Accounting Information Systems, 6th edition

James A. Hall

COPYRIGHT © 2009 South-Western, a division of Cengage Learning. Cengage Learning and South-Western
are trademarks used herein under license
Objectives for Chapter 13
• Identify the key stages in the SDLC
• How a firm’s business strategy shapes its information
system
• The relationship between strategic systems planning
and legacy systems
• What transpires during systems analysis
• The TELOS model for assessing project feasibility
• Cost-benefit analysis issues related to information
systems projects
• The role of accountants in the SDLC
 The Systems Development
Life Cycle (SDLC)
A logical sequence of activities used to:
identify new systems needs
develop new systems to support those needs
A model for reducing risk through planning, execution,
control, and documentation
The SDLC model may be shown in five stages.
We’ll look at the first two in this chapter and the
remaining three in chapter 14.
 Systems Development Life Cycle

Business Needs and

Strategy

Legacy Situation
Business Requirements

1. Systems Strategy
-- Assessment
Assessment Feedback:
Feedback:
-- Develop
Develop Strategic
Strategic Plan
Plan User requests for New Systems
System Interfaces, Architecture
and User Requirements
High Priority Proposals undergo
Additional Study and Development

2. Project Initiation
-- Feasibility
Feasibility Study
Study
-- Analysis
Analysis
-- Conceptual
Conceptual Design
Design
-- Cost/Benefit
Cost/Benefit Analysis
Analysis Feedback:
Feedback:
User requests for System
Selected System Proposals Improvements and Support
go forward for Detailed
Design

3. In-house Development 4. Commercial Packages

-- Construct
Construct -- Configure
Configure
-- Deliver
Deliver -- Test
Test
-- Roll-out
Roll-out

