Prepared by: Peter Layhe, FCMA
Vice President of CIMA and Chairman of the Public Service Committee
Ian Haythornthwaite, FCMA
Director of Finance, University of Central Lancashire.
Bill Walmsley, Ph.D. MIEE, C.Eng
Special Projects’ Officer, University of Central Lancashire.
with Anita Allott and Liz Murby of the Institute’s Public Affairs Department. In reproducing the following checklists: Implementing the Strategy [page15] and Information Principles [page 17] CIMA gratefully acknowledges the copyright of the University of Central Lancashire. Where to go for further help and advice The Chartered Institute of Management Accountants 63 Portland Place London W1N 4AB Publishing:
Tel: 0171 917 9229 Fax: 0171 323 1487
Mastercourses:
Tel: 0171 917 6588 (information) 0171 917 9244 (bookings) Fax: 0171 580 6991
Public Affairs:
Tel: 0171 917 9284 Fax: 0171 580 6355
© November 1997. All rights reserved. This booklet does not necessarily represent the views of the Council of the Institute and no responsibility for loss associated to any person acting or refraining from acting as a result of any material in this publication can be accepted by the authors or publishers.
CONTENTS
THE PURPOSE OF AN INFORMATION SYSTEM
1
THE PREREQUISITES
2
THE INFORMATION PROJECT
3
THE WORK CYCLE
4
STAGE 1: CONCEPT
5
STAGE 2: FEASIBILITY
6
STAGE 3: EVALUATION
8
STAGE 4: AUTHORISATION
11
STAGE 5: IMPLEMENTATION
12
STAGE 6: CONTROL
13
STAGE 7: COMPLETION
14
IMPLEMENTING THE STRATEGY: A CHECKLIST
15
ANNEX 1: INFORMATION PRINCIPLES
17
i
PREFACE
Over a period of time, enterprises both public and private, take on forms considered suitable to meet the demands made on them. Their structures perhaps departmental, divisional or holding companies with subsidiaries, may be likened to bodies with an assortment of limbs. Information is the blood and systems are the arteries which circulate data and convert them to useful information. Systems range from relatively simple stock control and payroll systems to complex customer service systems capable of providing staff with a bewildering array of information about customers and their accounts. Modern managers use information systems not just for keeping tabs on what is going on in their businesses, but also as an active tool for evaluating ‘what-if’ ideas and scenarios and increasingly, as a competitive tool to win business. In a small simple organisation the information needs may be easily secured with little or no technology. In many enterprises however, the requirements will be complex and the volume of data will require contemporary technology to secure it, analyse it, process it and convert it to useful timely information. Inadequate, incomplete and late information will inhibit the ability of even competent management to make sound plans, maintain control of events and deliver desired end results. This booklet is designed to: •
show the potential managerial benefits of an efficient and effective information system; and
•
indicate the processes by which good information systems may be created or enhanced.
The principles outlined are applicable throughout a broad range of organisations in both the private and public sectors.
iii
THE PURPOSE OF AN INFORMATION SYSTEM
An effective information system should deliver the following benefits to the organisation: •
improve competitiveness by adding value to business;
•
improve clarity in the definition of responsibilities of managers and employees and their commitment;
•
facilitate group working and shared ownership of information;
•
strengthen the focus on the key business objectives of the organisation in the short and long term;
•
improve the quality of decision-making, and
•
(in most cases) become a major agent for change.
The rationale for developing an effective information system is, in essence, to secure a clear, accepted and efficient means by which information is used to support the delivery of the objectives of the organisation. Information systems will consume resources, capital and recurrent revenue. Designed and implemented with skill they can deliver substantial rewards and have been known to transform enterprises in terms of structure and results.
1
THE PREREQUISITES
Before an effective information strategy can be put in place, management needs to have established: •
a corporate policy or series of policies, generally not quantified or related to set time periods, which guide and/or constrain the activities of the entity;
•
corporate objectives covering perhaps four or five years ahead in diminishing accuracy and certainty showing the overall results wanted in critical areas e.g. sales/income, expenditure, capital employed etc.;
•
strategic objectives, probably for shorter periods ahead, showing how the individual elements of the corporate objectives are likely to be met e.g. individual product and/or market sales income;
•
operational planning for the day-by-day, hour-by-hour work which has to be undertaken in order to deliver the strategic objectives which in turn will achieve the corporate objectives.
