McKraklin AEROSPACE (B)



McKraklin AEROSPACE (A)

"First you figure out what's inevitable. Then

you find a way to take advantage of it."

Russell Ackoff

INTRODUCTION

Dave Costner, Director of Information Systems (IS), shook his head slowly as he reread the memorandum he had just received from Mark Segford, the manager of the Commercial Products Division of McKracklin Aerospace Company. The memorandum read in part:

"Since I assumed this position six months ago, I have been concerned with the apparent low morale of our employees. I have elicited complaints about our current practices and suggestions of how we can improve. One of the most frequent sources of complaints has been our payroll system: late payments, incorrect payments, direct deposit misrouting, etc. I want your department to begin a high priority project to drastically improve our current payroll processing."

"This is ridiculous," Dave Costner said to himself. "We spent two months developing a Strategic IS Development Plan which was completed only a year ago. Then I "cave in" to the marketing department's threats and I make the raw materials inventory system our number one priority.* Now, my new manager wants me to make the payroll system a high development priority. That system didn't even make the top-5 list of priorities when we developed the plan. The top three projects on that list would have to be shelved while we work on these other, lower priority systems."

McKraklin AEROSPACE COMPANY

McKraklin is a large aerospace firm located in Southern California. It manufactures military electronics systems, satellite systems, and commercial by-products of these systems. The firm, which has more than 65,000 employees in sixteen locations throughout the region, is organized into twelve major divisions. One of these is the Commercial Products Division.

The Commercial Products Division located in Sepulveda, California, manufactures electronic and radar products for commercial rather than military use. The division has about 2500 employees. Last year’s revenues were $781 million. About one-third of this revenue was from exports outside the country. The division is organized rather traditionally into six departments.

* This situation is described in McKraklin (A).

STRATEGIC IS DEVELOPMENT PLAN

Dave Costner remembered the process that division executives had undergone to develop the Strategic IS Development Plan. He also remembered how satisfied everyone had been with the results. The division manager had convened a committee comprising herself and every department director. The committee's goal was to mesh IS department system development and modification priorities with the Commercial Products Division's strategic goals.

The division's strategic goals had been developed the year before this committee's formation. These strategic goals were consistent with McKraklin Aerospace's corporate goals. Each of the division's strategic goals had been expressed quantitatively - as a measurable objective. For example, three of these measurable division strategic goals were:

- increase domestic sales by 12%

- increase export services by 10%

- reduce variable costs by 8%.

The committee then had carefully reviewed Dave Costner's descriptions of IS systems that needed replacement or major modifications. Dave had included on his list descriptions of IS systems not currently in the division's inventory, but which could be imported from outside. The committee then estimated if and how each potential IS development project could measurably contribute to the division's strategic goals. For example, the committee might determine that ". . . potential development project D could reduce variable costs moderately."

Members of the committee had agreed that these goal contributing estimates were probably no more than "guess-estimates," but there had been almost unanimous consensus on the IS development priorities the committee created (Figure 3.1). The committee then had included in the IS strategic plan a few generic principles that would apply to all IS development projects. These principles included:

- 10% of the IS development budget would be directed towards experimentation with emerging technologies (e.g., biometrics)

- all IS projects with development costs exceeding $500,000 would be capitalized rather than expensed.

"Oh, well," thought Dave Costner, "I guess our planning process wasn't worth much. It's only a year later, and we've already violated the priority sequence twice. I'd better start pulling my department into a payroll frame of mind."

CURRENT PAYROLL SYSTEM

The current payroll system had been operating for seven years without major modification. A centralized mainframe environment using separate application files belonging to separate departments characterized it. Dave Costner inspected the payroll system's documentation manual, which did not appear to have been updated for some time. Dave wondered how many undocumented system changes had been made since the last manual update.

He studied the primary payroll files (Figures 3.2 through 3.6). He then flipped through the manual's pages until he found a system flowchart describing the payroll system process flow. Dave noticed that there was no accompanying narrative description of the flow. This presented a problem. Dave wanted to verify the correctness of this documented flow with the payroll supervisor. System flowcharts, however, were difficult for non-technical persons to understand. He decided to develop a narrative description of the process flow that he could later convert to data flow diagrams (DFDs).

