Chapter 13Managing 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

1. Systems Strategy - Assessment - Develop Strategic Plan

1. Systems Strategy - Assessment - Develop Strategic Plan

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

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

3. In-house Development - Construct - Deliver

3. In-house Development - Construct - Deliver

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

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

5. Maintenance & Support - User help desk - Configuration Management - Risk Management & Security

5. Maintenance & Support - User help desk - Configuration Management - Risk Management & Security

SSystemystem Interfaces, Architecture Interfaces, Architecture and Uand User ser RRequirementsequirements

BBusiness usiness RRequirementsequirements

High Priority Proposals undergo High Priority Proposals undergo Additional Study and DevelopmentAdditional Study and Development

FeedbackFeedback::User requests for New SystemsUser requests for New Systems

Selected System Proposals Selected System Proposals go forward for Detailed go forward for Detailed

DesignDesign

New and Revised New and Revised Systems Enter into Systems Enter into

ProductionProduction

Business Needs and Strategy

Legacy Situation

FeedbackFeedback::User requests for System User requests for System Improvements and SupportImprovements and Support

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 1Systems 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 ScorecardPrimary 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 2Project 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