By these processes senior management will have ensured that all the managers in the enterprise are aware of and committed to, at least their own objectives. They should also have a basic appreciation of the interdependencies of their own work and that of their colleagues. Each step of the above process requires decisions to be taken. The quality of the decisions will inevitably be affected by the availability of relevant information from inside and outside the enterprise. On early iterations it will often be found that current information is inadequate and decisions taken and judgements made from an unsatisfactory base. Thus information is a key resource, it can give sustained competitive advantage, in exactly the same way as any other unique asset, handled proficiently.
2
THE INFORMATION PROJECT
An intention to transform or update information flow is a project and needs to be subject to appropriate disciplines. Like any other project it will only succeed if it is championed by senior management, preferably the chief executive personally, determined to commit the necessary resources and secure the potential benefits. Success in the application of information management will allow the organisation to set and then achieve increasingly strategic objectives. Hence, strategy and information flows are inextricably linked. The strategic project will pass through several stages.
AUTHORISATIONS IMPLEMENTATION Control/Accountability Operations Closedown Termination
Each major stage is dealt with in the following pages.
3
THE WORK CYCLE
The preceding page illustrated the steps to be taken in converting a concept that information should be developed into a major asset into reality. The work to be done in each stage can usefully be analysed into a cycle as shown in the following diagram. Motivate Organise
Implement
Replan Plan
Monitor Exercise accountability T
I
M
E
If the process of taking an idea through to a satisfactory conclusion is to be managed efficiently then for the project overall and for each stage: •
Someone must have overall responsibility for the project.
•
Someone must design the overall systems architecture.
•
Someone has to ensure all the required input, people, machines etc. are organised to be available at the right time and in correct quantities and quality.
•
Someone needs to put in place factors of motivation which will encourage and inspire the participants to deliver their commitments on time and within the stated cost and quality parameters.
•
All the task owners need to implement their plans and change planned expectation to reality.
•
A project manager needs to have systems in place to record progress against plan. By monitoring actuals against projected milestones, identifying early signs of departure from plan, the manager will be better able to consolidate on superior performance and ensure slippage is corrected.
•
Periodically, sometimes at predetermined intervals and sometimes when milestones are reached those responsible for specific deliverables will be held accountable. Part of that process will concern historical performance, covering cost, time and quality to date, part will be directed to the prevailing expectations on the work still to be carried out.
•
As circumstances change, positions become clearer, it will be essential to take the new factors into account in a formal re-planning process, which will start new iterations.
4
STAGE 1: CONCEPT
This is generally the stage when there is recognition of the fact that the current information flow is slow, incomplete, flawed, inadequate, or some combination thereof, and the deficiencies are impeding progress and diminishing the ability to compete. In short, there are three key questions which will test if the investment in time and effort required to produce and implement an information management project is likely to be worthwhile. 1. Does the organisation depend critically on information delivered on time, for either product, service or decisiontaking? 2. Do business communications (either external or internal) need to be improved? 3. Can customer service be improved by deploying suitable information technology? If the answer to any of these questions is yes, time might usefully be allocated to researching the potential benefits of improved information management planning.
RESEARCH The questions which should be addressed before further planning are: 1. What data do we have already? 2. Is it adequately presented as information which leads to action? 3. Is the information available to the correct audience? 4. What additional information is needed? 5. Who would benefit and how from having the information? At the concept stage preliminary discussions with interested parties will begin to indicate the scope of a future project. It will also allow a project champion to form a ball-park assessment of initial capital expenditure, recurrent revenue expenditure and the worth of the output to be delivered.
5
STAGE 2: FEASIBILITY
Having established at the concept stage a prima facie case for improving and enhancing the availability of information it would often be routine to earmark staff to process the crude initial appraisals and refine the likely upfront expenditure, recurrent costs and the potential benefits. This will still require extensive consultations with the full range of managers, as one opportunity leads to another and horizons are freed from current constraints. Developing the project requires clear analysis of the challenges and opportunities up to and beyond the immediate business horizon. With information systems schemes in particular the importance of the initial design cannot be overstated. Subsequent changes can have major impact on duration and cost. The success of the strategy is dependent on the acceptance by management of five fundamental principles: •
data is a valuable resource and one that requires proper management;
•
most data is highly shareable;
•
the ability to share and use data more effectively is critical to the success of the enterprise;
•
the information system should incorporate a broad view of the organisation;
•
data needs to be converted to useful and relevant information in an effective and efficient way.
At this feasibility stage, consideration should also be given to the scope of the project. Outside the project, but of great significance to it, an organisation should have: •
defined what business(es) it wants to be in;
•
identified its core business processes;
•
identified and analysed the factors critical to its success;
•
defined its markets;
•
studied its industry and competitors; and
•
identified its strengths and weaknesses.
