INFORMATION SYSTEMS

FORMATION 2 EXAMINATION - APRIL 2011

NOTES:
Section A - You are required to answer Questions 1 and 2.
Section B - You are required to answer any three out of Questions 3 to 6.
(If you provide answers to all of Questions 3 to 6, you must draw a clearly distinguishable line through the answer
not to be marked. Otherwise, only the first answers to hand for these four questions will be marked.)

TIME ALLOWED:
3 hours, plus 10 minutes to read the paper.

INSTRUCTIONS:
During the reading time you may write notes on the examination paper but you may not commence
writing in your answer book.

Marks for each question are shown.

The pass mark required is 50% in total over the whole paper.

Start your answer to each question on a new page.

You are reminded that candidates are expected to pay particular attention to their communication skills
and care must be taken regarding the format and literacy of the solutions. The marking system will take
into account the content of the candidates' answers and the extent to which answers are supported with
relevant legislation, case law or examples where appropriate.

List on the cover of each answer booklet, in the space provided, the number of each question(s)
attempted.

The Institute of Certified Public Accountants in Ireland, 17 Harcourt Street, Dublin 2.

 INFORMATION SYSTEMS
THE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS IN IRELAND

FORMATION 2 EXAMINATION - APRIL 2011

Time Allowed: 3 hours, plus 10 minutes to read the paper.

SECTION A
Answer BOTH Question 1 and Question 2 in this Section.
(Both Compulsory)
1. Hibernia Ltd., a steel manufacturing company, purchased an information systems package over a decade ago.
The system focuses on daily transaction processing of stock, sales and purchasing and provides regular user
summaries. Unfortunately, the output does not provide much of the necessary management information and as
a consequence a Co-ordinator downloads output onto spreadsheets which are then manipulated, enhanced and
emailed to users. Managers and Senior Managers often complain that even this information is inadequate for their
needs. In response, Hibernia has employed a business information consultancy firm to conduct a review of its
information requirements. The consultancy firm reported that the existing system is outdated and much less
functionally rich than more recent software on the market. The main issues and recommendations are
summarised as follows:-

Purchase a new system

Hibernia should purchase a system (called InfoTek) which provides more complete, relevant and timely
information. The InfoTek system is easy to understand and navigate and would offer a more comprehensive
analysis than the existing package provides, including historical statistics and comparison to prices charged by
competitors. InfoTek also offers potential for further customisation to local needs through its display functions and
flexible formats. Users (Senior Managers, Managers and Others) would be able to use the software efficiently
straight away without additional training. Daily transaction processing routines would remain unchanged.

Implementation of the new system

The system should be implemented by direct changeover because Hiberniaʼs network servers have insufficient
capacity to support both new and old systems. The installation should take place over a weekend to minimise
disruption. Once installed, systems maintenance should be minimal.

Redesign of Co-ordinatorʼs role

This role should be redesigned so that the existing post-holder becomes responsible for validating InfoTek output,
co-ordinating information enhancements and providing support and advice to users.

Hiberniaʼs Managing Director is familiar with InfoTek through past working experience and agrees that it is a
worthwhile package. She is, however, unhappy about how the consultants have conducted their review. In
particular, she is concerned that very few Managers, Senior Managers and other information users have been
involved in discussions. She also believes that any job design needs to concentrate on the characteristics of the
post in order to gain maximum motivation and job performance. She therefore treats the findings and
recommendations of the consultants with caution. A fellow Director has advised her not to implement the
consultantsʼ recommendations without further reference to the workforce as this might lead to staff resistance.

REQUIREMENTS:
(a) Discuss the reasons why there may be user resistance to the introduction of the new system and explain the
types of support that could be organised to help users utilise InfoTek efficiently.
(7 marks)

(b) Explain the issues Hibernia should consider before successfully implementing the recommended system.
(9 marks)

(c) List and describe the options Hibernia has if they choose not to develop their software in house. (9 marks)

[Total: 25 Marks]
Page 1
2. Write brief notes on ANY FIVE of the following:

(a) Green computing

(b) Business process management
(c) Disaster recovery planning
(d) Prototyping
(e) Supply chain management systems
(f) Semi-structured decisions
(g) Decision Support System Note: Each part carries 3 marks.
[Total: 15 Marks]

SECTION B
Answer ANY THREE of the four questions in this Section.

