Management Information System
Q1. Define MIS, explain the characteristics of MIS and critically evaluate information as tool for competitive advantage with suitable examples.
Ans. Meaning:-
“ MIS is an integral user-machine system for providing information to support operations, manager and decision-making functions in an organization. The system utilizes computer hardware and software for analysis, planning and control”.
“MIS can be defined as a combination of human and computer based resources, which result in collection, storage, retrieval, communication and use of data for purpose of efficient management of operations and for Business Planning.”
Characteristics of MIS.
MIS viewed as a multinational disciplinary activity or subject. MIS draws heavily upon various disciplines like Management Accounting, Management Science or theory, Organizational Behavior or Theory of Operations Research etc.
(i) Management accounting is meant for monitoring, controlling the organizational performance and initiating course-corrective action whenever or wherever required. Management Accounting also provides specific information costs etc.
(ii) Management science techniques and principles are in separable part of decision-making. They explains the dynamics of decision-making process, specific management functions at various levels, and thereby facilitates development of MIS.
(iii) Management (MIS) has developed and implemented in an organizational context. Organizational theory or behavior enables MIS professionals to understand organizations, their types, cultures and behavior. These are valuable inputs as the success of MIS would depend on how it adopts to the specific organizational requirements.
(iv) Decision making today involves extensive use of mathematical and statistical techniques. Model building, forecasting-all these activities involves mathematical or statistical techniques. These techniques embodied in operations research-, which is using statistics, and mathematics for arriving at an optimal solutions- are made use of in MIS.
(v) MIS makes extensive use of computer science and technology for data storage, processing, manipulation, retrieval etc. due to the speed, processing capability and memory size of the computers.
MIS cannot be developed without making use of various theories, principles, and formulae. MIS is viewed as a multidisciplinary subject.
Information as a tool for Competitive Advantage:-
Meaning:-
Competitive Advantage could be usually embodied in either a product or a service that has the most added value to customers and that is unavailable from the competition.
Changes made in Information Technology have ushered in an information Revolution which is sweeping the corporate organizations worldwide. The corporate business environment has resultantly become intensely competitive, increasingly globalised and highly information based. In such a highly competitive environment it is imperative for an organization to strive to seek and seize competitive advantage to be the best, ability to access and use information effectively has been an important source of competitive advantage for a number of corporate organizations.
Q2 Define ‘Information Technology’, explain the capabilities of the I.T and the impact of I.T on the corporate organizations with suitable examples.
Ans. Meaning:-
“Information Technology is the acquisition, processing, storage and numeric information by a micro-electronics based combination of computing and telecommunications.
Information Technology is the term used to describe technologies, which enables the users to receive information. Information Technology encompasses modern technologies such as computer facsimile transmission, micro-graphics, telecommunications and microelectronics.
Impact of Information Technology:-
Information Technology (IT) has changed the way business organizations functions to carry out their activities. People like Bill Gates today talk and write about “Business @ speed of thought and information.
IT has tremendous and varied capabilities. It has transactional, geographical, automational, sequential, knowledge management and dis-intermedation capabilities.
Capabilities of Information Technology:-
Transactional-
It can transform unstructured processes into routinised transaction.
Geographical-
It can transform information with rapidly and ease across large transactional distance, making process independent of geography.
Automatical-
IT can replace or reduce human labour in a process.
Analytical-
IT can bring complex analytical method to bear on a process.
Informational-
IT can bring vast amounts of detailed information into process.
Sequential-
IT can enable changes in the sequence of tasks in a process, often allowing various tasks to be worked on same time.
Knowledge management-
IT allows to capture and dissemination of knowledge and expertise to improve the process.
Disintermediation-
IT can be used to connect two parties with a process that would otherwise communicate through an intermediary i.e., internal and external.
Q3 Define ‘Network’, ‘Internet’, ‘Intranet’, and ‘Extranet’. Illustrate the Internet capabilities and discuss the benefits of and problems of with an Internet.
