Types of Information Used in Business

Information used in business can be either systematic or non-systematic. Our discussion is generally limited to information that flows through a formal system, but it is important to keep in mind the fact that a great deal of information reaches the manager from sources outside the formal system. Newspaper and other news media, conversations, and even a manager’s perception of a colleague’s facial expressions are important sources of information. Many managers give more-attention to such sources than to the formal reports.

Information can be external or Internal. Much information that is relevant to the manager flows into the organization form the outside environment. This information can be systematic regular reports from trade associations, government agencies, and so for, or it can be unsystematic. Information from and about the environment that s rounds the organization is important, but we do not discuss it extensively in this book because of its wide variety. Our description is primarily concerned with information that is generated inside the organization.

Accounting Information: Information can be accounting or non-accounting. Although both types of information are important, we tend to give more attention to accounting (i.e. financial) information. The reason is that the management control system is built around an accounting core. The outputs of a responsibility center are the goods and services that it provides to other responsibility center or to customers; accounting provides a way of aggregating these often-heterogeneous products into single amount revenue. The inputs of a responsibility center are the hours of labor services, tons of materials, and units of various services that it uses a mounting provides a way of aggregating these heterogeneous inputs into smile amount, expense. Profit, which is the difference between revenue and expense, is an overall measure of the performance of the responsibility center, encompassing within it the results of actions that create revenue and the expenses associated with those actions.

Not only does accounting provide a way of aggregating physically unlike elements, an accounting system is also a disciplined way of doing this. The fundamental rule that debits must always equal credits, and the safeguards built into the system of recording and summarizing transactions provide assurance that there is appropriate support for the validity of the numbers that flow through the system and that part of a given transaction has not slipped through a crack and disappeared. Efforts, and even fraud, can sometimes occur, but these arc relatively uncommon, and users, in most circumstances, can trust accounting numbers more than they can trust numbers that come from a system that is not governed by the debit-and-credit mechanism.

Operating Information: By far the largest quantity of Information that flows through a business is operating information, that is information that is generated in the course of day-to-day operations. There is great variety in this information, but in general terms it can be classified into a relatively few main streams, some of the most important of which are:

  • A production stream, consisting of records showing the detail on orders received from customers, instructions for producing the products to meet these orders, and records of work in process and finished goods inventories. The nature of the production stream varies widely in different industries, but it tends to be similar for companies within a given industry. In some industries, such as banks and insurance companies, the majority of employee’s process “papers” in essentially the same way that employees in a factory process material.
  • A purchasing and materials stream, consisting of records having to do with materials and services ordered; with their receipt, with keeping track of materials while they are in inventory, and with their issue to the production “departments.”
  • A payroll stream, consisting of records which show how; much each employee has earned, the nature of the work that employees did, and how much they have been paid. Because payroll records must conform to requirements set forth in social security regulations, there is a great deal of similarity in the payroll records of most companies.
  • A plant and equipment stream, consisting of records showing the cost, location, and condition of each significant non-current asset, together with the related depreciation data.
  • A sales and accounts receivable stream, consisting of detailed data on each order booked, each sales transaction, the credit to accounts receivable that is generated by the transaction, amount that customers pay, and amounts that customers currently owe.
  • A finance stream, consisting of records of cash movements and cash balances, investments, borrowings and payments made to lenders, and dividends and other transactions with shareholders.
  • Cost stream, consisting of records of costs incurred in manufacturing goods or rendering services.
  • Responsibility accounting stream, consisting of the revenues, expenses and investment of responsibility centers.

With the exception of the responsibility accounting stream, these streams of information are required for purposes other than management control. Summarizing data that was originally generated for other purposes derives much information used in the management control process. The additional cost of using these data for management control purposes is relatively small. Indeed there is such a tremendous difference in the cost of summarizing information that exists in these operating streams and the cost of collecting-data, that systems designers often specify  that  management control information be obtained from operating information, even though the available data are not quite what is desired.

 Credit: Management Control Systems-MGU

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