Chapter 1

Introduction to InformationSystems

1.1 What is an Information System?

An Information system is a set of inter-related components that collects (orretrieves), process, store and distribute information to support decision-makingand control, coordination, and visualisation in an organisation.

1.1.1 Differences Between Data and Information

Data Streams of raw facts representing events which occur in organisations orphysical environments before it is organised and arranged in a meaningfulway.

Information Data organised in a meaningful way.

Input The capture or collection of raw data from within the organisation orfrom its external environment for processing in an information system.

Processing The conversion, manipulation, and analysis of raw input into aform that is more meaningful for humans.

Output The distribution of processed information to the people who will useit or to the activities for which it will be used.

Feedback Output that is returned to the appropriate members of the organi-sation to help them evaluate or correct input.

Computer-Based Information System, CBIS Information systems that relyon computer hardware and software for processing and dissemination in-formation.

Formal System System resting on accepted and fixed definitions of data andprocedures, operating with pre-defined rules.

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Formal systems use accepted and fixed definitions of data and proceduresfor collecting, storing, processing, disseminating and using data. Systems arestructured and hard to change.

Informal systems, in contrast, rely on unstated rules of behaviour. An ex-ample of an informal systems would be the “Office Grapevine”. While informalsystems are often vital to the success of a company, they are harder to analyseand study due to their free-form nature, and will not be discussed further.

Computers and software are distinct from Information Systems.Analogy with hammer, nails, wood and bricks in a house. The are the

materials which a house is built from, but a house is more than just a collectionof materials.

Landscaping, architecture, sewerage, internal decorating, etc. also required.Similarily for CBIS. Computer hardware and software are the building bricks,

but they cannot alone produce the information a particular organisation needs.To understand CBIS, must understand problems they are designed to solve,

architectural and design elements, and organisational processes leading to solu-tions.

1.2 Why Information Systems?

Three reason for recent growth in need for CBIS:

• Emergence of the Global Economy• Transformation of the Industrial Economies• Transformation of the Business Enterprise

1.2.1 Emergence of the Global Economy

• Imports/Exports much more important• Success dependant on global operating• Increases value of information• CBIS needed for analysis on a global scale• Markets no longer protected. Firms need to be fit to compete with foreigncompetitors

• Powerful communication and informations systems required

1.2.2 Transformation of Industrial Economies

• Major powers moving from industrial-based economy to knowledge/information-based service economy. Manufacturing moves to low-wage economies.

• In 1976 in US, more white-collar workers than farm and blue-collar workers• People employed in sales, education, healthcare, banks, insurance andlaw, and in service industries such as copying, software development anddeliveries.

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• Work involves knowledge and information• Accounts for 60% of the US GNP and 55% of the labour force.

• New industries grown which are knowledge- and information-intensive,such as computer game development.

• Old industries use information much more and so hire much more special-ists than before.

• New organisations, such as environmental engineering firms, did not exist30 yrs ago.

• IT takes up 70% of invested capital in service industries like finance, in-surance and real estate.

• Information and technology are critical, strategic assets for firms. Qualityof systems affect productivity and decisions about IT critically importantto prosperitiy and survival of firm.

1.2.3 Transformation of the Business Enterprise

• Organisation in firms changing• Traditionally had pyramid structure: hierarchial, centralised, structuresystem of specialists, with fixed set of operating procedures

• New style is flattened, decentralised, flexible arrangement of generalists;relying on near-instant information to deliver mass-customised products/servicesto individual clients. This style is still evolving, but believed to be bestway forward.

• Traditional method used formal plans, rigid labour division, and formalrules; appealing to loyalty of employees.

• New method relies on informal commitments and networks to establishgoals, flexible arrangements of teams and individuals working in taskforces; customer orientationto achieve coordination among employees andappeals to professionalism.

• Firms even more dependant on knowledge, learning, and decisions of em-ployees.

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Chapter 2

Levels and Types ofComputer-BasedInformation Systems

2.1 Levels of Information System

There are four different levels of information system:

Operational-level systems Information systems that monitor the elementaryactivities and transactions of the organisation.

Knowledge-level systems Information systems that support knowledge anddata workers in an organisation.

Management-level systems Information systems that support the monitor-ing, controlling, decision-making, and administrative activities of middlemanagers.