Ans. Network:-
A network is a group of devices (nodes) connected by media links. A node can be a computer, printer or any other device capable of sending or receiving the data generated by the other nodes on the network. The links that connect the nodes are called communication channels.
Networks are used in distributed processing, in which a task is divided among many computers. Instead of a single large machine each separate computer handles subject. The majority of current networks rely on satellites or “rocket station” to communicate the information necessary to provide their respective services. For example-
Deep Space Network (DSN)
Integrated Services Digital Networks. (ISDN)
Internet:-
The Internet is a global collection of people who are linked through computer cables and telephone lines making communication possible with each other in common language for specific purposes. An Internet allows computer users to share computer equipment programs, messages and information available on sites.
Information is in the form of files or data stored in computer. For this two things are necessary:-
- address of the destination and
- a safe mode or method to transform data in the form of electronic signals.
The Internet use a set of rules called TCP/IP which governs the sending and receiving of data on the internet.
Intranet:-
An Intranet is an Internet company network that uses the internet standard protocols of HTML (Hyper Text Markup Language) and HTTP (Hyper Text Transfer Protocol) and TCP/IP (Transmission Control Protocol and Internet Protocol) communications protocols along with a graphical web browser to support business applications and provide departmental and interdepartmental and company wide communications solutions.
Intranet, a network administrator can avoid many of the security concerns that Internet connectivity brings. Security issues can be more focused on Internet rather than external computer security . Special IP addresses can be used that will be unique within a company.
Internet Capability:-
1.Email – Electronic mail is the communication media on Internet to the entire world. It is one of the most commonly used service on Internet.
2.Telnet- Telnet is a program that allows connecting on-line databases,
librates catalogues and other information resources on the Internet.
Telnet is an important Internet tool that connect the users to other
computer.
3.Usenet Networking- Usenet newsgroups is the way using internet one can share information. This is considered another global networks of commuters and people which is interlinked with internet.
4.Gopher- Gopher is the example of Inernet browsing mechanism. It presents the internet as a series of hierarchical menus containing items that point to another related menu or a file with a remote host.
5.WWW- World Wide Web (WWW). It is described as a wide area hypermedia information allowing universal access to a large universe of documents.
Internet Advantages:-
(i) Reducing communication costs
(ii) Enhancing communication and co-ordination
(iii) Accelerating the distribution of knowledge
(iv) Facilitating marketing and sales
(v) Improving customer services and satisfaction
Internet Disadvantages:-
Security
Technology Problems,
Lack of Standards
Legal issues
The traditional Internet cultures
Q4 Discuss any two of the following:
Prototyping, Case.
Ans. Prototyping.
A prototype is basically a scaled down model or working version of product. The prototype is put through various tests, before it is converted into a polished, sleek product.
The process of preparing prototype is referred to as “prototyping”. It is consisting of building an experimental system rapidly and inexpensively for the end-user to evaluate. Prototyping is also viewed as “strategy of experimental assurance in development of information system applications to be achieved by an evolutionary design method”.
The four steps in Prototyping:
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Identifying Basic User Requirements |
Step 1
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Developing Initial Working Prototype |
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Make use of the Prototype |
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Revise and Enhance Prototype |
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Operational Prototype |
Step 2
Step 3
Step 4
Advantages of Prototyping:
The major advantages of prototype are as follows:-
(i) Ability to ‘tryout’ ideas without incurring large/ huge costs.
(ii) Lower overall development costs when requirements change frequently
(iii) The ability to get a functioning system into the hands of the user quickly.
(iv) Reduced application development time to achieve a functioning system.
(v) Effective utilization of scarce human resources.
Disadvantages of Prototyping:
(i) Prototyping is better suited for smaller modular applications.
(ii) Rapid prototyping can gross over essential steps in systems development.
(iii) The performance may be rather inefficient.
(iv) As the system can be changed easily, documentation may not be kept up-to-date.
(v) User must be willing and committed to providing ongoing and meaningful feedback.
Case (Computer Aided Software Engineering)
The best workplace for a software engineer has three primary characteristics:
(i) a collection of useful tools helps in every stage of building a product.