3. (a) Discuss three key technology trends that raise ethical issues. Give an example of an ethical or moral
impact connected to each one. (6 Marks)

(b) List and describe the potential computer-related health risks which could affect the modern employee.
(6 Marks)

(c) Explain how the internet challenges the protection of:-

i. Individual privacy
ii. Intellectual property (8 Marks)

[Total: 20 Marks]

4. (a) Define the term ʻdigital goodsʼ and compare and contrast them to traditional goods. (6 Marks)

(b) What are the business advantages and disadvantages of cloud computing? (6 Marks)

(c) What management, organisation, and technology issues should be considered when selecting computer
hardware and software?
(8 Marks)

[Total: 20 Marks]

5. (a) Define an expert system, describe how it works, and explain its value to business. (6 Marks)

(b) Define the term knowledge management and, using an organisation of your choice, explain what types of
knowledge it would have and how such an organisation could benefit from knowledge management.
(8 Marks)

(c) Why are knowledge workers so important to the digital firm? (6 Marks)

[Total: 20 Marks]

6. (a) Discuss the reasons why it is necessary for businesses to invest so heavily in information systems and why
there is such a high variability in the returns firms receive from their investment?
(6 Marks)

(b) How can firms assess the value of information systems projects? (7 Marks)

(c) Describe the information system problems that result from poor project management. (7 Marks)

[Total: 20 Marks]
END OF PAPER
Page 2
 SUGGESTED SOLUTIONS

INFORMATION SYSTEMS
THE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS IN IRELAND

FORMATION 2 EXAMINATION - APRIL 2011

ANSWER 1

Tutorial Notes:
Purpose: The case study question aims to be a written summary or syntheses of a real-life scenario. It requires the
candidate to isolate and think through the key issues involved against both theory and the larger comparative
environment. This case tests the candidatesʼ ability to identify the main issues involved in developing and implementing
new systems. Candidates should also demonstrate their understanding of different external options to systems
acquisition
Links: No major links on other topics or papers in Formation 1.
Options: The candidateʼs answer may vary slightly form the answer format used below.
Essential Components: The candidates will demonstrate understanding of user involvement and the concept of
implementation when managing the organisational change surrounding a new information system. They should also
understand the different options for sourcing such a system externally.
Responses for each sub question are expected to be brief and concise, in a form that might include a few sentences
and bullet points. This limit simulates a real life scenario in which accuracy, brevity and clarity is called for and also
hopefully prevents candidates from spending a disproportionate amount of time on each sub-question. When answering
a sub-question, candidates might use purposeful illustrations based upon aspects of the scenario.

SOLUTION 1
(a) Discuss the reasons why there may be user resistance and explain the types of support that could be organised
to help users utilise InfoTek efficiently.

Identification of reasons for staff resistance (e.g. demotivation through exclusion, feelings of imposition, dispute
of system benefits, lack of trust in consultantsʼ judgement, group resistance through ʻsnubbingʼ of groups, etc.)
Discussion of each in a way that is relevant to the scenario.

Identify types of support (e.g. user manuals/quick reference guides, software embedded help feature, support
structures, repositories of information, dedicated telephone support, support through regular communication, etc.)
Explain each in a way that is relevant to the scenario.
(Definition – 1 Mark +Any 3 reasons + Any 3 supports similar to above x 1 marks each)
(7 Marks)

(b) Explain the issues Hibernia should consider before successfully implementing the recommended system.

Identify potential issues (e.g. financial, relative costs and benefits, alternative systems, developing a system
specification, system functionality, behavioural, technical, etc.). Explain each issue in turn within the context of
the scenario. Levels of answers may range as follows:-

Limited answer: Either listing of several issues with no explanation or one or two points only with limited
explanation.
Pass standard answer: Some explanation of two or three issues relevant to the scenario. One mark per
substantive point made.
Strong answer: Comprehensive explanation of several issues within the context of the scenario. One to two marks
per substantive point made.
(1 Mark each approach x 6 + 3 Overall)
(9 Marks)

Page 3
(c) List and describe the options Hibernia has if they choose not to develop the software in-house.

Candidates should explain at least three of the following:-

• Outsourcing
• Bespoke external development
• Off-the-shelf
• Software as a Service(SAAS) (3 Marks for each method x 3)
(9 marks)

ANSWER 2

Tutorial Notes:
Purpose: Responses for each sub question are expected to include a few sentences and possibly bullet points. This
limit simulates a real life scenario in which accuracy, brevity and clarity is called for and also hopefully prevents
candidates from spending a disproportionate amount of time on each sub-question. When answering a sub-question,
candidates might use purposeful illustrations based upon aspects of the scenario.
Links: No major links on other topics or papers in Formation 1.
Options: Candidates may select five from seven questions. Answers may vary slightly from those given below.
Essential Components: Candidates should demonstrate knowledge of the topics. Their definitions should be
expanded upon and should demonstrate a competent understanding of each topic and how each adds or affects
business value.

