Scdl - Pgdba - Finance - Sem 2 - Mis-mcs

MIS / MCS Answer 1 Introduction MIS can be defined as an integrated, user-machine system for providing information to support managerial, operational and decision making functions in an organization. According to Barry E.Cushing, MIS is “A set of human and capital resources within an organization which is responsible for the collection and processing of data to produce information which is useful to all levels of management in planning and controlling the activities of an organization.” For the purpose of analysis, planning, control and decision making, the system uses manual procedures, computer hardware and software, models and a data base. Information is needed at all levels within a business organization. However its scope, content and presentation differ from one level to another. Based on the location at which information is used, it can be classified as operational, tactical and strategic information Text Characteristics of MIS MIS have certain characteristic that distinguish them from other information systems. In the following section, we discuss the salient features of a management information system. Management Oriented MIS is developed to increase organizational efficiency.Therefore; they need to focus on the requirements of the managers and the overall objective of the organization. Management Directed Management information system can be costly and time consuming. Hence it is important that the top management understand their importance in increasing organizational efficiency which would to quicker implementation. Integrated System MIS is based on five factors men, money, material.machine and methods. An MIS is a combination of subsystems.Hence, it is important that MIS be viewed as an integrated system that is a combination of functional and activities subsystems. Common data flow Activities such as data gathering, storage, retrieval and data capturing are performed only once and data is collected from the original source. By establishing a common data flow, the system tries to minimize data processing and maximize output generation. Such integration would help in building an effective management information system. Heavy planning element

The implementation of an MIS requires meticulous planning and design and implementation. The system should be designed such that there is perfect synchronization between hardware, software, data processing, information presentation and feedback. Subsystem Concept MIS consists of several subsystems that interact with each other and perform specialized tasks that may be integrated into the total system. For convenience the organization can have a hierarchy of subsystems that clearly represents the relationship between subsystems their relationship with the total system Common database Common database acts as an integrator between the different functional subsystems in the organization. Common database permits access to different tables by different functional subsystems. Since data requirements are different for different levels of management, the system supports one or more databases. Flexibility MIS is flexible and can be modified easily.Moreover; computerization is also simple because of the structure and comprehensive nature of the system.

Answer 5 Prototyping Prototyping is the process of rapid system development and testing of working models (prototypes) of new applications through an interactive, iterative process which is evolutionary in nature. Such system prototypes are immediately passed on to the end users to run trials and identify deficiencies, if any. After receiving feedback from the end users, necessary modifications are made in the system and they are once again passed to the end users. This iteration process would continue until an efficient, workable system is developed. Prototyping makes the developmental process faster and easier for systems analysts, especially for projects where end user requirements are difficult to define. Steps in Prortyping process. Step 1 Identify the users basic requirements At this stage the systems person works with the user to understand user’s basic needs/requirements as regards the output from the systems. The systems person establishes realistic user expectations, estimates the cost of developing the working prototype, defines data elements required and determines data availability. Step 2 Develop the initial/working prototype The system person develops the initial working /interactive prototype quickly, which meets the user’s stated basic requirements. The prototype, performing only basic functions, is then handed over to the user. While developing the prototype, the systems person may use the latest software tools available to speed up application development. Step 3 Use the prototype for further refinements The user has already received the initial prototype, which he now puts to use. This working with the prototype enables the user to gain hands-on experience with the proposed system and helps him to determine as to what extent the prototype meets the user needs / expectations/requirements. The user, rather than the system person, decides the desired changes for further improving prototype. Case Tools CASE {Computer Aided Software Engineering} involves using software packages to accomplish and automate many of the activities of the information system development, including software development or programming. CASE is basically the automation of step-by-step methodologies for software and systems development to reduce the amount of repetitive work the developer/programmer needs do to. The use of CASE also helps the programmers to keep pace with the increasing sophistication in programming. The use of CASE revolutionizes the development process as it improves the design, significantly cuts down the time to design a new product and reduces the cost in the process. System Analysis Tools

