The Value of Information The value of information to a user is determined by its reliability.

We saw earlier that the purpose of information is to lead the user to a desired action. For this to happen, information must possess certain attributesrelevance, accuracy, completeness, summarization, and timeliness. When these attributes are consistently present, information has reliability and provides value to the user. Unreliable information has no value. At best, it is a waste of resources; at worst, it can lead to dysfunctional decisions. Consider the following example: A marketing manager signed a contract with a customer to supply a large quantity of product by a certain deadline. He made this decision based on information about finished goods inventory levels. However, because of faulty record keeping, the information was incorrect. The actual inventory levels of the product were insufficient to meet the order, and the necessary quantities could not be manufactured by the deadline. Failure to comply with the terms of the contract may result in litigation. This poor sales decision was a result of flawed information. Effective decisions require information that has a high degree of reliability. 5. INFORMATION OBJECTIVES Specific information objectives will differ from firm to firm as specific user needs vary. Three fundamental objectives are, however, common to all organizations: 1. To support the stewardship function of management. Stewardship refers to managers responsibility to properly manage the resources of the firm and to report on their activities. External users receive stewardship information through traditional financial statements and other mandated reports. Internally, managers receive stewardship information from various responsibility reports. 2. To support management decision making. Managers use information to assist them in planning and control decisions related to their areas of responsibility. 3. To support the firms day-to-day operations. Operations personnel use information to assist them in the efficient and effective discharge of their daily tasks. The level of detail and the nature of the information needed to meet these diverse objectives differ considerably. For example, managers cannot effectively employ the finely detailed information used to support day-to-day operations. Management decision information tends to be highly summarized and oriented toward reporting on overall performance and trends rather than routine tasks. Similarly, external stakeholders require information very different from that of management and operations users. Financial statement information, based on generally accepted accounting principles (GAAP), is accrual based and unsuitable for most internal uses. The information needed to meet information objectives is the product of the information system.

III. General Overview of Decision 1. HUMAN INFORMATION PROCESSING (HIP) Theory

People are active, dynamic systems capable of great flexibility in the ways they choose to handle and transform information. From the HIP perspective, the human mind is understood as a system that processes incoming information from the environment.

HIP is an abstraction of the set of processes involved in several aspects of human behavior including problem solving and decision making in both everyday and professional environments. HIP can be generally This system can be described as a set of memories and processors together with a set of divided into 3 operational principle. interacting subsystems: 1. A perceptual system 2. A motor system 3. A cognitive system

Fig. 1.2.1.1 A conceptual representation of the human information processing system.

Perceptual System which includes all of our sensors - Consists of sensors and associated short-term memories related to the sensorial input received from the environment (visual, auditory, olfactory, etc.). Short-term memories hold input from the sensory system while it is being encoded symbolically (translated from a physical form of a signal to a symbol mental representation). Main Function is to convert the sensations of the physical world captured by the sensory systems into internal representations that can be processed by the cognitive system.

Sensory memory holds a great deal of detailed information for a short period of time regarding the physical aspects of a sensation. This information is stored for a brief time -- less than one second -- after which it MUST ENTER WORKING MEMORY OR BE LOST. For example: The visual memory representation of the number 3 contains features of curvature and size. Cognitive System which receives symbolically encoded information from sensory stores and its working memory, and responds using information from our long-term memory - Receives the symbolic information from the sensory system and stores it in the working memory. This is a short-term storage that is also used to process information. Uses previous stored information in long-term memory to process information, solve problems, and make decisions. Composed of a set of subsystems that includes memories, operations, and principles. THREE MEMORY SUBSYSTEMS: - Sensory - Working or short-term memory Information from sensory storage must be transferred to working memory or short term memory. Through REHEARSAL information can be maintained in working memory. the capacity of short-term memory is small -- information will disappear within 20 seconds unless it is repeated or practiced - minimize the amount of information in working memory. - Long-term memory once information is transferred to long term memory, it is there forever the problem is accessibility/retrieval. the basic debate is how info is located and retrieved, and how many long term memory subsystems exist. Attention Process modulates the coordination and capacity of the different subsystems. Motor System which carries out responses to the cognitive system - Carries out the response by sending signals to the corresponding output channels (motor movements, voice, etc.), which results in an execution of a response to the environment. -

Main function is to translate the decisions from the cognitive system into action by activating patterns of voluntary muscles.

