A business owner opens his company, hires employees, sells his products to customers and pays his bills. But, is he making any profits? Will his bank account have enough money to pay all the bills? Does he have enough raw materials in inventory to meet the demand for his products? The owner doesn't know because he doesn't have any kind of reporting system that tells him what's going on in his business. This is where a management information system becomes essential.
What is a Management Information System?
Bookkeepers prepare the records for taxes, lenders and shareholders. But, this type of information isn't particularly useful for management purposes.
A management information system provides the information that managers need to get a feel for how their business is performing. These systems gather data about different areas of a company, such as:
- Human resources
- Sales and marketing
- Inventory control
- Document flows
- Cash balances
- Accounts receivable
- Accounts payable
What Type of Data Does an MIS Provide?
MIS goes beyond the standard reporting prepared by accountants. Owners need to have more specific information such as the following examples:
- How many receivables are past due?
- What is the gross profit on the company's blue widgets?
- How many days were lost because of employee sicknesses?
- How much money is in the company's bank account?
- What is the amount of orders waiting for shipment?
- How much were sales last week or last month?
This is the kind of information that managers want to run their businesses. They need information that identifies any problem areas requiring attention. Problem areas are those where actual performance has deviated from the expected level and need corrective actions to get them back on course.
MIS reports are arranged so managers can easily evaluate various aspects of a company's performance. Managers specify the metrics that they want to see regularly. It's like looking at the instruments and gauges on the dashboard of a car, but these MIS gauges are lined up on the front of the desk.
What Are the Benefits of an MIS?
Not having an effective, functional MIS leaves managers guessing in the dark. Employees are busy going through their workdays without direction or purpose. A management information system provides the data to identify non-performing areas and leads to the following benefits:
Helps to achieve a higher level of efficiency: Managers have the information needed to identify a company's strengths and weaknesses.
Improves the quality of decisions: Better availability of information reduces uncertainty and lets managers make more rational decisions based on reliable data.
Promotes better communications between departments in a workplace: When managers, department heads and employees are sharing the same information, there is better communication between them to identify problem areas and find mutually agreeable solutions.
Provides a platform to explore different scenarios for various alternatives and economic environments: Management is able to explore various alternatives to see the possible results before making decisions and commitments.
Improves employee productivity: Employees are more productive because they don't have to spend time gathering the data that management wants. A well-designed MIS will gather all the data without any more input from employees.
Strengthens a company's competitive advantage: Running a more efficient business by reducing and eliminating weaknesses and non-performing areas increases a company's competitive advantage over its rivals.
Reveals more data about customers: With more data about the needs of customers, management is better able to improve customer service and design more effective marketing and promotional campaigns.
A management information system is essential for any small business owner who is serious about improving the performance of his company. Without a good MIS, managers are managing by trial-and-error rather than making intelligent decisions based on a thoughtful analysis of data.