Anda di halaman 1dari 23



Basic Revenue Cycle Activities

 Sales order entry
 Shipping
 Billing
 Cash collections

General Threats and Controls to Revenue Cycle

1. Inaccurate/Invalid master data a) Data processing integrity controls
b) Restrict access to master data
c) Review changes to master data
2. Unauthorized disclosure of sensitive a) Access controls
information b) Encryption
c) Tokenization of customer personal
3. Loss or destruction of data a) Backup and disaster recovery procedures
4. Poor Performance a) Managerial reports

Sales Order Entry Processing Steps

 Take the customer order
o Source Document: sales order
 Approve customer credit
 Check inventory availability
 Respond to customer inquiries

Sales Order Entry Processing

1. Inaccurate/Incomplete orders a) Data entry edit controls
b) Restrict access to master data to maintain
2. Invalid Orders a) Signature to authorize sale
3. Uncollectible accounts a) Credit limits checked and if sale exceeds
limit, specific authorization needed
b) Aging of accounts receivable
4. Stockouts and excess inventory a) Perpetual inventory system
b) RFID or bar code technology
c) Physical inventory counts
d) Sales forecast and activity reports
5. Loss of Customers a) CRM systems
b) self-help websites
c) proper evaluation of customer service
Shipping Process
 Pick and pack the order
o Source documents: picking ticket
 Ship the order
o Source documents: packing slip, Bill of Lading
1. Picking wrong item r quantity to ship a) Bar code technology
b) reconcile picking list to sales order
2. Theft a) Restrict physical access to inventory
b) Document inventory transfers
c) Physical counts of inventory and reconcile to
quantities recorded
3. Shipping errors (fail to ship the goods, wrong a) Reconcile shipping documents to sales
quantities, wrong items, ship to wrong address, orders, picking lists, and packing slips
duplication) b) Data entry edit controls

Billing Process
 Invoicing the customer
o Source document: sales invoice
 Updating accounts receivable
o Source document: credit memo and monthly statements
1. Failure to bill customer a) Reconcile invoices with sales orders and
shipping documents
b) Separate shipping and billing functions
2. Billing Errors a) Data entry edit controls
b) Configure system for automatically enter
price data
c) Reconciliation of shipping documents to
sales orders
3. Posting errors in accounts receivable a) Reconcile subsidiary accounts receivable
balance to the amount for accounts receivable in
the general ledger
b) Mail monthly statements to customers
4. Inaccurate or invalid credit memos a) Segregation of authorization and recording
function for credit memos

Cash Collection Process

 Process customer payment and update their account balance
o Remittance
 Deposit payments to the bank

1. Theft of Cash a) Proper segregation of cash handling and
posting to customer accounts, authorize credit
memos, or reconcile bank account
b) Use lockbox
c) Immediately open mail, prompt
endorsement and deposit all cash receipts daily
d) Use cash registers
2. Cashflow Problems a) Lockbox
b) Discounts for early payment
c) Cash flow budgeting

Key Terms
 Revenue Cycle: The recurring set of business activities and data processing operations associated
with providing goods and services to customers and collecting cash in payment for those sales.
 Sales Order: The document created during sales order entry listing the item numbers, quantities,
prices, and terms of the sale.
 Electronic Data Interchange (EDI): The use of computerized communications and a standard
coding scheme to submit business documents electronically in a format that can be automatically
processed by the recipient’s information system.
 Credit Limit: The maximum allowable credit account balance for each customer, based on past
credit history and ability to pay.
 Accounts Receivable Aging Report: A report listing customer account balances by length of time
 Back Order: A document authorizing the purchase or production of items that is created when
there is insufficient inventory to meet customer orders.
 Picking Ticket: A document that lists the items and quantities ordered and authorizes the
inventory control function to release that merchandise to the shipping department.
 Customer Relationship Management (CRM) Systems: Software that organizes information about
customers in a manner that facilitates efficient and personalized service.
 Packing Slip: A document listing the quantity and description of each item included in a shipment.
 Bill of Lading: A legal contract that defines responsibility for goods while they are in transit.
 Sales Invoice: A document notifying customers of the amount of a sale and where to send
 Open-Invoice Method: Method for maintaining accounts receivable in which customers typically
pa according to each invoice.
 Remittance Advice: A copy the sales invoice returned with a customer’s payment that indicates
the invoices, statements, or other items being paid.
 Balance-Forward Method: Method of maintaining accounts receivable in which customers
typically pay according to the amount shown on a monthly statement rather than by individual
invoices. Remittances are applied against the total account balance, rather than specific invoices.
 Monthly Statement: A document listing all transactions that occurred during the past month and
informing customers of their current account balance.
 Cycle Billing: Producing monthly statements for subsets of customers at different times.
 Credit Memo: A document, approved by the credit manager, authorizing the billing department
to credit a customer’s account.
 Remittance List: A document listing names and amounts of all customer payments received in the
 Lockbox: A postal address to which customers send their remittances.
 Electronic Lockbox: A lockbox arrangement (see lockbox) in which the bank electronically send
the company information about the customer account number and the amount remitted as soon
as it receives payments.
 Electronic Funds Transfer (EFT): The transfer of funds through use of online banking software.
 Financial Electronic Data Interchange (FEDI): The combination of EFT and EDI that enables both
remittance data and funds transfer instructions to be included in one electronic package.
 Universal Payment Identification Code (UPIC): A number that enables customers to remit
payments via an ACH credit without requiring the seller to divulge detailed information about its
bank account.
 Cash Flow Budget: A budget that shows projected cash inflows and outflows for a specified


