The Development of an Efficient Cash Advancement System

April 1, 2011

Mr. Efren R. Villarosa

Chief Executive Officer

Villip Construction and Development Inc.

No. 2 Pound Street

GreenPark Village

Cainta, Rizal

Dear Sir:

Thank you for allowing us to conduct a systems study of your company, Villip Construction and Development Incorporated. We appreciate the time, effort and support you have provided our group in conducting this systems study for our Systems Analysis and Design (SYSTAND) course subject. Rest assured that any information that we have gathered will be kept confidential.

The systems study conducted will serve as the subject of our implementation for our Management Information Systems for Business Management Students (BUSIMIS) subject for the next trimester. This implementation may be undertaken after successfully completing the systems study and systems proposal and upon your endorsement as the host company.

Accompanying this letter is the systems proposal developed by Alexyss Alip, Gidjette Arguelles, Ana Ella and Gemma Florido. The systems proposal aims to provide the company with an efficient system for handling cash advancements. Should you agree to the proposal, kindly affix your signature in the CONFORME portion of this letter. Please dont hesitate to contact our leader, Alexyss Alip at 09158055338 should you have any concerns.

Again, we wish to express our gratitude for allowing us to conduct a systems study of your

company, specifically your current cash advancements system.

Very truly yours,

Alexyss AlipGidjette Arguelles

Ana EllaGemma Florido

CONFORME:

Mr. Efren R. Villarosa

Chief Executive Officer

Villip Construction and Development, Inc.

09209233427

The Development of an Efficient Cash Advancement System

for Villip Construction and Development Inc.

A Systems Study

Presented to the Business Management Department

De La Salle University

In partial fulfilment

of the Course Requirements for the Course

SYSTAND

By

Alip, Alexyss Anne

Arguelles, Gidjette

Ella, Ana Preciosa

Florido, Gemma May

Professor Gerald Louis P. Poblador

Faculty

ContentsI.Executive Summary4II.Outline of Systems Study4Data Collection4Data Analysis4Situational Analysis5Ishikawa Diagram5Problem Analysis6Decision Analysis6Potential Problem Analysis7III.Results8Situational Analysis8Ishikawa Diagram10Problem Analysis11Problem Analysis12Current System.13Proposed System13IV.Alternatives15Developing a new system15Creating a custom software15Purchasing a commercial-off-the-shelf software15Using form-filing16Redefining job responsibilities16V.Recommendations17Decision Analysis17Potential Problem Analysis19VI.Proposal Summary20VII.Appendix21Appendix A: Interview questions for Mr. Villarosa and Mr. Lipana21VII.Bibliography22

I. Executive Summary

The management of Villip Construction and Development Incorporated (VCID) has been encountering difficulties in their system regarding cash advances to employees. The systems analyst team proposes that the company develops a structured and formal system for the processing of advances to employees. This involves streamlining the procedures by assigning them to specific people. In addition, this means assessing what other documents may be necessary in processing requests of cash advances by employees. Furthermore, the group suggests that they use commercial-off-the-shelf software in recording the approved cash advances.

II. Outline of Systems StudyData Collection

For the data collection, the systems analysts team conducted three interviews. Both Mr. Villarosa and Mr. Lipana were given the same set of questions, which consisted of twenty-one open-ended questions. The proponents used open ended questions to allow the interviewees to discuss at a great depth, especially on topics regarding the companys problems.

After having determined the most pressing problem of the company, the group conducted another interview with a direct participant in the system in question. A set of questions, comprised of twenty open ended questions were used in interviewing Ms. Madelyn Amid, who handles the cash advancements of the employees alongside Mr. Villarosa, who also approves the request for advancements.

Data Analysis

The systems study was completed through the use of the SAPADAPPA approach. The SAPADAPPA approach which stands for Situational Analysis (SA), Problem Analysis (PA), Decision Analysis (DA) and Potential Problem Analysis (PPA), pertain to critical thinking approaches developed by Cynthia Tregoe Richetti and Ben Tregoe as published in the book Analytical Processes for School Leaders (2001). It is an approach used to identify problems and opportunities and seek to address the improvement of any organizations system.

Situational Analysis

The Situational Analysis stage of the approach determines the current situation of the company by identifying different concerns. The next step in the stage would be considering whether concerns are either problems or opportunities. These concerns would then have to be prioritized since tackling each concern stated would require time and resources, both of which must be appropriately allocated. Subsequently, locating these concerns is in order. This involves working out what the possible cause or causes for these concerns may be. Lastly, containment actions to identified problems or opportunities are needed to initially address the concerns.

