Chapter 13 Managing the Systems Development Life Cycle

Accounting Information Systems, 5th edition James A. Hall

COPYRIGHT 2007 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license

Objectives for Chapter 13

Identify the key stages in the SDLC How a firms 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.
Well 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 - Develop Strategic Plan

Feedback: User requests for New Systems

System Interfaces, Architecture and User Requirements

High Priority Proposals undergo Additional Study and Development

2. Project Initiation
- Feasibility Study - Analysis - Conceptual Design - Cost/Benefit Analysis

Selected System Proposals go forward for Detailed Design

Feedback: User requests for System Improvements and Support

3. In-house Development
- Construct - Deliver

4. Commercial Packages
- Configure - Test - Roll-out

New and Revised Systems Enter into Production

5. Maintenance & Support

- User help desk - Configuration Management - Risk Management & Security

Overview of Phases 1 and 2

Phase 1 - Systems Strategy
understand the strategic needs of the organization examine the organizations 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

Phase 1 Systems Strategy

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 managements vision, which has shaped the organizations business strategy

Industry and competency analysis

industry analysis: the driving forces that affect the industry and their organizations performance, such as important trends, significant risks, and potential opportunities competency analysis: a complete picture of the organizations 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 managements 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 projects:
benefits costs strategic impact

Development will proceed on proposals with the greatest potential for supporting the organizations 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

The Balanced Scorecard

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?

Second objective: prevent the proliferation of reports and information. Concentrate only on critical success factors to which everyone in the organization will pay attention.

BSC for On-Line Banking

Phase 2 Project Initiation

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 BenefitsTangible

Cost-Benefit Analysis: Identify BenefitsIntangible

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 breakeven 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 organizations 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 Accountants Role in Systems Strategy

Auditors should routinely review the organizations systems strategy. Careful systems planning is a costeffective 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 Accountants 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 Accountants 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