CHAPTER 16



CHAPTER 18

INTRODUCTION TO SYSTEMS DEVELOPMENT

AND SYSTEMS ANALYSIS

SUGGESTED ANSWERS TO DISCUSSION QUESTIONS

18.1 To some degree, yes, companies with few IS employees should attempt to implement planning programs. This is particularly true if the company or its computer usage is growing. The extent of the planning program should be commensurate with the size of the computer facility, reliance on system information, and the potential value of the company=s system.

The benefits of planning are attainable from even a small investment in planning effort. In the smallest facility, the plan may consist simply of a few pages of thoughts and projects prepared and reviewed periodically by the person in charge of the system. A smaller company will typically have less funds than a large company. Therefore, inadequate planning can be more disastrous and financially draining for small companies.

18.2 It is apparent from the question that the decision has already been made, so the discussion should not dwell upon the merits of the decision. The communication should be direct, so that the employees are the first to find out and do not have to suffer through rumors and uncertainty. The communication should not be delayed, in order that these employees will have sufficient time to seek other jobs.

Management should also be encouraged to offer whatever assistance they are willing to provide to these employees in finding new jobs. This might include recommendations from supervisors, consideration for other job opportunities which arise in the firm, opportunities to test or train for positions in the new system, and time off for job searching during the terminal period of employment.

While these actions may well be costly, they will provide benefits (cooperation, morale of remaining employees, etc.) that will likely exceed the costs.

18.3 The item cannot be interpreted without further information from the computer vendor. What decisions, made by which managers, are being referred to? How will the decisions be improved by the computer? Unless very specific answers are obtained to these questions, the item should be ignored in the computer acquisition decision.

A computer system usually will help management make better decisions; however, these decisions do not always result in a direct cost savings. The economic feasibility study should only include costs that can be directly determined. In addition to an economic feasibility study, qualitative factors, like better decision making, should be considered. In many instances these non-quantifiable benefits may be the majority of benefits. Even though they are subjective and are surrounded by uncertainty they must be considered.

4. Though these two concepts appear to be inconsistent, there are several policies which are consistent with both.

• One policy, which is quite common, is the suspension of clerical hiring during systems implementation to achieve clerical cost savings through the normal attrition of the work force.

• Optional early retirement programs for older employees

• Relocation of employees in other departments or divisions of the company

• Training displaced employees for positions in the new system.

Applied together, these policies should reconcile the apparent inconsistency of these two concepts.

18.5 Because information systems span functional and divisional boundaries, many organizations (up to 60 to 70% in some studies) establish an executive-level steering committee to plan and oversee the IS function. The committee typically consists of management from the systems department, the controller, and other management affected by the information systems function. This steering committee is responsible for the broad policies and plans needed in developing and maintaining the company's information system. Though functions vary between firms, activities include the following:

• Making recommendations concerning the firm's strategic systems plan, systems projects, and hardware and software selection.

• Coordinating the development of systems projects and monitoring their progress.

• Reviewing the overall performance of the information systems function.

The committee should not get overly involved in technical details or administration of specific projects. It should meet only when necessary to carry out its functions. Steering committees help ensure the right level of top management participation, guidance, and control of the information systems function. They also facilitate coordination and integration of information systems activities among departments and functions, thereby increasing goal congruence and reducing goal conflict.

Answers on recommendations concerning membership and a chairperson will vary. The steering committee should include a cross-functional membership with managers from all areas affected by the information systems function. The chairperson is usually the chairperson of the information systems department or another influential vice-president with strong IS skills and an active interest in the IS function.

18.6 Many simple examples of tradeoffs between objectives may be conceived. One example is provided here for each pair of objectives given.

a. the decision of how much information should be made available to a credit manager in deciding whether or not to extend credit versus the cost of providing that information.

b. the decision of whether or not to implement any new internal control procedure.

c. the decision of whether or not to make direct access capability available to sales personnel.

d. any decision of the extent to which output information should be reported in detail or summarized.

e. any decision of whether or not to implement additional internal control procedures.

f. the decision of whether or not to acquire an additional file storage unit.

g. the decision to replace tape file storage with disk file storage.

18.7 A possible solution to Jerry's problem is to install an information system that can coordinate job scheduling, track customer orders, and control product labeling. The system can also help reduce bottlenecks in the milk pasteurization and homogenization process by controlling production schedules.

It appears that Jerry has conducted an initial investigation and determined that actual problems exist. Jerry now needs to hire an outside consultant or appoint some on his staff to conduct a more in-depth investigation. The purpose of this investigation is to verify the nature of the problem and to identify the needs of the customers and the users. The person conducting the investigation should interview the employees who process, bottle, and deliver the milk. These employees will be able to identify what is wrong with the current process and make suggestions for improvement.

Customers should also be interviewed to find out their needs since meeting customer's needs is the ultimate goal of the company.

Finally, Jerry and other managers should be interviewed to get their insights about the problems and possible solutions. Interviewing from the bottom up will result in better problem identification and solutions than from the top down. Lower level employees are more likely to accept a change in the system when they were the ones who first suggested the changes.

At this stage, the consultant will find interviewing techniques most useful in developing a problem statement. He will probably find observation and reviewing whatever documentation is available to also be of some use. A customer questionnaire may also produce useful information.

18.8 Questions that will aid in understanding the concerns about product quality include:

• What is it, specifically, that customers are complaining about?

• Has anything happened to change product quality during the past few years?

• Is poor product quality the result of:

• Poor quality materials?

• Inadequate product specifications? If so, can specifications be altered to improve quality?

• Low employee morale?

• Changes in production procedures?

• (Expand to include other possibilities for the poor quality)

• Does the company employ a total quality management (TQM) program? Would a TQM program be beneficial?

Questions that will aid in understanding the bad debt problem include:

• Has the company recently changed its credit policy? If so, why?

• Are certain customer groups more delinquent than others?

• What collection procedures does the company employ? Are they adequate?

• Are early payment discounts and late payment penalties adequate?

• Are current economic conditions affecting delinquency rates?

Questions that will aid in understanding the cost problem include:

• What production scheduling system does the company employ?

• Are delays in receiving materials occurring? What are the current policies to handle the receipt of raw materials?

• What is the reason for the overtime problem? Is it increasing sales, understaffed lines, inefficient workers, etc?

• Is rework the result of poor employee performance, lower quality materials, a poor production process, etc.?

