COMPUTER APPLICATIONS IN BUSINESS

2006-09-15T01:12:00.000-07:00

Computer applications to business and commerce date from the middle of the 1950s, a decade of vigorous recovery from World War II which led to economic expansion and rapid technological development throughout the industrialised World. Today, most large and medium-sized companies are almost totally dependent on their computers for numerous administrative functions. Increasing number of smaller concerns are pursuing computing for themselves whereas previously they made use of the services of computer bureaux or had no involvement with computers at all. It has been found out that commercial data processing accounts for 80 per cent of all computer usage.

There are also special purpose business systems tailored to meet business requirements and handle business applications. Integral part of a business system may be highly developed software packages which handle payrol and personnel, office accounts, invoicing, record keeping, stock control, sales analysis, financial forecasting and even word processing. Specific hardware features may include specially designed terminals, personal computers or work stations.

After going through this article you will be able to:
• list the nature of computer applications in Business
• describe the use of computers in major activities of business
• discuss the impact of computers in organisational planning.

NATURE OF COMPUTER APPLICATIONS

The computer is used for at least three basic corporate purposes:

Preparation of transaction documents
Control of operations
Decision-making

Preparation of transaction documents such as payslips, invoices and receipts is the simplest task that the computer can be put to, the only requirement being that the process of preparation be standard, unchanging and easily specified.

A great deal of routine business activity consists of effectively controlling various functions, plans and operations. The computer can assist in this process by automatically contrasting actual performance with planned performance, highlighting only the areas of discrepancy for reward or censure.

It is said that management is decision-making and the manager spends his time making decisions. Decision making generally follows four basic steps:

1. Perception of decision need or opportunity.
2. Formulation or design of alternative courses of action.
3. Evaluation of alternative courses of action.
4. Choice of one or more alternatives for implementation.

It must be realised that the computer is incapable of perceiving the need for a decision on its own. It has to be programmed in advance to react to a certain set of criteria that indicate the need for a decision.

Formulation of alternative courses of action is again beyond the capability of the computer and it has to be programmed in advance with the various courses of action that may be taken when the need for a certain decision arises.

The evaluation phase is where the computer scores over man. It can perform computations of the value of each alternative with such speed and precision as would take a human being many years. However, it will consider only those factors in the evaluation that it has been told to consider, it cannot determine what is important.

The choice of alternatives involves assigning "figures of merit" to each alternative and choosing the greatest or the least. The Computer Applications in a few business areas is explained in the following subsections.

Inventory Control

Inventory control system processes data reflecting changes to items in inventory. Once data about customer orders is received from any order processing system, a computer-based inventory control system records changes to inventory levels and prepares appropriate shipping documents. Then it may notify managers about items that need reordering and provide them with a variety of inventory status reports. Computer-based inventory control systems thus help a business, provide high-quality service to customers while minimising investment in inventory and inventory carrying costs.

The transactions possible in an inventory control system are:

1. Receipts/Purchases of an item.

2. Issue of an item.
3. Purchase Returns - Return of an item already purchased or received on finding it to be defective, sub-standard or for any other reason.
4. Issue Returns - Return of an item already issued for reasons of defect, unsuitability, or on account of indents of a suspected requirement.

Then for each of the above transactions, we need Add, Modify, Delete and list programs with appropriate screen layouts and validation of data to maintain the transaction file.

Next is the File Maintenance and Query stage under which the following files are maintained:

1. Item Master File: Contains a description of all the items along with a Unique item code.

2. Purchase Requisition File: The file contains purchase requisition forms which are sent to the Purchase department for procurement of the items in time. The most important task in computerising the stock system is to allot a code number to each item that is likely to be held in stock. There are many methods of coding the items, but the most commonly accepted. One is to classify the items into various categories within which different manufacturers and specifications of the items are incorporated. The primary requirement of computerising the Inventory Control System is to create and maintain an Item Master File which contains the following fields:

1. Item Code
2. Category Code
3. Sub Category Code
4. Class of item
5. Item Name
6. Unit of Measure
7. Rate per Unit
8. Quantity on Hand
9. Maximum Level
10. Minimum Level
11. Danger Level
12. Economic Order Level
13. Expire Date
14. Quantity on Order
15. Last Issue Date
16. Local Status
17. Bin Location

3. YTD Balance File:This file stores for every item, the opening stock for the beginning of the year and cumulative transaction details (quantity and value) of all types of transactions.

