ACCOUNTING INFORMATION SYSTEM

Chapter 3
Introduction to Systems Development
and Systems Analysis
 ACCOUNTING INFORMATION SYSTEM

Chapter 3 - Introduction to Systems Development and Systems Analysis

Learning Objectives:

●​ After studying this chapter, you should be able to:

●​ After studying this chapter, you should be able to:
●​ Explain the five phases of the systems development life cycle.
●​ Discuss the people involved in systems development and the roles they play.
●​ Explain the importance of systems development planning and describe planning
techniques.
●​ Discuss the various types of feasibility analysis and calculate economic feasibility.
●​ Explain why system changes trigger behavioral reactions, what form this resistance
to change takes, and how to avoid or minimize the resulting problems.
●​ Discuss the key issues and steps in systems analysis.

Lesson Proper:

Introduction

Because we live in a highly competitive and ever-changing world, at any given time
most organizations are improving or replacing their information systems.

Companies change their systems for the following reasons:

●​ Changes in user or business needs
●​ Technological changes.
●​ Improved business processes.
●​ Competitive advantage.
●​ Productivity gains
●​ Systems integration.
●​ Systems age and need to be replaced

Developing quality, error-free software is a difficult, expensive, and

time-consuming task. Most software development projects deliver less, cost more, and
take longer than expected. This chapter discusses five topics. The first is the systems
development life cycle, the process followed to obtain and implement a new accounting
information system (AIS).

SYSTEMS DEVELOPMENT
 ACCOUNTING INFORMATION SYSTEM

The Systems Development Life Cycle

Systems Analysis
The first step in systems development is systems analysis, where the information
needed to purchase, develop, or modify a system is gathered. To better use limited
resources, development requests are screened and prioritized. If a decision is made to
move forward, the nature and scope of the proposed project is identified, the current
system is surveyed to identify its strengths and weaknesses, and the feasibility of the
proposed project is determined. If the proposed project is feasible, the information needs
of system users and managers are identified and documented. These needs are used to
develop and document the systems requirements that are used to select or develop a
new system. A systems analysis report is prepared and submitted to the information
systems steering committee.
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Conceptual Design
During conceptual design, the company decides how to meet user needs. The first
task is to identify and evaluate appropriate design alternatives, such as buying software,
developing it in-house, or outsourcing system development to someone else. Detailed
specifications outlining what the system is to accomplish and how it is to be controlled are
developed. This phase is complete when conceptual design requirements are
communicated to the information systems steering committee.

Physical Design
During physical design, the company translates the broad, user-oriented
conceptual design requirements into the detailed specifications used to code and test
computer programs, design input and output documents, create files and databases,
develop procedures, and build controls into the new system. This phase is complete when
the results of the physical system design are communicated to the information systems
steering committee.

Implementation and Conversion

All the elements and activities of the system come together in the implementation
and conversion phase. An implementation and conversion plan is developed and followed,

new hardware and software are installed and tested, employees are hired and trained or
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existing employees relocated, and processing procedures are tested and modified.
Standards and controls for the new system are established and system documentation
completed. The organization converts to the new system and dismantles the old one,
makes needed adjustments, and conducts a post implementation review to detect and
correct design deficiencies. When the operational system is delivered, system
development is complete. A final report is prepared and sent to the information systems
steering committee.

Operations and Maintenance

During operations and maintenance, the new system is periodically reviewed and
modifications are made as problems arise or as new needs become evident. Eventually, a
major modification or system replacement is necessary, and the SDLC begins again.

In addition to these five phases, three activities (planning, managing behavioral

reactions to change, and assessing the ongoing feasibility of the project) are performed
throughout the life cycle

SYSTEMS ANALYSIS
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When a new or improved system is needed, a written request for systems

development is prepared. The request describes the current problems, the reasons for the
change, the proposed system’s objectives, and its anticipated benefits and costs.

