage, etc) to data, i.e., it is a case of backward chaining. But if the question is of

preventing a breakdown, then the data would be monitored in such a way that if it is

directing towards a goal (breakdown, stoppage,) then it is a case of forward chaining.

The KBES uses both the methods of reasoning. The success of the knowledgebased expert system depends on a degree of knowledge, the confidence in the knowledgeand the quality of inference mechanism.

11.4 MIS AND THE ROLE OF DSS

The Decision Support System (DSS) is a special class of system which is used as a

support in decision making. Many of the decision making situations, at all levels of

management, are such that its occurrence is infrequent but the methodology of decisionmaking is known. Some of the methods are proven and are widely used. Such

applications are separated and are packed in the DSS.

These systems use data from the general MIS and they are used by a manager or a

decision maker for decision support. The basic characteristic of the decision support

system is that it is based on some tool, technique or model. These systems are usedsometimes for resting new alternatives, training and learning. They are also used for

sensitizing the various parameters of the model.

The DSS could be an internal part of the MIS. When the decision making need isin real time dynamic mode, all such systems are designed to read, measure, monitor,

evaluate, analyze and act as per the decision guidance embedded in the system. For

example, in a simple case of order processing, the embedded DSS will accept or rejectthe order based on the CRISIL, credit rating, availability of stock and so on. If the order

is accepted, the order acceptance is generated and the dispatch is scheduled for the

ordered quantity. The DSS, in all such cases, uses the data already present in the systemand gets it activated for action as per the guidelines.

The MIS designer has to look for all such situations and design the DSS forintegration in the system. The MIS would become more useful if the decision making is

made person-independent and executed with well-designed DSS. All such embedded

systems cover the normal variety of decision situations. If anything outside the




considered variety crops up, DSS will bring to the notice of the decision makers that

action is called for in the situation.

When the decision situation requires multidimensional analysis using the internaland external data, then such decision support systems are kept out of the main MIS

design scope. Most of this situation calls for the use of models and the nature of decision

is strategic, calling for planned activity.

Decisions like a new product launch, price revision, appointing new dealers,

change of product design or change in the manufacturing process are strategic decisionswhich require critical analysis of data, careful evaluation of various alternatives and

selecting one of them for implementation on the given criteria.

The decision support system plays a dominant role in the management

information system, as a support to decision making.

REVIEW QUESTIONS FOR CHAPTER10 AND CHAPTER11

1. What is the purpose of DSS in MIS?2. What types of DSS can be embedded in the application?

3. High end DSS system need well conceived problem model and solution criteria to

solve the problem. Explain with example.4. Business rule, formula, algorithm and heuristics are extensively used in DSS.

Explain these terms.

5. A good DSS needs a good abstractions process to construct a model of the

problem. Before a model is accepted for DSS, what tests should the model is putto confirm that it is a valid model of the problem situation?

6. List the problems which most of the businesses have which need DSS and classify

the DSS in following types-Deterministic and Probabilistic, and further they canbe classified as OR models or quantitative models based on management science.

7. There are systems which use knowledge base extensively for problem solving.

Identify the applications where knowledge bases can be used for problem solving.8. What is simulation? Why and when is it used in problem solving? What are the

assumptions and limitations of using the simulation model in DSS?

9. Which is the type of DSS that can be integrated in the MIS and which are types

not worthy of integration?10. Executive Information System (EIS) is a kind of DSS, which sits above and uses

the data from MIS. What is the purpose of EIS and what kind of decisions EIS

would support?




CHAPTER-12

Enterprise Management Systems

12.1 ENTERPRISE MANAGEMENT SYSTEM (EMS)

Computer, electronics, communication, and audio video technologies have convergedclosely to produce a new style of operating business. The dynamic business environment

of today is full of challenge and opportunities. The dependence on the information, as

driving energy source, is increasing. Every business activity has additional dimensions,viz., speed and time. The business needs of today are beyond the transaction processing.

It requires an instant real time response in every case, wherever it occurs.

The word enterprise is chosen to convey that it encompasses the larger business

community covering all the players and their participation in the business. The system isextended beyond the Corporate boundaries. In such a scenario, the system which you are

designing is an enterprise wide. It must catch an event, interpret it and trigger the action,and communicate it across to the enterprise. Since, business is information hungry, it

must have an ability to sense the situation and act accordingly. When the business

requires online information to make the informed, knowledge based decisions and havethem executed in the business operations in acoordinated manner, it has to take support of

many other systems.

Take a simple example of customer order received in the Company, whichrequires instant processing. In the very beginning acceptance possibility needs to be

assessed and the customer should be informed immediately. Next step will be orderingthe material on the vendor, booking the order and scheduling the same on shop floor forproduction, updating the business status and informing the marketing representative for

monitoring the activities. All this requires operations and management of a couple of

system besides the normal sales application. It needs the management of EDI systems toget hooked to the customer and vendor for a quick information communication. It also

requires the management of interfaced system such as CAD/CAM,MRP etc. It also

requires event monitoring and updating system such as the Paging, Internet and theImaging Systems.

Take another simple example of employee management, where the arrival of the

persons or their absence raises a number of triggers in the Organisation. The well-knownattendance recording system monitors the employee movement from all angles-

availability, assigning, security, permissions, and salary7 and wages.

In the business today, the demand is a paperless operation, a wireless

communication as, a result of fully transparent and automated operations at all centres in

an integrated and coordinated manner taking care of the business, actions and decisionneeds. To support such demands of the business, systems of information processing and




communication are needed. These systems may be automated or mechanized interfaced

with the other system for data communication and processing. There should also be audiovideo and imaging systems for bring realism in information and remote sensing system

for security and communication.

Thought the tools, the technologies, and the well designed solution and system areavailable to support all such needs of the business, what is needed is an integrated

solution out of these technologies and the system offering an enterprise widemanagement support. Such an integrated solution is called as the Enterprise Management

System(EMS). Figure 15.1 shows the following systems, which, when implemented in an

integrated manner for coordinated and cooperative function of the business, give rise tothe Enterprise Management System, i.e., EMS.

■ ERP: Enterprise Resource Planning Systems.

■ EDI: Electronic Data Interchange System for commerce, communicationand action.

■

CAD/CAM/CAE: Computer Aided Design, Manufacturing and Engineering Systemsfor Production Management

■ AMS: Attendance Management systems, i.e., employee attendance andpresence management for the role management or Data Capture

Systems on floors, in stores, at gates, etc.

■ DMS: Document Management Systems, viz., imaging, copying and textmanagement and dispatching document DBMS.

■ CMS: Communication Management Systems, such as, paging, cordless,

mobile telephone system and the audio video systems.

■ SMS: Security Management System such as the close circuit television,

alarm or warning systems, movement tracing systems, etc.

In the EMS, the Enterprise Resource Planning (ERP) system plays the role of

front running system. The major decision making and its execution takes place through

the ERP. It is a system of managing all functions of the business with information supportcoming through the ERP. It handles the operational systems to run the business and

provides the required inputs to planning and control system handled by the middle

management. With the internal sources of information and the use of information from

the external sources, it provides a decision support information for strategic planning andcontrol to the top management.

