Information and Decision Support Systems - Principles of Information Systems - page 406

Financial Management Information Systems
A financial MIS provides financial information not only for executives but also for a broader
set of people who need to make better decisions on a daily basis. Reuters, for example, has
developed an automated reporting system that scans articles about companies for its stock
traders to determine if the news is favorable or unfavorable. 20 The reports can result in buy
orders if the news is positive or sell orders if the news is negative. Eventually, the system will
be tied into machine trading that doesn't require trade orders generated by people. Web sites
can also provide financial information. For example, Web sites like www.kiva.com can pro-
vide information for people seeking small loans, called microloans. 21 Many microloans are
for $100 or less and are made for a period of several months. The Internet is also used for
larger loans. When Jeff Walsh wanted to find funds for his small business, he went to
www.prosper.com . 22 According to Mr. Walsh, “I just bought a house in 2007 and was a little
nervous about what the bank would say about my debt-to-income ratio.” Financial MISs are
often used to streamline reports of transactions. Most financial MISs perform the following
functions:
• Integrate financial and operational information from multiple sources, including the
Internet, into a single system
• Provide easy access to data for both financial and nonfinancial users, often through the
use of a corporate intranet to access corporate Web pages of financial data and information
• Make financial data immediately available to shorten analysis turnaround time
• Enable analysis of financial data along multiple dimensions—time, geography, product,
plant, and customer
• Analyze historical and current financial activity
• Monitor and control the use of funds over time
Figure 10.8 shows typical inputs, function-specific subsystems, and outputs of a financial
MIS, including profit and loss, auditing, and uses and management of funds. Some of the
financial MIS subsystems and outputs are outlined below.
•

financial MIS
An information system that provides
financial information not only for
executives but also for a broader set
of people who need to make better
decisions on a daily basis.

Profit/loss and cost systems. Many departments within an organization are profit
centers , which means that they focus on generating profits. An investment division of a
large insurance or credit card company is an example of a profit center. Other departments
can be revenue centers , which are divisions within the company that focus primarily on
sales or revenues, such as a marketing or sales department. Still other departments can be
cost centers , which are divisions within a company that do not directly generate revenue,
such as manufacturing or research and development. In most cases, information systems
are used to compute revenues, costs, and profits.

profit center
A department within an organization
that focuses on generating profits.
revenue center
A division within a company that
generates sales or revenues.
cost center
A division within a company that
does not directly generate revenue.
auditing
Analyzing the financial condition of
an organization and determining
whether financial statements and
reports produced by the financial
MIS are accurate.

•

Auditing. Auditing involves analyzing the financial condition of an organization and
determining whether financial statements and reports produced by the financial MIS are
accurate. Internal auditing is performed by individuals within the organization. For
example, the finance department of a corporation might use a team of employees to
perform an audit. External auditing is performed by an outside group, usually an
accounting or consulting firm such as PricewaterhouseCoopers, Deloitte & Touche, or
one of the other major, international accounting firms. Computer systems are used in all
aspects of internal and external auditing.

internal auditing
Auditing performed by individuals
within the organization.

• Uses and management of funds. Internal uses of funds include purchasing additional

inventory, updating plants and equipment, hiring new employees, acquiring other
companies, buying new computer systems, increasing marketing and advertising,
purchasing raw materials or land, investing in new products, and increasing research and
development. External uses of funds are typically investment related. Companies often
invest excess funds in such external revenue generators as bank accounts, stocks, bonds,
bills, notes, futures, options, and foreign currency using financial MISs. Some individuals
and companies are exploring making loans over the Internet. Lending Club, for example,
facilitates loans made between people using Facebook, the social-networking site. 23 The
company has facilitated about $1 million in loans that average about $5,000 per loan
with interest rates that vary from about 7 to 17 percent. The loan default rate has been
less than 1 percent.

external auditing
Auditing performed by an outside
group.