New and Revised

Systems Enter into
Production

5. Maintenance & Support

-- User
User help
help desk
desk
-- Configuration
Configuration Management
Management
-- Risk
Risk Management
Management && Security
Security
Overview of Phases 1 and 2
Phase 1 - Systems Strategy
understand the strategic needs of the organization
examine the organization’s mission statement
analyze competitive pressures on the firm
examine current and anticipated market conditions
consider the information systems’ implications
pertaining to legacy systems
consider concerns registered through user feedback
produce a strategic plan for meeting these various and
complex needs
produce a timetable for implementation
Overview of Phases 1 and 2
Phase 2 - Project Initiation
assess systems proposals for consistency with the
strategic systems plan
evaluate feasibility and cost-benefit characteristics of
proposals
consider alternative conceptual designs
select a design to enter the construct phase of the SDLC
examine whether the proposal will require in-house
development, a commercial package, or both
Systems Development Participants
Systems Professionals: analyze problems in current
systems and formulate solutions
systems analysts
systems designers
programmers
End Users: primary users of the system
addressing their needs is critical to success
Stakeholders: individuals who have an interest in the
system but are not end users
 Systems Steering Committee
Usually includes the CEO, CFO, CIO, senior management
from user areas and computer services, and internal
auditors
Typical responsibilities:
provide guidance
resolve conflicts
review projects and assigning priorities
budget and allocate funds
review the status of projects
determine whether projects should be continued
 Assessing Strategic
Information Needs
Strategic systems planning involves the allocation of
resources at the macro level.
usually a time frame of three to five years
Key inputs in developing a sound systems strategy
include:
strategic business needs of the organization
situations involving legacy systems
end user feedback
 Strategic Business Needs
Vision and mission
systems strategy requires an understanding of top
management’s vision, which has shaped the organization’s
business strategy
Industry and competency analysis
industry analysis: the driving forces that affect the industry
and their organization’s performance, such as important
trends, significant risks, and potential opportunities
competency analysis: a complete picture of the
organization’s effectiveness as seen via four strategic filters:
resources, infrastructure, products/services, and customers
 Legacy Systems
Use legacy components to help develop an
architecture description.
 End User Feedback
Identifying user needs is fundamental to everything
else
During phase 1, pertains to substantial perceived
problems rather than minor systems modifications
Has five key phases at this point in the SDLC:
recognize problems
define problems
specify systems objectives
determine feasibility and contributions of projects
 may entail prioritizing individual projects
preparing a formal project proposal
End User Feedback:
Recognizing the Problem
The need for a new, improved information system
is manifested through various symptoms.
Symptoms may seem vague and innocuous or go
unrecognized initially.
The point at which the problem is recognized is
often a function of management’s philosophy.
reactive management - responds to problems only
when they reach a crisis state
proactive management - alert to subtle signs of
problems and aggressively looks for ways to improve
 End User Feedback:
Defining the Problem
Managers and end users should…
avoid leaping to a single definition of a problem
keep an open mind and gather facts before deciding
learn to intelligently interact with systems professionals
An interactive process between managers/end users
and systems professionals is necessary to arrive at
an accurate problem definition.
The next three stages of the end user feedback process
involve this interactive process.
End User Feedback:
Specifying System Objectives
The strategic objectives of the firm and
the operational objectives of the
information systems must be
compatible.
At this point, the objectives only need
to be defined in general terms.
End User Feedback:
Preliminary Project Feasibility-TELOS
Technical feasibility - is the technology necessary
available?
Economic feasibility - are the funds available and
appropriate for the system?
Legal feasibility - does the system fall within legal
boundaries?
Operational feasibility - can procedural changes be
made to make the system work?
Schedule feasibility - can the project be completed by
an acceptable time period?
End User Feedback:
Preparing a Formal Project Proposal
A systems project proposal provides
management with a basis for deciding
whether or not to proceed with the project.
It summarizes the findings of the study and
makes a general recommendation.
It outlines the linkage between the
objectives of the proposed system and the
business objectives of the firm.
 Strategic Systems Plan
After collecting input, the steering committee and
systems professionals evaluate the pros and cons of
each proposal.
Assessing each potential project’s:
benefits
costs
strategic impact
Development will proceed on proposals with the
greatest potential for supporting the organization’s
business objectives at the lowest cost.
Relationship between Benefits, Costs,
and Strategic Impact
Create an Action Plan:
the Balanced Scorecard
The next step is to translate strategy into action
Many companies have found the balanced
scorecard (BSC) a useful tool for this step.
The BSC recommends viewing an organization
using four perspectives:
learning and growth
internal business process
customer
financial
Primary objective: capture information on
orthogonal dimensions that are important to
every organization
financial: how do we look to our
shareholders?
customer: how do we look to our
customers?
internal business process: what must we
excel at?
learning and growth: can we continue to
improve?
BSC for On-Line Banking
Project Initiation
The second phase in SDLC involves:
understanding of users’ needs and problems
proposing multiple alternative solutions
assessing alternatives in terms of feasibility and
cost-benefit characteristics
selecting the best option and proceeding to the
construct phase
examining whether the selected option will require
in-house development, a commercial package, or
both
Systems Analysis
A business problem must be fully
understood before a solution can be
formulated.
A defective analysis will lead to a defective
solution.
System analysis is a two-step process
survey of current systems
analysis of users’ needs
 Survey of Current Systems
Advantages:
allows aspects of the old system which should be
kept to be identified
aids in planning the implementation of the new
system
may allow conclusive determination of the cause of
the reported problem symptoms
Disadvantages:
the current physical tar pit
can stifle new ideas
The Survey Step
Fact-gathering techniques include observing,
participating, interviewing, and reviewing
documents.
Facts must be gathered regarding:
data sources and data stores
users
processes
data flows
controls, especially audit trails
transaction volumes
error rates
resource costs
bottlenecks and redundant operations
 The Analysis Step
Systems analysis is an intellectual process that is
commingled with fact gathering.
A formal systems analysis report, prepared and
presented to the steering committee, contains:
reasons for system analysis
scope of study
problem identified with current system
statement of user requirements
resource implications
recommendations
The Conceptualization Phase
Purpose: produce alternative conceptual
solutions that satisfy the requirements
identified during systems analysis
How much detail?
enough to highlight the differences between
critical features of competing systems rather
than their similarities
Alternative Conceptual Designs for a
Purchasing System
Systems Evaluation and Selection
A critical juncture in the SDLC
a formal mechanism for selecting the one
system from the set of alternative
conceptual designs that will go forward for
construction
an optimization process that seeks to
identify the best system
a structured decision-making process that
reduces uncertainty and risk
 The Role of Accountants
Accountants ensure that the following are
considered during evaluation and selection:
only escapable costs are used in calculations of cost
savings benefits
reasonable interest rates are used in measuring present
values of cash flows
one-time and recurring costs are completely and
accurately reported
realistic useful lives are used in comparing competing
projects
intangible benefits are assigned reasonable financial
values
Detailed Feasibility Study
Similar to the preliminary project
feasibility analysis (TELOS), but now
more detailed and oriented to deciding on
a specific system design. Examine:
technical feasibility
economic feasibility
legal feasibility
operational feasibility
schedule feasibility
Cost-Benefit Analysis:
Identify Costs
 Cost-Benefit Analysis:
Identify Benefits—Tangible
 Cost-Benefit Analysis:
Identify Benefits—Intangible
Comparing Costs and Benefits
Two methods commonly used for evaluating the
costs and benefits of information systems:
 Net Present Value Method: deduct the present value of
costs from the present value of benefits over the life of the
project.
 The optimal choice is the project with the greatest net present
value.
 Payback Method: do break-even analysis of total costs (one-
time costs plus present value of recurring costs) and total
benefits (present value of benefits). After the break-even
point, the system earns future profits.
 The optimal choice is the project with the greatest future
profits.
How Should We Get the System?
Once the optimal system is selected, decide
how to acquire it:
develop the system in-house: best for systems that
need to meet unique and proprietary business needs
purchase commercial software: best for systems that
are expected to support “best industry practices”
a mix of the first two approaches: make in-house
modifications, to varying degrees, of a commercial
system to meet the organization’s unique needs
Announcing the New System
Project…
can be the most delicate aspect of the SDLC.
End user support is critical to success.
All end users need to be made to understand
the objectives of the new system.
End users and managers who view the new
system as a potential benefit to their jobs,
rather than a threat, are more likely to
cooperate with the project.
 Why are Accountants
Involved with SDLC?
The creation of an information system
consumes significant resources and has
financial resource implications.
The quality of accounting information
systems and their output rests directly on
the SDLC activities that produce them.
How are Accountants
Involved with SDLC?
As end users who must provide a clear
picture of their problems and needs
As members of the development team
As auditors who must ensure that the
system is designed with appropriate internal
controls and computer audit techniques.
The Accountant’s Role in
Systems Strategy
Auditors should routinely review the
organization’s systems strategy.
Careful systems planning is a cost-effective
way to reduce the risk of creating unneeded,
unwanted, inefficient, and ineffective systems.
Both internal and external auditors have
vested interests in this outcome.
The Accountant’s Role in
Conceptual Design
Accountants should be responsible for the
conceptual system…
and the systems professionals for the physical system.
If important accounting considerations are not
conceptualized at this point, they may be
overlooked, exposing the organization to
potential financial loss.
The auditability of a system depends in part on
its design characteristics.
The Accountant’s Role in
Systems Selection
Economic feasibility is a primary concern to
accountants. Accountants should ensure that:
use only escapable costs in calculations of cost-savings
benefits
use reasonable interest rates in measuring present values
of cash flows
one-time v. recurring costs are accurately reported
use realistic useful lives in comparing competing projects
intangible benefits are assigned reasonable financial values