Strategic-level systems Information systems that support the long-range plan-ning activities of senior management.

2.2 Types of Information System

2.2.1 Transaction Processing System (TPS)

Definition: A Transaction Processing System, TPS, is a computerised systemthat performs and records the daily routine transactions necessary to conductthe business; these systems serve the operational level of the organisation

• Examples are Sales Order Entry Systems, Hotel Reservation Systems, Pay-roll, Employee Record-keeping and Shipping.

• Five functional levels:1. Sales/Marketing

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2. Manufacturing/Production

3. Finance/Accounting

4. Human Resources

5. Other

• TPS very critical to business. Failure could bring down the business (likeif UPS lost their package tracking system).

• At operational level, tasks, resources and goals predefined, and highlystructured, such as granting credit.

• TPS monitored for status of internal operation and firms relationship toexternal environment.

• TPS major producers of input for other systems (e.g Payroll and other ac-counting TPS supplies data to general ledger system, maintaining recordson income/expenses, producing reports like income statements and bal-ance sheets.

2.2.2 Knowledge Work Systems and Office AutomationSystems

Definition: A Knowledge Work System, KWS, is an information system thataids knowledge workers in the creation and integration of new knowledge in theorganisation.

Definition: An Office Automation System, OAS, is a computer system, suchas word processing, e-mail system, or scheduling system, that is designed toincrease the productivity of data workers in the office.

• KWS and OAS serve organisation at the knowledge level• KWS aid knowledge workers; OAS aid data workers (though also used byknowledge workers)

• Knowledge workers usually hold formal university degrees, and are mem-bers of a recognised profession, such as engineers, lawyers, doctors andpharmacists. Role is to create new knowledge, and KWS assist in thistask, as well as smoothing integration of new knowledge into business

• Data workers typically less formal, advanced education degrees. Processinformation rather than create it. Secretaries, accountants, filing clerks,or managers who use, manipulate and disseminate information.

• OAS designed to increase productivity of data workers in office by sup-porting coordination and communication. OAS coordinates workers, geo-graphical units and functional areas.

• OAS includes Word Processors, DTP and document imaging.

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2.2.3 Management Information Systems

Definition: Management Information Systems, MIS, are information systemsat the management level of an organisation that serves the functions of planning,controlling and decision-making by providing routine summary and exceptionreports.

• MIS serve management level• Provide managers with reports (or on-line access) to current performanceand historical records.

• Oriented almost exclusively to internal events, serving functions of plan-ning, controlling and decision-making.

• Generally take input from TPSs.

• Serve managers interested in weekly, monthly, annual reports, addressingstructured questions known well in advance.

• Generally inflexible with little analytic ability.• Simple analysis such as summaries/comparisons rather than sophisticatedmathematical models or statistical techniques.

Characteristics of Management Information Systems

1. MIS support structure decisions at the operational and management con-trol levels. However, they are also useful for planning purposes of seniormanagement staff.

2. MIS are generally reporting and control oriented. They are designed toreport on existing operations and therefore to help provide day-to-daycontrol of operations.

3. MIS rely on existing corporate data and data flows.

4. MIS have little analytic capability

5. MIS generally aid in decision making using past and present data.

6. MIS relatively inflexible

7. MIS have internal rather than external orientation.

2.2.4 Decision Support Systems

Definition: Decision Support Systems, DSS, are information systems at themanagement level of an organisation that combines data and sophisticated ana-lytical models or data analysis tools to support semi-structured and unstructureddecision-making.

• DSS serve the management level

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• Aid in decisions that are semi-structured, unique and rapidly changing, noteasily specified in advance. Responsive and quick enough to run severaltimes per day to respond to changing information.

• DSS draw from TPS, but also external sources (such as stock prices andcompetitor prices)

• DSS have large analytical capability with many models to analyse dataand condense large volumes of data into a useful form.

• DSS tend to be user-friendly and interactive

Example DSS is voyage-estimation of metals company. Carries bulk cargoof coal, oil, ores and finished product. Owns some vessels, charters others andbids for shipping contracts in open market to carry general cargo.

Voyage estimation system uses financial and technical details as inputs.Financial inputs include ship/time costs, freight rates for cargo types and

port costs.Technical includes ship cargo capacity, speed, distances, fuel/water consump-

tion and loading patterns.Can answer questions like the following:

• Given customer delivery schedule and offered freight rate, which vessel atwhat rate will maximise profits?