Dave Costner first developed the following narrative description of payroll system processing:

1. The IS department prints pre-numbered, weekly time sheets from the Payroll Master File (active employees only).

2. These time sheets are sent to the Payroll Supervisor.

3. The payroll supervisor reviews the time sheets for completeness, and then sends them to the various departments.

4. Employees fill in their respective time sheets at the end of their daily shifts.

5. Department supervisors enter applicable vacation or sick leave hours on each employee's time sheet.

6. Department supervisors then review and sign each time sheet at the end of each week and send the completed time sheets to the payroll section.

7. A payroll clerk sorts the time sheets by time sheet number. If there are missing numbers in the time sheet number sequence, the payroll clerk notifies the payroll supervisor who reconciles the discrepancy with the applicable supervisor.

8. The payroll clerk updates the payroll master file for any vacation days recorded on each time sheet. If the number of days shown on the time sheet exceeds the number of vacation days accumulated, the clerk writes that fact on the time sheet and sets the sheet aside for the payroll supervisor.

9. The payroll clerk then enters the remainder of time sheet data to the payroll transaction file and to the cumulative payroll file separately.

10. The time sheet is then sent to another payroll clerk who verifies the accuracy of the first clerk's entries. If any errors are detected, the time sheet is sent to the payroll supervisor for reconciliation.

11. At the initiation of the payroll supervisor, the IS department runs the payroll program to produce:

a. Paychecks with pay-stubs

b. Notices of direct deposit

c. Deposits slips for direct deposits

12. These output are sent to the payroll supervisor who:

a. Uses a check-signing machine to affix signatures to each paycheck.

b. Envelops paychecks, pay-stubs, and notices of direct deposit and sends the envelopes to the appropriate departments for distribution.

c. Envelopes the direct deposit slips and sends them to the appropriate banks.

PAYROLL SYSTEM PROBLEMS

Dave Costner then read the employee complaints about the payroll system that Mark Segford had attached to his memorandum. In addition, Dave inspected the documentation manual closely to find payroll system features that seemed inefficient or that needed updating. He compiled the following list of potential payroll system problems:

1. There is duplicate data entry - data fields entered more than once to different files or forms. For example, time sheet data is entered separately to both the payroll transaction file and the cumulative payroll file.

2. Internal documents have to be transferred between multiple locations. For example, the time sheets start at the IS department, are sent to the payroll section, then are sent to the various departments, which then send the time sheets back to the payroll section. This constant movement of paper forms adds time to the overall process. In addition, multiple document "hand-offs" increase the threats of error, lost data, and fraud.

3. Payroll system files are independent instead of being consolidated into an integrated database. This creates the threat of the same fields being updated with different values in different files. There also is considerable data redundancy - the same field duplicated in different files.

4. The payroll system is geared towards permanent, full-time employees. The chief executive officer (CEO) of McKracklin had recently sent a memorandum to the divisions explaining that the company's long-term plans called for changing the ratio of permanent to contract employees from 8:2 to 6:4. The payroll system has to be modified to better reflect this strategic change.

5. The current payroll system used traditional calculations where overtime is defined as any hours worked per week in excess of 40. Recent legislation has defined overtime in the following manner:

a. Any hours worked in excess of eight per day would be subject to overtime, even if the employee did not exceed 40 hours worked that week.

b. Any hours worked in excess of 12 per day or 55 per week would qualify for double the normal pay rate.

6. The Commercial Products Division does quite a lot of project work. Personnel from different departments are assigned to a project manager for the duration of a project. These projects often are billed to clients on a cost-plus basis. Thus, there is a need for detailed tracing of all costs, including personnel hours. The current payroll system was implemented before this project orientation was initiated.

DAVE COSTNER'S OPTIONS

Dave Costner thought about his options regarding the payroll system. He identified several "strategic" options including the following:

1. Inform his division manager Paul Cronkey that his memorandum conflicted with the top-down designed IS Strategic Development Plan. He might seek support from other department managers to support this position.