Feedback An important part of cognitive system that process suggests that the responses made today become part of our memories to be retrieve in the future. The feedback process constitutes the main form of learning by humans and other types of animals. -----------------------------INPUT CHANNELS: vision (sight) - audition (hearing) - gustation (taste) - olifaction (smell) - kinesthesis (touch) - balance (vestibular/inner ear equilibrium)

STORAGE AND PROCESSING SYSTEMS - short term sensory store very short duration, brought into working memory by attention - short term (working) memory maintained by auditory rehearsal, used for cognitive processing - long-term memory high-capacity, storage by elaboration, content addressable OUTPUT CHANNELS - Speech - Motor Control anthropometry and performance SOME TERMS: chunking grouping and organizing information to fit into meaningful units. The size of chunks does affect ability to remember. rote rehearsal repeating info over and over to remember good for retention in short term memory.

constructive rehearsal info must be linked to facts and concepts already in long term memory. Coding compressing information into abbreviated form. physical -- short term retention is based on how something looks or sounds. semantic -- long term retention based on the meaning of words. simple forgetting/time bound. information gets mixed up with other information. proactive inhibition--occurs when earlier learning gets into the way of later learning retroactive inhibition--occurs when later learning gets into the way of earlier learning. trace decay--the passing of time will cause the strength of memory to decrease, thereby making it harder to remember. a sensory experience. If strengthened in some way (re:repetition) it becomes an actual chemical or structural change in the nervous system.

Forgetting Interference

memory trace

primacy/recency effect when people memorize long lists of nonsense syllables, they remember more of the syllables at the beginning of the list (primacy effect) and at the end of the list (recency effect) than in the middle. 2. INFORMATION SYSTEMS FRAMEWORK Information system is the set of formal procedures by which data are collected, stored, processed into information, and distributed to users.

The information system accepts input, called transactions, which are converted through various processes into output information that goes to users. Transactions fall into two classes: financial transactions and nonfinancial transactions. A transaction is an event that affects or is of interest to the organization and is processed by its information system as a unit of work. A financial transaction is an economic event that affects the assets and equities of the organization, is reflected in its accounts, and is measured in monetary terms. Every business organization is legally bound to correctly process these types of transactions. - Sales of products to customers, purchases of inventory from vendors, and cash disbursements and receipts are examples of financial transactions. Nonfinancial transactions are events that do not meet the narrow definition of a financial transaction. For example, adding a new supplier of raw materials to the list of valid suppliers is an event that may be processed by the enterprises information system as a transaction. Important as this information obviously is, it is not a financial transaction, and the firm has no legal obligation to process it correctlyor at all. 3. INFORMATION SYSTEM: Accountants Perspective Accounting as Information: Viewing accounting as an information system focuses attention on the information accounting provides the users of the information, and the support for financial decisions that is provided by the information. External users of accounting information are individuals and other enterprises that have a financial interest in the reporting enterprise. External users of the financial information as owners, creditors, labors unions, governmental agencies, suppliers, customers, trade associations and public. Each of these groups of external decision makers have unique information needs to be able to make their decisions about the reporting enterprise. Providing information that meets the needs of such a large set of diverse users is difficult, if not impossible, in a single set of financial information. What is AIS? It is a system that collects, records, stores, and processes data to produce information for decision makers. Management Information System: Management often requires information that goes beyond the capability of AIS. As organizations grow in size and complexity, specialized functional areas emerge, requiring additional information for production planning and control, sales forecasting, inventory warehouse planning, market research, and so on. The MIS processes nonfinancial transactions that are not normally processed by traditional AIS. GENERAL MODEL FOR ACCOUNTING INFORMATION SYSTEM The elements of the general model are end users, data sources, data collection, data processing, database management, information generation, and feedback.

End users fall into two general groups: external and internal. External users include creditors, stockholders, potential investors, regulatory agencies, tax authorities, suppliers, and customers. Internal users include management at every level of the organization, as well as operations personnel. Data and Information Data sources are financial transactions that enter the information system from both internal and external sources. External financial transactions are the most common source of data for most organizations. These are economic exchanges with other business entities and individuals outside the firm. Examples include the sale of goods and services, the purchase of inventory, the receipt of cash, and the disbursement of cash (including payroll). Internal financial transactions involve the exchange or movement of resources within the organization. Examples include the movement of raw materials into work-in-process (WIP), the application of labor and overhead to WIP, the transfer of WIP into finished goods inventory, and the depreciation of plant and equipment. Data collection is the first operational stage in the information system. The objective is to ensure that event data entering the system are valid, complete, and free from material errors. In many respects, this is the most important stage in the system. Should transaction errors pass through data collection undetected, the system may process the errors and generate erroneous and unreliable output. This, in turn, could lead to incorrect actions and poor decisions by the users. Two rules govern the design of data collection procedures: relevance and efficiency. The information system should capture only relevant data. A fundamental task of the system designer is to determine what is and what is not relevant. He or she does so by analyzing the users needs. Only data that ultimately contribute to information (as defined previously) are relevant. The data collection stage should be designed to filter irrelevant facts from the system. Efficient data collection procedures are designed to collect data only once. These data can then be made available to multiple users. Capturing the same data more than once leads to data redundancy and inconsistency. Information systems have limited collection, processing, and data storage capacity. Data redundancy overloads facilities and reduces the overall efficiency of the system. Inconsistency among redundant data elements can result in inappropriate actions and bad decisions. Data Processing Once collected, data usually require processing to produce information. Tasks in the data processing stage range from simple to complex. Examples include mathematical algorithms (such as linear programming models) used for production scheduling applications, statistical techniques for sales forecasting, and posting and summarizing procedures used for accounting applications. Database Management The organizations database is its physical repository for financial and nonfinancial data. We use the term database in the generic sense. It can be a filing cabinet or a computer disk. Regardless of the databases physical form, we can represent its contents in a logical hierarchy. The levels in the data hierarchyattribute, record, and file. The data attribute is the most elemental piece of potentially useful data in the database. An attribute is a logical and relevant characteristic of an entity about which the firm captures data. The attributes are logical because they all relate sensibly to a common entity accounts receivable (AR). Each attribute is also relevant because it contributes to the

