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Chapter 1
Introduction to Management Information System (MIS)

1.1. Introduction

Since 1950s, computers have been used to perform common business applications in the developed
countries. However, the usage of computer for keeping track of transactional data in organizations in
Ethiopia is a recent phenomenon. An organization employs a large number of clerks to record
business transactions. A transaction is any business-related exchange such as payment to employees,
sales to customer, purchase order placed to a vendor, payment received from a customer, etc.

With the help of computers, organizations automated the process expecting to reduce errors and cost.
The very first application of computers in business was to create a transaction processing system
(TPS). A TPS is an organized collection of people, procedures, software, databases and devices used
to record business transactions. The initial TPS were used for automating payroll systems. The input
to the payroll transaction processing system is the hourly pay rate and number of hours worked.
These systems also calculated income tax for each employee and generated reports for tax collecting
body. The benefits provided by an effective transaction processing system are tangible and can be
quantified. They speed up the processing of business activities and reduce clerical costs. The scope of
TPS widened in due course of time to include all aspect of accounting and financial transactions.

The TPS provided no help to the managers and decision makers. The Management Information
System (MIS) were then built to provide routine information to managers and decision makers.

MIS uses organization’s transaction processing system and prevents different view of this data to
different people. The sales managers would be interested in sales data and accounts officer would be
interested in accounts receivable and payable data. In 1960s, the organizations realized the potential
of MIS and started funding MIS projects. MIS produced routine reports, demand reports and
exception report.

In 1980s, the personal computers made computing facilities within reach of small organizations as
well. People at each level started using personal computers to do a variety of tasks. Decision makers
started using the information held by computers. The decision making process was further supported
by decision support systems (DSS). A decision support system is an organized collection of people,
procedures, software, databases and devices to support problem – specific decision-making.

Information systems have been evolving ever since. Workflow Systems, Enterprise Resource
Planning systems, and expert systems have been built to assist managers in the process of decision-
making. One thing is very clear that none of these systems were a substitute for the manager they
only assist the managers.

1.2. Definition and Importance of MIS

The subject of management information system (MIS) has different meaning for different people. The
concept of MIS has evolved over a period of last two decades or so. The initial management
information systems were built to process transactional data of an organization and to produce regular
reports. The reports were not targeted and individuals picked the required data from the report. The
information systems evolved further and produced different reports according to requirements.
Instead of user looking through the report for required data, the system generated a report in a suitable
format that created an impact on its user and provoked an action, a decision or an investigation.
Today, an information system has evolved to the stage where they handle databases and facilitate
decision-making.
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Accordingly, definition of MIS has also evolved. There are many closely related definitions in use.
The terms MIS is synonymously used with terms the Information System (IS), the Information and
Decision System and the Computer based Information System.

MIS is defined as an integrated system of man and machine for providing the information to
support the operations, the management, and the decision-making functions in organizations.

Management information system: It is a collection of people, procedures, software, hardware

and databases designed to generate information for managers.

An MIS deals with information that is systematically and routinely collected in accordance with a
well-defined set of rules. In other words, data collection is a planned activity for which resources are
allocated and rules are defined.

The information provided by an MIS assists managers in planning, organizing, staffing, coordinating,
directing and controlling the operations of an organization. The management experts have viewed
these steps as Management Control system.

In any organization that has planned activities leading to the achievement of the stated goals, there is
always a control process in place that measures progress towards these goals and enables the manager
to deduct the deviations from the original plan in time. It is the responsibility of the management to
take corrective actions before it is too late. The deviations may be due to environmental changes or
due to the mistakes made by people. An MIS is concerned with planning and control. An MIS has
large amount of data as its integral part that is stored and managed by a data base management
system.

An MIS must have the following features:

1) It must be capable of handling voluminous data. The data as well as transactions must be
validated.

2) It must be able to perform operations on the data irrespective of the complexity of the
operations. Often time multi-dimensional analysis is required. As MIS can’t be developed
without making use of the various theories, principles, formulae, So MIS is viewed as Multi-
Disciplinary Subject.

3) An MIS should facilitate quick search and retrieval of information. An MIS must support
mass storage of data and information.

4) The information must be communicated to the recipient in time. Moreover, the

communicated information must be relevant.

5) Because of the integration concepts of MIS, there is an opportunity to avoid duplication and
redundancy in data gathering, storage and dissemination.

MIS must be "useable." The five elements of a useable MIS system are: timeliness, accuracy,
consistency, completeness, and relevance. The usefulness of MIS is hindered whenever one or more
of these elements are compromised.

Timeliness

To simplify prompt decision making, MIS should be capable of providing and distributing current
information to appropriate users. Information systems should be designed to expedite reporting of
information. The system should be able to quickly collect and edit data, summarize results, and be
able to adjust and correct errors promptly.
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Accuracy

A sound system of automated and manual internal controls must exist throughout all information
systems processing activities. Information should receive appropriate editing, balancing, and internal
control checks. A comprehensive internal and external audit program should be employed to ensure
the adequacy of internal controls.

Consistency

To be reliable, data should be processed and compiled consistently and uniformly. Variations in how
data is collected and reported can distort information and trend analysis. In addition, because data
collection and reporting processes will change over time, management must establish sound
procedures to allow for systems changes. These procedures should be well defined and documented,
clearly communicated to appropriate employees, and should include an effective monitoring system.

Completeness

Decision makers need complete and pertinent information in a summarized form. Reports should be
designed to eliminate clutter and voluminous detail, thereby avoiding "information overload."