• What is ideal speed for vessel to meet schedule and maximise profits?• What is optimal loading pattern for ship bound for US West Coast fromMalaysia?

Characteristics of Decision Support Systems

1. DSS offer flexibility, adaptability and quick response

2. DSS operate with little or no assistance from professional programmers

3. DSS provide support decisions and problems whose solutions cannot bespecified in advance.

4. DSS use sophisticated data analysis and modelling tools.

2.2.5 Executive Support Systems

Definition: An Executive Support System, ESS, is an information system atthe strategic level of an organisation designed to address unstructured decision-making through advanced graphics and communications

• ESS serve strategic level• ESS address unstructured decisions and create generalised computing andcommunications environments rather than give a fixed application or com-puting capability

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• ESS designed to incorporate data about external events such as new taxlaws or competitiors, and draw from internal MIS and DSS.

• ESS filter, compress and track critical data, emphasise reduction of timeand effort to get information

• Heavy emphasis on data visualisation• ESS do not solve specific problems, providing generalised capacity appli-cable to changing problems, so less use of analytical models.

ESS answer questions such as:

• What business should we be in?• What are the competitiors doing?• What new acquisitions would protect us from cyclical business swings?

• Which units should we sell to raise capital for acquisitions?

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Chapter 3

Artificial Intelligence andExpert Systems

3.1 Artificial Intelligence

Artificial Intelligence, AI, is the effort to develop computer-based systems thatcan behave like humans, with the ability to learn languages, accomplish physicaltasks, use a perceptual apparatus and emulate human expertise and decisionmaking.

Successful AI systems are based on human expertise, knowledge, and selectedreasoning patterns, but do not exhibit human intelligence. They do not comeup with new or novel solutions. They lack the common sense and generality ofnaturally intelligent human beings.

Human intelligence is vastly complex, much broader than computer intelli-gence. Key factor is ability to develop association and use metaphors, analogiesand similes, such as like or as.

Using analogy and metaphors, humans can create new rules, apply old rulesto new situations, and act intuitively and instinctively without rules. Commonsense and generality resides in ability to create metaphor and analogy.

Human intelligence also enables ability to impose a conceptual apparatuson the surrounding world. Meta-concepts like cause-and-effect and time, andconcepts of lower order like breakfast, lunch, dinner, are imposed by humans onthe environment.

Thinking in terms of these concepts, and acting on them are central charac-teristics of intelligent human behaviour.

Business in interested in AI for several reasons:

• Preservation of expertise that may be lost through retirement, resignation,or death of acknowledged expert.

• Storage of information in active form, creating organisational knowledgebase, knowledge resource for employees to learn rules-of-thumb not foundin textbooks.

• Creation of mechanism not subject to human weaknesses, such as fatigueand worry, especially in case of tasks environmentally, physically or men-tally dangerous. Such systems can be useful advisors in times of crisis.

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• Elimination of routine and unsatisfying tasks held by people.• Enhancement of knowledge base by suggesting solutions which are toomassive and complex for fast human analysis.

3.1.1 Expert Systems

Definition: An Expert System is a knowledge-intensive computer program thatcaptures the expertise of a human in limited domains of knowledge.

Knowledge Base Model of human knowledge used by expert systems.

Rule Base Collection of knowledge in an AI system that is represented in theform of IF-THEN rules.

Rule-based Expert System AI programwith large number of interconnectedand nested rules that are the basis for knowledge in the system.

Knowledge Frames Method of organising expert system knowledge into chunks;relationships based on shared characteristics determined by the user.

• Expert systems try to capture essence of human expertise and automatedecision-making.

• Use knowledge base to model knowledge.• Rules are IF-THEN statements. Generally have some condition, cond,which if true, means some action, act is executed.

IFcond

THENact

An example would be:

IFunder 21 yrs of age

THENrefuse entry

• Knowledge frames group object with shared characteristics.• Development requires experts and knowledge engineer, who is an AIspecialist who translates the knowledge into form suitable for system de-sign.

• Only certain classes of problem suitable. Must have few possible outcomes,all of which are known in advance.

• Development time and costs high. Knowledge base fragile and brittle.System cannot learn new knowledge by itself.

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• Much knowledge unmappable, such as knowledge based on analogy, intu-ition and a sense of things.