The ERP is supported by various other support systems which manage,independently, the specific requirements and simultaneously provide inputs to the ERP.

The Electronic Data Interchange (EDI) system assists the ERP in connecting two systems

electronically for E-Mail. Documents Transfer, Data Transfer, etc. it is designed tohandle the commercial functions of the business popularly known as the electronic

commerce. It also acts as a gateway to interact with the vendor, the customer, and the

other associated institutions of the organizations.




DESIGN AND

ENGINEERING

CAD/CAMCAE

AMSEDI

SMS DMS

CMS

COMMUNICATION

S E C U R I T

Y

E L

E C T R O N I C

C O

M M E R C E

A T T E N D A N C E

D A T A C A P T U R E

D O C U M E N T

M A N A G

E M E N T

Fig. 151 Components of Enterprise Management Systems (EMS).

The CAD/CAM/CAE, I.E., the Computer Aided Design/Computer Aided

Manufacture/Compute Aided Engineering systems are the systems which handle design,manufacturing and engineering functions. It will provides the drawings and design

engineering information to the ERP in its execution of manufacturing, purchase and

inspection functions. They are also equipped with the database management facilities andthere database act as a back up support to the ERP.

The AMS, i.e., Attendance Management System keeps track of the employeerelated information for personnel planning, availability and scheduling. It provides static

information about an employee through the human resources management system and the

current dynamic information such as his or her presence, shift rotation, the kind of job

handled the cost and so on.

The DMS, i.e., the Document Management System is designed to keep important

documents in the database foe viewing, sending messaged, and for documenting supportin the transactions handled. The system provides text edit facility for document

manipulation for the purpose of transaction handling. In the ERP it is used for cross-

checking the key information and also to confirm the authenticity of the transaction. Ithandles the document access, editing, copying and mixing the information and sending

the information to the various destinations for execution. It uses scanning, imaging, work

flow automation and Document Data Base Management System.

The CMS or the Communication Management Systems re used for tracking the

important resource for action. These resources are located, altered and advised to actfrom the location where they are. Their attention is drawn to an event and advised to actto handle the situation. The ERP uses the CMS, as a tool, for all its communication needs

of recording an event.

The SMS, i.e., Security Management System handles the security, entry access

requirement of the business operations. It may be a person, a vehicle, or material, its

movement, availability and access if tracked, monitored, and guarded for security and




safety. It provides a support to the ERP by clearing the situation to act further. A truck

will not be allowed to enter unless it is an authorized one, and then it will be weighed andits weight will be transferred to the ERP for processing further information. An employee

movement can be restricted or prohibited to select areas before his time is recorded and

sent to the ERP for further processing.

These six systems together act as the support systems to the ERP . All these

systems are extensively used for the main purpose for which they are installed. Each oneof them have a specific technology to handle the function and are equipped to capture,

store, process and transfer the data of the ERP. Each of these systems operate on their

native systems and are interfaced to the ERP through the gateway by using a specificsoftware. These systems are a part and parcel of the ERP System network.

The EMS therefore, can be defined as a Network System comprising the ERP, the

EDI, the CAD/ CAM/ CAE, the CMS, the SMS, and the DMS as shown in Fig. 15.2.

12.2 ENTERPRISE RESOURCE PLANING (ERP) SYSTEM

The ERP system deals with the planning and use of resources used in the business. The

resources are finance, materials, manufacturing capacity and human resource. The ERP

provides methodology of assessing the resource needs for a given business plan toachieve certain business objectives. It also helps to execute the strategies, plan, decisions,

and actions in a time bound manner. The ERP provides a support system in the

transaction processing, updating, and reporting across the functions. The ERP is a

package encompassing all major functions of the business. The product is generic innature and is supposed to incorporate the best business practice, generally followed in

most of the companies.

The product philosophy is to implement the system as it is with some

customization which may be typical to the customer requirement. The system design of

the ERP is integrated with the features and functions providing an enterprise widesolution to handle all the process functionalities. For example, it provides capability to

process the purchase order from ordering to bill processing, and also meets the

information needs of purchase, stores, manufacturing accounts and finance.

The ERP packages build information base and provide knowledge base for

planning and control of the business through the business function management. The

ERP is the main system,




Interfaced or assisted by the other systems in the organization. These systems may stand

alone or from a part of the manufacturing or commercial processing systems.

These systems provide the database to the ERP or support the ERP by the basic

data input directly or through the data transfer, for example, the manufacturing system

module of the ERP is interfaced with the Drawing, Engineering database for query,viewing and usage of the drawings and it accepts the data of work order by process

operations, for costing and for building the standards for the future.

The architecture is client/server and uses object oriented technology for design

and development of the system. These packages are RDBMS based with the front endtools. The key benefit of the ERP is that it provides an integrated solution for all the

requirement of the business. It addresses the issue of data integrity, information

transparency, seamless integration and information communication. Simultaneously it

respects the organizational hierarchy of authority, while conducting the businesstransactions through the system.

The implementation of most of the ERP packages begin with the enterprisemodeling which defines the enterprise structure, the authority function, the processes and

the business rules. The enterprise model is the platform the ERP system implementation.

The ERP solutions are available on the Unix Plstform and also on Windows NT.

The solution is structured in the modular fashion to cover the entire business operation. A

typical ERP package solution has following modules:

1. Sales, Marketing, Distribution

2. Manufacturing

3. Stores Management4. Finance

5. Personnel

6. Maintenance7. Purchase, Inventory

8. Planning and Control

These modules are designed for data capture, data transaction validation, it analysis,accounting updating and reporting. All the ERP solutions provide report writer for the

use to create the reports. The standard reports like the trial balance, the stores ledger,

the employee attendance report, the income tax return, eyc. Are provided with thesolution at a generic level.

The ERP features are many. The important ones are security authorization,referencing responsibility, and the implementation of the business rules. These are

provided to safeguard the business of the organization from illegal practice and also

to protect the valuable information from misuse. These features help to keep thesystem, the information and the data integrity at the highest level. The ERP is




activated by its users. The security is built for authorized usage and also for selective

access.

The ERP usage can be controlled at all levels, viz., the data, transaction,

information and analysis level. The security system of the ERP is built around the OS

security and the additional features are provided while designing the system. Itprovides access and updating rights to the users as per the control requirement of the

management.

Authorisation is a feature provided for ensuring that the transaction is completed

with regards to the business rules set by the management. The system provides themapping capability to tie the data, information or process to the user. This means that

only the aothorised user sign, the transaction is not posted in the system for further

processing and usage. For example, in the purchase order transactions the price and

discount are confirmed by one user, the terms are decided by the other users and thepurchase order is signed by the third user. The system provides defined levels to the

users and the purchase order is signed by the third user. The system provides definedlevels to the users and these are no limitations on the number of levels.

