Structured Analysis & OE/S

Alternatives, specifications

Focusing on the revenue cycle

Learning Objectives

Know goals, plans, tasks, tools, & results of systems analysis

Understand/appreciate costs of developing, maintaining, operating information system

Perform some analysis tasks on the Revenue Cycle.

Identify controls.

ExternalSources

H/W - S/WVendors

1.0SystemsSurvey

2.0Structured

SystemsAnalysis

3.0SystemsSelection 4.0

StructuredSystemsdesign

5.0Systems

Implemen-tation

6.0PostImp.

review

7.0SystemsMainte-nance

Requestfor systems

development

Approvedfeasibillitydocument

Miscenvironmental

information

Physicalrequirements

Logicalspecifications

Approveddesign

document

Approvedconfiguration

plan

AvailableH/W & S/W

Request forProposal

Vendorproposals

Contract

Purchasedsoftware

Hardware

Projectcompletion

report

SystemsAnalysis

SystemsDesign

SystemsImplem

-entation

SystemsOperation

SDLC – Structured System Analysis

4

Systems Analysis Goals

Define problem precisely (make all mistakes early!)

Devise alternative designs (solutions) Choose & justify one of the alternatives Develop logical specifications for selected

design Develop physical requirements for selected

design Develop budget for next two SD phases

(systems design; systems implementation)

Systems Analysis Plans & Documents

2.1Study &

documentcurrent

physicalsystem

2..2Extract &document

current logicalequivalent

2.3Define

future logicalsystem

2.4Design

alternativephysicalsystems

2.5Select bestalternative

physicalsystem

2.6Complete/package

approvedsystemsanalysis

document

Approvedfeasibilitydocument

Currentphysicalsystem

Currentlogicalsystem

Futurelogicalsystem

Alternativefuture

physicalsystems

Cost/ effectivenessstudy

Selectedalternative

physicalsystem

Logicalspecifications

Physicalrequirements

See Chapter 3

6

Accountant’s Involvement in Systems Analysis

Systems specialist or consultant Staff accountant

User/requester member of analysis team interviewee by analysis team

Internal auditor consultant to analysis team agent of management/board of directors

7

Systems Analysis Document (1)

Executive summary Project summary Summary of proposed system Summary of impact of new system Summary of cost/effectiveness &

recommendations Systems analysis summary

facts gathered analysis performed

8

Systems Analysis Document (2)

User requirements for new system Operating requirements Information requirements Control requirements

Description of future logical system DFDs, data dictionaries, narrative description Summary of improvements from new system

9

Systems Analysis Document (3)

Description of future physical system DFDs, flowcharts, narrative Summary of cost/benefit improvements -

new system New system constraints

Hardware & software constraints Interface constraints Contractual/legal requirements

10

Systems Analysis Document (4)

Design phase budget & schedule Design phase personnel/computer

requirements Development schedule

Physical requirements Workload & volume Response times Functional layouts of screens & reports System growth

11

Systems Analysis Document (5)

Recommendations - project leader Approvals Attachments

Approved feasibility document Analysis memos, summaries, tables,

graphs, charts Cost/effectiveness schedules

12

Systems Analysis Tools and Documentation

Memos summarizing interview & observations (walkthroughs)

Narratives describing observations Charts, tables, graphs Completed questionnaires (or summaries) Flowcharts Physical DFDs Organization charts

13

Future logical system from current

Add new activities Remodel existing activities Add or change control activities

(Compare changes 16.6 vs. 16.7

14

Prioritizing User Requirement Priorities

Critical : if this requirement is not met the entire process or, worse, company is jeopardized.

Important: If this requirement is not meet, the company, department, team or person will be negatively affected, but system is still useful and useable.

Useful: If this requirement is not met, users may be less than satisfied, but impact is minimal.

15

Future Physical from Future Logical

Decide which processes will be manual/automated

Decide which would be immediate processing and which would be batch

Complete specifications for new system alternative technologies (EDI, mail) alternative modes (immediate/batch)

16

Select Best Alternative Physical System

Analysis team recommends IT steering committee ratifies - or sends

back Analysis team conducts cost/effectiveness

study cost/benefit analysis (efficiency criteria) effectiveness analysis

17

Cost/Benefit Analysis

Estimate costs of new system direct costs - equipment, personnel, site,

materials, supplies indirect costs - overhead-type costs,

utilities Estimate benefits of new system

direct benefits - reduced personnel/hardware costs

indirect benefits - improved revenue from improved customer support; reduced inventory &/or accounts receivable

18

Cost / Benefit Analysis (2)

Do not apply sunk costs. Money already spent cannot be

recovered. Make decision looking ahead.