2. Request reformation of the IS Strategic Plan committee for the purpose of revising the plan.

3. Abandon work on the higher priority projects and assign one of his senior analysts to the payroll system project.

Dave decided to list his "tactical" alternatives in case he chose (or was forced to choose) the payroll project option. He decided upon the following development alternatives:

1. Search for an easily modified, packaged program that could be used for payroll processing.

2. Reengineer the current system to make it more efficient, timely, and consistent with operational requirements.

3. Completely redesign the current payroll system either in a paper-driven or Web-driven format.

4. Outsource redesign of the payroll system to a systems integrator vendor.

5. Outsource payroll services to a local payroll vendor.

6. In conjunction with other alternatives, consider a point-of-sale (POS), electronic payroll system that would eliminate or minimize keystroke entry and physical forms movement.

Dave decided that he had better convene a department meeting of his key personnel so that they might help him make the correct decision.

|SYSTEM TO BE DEVELOPED |STRATEGIC GOALS |

|Wireless Sales Initiation |Increase domestic sales |

|E-business Order Entry |Increase domestic sales |

| |Increase export services |

|Research & Development Tracking |Increase domestic sales* |

| |Increase export services* |

| |Increase product quality* |

|Computer-aided Manufacturing |Decrease variable costs |

| |Increase product quality |

|Raw Materials Inventory |Decrease variable costs |

* Long-term pay-off

Figure 3.1 Top-5 IS Department Development Priorities

Department ID #

Department Name

Employee ID #

Social Security Number

Status (Active, Inactive)

Last Name

First Name

Middle Initial

Job Code

E-mail Address

Work Phone

Home Phone

Street Address

City

State

Zip Code

Figure 3.2 Employee Master File Fields

Employee ID #

Social Security Number

Last Name

First Name

Middle Initial

Job Code

Birth Date

Date Hired

Payment Code (Wage, Salary, or Commission)

Payment Rate

Deduction Code (IRA, 401K, Union Dues, Insurance, Other)

Deduction Amount

Tax Status (Single, Married)

Number of Exemptions

Overtime Code (Y/N)

Direct Deposit Code (Y/N)

Direct Deposit Bank Code

Direct Deposit Account Code

Vacation Accrual Rate

Sick Leave Accrual Rate

Vacation Days Accumulated

Sick Leave Days Accumulated

Figure 3.3 Payroll Master File Fields

Check #

Check Date

Employee ID #

Employee Social Security #

Employee Name

Employee Address

Payment Type (Wage, Salary, Commission)

Payment Rate

Hours Worked

Regular Pay

Overtime Pay

Total Gross Pay

Amount Federal Tax Withheld

Amount State Tax Withheld

FICA / Social Security Tax Withheld

Deduction Type

Deduction Amount

Check Amount

Figure 3.4 Payroll Transaction File Fields

Employee ID #

Employee Social Security #

Employee Name

Employee Address

YTD Gross Pay

YTD Federal Tax Withheld

YTD State Tax Withheld

YTD FICA / Social Security Withheld

YTD Deduction Type

YTD Deduction Amount

Figure 3.5 Cumulative Payroll File Fields

Time Sheet Number

Department Name

Department ID #

Employee ID #

Employee Name

Job Code

Date

Hours Worked

Vacation Hours

Sick Leave Hours

Supervisor Signature

Figure 3.6 Time Sheet Fields

ASSIGNMENTS

Forms Design:

1. Using established principles of forms design, create the time sheet as a paper form.

Documentation:

2. Construct the following data flow diagrams (DFDs) for the description of the current payroll system:

a. Context-level

b. 1st-level explosion

c. 2nd-level explosion of one of the processes in the 1st-level DFD

3. Construct a decision table that will reflect the overtime logic required for a new payroll system.

Databases:

4. Draw an REA diagram to describe the file structures shown in Figures 3.2 through 3.6.

5. Normalize the files shown in Figures 3.2 through 3.6.

6. Convert these files into Access tables. (You will have to make assumptions about field lengths and types.)

Internal Controls:

7. Describe the existing internal controls in the current payroll system. (Categorize these controls as Preventive, Detective, or Corrective.)

8. Describe two (2) additional internal controls that could be implemented for each of the categories of preventive, detective, and corrective.

9. Describe two (2) additional detective and corrective internal controls that might have to be implemented if payroll were redesigned as a Web-based system.

Systems Planning:

10. Dave Costner has hired you as an outside consultant. Write a memorandum to him evaluating the organization's methodology in developing the IS Strategic Development Plan, and why that plan seems to be falling apart.