Steps in System Analysis

Steps in System Analysis

An initial investigation is conducted to screen the requests for systems
development. The exact nature of the problem(s) must be determined. In some instances,
 ACCOUNTING INFORMATION SYSTEM

the perceived problem is not the real problem. A government accountant once asked a
consultant to develop an AIS to produce the information he needed regarding fund
expenditures and available funds. An investigation showed that the system provided the
information and he did not understand the reports he received.
The project’s scope (what it should and should not accomplish) is determined.
Scope creep (adding additional requirements to the scope after it has been agreed to) is a
real problem.

A new AIS is useful when problems result from lack of information, inaccessibility
of data, and inefficient data processing. A new AIS is not the answer to organizational
problems. Likewise, if a manager lacks organizational skills, or if failure to enforce existing
procedures causes control problems, a new AIS is not the answer. The initial investigation
should also determine a project’s viability and preliminary costs and benefits, and it
should recommend whether to initiate the project as proposed, modify it, or abandon it.

A proposal to conduct systems analysis is prepared for approved projects. The

project is assigned a priority and added to the master plan. Table above shows the
information contents of a proposal to conduct systems analysis.
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Systems Survey
A systems survey is an extensive study of the current AIS that has the following objectives:
●​ Gain an understanding of company operations, policies, procedures, and
information flow; AIS strengths and weaknesses; and available hardware,
software, and personnel.
●​ Make preliminary assessments of current and future processing needs, and
determine the extent and nature of the changes needed.
●​ Develop working relationships with users, and build support for the AIS.
●​ Collect data that identify user needs, conduct a feasibility analysis, and make
recommendations to management.

Data about the current AIS is gathered from employees and from documentation
such as organizational charts and procedure manuals. External sources include
consultants, customers and suppliers, industry associations, and government agencies.

An interview gathers answers to “why” questions. Care must be taken to ensure

that personal biases, self-interest, or a desire to say what the employee thinks the
interviewer wants to hear does not produce inaccurate information.

Questionnaires are used when the amount of information to be gathered is small

and well defined, is obtained from many people or from those who are located elsewhere,
or is intended to verify data from other sources. Questionnaires take relatively little time
to administer, but developing a quality questionnaire can be challenging and requires
significant time and effort.

Observation is used to verify information gathered using other approaches and to

determine how a system actually works, rather than how it should work. It is difficult to
interpret observations because people may change their normal behavior or make
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mistakes when they know they are being observed. Identifying what is to be observed,
estimating how long it will take, obtaining permission, and explaining what will be done
and why can maximize the effectiveness of observation. The observer should not make
value judgments and should document notes and impressions as soon as possible.

Systems documentation describes how the system is intended to work.

Throughout the survey, the project team should be alert to differences between intended
and actual systems operation as they provide important insights into problems and

weaknesses.

Systems analysis work is documented so it can be used throughout the

development project. Documentation consists of questionnaire copies, interview notes,
memos, document copies, and models. Physical models illustrate how a system functions
by describing document flow, computer processes performed, the people performing
them, and the equipment used. Logical models focus on essential activities (what is being
done) and the flow of information, not on the physical processes of transforming and
storing data. Table below lists the analysis and design tools and techniques used to create
an AIS and identifies the chapter where each is discussed.

Once
data

gathering is complete, the team evaluates the AIS’s strengths and weaknesses to develop
ideas for designing and structuring the new AIS. When appropriate, strengths are retained
and weaknesses corrected.
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The systems survey culminates with a systems survey report. Table 20-3 shows the
table of contents for the Shoppers Mart systems survey report. The report is supported by
documentation such as memos, interview and observation notes, questionnaire data, file
and record layouts and descriptions, input and output descriptions, copies of documents,
E-R diagrams, flowcharts, and data flow diagrams.

Feasibility Study
The feasibility analysis is updated regularly as the project proceeds and costs and
benefits become clearer.

FEASIBILITY ANALYSIS
Feasibility Study (or business case) is prepared during systems analysis and
updated as necessary during the SDLC. The extent varies; for a large-scale system, it is
generally extensive, whereas one for a desktop system might be informal. The feasibility
study is prepared with input from management, accountants, systems personnel, and

users.

