What Is a System?

The term system has been so overused since the personal computer has become popular that
many people assume that all systems must include a computer. The correct use o f the word
system merely implies the orderly grouping of interdependent components, linked together
according to a plan, to achieve a specific objective.
CHARACTERISTICS 1.
2.
3.
4.
5.

An assembly of components - multiple components--more than one

Components are interdependent - Dependent on each other
Differentiation components have specific fxns
Process
Goal Seeking purpose

A system is a set of interdependent / interrelated components that interact to achieve a goal.

Each component has specific functions.
EXAMPLE:
ECONOMIC SYSTEM
May be composed of such components as
manufacturing industries
retailing
industries
service industries
government
consumers
MANUFACTURING INDUSTRIES exhibit attributes such as:
purchasing raw materials
converting raw materials to finish goods
marketing finished goods to potential
buyers
Interact with other entities:
government

service industries

consumers
During the course of purchasing, producing and marketing.
System objective
All systems are created to meet a specific objective or purpose. All of
the components of the system are related to one another by a common objective.
When the components of a system no longer share the same objective, a condition
of sub-optimality' is said to exist.
The system operates to achieve its designated / inherent objective(s).
The objective of the Economic System maybe defined by economic policymakers as the
achievement of full employment and price stability.
The objective of an organization maybe defined by its leaders as the maximization of economic
gains for members of the organization.
TYPES OF SYSTEMS
Although systems have many different forms, they have certain things in common.
1) Physical / Abstract Systems

- are tangible entities that may be static/dynamic in operation.

Ex. A Computer Center - Composed of officers, desks, and chairs.

- Desks and chairs are static which assists/facilitate the operation of the
center.
Abstract System - the data, programs/applications can be change according to the users
demands.
- conceptual
- they maybe formulas, representations / models of a real system.

The use of models/representations makes it easier for the analyst to visualize relationships in the
system under study. The object is to point out the significant elements and the key
interrelationship of a complex system.

2) Open / Closed Systems - Open System interacts with their environment; Has many interfaces
with the environment
- can adapt to changing environmental conditions.
- can receives input from and deliver output to the outside
Ex: Organization
Closed System

- isolated from environmental influences.

- This system exist in concept only. Since practically most of the systems are

open systems.
3) Man-made Information Systems
- the main purpose of IS is to manage data for the
organization.
IS produces customized information depending upon the need of the organization.
These are usually a) formal b) informal c) computer based.
a) Formal IS based on the organizational representation by the organizational chart. That is, it
deals with the flow of information from top management to bottom management.
Info flows in the form of memos or the like. But feedback can be given from the lower
authorities to the top management.
b) Informal IS employee-based. These are made to solve the day-to-day work related
problems. It also funnels information upward through indirect channels.
c) Computer-based IS depends on the use of computer for managing business applications.
Computer is now a required source of information.
SYSTEM ARCHITECTURE
- the conceptual model that that describes and represents a system.
A system can be reconstructed by utilizing the following elements:
a) Input and output
b) Process
c) Control
Environment
f) Boundaries

d) Feedback

e)

Input elements that are fed to the system for processing.

Output the result that is produced after processing.
Process(s) - conversion activity is carried out with the aim of adding value to the input to produce
an output.
Example: Sorting, storing, calculating
Control - regulates / guides system operations;
-the decision-making subsystem that controls the activities related to input, processing
and output; Ex: Management
Feedback - measures output against set
standards;
- helps to adjust the system to changes so that the system operates in a balanced state;
output information is fed back to the system as input for deliberation.
Positive Feedback - Reinforce in nature;
It causes the system to continue in the direction it is
currently operating.
Negative Feedback - Corrective feedback;
Controlling in nature, causing systems to operate
within specific standard limits;

Environment - the suprasystem within which an organization operates;

the source of external elements that makes an impact on the system
Boundaries - are the limits that identify the systems components, processes & interrelationship
when it interacts with other systems
- determines the systems sphere of influence and control
The input triggers the process and the process controls the output.
It is important to point out that determining the output is the 1st step in specifying the nature of
output required/needed to operate a system.
NATURE OF INFORMATION
- Derives from the latin informare, which means to give form, shape, or character to
something.
- That is, a formative principle of something, that is, something with a specific character or
quality.
VIEWS OF INFORMATION:
a) Economists such as Machlup, Porat, and Bell pioneered the idea of information economy with
information as the transforming resource for postindustrial society.
b) Authors such as Horton viewed information as corporate resource, which like resources such
as people, raw materials and equipment; should be managed to give a corporate edge.
These authors help develop the idea of information as a resource.
c) In the wake of information and communication technologies, Hawkins confirmed that
information has become a commodity.
d) Many viewed information as one of the most important resource needed for development.
Information is different from data.
Information
data that is accurate and timely, specific and organized for a purpose,
presented within a context that gives meaning and relevance, and can lead to an
increase in understanding and decrease in uncertainty.
Data are facts that are collected, recorded, stored, and processed by an information system.

