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InformationSystems

ManagementAccountingIssuns

MANAGEMENTACCOUNTING

How Weyerhaeuser Made Its MIS Work 16By Dennis Loewe

In the last five years Weyerhaeuser Co. decreased the size of its corporate consolidationsstaff while at the same time it increased the quality and quantity of corporate reporting.How did it achieve this high standard in productivity? It carefully planned its CorporateFinancial Information Systems with special attention given to four key elements: people,system design, software, and operating system.

Improving Financial Information Systems in Local Government 23By Thomas Newkirk

How can a municipal manager determine the best approach to addressing accounting andmanagement information needs? Generally, there are three phases that require the com-mitment and involvement of local officials —needs determination, acquisition and imple-mentation, and operation. It's also important to identify the potential problems when plan-ning to improve the current system.

A Personal Information System Checkup 29By Bradley M. Roof

When is the last time you took time to have a physical examination of your PERIS? If it hasbeen more than a year or two, perhaps your decisions are suffering as a result of thisneglect. PERIS, by the way, means Personal Information System and it includes all theprocesses through which you receive data for decision making. Analyzing your PERIS isimportant to prevent synthemombosis.

Training MIS Users Through Simulation 36By Warren A. DeBord and Jerry D. Siebel

The effectiveness of a true management information system stands and falls, ultimately,on the decision maker's ability to use the information effectively. That is why training usersto use MIS outputs effectively has been one of the most difficult phases of systemsdevelopment. Described here is a successful simulation program, designed to train dealer-ship personnel.

Certificate of Merit, 1980 -81

Find the Right Software Through SpecificationsBy Gary I. Green and Earl A. Wilcox

43

Programming projects typically run past deadlines and exceed budget, but they can becontrolled better by following specifications for development and implementation. Usergroups should be involved in determining these specifications, which fit into seven majorcategories. Here is how Motorola's Semiconductor Group learned from its mistakes.

Pricing Policies Under Inflation 51By William H. Hernandez

Today many firms are under pressure to increase prices for their products because ofincreased costs of manufacturing. But what pricing strategy should a firm adopt: absorbthe cost increase itself, pass through the cost increase and maintain dollar profitability,maintain percentage margins, maintain value added or maintain real margins? The key isfor a firm to assess the long -term strategic implications of its pricing actions.

MANAGEMENT ACCOUNTING /JANUARY 1982

Feature Playing the Consulting Game 56By Earl K. Littrell and Roy H. Glen

Knowing how to use such ploys as "water cooler," ''smoke screen,'' and "shield thyposterior" separates the winners from the losers in the great consulting game which annu-ally rages up and down thousands of corporate corridors. In self- defense, managementaccountants should learn the basic rules by heart.

Research NAA Research Committee Solicits Proposals 70

Researchers are invited to submit proposals on a number of management accountingtopics.

The Costs of Implementing FAS No. 33 71By Research Staff

The costs of reporting inflation adjusted figures have not been too burdensome, accordingto NAA survey of some New York area corporations.

Conference 3rd Annual Controllers' Conference 72

Controllers get the latest data on the economic environment —from mini - computers tomergers —at NAA special conference.

Departments President's Perspective third annual controllers' conference 4

Opinion a conversation with Paul Kolton 6Management Accounting Practices FASB on tax benefit sales 8Management Information Systems MIs Costs 10Letters to the Editor 12

Data Sheet one -third of major firms seek acquisitions 22People in the News 64

Small Business matching businesses with sources of capital 68

Future Assessing and evaluating the effectiveness of accountants has always been a difficult

Issues task. In discussing this issue in March, we delve into the academic deficiencies of entrylevel accountants, the acceptance of accountants by operating personnel, and the evalua-tion of cost accounting departments. In April, we explore the factors involved in the analy-sis of a company. Other future themes: government accounting, May, and budgeting, June.

Cover: "Cowboy hat" is a computer - generated image recorded with a Model 3000 ColorGraphic Recorder manufactured by Matrix Instruments, Inc., Northvale, N.J. Software by SASInstitute, Inc.

Views expressed herein are authors' and do not represent Association policy unless so stated.Reprints of any articles appearing in any issue of MANAGEMENT ACCOUNTING are available from SpecialOrder Department, NAA, 919 Third Ave., New York, N.Y. 10022.

MANAGEMENT ACCOUNTING /JANUARY 1982 3

PRESIDENT'S PERSPECTIVE

Controllers' Conference in Washington

Our Third Annual Controllers' Conference in Washington, D.C., Octo-ber 27 -29, featured outstanding speakers, good course materials, anda productive interchange of information — largely as a result of the rap-

port between the speakers and the audi-

ence.In a unique feature of the three -day con-

ference, in- depth, concurrent full -day work-shops were spent on the acquisition of amini - computer and corporate mergers andacquisitions. The first general session onWednesday was devoted to individual pre-sentations on the impact of inflation on in-ternal planning and control, managementand motivation of the financial manager,and controllership from the divisional con-troller's point of view. In the luncheon ad-dress, the head of an executive search firm

described the qualities that employers looked for in hiring financialexecutives. Three afternoon sessions were devoted to discussion ofthe FASB's foreign currency translation standard, and three sessionsto personal and estate planning, user - driven computer systems, andcorporate tax planning.

Thursday morning Lee B. Spencer, Jr., director of the Division ofCorporate Finance of the Securities and Exchange Commission, de-scribed the SEC's plans under the new administration. The tenor of hispresentation was that the SEC is seeking to streamline filing proce-dures in order to be more responsive to both the investor and thebusiness community and thus aid in the raising of capital. In the wrap -up session, four executives on a special outlook panel exchangedviews on current problems in the business world.

The response to this conference by the more than 100 controllersand financial executives attending was very affirmative. Some com-ments: "Most informative. Need more time on certain topics dis-cussed." "This is my first formal introduction to this subject [mergersIand it was well worth my time." "Well organized — excellent speakers.""Excellent. May I suggest covering in more detail the concern of ac-countants."

Because of the enthusiastic response to this conference, your Asso-ciation will hold the controllers' conference again this year. It also isconsidering the feasibility of presenting the conference at more thanone location to reach a larger audience. Special conferences like thisone demonstrate that the Association can attract member account-ants and other financial executives to educational meetings that arewell- organized, feature knowledgeable speakers, and cover specific,timely topics in depth. We intend to continue to hold such meetings.

EMIL SCHARFFPresident, 1981 -82

MANAGEMENTACCOUNTING

( ISSN 0025 -1690)

VOL. LXIII NO.7 JANUARY 1982

official publication of theNational Association of Accountants

Executive DirectorRobert L. Shultis

PUBLISHERJames D. Collier

EDITORErwin S. Koval

MANAGING EDITORRobert F. Randall

TECHNICAL EDITORMorris Gartenberg

PRODUCTION MANAGERStephen McCrea

FEATURE EDITORKathy Williams

CONTRIBUTING EDITORSLouis Bisgay, Israel Blumenfrucht, JamesBulloch, Earl K. Littrell, Stephen F. Piron,

Grover L. Porter, Jerold M. Weiss

ADVERTISING MANAGERWilliam L. Richardson

BUSINESS & CIRCULATIONMANAGER

Colin C. Campbell

EDITORIAL ASSISTANTSEllen Hannan DelgadoMadeline Krakowsky

ADVERTISING REPRESENTATIVESNew York 10022 —W L. Richardson, NAA,919 Third Ave.. (212) 754 -9896.

Chicago 60611 —James K. Millhouse. 919 N.Michigan Ave., (312) 642 -6625.

Oakland. Calif.. 94611— CoughlinlWheelerCo., 6211 LaSalle St., Suite 5. (415) 339-1914,

Pasadena, Calif. 91105 —Ken Jordan. JJH &S,119 W. Bellvue Dr., (213) 796 -9200.

MANAGEMENT ACCOUNTING (ISSN 0025 1690) is publishedmonthly by the National Association of Accountants. 919Thud Ave., New York. N Y . 10022. Pace 54 00 per copySubscription rates, per year nonmembers. S42.00Second class postage paid at New York, N. V.. and additionalmailing offices To ensure uninterrupted mail service. sendpresent address label and new address including ZIP numberto Membership Records Dept., NAA, 919 Third Ave., NewYork, N.Y., 10022. Allow six weeks for change. POSTMAS-TER. Send address changes 10 MANAGEMENT ACCOUNTING,919 Third Ave. New York. N Y 10022

Copyright Dc1982 by theNational Association of Accountants

4 MANAGEMENT ACCOUNTING /JANUARY 1982

Knowing what it's worthcan I e worth a last.

X i C A NW e w e re n ' t a ro u n d t o h e lp i n t r o d u c e P P R .A I S AL o t h e r b r ig h t i d ea s . Th e w o r ld ' s

t h e h g h t b u lb , B u t we d id h e lp w it h ' la r g es t a p p r a is a l f i r m c a n h e lp y o u ,th e s t r in g - t y p e l aw n t r im m e r a n d to o , w i t h p a t e n t s a n d m u ch m o r e .

WE KNOW VALUES.At l an t a • Ba lt im o r e Ba n g k o k • Ba t s e - D o r t o n • Bu f f a lo • Ch a r lo t t e • Ch ic a g o • C i n c i n n a t i • C l e v e l a n d • D a ll a s - D e n v e r - D e t r o i t • Ho n g Bo n g • Ho n o lu l u • Ho u s t o n • J a k a r t a

8a n s a e C it y • Lo nd o n • Lce An ge l as • Ma d rid • Ma nila • Mex ic o , D.r. - M1a ml • Milan • Milw wan k e e • Min n e a p o lis Mo n t r e a l • c a Or le a n s • Ae w 7 o r k - Pa s a da n a • P h ila d elp h ia • Pit ts tmr ghPort lan d • Pr inc e to n • Bo lli ng Me a dows • Ro me • S t . Lom a • Sa lt Lak e C ity • S an r r a n c i s o o • S e at t le • S in g a po r e - S p ok a n e • S ta m f or d • Ta m pa • T or o nt o • Van c ou v er - Wa sh in gt on , D. C.

OpinionRobert L. Shultis

Notes on a Conversationwith Paul Kolton of FASAC

Recently we enjoyed a long conversation withone of the individuals most involved on the ac-counting scene today —Paul Kolton, chairmanof the Financial Accounting Standards AdvisoryCouncil. Involved, yes, but decidedly not ahousehold name, even among those reason-ably well versed in matters of accounting. ( Nor,for that matter, is the Financial AccountingStandards Advisory Council ( FASAC) famil-iar.) We saw this as an opportunity to have Mr.Kolton explain to us a little about the workingsof the Council and something of his philosophyas well.

Question of BalanceOne problem constantly facing the Financial

Accounting Standards Board is obtaining bal-anced input from all its constituencies as re-gards accounting issues either on its agenda orpotentially on its agenda. Not that there is anydearth of responses to the FASB. Far from it!Every issue generates comments aplenty. Thekey word, however, is "balanced." Are all sec-tors being heard from, and are the many sidesof key questions being explored?

A major function of the Council, according toMr. Kolton, is to supply this balance —to offerthe Board an opportunity to hear reasoned dis-cussion of the important issues it faces. To useMr. Kolton's felicitous phrase, the Councilrepresents the Board's "constituency in micro-cosm." Its 40 members are drawn from indus-try, academia, public accounting, users of fi-nancial information, government, the securitiesindustry and the major professional accountingassociations. (We are privileged to representNAA's membership on the Council.)

The Council meets quarterly, with certain ap-pointed committees, such as the Small Busi-ness Advisory Committee, meeting betweentimes. The meeting discussions are wide rang-ing —both as to the agenda itself and as to the

individual items on the agenda. That the Coun-cil meetings stay on track and accomplish theirpurpose is due in large measure to Mr. Kolton'snot inconsiderable talents as meeting planner,organizer, and, if you will, orchestrator. To en-sure that divergent, but considered, viewpointsare heard, Mr. Kolton will frequently contacttwo or three Council members in advance to beprepared to present briefly their views on par-ticular agenda topics. Then general discussionby the whole group follows, and, subsequent tothe meeting, each member of Council receivesa post- meeting questionnaire that offers themember a further opportunity to comment.

A Full PlateThe agenda of a recent meeting of FASAC

included, among other items, a review of thelatest exposure draft of the FAS No. 8 revision,a discussion of the accounting implications ofthe Economic Recovery Tax Act of 1981, anupdate on FASB activities by Chairman DonKirk, an analysis of the data being reported un-der FAS No. 33, a discussion of the post -em-ployment benefits discussion memorandum,proposed activities within the small businesssector, and the 4 -3/5 -2 Board voting issue. Afull plate, by any definition, and one which af-fec *.s us all —as accountants, as business peo-ple, as citizens_

We asked Mr. Kolton what he felt was theprime purpose of the Council and whether theBoard itself found the deliberations of theCouncil of value. He said "yes," he was com-fortable and convinced that the Council's activi-ties were useful to the Board, citing the factthat the full Board nearly always attends andparticipates in Council discussions. He also hasobserved instances where the comments ofCouncil members are reflected in subsequentBoard discussions.

As for purpose, Mr. Kolton views the Councilas what its name implies —an advisory body —and therefore the Council is not asked to vote,pro or con, on the issues it deliberates. Rather,the Council helps to expose for the Board thewidely divergent ideas and subtleties inherentin nearly every key issue, both those that arenew and those that are being re- evaluated.

Council activities benefit the Board's constit-uencies as well, according to Mr. Kolton, byserving as an "early- warning system" of the im-plications and potential effects of major ac-counting issues before they become final. Fu-ture issues before the Board may well have aneven greater impact on business and the ac-counting profession, making the early- warningsystem even more vital to the standards - setting

process.► ►67


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ManagementAccountingPracticesLouis Bisgay, Editor

FASB Proposes Accountingfor Purchase and Sale of Tax Benefits

In the wake of the Economic Recovery Tax Actof 1981, which allows a company to sell taxbenefits through a lease, the Financial Ac-counting Standards Board has proposed toclarify the accounting for both buyer and sellerof these benefits. The tax benefits that can beso transferred are credits such as the invest-ment tax credit and deductions under the ac-celerated cost recovery system (ACRS).

The Board had been asked to specify wheth-er or not transactions that are called leases butwhich, in substance, represent solely the pur-chase and sale of tax benefits, should be ac-counted for in accordance with FAS No. 13,"Accounting for Leases." It was the Board'stentative conclusion that such leases are notcovered by Statement No. 13 unless the trans-actions convey the right to use or share residu-al value of the property or involve financing ofthe property.

Under the proposed rules, the seller of taxcredits should account for the proceeds by itsusual method of accounting for those credits —flow through or deferral. The buyer would ac-count for the purchase of the credits as an in-vestment. The seller of deductions under theACRS treats the sales price as a reduction ofthe cost of the related property. The buyer ofACRS deductions would account for the netcost as an asset and amortize it over the leaseterm when tax savings exceed investment.Sellers and buyers of both tax credits andACRS deductions should allocate between thecomponents.

Other FASB Actions

The Board issued Interpretation No. 36, "Ac-counting for Exploratory Wells in Progress at

the End of a Period." It resolves the question ofwhen to charge or expense the costs of an ex-ploratory oil or gas well in progress at the endof a period that is determined to be a dry holebefore financial statements for that period areissued. The Interpretation clarifies that thecosts incurred through the end of the periodshould be expenses for that period.

According to a research report released bythe Board, more summary indicators of a com-pany's financial performance than just earningsper share increasingly should form the basis forcommunication with readers of financial state-ments. The study was undertaken by AssociateProfessor Paul Frishkoff of the University of Or-egon to provide an historical perspective and areport on the status of summary indicators infinancial reporting. Summary indicators are de-vices that condense information about a com-pany's performance or risk. The research re-port deals mainly with summary indicators offinancial performance and their uses. The re-port concludes with a suggestion that financialstatement readers should be educated awayfrom dependence on a single summary indica-tor.

SEC on Management's Discussion andAnalysis of Financial Condition

The Securities Exchange Commission's staffhas issued a release that sets forth its assess-ment of disclosures regarding management'sdiscussion and analysis of financial conditionand the results of operations that were con-tained in 1980 filings with the Commission. Thereview focused on changes in the disclosuresmandated by new requirements which were is-sued September 2, 1980. Included in the re-lease (No. 33 -6349) are examples of howsome companies provided disclosures dealingwith liquidity, the results of operations, and theimpact of inflation. The release makes clearthat the published examples were chosen sole-ly to illustrate particular points and do not nec-essarily suggest preference by the staff. Over-all, the staff indicates it was pleased with thequality of the presentations it reviewed.

Other SEC News

The Commission announced it was rescindingAccounting Series Release No. 261, which hadbeen issued in 1979 to provide guidance to oiland gas producers regarding the use of fullcost or successful efforts accounting pendingdevelopment by the Commission of reserve

► ►13


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ManagementInformationSystemsStephen F. Piron, Editor

MIS Costs —You Can't Evaluate the CostUnless You Understand the Benefit

The MIS area continues to be brought intomore and more parts of the business. In thelast ten years, MIS has implemented a varietyof systems. Batch systems sped up the manualprocessing of day -to -day business transac-tions. On -line systems processed transactions,but also allowed quick access to information forthose who needed it. Decision - support systems(e.g., models) allowed analysis personnel andmanagement to review more alternatives be-fore making a decision. Executive informationsystems focused on giving executives specificinformation to meet specific managementneeds —as opposed to giving management re-ports containing only data which the batch andon -line systems processed.

Applied TechnologyThis growth in these various types of sys-

tems is a result of the successful application oftechnology to the expressed needs of busi-ness. Office automation is a good example oftechnology being applied to the needs of busi-ness. Storing characters magnetically and dis-playing them electronically, via word process-ing, has made secretaries more productive.Sending audio messages electronically, now inits infant stage, will make managers more pro-ductive. Connecting word processors to com-puters is allowing access to more data thanwas available to word processing users in thepast. The rate of applying technology to busi-ness processes will continue to grow, primarilybecause of the emphasis on productivity.

MIS Costs — Definition and EvaluationManagement has seen a continuing growth

in MIS costs over the last decade. To some,the growth in costs is alarming. To those, I

would suggest they look at how MIS costs aredefined in their organization. The definition ofMIS costs usually means those costs related tothe computer. With the advent of data process-ing, it meant the MIS budget: cost of computerequipment, programmers, analysts, and man-agers. These costs were measured as apercent to sales (as were other categories ofbusiness expenses). As technology changed —allowing a variety of computers to spread to de-partments outside of the MIS department —MIScosts, as viewed by management, took on acompany -wide scope as opposed to a MIS de-partment scope.

As the company incurred more and morecomputer costs, the total MIS costs and its as-sociated percent -to -sales figure rose. In manysituations where management received reportsof only these two number (i.e., total MIS costsand percent to sales), the growth of MIS wasmistakenly limited to a specific percent of salesgrowth rate.

In many cases, management was not awarethat demand for MIS equipment and serviceswithin the company continued to exceed de-mand (i.e., growth rate) for the companies'products. This demand occurred because ofbenefits achieved in areas of the company out-side of the MIS department, But if managementonly measured MIS costs on the basis of per -cent-to- sales, it was most likely not aware ofthe benefits which the company was achievingfrom this application of computer technology. Inthese cases, MIS Directors failed to educatemanagement as to the positive impact this ap-plied technology was having on the entire orga-nization. If this education had occurred, man-agement could have an opportunity to evaluatethe MIS costs on a company -wide benefit ba-sis, seeing more clearly the various productivityand decisionmaking benefits being experi-enced throughout the total organization.

MIS.- Costs or Investments in the Company'sFuture?

Today, MIS costs should be evaluated from abroader viewpoint. To some degree they arecosts to process volumes of business transac-tions. To another degree they are investmentsmade in the company's success or failure in thefuture. This latter viewpoint (i.e., as an invest-ment in the company's future) is very realistic.The success or failure of managements' deci-sions depends largely on the information avail-able (e.g., on the company, on the market-place, on competition). To an increasingdegree, this information is a result of a decisionto incur an MIS cost.

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Title Telephone !

! Street !

city State Zip I! Mail to: Microcomputer Software Division of Aeronca, Inc. !

LP.O. Box 909, Pineville_N.C. 28124_(704) 525 -9881.

- - - - - - - - - - - - - - - - - - - -J

u 1981 Aeronca. Inc "Execuware" Is a Trademark of Aeronca, Inc.Apple" is the registered Trademark of Apple Computer, Inc.

LettersTO THE EDITOR

Where ZBB Really Started

In his October Opinion column, RobertL. Shultis states, "Zero -based budgeting

in its present form seemed to have givenbirth at Texas Instruments in the 1971annual budgeting process." Seemed tohave given birth is the proper term herebecause zero -based budgeting was actu-ally born in 1962. The place of birth wasthe U.S. Department of Agriculture.

Incidentally, zero -based budgetingfailed —it was considered a waste oftime and a source of frustration. Formore information, see Public BudgetingSystems by Robert D. Lee and RonaldW. Johnson.

Paull. RubackyFranklin Lakes. ?1'.J

Update on U.K. Accounting

In Mr. Schweikart's article (Aug.'81)on Consolidation of Foreign Subsidiar-ies in Management Accounting he stat-ed that "the U.K. is governed by aCompanies Act." Regrettably, in fact,since the enactment of the CompaniesAct 1948 there have been three furtherCompanies Acts as well as a host of oth-er secondary and primary legislationbearing on company behaviour. Workon the consolidation of the CompaniesActs is under way so there is a possibili-ty that the legislation will take the formof one mammoth Act in the foreseeablefuture.

More important., however, was hisomission of any reference to the work ofthe Accounting Standards Committeein the U_K. This committee was set upin 1970 with the object of developingdefinitive standards on financial report-ing, and has subsequently produced aseries of Statements of Standard Ac-counting Practice. Any accountant whoassociates his name with published ac-counts which do not conform to thesestandards can be asked by his profes-sional body to explain why he has notconformed, so that the increase in thedegree of standardization in publishedaccounts over the last ten years, has

been appreciable.Since the issue in 1975 of SSAP 10 on

Statements of source and application offunds, changes in financial position havehad to be disclosed and with the issue ofSSAP 16 in early 1980, larger entitieshave been required to produce, in addi-tion to accounts based on historicalcost, a profit and loss account and a bal-ance sheet based on current cost. Inthese organizations the requirement isdefinite and not merely a permission tovaILI fixed assets at appraisal value.

A. YoungDirector of Technical Services

The Institute of Cost andManagement Accountants

London, England

MANAGEMENTINFORMATIONSYSTEMS

10-4.4

varying degrees to gather, process,and make available information tomanagement. The degree to whichthis technology is employed is man-agement's decision. This decision, tobe a good one for the company, mustbe based on an understanding of thebenefits provided to the company.Understanding MIS costs requires acommitment of time: time spent bythe educator (the MIS Director) andtime spent by the learner (manage-ment who decides on MIS costs).How informed are you and your man-agement of the company's MIS bene-fits?

MANAGEMENTACCOUNTINGPRACTICES8 4 4

recognition accounting (RRA). Inas-much as the Commission no longer isworking to develop RRA for primaryfinancial statements and has no im-mediate plans for adopting a singleuniform method of accounting, thereasons for issuing ASR 261 no long-er exist. Henceforth, the SEC will relyon GAAP in accepting accountingchanges to or from the full cost meth-od or successful efforts method.

HIWTHENEW YORKflU 8

THE 1120BEFORE FAST -TAX, WE WERE

WASTING PROFESSIONAL TIME."If we made a change in one of our forty -

five subsidiaries, we had to manually adjust theconsolidated return and as many as 20 schedules.Now we make one entry, and FAST -TAX automaticallycarries it through.

"Loading the information is relatively simple, the serviceis smooth, and we like the finalproduct— a printed return andall its copies — ready to sign.

"With FAST -TAX, I can spend more time on research and additionalspecial projects. FAST -TAX proformas save our secretaries considerable timetyping and copying. We're able to keep our work at an even pace, so wesave on overtime and temporary help, as well.

"The FAST -TAX system has been a substantial benefit to theentire department." Robin Hatch, Tax Manager — Federal Tax Compliance

The New York Times Company

Tax management is essentially strategic thinking. There is asure way to conserve the unique energies it

requires while outpacing routine calculation and clearing each 1120hurdle with ease: Run with the processing leader ... FAST -TAX.

Start today: 214/934 -7000 (Ask for John Lewis.)

HST•Running ahead.

World Headquarters: 2395 Midway Road, Carrollton, Texas 75006 • Telex: 73 -0934

Proposals have been issued thatwould codify existing administrativepractices relative to pro forma finan-cial statements ( release 33 -6350) ,and exempt smaller registrants fromcertain reporting and other require-ments ( release 34- 18189) .

MAP Comment Letters Issued

The Management Accounting Prac-tices Committee sent a letter datedOctober 26 to the SEC regardingeight proposals in connection with itsintegrated disclosure project.

On October 26, another letter wasmailed to the AICPA on a proposed

Statement on Auditing Standards —"Supplementary Mineral Reserve In-formation."