SOLUTION 2:

(a) Green computing

Green computing or green IT, refers to environmentally sustainable computing or IT. In the article Harnessing
Green IT: Principles and Practices, San Murugesan defines the field of green computing as "the study and
practice of designing, manufacturing, using, and disposing of computers, servers, and associated subsystems,
such as monitors, printers, storage devices, and networking and communications systems efficiently and
effectively with minimal or no impact on the environment."

The goals of green computing are similar to green chemistry; reduce the use of hazardous materials, maximize
energy efficiency during the product's lifetime, and promote the recyclability or biodegradability of defunct
products and factory waste. Research continues into key areas such as making the use of computers as energy-
efficient as possible, and designing algorithms and systems for efficiency-related computer technologies.

(b) Business Process Management

Business process management (BPM) is a management approach focused on aligning all aspects of an
organization with the wants and needs of clients. It is a holistic management approach that promotes business
effectiveness and efficiency while striving for innovation, flexibility, and integration with technology. Business
process management attempts to improve processes continuously. It could therefore be described as a "process
optimization process.

It is argued that BPM enables organizations to be more efficient, more effective and more capable of change than
a functionally focused, traditional hierarchical management approach. BPM also helps organizations to gain
higher customer satisfaction, product quality, delivery speed and time-to-market speed.

(c) Disaster recovery planning

Disaster recovery planning is the process, policies and procedures related to preparing for recovery or
continuation of technology infrastructure critical to an organization after a natural or human-induced disaster.

With the increasing importance of information technology for the continuation of business critical functions,
combined with a transition to an around-the-clock economy, the importance of protecting an organizations data
and IT infrastructure in the event of a disruptive situation has become an increasing and more visible business
priority in recent years..

It is estimated that most large companies spend between 2% and 4% of their IT budget on disaster recovery
planning, with the aim of avoiding larger losses in the event that the business cannot continue to function due to
loss of IT infrastructure and data. Of companies that had a major loss of business data, 43% never reopen, 51%
close within two years, and only 6% will survive long-term.

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(d) Prototyping
Prototyping is the process of building an experimental system quickly and inexpensively for demonstration and
evaluation so that end users can better define information requirements. The prototype is a preliminary model that
is refined until it meets end-user requirements. The process of repeating the steps to build a system over and
over again is called an iterative process. Prototyping is more explicitly iterative than the conventional life cycle
and it actively promotes system design changes.

The four-step model of the prototyping process consists of the following:

1. Identify the user's basic requirements
2. Develop a working prototype
3. Use the prototype
4. Revise and enhance the prototype

THE PROTOTYPING PROCESS

The process of developing a prototype can be broken down into four steps. Because a prototype can be
developed quickly and inexpensively, systems builders can go through several iterations, repeating steps 3 and
4, to refine and enhance the prototype before arriving at the final operational one.

Prototyping is most useful when some uncertainty exists about user requirements or a design solution. It is
especially valuable for the design of the end-user interface of an information system such as on-line display and
data entry screens. End-user involvement means that the system is more likely to fill user requirements. However,
rapid prototyping can gloss over essential programming and documentation steps, or be poorly designed for large
quantities of data.

Prototyping has several benefits: The software designer and implementer can get valuable feedback from the
users early in the project. The client and the contractor can compare if the software made matches the software
specification, according to which the software program is built. It also allows the software engineer some insight
into the accuracy of initial project estimates and whether the deadlines and milestones proposed can be
successfully met.

Page 5
(e) Supply chain management systems
Supply chain management (SCM) is the oversight of materials, information, and finances as they move in a
process from supplier to manufacturer to wholesaler to retailer to consumer. Supply chain management involves
coordinating and integrating these flows both within and among companies. It is said that the ultimate goal of any
effective supply chain management system is to reduce inventory (with the assumption that products are
available when needed). As a solution for successful supply chain management, sophisticated software systems
with Web interfaces are competing with Web-based application service providers (ASP) who promise to provide
part or all of the SCM service for companies who rent their service.

There are two main types of SCM software: planning applications and execution applications. Planning
applications use advanced algorithms to determine the best way to fill an order. Execution applications track the
physical status of goods, the management of materials, and financial information involving all parties.

Some SCM applications are based on open data models that support the sharing of data both inside and outside
the enterprise (this is called the extended enterprise, and includes key suppliers, manufacturers, and end
customers of a specific company). This shared data may reside in diverse database systems, or data
warehouses, at several different sites and companies.