Usually, more information and better information translates into better decisions.
However, when you get more information than you can effectively assimilate, you suffer
from information overload.
Example: Final exams week!
When youve reached the overload point, the quality of decisions declines while the costs
of producing the information increases.

CATEGORIES OF INFORMATION
1. Strategic Information 1st level
o Long-rage planning policies that are of direct interest to upper management.
o This type is achieved with the aid of Decision Support System (DSS).
2. Managerial Information 2nd level
o It is of direct use to middle management and department heads for implementation
and control.
o Short and intermediate range planning.
o Maintained with the aid of management information system (MIS).
3. Operational Information 3rd level
o Short-term, daily information used to operate departments and enforce the day-to-day
rules and regulations of the business.
o Established by data processing systems (DPS).
ATTRIBUTES OF INFORMATION

1. Completeness - Information must be complete, else it leads to incorrect decisionmaking.

- It doesnt leave out anything thats important.
2. Accuracy - Accurate information is the best kind of information. Accurate
information is one, which is reliable and from a correct source.
3. Timeliness - "Timely" means, "appearing at the right moment. Information
needs to be available when it's needed. Also, information needs to be up-to-date.
- You get it in time to make your decision.
4. Consistency - The source of information should not change at different places,
or contradicts itself. It is the sign that it is untrustworthy.
- Its dependable, i.e., free from error or bias and faithfully portrays
events and activities
5.
Validity - To be valuable, information should be unbiased, representative and verifiable.
If information neglects key topics or issues, it might not represent the full knowledge base
you need to know. If information cannot be independently verified, it should be treated with
utmost caution.
- A consensus notionthe nature of the information is such that
different people would tend to produce the same result.
6.
Appropriateness - Information should be presented in a way that is meaningful, relevant
and formatted to suit the users needs
7.
Relevance - The Information should be relevant to the user quires. Information is not
universally relevant and valuable, it is valuable and relevant only to a person who needs it
and can use it.
- It reduces uncertainty by helping you predict what will happen or
confirm what already has happened.
8.
Usability - The information has to be presented to the users to understand and explore
it during decision-making activities.
9. Accessibility - Up-to-date information should be accessible at any time to authorized or
relevant users only.
- You can get to it when you need it and in a format you can use.
HUMAN INFORMATION PROCESSING (HIP)
People are active, dynamic systems capable of great flexibility in the ways they choose to handle
and transform information. From the HIP perspective, the human mind is understood as a system
that processes incoming information from the environment.
HIP is an abstraction of the set of processes involved in several aspects of human behavior
including problem solving and decision making in both everyday and professional environments.
This system can be described as a set of memories and processors together with a set of
operational principle.
HIP can be generally divided into 3 interacting subsystems:
1. A perceptual system
2. A motor system
3. A cognitive system
Perceptual System which includes all of our sensors
- Consists of sensors and associated short-term memories related to the sensorial input
received from the environment (visual, auditory, olfactory, etc.). Short-term memories hold
input from the sensory system while it is being encoded symbolically (translated from a
physical form of a signal to a symbol mental representation).
- Main Function is to convert the sensations of the physical world captured by the sensory
systems into internal representations that can be processed by the cognitive system.

Sensory memory holds a great deal of detailed information for a short period of time
regarding the physical aspects of a sensation. This information is stored for a brief
time -- less than one second -- after which it MUST ENTER WORKING MEMORY OR
BE LOST.
For example: The visual memory representation of the number 3 contains
features of curvature and size.
Cognitive System

which receives symbolically encoded information from sensory stores and its

working memory, and responds using information from our long-term memory

Receives the symbolic information from the sensory system and stores it in the working
memory. This is a short-term storage that is also used to process information.
Uses previous stored information in long-term memory to process information, solve
problems, and make decisions.
Composed of a set of subsystems that includes memories, operations, and principles.
THREE MEMORY SUBSYSTEMS:
- Sensory
- Working or short-term memory
Information from sensory storage must be transferred to working memory or short
term memory. Through REHEARSAL information can be maintained in working
memory.
-

the capacity of short-term memory is small -- information will disappear

within 20 seconds unless it is repeated or practiced
- minimize the amount of information in working memory.
- Long-term memory
once information is transferred to long term memory, it is there forever
-

the problem is accessibility/retrieval.