Basic Expenditure Cycle Activities

 Order materials, supplies, and services
 Receive materials, supplies, and services
 Approve supplier (vendor) invoices
 Cash disbursements

Key Decisions
 What is the optimal level of inventory?
 Which suppliers provide the best quality at the best price?
 How can IT be used to improve efficiency and accuracy of logistics?
 How can we take advantage of vendor discounts?
 How can we maximize cash flow?

General Threats and Controls

1. Inaccurate/Invalid master data a) Data processing integrity controls
b) Restrict access to master data
c) Review changes to master data
2. Unauthorized disclosure of sensitive a) Access controls
information b) Encryption
3. Loss or destruction of data a) Backup and disaster recovery procedures
4. Poor Performance a) Managerial reports

Order Goods (Material/Supplies) or Services Processing Steps

 Identify that, when, and how much to purchase
o Source document: purchase requisition
 Choose a supplier
o Source document: purchase order

Ordering Goods/Services
1. Stockouts and excess inventory a) Perpetual inventory system
b) Car-coding, RFID
c) Periodic physical counts
2. Purchasing items not needed a) Perpetual inventory systems
b) Review and approval of purchase requisition
c) Centralized purchasing
3. Purchasing Items at inflated prices a) Price lists
b) Competitive bids
c) Review purchase orders
4. Purchasing goods of poor quality a) Use approved suppliers
b) Review and approve purchases from new
c) Monitor product quality by supplier
d) Hold purchasing managers responsible for
rework and scrap cost
5. Unreliable Suppliers a) Monitor supplier performance
b) Require quality certification
6. Purchasing from unauthorized suppliers a) Purchase from approved suppliers
b) Review approval from purchases of new
c) EDI specific controls
7. Kickbacks a) Supplier audits
b) Prohibit gifts
c) Job rotation & mandatory vacations
d) Required disclosure of financial and personal
interests in suppliers

Receiving Process
 Goods arrive
o Verify goods ordered against the purchase order (what, how much, quality)
o Source document: receiving report

Receiving Goods or Services

1. Accepting unordered items a) Authorized purchase orders needed before
receiving goods
2. Mistakes in counting a) Bar codes or RFID
b) Receiving employees sign receiving report
c) Do not inform receiving of quantity ordered
3. Verifying receipt of services a) Budget controls and audits
4. Inventory theft a) Restrict physical access to inventory
b) Document all inventory transfers
c) Segregate custody vs. receiving of inventory

Approve Supplier Invoice and Cash Disbursements

 Match the supplier invoice to:
o Purchase order
o Receiving report
Supplier invoice + purchase order + receiving report = voucher
 Approve supplier invoice for payment
o Source document: disbursement voucher
 Pay vendor
Approve Supplier Invoice
1. Failure to take discounts a) File invoices by due date to take advantage
of discounts

2. Pay for items not received a) Match supplier invoice to supporting

documents (purchase order, receiving report)
3. Duplicate payments a) Pay only original invoices
b) cancel supporting document when payment
is made
4. Theft of Cash a) hysical security of chcks
b) Separation of duties
c) Reconcile bank accounts
5. Check alteration a) Check protection machines
b) special inks / papers
6. Cash flow problems a) Cash flow budget

