LESSON THREE: Types of Information Systems

Overview
After completing this chapter, you will be able to:
• Describe the specific categories of systems serving each organizational level
• Describe the value of different type of information systems to organization
• Describe the feature and characteristics of different information systems

3.1 Operational Level Information Systems

The information system that involved at operational level of an organization is Transaction
Processing Systems. Transaction processing systems (TPS) are the basic business systems that
serve the operational level of the system. A transaction processing system is a computerized system
(computer based information system) that performs and records the daily routine transactions
necessary to the conduct of the business. A TPS is any system that records transaction (a business
event: a sale, a purchase, the hiring of a new employee). TPS is the entry point where data are
entered at its source at the time of transactions take place. TPSs are interfaced with applications
that provide clerical workers and operational managers with up-to-date information.
At the operational level, tasks, resources and goals are predefined and highly structured. The
decision to grant credit to customer, for instance, is made by a lower-level supervisor according to
predefined criteria. All that must be determined is whether the customer meets the criteria.
The following table shows the specific types of application information systems that correspond
to operation level:

Functional Area Systems

Sales and Marketing  Order tracking
 Order processing
Manufacturing  Machine control
 Plant scheduling
 Material movement control
Finance  Securities trading
 Cash management
 Accounting  Payroll
 Accounts payable
 Accounts receivable
Human Resources  Compensation
 Training and development
 Employee record keeping

The following description and diagram shows a payroll TPS, which is a typical accounting
transaction processing system found in most firms.

Employee data (various departments)

To general ledger: wages and salaries

Payroll Management
system reports
Government documents
Payroll master file Employee checks

Figure 3.1
A payroll system keeps track of the money paid to employees. The master file is composed of
discrete pieces of information (such as a name, address or employee number) called data elements.
Data are keyed into the system, updating the data elements. The elements on the master file are
combined in different ways to make up reports of interest to management and government agencies
and paychecks sent to employees. These TPS can generate other report combinations of existing
data elements.
Other typical TPS applications are identified in the following table:

Types of TPS Major functions of system Major application systems

Sales and Marketing  Sales management  Sales Order
systems  Market research Information System
 Promotion  Market Research
 Pricing System
  New products  Pricing System
Manufacturing/Production  Scheduling  Materials Resource
systems  Purchasing Planning Systems
 Shipping/receiving  Purchase Order
 Engineering Control Systems
 Operations  Quality Control
Systems
Finance/Accounting  Budgeting  General Ledger
systems  General ledger  Accounts
 Billing Receivable/Payable
 Cost accounting  Budgeting
 Funds Management
Systems
Human Resource systems  Personnel records  Payroll
 Benefits  Employee Records
 Compensation  Benefit Systems
 Labor relations  Career Path Systems
 Training
Other types  Admissions  Registration Systems
 Grade records  Student Transcript
 Course records System
 Alumni  Curriculum Class
Control Systems
 Alumni Benefactor
System
The table above shows that there are five functional categories of TPS: sales/marketing,
manufacturing/production, finance/accounting, human resources and other types of TPS that are
unique to a particular industry. All organizations have these five kinds of TPS (even if the system
is manual). TPS are often so central to a business that TPS failure for a few hours can spell the
demise of a firm and perhaps other firms linked to it. Manager needs TPS to monitor the status of
internal operations and the firm’s relations with the external environment. TPS are also major
producers of information for the other types of systems. For example, the payroll system illustrated
before will supplies data to the company’s general ledger system, which is responsible for
maintaining records of the firm’s income and expenses and for producing reports such as income
statements and balance statements.
Information inputs for TPS are normally transactions and events. The processing process for TPS
is to sort, list, merge or update the data based on the transactions or events. Information output
from TPS is detailed reports, lists or summaries.

