Chapter 13

1. Chapter 13 Managing the Systems Development Life Cycle

2. 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

3. The Systems Development Life Cycle (SDLC) • A logical sequence of activities used to identify new systems needs and to develop new systems to support those needs. • A model for reducing risk through planning, execution, control, and documentation of key activities • The SDLC model may be understood as comprising five stages. • We’ll look at the first two in this chapter and the remaining three in chapter 14.

4. Systems Development Life Cycle Business Needs and Strategy Legacy Situation Business Requirements 1. Systems Strategy - Assessment - Develop Strategic Plan Feedback:User requests for New Systems System Interfaces, Architecture and User Requirements High Priority Proposals undergo Additional Study and Development 2. Project Initiation - Feasibility Study - Analysis - Conceptual Design - Cost/Benefit Analysis Feedback:User requests for System Improvements and Support Selected System Proposals go forward for Detailed Design 3. In-house Development - Construct- Deliver 4. Commercial Packages - Configure - Test - Roll-out New and Revised Systems Enter into Production 5. Maintenance & Support - User help desk - Configuration Management - Risk Management & Security

5. Overview of Phases 1 and 2 • Phase 1 - systems strategy • understand the strategic business needs of the organization • examine the organization’s mission statement • analyze competitive pressures on the firm • examine the nature of 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 of selected systems

6. 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.

7. Participants in Systems Development • Systems Professionals - gather and analyze facts about problems with the current system and formulate a solution • systems analysts • systems designers • programmers • End Users - the primary users’ needs are solicited • Stakeholders - individuals who have an interest in the system but are not end users.

8. Systems Steering Committee • The steering committee provides guidance and reviews the status of systems projects and typically includes the CEO, CFO, CIO, senior management from user areas and computer services, and an internal auditor. • Typical responsibilities are: • resolving conflicts • reviewing projects and assigning priorities • budgeting funds • reviewing the status of projects • determining whether projects should be continued

9. Phase 1 Systems Strategy

10. Assessing Strategic Information Needs • Strategic systems planning involves the allocation of systems resources at the macro level. • usually a time frame of three to five years • Key inputs in developing a sound systems strategy include: • the strategic business needs of the organization • the legacy system situation • user feedback.

11. 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

12. Legacy Systems • Use legacy components to help develop an architecture description.

13. User Feedback… • involves identifying areas of user needs, preparing written proposals, evaluating each proposal’s feasibility and contribution, and prioritizing individual projects. • at this point pertains to substantial perceived problems rather than minor systems modifications • has five key phases at this point in the SDLC: • recognizing the problem • defining the problem • specifying system objectives • determining project feasibility • preparing a formal project proposal

14. 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 may 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

15. User Feedback: Defining the Problem • Managers and users should… • avoid leaping to quickly to a single definition of the problem • keep an open mind and gather as many facts as feasible • learn enough to intelligently interact with systems professionals • An interactive process between managers/users and systems professionals is necessary to arrive at an accurate problem definition. • The next three stages of the user feedback process involve this interactive process.

16. 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.

17. User Feedback:Preliminary Project FeasibilityTELOS • 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?

18. 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.

19. 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 that show the greatest potential for supporting the organization’s business objectives at the lowest cost.

20. Relationship between Benefits, Costs, and Strategic Impact

21. 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 • the learning and growth perspective • the internal business process perspective • the customer perspective • the financial perspective

22. 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.

23. BSC for On-Line Banking

24. Phase 2 Project Initiation

25. Project Initiation • The second phase in the SDLC, project initiation, involves: • a detailed understanding of the user problem • proposing multiple alternative solutions • assessing alternatives in terms of feasibility and cost-benefit characteristics • selecting the best option and proceed to the construct phase • examining whether the selected option will require in-house development, a commercial package, or both

26. 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 the current system • an analysis of the users’ needs

27. Survey of Current System • 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

28. The Survey Step • Facts must be gathered regarding: • data sources and data stores; users; processes; data flows; controls; transaction volumes; error rates; resource costs; bottlenecks and redundant operations • Fact-gathering techniques: • observation; task; participation; personal interviews; reviewing key documents

29. The Analysis Step • The 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

30. 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

31. Alternative Conceptual Designs for a Purchasing System

32. 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 the risk

33. The Role of Accountants in Evaluation and Selection • The accountant should ensure that: • 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

34. 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

35. Cost-Benefit Analysis: Identify Costs

36. Cost-Benefit Analysis: Identify Benefits—Tangible

37. Cost-Benefit Analysis: Identify Benefits—Intangible

38. Comparing Costs and Benefits • Two common methods are used for evaluating the costs and benefits of information systems: • The Net Present Value Method: deduct the present value of the costs from the present value of the benefits over the life of the system. The optimal choice is the project with the greatest net present value. • The Payback Method: break-even analysis. Total costs consist of the one-time costs plus the present value of the recurring costs over the life of the project. Total benefits are the present value of the tangible benefits. The intersection of these values represents the number of years into the future when the project breaks even. Afterward, the system earns future profits. The optimal choice is the project with the greatest future profits.

39. How Do We Build It? • Once the optimal system is selected, decide how to construct the system: • 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 • more on these in chapter 14

40. Announcing the New System Project… • can be the most delicate aspect of the SDLC. • All users need to be made to understand the objectives of the new system. • End user 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.

41. 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.

42. How are Accountants Involved with the SDLC? • Accountants are users and must provide a clear picture of their problems and needs. • Accountants are members of the development team. • Accountants are involved in systems development as auditors to ensure the system is designed with appropriate computer audit techniques.

43. The Accountant’s Role in Systems Strategy • Auditors should routinely review the organization’s systems strategy. • Careful systems planning is a cost-effective activity in reducing the risk of creating unneeded, unwanted, inefficient, and ineffective systems. • Both internal and external auditors have vested interests in this outcome.

44. 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.

45. The Accountant’s Role in Systems Selection • The economic feasibility of proposed systems is of primary concern to accountants. Specifically, the accountant should ensure that: • 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