• What economic conditions are affecting production costs?

18.9 a. Observation of procedures, interviews with employees, and documentation reviews (of document or control flowcharts, for example) will all aid in understanding purchase requisition procedures. Each type of procedure will identify different aspects of the internal controls in the purchasing department.

b. An in-depth interview with the controller is the one way to determine her information needs. However, managers often don’t know what information they need and they tend to say they need the information they are now getting and little else. Therefore the interviewer/analyst must understand the manager’s function and the role of that function in the organization. Interviewing is an efficient fact-finding technique and it allows a prepared and informed interviewer to ask "why" or probing questions to better identify the controller's needs. Reviewing the reports that the controller currently receives is also a good way to identify her needs. The interviewer should also ask the controller what information she would like to receive that she is not now receiving.

c. If the cash procedures are documented, a review of that documentation will help understand how it is supposed to work. The best way to understand how cash disbursement procedures are actually performed is to interview employees and to observe them and then prepare flowcharts and notes.

d. By using a questionnaire the opinions of many different employees can be gathered. Questionnaires also produce information in a standardized format. A questionnaire allows employees to think about the questions before giving answers and it is more objective than other data gathering methods. Anonymous questionnaires will encourage employees to give honest answers.

Questionnaires produce a "breadth" but not a "depth" of information. To go beyond the questions in the questionnaire, interviews should be held with selected employees. The purpose of the interviews is to probe deeper to find out why employees feel as they do.

e. Interviews with employees and examination of documents will provide good initial sources of information to investigate the problem. Documents will show which accounts are uncollectible and help with an understanding of the company's collection policies. Interviews will help determine why uncollectible accounts have increased.

SUGGESTED ANSWERS TO THE PROBLEMS

18.1 a. Employee reaction to the installation of a new information system is often diverse and unpredictable. In many cases, employees must make significant behavioral adjustments to ensure the future success of the new system. These adjustments go well beyond mere surface anxieties such as fear of the unknown. Adverse behavior may result for several reasons. Items to be discussed include:

• Is Chai's adverse behavior due to a need to protect her ego? Is she afraid she could not use the computer properly and would look foolish?

• Was Chai excluded from the decision to automate the office? As a result, does she feel resentment and refuse to use a system she wasn't asked to help design?

• Is she fearful because computers sometimes cause people to overcommunicate? (i.e., with capabilities such as electronic mail, executives and employees can always be reached anywhere and any time, making it difficult to get away from all the interruptions that are part of the daily grind.)

• Is she worried that the computer will impose its own structure on the organization? Managers and professionals have their own way of filing, doling out assignments, and reading mail. The computer can considerably narrow that freedom causing the professional to view the computer as structure and constraint.

• Chai may have some legitimate concerns and we should not dismiss those concerns out of hand.

b. To ensure the success of the new system it is critical that Chai, as a member of top management, fully support the new system and demand the same support from all company employees. This can best be achieved through the following methods:

• Provide training, private if necessary, allowing executives to protect their egos and learn the capabilities of the system that will assist them in their daily routines.

• Maintain open lines of communication to ensure that individuals affected by the system are active in decision making and planning processes and to keep them fully informed and updated concerning systems changes.

• Clarify the purpose of the system and emphasize the personal benefits that can be derived from learning and using the new system. Managers and executives are often interested in the system's ability to reduce operating costs, streamline operations, and reduce personnel.

• Humanize the system to facilitate the idea of sharing control. Users want to feel in control and are often reluctant to admit that computer systems tell them what to do.

• Include Chai in subsequent computer decisions. Her enthusiasm for the system will likely increase if her input is included in the changes.

18.2 This is an actual case with the facts presented as accurately as possible. The objective of the case is to familiarize students with the behavioral issues surrounding a systems change. In some parts of the problem, it is less important to determine the "right answer" (there may not be one) as it is to discuss the issues. Important points to cover are:

a. The company contributed to the initial failure in the following ways:

• Clearly the company did not involve Mary in the systems change. They did not ask for her thoughts, ideas, or input. Evidently, she was not informed of the change until the computer was moved into her office and the furniture rearranged to make room for it. It would be easy for her to get the feeling she was not a very valued employee of the company.

• The company did not explain why the system was being implemented, what the company hoped to achieve by installing the system, and why the system was so important to the company's operations.

• The company did not explain the likely changes, if any, that would take place with Mary's job and responsibilities.

• Mary was not given any assurance that she would not be replaced by the system.

• The company did not alleviate Mary's fear by reassuring her that training would be provided to help her adapt to the new system and her duties.

• Running two systems longer than it took to test system reliability was a mistake, as was having Dave do the work.

b. Fewer problems would have been encountered if the company had followed a few simple steps. Some of these are listed below.

• Mary should have been informed of the change to take place, the purpose of the change, and why it was important to the company. Through discussing these areas with Mary, the company could have created an attitude of trust and cooperation and set an example for what they expected of Mary.

• The company should have allowed Mary to make suggestions concerning the system and what would help her do her job more efficiently.

• Mary should be reassured that she has control over the system and not the other way around and that the system will help her perform her job more effectively.

• Perhaps education prior to the systems implementation would have helped Mary adapt to the system more readily.

c. The questions asked in part C are answered in order.

• Mary should have at least been informed as soon as the decision was made to purchase the system. Preferably, Mary should have been informed at the very start when the company began thinking about the computer system. This would have allowed Mary to give valuable input and to be involved throughout the entire process.

•

• Because Mary was only a bookkeeper and did not fully understand the necessity of the system, she should not have been allowed to make the final decision on acquiring the system. However, if Mary had been involved from the beginning it is possible that she would have been in favor of the system. Even though she should not make the final decision, if her input had been considered it would have helped her accept the decision better.

• An effort should have been made to persuade her of the system's viability. If that is unsuccessful then consideration should be given to relocating her within the company. If both previous plans fail then termination is the only alternative available.

• Mary should have been given an opportunity for greater input. The company should have solicited her suggestions concerning how the system would best assist her with her job and how the system could achieve success in general terms. This participation would have likely increased Mary's self-esteem and security with the new system and changed her whole outlook about the system.

d. There are advantages and disadvantages to each of the four options. Students will come to different conclusions based on their background. It is important to bring out the advantages and disadvantages of each approach. A few of these concerns are shown below. This problem works well when the instructor determines which students support which alternative and plays them off against each other.