3.1.1 Features of a TPS

i. Input and output: The input to the system is transaction data. The output consists of
processed transactions.
ii. For lower management: Because the TPS deals with day to day matters,it is particularly
useful to lower level managers
iii. Produces detailed reports: A manager at this level typically will produce information
inform of detail reports. A detailed report consists specific information about routine
activities.
iv. One TPS for each department: Each department or operational unit of an organization
has its own TPS since the nature of activities are different.
v. Basis for MIS and DSS: The database of transactions stored in a TPS is used to support
MIS and DSS.
vi. Large storage: requires large database storage
vii. High processing speed: high processing speed is required due to high volume of data.

3.2 Knowledge Level Information Systems

Two types of information systems are categorized under the knowledge level of an organization,
which are Knowledge Work Systems (KWS) and Office Automation Systems (OAS). These two
types of systems serve the information needs at the knowledge level of the organization. KWS is
a system that aid knowledge workers in the creation and integration of new knowledge in the
organization. OAS can be computer systems such as word processing, e-mail systems and
scheduling systems, which are designed to increase the productivity of data workers on the office.
KWS aid knowledge workers whereas OAS primarily aid data workers (although they are also
used extensively by knowledge workers).
In general, knowledge workers are people who hold formal universities degrees and who are often
members of a recognized profession, like engineers, doctors, lawyers and scientists. The job for
knowledge workers consists creating new information and knowledge, promote the creation of new
knowledge and ensure that new knowledge and technical expertise are properly integrated into
the business. Meanwhile, data workers typically have less formal, advanced educational degrees
and tend to process rather than create information. The job for data workers are principally to use,
manipulate and disseminate information, which consists primarily of secretaries, accountants or
filing clerks. OAS is information technology applications designed to increase the productivity of
data workers by supporting the coordinating and communicating activities of the typical office.
OAS coordinates diverse information workers, geographic units and functional area. The system
communicates with customers, suppliers and other organization outside the firm and serves as a
clearinghouse for information and knowledge flows.
The following table shows the specific types of application information systems that correspond
to knowledge level:
Type of system Applications
 Engineering Workstations
Knowledge Work Systems  Graphics Workstations
 Managerial Workstations
 Word Processing
Office Automation Systems  Document Imaging
 Electronic Calendars

Examples of KWS are like computer aided design (CAD) and robotics systems. CAD systems
eliminate many manual steps in design and production by performing much of the design work on
the computer. Examples of OAS are like word processing systems, desktop publishing systems
and document imaging systems. Word processing systems are an office automation technology
that facilitates the creation of documents through computerized text editing, formatting, storing
and printing. Desktop publishing systems is a technology that produces professional quality
documents combining output from word processors with design, graphics and special layouts
features. Document imaging systems is the systems that convert documents and images into digital
form so that they can be stored and accessed by the computer.
Information inputs for OAS are like documents and schedules mean while for KWS are like design
specification and knowledge based. The processing process for OAS normally involves document
management, scheduling and communication whereas for KWS, it involves modeling and
simulations. Information output for OASs are normally documents, schedules and mails
meanwhile for KWS are models and graphics.
The following figure 3.2 shows an example of an imaging system (a system that converts
documents and images into digital form so that they can be stored and accessed by the computer).
Document imaging systems are widely used knowledge applications. It converts documents and
images into digital form so that they can be stored and accessed by the computer. The system is
made up of a network consisting image scanner, optical storage units, a mainframe computer and
a local area network to link representatives’ workstations and the scanner workstations located in
the firm. Files and documents can be viewed on-line from desktop computers. This system is
believed to reduce the amount of time it would take with a paper-based system, save paper and
save cost and customer’s services can be improved as the electronic documents can be assessed
more rapidly.