Relevance

Information provided to management must be relevant. Information that is inappropriate,

unnecessary, or too detailed for effective decision making has no value. MIS must be appropriate to
support the management level using it. The relevance and level of detail provided through MIS
systems directly correlate to what is needed by the board of directors, executive management,
departmental or area mid-level managers, etc. in the performance of their jobs.

Information adds to relevant Knowledge, reduces uncertainty, and supports the decision making
process in an organization. However, to be useful information must have the above mentioned
attributes.

1.3. Subsystems of MIS

MIS is viewed as a federation of sub-system, developed, & implemented as needed but conforming to
an overall plan. For example, each organization will consist of sub-systems like production,
inventory, finance, marketing etc. There could be functional sub systems as well as activity
subsystems.

The two approaches to defining the subsystems of MIS are according to the organizational functions
which they support and according to the managerial activities for which they are used.

A). Organizational functions subsystems

Because organizational functions are somewhat separable in terms of activities and are defined
managerially as separate responsibilities, MIS may be viewed as a federation of information system-
one for each major organizational function. There may be common support systems used by more
than one subsystem, but each functional system is unique in its procedures, programs, models, etc.,

Table 1.1 Typical MIS subsystems for a business organization are:

Major functional subsystem Some typical uses

Marketing information Sales forecasting, sales planning, customer and sales

analysis
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Personnel information Planning personnel requirements, analyzing

performance, salary administration

Operation information Production planning and scheduling, cost control

analysis

Finance information Financial analysis, cost analysis, capital requirements

planning

B). Organizational Activities Subsystem

Another approach to understanding the structure of an information system is in terms of the activities
subsystems which are performed by various levels of management. An organization must respond to
market forces, competition, to socio-cultural environment and to technological changes. The scope of
business is wide, touching many fronts. A business, among other activities, must do a long-term
strategic planning management/tactical control and operational control.

 Strategic Planning is the process of deciding objectives of the organization, determining the
possible shift in objectives, deciding on the resources used to attain the objectives and the
policies that govern the acquisition, use and disposition of the resources.

 Management Control is the process by which managers assure that the resources are obtained
and used effectively and efficiently to attain the objectives of the organization.

 Operational Control is the process of assuming that specific tasks are carried out effectively
and efficiently.

The activities subsystems are useful for various functional subsystems. The relationship of activities
subsystems to functional subsystems is illustrated in the following table 1.2.Table

Inform
ation systems are used in all functional areas and operating divisions of business. The database is the
primary means of integration of the various subsystems. A data item that is stored or updated by one
subsystem is then available to the other subsystems.

Some examples of Inputs, process and outputs of MIS at all levels of management.

Inputs Process Outputs

Strategic National Plans, competitors Summarize, Key ratios, ad hoc

information, overall market market analysis,
information Investigate, strategic plans

Compare, Forecast
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Tactical Historical, & budget data Compare Variance analysis

Classify, summarize Exception report

Operational Customer orders, Update files Updated files

programmed stock control
levels, cash Output reports listings, invoices
receipts/payments
Rearranging

Calculating

Integration of information subsystems provide more meaningful management information.

1.4. Types of Information System

There are various types of information systems in a business as listed below.

Transaction Processing Systems (TPS)

A TPS is used primarily for record keeping which is required in any organization to conduct the
business. Examples of TPS are sales order entry, payroll, and shipping records etc. TPS is used for
periodic report generation in a scheduled manner. TPS is also used for producing reports on demand
as well as exception reports.

Decision Support System (DSS)

DSS serves the management of an organization. A decision support system has sophisticated data
analysis tools, which support and assist all aspects of problem specific decision-making. DSS may
use data from external sources such as current stock prices to enhance decision-making. DSS is used
when the problem is complex and the information needed to make the best decision is difficult to
obtain and use. DSS is developed with the help of decision makers. DSS helps in decision-making
process and does not make any decision.

Management Information Systems (MIS)

MIS provides the management routine summary of basic operations of the organization. The basic
operations are recorded by the TPS of the organization and MIS consolidates the data on sales,
production etc. MIS provides routine information to managers and decision makers. The main
objective behind installing an MIS in the organization is to increase operational efficiency. MIS may
support marketing, production, finance etc.

Expert Systems

The system has the ability to make suggestions and act like an expert in a particular field. An expert
system has an extensive knowledge base.
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1.5. What Is Information Technology?

An Information System/ Information Technology is an arrangement of people, data, processes,

interfaces, networks and technology that interact for the purpose of supporting & improving both day-
today operations in a business (sometimes called data processing) as well as supporting the problem
solving and decision making needs of management (sometimes called information services).

Information Technology (IT) has become a strategic necessity. Unless we believe in

IT and act on it, there is every chance of becoming a footnote in the annals of history. IT has become
a vital component of successful businesses and organizations. Managers are expected to identify
opportunities to implement information systems to improve the business processes. Managers are also
required to lead IS projects in IT. Information Technology has become a major facilitator of business
activities. It is also a catalyst of fundamental changes in the structure, operations and management of
organizations.

IT can be used to:

1. Perform high-speed, high-volume, numeric computations.

2. Provide fast, accurate and inexpensive communication within and between organizations.

3. Store huge amounts of data in an easy-to-access yet small space and allow quick and easy
access.

4. Automate semiautomatic business processes and manually done tasks.

IT has been used for improving productivity, reducing cost, enhancing decision making process,
enhancing customer relationships, and developing new strategic applications. The business paradigm
has completely shifted from being sellers market to buyers market. Customers have become the focal
point of any business. The business environment is no more as stable as it used to be and has become
much more competitive. It became mandatory on the part of the organizations to make full use of IT
to survive. IT has become one of the standard components of an organization.