ACCOUNTING INFORMATION SYSTEM

Chapter 6
AIS Development
Strategies
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Chapter 6 - AIS Development Strategies

Description: In this chapter, you learn three ways to obtain an information system:
purchasing software, developing software in-house, and hiring a company
to develop and operate the system. You also learn three ways to improve
the development process: business process redesign, prototyping, and
computer-aided software engineering tools.

Learning Objectives:

1. Describe how organizations purchase application software, vendor services, and

hardware. 2. Explain how information system departments develop custom software.

3. Explain how end users develop, use, and control computer-based information

systems.

4. Explain why organizations outsource their information systems, and evaluate the
benefits and risks of this strategy.

5. Explain the principles and challenges of business process management.

6. Describe how prototypes are used to develop an AIS, and discuss the advantages
and disadvantages of doing so.

7. Explain what computer-aided software engineering is and how it is used in systems

development.

Lesson proper:

Introduction

Companies have experienced the following difficulties when developing an

accounting information system (AIS):

● Development requests are so numerous that projects are backlogged for years.

● Users discover that the new AIS does not meet their needs. This occurs
because users find it hard to visualize how the AIS will operate by reviewing
design documentation and because developers who do not understand business
or user needs find it hard to make meaningful suggestions for improvement.

● Development takes so long the system no longer meets company needs.

Fannie Mae (A large American insurance company) spent eight years and $100
 million developing the

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world’s largest loan accounting system. Unfortunately, it no longer met many of

Fannie Mae’s needs.

● Users do not adequately specify their needs because they do not know what
they need or they cannot communicate the needs to systems developers.

● Changes are difficult to make after requirements are frozen. If users keep
changing requirements, the AIS may take forever to finish.

In this chapter, you learn three ways to obtain an information system: purchasing
software, developing software in-house, and hiring a company to develop and operate
the system. You also learn three ways to improve the development process: business
process redesign, prototyping, and computer-aided software engineering tools.

Purchasing Software

In the early days of computers, it was difficult to buy software that met user
needs. That is no longer the case

Canned software is sold to users with similar requirements. Turnkey systems are
software and hardware sold as a package. The vendor installs the system and the user
“turns on the key.” Many turnkey systems are written by vendors who specialize in a
particular industry, such as doctors, auto repair shops, restaurants, and retail stores.

A major problem with canned software is that it may not meet all of a company’s
information needs. This is overcome by modifying the software. About 90% of Dow
Chemical’s software has been modified to match its business processes. The rest was
written in-house. It is best when the vendor modifies the software, as unauthorized
modifications may not be supported by the vendor and may make the program
unreliable.

Companies can rent software from application service providers (ASPs), who
deliver software over the Internet. This provides scalability as the business grows and
global access to information. It automates software upgrades, allows companies to
focus on core financial competencies rather than information technology (IT) issues,
and can reduce software costs and administrative overhead.
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Selecting a Vendor

Hardware, service, maintenance, and other AIS resource decisions can be made
independently of the decision to make or purchase software, although they may depend
on the software decision.

Vendors are found by referrals, at conferences, in industry magazines, on the

Internet, or in the phone book. Choosing must be done carefully because vendors with
little experience, insufficient capital, or a poor product go out of business and leave their
customers and products with no support or recourse. Problems can occur even when
established vendors are selected. For example, when Texas selected IBM to
consolidate data centers across the state, service levels dropped dramatically, and
routine tasks took far too long to perform. The problem was attributed to poor project
requirements and selecting the vendor with the lowest bid.

Acquiring Hardware and Software

Companies that buy large or complex systems send vendors a request for
proposal (RFP), asking them to propose a system that meets their needs. Request for
proposal (RFP) is a request for vendors to bid on a system to meet a company’s
specified needs. The best proposals are investigated to verify that company
requirements can be met. Using an RFP is important because it:

1. Saves time. The same information is provided to all vendors, eliminating

repetitive interviews and questions.