Alternatives:

11. Prepare a brief list of advantages and disadvantages (no more than three each) for each of the strategic and tactical alternatives Dave Costner faces.

Systems Analysis:

12. Assume that the reengineering alternative was chosen. Redesign the current payroll system flow to make it more efficient and timely.

Systems Design:

13. Reference the Access files developed in assignment 6. Create:

a. Access forms to allow data entry for each of these tables

b. One Access report for each table

c. A navigation path to link together all Access forms and reports

14. What additional files with what additional fields will be required to make the payroll system more compatible with Crackling’s new project orientation?

E-Commerce:

15. Write a memorandum to Dave Costner explaining how a Web-based payroll system might work.

III. CALIFORNIA STATE PARKS

A. INTRODUCTION: Following is a synopsis of a project involving automation of revenue collection kiosks located at the entrances to California state parks. Some of the facts have been altered for tutorial purposes

B. CALIFORNIA STATE PARKS

The California Department of Parks and Recreation manages over 260 park units, which contain diverse collections of natural, cultural, and recreational resources. Park locations range from the last stands of primeval redwood forests to vast expanses of fragile desert; and from the Sierra Nevada Mountains to the beaches of California’s southern coast. Responsible for almost one-third of California’s coastline, DPR manages the state’s coastal wetlands, estuaries, beaches, and dune systems. DPR’s workplace consists of nearly 1.3 million acres, with over 280 miles of coastline; 625 miles of lake and river frontage; nearly 18,000 campsites; and 3,000 miles of hiking, biking, and equestrian trails.

During the 1998/1999 fiscal year, DPR collected over $60 million dollars of revenue from the more than 40 million visits to California state parks. Ticket and pass sales accounted for $39 million of this revenue. The remainder of the revenue was primarily from commissions on sales from contracted concessionaires. Currently, park ticket and pass revenue collection was done through non-computerized kiosks located at park entrances and staffed by Park Rangers and Park Aids.

The project called for assessing the feasibility of automating revenue collection kiosks located at state park entrances.

C. PROJECT PHASES: The project was divided into the following phases:

- Current System Description: A description of how the current parks revenue collection system operates, and problems that this system is causing DPR.

- Requirements Analysis: A survey of what parks personnel want in an automated revenue collection system, initial feasibility of an automated system, proposed automated system goals, and a description of what the automated system might look like.

- Vendor Analysis: Development of a Request for Information (RFI) to be sent to prospective system vendors to elicit cost and specifications data, creation of a vendor selection model for evaluating responses to the RFI, and use of that model to evaluate these responses.

- Cost/benefit Analysis: Development of cost/ benefit models (spreadsheets), identification of the most cost-effective alternatives based upon RFI responses, and recommendation of the automated kiosk system best meeting DPR needs.

D. CURRENT SYSTEM DESCRIPTION

Following is the description that was included in the formal report submitted to DPR:

1. Park / District Collection

Park/district collection is comprised of three basic operations: (1) collection of fees, (2) deposit of fees, and (3) reporting of collections. Detailed activities occur within each operation.

=Collection of Fees

Collection of fees includes activities involved with pre-collection, collection and post-collection. Pre-collection applies to collection methods requiring tickets, preprinted receipts and annual passes, and excludes collections from Iron Rangers and Park’Ur Self booths. (NOTE: Iron Rangers are a locked iron container used in smaller parks for visitor “honor” payment of fees when Park rangers are not present.) The beginning sequence numbers for each ticket and pass type must be noted on the work shift’s DPR 156 (Ticket Receipts) and 156CR (Cash Register Receipts). These forms will be used during post-collection to determine the total number of tickets and passes sold.

During the collection process, tickets, passes and receipts are issued and money is collected. In unmanned parks, patrons deposit their money in an iron ranger or parking device.

Post-collection activities focus on accounting for the funds received during a work shift or collection period (iron rangers and parking devices). For tickets, preprinted and cash register receipts, and annual passes, the total counts for each issuance type is determined by subtracting the beginning sequence number from the current sequence number less one. The extended totals (for each type of issuance) are the products of the counts and unit price. Thus, the sum of the extended totals must equal the total cash on hand less the beginning cash. Cash shortages exceeding $10 must be noted and explained on DPR156 and 156CR.