information content of the entire set. As proof of this, the absence of any single relevant attribute diminishes or destroys the information content of the set. The addition of irrelevant or illogical data would not enhance the information content of the set. A record is a complete set of attributes for a single occurrence within an entity class. For example, a particular customers name, address, and account balance is one occurrence (or record) within the AR class. To find a particular record within the database, we must be able to identify it uniquely. Therefore, every record in the database must be unique in at least one attribute. This unique identifier attribute is the primary key. Because no natural attribute (such as customer name) can guarantee uniqueness, we typically assign artificial keys to records. The key for the AR records in Figure 1-6 is the customer account number. This is the only unique identifier in this record class. The other attributes possess values that may also exist in other records. For instance, multiple customers may have the same name, sales amounts, credit limits, and balances. Using any one of these as a key to find a record in a large database would be a difficult task. These nonunique attributes are, however, often used as secondary keys for categorizing data. For example, the account balance attribute can be used to prepare a list of customers with balances greater than $10,000. A file is a complete set of records of an identical class. For example, all the AR records of the organization constitute the AR file. Similarly, files are constructed for other classes of records such as inventory, accounts payable, and payroll. The organizations database is the entire collection of such files. Database management involves three fundamental tasks: storage, retrieval, and deletion. The storage task assigns keys to new records and stores them in their proper location in the database. Retrieval is the task of locating and extracting an existing record from the database for processing. After processing is complete, the storage task restores the updated record to its place in the database. Deletion is the task of permanently removing obsolete or redundant records from the database. Information generation is the process of compiling, arranging, formatting, and presenting information to users. Information can be an operational document such as a sales order, a structured report, or a message on a computer screen. Feedback is a form of output that is sent back to the system as a source of data. Feedback may be internal or external and is used to initiate or alter a process. For example, an inventory status report signals the inventory control clerk that items of inventory have fallen to, or below, their minimum allowable levels. Internal feedback from this information will initiate the inventory ordering process to replenish the inventories. Similarly, external feedback about the level of uncollected customer accounts can be used to adjust the organizations credit-granting policies. 4. Accounting Information Systems and Their Role in Organizations Information technology (IT) refers to the hardware, software, and related system components that organizations use to create computerized information systems. IT has been a major force in our current society and now influences our lives in many personal waysfor example, when we use digital cameras to take pictures, access the Internet to make a purchase or learn about something, or make phone calls to friends and family. It is perhaps less clear that computer technology has also had profound influences on commerce. In this information age, for example, fewer workers actually make products, and more of them produce, analyze, manipulate, and distribute information about business activities. These individuals are often called knowledge workers. Companies find that their success or failure is often dependent on the uses or misuses of the information that knowledge workers manage. The information age has important implications for accounting because that is what accountants areknowledge workers. In fact, accountants have always been in the information business because their role has been, in part, to communicate accurate and

relevant financial information to parties interested in how their organizations are performing. The information age also includes the increasing importance and growth of e-business, conducting business over the Internet or dedicated proprietary networks, and e-commerce, a subset of e-business, which refers mostly to buying and selling transactions. In many ways, accounting is itself an information systemi.e., a communicative process that collects, stores, processes, and distributes information to those who need it. For instance, corporate accountants develop financial statements for external parties and such other reports as accounts receivable aging analyses for internal managers. But users of accounting information sometimes criticize AISs for only capturing and reporting financial transactions. They claim that financial statements often ignore some of the most important activities that influence business entities. For example, the financial reports of a professional basketball team would not include information about hiring a new star because this would not result in journal entries in the franchises double-entry accounting system. Today, however, AISs are concerned with non-financial as well as financial data and information. Thus, our definition of an AIS as an enterprise-wide system views accounting as an organizations primary producer and distributor of many different types of information. The definition also considers the AIS as process focused. This matches the contemporary perspective that accounting systems are not only financial systems. 5. TRANSACTION PROCESSING A business transaction is an interaction in the real world, usually between an enterprise and a person or another enterprise, where something is exchanged. For example, it could be exchanging money, products, information, or service requests. Generally, bookkeeping is required to record what happened. Often this bookkeeping is done by a computer, for better scalability, reliability, and cost. Communications between the parties involved in the business transaction is often done over a computer network, such as the Internet. This is transaction processing (TP) the processing of business transactions by computers connected by computer networks. There are many requirements on computerbased transaction processing, such as the following:

