Management information systems and financial statements


Question 3


Management information system (MIS) is a computer-based system which provides managers with the tools to organize evaluate and efficiently manage all the departments within an organization. It directs towards the managerial functions of planning, controlling, monitoring and decision making.

Planning is a process used by company managers to identify and select goals and courses of action for the organization. Even though John is the owner of the High Street Reproduction Furniture, but he does not have much formal training experience in management. But he has much hands-on experienced gain while running his business. Therefore his company might have some planning and controlling activities shall be implemented in his business. Planning stage has three stages which are determining the organization mission and goals (defining the business), strategy formulation (analyzing current situation and develop strategies) and strategy implementation (allocating resources and responsibilities to achieve strategies). High Street Reproduction Furniture Limited is a producer of reproduction bedroom furniture. Currently, the furniture produced by them are very high in quality as it requires high degree of skill in construction and finishing stages of production process. In order to improve the efficiency and effectiveness of the company, John should prepare a list of resources required which means, he should prepare a detailed listing of various skill required and also materials needed in order to perform the activities. Besides, John has to determine the duration of time required for each activity. A proper time allocation is essential in order to ensure that production department has sufficient time to produce the product and maintain the high standard in quality. Besides, by determining the duration of time required for a production to complete, company can estimate and provide on time delivery service to their customers.

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Controlling is a process of analyzing current performance and compare with the predetermined standards and take appropriate corrective actions against the identified deviation in the result. John should set a standard of performance he wished to achieve. After that, he should measure the performance for the period and compare it against the predefined standards. If there is any area that lack behind in performance, he shall take the best corrective actions that will lead the company to achieve the predefined standards. This ensures the company able to maintain their high standard hand-made furniture.

High Street Reproduction Furniture has to implement some planning and controlling activities to improve their performance. In order to improve their performance, John may implement performance hierarchy in his business. There are three stages in performance hierarchy namely operational planning, tactical planning and strategic planning. While going down the hierarchy, controlling process increases and planning process decreases.

Beginning from the bottom of the hierarchy, which is the operational planning, it is a stage whereby control is at its maximum and planning is at its minimum. Operational planning is a stage that deals with current deployment of resources, develop tactics rather than strategy, projects current operations into the future and make relevant modifications. For instance, scheduling employees each week, assessing, ordering and stocking inventory. At this stage, John shall set his company priorities, focuses energy and resources strengthen operations and make sure employees work towards common goals. Next, is the tactical planning stage which is located in between of strategic planning and operational planning. Tactical planning is a short term planning process of which emphasizes the current operations of various parts of the organizations. Tactical planning are usually used in order to outline various task organization must do to be successful in within a year or lesser than a year. For example, it involves the activities such as allocating the resources in a more efficient manner by focusing on areas where the management wants to put more efforts. John should schedule his immediate short-term activities required in achieving company’s objectives. Strategic planning is the top most level in the hierarchy and it is the foundation for any organization that wants to ensure a successful future. It is a stage whereby planning is at the maximum and control is at the minimum. At this stage, John should shape his organization and its resources, assesses the impact of environmental variables, develops overall objectives and strategies, and he shall be concerned with the company’s long-term success of the organizations.

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Besides, if John wants to accept the American’s order to export, John firstly have to establish a team to meet the demand of the customer. He might want to consider expanding his number of workers. If there are insufficient number of employees, John will not be able to meet customer demands on time. Apart from hiring more employees, in order to maintain the quality of work and efficiency of employees, John will have to ensure every employee possess at least minimum requirement of skills needed. To ensure this, he may provide suitable type of training program to train his employees. By participating in company training, employees can learn new things which are relevant to their job and they are also learning how they can do their job efficiently. Usually if employees are lack of knowledge or skills, employees will take a longer time to accomplish his work.