By sharing this data "upstream" (with a company's suppliers) and "downstream" (with a company's clients), SCM
applications have the potential to improve the time-to-market of products, reduce costs, and allow all parties in
the supply chain to better manage current resources and plan for future needs.

Increasing numbers of companies are turning to Web sites and Web-based applications as part of the SCM
solution. A number of major Web sites offer e-procurement marketplaces where manufacturers can trade and
even make auction bids with suppliers.

(f) Semi structured Decisions

Decisions in which some aspect of the problem are structured and others are unstructured. In the middle of this
continuum are semi-structured decisions, and this is where most of what are considered to be true decision
support systems are focused. Decisions of this type are characterized as having some agreement on the data,
process, and/or evaluation to be used, but are also typified by efforts to retain some level of human judgment in
the decision making process. An initial step in analyzing which support system is required is to understand where
the limitations of the decision maker may be manifested (i.e., the data acquisition portion, the process component,
or the evaluation of outcomes).

(g) Decision Support Systems

A decision support system (DSS) is a computer-based information system that supports business or
organizational decision-making activities. DSSs serve the management, operations, and planning levels of an
organization and help to make decisions, which may be rapidly changing and not easily specified in advance.

DSSs include knowledge-based systems. A properly designed DSS is an interactive software-based system
intended to help decision makers compile useful information from a combination of raw data, documents,
personal knowledge, or business models to identify and solve problems and make decisions. Typical information
that a decision support application might gather and present are:

• inventories of information assets (including legacy and relational data sources, cubes, data warehouses,
and data marts),
• comparative sales figures between one period and the next,
• projected revenue figures based on product sales assumptions.

Potential benefits of a DSS are:-

1. Improves personal efficiency
2. Speed up the process of decision making
3. Increases organizational control
4. Encourages exploration and discovery on the part of the decision maker
5. Speeds up problem solving in an organization
6. Facilitates interpersonal communication
7. Promotes learning or training
8. Generates new evidence in support of a decision
9. Creates a competitive advantage over competition
10. Reveals new approaches to thinking about the problem space
11. Helps automate managerial processes

Page 6
ANSWER 3

Tutorial Notes:
Purpose: To test the candidateʼs knowledge of ethical issues that have arisen due to recent technology trends and
certain quality of life impacts brought about by same. This question will specifically evaluate the impact of the Internet
on the protection of individual privacy and intellectual property.
Links: No major links on other topics or papers in Formation 1.
Options: Candidates will not be able to vary from the format of answers given below.
Essential Components: The candidate needs to demonstrate an understanding of ethical and moral issues as they
relate to technology trends within organisation. The candidate also needs to demonstrate a specific understanding of
the computer-related health risks created by information systems. The candidate should also illustrate a detailed the
connection between the Internet and the protection of individual privacy and intellectual property.

SOLUTION 3

(a) Discuss three key technology trends that raise ethical issues. Give an example of an ethical or moral impact
connected to each one.

• Computing power doubles every 18 months. Ethical impact: Because more organisations depend on
computer systems for critical operations, these systems are vulnerable to computer crime and computer
abuse.
• Data storage costs are rapidly declining. Ethical impact: It is easy to maintain detailed databases on
individuals. Who has access to and control of these databases.
• Data analysis advances. Ethical impact: Vast databases full of individual information may be used to
develop detailed profiles of individual behavior.
• Networking advances and the Internet. Ethical impact: It is easy to copy data from one location to another.
Who owns data? How can ownership be protected.
(3 trends & corresponding example x 2 marks each)
(6 Marks)

(b) List and describe the potential computer-related health risks which could affect the modern employee.

Computers can create health problems, such as repetitive stress injury, computer vision syndrome, and
technostress. Health risks have been attributed to computers and information technologies. For instance,
business now spends $20 billion a year to compensate and treat victims of computer-related occupational
diseases.

Technostress is defined as stress induced by computer use; symptoms include aggravation, hostility toward
humans, impatience, and fatigue.

Repetitive stress injury (RSI) is avoidable. Three management actions that could reduce RSI injuries include:
• Designing workstations for a neutral wrist position, using proper monitor stands, and footrests all contribute
to proper posture and reduced RSI.
• Using ergonomically designed devices such as keyboards and mice are also options.
• Promoting and supporting frequent rest breaks and rotation of employees to different jobs.
(3 X 2 Marks each)
(6 Marks)

(c) Explain how the Internet challenges the protection of individual privacy and intellectual property.