Do include differential cost analysis Impact of increasing production, revenue. Requires accurate estimating.

19

Effectiveness Analysis

Analysts & user list all relevant criteria, including costs & benefits and intangibles

Users & analysts jointly assign subjective rankings for each criterion for each alternative

Team ranks alternatives by summarizing ratings

Team recommends best alternative to steering committee

20

Logical Specifications

Will be used in systems selection or design Executive summary - DFD & narrative for major

features, objectives, benefits & constraints Application description - DFD & narrative for each

system function Information requirements - each input, output, &

file: purpose, description, origin, major elements, frequency, volume, distribution

Miscellaneous functions

21

Physical Requirements

Used in systems selection to acquire equipment Items to be specified

Data storageFile size, growth, activity, access requirementsTransaction volume/expected growthPeripherals - printers, PCs, plottersCommunicationsBackup & securityProcessing approachesReliabilityOutput distributionResponse time requirements

22

Budget & Schedule

Budget - from cost/benefit analysis - update of projections made during systems survey

Schedule - update of preliminary schedules made during systems survey

Finally, the document should have the proper approvals

23

The Order Entry/Sales

(OE/S)

Process

Learning Objectives

Understand OE/S process and its environment.

Appreciate potential of OE/S process to assist management decision making.

Examine how systems integration can improve effectiveness and efficiency of OE/S process.

Learning Objectives (2)

Understand logical and physical characteristics of OE/S.

Establish familiarity of CRM and ERP.

Know operations & information process control goals and control plans for OE/S.

26

Revenue Cycle (merchandising)

Order entry/sales process

Inventoryprocess

Generalledger

Billing/accounts

receivable/cash receipts

process

RevenueCycle

27

28

OE/S Horizontal Information Flows

Customer places order S.O. dept. requires CR approval from CR

dept. CR dept. informs S.O. dept. of decision S.O. dept. acknowledges customer order S.O. dept. notifies shipping dept. of S.O. S.O. dept. notifies warehouse, B/AR/CR

process, payroll process, & General ledger Cont…..

29

OE/S Horizontal Information Flows (2)

Warehouse sends completed picking ticket to shipping department

Shipping dept. informs S.O. dept of shipment

Shipping dept. informs carrier & B/AR/CR process of shipment

30

Manager,advertising

Manager,raw productdevelopment

Manager,customer sales

& service

Manager,marketing

intelligence

Manager,sales

promotion

Supervisor,sales orderdepartment

VPMarketing

Vertical perspective of the OE/S system

31

OE/S Context Diagram

Customer

Customer

Carrier

B/AR/CRSystem

OE/SSystem

CustomerInquiry

CustomerOrder

CustomerAcknowledgement

CustomerReply

Completedpacking

slip

Bill oflading

Salesorder

notificationShipping's

billingnotification

P/AP/CDsystem

(payroll)Commissions

Customer

B/AR/CRprocess

P/AP/CD(payroll)

Carrier

1.0Validate

SalesOrder

2.0Complete

Pickingticket

3.0Executeshipping

notice

Sales ordermaster data

Marketingdata

Inventorymaster data

Shipping noticedata

Sales ordermaster data

Customermaster data

Sales orderNotification

Shipping'sbilling notification

Bill of lading

Completedpacking slip

Completedpicking ticket

Picking ticket

Commissions

CustomerOrder

Customeracknowledgement

Completed pickingticket data

Packingslip

Accounts receivablemaster data

OE/S Level 0 DFD

1.1Verify

inventoryavailable

1.2Checkcredit

1.3Complete

salesorder

Sales ordermaster file Inventory

master file

Customermaster file

A/R masterfile

Inventorymaster file

Customerorder

Marketingfile

Inventoryavailable

order

Reject

Backorder

Reject

Acceptedorder

GL inventorysales update

CommissionsPickingticket

Packingslip

Customeracknowledgement

Sales ordernotification

OE/S Level 1DFD

34

Level 1 DFD narrative 1.1 - Verify inventory available

inquiry of inventory master file to check reject or make “backorder” if not available;

send to next process if available record demographic and other info in

marketing file 1.2 - Check credit

check to see if valid customer check A/R master file to see if credit limit is

ok if invalid or over limit, reject; if not, send to

next process

35

Level 1 DFD narrative (2)

1.3 Complete sales order add pricing info from inventory file update inventory file - reduce quantity on

hand notify GL inventory has been reduced and

cost of goods sold increased update Sales Order master file to show

completed order Notify P/AP/CD that commissions are due disseminate sales order

36

Dissemination documents

Picking ticket - authorizes warehouse to “pick” goods, send to shipping. Has warehouse location.

