Chapter 13

Managing the Systems

Development Life Cycle

Accounting Information Systems, 5th edition

James A. Hall

COPYRIGHT © 2007 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo,
and South-Western are trademarks used herein under license
 Objectives for Chapter 13
• Identify the key stages in the SDLC
• How a firm’s business strategy shapes its information
system
• The relationship between strategic systems planning
and legacy systems
• What transpires during systems analysis
• The TELOS model for assessing project feasibility
• Cost-benefit analysis issues related to information
systems projects
• The role of accountants in the SDLC
 The Systems Development
Life Cycle (SDLC)
• A logical sequence of activities used to:
– identify new systems needs
– develop new systems to support those needs
• A model for reducing risk through planning,
execution, control, and documentation
• The SDLC model may be shown in five
stages.
– We’ll look at the first two in this chapter and the
remaining three in chapter 14.
 Systems Development Life Cycle

Business Needs and

Strategy

Legacy Situation
Business Requirements

1. Systems Strategy
-- Assessment
Assessment Feedback:
Feedback:
-- Develop
Develop Strategic
Strategic Plan
Plan User requests for New Systems
System Interfaces, Architecture
and User Requirements
High Priority Proposals undergo
Additional Study and Development

2. Project Initiation
- Feasibility
Feasibility Study
Study
-- Analysis
Analysis
- Conceptual
Conceptual Design
Design
- Cost/Benefit
Cost/Benefit Analysis
Analysis Feedback:
Feedback:
User requests for System
Selected System Proposals Improvements and Support
go forward for Detailed
Design

3. In-house Development 4. Commercial Packages

-- Construct
Construct -- Configure
Configure
-- Deliver
Deliver -- Test
Test
-- Roll-out
Roll-out

