ITME

CHAPTE
R6
Lim, Jim Axel Dee B.
Nercua
C2-IT

Ms.

Agnes

MODELS
A model is an abstraction of something. It represents some object or activity, which is called an entity.
TYPES OF MODELS
Physical Models A physical model is a three-dimensional representation of its entity. Physical models
used in the business world include scale models of shopping centers and prototypes of new automobiles.
Narrative Models - One type of model that managers use daily is the narrative model, which describe its
entity spoken or written words.

Total cost

Figure 6.1 A graphic

Model of the Economic
Order Quantity Concept

cost

Maintenance cost

Purchasing cost

ECQ
Order quantity

Graphic Models - A graphic model represents its entity with an abstraction of lines, symbols, or shapes.
The graphic model in Figure 6.1 illustrates one of the most popular concepts in business- economic order
quantity. The economic order quantity(ECQ) is the optimum quantity of replenishment stock to order
from a supplier. The ECQ balances the costs of purchasing the stock and the costs of maintaining it.
Graphic models also are used in the design of information systems.
Mathematical Models Any mathematical formula or equation is a mathematical model.
ECQ =

2 PS
M

Where P is the unit purchasing cost (in dollars), S is the annual sales (in units), and M is the annual
maintenance cost per unit (in dollars). The maintenance cost includes all the costs incurred in storing the
item, such as insurance, spoilage, and loss due to theft.
Uses of Models

All four types of models facilitate both understanding and communication. Mathematical models have, in
addition, a predictive capability.
Facilitate Understanding
A model is typically simpler than its entity. The entity is more easily
understood when its elements and their relationships are presented in a simplified way. A physical model
can represent only features of interest; a narrative can be boiled down to a summary ; a diagram can
show only the main relationships; and a mathematical equation can contain only primary ingredients.

Customers

Sales orders

Edit
Sales
Orders

Sales
orders

FIGURE 6.2 Graphic Models

Are Used to Document
Information Systems

Prepare
Sales order
report

Sales
Order
data

2
Enter
Sales
Order
data

Sales
orders

Enter sales
Order data

Edited
Sales
orders

1
Edit
Sales
orders

3
Prepare
Sales
Order
report

Entered
sales
orders
Sales
orders

Sales order
History file

Sales
Order
report

Sales order
History
life
Sales
manager

Sales order
report

A.A flowchart

B.A data flow diagram

However, the models still only represent their entities and never match them exactly.

Facilitate Communication
All four types of models can communicate information quickly and
accurately to people who understand the meaning of the shapes, words, graphics, and mathematics.
Predict the Future The precision with which the mathematical model can represent its entity endows it
with a special capability that is not available with the other model types. The mathematical model can
predict what might happen in the future, but it is not 100 percent accurate.
THE GENERAL SYSTEMS MODEL
The vehicle that we us as the main basis of your description is called the general systems model of the
firm. It is a graphic diagram with an accompanying narrative that depicts all organizations in a general
way, using a system framework.
The Physical System
Figure 6.3 shows the physical system of the firm that transforms input resources into output resources.
The input resources come from the firms environment, a transformation occurs, and the output resources
are returned to the same environment. The physical system of the firm is an open system, interacting with
its environment by means of physical resource flows.

Figure 6.3 The

Physical
System of the
Firm

Input
resources

Transformation
process

Output
resources

Material Flow Input materials are received from suppliers of raw materials, parts, and assembled
components. These materials are held in a storage area until they are required for the transformation
process. Then they are released to the manufacturing activity. In a manufacturing firm, two functional
areas are involved with this material flow. The manufacturing function transforms the raw materials into
finished products; the marketing function distributes the finished products to the customers.
Personnel Flow Prospective employees come from the global community and perhaps from labor
unions and competitors. This personnel input usually is processed by the human resources function and
then assigned to different functional areas. Others remain until retirement. The human resources function
processes to the termination, and the resource is returned to the environment.
Machine Flow Machines are obtained from suppliers and usually remain in the firm for a long periodfrom three to twenty years. While in the firm, machines are seldom stored. Rather, they are continually
available. Control of the machine flow is diffused among all functional areas that use the machines.
Money Flow Money is obtained primarily from the owners, who provide investment capital, and from the
firms customers, who provide sales revenue. Whereas several sources provide money, the primary
responsibility for controlling the money flow lies with the finance function. The money flow, therefore,
connects the firm to its financial institutions, customers, suppliers, stockholders, and employees.
THE CONCEPTUAL SYSTEM
Control is achieved by means of a loop that is built into the system. The loop, called a feedback loop,
provides a pathway for signals from the system to a control mechanism, and from the control mechanism
back to the system. The control mechanism is a device of some type that uses the feedback signals to
evaluate system performance and determine whether corrective action is necessary.
Open-Loop Systems The system in Figure 6.3, in addition to being an open system, is an open-loop
system. There is no feedback from the system to affect necessary changes in the system.