Packing slip - attached to outside of carton; identifies customer and goods.

Customer acknowledgement - notifies customer of acceptance of order; shipping date.

Sales order notification - internal form sent to billing department re pending shipment

Bill of lading - contract between shipper & carrier; carrier gets copy, shipper keeps copy.

37

OE/S Files

Marketing file - sales-oriented data, some from OE/S, other from Marketing information system

Customer master file - data about customer characteristics: name, address, credit limit, etc.

Sales order master file - file of “open” sales orders; can be checked periodically/follow up.

Completed picking ticket file - used for follow up and audit purposes.

Shipping notice file - used for follow up and audit purposes

OE/S ERD p.331

39

In Class Assignment

Prepare complete invoice from data available on 10.11

40

OE/S Data Entry

41System Flowchart 1

42

System Flowchart 2

43

System Flowchart 3

44

Six Process Controls

Transaction authorization – valid and in accordance with management objectives.

Segregation of duties – authorization separate from processing; asset custody separate from record-keeping; structure for two party approval.

Supervision – compensate for segregation limits. Accounting records – audit trail obligation. Access – prevent unauthorized or unintended

destruction, alteration, misuse. Independent verification – after the fact check on

correctness, integrity, and performance.Note: applicable to all cycles

45

Authorization Controls

Proper authorization of transactions (documentation) should occur so that only valid transactions get processed.

Within the revenue cycle, authorization should take place when: a sale is made on credit (authorization) a cash refund is requested (authorization) posting a cash payment received to a

customer’s account (cash pre-list)

46

Segregation of FunctionsThree Rules

1. Transaction authorization should be separate from transaction processing.

2. Asset custody should be separate from asset recordkeeping.

3. The organization should be so structured that the perpetration of a fraud requires collusion between two or more individuals.

47

Segregation of Functions

Sales Order Processing credit authorization separate from SO processing inventory control separate from warehouse accounts receivable sub-ledger separate from general

ledger control account Cash Receipts Processing

cash receipts separate from accounting records accounts receivable sub-ledger separate from general

ledger

48

Supervision

Supervision of employees serves as a deterrent to dishonest acts and is particularly important in the mailroom(!?!).

49

Accounting Records

With a properly maintained audit trail, it is possible to track transactions through the systems and to find where and when errors were made:

pre-numbered source documents special journals subsidiary ledgers general ledger files

50

Access Controls

Access to assets and information (accounting records) should be limited.

Within the revenue cycle, the assets to protect are cash and inventories and access to records such as the accounts receivable subsidiary ledger and cash journal should be restricted.

51

Independent Verification

Physical procedures as well as recordkeeping should be independently reviewed at various points in the system to check for accuracy and completeness:

shipping verifies the goods sent from the warehouse are correct in type and quantity

warehouse reconciles the stock release document (picking slip) and packing slip

billing reconciles the shipping notice with the sales invoice

general ledger reconciles journal vouchers from billing, inventory control, cash receipts, and accounts receivable

52

Control Considerations forComputer-Based Systems

Authorization - in real-time systems, authorizations are automated: programmed decision rules must be closely monitored.

Segregation of Functions - some consolidation of tasks by the computer; protect the computer programs--coding, processing and maintenance should be separated.

53

RFID – Radio Frequency ID tags

Unique identifier with read/transmission capabilities for any item (living or manufactured).

Unit cost to drop to pennies. Improving read and transmission capabilities. Wal-mart requiring major supplier use by 2005.

54

Control Considerations forComputer-Based Systems

Supervision - in POS systems, the cash register’s internal tape or database is an added form of supervision.

Access Control - magnetic records are vulnerable to both authorized and unauthorized exposure and should be protected.

Must have limited file accessibility Computer programs must be safeguarded and

monitored

55

Control Considerations for Computer-Based Systems

Accounting Records - rest on reliability and security of magnetically stored data. The accountant should be skeptical about accepting the accuracy of hard-copy printouts of journals and ledgers.

Backup is a concern for direct access files, and the system needs to ensure that backup of all files is continuously kept.