New and Revised

Systems Enter into
Production

5. Maintenance & Support

-- User
User help
help desk
desk
-- Configuration
Configuration Management
Management
-- Risk
Risk Management
Management && Security
Security
 Overview of Phases 1 and 2
• Phase 1 - Systems Strategy
– understand the strategic needs of the organization
– examine the organization’s mission statement
– analyze competitive pressures on the firm
– examine current and anticipated market conditions
– consider the information systems’ implications
pertaining to legacy systems
– consider concerns registered through user feedback
– produce a strategic plan for meeting these various and
complex needs
– produce a timetable for implementation
 Overview of Phases 1 and 2
• Phase 2 - Project Initiation
– assess systems proposals for consistency with the
strategic systems plan
– evaluate feasibility and cost-benefit characteristics of
proposals
– consider alternative conceptual designs
– select a design to enter the construct phase of the
SDLC
– examine whether the proposal will require in-house
development, a commercial package, or both
Systems Development Participants
• Systems Professionals: analyze problems in
current systems and formulate solutions
– systems analysts
– systems designers
– programmers
• End Users: primary users of the system
– addressing their needs is critical to success
• Stakeholders: individuals who have an
interest in the system but are not end users
 Systems Steering Committee
• Usually includes the CEO, CFO, CIO, senior
management from user areas and computer services,
and internal auditors
• Typical responsibilities:
– provide guidance
– resolve conflicts
– review projects and assigning priorities
– budget and allocate funds
– review the status of projects
– determine whether projects should be continued
 Phase 1
Systems Strategy
 Assessing Strategic
Information Needs
• Strategic systems planning involves the
allocation of resources at the macro level.
– usually a time frame of three to five years
• Key inputs in developing a sound systems
strategy include:
– strategic business needs of the organization
– situations involving legacy systems
– end user feedback
 Strategic Business Needs
• Vision and mission
– systems strategy requires an understanding of top
management’s vision, which has shaped the
organization’s business strategy
• Industry and competency analysis
– industry analysis: the driving forces that affect the
industry and their organization’s performance, such as
important trends, significant risks, and potential
opportunities
– competency analysis: a complete picture of the
organization’s effectiveness as seen via four strategic
filters: resources, infrastructure, products/services, and
customers
 Legacy Systems
• Use legacy components to help develop an
architecture description.
 End User Feedback
• Identifying user needs is fundamental to everything
else
• During phase 1, pertains to substantial perceived
problems rather than minor systems modifications
• Has five key phases at this point in the SDLC:
– recognize problems
– define problems
– specify systems objectives
– determine feasibility and contributions of projects
• may entail prioritizing individual projects
– preparing a formal project proposal
 End User Feedback:
Recognizing the Problem
• The need for a new, improved information system
is manifested through various symptoms.
– Symptoms may seem vague and innocuous or go
unrecognized initially.
• The point at which the problem is recognized is
often a function of management’s philosophy.
– reactive management - responds to problems only
when they reach a crisis state
– proactive management - alert to subtle signs of
problems and aggressively looks for ways to improve
 End User Feedback:
Defining the Problem
• Managers and end users should…
– avoid leaping to a single definition of a problem
– keep an open mind and gather facts before deciding
– learn to intelligently interact with systems professionals
• An interactive process between managers/end
users and systems professionals is necessary to
arrive at an accurate problem definition.
– The next three stages of the end user feedback process
involve this interactive process.
 End User Feedback:
Specifying System Objectives
• The strategic objectives of the firm and the
operational objectives of the information
systems must be compatible.
• At this point, the objectives only need to be
defined in general terms.
 End User Feedback:
Preliminary Project Feasibility-TELOS
• Technical feasibility - is the technology necessary
available?
• Economic feasibility - are the funds available and
appropriate for the system?
• Legal feasibility - does the system fall within legal
boundaries?
• Operational feasibility - can procedural changes be
made to make the system work?
• Schedule feasibility - can the project be completed
by an acceptable time period?
 End User Feedback:
Preparing a Formal Project Proposal
• A systems project proposal provides
management with a basis for deciding
whether or not to proceed with the project.
• It summarizes the findings of the study and
makes a general recommendation.
• It outlines the linkage between the objectives
of the proposed system and the business
objectives of the firm.
 Strategic Systems Plan
• After collecting input, the steering committee and
systems professionals evaluate the pros and cons
of each proposal.
• Assessing each potential project’s:
– benefits
– costs
– strategic impact
• Development will proceed on proposals with the
greatest potential for supporting the organization’s
business objectives at the lowest cost.
Relationship between Benefits,
Costs, and Strategic Impact
 Create an Action Plan:
the Balanced Scorecard
• The next step is to translate strategy into action
• Many companies have found the balanced
scorecard (BSC) a useful tool for this step.
• The BSC recommends viewing an organization
using four perspectives:
– learning and growth
– internal business process
– customer
– financial
 The Balanced Scorecard
Primary objective: capture information on orthogonal
dimensions that are important to every organization
financial: how do we look to our shareholders?
customer: how do we look to our customers?
internal business process: what must we excel at?
learning and growth: can we continue to improve?
Second objective: prevent the proliferation of reports and
information. Concentrate only on critical success factors to
which everyone in the organization will pay attention.