2. Simplifies the decision-making process. All responses are in the same

format and based on the same information.

3. Reduces errors. The chances of overlooking important factors are reduced. 4.

Avoids potential for disagreement. Both parties possess the same expectations,
and pertinent information is captured in writing.

RFPs for exact hardware and software specifications have lower total costs and
require less time to prepare and evaluate, but they do not permit the vendor to
recommend alternative technology. Requesting a system that meets specific
performance objectives and requirements leaves technical issues to the vendor but is
harder to evaluate and often results in more costly
bids.

The more information a company provides vendors, the better their chances of
receiving a system that meets its requirements. Vendors need detailed specifications,
including required
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applications, inputs and outputs, files and databases, frequency and methods of file
updating and inquiry, and unique requirements. It is essential to distinguish mandatory
requirements from desirable features.

Evaluating Proposals and Selecting a System

Proposals that lack important information, fail to meet minimum requirements, or

are ambiguous are eliminated. Proposals passing this preliminary screening are
compared with system requirements to determine whether all mandatory requirements
are met and how many desirable requirements are met. Top vendors are invited to
demonstrate their system using company supplied data to measure system
performance and validate vendor’s claims.

Table 6.1 Hardware, Software, and Vendor Evaluation Criteria

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 System performance can be compared several ways. A benchmark problem is
an input, processing, and output task typical of what the new AIS will perform. Point
scoring assigns a weight to each evaluation criterion based on its importance. For each
criterion, vendors are scored based on how well their proposals meet the requirement,
and the weighted score totals are compared.

A requirement costing estimates the cost of purchasing or developing

unavailable features. Total AIS costs, which is the cost of acquiring the system and the
cost of developing the unavailable features, provides an equitable basis for comparing
systems.

Because neither point scoring nor requirements costing is totally objective, the
final choice among vendor proposals is not clear-cut. Point-scoring weights and scores
are assigned subjectively, and dollar estimates of costs and benefits are not included.
Requirement costing overlooks intangible factors such as reliability and vendor support.

Once the best AIS is identified, the software is thoroughly test-driven, other users
are contacted to determine their satisfaction with the choice, vendor personnel are
evaluated, and proposal details are confirmed to verify that the best AIS on paper is the
best in practice.

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 Table 6.2 Sample Point Scoring of Vendor Proposal

Development by In House Information System Departments

Organizations develop custom software when doing so provides a significant

competitive advantage. Custom software are Software developed and written in-house
to meet the unique needs of a particular company. There is little benefit to a custom-
written payroll or accounts receivable system, whereas there may be significant benefits
to sophisticated, just-in-time inventory management or product manufacturing software.

The hurdles that must be overcome to develop quality software are the significant
amounts of time required, the complexity of the system, poor requirements, insufficient
planning, inadequate communication and cooperation, lack of qualified staff, and poor
top management support.

Custom software is created in-house or by an outside company hired to write the

software or assemble it from its inventory of program modules. When using an outside
developer, a company maintains control over the development process as follows:

● Carefully select a developer that has experience in the company’s industry and
an in depth understanding of how the company conducts its business.

● Sign a contract that rigorously defines the relationship between the company
and the developer, places responsibility for meeting system requirements on the
developer, and allows the project to be discontinued if key conditions are not met.

● Plan the project in detail and frequently monitor each step in the development.

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● Communicate frequently and effectively.

● Control all costs and minimize cash outflows until the project is accepted.
 There is no single right answer to the build-or-buy decision. Different companies
come to different conclusions.

End-User-Developed Software

End-user computing (EUC) is the hands-on development, use, and control of

computer based information systems by users. EUC is people using IT to meet their
information needs rather than relying on systems professionals.

The following are examples of appropriate end-user development:

● Retrieving information from company databases to produce simple reports or to

answer one-time queries

● Performing “what-if,” sensitivity, or statistical analyses

● Developing applications using software such as a spreadsheet or a

database system ● Preparing schedules, such as depreciation schedules and

loan amortizations.