There are five important aspects to be considered during a feasibility study:

1.​ Economic feasibility. Will system benefits justify the time, money, and resources
required to implement it?
2.​ Technical feasibility. Can the system be developed and implemented using existing
technology?
3.​ Legal feasibility. Does the system comply with all applicable federal and state laws,
administrative agency regulations, and contractual obligations?
4.​ Scheduling feasibility. Can the system be developed and implemented in the time
allotted?
 ACCOUNTING INFORMATION SYSTEM

5.​ Operational feasibility. Does the organization have access to people who can
design, implement, and operate the proposed system? Will people use the

system?

Capital Budgeting: Calculating Economic Feasibility

During systems design, alternative approaches to meeting system requirements
are developed. Too often, companies overspend on technology because IT costs and
payoffs are not measured and evaluated like other corporate investments.

Many organizations now use capital budgeting return-on-investment techniques to

evaluate the economic merits of the alternatives. In a capital budgeting model, benefits
and costs are estimated and compared to determine whether the system is cost
beneficial. Benefits and costs that are not easily quantifiable are estimated and included.
If they cannot be accurately estimated, they are listed, and their likelihood and expected
impact on the organization evaluated. Tangible and intangible benefits include cost
savings, improved customer service, productivity increases, improved data processing,
better decision making, greater management control, increased job satisfaction, and
increased employee morale.

The following are three commonly used capital budgeting techniques:

1.​ Payback period. The payback period is the number of years required for the net
savings to equal the initial cost of the investment. The project with the shortest
payback period is usually selected.
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2.​ Net present value (NPV). All estimated future cash flows are discounted back to
the present, using a discount rate that reflects the time value of money. The initial
outlay costs are deducted from the discounted cash flows to obtain the net
present value (NPV). A positive NPV indicates the alternative is economically
feasible. The highest positive NPV is usually selected.
3.​ Internal rate of return (IRR). The internal rate of return (IRR) is the effective
interest rate that results in an NPV of zero. A project’s IRR is compared with a
minimum acceptable rate to determine acceptance or rejection. The proposal with
the highest IRR is usually selected.

Information Needs and Systems Requirements

Once a project is deemed feasible, the company identifies the information needs
of users and documents systems requirements. Table below is an example of systems
requirements. Determining information needs is a challenging process because of the
sheer quantity and variety of information that must be specified. In addition, it may be
difficult for employees to articulate their information needs, or they may identify them
incorrectly. According to CIO magazine, 70% of project failures are due to insufficient,
inaccurate, or outdated systems requirements.
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System objectives, such as those shown in Table below, are the elements most
vital to an AIS’s success. It is difficult for a system to satisfy every objective. For example,
designing adequate internal controls is a trade-off between the objectives of economy
and reliability.
AIS Objectives
Because organizational constraints make it difficult to develop all AIS components
simultaneously, the system is divided into modules that are developed and installed
independently. When changes are needed, only the affected module is changed. The
modules must be properly integrated into a workable system.

A system’s success often depends on the ability to cope with organizational

constraints. Common constraints include governmental agency requirements,
management policies, lack of qualified staff, user capabilities and attitudes, technology,

and limited finances. To maximize system performance, these constraints must be

minimized.

The following four strategies are used to determine AIS requirements:

●​ Ask users what they need. This is the simplest and fastest strategy, but many
people do not understand their needs. They know their job but may be unable to
break it down into the individual information elements they use. It is sometimes
better to ask what decisions they make and what processes they are involved in
and then design systems to address their answers. Users must think beyond
current information needs so that new systems do not simply replicate current
information in improved formats.
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●​ Analyze external systems. If a solution already exists, do not “reinvent the wheel.”
●​ Examine existing systems. Determine if existing modules are used as intended,
may be augmented by manual tasks, or may be avoided altogether. This approach
helps determine whether a system can be modified or must be replaced.
●​ Create a prototype. When it is difficult to identify requirements, a developer can
quickly rough out a system for users to critique. Users identify what they like and
dislike about the system and request changes. This iterative process of looking at
what is developed and improving it continues until users agree on their needs.

Detailed AIS requirements that explain exactly what the system is to produce are
created and documented. The requirements are supported by sample input and output
forms, as well as charts, so users can conceptualize the system. A nontechnical summary
of important user requirements and development efforts to date is often prepared for
management. The project team meets with the users, explains the requirements, and
obtains their approval. When an agreement is reached, user management signs the
system requirements documents to indicate approval.