FASB Proposes Rules forRelated Party Disclosures

The Financial Accounting StandardsBoard has issued a proposed state-ment which would establish require-ments for related party disclosures.The Board has been asked to provideguidance on disclosures of relatedparty transactions because generalaccounting or reporting guides for

► ► 15


TE GOLD in the 1120 goes to the taxmanager who protects the biggest

slice of corporate profits.He stays on top of the figs

one jump ahead in compliarfirm control of staffing and ncrunching, so that talented nfree to plan for tomorrow.

At FAST -TAX, we understarstrategy. Processing millionspages of returns a year, FAST -has become the prime EDP rsource to the nation's leadinCPA firms. And "class N' corpations have been running wus for years ... running ahea

1. A Quick Start. TheFAST -TAX management sys-tem is fully compatible withyour own established con-trols, standards, and routine!It harmonizes with the state -of- the -art methods of out-side professionals whoserve you.

FAST -TAX Proformas areautomatically pre - printedwith last year's dataand this year'srepetitive numbers.To get started, all ittakes is a copy of 1 U W

last year's financials.2. Endurance for

the long run. Fullcompliance with Federal andstate regulations is a given.The FAST -TAX management programs aredocumented up -to- the - minute at the begin-ning of each tax year — and updated, asneeded, all year long.

3. W inning comes down to "form ".Here's a sample: Single 1120 returns with all

applicable schedules and forms, fully cross -referenced ... ADR and non -ADR depreci-

ation, complete ... company or divisionalicluding easy -tohandle,ales, forms 1122 and 851Dss, NOL, tax liability, taxSKY at the consolidatedtax credit computations,861 -8, 1120F, 2952, and

printed work - papers forack -up ... proformas ...it returns ...4. You get speed ...

o- the -wire, you can relyhe same accuracy at the15th of September finishit you are guaranteed alllong.

S. ... And training.own local FAST -TAX rep - ntative will be with youthrough the day -to -day

,oblems and potential of)ur company's corporate< processing. Documen-

tation, working guides,seminars, bulletins.

The payoff: Finalreturns — exact

duplicates of Federaland state forms —

accurate, complete,ready to sign

and send.There's no other race

like the 1120. The startingline, the route, and the

N Tt1120.

rules keep changing. It can be painful togo it alone.

So run with the leader. Run ahead. WithFAST -TAX.

On your m ark . . . Get set . . .1- 214 - 934 -7000 ... (Ask for John Lewis.

r M / M T40T M _ (Computerized corporate tax processing ...

Running ahead.

MANAGEMENTACCOUNTINGPRACTICES

1344

such transactions do not exist now ingenerally accepted accounting princi-ples.

The requirements of the proposalare generally consistent with those inStatement on Auditing Standards(SAS) No. 6, "Related Party Trans-actions," issued by the AICPA. How-ever, authoritative auditing pro-nouncements are intended to directthe activities of auditors, not of report-ing enterprises.

The FASB proposal, Related PartyDisclosures, would require inclusionin the financial statements of disclo-sures of related party transactionsthat are necessary for users to under-stand the statements. However, dis-closures need not be made for trans-actions that are eliminated in thepreparation of consolidated or com-bined financial statements. The dis-closures should include the followingitems.

• The nature of the relationship (s)involved.

A description of the transactions,including those to which noamounts or nominal amounts wereascribed, for each period and suchother information deemed neces-sary to an understanding of the ef-fects of the transactions on the fi-nancial statements.

• The dollar amounts of transactionsfor each period and the effects ofany change in the terms fromthose used previously, if determin-able.

Amounts due from or to related par-ties at the most recent balancesheet date and, if not otherwise ap-parent, the terms and manner ofsettlement.

If an enterprise is controlled by an-other party, the nature of the controlrelationship should be disclosed inthe financial statements even thoughthere may have been no transactionsbetween them.

HOW THETELEX CORPORATIONRUNS 1120„ We produce separate

returns for each of our subsidiaries,spin off the state returns, and thenproduce the consolidated return for theparent company. Considering we file in virtuallyevery state, it's a job of unbelievable proportions.

"Running with FAST-TAX has cut the amount of time spenton routine work — typing, doing the math, checking the results,duplicating ... by 90% or more.

"The service is fantastic. The turnaround time is superior to othersystems. The quality of the f inal product has been superb. Andthe cost is so cheap, it's immaterial.

"When we started with FAST -TAX, it gave the guy who signs thisreturn the time for research and planning and making sure the returnis in compliance and to the best advantage o f my company„

David Gannon, Assistant Treasurer and Director or TaxesThe Telex Corporation

Tax management is essentially strategic thinking. There is asure way to conserve the unique energies it

requires while outpacing routine calculation and clearing each 1 120hurdle with ease: Run with the processing leader ... FAST -TAX.

Start today: 214/934 -7000 fAsk for John Lewis.)

miST44M.Running ahead.

World Headquarters: 2395 Midway Road, Carrollton, Texas 75006 • Telex: 73 -0934

FASB Proposes Aa Bond YieldsAs Substitute for Prime Rate inCertain EPS Computations

In place of using the prime interestrate as a benchmark for the "cashyield test" for convertible securities indetermining earnings per share, theFinancial Accounting StandardsBoard has issued a proposed state-ment that would substitute the aver-age double A ( "Aa ") corporate bondyield. The change potentially affectsall companies that issue convertiblesecurities.

The proposal, Determining Whether

a Convertible Security Is a CommonStock Equivalent, would rectify theproblem caused by using the volatileprime interest rate. The cash yieldtest uses the prime interest rate as asubstitute for a long -term rate in de-termining if, and to what extent, earn-ings per share should be diluted, orreduced, by the issuance of securitiesthat are convertible into the compa-ny's common stock.

Proposal would allow companies touse several sources to obtain quotesof bond yields, as long as the qualityof bonds included in the quote isequal to those rated Aa by Moody's orStandard & Poor.


Dennis Loewe is thecontroller of financial

services forWeyerhaeuser Co. inTacoma, Wash., and

also is serving asspecial program

manager forinformation systems.He is president of the

Mt. Rainier Chapterthrough which he

submitted this article.

How WeyerhaeuserMade Its MIS Work

The corporate financial managers agreed at the outset that if thecompany found the necessary technology, it would proceed in gradual hops—

and not attempt to make the great leap in a single bound.

By Dennis Loewe

During the last five years, Weyerhaeuser Compa-ny increased sales from $2.9 billion to $4.5 billionand increased assets from $3.7 billion to $5.2 bil-lion. At the same time our corporate consolida-tions staff decreased in size, while the quality andquantity of corporate reporting increased. By anystandards used to measure productivity we are ob-viously pleased with the results.

The key element in this success was implemen-tation of our Weyerhaeuser Financial InformationSystem ( WEYFIS). This effort involved muchmore than plugging in software to generate con-solidated reports. Several elements were present inevolving our current technical capabilities, but theconceptual design featured four key leveragepoints.

• People• System design• Software• Operating system

Ultimately the technical considerations leadingto software selection and choice of operating sys-tem provided us with the tools we required. Themost important contributions, however, weremade in the conceptual design stages and in the

selection of people who were to be directly in-volved. This approach involved corporate officersand key staff members. Their message was specificand in the longer term has proved durable: "Buildus a matrix to store financial data and we'll definethe reports as we need them." This approch re-sulted in the successful blending of many talentsto produce a rare accomplishment for a large mul-tinational firm —a system that satisfies a sophisti-cated user group.

People, Pencils and Perspiration

The most important ingredient in developingWEYFIS was people. Even the best designed sys-tem is doomed to failure if the people it is de-signed to serve do not have a proprietary interest.In Weyerhaeuser's case, the sponsors also com-prised the implementation team..

At the time we decided to search for computertechnology to aid our corporate reporting process,we were using a manual system. The preparationof the annual report to shareholders, 10 -K report,internal senior management reports, and respons-es to other regulatory agencies were all laborious-ly accomplished with pegstrips, pencils andperspiration. It was an extremely flexible systembecause human ingenuity provided the requiredsorts each step of the way. It was also an extreme-ly redundant process and response times were pre-

16 0025 - 1690/82/6307 - 0912/601.00/0 Copyright ©1982 by the National Association of Accountants

dictably slow. The human element, of course, in-troduced errors of its own, resulting in conflictingdata from the same source in some cases.

In 1973 the corporate controller approachedthe senior vice president of finance and planningwith a proposal that included these key points.

• We would search for technology that fit ourconceptual requirements. We would not com-puterize only to scrap the entire effort in two tofive years. This strategy translated into a singlewatchword — flexibility— flexibility in file struc-tures and data independence from reports. Ifsuitable technology could not be found in thecurrent state of the art, we would halt oursearch and gear up additional manpower forthe manual effort.

• Second, if we felt we were successful in locatingthe necessary technology, we would proceed ingradual hops during implementation and not at-tempt to make the great leap in a single bound.

A steering committee was formed at this junc-ture under the sponsorship of the senior vice pres-ident offinance and planning. It was comprised ofthe corporate controller, the assistant corporatecontroller, the manager of corporate informationsystems, our client services manager and the man-ager ofcorporate consolidations. The compositionof this committee demonstrates the commitment

that was made by the concerned parties. Two cor-porate officers represented the user group, two keyindividuals from corporate systems provided tech-nical support, and two managers directly involvedin corporate data collection and reporting repre-sented the guys in the trenches.

The committee was small enough to work effec-tively and one with necessary stature to call uponadditional resources when necessary. It was also agroup that embodied the necessary ingredient forsuccess; it contained the people with a proprietaryinterest in making the project succeed.

System Design— Flexibility

The major design aspect ofthe project was flexi-bility. Flexibility for us meant:

• Ease ofchanging our minds without significantchanges to the system or to the data base.

• Ease ofuse which would allow us to control thedata and the system, not vice versa, and to getat the data easily and in a variety ofways.

• Being able to expand, to be responsive to thegrowth of the company, for new acquisitionsand businesses, as well as growth in the volumeofline items that would be requested.

• Sharing the data files. We saw a real opportuni-ty to cut duplication in data handling and re-porting, thus enabling us to add new applica-tions without destroying the old and to be


Our shoppinglist of what wewanted out of

an M15 soundedlike the

impossibledream.

receptive to modifications in user requirements.In retrospect, this shopping list sounds like the

impossible dream. It surely contains some or all ofthe elements that EDP managers have been con-fronted with by clients who want implementationof their most critical system requirements. At thesame time we were dedicated to the principle thatif suitable technology could not be found, wewould not proceed.

This concept did not shift responsibility orpoint blame at the systems community if suitabletechnology could not be found. We jointly sharedin the conceptual design. Heavy user involvementduring the early stages made us a part of the proc-ess. As the first user in line and primary beneficia-ry of the proposed system, I was designated toprepare the functional flowcharts. Personally, Ican think of no better way to make the user a partof the process, to refine his thinking to specificsand to get him to share responsibility with theprogrammers for the work that lies ahead. It isreally not surprising that the finger pointing,which can result from an unsuccessful effort, canbe eliminated through a process such as this.

Software

Having developed the conceptual frameworkand prepared functional flowcharts, we now wereprepared to search for the required software. Itsoon became apparent that software could be ana-lyzed by grouping the available types into threebroad categories.

The first category contains what we call stan-dard business languages. This group includes CO-BOL and FORTRAN. These languages have thevirtue of being familiar and a known quantity.Their major and, fatal, shortcoming in our view isthe data dependency inherent in their use. Ourmajor objective was to achieve flexibility to thesystem, to make it responsive to a volatile environ-ment, to change the components within the database, to modify file structures, and to achieve rap-id response to ad hoc report writing. These lan-guages could not give us this flexibility, so wereeliminated.

That is not to say that standard languagesshould never be used given the current state of theart. Obviously, we continue to develop systems us-ing COBOL and FORTRAN. Their use should,however, fit the application. This criterion limitstheir use to relatively mature transactional sys-tems having fixed reporting requirements. Theymay also be used where front -end data base up-dates are mature and only a report generator isrequired to access the data for report writing.

These constraints did not suit our application,particularly because our controller specified thathe would not define end -use reports. They wouldevolve over time from the information needs ofthe corporation.

The second group of languages we designate ashigher level languages. This group includesMARK IV, ASI -ST and a few others. As opposedto languages that lie somewhere between standardbusiness languages and higher level languagessuch as Meta COBOL, Work Ten or Genasys,these higher level languages make a completebreak with COBOL.

With languages such as MARK IV it is possibleto produce object code directly. In fact, a singlepackage provides a procedural language, a filemanagement system and a report generator. Thesefeatures seemed to offer the potential tool we wereseeking. We probably could have stopped oursearch at this juncture, but we could not do sowithout some examination of data base manage-ment systems (DBMS), which is the third general

category.The data base management system category in-

cludes TOTAL and System 2000. Our studiesshowed them to be most effective when managingmany different data files. They allow files to beinterrelated through directories and allow ad hocreporting across data files. Clearly these capabili-ties would be desirable in a multi- faceted file sys-tem.

In our case we were seeking to build a new file,not interrelate existing files. At the same time wedid not want to preclude the use of a DBMS atsome future date. The resolution of the problemcentered on the answer to one question. Could webuild a system using higher level languages and inturn use them to build files for a DBMS at somefuture date, should our needs warrant the addi-tional cost? With the file management capabilitiesof the higher level languages we were given thetechnical assurances that this could indeed bedone. With this assurance we opted for the higherlanguage, and this choice had favorable impactson all aspects of systems development. .

Impact of Higher Level Languages

Too often in the past the user has become utter-ly frustrated with the demands and time delaysthat seem to be inherent in a COBOL -based envi-ronment. The situation gets so bad that the userdoes not articulate his full needs anymore. Theimpact on productivity of such a situation is pre-dictable. This was not the case in our selection ofMARK IV.

We found MARK IV provided an orderlystructure for the development process. The broadoutlines we had conceptualized could be accom-modated. We did not have to define report for-mats, input documents or program decisions aswould be done with COBOL. We developed broadconcepts such as input, edit, update and reportfunctions. File structures were developed to pro-vide maximum flexibility for updating and output-ting the data. Fields were arranged without regard


to complexity of hierarchial structure or recordsize. Newly defined files were structured from cur-rent input. Output reports could be written fromthese files with minimal changes.

Throughout development, which has virtuallynever ceased, modifications and enhancementshave continued. In conventional COBOL -basedsystems, changes ofthe magnitudes that we madehave entailed programming and cost considera-tions equal to the original system proposal. Thiswas not the case in using a high level language.

Ease of coding is a particularly productive useof programmer's time when higher level languagesare used. Although the system is extremely com-plex, it was largely accomplished by using a singleprogrammer dedicated full time. Though difficultto judge the effective leverage ratio, we estimatethat he accomplished the work of at least five CO-BOL programmers. Many of the accomplishmentssimply could not have been achieved without theuse of a higher level language.

Training time to being an individual up to speedin the use of higher language is similarly short-ened when compared to COBOL. In our case,training consisted of a formal two -week coursecoupled with 90 days ofon -site development helpfrom the software firm.

Another factor that contributed to the produc-tivity we have enjoyed is the continuity of onesenior programmer on the project. This continuityis attributable to two factors: job satisfaction frombeing involved in an exciting and highly visiblecorporate system and the opportunity to create,which cannot be matched in the more structuredenvironment of standard business languages.

Operating System

We cannot attribute all of our productivitygains to the use of higher level languages. Theselection of an appropriate operating system wasalso vital in obtaining maximum benefits, bothduring program development and subsequent sys-tem operation.

JCL, or job control language; is an industrystandard that is widely used to govern the proce-dural steps necessary to execute a job stream. Un-fortunately, JCL can carry some heavy productiv-ity losses with it. Because operating steps must beuniquely designed in series for each job, multipleJCL decks must be prepared to execute complexsystems that have numerous permutations andcombinations. In our case there are several hun-dred job streams that can be selected. In additionto the time required to set up the JCL decks, hu-man error in selecting and loading the proper JCLfor a particular run can occur.

Given the problems and frustrations of workingwith JCL, we selected an alternate operating sys-tem known as the Cambridge Monitor System(CMS). Basically, it is an English language ver-

sion of JCL and can be used to program jobstacks. For WEYFIS all operating systems aregoverned by CMS. We have been provided execu-tive routine (EXECS) which allow the user tospecify the system functions and reports which areto be generated from a production run. This isaccomplished by providing prompting routinesthat can be accessed through time - sharing. By re-sponding to simple questions on -line, the programroutines build the CMS commands necessary forexecution of a particular job. It is simply a shop-ping list approach that puts operation of the sys-tem in the hands of the user.

At the end of a terminal session the us& isasked if he wishes the job to be run on -line (at fullcost rates) or as an overnight batch job (at halfthe cost). Because these costs are directly ab-sorbed and budgeted by the user, job priorities canbe placed in their proper perspective. The choiceis clearly up to the user.

The elements just described lead up to systemsimplementation. Another tool that has had a highdegree of payout for us in the production stage isthe use of data transmission.

Benefits of Data Transmission

In the days of manual consolidations, all infor-mation was collected on hard copy. Receipt of in-formation was dependent on the mail. Since theconsolidation could not be completed until thelast unit was received, it was problematic as towhen earnings per share would be available. Withthe advent of a computerized process and the useof data transmissions, three improvements havebeen made in productivity:

1. The first, of course, has been the elimination ofmail delays and the inherent waste of time indata preparation and release of earnings.

2. The second is the syndication of key data prep-aration across our 400 reporting locations,rather than performing the entire task at head-quarters from hard copy.

3. The third is the ability of reporting units toprepare the data once in their general ledgers.The data is automatically translated into pre-scribed corporate formats, which discontinuesthe clerical task of manual data preparation.Computer transmissions have now freed gradu-ate accountants to perform the work for whichthey are qualified—data analysis —not "beancrunching."

Uses of WEYFIS

WEYFIS is a corporate financial data base. Inits first small hop it provided the means to consol-idate the company's financial statements. It pro-vided the necessary information for the annualreport, 10 -K report, internal senior managementreports and other regulatory reports. Since 1974

At the end of aterminalsession, the userhas the optionto run the jobon -line or as anovernightbatch.


ensuing applications have provided unit reportingcommunications, business segment reporting,business consolidations, and preparation of federaltax returns.

Other applications include internal and externalaudit support, staff and corporate analysis, corpo-rate earnings planning, corporate debt planning,corporate capital tracking and reporting, and ahost of related support activities.

While it may be useful to list the applicationsthat we have developed as general background in-formation, it is more important that they serve asevidence of what can be accomplished over timeusing the flexible file handling and reporting char-acteristics of a high level language.

In retrospect our computer development deci-sions have been based on the classical trade -offsbetween a labor- intensive solution versus a capi-tal- intensive solution. Both applications software

and operating software have been bound in histo-ry to run "efficiently" on a computer. That, inturn, has translated into using languages that areas close to machine language as possible. Whencomputer core size was the economic driver thatmade sense. Capital (the machine) was more ex-pensive than labor. Labor, in this case, refers tothe programmers who were required to writelengthy and inflexible programs that could be effi-ciently digested by machines. As the cost of mem-ory has dropped, the cost of labor has soared.Given this equation, -only tentative steps havebeen taken to give programmers more highlyleveraged languages with which to program.Because the skills of existing staffs must be reori-ented to take advantage of the new technologies,major resistence will likely be encountered. Thepayoff in real terms is, however, too large to beignored. ❑

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Data SheetRobert F. Randall, Editor

One -Third of Major Firms SeekAcquisitions

More than one -third of the nation's 480 biggestindustrial companies are actively seeking ac-quisitions, according to the latest survey of theNational Association of Accountants_ Almosthalf of the corporations, 49 %, said they consid-er themselves vulnerable to a takeover; 44%of that number indicated they do not have aformalized plan to ward off a possible acquisi-tion. Some 44% of the companies surveyedbelieve that acquisitions and mergers amongthe biggest corporations have a beneficial im-pact on the nation's economy, while 17% saidthey had an adverse effect. The chief financialofficers of 154 of the 480 companies queriedresponded to the survey, a 32% response rate.

Conference Board Sees 7.8% Inflation

Good news for the new year according to theConference Board's panel of top -level financialexecutives: it projects that inflation will average7.8 % in 1982 and is expected to fall to 7.3 % in1983. The panel, however, foresees RealGross National Product as averaging only2.2% in 1982.

Italian Company Recasts FiguresInto U.S. GAAP Format

In a pioneering move designed to assist in itsexpansion abroad, the Montedison Group —world's eighth largest chemical company —hasrecast its 1980 financial statements in U.S.GAAP format. The Italian holding company,which had more than $8 billion in sales and aloss of $523 million in 1980, said its financialstatements were in substantial compliance withthe EEC 4th Directive and International ac-counting standards. Italian companies are at-tempting to bring their financial statements upto levels in the rest of the industrialized world,and Montedison is considered one of the lead-ers in this effort. In fact, shareholders appoint-

ed Price Waterhouse to certify consolidatedstatements for 1983 -85, a procedure not cur-rently required under Italian law. Professor PaulAron of the Graduate School of Business Ad-ministration of New York University advisedMontedison on the preparation of the state-ments.

`U.K. Auditors Slower than U.S. CPAs'

"On average, U.K. auditors take more thantwice as long as U.S. auditors and half as longagain as French auditors," writes David Fan-ning in the September 11 th issue of Accountan-cy Age. Basing his conclusions upon a randomsample of 200 companies quoted on the Lon-don Stock Exchange, he says the average timefrom between the date of the year end and thepublication of audited accounts is approximate-ly 122 days. He suggests the disparity might beexplained by the very different relationship be-tween British and American boards of directorsand their auditors. "British directors seem moreprepared to tolerate a reduced standard of per-formance than their American peers, it hasbeen argued, and the company /auditor rela-tionship is significantly different."

Bankers Support Economic Program

Others may be expressing doubts, but the na-tion's bankers support President Reagan'seconomic policies and overwhelmingly agreethat the Economic Recovery Tax Act will bene-fit their industry, according to a survey taken byDeloitte Haskins & Sells' Chicago office at theFifth Annual Conference for Bank Manage-ment. None of the bank managers felt the Pres-ident's current economic program would fail,but they believe the reduction in the rate of in-flation will be gradual. Nine in ten bankers feelinterest rates will decrease over the six -monthperiod from November to April; after that periodthe smaller banks believe rates will revert to anincrease later this year.

Business /Accounting Briefs

Peat Marwick International's revenues rosenearly 20% in the year ended June 30, 1981,and chargeable hours were up 8.2 %.... La-venthol & Horwath has merged with the Denverfirm of Stark, Hochstadt, Kark & Co.... Market-ing chiefs deemed a financial background mostimportant when asked which managementfunctions other than marketing they would rec-ommend, according to Weston Group, Inc.


ImprovingFinancial Information Systems

in Local Government

Many local government management information systems areobsolete systems which provide only basic accounting information

By Thomas E. Newkirk

Many of the fiscal problems in local governmentstoday can be attributed to inadequate financial in-formation systems. The problem is widespread,and is by no means limited to any one geographicarea. One major reason the problem is so commonis that current systems cannot sound early warn-ing signals. If New York City and Cleveland hadadequate information systems, they might havehad time to avert fiscal crises that faced them inthe Seventies.

A modern financial management informationsystem involves more than just collecting andprocessing information through a computer to as-sist in financial accounting and reporting. It isalso concerned with integrating the various localgovernment departments through an exchange ofinformation that will assist management in mak-ing decisions.

Over the last few years, it has become increas-ingly apparent that many local governments arequickly outgrowing their accounting and informa-tion systems. These systems have grown to becomplex and cumbersome, and directed toward

rather than vital management information.

basic accounting information rather than vitalmanagement information.

Growth as well as changes in local government,such as consolidation of services and the restruc-turing of departments, have placed additionalstrains on accounting systems. In recognition ofthese problems, management of local governmentmust determine the best approach to address itsaccounting and management information needs.

Generally, the task can be broken into threemajor phases: needs determination, acquisitionand implementation, and operation. They providea workable framework within which to considerthe development ofa financial management infor-mation system for a governmental unit.

1. Needs determination sets the basis for the en-tire development process. It involves identify-ing and responding to the needs ofall of thesystems's users — management, supervisory,and clerical personnel.

2. Acquisition and Implementation. Once theneeds have been determined, the actual devel-opment or acquisition of a system can occur.Implementation involves the process of install-

Thomas E. Newkirk is amanager at Wooden&Benson,CPAs,Baltimore, Md. A CPA,he holds a B.S. degreefrom the University ofMaryland. He submittedthis article through theBaltimore Chapter.

0025-1690/82/6307-1472/$01.00/0 Copyright © 1982 by the National Association of Accountants 23

Some needswill be criticallyimportant while

others willrepresent a'wish list'

ing and testing a system as well as assuring thattraining and documentation have been provid-ed. In addition, this phase requires manage-ment to be sensitive to potential personnelproblems brought about by organizationalchanges.

3. Operation is an evolutionary phase that in-volves ongoing training, operational responsi-bility, and future system improvements.

The success of the development of a financialmanagement information system is highly depen-dent upon the commitment and involvement bylocal officials to pull the three phases together.Without this commitment and involvement, theprocess can become fragmented, resulting in ei-ther an inadequate system or total failure.

The Determination Process

The first and probably most important step indeveloping a financial management informationsystem is to define the government's needs for in-formation. To facilitate this process, a steeringcommittee is formed representing user depart-ments of the government. The role of the steeringcommittee is to plan and implement the develop-ment process.