the basic debate is how info is located and retrieved, and how many long
term memory subsystems exist.
Attention Process modulates the coordination and capacity of the different subsystems.
Motor System which carries out responses to the cognitive system
- Carries out the response by sending signals to the corresponding output channels (motor
movements, voice, etc.), which results in an execution of a response to the environment.
- Main function is to translate the decisions from the cognitive system into action by
activating patterns of voluntary muscles.
Feedback
An important part of cognitive system that process suggests that the responses
made today become part of our memories to be retrieve in the future. The feedback
process constitutes the main form of learning by humans and other types of animals.
-----------------------------INPUT CHANNELS:
vision (sight)
- audition (hearing)
- kinesthesis (touch)
- gustation (taste)
- balance (vestibular/inner ear equilibrium)
- olifaction (smell)
STORAGE AND PROCESSING SYSTEMS
- short term sensory store
very short duration, brought into working memory by attention
- short term (working) memory
maintained by auditory rehearsal, used for cognitive processing
- long-term memory

high-capacity, storage by elaboration, content addressable

OUTPUT CHANNELS
- Speech
- Motor Control
anthropometry and performance
SOME TERMS:
chunking
grouping and organizing information to fit into meaningful units. The
size of chunks does affect ability to remember.
rote rehearsal

repeating info over and over to remember good for retention in short
term memory.

constructive rehearsal
info must be linked to facts and concepts already in long term
memory.
Coding

compressing information into abbreviated form.

physical -- short term retention is based on how something looks or
sounds.
semantic -- long term retention based on the meaning of words.

Forgetting

Interference

memory trace

simple forgetting/time bound.

information gets mixed up with other information.

proactive inhibition--occurs when earlier learning gets into the way of
later learning
retroactive inhibition--occurs when later learning gets into the way of
earlier learning.
trace decay--the passing of time will cause the strength of memory to
decrease, thereby making it harder to remember.
a sensory experience. If strengthened in some way (re:repetition) it
becomes an actual chemical or structural change in the nervous system.

primacy/recency effect
when people memorize long lists of nonsense syllables, they
remember more of the syllables at the beginning of the list (primacy
effect) and at the end of the list (recency effect) than in the middle.
AN INFORMATION SYSTEMS FRAMEWORK
Information system is the set of formal procedures by which data are collected, stored, processed
into information, and distributed to users.
The information system accepts input, called transactions, which are converted through various
processes into output information that goes to users. Transactions fall into two classes: financial
transactions and nonfinancial transactions.
A transaction is an event that affects or is of interest to the organization and is processed by its
information system as a unit of work.
A financial transaction is an economic event that affects the assets and equities of the
organization, is reflected in its accounts, and is measured in monetary terms. Every business
organization is legally bound to correctly process these types of transactions.
-

Sales of products to customers, purchases of inventory from vendors, and cash

disbursements and receipts are examples of financial transactions.

Nonfinancial transactions are events that do not meet the narrow definition of a financial
transaction. For example, adding a new supplier of raw materials to the list of valid suppliers is
an event that may be processed by the enterprises information system as a transaction.

Important as this information obviously is, it is not a financial transaction, and the firm has no
legal obligation to process it correctlyor at all.
2 key classes of systems:
information systems (MIS).

accounting information systems (AIS)

and

management

INFORMATION SYSTEM: Accountants Perspective

Accounting as Information:
Viewing accounting as an information system focuses attention on the information accounting
provides the users of the information, and the support for financial decisions that is provided by
the information. External users of accounting information are individuals and other
enterprises that have a financial interest in the reporting enterprise. External users of the
financial information as owners, creditors, labors unions, governmental agencies, suppliers,
customers, trade associations and public.
What is AIS?
It is a system that collects, records, stores, and processes data to produce information for
decision makers.
Management Information System:
Management often requires information that goes beyond the capability of AIS. As organizations
grow in size and complexity, specialized functional areas emerge, requiring additional
information for production planning and control, sales forecasting, inventory warehouse planning,
market research, and so on. The MIS processes nonfinancial transactions that are not normally
processed by traditional AIS.
AIS Subsystems:
Transaction Processing System
- The TPS deals with business events that occur frequently.
2 types of TPS: Batch processing and On-line Processing
Batch Batch Processing Transactions is the processing as the collection/storage of data at the
time of the event with actual updating of the database later when it is scheduled or there is
enough data.
- A system whereby business transactions are accumulated over a period of time and
prepared for processing as a single unit or batch.
An example may be the accounts which are not able to be easily stored and updated due to the
amount and type of data used. Examples of this may be a telephone account, which accumulates
over a period of time.
Online Real time transaction processing as the immediate processing of data with the
database updated as the transaction is being carried out.
A system whereby each transaction is processed immediately, without
the delay of accumulating transactions into a batch
An example may be the Bank ATM and POS terminal, both of which have user input which
requires immediate feedback.
data warehousing is the collection of data from a range of data sources.