Referencing is a feature, provided for tracking the chain of events for monitoring,

progress cheking and control. For example, if one wants to check the status of customer order, the referring feature helps to link the customer order to work order to

delivery note to Excise gate pass to bill. It is possible to establish the link through

cross reference of the transaction number or code of the previous transactions. For

example, a work order will give a reference of customer order, a delivery note wouldgive a reference of work order, a bill would give a reference to a delivery note and

customer order. The feature does not allow the transaction to proceed unless such

references are established.

The business organization runs through the rules and the responsibility allocation.

A strict adherence to them is essential for creation of the controlled environment. TheERP satisfies this need of the business. It provides a facility to ensure that the user-

location (Department/Division) Transaction integrity is confirmed through check and

validation and then ERP allows to proceed. For example, a cash transaction is

allowed at the Finished Goods Store and in the Accounts Department by theauthorized users only. At any other place evolving cash transaction is prohibited.

The material indents are processable in the stores while the vouchers areprocessable in the Account Department. The order entry is permissible in marketing.

The ERP provides such facilities to ensure that the business is operated on the rules

and the guidelines set by the management.

The ERP system provides a variety of technology supports to implement the

solution very fast in execution mode. The solution provides the E-mail facility forcommunication of memos, reminders, and text to the selected list. It also sends copies




to the concerned person as stipulated. Through the EID connectivity, it can transact

directly to the vendor or the customer in its own format.

ERP system provides an aid to create the transaction by a cut and paste

mechanism. It can raise a purchase order on the vendor by picking up and choosing

the old purchase orders, which saves the generation time. The ERP solutions are builtfor a user friendly flexible approach to manage the business with the changing needs.

This requires processing in a different manner to assess the impact. The solutionprovides facilities like the trial posting, the end of chosen period processing, the

posting by choice, the flexible valuation procedures, and the hold transaction, etc.

Through these facilities the management can conduct an impact analysis to judge thefinancial results and makes the business decisions.

The ERP also provides an intelligent support in business management. It allows

the user to define the events, alert and schedule them at his choice.

These events alerts are triggered by the database inserts or updates. Having raisedthe alert, it also allows you to define the action to respond to the alert. The ERP sendsthe electronic mail and executors the SQL statement. It is also capable of taking

multiple actions through the stored procedures.

Take an example of an item receipt in stores. The receipt would update the

database and the system will have an updated stock status. This database update is an

event for using the alert. The alert in this case can be defined as, on receipt of an item

send E-mail to the purchase Manager, the Production Planner and further, show thework orders which are scheduled where this items is in use. If the receipt of this item

closes the Purchase Order then raise an automatic Purchase Order on the same vendor

with the same terms and conditions.

All the ERP solutions provide ‘Drill Down’ and ‘Context Sensitive’ helps to use

the system. The drill down helps to run through the system to locate the weak spot foraction and control. Suppose, the sales manager is viewing the sales by region by

product line. Then he wishes to see the sales revenue over a time, in order to better

understand the seasonality in the business. The drill down facility helps him to use the

information the way he wants, to form the judgments on the business happenings. Thedrill down could be multi-dimensional to analyse the critical business information.

The context sensitive help provides an access to help library which can be used byuser by calling help. The help could be information, guidance and understanding of

the term or process or formats. The help facilities make the ERP user-friendly and

easy to learn.




ERP Architecture

Any information system has three basic components, viz., the Data Management, the

Application Logic, and the Presentation. These components can be built with the

client server role definitions. The client is a user and the server provides the services

required by the user the to run the system. Since, the information needs aredynamically changing, the architecture required is to separate the data and its

management from its application. The user requires the choice of using the data as itsuits him the most. Hence the application logic has to be separate from the data.

There is also a variability in the manner how the application logic is developed and

presented.

The architecture could be a two tier or three tier as shown in Fig. 12.3.

DATA SERVER

FUNCTION

APPLICATION

SERVER FUNCTION

CLIENT FUNCTION

(a) (b)

TWO TIER THREE TIER

Fig. 12.3 Client/Server Model – Architecture.

Since, the ERP is a generic solution for the business operations, in each case of

implementation, customization should suit the specifics of the business or customer.

The architecture choice is influenced by this requirement.

In a two tier system architecture, there is a rigid division of roles. The data

management is by the server and its processing is through the application logic by

client. In this architecture all the requirements are sent to the server by all the users inthe network. This affects the load on the server and the response time to the user

increase. However, there could be an application which deals with high volume and

complex data structure and this approach is more efficient, if response issue is takencare of by the high end multiple CPU and the parallel processing hardware platforms.

There could be a case where the user is dumb and is required to use the system ina guided manner with the ‘help’ assistance. Then the three tier architecture is suitable.The client uses the GUI (Graphical User Interface) tools for simplicity while the

application logic is processed on another machine. In this architecture three distinctroles are defined and three hardware platforms and made responsible to perform.

DATA MANAGEMENT DATA MANAGEMENT

APPLICATION LOGIC APPLICATION LOGIC

PRESENTATION

PRESENTATION




The servers play two distinct roles of handling the data and the application logic.

This logic which deals with the data more is attached to the server platform, wherethe data is being managed. The logic which deals with the presentation and the

specific needs of the user is left to the client platform as shown in Fig. 12.4.

SERVER

CLIENT

Fig. 12.4 Client/Server Model –

Architecture.

It is very difficult to recommend one or the other architecture as the solution to

overcome a typical requirement problem. In the choice of architecture, what isimportant is the user environment and the information needs and how the user

handles them? The best architecture, in a given environment, is the one which is user-

friendly, easy to understand and easy to maintain. The technology solution are

available to implement this philosophy.

The ERP solutions are multi-users which are distributed over the organization,

spread over to any length. Two main solutions are available to the designer and theimplementor of the ERP. One is the Graphical User Interface (GUI) and the Network

Management. The GUI is chosen since it allows the customization for a particular

business entity. The GUI screens are so developed that the process running across theorganization is mapped to the business flows instead of the discrete business

functions.

The network is typically the bottleneck in any client/server system. With theapplication logic, appropriately divided between client and server, it creates a reduced

traffic intensity due to GUI interface. Accompanying the network efficiency and the

GUI, the ERP solution uses a scalable architecture and a parallel processingtechnology by installing the suitable server at the required locations. This ensure good

performance with a continuous increased load conditions.

For most of the customers, the ERP offers a basic business functionality.

However, some users have particular needs for which they want an additional support

through the tools or other modules. Most of these requirements are extensions to thebasic business functions. These customer specific needs are met through a popular

and a widely used, client/ server tool set.

DATA NABAGENEBT

APPLICATION LOGIC

APPLICATION LOGIC

PRESENTATION




The business being complex requires a variety of systems to run efficiently. Thepresence of existing systems is not challenged or minimized by the ERP solution. In

fact, most of the ERP solutions use open application programme interfaces that

enable easy coexistence and integration with the legacy and the third party systems.

