Chapter Three

3. The System Development Process

Learning Objectives
After studying this chapter, you should be able to:
Prepare and use data flow diagrams to understand, evaluate, and document information
systems.
Prepare and use flowcharts to understand, evaluate, and document information systems.
Prepare and use business process diagrams to understand, evaluate, and document
information systems.
Explain the five phases of the systems development life cycle, and discuss the people
involved in systems development and the roles they play.
Explain the importance of systems development planning, and describe the types of plans
and planning techniques used.
Discuss the various types of feasibility analysis, and calculate economic feasibility using
capital budgeting techniques.
Explain why system changes trigger behavioral reactions, what form this resistance to
change takes, and how to avoid or minimize the resulting problems.
.Discuss the key issues, objectives, and steps in systems analysis.
3.1 System Development and Documentation Tools and Techniques
Documentation explains how a system works, including who, what, when, where, why, and
how of data entry, data processing, data storage, information output, and system controls.
Popular means of documenting a system include diagrams, flowcharts, tables, and other
graphical representations of data and information.
These are supplemented by a narrative description of the system, a written step-by-step
explanation of system components and interactions.
In this chapter, we explain three common systems documentation tools: data flow diagrams,
flowcharts, and business process diagrams.
Documentation tools are important on the following levels:
1. At a minimum, you must be able to read documentation to determine how a system works.
2. You may need to evaluate documentation to identify internal control strengths and
weaknesses and recommend improvements as well as to determine if a proposed system
meets the company’s needs.
 3. More skill is needed to prepare documentation that shows how an existing or proposed
system operates.
This chapter discusses the following documentation tools:
1. Data flow diagram (DFD), a graphical description of data sources, data flows,
transformation processes, data storage, and data destinations
2. Flowchart, which is a graphical description of a system. There are several types of flow
charts, including:
A. Document flowchart, which shows the flow of documents and information between
departments or areas of responsibility
B. System flowchart, which shows the relationship among the input, processing, and
output in an information system
C. Program flowchart, which shows the sequence of logical operations a computer
perform as it executes a program.
3. Business Process diagrams, which are graphical descriptions of the business processes
used by a company Accountants use documentation techniques extensively. Auditing
standards require that independent auditors understand the automated and manual
internal control procedures an entity uses. One good way to gain this understanding is to
use business process models or flowcharts to document a system, because such graphic
portrayals more readily reveal internal control weaknesses and strengths.

3.1.1 Data Flow Diagrams

A data flow diagram (DFD) graphically describes the flow of data within an organization. It
uses the first four symbols shown in Figure 3-1 to represent four basic elements: data sources and
destinations, data flows, transformation processes, and data stores. For example, Figure 3-2
shows that the input to process C is data flow B, which comes from data source A. The outputs
of process C are data flows D and E. Data flow E is sent to data destination J. Process
F uses data flows D and G as input and produces data flows I and G as output. Data flow G
comes from and returns to data store H. Data flow I is sent to data destination K. Figure 3-3
assigns specific titles to each of the processes depicted in Figure 3-2. Figures 3-2 and 3-3 will be
used to examine the four basic elements of a DFD in more detail. In Chapters 12 through 16, the
basic DFD has been adapted so that it shows internal controls, using the triangle symbol
(highway warning symbol) shown in Figure 3-1. The internal controls are numbered and an
accompanying table explains the internal control. Users who do not wish to indicate internal
controls simply ignore the triangle symbol.
A data source and a data destination are entities that send or receive data that the system uses
or produces. An entity can be both a source and a destination. They are represented by squares,
as illustrated by items A (customer), J (bank), and K (credit manager).
Figure 3.1 data flow diagram symbols

Figure 3.2 basic data flow diagram elements

A data flow is the movement of data among processes, stores, sources, and destinations. Data
that pass between data stores and a source or destination must go through a data transformation
process. Data flows are labeled to show what data is flowing. The only exception is data flow
between a process and a data store, such as data flow G in Figure 3-3, because the data flow is
usually obvious. In data flow G, data from the accounts receivable file is retrieved, updated, and
stored back in the file. Other data flows in Figure 3-3 are B (customer payment), D (remittance
data), E (deposit), and I (receivables data).
If two or more data flows move together, a single line is used. For example, data flow B
(customer payment) consists of a payment and remittance data. Process 1.0 (process payment)
splits them and sends them in different directions. The remittance data (D) is used to update
accounts receivable records, and the payment (E) is deposited in the bank. If the data flow
separately, two lines are used. For example, Figure 3-4 shows two lines because customer
inquiries (L) do not always accompany a payment (B). If represented by the same data flow, the
separate elements and their different purposes are obscured, and the DFD is more difficult to
interpret.
Processes represent the transformation of data. Figure 3-3 shows that process payment (C) splits
the customer payment into the remittance data and the check, which is deposited in the bank. The
update receivables process (F) uses remittance (D) and accounts receivable (H) data to update
receivable records and send receivables data to the credit manager.
Figure 3.3 data flow diagram of customer payment process