Document
database IBM Disk
mainframe storage

Image
workstation
Image On-line
Local index optical disks
Area
Network
Scanning
workstation
Figure 3.2
3.3 Management Level Information Systems

For management level of an organization, two types of information systems involved, which is
Management Information System (MIS) and Decision Support System (DSS).Management
Information Systems (MIS, information system at the management level of an organization that
serve the functions of planning, controlling and decision making by providing routine summary
and exception reports) serves the management level of the organization, provides managers with
reports and in some cases with on-line access to organization’s current performance and historical
records. Most of the systems oriented almost exclusively to internal, not environmental or external
events. MIS primarily serve the functions of planning, controlling and decision making at the
management level. Generally, they are dependant on underlying TPS for their data. MIS
summarize and report on the basic operations of the company. The basic data from TPS are
compressed and are usually presented in long reports that are produced on a regular schedule.
Figure 3.3 shows how a typical MIS transforms transactions level data from inventory, production
and accounting into MIS files that are used to provide managers with reports. MIS usually serve
managers interested in weekly, monthly or yearly results – not day-today activities. MIS generally
address structured questions that are known well in advance but the systems are not flexible and
have little analytical capability. Most MIS uses simple routines such as summaries and
comparisons as opposed to sophisticated mathematical models or statistical techniques.
Some of the characteristics of MIS are as follows:
• MIS support structured decisions at operational and management control levels. However,
they are useful for planning purpose of senior management staff.
• MIS are generally reporting and control oriented. They are designed to report on existing
operations and therefore to help provide day-to-day control of operations.
• MIS rely on existing corporate data and data flows.
• MIS have little analytical capability.
• MIS generally aid in decision making using past and present data.
• MIS are relatively inflexible.
• MIS have an internal rather than an external orientation.
 Transaction Processing System Management Information Systems
Order
processing
system Sales Data

Order file

Unit
Materials
resource product MIS Reports Managers
planning cost
systems
Production
master file Product
change
data
General
Ledger
system Expe
Accounting file

Figure 3.3
3.3.1 Features of an MIS

A management information system is a counter based information system that uses data recorded
by TPS as input and produces routine reports as output.
Features of an MIS are as follows:
I. Input and output: inputs consist of processed transactions such as bills orders and pay
checks, plus other internal data .outputs consists of summarized, structured reports: budget
summaries, production schedules, and the like.
II. For middle managers: An MIS is intended principally to aid middle managers. It helps
them with tactical decisions. It enables them to spot trends and to get an overview of current
events.
III. Draws from all departments: MIS draws from all the departments or functional units of an
organization.
IV. Produces several kinds of reports: managers at this level receive information in the form
of several kinds of reports. There four major types of reports that are generated :
a. Summary reports: show totals and trends. An example would be reports showing
total sales by each department, office, product, salesperson etc.
 b. Exception reports: they show out of the ordinary data. An example would be an
inventory report that lists only those items that number less than ten.
c. Periodic reports: they are reports produced on a regular basis. They may be daily,
weekly, monthly etc.
d. On demand reports: these are reports that are produced in response to an
unscheduled demand.

DSS (Decision support system)

Decision Support Systems (DSS, information system at the management level of an organization
that combine data and sophisticated analytical models or data analysis tools to support semi-
structured and unstructured decision making) also serve the management level of the organization.
DSS helps manager make decisions that are semi-structured, unique or rapidly changing and not
easily specified in advance. Besides using internal information from TPS and MIS, they often
bring in information from external sources like current stock prices or product prices of
competitors. DSS have more analytical power than other systems. They built explicitly with a
variety of models to analyze data, or they condense large amounts of data into a form where they
can be analyzed by decision makers. DSS are normally designed in a way where the user can work
with them directly, which means the system explicitly include user-friendly software. DSS are
interactive where the user can change assumptions, ask new questions and include new data.
Some of the characteristics of DSS:
• DSS offers users flexibility, adaptability and quick response.
• DSS operate with little or no assistance from professional programmers.
• DSS provide support for decisions and problems whose solutions cannot be specified in
advance.
• DSS use sophisticated data analysis and modeling tools.
The following figure 3.4 show an example of DSS that operates on a powerful PC and is
used daily by managers who must develop bids on shipping contracts:
 Ship file (e.g.
speed, capacity)
Personal
computer Port distance
restrictions file
Analytical models
database Fuel consumption
cost file
Graphics