56

Microcomputer-Based Accounting Systems

Used by small firms and some large decentralized firms

Allow one or few individuals to perform entire accounting function

Most systems are divided into modules general ledger inventory control payroll cash disbursements purchases and accounts payable cash receipts sales order

57

Microcomputer Control Issues

Segregation of Duties - tend to be inadequate and should be compensated for with increased supervision, detailed management reports, and frequent independent verification

Access Control - access controls to the data stored on the computer tends to be weak; methods such as encryption and disk locking devices should be used

Accounting Records - computer disk failures cause data losses; external backup methods need to be implemented to allow data recovery

Control Goals of the Business Process

Ensure effectivenessof operations by

achieving the followingprocess goals

Ensureefficientemploy-ment of

resources

Ensuresecurity

ofresources

Control Goal of the Operations Process

Control Goals of the Information Process

For salesorder inputs,

ensure:

For sales orderand inventorymaster data,

ensure:

For shippingnotice inputs,

ensure:

For salesorder masterdata, ensure:

A B C D IVICIA IVICIAUCUA UCUAP-1

P-2

P-3

P-4

P-5 P-5

P-6 P-6

P-7

RecommendedControl Plans

P-1: Independent customermaster file maintenance P-1 P-1

P-2: Enter data close to location where

customer order is preparedP-2 P-2 P-2 P-2 P-2

P-3: Customer credit checkP-3 P-3

P-4: Independent pricing daa

P-5: Independent shipping authorization

P-6: Packing slip tickler file

P-7: Completed picking ticket file

Key: possible system goals:

A - Provide timely responses to customer inquiriesB - Provide timely acknowledgement of customer ordersC - Provide assurance of customers’ creditworthinessD - Provide timely shipment of goods to customers

IV = input validity

IC = input completeness

IA = input accuracy

UC = update completeness

UA = update accuracy

Control Matrix (1)

Control Goals of the Business Process

Ensure effectivenessof operations by

achieving the followingprocess goals

Ensureefficientemploy-ment of

resources

Ensuresecurity

ofresources

Control Goal of the Operations Process

Control Goals of the Information Process

For salesorder inputs,

ensure:

For sales orderand inventorymaster data,

ensure:

For shippingnotice inputs,

ensure:

For salesorder masterdata, ensure:

A B C D IVICIA IVICIAUCUA UCUAP-8 P-8 P-8

P-9 P-9 P-9 P-9 P-9 P-9 P-9 P-9

P-10 P-10 P-10 P-10 P-10

P-11P-11 P-11 P-11 P-11

P-12 P-12

P-13P-13 P-13 P-13

P-14 P-14 P-14 P-14 P-14

RecommendedControl Plans

Key: possible system goals:

A - Provide timely responses to customer inquiriesB - Provide timely acknowledgement of customer ordersC - Provide assurance of customers’ creditworthinessD - Provide timely shipment of goods to customers

IV = input validity

IC = input completeness

IA = input accuracy

UC = update completeness

UA = update accuracy

P-9

P-14

P-8: 1 for 1 checking of goods, picking

ticket and packing slip

P-9: Populate inputs with master dataP-9

P-10: Online prompting P-10

P-11: Preformatted screensP-11

P-12: Interactive feedback checks

P-13: Programmed edit checks P-14: Compare input data with

master data

Control Matrix (2)

60

Key Terms

Structured systems analysis

Approved systems analysis document

Alternative future physical systems

Cost/benefit analysis Cost/effectiveness study Order/entry sales (OE/S)

process Picking ticket Packing slip Data mining Data warehousing

Data marts Customer

acknowledgement Bill of lading Customer relationship

management (CRM) systems

Sales order

61

Solution P10 - 8

Process Subsidiary Functions Inputs Outputs

1.0 Respond tocustomer requests

1.1 Edit and route Customer inquiryCustomer order

Edited inquiryEdited orderMarketing data

1.2 Respond to inquiry Edited inquiryCustomer master dataInventory master dataSales order master data

Customer replyMarketing data

2.0 Validate sales order 2.1 Check credit Edited orderCustomer master dataAccounts receivable master dataSales order master data

Credit-approved order

2.2 Verify inventory availability

Credit-approved orderInventory master data

Accepted order

62

Solution P10-8 cont.

3.0 Complete picking ticket 3.1 Match goods with picking ticket

Picking ticket Matched picking ticket

3.2 Enter quantities picked Matched picking ticket Completed picking ticket

4.0 Execute shipping notice 4.1 Match orders Packing slipCompleted picking ticket

Matched sales orderCompleted picking ticket data

4.2 Produce shipping notice Matched sales orderSales order master data

Shipping's inventory notificationShipping's billing notificationBill of ladingCompleted packing slipShipping notice dataSales order master data

63

Recommendations

Ch. 5: RQ 1,2,3,6,7d,9; DQ 1,3 Using Access to generate queries Exporting Access data to XL for

reporting.