Paper 14 Management Accounting Information Strategy (FLIS) Post Exam Guide November 2004 Exam. General Comments

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1 November 004 Exam General Comments The overall standard for this, the last FLIS examination, was disappointing and continues to be unsatisfactory. The main reasons for a poor outcome appeared to be some poor examination technique, as well as candidates apparently not being prepared for this examination. Whether this was a result of candidates attempting to pass FLIS rather than the new Risk and Control paper was not clear. However, specific areas of weakness for this examination were: Attempting to apply theoretical knowledge to questions when this was not required. For example, providing detailed explanations of the value chain in 1b or explaining the qualities of information in question 5(a). Lack of ability to apply comments to the scenarios. For example, stating information characteristics in question 1(a) without comment on the company s EIS. Some poor examination technique in terms of not reading the question (for example, providing solutions to problems in question 4(a) rather than explaining the problems themselves) and not providing sufficient breadth of points to obtain a pass standard. However, as usual, there were a significant number of candidates who had studied appropriately for the examination to obtain clear pass standards. These candidates are to be congratulated on their high standard of answers and receive best wishes from the Examiner and his team for their future careers. The Chartered Institute of Management Accountants Page 1

2 November 004 Exam Question 1(a) Explain the characteristics of information expected from an EIS, evaluating whether the information available from JA s current EIS satisfies those characteristics. (1 marks) Candidates will have knowledge of the different support systems available to manage information. This question enables the candidate to demonstrate knowledge of a specific system, with the opportunity to explain the qualities of information expected from that system. The scenario provides examples of the information that could be produced by the EIS. Providing a suitable framework such as the mnemonic ACCURATE will help the candidate ensure completeness of answer, although suitable examples from the scenario will be needed to support the explanation of information itself. Key points Quality of information from an EIS Accurate Complete Concise (includes exception reporting) User-friendly (presentation) Relevant Authoritative Timely Easy to use (can sit down and use / HCI) Drill down / summarising Output of reports content of report External and internal information Maximum marks awarded 1 Some candidates obtained high marks when the focus of their answer was on explaining the characteristics of information in the context of the EIS. However, a list (accurate, complete, concise etc.) awarded as one mark only needed additional explanation to obtain higher marks). Explaining the characteristics of information from an EIS without showing how the characteristics were relevant to the situation in JA. Explaining what information an EIS should provide in terms of the systems within JA (for example, information on vats being produced), but not mentioning the characteristics of that information. The Chartered Institute of Management Accountants Page

3 November 004 Exam Question 1(b) Using appropriate sections of the value chain as a framework for your answer, discuss the weaknesses of the current information systems in JA. (15 marks) The ability to identify weaknesses of information systems is essential so that recommendations can be made later to overcome those weaknesses. This question uses the value chain to help the candidate provide an appropriate structure to the answer and then in practice assist other people in reading and understanding the report. The candidate will need to read through the scenario, noting any weaknesses found. Providing an answer format of the headings in the value chain first will enable the candidate to allocate weaknesses to the appropriate section, limiting the time necessary for planning. Weaknesses in the current system Inbound logistics - Loss of economies of scale in purchasing Operations - CRM and stock system Operations - Transfer of information CRM to CPD Operations - Lack of job scheduling Operations - Part availability from stores Marketing and sales - Invoicing of vats Technology poor systems limiting communication etc. in company Maximum marks awarded 15 Some good answers where the focus was on the weaknesses in the current systems. Discussion of solutions was allowed where this related to specific weaknesses and that weakness had not be sufficiently well-explained. General comments on solutions were not allowed as these were not within the question requirement. Not relating the weaknesses of systems to the situation in JA. Providing detailed explanations of the value chain as this was not required by the question. The Chartered Institute of Management Accountants Page