Reports Ship charter hire

history cost file

Port expense file

Figure 3.4

The following table shows the specific types of application information systems that correspond
to management level:
Functional Area MIS DSS
Sales and Marketing Sales Management Sales Region Analysis
Manufacturing Inventory Control Production Scheduling
Finance Annual Budgeting Cost Analysis
Accounting Capital Investment Analysis Pricing/profitability Analysis
Human Resources Relocation Analysis Contract Cost Analysis

Information input for MIS are summary transaction data, high-volume data and simple
models. For DSS, the information input are low-volume data or massive databases optimized for
data analysis, analytic models and data analysis tools. Processing for MIS are routine reports,
simple models and low-level analysis, meanwhile for DSS are interactive, simulations and
analysis. Information outputs for MIS are summary and exception reports. For DSS, the
information outputs are special reports, decision analysis or responses to queries.
3.3.2 Features of a DSS
DSS is a computer based information system that provides a flexible tool for analysis and helps
managers focus for the future. DSS is usually use din planning, modeling, analyzing alternatives
and decision making.
I. Inputs and outputs: inputs consist of some summarized reports, some processed
transaction data, and other internal data. They also include external data to that produced
by the organization. This external data may be produced by trade associations; marketing
research firms etc. the outputs are flexible, on-demand reports which a top manager can
make decisions about unstructured problems.
II. DSS is intended for top managers although middle managers can also use it. Its purpose is
to help them to make strategic decisions about unstructured problems which are non-
reoccurring and unexpected. These may involve trend outside the organization
III. DSS uses models. This is a key attribute of a DSS.A model is a mathematical
representation of a real system. The model uses a DSS database which draws from TPS
and MIS files, as well as external data such as stock reports, government reports, national
and international news. The system is accessed through DSS software. The model allows
the managers to carry out simulation- play a “what if” game so as to reach decisions. The
manager can simulate an aspect of the organization‘s environment in order to decide how
to react to changes affecting it by changing the hypothetical inputs into the model.
3.3.3 Types of Decision-Support Systems
There are two basic types of decision-support systems, model-driven and data driven. Model-
driven DSS were primarily stand-alone system that uses some type of model to perform “what-if”
and other kinds of analyses. Such systems were often developed by end-user divisions or groups
not under central IS control. Their analysis capabilities were based on a strong theory or model
combined with a good user interface that made the model easy to use.
The second type is a data-driven DSS. These systems support decision making by allowing users
to extract and analyze useful information that was previously buried in large database. Data from
TPS are collected in data warehouse for this purpose. On-line analytical processing (OLAP) and
data-mining (technology used to find hidden patterns and relationships in large databases and
inferring rules from them to predict future behavior) can then be used to analyze data. The types
of information can be yield from data-mining includes associations, sequences, classifications,
clusters and forecasts.

3.3.4 Components of DSS

The figure below illustrates the components of a typical DSS. They include:
• DSS database – a collection of current or historical data from a number of applications or
groups. Can be a small PC database or a massive data warehouse.
• DSS software system – collection of software tools that are used for data analysis, such as
OLAP or data-mining tools, or a collection of mathematical and analytical models.
• User interface – permits easy interaction between users of the system and the DSS software
tools.

TPS External Data

DSS
Database

DSS Software
System
Models
OLAP Tools
Data-mining

User
Interfac
e

User
Web-based DSS
DSS based on the web and the Internet are being developed to:
• Support decision-making
• Providing on-line access to various databases and information pools along with data analysis
software.
Customer decision-support system (CDSS) is a system to support the decision-making process of
an existing or potential customer.