(ii) An organized layout that enables tools for quick and efficient use.
(iii) A skilled person who knows use of tools in effective manner.
The workplace for software engineering is called an integrated
Project support environment and the tool set is called Computer aided Software engineering. (CASE).
CASE tools added to the software engineering case tool box provides engineering with the ability to automate manual activities and to improve engineering insight.
Building Blocks
Computer Aided Software Engineering can be a single tool that supports a specific Software Engineering activity to complex environment that encompasses tools, a data of people, hardware, network operating system standards and other components i.e. environment architecture composed of hardware platform and operating system support lays the ground work for CASE. But the CASE environment itself needs other building blocks. A set of portability services provides a bridge between CASE tools and their integration framework and the environment architecture.
Case tools |
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Integration Framework |
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| Operating System
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The integration framework is a collection of specialized programs that enables collection of specialized programs that enables individual’s CASE tools to communicate with one another, to create a project database and to exhibit the same look and feel the soft engineer. Portability service allows CASE tools and their integration framework to go across different hardware platforms and operating systems without much adaptive maintenance.
Q5. Define DSS, discuss the desirable DSS characteristics and compare MIS and
DSS.
Ans. Meaning:
“The Decision Support Systems (DSS) are interactive information systems that rely on an integrated set of user friendly hardware and software tools to produce and present information that is targeted to support the management in the decision making process.”
The Decision Support Systems assist management decision-making by combining data, sophisticated analytical models and user-friendly software into a single powerful system that can support semi-structured or unstructured decision-making. The Decision Support Systems is under user control form early inception to final implementation and daily use Decision Support System helps to close the informed gap to enable managers to improve quality of their decisions.
Characteristics of DSS:-
While developing the DSS therefore, care must be taken to ensure that the DSS possesses the following desirable characteristics:-
(i) DSS should aid the decision maker in decision-making.
(ii) DSS should be able to address semi/unstructured decision-making situations.
(iii) DSS should be able to create general purpose models, simulations capabilities and other analytical tools available to decision maker.
(iv) DSS should enable users to use DSS without assistance from MIS/Technical professional.
(v) DSS should provide mechanism to enable rapid response to a decision maker’s request for information.
(vi) DSS should have capability to interface with corporate database.
(vii) Interactive methods are better advised.
(viii) DSS should have inbuilt flexibility and ability to evolve as user-sophistication grows.
(ix) DSS should be flexible to accommodate variety of management styles.
(x) DSS should facilitate communication between/among various levels of decision-making.
Comparison —– MIS & DSS.
MIS1. The focus is on structured tasks and routine decisions. 2. Identifies information requirements. 3. Delivers system based on frozen requirement. 4. Provides only indirect access to data by managers. 5. Reliance on computer expert. 6. MIS manager may not completely understand structure of decision. 7. Emphasis is on efficiency. |
DSS1. Focus is no Semi/Unstructured tasks, which required managerial judgment. 2. Establishes tools to be used for decision process. 3. Follows iterative process hence current data can be used. 4. Managers have direct access to data. 5. Reliance on managerial judgment. 6. Manager knowing nature of decision and decision making environment. 7. Emphasis on effectiveness. |
Part – II
Q1 Define ‘Management Control’ and ‘Management Control System. Discuss the nature and characteristics of MCS.
Ans. Meaning:-
Management Control:
Management Control as “the handling of people – employee within the administration and clients, suppliers, Govt. officials, bankers, outside it – to get decision mode and carried out with the ways that will achieve the firm’s objectives.
Management Control can be defined “as the process by which managers assures that resources are obtained and used effectively and efficiently in the accomplishment of the organizations objectives.”
Management Control System.
The term “Management Control System” consists of three word viz;
Management
Control and
System
Management:
It is a process of Planning, leading, organizing and Controlling the resources of an organization in an effective and efficient manner in pursuit of specified, predetermined organizational goals.
Control:
Exercising Control is one of the major functions the Management faces a lot of problems in today’s dynamic and fiercely competitive world and hence it becomes necessary for the management to control the resources.