That definition will require input from those areas of the organisation having a legitimate input into the issue. Thus the following functions with a direct or indirect interest, should be involved: •
sales;
•
marketing;
•
finance;
•
personnel;
•
research and development.
6
The data upon which the information project is based may not all be readily available within the formal documentation of the business. Other sources of relevant considerations to be reflected in the feasibility stage will include: •
paperwork review;
•
interviews with senior staff on relevant matters;
•
interviews with line managers and employees to: – ascertain the extent to which policy is translated into practice; and – identify opportunities for bottom-up improvement.
Depending on the size and legal status of the business there may be other external influences, for example; shareholder views, lobby groups, industrial trends, statutory issues, that will need careful consideration. The local organisational context should also be articulated in terms of current or anticipated requirements for communications with business partners, customers, suppliers and other third parties. As the end results begin to firm up, managers will have agreed the information they need and its frequency and will have identified the improvements they can deliver in consequence. Attention will focus on the more detailed methodology to be adopted to secure the base data, collate it, analyse and link it, and present it in appropriate format, text, graphics, pictures etc. After appropriate consultations the shadow project manager will have identified the most suitable technology, and will be satisfied that there are no insurmountable problems with hardware and software from reputable sources. The stage concludes with the project manager producing a document which establishes that the project is: •
technically feasible;, and
•
commercially viable.
That document will generally be submitted to a higher authority who will critically review it against the organisations corporate objectives and other projects. If they are satisfied they will authorise further expenditure to carry out a comprehensive evaluation leading to an application for agreement to proceed.
7
STAGE 3: EVALUATION
This sequence refines all the work carried out in the feasibility study and firms up the specifications of the proposed purchases, the initial (mainly capital ) cost, operating expenditure, the work to be done and the benefits to be delivered, tangible and intangible. The evaluation depends crucially on four distinctly separate and related areas: •
technology;
•
information structures;
•
business needs; and
•
people.
TECHNOLOGY Technology can be considered as three closely knit areas: computers, communications, and software. In all these areas the key areas to evaluate are: •
technical expertise to select and implement the most appropriate infrastructures;
•
keeping a watchful eye on changing technologies and assessing opportunities as they arise;
•
provision of a constancy style service to management;
•
avoidance of concentrating too heavily on technology instead of meeting business needs.
Evaluation of this item will reflect the net purchase price of the hardware and software, the cost of any installation and site work, the cost of initial training and the likely realisable worth of any assets made surplus to requirements. Projected revenue results will allow for all the expected operational expenditure including depreciation arising from a realistic assessment of the economic life of the assets being bought.
INFORMATION STRUCTURES At the evaluation stage it is important to demonstrate that the proposal overcomes obstacles such as: •
meeting varying information needs in different parts of the business;
•
the avoidance of duplication, ambiguity, and inconsistency;
•
deciding who owns the data and controls its use;
•
defining information needs effectively.
8
These obstacles can be overcome. The key factors in achieving this are: •
acceptance of the need for specific applications to meet specific needs of departments and individuals;
•
increasing the information awareness of people at all levels of the organisation;
•
providing a system for ensuring good-quality information;
•
encouraging an attitude of group working and sharing of information;
•
providing a new view of information management which is not centred on the technological infrastructure, but on the information it produces.
The evaluation will need to show the effect of these changes. They will need to be expressed in financial and nonfinancial terms so that they can be monitored closely if the project is authorised.
BUSINESS NEEDS All businesses need systems for enacting the business from which they extract a profit. These systems are a mixture of formality and informality, normal practice and exception, people, paper and machines. In some businesses there is a great deal of formalisation and stability whereas for others change and innovation are the order of the day. Needs vary! The key factors of success in meeting business needs then are: •
establishing the most effective systems environment for the business;
•
clarifying the needs for information at three levels; corporate, departmental and operational;
•
identifying the individual, department, division, and company performance indicators;
•
specifying the decision-based information needs of managers at all levels;
•
focusing attention on business performance.
The evaluation stage will spell out these applications and their respective benefits.
PEOPLE Today it is widely recognised that we depend on skilled people with the right attitudes to make the systems work. This means that we must also recognise the new challenges this brings in motivation, training, management and working relationships. To be successful in the people area we have to pay attention to these key factors: •
overcoming ‘technofear’;
•
balancing the technology enthusiasm;
•
ensuring that people take ownership of all the information aspects of their work;
•
providing appropriate training, support and coaching with the focus on individual performance;
•
encouraging, fostering and welcoming change at all levels and in all areas of business activities.
