CHAPTER ONE

Fundamentals of
Business Information
System

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 Outline
 Introduction
 Data
 Information
 Roles of information
 Defining System
 System Theory
 System Types
 System Performance measure
 Information System
 Component
 IS in organization
 Dimensions of Information Systems

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 Introduction

 Data:- it is a raw fact and can take the form of a number,

figures, pictures or statement such as a date or a
measurement.
 Data relates to transactions, events and facts.
 On its own - it is not very useful. Think of the data that is
created when you buy a product from a retailer.
 This includes:
 Time and date of Transaction(e.g. 10:05 Tuesday 16 September
2019)
 Transaction Value(e.g. 55.00 Birr)
 Facts about what was bought(e.g. hairdryer, cosmetics pack,
saving foam) and how much was bought(quantities)
 How payment was made(e.g. credit card, credit card number and
code)
 Which employee recorded the sale
 Whether any promotion discount applied
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 Con’t
 It is necessary for businesses to put in place procedures
to ensure data are recorded.
 For example, to ensure a call center operator includes the postcode of
every customer this can be written into their script and a validation
check performed to check these data have been entered into the
system.
 Information: it is data that have been
processed/analyzed so that they are meaningful.
 This requires a process that is used to produce information which
involves collecting data and then subjecting them to a transformation
process in order to create information.
 Some examples of information include a sales forecast or a financial
statement.
 Note:- the - "processed" and "meaningful": It is not
enough for data simply to be processed; it has to be of
use to someone - otherwise why bother?!

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Cont.

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 Con’t

Information

 Tables (frequency distributions).

 Graphical representations (histograms, bar plots, pie-
charts).
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 Data Processing Functions

 aggregating which summarizes data by such means as

taking an average value of a group of numbers.
 Classification places data into categories such as on-
time and late deliveries.
 Sorting organizes data so that items are placed in a
particular order, for example listing orders by delivery
date.
 Calculations can be made on data such as calculating
an employee’s pay by multiplying the number of hours
worked by the hourly rate of pay.
 Finally data can be chosen based on a set of selection
criteria, such as the geographical location of customers.

Data processing
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 Attributes of Information

 Characteristics of good information are as

follows:  Delivery
 Usability
 Relevant  Timely

 Simple  Accessible

 Flexible  Secure

 Economical

 Quality

 Accurate

 Verifiable

 Complete

 Reliable

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 Cont.
 Accuracy: error free
 Relevance: serve the purpose
 Timeliness: How current
 Completeness: no missing information
 Accessible: when needed
 Reliable: trusted
 Secured: not to be access by unauthorized users
 Verifiable: check its correctness
 Simple: without complexity, inf. overload

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 Information/knowledge Hierarchy

 Data  processing  Information

 Information  intelligence  Knowledge
 Knowledge  experience  Wisdom

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Cont.

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 Why Do People Need Information in
Business/organization?
 Businesses and other organizations need information for many
purposes/: Some of the roles of Information are listed below
 Planning:
 To plan properly, a business needs to know what resources it has
(e.g. cash, people, machinery and equipment, property, customers).
 It also needs information about the markets in which it operates and
the actions of competitors.
 At the planning stage, information is important as a key ingredient in
decision-making.
 Recording:
 Information about each transaction or event is needed.
 Much of this is required to be collected by law - e.g. details of
financial transactions.
 Just as importantly, information needs to be recorded so that the
business can be properly managed.

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 Con’t
 Controlling:
 Once a business has produced its plan it needs to
monitor progress against the plan - and control
resources to do so.
 So information is needed to help identify whether
things are going better or worse than expected, and to
spot ways in which corrective action can be taken
 Measuring:
 Performance must be measured for a business to be
successful.
 Information is used as the main way of measuring
performance.
 For example, this can be done by collecting and
analyzing information on sales, costs and profits
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 Con’t
 Decision-making:
 Information used for decision-making is often
categorized into three types:
i. Strategic information: used to help plan the
objectives of the business as a whole and to measure
how well those objectives are being achieved.
Examples of strategic information include:
 Profitability of each part of the business
 Size, growth and competitive structure of the
markets in which a business operates
 Investments made by the business and the
returns (e.g. profits, cash inflows) from those
investments

