CASE STUDY III-1 SouthWest University Financial Information System

Transcription

1 CASE STUDY III-1 SouthWest University Financial Information System SouthWest University (SWU) is a large state university located in the U.S. Southwest. With more than 70,000 students and almost 4,000 faculty, last year s SWU budget was about $1.8 billion. In addition to over 800 undergraduate and graduate degree programs, SWU runs 75 research centers and institutes, has a large school of medicine, and operates a major complex of hospitals and medical research centers. In addition to its main campus in the state capital, SWU has four satellite campuses that offer undergraduate and graduate programs in the four corners of the state. The Need for a New Financial Information System SWU s computerized financial systems are old and obsolete. These systems were developed in the 1960s, when SWU had less than 30,000 students and finances were centrally managed. Based upon 1960s hardware and software technology, these systems are managed and operated by the Financial Services unit of SWU central administration. Two years ago, new SWU President M. R. Snoddy decided to distribute fiscal responsibility throughout the University by instituting Activity Center Management, under which many financial decisions were decentralized to schools, departments, institutes, hospitals, support services, and auxiliary enterprises. Under Activity Center Management, each entity is required to live within its own revenues rather than negotiating its budget with central administration. A school, for example, gets its own income from tuition, state support, and grants, but must in turn pay its own expenses, such as salaries, rent, and fees for library use and computer services. The existing financial systems do not cope well with the demands of Activity Center Management. The old systems do not deal with revenue, only with expenses. They were designed This case was prepared for the 1996 EDS Challenge at Indiana University. It is intended to be used as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright 1996 by E. W. Martin. primarily for central administration s needs in conforming to the requirements of state government auditors and were never intended to serve the needs of decentralized managers. They are batch systems in which transactions are recorded on paper, sent through an approval process, and then sent on to Financial Services, where they are entered into the mainframe computer through dumb terminals. After transactions are entered into the computer, they are edited in a batch process, and an error list is produced and returned to the user to make necessary corrections. Reports are not available until two weeks after the end of the month, and thus some of the information they contain may be more than six weeks old. Understandably, each entity keeps its own shadow system set of books, and a good deal of effort goes into reconciling the official reports with these local books. These local systems are somewhat different, but all are based on PC local area networks (LANs) or stand-alone PCs. Some were built using packages such as Excel or Microsoft Access, and some use accounting software packages. In addition to the above inadequacies, SWU managers are increasingly concerned about being charged their share of the cost of the central financial systems in addition to the cost of their shadow systems. The Financial Services Proposal The Financial Services organization has proposed to replace the existing financial systems with a new financial information system (FIS) designed to support the needs of SWU managers under the decentralized approach of Activity Center Management. Lou Hanson, Director of Financial Services, explains: Our present system is based upon obsolete mainframe technology, COBOL programs, and flat files. We will replace it with a modern client/server based system so that users throughout the university can use their own PCs with the Windows graphical user interface to interact with the system. They will enter their own data, which will be edited online so they can be confident of its accuracy and timeliness. And they can interrogate the database and generate their own reports at any time rather 420

