5.2 Management Information Systems (MIS)
5.2.1 Overview of MIS
The main objective of MIS is to provide lower and middle management with printed or
electronic reports with inquiry capabilities so that they can control, organize and plan
more effectively and efficiently. Organizations can achieve competitive advantage by
effectively using the information generated by MIS.
The concept of MIS emerged partly as a response to the shortcomings of the first
computerized TPSs, which often improved transaction processing but provided little
information for management. Computerized MISs typically extract and summarize data
from TPSs to allow managers to monitor and direct the organization.
MISs can also provide employees accurate feedback about easily measured aspects of
their work.
For example, a listing of every sale during day or week would be extremely difficult to
use in monitoring a hardware store’s performance. However, the same data could be
summarized in measure of performance, such as total sales for each type of item, for
each salesperson and for each hour of the day.
Input to MIS:
Internal data sources – from organization’s TPS and ERP systems and related
databases.
External data sources – customers, suppliers, competitors and stock holders (not
already captured by TPS), Internet and extranets
Process: MIS uses the input data and processes it into information for the use of
managers primarily in the form of pre-determined reports.
Outputs of MIS: Collection of reports that are distributed to managers. Management
reports can come from various company databases through data mining.
Data mining allows a company to shift through a vast amount of data stored in
databases, data warehouses and data marts to produce a variety of reports
including scheduled reports, key-indicator reports and demand reports,
exception reports and drill-down reports.
There are several types of reports produced by MIS. As mentioned before, these reports
provide summarized information rather than detail.
Scheduled (Periodic) reports: reports produced periodically or on a schedule such as
daily, weekly or monthly, depending on the decision making need. The format
and the informational content of scheduled reports is fixed in advance.
Examples: daily or weekly sales analysis reports.
monthly financial reports:
Another scheduled report is the key-indicator reports. These reports provide a
summary of the previous day’s critical activities and typically available at the
beginning of each work day. These reports summarize inventory levels,
production activity, sales volume etc. They are used by managers and
executives to take quick, corrective action on important aspects of the
business.
Demand reports:
Reports or screen outputs developed to give relevant information at
someone’s request (adhoc). Suppliers as well as customers can use demand
reports.
Example- inventory level of certain product
Exception reports:
Reports which are automatically produced when a situation is unusual
or requires management action. Exception reports are most often used to
monitor aspects important to an organization’s success. For example,
purchasing managers may need an exception report when suppliers are late
in deliveries. Such a report may be triggered automatically by the delay of an
individual supplier or produced on a scheduled basis, but only if there are late
suppliers. Parameters or trigger points should be set carefully, if not you may
end up with too many exception reports.
When the quantity of certain raw material drops, a report will be produced to
alert the management mentioning the steps that should be taken to re-order
these items.
In general, when an exception report is produced, a manger or executive
takes action based on the information provided by the report. In the above
example, the manager will take action to order raw material.
Drill-down reports:
Reports which provide detail data about a situation. Through the use
of drill-down reports analysts are able to see data at a higher level first (sales
for entire company), then at a more detailed level (sales for one dept) and
then a very detailed level (sales per one sales representative.)
Important things to consider when developing reports
As mentioned before, it is important to set the parameters carefully in Exception reports.
Each report should be tailored to user requirements and produced in a timely fashion as
outdate reports are of no value. It is also important to periodically review reports in order
to identify reports which are of no use, improve the content of reports and introduce new
reports.
5.2.2 Characteristics of a MIS
In general MIS perform the following functions.
• Provide reports with fixed and standard formats: for example, scheduled
reports for inventory control may contain the same type of information
placed in the same locations on the reports. Different managers may use
the same report for different purposes.
• Produce hard-copy and soft-copy reports: Some MIS reports are printed on
paper. They are known as hard-copy reports (tangible). Other reports can
be soft-copy reports where typically the output is displayed on a computer
screen. The soft copy reports are typically formatted in a report like fashion
and use visual displays on computer screens.
• Use internal data stored in the computer system: Primarily MIS reports use
internal sources of data that are contained in computerized databases.
These sources of data can be outputs generated by TPSs or ERP systems.
Some MISs use external sources of data about competitors, the industry,
economy and so on. The Internet is often used as a source for external
data.
• Allow end users to develop their own custom reports: Typically, analysts and
programmers involve in developing and implementing complex MIS reports.
At the same time end users are also increasingly developing their own
simple programs to query a database and produce basic reports.
However, this approach can lead to several end users developing the same
or similar reports, which can increase the total time expended and require
more storage, compared to an analyst developing a report for all users.