Because patrons deposit their money in envelopes, Iron Ranger revenues are based on the number of envelopes deposited and the cash received in each envelope. Parking device collections involve counting the number of tickets issued (either through starting and ending ticket sequence numbers or meter counts) and the amount of money removed. For all collection methods, the total funds collected are entered on DPR156 and 156CR forms. The ranger or park aid then completes the front side of the DPR156 and 156CR forms. Upon completion, the DPR156/156CR must be reviewed and approved by a supervisor. The last activity involves preparing DPR156 and 156CR forms for the next shift.

Deposit of Fees

A Report of Deposit (deposit slip) accompanies the funds (bank) deposit. The total deposit appearing on the report must be checked against the total stated on the DPR156/156CR.

. A Deposit Log is then completed and copies 3, 4 and 5of the Report of Deposit attached to the DPR 156/156CR. Upon completion of the deposit, the acknowledged Report of Deposit is filed.

Reporting of Collections

A Report of Collections documents the funds collected and deposits made (a collection period may consist of many deposits). Essentially, the report is used by headquarters to identify funds deposited to the State that will be credited to the Department. Totals gathered from three reports, DPR156/156CR, the Report of Deposit, and the Deposit Log, appear in the Report of Collections. The transposed and derived totals must be checked for errors and consistency before the report can be approved. The report’s number must be written or stamped on each of the Reports of Deposit (referenced by the Report of Collection).

2. Sacramento Headquarters Processing

When there is a shortage of $10 or more shown on the ROC, two copies of the DPR 156/156CR also will be submitted to Sacramento headquarters. The first headquarters-processing step is to do edit checking on deposit slips and ROCs. Based on the audited deposit slips and ROCs, seven batch tapes are run including tapes for total collections, total deposits, absolute amount, detail lines of collections, deposit amounts, and collections including shortages from the ROCs, as well as deposit amounts from deposit slips. When batch tapes are in balance, data are input into the CALSTARS system using the format shown in Appendix III. Once remittance advice is generated and sent to the State Treasurer’s Office, revenue interests begin to accrue to the department’s account.

PROBLEMS WITH THE CURRENT SYSTEM

1. Lost Interest Revenue: It is taking some 30 days for park revenue collections to be reported to the Sacramento headquarters office. It often is taking another 30 days for that revenue to be entered into CALSTARS by central office personnel. The Department thus is losing interest on the collected revenues for the period of time the funds remain in the General Fund of the State of California. The revenue scope for this study is $39 million annually. At an assumed 5.5% interest over a 60-day period, this equates to a potential earned interest revenue loss to the department of approximately $340 thousand annually.

2. Ranger Diversion: Park rangers are spending a considerable amount of time in overseeing Park aids during reconciliation of park revenue collections. There are no potential out-of-pocket savings to be realized with this factor (no reduction in ranger positions). This situation is, however, preventing rangers from performing their more important ranger duties.

3. Administrative Costs: The current collections system is generating considerable workload associated with reconciliation of revenues collected at park sites. This workload occurs at three levels:

- Parks: It is estimated that park aids spend an average of one hour per shift in completing the Receipt Accountability Worksheet. Kim Tefrey, Chief Park Ranger at Folsom Lake, estimates that this amounts to an annual Park Aid payroll expenditure for shift-end reconciliation of approximately 750 hours per year for that site alone. If the typical park aid is paid at $10 per hour (including fringe benefits), this projects to a statewide expenditure on end-of-shift reconciliation of $400 to $500 thousand a year. This is a factor that can be targeted for direct savings since park aid hours can be reduced. For example, if this reconciliation time can be reduced by 50%, then annual savings to DPR could approach $250 thousand per year.

- Districts: Districts then accumulate park reports and prepare a ROC Summary Sheet. An undetermined amount of district hours are spent in accumulating totals and reconciling discrepancies. These hours do not represent potential out-of-pocket savings since there are no plans to reduce district personnel.

- Sacramento Headquarters: The Accounting Section then prepares the Report of Collections. An undetermined number of hours are spent here on preparation and reconciliation. These hours could be reduced and redirected to other tasks.