• Most effective for automation of lower-level clerical functions, such asgranting of credit.

• Generally unsuitable for decision-making at management level due to di-verse sources, and need for intuitive grasp of problems.

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Chapter 4

System Development andOrganisational Change

4.1 Organisational Change

There are four major types of organisational change:

1. Automation

2. Rationalisation of Procedures

3. Business Re-engineering

4. Paradigm Shift

4.1.1 Automation

Definition: Using the computer to speed up the performance of existing tasks

• Very common form of IT-enabled organisational change.

• Assists employees in performing tasks (such as calculating paychequesand payroll registers, bank-teller access to customer accounts; nationwideairline reservation system).

4.1.2 Rationalisation of Procedures

Definition: The streamlining of standard operating procedures, eliminating ob-vious bottlenecks, so that automation make operating procedures more efficient.

• Deeper change - streamlining of procedures to improve efficiency.• Automation often reveals bottlenecks in production, existing proceduresbecome painfully cumbersome.

• Procedures change to remove bottlenecksExample in banks, which have standard rules for issuing account numbers,

and standard methods for calculating interest and account balances.

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4.1.3 Business Re-engineering

Definitions: The radical re-design of business processes, combining steps to cutwaste and eliminating repetitive, paper-intensive tasks to improve cost, qualityand service and to maximise the benefits of information technology.

• More radical change• Use IT to analyse, simplify and redesign business processes• Re-organise work-flows and eliminates repetitive, paper-intensive tasks(possible causing job losses).

Ford invoice-less processing widely-cited example. Ford had over 500 peoplein its North American accounts payable division. Clerks spent most of theirtime resolving discrepancies between purchase orders, receiving documents, andinvoicing.

System was re-engineered wherein purchasing department enters order intoonline database checked by receiving department when items arrive. If receivedgoods match purchase order, cheque automatically generated to be sent to thevendor, with no need for invoice.

Ford reduced its head-count in accounts payable by 75% and produced moreaccurate financial information.

4.1.4 Paradigm Shift

Definition: Radical reconceptualisation of the nature of the business and thenature of the organisation

• Change in view of business and its organisation• Affects design of entire organisation• Transforms how business conducts business and possibly nature of organ-isation.

Note that there is a significant business-risk involved in both Business Re-engineering and Paradigm Shifts due to the extent of the changes involved.

Changes often very difficult to orchestrate and can be very costly.

4.2 Systems Development

Systems development is the activities that go into producing an informationsystems solution to an organisational problem or opportunity.

There are six major steps involved in developing Information Systems:

1. Analysis

2. Design

3. Programming

4. Testing

5. Conversion

6. Production and Maintenance

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4.2.1 Systems Analysis

Definition: The analysis of a problem that the organisation will try to solvewith an information system

• Analysis consists of defining the problem, identifying its causes, specifyingthe solution, and identifying information requirements.

• Creates road map of existing organisation and systems; identifies primaryowners and user of data in organisation

• Performs feasibility study, which determines whether solution is achiev-able, given organisations resources and constraints.

• Information requirements is a detailed statement of the information needsthat a new system must satisfy; identifies who needs what information,and when, where and how information is needed.

• Establishing information requirements crucial; can make or break infor-mation system solution.

4.2.2 Systems Design

Definition: Detailing how a system will meet the information requirements asdetermined by the systems analysis.

• Shows how system will meet objectives set out be analysis.

• Design is overall plan or model for system (similar to blueprint for a build-ing or house).

• Designer details system specifications that deliver functions identified dur-ing analysis.

• Logical design lays out the components of information system and rela-tionship to each other as they would appear to users.

• Physical design translates the abstract logical model into specific technicaldesign for the new system.

• End user input crucial. System must reflect needs of user, not bias oftechnical staff.

4.2.3 Completing Development Process

Programming Process of translating the system specifications prepared dur-ing design stage into program code.

Testing Exhaustive and thorough process that determines whether system pro-duces desired results under known conditions.

Conversion Process of changing from old system to the new system.

Production Stage after new system is installed and conversion is complete;when system is reviewed by users and technical specialists to see how wellit meets original goals.

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Maintenance Changes in hardware, software, documentation, or proceduresto production system to correct errors, meet new requirements, or improveprocessing efficiency.

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