Learning Outcomes
After reading this article, you will be able to explain the main types of information systems used in business, describe key differences between cloud-based and on-premise system architectures, compare their benefits and drawbacks, and discuss the main factors influencing the choice of system for an organisation. You will also be able to identify control, cost, compliance, and security implications for each approach as they affect business decisions.
ACCA Business and Technology (BT) Syllabus
For ACCA Business and Technology (BT), you are required to understand information systems and their deployment in organisations. In particular, you should focus your revision on:
- The different types of information systems and their uses at various management levels
- Features, benefits, and disadvantages of cloud-based and on-premise architectures
- Factors influencing system choice: cost, control, flexibility, scalability, security, legal compliance
- How cloud solutions affect business continuity, data storage, and regulatory requirements
- The impact of information system choices on accounting and finance operations
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
- What is the key difference between a cloud-based and an on-premise information system?
- Give two advantages and two disadvantages of cloud computing for business systems.
- Name a scenario where on-premise systems may be preferable over cloud solutions.
- True or false? Moving to a cloud system always guarantees better security for an organisation’s data.
Introduction
Information systems are essential for collecting, processing, storing, and delivering data to support business operations and decisions. Advances in technology have provided organisations with two main options for deploying their information systems: traditional on-premise systems managed internally, and cloud-based systems managed by third-party providers. Choosing between these approaches affects cost, scalability, security, and compliance, and is a critical decision for any business.
Key Term: information system
A system comprising people, processes, hardware, and software, designed to collect, store, process and provide information to support organisational activities.
Types of Information Systems
Organisations use several key types of information systems to manage activities and inform decision-making at all levels:
- Transaction Processing System (TPS): Handles day-to-day transactions such as sales, purchases, payments, and payroll. Supports operational level activities.
- Management Information System (MIS): Summarises data from TPS to produce routine reports used by middle management for monitoring and planning.
- Decision Support System (DSS): Assists managers with semi-structured decisions using models, data, and “what-if” analysis.
- Executive Information System (EIS): Provides senior management with easy-to-use summaries and trend analysis to support strategic decisions.
- Expert System (ES): Mimics human expert knowledge in specialised domains to provide advice and support across the business.
Key Term: transaction processing system (TPS)
An automated system that records and processes routine, structured transactions, outputting information for monitoring and operational control.
Information Systems Architecture
The architecture of an information system defines how its components (hardware, software, storage, and networks) are arranged, accessed, and secured. In practice, businesses usually choose between two main models: on-premise and cloud-based architectures.
Key Term: on-premise system
An information system where all hardware and software are operated and managed within the organisation’s own physical premises by its staff.Key Term: cloud computing
The delivery of computing resources (software, storage, processing power) over the internet, with data and applications managed by an external provider.
On-Premise Architecture
With on-premise systems, infrastructure—including servers, storage devices, and software—remains at the organisation’s site. Internal staff are responsible for installation, security, updates, and day-to-day operations. Access is usually restricted to the business network and secured remote users.
Cloud-Based Architecture
Cloud computing involves storing data and running applications on servers managed and maintained by a third party. Users access these resources remotely via the internet—typically through web browsers or dedicated apps. Most organisations use either:
- Public cloud: Shared by many organisations, hosted by large providers
- Private cloud: Reserved for one organisation, providing more control and customised security
- Hybrid cloud: Combines on-premise and cloud systems, matching each application to the most suitable platform
Cloud vs On-Premise: Advantages and Disadvantages
Choosing between cloud and on-premise setups has major implications for control, flexibility, cost, security, and compliance.
Cloud Computing: Main Benefits
- Reduced capital cost: No need to buy or replace expensive hardware; payment is typically by subscription based on usage.
- Flexible scaling: Resources can be rapidly increased or decreased to match workload demands.
- Simplified maintenance: Updates, backups, and fault management are the provider’s responsibility.
- Remote access: Staff can access systems from almost anywhere with internet connectivity.
- Preparedness for disasters: Enhanced backup and recovery are typically included as standard.
Cloud Computing: Main Disadvantages
- Dependence on internet: Systems become inaccessible during internet outages or connectivity problems.
- Less control: The organisation relies on the provider for security, service quality, and compliance.