4. Lack of Management Planning Information: The current system lacks sufficiency and ease of collection of information to allow department managers to effectively plan for and evaluate proposed changes to policies and procedures. It also is questionable whether sufficient auditing data is available.

5. Potential for Misappropriation: The manual collection method of the current system (particularly with the “Iron Rangers” at remote park locations) lends itself to opportunities for theft of park revenues. It is estimated that each incident of misappropriation costs the department approximately $3,000 (100 hours @ $30 per hour) for investigation. It also is estimated that only 1 of every 10 “large” misappropriations is discovered; the like figure is estimated to be 1 discovery for every 30 “small” appropriations.

6. Ticket Inventory and Handling: Entry tickets are issued to entering park customers. These tickets, resembling those issued for amusement park rides, are purchased in different varieties (e.g., dog tickets) and pre-stocked at each park location and district office. As yet undetermined costs of the statewide ticket inventory include (a) purchasing, (b) shipping, (c) storage, (d) obsolescence (last year’s tickets no longer valid), (e) potential for pilferage, and (f) personnel hours devoted to ticket handling and inventory.

7. Park Attendance Calculation: Current methods for counting the number of visitors to state parks are time consuming and imprecise. Lack of accurate attendance data restricts management planning. Such inaccurate figures also make it more difficult to validate volume figures supplied by park concessionaires. This could have an effect on analyses of concessionaire revenues and what might be a reasonable contractual relationship between the concessionaire and the Department.

8. Delayed Vendor Payments: Delay in central office collection and processing of park revenues can create a serious cash flow problem during the last few months of each budget year. There are not enough operating funds available to pay outstanding vendor invoices. This results in lost vendor discounts for timely payment (e.g., 3% discount for payments made within 10 days of billing receipt). In addition, it is possible that Park System vendors, anticipating this annual cash flow problem, may bid their services higher.

E. SYSTEM IMPROVEMENT GOALS

The consulting team developed several system improvement goals based upon current system problems. The team surmised that a newly designed Parks Collection system would have the following objectives:

- Accurate, improving current;

• receipt reconciliation accuracy to 95% overall, including non-automated park locations

• counting of park attendance to 90%

- Timely, by:

• reducing current income reporting from park locations to Sacramento Headquarters from an average of 45 to 5 days.

• processing park visitors at least as fast as the current system

- Reliable, by:

• including a backup system in the event of computer system failure

• experiencing no more than a one to five percent (depending on volume and facilities) park workstation downtime rate due to technology.

• having no more than 6 hours to return to an “on-line” status in frequently visited parks.

- Efficient, by effecting a 75% reduction in end-of-shift park reconciliation hours

- Easy to use, with humans factors orientation that will allow training of a DPR employee in no more than one day.

- Scalable: modularly designed so that it can be upgraded easily and relatively inexpensively.

- Secure, allowing restricted access to DPR personnel.

- Compatible with DPR’s current and planned applications architecture, including possible web-based solutions.

1 PARCS INTERNAL CONTROLS

The consulting team designed internal controls and auditing requirements for the Park, District, and Headquarters levels of PARCS. They differentiated between preventive, detective, and corrective controls. Following are the internal controls they designed.

1. Park Level:

Preventive Controls:

o Replace manual tickets with register receipts containing bolded expiration date.

o Control login and log-out processes by park, Ids, and passwords.

o Allow only authorized personnel to access subtotals and perform z-out process for each shift.

o For refund procedures, the system prints a receipt with transaction date and original transaction number. The customer has to sign the refund receipt.

Detective Controls:

o System can keep track of essential transaction details for each sale for review purposes, which mirrors a dual tape system with a receipt to the customer and a duplicate record maintained in the system.

o The system can generate physical deposit slips and the corresponding electronic records. The physical deposit slips are used to deposit cash to the bank. The electronic records of deposit are uploaded to Sacramento Headquarters for Accounting functions. Deposit slips must be linked to relevant sales transactions for a proper audit trail.

o For the z-out process (reconciliation of cash and sales) at the end of each shift, the park aid must enter the amount of collected cash before the system can be instructed to z-out. The reconciliation process has to be performed at the end of each shift. Any discrepancies are to be recorded and explained.

o The system can generate exception reports by setting different data parameters and audit rules (e.g., if there are more than 5 refund transactions, generate an exception report.)