Key Terms
 Expenditure Cycle: A recurring set of business activities and related data processing operations
associated with the purchase of and payment for goods and services.
 Economic Order Quantity (EOQ): The optimal order size to minimize the sum of ordering,
carrying, and stockout costs.
 Reorder Point: Specifies the level to which the inventory balance of an item must fall before an
order to replenish stock is initiated.
 Materials Requirements Planning (MRP): An approach to inventory management that seeks to
reduce required inventory levels by improving the accuracy of forecasting techniques to better
schedule purchases to satisfy production needs.
 Just-in-Time (JIT) Inventory System: S system that minimizes or virtually eliminates inventories by
purchasing and producing goods only in response to actual, rather than forecasted, sales.
 Purchase Requisition: A document or electronic form that identifies the requisitioner; specifies
the delivery location and date needed; identifies the item numbers, descriptions, quantity, and
price of each item requested; and may suggest a supplier.
 Purchase Order: A document that formally requests a supplier to sell and deliver specified
products at designated prices. It is also a promise to pay and becomes a contract once the
supplier accepts it.
 Blanket Purchase Order or Blanket Order: A commitment to purchase specified items at
designated prices from a particular supplier for a set time period, often one year.
 Vendor Managed Inventory (VMI): Practice in which manufactures, and distributors manage a
retail customer’s inventory using EDI. The supplier accesses its customers point-of-sale system in
order to monitor inventory and automatically replenish products when they fall to agreed-upon
 Kickbacks: Gifts given by suppliers to purchasing agents for the purpose of influencing their
choice of suppliers.
 Receiving Report: A document that records details about each delivery, including the date
received, shipper, supplier, and quantity received.
 Debit Memo: A document used to record a reduction to the balance due to a supplier.
 Voucher Package: The set of documents issued to authorize payment to a supplier. It consists of a
purchase order, receiving report, and supplier invoice.
 Nonvoucher System: A method for processing accounts payable in which each approved invoice
is posted to individual supplier records in the accounts payable file and is then stored in an open
invoice file. Contrast with voucher system.
 Voucher System: A method for processing accounts payable in which a disbursement voucher is
prepared instead of posting invoices directly to supplier records in the accounts payable
subsidiary ledger. The disbursement voucher identifies the supplier, lists the outstanding invoices,
and indicated the net amount to be paid after deducting any applicable discounts and
allowances. Contract with nonvoucher system.
 Disbursement Voucher: A document that identifies the supplier, lists the outstanding invoices,
and indicated the net amount to be paid after deducting any applicable discounts and
 Evaluated Receipt Settlements (ERS): An invoiceless approach to accounts payable that replaces
the three-way matching process (supplier invoice, receiving report, and purchase order) with a
two-ay match of the purchase order and receiving report.
 Procurement Card: A corporate credit card that employees can use only at designated suppliers
to purchase specific kinds of items.
 Imprest Find: A cash account with two characteristics: (1) It is set at a fixed amount, such as $100;
and (2) vouchers are required for every disbursement. At all times, the sum of cash plus vouchers
should equal the pre-set fund balance.


Production Cycle Process

 Product Design
o Source documents: bill of materials; operations list
 Planning and Scheduling
o Source documents: master production schedule; production order; materials requisition
 Production Operations
 Cost Accounting
General Issues
1. Inaccurate/Invalid master data a) Data processing integrity controls
b) Restrict access to master data
c) Review changes to master data
2. Unauthorized disclosure of sensitive a) Access controls
information b) Encryption
3. Loss or destruction of data a) Backup and disaster recovery procedures

Product Design
 Create a product that meets customer requirements
 Generates two output documents:
o Bill of materials
o Operations list

Planning and Scheduling

 Two types of production planning
o Manufacturing resource planning (MRP-II)
o Lean manufacturing
 Documents from Planning and Scheduling
o Production order
o Materials requisition
o Move tickets

1. Product Design
2. Planning and Scheduling
1. Poor product design resulting in excess costs a) Analysis of costs arising from product design
b) Analysis of warranty and repair costs

2. Over and under production a) Production planning systems

b) Review and approve production orders and

3. Production Operations
1. Inventory Theft a) Restrict physical access
b) Document movement of inventory
c) Segregation of custody duties from
authorization and recording

2. Fixed Asset Theft a) Restrict access to fixed assets

b) Keep detailed records of fixed assets
including disposals
3. Poor Performance a) Performance reporting
4. Suboptimal investments in fixed assets a) Solicit competitive bids
5. Loss of inventory a) Insurance and physical safeguards
6. Disruption of operations a) Backup and disaster recovery plans

Cost Accounting Systems

 Provide information for planning, controlling, and evaluating the performance of production
 Provide accurate cost data about products for use in pricing and product mix decisions
 Collect and process the information used to calculate the inventory and cost of goods sold values
that appear in organization’s financials.