- Ongoing costs: While initial investment is lower, long-term subscription fees may exceed the cost of ownership for heavy users.
- Data residency and compliance: Storing data outside the country can create difficulties meeting legal or industry-specific requirements.
- Potential for vendor lock-in: Changing providers or reverting to in-house systems may be complicated.
On-Premise Systems: Main Benefits
- Higher control: The organisation decides how and where data is stored and secured. Security settings and access can be customised to specific needs.
- Compliance advantage: Easier to satisfy local data protection laws or industry regulations that prohibit remote or foreign storage.
- Customisation: Software and hardware can be matched precisely to business requirements.
- Predictable performance: Local networks may provide greater speed and reliability for resource-intensive applications.
On-Premise Systems: Main Disadvantages
- High upfront costs: Purchasing hardware and software represents a large initial capital outlay.
- Ongoing maintenance: In-house teams must manage security, updates, backups, and troubleshooting.
- Limited flexibility: Expanding or reducing capacity may be slow and costly.
- Disaster risk: Recovery from events such as fire or hardware failure can take longer, with risk of prolonged downtime.
Worked Example 1.1
A small law firm wants to upgrade its accounting and document management systems. Should they choose cloud-based or on-premise solutions?
Answer:
The firm should consider its available IT skills, preferences for capital versus ongoing spending, regulatory constraints, and need for remote access. Without in-house IT staff and wishing to support hybrid or remote work, a cloud service is suitable—provided client confidentiality and data location satisfy local legal rules.
Factors Affecting System Choice
When deciding which architecture is suitable, organisations should weigh several key factors:
- Cost structure: On-premise systems require capital expenditure and depreciation; cloud solutions shift costs to operational spending.
- Control and customisation: Does the business need tight control, custom features, or specific security configurations?
- Compliance and legal requirements: Regulations may dictate data storage location, access, audit, or reporting obligations.
- IT skills and resources: Can the organisation maintain secure, reliable systems with available staff and budget?
- Scalability and growth: Is frequent adjustment of user numbers or storage needs anticipated?
- Business continuity: How critical is rapid recovery from hardware failure, disaster, or cyber attack?
- Vendor contracts and reliability: Does the provider offer robust support, transparent terms, and proven longevity?
Worked Example 1.2
A large healthcare provider must store sensitive patient records and comply with local privacy laws prohibiting offshore data storage. Is a cloud-based solution feasible?
Answer:
Public cloud services may not guarantee required data residency or compliance. The provider is likely to need an on-premise system or, where available, a private or managed cloud solution hosted locally under strict contractual terms.
Security, Control, and Compliance Considerations
Data protection and regulatory compliance are essential for both system types, but responsibilities differ.
Key Term: data residency
The specific physical or geographic location where organisation data is stored or processed, affecting which local laws apply.
Cloud providers generally implement strong security controls, but ultimate legal liability for data breaches or non-compliance often remains with the business. Businesses must check terms, obtain assurances about storage location, and assess the provider’s track record and security certifications.
On-premise systems allow direct monitoring and physical access restrictions, but all updates, patches, and disaster recovery arrangements must be managed diligently in-house.
Exam Warning
You must be able to identify situations where cloud deployment could breach regulatory or contractual obligations—such as data stored in restricted countries, or highly confidential information requiring local control.
Revision Tip
Practise by listing decision criteria (such as cost, compliance, control, scalability, continuity) for a given business case before recommending a system architecture.
Summary
Information systems architecture has a significant impact on business risk and efficiency. Cloud-based and on-premise systems both offer benefits and drawbacks in cost, control, flexibility, and security. Organisations should weigh legal, operational, and strategic needs before making a decision, always considering compliance and business continuity. For the ACCA exam, clear knowledge of advantages, disadvantages, and selection criteria for both approaches is required.
Key Point Checklist
This article has covered the following key knowledge points:
- Describe types of business information systems and their uses
- Define and compare on-premise and cloud computing architectures
- Identify advantages and disadvantages of cloud and on-premise approaches
- Evaluate key decision factors: cost, control, compliance, scalability, security
- Explain how system choice affects data security and legal requirements
- Apply these principles to business scenarios in the ACCA exam context
Key Terms and Concepts
- information system
- transaction processing system (TPS)
- on-premise system
- cloud computing
- data residency