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Special Topics in REA Modeling & Introduction to Systems Development and Systems Analysis

Camartin, James Vincent G. Guinto, Jefferson G. Lanting, Jeanneth Pulmones, Marlon M. Saludo, Princess Irish G.

Special Topics in REA Modeling

The revenue cycle REA models weve already developed focused on activities performed by a typical retail store. Events included: Taking customer orders Filling those orders Collecting payment MANUFACTURERS AND DISTRIBUTORS Manufacturers, distributors, and other types of businesses often engage in additional activities that management wants to monitor, such as: Sales calls on customers Picking and packing orders Attribute Placement The primary key of the shipping event is the shipment number. The bill of lading another attribute in the shipping event.



SALE OF SERVICES Weve focused so far on businesses that sell tangible inventory. Many businesses sell services, such as auto repair or veterinary services. DIGITAL ASSETS Companies that sell software, music, or digital photographs over the Internet give up a digital copy of these resources, but not the actual resource. They still need to collect information about orders for delivery of those digital assets, along with receipt of customer payments. They need an inventory table so customers can see what products are available. The structure of the table is very similar to tables for tangible products, except there is no need for quantity-on-hand fields or any data on re-order points. The inventory table will still include information about standard list prices of each item. RENTAL TRANSACTIONS Some businesses generate revenue through rental transactions rather than sales. The give-to-get exchange involves the temporary use of a resource in return for: The receipt of cash; and The subsequent return of the resource being rented. ADDITIONAL EVENTS An expanded expenditure cycle REA diagram includes internal requests for purchases. ATTRIBUTE PLACEMENT Cost information is stored in several tables. Standard cost is stored in the inventory table because it is the same for all units of an inventory item for the fiscal year. Actual cost is stored in the order-inventory table, because it can vary with every order. It allows the system to calculate cost of ending inventory and cost of goods sold under the accepted cost-flow assumption (FIFO, LIFO, etc.) ACQUISITION OF INTANGIBLE SERVICES An organization may acquire intangible services such as Internet access, phone service, and utilities. The give-to-get exchange involves acquiring services and paying for them. RENTING RESOURCES

Organizations sometimes rent resources rather than purchase. The basic give-to-get involves: Pay the supplier Get the right to the resource for a period.

PRODUCTION CYCLE MODEL Detailed information must be collected about the use of raw materials, labor, and machinery in order to produce accurate cost management and performance evaluation. RELATIONSHIPS BETWEEN AGENTS Relationships between internal and external agents can also occur. Relationships between external agents are rare but can occur. COMBINED HR/PAYROLL MODEL REA model that integrates human resources and payroll activities.

FINANCING ACTIVITIES DATA MODEL. Issue debt is often modeled as a separate event entity because it contains distinctly different attributes from those associated with cash receipts from sales.

Introduction to Systems Development and Systems Analysis

Whether systems changes are major or minor, most companies go through a systems development life cycle. In this section, we discuss the steps in the cycle and the people involved. The five stages in the systems development life cycle are:

Systems analysis
As organizations grow and change, they may need more or better information.

Conceptual Design
In the conceptual design phase, the company decides how to meet user needs.

Physical Design
In the physical design phase, the broad, user-oriented requirements of the conceptual design are translated into detailed specifications that can be used by programmers to code the programs.

Implementation and Conversion

This is the capstone phase during which everything comes together.

Operation and Maintenance

Once the system is up and running, operations and monitoring continue.

1. Top management
Top managements role in systems development is to: Provide support and encouragement and a clear signal that user involvement is important. User management needs to:

Determine information requirements for departmental projects.

2. Accountants
Accountants also play an important role in systems development: o As AIS users, they must determine their information needs and systems requirements and communicate them to system developers. o As members of project development teams or steering committees, they help management in the development process..

3. The information systems steering committee

The information systems steering committee is an executive-level committee whose duty is to plan and oversee the IS function. o Consists of high level management, such as: Controller IS Manager User department managers

4. The project development team

The project development team includes systems specialists, managers, accountants, auditors, and users whose responsibility is to guide development

5. Systems analysts
Systems analysts study existing systems, design new ones, and prepare specifications that are used by programmers.

6. Computer programmers
Computer programmers write the computer programs, using the specs developed by the systems analysts. They also modify and maintaining existing programs.

7. External players
External players include: Customers Vendors Auditors Governmental entities Their needs must also be met in systems development.


Several activities must be performed at various times throughout the SDLC. One of these activities is planning. The organization should have plans for: The long range Each systems development project Each phase of each systems development project Systems development planning is an important step for the following key reasons: 1. Consistency with the organizations strategic plan. 2. Efficiency achieved through coordination of the subsystems. 3. Cutting edge technology and techniques. 4. Lower costs due to lack of duplication, wasted effort, time overruns, and cost overruns. 5. Adaptability for future changes. When a system is poorly planned, a company must often return to a prior phase and correct errors and design flaws. These returns are costly and result in delays, frustration, and low morale. Two types of systems development plans are needed: 1. Individual project plans developed by the project teams. Individual project plans contain:

A cost-benefit analysis. Developmental and operational requirements, including: o Human resources o Hardware o Software o Financial resources A schedule of activities to develop and operate the new application 2. A master plan developed by the IS steering committee. A master plan specifies: What the system will consist of How it will be developed Who will develop it How needed resources will be acquired Where the AIS is headed

Planning Techniques
Two techniques for scheduling and monitoring systems development activities are:

1. Program Evaluation and Review Technique (PERT)

A PERT diagram requires that all activities in a project be identified along with the activities that precede and follow them. These activities are used to draw a PERT diagram, which consists of a network of: a. Arrows - representing activities that require time and resources. b. Nodes - representing completion and initiation of activities. The critical path in a PERT diagram is the path requiring the greatest amount of time. If an activity on the critical path is delayed, the whole project is delayed. Resources may be shifted to the critical path to reduce the delay.