Specifically, in performing the needs determina-tion phase, the steering committee should:

• Review the existing system for elements thatcurrently meet the needs and those that do not.

• Analyze current and future needs.• Make a priority list.• Perform on -site visits of similar jurisdictions

and evaluate their systems.• Communicate the final needs assessment to

elected officials, management, and system staff.

The needs addressed are as diverse as the activi-ties within a government, but not all needs are ofequal stature or make the same demands. Somewill be critically important, while others will rep-resent a "wish list" from users. In addition to list-ing some of these problems and needs, we summa-rize here potential solutions and various optionsavailable to the governmental unit. Our purpose isto facilitate understanding of directions a steeringcommittee can take in implementing the develop-ment of a financial management information sys-

tem.

Problems Encountered

Typical problems in traditional government fi-nancial information systems exist because systemswere developed in response to increased transac-tion volume in subactivities of the accounting orbudget process. Examples of subactivities includepayroll preparation, check writing, grant report-ing, and capital project management. Additional

inefficiencies, which create delays in recordingand reporting, occur because systems are typicallyfragmented into numerous journals, registers andsubledgers, which must be posted or updated sep-arately and later reconciled.

The environment in which governments operatepresent factors that usually are not addressedwhen an information system is originally devel-oped, including:

Multiple Time Frames. Fiscal year activities areusually addressed, but "inception -to- date" basisrequired by grants and capital projects are not.Different Accounting Concepts. GAAP may re-quire modified accrual accounting, while govern-mental regulation or grant restrictions might re-quire cash basis information.Inquiry and Reporting Capability. Users generallyneed information classified in various ways, sys-tems that are developed as outlined above (frag-mented or independent structures) generally donot permit flexibility in inquiry or reporting.Speed in Processing. The fragmented system typi-cally requires more processing time and computerresources than an integrated system would.

There are specific problems relative to these fac-tors. One is the timeliness of information. The sys-tem was developed as independent subsystems areneeded. As a result, related data is not always re-trievable. Scheduling the processing of needed in-formation is difficult because of the effort requiredto coordinate the various files and journals. Toclose more often than monthly is not cost efficient.The result is that reports regarding transactionsmade in the first few days of the month could takeas much as six weeks to get to the departmentinvolved. By this time, the information is no long-er useful and, therefore, manual records are beingkept in many cases. This becomes more critical inthe last few months of the fiscal year.

There also seems to be a lack of uniform orconsistent methods of getting information regard-ing capital projects into the system. No clear re-sponsibility is assigned to control the project frombeginning to end. There is little or no matching ofthe revenues and expenses of any given projectand the status of a project at any point in time isdifficult to obtain.

Again, there seems to be no consistent or uni-form method to get information regarding grantsinto the system. The system does not always pre-serve needed information in the format required,and in the case of the manual systems used, someinformation may not be preserved at all. There arealso cases where reporting responsibilities are notclearly defined.

Another problem is that some financial reportsare not useful. There are instances where notenough detail is available and others where too


r

much information is presented. The amount of de-tail available is not consistent with the hierarchi-cal structure of the organization. In someinstances individuals are not provided with the in-formation needed to address the responsibilities oftheir jobs. This deficiency indicates a need to re-vise distribution lists. Related accounts are not al-ways presented in an easy -to- understand manner.There are shortcomings of the system for process-ing information for financial reports including: in-adequate audit trails, one -sided entries, and theinability to enter contract information into thesystem without the use of a purchase order. Fur-thermore, the financial statements produced bythe system are not in accordance with standardsset by such accounting bodies as the AmericanInstitute of Certified Public Accountants (AIC-PA) or the Municipal Financial Officers Associa-tion (MFOA).

Finally, management information needed tomake management decisions, or perform tasks ef-ficiently is not always available. This factor some-times results from data bases not being easily builtor maintained by the current system. Related ac-counts or information may not always be easilyaccessed or retrieved. In some cases, formal input

Table 1Needs of Government Relating toProblems of Current System

ham

I. Budget a. actual information receivedtimely enough to be useful.

2. Revise report to conform to structure oforganizatirm.

3. Revise reports to make account breakdownand account relationships more meaningful.

4. Rtvlse gafam to accept Information fromcontracts as well as purchase orders.

S. CZ01 projapa rep0Nag;a. Track status on timely basis from inceptionto current date.

b. Relater) income and expense on one schedulee. Taal parameters on schedule (to determinepaean completed or percent overrun onp elan)

d, B1lminate need for contract revision by set-ting up realistic (actual expected) amounts inbeglnning.

e. CConsistent, uniform method of inpuongdata by all departments.

f. Proper audit trail for life of project.S. Project expenditures broken down by con-tractor.

d. Eliminate one-sided entries, zero -O entries,disappearing transact ions. reverse effect ofdebits and credits.

7. FAminute cumhe eat account numbers

S. Grant management:a. Breakdown of accounts should correspondto information needed for grant reponing.

b. Preservation of data should be adequate forgrant audits.

c. Time difference in recognition of expensesand corresponding grant revenue.

d. Consistent and uniform provision for input.ing Information into the system is needed.

9. Integrate aeeoaaliag records of all departments:

a, Consistent and uniform input procedures.b. Computerized records.c. Recognition of related accounts for purposeso! properly reporting for an enterprise fund.

10. Revise fbuacW reports to comply withreporting requirements of the AICPA andMFOA.

Scope Of potilin" resolutions

procedures are lacking, to the point that data in-tegrity cannot be preserved.

Identifying Needs

We have attempted to condense the many infor-mation needs into two tables. Table 1 itemizes theneeds of the government that relate to the prob-lems that exist in current systems, as discussed inthe previous section. Table 2 is an itemization, bycategory, of secondary needs. The tables are notmutually exclusive, and therefore, meeting theneeds listed in Table 1 may readily facilitate re-solving the needs in Table 2. Item numbers are forreference convenience only. No attempt was madeto rank or sort the items.

In any analysis of the needs of a governmentalunit, there are a few points to keep in mind re-garding the effects of making changes. One is thatchanges in organizational structure often must bemade. Another is that clear lines of responsibilityand authority must be established that correspondto the flow of information. Finally, manual proce-dures for an EDP system must reflect changesmade to either hardware or software. In otherwords, many of the options and alternatives willrequire cross training of employees, changes in

Revise software to integrate system /upgrade 0hardware to give telecommunications capability.

Revise account structurelemploy tranwerion 0Classification tables and utility retrieval software.

Revise account structure/employ fadex coding, 0transaction c lass(Jfcarloa tables and utilityretrieval software.

Revise input constraints/use forms management Imore effectively.

Revise software to integrate system /revise 0forms management, upgrade equipment toProvide telecommunications capability; employImnsaofon classification tables;employ utilityretrieval software.

Revise software to eliminate shortcomings /new 0software to include edit checking and audittrail.

Use finder ending. 0

Revise software to integrate system /revise 0account structure to recognize related accounts;employ utility retrieval software: upgrade hard-ware to give telecommunications capabilities.

Revise account struciure to accept information/ 0revise software to integrate system; employutility retrieval software.

Revise software /new software designed in com- 0ply with most current reporting requirements.

Upg ra de he rd wa rsRev ise so ftware rev is e s of twa re

hee e e F o a � • rT° r °

`� � � ads 4" � Q9

1 3 2 3 4 3 3 3 4

2 3 2 3 4 3 3 3 4

1 3 2 3 4 3 3 3 4

3 3 3 3 4 3 3 3 4

3 2 3 4 3 3 3 4

2 3 3 3 4 3 3 3 4

3 3 3 3 4 3 3 3 41 3 2 3 4 3 3 3 4

1 3 1 3 4 3 3 3 4

1 - 3 3 4 3 3 3 4


policies and procedures, and formal revision ofdocumentation and procedural manuals.

Following are some notes regarding the infor-mation in Tables 1 and 2:

1. The "Scope of Potential Resolutions" includesthe types of solutions or concepts to be em-ployed to address the item. Comments beforethe slash (/) are generally the minimum effort.Comments following the slash (/ ) are otheroptional means to address the needs in greaterdepth. These resolutions are presented asguidelines only.

2. The grid of options is intended to establish

Table 2Needs of Government Relating toDesires of County Personnel

Item stopis of potential resolodotes

some correspondence between the needs andalternatives available. The values assigned inthe grid are subjective and would vary with thefinal product which would be produced underany alternative. The following guidelines wereused to assign the values:

Value pointsassigned

01234

Revise software

Extent to which theneed would be addressed

NoneMinimalModerate

MostAll

Upg ra de ha rd wa rerev iv e so ft wa re

e° e

1a ° o N> S11 1 sec as° s6,� dj e O

0 o° c ° a m e a � o� d e° . s a c� �° oQs / 6�� a sASVO sO.dA q : oF eF eF oJa aF .o`

pp

c° o r ° 3° � °

" J "

I. New or revised subsystems: Revise software to integrate system /revise 1 2 2.3 2 3 4 3 3 2-3 4a. Accounts receivable - cash receipts system: forms management; employ transaction classi-

I. Property tax collection. (canon tables: employ utility retrieval software;2. Uliiitim collections. upgrade equipment to give telecommunications

b. Payroll: capability.I. Breakdown between regular and overtime.2. Burden system for holidays and vacation.3. Night shift differential.4. Maintenance of volunteer hours.

c. Computerize for property tax bills:I. Follow up: second notice.2. Multiple mortgages held by one institution.3. Half year tax rolls and bills.

d. Election records:I . Preprinted registration cards for voters.2. Computer generated voter record.3. Computerized election rolls that do not

require hand posting.c. Owned rental property infutmatiun:

I. Revenue and expense.2. Renewal dates for leases.

2. New data bases: Revise software structure /employ transaction 0 1.2 2.3 2 3 4 3 3.4 2.3 -•a. Real property information: ehsstfinrtnm tables:employ utility retrieval

I. Assessments and collations. software.2. Off - conveyance information.3. Owned property.4. Coordination with census data.5. Coordination with fire districts.6. Correspondence with elation districts.7. Zoning coordination - industrial useg. Number, type and date of permits issued.9. Pere test results.

10, Water sample results.11. Information on wells and septic systems.

b. Personnel:1. Use of turnaround document.2. Name, address, salary position, et al.3. Leave information,4. Sick leave.5. Evaluation including warning of treed.6. Personnel actions.

c. Equipment- vehicles: grounds maintenance:I. Manufacturers (vendors).2. Size and type specifications.3. Maintenance history.4. Operating rules /hours /years.5. Insurance /maintenance contract coverage.

d. Qualified vendor lists for bidding purposes.e. Zoning and code requirements for permitsf. Fixes) axets;

I. Property number issued (tag systeml.2. Integration with purchase system.3. Life and depreciation information.4. Integration with maintenance (see c above).5. Son by multiple category including vendor.

g. Mailing lists, property owners, et al.

3. Statistical Information: Revise software to relate appropriate accounts/ 1 2-3 3.4 2 3 4 3 3 3.4 4a. Energy costs of owned properties in other employ utility retriewal software: upgrade hard -than dollars ware to provide telecommunications capability.

b. Use of services (e.g. Bureau or Aging,Recreation and Parks, Museum, recoverynumbers of individuals using.c.�State's�attorney�•�case�load�by�dispositionand udge: repeat offender information; Igoday limi t advi c.

d. Sheriff's Department - papers served byname, type and date.

4, Inventories: Revise softwaWemploy transaction clussjjini- 2 3 3 2 3 4 3 3 3 4a. Vehicle parts. bun tables; upgrade hardware to provideb. Roads - complete. telecommunications.c. Road signs- complete.d, Museum - artifacts.e. Other


Table 3Options and Alternatives - 1

OptionContinue to patch

Revise softwareExtensive revision of New system written Obtain exchange

Alternative current programs current system in -house from scratch softwareCost range Intrinsic $25,1100 - 5100,000 $75,000 - $150,000 525,000475,000

Time frame NI A 2 -5 years 3 -5 years 1 -2 years

Advantages•

Only cost involved is•

Some basis to start with.•

Allows for complete•

Less costly than someloss due to inadequate

•

Possible cost saving. revision and new design alternatives.record keeping. of file structure.

•

More quickly imple-•

Allows more flexibility mented.to use latest designideas.

•

Cost is over a period oftime.

Disadvantages•

Inadequate records.•

Does not allow complete•

Must increase DP staff.•

Nfust modify to suit•

Untimely information, integration of programs.•

Reinventing what has needs.•

L.itile management been tried and proven.•

Must add on programsinformation. and subsystems not

included.•

Usually not state -of-the -art.

Approach•

No action.•

Hire more personnel.•

Hire more personnel•

Define specifications.•

Rank changes.•

Formulate specifications•

Determine packages•

Design revised system. of system. available.•

Program.•

Program.•

Evaluate fit and deter-•

Test.•

Test, mine best package.•

De -bug.•

De -bug.•

Modify and update.•

Implement.•

Implement.•

Test modif ications.•

Evaluate system.•

Evaluate.•

Implement.•

Evaluate system.

As alternatives are narrowed and investigated,the values should be updated as various possibili-ties within each alternative are explored. Howev-er, in reality, there are only three options avail-able: make no changes, revise the software, andupgrade the hardware and revise software.

What makes such a project complex is thatwithin each option there are several alternatives;within each alternative are numerous possibilities.Unfortunately, the options and alternatives de-picted in Table 3 are not as clear -cut or mutuallyexclusive as they may seem. The final decisionmay involve something of a mixture of more thanone alternative. Each alternative presents an arrayof possibilities which are dependent upon the ca-pacity and desires of the governmental unit. Table3 illustrates the various means by which informa-tion needs can be met.

The information given for each alternative isdesigned to put each in perspective and to outlinethe approaches that could be followed for each. Asteering committee may well be able to eliminateseveral alternatives very quickly and concentrateits effort on two or three.

Any consideration of the various options andalternatives must take into account several issuesin determining the government's capacity to un-dertake a major change in its financial system.One is the relationship of financial resources andthe budgetary process to the total cost of thechange. Another is the personnel resources andthe impact a change will make on users of the

system. External pressures that affect local gov-ernmental units more than an enterprise entitymust also be considered. A study of the existingsystem and the influence its development will haveon any change is also important. Finally, a reviewof the commitment and attention level of all per-sonnel involved with the project is also a signifi-cant fact. What is obvious is that any majorchange to the financial system must be carefullythought out and planned if success is to be expect-ed.

One concept that will have an influence overany major changes to the financial system dealswith how integrated the system is. Most govern-mental systems consist of a group of independentsystems which were designed on an "as needed"basis. Integrating the system, if possible, will per-mit better integrity of data and more efficient dataprocessing operations.

It should be noted that there is no such thing asa 100% integrated system, and that there havebeen numerous unsuccessful efforts at achieving afully integrated system.

Obtaining Software

In upgrading an EDP system, the procurementof software is probably the most important step inthat it represents significant costs and determinesthe ultimate success of the system. It is for thisreason that decisions relating to software shouldnot be taken lightly. There are two ways of obtain-ing software: either develop it in -house or procure

There is no suchthing as a 100010

integratedsystem.


Table 3Options and Alternatives - 2

Option Revise software Upgrade hardware and devise software

Purchase Contract for Purchase hardwareAlternative proprietary software custom software Turn-key purchase buy software package

Cost range 875,0(X)- $175,000 $125,000 -up $150,001 - $400,000 $150,000-$400,000

Time frame 1 -1'/ years 1 -3 years I -]' / years 1 -1'/ years

Advantages•

Will usually fit more•

Address all needs of•

Will usually address•

Same as turn -keyneeds than public County 100 07o more needs. purchase except thatdomains software.

•

Timeliness addressed government assumes•

Less costly than custom better. coordination betweensoftware.

•

Telecommunications hardware vendor and

•

Quic ker to imp lement. capability available. software package.

•

No additional personnel•

Vendor takes on re-needed. sponsibility.

•

Near state -of- the -art.

Disadvantages•

Cost is up front.•

Costly.•

More costly than just•

More costly than just

•

Cost is higher than revising software. revising software.obtaining public domainand, in general, writ-ing in- house.

Approach•

Define specifications•

Define specifications•

Same as for purchasing•

Same as turn -keyfrom needs. from needs. proprietary software purchase except two

•

Write request for pro-•

Obtain bids from soft- except RFP would RFP's would likely beposal (RFP). ware contractors. include software and used.

•

Distribute RFP.•

Award bid. hardware.

•

Evaluate proposals•

Work with contractor

•

Decide best proposal. to design system.

•

Purchase.•

Contrac t for p rograms

•

Work with contractor system.to modify s oftware to

•

Test system.needs of government.

•

Refine.

•

Train.•

Implement.

•

Implement.•

Evaluate system.

•

Evaluate.

it from external sources. In recent years, munici-palities have gotten away from in -house develop-ment. There are several reasons for this. A short-age of good programmers makes it costly to hire

Table 3Option and Alternatives

-

3

Option Upgrade hardware and revise software

Purchase hardware Purchase hardwareAlternative revise software conlracl for

in-house custom software

Co s trange $125,0004350,000 $200,000 -up

Time frame 3 -5 years 2 -5 years

Advantages•

Most steeds addressed.•

All needs addressed.

•

Somewhat less costly than buying•

No in -house expertise has to bepackage with new hardware. hired.

Disadvantages•

Time required to implement.•

Cost.

•

Must hire personnel.

Approach•

Define specifications from needs.•

Define specifications from needs.

•

Design system.•

Get bids from so ftware vendors.

•

Write RFP for hardware that will•

Award hid.support anticipated system.

•

Work with contractor to design

•

Preliminary programming. system and define hardware

•

Evaluate proposals. requirements.

•

Purchase hardware.•

Write RFP for hardware.

•

Install hardware.•

Evaluate proposals.

•

Complete programming.•

Contractor programs system.

•

Test.•

Purchase hardware.

•

De -bug.•

Test and de -bug.

•

Implement.•

Implement system.

•

Evaluate system.•

Evaluate system.

the expertise needed for what will likely be a"onetime" project. Writing your own programs isessentially reinventing the wheel because there arenumerous products that have been tested andproved effective. Finally, in -house programmingrequires more time than is generally available.The advantages to developing your own systemare that this procedure directly addresses yourneeds, would not need modification, and wouldprobably be better documented.

There are several ways that software can beprocured from external sources. One way i s tocontract a software vendor to write custom soft-ware specifically to meet the government's needsand operate on its equipment. Another way is topurchase proprietary software which is a packagedeveloped by a vendor and licensed to variousgovernmental units for a fee. Proprietary rightsusually remain with the vendor.

In the past few years, notable progress has beenmade in the development of data and file manage-ment as well as report writing software. Fees arecharged for proprietary software; therefore, theproduct usually has to meet some standards whichmeans that documentation and support is superiorto other packages. Nonproprietary software isavailable through exchange or transfer from othermunicipalities or from the public domain (pack-

lo-lit, 35


A Personal InformationSystem Checkup

By performing a PERIS examination on a regular basis,you can improve the quality of your decision making

by improving the quality of your information.

By Bradley M. Roof

Every manager is in a sense a small manufactur-ing operation. Similar to the manufacturing proc-ess, the manager begins with a raw material, inthis case information. To that raw material he ap-plies technology (his analytical abilities, intuitionand judgment) to produce the finished good, adecision. As in any manufacturing operation, thequality of output is a function of both technologi-cal and raw material quality. All too often, man-agers devote considerable resources to the im-provement of decision - making technology and atthe same time neglect the assurance of informa-tion quality.

One tool that managers can employ to assurethe quality of information in the decision- makingprocess is a physical examination of their PersonalInformation Systems (PERIS). What is a PERISand how does it relate to the manager's decision -making process?

Simply put, the PERIS is all those processesthrough which you as a manager receive data usedin decision making. The key to understanding andevaluating the adequacy of your PERIS is to envi-sion it as an aggregation of separate processeswhich produce information; it is not solely the in-formation generated. The mechanisms that gener-

ate data must be evaluated in order to assurequality information. Any one process within thePERIS will include information gathering, someform of synthesis, and receiving of information bythe manager through reporting or retrieval.

Any particular manager's PERIS may encom-pass information - generating processes bothinternal and external to the organization. Theseprocesses may be formal or informal, and highlystructured or not. Contracted market research,regular organizational meetings, a perpetual in-ventory system, industry and economic forecast-ing, and simple office conversation —all representpossible elements of a manager's PERIS.

PERIS and Decision Making

The types of decisions produced by managersare probably infinite, but there is a general para-digm within which all managers function. Thismodel is the management cycle illustrated in Fig-ure 1. In the course of meeting his responsibilities,each manager may make decisions in each phaseof this management paradigm. Obviously, individ-ual managerial responsibilities and organizationalcharacteristics will determine the extent of deci-sion making in each phase. Nevertheless, eachmanager to some degree will manufacture deci-sions within each.

Bradley M. Roof, CMA,is director ofInternational BusinessProgram and assistantprofessor of accountingand finance at JamesMadison University,Harrisonburg, Va. He isa doctoral student inthe Colgate DardenSchool of the Universityof Virginia and a CPA.He submitted thisarticle through theVirginia SkylineChapter, of which he isa past president.

0025 - 1690/82/6307- 1138/$01.0010 Copyright ®1982 by the National Association of Accountants 29

The PERlS is allthose processesthrough which

you as managerreceive data

used in decisionmaking

The relationship of PERIS to this managementmodel is best understood by examining the genericinformation needs of each phase. In the planningprocess the manager defines goals and objectivesto be realized within certain time horizons. Anysound planning begins with an assessment of theenvironment, including an identification of oppor-tunities and obstacles. Then, the manager definesorganizational strengths and weaknesses under hiscontrol and establishes goals and objectives to re-alize attractive opportunities and minimize expo-sure to obstacles. In planning, the need for envi-ronmental information is greatest. For example, amanager in charge of strategic planning would re-quire information on both present and predictedeconomic conditions as well as industry character-istics including detailed data on competition, sup-pliers, and consumers.

The PERIS must embrace information process-es external to the organization that collectivelyproduce a quality information foundation for en-vironmental analysis. Through competitive orpast performance analysis, strengths and weak-nesses under the manager's control can be clearlydefined. Planning information of poor quality di-minishes the manager's acuity in defining his goalsand objectives. This lack compromises his abilityto exploit opportunities and minimize risk expo-

sure.In the organization phase, the manager selects a

combination of resources he controls that willmost likely realize his short- and long -term objec-tives. Here the manager's fundamental concern is

which the manager exercises discretionary author-ity. This includes not only financial measures butoperational measures, for example, sales forcenumbers or plant capacities. Second, informationreported or retrieved must permit the manager tomeasure the resources expended resulting fromunique decisions. Finally, the manager must beable to identify those measures of operating effec-tiveness and efficiency that permit a clear evalua-tion of goal and objective attainment relative toresources expended.

By fulfilling these information needs, PERISwill help the manager design an organizationalstructure that closely relates controllable resourceidentification, resource expenditure, decisions,and success measures. For example, assume themarketing vice president of a decentralized re-gional cement products company has establishedan increase in regional market share as a goal. Toassure a quality organizational structure appropri-ate for this goal, the vice president's PERIS mustmeet the organizational information needs ade-quately. The marketing resources measure may bethe marketing budget or number of salesmen. Inthe decentralized organization, the vice presidentwould have control over these resources. By mea-suring increments in advertising expenditures orother marketing costs, the resources expended rel-ative to each decision could be clearly measured.The increase in market share would serve as ameasure of success and sales per salesman, or perexpense dollar, would measure efficiency. Withthis information, the vice president can more easi-

Figure 1Relative Importance of Environmental and Internal Information

Environmental InternalInformation needs information needs

High PLANNING LOW

Moderate EVALUATION ORGANIZATION Moderate

Low IMPLEMENTATION High

to develop policies and operating procedures thatwill permit an efficient and effective expenditure ofresources. At the same time, he also must preservehis flexibility to recognize and respond to futureenvironmental changes —for example, competitivereactions or economic conditions.

There are varied information needs which thePERIS must satisfy to assure quality organiza-tional phase decisions. These needs may be bothinternal and external in nature. The PERIS mustidentify and measure available resources over

ly develop organizational policies and proceduresthat closely relate decision making, resource ex-penditure, and goal and objective attainment.

In the implementation phase, policies and pro-cedures derived in the organizational phase areapplied to attain goals and objectives. The result isresource expenditure plans and budgets and theirexecution. In developing and executing plans inthe implementation phase, the manager has threegeneric information needs. In order to develop op-erating plans, the PERIS must include processes


which supply information on the relationship be-tween expended resources and objective attain-ment or their surrogate success measures of effec-tiveness and efficiency. Often prior experienceswith identical or similar situations can providethis information. But with nonrepetitive tasks, themanager may have to use external information orestimates. Without some insight into the cause -and -effect relationship of resource expenditureand the attainment of the objective, the manager'soperating plans are a shot in the dark.

In the execution of the operating plans, thePERIS should provide an accurate accounting ofresource expenditure. This accounting should de-fine not only quantity of resources consumed butshould include the timing of their consumptionand an aggregation of resources expended thatconforms to the same aggregation criteria in theoperating plans. In addition to accumulating dataon resource expenditure, the PERIS should pro-vide quality information on the timing and extentof effectiveness and efficiency.