A data store is a repository of data. DFDs do not show the physical storage medium (such as a
server or paper) used to store the data. Data stores (H) are represented by horizontal lines, with
the name of the file written inside the lines.
Subdividing the DFD
DFDs are subdivided into successively lower levels to provide ever-increasing amounts of detail,
because few systems can be fully diagrammed on one sheet of paper. Also, users have differing
needs, and a variety of levels can better satisfy differing requirements. The highest-level DFD is
referred to as a context diagram because it provides the reader with a summary-level view of a
system. It depicts a data processing system and the entities that are the sources and destinations
of system inputs and outputs. The payroll processing system receives time card data from
different departments and employee data from human resources. The system processes these data
and produces (1) tax reports and payments for governmental agencies, (2) employee paychecks,
(3) a payroll check deposited in the payroll account at the bank, and (4) payroll information for
management.
Ashton used the description of S&S’s payroll processing procedures in Table 3-1 to decompose
the context diagram into successively lower levels, each with an increasing amount of detail.
Figure 3.4 context diagram for payroll processing

Five data processing activities:

1. Updating the employee/payroll master file
2. Handling employee compensation
3. Generating management reports
 4. Paying taxes
5. Posting entries to the general ledger
Table 3-2. The five activities and all data inflows and outflows

Ashton exploded his context diagram and created the Level 0 DFD (called Level 0 because there
are zero meaningful decimal points—1.0, 2.0, etc.) shown in Figure 3-6. Notice that some data
inputs and outputs have been excluded from this DFD. For example, in process.2.0, the data
inflows and outflows that are not related to an external entity or to another process are not
depicted (tax tables and payroll register). These data flows are internal to the “pay employees”
activity and are shown on the next DFD level.
Ashton exploded process 2.0 (pay employees) to create a Level 1 DFD (it has one meaningful
decimal place—2.1, 2.2, etc.).
Figure 3.5 level 0 DFD for payroll processing
3.1.2 Flowcharts
A flowchart is a pictorial, analytical technique used to describe some aspect of an information
system in a clear, concise, and logical manner. Flowcharts record how business processes are
performed and how documents flow through the organization. They are also used to analyze how
to improve business processes and document flows. Most flowcharts are drawn using a software
program such as Visio, Word, Excel, or PowerPoint. Flowcharts use a standard set of symbols to
describe pictorially the transaction processing procedures a company uses and the flow of data
through a system. Flowcharting symbols are divided into four categories, as shown in Figure 3-8:
1. Input/output symbols show input to or output from a system.
2. Processing symbols show data processing, either electronically or by hand.
3. Storage symbols show where data is stored.
4. Flow and miscellaneous symbols indicate the flow of data, where flowcharts begin or end,
where decisions are made, and how to add explanatory notes to flowcharts.
General guidelines for preparing good flowcharts
1. Understand the system. Develop this understanding by interviewing users, developers,
and management or having them complete a questionnaire; by reading a narrative
description of the system; or by walking through system transactions.
2. Identify the entities to be flowcharted. Identify departments, job functions, and external
parties. Identify business processes, documents, data flows, and data processing
procedures.
3. Organize flowchart. Design the flowchart so that data flows from top to bottom and from
left to right. Where appropriate, ensure that all procedures and processes are in proper
order. Show where documents or processes originate, where data is processed, and where
data is stored and sent. Show the final disposition of all documents to prevent loose ends
that leave the reader dangling. Show data entered into or retrieved from a database as
passing through a processing operation (a computer program) first. In document
flowcharts, divide the flowchart into columns with labels.
4. Clearly label all symbols. Write a description of the source, input, process, output, or
destination inside the symbol. Use arrowheads on all flow lines.
5. Page connectors. If a flowchart cannot fit on a single page, clearly number the pages and
use off-page connectors to move from one page to another. Where desired, on-page
 connectors can be used to avoid excess flow lines and to produce a neat-looking page.
Clearly label all connectors to avoid confusion.
6. Draw a rough sketch of the flowchart. Be more concerned with capturing content than
with making a perfect drawing. Few systems can be flowcharted in a single draft. Review
it with the people familiar with the system. Make sure all uses of flowcharting
conventions are consistent.
7. Draw a final copy of the flowchart. Place the flowchart name, date, and preparer’s name
on each page.
Types of Flowcharts
3.1.2.1 Document flowcharts
Document flowcharts were developed to illustrate the flow of documents and data among areas
of responsibility within an organization. They trace a document from its cradle to its grave,
showing where each document originates, its distribution, its purpose, its disposition, and
everything that happens as it f lows through the system.
Figure 3.6 common flow charting symbols
A special type of flowchart, called an internal control flowchart, is used to describe, analyze,
and evaluate internal controls. They are used to identify system weaknesses or inefficiencies,
such as inadequate communication flows, insufficient segregation of duties, unnecessary
complexity in document flows, or procedures responsible for causing wasteful delays. Until he
automates the other parts of S&S, Ashton decides to process payroll manually.
Figure 3.7 Document Flow Chart of payroll processing
3.1.2.2 System flowchart
A system flowchart depicts the relationships among system input, processing, storage, and
output. The sales processing flowchart in Figure 3-8 represents Ashton’s proposal to capture
sales data using state-of-the-art sales terminals. The terminals will capture and edit the sales data
and print a customer receipt. The terminals periodically send all sales data to corporate
headquarters so that the accounts receivable, inventory, and sales/marketing databases and the
general ledger can be updated. Management and other users can access the files at any time by
using an inquiry processing system. System flowcharts are used to describe data flows and
procedures within AIS.
Figure 3.8 System Flowcharts of Sales Processing
 Figure 3.9 Relationships between System and Program Flowcharts

