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Student No : MJB/HNC-BM/0909/8609
Course : Unit 6
Assignment No : 1
SIRM Education
M1
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Information system
An information system is a computer system that provides management and other personnel
within an organization with up-to-date information regarding the organization's performance;
for example, current inventory and sales. It usually is linked to a computer network, which is
created by joining different computers together in order to share data and resources. It is
designed to capture, transmit, store, retrieve, manipulate, and or display information used in
one or more business processes. These systems output information in a form that is useable at
all levels of the organization: strategic, tactical, and operational.
Information systems are the means by which people and organisations, utilising technologies,
gather, process, store, use and disseminate information (Caldelli, A, 2004)
ICT based information systems affect individuals, groups, organisations and society. The
nature of work, skills, employment, organisation structures and management and professional
practices are constantly changing due to technology innovations and their pervasive
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application. These systems also impact on social interaction and social and cultural
revolution.
Information systems have economic and financial effects on individuals, organisations,
industries, markets, national economies, including the ICT industry. Understanding these
effects requires the application of economic theories and theories of competition, firms,
markets, and social behaviour to interpret and explain the range of effects in the different
dimensions of economic activity (UKAIS, 1999).
Information systems at different levels
model, the manager can compare predicted results and select the most profitable selling price
(Agarwal, R., Lucas, H. 2005).
3. Operational levels
At the operational level are transactions processing systems through which products are
designed, marketed, produced, and delivered. These systems accumulate information in
databases that form the foundation for higher-level systems. In today’s leading organizations,
the information systems that support various functional units marketing, finance, production,
and human resources are integrated into what is known as an enterprise resource planning
(ERP) system. ERP systems support the entire sequence of activities, or value chain, through
which a firm may add value to its goods and services. For example, an individual or other
business may submit a custom order over the Web that automatically initiates “just-in-time”
production to the customer’s exact specifications through an approach known as mass
customization. This involves sending orders to the firm’s warehouses and suppliers to deliver
materials just in time for a custom-production run. Finally, financial accounts are updated
accordingly, and billing is initiated (Benbasa, 2003).
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M1:
Inventory:
Inventory is a list for goods and materials, or those goods and materials themselves, held
available in stock by a business. It is also used for a list of the contents of a household and for
a list for testamentary purposes of the possessions of someone who has died. In accounting,
inventory is considered an assetInventory is one of the most expensive assets of many
companies especially for the manufacturing company. It represents as much as 40% of total
invested capital.
Types of inventory:
1. The first is called materials and components. This usually consists of the essential
items needed to create or make a finished product, such as gears for a bicycle,
microchips for a computer, or screens and tubes for a television set.
2. The second type of inventory is called WIP, or work in progress inventory. This refers
to items that are partially completed, but are not the entire finished product. They are
on their way to becoming whole items but are not quite there yet.
3. The third and most common form of inventory is called finished goods. These are the
final products that are ready to be purchased by customers and consumers.
The textile industry is characterised by a complex production network which spans many
businesses and usually crosses international boundaries. In addition, sales are highly volatile
and seasonal, and order fulfilment windows can be very tight. Good capacity planning,
production scheduling, process control and inventory management are required for a
profitable operation.
Textile network:
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(1) Elimination of Waste in the textile industry, after implementing the JIT in textile
manufacturing industry the waste can be reduced to its minimum levels and productions and
profits of textile industry will be rise.
(2) Synchronized Manufacturing, its mean in the textile industry every department
coordinates with other and performance of overall textile industry overhauled.
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(3) Little Inventory indicates the reducing the order batch size can be a major help in
reducing inventory. Following formula can be used
Holding Costs: are the costs associated with holding or “carrying” inventory over time. It
includes costs related to Storage; such as insurance, extra staffing, interest, and so on.
Ordering Costs: include, cost of supplies, order processing, clerical cost, etc. The ordering
cost is valid if the products are purchased not produced internally
Set-up cost is the cost to prepare a machine for manufacturing an order. Set-up cost is highly
correlated with set-up time.
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D1
One of the key areas of long-term decision making that firms must tackle is that of
investment the need to commit funds by purchasing land, buildings, machinery and so on, in
anticipation of being able to earn an income greater than the funds committed. In order to
handle these decisions, firms have to make an assessment of the size of the outflows and
inflows of funds, the lifespan of the investment, the degree of risk attached and the cost of
obtaining funds.