1. Firing can have the following advantages:

• The company can hire a more qualified individual who can perform the job more efficiently.

• The company can rid itself of an uncooperative employee and replace her with someone with a more positive attitude.

Firing can have the following disadvantages:

• The company sends messages to other employees and perhaps the community in general that they don't care about their employees as much as they do about profits and operations. This may significantly lower company morale.

• The firm may have higher training and hiring costs.

• The person hired may cost more and bring unknown problems to the job.

2. Transferring employees can have the following advantages:

• The company is less likely to communicate that it does not care for its employees.

• The transferred person has experience with the company and may be of greater value to the company in another area than a newly hired person. Also, training and hiring costs remain constant.

Transferring can have the following disadvantages:

• Employees may resent being transferred and not perform well in their new duties.

• Employees may not be qualified for the new job and perform poorly.

• If the transferred employee is disgruntled and begins talking about her situation to her coworkers it could affect company morale.

3. Persuasion can have the following advantages:

• A valuable employee may be retained and her time freed up to perform more important tasks.

• Hiring and training costs can be kept to a minimum.

• The company communicates consideration for its employees.

Persuasion can have the following disadvantages:

• The employee may never truly adapt, resulting in poor job performance and an increase in errors.

• Significant costs may be incurred to constantly train the employee and identify the mistakes made by the employee.

• The company may make poor decisions based on incorrect information given by the employee.

• It may only serve to increase even further the frustration level that already exists.

Mary was eventually fired and another operator/bookkeeper hired. With the new system, there was not enough work to keep the new employee busy full time. Consequently, the employee took over additional tasks that Dave had originally been performing. This freed him up for more creative tasks and to have more personal time.

Mary was interviewed several years later. She was employed at another firm and worked extensively with computers. Mary was asked if the company could have done anything to help her adapt to the computer and she said no. She had such a mental block against the computer at that time that she doubted the company could have done anything else to help her. It required several years for her to overcome her fear and learn to use computers.

18.3 a.

1. Delaying action on certain reports during periods of peak activity could be dysfunctional. If the reports contain information that could improve their actions immediately, any delay in action would be dysfunctional. If the reports continue to accumulate with no action taking place (i.e., the department heads do not catch up during the lulls), this may be dysfunctional behavior. On the other hand, they may let the reports accumulate because they are worthless.

2. Having too many reports so that no action or the wrong action is taken is a dysfunctional response and a good example of information overload. The department heads were unable to assimilate the supplied information properly, and therefore they did not use it or used it incorrectly. It is likely that the system must be changed to correct the problem.

3. Dysfunctional because the department head does not even refer to the data until a fellow employee follows up on the critical information in order to make a decision. If delays continually take place and result in complications and/or delays in other departments, this lack of action is dysfunctional.

4. The department head's actions can be considered both functional and dysfunctional. The development of information from alternative sources is dysfunctional to the firm because the formal system is not producing the information in a usable form and the process of developing information from other sources probably has a cost. However, the fact that the department head was able to generate the needed information from other sources so that action could be taken is a functional response to the problem.

b. The dysfunctional behavior that occurred in the Wright company was a direct result of management's failure to recognize that information systems are dynamic. Once the system is designed and implemented, it should be continually reviewed to acknowledge and incorporate any needed improvements. A committee composed of both systems staff and users should be established to review the present system and to educate users as to the information needs and the use of information.

This committee should gather information concerning what information is essential to the decision accuracy of each respective department. Through allowing department heads to participate in the form, content, and volume of system output, the objective is to develop an attitude that enables them to identify with the company and the system in its efforts toward improvement. In addition, participation is ego-enhancing, challenging, and intrinsically satisfying.

Users who participate in developing the system are more knowledgeable of the technical aspects of the system and are better able to use its information. The increased knowledge of system information also enables department heads to develop a priority system for acting on the information, regardless of its volume, produced by the system.

Once the system is ready for implementation, the system must be properly tested to minimize initial bad impressions and the likelihood of a result similar to that evident under the old system.

18.4 TIM'S TRAVEL INC.

The analysis that follows indicates that Tim's Travel would be better off economically to purchase a new system rather than rehabilitate the existing system. Tim's can achieve a 13.26% return through purchasing a new system as opposed to a 11.57% return from rehabilitating the old system.

Note: The calculations for NPV and IRR were made by carrying the decimal places all the way out for every calculation. However, for illustrative purposes below, all other calculations have been rounded to zero decimal places.