2 Case Study III-1 SouthWest University Financial Information System 421 EXHIBIT 1 The Proposed FIS In the new FIS, electronic documents initiated on a personal computer will be processed by the Transaction Processing component. This component will electronically route the documents through an approval process and then pass them to the university s financial data repository, called the General Ledger. A third component, Decision Support, will provide each organization (whether department, activity center, or campus) with access to those data for its reporting and analysis needs. Data from the FIS can be passed down into departmental systems upon request. The following is a simple depiction of these main components of the new FIS. Transaction Processing End User FIS CONCEPTUAL MODEL General Ledger Decision Support This will be a client/server system operating through an existing fiber-optic backbone network that connects all the buildings on the main campus and the satellite campuses. The server, a Hewlett-Packard G60 operating under Unix, will maintain the general ledger database and contain some of the processing logic. The client IBM-compatible PCs will be at least 33 megahertz 486s with 8 megabytes of memory and 100 megabyte hard drives and will operate under the Windows operating system. The client will perform the data capture and much of the routine reporting based on data retrieved from the server database. The new FIS has many advantages. It will: reduce paper trails allow for faster turnaround allow for decisions to be made based upon up-todate information reduce mistakes and the need to correct errors, since checks and balances will be built into the system give more control and management flexibility to departments create more appropriate data and permanent computer records support activity center management The new FIS will be composed of a number of separate but interrelated subsystems: 1. The Chart of Accounts will be the set of controlling tables which defines the financial information. In the present accounting system the campus code, fund group, and department are all part of the than waiting until two weeks after the end of the month to obtain their reports. (Exhibit 1, prepared by Financial Services, describes this FIS.) At present many transactions have to go through a cumbersome approval process before Financial Services can enter them into the computer. Some personnel actions, for example, must get as many as a dozen approval signatures. This process goes very slowly as the paperwork winds its way across desk after desk, so it may take six weeks or more before the action is entered into the computer. According to Hanson, President Snoddy was flabbergasted to learn how long it takes for personnel actions to be approved, and has mandated that this process be drastically improved. Accordingly, the new system will eliminate all paperwork and the electronic transactions will be automatically routed to those who must see them. Moreover, a transaction will be approved and go into the computer database as soon as the account manager, and his or her superior, have approved it. We will still route the information to the other people who have to sign off today, but only for information purposes. Incidentally, this new process has been enthusiastically approved by the state auditor. The existing financial systems being based on a single chart of accounts has led to a very cumbersome account structure. Hanson explains the problem: To the academic units, supplies and expenses are just that, and they are not interested in much more detail. But to campus foods, supplies and expenses involves excruciating detail

3 422 Part III Acquiring Information Systems EXHIBIT 1 (continued) account number. In the new system the account number will be arbitrarily assigned and these and other attributes will be maintained in tables within the system for use in input editing, reporting, and analysis. Each account will have an attribute, Object Code, which will map the account into the university income, expense, and balance sheet items for both accounting and budgeting purposes. Each account may have subaccounts and subobject codes, defined by the account manager, so that organizational units will be able to set up their own more detailed account breakdowns. 2. The General Ledger will be the repository of all financial and budget information for the university. It will be composed of three databases: one for accounting and budget balances by month for four years, one for the detailed transactions that update the balances, and one for open encumbrances. The General Ledger will be interfaced with the following systems to automatically receive data from them: Payroll, Accounts Payable, Bursar Accounts Receivable, and Interdepartmental Billings. 3. Transaction Processing will allow account managers and organizations to transact financial business through their computers, rather than using the paper forms as they do at present. There will be electronic forms to replace each of the paper documents that are currently used. The system will be able to route these documents electronically, and locate and display a document while it is in the approval process as well as after it has been approved and processed. 4. Decision Support will be a new environment which allows account managers and others to access financial information and will provide tools to assist in the analysis of the financial information. It will produce standard reports on a scheduled basis, run predefined queries on an ad hoc basis, extract detail information and download it to local systems, and drill down through levels of detail. 5. Labor Distribution will tie together the position budgeting with the payroll and accounting process to provide better and more timely information. 6. Capital Assets Management will be used to track and account for all capital assets of the university, including moveable equipment, land, and buildings. 7. Accounts Receivable will provide all departments a nonstudent revenue receivable system that formats bills or invoices and processes payments while performing all of the accounting work. It will also provide reports stating the current status of a department s receivables. 8. Contracts and Grants will track research proposals and resulting grants for all areas within the university. It will be linked to the FIS so it can reflect the budgets and expenditures of the grants as well. chocolate ice cream, vanilla ice cream, strawberry ice cream, and so forth. With a single chart of accounts, the schools have to cope with thousands of codes within supplies and expenses that have no meaning for them, while the service units have to deal with academic-related codes that do not affect them. To tailor the system to each user, in the new FIS we propose nine charts of accounts one for each campus and university hospitals, buildings and grounds, food services, and student housing. They will all map upward into a central administration chart of accounts, but each unit will have its own accounting system at its level. This will allow the users to dispense with their ad hoc shadow systems. The existing financial system is huge. It includes major applications systems such as accounts payable, accounts receivable, general ledger, budget development, budget control, and payroll. There are hundreds of thousands of lines of COBOL code that must be replaced. Financial Services estimates that it would cost at least $10 million to develop a new Financial Information System to replace these current systems. Realizing that SWU cannot afford to develop a new FIS, Hanson has negotiated a special deal with Academic Information Services, a major supplier of applications software for universities, to produce SWU s new FIS. Under a tentative agreement, SWU s Financial Services will produce the detailed requirements for the new system and assign two high-ranking people to work with Academic Information Services during the development process, and Academic Information Services will produce the new FIS software for a fixed price of $3 million. Academic Information Services will own the rights to distribute the new software and expects to recoup its expenses and make a profit selling this software to other universities. The timing for the new system is critical. Financial Services will produce the detailed requirements in three months, and Academic Information Services will then have the new system ready for installation in June, two years from this year. However, since SWU cannot convert to the new system in the middle of its fiscal year, if this schedule slips the new system