4. Cost Accounting
1. Inaccurate cost data a) Source data automation
b) Data processing integrity controls
2. Inappropriate allocation of overhead costs a) Time-driven activity-based costing
3. Misleading Reports a) Performance metrics

Key Terms
 Production Cycle: The recurring set of business activities and related data processing operations
associated with the manufacture of products.
 Bill of Materials: a document that specifies the part number, description, and quantity of each
component used in a product
 Operations List: A document that specifies the sequence of steps to follow in making a product,
which equipment to use, and how long each step should take.
 Manufacturing Resource Planning (MRP-II): An extension of materials requirements planning that
seeks to balance existing production capacity and raw materials needs to meet forecasted sales
demands. Also referred to as push manufacturing because goods are produced in expectation of
customer demand
 Lean Manufacturing: Extends the principle of just-in-time inventory systems to the entire
production process to minimize or eliminate inventories of raw materials, work in process, and
finished goods. Lean manufacturing is often referred to as pull manufacturing because goods are
produced in response to customer demand.
 Master Production Schedule (MPS): Specifies how much of each product is to be produced during
the planning period and when the production should occur.
 Production Order: A documents authorizing the manufacture of a specified quantity of a
particular product
 Materials Requisition: Authorizes the removal of the necessary quantity of raw materials from the
 Move Tickets: Documents that identify the internal transfer of parts, the location to which they
are transferred, and the time of the transfer
 Computer-Integrated Manufacturing (CIM): A manufacturing approach in which much of the
manufacturing process is performed and monitored by computerized equipment, in part through
the use of robotics and real-time data collection of manufacturing activities.
 Request for Proposal (RFP): A request by an organization or department for suppliers to bid to
supply a fixed asset that possesses specific characteristics.
 Job-Order Costing: A cost system that assigns costs to specific production batches or jobs.
 Process Costing: A cost system that assigns costs to each process, or work center, in the
production cycle, and then calculates the average cost for all units produced.
 Job-Time Ticket: A document used to collect data about labour activity by recording the amount
of time a worker spent on each specific job task.
 Manufacturing Overhead: All manufacturing costs that are not economically feasible to trace
directly to specific jobs or processes.
 Activity-Based Costing (ABC): A cost system designed to trace costs to the activities that create
 Cost Driver: Anything that has a cause-and-effect relationship to costs.
 Throughput: A measure of production efficiency representing the number of “Good” units
produced in a given period of time.


Human Resource Management Process

 Recruit and hire new employees
 Training
 Job assignment
 Compensation (payroll)
 Performance evaluation
 Discharge of employees (voluntary or involuntary)
General Issues HRM/Payroll
1. Inaccurate or invalid data a) Data processing integrity controls
b) Restrict access to master data
c) review changes to master data
2. Unauthorized disclosure of sensitive a) Access controls
information b) Encryption

3. Loss or destruction of data a) Backup and disaster recovery

4. Hiring unqualified or larcenous employees a) Sound hiring procedures
5. Violations of employment laws a) Documentation of hiring
b) Continuing education on changes to
employment laws

Payroll Cycle Activities

 Update payroll master data
 Validate time and attendance data
o Source document: time sheets
 Prepare payroll
o Payroll register and deduction register
 Disburse payroll
 Disburse taxes and miscellaneous deductions

1. Update Master Payroll Data

2. Validate Time and Attendance Data
3. Prepare Payroll
1. Unauthorized changes to payroll master a) Access controls and segregation of duties
2. Inaccurate updating of master data a) Data processing integrity controls
3. Inaccurate time and attendance data a) Supervisory review
b) Source data automation for data capture
4. Errors in processing payroll a) Data processing integrity controls
b) Supervisory review

5. Disburse Payroll
6. Disburse Payroll Taxes
1. Inventory Theft a) Restrict access to blank payroll checks and
check signing machine
b) Use separate account (imprest fund)
2. Failure to make required payments a) Configure system to make automatic
payments on time
3. Untimely payments a) Configure system to make automatic
payments on time
4. Inaccurate payments a) Process integrity controls
b) Supervisory review
Reasons to Outsource Payroll
 Reduce costs
o Cost of processing and minimize errors
 Broader range of benefits
o Administration of benefits
 Free up computer resources