Besides, in order to reduce the operating cost, John might consider implementing Enterprise Resource Planning (ERP) system. It is a system which integrates both the internal and external information flows used by the organizations. ERP system allows John to use a system of integrated application to manage all his business and automate back office functions. An ERP solution incorporates the practical system used by organizations in order to manage their commercial function of their business. Some of the commercial function includes planning, inventory/materials management, purchasing, manufacturing, finance, accounting, human resource, marketing and sales. It automates and integrates core business processes such as taking customers order, scheduling operations, maintaining inventory records and financial data.

Furthermore, if John wants to expand his business to overseas market, he may want to consider setting up a regional office in United States. Upon setting up a new office oversea, he has to conduct a meeting to discuss with the Board of Directors. Discussion of meeting should include how to obtain sufficient capital to set up the new regional office in oversea, how to arrange for sufficient manpower and brainstorm new suitable strategies in order to expand their business. Before any expansion project carried out, a proper planning is essential to ensure expansion project can be carried out smoothly and prevent company from suffering losses. Without proper planning, a business may fail and this is unfortunate. Besides, setting up office in overseas can help in reducing manufacturing cost. This is because sales to locals occur without involving expensive delivery cost, import duty and taxes.

In addition, if John wishes to export, the business will trade in US Dollar. John will have to set up a team to deal with the foreign exchange market. The team will have to monitor the overseas inflation rate, interest rate and the business environment in America. Great fluctuations in inflation rate and interest rate will influence High Street Reproduction Furniture profits and cash flow for the period significantly. If John wants to accept this America orders, they will be exposed to various type of risk such as instability of the economy in America and fluctuations of interest rate and inflation rate. However, they may use this opportunity to expand their business in America. Expanding his business into a new market and environment is not easy. Therefore, the team has to monitor carefully the fluctuations in oversea market and take corrective action in case of any unforeseen circumstances in order to prevent the company from suffering losses.

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Since High Street Reproduction Furniture wants to expand into foreign markets, John has to do research regarding the currency movement in the financial market. As currency rates fluctuate frequently, John has to update himself with the latest currency rates. Higher exchange rates will cause High Street Reproduction Furniture incur a higher operating cost. This means that John has to pay a higher price for every expenditure that he incurred. While expanding his business to overseas market, John has to focus on foreign political environment. As certain trading expense and taxes are imposed only on the non-resident or foreign company, this will lead High Street Reproduction Furniture to pay for a higher cost on the foreign office. It will reduce High Street Reproduction Furniture profit significantly.

Inflation rate one of the most important key factors on the value of a nation’s currency. High inflation rate will reduce the consumers’ purchasing power. When consumer’s purchasing power decreases, consumer is less likely to spend freely. Besides, higher inflation rate usually discourage investment and lead to lower growth of business as high inflation rate increases uncertainty regarding future prices and cost. Higher inflation rate will cause High Street Reproduction Furniture to incur a higher operating cost in setting up the new regional office. Therefore, if the inflation rate is high in United States, John should not set up regional office in United States.

Furthermore, John has to conduct an analysis on the sales trend in America upon expanding his business to America market. Sales trend analysis is a review of sales-related measurements or key performance indicators (KPIs) for a specific period of time. Sales trend may fluctuate up and down or remain unchanged. By conducting sales trend analysis, John can gain a better understanding of past performance, solve business problems and predict future performance. In addition, a detailed trend analysis may include information on product line, geographic locations, sales territory and sales team. John may review and make comparison of the sales result obtained in order to gain a better judgment on the sales trend.

When John expands his business into foreign market, High Street Reproduction Furniture might suffer from high level of competition. Competition exist when two or more organization produce similar products for identical group of consumers. John has to compete for customers with overseas company if he were to set up an office in overseas. This might affects High Street Reproduction Furniture operating profit. Hence, it is essential for John to analyze the sustainability of the business in overseas before deciding to expand their business to foreign market. If the sustainability of business is doubtful, John should not expand his business to foreign market in order to prevent company from suffering loses.

