Who am I?The PresenterGroup 6

Mr. Chida JonesBsc (Hons) Accountancy

Question:The goal of any part of the information system is to help the decision-making process. Robert Anthony developed an approach for categorizing the decision-making activities within an organization. Having identified three levels of such activities, he stated that decision making differs so significantly between these levels that different information systems are needed at each level. Give these levels and the decision problems for each level, a tabular presentation is encouraged and a write up of the information needs an accounting information system should provide for such decisions to be made.

Decision makers are found at all levels in an organization, and this is a central aspect of all management roles. All managerial activities revolve around decision making.

In attempting to categorize how and where information is used in an organization to support decision making, it is useful to define a taxonomy of terms. One good starting point for building a framework is the Anthony Triangle, which diagrams operational activities, management control, and strategic planning.

Strategic

Tactical/managemen

t control

Operational

Goals, policies

middlemanageme

nt

Execution

1. Strategic Planning activitiesA priority for top managementThe process involves:Definition of goals, policiesDetermination of organizational

objectives. formulating strategic organizational goals

and undertaking Allocating task assignments and providing

resources to those employees (execution)Testing realization of the goals

(evaluation)Undertaking corrective/ preventive

measures if goals are not insufficiently realized (adjusting)

2. Management ControlActivities are primarily the concern of an

organization's middle management. It refers to the acquisition and efficient

use of resources in the accomplishment of organizational goals

Managers assure that resources are obtained and used effectively and efficiently to accomplish organizational goals and objectives identified by top management.

The decisions made by middle management are sometimes called tactical decisions.

3. Operational controlActivities are implemented by department heads and supervisors, the lowest level managers in an organization.

It refers to the effective and efficient use of existing facilities and resources to carry out activities within budget constraints.

Their aim is to achieve those specific tasks assigned to them by middle managers.

Decision problems

There are three types of decision problems which management at the three levels face namely:

1. Unstructured problems2. Structured problems3. Semi-structured problems

Unstructured problemsProblems for which there are no precise

solution techniques.Either the data requirements are uncertain,

the procedures are not specified, or the solution objectives have not been fully developed. Top management usually face these problems.

Many alternatives are available but there is little guidance concerning the best one to pursue, for example, among all the possible new markets or new products top management must choose those that the organization can deliver successfully within the existing human and financial constraints

Structured problemsProblems in which data, procedures

and objectives are known with certainty. They are well suited for traditional data processing techniques.

These are usually faced at the operational level.

Semi-structured problemsUsually faced by middle managers

and cannot be easily classified as structured or unstructured.

Middle managers receive a set of objectives but have some freedom in choosing how to attain them.

Decision Problems and managerial activities levels

Operational control

Management control

Strategic planning

structured Accounts payable

Cash disbursement

Responsibility accounting

Tanker fleet mix

Warehouse and factory location

Semi-structured Inventory control

Production scheduling

Budget preparation

Mergers and acquisitions

unstructured Cash management

Personnel management

New products

R&D planning

Characteristic Levels

Anthony’sTaxonomy

Operational Tactical Strategic

Information users Operational staff andsupervisors

Middle managers,business analysts

Executives, senioranalysts

Nature ofdecisions

Structured Semi-structured Unstructured

Scope Narrow Intermediate Broad

Term focus /Time Horizon

Day-to-day, usuallywith immediateramifications

Within the current12-month plan

Future-oriented(2 year +), with trendanalysis over time

Characteristc

Levels

Anthony’sTaxonomy

Operational Tactical Strategic

Informationsystems

Transaction oriented(OLTP)

Online analyticalsystems (OLAP),Decision SupportSystems (DSS)

Online analyticalsystems (OLAP),Executive InformationSystems (EIS)

Data relationships,source

Within datamart/subject area, internal

Includes some relateddatamarts, internal

Cross enterpriseintegration plusexternal

Data refresh rate Daily or more often

By relevant businessperiod or cycle

Annually or by event

Characteristic Levels

Anthony’sTaxonomy

Operational Tactical Strategic

Summarization Detailed Exception and detailed

Multidimensional withdrill-down to detail

Examples Managing expenses,cash flow, studentinteraction, feecollection, resourceallocation

Choosing instructionaltechnologies,recruiting, personneldevelopment, strategyimplementation, projectmanagement

New programs,markets, restructuring,strategic planning andprioritization

Information needs provided by AIS for each decision problem at each managerial level.

Unstructured problemsInformation systems that solve unstructured

problems are largely predictive, long term forecasts about technology, demographics and market demand and that it consists of estimates that are relatively inaccurate and highly summarized.

Information system that are used to solve unstructured problems are called Decision Support Systems.

Information systems developed at the strategic level often decision specific, once a decision is made, information system used for it is no longer applicable in its current form.

For subsequent decisions, the system must be modified or discarded.

Structured problemsThe information systems needed for

structured problems are different because they concentrate on processing historical data from within the organization. These systems are highly detailed and in that, they are both historical and internal and are usually inaccurate.

Structured problems (cont…)Examples of information systems used in solving

structured problems are transaction processing systems and the responsibility reporting system.

Transaction Processing SystemIt provides information needed by clerical

managerial personnel at the operational level. Because it is structured, the organization can describe standard processes for these systems which are structured.

Responsibility Reporting SystemIt summarizes historical data on a periodic basis and

provides the bottom-up information flows

Semi-structured problems

Information systems used for semi-structured decisions tend to combine the characteristics of systems used for structured and unstructured decision.

The budgeting system is an example of a system used to solve semi-structured systems.

Semi-structured problems (cont…..)Budgeting SystemIt allows top management to communicate

corporate objectives to all managers in the organization. It provides for the top-down information flows.

A budgeting system utilizes both internal and external data, is predictive in nature, and involves estimates that are frequently imprecise thus, it is used in semi-structured decision processes involving management control activities.

Conclusion while it is difficult to come up with a

satisfactory taxonomy of knowledge types, “the question of how we are to arrive at a taxonomy of our problem domain that would be satisfactory” is even more difficult. Therefore, for a specific problem domain, such as managerial problem solving, one approach is to use Anthony’s taxonomy.

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REFERENCESBoockholdt, J. L (1999) Accounting Information Systems: Transactions Processing and Controls, New York: McGraw-Hill.

Hall, J. A (2008) Accounting Information Systems, 6th Edition, Ohio: Cengage Learning.Vaassen E.H.J (2002) Accounting Information Systems: A Managerial Approach, West Sussex: John Wiley& Sons Ltd.