A business transaction requires the execution of multiple operations. Consider the purchase of an item from an on-line catalog. One operation records the payment and another operation records the commitment to ship the item to the customer. It is easy to imagine a simple program that would do this work. Yet, when scalability, reliability, and cost enter the picture, things can quickly get very complicated. Transaction volume and database size adds complexity and undermines efficiency. To scale up a system for high performance, transactions must execute concurrently. Uncontrolled concurrent transactions can generate wrong answers. In a concert, when dozens of operations are competing to reserve the same remaining seats, it's important that only one customer is assigned to each seat. Fairness is also an issue. If a transaction runs, it must run in its entirety. In a retail sale, the item should either be exchanged for money or not sold at all. When failures occur, as they inevitably do, it's important to avoid partially completed work, such as accepting payment and not shipping the item, or vice versa. This would make the customer or the business very unhappy. Each transaction should either return an acknowledgment that it executed or return a negative acknowledgment that it did not execute. Those acknowledgments are important. If no acknowledgment arrives, the user doesn't know whether to resubmit a request to run the transaction again. The user or the customer doesnt know what happen to her request. The system should be incrementally scalable. When a business grows, it must increase its capacity for running transactions, preferably by making an incremental purchase not by replacing its current machine by a bigger one or, worse yet, by rebuilding the application to handle the increased workload. When an electronic commerce (e-commerce) web site stops working, the retail enterprise is closed for business. Systems that run transactions are often mission critical " to the business activity they support. They should hardly ever be down.

Records of transactions, once completed, must be permanent and authoritative. This is often a legal requirement, as in financial transactions. Transactions must never be lost. The system must be able to operate well in a geographically distributed environment. Often, this implies that the system itself is distributed, with machines at multiple locations. Sometimes, this is due to a legal requirement that the system must operate in the country where the business is performed. Other times, distributed processing is used to meet technical requirements, such as efficiency, incremental scalability, and resistance to failures (using backup systems). The system should be able to personalize each user's on-line experience based on past usage patterns. For a retail customer, it should identify relevant discounts and advertisements and offer products customized to that user. The system must be able to scale up predictably and inexpensively to handle Internet loads of millions of potential users. There is no way to control how many users log in at the same time or which transactions they may choose to access. The system should be easy to manage. Otherwise, the system management staff required to operate a large-scale system can become too large and therefore too costly. Complex system management also increases the chance of errors and hence downtime, which in turn causes human costs such as increased stress and unscheduled nighttime work. Transaction processing systems have to handle high volumes efficiently, avoid errors due to concurrent operation, avoid producing partial results, grow incrementally, avoid downtime, never lose results, offer geographical distribution, be customizable, scale up gracefully, and be easy to manage.

A transaction processing application is a collection of transaction programs designed to do the functions necessary to automate a given business activity. The first on-line transaction processing application to receive widespread use was an airline reservation system: the SABRE system developed in the early 1960s as a joint venture between IBM and American Airlines. SABRE was one of the biggest computer system efforts undertaken by anyone at that time, and still is a very large TP system. SABRE was spun off from American Airlines and is now managed by a separate company, Sabre Holdings Corporation, which provides services to more than 200 airlines and thousands of travel agencies, and which runs the Travelocity web site. It can handle a large number of flights, allow passengers to reserve seats and order special meals months in advance, offer bonuses for frequent flyers, and schedule aircraft maintenance and other operational activities for airlines. Its peak performance has surpassed 20,000 messages per second. Today, there are many other types of TP applications and new ones are emerging all the time. We summarize some of them in Figure 1.1 . As the cost of running transactions and of managing large databases decreases, more types of administrative functions will be worth automating as TP applications, both to reduce the cost of administration and to generate revenue as a service to customers. In its early years, the TP application market was driven primarily by large companies needing to support administrative functions for large numbers of customers. Such systems often involve thousands of terminals, dozens of disk drives, and many large processors, and can run hundreds of thousands of transactions per day. Large TP systems are becoming even more important due to the popularity of on-line services on the Internet. However, with the downsizing of systems has come the need for small TP applications too, ones with just a few browsers connected to a small server machine, to handle orders for a small catalog business, course registrations for a school, or patient visits to a dental office. All these applications large and small rely on the same underlying system structure and software abstractions. Application Banking Securities trading Insurance Inventory control Example of Transaction Withdraw money from an account Purchase 100 shares of stock Pay an insurance premium Record the fulfillment of an order