| |

|PURCHASE NEW SYSTEM |

|CASH FLOWS: (See calculations below) |

| | | | | | | | | |

| |Initial |Year |Year |Year |Year |Year |Year |Year |

|TYPE |Investment |1 |2 |3 |4 |5 |6 |7 |

| | | | | | | | | |

|INITIAL INVESTMENT |($224,800) | | | | | | | |

|SALE OF OLD SYSTEM |$22,425 | | | | | | | |

|SALVAGE VALUE | | | | | | | |$12,000 |

|REDUCED EMPLOYEE | |$25,220 |$25,220 |$25,220 |$25,220 |$25,220 |$25,220 |$25,220 |

|INCREASED PROFITS | |$16,175 |$16,175 |$16,175 |$16,175 |$16,175 |$16,175 |$16,175 |

|COMPUTER OP. COST | |($9,269) |($9,269) |($9,269) |($9,269) |($9,269) |($9,269) |($9,269) |

|DEPRECIATION - TAX SAVINGS | |$15,736 |$25,178 |$15,107 |$9,064 |$9,064 |$4,532 |$0 |

| | | | | | | | | |

|CASH FLOWS |($202,375) |$47,862 |$57,304 |$47,233 |$41,190 |$41,190 |$36,658 |$44,126 |

| | | | |

|TAX RATE |35% |NET PRESENT VALUE |$14,220 |

| | |PAYBACK |4.21 Year |

|MINIMUM DESIRED RATE OF RETURN |11% |INTERNAL RATE OF RETURN |13.26% |

| |

|CALCULATIONS |

| | |

|EMPLOYEE REDUCTION: |ANNUAL OPERATING COSTS: |

| | | | | | | | | | |

| |NUMBER |AVG. SAL |TOTAL |TAX ADJ. |NET CASH | |INCREASE |TAX ADJ. |NET CASH |

| | | | | | | | | | |

| |2 |$19,400 |$38,800 |65% |$25,220 | |$14,260 |0.65 |$9,269 |

| |

|INCREASED PROFITS: |

| | | | | | |

| |AMOUNT |INCREASE |NET |TAX ADJ. |NET CASH |

| | | | | | |

| |$553,000 |4.5% |$24,885 |65% |$16, 175 |

| |

|DEPRECIATION COMPUTATION: |

| | | | | | | |

| |YEAR |BASIS |Depreciation% |Depreciation Amount |TAX RATE |CASH FLOW |

| | | | | | | |

| |1 |$224,800 |20.00% |$44,960 |35.00% |$15,736 |

| |2 |$224,800 |32.00% |$71,936 |35.00% |$25,178 |

| |3 |$224,800 |19.20% |$43,162 |35.00% |$15,107 |

| |4 |$224,800 |11.52% |$25,897 |35.00% |$9,064 |

| |5 |$224,800 |11.52% |$25,897 |35.00% |$9,064 |

| |6 |$224,800 |5.76% |$12,948 |35.00% |$4,532 |

| |7 |$224,800 |0.00% |$0 |35.00% |$0 |

|SALE OF OLD SYSTEM: |

| | | |

| |MARKET VALUE |$24,000 |

| |BOOK VALUE |$19,500 |

| |GAIN |$4,500 |

| |TAX RATE |35.00% |

| |TAX PAYABLE |$1,575 |

| | | |

| |SALE PRICE |$24,000 |

| |TAX PAYABLE |$1,575 |

| |NET CASH FLOW |$22,425 |

| | | |

| |

|REHABILITATE PRESENT PROGRAM |

|CASH FLOWS: |

| | | | | | | | | |

| |Initial |YEAR |YEAR |YEAR |YEAR |YEAR |YEAR |YEAR |

|TYPE |Investment |1 |2 |3 |4 |5 |6 |7 |

| | | | | | | | | |

|INITIAL INVESTMENT |($97,500) | | | | | | | |

|SALVAGE VALUE | | | | | | | |$7,500 |

|REDUCED EMPLOYEES | |$12,610 |$12,610 |$12,610 |$12,610 |$12,610 |$12,610 |$12,610 |

|INCREASED PROFITS | |$12,581 |$12,581 |$12,581 |$12,581 |$12,581 |$12,581 |$12,581 |

|COMPUTER OP. COSTS | |($10,368) |($10,368) |($10,368) |($10,368) |($10,368) |($10,368) |($10,368) |

|DEPRECIATION - TAX | |$6,825 |$10,920 |$6,552 |$3,931 |$3,931 |$1,966 |$0 |

| | | | | | | | | |

|CASH FLOWS |($97,500) |$21,648 |$25,743 |$21,375 |$18,754 |$18,754 |$16,789 |$22,323 |

| | | | |

|TAX RATE |35% |NET PRESENT VALUE |$1,738.00 |

| | |PAYBACK |4.53 Year |

|MINIMUM DESIRED RATE OF RETURN |11% |INTERNAL RATE OF RETURN |11.57% |

| |

|CALCULATIONS |

| | |

|EMPLOYEE REDUCTION |ANNUAL OPERATING COSTS |

| | | | | | | | | | |

| |NUMBER |AVG. SAL |TOTAL |TAX ADJ. |NET CASH | |INCREASE |TAX ADJ. |NET CASH |

| | | | | | | | | | |

| |1 |$19,400 |$19,400 |65% |$12,610 | |$15,950 |65% |$10,368 |

| |

|INCREASED PROFITS: |

| | | | | | |

| |AMOUNT |INCREASE |NET |TAX ADJ. |NET CASH |

| | | | | | |

| |$553,000 |3.5% |$19,355 |65% |$12,581 |

| |

|DEPRECIATION COMPUTATION: |

| | | | | | | |

| |YEAR |BASIS |Depreciation% |Depreciation Amount |TAX RATE |CASH FLOW |

| | | | | | | |

| |1 |$97,500 |20.00% |$19,500 |35.00% |$6,825 |

| |2 |$97,500 |32.00% |$31,200 |35.00% |$10,920 |

| |3 |$97,500 |19.20% |$18,720 |35.00% |$6,552 |

| |4 |$97,500 |11.52% |$11,232 |35.00% |$3,931 |

| |5 |$97,500 |11.52% |$11,232 |35.00% |$3,931 |

| |6 |$97,500 |5.76% |$5,616 |35.00% |$1,966 |

| |7 |$97,500 |0.00% |$0 |35.00% |$0 |

18.5. ROSSCO INCORPORATED

The analysis reveals that the information system acquisition would be to Rossco's advantage. The internal rate of return of 23.23% is higher than the hurdle rate of 11%. The IRR also suggests a positive net present value of $56,157. Payback is in 2.44 years. Rossco should proceed with the purchase.

