Author name:
سلمان حسين عبد الله الطيار
Supervisor name:
ابراهيم محمد علي طاهر الجزراوي
Abstract:
The objective of this thesis is to obtain knowledge about the incorporation of ex ante accounting information to support operations management decisions in information systems. We focus on short - term and medium - term operations management decisions. Prior research and literature review show that present information systems lack the ability to generate ex ante accounting information for operations management decisions. We have identified three reasons why present information systems lack this functionality : 1. Accounting theories for decision support are difficult to implement in information systems.2. There are discussions in the accounting literature about which accountingInformation to use for decision support.3. Present data structures are inappropriate.The first problem area relates to the difficulties encountered when trying to translate the concepts of the accounting technique to support operations management decisions (the relevant cost technique) to information systems. The relevant costs of a decision alternative consist of the incremental costs and the opportunity costs. The incremental costs are those that differ between alternatives. Opportunity costs are the benefits foregone as a result of choosing one course of action rather than another. The definitions of the components of the relevant costs imply that these costs are situational dependent. The knowledge how to determine the relevant costs can be applied by humans. However, in the literature this knowledge is not formalized in such a way that this knowledge can be implemented in information systems.The second problem area relates to the conceptual discussion in accounting literature to the accounting information to use for decision support. Short - term accounting information (incremental cost plus known opportunity costs) sometimes directs companies to decision alternatives that are in contradiction to the directions companies would choose based on longer - term accounting information. Imagine, for example, that the full costs of making a component are above the purchase price of the same component, suggesting that in the long run the component could better be purchased outside. However, short - term relevant costs could very well be below the purchase price, because many costs are unavoidable in the short - run. How can organization ever achieve the objectives in the long run, whenShort - term information points in another direction? This confusion usually leads. To discussions in the literature about what type of accounting information to use for short - term decision - making (full cost or incremental costs).The final problem area relates to the registration methods of accounting data in most of the present information systems. The most common technique (double entry bookkeeping) blocks the use of accounting data for operations management decision support, since this technique does not incorporate ex ante accounting data. Therefore, we need other data models to serve our purpose. However, one of the main pitfalls in the design of accounting data models is that the data models limit itself too one application domain only (and therefore exclude others). Therefore, it is important to have a close junction with existing data models in order to obtain a larger application domain for the data. Literature provides two alternative models : the REA model and the ‘Grundrechnung’. These models claim to store accounting data objectively, meaning that they do not exclude any accounting application domain. However, the models relate to ex post functionality only, and not to the ex ante area meant in this thesis. Since we want to avoid the main pitfall in the design of accounting data models, the research effort should be aimed at the extension of the models in the literature. Based on the problems described above, we have formulated the following research questions : 1. What are the formal procedures to describe cost behavior in such a way that an information system can determine incremental costs and opportunity costs for a given decision - alternative?2. Which accounting technique can be used in information systems for theevaluations of operations management decisions in order to bring short - term Decisions in congruence with long - term policy?3. What are the implications of the accounting technique for the known accounting data models?The research objective has been pursued by the development of an information system design that is able to supply relevant ex ante accounting information for operations management decisions. The methodology of developing the information system design consists of three phases. In the first phase the stakeholders of the information system are involved to retrieve the requirements for such as system. In the second phase the requirements are used to build the architecture design. In the final phase a rationale is given which demonstrates that the architecture design, if implemented would satisfy the requirements of the stakeholders. In the methodology four groups of stakeholders are discerned : 1) the user, 2) the customer, 3), the architect and the software developer, and 4) the maintainer of the system. In this thesis, customer has not been involved as a stakeholder in this project. The reason for this is that the information system design is mainly in a conceptual phase. This makes it very premature to involve the customer as a stakeholder. The requirements have been based on the analyses how and which ex ante accounting information can be used for five operations management decisions. These decision are : 1) ‘setting the Master Production Schedule’, 2) ‘order acceptance’, 3) ‘determining lot sizes’, 4) ‘capacity expansion’, and 5) ‘determining safety stock levels’. Based on these decisions, in total five requirements have been defined for the system. These requirements, which are explained next are named 1) objectivity of accounting data, 2) resource consumption, 3) resource transition, 4) cash transition, and 5) contextual information. These requirements are fulfilled by the information system design. The information system design consists of two parts. The first part is the generic accounting technique to support operations management decisions. This technique is called the Hierarchical Cash Flow Model (HCFM). The HCFM consists of a set of procedures that is aimed at retrieving the effect of a decision - alternative based on objective parameters. The HCFM does not calculate with intermediate cost values regarding the use of resources. The HCFM only values the transactions with (external) customers and suppliers. The model gives answer to the first and second research question, described above. The HCFM makes a strict separation between the analyses of the effects on the resources flow and the analyses of the effect on the cash flow. The resource flow is analyzed by means of the concepts resource consumption and resource transition. Resource consumption refers to the usage of resources; resource transition refers to the purchase and sales transactions between the organization and its markets. Cash flows are retrieved by converting resource transition into cash transition. This possibility is created by making use of the contract concept. The contract concept enables the HCFM to model variability and avoidability of cash flows. We have introduced the operations management concept of hierarchical planning into our accounting model. Therefore, the HCFM extends the cash flow models known from accounting literature with this hierarchical concept. The result of this introduction is twofold. Firstly, the hierarchical concept enables the operational use of the opportunity cost concept in information systems. A higher hierarchical plan is used for a particular decision - alternative to determine the benefit forgone in this plan when executing the decision - alternative. Secondly, at the same time, the hierarchical concept is used to provide accounting information for shorter - term decisions that is in congruence with longer - term policy. The opportunity costs of the plan serve as a financial target for shorter - term decisions. In this way shorter - term decisions can be made in congruence with longer term policy, but at the discretion of the decision - maker. The hierarchical concept implements the requirement of contextual information.The second part of the information system design is the object model. The object model incorporates the data and procedures needed by the HCFM. The object model extends prior research effort into accounting data models, which has resulted in the Resource – Event – Agent (REA) model and the ‘Grundrechnung’. The object model is based oncontracts, activities, resources, and reservations. Accounting information is only related to contracts. This implies that we do not allocate or apportion accounting data, and therefore, fulfill the requirement of objectivity of accounting data. We have chosen to extend these prior models to avoid the main pitfall in the development of information systems for the accounting application domain. As mentioned above, this pitfall is a narrow focus on just one application domain, which causes the exclusion of other domains. By extending the prior models, the application domain of these models in maintained, which automatically leads to a multiple purpose focus of the accounting data. The HCFM is applied for two operations management decisions ‘setting the Master Production Schedule (MPS)’ and ‘order acceptance’ in an information system setting. We use this elaboration as a rationale to illustrate that the information system design is able to fulfill the stakeholders’ needs. However, the implementation of the HCFM is not straightforward. Modelling choices when implementing the decisions ‘setting the MPS’ and ‘order acceptance’ on non - financial grounds in present ERP systems lead to complexities when implementing the HCFM. We give solutions for these complexities, and then show that the HCFM is able to retrieve the accounting information needed to support these two decisions.