Control Involves:-
1.Measurement of performance against the pre determined goals.
2.Identification of deviations from these goals.
3.Initiating course corrective actions to rectify deviations.
System:
The concept of System is a very relevant from Management Control System (MCS) point of view as managers are required to convert the dis organized resource of men, machine and money into a useful, effective and efficient enterprises. Management is the essence of, is a process whereby these unrelated resources are integrated into a total system for accomplishment of goals.
Nature of Management Control:
The traditional view of Management Control was to compare targets with actual performance and to take corrective action where deviations occur. This view takes the targets as given and the MCS is designed to tell how the organization is placed as against the planned goals. This view is essentially restricted to short range to enable the management to initiate course corrective action if any deviations occur.
The Modern view on the other hand is more comprehensive and realistic. Under it, control and planning are treated as interrelated rather than as independent functions. It is decisions not only to tell how near the organizations is to its targets but to evaluate the targets themselves in relation to both the constraints in the external environment and the available resources.
The modern view also stresses self-control as against the basic trait of restricting people under the traditional view- wherein at each level people themselves ensure that they follow the planned course and achieved the goals.
Characteristics of Management Control System:
(i) Ongoing Process: Management Control System is an ongoing/continuous process. It is constantly responsive/responding to ever changing environment. MCS is therefore dynamic and not static.
(ii) Goal Congruence: Generally the personal goals and organizational goals may not be identical. Goal congruence implies integrating the personal goals with the organizational goals, or at least minimizing the amount of conflict between varying goals.
(iii) Goal Orientation: MCS is put in place to ensure that the organization accomplishes its pre-determined goals with minimum dislocation/variance in the most effective and efficient manner.
(iv) Financial Structure: The organizational performance with few expectations is judged by or expressed in monetary impacts/units. This is because money is the only common denomination by means of which heterogeneous elements of inputs and outputs can be clubbed and compared.
(v) Rhythmic: The MCS has a definite schedule and time span. There is also a certain sequence and chronological order. This procedure is followed over and over again.
Q2 Critically evaluate the roles of the Accounting Systems and information system in MCS.
Ans. Role of Accounting System.
The Accounting System alone can provide the necessary information, inputs for Management decision-making & control. To elaborate, the data as regards cash flows, funds flows, capital budget, working capital bills payable, bills receivable, various expenses, cost performance reports etc could be available only from the Accounting System.
For example:-
(i) The Bills receivable Data giving party wise, bill wise, data wise/age wise breakup would enable the management to devise the suitable credit policy and limits for each client.
(ii) In manufacturing industries the accounting data regarding cost of production would enable the Management to pin point higher costs and bring them down wherever feasible and required and make the product more competitive.
It would therefore be appreciated that Accounting System has a crucial and critical role to play in Management Control System.
Accounting System also has an important role to play in both control and planning as can be seen from the following:-
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The Accounting System therefore could be useful in the following areas for exercising effective Management Control:-
(i) To ensure that the data are collected from all the inputs centers in time
(ii) To see that data are processed speedily/preparing performance reports.
(iii) To overview reports at successive levels to identify gray areas for initiating course corrective remedial actions.
Role of Information System:-
Information Technology is bringing about such changes which makes the organization such changes which makes the organization now more dependent on the knowledge, learning and decision-making of individual employees. Information System using IT support decision-making co-ordination and control, in addition to making available the requisite information here after:-
Information System
Organization Management Technology
Information System plays an important role in an organization as:-
(i) Operational level systems help operational manager keep track of the firm’s day-to-day activities.
(ii) Knowledge level systems help knowledge and data workers design products distribute information and cope with paper work.
(iii) Management level systems helps in middle managers monitor and control.
(iv) Strategic level systems helps senior managers with long-term strategic planning.
Thus Information Technology and Information System are now indispensable for an
organization from the Management Control point of view.
Q3 Explain the concepts of Responsibility centers and discuss in detail the pros and cons of ‘Profit Centres’ with suitable examples.
Ans. Responsibility Centers.