Communication Problems in Systems Analysis and Design

Systems Analysis Report

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The concluding step in systems analysis is preparing a systems analysis report to

summarize and document analysis activities. A go/no-go decision is made up to three
times during systems analysis:
●​ first, during the initial investigation, to determine whether to conduct a systems
survey;
●​ second, at the end of the feasibility study, to determine whether to proceed to the
information requirements phase;
●​ third, at the completion of the analysis phase, to decide whether to proceed to
conceptual systems design.

systems analysis report – Comprehensive report summarizing systems analysis that

documents the findings of analysis activities.

THE PLAYERS
A number of people must cooperate to successfully develop and implement an
AIS.

Management
Management’s most important systems development roles are to emphasize the
importance of involving users in the process, to provide support and encouragement for
development projects, and to align systems with corporate strategies. Other key roles
include establishing system goals and objectives, selecting system department leadership
and reviewing their performance, establishing policies for project selection and
organizational structure, and participating in important system decisions. User
management determine information requirements, assist analysts with cost and benefit
estimates, assign staff to development projects, and allocate funds for development and
operation.

Users
AIS users communicate their information needs to system developers. As project
development team or steering committee members, they help manage systems
development. As requested, accountants help design, test, and audit the controls that
ensure the accurate and complete processing of data.
Information Systems Steering Committee
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An executive-level information systems steering committee plans and oversees the

information systems function. It consists of high-level management, such as the controller
and systems and user-department management. The steering committee sets AIS policies;
ensures top-management participation, guidance, and control; and facilitates the

coordination and integration of systems activities.

Project Development Team

Each development project has a team of systems analysts and specialists,
managers, accountants, and users to guide its development. Team members plan each
project, monitor it to ensure timely and cost-effective completion, make sure proper
consideration is given to the human element, and communicate project status to top
management and the steering committee. They should communicate frequently with
users and hold regular meetings to consider ideas and discuss progress so that there are
no surprises upon project completion. A team approach usually produces better results
and facilitates user acceptance of the system.
Systems Analysts and Programmers
Systems analysts help users determine their information needs, study existing
systems and design new ones, and prepare the specifications used by computer
programmers. Analysts interact with employees throughout the organization to bridge the
gap between the user and technology. Analysts are responsible for ensuring that the
system meets user needs. Computer programmers write and test programs using the
specifications developed by systems analysts. They also modify and maintain existing
computer programs.

Customers, vendors, external auditors, and governmental entities play a role in systems
development. For example, Walmart vendors are required to implement and use
electronic data interchange (EDI).
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PLANNING SYSTEMS DEVELOPMENT

Imagine that you built a two-bedroom house. Over the years, you add two
bedrooms, a bathroom, a family room, a recreation room, a deck, a two-car garage and
expand the kitchen. Without a long-range plan, your house will end up as a poorly
organized and costly patchwork of rooms surrounding the original structure. This scenario
also applies to an AIS; the result is a costly and poorly integrated system that is difficult to
operate and maintain.

Planning has distinct advantages.

●​ It enables the system’s goals and objectives to correspond to the organization’s
overall strategic plan. Systems are more efficient, subsystems are coordinated, and
there is a sound basis for selecting new applications for development.
●​ The company remains abreast of the ever-present changes in information
technology (IT).
●​ Duplication, wasted effort, and cost and time overruns are avoided.
●​ The system is less costly and easier to maintain.
●​ Finally, management is prepared for resource needs, and employees are prepared
for the changes that will occur.

When development is poorly planned, a company must often return to a prior

phase and correct errors and design flaws. This is costly and results in delays, frustration,
and low morale.