4 November 004 Exam Question 1(c) Evaluate whether outsourcing the development of the new EIS is appropriate for JA. (1 marks) Candidates will be aware of the different systems development options available, including internal and external sourcing. This question allows the candidate to evaluate whether one particular development methodology is appropriate for a specific situation. The scenario provides detail on JA, which can be used to determine whether or not outsourcing is appropriate for the company. The candidate will need to be aware of when outsourcing may and may not be used, and then apply this knowledge to the specific situation in JA. Reasons why outsourcing may be appropriate Core business Budget Skills available Error correction Reasons why outsourcing may not be appropriate Lack of specification Lack of user acceptance Lack of experience Solution being suggested by outsourcer (off the shelf package) not considered appropriate. Maximum marks awarded 1 Good answers where the issue of outsourcing was focused on by the candidate. Poorer answers tended to explain general issues with outsourcing rather than specific problems relating to the question scenario. Providing examples of when outsourcing may or may not be used without relating that information to the situation in JA. The Chartered Institute of Management Accountants Page 4

5 November 004 Exam Question 1(d) Discuss whether staff are likely to accept the changes to work practices likely to be brought about by new TPS and EIS. (11 marks) To be used effectively, an IT system must be accepted by the people who will use it. This question allows the candidate to discuss factors that will affect the decision by staff to use a specific system. Candidates will need to read the scenario to understand the specific situation in JA. Having understood the scenario, the candidate can use this information to show why staff in JA may or may not accept system change. Reasons why staff may accept changes Recognise weaknesses in current systems Reasons why staff may not accept changes TPS update delayed until EIS updated? Issues with centralised system Staff expectations Lack of user involvement Amend work practices to suit system Maximum marks awarded 11 Many answers focused on too few points and therefore did not gain as many marks compared to answers where the spread of points was greater. Stating some of the general reasons why IT change is not accepted without applying those reasons to the situation in JA. Focusing on too few points. Use of the Lewin force field theory to explain user resistance. While this had some relevance, detailed explanation of the theory was not required. The Chartered Institute of Management Accountants Page 5

6 November 004 Exam Question (a) Assuming that the Board of NLE decides to purchase the bookshops, advise them on the Information Strategy issues that they should consider, clearly explaining the information required when considering each issue. (15 marks) Candidates will be familiar with bricks and mortar companies establishing Internet divisions. This question allows the candidate to consider whether the reverse situation could occur and therefore advise managers on the appropriate course of action to take. A pass standard candidate will review the situation in the scenario and attempt to apply this information to the strategic problems of setting up a new business division. Key points Link to business strategy of company Amendment of current Internet site allow ordering from shops and collect from store Setup of system have skill in house or outsource? Incompatible systems shops and Internet Effect on e-business Bricks and mortar impact on other sections of business Danger of lack of focus on web business Note business issue mention the lack of information to determine that issue 1 Maximum marks awarded 15 There appeared to be some confusion in most answers concerning which issues were IS related and which related to other areas. Focusing the answer on issues concerning information and inappropriate systems would help candidate ensure that the points made were relevant. Not focusing on the strategic issues involved with the purchase of a new division. Too many comments relating to business or finance issues rather than Information Strategy issues. The Chartered Institute of Management Accountants Page 6

7 November 004 Exam Question (b) Identify and explain two Critical Success Factors and their supporting Performance Indicators that can be used to determine the success or otherwise of the purchase of the bookshops, should this acquisition go ahead. (10 marks) Candidates will realise that part of the benefit of IT is being able to justify the implementation in terms of quantifiable results. This question allows candidates to demonstrate this knowledge in terms of setting CSF s and the associated PI s to help determine the success of the diversification into retail bookshops. Candidates will be aware of the mission of NLE from the scenario, and therefore should be able to determine appropriate CSFs based on this mission from the scenario. A pass standard candidate will be able to relate the CSF and PIs given to the situation in NLE. State CSF 1 State PI 1 mark to a maximum of two PIs for each CSF Explanation of CSF and PI marks (can include the information source as well as logic for using each PI) Nb PIs must be quantifiable for full mark. Examples of CSFs Reliable supplier Cost efficient supplier 1 (Max 5) Maximum marks awarded for part (b) 10 It was disappointing following similar questions in this examination, that many candidates still appear not to understand the distinction between CSFs and PIs or how to formulate good statements of either. The overall standard was a marginal fail. Provision of CSFs and PIs not related to the retail business of the company. Not stating CSFs and PIs clearly or succinctly. The Chartered Institute of Management Accountants Page 7

