Wolaita Sodo University

School of Informatics
Department of Information Systems
Fundamentals of information systems for accounting
and finance department
Chapter one
An Introduction to Information Systems in Organizations
Introduction to Information Systems

information system (IS): can be any organized combination of people, hardware, software,
communications networks, data resources, and policies and procedures that stores, retrieves,
transforms, and disseminates information in an organization.

IS: is Set of interrelated components: collect, manipulate, store, and disseminate data and
information

• Provides feedback to meet an objective

• Examples: ATMs, airline reservation systems, course reservation systems

Information Concepts: Data, Information, and Knowledge

Data

refers to known raw facts about things like people places, events, and concept. Such as an
employee number, total hours worked in a week, an inventory part number, or the number of units
produced on a production line. As shown in Table 1.1, several types of data can represent these
facts.

Information

is a collection of data organized and processed so that it has additional value beyond the value of
the individual facts. is the processed, organized and meaningful data presented in a form suitable

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for human interpretation. collection of facts organized in such a way that they have additional
value beyond the value of the facts themselves.

Knowledge: Awareness and understanding of a set of information.

Table 1.1: Types of Data

The Value of Information

The value of information is directly linked to how it helps decision makers achieve their
organization’s goals. Valuable information can help people perform tasks more efficiently and
effectively.

The Characteristics of Valuable Information

Fundamental to the quality of a decision is the quality of the information used to reach that
decision. Any organization that stresses the use of advanced information systems and sophisticated
data analysis before information quality is doomed to make many wrong decisions.

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Table 1.2. Characteristics of valuable Information

Characteristic Definition

Accessible Information should be easily accessible by authorized users so they

can obtain it in the right format and at the right time to meet their needs.
Accurate Accurate information is error free. In some cases, inaccurate
information is generated because inaccurate data is fed into the
transformation process. This is commonly called garbage in, garbage
out.
Complete Complete information contains all the important facts. For example,
an investment report that does not include all important costs is not
complete.
Economical Information should also be relatively economical to produce. Decision
makers must always balance the value of information with the cost of
producing it.
Flexible Flexible information can be used for a variety of purposes.

Relevant Relevant information is important to the decision maker. Information

showing that lumber prices might drop is probably not relevant to a
computer chip manufacturer.
Reliable information can be trusted by users. In many cases, the
Reliable reliability of the information depends on the reliability of the data-
collection method. In other instances, reliability depends on the source
of the information. A rumor from an unknown source that oil prices
might go up may not be reliable.
Secure Information should be secure from access by unauthorized users.

Simple Information should be simple, not complex. Sophisticated and detailed

information might not be needed. In fact, too much information can
cause information overload, whereby a decision maker has too much
information and is unable to determine what is really important.

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 Timely Timely information is delivered when it is needed. Knowing last
week’s weather conditions will not help when trying to decide what
coat to wear today.

Verifiable Information should be verifiable. This means that you can check it to
make sure it is correct, perhaps by checking many sources for the same
information.

Components of an Information Systems

Input, Processing, Output, and Feedback are components of IS

• Input: the activity of gathering and capturing raw data

• Processing: converting or transforming data into useful outputs

• Output: production of useful information, usually in the form of documents and reports

• Feedback: output that is used to make changes to input or processing activities

Three Fundamentals of Information system

Most organizations have a number of different information systems. When considering the role of
business managers in working with IS, it is useful to divide information systems into three types:
personal IS, group IS, and enterprise IS.

Personal IS includes information systems that improve the productivity of individual users in
performing stand-alone tasks. Examples include personal productivity software, such as word-
processing, presentation, and spreadsheet software. In today’s fast-moving, global work
environment, success depends on our ability to communicate and collaborate with others,
including colleagues, clients, and customers.

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Group IS including information systems that improve communications and supports
collaboration among members of a workgroup. Examples include Web conferencing software,
wikis, and electronic corporate directories.

Enterprise IS including information systems that organizations use to define structured

interactions among their own employees and/or with external customers, suppliers, government
agencies, and other business partners. Successful implementation of these systems often requires
the radical redesign of fundamental work processes and the automation of new processes. Target
processes may include purely internal activities within the organization (such as payroll) or those
that support activities with external customers and suppliers (order processing and purchasing).
Three examples of enterprise IT are transaction processing, enterprise, and interorganizational
systems.

Computer-Based Information Systems

is a single set of hardware, software, databases, networks, people, and procedures that are
configured to collect, manipulate, store, and process data into information. Increasingly,
companies are incorporating computer-based information systems into their products and services.

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Figure 1.1: The Components of a Computer-Based Information System (CBIS)

• CBIS components are

• Hardware: computer equipment used to perform input, processing, and output

activities

• Software: computer programs that govern the operation of the computer

• Database: organized collection of facts and information

• Telecommunications: electronic transmission of signals for communications

• Networks: connect computers and equipment in a building, around the country,

and around the world

• Internet: world’s largest computer network

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 • People: manage, run, program, and maintain the system

• Procedures: strategies, policies, methods, and rules for using a CBIS

Business Information Systems

• Most common types of information systems used in business organizations

❖ Electronic and mobile commerce systems

❖ Transaction processing systems

❖ Management information systems

❖ Decision support systems

❖ Specialized business information systems

Information Systems in Organizations

An organization is a group of people that is structured and managed to meet its mission or set of
group goals. “Structured” means that there are defined relationships between members of the
organization and their various activities, and that procedures are defined that assign roles,
responsibilities, and authority to complete the various activities. In many cases, the processes are
automated using well-defined information systems. Organizations are considered to be open
systems, meaning that they affect and are affected by their surrounding environment.

Many organizations today use information systems to offer services with greater satisfaction to
customers.

❖ Information systems are used by: Sales representatives,

• Managers

• Financial advisors etc..

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 People rely on modern information systems to communicate with one another using a variety of:

❖ physical devices (hardware) ,

❖ information processing instructions and procedures (software) ,

❖ communications channels (networks),and

❖ stored data (data resources).

❖ In this age, the success of a business depends on the information system.

▪ Value Chains

The value chain is a series (chain) of activities that an organization performs to transform inputs
into outputs in such a way that the value of the input is increased. An organization may have many
value chains, and different organizations in different industries will have different value chains.
As an example of a simple value chain, the gift-wrapping department of an upscale retail store
takes packages from customers, covers them with appropriate, decorative wrapping paper, and
gives the package back to the customer, thus increasing the customer’s (and the recipient’s)
perceived value of the gift.

In a manufacturing organization, the supply chain is a key value chain whose primary activities
include inbound logistics, operations, outbound logistics, marketing and sales, and service.

The concept of value chain is also meaningful to companies that don’t manufacture products,
including tax preparers, restaurants, book publishers, legal firms, and other service providers. By
adding a significant amount of value to their products and services, companies ensure their success.

Supply chain management (SCM) encompasses all the activities required to get the right
product into the right consumer’s hands in the right quantity at the right time and at the right cost—
from the identification of suppliers and the acquisition of raw materials through manufacture and
customer delivery. The organizations that compose the supply chain are “linked” together through
both physical flows and information flows. Physical flows involve the transformation, movement,

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and storage of supplies and raw materials. Information flows allow participants in the supply chain
to communicate their plans, coordinate their work, and manage the efficient flow of goods and
material up and down the supply chain.

• Determines:

• What supplies are required for value chain

• What quantities are needed to meet customer demand

• How supplies should be processed into finished goods and services

• How shipment of supplies and products to customers should be scheduled,

monitored, and controlled