I. Overview of Financial Information Systems
1. Differences between Data and Information:
* Are the raw figures relating to the routine activities of a business organization. * These figures alone do not enable decisions of any consequences to be taken. * In order for data to be more useful, they need to be processed to provide information (i.e. the data needs to be converted into usable facts and figures). Data “distilled” into a smaller amount of information becomes usable for decisions of greater consequences to the firm, e.g. the huge number of transactions of a business may be processed resulting to the balance sheet of the business. b) Information:
* Basically the processed data containing usable facts and figures. * There can be three levels of information in a business organization: * Corporate information, such as the company’s balance sheet. * Departmental information, such as the departmental expenditure (Branch Statistics). * Individual information.
2. Characteristics of good information:
* Every recipient of information should be provided only with information that meets his/her needs. * Too much detail can result in overlooking of vital facts. * A large amount of information should therefore (whenever possible) be split into smaller packets tailored to suit individual recipients. * There is need for being specific, i.e. information should go straight to the point, especially if immediate action(s) are called for. b) Accuracy:
* The degree of accuracy of information relates to its usage, i.e. no need for great accuracy if it is of no consequence. * Examples:
i. Marketing director not interested in the exact value of sales accurate to the cents. (The nearest hundred/thousand may be sufficient, depending on the overall turnover). ii. The financial accountant needs accuracy to the cent. *Generally, the degree of accuracy of information is known to its recipient. c) Timeliness and up-to-datedness:
* Information should be as timely and up-to date as is necessary for its effective use. (Note: Speed in creating information increases its cost).
* Information that arrives too late or is out of date is useless, i.e. Information should be delivered punctually after its preparation. * Up-to date means that it is accurate at a certain stated date/time. * In some situations timeliness takes priority over up-to datedness. Example: The Sales Manager wants previous day’s figures first thing next morning, although they do not include the last hour’s sales. * Up-to datedness may however be paramount, e.g. a financial report must be fully up to date as at the exact end of the financial year. d) Others:
i. Relevance to user’s needs (or appropriate for the type of action needed). ii. Neutrality
iii. Cost effectiveness and efficiency
v. Appropriately communicated
i. Information calling for action must be directed to the person(s) who initiate the appropriate action. (It is important that it gets directly to that person and not via a chain of unconcerned managers). ii. Information should comprise sufficient facts and figures to enable effective and immediate action to be taken.
3. Categories of Information:
* There are three main categories of business information based on usage of information. * Higher levels of information are mainly associated with strategic information, while lower levels of information are associated with tactical and operational information.
a) Strategic Information:
* Relates to long-term planning policies; it is therefore of most interest to top management. * “Long term” at corporate level may mean ≥ 5 years. * Strategic information should facilitate long term planning (it includes projections and forecasts). * Company-wise strategic information includes:
* Market availability and penetration...
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