8 November 004 Exam Question (a) Evaluate the relationship between the cost and value of information, with specific reference to the graph above showing the benefit of the DataFind software. (9 marks) Candidates will be familiar with the idea of diminishing returns from providing more information. This question takes the concept slightly further to show what could happen when intelligent agent software is used within an information system. The basic point to be made is that there will be additional returns to investment as the size of the database increases. Pass candidates will be able to use their knowledge of information to show how the value changes with increasing cost. Having explained this relationship, the candidate will then explain the change in the curve at the end of the graph resulting from the use of the intelligent agent software. Benefits General relationship between cost and value of information Note that additional investment eventually has no additional info. value Explanation of the increase in value at the end of the graph Note that a critical mass of data is needed for DataFind software Maximum marks awarded 9 This was the least popular question in Section B of the examination. While there were some good answers, the overall standard was disappointing. Not understanding the relationship between cost and value of information. For example, many answers suggested that a horizontal line on the graph meant information continued to increase in value with no cost while the opposite was actually the case. Not applying comments to the graph, as required by the question, but providing general answers on the nature of the cost and value of information. The Chartered Institute of Management Accountants Page 8

9 November 004 Exam Question (b) Discuss the costs and benefits that would help to determine whether the purchase of the sales software should proceed. (16 marks) Cost Benefit Analysis is one of the main tools to justify an investment in information systems. In this scenario, as in many situations involving information systems, the candidate needs to identify the intangible benefits to try and justify the investment in information systems. A pass candidate will be able to use the scenario information to identify the costs and benefits arising from the new system. Having located these benefits, the candidate will have to explain why they are relevant in the answer. Costs Systems changeover Hardware and software Staff training etc Cost savings Savings from not operating old system Cost Benefits Access to information Improved customer service Improved staff morale Improved decision making Direct marketing opportunities Maximum marks awarded 16 Many candidates scored well in this section (compared to part (a)), by providing a wide range of costs and benefits of information systems. Explaining too few points in too much detail. Focusing comments on explaining the theory of costs and benefits (such as the difficulties of placing values on intangible benefits) rather than providing examples of those costs and benefits. The Chartered Institute of Management Accountants Page 9

10 November 004 Exam Question 4(a) Discuss the barriers in the VG organisation to achieving effective communication and to using IT in order to provide access to databases in the VG organisation. (10 marks) Candidates will be familiar with the problems of co-ordination in a decentralised organisation. This scenario uses a specific example of staff not being able to communicate effectively where IT is currently not used to any great extent. Barriers to co-ordination therefore relate partly to the organisation structure but also to the social issues of lack of experience and use of IT in the specific situation. Candidates will need to read the scenario to determine what the barriers to effective communication are in this particular company. These points can then be used in the answer to ensure that the focus is maintained on the scenario. Barriers to effective communication Telephone being used for communication of potentially detailed technical information. Telephone easy to make mistakes issue of oral communication, non-verbal communication. Telephone assume technical design specialist will be available may be at break or simply too many telephone calls. Decentralised system may have duplicated information in different databases such as duplicate customers and stock information. Ensure databases are in common format either financial or product. Delay in distributing information from centre to representatives. Barriers to use of IT Not in philosophy of sales representatives. Representatives work in many different locations company cannot determine exact communication systems available No common point of update not in office therefore remote update needed for databases. No work study done showing whether or not IT actually appropriate only have indications from the IT department. Maximum marks awarded 10 The Chartered Institute of Management Accountants Page 10

11 November 004 Exam This question produced some very good answers, with candidates correctly identifying problems in the scenario and correctly explaining how problems resulted in poor communication within the company. A classic FLIS question with some corresponding excellent answers. Not relating the points made to the situation in the scenario. Providing solutions to the communication problems where these should have formed part of the answer to part (b) of this question. The Chartered Institute of Management Accountants Page 11