• Require user requests for reports developed by systems personnel: As
mentioned previously, typically, IS personnel develop and implement MIS. If
any user needs to access these systems, they typically require to submit a
formal request to the IS department. For example if the sales manager
wants a sales report to be used by several people in his/her department,
often a request has to be made. This is different to end user developed
systems where it is less formal.
5.2.3 MIS in Functional Areas of Business
Most organizations are structured along functional lines or areas. Some of the traditional functional areas include finance, manufacturing, marketing and human resources. The MIS can be divided along those functional lines, in order to produce reports tailored to individual functions.
5.2.3.1 Financial MIS
A financial MIS provides financial information not only to accountants, but to a broader
set of people who need to make better decisions on a daily basis.
Most financial MISs perform the following functions:
• Integrate financial and operational information from multiple sources, including
the Internet, into a single system
• Provide easy access to data for both financial and non financial users, often
through use of a corporate intranet to access corporate web pages of financial
data and information
• Make financial data immediately available to shorten analysis turnaround time
• Enable analysis of financial data among multiple dimensions-time, geography,
product, plant, customer
• Analyze historical and current financial activity. Monitor and control the use of
funds over time
The following figure describes a basic financial MIS. The typical inputs to a MIS include
internal TPS databases, additional corporate databases of internal data and external
data.
Typical outputs (reports and updated databases) provide support for profit/loss and cost
systems, auditing as well as use and management of funds.
Profit/Loss and Cost systems
The two specialized financial functional systems include profit/loss system and the cost
system.
These systems organize revenue and cost data for the company. The revenue and
expenses data of each department is captured by the TPS. The updated databases of
these TPSs are the primary internal source of financial information for the MIS, ie the
internal input to the MIS.
Profit center: Department within an organization that tracks total expenses and net
profits.(investment division of a large insurance or credit card company)
Revenue center: Division within a company that tracks sales or revenues.(marketing or
sales department)
Cost center: Division within a company that does not directly generate
revenue.(manufacturing, research and development).
Auditing
Auditing involves analyzing the financial condition of an organization and determining
whether financial statements and reports produced by financial MIS are accurate.
Correct and proper auditing procedures are important as financial statements such as
income statements and balance sheets are used by so many people and organizations
(investors, bankers, insurance companies, federal and state government agencies,
competitors and customers). Auditing can reveal potential fraud, false and misleading
information. Types of auditing are;
Internal auditing: Auditing performed by individuals within the organization.
Conducted to see how well the organization is meeting the established company goals
and objectives.
External auditing: Auditing performed by an outside group. Purpose is to provide an
unbiased picture of the financial condition of an organization and uncover problems.
Funds Usage and Management:
Another important function of a financial MIS is to assist with funds usage and
management. Companies that do not manage and use funds effectively often have lower
profits or face economic failure which leads to closing down of the organization.
Internal uses of funds: purchasing additional inventory and machinery, hiring new
employees, buying new office equipment, increasing marketing and
advertising, investing in new products, and increasing research and
development.
External uses of funds: they are typically investment related. Companies often invest
excess funds in external revenue generating methods. These include
investing in banks, stocks, bonds, bills, notes, futures, foreign currency.
5.2.3.2 Marketing MIS
A marketing MIS supports managerial activities related to product development,
distribution, pricing decisions, promotions, and sales forecasting.
Customer Relationship Management (CRM) programs, available from some ERP
vendors help a company manage all aspects of customer encounters. CRM integrates
and automates many of the customer serving processes in sales, marketing and
customers services that interact with a company’s customers.
CRM systems include a family of software modules that provides the tools that help a
business and its employees and provide fast, convenient, dependable and consistent
service to its customers.
Sub systems for the marketing MIS include marketing research, product development,
promotion and advertising and product pricing. These subsystems and their outputs help
marketing managers and executives increase sales, reduce marketing expenses and
develop plans for future products and services to meet the challenging needs of the
customers.
Market research:
Market research is a formal study of the market and customer preferences. Tools used
for marketi research include surveys, questionnaires, pilot studies and interviews. Market
research enables to identify potential future customers and the features that current
customers really want in a good or service.
The ability to forecast demand is made possible by marketing research and sophisticated
software.
Product development:
This involves the conversion of raw materials into finished goods and services. Product
devepopment focuses primarily on the physical attributes of the product. Important
factors in product development decisions include plant capacity, labor skills, engineering
factors and materials.