End-user development is inappropriate for complex systems, such as those that

process a large number of transactions or update database records. Therefore, it is not
used for processing payroll, accounts receivables and payables, general ledger, or
inventory.

As end users meet their information needs, they realize they can use computers to
meet more and more information needs. Increased access to data also creates many
new uses and information needs. The result is a tremendous ongoing growth in EUC.

Advantages and Disadvantages of End-User Computing

EUC offers the following advantages:

● User creation, control, and implementation. Users, rather than the IS

department, control the development process. Users decide whether a system
should be developed and what information is important. This ownership helps
users develop better systems.

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 ● Systems that meet user needs. Systems that are developed by end users are
more likely to meet user needs. Users discover flaws that IS people do not catch.
Many of the user analyst-programmer communication problems in traditional
program development are avoided.

● Timeliness. Much of the lengthy delay inherent in traditional systems

development is avoided, such as time-consuming cost–benefit analyses, detailed
requirements definitions, and the delays and red tape of the approval process.

● Freeing up of systems resources. The more information needs users meet,

the more time the IS department can spend on other development and
maintenance activities. This reduces both the visible and the invisible backlog of
systems development projects.

● Versatility and ease of use. Most EUC software is easy to understand and
use. Users can change the information they produce or modify their application
any time their requirements change. With a laptop computer, employees can
complete work at home, on a plane—almost anywhere.

EUC has the following disadvantages:

● Logic and development errors. With little experience in systems development,

end users are more likely to make errors and less likely to recognize when errors
have occurred. They may solve the wrong problem, poorly define system
requirements, apply an inappropriate analytical method, use the wrong software,
use incomplete or outdated information, use faulty logic, or incorrectly use
formulas or software commands.

● Inadequately tested applications. Users are less likely to test their

applications rigorously, either because they do not recognize the need to do so or
because of the difficulty or time involved. One Big Four CPA firm found that 90%
of the spreadsheet models it tested had at least one calculation error.

● Inefficient systems. Most end users are not programmers nor are they trained
in systems development. As a result, their systems are not always efficient. One
bank clerk spent three weeks developing a program that examined each cell in a
spreadsheet and changed its value to zero if it was a negative amount. When the
60-page program began returning a “too many nested ifs” error message, the
clerk called in a consultant. Within five minutes, the consultant developed a
finished application using a built-in spreadsheet function.

● Poorly controlled and documented systems. Many end users do not

implement controls to protect their systems. User-created systems are often
poorly documented because the
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user considers the task boring or unimportant. Users fail to realize that without
documentation, others cannot understand how their system works.

● System incompatibilities. Companies that add end-user equipment without

considering the technological implications have a diversity of hardware and
software that is difficult to support or network.

● Duplication of systems and data; wasted resources. End users are typically
unaware that other users have similar information needs, resulting in duplicate
systems. Inexperienced users may take on more development than they are able
to accomplish. Both of these problems end up wasting time and resources.

● Increased costs. A single PC purchase is inexpensive; buying hundreds or

thousands is costly. So is updating the hardware and software every few years.
EUC has a high opportunity cost if it diverts users’ attention from their primary
jobs. It also increases time and data demands on corporate information systems.

It is possible to achieve the proper balance between the benefits and risks of
end-user systems by training users, using systems analysts as advisers, and requiring
user-created systems to be reviewed and documented prior to use.

Managing and Controlling End-User Computing

Organizations must manage and control EUC. Giving the IS department control
discourages EUC and eliminates its benefits. However, if the organization maintains no
controls over end users, such as what EUC tools are purchased or how they are used, it
is likely to lead to significant problems. It is best to provide enough guidance and
standards to control the system yet allow users the flexibility they need.

A help desk supports and controls end-user activities. A help desk are Analysts and
technicians who answer employee questions with the purpose of encouraging,
supporting, coordinating, and controlling end user activity.