The group conducted a Situational Analysis of VCDI during an interview conducted with the companys Chief Executive Officer, Mr. Efren Villarosa. A copy of the interview questions is provided in Appendix A.

In order for the team to have a greater depth in understanding the companys situation with regards to its problem, the team also interviewed the Chairman of the Board, Mr. Reynaldo Lipana and Ms. Madelyn Amid, the companys project control officer.

Through the interview, the group and the company were able to identify three problems and an opportunity. Priority of concerns was determined by the company as it was strongly suggested that the systems analysis team focus on the companys problems regarding the advancements to employees. Also during the interviews conducted, the possible causes of the problem as well as recommendations to address them were discussed.

Ishikawa Diagram

In ascertaining that the primary causes of the problem of Villip Consturction and Development Incorporated are identified, the group employed the Ishikawa diagram. An Ishikawa diagram or a fish diagram, as it is commonly referred to, is a systems tool that is used to identify possible root causes of a problem in a graphical format. (Silicon Far East, 2005). It is a useful tool in gathering all possible causes from all problem or systems analysts. This feature of the Ishikawa diagram allows the team of analysts to explore a wide breadth of possible root causes of the problem.

Problem Analysis

The next stage of the SAPADAPPA approach is Problem Analysis where the main problem to be solved through the systems study is identified. This stems from the process of prioritizing concerns done during Situational Analysis. The concern highly prioritized among the others would be considered as the problem to be focused on in the systems study. As was aforementioned, the prioritization of concern has already been identified for the group by VCDI the companys current system regarding advancements to employees. Causes of concerns discussed during the location step of Situational Analysis are then discussed at depth and validated in conducting Problem Analysis. To complete the Problem Analysis, the group identified possible solutions that were further developed from the containment actions supplied during Situational Analysis.

Decision Analysis

After coming up with several possible solutions to address the final problem stated in Problem Analysis, Decision Analysis serves as the stage where the decision is made or the best possible solution is chosen. To guide the decision making process, the objectives of the system which is to solve the problem within company abilities, are emphasized while comparison of alternatives or possible solutions is conducted. The group developed a set of criteria that took into consideration the desire and capacity of the company to adapt to the solutions. This is tantamount to the step in Decision Analysis where absolute and desirable criteria are created. The goal of Decision Analysis to arrive at the best possible solution was then achieved consequently.

Potential Problem Analysis

The last analysis in the SAPADAPPA approach is Potential Problem Analysis. Given the proposed system containing the best possible solution identified during Decision Analysis, potential problems that may occur when the proposed system is implemented are identified. After discovering potential problems, likely causes for these future threats are then considered. The Potential Problem Analysis is an attempt to analyze a future situation. Preventive and contingent actions are required to complete the analysis.

Individual Contributions

The following activities were contributed by Alexyss Alip: Conducted interviews, wrote the section on executive summary, co-wrote the section on outline of the systems study, participated, filling up of the SAPADAPPA forms and the Ishikawa diagram, created the diagram showing the flow of the current system used by VCDI, compiled and edited the paper and created the PowerPoint presentation.

The following activities were contributed by Gidjette Arguelles: Filling up of the SAPADAPPA forms, formulated alternatives, wrote the recommendation, did the diagram for the new system, explained the action plan, did final revisions for the paper.

The following activities were contributed by Ana Ella: Filling up of the SAPADAPPA forms, formulated alternatives, wrote the conclusion.

The following activities were conducted by Gemma Florido: Conducted interviews, wrote the section on results, co-wrote the section on outline of the systems study, filling up of the SAPADAPPA forms and did final revisions for the paper.

De La Salle University

2401 Taft, Manila Philippines

Villip Construction and Development Incorporated

The Development of an Efficient Cash Advancement System

22

III. ResultsSituational Analysis

CONCERN

DETAILS OF CONCERN

PRIORITY

LOCATE

CONTAINMENT ACTION

Urgency

Seriousness

Growth

1. Collection

No standard procedure on collecting payments (accounts payable) from clients.

Payment process imposed by client involves several steps, causing delay in collection.

Delayed collection results to difficulty of maintaining a steady cash inflow that in turn affects other operations such as keeping inventory.

Medium

High

Medium

Lack of control over standard procedure in collecting payment.

Better communication with clients regarding payment terms.

Informing clients of strict credit terms.

2. Giving advances to employees

No strict procedure on availing credit.

Manual recording of availing credit that is time consuming and difficult to monitor.

High

High

High

Lack of procedure to avail credit.