| |

|CASH FLOWS: |

| | | | | | |

| |Initial |YEAR |YEAR |YEAR |YEAR |

|TYPE |Investment |1 |2 |3 |4 |

| | | | | | |

|INITIAL INVESTMENT |($206,000) | | | | |

|REDUCED EMPLOYEES | |$72,000 |$72,000 |$72,000 |$72,000 |

|INVENTORY SAVINGS | |$9,900 |$9,900 |$9,900 |$9,900 |

|COMPUTER OP. COSTS | |($18,000) |($18,000) |($18,000) |($18,000) |

|DEPRECIATION - TAX | |$20,600 |$20,600 |$20,600 |$20,600 |

| | | | | | |

|CASH FLOWS |($206,000) |$84,500 |$84,500 |$84,500 |$84,500 |

| | | | |

|TAX RATE |40% |NET PRESENT VALUE |$56,157 |

| | |PAYBACK |2.44 Year |

|MINIMUM DESIRED RATE OF RETURN |11% |INTERNAL RATE OF RETURN |23.23% |

| |

|CALCULATIONS |

| | |

|EMPLOYEE REDUCTION |ANNUAL OPERATING COSTS |

| | | | | | | | | | |

| |NUMBER |AVG. SAL |TOTAL |TAX ADJ. |NET CASH | |INCREASE |TAX ADJ. |NET CASH |

| | | | | | | | | | |

| |3 |$40,000 |$120,000 |60% |$72,000 | |$30,000 |60% |$18,000 |

| |

|SAVINGS FROM INVENTORY REDUCTION: |

| |

|INITIAL INVESTMENT: |

| | | |

| |INITIAL SYSTEM DESIGN |$54,000 |

| |HARDWARE |$74,000 |

| |SOFTWARE |$35,000 |

| |INITIAL TRAINING |$11,000 |

| |INSTALLATION |$20,000 |

| |CONVERSION |$12,000 |

| | |$206,000 |

| | | | | | |

| |AMOUNT |INT. RATE |NET |TAX ADJ. |NET CASH |

| | | | | | |

| |$150,000 |11% |$16,500 |60% |$9,900 |

| |

|DEPRECIATION COMPUTATION: |

| | | | | |

| | |STRAIGHT LINE | | |

|YEAR |BASIS | |TAX RATE |CASH FLOW |

| | | | | | |

| | |% |AMOUNT | | |

| | | | | | |

|1 |($206,000) |25.00% |($51,500) |40.00% |($20,600) |

|2 |($206,000) |25.00% |($51,500) |40.00% |($20,600) |

|3 |($206,000) |25.00% |($51,500) |40.00% |($20,600) |

|4 |($206,000) |25.00% |($51,500) |40.00% |($20,600) |

18.6 Adapted from the SMAC Exam

Acceptable Items:

1. Item 1 (a) - reduces salary costs.

2. Item 1 (b) - reduces capital requirements.

3. Item 1 (c) - improves flexibility and reduces sales losses but hard to incorporate into cost justification.

4. Item 2 (a) - saves 40% of one salary.

5. Item 2(b) - total salary savings are 50% of all areas.

6. Item 2 (c) - saves 40% of one salary.

7. Item 5 (a) - reduces salary by 30-40%.

8. Item 5 (b) - reduces salary by 40%.

Rejected Items:

1. Item 3 (a) - savings are only estimated implications; hard to incorporate into cost justification.

2. Item 4 (a) - consider, but hard to incorporate into cost justification.

18.7 Adapted from the March 1988 SMAC Exam (AIS Section, Question 1)

a. 1. The information system could be rejected, causing friction between users and management

2. The system could be incorrectly or illegally modified to satisfy the users' needs.

3. The information system could be inconsistently used, causing confusion of facts.

4. Unofficial sources of information may be developed, impeding decision making and organization.

5. The system may be ignored, even causing the disuse of effective controls or functions.

6. Internal controls will not be used or will be ignored by the users.

7. Employees may not be motivated to perform their tasks, believing the task is not effective.

8. A lack of goal congruence may cause managers to modify their positions for personal benefit.

9. Managers could be using false or incorrect information to make business decisions.

10. The company's financial statements may be incorrect because employees are not motivated to ensure accuracy or completeness.

b. 1. The managers feel that information is not relevant. Incorrect analysis of production processes.

2. The information generated by the system is not appropriate. Only actual production costs are analyzed.

3. The managers feel more timely information is required. It takes days to produce simple cost analyses.

4. The system is not supplying summary reports to management. The VP of Manufacturing is busy compiling simple cost reports.

5. The system is not flexible or responsive to the needs of the managers. Managers cannot develop their own recurring reports.

6. The system is not specific in identifying cost of goods sold variations. Costs seldom vary, when inflation is considered. Production supervisors are not striving for increased production.

7. The system does not supply the information needs of the organization. Production information is being supplied by a junior salesman.

c. The firm could use the following policies and practices to help ensure that costs are reduced and that no employees are laid off:

1. Tell employees what is going to happen to them as soon as possible.

2. Institute a hiring freeze before and during implementation so as to reduce clerical staff by attrition.

3. Retrain displaced employees for other jobs.

4. Offer early retirement to older employees.

5. Offer retirement incentives.

6. Offer displaced employees positions comparable to their old jobs in other divisions of the company.

7. Hire a personnel consulting firm to assist displaced employees in finding alternative employment.

8. Encourage part-time work or job-sharing.

18.8 Adapted from the December 1988 CMA Examination (Part 2, Question 8)

a. The benefits that companies and their employees can receive from electronic communication include:

• A greater optimization of organizational resources. This will increase productivity, thereby increasing profitability.

• More timely information for management decision making.

• Easier and quicker access to corporate data.

• More technological advancements. This will sustain or increase the organization's competitive status and will ensure employees of marketable technological skills.

• Standardized procedures and operations. Once a program is established computers will repeat the same logical procedures.

b. For an organization, the initial costs of an electronic communication system is usually a major capital purchase. This will require special procedures for capital acquisitions. With the increase in technology, the organization will increase its comparative advantage. Small companies who cannot afford the technology may be squeezed out of the market.

Employees will be affected by the change. They may experience a personal lack of confidence, a fear of change, and a fear that they may lose their jobs.

c. 1. An employee might resist the introduction of an electronic communication system due to:

• A general resistance to change. This may include the fear that they will be replaced by a machine and lose their employment.

• A general lack of knowledge of what the system is and how it will help the employee on the job.

• Embarrassment of not knowing how to use the system.

2. The steps an organization can take to alleviate employees' resistance to electronic communication include:

• Communication of information as to why the system is being implemented and how it will affect each employee's job. The intent should be to reinforce job security.

• Education and training of employees on how to use the system by providing system manuals and designated user support.

• Giving employees the opportunity to make suggestions for improving the system.

18.9 adapted from the december 1989 cma exam (part 5, problem 6)

A. 1. The external auditor would recommend the establishment of an information systems steering committee so that the company, from an overall organizational perspective, focuses on:

• A coordinated planning effort with all functional areas represented.

• Setting priorities to ensure that the highest priority items are considered first.

The specific responsibilities of the steering committee include:

• Developing a strategic systems plan which incorporates both short-term and long-term goals.

• Reviewing all major systems project proposals, including cost/benefit analyses, for approval or rejection.

• Assuring internal control considerations.

• Establishing the company's information system policies.

2. The advantages that might be realized from the establishment of an information systems steering committee include:

• Top management involvement in the information systems plan and function.

• Facilitating the coordination and integration of departments/functions and improving interdepartmental communications.

• Providing more effective management control over the allocation of systems resources.

b. The individuals who should most likely serve on the information systems steering committee include the six vice-presidents or their representatives, who should be high level managers knowledgeable about the company's plans and the information systems area; one or more members of the Information Systems Organization; the controller; and perhaps a member of the Financial and/or Internal Audit Organizations.