Help desk duties include resolving problems, disseminating information,

evaluating new hardware and software products and training end users how to use
them, assisting with application development, and providing technical maintenance and
support. Help desks also develop and implement standards for hardware and software
purchases, documentation, application testing, and security. Lastly, the help desk
controls access to and sharing of corporate data among end users, while ensuring that
the data are not duplicated and that access to confidential data remains restricted.
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Outsourcing the System

Outsourcing is hiring an outside company to handle all or part of an

organization’s data processing activities. In mainframe outsourcing agreements,
outsourcers buy client computers, hire the client’s IS employees, operate and manage
the system on the client’s site, or migrate the system to the outsourcer’s computers.
Many outsourcing contracts are in effect for up to 10 years and cost millions of dollars a
year. In a client/server or a PC outsourcing agreement, a service, function, or segment
of business is outsourced. Most Fortune 500 companies outsource their PC support
function. Royal Dutch Shell, the international oil company, has 80,000 PCs worldwide
and outsources its installation, maintenance, training, help desk, and technical support.

Outsourcing was initially used for standardized applications such as payroll and
accounting or by companies who wanted a cash infusion from selling their hardware. In
1989, Eastman Kodak surprised the business world by hiring IBM to run its data
processing operations, DEC to run its telecommunications functions, and Business land
to run its PC operations.

Many smaller companies outsource. One company with annual revenues of $1

million outsources all accounting functions to a local CPA. Whenever they want, the
owners can view all their transactions on the CPA’s website and produce a myriad of
reports. They also outsourced all IT processes, including website design and
maintenance.

Advantages and Disadvantages of Outsourcing

There are a number of significant advantages to outsourcing:

● A business solution. Outsourcing is a viable strategic and economic business

solution that allows companies to concentrate on core competencies. Kodak
focused on what it does best and left data processing to qualified computer
companies. Kodak treats its outsourcers as partners and works closely with them
to meet strategic and operational objectives.

● Asset utilization. Organizations improve their cash position and reduce

expenses by selling assets to an outsourcer. Health Dimension outsourced data
processing at its four hospitals so it could use its limited monetary resources to
generate revenue.

● Access to greater expertise and better technology. Del Monte Foods turned
to outsourcing because the cost and time involved in staying at the cutting edge
of technology were rising significantly.
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● Lower costs. IBM outsources programming to Chinese companies, whose

labor costs are 30% of those in the United States. Outsourcers lower costs by
standardizing user applications, buying hardware at bulk prices, splitting
development and maintenance costs between projects, and operating at higher
volumes. Continental Bank will save $100 million during its 10-year contract.
However, Occidental Petroleum rejected outsourcing as costing more than
internal AIS development and operation.

● Less development time. Experienced industry specialists develop and

implement systems faster and more efficiently than in-house staff. Outsourcers
also help cut through systems development politics.

● Elimination of peaks-and-valleys usage. Seasonal businesses require

significant computer resources part of the year, and little the rest of the year.

● Facilitation of downsizing. Companies that downsize often have an

unnecessarily large AIS function. General Dynamics downsized dramatically
because of reductions in defense industry spending.

However, not all outsourcing experiences have been successful. Between 25%
and 50% of outsourcing agreements fail or are major disappointments. In one survey,
company executives labeled 17% of them disasters and almost 50% were brought back
in-house. There have been a number of significant outsourcing failures.

Disadvantages of Outsourcing

Companies that outsource often experience some of the following drawbacks:

● Inflexibility. Many contracts are for 10 years. If a company is dissatisfied or

has structural changes, the contract is difficult or costly to break. Before they
merged, Integra Financial and Equimark had contracts with different outsourcers.
Canceling one of them cost $4.5 million.

● Loss of control. A company runs the risk of losing control of its system and its
data. For that reason, Ford’s outsourcing agreement prevents CSC from working
with other automobile manufacturers.

