Information System and Decision Making Essay

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Information System and Decision Making Essay

In the market economy, how a company is managed and developed is extremely important, because every wrong or misleading decision comes at a high price. Therefore each decision that management makes should be based on precise, qualitative, timely, and unambiguous information. To serve its purpose, after information is collected they are processed, classified, and stored within the company. For effective and efficient information processing it is necessary to have an integrated set of components, called an information system. Undoubtedly, a significant role in information processing for effective decision-making belongs to accounting information systems. Therefore, the purpose of the study is to analyze the situation in the Rwandan industrial sector related to the use and adoption of accounting information systems and their impact on the financial decision-making process.

Background to the Study

Elvisa and Erkan (2015) argue that for any organization of any type, be it small, medium, or large, service or manufacturing, to survive in this dynamic and global world, there is a need for proper management of information. Therefore, information is the backbone of any business. However, there is a need for information to be well processed, and the means to process information is through an integrated set of components called an information system. Thus, an information system is the combination of different components to perform a specific function and basically, it can be sourced from both internal and external.

The most important part of a management information system is the one that is concerned with data processing, known as the Accounting Information System (AIS). AIS involves identifying, recording, analyzing, summarizing, and communicating economic information to its end user for decision-making.

Decision-making has been described as a purposeful choosing, from several alternative causes of action. AIS provides managers with the necessary information they need. Management decisions are one of the most important facets that pervade all organizations and constitute their progress or failure in the actualization of pre-determined goals and objectives (Clinton, Matuszewski & Tidrick, 2011). Interestingly, both financial and non-financial information are used by Management accounting and are generally intended for the use of internal users who use the information to make decisions that help achieve the goals and objectives of the organization. Financial information used by management accountants includes sale growth, profits, return on capital employed, and market shares, non-financial information includes customer satisfaction level, production quality, performance of competing products, and customer loyalty. Jeovita (2013) opined that management uses both financial and non-financial information to aid business decision-making, in other words, business decision-making is predicated on AIS.

According to Gacheru (2015), AIS is a set-up, or system that is primarily concerned with financial data gathering from internal and external sources, analyzing, processing, interpreting, and communicating the result (information) for use within the organization so that management can make more effective and efficient plan, decisions, and control operations.

Planning, decision-making, and control operations are challenges constantly confronted by management in running the affairs of the organization, especially knowing that resources are relatively scarce and limited. So, the need for good AIS must be made available for proper and accurate decision-making (Priyia & Longnathan,2016). In making a sound decision, the management needs valuable and accurate information from its accountant. The accountant is at the service of the management by providing them with the necessary information they need for decision-making.

Harendra (2017) opined that there is evidence that reveals the influence of accounting information in the financial decision-making process. It emphasizes the importance of a holistic context which, led to the integration of other institutional influences and multiple logics.

The Rwandan industry sector is still small but growing as it contributed about 17 % to the country’s gross domestic product (GDP) in 2019. The sector is characterized by gradual diversification from basic manufacturing to more value-adding activities in other sub-sectors. Although Rwanda’s liberalized economy has exposed locally manufactured products to stiff competition from imports, compliance with required international standards gives them an upper hand (Irakiza & Ngamije, 2019).

As the essence of using AIS is to enable managers to make wise financial decisions, and AIS is also used to set up a system of internal control to prevent fraud and increase efficiency, it would be an effective tool for enhancing the financial performance of Rwandan industries. AIS aids in profit making, budgeting, and cost control what the sector lacks (Irakiza & Ngamije, 2019). Additionally, reliable accounting serves a practical function for the firms themselves. Beyond the regulatory and compliance hurdles that financial accounting helps clear, financial accounting also helps managers create budgets, understand public perception, track efficiency, analyze performance, and develop short- and long-term strategies (Mbonigaba, 2019). In a company, the management accountant must see that his company keeps good records and prepares proper financial regulations. Management accountants also need to keep up with the latest developments in the use of computers and computer system design. Accountants provide many special reports for management’s decision-making. This function requires the gathering of both historical and projected data.

Limited numbers of studies avails in Rwanda have focused on the role AIS plays in the holistic context of financial decision-making strategies, processes, and preferences of the industrial sector in Rwanda. The available studies focused mainly on the performance of the sector (Irakiza & Ngamije, 2019) or in another business sector (Mbonigaba, 2019), but little was undertaken on the decision-making within the industrial sector. Based on the above, the researchers felt the need to assess the contribution of the Accounting information system in the financial decision-making in the industrial sector in Rwanda, taking evidence from Master Steel Company Ltd, which is an owned Rwandan industry founded in 2005 and moved in to fill the gap required for steel construction materials.

Statement of the Problem

According to Jeovita (2013), business decision-making process, different qualitative and quantitative information that is available from all organizational units, including, available the accounting systems, are necessary.

Every investor or other business decision-maker, and especially, every manager, to make a valid decision, has to have a clear perception of accounting terms and concepts. Today’s organization’s managers have the duty of planning, organizing, directing, and controlling which aids them in quick financial decision-making. Financial decision-making is one of the problems facing the management of every company, big or small which enables it to formulate policies, implement, and control results (Gacheru, 2015). The decisions brought by financial management are often future-oriented and therefore those decisions carry a high level of risk about the outcomes.