In many cases a computer program analyzes these various factors and selects the
appropriate mix of labor, materials, plant and equipment and engineering designs.
Computer programs can be used for make-or buy decisions.
Promotion and advertising:
One of the most important functions of any marketing effort is promotion and advertising.
Product success is a direct function of the types of advertising and sales promotions
carried out by the organisation. .
Richness and reach are important measures of effective advertising. Richness refers to
the amount and level of detail that an organization can give its potential and existing
customers.
Reach refers to number of people that an organization is able to contract through
advertising.
With information systems and the Internet, however, companies are able to achieve high
levels of richness and reach in their advertising programs.
Product pricing:
Product or service pricing is another important and complex marketing function. With
relation to a product, retail price, whole-sale price, and price discounts must be set. A
major factor in determining pricing policy is an analysis of the demand curve, which
attempts to determine the relationship between price and sales. Computer programs can
determine pricing policies.
For example a marketing executive can enter a hypothetical price to a computer system
and see how the total revenue will be changed. This will give him an idea as to the price
that should be charged to get a profit.
Sales analysis is also important to identify products, sales personnel and customers that
contribute to profits and those that do not. Several reports can be used by marketing
managers/sales managers to make effective decisions.
For example: reports such as sales by product item, sales made a sales person etc
Based on these reports the sales manager can identify which items have more or less
demand.
5.2.3.4 Human Resource MIS
A human resource MIS, also called the personnel MIS, is concerned with activities
related to employees and potential employees of the organization. Because the
personnel function relates to all other functional areas in the business, the human
resource MIS plays a valuable role in ensuring organizational success.
Activities performed: Workforce analysis and planning, hiring, training, job and task
management, other personnel related issues.
An effective human resource MIS allows a company to keep personal costs at a
minimum while serving the required business processes needed to achieve corporate
goals.
Outputs: Some organizations have computer systems to assist with human resource
planning, hiring, training, skills inventorying, wage and salary administration.
Reports developed by these systems include human resource planning reports, job
application review profiles, skills inventory reports, salary surveys
Human resource planning
Overall purpose: Put the right number and kinds of employees in the right jobs when they
are needed.
One of the first aspects of any human resource MIS is determining personal and human
needs.
Effective human resource planning requires defining the future number of employees
needed and anticipating the future supply of people for these jobs. For companies
involved with large projects, human resource plans can be generated directly from data
on current and future jobs.
The output of a human resource MIS would be a human resource needs and planning
report.
Example: for a large construction project to be started next year project management
and forecasting software can be used to determine types of employees needed and
when. The output would be a human resource needs and planning report.
Personnel selection and Recruiting
If the human resource plan reveals that additional personnel are required, the next step
is to recruit and select personnel.
Management information systems can also be used to help rank and select potential
employees.
For every applicant, the system can analyze and print the results of interviews, tests and
company visits. This report is called a “job applicant review profile”, and it assists
corporate recruiting teams in final selection.
Training and skills inventory
For some jobs very specific training should be given to new employees. Other jobs may
require general training about the organizational culture, orientation, dress standards and
the expectations of the organization.
After the training is completed, employees usually take computer-scored tests to
evaluate their new mastery.
The results of these tests create a “training or skills inventory report’.
Skills inventory reports help managers to evaluate current employees to determine their
potential for a particular new position, and to determine raises or bonuses.
Scheduling and job placement
Scheduling people and jobs is relatively straightforward or complex. In most cases,
various schedules and job placement reports are generated.
Employee schedules: developed for each employee, showing his/her job assignment
over the next week or month.
Job placements: often determined based on skills inventory reports, which show which
employee might be best suited to a particular job.
Wage and salary administration
This MIS subsystem involves determining wages, salaries and benefits (medical
payments, saving plans, retirement accounts)
Wage data (such as industry averages for positions) can be taken from the corporate
databases and manipulated by the human resource MIS to provide wage information and
reports to higher levels of management.
These reports are called salary surveys and used to compare salaries with budget plans,
the cost of salaries versus sales and the wage required for any department or office.
Outplacement
Employees leave companies for various reasons.
Many companies offer outplacement services to help employees make the transition.
Outplacement can include job counseling and training, job and executive search,
retirement and financial planning and a variety of severance packages and options.
5.2.3.5 Manufacturing MIS
Compared to any other functional area, manufacturing has been improved by advances
in technology. With emphasis on greater quality and productivity, having an efficient and
effective manufacturing process is becoming critical to the success of manufacturing
organizations. Computerized systems support manufacturing activity at all levels, from
the factory floor to the management level. The use of the Internet has also enabled to
streamline all aspects of manufacturing. The following figure 5.2.8 gives an overview of
manufacturing MIS inputs, subsystems and outputs.