4. Adjustment Files: Again, we need Add, Modify, Delete, List and Query programs to update and maintain these files.

Year End Processing

The Item Master File is copied as backup to reflect the closing stock of the financial year and safely kept in custody on the last day of the financial year after working hours. Similarly, the transaction file and the YTD balance files are also backed up and preserved.

For the new financial year, we will create an empty transaction file with no records in it by copying the structure of the file only. In the YTD balance file, except for the item code, all other fields are initialised to zero. Thereafter the quantity on hand and the unit rate of the item are copied from the year end item master file which would be the opening stock for the current financial year.

Periodic Housekeeping

The item master file, transaction files and the YTD balance files are the backbone of the inventory system when computerised and any damage to these files can be catastrophic to the running of the organisation. These files get updated whenever a transaction takes place and reflect the up to date information at any given point of time.

To safeguard from possible damages, periodic back up of the above files should be taken and kept in safe custody. In the unfortunate event of any of the files getting corrupted, we can thus recreate the file from backup copies and the transactions redone from the point of last backup.

Payroll

Payroll systems receive and maintain data from employee time cards and other work records. They produce paychecks and other documents such as earning statement, payroll reports, and Labor analysis reports. Other reports are also prepared for management and government agencies.

In a payroll system, there are two important modules:

1. Earnings calculation module

2. Deductions calculation module

The broad objectives of a payroll system are:

1. Preparation of wage slip giving details of all earnings and deductions of all employee’s wages together with the net salary payable for the month.

2. Preparation of a coinage analysis to Facilitate distribution of salary by the employer

3. Reports generation-Monthly

4. Record keeping of salary, details for every month

5. Preparation of Annual summarises

6. Management information reports arising out of payroll data.

Let us now consider how we would achieve our first objective of preparing a wage slip to be given to each employee when salary is being paid to him.

The nature and layout of a wage slip could be different in different organisations. Usually, the wage slips will be so designed to accommodate the requirements of all types of employees in an organisation. We will now analyze the data requirements of preparing a wage slip and design files needed for this purpose.
Input payroll data are of two types. Data that does not change and data which undergoes changes monthly. Name of an employee, his employee number etc. never changes while attendance, and deduction data could change periodically.

Data of a permanent nature (which does not frequently change) are stored in a Master File when data which are changeable are kept in a transaction file.

The following programmes are needed to be written to maintain the payroll Master File:

1. A program to create this file

2. A program to print the records of the Master file

3. A program to modify the contents of the fields of records in the file

4. A program to delete records from the file.

In order to prepare a wage slip, apart form the information contained in Master, we need certain other information which are usually stored in the transaction file. The transactions are also of two different types. Data which change only infrequently and data which change frequently. For example, LIC premium, CTD installations, House Rent Allowance, City Compensatory allowances etc. seldom change.while attendance and production details change from month to month. The two files for this are:

1. Fixed transaction file

2. Variable transaction file

Further processing of payroll will be done by using the Monthly Salary File which contains the following fields.

1. Employee Number
13. Employee Name
2. Department Code
14. Attendance
3. Production Volume
15. Overtime hours
4. Basic Wages
16. Dearness Allowance
5. House Rent Allowance
17. City Compensatory Allowance
6. Special Allowance
18. Other Allowances
7. Overtime Wages
19. Piece Rated Wages
8. Incentive Wages
20. Total Earnings
9. PF Deduction
21. LIC premium
10. Income Tax Deducted
22. CTD contribution
11. Other Deductions
23. Total Deductions etc.
12. Net Salary etc.