DECISION SUPPORT SYSTEM

Although it does not appear on a Balance Sheet, information is one of the most valuable assets
most organizations possess. Without good, accurate, and timely information, good decisions
cannot be made.

MANUAL PROCESS
As the name implies, this is the old manual approach to recording
accounting transactions. Because it is easier to visualize the flow of accounting information in a
manual system, it is very beneficial to study such systems, although few exist in practice.
FLAT-FILE MODEL
When accounting applications were first computerized, different
applications were developed separately with files created for individual applications even if
other parts of the organization had use for the same information. The department that developed
the application owned the data and typically did not share it with other units.
Describes the environment in which each end-user own their data files rather than share them
with others. Thus, stand-alone applications rather than integrated systems perform data
processing.
When multiple users need the same data for different purposes, they must obtain separate
data sets structured to their specific needs. Figure 1-12 illustrates how customer sales data
might be presented to three different users in a durable goods retailing organization. The
accounting function needs customer sales data organized by account number and structured to
show outstanding balances. This is used for customer billing, AR maintenance, and financial
statement preparation. Marketing needs customer sales history data organized by demographic
keys. They use this for targeting new product promotions and for selling product upgrades. The
product services group needs customer sales data organized by products and structured to show
scheduled service dates. Such information is used for making after-sales contacts with customers
to schedule preventive maintenance and to solicit sales of service agreements.
The data redundancy demonstrated in this example contributes to three significant problems in
the flat-file environment: data storage, data updating, and currency of information. These and
other problems associated with flat files are discussed in the following sections.
data storage An efficient information system captures and stores data only once and makes
this single source available to all users who need it. In the flat-file environment, this is not
possible. To meet the private data needs of users, organizations must incur the costs of both
multiple collection and multiple storage procedures. Some commonly used data may be
duplicated dozens, hundreds, or even thousands of times.
Data Updating Organizations have a great deal of data stored in files that require periodic
updating to reflect changes. For example, a change to a customers name or address must be
reflected in the appropriate master files. When users keep separate files, all changes must be
made separately for each user. This adds significantly to the task and the cost of data
management.
Currency of Information In contrast to the problem of performing multiple updates is the
problem of failing to update all the user files affected by a change in status. If update information
is not properly disseminated, the change will not be reflected in some users data, resulting in
decisions based on outdated information.
PROBLEMS: 1. data redundancy

DATABASE MODEL Many of the weaknesses of a flat-file system are overcome by a

database model. This model centralized an organizations data so that it can be shared by other
users. Because all data should not be accessible by all users, the database management system
(DBMS) serves as a gatekeeper, limiting access to particular data sets to users who are
authorized.
The database model can solve many of the problems of the flat-file system through elimination
of data redundancy, single updates, and maintenance of current values.
Elements of the Database Environment
4 primary elements:
users,
the DBMS,
physical database

the database administrator, and the

USERS access the database in 2 ways

1. via user application programs that systems professionals prepare.
2. via direct query, which requires no formal user programs.
The DBMS has a built-in query facility that allows authorized users to process data independent
of professional programmers. The query facility provides a friendly environment for integrating
and retrieving
data to produce ad hoc management reports. This feature has been an attractive incentive for
users to
adopt the database approach.
DATABASE MANAGEMENT SYSTEM provides a controlled environment to assist (or prevent)
user access to the database and to efficiently manage the data resource.
PHYSICAL DATABASE This is the lowest level of the database. The physical database consists
of magnetic spots on magnetic disks. The other levels of the database (for example, the user
view, conceptual view, and internal view) are abstract representations of the physical level.
At the physical level, the database is a collection of records and files.
REA MODEL The REA model is based on the premise that data can be represented with a
framework that identifies the organizations resources, events, and agents. With this approach to
organizing accounting and non-accounting data, user views can be developed as needed to
support all decision-making. Follow carefully the example developed in the text. It is simple, but
complete.
Resources Economic resources are the assets of the organization. They are defined as objects
that are both scarce and under the control of the enterprise.
Events Economic events are phenomena that affect changes in resources. They can result
from activities such as production, exchange, consumption, and distribution.
Agents Economic agents are individuals and departments that participate in an economic
event. They are parties both inside and outside the organization with discretionary power to use
or dispose of economic resources. Examples of agents include sales clerks, production workers,
shipping clerks, customers, and vendors.
ERP (Enterprise Resource Planning) SYSTEMS ERP systems permit an organization to
fully integrate its key business processes thus eliminating some of the so-called silos. Data
sharing and information flows can facilitate common business practices across the organization.