In all four areas of concern at this stage it is important to recognise the role that managers play in ensuring success. No longer is the development of effective systems solely the prerogative of the specialists. The evaluation stage will reflect the cost and benefits expected to be delivered from these factors.
9
This phase provides all the evidence and commitments needed to put to the authorising body. A well balanced script will generally need to be supported by financial schedules showing: •
the proposed initial spend of capital and major revenue;
•
a projected cash-flow document for several years forward with the early year or two broken into shorter periods;
•
a projected profit and loss covering several years forward;
•
a projected balance sheet at the end of several forward years.
The application will ask the authorising body to approve the scheme, to earmark funds for its implementation and to release the funds over the life of the project.
10
STAGE 4: AUTHORISATION
TOP LEVEL COMMITMENT By the time a formal application has been assembled all the task-owners, those people required to undertake work and deliver results, should be committed to the common purpose. The formal commitment of top management begins with their review of the application and a rigorous review. They may call for revisions and resubmissions but when the project is approved that fact should be made known throughout the organisation. It is essential that the support of the chief executive is secured and retained throughout the project since, to be effective, it will require commitment from all parts of the organisation. Authorisation will often be qualified with the need for progress reports at set moments on the calendar and also at predetermined milestones in the life of the project. Under appropriate circumstances the authorising body may elect to release funds in tranches with each release being conditional on a report showing successful application of the prior funding. The ability to restrict further expenditure on a project which shows signs of failure is often seen as a reasonable contribution to risk management.
11
STAGE 5: IMPLEMENTATION
BUILDING THE MANAGEMENT TEAM Once top-level commitment has been assured, the process of finalising and formalising the management team who will oversee the development and implementation can begin. •
A project manager should be confirmed.
•
Team members should be selected not as representatives of different parts of the organisation, but for their broad knowledge of the business and their corporate attitudes to business success.
•
It is essential that most of the team members are not solely IT-orientated.
•
To be effective, each member of the team needs to have demonstrated a corporate approach to his/her work, irrespective of the particular function in which they are normally engaged
•
Team members should report to the project manager and be accountable for delivering their respective elements of the plans.
The project manager should be accountable to a senior board member.
THE INFORMATION SYSTEMS STRATEGY A good deal of work will have been carried out in the pre-authorisation stages. During implementation the team will need to revisit: 1. The analysis of the key business activities. It divides the business into logical strategic business units, each of which is attacking specific markets with clearly identified products. Within each of these units there is usually a number of key business activities. 2. The decision-making which takes place in each activity. The decisions may have been usefully separated into mechanical, routine, and complex. 3. Given an understanding of the decision to be taken, earlier work will have indicated the information needed to improve the proficiency of decision taking. 4. The information requirements may be categorised into three primary levels: corporate, departmental and operational. Then the frequency and quality of the information can be assessed. 5. In order for information to be created data have to be collected, processed, stored and disseminated. 6. Systems framework: With all this information to hand it is possible to finalise design of a framework and install it to meet the needs of the business.
12
STAGE 6: CONTROL
Implementation of information systems notoriously go over budget and overrun on time. It is often claimed that the root cause of the poor performances which incidentally can totally negate the expected benefits, is inadequate planning. The initial design essentially commits a high proportion of resultant costs – it follows that getting it right first time is important. It also follows that inadequate design and consultation will give rise to demands for change, and even apparently trivial variations can cause massive cost excesses and time overrun. Redesign is generally a recipe for disaster. The project must be controlled if it is to achieve its targets and meet the overall corporate objectives within the given timeframe. A tightly knit project team will reduce the probability of project slippage. Regular team meetings for the project review will help ensure that superior performance is maintained, or that problems are sorted out swiftly so as not to lose momentum. There will be predetermined accountability meetings between the project manager and the team, and less frequently between the project manager and his superior. The plans should also incorporate milestones which will also form occasions for formal reviews. The purpose of the control procedures is to deliver completion within the set parameters of cost, time and quality. The information needs for that process to succeed will clearly be fundamental priorities for the project team.