Key Terms
 Human Resource Management (HRM)/Payroll Cycle: the recurring set of business activities and
data processing operations associated with effectively managing the employee workforce.
 Knowledge Management Systems: Software that stores and organizes expertise possessed by
individual employees so that the knowledge can be shared and used by others
 Time Card: A document that records the employee’s arrival and departure times for each work
 Time Sheet: A data entry screen (or paper document) used by salaried professionals to record
how much time was spent performing various tasks for specific clients
 Payroll Register: A listing of payroll data for each employee for a payroll period
 Deduction Register: A report listing the miscellaneous voluntary deductions for each employee.
 Earnings Statement: A report listing the amount of gross at, deductions, and net pay for the
current period and the year-to-date totals for each category.
 Payroll Clearing Account: a used general ledger account used to check the accuracy and
completeness of recording payroll costs and their subsequent allocation to appropriate cost
 Flexible Benefits Plans: A plan under which each employee receives some minimum coverage in
medical insurance and pension contributions, plus additional benefit “credits” that can be used to
acquire extra vacation time or additional health insurance. These plans are sometimes called
cafeteria style benefit plans because they offer a menu of options.
 Payroll Service Bureau: An organization that maintains the payroll master file for each of its
clients and performs their payroll processing activities for a fee.
 Professional Employer Organization (PEO): An organization that processes payroll and also
provides human resource management services such a s employee benefit design and


General Ledger and Reporting System Process

 Update general ledger
 Post adjusting entries
 Prepare financial statements
 Produce managerial reports

General Threats Throughout the General Ledger and Reporting Cycle

1. Inaccurate or invalid general ledger data a) data processing integrity controls
b) restriction of access to G/L
c) Review of all changes to G/L data
2. Unauthorized disclosure of financial a) Access controls
statement b) Encryption
3. Loss or destruction of data a) Backup and disaster recovery procedures

Update General Ledger

1. Inaccurate updating of general ledger a) Data entry processing integrity controls
b) Reconciliations and control reports
c) Audit trail creation and review

2. Unauthorized journal entries a) Access controls

b) Reconciliations and control reports
c) Audit trail creation and review

Adjusting Entries
 Accruals
o Made at end of accounting period to reflect events that have occurred but are not in the
financial statements (ex. wages payable).
 Deferrals
o Made at end of accounting period to reflect exchange of cash prior to performance of
related event (ex. rent).
 Estimates
o Portion of expenses expected to occur over a number of accounting periods (ex.
 Revaluations
o Entries made to reflect differences between actual and recorded value of an asset or
change in accounting principle.
 Corrections
o Entries made to counteract effects of errors found in the general ledger

Post Adjusting Entries

1. Inaccurate adjusting entries a) Data entry processing integrity controls
b) spreadsheet error protection controls
c) standard adjusting entries
d) reconciliations and control reports
e) Audit trail creation and review
2. Unauthorized adjusting entries a) Access Controls
b) reconciliations and control reports
c) Audit trail creation and review

Prepare Financial Statements

Produce Managerial Reports
1. Inaccurate financial statements a) Processing integrity controls
b) Use of packaged software
c) Training and experience in applying IFRS and
d) Audits

2. Fraudulent financial reporting a) Audits

3. Poorly designed reports and graphs a) Responsibility accounting
b) Balanced Scorecard
c) Training on proper graph design

Regulatory & Technological Developments That Affect Financial Reporting

 International Financial Reporting Standards (IFRS)
o Understand the systems implications due to the fact that the IFRS is different in financial
reporting than Generally Accepted Accounting Principles (GAAP)
 eXtensible Business Reporting Language (XBRL)
o Specifically used for communicating financial data (required by the Securities and
Exchange Commission (SEC) if public company).