Manufacturing Retail point-of-sale Government Online shopping Transportation Telecommunications Military Command and Control Media

Log a step of an assembly process Record a sale Register an automobile Place an order using an on-line catalog Track a shipment Connect a telephone call Fire a missile

Grant permission to download a video FIGURE 1.1 Transaction Processing Applications. Transaction processing covers most sectors of the economy. TP systems also are being offered as services to other companies. Take for example; Amazon.com hosts other companies' web storefronts. Some airlines develop and operate reservation services for other airlines. Some vendors of packaged applications are now offering their application as a service that can be invoked by a third party's application over the Internet, which in turn helps the third party offer other TP services to their customers. Given the expense, expertise, and management attention required to build and run a highquality TP system, this trend toward out-sourcing TP applications is likely to grow. What Is a Transaction? A transaction is an elementary activity conducted during business operations. A transaction processing system (TPS) is an information system that captures and processes data generated during an organizations day-to-day transactions. A transaction is a business activity such as a deposit, payment, order or reservation. Transaction Processing Modes 1. Batch processing A system whereby business transactions are accumulated over a period of time and prepared for processing as a single unit or batch. Characteristics of batch transaction processing: 1. Relies on accumulating transaction data over a period of time and then processing the entire batch at once. 2. Batch processing is usually cyclic: daily, weekly, or monthly run cycle is established depending on the nature of the transactions 3. Cheaper than on-line processing 4. Easier to control than on-line processing 5. Database is constantly out of date 6. Batch processing is now being captured using disk files 2. On-line transaction processing (OLTP) A system whereby each transaction is processed immediately, without the delay of accumulating transactions into a batch Characteristics of on-line transaction processing: 1. Each transaction is completely processed immediately upon entry. 2. OLAP is the most common mode of used today 3. More costly than batch processing 4. Database is always up to date 5. Require the use of fast secondary storage such as magnetic disks Transaction Processing Subsystems in a Firm Overall transaction processing, also known as data processing, reflects the principal business activities of a firm. The principal transaction processing subsystems in a firm are those supporting: 1. Sales 5. Shipping 9. Accounts receivable

2. Production 3. Inventory 4. Purchasing

6. Receiving 7. Accounts payable 8. Billing

10. Payroll 11. General ledger

6. FINANCIAL ANALYSIS (Your management team is depending on you for more than just numbers. Understand, Identify, Analyze and Adjust) Financial analysis is the process of evaluating businesses, projects, budgets and other finance-related entities to determine their suitability for investment. Typically, financial analysis is used to analyze whether an entity is stable, solvent, liquid, or profitable enough to be invested in. When looking at a specific company, the financial analyst will often focus on the income statement, balance sheet, and cash flow statement. One key area of financial analysis involves extrapolating the company's past performance into an estimate of the company's future performance. It is performed by professionals who prepare reports using ratios that make use of information taken from financial statements and other reports. These reports are usually presented to top management as one of their bases in making business decisions. In order to make financial decisions, one must be able to identify potential financial problems and analyze the effects of alternative courses of action. Therefore, as a decision maker, you must be able to use the analytical techniques of financial analysis. The role of financial analyst may be assumed by any manager. Those managers who are involved in financial decision making but who may not perform the actual financial analysis should know the techniques and tools used to arrive at the recommendations the analyst makes. Why Analyze Financial Statements? An internal financial analysis might be done: To evaluate the performance of employees and determine their pay raises and bonuses. To compare the financial performance of the firms different divisions. To prepare financial projections, such as those associated with the launch of a new product. To evaluate the firms financial performance in light of its competitors and determine how the firm might improve its operations. A variety of firms and individuals that have an economic interest might also undertake an external financial analysis: Banks and other lenders deciding whether to loan money to the firm. Suppliers who are considering whether to grant credit to the firm. Credit-rating agencies trying to determine the firms creditworthiness. Professional analysts who work for investment companies considering investing in the firm or advising others about investing. Individual investors deciding whether to invest in the firm. Decision support includes the following: decision support systems (DSS), decision analysis tools, and the application of decision support that is provided to local communities in the form of integrated environments of tools, data, and information. 7. DECISION SUPPORT SYSTEM Decisions are being made by all of us, every day. However, most major organizational decisions are made by managers. Management is a process by which organizational goals are achieved through the use of resources (people, money, energy, materials, space, time). These resources are considered to be inputs, and the attainment of the goals is viewed as the output of the process. Managers oversee this process in an attempt to optimize it. A decision refers to a choice made between two or more alternatives. Decisions are of diverse nature and are made continuously by both individuals and groups. The purposes of making decision in organizations can be classified into two broad categories: problem solving and opportunity exploiting. In either case managers must make decisions.