18.10 Adapted from the December 1986 CMA Exam (Part 2, Question 6)

a. The steps a manager should take to implement an organizational change include recognizing the need for change, analyzing the cause of the problem, and outlining the goals and objectives of the change. The manager must select the proper technique or strategy for the change.

The implementation of the change must be planned, including the development of a proposed timetable for completing the implementation. Other issues that must be considered include a determination of the costs of the change, how the change will affect other areas of the organization, and the degree of employee participation desired. In addition, there should be a subsequent period of follow-up and evaluation to ensure the change has had the desired results.

b. 1. Employees resist change because:

• They are generally satisfied with an existing system. Human nature is basically conservative, and people believe that what has proven successful in the past will be satisfactory for the future.

• A change could not be for the better if the employee was not consulted or did not participate in the decision making for the change.

• They do not know its implications. If they do not understand the change or mistrust those initiating the change, there is uncertainty and fear of the unknown.

• They fear that a change could threaten their security.

• They may be unwilling to expend the time and effort required to learn new procedures.

• A change may threaten interpersonal relationships.

• Employees also resist change because of their prior negative experience with change, their biases, or other personal characteristics and background factors.

• The manner in which the change is introduced.

• The perceived or real lack of top management support.

• The lack of communication about the intent of the change, its effect on them etc.

2. A manager can reduce the resistance to change by:

• Discussing planned changes. Clear and frequent communication as to the need for change and the reasoning behind the change will alleviate employees' fears of the unknown.

• Building trust. If employees perceive management as fair and honest and have confidence in management's abilities, they are less likely to resist change.

• Involving the employees in the change. Employees will more willingly accept a change that they helped to implement.

• Avoiding threats. Threatening behavior or employee intimidation often strengthens resistance to change.

• Meeting the needs of the users. When an employee's needs are met, they are more likely to welcome the changes.

• Obtaining top management support. When management is supportive of the changes, employees are more willing to accept the change.

• Providing feedback on employee suggestions. If employees are not given reasons why their suggestions were not implemented, they may foster bad feelings toward the new system.

• Training the employees on how to use the system.

• Describing new challenges and opportunities that the system provides. This will help employees realize that the new system may increase job satisfaction.

• Controlling the user's expectations. When employees expect more than what the system can perform, they are likely to dislike the new system.

18.11 Adapted from the June 1990 CMA Examination (Part 2, Question 7)

a. The general steps in the decision-making process that a company should take before implementing a major organizational change include:

• Establishing goals for the change.

• Diagnosis. The company must determine what has brought on the need for change so that the right changes are made. Management must also generate alternate solutions to the problem.

• Selection of change technique(s) from among the alternatives proposed.

• Planning for implementation.

• Implementation.

• Evaluation and follow-up to determine if the intended goals were accomplished.

b. Reasons why employees resist organizational change include:

• Uncertainty. Because of an innate fear of the unknown, employees are likely to become anxious and nervous. They may worry about their ability to meet new job requirements.

• Self-interest. Employees may fear that their job security is threatened.

• Employees perhaps not perceiving the need for change and preferring to maintain the status quo.

• Feelings of personal loss. Changes may disrupt existing social networks which threatens the social stability of the organization.

• Personal characteristics and background. Generally speaking, the younger people are, the fewer years they've been with the company, and the more highly educated they are, the more likely they are to accept change.

• Manner in which change is introduced. Resistance is often a reaction to the methods of instituting change rather than to change itself.

• Amount of trust. If previous changes have not created a feeling of trust, confidence, and cooperative spirit, users may feel management is trying to "put something over on them."

• Experience with prior changes. If employees have had a bad experience with prior changes, they tend to be more reluctant to cooperate with planned changes.

• Top management support. Employees often sense the overall attitude of top management toward a proposed system and the extent to which the system has top level support. If there is a lack of support, lower-level employees may think, "if top management doesn't support it, why should i?"

• Communication. Employees often do not know why changes are made. Unless it is clear that a change is not an indication of poor performance, they may react negatively to it.

• Biases and natural resistance to change. People often have emotional attachments to their duties or to the people they work with and don't want to change.

• Disruptive nature of the change process. Requests for information and interviews are disruptive of the normal routine and place additional burdens on people.

c. Some ways JEM Corporation can alleviate employee resistance to change are presented below.

• Employee participation. Employees should be encouraged to participate in the planning and implementation of the changes. Employees, who have had an opportunity to express their own ideas and to hear the positions of others, are more likely to accept change. Users should be encouraged to provide suggestions to improve the system. Provide honest feedback on user suggestions.

• Education. Educate employees concerning the need for and the expected results of future changes. Once persuaded, the employees will often help with the implementation of the changes.

• Facilitation and support. The company should listen to employee grievances and help to resolve problems.

• Meet the needs of the users. It is essential that the form, content, and volume of system output be designed to satisfy the needs of the users.

• Keep the lines of communication open. Managers and users should be fully informed of systems changes as soon as possible.

• Provide a proper atmosphere. It is critical that everyone affected by systems development have an attitude of trust and cooperation.

• Get management support. Top management should fully support the system and make it clear that everyone else is expected to support the system.

• Allay fears. Systems designers should provide assurances, to the degree possible, that there will be no major changes in job responsibilities or loss of jobs.

• Make sure users understand the system. Effective use or support cannot be obtained if users are confused about or do not understand the system.

• Humanize the system. Acceptance of the system is not likely if an individual believes that the computer is controlling him or has usurped her position.

• Describe new challenges and opportunities. Emphasize important and challenging tasks and point out that the system may provide greater job satisfaction and increased advancement opportunities.

• Properly test the system prior to implementation to minimize initial bad impressions.

• Avoid emotionalism. When logic vies with emotion, logic doesn't stand a chance.

• Sell the system based on how the change will affect them personally. Do not sell the system so well that users have unrealistic expectations of the system and what it will be able to do.

• Keep the system simple. Avoid complex systems that cause radical changes.

18.12 a. Characteristics of members that can influence the functioning and the effectiveness of the project team include the following:

Personality. More aggressive employees will often influence the task force by their nature, directing resources to meet their needs first at the expense of the needs of the company.

Position and influence. A project team with different levels of management may find members using their leadership positions to influence the actions of the group. For example, employee/users will feel less inclined to contribute if their viewpoint conflicts directly with their supervisor's viewpoint.