The manufacturing MIS subsystems and outputs monitor and control the flow of
materials, products and services through the organization. As raw materials are
converted to finished goods, the manufacturing MIS monitors the process at almost
every stage.
Using specialized computer chips and tiny radio transmitters, companies are able to
monitor materials and products throughout the entire manufacturing process.
Design and engineering
At the start of the manufacturing process, many aspects of the design are finalized with
the help of design and engineering departments. These activities include deciding, the
size and shape of parts, the way electrical components are attached to equipment, the
placement of controls on a product, and the order in which parts are assembled into the
finished product.
Apart from internal staff, increasingly, companies are involving customers in the design
and engineering process. In some cases, computer assisted design (CAD) facilitates this
process. Using applications such as CAD enables engineers to identify faults in a newly
designed product.
Data from design and engineering can also be used to identify problems with existing
products and help develop new products.
Master production schedule and inventory control
The overall objective of master production schedule sub system is to provide detailed
plans for both short-term and long-term scheduling of manufacturing facilities.
Master production- scheduling software packages include forecasting techniques that
determine current and future demand for products and services. After current demand
has been calculated and future demand has been estimated, the mater productionscheduling
package determines the best way to use the manufacturing facility and all its
related equipment.
The result of the process is a detailed plan that reveals a schedule for every item that will
be manufactured.
Another important key to the manufacturing process is inventory control. Many
techniques are used to minimize inventory costs.
EOQ (economic order quantity): determines the quantity to order. This quantity is
calculated to minimize the total inventory costs.
ROP (reorder point): a critical inventory quantity level. When the inventory levels for a
particular item falls to the reorder point, or critical level, the system generates a
report so that an order is immediately placed for the EOQ of the product.
MRP (material requirements planning): This technique is used when the demand for one item is dependent on the demand for another. The basic goal is to determine
when finished products (such as cars) are needed and then to work backwards to
determine deadlines and resources (tires) needed, to complete the final product
on schedule.
MRPII (manufacturing resource planning): refers to an integrated, company wide system based on network scheduling that enables people to run their business with high
level of customer service and productivity, while lowering costs and inventories.
MRPII places a heavy emphasis on planning, which helps companies ensure that
the right product is in the right place at the right time.
JIT (just-in-time) inventory and manufacturing is an approach that maintains inventory at
lowest levels without clarifying the availability of finished products. Here inventory
and materials are delivered just before they are used in a product.
Process control
Managers use number of technologies to control and streamline the manufacturing
process.
Some of the technologies used as follows;
CAM (computer assisted manufacturing): computers can directly control manufacturing
equipment, using CAM systems. Examples: drilling machines, assembly lines
CIM (computer integrated manufacturing): link the components of the production process (order processing, product design, manufacturing, inspection, quality control, and
shipping) into an effective system.
FMS (flexible manufacturing system): allows manufacturing facilities to rapidly and
efficiently change from making one product to another. Using FMS in the middle
of a production run, the production process can be changed to make a different
product or switch manufacturing materials so companies can react quickly to
market needs and competition.
Quality control and testing
This is a process that ensures that the finished products meet the needs of the customer.
For a continuous manufacturing process, control charts are used to measure weight,
volume, temperature, or similar attributes. Then upper and lower control limits are
established.
If these limits are exceeded, the manufacturing equipment is checked for defaults.
The development of control chart limits and acceptance sampling plans can be fairly
complex. So quality-control software programs have been used to generate them.
Information generated from quality control programs can help workers locate problems in
manufacturing equipment.
Quality control reports can also be used to design better products.
5.2.3.6 Other Management Information Systems
In addition to finance, manufacturing, marketing and human resource MIS some
companies have other functional MISs.
Accounting MISs
An information system provides aggregate information on accounts payable, accounts
receivable, payroll and many other applications.
Some smaller companies hire outside accounting firms to assist them with their
accounting functions. These outside companies produce reports for the firm using raw
accounting data. In addition, many excellent integrated accounting programs are
available for personal computers in small companies. Depending on the needs of the
small organization and its personnel’s computer experience, using these accounting
systems can be a very cost-effective approach for managing information.
Geographical Information Systems
A computer system is capable of assembling, storing, manipulating and displaying
geographically referenced information, that is data identified according to its location. A
GIS enables users to pair maps or map outlines with tabular data to describe aspects of
a particular geographical region.