Managerial Reports & Evaluating Performance

 Responsibility Accounting
o Reporting results based upon managerial responsibilities in an organization
 Flexible budget
o Budget formula based upon level of activity (ex. production levels)
 Balanced Scorecard
o Measures financial and nonfinancial performance using four dimensional goals:
 Financial
 Customer
 Internal Operations
 Innovation and Learning
 Graphs
o Data visualization and proper graph design

Key Terms
 Journal Voucher File: A file that stores all journal entries used to update the general ledger
 Trial Balance: A report listing the balance of all general ledger accounts
 Audit Trail: A path that allows a transaction to be tranced through a data processing system from
point of origin to output or backwards from output to point of origin.
 XBRL: extensible Business Reporting Language is a variant of XML (eXtensible Markup Language)
specifically designed for use in communicating the content of financial data.
 Instance Document: An XBRL file that contains tagged data.
 Element: A specific data item in an XBRL instance document, such as a financial statement line
 Taxonomy: A set of XBRL files that defines elements and the relationships among them.
 Schema: An XBRL file that defines every element that appears in a specific instance document.
 Linkbases: One or more XBRL files that define the relationships among elements found in a
specific instance document.
 Style Sheet: An XBRL file that provides instructions on how to display (render) an instance
document on either a computer screen or printed report.
 Extension Taxonomy: A set of custom XBRL tags to define elements unique to the reporting
organization that are not part of the standard generally accepted taxonomies for that industry.
 Responsibility Accounting: A system of reporting financial results on the basis of managerial
responsibilities within an organization.
 Flexible Budget: A budget in which the amounts are stated in terms of formulas based upon
actual level of activity.
 Balanced Scorecard: A management report that measures four dimensions of performance:
financial, internal operations, innovation and learning, and customer perspective of the


Systems Development Life Cycle (SDLC)

Who’s Involved in the SDLC
 Information Systems Steering committee
o Executive level, plans and oversees IS function; facilitates coordination with integration of
systems activities
 Project Development Team
o Plan and monitor project progress
 Programmers
o Write and test programs according to analysts’ specifications
 Systems Analysts
o Determine information needs, prepare specifications for programmers.
 Management
o Get users involved in the process, provide support for development projects, align
projects to meet organizations strategic needs
 Users
o Communicate needs to system developers, help design and test to ensure complete and
accurate processing of data.

Systems Development Planning

 Proper planning provides for achieving goals and objectives
 For systems development, two pans needed:
o Project Development Plan
 Specific to a project and authored by the project team identifies people,
hardware, software, and financial resources needed
o Master Plan
 Long-range and authored by steering committee outlining prioritized projects
and timetables

Planning Techniques
 Program evaluation and review technique (PERT)
o Diagram that depicts all project activities that require time and resources with
completion estimates. Determines critical path.
 Grant chart
o Bar chart that organizes activities on the left hand side and project time scheduled with a
bar drawn to show the progress to date for that particular activity.

Business Case (Feasibility Analysis)

 Economic
o Do benefits of new system justify the costs (time and resources) to implement?
 Technical
o Can we use existing technology?
 Legal
o Does a new system comply with regulations, laws, and contractual obligations?
 Scheduling
o Can the system be developed in the time allotted?
 Operational
o Do we have the people to design and implement the system? Will people use the new

Capital Budgeting
 Payback period
o Calculate the number of years required for the net savings to equal the initial cost of
 Net Present Value (NPV)
o Estimate future cash flows with discounted rate for time value of money
 Internal Rate of Return (IRR)
o Calculates the interest rate that makes the present value of total costs equal to the
present value of total earnings.
Why Behavioural Problems Occur?
 Fear
o Of failure, the unknown, losing status
 Lack of top-management support
o If the top management is not supportive why should the employee change?
 Bad prior experiences
o Bad experience with prior IS changes
 Poor communication
o Employees need to understand why change is necessary
 Disruption
o Additional requests for information and additional burdens of time is distracting and
prompts negative feelings
 Manner change is introduced
o Approaches are different for top level and lower level employees
 Biases and emotions
 Personal characteristics and background
o Age
o Open to technology and comfortable with it

How to Prevent Behavioural Problems

 Management support
o Provide resources and motivation
 Satisfy user needs
 Involve users
o Participation improves communication and commitment
 Reduce fears, emphasize opportunities
 Avoid emotionalism
 Provide training
 Performance evaluation
o Re-evaluate to ensure performance standards are consistent with the new system
 Keep open communications
 Test the system prior to implementation
 Keep system simple
o Avoid radical changes
 Control user’s expectations
o Be realistic