The solutions also provides the gateways to the popular database which are used inbusiness.

The ERP solution are designed to make the office of the business paperless. It

keeps all the business information online. Then, the users use the Work Flow

Technology to move the process in a screen format from person to person for thechanges, the approvals and the execution. With the multi-media technology, the

servers can be configured to keep the business information online in any format,

including the text, the spreadsheet, the image audio and the network video.

The solution offers support for the electronic notifications, through the EDI, theE-mail, or the internet to the business partners. For example, you can create a

purchase order, get it justified and approved by the authorized person sitting at theother location, attach the engineering drawing to the purchase order by accesses to theCAD system, assemble the documents of the purchase order, and have it sent through

the EDI to a vendor located at a distant location without creating any the paper

documents.

ERP Solution structure

The Enterprise Resource Planning solution structure is built in three layers namely,technology, business and implementation as shown in Fig. 12.5.

Business Operations

On the business side, it provides solution for the data entry, data capture, transaction

processing and data base updates. It then support an analysis of the processed result insingle or the multi-dimensions for one period or successive periods. It offers a support

on the comparative analysis,




The budget versus the actual, the target versus the actual, the target versus the actual,

the standard versus the actual and so on. The analysis also throws light on theexception conditions, for immediate attention and action.

The ERP solution provides the decision making capabilities either built-in or

through the decision support systems when it comes to implementation. It providesthe database functionalities for data and information management. It then has the

front end tools to develop the application in an exclusive manner.

The ERP solution then handles the interfacing requirement to the legancy or the

third party systems as a support to the main ERP solution. Using various informationtechnology tools and application development tools, the application logic is

developed to the business functionality. The tools are-report writers, interfacing tools,

query processing tools, application development tools, the object oriented tools, etc.

Technology

The technology side of the ERP solution is managed through the database

management technology for data acquisition to data base creation, updation, and

maintenance. The application development is done through the client/servertechnology, where the servers handle the specific or the general functions as the case

may be and the client play the role of processing interactively and locally for meeting

the information needs. The client/server implementation could be two tier or three

tier, based on the design and the implementation strategy. To reduce the developmenteffort and for ease of maintenance, the development approach is an object-oriented

approach, where the class and the object libraries are built for reusability of the object

and its code.

Implementation

The ERP implementation is multi-user and calls for the network usage for the work

flow, communication and the access to the database (s) which may be at one location

or distributed. The successful implementation of the ERP calls for a strong

technology component appropriate to the environment.

ERP Model and Modules

The generic ERP package represents the commonly operated business model of the

organization. It is built with the function models like the Finance, Materials,

Marketing, Sales, and Personnel and their sub-modules. These modules are thenintegrated to perform ensuring data and information consistency and concurrency.

The seamless integration of the modules allows the user at any level to take amicro and a macro view of the function and process view of the transaction across the

function. A typical ERP solution has the following modules:




■ Business forecasting, planning and control (Business)

■ Sales, distribution, invoicing (Sales)

■ Production planning and control (Production)

■ Material management (Material)

■ Finance and accounting (Finance)

■Personnel management (Personnel)

Table 12.1 shows the sub-module details of each module.

Table 12.1 Sub Modules of ERP

Business Sales Production Materials Finance Personnel

Forecasting

Planning

Goals

Objectives

Targets

Starategy

Control

Forecasing

Planning

Sales Budget

Order

Processing

Order Execution

Delivery

Invoicing

Planning

Order

Control

WIP

Quality

Scheduling

Despatch

Purchase

Inventory

Stores

Valuation

Analysis

Control

Accounting

Funds Mgt.

BalanceSheet

Processing

Schedules

Analysis

Control

Human

Resource

Payroll

Accounting

Skill Attendance

Inventory

Analysis

Control

12.3 ERP BASIC FEATURES

General features

■ Separation of the programme code and the data areas.

■ Command language.

■ Screen based flow control.

■ Application logic.

■ common service functions such as the currency, date, editing, and help.

■ Diagnostic functions.

■ Transaction flow control. ■ Help functions.

■ Central table system for management of parameters, text and master data, onlinelogical checks and validations.

■ Word processing, text editing.

■ Action messages.

■ Tuning.

■ Enterprise Modeling: Structure/Policy/Rules/Guidelines.




Business system

■ Business forecasting for products, groups, markets.

■ Target fixing and allocation by the key parameters.

■Business planning in terms of the resources to execute.

■ Strategy formulation and implantation.

■ MIS for strategy monitoring and control.

■ Business modeling for the strategy development and testing. DSS for resourceplanning.

■ Information base management for management application.

Sales

■ Basic data (master) management

■ Order processing

■

Despatching and invoicing■ Order analysis, forecasting

■ Sales analysis, budgets and controls

■ Finished goods stores management

■ Dealer, distributor management system

■ Receivable analysis■ Market/ Customer / Product analysis

■ Market research information database

■ Marketing personnel management

■ Sales forecasting and budgeting.

Production

■ Basic master data management.

■ Bill of materials, classification.

■ Process sheet, routing.

■ Work order generation, scheduling and control.

■ Production Planning : BOM, MRP, MPS and capacity planning.

■ Interface of CAD/CAM/CAE systems.

■ Quality systems for data capture, analysis and control.

■ WIP tracking, valuation.

■ Work station/machine centre management.

■ Production-Materials interface.

■ Collection of unit data for valuation and costing.

Materials

■ Purchasing and procurement




■ Goods receipt and issue system.

■ Stock management and valuation.

■ Inventory analysis.

■ Stores ledger, valuation, analysis, disposal.

■ Excise/customer interface.

■Data integration with production, accounts systems.

■ Quotation/Enquiry processing.

■ Subcontracting, material accounting and bill passing.

Finance

■ General accounting functions.

■ Ledger, payables and receivables.

■ Subsidiary ledgers.

■ Cash-flow management.

■

Loan management, funds management.■ Working capital management.

■ Budgeting, planning and control.

■ Balance sheet processing.

■ Tax management status reporting.

■ Assets accounting.

■ Cost accounting: cost centre accounting, order accounting, product costing.

■ Bank reconciliation.

■ Letter of credit management.

■ Consolidation of accounts.

Personnel

■ Personnel data management.

■ Personnel attendance system, time management.

■ Payroll accounting: salary, wages, incentives, bonus, income tax and other deductions, and contribution to various public and provident funds.

■ Human resources management: Planning, recruitment, training and upgradastion.

■ Personnel cost, projection and planning.

Fixed Assets

■ Fixed assets accounting: Inventory, register.

■ Depreciation accounting.

■ Capital work in progress.

■ Fixed assets retirement and disposal.

■Year end processing for balance sheet schedules.

Maintenance




■ Plant maintenance planning.

■ Breakdown, preventive, conditional maintenance.

■ Maintenance management: Initiation, planning, execution, control, and costaccounting.

■ Monitoring performances for maintenance action as all kinds of productive assets.

■Contract management.

Quality Control

■ System of data gathering to assess quality and measure against standard.