To make effective financial decisions, Master Steel Ltd needs to have information on human resource costs, marketing and promotional costs, raw materials costs, infrastructural costs, etc. However, an extensive review of literature in Rwanda indicates that there is a dearth of research on the use of accounting information systems as a tool in financial decision-making in the Rwandan business landscape. Rwandan Researchers have tried to find out how managerial decision-making has been influenced using accounting information systems, with regards that, firstly, many business failures continue to occur despite engaging top-flight accounting firms (Mbonigaba, 2019), lack of skilled professionals for the preparation and presentation of accounting reports to management through a proper system of technology (Irakiza & Ngamije, 2019), and published financial statements do not reflect a true and fair view of the company assets and liabilities owing to lack of efficiency (Irakiza & Ngamije, 2019).

Based on the issues stated above, the researchers were interested in conducting a study on the contribution of Accounting Information Systems on financial decision-making within the Rwandan industrial sector, using Master Steel Ltd as a case study.

Research Questions

What are the perceptions of respondents on the Accounting information system used in Master Steel Ltd?
What are the perceptions of respondents on the financial decision-making within Master Steel Ltd due to the use of the accounting information system?
Is there a significant contribution of the accounting information system to the financial decision-making within Master Steel Ltd?

Objective of the study

To determine the perceptions of respondents on the Accounting information system used in Master Steel Ltd.
To evaluate the perceptions of respondents on the financial decision-making within Master Steel Ltd due to the use of the accounting information system.
To verify if there is a significant contribution of the accounting information system to the financial decision-making within Master Steel Ltd.

Hypothesis of the Study

According to Bewick (2017), the hypothesis is like any affirmation that can be shown, confirmed, or modified. It is a logically speculated relationship between two or more variables and lends itself to being tested through statistical analysis. To reach the objectives of this study and give solutions to the problems; the following hypothesis is formulated.

There is a significant contribution of accounting information systems to financial decision-making in the Rwandan industrial sector particularly in Master Steel.

Significance of the Study

To the researcher: This study will be beneficial to the researcher, especially in gaining knowledge and skills about the contribution of accounting information systems on financial decision-making in the industrial sector in Rwanda.

To AUCA: the research will be significant to AUCA because copies of this study will be submitted to the library of AUCA so that students will benefit from it as material for reference and a guide for further research.

To other researchers: The results of this research will add to the available literature on the accounting information system and its contribution to the financial decision-making of Rwandan industries. Future Scholars would gain the opportunity to refer to this study in their research.

To Master Steel Ltd: this study will be significant to Master Steel Ltd in particular, and the industrial sector in general, as it will give management an insight into the contribution of the AIS implemented within the industry, and its contribution to the decision-making process. At the end of this research, recommendations will be given, which the company will follow to enhance its AIS.

Justification of the Study

Several studies in different domains have been conducted on the performance of manufacturing companies and many recommendations suggest that manufacturing companies should adopt a quality computerized system by using any updated accounting software to get accurate information which helps in decision making; hence the financial performance becomes high.

The use of an accounting information system is critical for effective strategic decision-making. According to Irakiza and Ngamije (2019), the Rwandan manufacturing sector still suffers from inaccurate information due to omission errors sometimes the information is hacked by outsiders and it becomes hard for the industries to make decisions with that inaccurate information, then there is an interest to find out the root cause of this. Furthermore, looking at how the accounting software is updated in Rwanda, how training is given to the users, and if the information given is accurate to help in managerial decisions to increase the industrial performance in Rwanda.

Theoretical and Conceptual Framework

Theoretical Framework

Some scholarly works that have been done on AIS and organization decision-making were based, on establishing the theoretical framework of the present study.

An accounting information system (AIS) is a structure that a business uses to collect, store, manage, process, retrieve, and report its financial data so it can be used by accountants, consultants, business analysts, managers, chief financial officers (CFOs), auditors, regulators, and tax agencies (Harendra, 2017).

Elvisa and Erkan (2015) thought that the role of AIS is crucial in managing an organization to implement an effective and efficient internal control system within the organization to achieve organizational financial goals. It is the impetus to quarry the importance of AIS in management decision-making concerning the fit of AIS with organizational requirements for information communication and control.

According to Jeovita (2013), accounting tools are information provider that guides decisions. They further said that accounting is a measurement and communication system to provide economic and social information about an identifiable entity to permit users to make informed judgments and decisions leading to an optimum allocation of resources and the accomplishment of the organization’s objectives.

Hafij, Jamil, and Syeda (2014) affirmed that there is a significant relationship between AIS and strategic decision-making. Elvisa and Erkan (2015) concluded that AIS systems play a very significant role in the process of decision-making, especially today when technology is constantly changing. When the information provided by AIS serves widely the requirements of the system users then the AIS system can be said to be effective.

Conceptual Framework

According to Kothari and Garg (2014), a framework can help us to explain why we are doing a project in a particular way, it can also help us to understand and use the ideas of others who have done similar things. The following conceptual framework represents the relationship between independent variables and dependent variables. In this case, the independent variable is the Accounting information system while the dependent variable is Financial decision making as shown in the figure below. Source: Researchers’ compilation (2021)

Delimitation of the Study

This study will be looking at three dimensions:

Time delimitation: In terms of time scope, the researcher will use 2021, to correct the data and interpret them.
Geographical delimitation: The study will be carried out in Master Steel Industry, located in Kigali city, precisely on KK 15 road, Gahanga Sector, Kicukiro District, Kigali City.
Social delimitation: This study will focus on the contribution of accounting information systems to financial decision-making in the Master Steel Industry. The information needed for this study will be collected from employees of the company as respondents.

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