The information need for the final implementa-tion phase is a continuous monitoring of the envi-ronment. The PERIS should generate informationon those environment attributes that may compelthe manager to revise operating plans in order tomeet the challenges and opportunities of a chang-ing environment. Certainly the success variableswill encompass some external information, for ex-ample, market share increases, but monitoringcertain external information used in the planningphase may be necessary to assure a timely re-sponse to environmental changes.

The evaluation phase relies to a great extent onthe PERIS processes of the preceding three phas-es. In the evaluation phase, the manager appraisesthe adequacy of both operating performance andthe quality of the planning, organizational and im-plementation effort. The manager judges the ac-ceptability of goal and objective attainment by an-alyzing the variable measurements of efficiencyand effectiveness in the face of differing expectedand actual environment contexts. Returning tothe cement firm in the example, an increased mar-ket share falling below the stated goal may be ac-ceptable, in fact excellent, if the overall marketgrowth fell short of growth expectations estab-lished in the planning process.

The second evaluation process function is anexamination of managerial decision quality. Herethe manager must judge how well he performed asa manager. To make this judgment, the managerneeds to scrutinize the quality of the decisionmanufacturing process. To do this, he must judgethe quality of both his PERIS and his decision -making technological capabilities or take a "phys-ical examination."

Two important ground rules should be ob-served during the physical examination. First,

conduct the examination by documenting in writ-ing your responses to each step in the examinationprogram. Unless you have only limited responsi-bilities and require an equally limited amount ofinformation, the volume of material you will con-sider in the examination will quickly become un-manageable. Also, documenting the examinationwill structure your thinking and force you to bemore definite about your information needs andthe adequacy of your PERIS.

The second ground rule is, follow the examina-tion procedures in the order presented. The exam-ination procedure is designed to help you analyzeyour PERIS within the perspective of fulfilling in-formation decision needs. If the examination isperformed out of sequence, you may find yourselfapproaching the examination with a viewpoint un-duly influenced by the characteristics of your ex-isting PERIS configuration.

Responsibilities, Decisionsand Information Needs

The physical exam does not begin with an anal-ysis of your PERIS; it begins with an analysis ofyour responsibilities. The importance of this pro-cedure is not only to identify your general andfunctional obligations but to define those basicbusiness functions you will manage in fulfillingthem. Your decisions are made within the param-eters of these functions. And, by identifying them,you have defined responsibilities within a deci-sion- making context.

First, list your general responsibilities. For ex-ample, a corporate treasurer might identify work-ing capital management and long -term financingamong others in his responsibility portfolio. Oncegeneral responsibilities have been completely de-fined, break each general obligation into smallerfunctional responsibilities. The criteria for identi-fying these lesser responsibilities should be homo-geneity of business functions performed in fulfill-ing them.

Continuing with our hypothetical corporatetreasurer, working capital management consists ofmany functions including aet:ounts receivable ad-ministration, cash management, and temporaryinvestments. Consider cash management momen-tarily. Cash management is a functional responsi-bility and a homdgeneous business function.Unique business debisions will be made in manag-ing this function which will require informationgenerated by a quality information process. Thisprocess is part of the PERIS.

Business functions are closely related, but eachencompasses a separate functional and decision -making process. Within the context of PERISanalysis, the business function is the relevant deci-sion context. Aggregate or general responsibilityfulfillment is a matter of orchestrating functionaldecisions under the manager's control and coordi-

Often managersare satisfied tomake decisionsusing inheritedinferiorinformationproduced byinferior systemswhich they donot understand.


nating actions ofassociate managers.Next, the PERIS examination provides a struc-

tural approach to defining information needs re-quired in a functional decisionmaking paradigm,its phases, general information needs and genericdecisions presented and discussed earlier.

For each ofthe functional responsibilities previ-ously identified, determine the phases of the para-digm in which you make decisions — planning, or-ganization, implementation, and evaluation. (SeeFigure 1). Depending on the industry, organiza-tional character or nature of your responsibilities,it is quite possible that for each functional respon-sibility you may not make decisions in all fourparadigm phases.

Returning to our corporate treasurer, the boardof directors or president may establish the creditpolicies of the corporation, thus obviating theneed for the treasurer to make planning decisionsrelevant to accounts receivable administration.The treasurer would then make the organization-al, implementational, and evaluation decisionsnecessary to fulfill his receivable responsibilities.

Having defined the applicable phases of themanagement paradigm, use the information pre-sented in Table 1 to identify the decisions youmust make. The information in Table 1 is intend-

Table 1Management Decision- Making Paradigm

Paradigm phase Generic decisions Generic Information needs

Planning Goals and objectives Environmental assessmentselection Strength and weakness

determinationOpportunity and obstacle

identification

Organization Operating policies and Discretionary resourceprocedures selection identification

Decision /resource consump-tion relationships

Success measures identi&cation

Implementation Resource expenditure plans Resource consumption/and execution objective attainment

relationshipsResource planning /con-

sumption reporting criteriaSuccess measure reporting

criteriaEnvironmental monitoring

assessment

Evaluation Adequacy of goals and Operating period environ-objectives attainment mental monitoring

Adequacy of managerial Goals and objectives reali-decisionmaking zation

PERIS analysisDecision making capabilities

assessment

ed to provide only general guidance for this task.Your efforts should be focused on your particularcircumstances and the decision description shouldbe specific.

Continuing with our accounts receivable exam-ple, "take appropriate action on accounts duringoperating period" lacks focus and provides littleinsight into specific action required. More specificis "provide customer credit limit approvals, andselect follow -up procedures for delinquent ac-counts," which focuses on the types of decisionsto be made. A clearer understanding and defini-tion of the required decisions makes the assess-ment ofinformation needs more effective and effi-cient.

After all required decisions are appropriatelyidentified, define the information needed to makeeach one. Again Table 1 provides some generalguidance on the nature of information needed ineach management phase. But remember this out-line is intended to structure your own analysis.Your specification should address the informationneeds of your personal decisions.

There are two concepts which should guideyour determination ofinformation needs. The firstis information structure. Information structurepertains to how the information gets to you andwhat format it takes. The general decision charac-teristics determine optimal information structure.For example, the regularity and frequency of thedecision may influence structure. Although thereare exceptions, the more irregular or frequent thedecision, the more likely the information shouldbe retrieved by the decision maker rather than ob-tained through a report. Retrieval permits infor-mation access at the discretion of the decisionmaker rather than at intervals determined by thereport production process.

The subjectivity of the decision also influencesstructure. Subjective decisions require narrativeinformation provided through either written orverbal communication. On the other hand, objec-tive data is often communicated effectively and ef-ficiently in numeric, written format.

The decision specificity affects informationstructure. If the particular decision is broad inscope and import, the information needed may bevery general in nature. For example, in capitalbudgeting decisions, market expectations may bebased on general market trends rather than onspecific detailed research. Specific decisions tendto dictate highly structured written reports whilegeneral decisions require a broader informationstructure.

Information content is the second of two con-cepts which influence assessment of informationneeds. Information content embraces three basicissues. The first and most important to consider isthe information message. The information mes-sage is the conceptual content. It should be de-signed to improve the decision maker's under-standing of his environment and relevant decisionissues. The best way to define the requisite infor-mation message for each decision is to pose a


Glossary of PfeRIS Disorders

n the course of nd in y ph s' s be e__ef1 e significa ariability inexamination, t exam ner m in o thr ggrega ' n. Connd of se-diseases, at nts, a er ladies plagu- ma a ress th foring the sy m. The PERI ex minatio ' ation. C to I e cl osin among

exception. ere are counties ab rmalities you dect ves. Symp incl de largemay dis ver. The ailments I It ve presented opera g v iances an ' 'cat - or super -below re among a group of t c m st commonly _ tima bje ive realizatifo d in any PERIS examinat n, ut you ;a d probably will, find many i re. Use the tst to Manago a ij -o -p i) - In crc ' processeshe identify these disorders in ou owp ERIS that collet . th i and prov' e information,an structure your approach o s eci ing the the manag st rp rate certain anat re of others you encounter. su ptions st ints in o t e final produ

hen the roc ss r�—o a v other man erCo unicanesia (ka - myoo-n -k -ne h a ) —uses�th info ation rod ce and fails

ni iunicanesia is a disorder of nfor on to con ' er imr l citly th e i fo mationtract re. The general chara f decisio eters, m agopia a d elop.

dicta orm e. Whe is concept The manager's ek of c re en-is i nored and structure do n t mpleme live p ess kn ledge aydecision characteristic , infor iat n ess permit hi o m deci on thatcontracts ommunic esia. Sy m of the il- vi f ate diminishing

t ' t► abilit o ta' n U1 1 ; is fiitithris -_ .when ne ded so th e m ger is unabltranslate bjecti�• or s is 'nf a I tnarrative r e ge 1 fo Ice +versa. ss alexia ( -se -a) - If theinfo / ation q le i oorly define

Datanemia -t -ne- e- -Th is ie t is cha / nd the infor a rovided b t eP yacterized b eak ' or ati n�• s by eficien- � � �pr ress therefore veys a message nGies in the in ion cess to base. a mat n need, messalexia

Two conditi s rmi t onset of is ' is the proper diagnosi _ is isorder usually be- _ease: interna ntro weaknesses i data � � i ns �wi th -a7 asttiv define in ormation questiocollection an m ement procedu s,-a d--d� a which precipitates the in ate satisfactionbase definitio at fails to satisfy formation information needs.needs. Datane is symptoms usuall include aconsistent urge o obtain informatio that seems Synthemombosis (sin -t - om- b6-sis) - Th'intuitively unre sonable. PERIS abnormality deve from an error i e

information process synth sis procedure Tt� e_1Infogout (in -fo- ut) - Infogout is a ERIS dis- process data base may be e ectly accepta e, but

orde r caused by xcessive info rmatio volume. op era tion s p erformed o t nt e data base createInfogout diminis es decisionmaking effective- the manager's infor mati re flawe he eness and efficient because excessive ti a is con- assures the manager will it eive ' erfect infor -

sumed in handling large data volumes There is mation.also difficulty in ga ing an appropriat focus on Synthemombosis is pair arly dangerouthe information me. age. Symptoms o ' nfogout active information pro active process iinclude extensive m nagerial data ag regation not only an inf n generato , ut it aland little or no use o significant amou is of in- takes action. le, an automateformation. tual inventory t caNbe designed to -�

stock replace nts or a r iva s syste o -Inforithmia lin- fo -rith a a) -This exces 've lati pend credit proval on Gusto r a Ob- ftudinal or longitudinal aggregation of i forma- viously, themombosin in thention yields unaccepta a variability tween r� 7a ve s ' s consequences ' tin tected f rexpected and actual decision Its. The alady ,. -,. n le t

Each incrementof informationadds value toyour decisionmaking but it

also has a cost.

question that the information must answer. If theinformation question is appropriately defined andanswered, then the information message will satis-fy the decision maker's need for information.

The information message may take many differ-ent forms depending on the type of decision. Themessage may be expressed in financial terms, unitsof resources, ratios or in numerous other fashions.But, remember, it will only be expressed in theterms you specify. Unless your information ques-tion is properly defined, your information needwill be unsatisfied to some degree.

The second issue pertaining to information con-tent is information volume. The important aspectof information volume is to recognize that, subjectto the law of diminishing returns, each incrementof information adds value to your decision mak-ing, but it also has a cost. The benefit is its abilityto reduce variability between anticipated and ac-tual expectations resulting from your decision.Reduction of outcome variability increases the ex-pected value of your decision. The cost, however,is not solely limited to cost of generating the addi-tional information. The additional cost of workingwith the data and the opportunity cost of applyingincremental information resources to this particu-lar decision rather than elsewhere are also rele-

vant costs.The third significant issue in information con-

tent is the level of information aggregation. Infor-mation can he aggregated within a particular timeperiod, which is latitudinal aggregation; or the in-formation of several time periods can be aggregat-ed, longitudinal aggregation. Aggregation alwayslimits the level of information detail. The impor-tant issue is establishing the level of aggregationthat is acceptable. The potential loss resultingfrom limiting the detail of information varies, de-pending on the decision. But the method to evalu-ate that risk is identical for all decisions. As thelevel of aggregation increases, the cost of creatingand using information decreases. At the sametime, however, the benefit derived from the infor-mation also decreases. The variability between ac-tual and expected decision outcomes increases asthe manager's information becomes more imper-fect through aggregation, consequently reducingthe benefit obtained from the decision.

Before beginning the review of your existingPERIS, consider the importance of the proceduresalready performed. By identifying responsibilitiesat the functional level, the procedures permit aclose correlation between responsibilities and thedecisions that are necessary to fulfill them. Subse-quently relating those decisions to their informa-tion needs produces not only a strong relationshipbetween the two, but also relates informationneeds with primary managerial responsibilities.Responsibilities have been translated into requireddecisions, and required decisions into information

needs. Therefore, information needs are defined tofulfill responsibilities. This process represents anefficient and effective means of defining a manag-er's information needs.

The Existing PERIS Structure

Disregard temporarily the procedures alreadyperformed and their results, and list all your pres-ent sources of information. Take your time and bethorough. Include reports, data bases, meetings,significant literature and personal research toname but a few. List every source from which youreceive any information used in your course ofdoing business, no matter how trivial or how sel-domly used.

Once you have completed the listing of existingsources, analyze the character of information re-ceived from those sources. In that analysis, usethe same general criteria previously used in defin-ing information needs. These criteria include allattributes of information content, including vol-ume, aggregation, and a clear description of theinformation message, as well as information struc-

ture.Now you are prepared to reconcile your infor-

mation needs with information presently avail-able. The important issue is: Don't make a roundpeg fit into a square hole. If you have performedthe preceding examination steps with due care,there should be no need to revise either the infor-mation needs or present information characteris-tics. Many of your. current information sourcesmay not neatly match your defined informationneeds. That is probably because they have somedeficiency, not because you erred in performingthe examination.

Once this match making is completed, thereprobably will be some unfulfilled informationneeds and some extra source of information. Setaside the unused information sources. They areexcess baggage which you will probably be able todiscard and never miss. By deleting them fromyour information portfolio, you will save informa-tion costs and, chances are, improve your manage-rial efficiency.

PERIS Improvement

As noted earlier, the PERIS is not the informa-tion, but the entire group of processes which pro-duces the information. Examine the matchings ofinformation need and present information charac-teristics one at a time to assure the quality of in-formation provided. This process begins with aninformation review to ensure once again that theinformation does indeed fulfill the need specifiedfor each decision. In many cases, this may meansome marginal realignment of information struc-ture or content to more clearly meet the informa-tion need.

After the information is reviewed, examine the


remaining two elements of individual information -generating processes. These are the data base andthe synthesis process. In reviewing the data basefrom which information was extracted, look notonly for data errors but also identify and correctdata collection procedures which would permit er-rors to go unnoticed. Improvements in collectionand data management procedures will add consid-erable integrity to the information process. In caseyou are unfamiliar with the process data base con-tent, examine it closely. An understanding of thedata supporting the information you use is essen-tial to sound decision making.

Some information you may use will undergoconsiderable synthesis either in the form of mathe-matical calculations or structural arrangement. It isimportant to test these operations to assure a genu-ine understanding of the process and to establishthat the operations performed are appropriate inthe circumstances. Ignorance of the informationprocess or underlying operations may foster inade-quate or erroneous uses of information.

For example, decision makers often violate proc-ess constraints or assumptions unknown to them.Assume a district sales supervisor evaluates sales-men's performance using a report which he believesincludes sales returns when in fact it does not.Obviously, the supervisor may be neglecting impor-

tant information relevant to the salesmen's impacton operating costs and customer satisfaction.

If you find unfulfilled information needs, designand implement information processes which satis-fy them. In fact, a weak existing PERIS may re-quire comprehensive revisions which may be doneat the same time you satisfy the unfulfilled needs.Regardless of the extent of needed new processes,the principles remain the same.

It would be impossible to describe all the possi-ble maladies you will discover in performing thephysical examination of your PERIS, but see theglossary of some of the more common ailments.

Each year managers assume new responsibili-ties, and relinquish old ones. In order to meettheir changing responsibilities, they acquire newskills to improve the quality of their decisions. Butthe quality decision is derived through quality de-cision skills and quality information.

All too often, managers are satisfied to makedecisions using inherited inferior information pro-duced by inferior sy §kems. Or they complacentlychoose information generated by currently avail-able processes. By performing a PERIS examina-tion each time your responsibilities change, youcan improve the quality of your decision makingby improving the quality of your information —the raw material of decision making.

IMPROVING FINANCIAL INFORMATION SYSTEMS IN LOCAL GOVERNMENT

284-4

ages developed using federal or state funds).There is an opportunity here to benefit from theexperience of other local governments, but signifi-cant modification is normally required. Althoughthere are other users who would be able to assistin modifying and implementing these packages,real support (including training and documenta-tion) is minimal. Numerous checklists, flow-charts, and guidelines are available to aid in theevaluation, selection, and implementation of soft -ward. The request for proposal (RFP) is an essen-tial tool in evaluating software and hardware.

Other Technology Available

As for computer hardware, there are a few ar-eas that may have some effect on decisions. Com-puter technology has continued to increase at aphenomenal rate. Capital inve9ted in the businesscomputer field has promoted the development ofequipment with far greater capacity than fiveyears ago at the same or even less cost.

The high cost of core memory and mass storagedevices (such as magnetic disk units) is no longerthe constraint it once was in system development.Environmental requirements such as space, tem-

perature, and humidity are not as critical as theyhave been. Numerous workstations and /or termi-nals can now be supported by much smaller proc-essing units. The computer resource unit to dollarratio is constantly improving.

Perhaps the most significant progress is in thearea of minicomputer /microprocessor technologywhich has brought new meaning to peripheral de-vices. "Intelligent" terminals can process informa-tion for immediate use in an on -line basis prior toupdating master files on the host computer.Through access to terminals located within thevarious departments, users can process and con-trol data without intervention by data processing.

Other advances made in recent years includedevelopment of data base management systemsthat do not require the computer resources theyonce did and an effort to interface with other ap-plications such as word processing and mass copy-ing. There is unlimited information available onthe latest developments as well as guidelines onthe evaluation, selection, and installation of com-puter hardware. All these options should be ex-plored by local government managers intent onimproving their MIS. 1:1

It is impossibleto describe allthe possiblemaladies youwill discover inperforming aPERIS physicalexamination.


Warren A. DeBord,Ph.D., is associate

professor of marketingat the University ofSouth Florida and

president of Sperry-Boom of Florida, Inc.,the management andmarketing consultingfirm which developed

the MIS and simulationprogram described

in this article.

Training MIS UsersThrough Simulation

One of the major advantages of using a simulation model is that itcan be integrated with the actual MIS, thereby reducing

By Warren A. DeBord and Jerry D. Siebel

User training is universally recognized as one ofthe most critical tasks in the successful develop-ment and implementation of a Management Infor-mation System (MIS). Users must be trained intwo general areas— preparation of input and effec-tive use of the various outputs. Input preparationis almost always clerical or routine in nature butthere are two drastically different categories ofoutput and, therefore, two ways to use output.Much of the output generated by a MIS is used ina very structured (programmable) way.

For example, the order entry /accounts receiv-able application might produce an invoice foreach sale transaction. The user of this output is aclerk who checks the batch totals, notes the firstand last invoice numbers, scans them for obviouserrors, files one copy, and sends the other copiesto the mailroom. These user activities are com-pletely programmable in the sense that the properaction for each possible condition can be spelledout in advance.

The most significant output from a MIS, how-ever, is used in an unstructured (nonprogramma-ble) way. For example, consider the Sales ActivityReport in Table 1. How is the reader (e.g., the

both development and operating costs.

sales manager) supposed to use this report? Whatshould he do if sales are 9% below plan? 11%

above plan? What should he do if a salesmanmade 13% fewer calls on new prospects than hisquota? Clearly, detailed instructions specifyingthe optimal action for each possible condition can-not be specified in advance.

The vast majority of present MIS user trainingdeals with the programmable tasks —input prepa-ration and the handling of routine outputs. Yetthe big payoff on the investment in a MIS lies inimproving the quality of the nonprogrammabledecisions which are based, at least in part, on themore complex outputs. One large company decid-ed to capture this untapped potential by providingintensive training in decision making using the in-formation generated by a new MIS.

Information and Decisions

Figure 1 depicts the use of output from an in-formation system in the decisionmaking process.The output from the system is used as input to aprediction model which produces a prediction ofthe outcome expected to result from taking eachof the actions available to the decision maker(there must be more than one action available orthere is no decision to be made). The preferred

36 0025- 1690/82/6307- 0900/$01.00/0 Copyright0 1982 by the National Association of Accountants

action is chosen based on the desirability of thepredicted outcomes. The action taken, along withenvironmental factors beyond the decision mak-er's control, determines the result achieved.

A new MIS will produce several unique infor-mation outputs and may redefine some seeminglyfamiliar outputs. In either case, new predictionand choice models to bridge the gap between thesystem output and managerial action must be de-vt:loped. For example, suppose that a new man-agement information system included a procedure

Figu re 1Information and the Decis ion Process

ly 7% lower as a result.2. Jones' pride will be hurt, his morale will suffer,

and he will make even fewer calls next month,leading to his termination. A replacement willrequire six months' training and there is only a60% chance that he will be as good as Jones.

In an actual situation, the sales manager wouldprobably search for a more acceptable action, but,assuming he is limited to these two, he wouldchoose an action on the basis of desirability of the

Goals 6preferences

Predicted outcome for Alternative 1 Choicemodel

Predicted outcome for Alternative 2

I nf o Pred ic t ion Predicted outcome for Alternative 3h �sys tem mode l

„ I mp le me ntpreferred

Pre di c te d out c o me fo r A lt ern at i ve n J a l t e r n a t i ve

Ot her kno wl e dg e

ResultsEnvi r onm ent (goal

att ai nm en t)

for establishing quotas for sales calls and for re-porting actual calls, thus making it possible toproduce the "call" portion of Table I as an out-put. To use the new information effectively, thesales manager must develop workable predictionand choice models. The prediction model mustpredict the joint effect of deviations in the numberof calls made and each possible action.

To illustrate, salesman J. Jones (see Table 1)has made 20% fewer calls on new prospects thanhis quota. For simplicity, assume that the salesmanager, R. Fox, has only two alternative actionsavailable for dealing with Jones:

1. say and do nothing;Z. explain that lack of prospecting means reduced

future sales and that Jones will be fired if ithappens again.

In choosing between these two actions, Foxmust predict the result of each and base his choiceon the predicted results. Suppose the predictedoutcomes for the two actions were:

1. Jones will continue to make fewer calls thanhis quota, and future sales will be approximate-

predicted outcomes. Dealing with unstructureddecisions of this type is a relatively new facet ofcomputer -based systems.

Simulation: One Effective Solution

There are probably several approaches to train-ing those who are to base significant decisions atleast partially on the output of a new managementinformation system that satisfy the eight charac-teristics noted (see page 40). In cooperation witha large agricultural equipment manufacturer, weused a simulation approach to train dealershippersonnel to use the information provided by anew computerized decision information system.The Computerized Information System (CIS) is atrue management information system because itsupports the unstructured (nonprogrammable)decisions which must be made in the operation ofa dealership as well as the more routine activities.

We decided that a computer -based simulateddealership was the most appropriate training ap-proach because:

The simulation would require each participant.to use CIS outputs to make the type of deci-sions he makes in the dealership.

Jerry D. Siebel, Ph.D.,is associate professorof accounting at theUniversity of SouthFlorida. He designedthe MIS for which thetraining simulation wasdeveloped. He is amember of FloridaWest Central Chapter,through which thisarticle was submitted.

Certificate of Merit,1980 -81.


Table 1

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P10 0 1

ey� atil � 81 P1a^ \ 15 app

Sal ' Gs11e Pcw 45010161

New e� 0° .0,

c� 1c

1g S 0 s n

S� � tb P°°j01

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2. The simulation experience provides the oppor-tunity for many repetitions. Such an approachhas proved necessary in developing the judg-ment and skill required to make unstructureddecisions.

3. The results of a dealership team with eachmember performing his real -world role in thesimulation would reflect the interaction be-tween the various areas.

4. Computer -based simulations generate a highinterest level, and participants generally aremotivated to learn what is necessary to makegood decisions.

5. A simulation exercise could be repeated as newpersonnel are hired, and the model could beeasily modified to incorporate reorganizationand environmental changes.

6. A simulation exercise compresses time andgives several years' experience in a few days,thus increasing the probability that trainingwill "stick."

7. All the decision makers in a dealership couldbe trained.

8. A simulation would be cost effective because itwould use many of the computer programs de-veloped for the actual CIS.

Figure 2The Training Program

UnstructuredStarting status Dealership planning & One(MIS reports management operating month

and other data) teams decisions simulation

us ing ownpredictionand choice /

� models

Evaluate /prior decisions;

modify predictionsand choice models

MISdatabase

Additional Decisionreports manual

i

Highlightsreports

Requests for Teams studyProcessor additional reports; use

decisionreports manuals


The management team of a farm equipmentdealership typically includes five persons —theowner /manager, three department managers, andan accountant. For training purposes, five of eachtype of manager are brought together and orga-nized into teams. The training is offered at remotesites by using a terminal and a 120 CPS printer.The class communicates with the model and thedata base, which are at the manufacturer's com-puter center, via telephone lines on a dial -up basis.(Ideally, the five managers from a dealershipwould train as a team, but the impracticality ofhaving the entire management team away fromthe dealership at the same time precluded this ap-proach.)