12 November 004 Exam Question 4 (b) (i) Discuss how IS / IT can be used to obtain competitive advantage in the VG organisation. (10 marks) (ii) Explain the factors the Board needs to consider in order to determine whether or not to upgrade the system. (5 marks) (Total for part (b) = 15 marks) Candidates will be familiar with the need to use IS/IT to obtain competitive advantage in different industries. This scenario allows candidates to demonstrate how IS/IT could be used in a situation where currently very little use is made of IT. However, there may be no easy solution to using IT in the scenario and candidates should also not be afraid of pointing this out. Candidates will have read the scenario and therefore be familiar with the situation in the VG organisation. The answer must therefore focus particularly on the problems inherent in this situation providing realistic ideas of whether IT can be used effectively. Part (i) competitive advantage Transactions Production of specifications Access to database on laptop at customer premises. Use of for communication to design specialists. Possibility of using Expert System on laptop to advise on design issues Use of text messaging to design specialists or via mobile telephone. Output of specifications possible use of CAD pictures of windows to show product Other similar points Maximum marks awarded for (i) Part (ii) Factors for board to consider Ensure IT meets business needs CBA of IT options Budget User involvement Possible pilot implementation Maximum marks awarded for part (b) 15 The Chartered Institute of Management Accountants Page 1

13 November 004 Exam As with part (a), there were some very good answers to this section, possibly helped by the wide variety of points that could be included in both sections of the question. The range of diverse and normally well explained points was a pleasure to mark. Not focusing the points made on the specific situation outlined in the scenario. Providing a detailed explanation of Earl s grid without reference to the specific situation in the scenario. The Chartered Institute of Management Accountants Page 1

14 November 004 Exam Question 5(a) Discuss how you will determine the information requirements for your new job. Use examples from your own employment or appropriate industry examples to support your answer. (1 marks) Candidates should be familiar with their information requirements, no matter what type of employment they are in. This question allows the candidate to show how information requirements for their job can be determined, allowing practical experience to be used in the answer. Candidates will need to think carefully about how information requirements for a job can de determined, before writing the answer. Hopefully the need to meet the requirements of reporting systems within the organisation will be noted and used to help determine specific requirements for this situation. Determining new job information requirements. Job specification information on what job entails. Discussions with senior accountant to decide what information is required in reports. Check with company objectives to see what CSFs and PIs are to ensure these are being monitored by appropriate people including senior accountant. Check back to show what data is available to monitor the CSFs and PIs. Likely to be existing information systems in company. This was a question that could have been answered from general knowledge. In fact a minority of candidates started their answer along the lines of I did this exercise a few months ago and therefore produced some well thought out answers. Unfortunately, many other answers were relatively vague regarding structure and content, which limited the marks that could be obtained. Stating information requirements without relating these to the need to report to a more senior manager. Explaining the characteristics of information without reference to the need to determine the information requirements of a job. The Chartered Institute of Management Accountants Page 14

15 November 004 Exam Question 5(b) The senior management accountant has indicated that the company has no effective IS strategy. Discuss the problems of setting an IS strategy in a rapidly expanding company. (1 marks) Candidates will be familiar with the need for an IS strategy from the work of Earl. This question requires more than simply re-iterating the theory as examples must be provided from a rapidly expanding company. An answer plan with some of Earl s reasons for having an IS strategy would be useful for this answer, although time will also be required to show how those points relate to the rapidly expanding company. Knowledge of Earl is not essential to answer the question, this theory simply provides a useful framework for the answer, limiting planning time. Budget System change IT as an enabling technology Management information Customers IT systems Maximum marks awarded 1 Many candidates answered this question by explaining Earl s reasons for having an IS strategy. While this approach had some merit, the focus of those answers was not always on the problem of a rapidly expanding company, limiting the value of the comments made. Not focusing the points made on a rapidly expanding company. The Chartered Institute of Management Accountants Page 15