Management information systems revision question and answer

CPA-Quantitative-Analysis-Section-4 BLOCK RELEASE

Management Information Systems should facilitate decision-making at all levels of management. Each level requires information with different characteristics and with differing degree of profitability.

Required:
a) Examine the characteristics of information used in (i) strategic planning and (ii) operational control.
b) Discuss the features of deterministic, stochastic and adaptive systems. Give a practical example of each type of system.

ANSWER
a) Characteristics of information used in

1. Strategic planning
Strategic planning comprises of the topmost management in any organisation. Strategic management comprises decisions made the chief executive the board of directors and very senior managers. They formulate long- term plans and assess how such plans are strategic to the long-term survival. They also assess the effects of external events on the company performance.

The strategic information required contain the following characteristics:
i) Information used is normally old and relates to prior periods and as such it is not timely. For example, trend analysis.
ii) The response time for information needs is slow since it has to be gathered from non-specific sources.
iii) The frequency of information usage is not consistent and varies according to the current situation or needs.
iv) The accuracy of information used is relatively low since most of data used is in form of estimates and predictions.
v) Information is highly summarised and does not contain a lost of details thus it is highly aggregated.
vi) Information used in strategic planning is costly and hard to access and so to obtain it requires extra effort.
vii) Information is unstructured and so cannot be programmed since it is relatively uncertain.
2. Operational control

Operational control ensures that specific tasks are carried out efficiently and effectively. It involves the lowest level of management. Operational management consists of junior officers, clerks and supervisors. Their responsibilities include ensuring that transactions are collected from environment and recorded in suitable form and specific tasks are identified and organised for operation activities. It also ensures that adequate operation controls are put in place to control variances and abnormalities.

The characteristics of information used for operational control include: –

i) Information is always timely and up to date
ii) It is highly accurate as it involves facts and not estimates.
iii) It is usually very detailed and contain a lot of information.
iv) Information is mostly online and need not be searched for since It is ready for use upon demand.
v) It is always easy to access since it is always up to date.
vi) The response time to operational decisions based on operational information is instant and constant over time.
b) Features of deterministic stochastic and adaptive systems and examples of each type of system

1. Deterministic systems
These are systems in which various states or activities follow on from each other in a completely predictable way, for example, A will happen then B then C.
Features of a deterministic system are:
i) It uses predictable input
ii) The system reacts in a predictable way and as such, it is programmable.
iii) The output is predictable and can be known in advance.
An example of a deterministic system is a computer program which acts in a programmed way to accept input data and process it according to laid down manner and eventually output in the manner specified.
2. Stochastic or probabilistic systems

These are systems in which although some states or activities can be predicted with certainty, others will occur with varying degrees of probability
Their features include:
i) Controlling these systems involves quantification of publicity and risk
ii) They are not usually predictable and cannot be programmed. An example of a stochastic system is:
A company‘s credit control system. This credit control can analyse customer‘s payment schedule as 10% cash and 40% within 1 month of invoice and 50% within 2 months of invoice. However some of the customers may end up becoming bad debtors or extending their extending their credit periods.
3. Adaptive systems.
These are also called self-organising or cybernetic systems. They are systems which adapt and react to stimulus.
The features of this system are: –
i) The way in which the system adapts is uncertain.
ii) The same input or stimulus to the system will not always produce the same output or response.
An example of an adaptive system is a stock re-ordering system where the quantity of a stock item that is ordered from a supplier varies according to changes in the usage of the item. For instance, if the consumption of stock item S142 goes up 20% per week, the reorder quantity of the item will be increased.

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