Two systems development plans are needed:

1.​ Project development plan. A project development plan, prepared by the project
team, contains a cost–benefit analysis, developmental and operational
requirements (people, hardware, software, and financial), and a schedule of the
activities required to develop and operate the new application.
2.​ Master plan. A long-range master plan, prepared by the information systems
steering committee, specifies what the system will consist of, how it will be
developed, who will develop it, how needed resources will be acquired, and where
the AIS is headed. It describes the status of projects in process, prioritizes planned
projects, describes the criteria used for prioritization, and provides development
timetables. Projects with the highest priority are developed first. A three-year
planning horizon is common, with the plan updated quarterly or monthly.
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Inadequate planning was one reason why Electronic Data Systems (EDS) lost a
significant amount of money in its contract with the U.S. military.

Reasons for Returning to a Prior SDLC Phase

Planning Techniques
PERT and the Gantt charts are techniques for scheduling and monitoring systems
development activities. The program evaluation and review technique (PERT) requires
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that all activities and the precedent and subsequent relationships among them be
identified. The activities and relationships are used to draw a PERT diagram, which is a
network of arrows and nodes representing project activities that require an expenditure
of time and resources and the completion and initiation of activities. Completion time
estimates are made, and the critical path—the path requiring the greatest amount of
time—is determined. If any activity on the critical path is delayed, then the whole project
is delayed. If possible, resources can be shifted to critical path activities to reduce project
completion time.

A Gantt chart is a bar chart with project activities on the left-hand side and units
of time across the top. For each activity, a bar is drawn from the scheduled starting date
to the ending date, thereby defining expected project completion time. As activities are
completed, they are recorded on the Gantt chart by filling in the bar; thus, at any time it is
possible to determine which activities are on schedule and which are behind. The primary
advantage of the Gantt chart is the ability to show graphically the entire schedule for a
large, complex project, including progress to date and status. A disadvantage is that the
charts do not show the relationships among project activities.

Sample Gantt Chart

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BEHAVIORAL ASPECTS OF CHANGE

Individuals participating in systems development are change agents who are
continually confronted by resistance to change. The behavioral aspects of change are
crucial, because the best system will fail without the support of the people it serves.
Niccolo Machiavelli discussed resistance to change over 400 years ago1:

It must be considered that there is nothing more difficult to carry out,

nor more doubtful of success, nor more dangerous to handle, than to initiate
a new order of things. For the reformer has enemies in all those who could
profit by the old order, and only lukewarm defenders in all those who could
profit by the new order. This lukewarmness arises partly from fear of their
adversaries, who have the laws in their favor, and partly from the incredulity
of mankind, who do not truly believe in anything new until they have had an
actual experience of it.

Organizations must be sensitive to and consider the feelings and reactions of

persons affected by change. This section discusses the type of behavioral problems that
can result from change.

Why Behavioral Problems Occur

An individual’s view of change, as either good or bad, usually depends on how that
individual is personally affected by it. Management views change positively if it increases
profits or reduces costs. Employees view the same change as bad if their jobs are
terminated or adversely affected.
To minimize adverse behavioral reactions, one must understand why resistance
takes place. Some of the more important factors include the following:
●​ Fear. People fear the unknown, losing their jobs, losing respect or status, failure,
technology and automation, and the uncertainty accompanying change.
●​ Top-management support. Employees who sense a lack of top-management
support for change wonder why they should endorse it.
●​ Experience with prior changes. Employees who had a bad experience with prior
changes are more reluctant to cooperate.
●​ Communication. Employees are unlikely to support a change unless the reasons
behind it are explained.
●​ Disruptive nature of change. Requests for information and interviews are
distracting and place additional burdens on people, causing negative feelings
toward the change that prompted them.
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●​ Manner in which change is introduced. Resistance is often a reaction to the

methods of instituting change rather than to change itself. The rationale used to
sell the system to top management may not be appropriate for lower-level
employees. The elimination of menial tasks and the ability to advance and grow
are often more important to users than are increasing profits and reducing costs.
●​ Biases and emotions. People with emotional attachments to their duties or
coworkers may not want to change if those elements are affected.
●​ Personal characteristics and background. Generally speaking, the younger and
more highly educated people are, the more likely they are to accept change.
Likewise, the more comfortable people are with technology, the less likely they are
to oppose changes.
●​ Behavioral Aspects of Change - The positive and negative ways people react to
change; managing these behavioral reactions is crucial to successfully
implementing a new system.