Managers must learn how to use the new tools and techniques that can help them make better decisions. Many of such techniques use a quantitative analysis approach, and they are supported by computers. When Should you use the Decision Support Approach? Decision support systems (DSS) are interactive information systems that assist a decision maker in approaching ill-structured problems by offering analytical models and access to databases. These systems are designed to support the decision-making process, rather than to render a decision. The hallmark of DSS is flexibility. Personal DSSs should be easy to develop: End-user oriented tools are available for the purpose. On the other hand, an organizational DSS, used throughout an enterprise, should be developed in a well-planned, disciplined process. All DSSs should be easy to use. The Problems that DSSs Help Solve Problems that people in organizations face differ in terms of how structured the problems are; that is, the extent to which a solution procedure can be stated for them. The principal domain of DSS is support of decision making for semi structured problems, where parts of the decision process itself often require very significant computer support. DSSs are also employed to assist a decision maker facing an unstructured problem, often injecting the necessary factual grounding through access to data. Decision making to solve unstructured problems is available but within a narrow domain. An ill-structured problem contains elements of both semi structured and unstructured problems. Capabilities of Decision Support Systems A model is a representation of something else, developed for a specific purpose. It is usually an abstraction or a simplification of the phenomenon being modeled. A model represents the relationships among the salient aspects of the phenomenon. Using DSS in the Decision-Making Process The general decision-making process consists of four steps. These are: 1. Intelligence - a search of the environment is made to find and define the problem or an opportunity. 2. Design - several alternative solutions are developed 3. Choice - alternatives are compared to one another. 4. Implementation - solution is implemented and tracked, in order to be improved upon. Note:. Each of the steps may require backing up to a preceding one, in order to redefine the problem or select a better solution. Features of DSS DSSs have several features to offer in the general information system environment of an organization. Specifically, DSS can: 1. Support decision making in ill-structured situations when problems do not lend themselves to full computerization. 2. Help to rapidly obtain quantitative results needed to reach a decision. 3. Operate in the ad hoc mode to suit the current needs of the user. 4. Support easy modification of models 5. Foster high-quality decision making 6. Facilitate the implementation of decisions 7. Support group decision making 8. Be user friendly 9. Give managers the opportunity to gain a better understanding of their business Components of DSS The three principal DSS subsystems and their principal capabilities are: 1. Data Management Subsystem 2. Model Management Subsystem Management Subsystem

3. The Dialog

The Data Management Subsystem Data management subsystem of a DSS supplies data to which the models can be applied. It relies, in general, on a variety of internal and external databases. The power of a DSSs derives from their ability to provide easy access to data.

The database extract procedures used by DSS is generally specified by a specialist, such as a database administrator, rather than by an end user. The specialist needs to pay particular attention to data consistency across multiple decision support systems that extract data from the corporate databases. Data warehouses are used by many leading companies to support organizational DSS. Commercial data warehouses for decision support are emerging. The Model Management Subsystem Model management subsystems maintain the libraries of models. A particular advantage of DSS is the decision maker's ability to use a model to explore the influence of various factors on outcomes (a process known as sensitivity). Two forms of such analysis are the what-if analysis and goal-seeking. The Dialog Management Subsystem Dialog management model supports the user in applying models to data. The notable feature is support of multiple forms of input and output. By combining various input and output capabilities of a DSS, users can engage in the individually selected dialogs that best support their decision-making styles. What DSS can do for you: Classification of DSS The principal classes of DSS are those that provide: 1. Data access systems 5. Systems based on representational 2. Data analysis systems models 3. Forecast-oriented data analysis 6. Systems based on optimization models systems 7. Systems with suggestion models 4. Systems based on accounting models Data Access Systems These systems can provide user-friendly ad hoc access to the database. This capability is equivalent to what is offered by most DBMSs through a query language. Data Analysis Systems These systems help analyze historical and current data, either on demand (ad hoc) or periodically. Data analysis systems are frequently oriented toward the consolidation (aggregation) of data, such as summarizing the performance of a firm's subunits and presenting the summaries in graphs. Only very simple models are employed in data analysis systems. Forecast-Oriented Data Analysis Systems These systems generally assist in developing product plans, including market segment forecasts, sales forecasts, and analyses of competitive actions. Their operation is based on access to a variety of internal and external marketing and product databases, including series of historical data. The systems in this category include only the simpler of the variety of marketing models, which show how existing trends in the marketplace will extend in the future if similar conditions prevail. Systems Based on Representational Models These models show the dependence between a controllable variable and an outcome. These are frequently simulation models which yield probabilistic results. Examples include representational models and risk analysis models. Systems Based on Optimization Models Optimization models are developed by management scientists to determine optimal allocation of resources or best possible schedules. Systems with Suggestion Models Systems with suggestion models suggest solutions within narrow domains of knowledge and sometimes combine a DSS with an expert system. 8. EXECUTIVE INFORMATION SYSTEMS Executive information systems (EIS) provide a variety of internal and external information to top managers in a highly summarized and convenient form. EIS are becoming an important tool of top-level control in many organizations. They help an executive spot a problem, an opportunity, or a trend. Executive information systems have these characteristics:

