PERFORMANCE MANAGEMENT NOTES

PART a: Information, technologies and systems for

organizational performance

1. MANAGING INFORMATION

Businesses thrive on data – so all businesses; big or small, need systems and procedures that help them collect, process, store
and share data.

In today’s digital world, instead of maintaining paper-based records, the collection, processing, storing and sharing of data is
also automated. Businesses invest in Information systems in order to have data easily accessible in the form required for
decision making. When used correctly, information systems can positively impact an organization's overall performance.

An information system is a combination of hardware, software and communications capability, where information is
collected, processed and stored. Management requires information systems for a range of purposes including;

a. Processing and recording transactions

b. Decision making
c. Planning
d. Performance measurement
e. Control

Role of Information Systems

1. Automated systems for data collection and processing, free up employees to focus on more core areas of their
work.
2. An effective information system provides users with the ‘information’ they need on a timely basis, supporting the
decision-making process.
3. While some hardware components are only utilized for data collection, the software and telecommunications
network is used to convert the data collected into sensible information, in a format that is best suited to the user.
4. Different users have different information needs and having an effective information system means that users can
access the custom information.
5. The access to an information system means access to real-time or archived data, as and when needed for a
particular purpose. This is helpful for businesses in need of immediate action as part of their operational strategies.
6. Business Intelligence systems help convert data into valuable insights that aid in data visualization i.e. allows users
to interpret large amounts of information, predict future events and find patterns in historical data. This is helpful
for future decision making and provides businesses with a competitive edge.
7. Enterprise Resource Planning (ERP) software (discussed later) provides users with a bird’s eye view of the
business operations. Some examples are: NetSuite ERP, PeopleSoft etc.

Costs of an information system include;

1. Pre-implementation/development costs – analysing current business processes and how they will be automated in a
new system.
2. Initial set-up costs hardware, software licensing (e.g. based on the number of users) and installation costs.
3. Data conversion of historic information (e.g. from paper documents and spreadsheets).
4. Staff and user training and IT support.
5. Modifications and system upgrades.
6. Communication charges (e.g. for internet access).

A business should evaluate the benefits of an information system against its costs in order to decide the whether to make the
investment or not.

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Benefits
• Provides management with an overview of the entire business and managers with feedback about their
performance.
• Ability to extract customised information saves time and clerical expense. Many business decisions can be
delegated to a lower level of the business.
• A system is more efficient because data is easier to use. The same data may be presented in customised formats
(e.g. lists, tables, graphs and charts) for different users.
• Real-time information can drive improvements (e.g. in meeting customers’ needs).

Types of information costs

There are 3 types of costs relating to collection, processing and production of internal information;
Cost Examples
Direct data • Use of bar coding and scanners (e.g. in retailing and manufacturing)
capture • Use of OCR (optical character recognition) to capture data from printed documents
• Use of ICR (intelligent character recognition) to capture data from hand written documents
• Use of RFID (radio frequency identification) tags to identify, locate and track (e.g. tracking
vehicles, staff, inventory)
Process • Payroll department time spent processing and analyzing personnel costs
• Time for personnel to input data (e.g. in relation to production) on to the management information
system
Indirect costs of • Information collected but not needed
producing • Information stored long after it is needed
information • Information disseminated more widely than necessary
• Collection of same information by more than one method
• Duplication of information

COMMUNICATION OF INFORMATION
Internet and Intranet: Although both terms are used extensively today, the Intranet is only a part of the Internet.

The Internet is an interconnection of various networks that can be public, private or at the organizational level. Global
devices are linked together using various technologies to create an internet network.

These technologies include optical fiber, wired, wireless or electronic circuitry. The internet carries huge amounts of data
available on World Wide Web.

Uses
1. E-mails – the most common way of communicating the written word across the globe
2. Ease of research into factors affecting the business and expanding the business network
3. Meetings help do away the need for travelling for work Sharing files, images, videos etc.
The Intranet is a network of devices which is private and not available to the public. In an intranet, the networked computers
or devices are available only to a group of authorized users. Businesses can set up security policies specific to the user, group
or device. The users within intranet can connect to the internet, a public network through firewalls.

Uses
The major uses of intranet include:
1. Faster sharing of information within an organization which helps to streamline activities.
2. Improved internal communication leads to enhanced collaboration and promotion of corporate culture.
3. Businesses are able to centralize and organize company data into a single database.