■ Analysis of quality by process, material, work centre location.

■ Analysis of quality by reasons and action taken.

■ Building quality assurance data for equipment/ process/ technology selection.

■ Monitoring quality across the organization from input to output for operating

decisions and business decisions.

Consolidation of Business Operations

■ Accounting by units and divisions with local focus.

■ Consolidation by accounts in corporate functions.

■ Bringing out comprehensive reporting system for business decisions.

Characteristics of ERP Solution

■ Modular str ucture.

■ Scalable architecture.

■ Seamless integration of modules.

■ RDBMS independent. ■ Independence of hardware platform.

■ Interface capabilities.

■ PC download/ upload facility.

Most of the ERP solutions need some changes to suit changes to suit the

environment. The Commerce and Corporate Laws differ from country to country and

the ERP in such cases need customization to satisfy the local requirement of thebusiness.

The ERP solution has advantages of fast implementation as the design and

development is eliminated being a package. Due to object oriented technology and

the client server architecture, the changes are easy to make, which are less at theserver end and more at the client’s end.

Since, it has modular structure; one can implement the solution in a phased

manner module by module. It can be implemented first on a smaller scale andexpanded subsequently with more users, more locations and more modules as well.

Since the whole solution is a package product, the manufacturer of the package brings




out newer versions of the product offering more facilities to the user to improve the

utility of the solution.

There are more than a dozen ERP solution available in the market each having its

own specialty. Though, they are characterized as described earlier, they differ in feel,

look presentation, processing efficiently and user-friendliness.

Some of these products are developed as an application in a particularorganization and then turned into a packaged solution. In view of this, some of ERP

solution is more useful and efficient in similar organization. The specific industry

features have been taken care of more efficiently as customized solutions. Since thedesign / developer have a choice of RDBMS, front end tools, the interface tools, and

so on the package efficiency changes with the choice to tools. Some of these

packages run better, if installed on a particular hardware platform; and used by aparticular organization.

Though tools, technology and approach may be same or similar, the manner in

which they are used decides the efficiency of the solutions.

12.4 BENEFITS OF THE ERP

1. Better management of resources reducing the cost of operations.

2. Planning at function and process level. Simultaneous increase in the productivityof the business possible.

3. Customer satisfaction increase due to shorter delivery cycle. Closer contact with

the customer.4. Simultaneous atomization of the decision centers because of instant inducement

through triggers or updates.

5. Business operations transparency between business partners cutting down theexecution time of critical business operation.

6. Intelligent ERP download the decision making at lower level, releasing the burden

on the middle management.

7. Due to faster processing technology and SQL, management can see theinformation in their perspective and take different view of the business.

8. Due to strong interface capabilities, the human resource can be utilized better due

to access to information across the databases distributed over the organization.9. Since, the ERP design is proactive, it make the management alert at a number of

points demanding the decision or action.

10. The processes become faster due to work group technology and application of

work flow automation.11. Due to the support technologies like EDI, E-mail, office automation, paperless

office is a newer possibility as communication is faster and systems get connected

directly.12. The ERP still remain a valid solution with the expansion of business as it is a

scalable architecture.

I consider your





13. Due to the client/server architecture, the application of object technology and use

of the front end tools, the process changes can be easily carried out in a shortduration of time. Hence, the user service can be maintained at higher level.

14. The ERP implementation automatically leads to the usage of the best business

procedures bringing the consistency of operation in the world of business.

15. With the use of the data warehousing and data reverse engineering, managementbecomes knowledge’s driven and the organization becomes a learned one.

16. The ERP scope can be enlarged through the Internet/Intranet access, making theERP sensitive to the latest events in the business, market and technology.

17. The quality of decision making improve as the user decision maker is made alert

and he is made knowledgeable and better informed dynamically.18. The tools available to the decision maker are friendly whereby he is equipped to

make decision and execute it simultaneously.




CHAPTER-13

Enterprise Management Systems

13.1 ERP SELECTION

Since, the market offer a number of ERP packages, the buyer has a choice to make. Each

product has its own USP and differs in a number of ways in content, scope, an ease of implementation, etc. The selection can be made on three dimensions, viz, the vendor, the

technology, the solution scope, and architecture.

Vendor Evaluation

Factors

1. Business strength of the vendor.

2. Product share in total business of the vendor.3. R. & D investment in the product.

4. Business philosophy of the vendor.

5. Future plans of the vendor.

6. Market reach and resource strength of the vendor.7. Ability to execute the ERP solution.

8. Strength in the other technology knowledge and the ability to use them

9. Perspective plan of the ERP improvement with technology development.10. Image in the business and in the information technology world.

11. Financial strength of the vendor to sustain and handle the business andtechnology risk.

12. Organisation for product development and support.

13. The global experience of the vendor and commitment to the product for long

term.

Technology Evaluation

Factors

1. Client server architecture and its implementation-two tier or three tier.

2. Object orientation in development t and methodology.

3. Handling of server and client based data and application logic.4. Application and use of standards in all the phases of development and in the

product.5. Front end tools and back end data based management system tools for the

data, process presentation management.

6. Interface mechanism; Data transfer, real time access, OLE/ODBCcompliance.




7. Use of case tool, screen generators, report writers, screen painter and batch

processor.8. Support system technologies like bar coding, EDI, imaging, communication

network.

9. Down loading to PC based packagers, MS-Office, lotus notes, etc.

10. Operating system and its level of usage in the system.11. Hardware-software configuration management.

ERP Solution Evaluation

Factor

1. ERP fit for the business of the organization in terms of the functions, features

and processes, business scope versus application scope and so on.2. The degree of deviation from the standard ERP product.

3. Ease of use; Easy to learn, implement and train.

4. The ability to migrate to the ERP environment from present status.

5. Flexible design.6. The level of intelligent usage of help error messages, dictionaries.

7. The ability for a quick start on implementation.

8. Versatility of the solution for implementation on a platform with the project of saving the investment.

9. Rating on performance, response and integration.

10. Product quality in terms of security, reliability, and precision in results.11. Documentation for system handling and administration.

12. Product rating in its class of products.

13. Solution architecture and technology.

The methodology of selection will begin first with the study of organization interms of the business focus, critical application, sensitive business process, etc. Since,

the ERP solution is a tool to change the style of business management; it requiresthorough understanding of the business, the business issues, the management

criticalities, and the socio-cultural factors. Such a study will help find out if the ERP

is fit for the organization. It is a very important to find out that the ERP is fit or not,as it is the most important and critical success factor.

The price of the ERP package is difficult to judge and often it is a negotiable pointin favor of the buyer in competitive scenario. Since the ERP implementation is a two

three years’s project, the ERP solution will sustain and be adequate for the current

and the future business needs for a period of five to seven years. After that, it wouldbecome a platform for the future expansions and growth.