Contemporary information systems technology, including Internet technologies, challenges traditional regimens
for protecting individual privacy and intellectual property. Data storage and data analysis technology enables
companies to easily gather personal data about individuals from many different sources and analyze these data
to create detailed electronic profiles about individuals and their behaviors. Data flowing over the Internet can be
monitored at many points. The activities of Web site visitors can be closely tracked using cookies, Web beacons,
and other Web monitoring tools. Not all Web sites have strong privacy protection policies, and they do not always
allow for informed consent regarding the use of personal information. This allows information that a user may
have given voluntarily for a good purpose, say logging into the New York Times site, to be shared with some other
site. Spamming or e-mail that uses a userʼs e-mail address is another invasion of privacy.

Page 7
 It should also be noted that Intellectual property is subject to a variety of protections under three different legal
traditions:

• Trade secrets
• Copyright
• Patent law

Traditional copyright laws are insufficient to protect against software piracy because digital material can be copied
so easily. Internet technology also makes intellectual property even more difficult to protect because digital
material can be copied easily and transmitted to many different locations simultaneously over the Net. Web
pages can be constructed easily using pieces of content from other Web sites without permission.
(4 X 2 Marks)
(8 Marks)

ANSWER 4

Tutorial Notes:

Purpose: To test the candidateʼs e-commerce and emerging technologies. This question will specifically assess the
candidateʼs knowledge of the decision involved in selecting new hardware and software for the organisation.
Links: No major links on other topics or papers in Formation 1.
Options: Candidates will not be able to vary from the format of answers given below.
Essential Components: The candidate needs to demonstrate how digital goods are different to traditional goods. The
candidate also needs to explain the concept of cloud computing, the benefits it can bring to a firm and the management,
organisational and technological issues to be considered when investing in hardware and software.

SOLUTION 4

(a) Define the term ʻdigital goodsʼ and compare and contrast them to traditional goods.

In electronic commerce, ʻdigital goodsʼ is a general term that is used to describe any goods that are stored,
delivered and used in its electronic format. Digital goods are shipped electronically to the consumer through e-
mail or download from the Internet. Usually when you purchase digital goods online, after payment has been
received the merchant will provide you with your digital item as an e-mail attachment or they may provide you
with a secure link where you can download the item.

Examples of digital goods include e-books, music files, software, digital images, Web site templates, manuals in
electronic format, and any item which can be electronically stored in a file or multiple files.

Digital goods may also be called electronic goods or e-goods.

Candidates should also refer to how digital goods affect the following:-
• Marginal cost/unit
• Cost of production
• Copying cost
• Distributed delivery cost
• Inventory cost
• Marketing cost
• Pricing (2 Marks - Definition & 4 Marks – Features)
(6 Marks )

(b) What are the business advantages and disadvantage of cloud computing?

Cloud computing is the idea of making computing resources available based on what a user really needs instead
of what they might need.

The advantages include:

• Not dependent on physical location of either resources or users.
• Users access computing resources on their own not necessarily dependent on IT staff.
• Based on standard network and Internet devices.
• Resources serve multiple users with computing virtually assigned according to need.

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 • Resources are increased or decreased according to demand.
• Charges are based on the amount of resources actually used.
• Large investments in IT infrastructure are not necessarily needed or investments are significantly reduced.
• Firms can shift additional processing requirements to cloud computing during peak business periods.
• It allows a more flexible IT infrastructure.

The disadvantages include:

• Responsibility for data storage and control is transferred away from the organization to a third party.
• Security risks and chances of data compromises are increased.
• Risk diminishing system reliability.
• Increase dependency on a third party making everything work.
• Huge investments in proprietary systems supporting unique business processes may be at risk.
(2 Marks - Definition & 4 Marks Advs/Disadvs
(6 Marks)

(c) What management, organisation, and technology issues should be considered when selecting computer
hardware and software?

As computer hardware and software significantly impact an organizationʼs performance, the selection of IT assets
is critical to the organizationʼs operations and ultimate success. Issues, include capacity planning and scalability,
making decisions regarding the required computer processing and storage capabilities, computer and computer
processing arrangements, kinds of software and software tools needed to run the business, determining the
criteria necessary to select the right software, the acquisition and management of the organizations hardware and
software assets, and what new technologies might be available and beneficial to the firm.