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The main differences between the internet and intranet can be summarized as follows:
INTERNET INTRANET
Available to all across the globe Only the employees of the organization can access it
Data traveling across the internet or the web is less secure Intranet is more secure due to the presence of security
systems
No log in credentials are required to access the information A user account is a must to access the devices of the
from the internet intranet
Any number of users can access the internet services and There’s a limit to the number of users that can access
documents internet resources
No rules or policies are defined to access internet resources There are certain policies and regulations which you have
to comply within the intranet
NB: An extranet is an intranet that is accessible to authorized outsiders, using a valid username and password. The
username will have access rights attached, determining which parts of the extranet can be viewed. Extranets are becoming a
popular means for business partners to exchange information.

Wireless Technology and Networks:

Wireless technology is communication technology that is not dependent upon cables or wires as communication mediums.
Wireless communications can be available all of the time, almost anywhere. They have several advantages including:

a. Communication has enhanced to convey the information quickly to the consumers.

b. Working professionals can work and access Internet anywhere and anytime without carrying cables or wires
wherever they go. This also helps to complete the work anywhere on time and improves the productivity.
c. Urgent situation can be alerted through wireless communication.
d. Wireless networks are cheaper to install and maintain.
Wireless networks are computer networks that are not connected by cables of any kind. The use of a wireless network
enables enterprises to avoid the costly process of introducing cables into buildings or as a connection between different
equipment locations. The basis of wireless systems are radio waves, an implementation that takes place at the physical level
of network structure.

There are two main types of wireless networks:

a. Wi-Fi Network: This is a technology that allows smart phones, tablets, printers etc. to communicate with the
internet.
b. Cellular Network: This technology allows electronic devices to communicate over long distances.
Cloud computing
This is the provision of computing services, generally applications and data centers, over a network (usually the internet).
Google is one of the most prominent companies offering software as a free online service. Software and storage for your
account will exist on the service’s computer cloud rather than on your computer. A cloud can be public or private.
The main benefits of a cloud computing contract include:
(a) Reduced IT costs – software and hardware upgrades may be included in the contract, which means that there is no
need for expert staff
(b) Safe storage – e.g. back-ups stored in the cloud helping to support business continuity plans
(c) Improved access – e.g. file sharing of records with accountants or access for staff working from home

Using Internal Information

When generating information, even if for internal use, as well as when distributing it, businesses should ensure that there are
certain controls in place. These can vary based on whether the information being generated is routine information or ad-hoc.

Generating Information – Routine

1. Determine if the benefits of the information generated will be higher than the costs incurred to prepare it.
2. Ensure that the desired information will be of use to the decision makers before the information is gathered.
3. Standardized formats for the information to be prepared should be set, especially if there are multiple prepares of
the information. The formats should ideally focus on being user friendly for the ultimate users.
4. The limitations of the information gathered should be communicated to the users as well as the details of the
preparer/ originator, so that any queries can be directly forwarded.
5. The usefulness of the information should be reviewed on a regular basis to assess the need for its continuity.

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Generating Information – Ad-Hoc
Apart from the guidelines above, when dealing with ad-hoc reports, the following should additional measures should be
incorporated:
1. Ensure that information is not being duplicated and that it’s relevant to the user requesting it.
2. Ensure that most up-to-date data is utilized for these reports.

Distributing Information
A procedures manual should be in place. This would indicate what reports are to be prepared and issued to whom.
Confidential information should be highlighted as such and users guided on how to deal with sensitive information. E-mail
policy should be established specifying the do’s and don’ts’ for on-line communication.

Physical computer security –Internal security should be established. Senior management should specify which user can have
access to which assets and information.

External security through firewalls should be established, as they can be used to protect data and databases from being
accessed by unauthorized people.

Security and confidential information

A number of procedures can be used to ensure the security of highly confidential information that is not for external
consumption. Measures such as passwords, firewalls, Logical Access systems, database controls, data encryption, personnel
policies and anti-virus & anti-spyware software can be implemented. Additionally, businesses can ensure that the security of
the information stored is maintained by entrusting limited people with its access

Sources of Data Collection

Relevant data can be collected by businesses through either internal or external sources.