Besides, John should forecast their company cash flow. A cash flow forecast indicates the likely future movement of cash flow in and cash flow out of High Street Reproduction Furniture. It is an estimate amount of money you expect to flow into the company (receipts) and flow out of the company (payments). Forecast can cover a period of a week, a month or a year. As cash flow indicates cash surpluses or cash shortages in the future, it will help John to make a correct decision. Besides, it can also help in tax planning, purchases and identify potential shortfalls in cash balances in advance, ensure company can afford to settle their debts while identifying problems with customers’ payments.

Moreover, by viewing into variance analysis report, John can identify the difference between actual expenditure or revenues between fiscal years and quarters. A variance report is a way to gauge High Street Reproduction Furniture performance by comparing budget to actual figures. John may use variance report to analyze how close their performance to forecasted sales target or to analyze whether if they have met their budgetary goals. Overspending may cause a serious threat to the project, to other projects and also to the company if resources are scarce. Under spending may indicate a problem in quality control and it may cause a serious threat to the company too. If actual revenue amount are more than what it is expected or budgeted, the variance is shown as favorable. On the other hand, if actual expenses exceeded budgeted or expected expenses, the variance will show as unfavorable. If variance shows unfavorable, amendment shall take place in order to improve the efficiency of business and prevent future loses.


Several sources of information needed by John are from the financial statement. By referring to the financial statement of the company, John can get to know the performance of his company. For example, by referring to cash flow statement, the movement of cash inflow and outflow will be used to predict future cash flow. John will be aware of any shortages or surpluses of cash in advance and this can help him to take precaution steps beforehand. If John wants to expand his business to the foreign market, cash flow statement is important to ensure that he has sufficient amount of capital to fund his expansion project. Moreover, contribution margin statement plays an important role in influencing the decision making process of John. Contribution margin measures how growth in sales translates to growth in profits. John shall focus on developing product which contributes the most in the company’s operating profit rather than those that contributes little to the company’s operating profit.

Besides, incremental analysis statement, sometimes called marginal or differential analysis, is used in business in order to determine true cost difference between alternatives. It ignores sunk costs and costs that are the same between the two alternatives and consider only the remaining costs. It identifies the relevant revenue and cost of each alternative available of each available alternative and its expected impact on company’s future operating profit. John shall accept projects that generate positive incremental profit as it will maximize his company’s operating profit. Some of the examples of incremental analysis includes when John wants to know whether he should carry out additional business, making or buying parts or products, selling products or processing them into further and whether to allocate scare resources or not.

When running a company, John has to carefully plan and review his company’s finances. Budgets usually represent a detailed analysis of how a company expects to spend in future accounting period. It is usually prepared in order to help company to carefully outline their expected needs of each department in the business and plan their future operations by considering conditions that might change and steps that should be taken to solve problems that might arise in the future. There are several types of budges namely sales budget, production budget, capital budget, cash flow budget and revenue budget. For instance, by referring to sales budget John can estimate his company’s future sales and it can be used to create company’s sales goals. In addition, by referring to production budget, it can estimate number of products have to be produced to meet sales goals and estimate various cost involved in producing the products.

Since John wishes to expand his business into America’s market, he should conduct a thorough research on the America’s local laws and regulations. John shall not assume that what regulation applied in a country will be applied equally in other country. He shall not underestimate the impact of local laws and regulations on his expansion plan. For example, entering America’s market will require a fairly lengthy process, starting with obtaining a business license in advance before John can set up a regional office in America. Different country will have different type of laws and regulations needed to apply for business license. Besides, the procedures of each country in handling applications of foreign company will be different too.

Furthermore, John should spend some time in America to experience the local cultural references, customs and festivals first hand. This will help him to understand more thoroughly Americans local customer’s culture, behaviors and expectations. It will make him understand what type of customer service Americans are used to and how they generally interact with brands. This is an important consideration in order for John to define his overall proposition. Even though it takes up much of his time and dedication, all these understandings will help John to have a wide picture of Americans preference before entering American’s market. If he does not know anything about their preference and enter the market blindly, he will be exposed to various risks and he might incur serious losses.