Database Design Tools

System Design Tools

Strategic Planning Tools

Project Management Tools

CASE Encyclopedia

Process Support Tools

System Construction Tools

System Management Tools

Answer 7 Introduction In their book, The New Science of Management, Allen Newell and Herbert A. Simon devised a model of human problem solving that comprises human information processing with computer information processing. Simon’s model of decision making considers three phases namely Intelligence, design and choice. In the intelligence phase, information from different sources is accepted, processed and evaluated. This helps in the easy identification of underlying problems. During the design phase, various alternatives are identified or developed. The optimum alternative is chosen in choice phase. Decision support system are widely used in business organizations to provide support in activities such as financial planning,forecasting,risk assessment,etc.To arrive at a rational solution, a DSS may make use of inquiry,analysis,models or accounting systems.DSS are very useful when complex manipulations and different analysis techniques need to be used to find a solution. There are basically two types of decisions, programmable decisions and nonprogrammable decisions. Programmable decisions are those are those that are based on predetermined rules and can be computerized. Computerization is possible since the inputs, process methodology, analysis and choice of decision are all predetermined. Nonprogrammable decisions are those that do not follow any fixed rules but are based on the circumstances. However it is very important to understand that the scope of DSS is limited to the intelligence and Design phase and does not include the actual decision in choice phase. Characteristics of a DSS Flexibility A DSS is flexible so that it supports semi-supported and unstructured information. This is an essential attribute of DSS since decisions are always based on assumptions. The ability to incorporate changes as per decisions as per requirements makes DSS more meaningful for the organization Simple models DSS is popular because of the simplicity of the models used. Simple models enable users to use the DSS more efficiently. Users need to change the data requirements according to the models used. Decision makers select models based on the complexity of decisions. Database Decision making may require a lot of information. For meaningful information to be made available to decision makers, it is necessary to store the information in databases, which make data access easy and quick. Other Characteristic features 1. DSS should have in-built flexibility and ability to evolve as user-sophistication grows. 2. DSS should facilitate communication between/among various levels of decision making 3. DSS should have capability to interface with corporate databases.

MIS & DSS: COMPARISON MIS The Focus is on structured tasks and routine Decisions. Emphasis is on efficiency. Reliance is on computer expert Emphasis is on data storage

DSS Focus is on semi/unstructured tasks, Which require managerial judgement Efficiency is on effectiveness. Reliance is on managerial judgement. Emphasis is on data manipulation

Delivers system based on frozen requirement

Follows interactive process hence Data can be used.

Access to data possibly requiring a wait for Manager’s turn

direct access to computer and data hence no wait.

Answer 8 Data Mining Data Mining is the extraction of implicit, previously unknown, and potentially useful information from data. This encompasses a number of different technical approaches such as clustering, data summarization, learning classification rules, finding dependency networks, analyzing changes, and detecting anomalies. Data mining is the search for relationship and global patterns that exists in large databases but is hidden among the vast amount of data. These relationships represent valuable knowledge about the database and the objects in the database which can be put to use in the areas such as decision support, prediction, forecasting and estimation. Basically data mining is concerned with the analysis of data and the use of software techniques for finding the patterns by identifying the underlying rules and features in the data. Data Mining Functions Data mining methods may be classified by the function they perform or according to the class of application they can be used in. Some of the main techniques used by data mining are as follows: Classification: Data mine tools have to infer a model from the database, and in the case of supervised learning this requires the user to define one or more classes. Associations : Given a collection of items and a set of records,each of which contain some number of items from the given collection,an association function is an operation against this set of records which return affinities or patterns that exist among the collection of items.These patterns can be expressed by rules such as : 70% of all the records that contain items A,B and C also contain items D and E. Sequential/Temporal patterns : These functions analyse a collection of records over a period of time foe example to identify trends.Where the identity of a customer who made a purchase is known an analysis can be made of the collection of related records of the same structure.Sequential pattern mining functions are quite powerful and can be used to detect the set of customers associated with some frequent buying patterns. Clustering/Segmentation : Clustering and segmentation are the process of creating a pattern so that all the members of each set of partition are similar according to some metric.A cluster is a set of objects grouped together because of their similarity or proximity.There are a number of approaches for forming clusters.One approach is to form rules which dictate membership in the same group based on the level of similarity between members.Another approach is to build set functions that measure some property of partitions or partitions as functions of some parameter of the partition. Data Warehousing The concept of data warehousing has evolved from the experience that the data stored for business analyst can be most effectively accessed by separating it from the operational data. Data miming potential can be enhanced if the appropriate data has been collected and stored in a data warehouse.A data warehouse is a rational database management system{RDBMS} designed specifically to meet the needs of transaction processing system.It can be loosely defined as any centralized data repository which can be queried for business benefit.It provides tools to satisfy the information needs of employees at all organizational levels and not just for complex data queries,but as a general facility for getting quick,accurate and often insightful

information.Data warehousing is a new powerful technique making it possible to extract archieved operational data and overcome inconsistencies between different legacy data formats.Integrating data throughout an enterprise,regardless of location,format,or communication requirements it is also possible to incorporate additional or expert information system applications. Answer 8 Introduction Every day there are news stories about computer related data errors,thefts,burglaries,fires and sabotage.Although considerable efforts have been made to reduce vulnerability to such events,much more effort is still needed.Weak computer security and lack of internal controls tremendously increases an organisation’s vulnerability to the following.       