Skills. Members of the group who possess IS skills will often use their knowledge to influence decisions to meet their own needs without considering the needs of the company as a whole.

b. Several common areas of conflict could exist among the groups involved in this task force:

Conflicts among offices. Officers from the regional center may find themselves at odds with local managers concerning the needs of the Boston office and the company resources available to meet these needs.

Conflicts among positions. Conflicts may arise between the needs assessments offered by managers and those offered by users. In addition, conflicts may arise concerning the information systems needed and the finances available to fund the needs.

Conflicts along divisional lines. Such conflicts result as local offices battle for a fair share of a company's limited resources. With a strong showing of members of the Boston area, decisions made may favor that office over the others.

Conflicts along functional lines. When assessing a company's needs, priority is often given to a local or influential minority group. This particular task force is weighted heavily with accounting and finance types. No representation even exists for manufacturing, operations, marketing, research, or services.

Conflicts among user groups. For instance, conflicts between the needs of the sales staff and the needs of service employees may arise over the use of resources.

Each student will have a different opinion about whether or not the group will succeed. The student's answer should be based on the conflicts listed and how important each conflict really is.

c. The budget supervisor can contribute his/her insight concerning the amount of funds available for the Boston branch to finance the IS project. In addition, the budget supervisor has access to future financial projections and can assess the economic feasibility of any potential project.

18.13 a. The "great divide" is a reference to the gap between the information needs of business managers and the information produced by information systems.

The reasons for the great divide include the following:

• Many systems are seriously outdated and are not producing the needed information.

• Better educated end users are demanding better results from information systems that aren’t performing.

• Poor communications among system designers, end users, and business managers results in the development of ineffective information systems.

• IS people who do not understand operations and management of the business.

b. The first step in the solution is a more integrated approach to systems development involving all the necessary parties: designers, programmers, business managers, and end users. The use of a "systems approach" will insure that a thorough business analysis is conducted first to assess business needs.

Businesses must seek business managers willing to get involved in the IS development process. Well-trained managers can bridge the communication gap that limits the development of effective systems.

End users must also take an active role in the development process. In particular, designers should work closely with end users to accurately assess needs and to develop specific working solutions.

A systems approach will insure an integrated approach to systems development that meets the needs of all potential users and is aligned with the long-term objectives of the business.

c. Systems designers can seek the participation of end users and managers in the design and development process. Such an approach reduces behavioral problems associated with a new system and improves the probability that the system will meet the desired business objectives. They should also make a concerted effort to understand the business processes of the company.

The business manager can support the efforts of the design team in encouraging end-user involvement in the development process. In addition, business managers can communicate regularly with systems developers to insure that the system is meeting business objectives.

The end user can assist in bridging the great divide by taking a cooperative, interactive role in the development process.

d. In a systems approach, all players play important roles in the systems development process. The "information crisis" is in large part the result of an overreliance upon the systems analyst to meet the needs of managers and end users without their cooperation and input. It is also a result of analysts not taking the time to understand the business processes at their company.

18.14 Numerous flaws in the approach taken are apparent. They include:

• Ms. Grey did not give Mr. Young adequate instructions concerning how to carry on the interview and what information to obtain. A senior consultant must exercise closer supervision and provide better guidance to junior employees. Perhaps Ms. Grey should have performed the interview while Mr. Young observed.

• There was no preparation for the interview on the part of the consultants. They should have studied available documentation in order to learn something about what the department does and what the supervisor's job responsibilities are, and should have prepared an interview guide listing the topics to be discussed and questions to be asked.

• Mr. Young provided an oral report rather than written documentation of his findings. An interviewer should take notes during the interview, and polish them immediately afterward, in order to provide documentation for future analysis and reference.

• Mr. Young's opening statements to the supervisor were negative in tone. He should attempt to establish rapport with the interviewee, avoid making negative or threatening statements, and if possible, be positive about the goals of the study.

• Mr. Young should have asked the supervisor to explain how the department works. Most of the talking should have been by the supervisor while Mr. Young listened and took notes.

• The interview should have been scheduled ahead of time and the department supervisor should have had time to prepare for the interview.

18.15 Adapted from the December 1978 CMA exam (Part 5, Question 2)

a. The purposes and reasons for analyzing an organization's existing system include:

• To gain an understanding of the existing system and how it functions.

• To determine the constraints of the current system.

• To assess the strengths and weaknesses of the existing system and to identify problems that need to be resolved.

• To provide a source for design ideas for the new system and to identify the resources which are available.

• To provide information about the information needs of the users.

b. General activities and techniques which are commonly used during systems analysis include:

Initial Investigation

• Verify the nature of the problem and the needs of the users.

• Gather the information needed to evaluate the feasibility of the request.

Systems Survey

• Study and review the existing organization structure to determine how it functions.

• Review and collect internal documents and reports to determine design, content, use, frequency of preparation, etc.

• Develop and use questionnaire forms to determine processing frequencies, input/output volumes, and other information useful to the systems study.

• Conduct personal interviews with operating personnel to confirm and expand upon data gathered from the questionnaire.

• Develop flowcharts and data flow diagrams to document the existing system.

• Study external sources of data which include companies who have developed or who market similar systems, consultants specializing in such systems, customers, industry trade associations, and government agencies.

• Observe activities of the system to determine how the system actually works, rather than what people or the documentation say should be done.

Feasibility Study

• Conduct a study to determine whether or not to continue with the project.

Information Needs and System Requirements

• Define and document the information needs of the users.

• Define and document the requirements of the new system.

Systems Analysis Report

• Summarizes and documents the findings of the analysis activities.

c. The major role in systems analysis belongs to systems people. However, the management accountant is an important part of the development team and would be of assistance in providing information about various aspects of the system, including:

• Management's needs for required reports and their format.

• The requirements of the system.

• The source documents in use.

• The relevance, reliability, and timeliness of input/output data.

• The internal controls which exist and which should be incorporated into any new or redesigned system.

[pic]

18.16. a. Project Planning Chart

b. Partially Completed GANTT Chart

Once the activity bars have been filled in to reflect the activities that have been fully or partially completed, it is a simple matter to evaluate whether the project is on schedule by looking down the column corresponding to the current week. In this case, Activity C is one-half week shy of the current date (Feb. 16), and Activity F is one-fourth week short. Therefore, the project is behind schedule.

c. Comparison of GANTT Charts and PERT

Advantages of PERT:

• Indicates which activities are critical as well as how much slack is available in the noncritical activities. This provides a basis for allocating resources to activities.