Internal Sources
1. Formal communication channels
2. Informal communication between management and staff
3. Communication between managers
4. The financial accounting records

External Sources

1. Legal/ Tax expert

2. Research & Development and Marketing departments
3. Directories & other published sources
4. Associations and Government agencies
5. Information from customers
6. Information from suppliers (product details, pricing etc.)
7. Internet & online databases
8. Database information
9. Data warehouses

Technical article available on ACCA’s website, called Information Systems covers topics included in chapter 1 and 2

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2. Information systems and data analytics

Performance management information systems
There are three levels of planning and control within an organization:

Strategic
planning

management control
(and tactical planning)

Operational control (and planning)

Level of Key characteristics Example of accounting

Control Information requirements
Strategic • Takes place at the top of the organization. • Long-term forecasts
Planning • Concerned with setting a future course of action
for the organization.
Management • Concerned with the effective use of resources to • Budgetary measures
control achieve targets set at strategic • Productivity measures
planning. • Labor statistics, e.g. hours, turnover
• Capacity utilization
Operational • Concerned with the day-to-day implementation of • Detailed, short-term transactional
control the plans of the organization. data

Management Accounting Information is information that is used to support strategic planning, control and decision
making. Strategic Planning: These are long term planning decisions that define the objectives of the organization.

Features of Management Accounting Information:

1. Management Accounting information is primarily used for strategic level planning i.e. plans for long periods of the
future and so relies on forecasts and estimates.
2. Management accounting information also therefore incorporates some risk and uncertainty analysis.
3. Management accounting information is primarily derived from internal sources but also takes into impact of
external factors.
4. The management accountant requires information for:
a. Project assessments: at the time of decision making and post implementation feedback.
b. Handling cash and operational matters
5. This information has the following limitations:
i. It may provide misleading information, leading to ineffective decisions.
ii. It is internally focused as it focuses on performance targets and ignores market competition and demand.
iii. Data is inflexible as it is often just based on historical performance, so the challenge lies in providing
more relevant information for strategic planning, control and decision making.

Strategic Management Accounting focuses on external factors, non-financial and internally generated information. It
considers the following:

a. Competitive edge by understanding customer demands and competitors USP (unique selling point).
b. Input from many different areas of the organization to ensure that the goals and targets link together smoothly.
c. Brings together comparable information regarding different strategies.
d. Ensures business operations are focused on meeting shareholder’s needs.
e. It provides information about: pricing of product, product profitability, cash flows, customer analysis & market
analysis

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Management Control is the process of utilizing resources, efficiently and effectively with the aim of achieving the strategic
objectives of the organization.

This is also known as Tactical Planning and managers at this level are required to ensure that their decision making reflects
the following:
1. Efficiency in the use of resources means that optimum output is achieved from the input resources used.
2. Effectiveness in the use of resources means that the outputs obtained are according to set objectives or targets.

The time horizon involved in management control will be shorter than at the strategic decisions level and these are
considered short-term non-strategic activities.

Features of management control information:

1. Primarily generated internally
2. Covers the entire organization
3. Summarized at a relatively low level
4. Relevant to the short and medium terms
5. Collected in a standard manner
6. Commonly expressed in money terms

Operational Control is the routine processing of transactions as per directions laid down in the Tactical plans. This includes
scheduling of unexpected or 'ad hoc' work as this must be done at short notice. Operation control decisions are termed as
short-term non-strategic activities.

Information requirements for decisions taken at this level include:

a. Transaction data which is needed for the conduct of day-to-day implementation of plans.
b. Detail of information provided depends upon the purpose, it is required for.
c. Operational information, although quantitative, is expressed in terms of units, hours, quantities of material, and so
on.

TYPES OF INFORMATION SYSTEMS

Transaction Processing Systems (TPS) collect, store, modify and retrieve the transactions of an organization.
The four important characteristics of a TPS are as follows;
1. The processing is controlled as it supports the organizations operations.
2. All transactions are recorded in a pre-defined manner or format.
3. Provides rapid response to support customer satisfaction.
4. Back-up and recovery procedures are in place as organizations rely heavily on TPS.

Examples include:
✓ Sales/marketing systems – recording sales transactions and providing details on marketing and promotional
activities
✓ Manufacturing production systems – recording details of purchases, production and shipping of goods
✓ Finance and accounting systems – maintenance of financial data in an organization. The purchase ledger, sales
ledger and payroll systems are all examples of a TPS system.

