THE CHARACTERISTICS OF VALUABLE INFORMATION

To be valuable to managers and decision makers, information should have the characteristics described in Table 1.2. These characteristics make the information more valuable to an organization. Many shipping companies, for example, can determine the exact location of inventory items and packages in their systems, and this information makes them responsive to their customers. In contrast, if an organization’s information is not accurate or complete, people can make poor decisions, costing thousands, or even millions, of dollars. If an inaccurate forecast of future demand indicates that sales will be very high when the opposite is true, an organization can invest millions of dollars in a new plant that is not needed. Furthermore, if information is not relevant, not delivered to decision makers in a timely fashion, or too complex to understand, it can be of little value to the organization.

Table 1.2

Depending on the type of data you need, some quality attributes become more valuable than others. For example, with market-intelligence data, some inaccuracy and incompleteness is acceptable, but timeliness is essential. Getco, a Chicago-based stock-trading company, requires the most timely market information possible so it can place profitable trades.¹⁰ Getco uses an approach called high-frequency trading that requires powerful and very fast computers to make its trades. On some days, Getco can account for 10 to 20 percent of the total trading volume for some stocks. Market intelligence might alert you that competitors are about to make a major price cut. The exact details and timing of the price cut might not be as important as being warned far enough in advance to plan how to react. On the other hand, accuracy, verifiability, and completeness are critical for data used in accounting to manage company assets such as cash, inventory, and equipment.

The Value of Information

The value of information is directly linked to how it helps decision makers achieve their organization’s goals. Valuable information can help people in their organizations perform tasks more efficiently and effectively. Consider a market forecast that predicts a high demand for a new product. If you use this information to develop the new product and your company makes an additional profit of $10,000, the value of this information to the company is $10,000 minus the cost of the information. Valuable information can also help managers decide whether to invest in additional information systems and technology. A new computerized ordering system might cost $30,000 but generate an additional $50,000 in sales. The value added by the new system is the additional revenue from the increased sales of $20,000.Most corporations have cost reduction as a primary goal. Using information systems, some manufacturing companies have slashed inventory costs by millions of dollars. Other companies have increased inventory levels to increase profits. Walmart, for example, uses information about certain regions of the country and specific situations to increase needed inventory levels of certain products and improve overall profitability. In other cases, the value of information can be realized in cost savings. Shermag, a Canadian furniture manufacturing company, was able to use a sophisticated computer system to achieve the company’s cost reduction goal.11 The company was able to reduce total costs by more than 20 percent by using optimization software to reduce material and manufacturing costs.

EXERCISES TO TEXT 2.

1. Write out terms that contain words user, information, cost (words are given in theGLOSSARY)

2. Write out the words from the GLOSSARY into 3 columns:

3. Write out words from the GLOSSARY with suffixes -al, -ty, -(t)ion, -(a)ble .