• Provides a measure of the uncertainty associated with project time and cost estimates.

• Indicates how to complete the project faster by speeding up certain activities.

• Shows the order in which activities must be completed. (For example, activity A must be completed before activity B can start.)

Advantages of GANTT Charts:

• It is easier to prepare than a PERT chart.

• Does not involve complex calculations and is thus less susceptible to error.

• The calendar format is easier to interpret visually.

• Is easier to update for completed activities.

• Makes it easier to determine whether a project is on schedule.

• Graphically shows the entire schedule for a project.

• Shows progress to date and current status of the project.

• Shows a schedule of when each project should start and end.

17.

Of the five aspects of feasibility, the manufacturing firm failed to adequately consider legal feasibility. Legal feasibility deals with the system’s compliance with all applicable federal and state laws, regulations, and contractual obligations.

In this particular case, the company failed to consider the contractual obligation not to alter the software without express written consent from the vendor.

18.18

Ajax Manufacturing failed to consider operational and technical feasibility when implementing their inventory tracking system.

Operational feasibility considers whether the organization’s personnel can and/or will use the system. For Ajax, the 30 hours required to scan all inventory in a 36-hour period was very difficult on personnel and most likely led to human error due to fatigue in the inventory count.

Technical feasibility deals with whether the technology is in place for the system to work. For Ajax, although the technology was in place and worked under normal circumstances, the scanners did not always work in the cold conditions of Ajax’s warehouse. Therefore the technology also failed which resulted in inventory errors.

SUGGESTED ANSWERS TO THE CASES

18-1 Answers to this case will vary based upon the company the student selects. Make sure that the student is thorough in addressing all the requirements of the case.

18-2 Adapted from the December 1977 CMA Examination (Part 2, Question 3)

1. The major parts of the problem stem from a total lack of communication within Audio-Visual. The failure to communicate has been spread over a minimum of two years and exists between all levels of management.

Initially top management failed to adequately plan the total upgrading of the MIS system and did not seek participation in the process. In addition, through lack of direction or control, top management has allowed the MIS group to change not only information systems but operating systems and procedures without operating management approval. Further, there appears to be a lack of concern by MIS over the problems the new systems have created for operating management. An advanced computer system and a new MIS management team were provided; however, top management failed to win the confidence of current operating management which was accustomed to a more decentralized approach.

Communication problems continued during the systems design phase. The MIS group failed to involve operating management in systems changes and apparently operating management failed to communicate their interest in being involved. As managers in a decentralized atmosphere they could have forced MIS to communicate but they chose to ignore the problem. Therefore, the failure to communicate properly can be traced to both the MIS and user groups. This problem was aided by top management's failure to plan properly the complete changeover and to perceive the potential and now-existent problem between MIS and operating management.

The new systems are now complete. Operating management realizes that there has been a centralization of decision making and a loss of operating flexibility resulting in employee morale problems, and they are still unable or unwilling to communicate with the top management. Top management and the president in particular, continue to be unaware of operating problems with the new MIS system.

2. The problems could have been avoided by improved planning and communication by top management, meetings between MIS staff and user groups at the start of the systems design work and periodically thereafter until the system is operational, and with closer monitoring of progress by top management using input from both user groups and MIS staff.

The basic step to be taken to avoid future problems is to review the organizational relationships to ensure proper organization, thereby allowing good communication to exist. In addition, a review of the character of management personnel will be required to determine if interpersonal problems are a roadblock to good internal communication.

3. a. From the limited amount of information available in the case, a definitive answer is difficult. However, it is possible to make some informed observations of systems analysis and design problems based on the information contained in the case.

1. It appears that the detectives were not asked what they wanted and/or needed in the new system.

2. If the detectives were asked for their input, it appears that it was not adequately communicated to the system designers or that their input was ignored.

3. The system did not provide the kind of service or performance the detectives wanted.

4. A particular problem noted in the case is that the detectives were not trained on the new system to their satisfaction. They did not feel comfortable using it because they did not understand how to use it.

b. The department could have involved the detectives early in the planning, analysis, and design of the new systems. By involving the detectives early the new system would have benefited from two primary success factors:

1. The detectives could have helped the systems analysts identify what they wanted in the new system, helped to design the new system, and given constructive feedback on the new system.

2. The detectives could have acted as conduits or liaisons to their respective departments by communicating suggestions from their department. They also could have acted as a champion or supporter of the new system to their colleagues.

The Chicago Police Department recognized the problems with new systems and took the following steps to improved system performance and user acceptance.

1. They increased the internal competence of their information systems group. They were a good team to begin with, but they lacked the proper training to manage a project of this magnitude. They recruited people with the correct skills and experience to successfully implement the system.

2. They increased training for all information systems professionals from entry-level developers to senior managers.

3. They sent out teams of programmers to the field for six weeks at a time to document all of the problems and issues the users were having with the system.

4. They instituted joint application design sessions with teams comprised of management, users, and technical staff.

5. They used actual police officers to train users in the field. Having officers act as trainers made a huge difference to the cop on the street. As one officer commented, “There is a certain degree of comfort with other police officers.”

c. The following principles of systems analysis and design were violated:

1. Limited or no user input,

2. Poor training

3. Users were not part of the development team.

18-4 a. From the limited amount of information available in the case, a definitive answer is difficult. However, it is possible to make some informed observations of systems analysis and design problems based on the information contained in the case.

1. It appears that the research and development teams were not asked what they wanted and/or needed in the new system.

2. If they were asked for their input, it appears that their input was ignored.

3. One definite problem with the roll-out of the new system is that the research and development teams were not adequately trained on the new system.

b. Big Pharma used the following techniques to allay the fears of the clinicians and improve user acceptance once the system had been rolled out:

1. They asked for input from the clinicians on how the electronic forms should be designed. Eventually, eighty percent of the forms became standard which left only 20% that had to be uniquely designed for each study or clinical trial. Through standard forms it was demonstrated to the clinicians that their studies could be started faster instead of reinventing the wheel for each form as was the case with the paper based system.

2. Project leaders provided clinicians with incentives to pilot test the system. Once the pilot testers were happy with the system, they helped spread the word about the benefits of the new system.

3. Project leaders made personal visits to users and listened to their concerns about the new system. They then implemented changes to the system in response to the user’s concerns.

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