It is advisable for the organization to form a committee for selection of the ERP

SOLUTION. IT SHOULD HAVE IMPORTANT FUNCTIONAL HEAD, ASTRONG Information Technology person and a person from corporate planning

function. The committee should be headed by a CEO or his designated authority. This

committee should prepare a requirement document spelling out the business goals,




and objectives, the futuristic scenario of business, the critical functions, processes,

business focus and customer deliverables. A note on the management philosophy,procedures, practices and style will be a valuable input.

When such a document is ready, the selected ERP vendors should be called for

seeking the ERP offer. The document should be given to the vendors, and they shouldbe allowed to study the organization and its business. All the vendors should be asked

to submit a technical proposal explaining the fit of the ERP to the organization. Thesubmission of the vendors should be scrutinized by the committee for short-listing.

The short-listed vendors then should be asked to give the product presentation to the

selected group of decision makers to seek their opinion on the product.

When the product presentation is oven, product demonstration should be

arranged, for a detailed security and evaluation. In this process, the committee should

confirm whether the critical requirement of business, in terms of information, processhandling facilities, features, etc. are available or not. If some of them are not available

then there is a possibility of work around to achieve the same result.A second evaluation note should be made for a comparative analysis of the ERP

solutions and then a critical evaluation of this analysis should lead to the choice list.Simultaneously, the committee should gather information on the experience of the

other organization where the ERP is implemented. This information should be on

how successful the vendor is, in the implementation of the ERP? The strengths andthe weaknesses of the vendor, the product and the post sales processes should be

ascertained. The choice list should be weighed by these points.

Though such an approach is appropriate, it is not always possible to bring out a

clear win in the evaluation, as many factors are intangible in nature. In such an event,

the committee should examine the trade off involvement in the selection. It should nothappen that organizational issue dominates the choice of the ERP and in the process

the best product is rejected. Ideally, the organization should be carrying out businessprocess engineering and reengineering study, restructure the organization, modify the

processes functionalities before the ERP decision is made.

Once the committee makes the decision, the vendor should be asked to resubmit

the technical and commercial proposal with price and the terms of offer. The proposalshould have the following details.

1. Scope of supply.2. Objectives

3. Modules and deliverables

4. Implementation methodology.5. Plan and schedules of hardware and software implementation.

6. Resource allocation

7. Responsibility division between the organization and the vendor.8. Process of implementation

9. Organisation of implementation.




10. Progress monitoring and control of the important events

11. Process of resolving the issue all levels12. The official product literature

13. Association with the other vendor its purpose

14. Commercial submission. Price by module and number of users Payment terms.

15. Process of acceptance of the ERP by stages and linking with the payments.

Once the ERP decision is made, the vendor and organization enter into a legal

contract. Such legal contract should list the obligations, duties, responsibilities,

deliverables and the value components. It should also include the clauses on issues

arising out of unforeseen circumstances and how to resolve them with the legal remedyavailable to both the parties. Since, the ERP is a product of several technologies, there

should be clauses relating to safeguarding the interests of each other to cover the risk arising out of the technology failure.

The ERP is a tool to manage the enterprise resources to achieve the business

objective. It is a supporting system and does not solve all the problems of businessmanagement. The success of the ERP lies in its implementation with commitment. It

requires full participation of the organization. It is to be appreciated as a managerial tool

and not as a labor saving device. Since, potentially the ERP is designed for productivity

rise, the management must exploit it to its advantage by adopting the best practices orchanging the practices through the business process reengineering.

13.2 ERP IMPLEMENTATION

The ERP implementation, generally, follows the waterfall mode approach. Once a firm

order is received the implementation begins with kick-off meeting between the vendorand the organization. In such meeting the organizational issues are taken care of. Since it

is a long term activity a preliminary planning is done to start the implementation.

Requirement Definition and Description (RDD)

Though, initially, the study has been carried out by the vendor, more in-depth study is

taken up jointly by the vendor and the project in-charge of the organization.

In this phase of study the user are contacted for their requirement specifications.

These requirements may be of the data, information, function, features, processes orreports. It is necessary to understand them to evaluate the ability of the ERP solution to

satisfy these requirements.

Since, the ERP is designed as a standard package, it after requires changes and

modifications to suit the requirements of the business.




All the ERP packages provide standard features, functions lists of the packageused. These lists are examined vis-à-vis the requirements and new document is prepared

called as the deviation RDD.

Once the deviation RDD is made, it should be approved by the authorized personin the organization. The purpose of such a document is to freeze any requirement to carry

out further changes in the package.

In the evaluation of standard RDD, two kinds of changes emerge, one major,

where the ERP design needs to be changed. Such changes are time consuming and the

vendor may charge additionally for such requirement fulfillment. Other changes may be

minor and may not affect the design of ERP. The minor changes are cosmetic and / or inpresentation, and they are generally at the lower end of the process. The changes are like

the field change, the report format modifications, and the computing process and so on.The advantage of preparing the RDD and a deviation there from in that the users of theERP get committed to the solution as they have thought the standard requirement

provision of the ERP and the deviation required in the provision. In this process, the

resistance to change is eliminated, due to direct involvement of the users and the decisionmakers.

The another distinct advantage of the RDD and the deviation from the RDD, is

that it provides the revised specifications clearly to the designer and the developer tobring out the changes required in the design of the ERP. It also further helps to assess the

work load arising out of the changed requirement.

As soon as the new RDD is prepared, the process design starts implementing the

changes. The moment the changes are required the processes of design coding; testing,

etc. come into picture for execution. The changes of made, are then tested on a sampledata and other steps of unit testing, module testing and system testing for complete

integration are taken. After establishing the requirement definition and description (RDD)

and mapping it with the standard RDD of the ERP solution, the DRDD (Deviation RDD)

is prepared for changes in the solution and implementation. The implementation steps aregiven as follows:

1. A user meeting is arranged to explain the ERP and process of implementation.2. The RDD and the DRDD is explained for understanding and approval.

3. The resource to carry out the changes in the system, generally, known as

customization is provided. This could be business specific and customerspecific.

4. The DERP (Deviation ERP) solution is tested.

5. The solution on the recommended platform is loaded.6. The solution is tested on a sample data of substantial nature.




7. The solution is then demonstrated to the users for their understanding and

confirmation.8. The users are trained to run the solution and resolve the difficulties in

operations of the system solution.

9. The change over from the manual system to the ERP solution are meticulously

planned, taking care of the cut off dates, the opening balances, the datatransfer etc.

10. A logbook of the system usage is kept to note down the problems, solutionsand modifications carried out to make the solution more efficient and

effective.

11. Standard reports like checklists, ledger, trial balance, and sales analysis aretaken to confirm the integrity of the ERP solution.

12. The standard documentation of the ERP solution is changed to the changed

version of the ERP.

13. The system performance is checked in terms of speed, response, etc. and theERP solution and / or the hardware is turned for improving the performance of

the solution.14. After three to four months working, a review meeting with the user is

conducted, taking the support of the log system for the purpose of improvement, confirmation and finalization of the ERP implementation.

