Monday, March 14, 2011

Data and information by Philip Dunn

Data and information

by Philip Dunn
01 Mar 2002

Accounting Technicians studying Paper B3 Information Technology Processes need to develop knowledge and understanding of the operation of systems and procedures found within an information technology environment. Item (b) in the content elements of the syllabus includes the following reference to information: "attributes of information, data versus information, quality – reliability, accuracy, consistency, completeness and brevity".
The purpose of this short article is to define both data and information, consider the information hierarchy within organisations and outline the attributes of quality information. It may also be of interest to Professional Scheme students studying Paper 2.1 Information Systems.
Data and Information
The terms 'data' and 'information' are commonly used interchangeably but they can be distinguished from each other.
Data is defined as the raw material for data processing and relates to facts, events and transactions.
Data can also be classified as:
  • quantitative;
  • qualitative;
  • discrete;
  • continuous;
  • primary;
  • secondary.
Quantitative data is that capable of being measured numerically, e.g. the standard labour hours required to produce one unit of output.
Qualitative data is that not capable of being measured numerically but may reflect distinguishing characteristics, e.g. the grade of labour used to produce the unit of output.
Data is said to be discrete when it can only take on specific fixed values, e.g. the actual number of vehicles through a car wash per day could be 35 but not 35.3. Whereas continuous data takes on any numerical value and we could, in an eight hour day, measure the throughput of cars as 4.375 per hour i.e. 35 cars / 8 hours.
Data needs to be collected and summarised to the form required by the user.
Primary data is collected for a particular enquiry, for example by observation, employees would be observed performing a 'value adding' activity when establishing a standard time for the activity.
Data collected by a trade association from a number of firms and comprising trade association statistics would become secondary data when used by a firm in the sector making an enquiry of its own.
What then is the distinction between data and information?
Information is defined as 'data that has been processed in such a way that it is meaningful to the end user'.
Within organisations information has a defined hierarchy. This is shown in Figure 1.
Figure 1

Information is classed as:
  • Strategic � that information relating to the longer term planning and strategic focus of the business.
  • Tactical � that used in short term planning and decision making within an organisation.
  • Operational � that relevant to day-to-day decision making.
  • From bottom up, the following example refers to capital equipment utilisation:
  • Operational information would include a current week�s report for a cost centre on the capacity of the plant utilised in the period. Such a measure may include:
actual machine hours   x   100
budgeted machine hours    1
i.e. the percentage capacity utilised.
Tactical information could include the short-term budget for 12 months and would show the budgeted machine utilisation in terms of machine hours for each item of plant. The total machine hours being predetermined from the production budget for the period.
Strategic Information would relate to the longer- term strategy on the company�s market share, which in turn informs the production plan. This plan would be used to predetermine the level of investment required in capital equipment in the longer term. This process which 'compels planning' would lead to investigating new methods and technology.
Attributes of Information
Quality information is that, which when used, 'adds value'. Research suggests that information should possess numerous attributes which include:
  • relevant for its purpose;
  • complete enough for the issue in question;
  • accurate for the purpose;
  • from a reputable source;
  • communicated to the right person;
  • timely in communication;
  • communicated in an appropriate channel;
  • the volume should be manageable;
  • must be understandable by the end user;
  • must be cost effective.
The attributes which 'add value' and together underpin quality of information are examined further below.
Relevant for purpose
Information should always be relevant to the issue being considered. It is often the case that memos, reports and schedules contain irrelevant sections which can have an adverse effect on the understanding of the issue by the user.
It is desirable that all information required for decision making is made available. There must be close co-operation between the information provider and the end user. Therefore, all factors influencing decision making should be included.
Accurate for purpose
Managers rely on information to effectively manage their 'value-adding' activities. For example, to satisfy the VAT regulations, a VAT invoice must be accurate to the nearest penny. However, the aged debtors list would contain rounding to the nearest '£'.
Reputable source
For information to be used effectively by managers, the users must have confidence in its source.
This would be supported by the fact that the source was reliable in the past and that there is a good and clear channel of communication between the provider and the user of the information.
Communicated to the right person
Where responsibility accounting is used in practice, managers have a clear and defined level of responsibility and must achieve their predetermined objectives.
Managers should therefore receive information to carry out their defined tasks. Such information should be communicated to the right person at the right level within the organisation.
For effective decisions to be taken, information needs to be reported to management on a timely basis.
For example, a budgetary control or standard costing report containing adverse variances would need to be timely for managers to take immediate corrective action. Likewise if a favourable position was reported 'late', the reward and recognition to employees may be delayed and effect morale.
Communicated in an appropriate channel
For a manager to use information effectively it must be transmitted in the communication process. The process takes many forms and the channel selected must take account of nature, purpose, speed and requirement of the user.
The detail and volume of the information communicated should be that consistent with the need of the user.
The information should focus clearly on the issue and the main points highlighted and not 'clouded' by superfluous and excessive volume.
Managers can only use information to good effect if they understand its purpose.
The level and skill of the manager is important here. Managers need to continually update their skills and therefore, Continuing Professional Development (CPD) is important. For example, for managers to fully understand their role in a responsibility accounting environment and to interpret the management accounting reports they need training.
"Training aids understanding."
The provider also needs to choose the style and language appropriate to the user.
The costs of providing the information must not outweigh the 'value-added' benefits derived from its use.
An understanding of the underpinning knowledge, principles and concepts outlined above are all relevant to your development as trainee accounting technicians � the providers of information for the effective financial management of business.
Dr Philip E Dunn, Esk Valley Business School

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