BSC for On-Line Banking
 Phase 2
Project Initiation
 Project Initiation
• The second phase in SDLC involves:
– understanding of users’ needs and problems
– proposing multiple alternative solutions
– assessing alternatives in terms of feasibility
and cost-benefit characteristics
– selecting the best option and proceeding to
the construct phase
– examining whether the selected option will
require in-house development, a commercial
package, or both
 Systems Analysis
• A business problem must be fully
understood before a solution can be
formulated.
– A defective analysis will lead to a defective
solution.
• System analysis is a two-step process
– survey of current systems
– analysis of users’ needs
 Survey of Current Systems
• Advantages:
– allows aspects of the old system which
should be kept to be identified
– aids in planning the implementation of the
new system
– may allow conclusive determination of the
cause of the reported problem symptoms
• Disadvantages:
– the current physical tar pit
– can stifle new ideas
 The Survey Step
• Fact-gathering techniques include observing,
participating, interviewing, and reviewing
documents.
• Facts must be gathered regarding:
– data sources and data stores
– users
– processes
– data flows
– controls, especially audit trails
– transaction volumes
– error rates
– resource costs
– bottlenecks and redundant operations
 The Analysis Step
• Systems analysis is an intellectual process that is
commingled with fact gathering.
• A formal systems analysis report, prepared and
presented to the steering committee, contains:
– reasons for system analysis
– scope of study
– problem identified with current system
– statement of user requirements
– resource implications
– recommendations
 The Conceptualization Phase
• Purpose: produce alternative conceptual
solutions that satisfy the requirements
identified during systems analysis
• How much detail?
– enough to highlight the differences between
critical features of competing systems rather
than their similarities
Alternative Conceptual Designs for
a Purchasing System
 Systems Evaluation and Selection
• A critical juncture in the SDLC
– a formal mechanism for selecting the one
system from the set of alternative
conceptual designs that will go forward for
construction
– an optimization process that seeks to
identify the best system
– a structured decision-making process that
reduces uncertainty and risk
 The Role of Accountants
• Accountants ensure that the following are
considered during evaluation and selection:
– only escapable costs are used in calculations of cost
savings benefits
– reasonable interest rates are used in measuring
present values of cash flows
– one-time and recurring costs are completely and
accurately reported
– realistic useful lives are used in comparing competing
projects
– intangible benefits are assigned reasonable financial
values
 Detailed Feasibility Study
• Similar to the preliminary project
feasibility analysis (TELOS), but now
more detailed and oriented to deciding
on a specific system design. Examine:
– technical feasibility
– economic feasibility
– legal feasibility
– operational feasibility
– schedule feasibility
Cost-Benefit Analysis:
Identify Costs
 Cost-Benefit Analysis:
Identify Benefits—Tangible
 Cost-Benefit Analysis:
Identify Benefits—Intangible
 Comparing Costs and Benefits
• Two methods commonly used for evaluating the
costs and benefits of information systems:
– Net Present Value Method: deduct the present value of
costs from the present value of benefits over the life of the
project.
• The optimal choice is the project with the greatest net
present value.
– Payback Method: do break-even analysis of total costs
(one-time costs plus present value of recurring costs) and
total benefits (present value of benefits). After the break-
even point, the system earns future profits.
• The optimal choice is the project with the greatest future
profits.
How Should We Get the System?
• Once the optimal system is selected, decide
how to acquire it:
– develop the system in-house: best for systems that
need to meet unique and proprietary business
needs
– purchase commercial software: best for systems
that are expected to support “best industry
practices”
– a mix of the first two approaches: make in-house
modifications, to varying degrees, of a commercial
system to meet the organization’s unique needs
 Announcing the New System
Project…
• can be the most delicate aspect of the SDLC.
• End user support is critical to success.
• All end users need to be made to understand
the objectives of the new system.
• End users and managers who view the new
system as a potential benefit to their jobs,
rather than a threat, are more likely to
cooperate with the project.
 Why are Accountants Involved
with SDLC?
• The creation of an information system
consumes significant resources and has
financial resource implications.
• The quality of accounting information
systems and their output rests directly on
the SDLC activities that produce them.
 How are Accountants Involved
with SDLC?
• As end users who must provide a clear
picture of their problems and needs
• As members of the development team
• As auditors who must ensure that the
system is designed with appropriate internal
controls and computer audit techniques.
 The Accountant’s Role in
Systems Strategy
• Auditors should routinely review the
organization’s systems strategy.
• Careful systems planning is a cost-
effective way to reduce the risk of creating
unneeded, unwanted, inefficient, and
ineffective systems.
• Both internal and external auditors have
vested interests in this outcome.
 The Accountant’s Role in
Conceptual Design
• Accountants should be responsible for the
conceptual system…
– and the systems professionals for the physical
system.
• If important accounting considerations are not
conceptualized at this point, they may be
overlooked, exposing the organization to
potential financial loss.
• The auditability of a system depends in part on
its design characteristics.
 The Accountant’s Role in
Systems Selection
• Economic feasibility is a primary concern to
accountants. Accountants should ensure that:
– use only escapable costs in calculations of cost-savings
benefits
– use reasonable interest rates in measuring present
values of cash flows
– one-time v. recurring costs are accurately reported
– use realistic useful lives in comparing competing projects
– intangible benefits are assigned reasonable financial
values