Group Decision-Support System

Early DSS focused largely on supporting individual decision making. However because so much
work is accomplished in groups within organization, system developers and scholars began to
focus on how computers can support group and organizational decision making. And result from
this, a new category of systems developed, known as group decision-support systems (GDSS).
What is Group Decision-Support System (GDSS)?
GDSS is an interactive computer-based system to facilitate the solution for unstructured problems
by a set of decision makers working together as a group. GDSS was developed in response to a
growing concern over the quality and effectiveness of meetings. The purposes of having GDSS
are as follows:
• Improve preplanning to make meetings more effective and efficient.
• Create open, collaborative meeting atmosphere.
• Increase participation.
• Enables attendees to contribute criticism-free idea.
• Enables ideas being evaluated on its merits rather than on the basis of the source of the idea.
• Idea organization and evaluation.
• Sets priorities and making decisions.
• Access to external information.
• Preservation of “organizational memory”.
One response to the problems of group decision making has been the adoption of new methods of
organizing and running meetings. Techniques such as facilitated meetings, brainstorming and
criticism-free idea generation have become popular and are now accepted as standard. Another
response has been the application of technology to the problems resulting in the emergence of
group decision-support systems.

Characteristics of GDSS
Three basic elements of a GDSS had been identified:
• Hardware – physical hardware and also electronic hardware.
• Software tools – like e-questionnaires, e-brainstorming and so forth.
• People – refers not only to the participants but also to a trained facilitator and often to a staff
that supports the hardware and software.
An electronic meeting system (EMS) is a type of collaborative GDSS that uses information
technology to make group meetings more productive by facilitating communication as well as
decision making. It supports meetings at the same place and time or different places and times.
The workstations are networked and are connected to the facilitator’s console, which serves as
both the facilitator’s workstation and control panel and the meeting’s file server. All data that the
attendees forward from their workstations to the group are collected and saved on the file server.
The facilitator is able to project computer images onto projection screen at the front center of the
room. The facilitator controls the use of tools during the meeting, often selecting from a large tool
box that is part of the organization’s GDSS. Attendees have full control over their own desktop
computers and able to view the agenda, use desktop PC ordinary tools, tap into production data
that have been made available or work on the screen associated with the current meeting step and
tool. However, no one can view anyone else’s screens so participant’s work is confidential until
they release it to the file server for integration with the work of others.

3.4 Strategic Level Information Systems

Senior managers use Executive Support System (ESS) to make decisions. ESS is also called EIS
(Executive information system). ESS serve the strategic level of an organization and address
unstructured decisions and create a generalized computing and communications environment
rather than providing any fixed application or specific capability. ESSs are designed to incorporate
data about external events but they also draw summarized information from MIS and DSS. They
filter, compress and track critical data, emphasizing the reduction of time and effort required to
obtain information useful to executives. ESSs employ the most advanced graphics software and
can deliver graphs and data from many sources immediately to a senior executive’s office or to a
boardroom. Unlike other types of information systems, ESSs are not designed primarily to solve
specific problems. Instead, ESSs provide a generalized computing and telecommunications
capacity that can be applied to a changing array of problems. While many DSS are designed to be
highly analytical, ESS comes with less analytical capabilities. Since ESSs are designed to be used
by senior managers who often have little, is any, direct contact or experience with computer-based
information systems, they incorporate easy-to-use graphic interfaces.
Figure 3.5 below shows an example of an ESS which consists of workstations with menus,
interactive graphics and communication capabilities that can access historical and competitive data
from internal corporate systems and external databases:

ESS workstattions

• Menus
• Graphics
• Communications
• Local processing

ESS workstattions Internal data External data ESS workstattions

• TPS/MIS data
• Financial data
• Office systems
• Menus • Modeling / • Menus
• Graphics analysis • Graphics
• Communications • Communications
• Local processing • Local processing

Figure 3.5

Information input for ESSs are aggregate data from external and internal sources. Processing for
ESSs are graphics, simulations and interactive between user and the system. Information outputs
for ESSs are projections, responses to queries.