Information is a fact, datum, observation perception or any other thing that adds to knowledge. In the words of Gordon B. Davis “Information is data that has been processed into a form that is meaningful to the recipient and is of real or perceived value in current or prospective decisions”.
Information is obtained either by direct observation or by communication. Most of business information is obtained through communication. Even in the simplest responsibility center, the manager could not observe with his own senses everything that is going on, nor would he want to devote his time to doing so, even if it were possible. Instead, the manager relies on information that is communicated to him in various ways, ranging from informal conversations to formal reports.
The characteristics of information used in business systems are:
- Purpose: Information must have purpose at the time it is transmitted, otherwise it is simply data. Information on communicated may have many purposes because of the variety of activities of people employed in an organization. The basic purposes of information are to inform, calculate or persuade and information is needed for identifying problems, living problems, decision making, planning and controlling. The purpose or supplying information to machines is to give instructions to get upon.
- Frequency: The frequency with which information is supplied affects its value. Financial statements prepared weekly may not be very useful as they show very little change, whereas annual financial statements may be very useful to the recipients as they show changes big enough to indicate hundreds. Information communication too frequently tends to act as interference and the receiver does not take it seriously. Further, the frequency with which information is transmitted depends upon the operational needs of the receiver of the information. At operating levels such as accountant, accounting information may be transmitted immediately the financial transaction takes place. At the top management level, this may not be the case, as they require information on important matters, which need their attention.
- Cost: Cost is a limiting factor in obtaining information. Value of the information should be evaluated against its cost. It may be difficult to know the value of the information but even then efforts should he made to know the value before designing any information system.
- Reliability: Reliability is the degree of confident the decision-maker places in the information. It is more expensive to obtain more reliable information. Reliability should be evaluated with value and accuracy of the information and information system should be designed accordingly.
- Continuous or Discrete: The information transmitted may be continuous or discrete in form. The accounting information to the accountant is of continuous nature whereas information given to the managers to the form of reports on sales, production, cost or financial position at different periods of time is discrete nature.
- Noise: Suppose that the chief executive officer reads in a report that the actual profit of one of the divisions in the company in the preceding month was 10 percent below the budgeted profit. This message could convey to him the signal that the performance of this division was unsatisfactory the division was not contributing as much to the companies profit goal as the budget indicated that it should. This signal might be correct, but, on the other band, for any of a number of reasons it might not be correct; the performance of the division might in fact be perfectly satisfactory. An information system that conveys ambiguous messages of this is said to be noisy. Information theory provides approaches to measuring the amount of noise in an information system. These techniques have turned out to be valuable in studying ways to improve electrical systems, such as the telephone system, but they have no practical application to management systems, beyond suggesting the common sense ideas that noise is present in all such systems, that it never can be eliminated, but that measures to improve the messages in the system as worthwhile.
- Relevance : A person receives through his senses vast quantities of information, more than he possibly needs or can use, but his brain acts to filter most of it, and he is consciously aware of, and acts on, only a tiny fraction. For example, the ears of an automotive driver pick up innumerable sounds, which are disregarded, but if the sound of an engine knock appears, the brain brings this message to his consciousness for appropriate action. Similarly, a business information system is construed with the objective of filtering out unneeded information and conveying only relevant information to the decision maker. Designers of management information systems cannot know exactly what information about the organization will be relevant. They nevertheless attempt to extract from reality that information that they believe to be relevant, to filter out irrelevant information, and to communicate various types of information to users of the system according to their perception of the needs of each user. The idea of relevance has great practical importance, particularly since the advent of the computer. It is easy to design a system that spews forth mountains of information it is much more difficult to decide what small fraction of that information is likely to be useful.
- Precision: There are two types of quantitative information: counts and measurements. Counts can be precise; if one counts twelve persons in a room, the number is exact, in the sense that there are not twelve and a fraction. A measurement is never precise. Measurements are always approximations. With modern radar, the distance from a point on the earth to a point on the moon can be measured within an accuracy of a few feet, but there is that margin of error of a few feet. All measurements are estimates that are accurate only within a range. Most messages in management information system are measurements, rather than counts. All accounting information (with the trivial exception of the amount of cash in a small business) is derived from measurement. Inventory quantities maybe obtained by counts, but the monetary amount of inventory is a measurement. Measurements of items as the expenses of an accounting period are likely to be fairly enough approximations. In a management information system, there is usually a tradeoff between precision and timeliness. An estimate of sales revenue for a month that is made available on the first day of the following month is usually more useful to the manager than an estimate that reaches him two weeks later, even though the latter is more accurate because it has been double checked, reports from outlying offices have been include, and so on.