Within the system analysis phase of the Systems Development Lifecycle (SDLC) methodology, it is the responsibility of your company’s system development team to determine the needs of each of the transaction cycles associated with your business. Generally, businesses operate using four main types of transaction cycles: revenue, expenditure, production and the HR/payroll cycles. Each cycle has a specific function and requires specific informational needs.
The revenue cycle is a set of business activities with the primary purpose of providing goods/services to customers and collecting payment for those goods/services. This cycle revolves around one primary objective which is to provide the right product in the right place, at the right time, for the right price (Garrison et al, 2006). To accomplish this primary purpose and objective, the revenue cycle is broken up into four different activities: sales order entry, shipping, billing, and cash collections. Each of these activities requires specific informational needs to operate efficiently. For example, a sale order entry occurs at the start of this cycle and requires information about stock level reports, credit policies, return policies, and response time to customers. Or likewise, in the shipping activity the customer orders are filled, packed, and shipped to their destinations. So in order for this activity run smoothly it will need specific informational needs such as response time to fill orders, vendor information, location of distribution centers, and shipping methods.
The expenditure cycle deals with the activities associated with the ordering, receiving, and purchasing of goods needed by the company. The expenditure cycle revolves around one primary objective in which it aims to minimize the total cost of acquiring and maintaining inventories, supplies, and the various services the organization needs to function. There are three primary activities conducted under the expenditure cycle; which are ordering, receiving and storing, and paying for the items. Again each of these activities needs specific information to operate efficiently. For example, the ordering activity has a focus on identifying and deciding what, how much, when, and from whom to purchase goods from (Garrison et al, 2006). So some of these activities informational needs may include; inventory control methods, past purchasing orders, supplier lists, and supplier performance ratings. Accurate and timely informational needs to this cycle are crucial so your management can make informed decisions on what, when, how much, who to order from, and whether or not the company has the means to make the purchase.
The production cycle revolves around the activities associated with the manufacturing of the products. Within this cycle management must make decisions concerning what products to produce, how much to charge for the products, minimizing costs, and what resources to utilize to accomplish the manufacturing of the goods (Garrison et al, 2006). To help management make these decisions, the production cycle can be initially broken up into four different activities; product design, planning and scheduling, production operations, and cost accounting. Each of these activities needs specific information to operate efficiently. For example, the product design activity has a primary focus of developing an optimal product that meets customer needs and requirements at the lowest possible price. To do this efficiently this activity will need information such as bill of materials, customer preferences, R&D reports, market trend reports, and operations list.
HR/ Payroll cycle
The HR/Payroll cycle deals with the activities that are associated with the potential and current employees of a business. Within this cycle a business must be able to accurately determine how many employees are needed, what position will need to be filled, and finding the right employees to complete the required tasks. To help aide in the decision making process of this cycle we can break it up into three types of activities; recruiting, hiring, and training. Again each of these activities needs specific information to operate efficiently. For example, the recruiting activity deals specifically with finding the right employees to fit the job so some informational needs of this activity might include background checks, employee applications, and reference and past employment verifications.
Management has the primary responsibility to meet the primary objectives of each transaction cycle and to do this effectively; specific informational needs must be present and retrieved by the AIS system. It is very important that you further realize that each of these transaction cycles share information with each other. For instance, the revenue cycle provides information to the production cycle on customer orders and sales forecasts. The expenditure cycle provides information to the production cycle about raw material availability and the HR/payroll cycle provides information about the costs of labor hours and worker availability. The production cycle also provides the revenue cycle information on the amount of goods for sale and the list goes on and on. So it is very important that the AIS system provides the appropriate informational needs to each cycle in a timely and accurate manner.
Garrison, R.H., Noreen, E.W., & Brewer, P.C. (2006). Managerial Accounting. 11th ED. McGraw Irwin Hill.