Figure 2 depicts the activities in the trainingprogram. The teams are given a set of MIS reportswhich describe the history and status of the simu-lated dealership as of the date the team is to takeover. Because the MIS cannot possibly provide allthe needed information (e.g., about competitionand the economy, etc.), supplementary informa-tion is made available to create a sense of realism.Each team develops a summary budget for thefirst year and then makes decisions which controlthe operation for a simulated month. Each man-ager makes the decisions for his functional area,but he or she is expected to recognize the interre-lationships with other areas and to consult othermembers of the team as needed to ensure consist-ency among the decisions and optimal overall re-sults. All decisions are reviewed by the dealer onthe team.

The actual MIS includes one or two "high-lights" reports for each manager which containcritical measurements and which will disclose theexistence of significant problems. The idea is toreduce the information which must be studied;more detailed reports are available if a problem isdetected. A "CIS user manual" is available in theactual system to help decision makers identifypossible causes of the problems reflected in thehighlights reports and determine which detail re-ports are relevant. The decision manuals describethe data to be used to analyze the causes of specif-ic problems identified in exception reports andsuggest specific solutions once the causes are iden-tified. As shown in Figure 2, the training programclosely parallels the real -world activities.

All cycles after the first include an evaluation ofthe decisions of the prior period (Did they achievethe results which were predicted when the deci-sions were made ?) for the purpose of improvingthe managers' decision - making skills. This step iscrucial to the training objective and takes advan-tage of the simulation's ability to provide numer-ous trials and meaningful feedback on each one.

The Simulation Model

Integration With Actual MIS. As might be ex-

Figure 3Integration of MIS and Simulation Model

Transactionsand other

recognizedevents

Captureselected

data

Transaction Transactiongenerator data

Process HSimulated

data fralWfWgoutputs

Datebase

Universaldata

Dealerdata MIS

outputs

pected, the manufacturer required that the train-ing program's benefits exceed its costs. One of themajor advantages of using a simulation model isthat it can be integrated with the actual MIS,thereby reducing both development and operatingcosts. In Figure 3, the vertical column representsthe actual MIS, while the horizontal row repre-sents the training program. Note especially thatthe same data processing routines and data baseare used in both systems.

The "transaction generator" is thus the onlymajor addition required to produce the trainingmodel. Data relating to one or more simulateddealerships are stored in the same data base asdata from actual dealerships. The simulated deal-ership in the data base looks like and is processedthe same as actual dealerships. Universal data

Trainingdecisions


Training the MIS User

Historically, training provided for the users of new computer sys-tems has focused on the routine— preparation of input and pro-grammable uses of output to perform a single simple task. Thistraining may have been adequate for the users of the structuredoperational control systems dominating the scene through theearly 1970s. But such training is woefully inadequate for the deci-sion- making user of a true management information systemwhose outputs are designed to improve the quality of managementcontrol and strategic planning decisions.

What training is needed? We formulated eight essential charac-teristics of effective training for users of the MIS.

1. The training must be decision- oriented. It must use thespecific outputs the user will receive from the MIS and deal withthe same decisions the user will be making on the job. For exam-ple, the sales manager who will be using the Sales Activity Reportin Table 1 should be trained to use the information contained on itto make decisions he will encounter when the system is operation-al— decisions such as, what, if any, action to take when a par-ticular salesman makes fewer calls than his quota. (The properaction is a function of the particular salesman's personality, sothe training may have to include selected topics from psychology.)Should the call quotas and sales plans be revised because theassumptions upon which they were based are no longer valid. (Thisimplies the training should provide relevant background informa-tion.)

2. The training must give the decision maker the opportunity todiscover optimum prediction and choice models for a variety ofrealistic situations. By definition, the optimum decision modelscannot be specified for unstructured (non programmable) deci-sions. A major purpose of the training should be to improve thetrainee's ability to develop heuristic approaches to the decisionsthat produce satisfactory results. This implies repeated trials withappropriate feedback. Merely reading descriptions of the newlyavailable information, including definitions of the individual dataitems, will not develop the necessary decision skills.

3. The training must reflect a corporate -wide viewpoint. deci-sions made by a manager in one functional area affect the perfor-mance of other managers not only in that area but throughout the

(data used to process all dealerships) such as cat-alogs of products and their list prices are automat-ically available to the simulation. The use of theactual MIS processor in the simulation ensuresthat the outputs are identical and helps keep thetraining current as system outputs are modifiedover time.

The processor edits simulated data just as itdoes real data, thus providing a check on thetransaction generator. However, confirmations of

error -free data and routine documents such ascustomer invoices, purchase orders, checks, list-ings, etc. are not printed for the simulated dealer-ship because the purpose is to train in the makingof nonprogrammable decisions from managementinformation.

Next to the use of the actual MIS processor inthe simulation, the most significant result of inte-gration is that the values of the variables whichfeed the transaction generator (described morefully below) can be kept realistic by periodicallyrecomputing them from the actual data stored inthe data base. That is, the real system "teaches"the simulation data to keep it current, thus mak-ing the training all the more relevant.

Customer Data Base. In the actual MIS, thedata base contains substantial relevant informa-tion about each customer and potential custom-er —facts such as the age and condition of equip-ment already owned and other data whichdetermine the customer's need for any new equip-ment. These customer data provide much infor-mation that is useful for marketing and sales man-

agement.The simulation model has a set of potential cus-

tomers. The characteristics of these simulated cus-tomers are one of the most important determi-nants of results, just as customer characteristicshave a lot to do with the performance of a realbusiness. The model is market - driven in that cus-tomer characteristics are an important factor insimulating demand for specific products.

The Transaction Generator. As shown in Figure3, the transaction generator is the only significantnew program needed because the training modeluses the processor from the actual MIS. Thetransaction generator substitutes for the occur-rence of real -world events and produces, for eachsimulated event, a record which looks just like therecord which would be produced by a real eventof that type.

Several data files are needed to feed the transac-tion generator. Figure 4 depicts the input used bythe transaction generator, including:

1. Data base —the representation of the simulateddealership in the MIS data base.

2. Factor file— approximately 960 variableswhose values define the competitive and eco-nomic environment over 24 months; values canbe changed by the instructor.

3. New and old model files —the operating char-acteristics (by model and year) of all units inthe customer data base or in the product line.

4. Variable file — internal relationships such as theeffect of a stockout on customer future de-mand; also contains the pending impact of pastevents on future operations. Updated aftereach monthly cycle. As mentioned above, peri-odic calculation of relationships from the actu-


al data base are used to keep the values realis-tic.

5. Run file— values as of beginning of currentmonth; changed as a result ofthis month's sim-ulation.

As mentioned above, the input processor is theprogram which controls the input terminals, editsthe player's decisions for reasonableness, and pro-vides the players with needed data about the envi-ronment —for example, current interest rates orthe abilities of potential employees who are avail-able.

The Development Process

The Computerized Information System provid-ed the foundation for the development of the sim-ulation model. To design the information outputsof the CIS, Sperry -Boom and the manufacturerpersonnel used the "top- down" approach:

STEP 1: Identify organization goals and sub -goals.

STEP 2: Define the decisions required to achievethe goals and the decision makers re-sponsible.

STEP 3: Develop approximations of appropriatemodels for making the decisions. As dis-cussed above, the most significant deci-sions are nonprogrammable, whichmeans that it is not possible to specifythe models fully.

STEP 4: Specify the information needed as inputsto the (incomplete) decision models anddesign output reports and responses toinquiries.

The decisions defined in Step 2 become the deci-sions which the simulation requires the partici-pants to make.

To build a simulation model which would pro-vide effective training in making these decisions,eight major activities were required:

1. Develop a mini -model offarmer /dealership in-teractions in order to identify the factors whichaffect farmers' buying decisions. Nearly 100factors were identified; for example, quality ofservice, expectations about crop price andyield, and equipment already owned.

2. Quantify the relationships between farmer anda dealership using both primary research andthe expertise of knowledgeable people.

3. Quantify relationships within a dealership; forexample, the impact of parts availability onservice department performance.

4. Create programs to set up and maintain thefiles of numbers representing the above rela-tionships.

5. Program the transaction generator.

organization. For example, the sales manager studying the SalesActivity Report and considering other information available tohim, may decide that sales budgets for the remainder of the yearshould be increased. This decision has the potential to affect otherdecisions in purchasing (or production planning), inventory con-trol, advertising, and cash management. The training shouldrecognize these interdependencies, and the feedback on the salesmanager's decision - making performance should reflect the costand benefits generated in other responsibility centers.

4. The training must explicitly recognize the psychologicalfactors associated with the introduction of a MIS. Most people,including otherwise rational decision makers, mentally resistchange no matter how logical or productive the change may be.Overcoming resistence to change and gaining genuine acceptanceof the new system may be even more important to realizing benefitsfrom the new MIS than the objectively- determined quality andefficiency of the system.

5. The training should be durable so that it will benefit theorganization for many years to come. Organizations are continu-ally changing — promotions and transfers change the people occu-pying the various positions, reorganizations redefine the positionsthemselves, and changes in the outside environment requirechanges in the decision maker's prediction and choice models.Ideally, the training program could be repeated at nominal mar-ginal cost when a new person moves in to a significant decision —making role. Also, it would be useful if the training could be easilymodified to reflect reorganizations and changes in environmentalconditions.

6. The training should have enough depth and substance toaffect decision making in the real world for months and years tocome. In other words, it must have powerful impact on the train-ee's thought patterns. Superficial "show and tell" programs thatentail little more than reading (or having an instructor read) des-criptions of the information provided by the new system are un-likely to change the prediction and choice models already ingrainedin the decisionmaker's mind —and they certainly will not createnew prediction and choice models for new decisions. Instead, themanager will return to the job unchanged by the training and will,at best, develop new decisionmaking patterns by trial and error —a doubly expensive approach.

7. The training should be comprehensive. A MIS generallyserves the entire organization; therefore, training for all the signi-ficant decision- makers is usually required.

8. The training must be cost effective, producing somewherethe maximum excess of benefits over cost. Further, the cost mustbe reasonable in relation to resources available. D

6. Prepare CIS user manuals (used in both thesimulation and the real MIS) to guide users.

7. Prepare the decision input forms and partici-pants' manuals.

8. Test the models to see if the responses to deci-sions were reasonable.

MIS Plus Simulation: a Success

The dealer simulation model described here hasbeen used to train approximately 1,000 managers.


The users likedthe simulation

approachbecause it

reduced theirfear of a newinformation

system.

Figure 4The Transaction Generator

Oldmodel

New datamodel Controldate

Factor filefile

Data\ base

I

FPlayer Input Transaction

decisions processor generator

Simulatedtransaction

Variablefile Run

file

Its repeated use and acceptance by training classesdemonstrate the validity of simulation as a con-ceptual approach to solving the critical user train-ing problem being experienced by many MIS in-stallations. The users like it because it reducestheir fear of a new information system and deci-sion- making approach while permitting them tointroduce personal experience, judgment, andheuristics into the simulated decisions just as theydo when making operating decisions. The manu-facturer likes it because it is effectively training

independent dealership managers, changing theirmanagement styles with a system that is dynamic,and providing a training program that automati-cally adjusts to changes in the market and theComputerized Information System.

Although neither dealer simulation model norMIS is new, their combination as done for themanufacturer is new. It effectively uses the bene-fits of simulation to overcome the problem oftraining managers in using MIS data to make un-structured decisions. ❑


Find the Right SoftwareThrough Specifications

Q. How do you find the specific software you need at the price you

want to pay? A. Do your homework (specifications) first.

By Gary I. Green and Earl A. Wilcox

Most organizations frequently are confrontedwith computer software development and evalua-tion decisions. They are bombarded with new ap-plications, maintenance of existing software, andmajor software revisions. Typically, they makesubstantial investments in software and find them-selves almost totally dependent on software per-formance. The user, however, generally is not in-volved enough in evaluating software proposalsand does not have adequate procedures to followfor making these decisions.

Take Motorola, Inc.'s Semiconductor ProductsSector, for example. Our trials were late deliver-ies, escalating programming costs, and poor per-formance of purchased or in -house software. Mo-torola purchased a software package to aid in itscash application function. The software requiredunforeseen extensive modifications for interfacingwith existing systems through no fault of thevendor. Similarly, an accounts payable system wasdeveloped internally to speed up and control pay -ables. The schedule for implementation was aboutone year, but the project was completed after fouryears and at great expense.

Our experiences are not unique! These problemscould have been prevented if the user had definedspecifications properly and had been involved

throughout the project. Now we are establishingthe necessary specifications for such software de-velopment and evaluation, and we will use themfor other projects at Motorola, Inc., Semiconduc-tor Products Sector. Perhaps other companies canbenefit from our newly developed process and willnot have to endure the problems we did.

Specifications Are Necessary

Specifications are needed for three stages ofsoftware evaluation: to judge project feasibility, todetermine expenditures for procurement, and toevaluate performance and implementation. First,specifications are used to helpjudge project feasi-bility. The user group requesting the projectshould be obligated to justify a legitimate need forthe project. Management then has to decidewhether to continue with the existing data proc-essing procedures or whether to change process-ing, based on the cost benefit and feasibility of theproject. Top -down planning is a fundamentalresponsibility of this decisionmaking process.Management has the responsibility to develop a"master plan" for all existing and potential dataprocessing requirements.' The evolution of thecompany's computer applications should be con-trolled based on that master plan: priorities can beestablished for developing certain applications,modularity of software can be planned and con-

Gary I. Green is anassistant professor ofcomputer informationsystems at ArizonaState University inTempe. He has a Ph. D.degree from theUniversity ofWashington.

0025 - 1690/82/6307- 1353/$01.00/0 Copyright 0 1982 by the National Association of Accountants 43

Earl A. Wilcox isfinancial systems

specialist at Motorola,Inc., SemiconductorProducts Sector. Hehas a B.S. degree in

accounting fromNorthern Arizona

University. He is amember of the

Scottsdale AreaChapter, through which

this article wassubmitted.

trolled; consistency can be enhanced; and applica-tions with long life expectancy can be planned.We will assume that a master plan exists.

A second need for specifications is to help deter-mine the expenditures for procurement. A compa-ny must have a realistic budget for controlling ei-ther the purchase or development of software.This make/buy decision should include all reason-able costs for maintenance, modifications to thelogic (if required), interface with other proce-dures and systems, new data requirements anddata handling, training, and any penalties as a re-sult of delays. Those specifications provide man-agement with the means to assess project viabilityand the accountant with a better basis for render-ing an opinion on vendor bids or internal costs.

Third, specifications are needed to help evaluatethe performance and implementation of our soft-ware investment. Users will be required to deter-mine if the software product meets specificationsand if it is cost effective in the present system envi-ronment. Although the need for specificationshere is rather clear, few organizations followthrough with performance evaluation. Specifica-tions are needed to evaluate productivity in cleri-cal labor, managerial decision support, operationslead time for various jobs, amount ofqueue timeto process transactions, systems overhead, systemsintegrity, audit trails, control totals, and securityprocedures. Moreover, the specifications are need-ed to address the issue ofwhether the user is satis-fied with the software. Further specifications areneeded to indicate whether or not the softwarerequires enhancement once it is implemented.

What Has Been Accomplished in This Area?

Most recent attention has been on how to pur-chase or develop software.2 Very little effort hasbeen directed to accountability for performance.The attitude seems to exist that once purchased,or programmed and implemented, the software nolonger has to prove itself. Users may claim a gen-eral satisfaction or dissatisfaction based on just afew selected instances. For example, a user maybelieve that a given software is excellent because itproduces a useful report even though the softwarehas excessive overhead and is technically ineffi-cient. A well - developed set of evaluation specifica-tions could ensure better control over project

costs.

Criteria for Specifications

Specifications must be measurable: All specifica-tions should provide for objective measurement.Intangibles are not acceptable unless they are at-tached to an objective measure. Statements suchas "It will help me with my job" are meaninglessunless you can specify quantitatively by "howmuch." Productivity is the issue, and all specifica-tions should provide for measuring cost savings

and amount of resources required. In addition,specifications for performance should be reason-able. We need to know by how much the softwarehas improved our system relative to its objectives.

Specifications must identify resource require-ments: All present and future resource require-ments should be identified. Complete labor re-quirements, data structures and other procedures(both manual and computerized) should be deter-mined. Although resource development time, runtime, hardware requirements, documentation, andinstallation usually are identified, the resourcesnecessary for effective analysis, including feedbackand coordination, at all stages of the software ac-quisition should be but generally are not identi-fied. An initial effort in establishing specificationsthat would identify all resource requirementscould eliminate cost overruns and late deliveries.

Specifications must be used for accountabilityand control.• A company must carefully determinewhat it expects from software. Specifications pro-vide us with the basis for measuring performanceand controlling expenditures for a project. In cer-tain cases, data integrity-, security and audit trailsrequire special attention. Control requires stan-dards (specifications) and a predeterminedamount of variability (tolerance) to these stan-dards. User groups requesting software should notbe surprised by the price tag but, rather, shouldexpect it to be within a reasonable range of theestimate. Specifications provide us with a meansto evaluate performance and to warn us about po-tential problems.

Stages of Software Project Development

There are five stages of development appropri-ate for most software projects. Stage 1 (problemdefinition) involves the user group studying theexisting system, indentifying interface with the or-ganization, and preparing a comprehensive needsanalysis. At this stage ofdevelopment, the user'srequest and the MIS master plan should be coor-dinated and a project team established. This proj-ect team should include representatives of the usergroup, Management Information Systems (MIS)group, and internal auditing. (This team conceptis essential to the success of a project.) Stage 2(structured analysis) requires that all major proc-esses be identified and checked for interface withother major processes that exist or that areplanned. Stage 3 (solution and documentation)should provide a detailed solution to and completedocumentation of the problem, including allschedules and costs. At this stage, the make -or-buy decision is made. Stage 4 (test and run) pro-vides for parallel running and testing of the pro-gram to performance standards. Any programmaintenance should be accounted for now. Stage5 (implementation) involves performance moni-toring and maintenance of the program. This


process should be interactive from implementa-tion back to problem identification at any pointwhere the program cannot meet specifications or achange is required. Figure 1 shows the stages ofprogram development and indicates the type ofcoordination and feedback experienced in imple-menting new programs.

Different specifications will be used at differentstages of program development. These specifica-tions fit into seven categories: (1) problems, (2 )procedures and performance, (3) resource, (4)data and systems integrity, (5) documentation,(6) implementation, and (7) evaluation. Thesespecifications play a very important role in thelogical process of developing and implementingnew software. Table 1 indicates the relationshipbetween the stages of program development andthe specifications. Some specifications are usedthroughout the project while others are used onlyin certain stages.

Specifications may differ from one organizationto another or from one project to another, butmost software projects require careful considera-tion of a common set of specifications. Further-more, evaluation of performance should be linkedto specifications that have been established priorto software implementation. The specificationsthat we have identified should be viewed as part ofan evaluation system for better accountability andresource control.

Problem Specifications

At the outset a company must recognize thatdefining a problem could take a while. The user isthe first person or group to identify a problem. Atthis point in time, the user requests help in solvingthe problem with a computer program. User in-volvement in problem definition should be speci-fied in labor hours.

This stage of project development is quite cru-cial. Without a proper commitment to definingthe problem, additional expenses —or, even worse,failure —may appear later in the project. We stressthat the user cannot abdicate responsibility for theproject to the Management Information Systems(MIS) group. The MIS group cannot function ina vacuum, therefore, it should be appraised of userrequirements. The user ultimately has to commu-nicate his problem and intended results in suffi-cient detail so the technical group can help. Usu-ally this communication takes place by meetings,interviews and questionnaires.

A project team is necessary at the problem defi-nition stage to determine the potential proceduresand processing requirements of the newly request-ed software. The team should be composed of userrepresentatives, MIS specialists and members ofthe internal auditing staff. This team would be re-sponsible for investigating the potential impact ofthe new software, interfacing with other existing

systems, compiling data requirements, and deter-mining the relationship of the project to the MISmaster plan.

One important task of this group is to develop aproject schedule (such as PERT) to ensure thatall tasks and interrelationships are identified andscheduled. This procedure is tantamount to estab-lishing an action plan of who is responsible forwhich activities by what time. Failure to developsuch a schedule, which is based on the user needs

Table 1Specifications Used During Program Development

Stages of program development

Program Structured TestSpecifications definition analysis Solution It run Implementation

Problem X XProcedures &

performance X X XResource X X X XData B systems

integrity X X X X XDocumentation X X X X XImplementation X XEvaluation X X

and available implementation capability, couldlead to significant delays and cost overruns. ,Theproject team now must ascertain whether or notthe problem is worth pursuing.

Procedures and Performance Specifications

All major procedures needed to complete thestated problem must be identified. The user com-munity and the technical specialists should specifyexactly what is required to solve the problem aswell as what might be considered desirable, butoptional, depending on cost. Modularity is the keyto success. Specifications of procedures should bemade based on the well -known concept of struc-tured design: identify the major modules and sup-porting processing requirements (submodules) ina hierarchy.'

Once the procedures have been arranged inmodular fashion, the MIS group can check to seeif some of the modules might exist elsewhere. Ifsome of the processing requirements already havebeen developed for other applications, they can beused or modified, so existing software resourcesmay be shared. Modularity permits control ofproject development to the overall master plan,eliminates unnecessary redundancy, and providesfor preliminary cost and time estimates.

Consistency also is an important issue. In manyinstances, there are several definitions for thesame terms. All procedures should be governed bythe same set of rules and definitions within themaster plan. With a structured approach, theproject team should ensure consistency of round-


Figure 1Stages of Program Development and Coordination

Coordination Function Stages

Stage 1Define problem ProblemDevelop action plan definition

stage

Masterplan

Identifyrequirements

— — — — Developalternatives Stage 2

StructuredInterface analysis

InterfacePerformanceControlsDocumentation

I

Stage 3Solution

Make

orI buyIIII

Stage 4_ Fine tune Test & run

i Intermediateevaluation

Programmaintenance

Feedback Stage 5Final Implement

Direct progression evaluation

- - - -- Interrelationships

ing, timing of file updates, procedure runs, opera-tional definitions, and precision.

Procedure specifications should include thecomputational methods that will be used. Proc-essed information in various stages (subtotals, to-tals, grand totals) should be identified with re-porting requirements. The project team does nothave to specify report formats at this time, but itshould specify reported information requirementsat various stages of processing.

Decision tables and trees may be used to con-trol variables, especially in dynamic industrieswith rapid technological change (such as the elec-tronics industry) where reporting needs and inter-

active processing require the flexibility to incorpo-rate changes rapidly.

Accountability and control use performancespecifications as a basis for evaluating effectivenessof the software. Without this set of specifications,there is almost no basis on which to evaluate per-formance. The project team should be obligated toprovide these specifications before the software iscoded or purchased, which includes having a rea-sonable schedule leading to implementation.

An acceptable level of efficiency (standard)needs to be defined for data preparation, computerprocessing time and report generation. Minimumtolerances also should be defined, and purchasedsoftware should be held to the standards by con-tract. Standards need to be defined for any laborrelated to the program such as data entry, transac-tion processing, operator intervention and courier

service.It also is necessary to evaluate whether the proj-

ect performance solves the user's problem. Onceagain, productivity is the issue. Increased produc-tivity expected as a result of implementationshould be specified. Benefits should be expressedas a specification for time saved, labor hourssaved, improved job performance for the usergroup, and improved decision support. Cost cen-ters should be established for accumulating infor-mation to control development costs of the projectteam, coding costs, capital expenditures, imple-mentation costs, operating expenses, and docu-mentation costs. Without specifications, perform-ance control or cost effectiveness is meaningless.Thus, specifications play a major role in evaluat-ing performance and controlling costs.

Resource Specifications

The project may require many different re-sources, and the project team must determinewhat these resources are. Specification of hard-ware requirements necessary to support the soft-ware should include run -time requirements(amount of CPU time and main memory), datachannel utilization, communications equipment(if any), peripheral equipment, and secondarystorage (for example, disks). The project team isresponsible for determining the capacity of the ex-isting system and how much processing the newproject will cause. The new program may incur anadditional burden on the existing system, and thetrade -off between the cost of that burden and newequipment costs needs to be investigated. If theproject requires a change in the existing equip-ment configuration, then the change should beidentified completely. The specifications will befor processing time, equipment utilization, andnew equipment. Both variable and fixed costs areinvolved as is capacity. Specifications will help toevaluate this trade -off.

The relationship of the new system should be


specified before the system is implemented. Doesthe present system have the appropriate languageand compiler support, and will this support be ad-equate for running the proposed project efficient-ly? Should equipment and operating systems beindependent? The project team should address theimpact of a potential change in computer equip-ment on the proposed project.

Interface with other systems also must be speci-fied. Will the project affect or be affected by otherprograms? In some cases at Motorola, results ofimplementing a new program may affect as manyas 20 other applications. If the introduction of anew application will mean modification to otherprograms, then the extent of the modificationsshould be studied, and the benefits or conse-quences should be evaluated. Interface of process-ing results would incorporate report formats andreport routing. Redundancy can be avoided byspecifying where the results go.