1. EIS provide immediate and easy access to information reflecting the key success factors the company and of its units. 2. A User-seductive interfaces, presenting information through color graphics or video; allow an EIS user to grasp trends at a glance. 3. EIS provide access to a variety of databases, both internal and external, through a uniform interface. 4. Both current status and projections should be available from EIS. 5. An EIS should allow easy tailoring to the preferences of the particular users or group of users. 6. EIS should offer the capability to drill down into the data. Contrasting EIS and DSS: DSS are primarily used by middle and lower level managers to project the future, EIS's primarily serve the control needs of higher level management. 1. EISs primarily assist top management in uncovering a problem or an opportunity. Analysts and middle managers can subsequently use a DSS to suggest a solution to the problem. 2. At the heart of an EIS lies access to the data. EISs may work on the data extraction principal, as DSSs do, or they may be given access to the actual corporate databases or data warehouses. 3. EISs can reside on personal workstations or servers. 9. WHAT IS BUSINESS INTELLIGENCE (BI)? Business Intelligence (BI) applications are decision support tools that enable real-time, interactive access, analysis and manipulation of mission-critical corporate information. The goals for Business intelligence projects are to provide information used to: Support internal enterprise users in the assessment, enhancement and optimization of organizational performance & operation. Deliver critical business information to end-users about value chain constituencies such as customers and supply-chain partners.

End-users can utilize the BI tools to "drill-down" and "slice and dice" to gain a better understanding of transactional and operational information; for example, Star Schema and OLAP are usually used for provide this functionality.

Core Capabilities of Business Intelligence

Source: Gartners 2011 CIO Agenda (aka Reimagining IT: The 2011 CIO Agenda). How important is BI? Top 10 Business and Technology Priorities for 2011:

1. Cloud computing 2. Virtualization 3. Mobile technologies 4. IT Management 5. Business Intelligence 6. Networking, voice and data

communications 7. Enterprise applications 8. Collaboration technologies 9. Infrastructure 10. Web 2.0

Benefits of Business Intelligence Improve Management Processes planning, controlling, measuring and/or changing resulting in increased revenues and reduced costs Improve Operational Processes fraud detection, order processing, purchasing.. resulting in increased revenues and reduced costs Predict the Future Major BI Trends Mobile Cloud Social Media Advanced Analytics

BI Golden Rules Data Quality & Accuracy Data Consistency Data Timeliness

Get the right information to the right people at the right time The Users of Business Intelligence Executives and business decision makers look at the business from a high level, performing limited analysis Analysts perform complex, detailed data analysis Information workers need static reports or limited analytic power Line workers need no analytic capabilities as BI is presented to them as part of their job

Business Intelligence Tools Operational Data Source: Business Intelligence system collects data from various sources including operation database, OLTP, ERP, legacy apps, external database and etc. ETL tools (Extract, Transform, Load) are used to pull data from source database, transform the data so that it is compatible with the data warehouse and then load it into data warehouse. A Data Warehouse is a "Subject-Oriented, Integrated, Time-Variant, Nonvolatile collection of data in support of decision making". Data Warehouses tend to have these distinguishing features: (1) Use a subject oriented dimensional data model; (2) Contain publishable data from potentially multiple sources and; (3) Contain integrated reporting tools.

Data Warehouse usually adopts Star Schema data structure for optimizing the performance of data analysis and reporting. 10. GENERAL LEDGER AND BUDGETING A general ledger (GL) is a chronological accounting record of a business, uses to keep track of financial transactions. Transactions are categorized and summarized into accounts. An account is a unique record for each type of asset, liability, equity, revenue, and expense. The number and type of accounts that make up the general ledger is determined by the chart of accounts (COA). The general ledger is the primary component of most financial accounting software applications. It can be thought of as an electronic database that provides the data required to build financial reports. General ledger is at the core of any enterprise resource planning (ERP) financial management system, which encompasses the functions that are required to maintain one or more sets of books, generate financial reports, manage cash and fixed assets and execute payment and receivable transactions. The general ledger provides a single value for each control account, such as accounts payable, accounts receivable, and inventory. This highly summarized information is sufficient for financial reporting, but it is not useful for supporting daily business operations. For example, for financial reporting purposes, the firms total accounts receivable value must be presented as a single figure in the balance sheet. This value is obtained from the accounts receivable control account in the general ledger. To actually collect the cash this asset represents, however, the firm must have certain detailed information about the customers that this summary figure does not provide. It must know which customers owe money, how much each customer owes, when the customer last made payment, when the next payment is due, and so on. The accounts receivable subsidiary ledger contains these essential details.

