Accounting Information Systems

CHAPTER 20

INTRODUCTION TO SYSTEMS DEVELOPMENT; SYSTEMS ANALYSIS

SUGGESTED ANSWERS TO DISCUSSION QUESTIONS

20.1 The approach to long-range AIS planning described in this chapter is important for large
organizations with extensive investments in computer facilities. Should small organizations
with far fewer information systems employees attempt to implement planning programs?
Why or why not? Be prepared to defend your position to the class.

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
should be commensurate with the size of the computer facility, reliance on system information, and
the potential value of the company’s system.

Planning produces benefits even if the planning effort is minimal. In the smallest facility, the plan
may consist simply of a few pages of thoughts and projects that are prepared and reviewed
periodically by the person in charge of the system. It could also consist of a bare bones cost-benefit
analysis.

A smaller company will typically have fewer funds than a large company will. Therefore,
inadequate planning can be more disastrous and financially draining for small companies.

20-1
 Accounting Information Systems

20.2 You are a consultant advising a firm on the design and implementation of a new system.
Management has decided to let several employees go after the system is implemented. Some
have many years of company service.

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

· Institute a hiring freeze so staff can be reduced by attrition.

· Retrain displaced employees for other jobs.

· Offer early retirement to older employees.

· Offer retirement incentives.

· Offer displaced employees comparable positions in other divisions of the company.

· Hire a personnel-consulting firm to help displaced employees find alternative employment.

· Train displaced employees for positions in the new system.

· Encourage part-time work or job-sharing.

How would you advise management to communicate this decision to the affected employees?
To the entire staff?

· The communication should be direct, so that the employees are the first to find out and are not
subject to the whims of rumors and uncertainty.

· The communication should be prompt so the employees have sufficient time to seek other jobs.

· Management should offer as much employee assistance as possible to help them find new jobs.
This includes recommendations from supervisors, priority consideration for other jobs in the
firm, opportunities for positions in the new system, time off to search for a new job, and
severance pay.

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

20-2
 Accounting Information Systems

20.3 While reviewing a list of benefits from a computer vendor’s proposal, you note an item that
reads, “Improvements in management decision making—$50,000 per year.” How would you
interpret this item? What influence should it have on the economic feasibility and the
computer acquisition decision?

The item cannot be properly interpreted without further information from the computer vendor,
such as what decisions, made by which managers, are they referring to? How will the decisions be
improved by the system? Unless you get very specific answers that support the calculations, the
item should be ignored when making the computer acquisition decision.

Usually, a computer system 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 most important or the majority of the benefits. Even though
they are subjective and are surrounded by uncertainty, they must be considered.

20-3
 Accounting Information Systems

20.4 For each of the following, discuss which data-gathering method(s) are most appropriate and
why:

a. Examining the adequacy of internal controls in the purchase requisition procedure -

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. Identifying the controller’s information needs - An in-depth interview with the controller
is one way to determine her information needs. However, managers often don’t know what
information they need; they 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. The interviewer should also ask the controller what
information she would like to receive that she is not now receiving. Interviewing is an
efficient fact-finding technique that 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.

c. Determining how cash disbursement procedures are actually performed - 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, observe them, and prepare flowcharts and
notes.

d. Surveying employees about the move to a total quality management program - 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. Investigating an increase in uncollectible accounts - 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.

20-4
 Accounting Information Systems

20.5 The following problem situations occurred in a manufacturing firm. What questions should
you ask to understand the problem?

Customer complaints about product quality have increased.

· 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 raw materials?

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

· Low employee morale?

· Changes in production procedures?

· Other possibilities for poor quality

· Does the company have a total quality management (TQM) program? Should they?
Accounting sees an increase in the number and dollar value of bad debt write-offs

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

· Are certain customer groups more delinquent than others are?

· What collection procedures does the company employ? Are they adequate? If not, why not?

· Are early payment discounts and late payment penalties adequate?