These are mainly of two types:

i. Batch transaction processing (BTP) collects transaction data as a group and processes it after a time delay.
Information is entered in batches.
ii. Real time transaction processing (RTTP) is the immediate processing of data.

Management information systems (MIS) convert data from mainly internal sources into information, which enables
managers to make timely and effective decisions for planning and controlling the activities.

MIS have the following characteristics.

1. Supports structured decisions at operational and management control levels.
2. Designed to report on existing operations rather than analyze data.
3. It is internally focused.
4. Little analytical capability.

There are four broad types of MIS:

• Database systems. These systems process and store information, which becomes the organization’s memory.
• Direct control systems. Systems to monitor and report on activities such as output levels, sales ledger and credit
accounts in arrears.
• Enquiry systems. Which are based on databases, which provide specific information such as the performance of a
department or an employee.
• Support systems. Systems that provide computer-based methods and procedures for conducting analyses, forecasts
and simulations.

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Executive information systems (EIS) provides a quick and efficient computing and communication environment for senior
managers to support strategic decisions. Executive information systems draw data from the MIS and allow communication
with external sources of information.

EIS are designed to facilitate senior managers' access to information quickly and effectively. They have:
1. Menu-driven user-friendly interfaces
2. Interactive graphics to help visualization of the situation
3. Communication capabilities linking the executive to external databases

Executive resource planning systems (ERPS) are modular software packages designed to integrate the key processes in an
organization so that a single system can serve the information needs of all functional areas. ERP systems have the principal
benefit that the same data can easily be shared between different departments. ERP systems work in real time.

Benefits of ERP
1. Easy access to shared real time information to support decision making.
2. A lot of inefficiencies in the way things are done can be removed; as the company restructures its processes so that
multiple departments can work together.
3. Standardizing Information and work practices so that the terminology used is similar.

Customer relationship management systems (CRMS): These are software applications which specialize in providing
information concerning an organization’s products, services and customers.

Most CRM systems are based on a database which stores data about customers such as their order history and personal
information such as address, age and any marketing feedback they have provided.

CRM systems are used by staff who deal with the customer’s orders, complaints and enquiries. CRM software captures
customers’ interactions with an organization so that this can be used to improve the organization’s understanding of the
customer (e.g. by tailoring future marketing communications more precisely to the customer’s interests or requirements).
The system is useful for customer retention and target marketing.

BIG DATA
Big Data refers to the mass of data that society creates each year, extending far beyond the traditional financial and
enterprise data created by companies. Sources of Big Data include social networking sites, internet search engines, and
mobile devices.

Big Data is an emerging technology that has implications across all business departments. It involves the collection and
analysis of large amounts of data to find trends, understand customer needs and help organizations to focus resources more
effectively and to make better decisions.

The main characteristics of Big Data are volume, velocity, variety, value and veracity.
1. Volume –The scale of information which can now be created and stored is staggering. Advancing technology has
allowed embedded sensors to be placed in everyday items such as cars, video games and refrigerators. Mobile
devices have led to an increasingly networked world where people's consumer preferences, spending habits, and
even their movements can be recorded. Advances in data storage technology as well as a fall in price of this
storage has allowed for the captured data to be stored for further analysis.
2. Velocity –Timeliness is a key factor in the usefulness of financial information to decision makers, and it is no
different for the users of Big Data. One source of high-velocity data is Twitter, users of which are estimated to
generate hundreds of thousands of tweets per minute.
3. Variety –Big Data consists of structured, semi-structured and unstructured data. While the sources of data have
grown, the software tools for interpreting the data have not kept pace with this change. The challenge is bringing
together structured, semi structured and unstructured information to reveal new insights.
4. Value – this refers to the usefulness of information to a business. Collection of big data alone does not result in
value but the insights gained from the data helps businesses to add value to the business and make decisions.
5. Veracity – this refers to the truthfulness of the data. Big data has hidden bias and inconsistencies which would
reduce its value in decision making and at times expose the business to risks.

Data analytics
It refers to the process of collecting and examining data in order to extract meaningful business insights that can be used to
inform decision making and improve performance of the organization. It is categorized into 2;

a. Descriptive analytics – it summarizes or describes what the data shows. It explains what is happening as depicted
by the available data.
b. Diagnostic analytics – it explains why it is happening. It provides reasons/causes of the existing situation.
c. Predictive analytics – It uses statistical techniques (data mining, machine learning, regression, decision trees) to
analyze data and makes predictions about a population based on a sample. It uses characteristics about a
population to make conclusions about the population. It forecasts what is likely to happen.