Commission of computer frauds Theft of electronic information Theft of physical information,such as printed outputs or computer disks/tapes Loss of information integrity & privacy due to unauthorized access. Damage to computers and peripherals Interception of communications Data errors due to carelessness or negligence

Computer security risks fall into one or three major categories : destruction,modification,and disclosure.Each of these may be further classified into intentional crimes committed by computer criminals or disgruntled employees,unintentional loss by negligent users,and environmental attacks by nature.An effective security plan must consider all three types of threats. Remedial Measures Controls are used to reduce the probability of attack on computer security.As additional controls are placed,the overall operating costs are likely to increase.Cost-benefit considerations require a careful balance of controls.There are four main classes of controls,discussed below. Deterrent Controls The aim of deterrent controls is to create an atmosphere conducive to control compliance.For example,the organization could impose penalties whenever a control is disregarded,regardless of the actual damage.Deterrent controls are expensive to implement.However their effectiveness is difficult to measure.These controls complement other controls and are not sufficient by themselves. Preventive Controls These controls are designed to reduce the probability of an attack.They serve as the first line of defense.Effective preventive controls will thwart a perpetrator from getting access to the computer system. Detective Controls

Once a system has been violated,detective controls halp identify the occurance of harm.These controls do nothing to insulate the system from harm;they only serve to focus attention on the problem. Corrective Controls After a loss has occurred,corrective controls serve to reduce the impact of the threat.Their purpose is to aid in recovering from damage or in reducing the effect of damage.For instance,lost information on floppies may be restored with utility programs. The controls in information systems are divided into following broad categories : Physical Controls  Data Security & Physical Security  Controlling Physical access  Fire Security  Communication Controls  Line Security  Transmission Security  Digital Signature  Cryptographic Security  Emission Security  Technical Security  Application Controls  Input Controls  Processing Controls  Change Controls  Testing Controls  Output Controls  Procedural Controls  Personnel Controls  Audit Trails  Network Security  Access Control  Identification & Authentication  Data Confidentiality  Data Integrity  Digital Signature  Routing Control  Traffic Padding  Interference minimization.  Security Administration  Statutory Controls

PART-II: MCS Answer 4 Introduction A responsibility center is an organization unit that is headed by a manager who is responsible for its activities. A decentralized company therefore is a collection of responsibility centres.The management defines the objective of each of these centres.The managers heading these centres are given requisite authority to run these centres and are expected to deliver the desired output,for which they are held responsible. According to C.I.M.A,London,Responsibility center is a system of Management accounting under which accountability is established according to the responsibility delegated to various levels of management and management information and reporting system instituted to give adequate feed-back in terms of the delegated responsibility.Under this system division of units of an organization under specified authority in a person are developed as a responsibility center and evaluated individually for their performance.A good system of transfer pricing is essential to establish at the performance and results of each responsibility center.Responsibility accounting is thus used as a control technique. Profit Center Profit cente Profit is any sub-unit of an organization to which both revenues and costs are assigned,so that the profitability of the subunit may be measured.For a profit center organization to be established,it is necessary to have units of the organization to which both revenues and costs can be separately attributed.A profit center’s performance report measured in absolute terms would show profit on the bottom line. Advantages and Disadvantages of Profit Center Profit centers may be suitable for a decentralized organization where : • • •

Divisions have access to markets both for suppliers and customers. Inter-divisional business is not too important. Divisional managers are allowed considerable independence.

Where any of these conditions are not met,it becomes more difficult to judge whether on balance profit centers are beneficial.Some possible advantages of treating divisions of a company ‘as if’ they are independent of top management control are listed as below :

 Motivates managers to perform well in areas they control.  Encourages intiative.  Uses divisional manager’s specialized market knowledge.  Gives local managers responsibility for making trade-offs.  Emphasis on ‘bottom line’ spotlights poor performance anywhere.  Permits management by exception  Frees top management’s time and energy for other tasks.  Helps in training future managers.