Also, it is very dependent upon the organization and its processing, storage, and business needs. When
evaluating software service providers, the organization should examine such factors as availability and reliability,
technology, fees and how the fees are assessed, and available applications. Managers should compare the costs
and capabilities of using software service providers to the organization's costs and capabilities of operating and
owning its own hardware and software assets. The organization should examine how using the service will impact
organizational culture and how using an outside vendor addresses organizational and business needs. The
technology factors include examining how well usage of the service fits with the firms IT infrastructure, as well as
examining the appropriateness of using a software service provider to address the current problem.
(2 Marks Definition + 2 each issue)
(8 Marks)

ANSWER 5

Tutorial Notes:
Purpose: To test the candidateʼs assessment of the role of knowledge management and knowledge management
programs in business and to define and describe how a certain knowledge management system can contribute to an
organisationʼs knowledge management. Also, the question tests the candidateʼs knowledge expert systems and their
business benefits.
Links: No major links on other topics or papers in Formation 1.
Options: The candidateʼs answer should not vary too much form the answer format used below.
Essential Components: The candidates should demonstrate an understanding of knowledge management systems,
knowledge workers, expert systems.

Solution 5

(a) Define an expert system, describe how it works, and explain its value to business.

Expert systems are a common form of artificial intelligence. They are used to assist humans in the decision-
making process, but they don't replace humans. Many of the decisions we make are based on past experience,
but we have the added benefit of reasoning and intuition. Expert systems ask questions, then give you advice
and reasons why you should take a certain course of action based on hard data, not on hunches. Again, they
don't make the final decision.

Most of the problems an expert system helps resolve can, in fact, be solved by a human. But since the computer
is faster or safer, businesses choose to use them instead of a person.

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How Expert Systems Work
Expert systems rely on a knowledge base built by humans based on their experiences and knowledge. The base
requires rules and knowledge frames in which it can process data. When you think about it, humans work the
same way. You look out the window to see if it's raining. If it is, then you grab your umbrella. If it's not raining, then
you don't. There you have it, a rule base.

Most expert systems require thousands of rules and frames in which to operate in a rule-based expert system.
The knowledge must be specific. In the example above, you wouldn't take any action if the only information you
had was "It rains 350 days a year in the Amazon rain forest." Neither would an expert system. The AI shell (the
programming environment of an expert system) uses rules, frames, and an inference engine to accomplish its
tasks. The inference engine uses forward chaining or backward chaining to move through the rules and the
frames.

In our example, using a forward chaining inference engine, you would start with the idea that it's raining. You'd
move through a series of decisions until you reached a conclusion and acted on it. You would determine that it's
raining, then you'd decide how much, then you'd decide how wet you don't want to be, then you'd decide to take
an umbrella. As long as the answer continues to be yes, you keep moving forward. In a backward chaining
inference engine, you'd start with a hypothesis and work backward until your hypothesis is proved or disproved.
You got wet because it was raining; using an umbrella would prevent that.

You build an expert system in a similar fashion as other information systems in terms of hardware and software.
However, it's even more important to continually maintain and update an expert system: You never want to make
decisions based on outdated or incorrect information. You can build a transaction processing system and perhaps
not update it for six months to a year. With an expert system, you have to update the data and the processing
software almost immediately and continually so that itʼs never out of date.

Examples of Successful Expert Systems

You measure the success of an expert system by the following:
• Reduced errors
• Reduced cost, reduced training time
• Improved decisions
• Improved quality and services
• Happy users and happy customers

Most problems solved by expert systems are mundane situations. "If it's raining, then take an umbrella." But what
happens if it's cloudy and only "looks" like it will rain? Expert systems only do well in situations in which there are
definitive outcomes. They arenʼt good at making decisions based on inferences. The expert system might advise
to take the umbrella along or to leave it home based on the input. The human makes the final decision to take or
leave the umbrella.

If you understand that expert systems can only do so much, you'll be just fine. If you understand that they aren't
people with the powers of reasoning and intuition, and therefore they can't make every decision, you'll know when
to override the system and when to go with its output. Remember that everything in an expert system is based
on IF this, THEN that. We know not everything is black and white and there are many gray areas.

Expert systems should not replace managers. They can aid managers in the decision-making process, but
managers have to make the final call. For instance, you suggest to your boss that you should receive a pay raise.
You have many subjective reasons why you should receive the raise; you arrive early and stay late, your work is
always (well, almost always) turned in on time, you filled in for Sam while he was on vacation, and youʼre a good
worker. What happens if your boss relies on an expert system that uses only facts? You submitted the last two
projects late (because the boss made last minute changes), you took an extra weekʼs vacation (when your child
was in the hospital), and you were late to work three times in one month (because the subway broke down). You
may or may not get the raise. Your boss still needs to use intuition, reasoning, and gut reaction to make the final
decision.
(2 Marks – Definition + 2 Marks - Functions + 2 Marks Benefits x 1 Mark each)
(6 Marks)

Page 10
(b) Define the term knowledge management and, using an organisation of your choice, explain what types of
knowledge it would have and how such an organisation could benefit from knowledge management.