3.1.2.3 Program Flowcharts

A program flowchart illustrates the sequence of logical operations performed by a computer in
executing a program. The relationship between system and program flowcharts is shown in
Figure 3-9. A program flowchart describes the specific logic used to perform a process shown on
a system flowchart.
3.1.3 Business Process Diagrams
A Business Process Diagram (BPD) is a visual way to describe the different steps or activities
in a business process. For example, there are many activities in the revenue cycle. Among them
are receiving an order, checking customer credit, verifying inventory availability, and confirming
customer order acceptance. Likewise, there are multiple activities involved in the expenditure
cycle. Among them are shipping the goods ordered, billing the customer, and collecting customer
payments. All of these activities can be shown on a BPD to give the reader an easily understood
pictorial view of what takes place in a business process.
While BPDs can describe interactions within an entity as well as interactions between entities,
the BPDs in the textbook do not document the activities performed by external parties. Thus, a
BPD for the revenue cycle will only describe the functions performed by the selling company
and a BPD for the expenditure cycle only depicts the activities performed by the purchasing
company.
The Business Process Modeling Initiative Notation Working Group established standards for
drawing BPDs. There are many different symbols that can be used in drawing a BPD. The text
uses only a limited set of those symbols, as shown in Figure 3-12, to produce easy to create and
understand BPDs.
General guidelines for preparing good business process guidelines are presented in Focus 3-3. In
the text, the emphasis on BPDs is less on obeying the rules governing their preparation and more
on their clearly communicating the activities involved in the business process being depicted.
Figure 3.10 Business Process Diagram Symbols

3.2 System Development Processes

3.2.1 Reasons for Companies to change their systems

1. Changes in user or business needs. Increased competition, business growth or consolidation,
downsizing operations, mergers and divestitures, or new regulations can alter an
organization’s structure and purpose. To remain responsive, the system must change.
2. Technological changes. As technology advances and becomes less costly, organizations
adopt new technologies. For example, a New York utility downsized from a mainframe to a
client/server system and eliminated 100 clerical positions. The new system does much more
than the old one, including handling workflow management, user contact, database queries,
automatic cash processing, and voice/data integration.
3. Improved business processes. Many companies change their systems to improve inefficient
business processes. At Nashua, an office supply manufacturer, processing a customer’s
telephone order took up to two days because three separate systems had to be accessed. The
new system requires three minutes.
4. Competitive advantage. Companies invest heavily in technology to increase the quality,
quantity, and speed of information; to improve products or services; to lower costs; an to
provide other competitive advantages.
5. Productivity gains. Information systems can automate clerical tasks, decrease task
performance time, and provide employees with specialized knowledge. Carolina Power and
Light eliminated 27% of its information systems staff with a system that significantly
outperformed the old one.
6. Systems integration. Organizations with incompatible systems integrate them to remove
incompatibilities and to consolidate databases. The U.S. Department of Defense (DOD) is
trying to integrate over 700 separate systems
7. Systems age and need to be replaced. As systems age and are updated numerous times, they
become less stable and eventually need to be replaced.