Profit centres are ,therefore,not always the most appropriate form of divisional organization.Some possible disadvantages of treating divisions as profit centers are given below :        

Confuses division’s results with manager’s performance Over-emphasis on short-term results. Risks,mistakes by divisional managers which top managers might avoid. Underutilises corporate competence Duplicates staff activities Difficult to identify suitable profit centers Hard to arrange for goal congruence Complicated by transfer price problems.

Answer 1 Introduction Management control implies measurement of accomplishments against the standards and the correlation of deviations to assure attainment of objectives according to plans. It would thus be observed that management control essentially involves following three major aspects: 1. Process consisting of certain inter-related & sequential steps. 2. Aims at effectiveness and efficiency in the acquisition and utilization of resources. 3. Designed to achieve further the objectives of the organization. Management Control System integrates the managerial activities of planning, organizing, directing, communicating, leading and controlling in a system where the focus is on management, the criterion for judging management actions being achievement of objectives efficiently and effectively. Management control system is made effectively through two components, namely: 1. Management Control Structure 2. Management Control Process Characteristics of M.C.S Ongoing Process Management control is an ongoing / continuous process. It is constantly responsive / responding to ever changing environment.MCS is.therefore, dynamic and not static. The process consists of a set of actions-like programming, budgeting, analyzing, monitoring and is carried on within the framework established by organizational strategic planning. Universality Control function is required at every level of management and in every part of the organization. The basic control system is usually the same involving reporting, reviewing and course-correcting actions so as to steer the organization towards achievement of predetermined goals. Total System The MCS covers all aspects of the organizational operations. Hence MCS has to understand the inter-relationship of the sub-systems elements

Goal Congruence Personal goals and organizational goals are different. The goal congruence implies integrating the two or at the least minimizes the conflicts between various goals. The MCS monitors goal congruence to ensure that the decisions and actions taken by employees are not against the interests of the organization by bringing harmony between individual and organizational goals. Co-coordinating Agency Management Control should be a central co-coordinating agency for which the line managers should act as a focal points bringing into action the judgment preferred by the Management. Financial Structure The organizational performance is judged in terms of monetary impacts. Since money is the only common determinant by means of which various elements of inputs can be clubbed and mapped.So, MCS is generally surrounded by a financial structure. Flexibility Controls in an organization can expand or contract.MCS should be able to adopt and adapt to changes as and when they occur. 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.Hence, MCS must be rhythmic. Goal Orientation MCS put in its place must ensure that the organizational goals and objectives are achieved with minimum variance and also in an efficient and effective manner. For this MCS should be goal focused.

Answer 7 COST AUDIT Introduction Cost audit is a critical review undertaken for the purpose of: A. Verification of the correctness of cost Accounts; B.Checking that Cost Accounting plan is adhered to. The Institute Of Cost and Works Accountants of India defines statutory cost audit as a “system of audit introduced by the government of India for the review, examination and appraisal of the cost accounting records and added information required to be maintained by the specified industries” From the above definition, the meaning of cost audit comprises the following: 1. The verification of cost accounting records, such as cost accounts, cost reports, cost statements, and cost data and costing techniques. 2. Examininig these records to ensure that they adhere to the cost accounting principles, plans, procedures and objectives. 3. Cost audit is to be conducted with regard to (a)Provisions of Companies Act, 1956 (b)Cost Accounting Records Rules (c)Cost Accounting (Report) Rules (d)Cost and Works Accountants Act, 1959 Scope of Cost Audit According to Sub-Section (2) of Section 233(B), a cost auditor shall be appointed by the Board of Directors of the company in accordance with the provisions of sub-section (1B) of section 224 and with the previous approval of Central Government. According to sub-section (1) of section 233(B), the auditor appointed under that section is expected to conduct the audit in such a manner as may be specified in the order issued by the Central Government.Further, as required by sub-section (4), the cost auditor must forward his report to the Central Government and to the company within 120 days of the closing of the year to which the audit related. The report is to be given in the form prescribed for the purpose.

Objects of Cost Audit The objects of cost audit is to ensure that in respect of companies engaged in production, processing, manufacturing or mining activities which may be specified By notificatioissued by the Central Government, proper records relating to utilization of material and labor are available, which would make the efficiency audit possible.