Closed-Loop Systems Figure 6.4 shows a closed-loop system one with a feedback loop and control
mechanism. Such a system can control its output by making adjustments to its input.
Management Control - As shown in Figure 6.5, management receives information that describes the
systems output. Many management reports include this type of information production, volume,
distribution costs, sales analysis, and so on. Because the main purpose of the firm is to produce some
type of output, a measure of the output is an integral part of system control.

Feedback

Output
resources

Feedback

Control
Mechanism

Figure 6.4 A Closed-Loop

System
Figure 6.4 A Closed-Loop
System

Output
resources

Transformation
process

Information

Management

Information
Figure 6.5 The Physical
System of the Firm as a
Controlled System

Output
resources

Transformation
process

Output
resources

Figure 6.6 is an example of a report system output - a sales report of fast moving products.
Output feedback is a valuable to the manager, but the manager also must know the status of the inputs
and transformation processes. Figure 6.7 reflects the addition of information-gathering activities to the
input and processing parts of the physical system.

ITEM NUMBER
Figure 6.6 A Sales
Report of FastMoving Products

400293
319421
786402
190796
001007
739792
722210
410615
963214
000123

ITEM DESCRIPTION

BRAKE PIPE
DOOR HANDLE GASKET
CLUTCH DRIVEN PLATE
CARPET SNAP
SPARK PLUG
HOSE CLIP
RUBBER PLUG
UPPER DOOR HINGE
REAR TUBE SHOCK
NEEDLE VALVE
TOTALS

YEAR TO DATE SALES

VOLUME

$1, 702.93
1,624.00
1,403.97
1,102.00
1,010.79
949.20
946.73
938.40
922.19
919.26
$11, 519.47

PERCENT OF TOTAL YEARTO-DATE SALES

068
065
056
044
040
038
038
038
037
037
461

BASED ON YEAR-TO-DATE SALES OF $24, 988.00

Information

Management

Information

Figure 6.7
Information Is
Gathered from All of
the Physical System
Elements

Input
resources

Output
resources

Transformation
process

Figure 6.8 is a report that describes an aspect of the systems input. This supplier analysis compares the
suppliers of a particular type of raw material in terms of price, delivery, and quality.
Figure 6.9 illustrates how the status of transformation processing can be reported to management.
This example show how the conceptual system can keep the manager up to date of the status of the
physical system.
The Information Process Information does not always travel directly from the physical system to the
manager. Many managers are located some distance from the physical activity. We call the informationproducing mechanism the information processor.

410615

ITEM NUMBER
ITEM DESCRIPTION

SUPPLIER

LAST TRANSACTION UPPER DOOR HINGE

UNIT

Figure 6.8 A
Supplier
Analysis Report

NUMBER

DATE

3062
CARTER AND SONS
4189
PACIFIC MACHINING
0140
A.B. MERRIL & CO.
2111
CARTER AND SONS

JOB NUMBER
CUSTOMER

Figure 6.9 A Job

Status Report
Provides
Information about
the Transformation
Process

NAME

7/12
4/13
1/04
8/19

P.O NO. QTY

1048-10 360
962-10 350
550-10 350
1196-10 360

84-182
WANKEL AUTOMOTIVE

CURRENT STATUS
STEP 4-WELD SUPPORTS TO FRAME
DEPARTMENT 410-WELDING
DATE AND TIME BGUN-10/8, 10:15A
PROJECTED JOB COMPLETION-10/14; 9:30A
NEXT PROCESS
STEP 5-PAINT FRAME
DEPRARTMENT 632-PAINT

PRICE

$8.75
9.10
8.12
11.60

DAYS TO
RECEIPT

12
8
3
19

PCT
REJECTS

00
02
00
04

Figure 6.10 includes the addition of the information processor, which, in this discussion, we assume to be
a computer. However, a computer is not required.
Dimensions Of Information As managers define the output that the information processor is to provide,
they consider four basic dimensions of information. These dimensions contribute to information value.
1.) Relevancy Information has relevancy when it pertains specifically to the problem at hand.
2.) Accuracy Ideally, all information should be accurate, but features that contribute to system
accuracy add to the cost. Applications involving money, such as payroll, billing, and accounts
receivable, seek 100 percent accuracy.
3.) Timeliness Information should be available for problem solving before crisis situation develop or
opportunities are lost.
4.) Completeness The manager should be able to obtain information that presents a complete
picture of a problem or a solution. The term information overload suggest the harm that can
come from too much information.

Information

Information

Management

Figure 6.10 The

Information
Processor
Transforms Data
Into Information

Information
processor

Data

Input
resources

Transformation
process

Output
resources

Standard For the manager to exercise control over his or her area of responsibility, there must be
information that describes what the area is accomplishing and performance standards that reflect what
the area should accomplish.
We can define an objective as the overall goal that a system is to attain. A system must have at least one
objective, but multiple objectives are common. Objectives tend to be stated in a general manner.
A standard is a measure of acceptable performance, ideally stated in specific terms. Table 6.1 illustrates
the difference between the general nature of objectives and the specific nature of standards.
TABLE 6.1
A Comparison of Objectives and Standards

OBJECTIVES

STANDARDS OF PERFORMANCE

Satisfy customer needs

Produce a return on investment
for the owners
Operate efficiently
Invest in the future
Develop sources of supply

Operate ethically
Take advantage of modern
methods

Information
Figure 6.11
Performance
Standards are made
available to both
management and
the Information
Processor

Achieve an annual sales volume of at least $25 million.