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d. Prescriptive analytics – It provides recommendations on what to do in a given situation.

Data mining – it involves the use of data mining software to look for hidden patterns and relationships in large pools of data.
The relationships can be used to guide decision making and to predict future behavior.

Algorithm – A set of instructions or rules used to solve a problem (especially by a computer).

Machine learning (ML) – A subset of artificial intelligence where a system learns automatically how to predict outcomes
based on data, without being explicitly programmed to do so. ML learns to improve algorithms.

Benefits of big data analytics

Big data analytics could result in performance improvements in the following areas:

(a) Better understanding of customer behavior

(b) Targeted marketing messages – Big data could facilitate targeted promotions and advertising – for example, by
sending a tailored recommendation to customers’ mobile devices while they are in the right area to take advantage
of the offers.
(c) Decision-making – For example, trends identified by a retailer in in-store and online sales, in real time, could be
used to manage inventories and pricing.
(d) New products and services – More generally, big data could also provide new business opportunities in their own
right. For example, the online retailer Amazon makes recommendations for customers linked to the purchases
made by other customers with similar interests.
(e) Performance measurement – Big data can provide more detailed and up-to-date information for performance
measurement. For example, performance reports can be produced in real-time allowing management to react
quickly to variances.
(f) Costing – Big data can be used to provide insights into costs. Big data’s main use is in identifying trends and
providing forecasts and this can be applied to costing. For example, it can be used to forecast events or conditions
that may occur at a specific time which will have an impact on the business and its costs. A cost model can be
developed.

Real world application of the value/benefits of big data is by DHL & Tesco

Risks and challenges of big data

Critics have argued that although data sets may be big, they are not necessarily representative of the entire data population as
a whole; e.g. if a firm uses ‘tweets’ from the social networking site, Twitter to provide insight into public opinion on a
certain issue, there is no guarantee the ‘tweets’ will be representative.

1. Quality of data – There can be a misconception that increasing the amount of data available automatically
provides managers with better information for decision making. However, in order to be useful, data has to be
relevant and reliable.
2. Veracity – In order to be valuable, data also needs to be reliable. A fourth V – veracity – is often added to the
other ‘V’ characteristics of big data (volume, velocity and variety). Using big data requires organizations to
maintain strong governance on data quality. For example, the validity of any analysis of that data is likely to be
compromised unless there are effective cleansing procedures to remove incomplete, obsolete or duplicated data
records.
3. Cost – It is expensive to establish the hardware and analytical software needed, and to comply with data protection
regulations which vary from country to country. IT teams or business analysts may become burdened with
increasing requests for data, ad hoc analysis and one-off reports. Equally, this will mean that the information and
analysis will not be available to decision makers as quickly as the ‘velocity’ may initially imply.
4. Skills – Do organizations have staff with the necessary analytical skills to process and interpret the data? The
scale and complexity of data sets may require a data scientist’s level of analytical skills for data mining, deriving
algorithms and predictive analytics.
5. Loss and theft of data – Companies could face legal action if data is stolen. More generally, when collecting and
storing data they need to consider data protection and privacy issues, and ensure they comply with current
legislation in these areas (e.g. having appropriate controls in place to prevent breaches of data security).

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The Big Data Pyramid/DIKW Pyramid

It describes the hierarchical relationship between data, information, knowledge and wisdom. Each level adds more meaning
and value to the basic data so that when wisdom is reached, the data has been converted into decisions and actions.

Level Relates to
Data • Refers to all types of facts, measurements & records including big data Past
• It is fairly meaningless without further processing
• It is programmable/algorithmic
Information • Refers to connections/linking of data Past
• Reveals relationships
• May involve aggregation and/or validation of data
• It is understandable but not necessarily useful
• It often answers ‘who/what/where/when’
Knowledge • Refers to how pieces of information are connected Past
• It provides insights/competitive advantage e.g. how information can be
applied to achieve objectives
• Often answers ‘how’
Wisdom • Refers to application of knowledge Future
• It includes decision making/adding value
• It is non-programmable/non-algorithmic
• Often answers ‘why’

The big data pyramid and information systems

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