PART II – MANAGEMENT CONTROL SYSTEM Answer 5 Transfer price is defined in two ways. It is defined as the amount used in accounting for any transfer of goods and services between responsibility centers. It includes an element of profit, the logic that no company will transfer goods or services to another company at cost. The independent profit centers are therefore required to make profit even while transferring the goods or services to another business unit of their own company. The fundamental principle of transfer pricing mechanism is that the transfer price should be similar to the price that would be charged if the product were sold to outside customers or purchased from outside vendors. This principle is not every easy to apply in actual practice. Some people believe that there should be no element of profit in the transfer price, and the transfer price should be set on marginal cost. However in the corporate world, transfer price includes an element of profit. Objectives of transfer price should be as follows: 1. It should provide each segment with the relevant information required to determine the optimum trade-off between company costs and revenue. 2. It should induce goal congruent decisions that mean that the systems should be so designed that decisions that improve business unit profits will also improve company profits. 3. It should help to measure the economic performance of the individual profit centers. 4. The transfer price system has to be simple to understand and should be easy to administer. 5. The managers should not evolve a complicated transfer pricing mechanism. Techniques for determining transfer price The following 2 techniques can be used for measuring transfer prices Cost based transfer price These transfer prices are difficult and complex to set. But if the market prices are not available then this method has to be used. The usual basis used for setting these prices is standard costs. Actual costs are not considered because they tend to pass on the production inefficiencies to the buyer. Two step transfer pricing

In this the transfer price includes two charges. The first is the standard variable cost of production of the unit. Then a periodic charge is made that is equal to the fixed costs associated with the facilities reserved for the buying units. The profit margin is to be factored in either or both these components of the price. Profit sharing method of transfer pricing The product is transferred to the marketing division at the standard variable cost. After the product is sold, the business units share the contribution earned, which is the selling price minus the variable manufacturing and marketing costs.

Answer 6 Introduction The Balanced Scorecard is an approach to performance measurement that combines traditional financial measures with non-financial measures. This approach provides managers with richer and more relevant information about the activities they are managing, increasing the likelihood of organizational objectives being achieved. In this FAQ 2GC provides an overview of the Balanced Scorecard and describe how it is designed, implemented and used. Since its introduction, Balanced Scorecard has grown from being a tool for organizing measures to being a strategic management mechanism. It has evolved in terms of design characteristics, design processes and usage patterns through 3 stages of development into what 2GC now refers to as 3rd Generation Balanced Scorecard. Kaplan and Norton describe the innovation of the balanced scorecard as follows: "The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation." Benefits of Balance score card The potential benefits of a Balanced Scorecard depend on what it is to be used for. Simply having a Balanced Scorecard is not enough - the Scorecard will only be useful if it is applied correctly. Although many different types of organisation are using Balanced Scorecard, in many different formats, there are two distinct applications: Management Control and Strategic Control Although visually similar, these two applications of Balanced Scorecard require substantially different design and development processes, and provide different benefits to a management team. 2GC summarizes the benefits of well designed and implemented Balanced Scorecards of both types. Many modern businesses and government agencies hold most of their value in their intangible assets, namely their people, and the knowledge those people have. Also, modern companies recognize that mission success (or competitiveness in the case of commercial companies) is largely driven by the ideas and innovations that come from their people. Industrial-age management practices, focused on financial metrics and supplychain production, are not appropriate in this new environment. Financial metrics are

lagging indicators that tell what happened in the past. Knowledge workers communicate and create in complex ways, and their work does not fit the supply-chain model. Therefore, executives need a new way to assess how well their organization is functioning, how to predict future performance, and how to align the organization toward new strategies to achieve breakthrough performance. The balanced scorecard has evolved to support strategic planning and management this new work environment. The balanced scorecard transforms the strategic plan from an attractive but passive document into the "marching orders" for the organization on a daily basis. It provides a framework that not only provides performance measurements, but helps planners identify what should be measured. It enables excutives to truly execute their strategies.

Balance Score Card: Case studies Case Study 1: Cross house---A multinational FMCG Company This 2GC case study looks at the Balanced Scorecard implementation experiences of a European multi-national FMCG business. Working in the late 1990's with 2GC and other firms, this company set out to introduce a Balanced Scorecard-based strategic management system. At the time this was one of the most ambitious projects ever undertaken, and the scope and nature of the project challenged existing Balanced Scorecard understanding and methodology. The project generated new insights into how to implement Balanced Scorecard for strategic control purposes, and advanced both theory and practical understanding of how Balanced Scorecard works. Nonetheless there were elements of the project that could have been done better, and the case highlights these areas too