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 Con’t

ii. Tactical Information: this is used to decide how the

resources of the business should be employed.
Examples include:
 Information about business productivity (e.g.
units produced per employee; staff turnover)
 Profit and cash flow forecasts in the short term
 Pricing information from the market
iii. Operational Information: this information is used
to make sure that specific operational tasks are
carried out as planned/intended (i.e. things are done
properly).
 For example, a production manager will want
information about the extent and results of
quality control checks that are being carried out
in the manufacturing process.
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 Cont.
 Dealing with competitors
 5 competitive forces: Competitive Rivalry, Supplier power, buyer power, threats
of substitution, threats of new entry.
 Influencing strategies
 Customers: needs, perceptions, preferences
 The right product or service
 Suppliers: ability to supply
 dealing: surplus/shortage

 Employees: needs/perspectives; information seeking (profitability,

problems, what others do)
 motivational, engaging
 cross-sectional team

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 Defining Systems
 An interrelated set of components that work together within an identifiable
boundary to achieve common objectives (purposes). Systems have:
 Component – One part/group of parts (sub-systems)

 Interrelationships – the function of one component depends on the function &

existence of the other (output of one – the input for the other)
 Objective/purpose – the main reason for the existence of a system: set of defined

objectives
 Boundary – Conceptual line drawn around the system that separates the system from

the environment
 What is inside and outside of the system
 scope of operation/functional boundary: what the system can and cannot do

 Environment – everything outside a system & interact with a system

 Systems interact with the environment

 Events in the environment affect the system

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 Cont.
 Interface: the points at which two systems, subjects, organizations, etc.

meets and interact (e.g. menu in computer system)

 set of rules/procedures for how a system interacts (communicates) with the

environment

 Input - whatever the system takes in from the environment

 Output – whatever returned to the environment (product/service)

 Constraints - limits or restrictions to what a system can accomplish

(capacity, resources, …)
 Feedback: The reaction or response of the environment to the output is

known as feedback. Feedback is useful in evaluating and improving the

functioning of the system.

Therefore,
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System = C + I + O + B + E + I + I/O + C + F
 Cont.
 The entire system is broken into three parts namely - input, process and
output.

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 System Types

 Simple vs. Complex

 Simple: easily define system’s output from known inputs; no need of
high level system analysis
• E.g. A college classroom system – Instructors, Students, Text, Facility

– educated citizen

 Complex: Multitude of components and relationships;

processes are not describable with single rule; unpredictable
occurrence of features from the current specification
• Example: organisms, human brain, social & economic system

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 Cont.

 Open vs. Closed System

 Open: dynamically interact to their environments
 taking inputs and transforming them into outputs to be distributed

into their environments

 exchange of feedback with its external environment
 Analyzed & used for adjusting internal systems & necessary information is

transmitted back to the environment

• E.g. Living Organism, organizations

 Closed: nearly no interaction with and not influenced by the

environment;
 its operation is relatively independent of its environment

 E.g. Dry Battery, Watch

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 Cont.

 Adaptive vs. Non-Adaptive

 Adaptive System – changing behavior based on its environment; react
to what other agents are doing; tailoring the response based on the
problem
 Non-Adaptive System - fail to adopt to the environment;
steady/stable/fixed
 Natural/man-made (solar system/organization)
 Conceptual/physical (social system or theory/production system)

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 System Performance Measures
 Efficiency
 A measure of the use of inputs (or resources) to achieve results.

 Achieved output divided by consumed input

 Effectiveness
 A measure of the extent to which a system achieves its goals

(achieved output divided by expected output)

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 Defining Information System

 An information system is defined as the software that

helps organize and analyze data.
 The purpose of an information system is to turn raw data
into useful information that can be used for decision
making in an organization.
 The role of the Information systems to provide information
to management which will enable them to make decisions
which ensure that the organization is controlled.
 The organization will be in control if it is meeting the needs
of the environment.

