Evaluate the factors of significance within the structure of an IT business with manufacturing and determine what factors influence the decision to create real-time data or batch processes. Explain your answer.
Differences Between Batch and Real-Time Systems
Information Time Frame
Batch systems assemble transactions into groups for processing. Under this approach, there is always a time lag between the point at which an economic event occurs and the point at which it is reflected in the firm’s accounts. The amount of lag depends on the frequency of batch processing. Time lags can range from minutes to weeks. Payroll processing is an example of a typical batch system. The economic events—the application of employee labor—occur continuously throughout the pay period. At the end of the period, the paychecks for all employees are prepared together as a batch. Real-time systems process transactions individually at the moment the event occurs.
Because records are not grouped into batches, there are no time lags between occurrence and recording. An example of real-time processing is an airline reservations system, which processes requests for services from one traveler at a time while he or she waits.
Generally, batch systems demand fewer organizational resources (such as programming costs, computer time, and user training) than real-time systems. For example, batch systems can use sequential files stored on magnetic tape. Real-time systems use direct access files that require more expensive storage devices, such as magnetic disks. In practice, however, these cost differentials are disappearing. As a result, business organizations typically use magnetic disks for both batch and real-time processing. The most significant resource differentials are in the areas of systems development (programming) and computer operations. As batch systems are generally simpler than
their real-time counterparts, they tend to have shorter development periods and are easier for programmers to maintain. On the other hand, as much as 50 percent of the total programming costs for real-time systems are incurred in designing the user interfaces. Real-time systems must be friendly, forgiving, and easy to work with. Pop-up menus, online tutorials, and special help features require additional programming and add greatly to the cost of the system. Finally, real-time systems require dedicated processing capacity. Real-time systems must deal with transactions as they occur. Some types of systems must be available 24 hours a day whether they are being used or not. The computer capacity dedicated to such systems cannot be used for other purposes. Thus, implementing a real-time system may require either the purchase of a dedicated computer or an investment in additional computer capacity. In contrast, batch systems use computer capacity only when the program is being run. When the batch job completes processing, the freed capacity can be reallocated to other applications.
Real-time processing in systems that handle large volumes of transactions each day can create operational inefficiencies. A single transaction may affect several different accounts. Some of these accounts, however, may not need to be updated in real time. In fact, the task of doing so takes time that, when multiplied by hundreds or thousands of transactions, can cause significant processing delays. Batch processing of noncritical accounts, however, improves operational efficiency by eliminating unnecessary activities at critical points in the process. This is illustrated with an example later in the chapter. Efficiency versus Effectiveness In selecting a data processing mode, the designer must consider the trade-off between efficiency and effectiveness. For example, users of an airline reservations system cannot wait until 100 passengers (an efficient batch size) assemble in the travel agent’s office before their transactions are processed. When immediate access to current information is critical to the user’s needs, real-time processing is the logical choice. When time lags in information have no detrimental effects on the user’s performance and operational efficiencies can be achieved by processing data in batches, batch processing is probably the superior choice. (Hall 2011 page 252-253)
Recommend the implementation of controls necessary to reduce erroneous journals that could lead to financial losses for companies. If management establishes adequate controls and significant losses still occur, explain to what extent management should be held accountable under SOX.
SOX legislation requires that management design and implement controls over the financial reporting process. This includes both the FRS and the individual transaction processing systems that feed data into it. For reasons already explained, we need to defer our treatment of TPS controls to later chapters. Here we will examine only the controls that relate to the FRS. The potential risks to the FRS include:
1. A defective audit trail.
2. Unauthorized access to the general ledger.
3. GL accounts that are out of balance with subsidiary accounts.
4. Incorrect GL account balances because of unauthorized or incorrect journal vouchers.
If not controlled, these risks may result in misstated financial statements and other reports, thus misleading users of this information. The potential consequences are litigation, significant financial loss for the firm, and sanctions specif