Data base use needs to be specified completely.What are the storage requirements of the project?Elements, fields, records, and files need to be de-fined. All file handling including updates, addi-tions and deletions should be specified. The proj-ect coordinators should decide if the data basemanagement system (DBMS) can support theproject because input, output, and transactionsprocessing will be affected by the efficiency of theDBMS. It is much better to specify needs beforeimplementation rather than discovering after-wards that the DBMS will not support the projectas intended.

Other resources also need to be considered, andany additional overhead should be noted. Specialhandling of tapes or disks by operators, specialforms and form loading, and any other type ofspecial handling for processing should be listed interms of labor hours and materials.

Data and Systems Integrity Specifications

Integrity of systems performance is crucial tothe success of any project. Controls must be ac-counted for in advance, and error detection andprevention should be planned. Minimal error ratefor acceptable performance should be specified be-fore implementation so if errors exist, such as dataentry errors, steps should be taken to detect andcorrect them. Estimates of error costs at a definedlevel of tolerance also should be made. Controltotals, parity checks, and reconciliation throughaudit trails should be established by specification.

Security for a project cannot take place withoutdetermining all requirements carefully. Accessand authorization to access deal with the privacyissue as well as security, but the trade -off betweenthe cost of security and the risk of unauthorizedintrusion in the system must be recognized.'

Data integrity is the amount of faith that theuser has in the results of processing. Data that

might be used for the proposed project may beused by other processing units. Without a speci-fied level of data integrity, decisions might bemade from misleading information. As a conse-quence, the user should acknowledge that all re-sulting rF;Norts will have a specified level of toler-ance for errors depending on how much money itwill take to reduce error.

All too often, recovery procedures are ignoredor fail to receive proper attention. An adequateeffort should be made to specify the extent ofback -up data and frequency of updates. The proj-ect team should determine off - premise storagecosts, should budget for insurance (or self- insur-ance), and should prepare a disaster plan for al-ternative processing and recovery.

Documentation Specifications

Throughout this entire process the project teamshould have assembled a variety ofdocumentations The modular flowchart based onproblem definiton, detail procedures of process-ing, data dictionary, data interface, descriptions ofreports, recovery procedures, audit trails, equip-ment specifications, and security proceduresshould have been -established. At this point theproject team should review all these data andspecify any further requirements. In addition, theproject requires a complete documentation manu-al which should be specified.

The project is now at a stage where the compa-ny will decide whether to buy the software, con-tract for it, or develop it in- house. In any case, theproject team should have provided all specifica-tions so the most cost - effective decision could bereached.

Determination of the make - versus -buy decisioninvolves legal ramifications of acontract to meetspecifications, an implementation schedule, a cost -benefit analysis and a knowledge of availability ofdata processing resources. In order to purchasesoftware, the user should have all performancespecifications identified by contract. In essence,this set of documentation may be used to draft aRequest for Proposal (RFP) to purchase softwarewith provision for how software evaluation willtake place. Ifsoftware is developed in- house, thespecifications provide a means for controlling theprogramming costs and schedule.

Implementation Specifications

Once the make -or -buy decision has beenreached, implementation specifications can be de-veloped. The focus is different depending on thisdecision. In -house software implementationshould involve the structured approach, which re-quires a modular flowchart with major segmentssupported by detailed structure charts for eachmodule. This specification is used to control cod-ing as well as preserve integrity of design in the

A //

specificationsshould providefor objectivemeasurement.


Our trials werelate de liveries,

escalatingprogramming

costs, and poorsoftware

performance.

event of programming staff turnover. At thisstage, it would be appropriate for the project teamto develop a detailed completion schedule by in-corporating the modules in a critical path chart.'A schedule, a budget and a set of performancespecifications should now be established.

Implementation procedures are common toboth make and buy decisions. Facilities prepara-tion, data preparation, transaction procedures,processing, controls, audit trails, implementationschedule, budget, output, and training must be de-veloped. It is essential that the project team makeadequate provision to announce the new programand train employees in order to reduce confusion.

Once the software is delivered, the internal au-diting department should be responsible for test-ing the software with sample data and processingoptions to ensure the program meets performancespecifications. Software should not be accepteduntil it has been proven to operate as specified.Realistically, programming labor, as well as proj-ect team and technical support necessary to modi-fy the program to specifications during this testing

Table 2Specifications, Requirements and Issues

stage, should be identified. Any additional unfore-seen software and hardware costs then may haveto be justified. The user group should not be sur-prised by cost overruns or delays, yet it should beheld accountable to the specified, agreed -uponsystem.

In order to begin operations, the companyshould run the program parallel to the old systemso any problems that arise can be corrected quick-ly. Any changes before or after implementationshould be communicated to the rest of the projectteam, and they must be documented.

Evaluation Specifications

After the program is in routine operation, theproject team needs to evaluate and monitor itsperformance. The project team should developperformance measurements and a data collectionsystem. Program maintenance should be specifiedbecause most programs need it. Maintenanceshould be specified by budget with reasonable al-lowances. If variance is excessive, it could indicatea potential performance problem. If maintenance

specifications Requirements Issues

Problem Define problem Scope of problemRelation to master plan "Go-no-go" decision

Interface Action plan

Project schedule Schedule

Procedures and performance Top down structure Modular controlInterface ConsistencyComputational method Report requirementsVariables required Accountability

Performance standards Productivity

Resource Identify requirements Capabilility

Fixed B variable cost estimates Redundancy

Interface IndependenceData base €t transaction processing use Cost trade -offs

Identify overhead

Data & systems integrity Determine controls Cost of errors

Update procedures Security /privacy

Error tolerances Plan for recovery

Disaster plan

Documentation Documentation manual Organized analysis

Cost benefit analysis Supporting evidence

Make or buy decision Cost effectivenessAcquisition decision

Implementation Secure program Control over costs and schedule

Documentation Preparation for implementation

Schedule Auditing

BudgetPerformance standardsTesting & parallel run

Evaluation Maintenance Monitor Et control

Interface Evaluation

User feedback Productivity

Control to standards Determine revisions


costs become excessive, it may be necessary at sometime in the future to consider a major revision.

Interface to other programs is another impor-tant indication of performance. The project teamneeds to ascertain how well the implemented pro-gram integrates with other systems. The timing ofdata entry and file updates, production runs, andreport generation should be relatively free frominterruptions or delays. Also the use of the newlyimplemented programs should not interfere withother programs and processes.

A periodic survey should be conducted either byinterviews or questionnaires to rate the user's per-ception of satisfaction with the program. This sur-vey may be sponsored by the MIS group or inter-nal auditing. A rating system should be employedso the project team can objectively evaluate howsatisfied users are with performance. Suggestionsalso may be obtained that could be used to docu-ment maintenance revision.

Finally, the project team should measure howproductive the software has been to the user groupand how efficiently it has performed in the systemenvironment. Did the software reduce clericaltime, transaction processing time, and system uti-lization time as it was intended? Did the softwareimprove reports for decision making and control?Did the software lead to effective use of securityand data integrity? These questions must be an-swered as part of a regular continuous evaluationprogram. The major questions that should beasked during evaluation are:

• Did productivity improve?• Was it the result of this software project?• Did we stay within our budget based on speci-

fications?• Do we need to consider a revision?

• What enhancements may be cost efficient?

An Overview of the Process

Table 2 is an overview of the entire processfrom the decision to begin a project through itsimplementation. It summarizes what each specifi-cation category requires and discusses the issuesthe project team should consider.

Remember, specifications help plan and controlprogram development and implementation, so acompany should incorporate the seven majortypes of specifications and use them throughoutthe five stages of program development. We alsorecommend a project team concept involving rep-resentatives of users, MIS, and internal auditing.The user should play a major role in helping iden-tify costs and control issues as well as evaluatingperformance.

Specifications should help the project team es-tablish firm control over project costs, schedulesand performance. Control is required for all typesof resources (equipment, inventory, labor), and acompany should expect no less from purchased ordeveloped software. Specifications provide greatercontrol, project development and evaluation foruser groups. Proper use of these guidelines shouldreduce costs, enhance implementation, and elimi-nate a great deal of dissatisfaction with new appli-cation programs. f

See Ephriam R. McLean and John W. Soden, Strategic�Planning�for�MJS� JohnWiley & Sons 1977.s Fora review of how to purchase accounting software, see Steven J. Weinberg,"Why Choose an Accounting Software Package? ", MANAGEMEN' r Ac c ou NT NG ,February 1980, pp. 44.47. For a review of how to develop software with the struc-tured approach, see Robert L. Paretta and Stephen A. Clark, "Management ofSoftware Development," Journal of Systems .Management, April 1976, pp. 21.27.' Chris Gane and Trish Sarson, Structured Systems Analysis, Tools d Techniques.Improved System Technologies, 1977.' Lance J. Hoffman, Modern Methods for Computer Security and Primry. Prentice-Hall, 1977.'Charles L. Biggs, Evan G. Bilks and William Atkins, .Managing the SystemsDevelopment Process, Touehe Ross & Co. fPubfished by Prentice-Hall), 1980.° Alton R. Kindred, Data Systems and Management: An Introduction to SystemsAnalysts and Design. Second Edition, Prentice -Hall. 1980.

THE COSTS OF IMPLEMENTING FAS NO. 33

7144

be used for internal reporting. Thosewho felt FAS No. 33 would not be usedfor internal decision making were main-ly talking about "in its present form."One of the controllers interviewed saidthat their company has always used cur-rent cost /constant dollar reporting fortheir internal financial records.8. Only one of the controllers felt thecost vs. the benefit of reporting FASNo. 33 was worth it. Most felt that theconstant dollar was more beneficial thanthe dual method of reporting both cur-

rent cost and constant dollar. Constantdollar is not as complicated or expen-sive to implement. The controller whofelt the cost vs. the benefit of FAS No.33 was worthwhile, said the informationpresented in FAS No. 33 is an integralpart of their profit measurement systemand he considers it indispensable. Bothaccountants agreed with the latter con-troller's view, and the consultants'views were mixed.

Basically, this survey showed that thecost of implementing FAS No. 33 ini-

if the projectteam has doneits homework,user groupsshould not besurprised by thesoftware pricetag.

tially was expensive but the cost has de-creased substantially in recent years.There has been an increase in people'sawareness of FAS No. 33's usefulness inreporting inflation adjustments. It is ourconclusion that the cost of reportingFAS No. 33 information is not a majorconcern of most of the companies. Theproblems that arise seem to be directedtoward the variations in methods of re-porting FAS No. 33, the interpretationof the figures, and the importance of thefootnote in the financial statement,


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Pricing Policies Under InflationIt is the responsibility of the financial manager to alert senior

management to the long -range ramifications

By William H. Hernandez

Both competitive and cost pressures influence afirm's marketing strategy in pricing its product. Inperiods of rapid inflation, as costs increase, a firmmay wish to make a knee-jerk response and in-crease price by a commensurate amount. Its com-petition may see such a reaction as an opportunityto stand pat, absorb the cost increase, and whilelosing margin, gain market share.

There are not only dangers of viewing the aboveoptions in a short -time horizon, but irreparabledamage can be caused to long -term goals as well.That is, a company needs to assess the long -termstrategic implications of its pricing actions. An-other factor which complicates planning is theconcurrent actions of competitors, who, by react-ing in a naive fashion, may do harm both to them-selves and the industry in total. It is the responsi-bility of the company's financial managers to alertmarketing and top management to the ramifica-tions of their pricing options on the well -being ofthe firm.

Competitive reactions aside for the moment, inperiods of rapid cost inflation a firm can chooseone of several pricing strategies:

1. Absorb the cost increase itself.

of the company's pricing options.

2. Pass through the cost increase with the intentof maintaining dollar profitability.

3. Maintain percentage margins.4. Maintain value added, i.e., raw material mar-

gins.5. Maintain "real" margins.

By discussing these alternatives, I will show thatthe last is the only long -term satisfactory ap-proach, and competitive actions that frustrate itmay harm the industry in total.

Let's assume the following scenario of a capitalintensive company at project conception.

• Sales = 1000 units per year• Price = $1 /unit• Raw materials = 50¢ /unit• Variable costs = 30¢ /unit• Investment = $1,000; Fixed = $700, Working

capital = $300• 7 -year plant life (therefore depreciation =

$700/7 = $100 /year)• Inventory turnover = 5 X (Raw Materials &

Variable Cost + Depreciation /5 = $180)• Receivables = 45 days ($1000 X 45/360 =

$125)• Return on Sales (ROS) and Return on Invest-

ment (ROI) = 10% on $100 profit

William H. Hernandezis controller of Borg -Warner Chemicals, Inc.He has an MBA degreefrom the HarvardGraduate School ofBusiness and holds aCMA. Mr. Hernandez isa member of theParkersburg- MariettaChapter, through whichthis article wassubmitted.

0025. 1690/82/6307 - 0123/$01.0010 Copyright © 1982 by the National Association of Accountants 51

Sometimes thecorporation's

figures mask adeteriorating

situation in aninflationary

environment.

Such a scenario seems quite satisfactory and ex-hibits long -term stability in a noninflationary en-vironment. Let's assume, however, that at com-mencement, this embryonic firm suddenly faces a20% and 10% inflationary rate per annum for itsraw materials and other costs, respectively. Thefirst thought might be to absorb the increase torefrain from losing volume. This approach is un-tenable because a loss appears immediately in thefirst year.

The next least disruptive response might be tomaintain dollar profits and let margin percentagesdecline. The logic here might be that this firm wascontent with that dollar profit level for the com-mensurate investment.

This reasoning is faulty for two reasons: work-ing capital and replacement reinvestment needs.As a firm's costs and sales increase, so does therequisite investment in inventories and receiv-ables. Concurrently, the depreciation the firm os-tensibly puts aside for replacement on a historicalcost approach becomes woefully inadequate ascosts escalate. A pro forma restatement of the fi-nancial statements (Table 1) bears out these prob-lems. As can be seen, the firm fails to break evenin four years.

Given the unacceptability of the option in Table1, management might then feel that maintaining apercentage margin (in this case, 10 %) would bemore palatable to customers despite the increasingabsolute dollar profit this policy would yield. Thereal impact of this option is shown in Table 2.

This example shows that while the publicly re-ported profit is ever increasing and at a constantmargin, distributable cash drops immediately to

60% of uninflated cash flow, and remains con-stant, and both distributable cash ROS and ROIdecline, the latter to 40% of original ROI afteronly seven years. This example points up the falla-cy of what appear to be healthy book profits andstable margins. Instead, the figures mask a deteri-orating situation in an inflationary environment.

Value Added Option

The next most promising option would be tomaintain value added —a concept much in voguefor strategy formulation. By keeping value addedhigh, a firm insulates itself from takeover or con-trol by either its suppliers or customers. The com-pany might consider an absolute dollar value add-ed maintenance. However, this would throw it ina reported loss position over time as other costsescalate.

The firm might then consider a more aggressivepolicy of maintaining the percentage value added.Such a policy would benefit the firm if its purchas-es (raw materials and energy) are escalating at amore rapid rate than the other cost components,but would be hard to justify to customers.

Conversely, if other costs were inflating morerapidly than purchases, this would not be an ap-propriate policy. However, the possibility of com-petitors or suppliers allowing such a situation is

remote.Digressing from the hypothetical assumptions

for a moment, assume purchases were escalatingat less than other costs, at 10% and 25 %, respec-tively. Unfortunately, this would result in a re-ported loss beginning with the third year.

The conclusion one reaches is that a long -term

Table 1

year 0 1 2 3 4 5 _6 7

Sales $1,000 $1,130 $1,283 $1,463 $1,675 $1,927 $2,224 $2.577

Raw materials 500 600 720 864 1,037 1,244 1,493 1,792

Variable costs 300 330 363 399 438 483 531 585

Depreciation 100 100 100 100 100 100 100_

100

Reported Profit $100 $100 $100 $100 $100 $100 $100 $100

Replacement value 695 765 842 926 1,018 1,120 1,232 1,355

Replacement depreciation 100 109 120 132 145 160 176 194

(A) Replacement profit $100 $91 $80 $68 $55 $40 $24 $6

"Real" 80S 10% 8.1% 6.2% 4.6% 3.3% 2.1% 1.1% 0.2%

Inventory:Cost of goods sold 900 1,030 1,183 1,363 1,575 1,827 2,124 2,477

Divide by 5 times 180 206 237 273 315 365 425 495

(B) Incremental inventory NA 26 31 36 42 50 60 70

Receivables:145 Days sales) 125 141 160 183 209 241 278 322

(C) Incremental receivables NA 16 19 23 26 32 37 44

"Distributable" cash flow $100 $49 $30 $9 $(13) $(42) $(73) $008)

IA)- (B) -(C) Investment($100

+ (8) + (C) perannum) $1,000 $1,042 $1,092 $1,151 $1,219 $1,301 $1,398 $1,512

Distributable cash R01 10% 4.7% 2.7% 0.8% (1.1 %) (3.2 %) (5.2%) (7.1%)


Table 2

Year 0 1 2 3 4 5 6 7Sales $1,000 $1,144 $1,314 $1,514 $1,750 $2,030 $2,360 $2,752Cost 900 1,030 1,183 1,363 1,575 1,827 2,124 2,477

Reported profit $100 $114 $131 $151 $175 $203 $236 $275

Less: increment for replace-ment depreciation

=

(A) Replacement profit $100 $105 $111 $119 $130 $143 $160 $181"Real" ROS 10% 9.2% 8.4% 7.9% 7.4% 7.0% 6.8% 6.6%

(B) Incremental inventory NA 26 31 36 42 50 60 70Receivables:(45 days sales) 125 143 164 189 219 254 295 344(C) Incremental receivables NA 18 21 25 30 35 41 49"Distributable" cash flow $100 $61 $59 $58 $58 $58 $59 $62

Investment ($1000+ (B)

+ ICI per annum) $1,000 $1,044 $1,096 $1,157 $1,229 $1,314 $1,415 $1,534Distributable cash ROI 10% 5.8% 5.4% 5.0% 4.7% 4.4% 4.2%

Table 3

Year 0 1 2 3 4 5 6 7

Sales $1,000 1,154 1,337 1,550 1,800 2,097 2,444 2,857Reported costs 900 1,030 1,183 1,363 1,575 1,827 2,124 2,477Add: depreciation increment

to replacement level NA 9 20 32 45 60 76 94"Real" costs 900 1,039 1,203 1,395 1,620 1,887 2,200 2,571

"Real" profit (10 %) $100 115 134 155 180 210 244i

286

strategy based on value added may be counterpro-ductive either from a profitability standpoint orfrom an acceptability standpoint. There are fewindustries where purchases and other costs esca-late identically. For example, in plastics, chemi-cals, and petrochemicals -based products, as wellas most energy- intensive products, purchases havebeen escalating at a more rapid rate than laborand other costs. The converse is true in some foodprocessing industries. For a majority of industries,then, a sensible strategy based on value addedalone may be impossible to implement.

We have seen how policies that appear plausibleon the surface, even some that show improvingbook profits, are detrimental to the long -termhealth of the firm. Table 3 shows the effect ofmaintaining the "real" margin of the firm at 10 %.

Such a policy maintains and yields improvingabsolute book dollar profits. However, as seen be-fore, further investments are necessary for receiv-ables and inventories, reducing cash flow and thusROI. To calculate the "real" cash flow ROI, wewill proceed as previously calculated, but we willadd a factor for a return on the incremental capi-tal replacement at current costs, i .e., the incre-mental depreciation in Table 4. This calculation isdesirable for a firm interested in the long run,which reinvests on the average its real depreciable

amount to maintain real capital capacity.The conclusion from this illustration is that

even if margins are held constant in real terms,which means increasing in book terms, real ROIis far below that anticipated in the formulativeconcept year zero, and rises slowly, not reachingthe acceptable level in the life of the original plant.Therefore, in inflationary periods, margins mustbe higher in real terms to maintain the long -termhealth of the firm. For our example firm, Table 5shows what is required from the immediately pre-ceding example in terms of higher prices toachieve a 10% real ROI.

The Real World Acts Differently

The conclusion that now appears obvious isthat to maintain a real return on investment underinflation, reported profits and margins must con-tinue to escalate, and real margins, while not nec-essary to improve, must be above noninflationaryacceptable levels.

Although this conclusion seems plausible as il-lustrated in the examples, the real world unfortu-nately has not been proceeding on these assump-tions over the past several years. There are twomain reasons for this phenomenon.

The first is the "exorbitant" book margins andprofits such a policy dictates. Sadly, public report-

A long -termstrategy basedon value addedmay becounter-productive.


ing under generally accepted accounting princi- May 4, 1981, edition of Fortune magazine states,ples on an historical basis does a severe disservice " Many of our managers have the feeling thatto businesses and lends itself to misunderstanding some of our competitors don't know their realby the uninitiated and uneducated, and provides a costs. And when they don't, and set prices tooweapon for strident hostile antibusiness forces. A low, it affects our pricing also." If competitors dosincere educational effort needs to be directed to not comprehend the result of their actions, theythe general public, focusing on more disclosures may frustrate the knowledgeable firm by main -as to the real health of the corporation. Unfortu- taining prices at too low a level.nately, many top executives who know better will Also a company may attempt such a shortsight-make public statements about " record sales and ed action to gain market share, with the usual re-profits," et. al., fueling prevalent misunderstand- sult being that the competition also will lower

A company that ings when these same executives know all too well prices to prevent share loss, and all prices willlowers prices to the substandard performances their companies are then be lower, the only gainer being the customer

gain market actually recording. Based on the performance of who receives the lower price. But such a long -

share may be the stock market in the valuation of firms, howev- term prospect constitutes a lingering death for the

damaging itself er, it seems investors are not being completely firm, as decapitalization is a necessary result. Un-

and itsmisled and are judging stocks on an inflationary fortunately, this is exactly what is happening in

basis. many U.S. industries. Let us hope competitors in-competitors in The second reason may be due to either short- dustrywide will perceive what is occurring and

the long run. sightedness or stupid competition. General Elec- will begin to act in a manner conducive to theirtric's vice president, Terence E. McClary in the long-term viability. ❑

Table 4

Year 0 1 2 3 4 5 6 7

(A) Real profit $100 115 134 155 180 210 244 286

(BI Incremental inv. NA 26 31 36 42 50 60 70

Receivables (45 days sales) 125 144 167 194 225 262 306 357


Distributable cash flow(AI- (B) -(C) $100 70 80 92 107 123 140 165

Investment:(D) Incremental capital over

depreciation NA 9 20 32 45 60 76 94

IE) Investment ($1000+ (BI

t ICI + (D) per annum) $1,000 1,054 1,128 1,223 1,341 1,488 1,668 1,883

Real profit ((A) T ROI IEII 10% 6.6% 7.1% 7.5% 8.0% 8.3% 8.4% 8.8%

Table 5

Year 0 1, 2 3 4 5 6 7

Sales $1,000 1,195 1,369 1,580 1,827 2,123 2,470 2,881

"Real" costs 900 1,039 1,203 1,395 1,620 1,887 2,200 2,571

(Al "Real" profit $100 156 166 185 207 236 270 310

"Real" ROS 10% 13.0% 12.0% 11.7% 11.4% 11.1% 11.0% 10.8%

(B) Incremental inventory NA 26 31 36 42 50 60 70

Receivables (45 days sales) 125 149 171 198 228 265 309 360


Distributable cash flow(A) -(B) -(C) $100 106 113 122 135 149 166 189

Investment: inc, capi I76 94

over�depreciation�I� INA 9 20 32 45 60

Investment (E) (1000+ B +

C`D per annum) $1,000 1,059 1,132 1,227 1,344 1,491 1,671 1,886

"Real pro fit" IN - 801 (El 10% 10% 10% 10% 10% 10% 10% 10%

Reported costs 900 1,030 1,183 1,363 1,575 1,827 2,124 2,477

Reported profits 100 165 186 217 252 296 346 404

Reported ROS 10% 16.0% 136% 13.7% 13.8% 13.9% 14.0% 14.0%

5 ;t MANAGEMENT ACCOUNTING /JANUARY 1982

Key to Explanation of Calculations

Table 1

1. Year 1 proforma restatement:Raw materials Year I = raw materials Year 0 + 20010 inflation = $500 x 1.20 = $600Variable costs year I = Variable costs Year 0 + 10% inflation = $300 x 1.10 = $330.Depreciation the same each year, as based on original cost = $100.

2. With reported profits held a t $100, sales = cost + profits, or $1,030 + $100.3. Each year thereafter is an extrapolation of the above cost trends with reported profit held constant.4. Replacement value of the fixed investment is found by escalating each year at the 10076 inflation rate; thus:

Year l = Year 0 x 1.10 = $695 x 1. 1 = 5765Year 2 = Year I x 1.10 = $765 x 1.1 = 5842, and so forth.

5. Depreciation is 1/7 of replacement value, since a 7 -year plant life is assumed. Thus Year I depreciation = $765/7_ $109, Year 2 depreciation = $842/7 = 5120, and so forth.