Responsibility center is a center or a sub-unit of an organization under the control of manager who is irresponsible for the activity of that responsibility center. A small firm can possibly be managed by individual or a group of individuals but large firms are divided into many department. Each department has performed certain activities and manger is assigned for each such department who take care of its responsibilities and activities. These sub-units of an enterprise for the purpose of control are called “Responsibility centers”.
Profit Center:
A profit center is a responsibility center in which inputs are measured in terms of revenues. Both the elements of accounting information costs and revenues are considered. In other words, in a profit center the measures of performance are broader than expense center because in expense center only one element are considered and in profit center both the elements (costs and revenues) are considered and revenues are profit.
Stated, operationally the profit center is a division or sub-unit of an organization in which financial measures are determined on the basis of Profit.
Advantages:
The profit center as a responsibility center is of considerable significance in the meaning of the performance of sub-division, divisions and their managers. The advantages of profit center are as follows:-
(i) Profit defined as the difference between the cost and revenues is a combined measure of both effectiveness and efficiency. It provides a powerful and effective tool for measuring the efficiency of the profit center and its mangers.
(ii) The Profit center is closely related to the principle of delegation of an organization; Profit makes decentralized organization possible.
(iii) A Profit center resembles a business like a separate firm, its profit is calculated. The performance of the managers are calculated on the basis of such profits.
Therefore they will be motivated to take decisions of the inputs and outputs in such a way that the ratio of profit can be maximized in the profit center.
Problems:
The profit center approaches also encounters certain problems. They are
(i) Transfer Price:
A Transfer Price which is used to measured the value of goods and services furnished by a profit center to the other responsibility center of a company.
In other words. “when internal exchange of goods and services takes place between different department of the organization in monetary terms. These monetary amount for these internal divisional exchanges are known as “Transfer Price”.
The determination of transfer price is one of the major problem faced by the profit center. The implications of the transfer price is that for the selling division (whose goods and services are transfer) it will be the source of revenue where as for buying division it will be a source of expenditure. Hence the need for correct determination of transfer price is considered wise but is being complicated because a wide variety of alternative methods are used.
(ii) It is possible that organizational units would start competing amongst themselves disadvantageously.
(iii) There can be increased friction in business units especially on the issue of transfer pricing mechanism. The friction can also arise in the area of sharing common costs such as corporate office expenses.
Q4 Define ‘Cost Audit’ and discuss its characteristics, scope and objectives. Please also give a comparative view of the various types of Audits, namely internal Audit, Financial audit, cost audit and Management audit.
Ans. Meaning:
Cost Audit is an audit of cost records. Cost Audit is mainly a preventive measure. It serves as a guide for policy formulation and decision-making in addition to being a barometer of performance.
According to the cost and work Accountants of India (ICWAI), “Cost Audit refers to an audit of efficiency of minute details of expenditure, while the work is in progress and not a post-mortem examination.
Characteristics of Cost Audit:
(i) Cost audit is efficiency audit
(ii) Cost audit is Proprietary audit
(iii) It is different from Financial Audit.
Objectives:
The cost objectives has of two types
(i)General Objectives
(ii)Social objectives
General Objectives:
(i) To verify cost accounts and other relevant data.
(ii) To determine the value of work-in-progress finished goods/stocks as accurately as possible.
(iii) To compare actual cost with standard cost and find out reasons, if any for variances.
(iv) To ascertain whether the company’s cost accounting records give true and fair view of cost covered.
(v) To fix correct prices for goods and services of national importance.
Social Objectives:
(i) To help in Price fixation and price control mechanism.
(ii) To help improve cost-consciousness.
(iii) To guard against tax evasion efforts through incorrect valuation
(iv) To benefit consumers by ensuring reliable/competitive pricing
(v) To help in correct valuation of work in progress and closing stock, leading to correct profit & loss a/c.
Scope of Cost Audit.
The scope of Cost Audit may widen when if the Central Govt. prescribes cost accounting records rules to more industries and issues more number of cost audit orders:
(i) Cost Audit has to take cognizance of the findings of internal audit as well as Financial Audit.