Corrective Controls: There is a mirrored manual (backup) system for the automated system.

2. District Level:

Detective Controls: Store detailed transaction data for park attendance and receipts.

3. Sacramento Headquarters Level:

Preventive Controls:

o Price changes can only be pushed down from Headquarters to individual parks.

o The system can push down lists of bad check issuers by drivers license to parks for verification purposes

Detective Controls:

o The accounting staff reconciles deposit amounts (transmitted directly from banks) and deposit data (uploaded from parks) on a daily basis.

o Sacramento Headquarters stores summarized transaction data needed for input to the CALSTAR system for accounting functions and management data needs.

o The system can generate reports by different identifiers such as park ID, shift ID, operator ID, sales ID, etc.

o The system allows Sacramento Headquarters to access detailed transaction data stored at the district level.

G. ANALYSIS OF SYSTEM COSTS AND BENEFITS

The consulting team performed the following analyses to determine prospective PARCS benefits:

Tangible Income Increases: The proposed PARCS would reduce reporting of park income from an average of 45 to 5 days - a reduction of 38 days. At a 1998 figure of $39 million for non-concessionaire income, and at an assumed interest rate of 5.5% per year, this equates to expected increases of approximately $236,000 a year.

Tangible Cost Savings:

1. Park Level Administrative:

a. Number of shifts per year - 80 per park per day, or 80 * 365 days = 29,200 shifts per year

b. Typical Park Aid salary and benefits - $11 per hour

c. Current estimated reconciliation time per shift – 1 hour

d. Estimated 75% reduction in reconciliation time– 45 minutes, or 45/60 * $11 per hour = $8.25 per shift

e. Estimated Park Level Administrative Savings

29,200 shifts * $8.25 per shift = $240,900 per year

2. Entrance Ticket Inventory:

To arrive at estimated figures, a sampling of park units was polled to determine the actual amount of hours spent on ticket functions. The consulting team averaged the number of shifts per day in on-season, off-season, and shoulder seasons. The estimates resulting from this survey are;

a. Parks that charge fees - 172

b. Average number of total daily shifts in these parks – 80

c. Park Aid average salary and benefits - $11 an hour

d. Estimated Park Aid ticket handling savings with PARCS – 9 minutes

e. Estimated Park Aid ticket handling dollar savings – 9/60 * 11 = $1.65 per shift

f. Annual Park Aid ticket handling dollar savings - 80 shifts * 365 days * $1.65 = $48,000

Total entrance ticket inventory costs are summarized as follows:

Purchase Cost of Tickets $5,000

Warehouse Employee Time 1,000

Business Services Division

Employee Time 1,000

Park Services Division Employee

Time 1,000

Park Aid Savings (above) 48,000

TOTAL ESTIMATED SAVINGS $56,000

NOTE: Park Ranger hours also are spent in handling tickets. Unlike Park Aids, however, any Park ranger hours saved by PARCS would be diverted to other Ranger duties. Thus these saved hours cannot be classified as a tangible cost saving.

3. Potential Vendor Discounts/Penalties: The Expenditure by Object Detail Level Report (6/30/99) showed an amount of annual interest penalties (code 545 00) of $7,145.79. Not this entire penalty amount is applicable to gains that will be experienced under PARCS. We conservatively estimate the annual savings applicable to this project to be $5,000.

4. Decreased Opportunities for Misappropriation: The consulting team received an estimate from the Superintendent of State Parks: This figure was estimated based on conversations with DPR personnel who have been involved in handling cases of embezzlement. The estimate involved a detailed risk analysis that included confidential information. However, the analysis (a) identified misappropriation threats, (b) calculated risks through a questionnaire sent to several experienced park rangers, and (c) multiplied the threat dollar impact by the corresponding risk to arrive at the expected dollar exposure. The total estimated exposure from misappropriation was $700,000

H. SUMMARY OF COSTS AND BENEFITS:

Current System Costs:

|COST CATEGORY |ANNUAL COSTS (150 PARKS) |

|Park Level Administrative |$321,200 |

|Entrance Ticket Inventory |56,000 |

|Vendor Discounts Lost / Penalties |7,146 |

|Misappropriation |700,000 |

|Lost Income |236,000 |

|TOTAL |$1,320,346 |

Tangible Income Increases: Accrued Interest: The expected 89% reduction in income reporting days will increase DPR interest income by approximately $236 thousand annually

Tangible Cost Savings

• Park Level Administrative ( Reduction of Park Aid reconciliation hours will save approximately $240,900 annually.