BENEFITS & DIFFERENCES OF A COMPUTER-BASED GENERAL LEDGER SYSTEM Transaction Data may be captured by electronic devices and stored on magnetic media, rather than on hard-copy documents Transaction Data can be verified by programmed edit checks, in order to detect and prevent errors, rather than by human clerks Added data may easily be captured, in order to identify transactions with individual employees or organizational units Transactions can be quickly posted directly to ledgers, rather than being laboriously entered into journals and then posted Transaction Processing, including summarizing of journals and ledgers and computing trial balance totals, can be done faster with fewer errors Financial Statements and other financial summaries can be prepared at any time during the accounting period, rather than being delayed until the end of the period; furthermore, the ledgers can be kept in balance at all times Detailed listings of journals and ledgers, reflecting all individual transactions rather than summaries, can be printed for thorough review Required Stewardship Reports can be prepared quickly and easily from stored transaction data, using stored computer programs A wide variety of managerial reports and analyses can also be prepared from data stored in related files and tables, thereby providing managers and employees with useful information; in manual systems all reports must be laboriously prepared by clerks

BUDGETING A budget is defined as managements quantitative expression of plans for a forthcoming period. Budgets are prepared at various levels of an organization. The master budget is defined as the overall financial plan for the period, which reflects the organizations goals and objectives. The master budget includes operating and financial budgets. Operating budgets show the companys planned sales and operating expenses. Financial budgets reflect financial plans such as borrowing, leasing, and cash management. Budgeting, when done properly, can serve as a planning and controlling system. Budgeting is concerned primarily with the planning and controlling functions of management. Budgeting is not a financial function performed by the staff of budget departments or by accountants. Such people merely record and reports plans and comparisons of operation results with those plans. They help management analyze, interpret, and react. The manager is responsible for combining available resources and knowledge to best achieve the desired goals and objectives of the farm business. With budgets, management can begin to answer such questions as: How may the available resources best be used? What enterprises can be produced and which will contribute most to returns to owned resources? How much of the controlled land should be devoted to each enterprise? What equipment and machinery will be needed to produce the potential enterprises? What production practices should be used to produce each of the enterprises? How much labor will be needed? What are the capital requirements? Why Budget? Using budgets can provide the manager a method to:

1) Experiment through simulation with possible outcomes of a given organizational change before resources are actually committed to the change. 2) Uncover cost items that might otherwise be overlooked. 3) Refine the present organization. 4) Seek credit from lending agencies. 5) Learn to better organize and reorganize. Budgets are management tools to help evaluate the business. Each type of budget has a different but related purpose and should be used by managers accordingly. Each type of budget offers useful information to support management decisions. The main purposes of budgeting are according to Drury (2004): 1. Planning Budgets are used to plan the future activities for organizations: they are aimed to ensure that companies act in the best way in order to react their goals. Budgets are used to plan for sales, purchase of material and for financial issues. When setting a budget, managers must predict the future and consider what changes and problems that may occur. This encourages mangers to take actions before problems become a reality. 2. Coordination Budgets contribute to good communication through the exchange of information that takes place during the budgetary process. The budget process enables the employees to communicate and share their ideas with other workers with the organization. For managers, the budget can be used to communicate and explain strategies and goals within the company to the employees. Budgeting also connects departments and gives insight and understanding for each other. 3. Resource Allocation Budgets are aimed to facilitate resource allocation within companies, secure that the resources are being used effectively and that the right amount is distributed to the departments, which is crucial. Units in the organization have different priorities. By distributing resources to units, resource allocation could be seen as a control tool. But this requires the managers to take active part in the budgetary process. They need to be well informed about the factual questions and have all concerning facts and details. 4. Responsibility Distribution Budgets are often used for distribution of responsibility. During the budget process, responsibility is assigned to employees and it is vital that the managers clarify what is expected from the employees. 5. Establishing Objectives Budget is used for setting targets for managers. It is common that managers receive a bonus if they are able to stick to the budget and reach the goals. Drury states that there are 3 kinds of targets for an organization: mission, corporate objectives and unit objectives. 6. Motivation Budgets are used as a motivational tool. 7. Awareness The budget creates awareness about the organizations goals and to make workers understand the big picture. Personnel can understand how their work is contributing to the organization as a whole instead of just seeing their own unit. How a Budget Helps in Management Decisions 1. 2. 3. 4. Identify Excessive Spending Plan Operations Product Development Forecasting and Planning