(ii) Cost Audit should cover efficiency and proprietary audit as well
(iii) Cost Audit also covers system audit of all procedure/system in vogue
(iv) As cost audit is going to enable organization to gain competitive edge in terms of cost, it is considered most crucial in the contemporary business environment.
(v) Apart from checking the arithmetical accuracy, Cost Audit must ensures that Cost Accounting principles and practices are meticulously followed and the irregularities and lapses are reported and constructive suggestions for improvements in the system and method for cost reduction are made.
(vi) Cost Audit has to be conducted keeping in view:-
-Provisions of Companies Act,1956
-Cost Accounting records rules.
-Cost Accounting (report) rules and
-Cost of works Accountant Act,1959.
Comparison Chart
Criteria Financial Audit Internal Audit.
1.Time span Immediate past year Current Financial and some
past.
2.Field of Audit Financial/Accounting records Financial Records and Allied
and allied documents. documents.
3.Principles, Con Readily available, fully detailed Readily available, fully
ventions,norms well structured and well docum detailed,well structured, well
practices. ented and procedures. Documented.
Criteria Financial Audit Internal Audit.
4.Area & scope Defined/determined by Defined/determined by the
of Audit. Statute/law. Management.
5.Reporting To the share holders. To the management.
6.Rights,duties,ob Statutorily determined (sec Defined/determined by the
ligations,liability tion 224 to 233 of the comp management.
Of auditors. anies Act, 1956.
Criteria Cost Audit Management Audit
1.Time span Immediate past, present as well Past, present and future.
as future.
2.Field of Audit Cost accounting records and All types of records
allies documents. pertaining to the
Organizations activities.
3.Principles, Con Available by and large reasonably Not available in detailed.
ventions,norms detailed, well structured and well well structured and well
practices. Documented documented.
4.Area & scope Defined/determined by statue/law Defined/determined with
respect to objectives/purposes
and included in the term of references
5. Reporting To the company law board (Govt To the management or the
of India) authority appointing the
management auditor.
6.Rights,duties,ob Statutorily determined(section Defined by the management.
- ligations,liability 224 to 233 of the companies act
Of auditors. 1956.
Q5 Discuss the main objectives of Transfer Price Mechanism and explain any two ways/techniques for determining transfer price with suitable examples.
Ans. Transfer Price:
When two or more profit center are jointly responsible for product development, manufacturing and marketing each of them has to get a share in the profit generated when the product is sold. The Transfer Price is the mechanism for distributing these profits among all the centers involved.
Objectives:
The main objective of transfer price should be as follows:-
(i) It should provide each segment with the relevant information required to determine the optimum trade-off between company costs and revenues.
(ii) It should induce goal congruent decision that means that the system should be so designed that decisions that improve business unit profits will also improve company profits.
(iii) It should help to measure the economic performance of the individual profit center.
(iv) The transfer price system has to be simple to understand and should be easy to administer.
Techniques for determining Transfer Price.
a) Two step Transfer Pricing.
In this the transfer price includes two charges. The first charge is the standard variable cost of production of the unit. Then, a periodic charges is made that is equal to the fixed costs associated with the facilities reserved for the buying unit. The profit margin is to be factored in either or both these components of the price.
For example:
The manufacturing unit x - Product A
Expected monthly sale to - 5000 units
unit y.
Variable cost per unit - Rs. 5
Monthly fixed cost for - Rs. 20,000
product.
Investment in working cap- - Rs. 12,00,000
tal and facilities.
ROI required per year - 10%
Calculation of transfer price:-
Variable cost per unit - Rs.5
+ fixed cost per unit - Rs.4
+ Profit per unit - Rs.2
Transfer price per unit - Rs.11 per unit.
b) Two sets of prices method of transfer pricing
In this method the manufacturing unit’s revenues is credited at the outside sales price, and the buying unit is charged the total standard costs. The difference is charged at a H.O account and eliminated when business unit’s financial statements are consolidated. This is not a fair way of setting transfer price. The individual unit’s profitability cannot be measured in this system.