4 Case Study III-1 SouthWest University Financial Information System 423 cannot be installed until June a year later. Therefore a go/nogo decision must be made within the next two weeks or the new system will be delayed for a full year. Although SWU Vice President for Finance P. K. Johnson has always insisted that systems development investments produce an internal rate of return (IRR) of at least 15 percent over a seven-year period, Hanson feels that the new FIS must be obtained whether or not it meets this criterion. However, Hanson is confident that the savings from eliminating the data entry group in Financial Services and replacing the shadow systems in the user organizations will easily justify the cost of the new FIS. (Financial Services estimates of these savings are presented in Exhibit 2.) Reactions to the Financial Services Proposal Although some SWU managers welcome the proposal for a new financial information system, this proposal has generated controversy. The users of this system realize that, under Activity Center Management, they will pay for this development, and they are concerned with this cost. Also, several users oppose the Financial Services proposal because they are getting along reasonably well with their local systems that supplement the existing financial systems, and some are reluctant to give up these local systems. Some also believe that there will be significant additional costs to the users that are not included in the costs of the proposed EXHIBIT 2 Anticipated Annual Personnel Savings from FIS Organization Financial Services Main Campus Administration Campus B Administration Campus C Administration Campus D Administration Campus E Administration Buildings & Grounds Student Housing Food Services Research Administration University Hospitals Libraries School of Humanities School of Sciences School of Agriculture School of Business School of Medicine School of Music School of Education School of Law School of Public Administration School of Physical Education Department of English Department of Languages Department of Mathematics Department of Biology Department of Chemistry Department of Psychology Department of Sociology Department of History Department of Computer Science TOTAL Positions Dollars $132,000 51,000 26,000 18,000 40,000 35,000 21,000 39,000 33,000 41,000 26,000 42,000 24,000 24,000 11,000 33,000 $935,000

5 424 Part III Acquiring Information Systems development contract with Academic Information Services. Some have questioned whether the proposed time schedule for defining the detailed system requirements is realistic, and others have questioned the claimed savings. Tracy Russ, University Director of Information Systems, has just recently learned about this proposal and has some serious concerns. Russ believes that the IS organization should develop the system requirements and manage any outside development contract. Also, Russ thinks that it might be more cost effective to upgrade and augment the existing systems rather than replace them. Your Role In light of the previous controversy President Snoddy of SWU has engaged your team of outside consultants to do a quick study and make a recommendation concerning what to do about SWU s financial systems. Specifically, you will: 1. Interview the following SWU managers to obtain additional information about the present financial systems, the proposed FIS, the costs of various alternatives, the needs, attitudes, and opinions of SWU managers, etc.: Lou Hanson, Director of Financial Services Tracy Russ, Director of the Information Systems Department Lee Morrison, Finance Officer of the School of Medicine Jerry Anderson, Business Manager of the School of Sciences 2. Make a formal oral and/or written presentation to President Snoddy and SWU senior managers stating and defending your recommendations concerning how to deal with the proposed FIS and the problems that led to this proposal. Your presentation should: Identify the issues that should be considered in this situation. Analyze the proposal by Financial Services to produce a new FIS. This analysis should include both the advantages and disadvantages of this proposal as well as a financial analysis that shows whether or not the 15 percent IRR hurdle is met. Recommend what SWU should do about its financial systems problem and discuss why this recommendation should be adopted. A time schedule for implementation of this recommendation should be included.