One of the most important steps in the capital budgeting cycle is working out if the benefits
of investing large capital sums outweigh the costs of these investments. The range of methods
that business organisations use can be categorised one of two ways: traditional methods and
discounted cash flow techniques.
This is literally the amount of time required for the cash inflows from a capital investment
project to equal the cash outflows. The usual way that firms deal with deciding between two
or more competing projects is to accept the project that has the shortest payback period.
Payback is often used as an initial screening method.
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The following project's cash flows of UK company (with an initial investment in year 0 of £4
00000):
The shorter the payback period, the better the investment proposal is under the payback
method. We can appreciate the problems of this method when we consider appraising
several projects alongside each other. It is probably best to regard payback as one of the
first methods you use to assess competing projects. It could be used as an initial screening
tool, but it is inappropriate as a basis for sophisticated investment decisions.
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The average rate of return expresses the profits arising from a project as a percentage of the
initial capital cost. However the definition of profits and capital cost are different depending
on which textbook you use. For instance, the profits may be taken to include depreciation, or
they may not. One of the most common approaches is as follows:
A project to replace an item of machinery is being appraised. The machine will cost £240 000
and is expected to generate total revenues of £45 000 over the project's five year life. What is
the ARR for this project?
Drawbacks of AAR:
Firstly, the ARR doesn't take account of the project duration or the timing of cash flows over
the course of the project. Secondly, the concept of profit can be very subjective, varying with
specific accounting practice and the capitalisation of project costs. As a result, the ARR
calculation for identical projects would be likely to result in different outcomes from business
to business. Thirdly, there is no definitive signal given by the ARR to help managers decide
whether or not to invest. This lack of a guide for decision making means that investment
decisions remain subjective.
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The Net Present Value (NPV) is the first Discounted Cash Flow (DCF) technique covered
here. It relies on the concept of opportunity cost to place a value on cash inflows arising from
capital investment. NPV is a technique where cash inflows expected in future years are
discounted back to their present value. This is calculated by using a discount rate equivalent
to the interest that would have been received on the sums, had the inflows been saved, or the
interest that has to be paid by the firm on funds borrowed.
Calculate the present value of a project's cash flows, with initial investment of £750,00 using
a 10 % discount rate.
Discount rate
year Cash flow (10%) Present value
0 - 750,000 1 - 750,000
0
1 100,000 .909 90,900
0
2 250,000 .826 206,500
0
3 350,000 .751 262,850
0
4 350,000 .683 239,050
0
5 30,000 .621 186,300
Assessing the value of NPV calculations is simple. A positive NPV means that the project is
worthwhile because the cost of tying up the firm's capital is compensated for by the cash
inflows that result. When more than one project is being appraised, the firm should choose
the one that produces the highest NPV.
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The IRR is the annual percentage return achieved by a project, at which the sum of the
discounted cash inflows over the life of the project is equal to the sum of the capital invested.
31
present value 80.65
The above calculation for NPV used a 12 % discount rate and produced a positive value of £
3180.65. We need to find a discount rate that produces a negative NPV. Let's try 20 %.
Cash
year flow Discount rate (20%) Present value
0 -25000 1 - 25,000
1 7500 0.833 6247.5
2 7500 0.694 5205
3 9000 0.579 5211
4 9000 0.482 4338
5 5950 0.402 2391.9
23393.4
-
present value 1,607
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The value to a business of calculating the IRR is that its decision-makers are able to see the
level of interest that a project can withstand. In the case where a number of projects are
competing for selection, the one that is most resilient can be chosen.
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References:
Agarwal, R., Lucas, H. (2005): The information systems identity crisis: focusing on
Benbasa, (2003) The identity crisis within the IS discipline: defining and
Caldelli, A., and M.L. Parmigiani, (2004). "Management Information System: A Tool for
Lessons in Simplicity
Zehir, C. and H. Keskin, (2003). "A Field Research on the Effects of MIS on Organizational
http://www.britannica.com/EBchecked/topic/287895/information-
system/218054/Operational-support
http://www.slideshare.net/naveedtaji/organizational-information-system
http://www.answers.com/topic/management-information-system
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