How People Resist Change

Behavioral problems begin when people find out a change is being considered.
Initial resistance is often subtle, manifested by failure to provide developers with
information, tardiness, or subpar performance. Major behavioral problems often occur
when the new system is implemented and the change becomes a reality.

●​ Aggression
o​ Aggression is behavior that destroys, cripples, or weakens system
effectiveness, such as increased error rates, disruptions, or deliberate
sabotage. After one organization introduced an online AIS, data input
devices had honey poured on them, were run over by forklifts, or had
paper clips inserted in them. Employees also entered erroneous data into
the system. In another organization, disgruntled workers punched in to an
unpopular supervisor’s department and worked in other areas. This
adversely affected the supervisor’s performance evaluation because he
was charged for hours that did not belong to him.

●​ Projection
o​ Projection is blaming the new system for everything that goes wrong. The
system becomes the scapegoat for all real and imagined problems and
errors. If these criticisms are not controlled or answered, system integrity
can be damaged or destroyed.
●​ Avoidance
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o​ Avoidance is ignoring a new AIS in the hope that the problem (the system)
will eventually go away. Davis Controls, a struggling manufacturer,
processed its orders using email, but pertinent information was frequently
lost or forgotten. Davis invested $300,000 in software that efficiently
captured customer information, properly handled purchase orders, helped

managers make better daily decisions, and made it possible to process four
times as many transactions. Employees avoided it, even though the CEO
explained the system’s benefits and told them the company’s survival and
their jobs were at stake. Finally, the CEO disabled the uncooperative
employees’ e-mail accounts and terminated the employees who continued
to avoid the system.

Preventing Behavioral Problems

The human element, which is often the most significant problem a company
encounters in implementing a system, can be improved by observing the following
guidelines:
●​ Obtain management support. Appoint a champion who can provide resources and
motivate others to assist and cooperate with systems development.
●​ Meet user needs. It is essential that the system satisfy user needs.
●​ Involve users. Those affected by the system should participate in its development
by making suggestions and helping make decisions. To avoid misunderstandings,
users should be told which suggestions are being used and how, and which are not
and why. Participation is ego enhancing, challenging, and intrinsically satisfying.
Users who participate in development are more knowledgeable, better trained,
and more committed to using the system.
●​ Allay fears, and stress new opportunities. Users are vitally interested in how
system changes affect them personally. Address their concerns and provide
assurances (to the extent possible) that job losses and responsibility shifts will not
occur—for example, through relocation, attrition, and early retirement. If
employees are terminated, provide severance pay and outplacement services.
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Emphasize that the system may provide advancement opportunities and greater
job satisfaction because the job has become more interesting and challenging.
●​ Avoid emotionalism. When logic vies with emotion, it rarely stands a chance.
Emotional issues should be allowed to cool, handled in a no confrontational
manner, or sidestepped.
●​ Provide training. Effective use and support are not possible if users do not
understand the system. User training needs are often underestimated.
●​ Reexamine performance evaluation. Performance standards and criteria should
be reevaluated to ensure that they are congruent with the new system.
●​ Keep communication lines open. Everyone affected by systems development
should have an attitude of trust and cooperation. If employees become hostile, it
is difficult to change their attitude and to implement the system. As soon as
possible, employees should be told what changes are being made and why and be
shown how the new system benefits them. This helps employees identify with the
company’s efforts and feel they are key players in the company’s future goals and
plans. It also helps prevent rumors and misunderstandings. Employees should be
told whom they can contact if they have questions or concerns.
●​ Test the system. The system should be properly tested prior to implementation to
minimize initial bad impressions.
●​ Keep the system simple, and humanize it. Avoid complex systems that cause
radical changes. Make the change as simple as possible by conforming to existing
organizational procedures. The new system is unlikely to be accepted if individuals
believe the computer is controlling them or has usurped their positions.
●​ Control users’ expectations. A system is sold too well if users have unrealistic
expectations of its capabilities and performance. Be realistic when describing the
merits of the system.

These guidelines are time-consuming and expensive, and workers may skip them to
speed systems development and installation. However, the problems caused by not
following the guidelines are usually more expensive and time-consuming to fix than to
prevent.