The major hassles in the ERP implementation are due to:

1. The resistance of the users in the acceptance of standard ERP solution.

2. The limited awareness of the users and the appreciation of the InformationTechnology applications.

3. The ability of the users to change over from the old conventional systems to the

technology based new systems.4. The level of acceptance of the standard business processes incorporated in the

system. Lower the acceptance, longer the implementation time, resulting into a

loss of efficiency and effectiveness of the solution.5. A lack of clarity on the business requirement, the customer focus and the strategy

of business and its impact on the ERP solution.

6. The ERP implementation is carried out without properly evaluating the business

processes and practices through business process reengineering and is precededby restructuring of the organization.

7. The choice of the ERP solution. Not all the ERP solutions are appropriate for the

organization. Each solution has its own peculiarities in terms of design,architecture, and technology, coverage of business scope, functions and features.

Some solutions are good for certain type of business and industry and not for all

the businesses and industries.

Ideally, the choice should be based on the ERP fit for the organizations, functionsand features. Higher the fit, better is the solution from all angles. It the fit is higher,

the customization will be less and the user acceptance will be higher. In short, the

implementation cycle would be short.




There is a qualitative change in the MIS design due to the complexity of the business

operations and the risk involved in handling the business.

The management focus is shifting from the function to the process, i.e., the

management requires the information support in the process management and not in

the function management.

The MIS is now required to maximize the process productivity and performance.

The decision making support is required for the process optimization. The decisionmodels are built across the business management functions. Besides the normal MIS

reports required for the top management, the Top Management also needs a set of the

additional reports, where the critical business processes and the critical success

factors are a focus area.The ERP solution caters to this requirement very easily. The ERP solution is an

integrated solution. The solution operation is seamless, disregarding the hardware or

the software platform. The ERP solution takes care of data integrity and consistencyacross the organization, which may have multiple locations.

In today’s competitive world, the shift of decision making is towards strategic

management of the business. The ERP solution, due to its scope and coverage, andsupported by a variety of tools, enables Strategic Management based on the strategic

information for decision making.

The management attention on the focused area is easily possible. The

conventional MIS design is more or less embedded in the ERP solution. They provide

all the routine reports at any time for the middle management of the organization. TheERP, over and above this, provides executive information for the strategic

management of business. It further helps to formulate the strategies to achieve these

goals taking its implementation further.

The ERP design provides transparency to the users of information giving them an

access to the sensitive information to locate, define and resolve the problems. The

ERP enables the work group management efficiently and effectively. The effectiveuses of the variety of tools, like the data replication, the work flow automation, the

EDI/D-mail, the data warehousing, the EIS, the bar coding, and the paging systems

are built in ERP. The effective use of these variety of tools also speeds up processing,cuts down the operation cycle time and raises the ability of the management to take

decisions. Once the ERP is built in the organization, it takes care of the data, the

information and its storage and, therefore, provides the capability to modify the

Management Information System from time to time as per the changing informationneeds.

All the solutions use the client-server architecture in the solution, where the dataprocessing, and the application level processing logic is taken care in the server level

giving freedom to the user, as a client, to define the problem and evolve the solution

using the front-end tools. The front-end hardware and the tools are so powerful thatan individual can develop his own MIS based on his decision making information




needs beside the usual MIS like corporate, functional, etc. the decision maker can

operate as an individual in isolation from the others, if need be.

The ERP through such an MIS design improves the decision making skills of the

individuals very effectively. It provides autonomy in global system operations. Withthe ERP, the MIS design is more flexible highly decision intensive and efficient.

ERP along with other systems becomes an EMS, MIS design uses ERP which in

turn uses other systems for inputs in terms of data capture, transaction processing and

data base creation, MIS in ERP environment is a sophisticated design serving theneeds of the organization.

REVIW QUESTIONS of chapter 12 and 13

1. What is the concept of Enterprise Resource Planning? Why is ERP solution nowpossible? What role does technology play in ERP implementation?

2. Explain the terms – Seamless integration, MRP, Graphical User Interface,Functionality, Features.

3. What is ERP architecture? What is solution architecture? What is the difference

between the two?4. Study the literature of any one ERP package, SAP, ORACLE, MAMIS, J.D.

Edward, MFG-PRO, MARSHAL, and PRISM and match the offerings with your

concept of ERP.5. ERP packages offer standard solutions for business operations. However, some

amount of customization is necessary to suit the solution to specific organizations.

Explain.6. Make a small note on ERP package selection for management.7. Why is implementation effort necessary even though ERP package is chosen?

8. What care should be taken while selecting ERP package?

9. Can you be sure that if ERP solution is implemented, the MIS is in place?Discuss.

10. Can your say that if ERP is implemented, user needs on information are satisfied?

Discuss.




1. Develop a system model for personnel situation, when Human Resource database

Is already available in the organization. The manager of the department should beAble to select person(s) against a skill profile of his interest. He is also interested

In knowing the rejection of a number of persons against each skill factor in

Profile.Assume that the Company maintains a human resource database in terms

Of the various skills, such as technical, mathematical, engineering, conceptual, etc.

and work experience of the candidated in each field.

2. Explain as to how you would use Bar Code Technology in the personnel function.

The organization has issued bar coded identity cards with photographs to everyemployee.Explain the use of this card in

(a) Shop floor control function.

(b) Work order control(c) Personnel movement in the premises.

(d) Stores management.

3. The organization has a Credit Cooperative Society for the benefit of employees.The society offers financial assistance by way of loan, towards housebuilding,

purchase of white goods, payment of education fees, and festival advances, etc.

The repayment of loan is through the salary paid to the employees everymonth. Develop an application for loan management and build an interface to the

payroll system for loan installment deductions. In this regard, give a system

overview on the following lines:

(a) System scope

(b) System objectives

(c) Output of the system(d) Inputs to bring out the outputs

(e) Process design.

(f) Interface mechanism.

What care would you take in both the systems, i.e., the loan management system

and the payroll system, so that the employee is not overburdened with the loanobligation and every month after the instalment deduction seventy per cent of the

normal take home pay is maintained.

4. Develop an application for bank reconciliation. Assume that the bank gives a soft

EXERCISES




copy of the bank statements, specifying the cheque clearances against the

accounts opened by the Company.

5. In large commercial transactions, the normal payment terms are through the Letter

of Credit (L/C). Study the L/C documents and its processing from opening of the

L/C to the closure of the L/C Develop a small L/C Application to keep a track of

the L/C transactions and the L/C monitoring and its interface to the finance system.

6. A company has for strategic business units (SBUs) responsible for the assigned

performance. At the end of the financial year, four balance sheets are consolidated

for the Company. Each SBU has a chart of account created for its businessmanagement. The company has its own chart of account different than those of

the SBUs charts of account.

While designing the consolidated systems for the Company, what, designsteps would you take so that the consolidated results are available by the third of

the month ?

The company6 would also like to build the MIS reports around sensitive

accounts of the company, and also of those of the SBU.