Maintain a 20% share of the market.
Maintain an annual growth rate of 15%
Pay dividends to stockholders each quarter
Maintain the price of the firms common stock above $85 per share.
Realize an after tax profit of 15% of sales.
Maintain a record of accident-free days
Keep employee turnover below 10%
Invest a minimum of 15% of sales revenue in research and
development.
Achieve stock outs on no more than 2% of the items in inventory
during the year.
Keep the number of backorders to less thank 5% of all orders
processed.
Standards
Have no plant shutdowns due to unavailable raw materials.
Have no legal actions filed against the firm by customers ,suppliers,
and the government.
Invest no less than 10% of sales revenue in automation,
computerization, and mechanization.

Information
Management

Information
processor

Data

Input
resources

Transformation
process

Output
resources

The manager uses standards to control the physical system by comparing actual performance, as
reported by the information processor, with the standards. Figure 6.11 illustrates the addition of the
required standards to the general model.
The conceptual system that controls the physical system therefore consists of three key
elements-management, the information processor and standards.
This arrangement enables the information processor to relieve the manager of much of the monitoring
activity. The information processor can tell the manager when actual performance varies too much from
the standards.

Management by exception
Standards, combined with the information output of the information
processor, enable the manger to engage in management by exception.
Management by exception is a fundamental capability that is provided by the CBIS. By letting the CBIS
assume some of the responsibility for monitoring the physical system, the manager can use his or her
time in the most effective way.

Critical Success Factors

A management concept that is similar to management by exception is
called critical success factors. A critical success factor (CSF) is one of the firms activities that has a
strong influence on the firms ability to meet its objectives.
The CSF concepts is similar to management by exception in that it focuses attention on a portion of the
firms operations rather than on the whole.

Decision Flow Another modification to the general model is necessary to reflect how management
decisions can change the physical system. Just as the manager must gather data from all three elements
in the physical system input, processing, and output.
Figure 6.12 The feedback from the manager to the physical system is relabeled Decisions to reflect the
manner in which te manager changes the systems performance.
The basic feedback loop as drawn initially in Figure 6.4 still represents signals from the physical
system , but the signals are in three different forms data, information, and decisions.

Standards

Information

Decisions

Management

Figure 6.12
Changes are made
in the Physical
System through the
decision flow

Information
processor

Data

Input
resources

Transformation
process

Output
resources

Data is transformed into information by the information processor, and information is transformed into
decision by the manager.
The Environment
The final form of the general mode recognizes that resources flow into the firm from the environment and
out of the firm and back into the environment.
Physical resources flow through the physical system at the bottom of the model.
Conceptual resources(information and data) enter the information processor, where they are either stored
or made available to the manager.
Putting the General System Model in Context
The model helps you adjust to your firm. The model provides a sense of stability as you learn about your
firm.
Problem Solving
The term problem solving brings to mind the correction of things that are going wrong, managers respon
quickly to harmful influences, seeking to prevent or minimize.
Environment
Standards
Information
And
data

Decisions

Information

Management

Physical
resources

Information
processor

Data

Input
resources

Physical
resources

Transformation
process

Output
resources

Figure 6.13 The General Systems Model of the Firm

Managers also respond to things that are going better than expected, we define a problem as a condition
that has the potential to cause exceptional harm or produce exceptional benefit. Problem solving then
becomes the act of responding to problems so as to suppress their harmful effects of capitalize on the
opportunity for benefit.
Decision Making and Problem Solving
A manager will make many decisions. A decision is the selection of a strategy or action. Decision making
is the act of selecting the strategy or action that the manager believes will offer the best solution to the
problem.
Problem
Standards
Elements of the conceptual system
Figure 6.15
Elements of
Problem Solving
Process

Standards

Desired state

Current state

Problem
Solver
(manager)

Information

Alternative
Solutions

Constraints

Solution

Elements of Problem-Solving Process

Several elements must be present if a manager is to successfully engage in problem solving.
The solution to a systems problem is one that best enables the system to meet its objectives, as reflected
in the systems performance standards. These standards describe the desired state what the system
should achieve. The manager must have available information that describes the current state what the
system is now achieving. If the two states are different, some problem is the cause and must be solved.
The solution criteria, or what it will take to bring the current state to desired state. It is the
managers responsibility to identify alternative solutions, which always exist. International constraints take
the form of limited resources that exist within the firm. Environmental constraints take the form of
pressures from various environmental elements that restrict the flow of resources into and out of the firm.
When all of these elements exist and the manager understands them, a solution to the problem is
possible.
Problems Versus Symptoms
Symptoms are conditions produced by the problem. Very often the manager sees the symptoms rather
than the problem. Symptoms do not tell the entire story. A manager faces the same task when confronted
with a symptom such as low profits. Something is causing the low profits. The problem is the cause of the

low profits. In fact, it is good to think of a problem as the cause of the trouble, or the cause of the
opportunity.