• Entrance Station Inventory and Handling ( Elimination of entrance ticket inventories will reduce costs by approximately $55,000 annually.

• Potential Vendor Discounts/Penalties ( More rapid payment of vendor invoices will save an annual amount in discounts lost and penalties accrued of $5,000.

• Decreased Misappropriation ( Increased system security will result in an estimated decrease of approximately $700,000 annually in misappropriations.

• Total Tangible Cost Savings ( approximately $1,000,900 annually.

Intangible Receipt Increases:

• Park Attendance Calculations: The 90% increase in accuracy for counting park attendance could provide better validation of concessionaire estimates, and thus could result in higher concessionaire income percentages being collected by DPR.

• Ranger Diversion: Park Rangers currently are spending considerable amounts of time in reconciling income collected by Park aids. PARCS will largely free rangers from this administrative task and allow them to better focus on ranger duties. This should increase quality of park services that might eventually increase the number of park visitors.

• Increased Executive Information: PARCS will provide quicker and more extensive information to DPR executives. This should improve decision making with possible benefits accruing in income collection and customer service.

• Automated Parking Machines: In the past, replacement of Iron Rangers has substantially increased park receipts.

Intangible Cost Savings:

DPR Sacramento Headquarters staff’s receipt reconciliation and posting workload will be reduced, thus allowing them to divert their efforts to other administrative tasks. This diversion will not result in current staff cost reductions.

I. COST BENEFIT ANALYSIS

1. OPTION: DPR asked the consulting team to evaluate the system implementation option for only the 10 busiest state parks (50% of total parks revenue)

2. COSTS: The consulting team estimated the following implementation costs:

|COST TYPE |AMOUNT |NOTE |

|Hardware Purchase |$5000 |One-time per workstation |

|Hardware Maintenance |$500 |Per workstation per year |

|Software Development |$500,00 |One-time, outsource |

|Software Upgrades |$40,000 |Per year |

|Telecommunications Enhancements |$100,000 |One-time |

|Telecommunications Maintenance |$8,000 |Per year |

3. IMPLEMETATION TIME: The consulting team estimates that it will take 18 months to implement PARCS for the busiest 10 parks..

J. VENDOR SCREENING CRITERIA

The consulting team researched the IT literature and consulted with a few consulting colleagues to compile a list of criteria by which to evaluate (compare) bids submitted by different Systems Integrator vendors. The team also sent a questionnaire to key parks personnel to determine relative importance weights for each evaluation factor and sub-factor. Following are the resulting criteria and weights used in the PARCS project (NOTE: "1" is most important, "2" is next most important, etc.):

|Factor / Item |Factor Rank |

|System Design Experience |1 |

|Technical Knowledge |2 |

|Maintenance/Repair Capabilities |3 |

|Business Stability |3 |

|Installation Experience |5 |

|Staff Qualifications |5 |

|Technology Refresh Capabilities |7 |

|Financial Stability |7 |

|Training Capabilities |9 |

The team then tested its weighting scheme by developing three test vendor submissions and asking key DPR personnel to rate these submissions on a scale of 1 to 5, where 5 was highest quality and 1 was lowest. The median ratings from this test are shown below:

|FACTOR |VENDOR A | VENDOR B |VENDOR C |

|System Design Experience |5 |3 |4 |

|Technical Knowledge |3 |5 |3 |

|Maintenance / Repair Capabilities |2 |2 |5 |

|Business Stability |5 |3 |1 |

|Installation Experience |4 |2 |1 |

|Staff Qualifications |4 |5 |2 |

|Technology Refresh Capabilities |2 |4 |2 |

|Financial Stability |4 |3 |2 |

|Training Capabilities |1 |3 |4 |

ASSIGNMENTS

1. Compute the Break-even Point and Payback Period for the proposed PARCS project.

2. Solve the PARCS Vendor Screening problem and give your recommendations as to which vendor(s) should be selected.

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