13
STAGE 7: COMPLETION
In due course the project will finish. Systems will have been installed, hardware and software bought, put in place, tested and user accepted. There may be formal hand overs when work passes from the responsibility of the project team to that of operational management. It is then for operational management to actually deliver the benefits which were claimed as justifying the work and incurred cost. At handover it is often productive to have a report prepared on performance to that date. This can often pinpoint problems which arise and log them for possible advantage in subsequent projects. Maybe around a year after handover the authorising body will require a report from the project champion to demonstrate the nature and extent of the results actually delivered compared to those claimed in the first instance.
14
IMPLEMENTING THE STRATEGY: A CHECKLIST
Since setting up the project depends critically on information technology, then a plain English checklist of issues to be considered by users whilst defining their systems can be useful. The checklist should expose issues which may have implications across the organisation, and where a broader overview of the strategy is appropriate. The project manager will need to negotiate and resolve cross functional matters to facilitate synergy between operating divisions/departments. A typical checklist might cover questions such as the following. 1. What is the underlying business process that is to be supported by this system? 2. Has the process been reviewed for efficiency and effectiveness? 3. Does the specification of the business requirements provide for the production of management information on an ongoing basis that will assist in making the underlying business process more efficient and cost effective? 4. What service quality improvements can: • be expected? • be measured following the introduction of this system? 5. What is the anticipated duration of this business process? 6. What is the anticipated life cycle of the proposed technical solution? 7. What are the life cycle costs of the system? 8. Is the data capture for this system done once and once only? 9. Does the system require data input from any other operating division, department or business partner? 10. Will the system provide management or operational information for other areas of the company? 11. Have agreements been reached with MIS function to accept full technical responsibility for in-house systems in its entirety, or are MIS satisfied with arrangements for 3rd party support? 12. Have appropriate arrangements been put in place for aspects of user support? 13. Are there any data-protection or other legal implications surrounding the introduction of this system? 14. Will this system be available for use by off site organisations? (e.g. suppliers, business partners, public sector bodies) – if so, will this system impact on their operations, and how? 15. Are there any staff development (e.g. training/retraining/redeployment) issues that need to be addressed in ensuring that this system delivers its full potential? What are the associated costs? 16. Do the business requirements of this system provide for user access independent of time and geographical location? 15
17. Has the proposed system been proven in operation at other sites? 18. Do the business requirements of this system reflect the cross-functional nature of the underlying business processes – i.e. is group working across functional boundaries supported? 19. Will the system make full use of the company’s networked infrastructure? (e.g. for systematic automatic backup, recovery and electronic communications?) 20. Is the operational management of the proposed system capable of being devolved to the end user(s) whilst maintaining access to all who need it irrespective of structural or geographical location?
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ANNEX 1: INFORMATION PRINCIPLES
GENERAL 1. Information needs are determined by users and facilitated by technology. 2. Priorities for developing solutions to information problems must be resolved by the nominated Board member when there is competition for limited resources. 3. The enterprise must aim to achieve a basic equity of provision of information services across its operating divisions, consistent with the achievements of its business objectives.
ACCESS INTEGRITY AND SECURITY 4. Access to networked services should be available to all registered users regardless of their geographical location. 5. Access rights to data related to the business activities must be defined and managed to prevent unauthorised disclosure of personal or commercially sensitive information. 6. All registered users have access rights to their own personal data, constrained only by the limitations imposed by the Data Protection Act. 7. Management will seek the widest possible access to network services in so far as this does not threaten the security or integrity of the system.
STANDARDS AND ACCOUNTABILITY 8. The organisation will provide high quality information services for each operating division and will charge for these services at rates agreed in service-level agreements. 9. Information services which are required for, or are available to all potential users will be delivered and maintained as ‘common services’. 10. The organisation will maintain the highest standards of integrity and control in respect of its legal responsibilities for licensing, copyright and data protection. 11. The organisation will exercise corporate control over its business information needs and systems and ensure that information systems have ‘built in’ accountability e.g. audit trails. 12. In-house information systems will be developed, controlled, maintained and documented to recognisable industry standards.
17
CORPORATE DATA MANAGEMENT 13. Data should be recorded at source, once and once only. Individuals should capture and record data relative to the functions they perform as part of the normal work task. (The recording of data as an adjunct or totally separate activity from the main task is generally wasteful.) 14. Ownership of all data rests with the organisation. No single department, service or person can claim ownership of the data. It is a corporate responsibility to determine what data is required, how it is to be recorded, and who is entitled to have access to it. In situations involving contractual obligations to third parties, issues relating to the ownership of data must be resolved prior to contract. 15. Specific nominated individuals in the organisation (data managers) should have responsibility for ensuring data accuracy in respect of identified sub-sets of data.
18