Knowledge management is the set of processes developed in an organisation to create, gather, store,
disseminate, and apply the firmʼs knowledge. If a candidate chose an organization such as a University, their
knowledge might include explicit knowledge, such as past exams, solutions, presentations. Tacit knowledge
would include the experience of lecturers in various disciplines. Candidates should explain how a University could
benefit from managing both types of knowledge as outlined above.
(3 Marks – Definition, 3 Marks – Types, 2 Marks - Benefits )
(8 Marks)

(c) Why are knowledge workers so important to the digital firm?

Student answers will vary, but should include an understanding of the three main functions of knowledge workers.
An example answer is:

Knowledge workers create new products or find ways to improve existing ones. Without them, the firm would
stagnate and become less competitive in an environment that is always changing and is increasingly more
competitive. In the modern economy, knowledge is truly power. The three major functions of knowledge workers
are: keeping the organisation up-to-date in knowledge as it develops in the external world; serving as internal
consultants regarding their areas of knowledge and its opportunities; and acting as change agents as they
evaluate, initiate, and promote new projects. The most important of these is to develop new knowledge as it
applies to the making of products or services, as offering products and services is the mainstay of the corporation.

(2 Marks Definition & 4 Marks Benefits x 1 Mark each)

(6 Marks )

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ANSWER 6

Purpose: To test the candidateʼs knowledge on the general area of Information Systems. This question will examine the
candidateʼs knowledge of the importance of information systems to the modern organisation and how a firm can assess
that value Finally, this question will test the candidateʼs knowledge of project management.
Links: No major links on other topics or papers in Formation 1.
Options: Candidates will not be able to vary too much from the format of answers given below.
Essential Components: The candidates need to demonstrate an understanding of the value of information systems
and the constituent parts of same. The candidate should demonstrate their understanding of an effective project
management and long lasting benefits it can bring to an organisation when developing a new system.

SOLUTION 6

(a) Discuss reasons why businesses have invested so heavily in information systems and explain why there is such
a high variability in the returns firms receive from their investment?

Information systems are a foundation for conducting business today. In many industries, survival and even
existence without extensive use of IT is inconceivable and IT plays a critical role in increasing productivity.
Although information technology has become more of a commodity, when coupled with complementary changes
in organization and management, it can provide the foundation for new products, services, and ways of
conducting business that provide firms with a strategic advantage. Information technology has become the
largest component of capital investment for firms in the United States and many industrialized societies.

In summary, information systems can:-

• Achieve operational excellence through higher levels of efficiency and productivity;
• Create new products, services and business models;
• Increase customer and supplier intimacy that can reduce costs and increase profits;
• Improve decision making for employees and managers;
• Increase the competitive advantage of a firm;
• Ensure the firm survives in a changing environment.

Specifically, candidates should address some of the following issues:-

• The emerging concept of the digital firm
• Business relationships digitally enabled
• Organisational & management flexibility – time and space shifting
• Electronic commerce
• Interrelationship between corporate strategy and information technology
• Strategic objectives – eg. Operational excellence, new products and models, customer intimacy, survival
(3 Reasons to Invest X 1 Mark each)
(3 Marks)

Candidatesshould explain the following in terms of the high variability in ROI that firms achieve:-
• The right Business model
• Organisational dimension – structure, process design etc
• Management dimension – support of management – incentives to management etc
• Complimentary assets
• Organisational investments, Managerial investments and Social investments
(3 Reasons for Variability X 1 Mark each)
(3 Marks)
(b) How can firms assess the value of information systems projects?

Table 14–3 in the Laudon text lists all of the major costs and benefits of information systems. It divides the costs
among five system components: hardware, software, telecommunications, personnel, and services. Some of the
tangible benefits include increased productivity, lower operational costs, and a reduced workforce. Among the
intangible benefits are improved organizational planning, more timely information, improved decision making, and
increased job satisfaction.

Tangible benefits can be quantified and assigned a monetary value. They include: Increased productivity, lower
operational costs, reduced workforce, lower computer expenses, lower outside vendor costs, lower clerical and
professional costs, reduced rate of growth in expenses, reduced facility costs, and increased sales.