Phase 1: Systems Analysis

Key Terms
 Systems Development Life Cycle (SDLC): A five-Step process used to design and implement a new
 Systems Analysis: First SDLC step where the information needed to purchase, develop, or modify
a system is gathered
 Conceptual Design: Second SDLC step where analysts decide how to meet user needs, identify,
and evaluate design alternatives, and develop detailed specifications for what the system is to
accomplish and how it is to be controlled.
 Physical Design: Third SDLC step where broad, user-oriented conceptual design requirements are
translated into the detailed specifications used to code and test software, design input/output,
create files/databases, develop procedures, and implement controls.
 Implementation and Conversion: Fourth SDLC step where the company hires and trains
employees, tests and modifies procedures, established standards, and controls, completes
documentation, moves to the new system, and detects and corrects design deficiencies.
 Operations and Maintenance: Fifth SDLC step where the system is periodically reviewed, and
necessary modifications and improvements are made.
 Information Systems Steering Committee: High-Level management who plan and oversee the IS
function, setting IS policies that govern the AIS, ensuring top-management guidance and control,
and coordinating and integrating systems activities.
 Systems Analysts: People who help users determine their information needs, study existing
systems and design new ones, and prepare specifications used by computer programmers.
 Computer Programmers: People who write and test programs using the specifications developed
by the analysts and modify and maintain existing computer programs
 Project Development Plan: Document showing project requirements (people, hardware,
software, and financial) a cost-benefit analysis, and how a project will be completed (modules or
tasks to be performed, who will perform, who will perform them, and completion date).
 Master Plan: It describes what a system will consist of, how it will be developed, who will develop
it, when it will be developed, how needed resources will be acquired, the status of projects in
process, the prioritization of planned projects and the prioritization criteria.
 Program Evaluation and Review Technique (PERT): A way to plan, develop, coordinate, control,
and schedule systems development activities; all activities, and precedent and subsequent
relationships among activities, are identified and shown on a PERT diagram.
 Critical Path: The PERT path requiring the greatest amount of time to complete a project; if a
critical path activity is delayed, the whole project is delayed.
 Gantt Chart: A bar graph used for a project planning. It shows project activities on the left, units
of time across the top, and the time each activity is expected to take a horizontal bar.
 Feasibility Study: An investigation to determine whether it is practical to develop a new
application or system.
 Economic Feasibility: Determining whether system benefits justify the time, money, and
resources required to implement it.
 Technical Feasibility: Determining if a proposed system can be developed given the available
 Legal Feasibility: Determining is a proposed system will comply with all applicable federal and
state laws, administrative agency regulations, and contractual obligations.
 Scheduling Feasibility: Determining if a proposed system can be developed and implemented in
the time allotted.
 Operational Feasibility: Determining if the organization has access to people who can design,
implement, and operate the proposed system and if employees will use the system.
 Capital Budgeting Model: A return-on-investment technique used to compare estimated benefits
and costs to determine whether a system is cost beneficial
 Payback Period: a return-on-investment technique used to calculate the number of years
required for the net savings of a system to equal its initial cost.
 Net Present Value (NPV): A return-on-investment technique that discounts all estimated future
cash flows back to the present using a discount rate that reflects the time value of money.
 Internal Rate of Return (IRR): A return-on-investment technique that calculates the interest rate
that makes the present value of total costs equal to the present value of total savings.
 Behavioural Aspects of Change: The positive and negative ways people react to change; managing
these behavioural reactions is crucial to successfully implementing a new system.
 Aggression: Resistance to change intended to destroy, cripple, or weaken system effectiveness,
such as increased error rates, disruptions, or deliberate sabotage.
 Projection: Resistance to change that blames anything and everything on the new system, such
that it becomes the scapegoat for all real and imagined problems and errors.
 Avoidance: Resistance to change where users ignore a new IS is the hope that the new system
will eventually go away.
 Request for Systems Development: A written request for a new or improved system that
describes the current system’s problems, the reasons or the change, and the proposed system’s
objectives, benefits, and costs.
 Initial Investigation: A preliminary investigation to determine whether a proposed new system is
both needed and feasible.
 Proposal to Conduct Systems Analysis: A request to complete the systems analysis phase for a
project that makes it through the initial investigation.
 Systems Survey: An extensive study of the current AIS.
 Systems Documentation: A complete description of how the system is supposed to work,
including questionnaire copies, interview notes, memos, document copies, and models.
 Physical Model: The description of how a system functions by describing document flow,
computer processes performed, the people performing them, and the equipment used.
 Logical Model: system description that focuses on what essential activities are performed and the
flow of information irrespective of how the flow is actually accomplished.
 System Survey Report: A report that summarizes all the activities that took place during the
systems survey, including all relevant documentation.
 System Analysis Report: Comprehensive report summarizing systems analysis that documents the
findings of analysis activities.


