Financial Management of Information Systems Essay

Financial Management of Information Systems - Essay Example Customer service, operations, product and marketing strategies, and distribution are heavily, sometimes even entirely, dependent on IT. For example, the internet and intranets, and external inter-organizational networks, called extranets can provide the information infrastructure that a business needs, to make it more efficient and effective. Information systems perform three vital roles in any type of organization. They support business operations, guide managerial decision-making, and provide strategic and competitive advantage to the organization (ICFAI Center for Management Research, 2003). The hierarchical classification of an organization comprises three levels - operational, tactical, and strategic. The nature of decisions made at each level is different. Therefore, the information requirements at different levels are also different. At the operational level, a large quantity of data needs to be processed. This data is usually generated by business transactions with customers, suppliers etc. At the tactical level, the concern shifts from day-to-day decisions that have a short-term focus, to those which have a medium-term impact on the organization. Consolidated reports on the performance of various business units would be required to compare plans with actual, and to take remedial measures for any deviations. At the strategic level, in addition to the internal information, the decision-makers need information from the external environment as decisions at this level are taken in situations marked by uncertainty. The objective of using information technology in business is to determine business processes, which are relevant for applications, which will improve business performance. This may involve improvements in the efficiency of operations, in the quality of the management processes and even in the way; the business is conducted or organized. When it is targeted at operational efficiency, transaction processing becomes important. Transaction processing is a fundamental activity of every organization. Although an information system has a very important role to play in supporting management, ensuring control, and undertaking other knowledge work, such an emphasis should in no way, obscure its importance in transaction processing. Without transaction processing, normal functioning of an organization would be impossible, and the data for management information would not be available. Beyond such operational level, processing of data, information systems have specific applications in the various functions of an organization, like accounting etc. Information technology can benefit businesses in many ways. It helps businesses in performing various functions, solving business problems and pursuing business opportunities. Since organizations are goal-oriented, there should be a clear understanding of the type of information to be collected, stored and analyzed. Management can be categorized into top, middle and lower management. Due to the difference in the nature of decisions taken at different levels of management, their information needs also vary. This information should also be consistent with the requirement of the organizational level at which it is targeted. Accounting information systems are the oldest, and perhaps the most widely used information syste