Fill-up forms to avail credit that should be screened then processed (as suggested by the owner).

Keep an electronic database of employees who avail credit.

3. Inventory

Manual process in recording the purchase and use of tools that leads to difficult monitoring.

Medium

Low

Medium

Lenient procedure as to recording the purchase and use of materials.

Manual recording to be replaced with an electronic database where employees are to strictly log their use and return of materials.

4. Expansion

Acquiring other clients through business advertisements to sustain the business.

Medium

Medium

Medium

Lack of focus regarding the expansion of the business.

Create a team that will focus on expansion.

Table 1.1: Situational Appraisal for VCDI

Ishikawa Diagram

(No definite job tasks in the process) (Inability to hire another employee to handle advancements) (No streamlined process) (Manual tabulation of approved requests and few paper trails to follow up on) (Informal process for requesting advances) (No exact criteria for basing approval) (Management style) (Manpower) (Method) (Method) (Money) (The current system regarding cash advancements of VCDI is inefficient, when ideally it ought to be 100% efficient.*)

(* Please see written section concerning problem analysis after the Problem Analysis form)Figure 1.1: Ishikawa diagram for VCDI

Problem Analysis

Problem Statement: The system of cash advancementsincluding filing the request, recording, approval and payment must be efficient 100% of the time.

Table 3.2: Problem Analysis of VCDI's Current System for Cash Advancement

Details of the Problem

Possible Causes

Most Probable Cause

Initial Recommendation

Resources

Details

Where

Accounting department

Finance department

Administrative

Method

Informal structure for the requesting of advancements

Informal job tasks assignments

Manual procedure

Method

Develop a formal structure for advancements

Adopt a more technologically updated procedure

When

Requesting advancement

Accepting advancement

Recording advancement

Paying the advancement

Manpower

Job responsibilities and assignments are not well defined

No one oversees the entire procedure

What kind or how much

Administrative problem

Time consumed in repeatedly transcribing the advancements made

Time consumed in relaying the details of the advancements

Time consumed in validating the advancements or if there were any advancements

Management Style

Requests for advancements are approved by Mr. Villarosa without a formal process

Approved advancements are not communicated to the administrative department

Who is involved

Mr. Villarosa

Mr. Lipana

Ms. Amid

Construction workers

Money

VCDI cannot afford to hire an additional employee due to lack of funds

Table 3.2: Problem Analysis of VCDI's Current System for Cash Advancement

Problem Analysis

Instead of choosing any of the stated problems or opportunity to be analyzed and addressed, it was suggested by VCDI that the group focus on the problem of the inefficient system of giving advancements to employees. Advancements to employees pertain to money taken from a firm to be given to an employee on an irregular basis (not during pay days) with an expectation of repayment. In accounting, the account advance to employee is used to record the advancements. This account appears in different firms balance sheet because it is treated as an asset from where payment is expected for the amount given away.

The problem of Villips Construction is that these advancements to employees are not recorded 100 per cent of the time, giving rise to problems of time-consuming activities to figure out why cash is seemingly lost. An efficient system would mean having records of all the cash advancements made. Every month, a rough count of 15 employees usually ask for advancements which altogether amount to 30000Php. By the time the Company is having its monthly consolidation of records, half of the advancement records are nowhere to be found because some advancements were not recorded at all. The people involved in the monthly consolidation will then have to spend a significant amount of time figuring out how to balance the Companys financial statements given the discrepancy in records.

Current System

According to both Ms. Amid and Mr. Villarosa, the process of requesting for cash advancements is informal and personal. The employee requesting for a cash advance would approach either Ms. Amid or Mr. Villarosa. The approval of the request is given by Mr. Villarosa on the basis of the employees credit and the amount being requested. If the request is granted, Mr. Villarosa or Ms. Amid will manually record it in the records book for cash advancements. In the records book for cash advancements, the following are the column headings: name, date of request, amount requested, cash advancement balance and payment.

Figure 3.1: Current process of request, approval and payment of cash advances

There is no formal consolidation of employees who avail of cash advances. At best, Ms. Amid would be able to consult with Mr. Villarosa once a week to compile the list of workers who availed of cash advances. (Amid, 2011)

Proposed System

Figure 3.2: Proposed process of request, approval and payment of cash advances

IV. AlternativesDeveloping a new system

A system, in the business setting, is comprised of documents, policies, procedures, human resources and other factors in an organization. In the case of VCDI, its system for cash advances needs structured and formal policies, procedures and specific job tasks or responsibilities. By adopting structured policies and procedures, the company can streamline the tasks that need to be accomplished when it comes to processing requests for cash advances. Identifying and redefining job tasks will also reduce the overlapping tasks of the people involved in the process. This would also aid the company in identifying the people who are responsible for particular tasks involving the system. In addition, supplementary documents and form-filing may also be required in requesting cash advance. This would facilitate a smooth consolidation of those who availed cash advances for a particular period. Furthermore, the company can also upgrade their recording process from manual to using computer software.