How to Obtain an AIS

 Purchase
 Develop in-house
 Outsource to outside organization

 Select a vendor (from referral, trade shows, etc.)
 Request for proposal (RFP) that meets needs
 Evaluate proposals
o Top vendors invited to give demonstrations on how their system will fit your needs
 Make a final selection based upon your criteria

Develop Software In-House

 Advantages
o Provides a significant competitive advantage
 Risks
o Requires significant amounts of time
o Complexity of the system
o Poor requirements defined
o Insufficient planning
o Inadequate communication and cooperation
o Lack of qualified staff
o Poor top management support

End-User Computing
 Advantages
o Allows for end-users to create, control, and implement simple systems
o More likely to meet user needs
o Saves time
o Frees up system resources
o Easy to use and understand
 Disadvantages
o Lack of testing of application and possible calculation errors
o Inefficient systems
o Poorly controlled
o Poorly documented
o System incompatibilities
o Duplication of data
o Increase costs in later years with upgrades

 Advantages
o Allows companies to concentrate on core competencies
o Asset utilization
o Access to greater expertise and better technology
o Lower costs by standardizing user application and splitting development and
maintenance costs between projects
o Less development time
o Elimination of peaks-and-valleys usage
o Facilitates downsizing
 Disadvantages
o Inflexibility
o Loss of control
o Reduced competitive advantage
o Locked-in system
o Unfulfilled goals
o Poor service
o Increased risk

Business Process Management Systems

 Automate and facilitate business process improvements using:
o Process engine to model and execute applications and business rules
o Business analytics to identify issues, trends, and opportunities
o Collaboration tools to remove communication barriers
o Content manager to store electronic documents and images

 Advantages
o Results in well-defined user needs
o Higher user satisfaction and involvement
o Faster development time
o Fewer errors
o Opportunities to suggest changes
o Less costly
 Disadvantages
o Requires significant user time
o Resource efficiency may not be achieved
o Inadequate testing and documentation
o Negative behavioural reactions
o Continuous development of iterations leaves a feeling of no project completion

Computer-Aided Software (or Systems) Engineering (CASE)

 Advantages
o Improved productivity
o Improved program quality
o Cost savings
o Improved control procedures
o Simplified documentation
 Disadvantages
o Incompatibility with other systems
o Unmet expectations

Key Terms
 Canned Software: programs for sale on the open market to a broad range of users with similar
 Turnkey System: Software and hardware sold as a package such that the vendor installs the
system and the user “turns on the key” often written by vendors who specialize in a particular
 Application Service Provider (ASP): Company that delivers software via the internet; ASP owns
and hosts the software remotely via the internet.
 Request for Proposal (RFP): A request for vendors to bid on a system to meet a company’s
specified needs.
 Benchmark Problem: Comparing systems by executing an input, processing, and output task on
different computer systems and evaluating the results.
 Point Scoring: Evaluating the overall merits of vendor proposals by assigning a weight to each
evaluation criterion based on its importance.
 Requirements Costing: Comparing systems based on the cost of all required features; when
software does not meet all requirements, the cost of developing unavailable features is
estimated and added to its cost.
 Custom Software: Software developed and written in-house to meet the unique needs of a
particular company.
 End-User Computing (EUC): The hands-on development, use, and control of computer-based
information systems by users.
 Help Desk: Analysts and technicians who answer employee questions with the purpose of
encouraging, supporting, coordinating, and controlling end-user activity.
 Outsourcing: Hiring and outside company to handle all or part of an organization’s data
processing activities.
 Business Process Reengineering (BPR): The thorough analysis and redesign of business processes
and information systems to achieve dramatic performance improvements; often a drastic, one-
time event.
 Business Process Management (BPM): A systematic approach to continuously improving and
optimizing business processes; a more gradual improvement facilitated by technology.
 Business Process Management System (BPMS): System that automates and facilitates business
process improvements throughout the SDLC.
 Prototyping: An approach to systems design in which a simplified working model, or prototype, of
an IS is developed.
 Operational Prototypes: Prototypes that are further developed into fully functional systems.
 Nonoperational (throwaway) Prototypes: Prototypes that are discards, but the system
requirements identified from the prototypes are used to develop a new system.
 Computer-Aided Software (or Systems) Engineering (CASE): integrated package of tools that
skilled designers use to help gain, analyse, ,design, program, and maintain an IS.