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 Components of information System

 In an organization, an information systems

consists of:
 People
 Hardware
 Software
 Communication
 Data
 Procedure

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 Con’t

 People resources include the users and developers of an

information system and those who help maintain and operate
the system such as IS managers and technical support staff.
 Hardware resources include computers and other items
such as printers.
 Software resources refer to computer programs known as
software and associated instruction manuals.
 Communications resources include networks ,the hardware
and software needed to support them.
 Data resources cover the data that an organization has
access to such as computer databases and paper files.
 Procedure rule for achieving optimal and secure operation in
data processing. Procedure include priorities in dispensing
software applications and security measure

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 Information System in an organization

 Trends that have made information systems important

in business:
 Growing power and decreasing cost of computers
 Growing capacity and decreasing costs of data
storage devices
 Increasing variety and ingenuity of computer
programs
 Available, reliable, affordable, and fast
communications links to the Internet
 Growth of the Internet
 Increasing computer literacy of the workforce

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 Information Systems in Business Functions

 Functional business area: services within a

company that support main business
 Includes accounting, finance, marketing, and human
resources
 Part of a larger enterprise system

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 Accounting

 Accounting information systems:

 Help record transactions
 Produce periodic statements
 Create required reports for law
 Create supplemental reports for managers
 Contain controls to guarantee adherence to
standards

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 Finance

 Finance systems:
 Facilitate financial planning and business
transactions
 Tasks include organizing budgets, managing
cash flow, analyzing investments, and making
decisions

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 Marketing

 Marketing’s purpose is to pinpoint likely

customers and promote products
 Marketing information systems:
 Analyze demand for products in regions and
demographic groups
 Identify trends in demand for products/services
 Help analyze how advertising campaigns affect profit
 Web provides opportunity to collect marketing
data as well as promote products and services

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 Human Resources

 Human resource management systems aid

record-keeping
 Must keep accurate records
 Aids recruiting, selection, placement, benefits
analysis, requirement projections
 Performance evaluation systems provide
grading utilities

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 Manufacturing

 Control Inventory,process customer orders, prepare

production schedules,perform quality assurance and
prepare shipping documents.

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 Government

 Tax authorities, national insurance and welfare

agencies, defence departments, economic
organizations, immigration and authorities

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 Retail

 Some retil stores(e.g. Wal-Mart,Kmart) are now

linked to communication networks by satellite.
 Management can determine which items move
quickly and which do not.

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 Dimensions of Information Systems
 Information System consists of three dimensions, organization,
management and Technology.
 Using information systems effectively requires an understanding of the
organization, management, and information technology shaping the
systems.
 An information system creates value for the firm as an organizational
and management solution to challenges posed by the environment.

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 Organizations

 Information systems are an integral part

of organizations.
 Indeed, for some companies, such as credit
reporting firms, there would be no business
without an information system.
 The key elements of an organization are its
people, structure, business processes, politics,
and culture.

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 Management

 Management’s job is to make sense out of the

many situations faced by organizations, make
decisions, and formulate action plans to solve
organizational problems.
 Managers perceive business challenges in the
environment; they set the organizational
strategy for responding to those challenges;
and they allocate the human and financial
resources to coordinate the work and achieve
success.
 Throughout, they must exercise responsible
leadership.
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 Con’t

 But managers must do more than manage

what already exists.
 They must also create new products and
services and even re-create the organization
from time to time.
 A substantial part of management
responsibility is creative work driven by new
knowledge and information.
 Information technology can play a powerful
role in helping managers design and deliver
new products and services and redirecting and
redesigning their organizations.
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 Information Technology

 Information technology is one of many tools

managers use to cope with change.
 Computer hardware is the physical equipment
used for input, processing, and output activities in
an information system.
 It consists of the following: computers of various sizes and
shapes (including mobile handheld devices); various input,
output, and storage devices; and telecommunications
devices that link computers together.
 Computer software consists of the detailed,
preprogrammed instructions that control and
coordinate the computer hardware components in
an information system.

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 Exercise

 Make a list of the different information systems

you interact with every day.
 Identify the technologies (HW, SW), Input used,
the processes involved and type of outputs.

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Thank you !!!!

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