7. A production manager would like to have at the end of every shift, a production

report indicating the performance of the production shop. Design a report format

and the input sources for the production of such a report. What kind of technologysupport is necessary to capture the data, and process the same at the end of the shift ?

The production shop is of the shop is of the following types:

(a) Job shop manufacturing(b) Assembly line.

(c) Continuous process with by-products.

(d) Packaging shop after manufacturing a variety of medicines, in the form of tables, capsules, strips, etc.

8. A manufacturing process is built in with the counter to compute the number of

bottles filled. The shop manager would like to use the counter for management of

the process.

At the end of the shift, the data of filled bottles should be sent to the mainsystem for the shift production report. At the end of 1,00,000 bottles, the process

should stop for a shift, the number of bottles broken are 20, an exception report

should be sent to the shop manager for resetting the process of bottle filling.Draw a system flow chart for this application.

9. A gift shop prepares gift boxes for sale at the time of New Year, Diwali Festival,Christmas, and for marriages. The shop has over 1000 gift articles which areuniquely identified by a bar code.

A customer places an order for a gift box packed with the assorted gift

articles. A box may contain one or more item but not exceeding four. Since, the

business is a seasonal one, a quick response to the enquiry and order processing isnecessary. An order of less than 100 boxes is not accepted.




Draw an application system flow chart starting from enquiry processing to

the order processing, including packaging, delivery and billing. All the orders areaccepted with 70 per cent advance from the customers. The gift shop has a

standard price list and a standard list of the gift items. The shop has a small

packaging unit in the same town from where the delivery and billing takes place.

The warehouse and packaging is at the same location.Identify in the system the following.

(a) Masters(b) Transactions

(c) Relations

(d) Processes(e) Outputs

(f) MIS reports

Design the system in such a way that a least paper work is necessary, thecommunication is faster and the execution of the customer order is efficient.

Break the application in tow parts-front end and back end support.

10. A company resorts to the subcontracting as an alternative to manufacturing in

house. It has a list of the approved subcontractors. Some are on a contract basisand some are chosen against the specific order requirement. Since, the

subcontracting was not a major activity so far, it was not brought under main

materials production management system.

Identify the system issues in the subcontracting functionality and discussits interfacing with the other application systems. The commercial aspect of the

subcontracting is decided by the Purchase Division while the approval, choice,

and job to be subcontracted is decided by the Central Planning. Draw a systemhierarchy to handle the subcontract function with a specific focus on:

(a) Material accounting(b) Job accounting(c) Purchase accounting

(d) Interface to production planning

11. A large pharmaceutical company has four factory locations and eight warehouses

for distribution of products to the wholesalers. The total number of items are over10,000 stock keeping units.

Suggest the analysis of inventory, which would throw light on the

movement, aging, holding and disposal of the items. What methods you wouldsuggest in the materials management system os that it helps the warehouse

management, distribution management and production management12. A Super Shoppee Departmental Store wants to design a system whereby the

proper procurement, inventory and billing management would take place. Thesystems manger of the Shoppee wants two systems, a front end and a back end, to

handle this requirement. The front end system should handle customer billing and

the updation of inventory and the back end system should handle the procurementand the inventory management with the MIS reports to the management.




Write a system write-up explaining the objectives, scope, requirement,

transactions processes and the reports the system should provide. Also provide thequeries which are ofter raised by the customers, buyers, and the front end desk

operators and the procurement and inventory manager.

13. Enquiry processing and the order processing thereafter, are common applicationsystems in all the manufacturing and trading businesses. The main factor in these

systems is to provide quick response to the customer on his requirements.

Discuss the system parameters in the following business:

(a) Spare parts for Airlines.(b) Manufacturing against the order.

(c) Distribution of the white goods for sales.

(d) Manufacture and sale from the stocks of a variety of products.

Also discuss the similarity and contrast in managing these applications.

14. A consumer goods manufacture maintains 10,000 household samples forassessing the market trends, the buyer behavior, the response rate, and thespending habits, etc.

Design a questionnaire to assess the product preference in various washing

soaps. The data collected should be useful to conceptualise a new washing soapdesign and its specification

Design a questionnaire in such a way that the data processing would be

easy. Design a system for the questionnaire you have designed including the

output designs.

15. Marketing department of a company requires information on the following

entities :(a) Market segment

(b) Product segment

(c) Zones(d) Regions

(e) Product groups

(f) Stock keeping units

(g) Sales representatives(h) Warehouses

(i) Customer and types of customers.

Design Sales Analysis requirements by suggesting the different analysisreports and its probable user and usage.

16. A company wants about 20 management trainees from the 1st

of January forsupporting their growth plans of expansion and diversification. The programme of

recruiting the management trainees includes releasing the company advertisement,

application scrutiny, shortlisting, interviewing and appointing them. After theappointments, they would undergo a Company induction programme and the general

management programme followed by a specific function management programme.




The function management programme is in Personnel, Production, Materials

and finance. These programmes would run parallel. At the end of these programmes,a four week programme of Strategic Management of business would be conducted,

before they are posted in various positions.

Draw a PERT network model of the Management Trainee recruitment using

the MS project package. For each activity in the network, firm up subactivities whichshould be completed.

17. An automobile manufacturer has eight distribution and service centers for four new

models it has just introduced in the market. These models differ from each other in

body and features; while the engine, chassis, transmission system, suspensionelectrical, etc. are the same. The company wishes to create a knowledge database on

the Vendor-Complaint performance and reasons of the failure, and the other reliable

data for evaluation of the vendor performance, design performance and also for

designing a knowledge based expert system for repairs and service during thewarranty period of the vehicle.

Design the system scope in terms of subsystems and their relation and linkageto each other. Suggest a data model for the knowledge database for using it toimprove the design and the manufacturing processes in the company.

18. Design a Decision Support System for the vendor selection on the following basis.The factors and the point weightages are given to use them effectively in the DSS.

The factors to be considered as follows.

Factor Weightage Point scale of five

Technology 10 1 – 2 – 3 – 4 – 5

Quality 20 1 – 2 – 3 – 4 – 5Reliability 20 1 – 2 – 3 – 4 – 5

Field performance 50 1 – 2 – 3 – 4 – 5

100

Lead time 20 1 – 2 – 3 – 4 – 5

Service 30 1 – 2 – 3 – 4 – 5

Price 20 1 – 2 – 3 – 4 – 5Delivery 30 1 – 2 – 3 – 4 – 5

100

Evolve your own decision rules to design the DSS for selection of the

vendors. How would you collect the data on the various factors for using the same in the

DSS ?




19. Map the following technologies against the application and state its use in theapplication :

Technology Personnel Production Materials

Bar CodeImaging

Hand held terminals.Paging

EDI

20. In an ERP implementation, in a company having multi units operations, thefollowing characteristics assume importance when it comes to designing the MIS

for the corporate office. The corporate office is overlooking the performances of

these units and produces a consolidated balance sheet for the Company., The

important charactriristics are completeness, correctness, concurrency andconsistency in a all reporting under the MIS.