6. Replacement profit equals sales as calculated in 2 above, less costs in 1 but with replacement depreciation from 5.7. Cost of goods sold equal sales less profits for each year.8. Inventory equals cost of goods sold divided by 5, since inventory turnover = 5, Thus Year 0 inventory = $900/5 =

$180, Year 1 inventory = $1,030/5 = $206, Year 2 inventory = $1,183/5 = $237, and so forth.9. Incremental inventory equals current less prior year's inventory, thus Year 1 = $206 — $180 = 526, Year 2 = $237

—5206 = 521, and so forth.10. Receivables = Sales divided by 360 x 45 basis 45 days. Year 0 receivables thus $1,000/360 x 45 = 5125, Year 1

receivables = $1,130/360 x 45 = $141.11. Incremental receivables equals current less prior year's receivables. Thus for Year I equals 5141 — $125 = $16.

Table 2

1. Costs are the same as in the preceding example: raw materials plus variable costs plus depreciation.2, Sales are cost divided by .9 to ensure a 10% profit figure.3. Replacement depreciation and incremental inventory calculated as in the preceding example.4. Incremental receivables calculated in same manner as in prior example, but using sales dollars as calculated in Step

2, Thus:Year 1 receivables = 51,144/360 x 45 = 5143, and incremental receivables = 5143 — $125 = 518;Year 2 = 51,314/360 x 45 = 5164, and incremental receivables = $164 — $143 = 521.

Table 3

I. Costs and replacement depreciation are calculated as in Table 1. Incremental depreciation for Year I is 109 -100.2. Sales equal "real" costs divided by .9, to ensure a 10% "real" profit. Thus Year 1 sales = $1,030/.9 = $1,154 and

profit equals sales of $1,154 less "real" costs of $1,039, equals $115.

Table 4

1. Incremental inventories are the same as in Table 1.2. Receivables are again at 45 days sales, thus Year I = $1,154/360 x 45 = 5144 and Year 2 = $1,337/360 x 45 =

$167, Incremental receivables are the yearly increases, or Year I = $144 — 5125 = 519, Year 2 = $16, — 5144 =$23, and so on.

3. Incremental capital equals replacement depreciation as in prior cases and delineated in Step 5 of Table 1, less bookdepreciation of $100 per annum. Thus Year I equals 5109 — $100 = $9, and Year 2 equals $120 — $100 = $20.

Table 5

I. Real costs are book costs from prior examples but using replacement depreciation.2. Sales are calculated as in the text footnote_3. Incremental inventories are calculated as in prior examples.4. Incremental receivables are calculated on the 45 day basis as previously used, thus Year t receivables = $1,195

Sales /360 x 45 = $149, Year 2 receivables = $1,369 Sales /360 x 45 = 5171. Incremental receivables are thus5149 — $125 = $24 for Year I and $171 — $149 = $22 for Year 2.

5. Incremental capital over depreciation is the same as the prior example.6. Reported costs are the same as in the preceding examples.7. Reported profits are sales less reported costs_


i�Earl K. Littrell, CMA, isassociate professor of

accounting atWillamette University's

Atkinson GraduateSchool of

Management. A Ph.D.from the University ofOregon, he writes the

"Creative Accounting"column for this

magazine and is amember of the Salem

Area Chapter.

riaying theConsulting Game

After all, anyone in his or her right mind would pay more for theadvice "the existing market exhibits binary stratification" than for

By Earl K, Littrell and Roy H. Glen

Management accountants are expected to be hard-working and honest. They are trained to be logicaland to focus on decisionmaking aspects of man-agement accounting: budgeting, cost- volume -prof-it analysis, discounted- cash -flow analysis, and soforth. Then they meet consultants, whom theyfind hard to understand, even, perhaps, mystify-ing. Why? In brief, consultants are mystifying be-cause they follow a set of principles unknown tomanagement accountants: "Highway Robbery,""Water Cooler," "Smoke Screen," and others.Let's examine each of these principles so manage-ment accountants can understand and perhapsoutwit their rival consultants.

Highway Robbery

Unquestionably, "Highway Robbery" is rulenumber one in consulting: Always charge toomuch. Its essence is the old saw that "you getwhat you pay for." It follows that the more youpay for something, the more it is worth. The morea consultant is paid, the better is his or her advice.

We wish to express our grat i tude for t he help of'several colleagues, all of whom charged too much

and insi sted on anonymi ty.

"there are two kinds of customer."

For example, a colleague recounts working fora large manufacturing firm. While employedthere, he was completely unable to decipher thefirm's 62 -digit code numbers. He wrote a lengthymemo to his superior suggesting a shorter code forspare parts which also would be decipherable bythe employees dealing with the code and the parts.His superior did not even acknowledge the memo,and nothing was done about the code.

Some years lat er, af ter com pletin g a doc torateand becoming a professor and active consultant,the same person was hired by his former employeras a consultant. The problem he was asked to han-dle? You guessed it —the undecipherable 62 -digitcode nu mber fo r sp are par ts. He h au led o u t hisold memo, which was by now about 12 years old,rewrote it and sen t it to the client alo ng with anoutrageous bill. The client, recognizing the valueof an expensive idea, implemented the suggestionsand happily paid the bill.

Th e mo ra l here is clear: The more t he clientpays for an idea, the more likely he or she is tothink it 's a good one and to implement it. Withtheir ingrained notions about sunk costs, however,management accountants understandably havetrouble with the "Highway Robbery" principle.But from the consultant's point of view, asidefrom the incidental pecuniary advantage, charging

56 0025- 1690/82/6307 - 1156/501.00/0 Copyright ©1982 by the National Association of Accountants

too much is a key to effectiveness.About the only difficulty that consultants have

with the principle is in determining just how muchis too much. Typically, clients waver about payingconsultant fees. Some clients make it easy by stat-ing, "We never pay more than $100 per hour forconsulting." In that case, one simply bills the cli-ent $120 per hour or more. The rate goes up de-pending on the difficulty of the task at hand, one'scourage, and one's alternatives.

Other clients make it more difficult by not say-ing how much is too much. Consultants cope byraising the cost of the engagement diplomatical-ly —but steadily —until the client objects. Consid-er, for example, what can be done with the hourlybilling rate. In discussing fees with a client, theconsultant might start out by saying that thehourly billing rate is $100 per hour. Pausing onlybriefly for client objection, he or she adds, "But,of course, that's only for our junior people: Oursenior people get $200 per hour." Again, pausingonly briefly for client objection, he or she adds,"And, naturally as the person in charge of thisengagement, my time is billed out at $300 perhour." The consultant's plan is for the client toobject before this point. If the client has not yetobjected, however, the cardinal sin of charging toolittle has been committed. All that can be done toatone is for the consultant to note in the client'sfile to charge more next time.

Dress for Success

As all executives do, consultants dress for suc-cess. The consultant's code, though, is to be cer-tain not to emulate the dress codes of the client.After all, a consultant is paid high fees because heor she is an outsider, so he or she must take careto look like one. Management accountants, accus-tomed to conformity in dress, may find this aspectof consulting a bit bewildering.

For example, a consultant working at a corpo-ration's head office, where grey suits and striped

ties are the order of the day, finds a patched,tweedy jacket indispensable. Alternatively, whenworking with production people at an outlyingplant, a consultant might try the high -tech look:long, curly hair; loose, Southern Californiaclothes; and a tie -clip or pendant that doubles as aprogrammable calculator.

Water Cooler, or Finding the HE

In beginning a new engagement, our consultanthas two choices in planning the work. One is toplunge into the organization and to become famil-iar with it, then continue with intense effort tosolve the problem. It's all hard work. On the other

hand, he or she could make use of someone who isalready very familiar with the organization, whoknows the problems, and, better yet, who knowsthe best ways to deal with the problems. Now amanagement accountant logically would pick thefirst alternative, reasoning that the organizationwould not hire a consultant if it already had some-body on board who could solve this problem.

Sometimes logic can be a handicap. The sea-soned consultant picks the second choice.

This selection is known as the "Water Cooler"principle. Put simply, the consultant observes allwater cooler, coffee, and other breaks in the busi-ness routine where he or she can talk informallywith employees throughout the organization. Theability to listen is vital. All the consultant shouldcontribute besides small talk is a brief commentabout the problem he or she has been hired towork on. Then it 's a simple matter to sit back,wait, and listen until the employee who knows theproblem and has a solution comes forth.

In consulting circles, this person is known asthe "Helpful Employee," or "HE." As the 62 -dig-it code example demonstrates, it is probable thatthere is a HE. Usually, the HE is frustrated be-cause he or she is being ignored by his or hersuperiors, and most HEs would be happy to giveaway the analysis and solutions simply in returnfor an interested audience.

Some people, particularly management ac-countants, might object that if an organizationhad a HE, it would not need a consultant. Recall,

57

Roy H. Glen isassistant professor of

organizational behaviorat Willamette

University's AtkinsonGraduate School of

Management. He holdsa Ph.D. degree from

Case Western ReserveUniversity.

however, that the HE is a conformist dresser whois paid a normal sum, and therefore the HE'sideas are not worth nearly as much as those pre-sented by the consultant. In fact, with the simpleact of borrowing an idea, a consultant increases itsvalue. Further, consultants don't feel guilty aboutthe "Water Cooler" principle. Why reinvent thewheel if one exists already?

In the happy circumstance of finding the HEtoo quickly, our consultant can always fussaround a bit for a few days in order to be seenworking, as added justification for the billing.Quite likely the opportunity to resolve the 62 -digitcode problem —and to charge too much —wouldhave been lost if the consultant had not kept upappearances by rewriting the 12- year -old memo.

Along the way, the HE is likely to point outareas of special sensitivity in the client firm. Justby listening, the consultant picks up pivotal, in-side information. The result is management'sproclamation that the consultant is a "quickstudy." Not only does this observation speed thetask at hand, but it is among the highest forms ofpraise that can be put into a reference letter to thenext client. Be forewarned, though —there are in-frequent engagements where a HE can't be found.Such cases are sure tests of consulting skill be-cause the absence of a HE is a strong indicationthat nothing can be done about the problem. Areport to the client to that effect is one way tohandle this obstacle.

Management, however, may not accept this re-sult maturely. A more imaginative consultant sim-ply would see this problem as more serious thanthe client had anticipated. Clearly, a report to theclient is in order —one which calls for multiphas-ing the problem. Table 1 shows a basic quaternarymultiphase which adapts to virtually any setting.The number of phases and their names are limitedonly by the imagination. Multiphasing usually issufficient to convince the client of the gravity ofthe problem at hand. But more important, as theconsultant is confronted with a difficult task, mul-tiphasing opens sizable new billing horizons.

Table 1A Quaternary Multiphase

Phase Name

I Preliminary analysis2 Parameterization3 Resolution4 In Situ validation

Although it's risky, some consultants also usemultiphasing to establish "checkpoints" at whichcontinuation of the consultancy is evaluated. Thisevaluation time gives the client a sense of security,reduces the size of the perceived commitment, andincreases consultant accountability. A consultantrarely travels this hazardous path without making

certain that the answers he or she was hired tofind are not revealed until after the last "check-point."

Smoke Screen

Jargon has acquired a bad but undeserved repu-tation. There are numerous instances whenstraight talk or clear writing just won't do the job,and consulting is no exception to the rule.

t�

Consider the sort of language that would beconsistent with an outrageously high fee. Outra-geous language, of course. Anybody in his or herright mind would pay more for "the existing mar-ket exhibits binary stratification" than for "twokinds of customer." As an aside, this verbiage il-lustrates the marvelous way in which the princi-ples of consulting interact —often with synergism.

Next, jargon can be a disguise. An old idea witha new label is as good as a new idea. Rememberwhen breakeven analysis became cost- volume-profit analysis? Also, presenting the HE's idea inhis or her own words is a bit risky. There is achance that he or she might recognize the workand complain. Thus, it is wise to restate a HE'sprogram in jargon.

Disguising with jargon is so useful that it'scommon to find a client engaging in the prac-tice ---even without benefit of a consultant. As justone example, a high -level management accountantwith a large manufacturing concern reports thathis firm has relabeled its budgeting system threetimes within the last seven years. He says, "As thelabels come and go, we still face the same oldproblems. Keep in mind, we are reputed to beamong the ten best - managed firms in the U.S."

But jargon's main virtue is that it produces am-biguity. When the message is not coming throughclearly, the audience is much more likely to hearor see whatever it wants, which leads to a state ofsatisfied bewilderment. In fact, good jargon willspearhead a disagreement, then help warning ele-ments to reach an "agreement in principle."


When the parties start talking about how effectivethe consultant is in "bringing people together,"it's a sure sign of another victory for jargon. Bycontrast, consider the devastating consequences ofsuch straight talk as "A is better than B."

Building up one's jargon quotient need not betough nor time- consuming. There are enough jar-gon practitioners around that just a bit of readingshould produce a good supply. Reliable sources ofjargon include any government publication, anyacademic journal, or, in the case of accounting, apage picked at random from any intermediate oradvanced accounting text.

Another delightful and efficient way to come byjargon is to recognize that the vocabulary in onefield is jargon in most other fields. One colleaguesuggests talking accounting to management, eco-nomics to accountants, and psychology or sociolo-gy to anybody else. Another benefit of this ap-proach is that a client is reluctant to question orchallenge anything falling outside his or her frameof reference.

By the way, jargon isn't limited to words. Visu-al jargon also is useful. For example, preparingrecommendations and analyses in the form of pic-tures, charts, graphs, and schematics can makeold and ordinary ideas seem new. At least, thismethod forces the client to examine a new form ofcommunication, making it appear as if the consul-tant made a valuable contribution.

If a client already is making abundant use ofvisual techniques, visual jargon is still possible.Try this method. If a client is using a cost- volume-profit graph, the consultant could employ a profit -volume graph. Another, more ingenious, ap-proach would be for our consultant to stick withthe cost- volume -profit approach but reverse theaxes (quantity on the vertical and the dollars onthe horizontal) and drawing it all on log paper.Few clients figure that one out until long after thebill is paid.

Pollyanna

Although it could be considered a special caseof "Smoke Screen," "Pollyanna" is generallyknown as a full - fledged principle of consulting.Notable careers in other fields stem simply from

emphasizing the positive aspects, and consulting isno exception. A colleague in finance advises, "In-stead of telling a client that his stock price is fall-ing, emphasize that the yield is rising."

Reverse Familiarity

Although "Reverse Familiarity" also could beseen as a special case of "Smoke Screen," it, too,has achieved principle status. "Reverse Familiari-ty" not only eliminates the hazards of familiarity,such as lack of respect, but it produces real bene-fits for the consultant. A consultant tries to geteach person with whom he or she deals to assumethat the consultant's natural social level is one tierabove his or hers. This goal can be achieved easilyby addressing the person in formal terms, as in"Now, Mr. Hardcastle tell me ...... while refer-ring to his or her boss in informal terms, as in"Tom tells me that you ..."

Similarly, the appropriate contrast between theconsultant's status and the client's can be drawnthrough correct use of titles. A consultant gener-ally will use his or her titles while avoiding theclient's — unless, of course, the client's are inferior.For example, we regularly practice this techniquein memoranda, as in "To: Earl; From: ProfessorGlen."

Shield Thy Posterior (STP)

Usually, the client expects some recommenda-tions or specific action from the consultant. STPattempts to deal with the possibility that what aconsultant recommends or does is wrong. Thebest possible outcome of STP is that the consul-tant looks good no matter what happens. Con-versely, the worst possible outcome is for the con-sultant not to look bad no matter what happens.

The main STP technique is the "waffle." Awell - constructed waffle sounds specific but con-ceals the fact that the consultant has made no spe-cific recommendation. For example, a library con-sultant recently told a West Coast university thatif the university had the money it should build anew library, and if it didn't have the money itshouldn't build a new library. Now that was stat-ed much too clearly, but when it was dressed up injargon, it appeared to be a brilliant report.

Waffles appear under a variety of names, oftenwith additional benefit to the consultant. For ex-ample, a common scientific term for the waffle is"What -If Analysis." This term opens the way forthe consultant to be responsible for the "Ifs" butnot the "Whats." Because consulting work ofteninvolves forecasting of one kind or another, a fre-quent waffle is simply to make a very specific rec-ommendation for each and every one of the possi-ble future outcomes. Here's one that is heard fromall sorts of financial consultants: If interest ratesare going up, borrow now, and vice versa. That'sstated much too clearly, but some financial con-

The bestpossibleoutcome of theSTP p /oy is thatthe consultantlooks good nomatter whathappens.


Consultantswith a sadistictinge may set

up the 'HelpfulEmployee' as'Internal Fall

Cuy'

sultants have dedicated their lives to seeing howmany different ways that advice can be stated.

Infrequently, such ambiguity can be achievedwith plain - looking language, such as the standardacademic reference letter beginning, "I cannotrecommend this person too highly." Ambiguityalmost always is easier to achieve with jargon, al-though a good foreign accent can make jargonfrom plain talk.

Internal Fall Guy (IFG)

Formerly an STP technique, IFG has emergedas a principle in its own right. Its essence is to leta consultant look good if things go as planned.But if things don't go well, then it's the fault of anemployee of the client —the IFG. For instance,the forecasting problem mentioned earlier can beresolved simply by incorporating client forecastsinto the consultant's recommendation. That way,if problems arise, the blame falls on the client'sforecast and not on the consultant.

Another way to set up an IFG is to make arecommendation that must be carried out by aclient employee or group of employees. If any-thing goes wrong, it's the fault of the people im-plementing the recommendation and not of theperson who made the recommendation. Further,persons with a sadistic tinge might set up as theIFG the HE who provided the consultant with therecommendation to begin with. More than a fewmanagement accountants have found themselveson the wrong end of this ploy. Some react by go-ing into consulting.

Reverse Appraisal

In following this principle, a consultant quicklyestablishes that the client is being appraised, withthe reverse part of the principle meaning that theclient must understand that he or she is not enti-tled to evaluate the consultant's performance. In-deed, skillful application of this principle caneliminate any need for STP practices.

Establishing "Reverse Appraisal" usually is notdifficult. Clients often hire consultants becausethey don't know what their problems are. It fol-lows, then, that they wouldn't know a good job ifthey saw it.

In more difficult cases, the consultant might be-gin referring to other, more pressing activities andto the barely adequate level of the fees at hand.The consultant adds that he or she would just assoon call the whole thing off unless the clientmakes a visible display of personal support for theconsulting activities.

This ploy escalates depending on the circum-stances. A consultant can compare a person'slackluster support with the more substantial back-ing already obtained from higher -ups. Or, a chiefexecutive officer can be compared with peers inlarger, more prestigious companies.

Unlike many consulting principles, there issome logic to this one. Organizational problemsare a function of inattention. It follows that a con-sultant who can secure the focused attention ofeven a small number of key people has it made.They will solve the problem themselves.

California Marriage Principle

Many of the principles we just explored havebeen carefully field tested. The results of this re-search, performed at great cost to clients, general-ly have been encouraging. But one problem per-sists: Clients tend to see through the principleswhen the consulting relationships endure. Al-though multiphasing, reverse evaluation, and peri-odic scapegoating may delay the time when clientsstart demanding substantive rather than cosmeticoutcomes, such tactics cannot prevent the day ofedification from arriving eventually.

Regrettably, we have been unable to develop anantidote to this process, so we must warn all con-sultants to adopt the "California Marriage" prin-ciple: Avoid long -term commitments. Shell -gameoperators in the Old West knew the hazards ofgoing too long with no pea under any of the shells,and those who survived developed a sixth sensethat told them when it was time to get out oftown. The modern -day consultant needs to beequally cautious.

Remember, too, as Lee Marvin discovered, thatlong -term commitments do not have to be formal-ized in order to have devastating consequences.The wise consultant should model himself afterthe California bachelor who is capable of formingintense and "meaningful" relationships whilekeeping his bags packed, ready to leave town assoon as his "friend" (read, client) sees the realsituation through the haze he has so carefully con --structed.

Management Accountants, Take Heart

Management accountants, don't despair overthis tour of consulting principles. Now you shouldunderstand consultants and consulting and shouldbe able to join the fun. Like any tough consultingproblem, this one can be multiphased successfully.Phase One is to continually review the aforemen-tioned nine principles of consulting: (HighwayRobbery, Dress for Success, Water Cooler, SmokeScreen, Pollyanna, Reverse Familiarity, ShieldThy Posterior (STP), Internal Fall Guy (IFG),and Reverse Appraisal) by keeping them in con-stant sight— perhaps on your desk or car dash-board. Phase Two is simply applying the princi-ples in your activities at every opportunity. PhaseThree is to repeat the first two until you trulyunderstand the game. Once you complete PhaseThree, the later phases will come naturally. Afterall, it's no accident that the first four letters of"consultant" are "cons."


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Barry M . Haller, Miami Valley Ohio,has been promoted to manager of facili-ty accou ntin g at Armco, Inc ... . JamesE. Hendricks is now manager of specialprojects for Hamilton Tool .... DanielP . Hogan has joined St. Francis�—St.George Hospital as assistant vice presi-dent of fiscal services.

Richard J . Nigon , Minneapolis North -star, was named audit partner in theMinneapolis office of Ernst & Whinney.

Lynn L. Albala, Morristown, has joinedUnited Jewish Community of BergenCounty, Inc. as controller .... RosellaM. Higgins is n ow accou nting s upervi-sor at Informatics, Inc .... Richard A.Thunberg has been elected vice presi-dent and controller at Nabisco Brands.

Rocky Leung, Mt. Rainier, has joinedWeldco Washington Inc. as controller.

At the University of Nebraska - Lincoln,John W. Goebel, Nebraska Cornhusker,has been appointed interim vice chan-cellor for business and finance, and Pa-tricia S. Oliverius is now serving as act-ing director of operations and analysis.

Edward C. Randall, New Haven, hasbeen appointed vice president at Pep -peridge Farm. -

William J . Salzman, New York, hasjoined Macro International Group, Inc.as director of compliance. He als o h asbeen elected to the board of directors ofthe Greenpoint Repertory Co. as vicepresident and treasu rer ... . Walte r Ste-vens is now vice president, finance, ofVictory Optical Mfg. Corp.

Vincent Capasso, CMA, North Penn,has been named vice president at Provi-dent Na tional Bank.

Jody M. Hin ckley, Northern New York,has been named controller at NorthlandDivis ion .... Patr icia A. W ilder was re-elected president, Civil Service Employ-ees Assn. of Jefferson County.

Mau rice J . Labine, Norwich, is nowcontroller of the metallized products di-vision of King - Seeley Thermos Co.

Leon J . Level, Oakland County, hasjoined Burroughs Corp. as vice presi-dent for financial planning.

Paul L. Matya, Olean- Bradford Area, isnow division controller of Hysol Divi-sion, Dexter Corp.

At Ca te rp illar Tracto r Co ., William S.Brewster, Peoria, has been named gen-eral accounting manager o f t h e plantbeing built in Lafayette, Ind., andGeorge A. Schaefer has been appointedan executive vice president. He is a pastpresident of Oakland -East Bay Chapter.

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Michael E. Kiley, Phoenix, has beennamed chairman and president of Sun -fan, Inc.

Joyce H. Russell, Piedmont - Greensboropast president, has been named vicepresident of staff support at RamponProducts, Inc.

Merrill J. Druggs, Pittsburgh, has beenappointed secretary and director of cor-porate taxes for Contraves GoerzCorp.... Walter A. Scott is now vicepresident and corporate controller atAmerican Can Co.

Gary S. Welliver, Portland- Willamette,has joined Preferred Systems Ltd. ascontroller.

Thomas R. Murtishaw, Princeton, hasjoined Health Chem Corp. as assistantcontroller.

Frederick Graswald, CMA, Providence,has been elected president of Delta Rub-ber Co .... Janice L. McClintic is nowdirector of finance and administrationat Tobin & Silverstein, Inc.

Gary G. Pickard, Raleigh Area, hasbeen named controller of TexasgulfChemicals Co.

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Randolph E. Christianson, Red RiverValley, has joined Beverage Wholesal-ers, Inc. as controller ....James J. Wos-epka is now audit manager at CharlesBailley & Co.

Daniel G. King, Redwood Empire, hasbeen named controller for TrombettaDistributors.

David C. Ellwanger, Richmond Lee, hasjoined Management Recruiters as an ac-count executive.

i

SCHAEFER SCOTTPeoria Pittsburgh

Anthony Mangione, Rochester, has beenpromoted to senior financial analyst forthe carburetor assembly operation ofthe Rochester Products Division ofGeneral Motors ....Donald A. Stantonhas been named vice president of fi-nance for Johnny Antonelli Tire Co.

Roger L. Kesseler, Saginaw Valley, isnow controller of the Dow ChemicalCo.

Richard T. Ross, San Angelo Area, hasjoined Data Creations Unlimited, Inc.as a partner.

Arthur L. Campsey, San Antonio, isnow controller of N &C Drilling Co.

Katie S. Brown, South Central Ken-tucky, has joined Star Coal Co. as con-troller and treasurer.

Paul C. Faux, Upper Finger Lakes pastpresident, has been admitted into thepartnership of Ernst & Whinney.

Louis J . Fettkether, Waterloo -CedarFalls, has been admitted into the part-nership of Smith, Paulsen & Evans.

Harold L. Kidd, West Georgia, is nowcontroller, Warren Sewell Clothing Co.

EmeritusLife Associates

A. W. Bartkus, Chicago past president.Thomas W. Blazey, Akron Cascade pastpresident.Otto F. Bollenbacher, Lima.William B. Borrebach, Delaware Coun-ty Pennsylvania.