2. Gantt Charts
A Gantt chart is a bar chart with project activities on the left and time across the top. For each activity, a bar of expected time is drawn. As activities are completed, the bar is filled in. The Gantt chart makes it easy to eyeball the chart and understand the current status of a project. But the chart does not show the relationship between activities like the PERT chart does.


During the systems analysis phase, a feasibility study (aka, a business case) is prepared and is updated during the remaining steps in the SDLC. The extent of the feasibility study depends on the size and nature of the system. Feasibility team should include: Management Accountants skilled in controls and auditing Systems personnel Users Five aspects need to be considered during a feasibility study: Technical feasibility- Is the technology there to do it? Operational feasibility- Do we have people who can do it, and will it get used? Legal feasibility- Does it comply with legal, regulatory, and contractual obligations? Scheduling feasibility- Can it be done in time? Economic feasibility- Will the benefits exceed the costs?

Calculating Economic Feasibility Costs and Benefits

Economic feasibility is probably the most important and frequently analyzed aspect. This examination requires a careful investigation of costs and benefits.

Costs might include: o Equipment costs- Initial outlay plus ongoing operating costs o Software costs- Costs of acquiring, maintaining, supporting, and operating o Human resource costs- Salaries, as well as costs of hiring, training, and relocating staff o Site preparation costs o Installation and conversion costs o Supplies o Overhead o Financial charges The primary operating cost is maintaining the system. Makes up 65-75% of the organizations system efforts

Capital Budgeting
Most organizations use a capital budgeting return on investment technique to evaluate the economic merits of different system alternatives. There are three commonly used techniques Payback period Net present value (NPV) Internal rate of return (IRR)


The best system will fail without the support of the people it serves. So the behavioral aspects of change are crucial. You need to be aware of and sensitive to the types of behavioral problems that can result from change.

Why Behavioral Problems Occur?

Employees will tend to view change as good if they believe it will affect them positively and vice versa. To minimize adverse behavioral reactions, it helps to understand why resistance occurs: Personal characteristics and background Manner in which change is introduced Experience with prior changes Top management support Communication Biases and natural resistance to change Disruptive nature of the change process Fear

How People Resist AIS Changes

Resistance to change often takes one of three forms:
Aggression Projection Avoidance

Ignoring the preceding steps can leave to behavior issues that are difficult or impossible to reverse.

When a new or improved system is needed, a written request for systems development is prepared. That request describes: The current systems The goals and objectives of a problems proposed system The reasons for the proposed The anticipated benefits and changes costs The project development team will conduct the systems analysis in five steps:

Initial investigation
The initial investigation is conducted to: Gain a clear picture of the problem or need. Determine the viability of the project and expected costs and payoffs. Evaluate the scope and nature of the new AIS. Recommend whether to proceed.

Systems survey
A systems survey involves an extensive study of the current AIS which could take weeks or months. Data can be gathered from: o Employees. o Documentation such as organization charts and procedure manuals. o External sources such as: Consultants Customers Suppliers Industry associations Government agencies *Four common methods of gathering data are:







4. System Documentation
Once the data is gathered, document findings and model the existing system. Documentation consists of: Questionnaire copies Interview notes Memos Another form of documentation is a system model: 1. Physical models illustrate how a system functions by describing: Flow of documents. Computer processes performed and the people doing them. Equipment used. Any other physical elements. 2. Logical models illustrate what is being done regardless of how the flow is accomplished.

Feasibility study
After the systems survey, a more thorough feasibility analysis is conducted. This analysis is updated regularly as the project proceeds and costs and benefits become clearer.

Information needs and systems requirements

Once a project clears the feasibility hurdle, the company identifies the information needs of AIS users and documents systems processes, including: Processes Inputs Data elements Constraints Data structure Controls Outputs Reorganizations Systems Objectives and Constraints Many entities take a systems approach to determining information needs and systems requirements. Problems and alternatives are viewed from the standpoint of the entire organization as opposed to a single department. Systems objectives must be identified, so analysts and users can focus on those elements most vital to success of the AIS. These may include: Usefulness Availability Economy Timeliness Reliability Customer service There are often trade-offs between objectives. Organizational constraints make it impossible to develop all parts of an AIS simultaneously. *Documentation and Approval of User Requirements: Detailed requirements for the new AIS should be created and documented. How to produce the required features is determined during the design phases of the SDLC. The requirements list should be supported by sample input and output forms and charts that make it easier to conceptualize. A nontechnical summary is often prepared for management.

Systems analysis report

The last step in systems analysis is the systems analysis report. o Summarizes and documents the activities. o Serves as a repository of data from which designers can draw. A go-no-go decision is usually made three times during systems analysis: During the initial investigation to determine whether to go ahead with a systems survey. At the end of the feasibility study to determine whether to proceed with the information requirements step. At the completion of the analysis phase to decide whether to proceed to the next phase (conceptual design). When systems analysis is completed, the project can move on to: - Conceptual design phase - Physical design phase - Implementation and conversion - Operation and maintenance