● Reduced competitive advantage. Companies may lose sight of how their AIS
produces competitive advantages. Outsourcers are not as motivated as their
clients to meet competitive challenges. Companies can mitigate this problem by
outsourcing standard
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business processes (payroll, cash disbursements, etc.) and customizing those

that provide competitive advantages.

● Locked-in system. It is expensive and difficult to reverse outsourcing. A

company may have to buy new equipment and hire a new data processing staff,
often at prohibitive costs. When Blue Cross of California decided to end its
agreement, it knew virtually nothing about its system and could not afford to
discharge EDS. In contrast, LSI Logic brought its system back in-house at
significant dollar and personnel savings when it installed an enterprise resource
planning (ERP) system.

● Unfulfilled goals. Critics claim some outsourcing benefits, such as increased

efficiency, are a myth. USF&G canceled its $100 million contract with Cigna
Information Services after 18 months when Cigna could not make the system
work properly.

● Poor service. Common complaints are that responsiveness to changing

business conditions is slow or nonexistent and migration to new technologies is
poorly planned.

● Increased risk. Outsourcing business processes can expose a company to

significant operational, financial, technology, strategy, personnel, legal, and
regulatory risks.

Business Process Management

As organizations seek to improve their information systems and comply with legal
and regulatory reforms, they are paying greater attention to their business processes.
Business process reengineering (BPR) is a drastic, one-time-event approach to
improving and automating business processes. Business Process Reengineering
(BPR) is the thorough analysis and redesign of business processes and information
systems to achieve dramatic performance improvements; often a drastic, one-time-
event However, it has had a low success rate. With further improvements, BPR has
evolved into business process management (BPM), a systematic approach to
continuously improving and optimizing an organization’s business processes. Business
Process Management (BPM) is a systematic approach to continuously improving and
optimizing business processes; a more gradual improvement facilitated by technology.
BPM is a more gradual and ongoing business process improvement that is supported
and enabled by technology. As a result, BPM is a good way to introduce both a human
and a technological change capability into an organization.
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Some of the important principles underlying BPM are the following:

● Business processes can produce competitive advantages. Innovative

processes that help business respond to changing consumer, market, and
regulatory demands faster than competitors create competitive advantages.
Good business process design is vital to an organization’s success. For
example, if a competitive bidding process is time sensitive and requires
coordination between multiple functions, a poorly designed bid process can
handicap the process so much that effective and profitable bids are not prepared.

● Business processes must be managed end to end. BPM views business

processes as strategic organizational assets that should be understood,
managed, and improved. Even if each part of a multifunctional business process
functions well independently, the entire process may be suboptimal if there is
inadequate communication and coordination among functional units (sales,
production, etc.). Managing business processes from inception to completion can
control such problems. A process owner is designated, performance standards
are set, and control and monitoring processes are established.

● Business processes should be agile. Organizations must continuously

improve and adapt their business processes to compete. This requires flexibility
and business process automation technology that supports rapid modifications.

● Business processes must be aligned with organizational strategy and

needs. To be effective and efficient, a company must align its business
processes with its business strategy.

Business process management systems (BPMS) automate and facilitate

business process improvements. A BPMS can improve communication and
collaboration, automate activities, and integrate with other systems and with other
partners in the value chain.

A BPMS has the following four major components:

● A process engine to model and execute applications, including business rules

● Business analytics to help identify and react to business issues, trends, and
opportunities

● Collaboration tools to remove communication barriers

● A content manager to store and secure electronic documents, images, and other
files.
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Prototyping

Prototyping is a systems design approach in which a simplified working model of a system is

developed. Developers who use prototyping still go through the SDLC, but prototyping allows
them to condense and speed up some analysis and design tasks. Prototyping helps capture
user needs and helps developers and users make conceptual and physical design decisions.

As shown in Figure 6.1, a prototype is developed using four steps.