.Arthur J. Bowers, Rochester.William G. Britt, Houston -Blue Bonnet,-Dallas past president; SCMS.H. B. Carlson, Des Moines past presi-dent; past national director, 1970 -72.Michael J. Carroll, Jr., Delaware.Irving M. Converse, Fox River Valley.Francis J. Cooney, Hartford.William E. Craig, Jamestown - Warrenpast president; past national director,1964 -66; past national vice president,1967 -68; SCMS.Ross H. Cramer, Madison.Allan C. Crane, Milwaukee past presi-dent; past national director 1962 -64;past national vice president, 1966 -67;SCMS.Francis W. Dailey, Boston.Raymond A. Deakyne, New York.Lawrence J. Dippold, Ithaca- Cortland.Robert J. Duckro, Dayton.Clifford A. Fries, St. Louis.Adolf C. Heinze, Milwaukee.G. Kline Hershey, Jr., Los Angeles.Charles Higginbotham, Lima (Peru)Affiliate.Bernard W. Hubbard, Elmira Area.Calvin C. Humberd, Chattanooga.William E. Krantz, Lancaster past pres-ident.C. F. Leon, Sr., Portland - Columbia.Joseph Levi, Long Island- Nassau.Robert S. Madden, Lancaster.Charles F. Margeson, Hartford pastpresident.Vincent B. McAvsy, New Haven.K. W. McGuigan, Erie past president.Denver O. Mikesell, Delaware.Melvin J. Miller, Kansas City past pres-ident.Julius J. Ordway, Portland - Willamette.H. E. Pack, Birmingham past president.Roy E. Parent, Springfield.Herbert R. Pierce, Lancaster.Henry C. Roszkowski, Essex County.William H. Tallis, Lansing - Jackson pastpresident.Arthur W. Tuttle, Columbus.Theodore C. Williams, Charleston pastpresident.

In Memoriam

B. Baker, 31, Member -at- Large. 1980.M.E. Baldigo, Redwood Empire, 1981.William J. Berglund, 62, Oakland Coun-ty past president, 1954; past nationalvice president, 1969 -70; SCMS. ELA.William F. Casdorph, 55, Southern WestVirginia, 1972.


Lucian C. Cesca, 59, Waterbury, 1964.L.A.Champagne,93, Baton Rouge. 1951.Bernard F. Cinkoske, 61, BloomingtonIndiana, 1979.Fred W. Constans, 69, Columbus, 1948.R.J. Ferree, 80, Cleveland, 1936. ELA.Robert F. Gabele, 67, Cleveland, 1947.F.J. Gembreska, 67, Toledo, 1946.George L. Giess, 76, iVorth Pent pastpresident, 1930. SCMS. ELA.Winfred K. Goff, 53, Jackson, 1963.Thomas B. Hart, 27, Columbus, 1978.Charles S. Herbert, 85, Oakland -EastBay, 1954, ELA.L.D. Jernagan, 44, Fresno Area, 1978.R.C. Lochiel, 82, Washington, 1934.L.H. Machon, 81, Providence, 1939,T.R. Moriarty, 77, Springfield, 1942.John F. Nilan, 48, East Bergen -Rock-lund, 1980.James C. Pace, 41, Amurillo Area. 1980.R.L. Parker, 70, Chattunooga, 1946.Albert W. Patrick, 57, Blue Grass Areapast president, 1954. SCMS.A.G. Pierce, 80, Fall River -New Bedfordpast president, 1947. ELA.B.D. Scherer, 72, Akron Summit, 1947.Louis Selig, 88, Baton Rouge, 1950.Jimmy D. Stewart , 48, MAL, 1965.Kendall T. Stone, 74, Fall River -NewBe(t%rd, 1951. ELA.J.A. Thompson, 88, Fort Worth, 1928.SCMS. ELA.Paul R. Walsh, 62, Illinois Northeastpast president, 1952. SCMS.J.E. Williams, 79, Cleveland, 1948.Bernard J . Zeaman, 39, Soft Diego EastCounty. 1975.

OPINION

6-4•

Mr. Kolton feels that, despite somecriticism, the standards - setting proc-ess is working effectively and is beingimproved steadily. "The FAF /FASB/FASAC approach to developing stan-dards is unique in the world —and withall of its imperfections, it's the bestthere is."

Paul Kolton brings a wealth of prac-tical experience and business acu-men to the Council. Our colleague,who joined us for this discussion,characterized him as "erudite, articu-late, intelligent, forceful, perceptive,organized, and having a proper per-spective." We would agree. Not anaccountant by profession, but as a

journalist, as former chairman of theAmerican Stock Exchange and pres-ently director of several major listedcorporations, he probably can bring abroader viewpoint to the issues asthey affect business than would theaverage professional accountant. Hesees his role "as principally that ofkeeping Council members interested,anxious to participate, willing to go onthe line —trying to see that they givethe important items on the agendathe importance they deserve." That aphenomenally high percentage ofCouncil members attends each meet-ing testifies to the success of theseefforts.

Yes, we feel that the future of FA-SAC and its role within the FAF/FASB / FASAC troika is in goodhands. And what is that future? Thetrend, according to Mr. Kolton, ap-pears to be that FASAC will becomeincreasingly more involved with broadpolicy issues and will spend less of itstime on narrower technical account-ing issues. We applaud this trend.Many of the issues facing the Boardhave business and economic policyimplications far broader than the tech-nical accounting issues which firstsurface. We also would hope that FA-SAC will continue to broaden itsFASB's agenda- setting process. Asthe "constituency in microcosm," FA-SAC might increase its contribution byhelping the Board to decide which is-sues are most important for it to focuson, given the press of time and its lim-ited resources. Under Mr. Kolton'sleadership, we feel confident that itwill.

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MANAGEMENT ACCOUNTING /JANUARY 19626 '

Small Business

Kathy Williams, Editor

Matching Businesses with Sources ofCapital: a Directory

As today's economy continues to decline andinterest rates remain high, small business own-ers are having a difficult time finding sources offinancing for starting or maintaining their busi-nesses. To help in this area, Venture magazinehas put together its third annual "Venture Capi-tal Directory," which is designed "to put quali-fied entrepreneurs in need of venture financingin touch with active venture capitalistswho ... have demonstrated an eagerness to in-vest in ...worthwhile projects." This directorylists 76 sources of venture capital and their re-quirements. The directory is listed in the De-cember issue of the magazine, and additionalcopies of this material may be ordered throughVenture, 35 West 45th Street, New York, N.Y.10036; (212) 840 -5580. The venture capital-ists listed in the directory have one requirementfor business entrepreneurs— before contactinga company, the entrepreneur must be preparedwith a detailed business plan.

FASB Wants Comments on FinancialReporting by Small Companies

The Financial Accounting Standards Board hasissued an invitation for persons involved withprivate and small public companies to com-ment on the subject "Financial Reporting byPrivate and Small Public Companies —Is ThereNeed for a Change ?" NAA members may orderthe invitation to comment booklet, which con-tains background information, issues and aquestionnaire to help in responding, directlyfrom the FASB. Ordering information will beavailable in the February issue of MANAGEMENTACCOUNTING.

Taking Bids on Services

Small businesses often overlook one way tosave money on services performed by outside

vendors— soliciting a number of bids on variousjobs. Take printing, for example, whether thejob is business forms, stationery, brochures,books or the like. Many small businesses usejust one or two vendors and don't ask for com-petitive prices whether it's because they don'twant to take the time or effort, whether theytrust their particular vendors, or whether theyjust don't realize they could be saving money.For example ... NAA recently solicited bids on aproject, and for the same printing job, pricesranged from $2,600 to $12,500! It takes only afew minutes to call another vendor, and thesavings could be substantial.

CEM Helps Small Businesses

Managers, owners and consultants of smallbusinesses often don't have the time todo as much research or reading as theywould like on issues such as governmentregulations, managing their firms, implica-tions of new tax laws, or financial man-agement. They are involved with doing theirwork, not necessarily planning their work. TheCenter for Entrepreneurial Management, Inc.(CEM) in Worcester, Mass., can help in thisarea. The Center was established as "a com-plete management resource for entrepreneurialmanagers and the professionals who advisethem." Members of the Center receive amonthly newsletter covering topics rangingfrom financing a business to personality pro-files to tips on insurance; special in -depth re-ports on current issues such as pension plansor cash flow management; a free one -yearsubscription to INC. and Boardroom Reports,and publication discounts. For information,write The Center for Entrepreneurial Manage-ment, Inc., 311 Main Street, Worcester, Mass.01608, ( 617) 755 -0770.

Publications Available

Deloitte Haskins & Sells recently published abooklet on Financing: Small and Growing Busi-nesses, which offers small business owners anapproach to determining what kind of financingthey need and suggestions on how to draw upa business plan, how to control internal financ-ing, how to find sources of external financingand how to develop a financial package pro-posal. This in -depth booklet teaches the firststeps to take in the financing area so you candiscuss financing with a professional when youare ready to actively seek funds. Contact KathyWilliams at NAA by February 15, 1982 for acopy of the booklet.


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NAA Research CommitteeSolicits Proposals

The National Association of Accountants is soliciting pro-posals to conduct research on the following topics:

2.

3

4.

5

Management Accounting in the Future. Management ac-countants of the future can play an increasingly influen-tial role in business. Two broad topic areas to cover are:What will the management accounting function be five toten years from today? And what characteristics, knowl-edge and skills will be required of a management ac-countant in five to ten years?Taxation. This research will be designed to examine theimportance of taxes in business decision making, bothfrom a theoretical and applied perspective. The researchwill address the issue of optimizing business decisionswith taxation as a major decision variable followed by anexamination of the impact of various types of taxation.Budgeting. This research will be designed to explore thelatest budgeting policies used by firms with well- estab-lished budget systems. The focus will be on the practiceswhose applications result in significant improvements inthe budgeting process. Emphasis will be placed on themanner in which firms make their budget system an inte-gral part of their planning and control activities.The Relationship of Management Accounting and DataProcessing. This study will address the relationship be-tween management accountants and data processing per-sonnel. Significant organizational, educational, and beha-vioral aspects of the changes from traditional accountingmethods to computerized data -based corporate informa-tion systems will also be covered in this research study.Measuring the Impact of Government Regulations. Thisstudy will identify the major cost factors attributable torepresentative types of government regulations and alsoindicate the means of reducing the costs of compliancewith various regulations, including the means of design-ing less costly regulations.

An outline or prospectus for each of the above topics is

available upon request from the Association. The prospec-tuses are not all inclusive but are designed to serve as guidesfor researchers in developing their proposals. Each prospec-tus is accompanied by a set of guidelines which deal withvarious procedural requirements.

A research proposal should set forth the objectives andthe scope of the research study. The author(s) should stateexplicitly what will be covered in the research study. Thisshould be followed by a detailed description of the researchmethodology which will be employed, such as literaturesearch, mail survey, interviews, and case studies.

The proposal must also indicate the manner in which theresearcher plans to organize and carry out the researchwork. It has been NAA's preference to have the researchwork performed as a sequence of phases, with interim re-ports submitted to NAA upon completion of each phase.The proposals should be accompanied by a timetable and abudget, both preferably broken down into phases, as well asa sketch of the author(s) background(s).

Other Topics

The Association also considers proposals on any topic aresearcher chooses, provided that the topic deals with a sub-ject matter of interest to NAA members. If a researcherchooses to conduct a research study on an unsolicited topic,the researcher must substantiate the importance or the needof research on that particular topic. Such a proposal shouldbe prepared in accordance with the same NAA guidelinesused for the announced research topics.

A prospective researcher desiring further, more extensiveresearch guidance may order NAA's monograph, ResearchMethodology and Business Decisions, 1976.This publicationwill assist the researcher in preparing a proposal.

Each proposal will receive careful consideration for possi-ble action by the Committee on Research at its April 1982meeting. For further information, contact Suzanne G. Con-nors, NAA Research Associate (212) 754 -9897.Proposalsmust be submitted by March 31, 1982. _]


The Costs of Implementing FAS No. 33When the Financial Accounting Stan-dards Board issued FAS No. 33 dealingwith current costs and changing prices,it was put forth as an experiment to lastapproximately five years. In anticipa-tion of a full -scale review of FAS No.33, the Board recently requested that re-search be undertaken into various as-pects of the implementation and use ofcurrent cost and constant dollar infor-mation.

As part of this overall research activi-ty, NAA undertook a brief survey ofone specific question: What appears tobe the cost of implementing FAS No.33?

We mailed letters to the controllers of22 large companies, located in the met-ropolitan New York area. The compa-nies were chosen from among the For-tune 1000 listing. In each letter weasked for an interview by telephone. Weinterviewed eight controllers from vari-ous industries, two consultants, and twoaccountants. All the questions were ad-dressed to the cost of implementingFAS No. 33. Here are the findings:

L All of the individuals interviewedstated that the inflation- adjustment fig-ures were initially gathered manually bystaff personnel. However, currently themajority of companies are using com-puter programs to calculate current costfigures and constant dollar figures.Therefore, it follows there is a consider-able decrease in the cost of reportingFAS No. 33 in subsequent years, as op-posed to the initial cost.2. The principal direct costs mentionedwere staff time, computer time, and pur-chase of software package.3. Some of the indirect costs mentionedincluded accountants' time spent on re-viewing the procedures, methodologyand inflation- adjusted figures preparedby their clients, and management's costin reviewing and analyzing the figures.Both the accountants' cost and manage-ment's cost have decreased in subse-quent years of reporting FAS No. 33.4. Nine of th e 12 (75 %n) interviewedstated that initially they hired a consul-tant, in most cases an accounting firm,to advise them in the preparation of

FAS No. 33. The consultant or account-ing firm, however, was only used as anadvisor in the beginning year of report-ing FAS No . 33.

5. Seven interviewees felt that the infor-mation presented in FAS No. 33 wasmeaningful and that their companiesand /or clients put a lot of time, energyand resources into reporting these infla-tion adjustments accurately.Some of the comments of those who didnot feel the information presented inFAS No. 33 was m eaningful were:"FAS 33 is s till only a footnote.""The average individual does not under-stand the information.""The information presented is not exactand therefore, inaccurate."6. Most of those interviewed felt thatthe only ones who really make use ofand thoroughly understand FAS No. 33reporting are analysts.7. The responses were split evenly be-tween those who felt eventually FASNo. 33 will be used for internal decisionmaking and those who felt it would not

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3rd Annual Controllers' ConferenceControllers praise NAA's three -day conference in Washington, D.C.

NAA held its 3rd Annual Controllers' Conference in Wash-ington, D.C., October 27 -29, and judging from the reactionsof approximately 100 participants, it was a huge success.Most participants judged the workshops and general ses-sions as "excellent" or "good."

Executive Director Robert L. Shultis said that based onthis overwhelmingly favorable response, the Association willschedule a fourth controllers' conference in 1982.

The Conference featured two full -day concurrent work-shops on Tuesday devoted to the acquisition of a minicom-puter and corporate mergers and acquisitions. On Wednes-day, Emil "Bob" Scharff, NAA president, welcomed theparticipants to the first general session, pointing out that theuncertain economic climate made such conferences a neces-sity for the modern controller. Mr. Scharff is managing part-ner of the San Francisco office ofArthur Young & Co.

Featured speakers at the conference included Allen H.Seed, III, senior consultant, Arthur D. Little, Inc.; StanleyR. Pylipow, vice president, finance and administration,Fisher Controls; Anthony Staiano, vice president and con-troller, Federal Electric Corp.; Paul R. Ray, Jr., senior vicepresident, Paul R_ Ray & Co., and Lee B. Spencer, Jr., di-rector, division of Corporate Finance, Securities & Ex-change Commission.

Mr. Seed, who is the author of a new NAA researchstudy, The Impact of Inflation on Internal Planning andControl, told the financial executives that most companiesare not applying constant dollar or current cost techniquesinternally. However, many companies have revised theirplanning and budgeting to allow for the prospect of continu-ing inflation. For example, Mr. Seed found that companiesare updating plans, budgets and standards more frequentlyto assure that current costs are used for profit margin analy-sis, performance measurement and inventory valuation. Inaddition, a great majority of companies now include fundsstatements, and a significant number include productivitymeasurements in their planning and budgeting processes.

Stanley Pylipow reminded the controllers that their finan-cial managers were individuals, corporate human resources

who should be treated with respect and intelligence. To mo-tivate financial managers, he suggested that controllersshould create a positive environment, provide a positiveidentity, and eliminate threats from their environment.

Anthony Staiano, who discussed the controllership fromthe divisional controller's point ofview, pointed out that thetrend is toward a direct relationship between the divisionand corporate controller. He noted the advantages of thisreporting relationship and also discussed the advantages ofthe division controller reporting to the division general man-

ager.At the luncheon on the second day of the Conference, Mr.

Ray discussed some of the principles that should be appliedin hiring financial executives. He has had wide experience insearch assignments for high corporate officers, including fi-nancial officers.

Lee B. Spencer outlined some of the SEC's proposedchanges in corporate disclosure rules and pointed to futuredevelopments that will have an impact on controllers andfinancial officers.

At the concurrent sessions on Wednesday, three speakersfocused on FAS No. 8 and three on new developments incorporate and personal taxes and information systems.FASB Project Manager E. Raymond Simpson discussed theBoard's latest thinking on the proposed revision of its con-troversial foreign translation standard. It is planning to pro-ceed with the development of a final statement essentiallysimilar to the "functional currency" proposal in its June 30,1981 exposure draft. In addition, he suggested, the Boardmay decide to require the use of the U.S. dollar as the "func-tional currency" in a foreign operation's statements whencumulative inflation is approximately 100% or greater overa three -year period.

The controllers and financial managers, who received acopy of Mr. Seed's book, Impact of Inflation on InternalPlanning and Control, as bonus for early registration, calledthe conference "very informative," and a "good planningjob." Nearly all those attending were controllers or othersenior financial executives. ❑


"Five years ago, I got fed up with slaving for asalary. Now I'm a Comprehensive" accountant, and I'vemore thantripled my income!"

—Joe Donahue, Denver, ColoradoI'm an accountant. And I'd

like to tell you about theopportunities I found withCOMPREHENSIVE"

I always thought my careerchoices as an accountant werelimited to heading for one of the"Big 8" firms, getting lost in acorporation, or going it alone. I'dalways wanted to own my ownpractice, but working forsomeone else meant I didn'thave that core group of clientsto get me started.

Then I read aboutCOMPREHENSIVE'S nationwide

network of independent localaccountants. Local to let mekeep in touch with myself andmy market , and national toprovide all the back -up andsupport I'd never have if I werestrictly on my own.

You might say COMPREHENSIVE

helps you be in business foryourself without being inbusiness by yourself.

What Is COMPREHENSIVE?COMPREHENSIVE I s the nati on's

largest franchisor of book-keeping, accounting and taxservices, with more than 22,000small business clients of all kindshandled every month with asystem developed through 32years of successful experience.

Over 300 independentaccountants utilizeCOMPREHENSIVE'S c entralized

computer system to providemonthly services to their clients.Fast. And with a lot fewerheadaches.

With COMPREHENSIVE. I'mbacked by a team skilled inaccounting systems, practicemanagement, sales andmarketing, taxes and more.Plus a national advertisingprogram to attract and pre -sellnew clients.

How many clients?By now, you've probably

found the average COMPRE-

HENSIVE accountant has about90 clients. That's right -90clients! And each one receivesclose, prompt and personalizedmonthly contact and service.

Many accountants in thesystem have even more. In fact,my own personal client list nowtops 190!

Joe Donahue, aCOMPREHENSIVE affiliate

in Denver, Colorado

How do I do it? With ourexclusive system, it's really nottoo difficult. And here's what Igive each and every clientevery month:• Operating statement for both

the current month andyear -to -date, withpercentages for both

• Complete bankreconciliations

• All tax returns• Itemized employee payroll

records• Detailed supporting ledgers

by account for each item onthe operating statement

• Balance sheets as necessary

What about money?

Before I became aCOMPREHENSIVE ac c ountant, my

salary was $20,000. That wasfive years ago, when I was 31. Soyou know I'm not a remarkablegenius.

I'm not one of those HarvardB- School types either. Mydegree is from Mankato StateCollege in Minnesota. Andbelieve me, there were times Ithought I'd never get through. Ifinally did, though, in 1967, andwent to work as an internalauditor with Control Data.

Almost ten years and twojobs later, I'd had it. I was tiredof slaving for a salary and goingnowhere. The time had come to

make a major decision —bothabout my career and my life.

What happened?quit. And moved my family

to Colorado, where I hardlyknew a soul.

Most importantly, though, Ibec ame a COMPREHENSIVE

aff iliate and invested in myfuture.

COMPREHENSIVE trained me to

use complete systems, frommarketing and sales throughproduction. The system is sosound, it's almost incredible!

All the tools are there. Youdon't have to be an inventor.And I certainly don't considermyself a super salesman. I'mstill nervous whenever I make anew presentation.

Back to moneyIn my f irst year, I attained 59

monthly small business clientsand was billing at an annualizedrate of over $5,500` a month.

By June, 1981, my client listwas up to 196 accounts, withannualized billings of $34,900' amonth.

That means an annualizedgross of over $419,000' afteronly f ive years.

Cash is important, and it hasto be there. But real success isa lot more.

I'm my own boss. I work formyself and own my ownpractice. I'm building equityfor the future. And I haveemployees who depend on me.

Best of all, I'm committed.And I've proven a lot of things tomyself that I always dreamedabout.

LegaleseCan you do as well as I did?

There are no guarantees. Thereare certain statements, though,required by the FTC and stateregulatory agencies. So herethey are:

'These sales, profits orearnings are of a specificfranchise and should not beconsidered as the actual orpotential sales, profits orearnings that will be realizedby any other franchise. Thefranchisor does not representthat any franchisee can expectto attain these sales, profits orearnings. There are currently274 accountants in thefranchisor's Associate andAffiliate Programs, Mr.Donahue is in the Aff iliateProgram, which began in 1976.Of all Aff iliates in the programwho had completed at leastone full calendar year inpractice as of January 1, 1981,9 of 58 individuals (or 16 %)achieved annualized bi llingsin excess of $5,500 per monthduring their f irst calendar yearin practice. Of the f iveAff iliates in practice for atleast f ive years as of July,1981, gross annualizedbillings ranged from a low of$153,092 to a high of Mr.Donahue's $419,437 with amedian of $178,703.

Now what?Obviously, you're not going to

rush out and invest in becominga COMPREHENSIVE acc ountant

just on my say so.So get the facts. Ask for

complete information onearnings and profits of allcur rent COMPREHENSIVE

accountants, including me, JoeDonahue. There's no obligation—and it could be the mostimportant move you'llever make!

tt . - Call R. J. Thomas( Calll Toll free (800) 323 -9000

Anywhere in the Continental U.S.In Illinois, call collect (312) 898 -6868

r imm m m m m mI d like to know more about my

' opportunities as a COMPREHENSIVE accountant!

Name

Address

1 cty —

M N J

1

State zipPhone (Best time to call)

' Mai l to: Comprehensive Accounting Corporation2111 Comprehensive DriveAurora, Illinois 60507 -1288

C O M P R E H E N S I V E 1 I

ZTWThe right arm of Americas small bLIShICSSCS. `4'*

1

1

MA i1 J

Recruiting is a skill all business peo-ple need but seldom learn.

How to interview.How to pick winners.How to find the right chemistry.From the smallest to the biggest com-

pany, everybody makes mistakes in theseareas.

Most can be avoided.With the techniques Robert Half

reveals in his new 16 -page booklet,How 7bHire Smart.

It's distilled from 34 years of special-ized experience in financial, accountingand edp recruiting.

And it's yours free as soon as you callany of the 80 Robert Half independentlyowned and operated offices (look in thewhite pages for our number, orsimply fill in the coupon below,

How to pick winners.1. To get a winner, hire fast.

The good ones get other offers.Make positively sure your winnerknows you're actively interested,even if it's your first interview. Youseldom get more than one pass at thebest people.

2. Avoid the compromise candidate.The more interviews, the greater thechances you'll hire someone mediocre. Tryto cut down the hiring decision to one ortwo people in your company.

3. To prevent the tendency to hire thelast person you interviewed, follow a ratingsystem and rate each candidate during orafter your interview.

This will stop you from makinganother common mistake: hiring thepersonable candidate instead of thecompetent one.

The specialists in financial,accounting and edp recruiting

for 34 years.Robert Half invented the concept of

specialized recruiting. Because a specialistdoes a better job.

His annual salary survey booklet hasbecome the standard guide of governmentand business —since 1950.

In fact, when a Senate Committeeneeded expert testimony on recruitingpractices in the accounting profession,they called him.

With 80 offices in 3 countries,the Robert Half organiza-tion is the largest. So it cangive you the best choiceof first -rate candidates.

Which is why yourfirst smart hiring

decision may well beto call Robert Half.

- - - - - - - - - - ,Please mail me your booklet HowTo Hire Smart.Is coupon to Robert Half International, Inc.,ewYork, NY 10163.)

I �Name Title

:addressI I

Cite Statel i p Telephone

g R C M E R T H M L F -_ 1 98 2 Rub rt Ha lf In onal. Inc- � - � — � — � - - - J

ALI ILN Ft - Strategic Finance

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