· Are current economic conditions affecting delinquency rates?

Operating margins have declined each of the past four years due to higher-than-expected
production costs from idle time, overtime, and reworking products

· Does the production scheduling system perform satisfactorily? If not, why not?

· Are there delays in receiving materials? If so, why? What are the current policies for
handling the receipt of raw materials?

· What causes the overtime problem? Increasing sales, understaffed lines, inefficient workers?

· Is product rework caused poor employee performance, poor quality materials, poor
production process, etc.?

· What economic conditions are affecting production costs?

20-5
 Accounting Information Systems

20.6 Give some examples of systems analysis decisions that involve a trade-off between each of the
following pairs of objectives:

There are many examples of the tradeoffs between information system objectives. One example is
provided here for each pair of objectives.

a. economy and usefulness - the decision of how much information to give a credit manager to
help in deciding whether to extend credit versus the cost of providing that information.

b. economy and reliability - the decision of whether to implement a new internal control
procedure.

c. economy and customer service - the decision of whether or not to allow sales personnel to
access data versus the cost of providing that information and the cost of the information being
used for unintended purposes.

d. simplicity and usefulness - any decision about the extent to which output information should
be reported in detail or in summarized form.

e. simplicity and reliability - any decision about whether or not to implement an internal
control procedure.

f. economy and capacity - the decision of whether to acquire additional storage capacity.

g. economy and flexibility - the decision to replace older, less flexible storage mediums with
newer, more flexible, and often more costly storage mediums.

20-6
 Accounting Information Systems

20.7 For years, Jerry Jingle’s dairy production facilities led the state in sales volume but recent
declines worry him. Customers are satisfied with his products but are troubled by the dairy’s
late deliveries and incomplete orders. Production employees (not the cows) are concerned
about bottlenecks in milk pasteurization and homogenization due to poor job scheduling, mix-
ups in customers’ orders, and improperly labeled products. How should Jerry address the
problems? What data-gathering techniques would be helpful at this early stage?

Jerry could install an information system that coordinates job scheduling, tracks customer orders,
and controls 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 conduct a more in-depth investigation to verify the nature of the problem
and to identify customer and the user needs.

· 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.

· Jerry and supervisory personnel should be interviewed to get their insights about the problems
and possible solutions.

Interviewing from the bottom up can 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, Jerry and those he hires to help him will find interviewing techniques most useful in
developing a problem statement. He will also probably find observation and reviewing whatever
documentation is available to be of some use. A customer questionnaire may also produce useful
information.

20-7
 Accounting Information Systems

20.8 A manufacturing firm needed a specialized software program to identify and monitor cost
overruns. After an extensive analysis, the company purchased prepackaged software and
assigned three programmers to modify it to meet its individual circumstances and processes.
After six months of work, during final testing, the company told them to stop all work until
further notice. While reading the software vendor’s sales agreement, the manufacturing
manager found a clause stating that the software could not be changed without the prior
written consent of the vendor. The firm had to pay the software vendor an additional fee so it
could use the modified software in its manufacturing process. Which aspect(s) of feasibility
did the manufacturing firm failed to consider prior to purchasing the software.

Of the five aspects of feasibility, the manufacturing firm failed to 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.

20.9 Ajax Manufacturing installed a new bar code based inventory tracking system in its
warehouse. To close the books each month on a timely basis, the six people who work in the
warehouse must scan each item in a 36-hour period while still performing their normal duties.
During certain months, when inventory expands to meet seasonal demands, the scan takes as
many as 30 hours to complete. In addition, the scanners do not accurately record some
inventory items that require low operating temperatures. A recent audit brought to
management’s attention that the inventory records are not always accurate. Which aspect(s)
of feasibility did Ajax fail to consider prior to installing the inventory tracking system.

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 in the inventory count due to fatigue.

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
sometimes failed, which resulted in inventory errors.

20-8