∙ The first is to meet with users to agree on the size and scope of the system and to decide
what the system should and should not include. Developers and users also determine
decision-making and transaction processing outputs, as well as the inputs and data needed
to produce the outputs. The emphasis is on what output should be produced rather than how
it should be produced. The developer must ensure that users’ expectations are realistic and
that their basic information requirements can be met. The designer uses the information
requirements to develop cost, time, and feasibility estimates for alternative AIS solutions.

Figure 6.1 The Steps for Developing a System from a Prototype

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The second step is to develop an initial prototype. The emphasis is on low cost
and rapid development. Nonessential functions, controls, exception handling, input
validation, and processing speed are ignored in the interests of simplicity, flexibility, and
ease of use. Users need to see and use tentative data entry screens, menus, and
source documents; respond to prompts; query the system; judge response times; and
issue commands. The developer demonstrates the finished prototype and asks users to
provide feedback on what they like and dislike, which is much easier to do than
imagining what they want in a system. Even a simple system that is not fully functional
demonstrates features better than diagrams, drawings, or verbal explanations.

In the third step, developers use the feedback to modify the system and return it
to the users. Trial usage and modification continues until users are satisfied that the
system meets their needs. A typical prototype goes through four to six iterations.

The fourth step is to use the system. An approved prototype is typically used in
one of two ways. Half of all prototypes are turned into fully functional systems, referred
to as operational prototypes. To make the prototype operational, the developer
incorporates the things ignored in step one, provides backup and recovery, and
integrates the prototype with other systems. Nonoperational (throwaway) prototypes
are used several ways. System requirements identified during prototyping can be used
to develop a new system. The prototype can be used as the initial prototype for an
expanded system designed to meet the needs of many different users. When an
unsalvageable prototype is discarded, the company potentially saves itself years of
development work and lots of money by avoiding the traditional SDLC process.

When to Use Prototyping

Prototyping is appropriate when there is a high level of uncertainty, it is unclear

what questions to ask, the AIS cannot be clearly visualized, or there is a high likelihood
of failure.

Advantages of Prototyping

Prototyping has the following advantages:

● Better definition of user needs. Prototyping generally requires intensive

involvement from end users, resulting in well-defined user needs.

● Higher user involvement and satisfaction. Because users’ requirements are

met, there is less risk that the AIS will not be used. Early user involvement helps to
build a climate of acceptance rather than skepticism and criticism.

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● Faster development time. Prototypes are often functioning after a few days or
weeks, allowing users to immediately evaluate the system.

● Fewer errors. The users test each version of the prototype, so errors are
detected and eliminated early. It is also easier to identify and terminate infeasible
systems before a great deal of time and expense is incurred.

● More opportunity for changes. Users can suggest changes until the system
is exactly what they want.

● Less costly. Prototype systems can be developed for 20% of the cost of
traditional systems. One utility company claimed a 13-to-1 improvement in development
time over traditional methods when prototyping was used to develop 10 major
applications.

Table 6.3. Conditions That Favor the Use of Prototyping

Disadvantages of Prototyping
Prototyping has the following disadvantages:

● Significant user time. Users must devote significant time to working with the
prototype and providing feedback. It may require more involvement and
commitment than users are willing to give.

● Less efficient use of system resources. Prototype development does not

always achieve resource efficiency, sometime resulting in poor performance and
reliability as well as high maintenance and support costs.

● Inadequate testing and documentation. Developers may shortchange testing

and documentation because users are testing the prototype during development.

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● Negative behavioral reactions. These can occur when requests for

improvements are not made, there are too many iterations, or a prototype that
users are invested in is thrown away.
● Never-ending development. This occurs when prototyping is not managed
properly and the prototype is never completed due to recurring iterations and
revision requests.

References:

Romney, M. Steinback, P. J. (2015). Accounting Information System

Thirteenth Edition. Pearson

Simkin, M., Rose, J., Norman, C. (2012). Core Concepts of Accounting

Information System Twelfth Edition. JOHN WILEY & SONS, INC.

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