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Intangible benefits cannot be immediately quantified but may lead to quantifiable gains in the long run. They
include: Improved asset utilization, improved resource control, improved organizational planning, increased
organizational planning, increased organizational flexibility, more timely information, more information, increased
organizational learning, legal requirements attained, enhanced employee goodwill, increased job satisfaction,
improved decision making, improved operations, higher client satisfaction, and better corporate image.

Appropriate strategies, such as real options pricing models (ROPM), can be applied to evaluate and value the
information system when the benefits cannot be established in advance. Real options pricing models apply the
same techniques for valuing financial options to systems investments and can be useful to help managers think
about the potential value of highly uncertain IT investments. ROPM allows managers to systematically take into
account the volatility in the value of IT projects over time, the optimal timing of the investment, and the changing
cost of implementation as technology prices fall over time. The disadvantages of this model are primarily in
estimating all the key variables, especially the expected cash flows from the underlying asset, and changes in the
cost of implementation.
The value of systems from a financial perspective essentially revolves around the issue of return on invested
capital. Does this particular information system investment produce sufficient returns to justify its costs?

Costs include the costs of hardware, telecommunications, software, services, and personnel.

The tangible benefits of information systems can be quantified and assigned a monetary value. Intangible
benefits, such as more efficient customer service or enhanced decision making, cannot be immediately quantified
but may lead to quantifiable gains in the long run.

Total cost of ownership (TCO) is designed to identify and measure the components of information technology
expenditures, but does not take into account benefits, cost categories such as complexity costs, and "soft" and
strategic factors

Capital budgeting is one of several techniques used to measure the value of investing in long-term capital
investment projects. Information systems are considered long-term capital investment projects. To determine the
financial basis for an information systems project, a series of financial models helps determine the return on
invested capital. The principal capital budgeting models for evaluating information technology projects are:

• The payback method: Measures the amount of time required to pay back the initial investment of a project.
It is calculated by dividing the amount of the original investment by the annual net cash inflow generated
by the investment.
• The accounting rate of return on investment (ROI): Calculates the rate of return from an investment by
adjusting cash inflows produced by the investment for depreciation. It gives an approximation of the
accounting income earned by the project. The net benefit is divided by the total initial investment to arrive
at the rate of return (ROI).
• The net present value: The amount of money an investment is worth, taking into account its cost,
earnings, and the time value of money. (Present value is the value in current dollars of a payment or stream
of payments to be received in the future.)
• The internal rate of return (IRR): The rate of return or profit that an investment is expected to return,
taking into account the time value of money. IRR is the discount (interest) rate that will equate the present
value of the project's future cash flows to the initial cost of the project.

In some cases, not all of the benefits of making this investment can be established in advance. Real options
pricing models (ROPMs), which apply the same techniques for valuating financial options to systems
investments, are useful for evaluating highly uncertain information system investments. In real options theory, the
value of the IT project (real option) is a function of the value of the underlying IT asset (present value of expected
revenues from the IT project), the volatility of the value in the underlying asset, the cost of converting the option
investment into the underlying asset, the interest rate at which the company could invest the same amount of
money as the investment without any risk, and the options time to maturity (length of time the project can be
deferred).

The disadvantages of this model are primarily in estimating all the key variables, especially the expected cash
flows from the underlying asset, and changes in the cost of implementation.

Financial models assume all relevant alternatives have been examined, that all costs and benefits are known,
and that these costs and benefits can be expressed in terms of money. These assumptions are rarely met in the
real world.

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 Limitations
Only tangible benefits can be quantified and assigned a monetary value. Intangible benefits cannot be
immediately quantified, but perhaps may lead to quantifiable gains in the long run. These models can be
selectively used to support political decisions made for organisational reasons having nothing to do with the cost
and benefits of a system.

Financial models do not always express the risks and uncertainty of their own cost and benefit estimates. They
also fail to consider the fact that costs are usually up-front, while benefits tend to be back-loaded. No financial
model can adjust for the fact that information technology can easily change during the course of the project.

In addition, firms can invest in capital projects for many non-economic reasons that are not captured by financial
models. They may be undertaken to support strategic considerations, to meet government requirements, or to
satisfy some non-market public demand.
(2 Marks x 3 methods + 1 mark overall)
(7 Marks)

(c) Describe the information system problems that result from poor project management.

When an information system fails to work properly or costs too much to develop, companies may not realize any
benefit from their information system investment, and the system may not be able to solve the problems for which
it was intended. Good project management is essential for ensuring that systems are delivered on time, on
budget, and provide genuine business benefits.
(7 Marks)

END OF PAPER

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