Creating a custom software

The company can opt to create custom software in order to address specific information requirements of the business when it comes to managing its cash advances. In having in-house software created, this means that the maintenance of the software would not have to rely on parties outside of the company. However, creating custom software requires a long period of time to accomplish. Also taking into consideration the nature of the companys business, there are no employees that can work on customized software. Thus, the company would have to hire a person with programming skills and experience.

Purchasing a commercial-off-the-shelf software

VCDI can also choose to buy a commercial-off-the-shelf (COTS) software like Microsoft Office Excel for the recording of cash advances. The company can still tailor-fit the COTS software to suit the needs of the management. It is also cheaper than creating in-house software. However, the degree of customization is not as high as that of software created in-house. While this may address the problems in manual recording of cash advances, it does not cover other problems encountered by VCDI management such as the problem with consolidating the lists of employees who have availed cash advances.

Using form-filing

The company can choose to use supporting documents such as a cash advance application form in order to aid them in reconciling the available lists of employees who availed of cash advancements. By having forms that can be completed by employees planning on availing cash advance, the company is less likely to encounter discrepancies at critical periods such as the end of the fiscal period where the companys accountants would need records of cash advances.

Redefining job responsibilities

VCDI can opt to redefine job responsibilities. This involves streamlining the job tasks associated with the cash advancement procedure of the company by reassigning tasks that would smooth the flow of the process. The company can assign Ms. Amid to take control of listing all cash advancement application and then forward them to Mr. Villarosa, thus eliminating the need for consolidation of the list of employees who have applied for cash advances.

V. RecommendationsDecision Analysis

Decision to make: How can management improve the current system for cash advancements such that it is 100% efficient?

Absolute Criteria

Desirable Criteria

1.

Within the budget of the company

1.

100% support from the management and employees

2.

Substantial support from the management

2.

Required skills can be found within the company

3.

Projected time to be consumed is appropriate for the undertaking

3.

Solution proposed is in line with company objectives

4.

Addresses the root cause of the problem

4.

Solution can be adopted immediately

Table 5.1: Criteria for decision making

Alternatives

Absolute Criteria (90%)

Desirable Criteria (10%)

Overall rating

25%

25%

25%

25%

Rating

25%

25%

25%

25%

Rating

1

2

3

4

1

2

3

4

1. Develop a new system

3.0

3.0

3.0

4.0

3.25

3.0

3.0

3.0

2.0

2.75

3.2

2. Create a customized software for cash advancement

2.0

2.0

1.0

2.0

2.25

1.0

1.0

1.0

1.0

1.0

2.12

3. Use a commercial-off-the-shelf (COTS) packages

1.0

4.0

2.0

2.0

2.25

3.0

3.0

2.0

3.0

3.0

2.325

4. Use form-filing

1.5

2.0

2.0

2.0

1.8

3.0

2.0

2.0

3.0

2.5

1.87

5. Redefine job tasks

3.0

2.5

3.0

2.5

2.75

2.0

4.0

2.0

2.5

2.63

2.73

Table 5.2: Decision Analysis form

Decision Statement: In order to improve the current system for cash advancements, the management must choose to develop a new and better system.

Decision Statement: Management must develop a new system in order to have an efficient cash advance process.

Options

Criteria

Best Alternative

1. Develop a new system

2. Create custom software

3. Purchase a commercial-off-the-shelf (COTS) software

4. Use form-filing

5. Redefine job tasks

Absolute

Desirable

Develop a new system

3.5

2

2.5

1.8

2.75

3

1

3

2.5

2.63

Action Plan*

Activity Schedule Responsibility

Activity

Schedule

Responsibility

Develop policies

Weeks 1-2

Management and team

Develop procedures

Weeks 2-4

Management and team

Create documents to be used

Weeks 5

Management and team

Streamline all components of the system

Weeks 6-10

Management and team

Implementation

Weeks 11-12

Management

Evaluation

Weeks 13-14

Management, employees

Table 5.3: Action plan

*Action Plan is scheduled to be done in 14 weeks because the management of the company has agreed with the proponents of the study to implement the plan during their subject BUSIMIS.

Potential Problem Analysis

Potential Threats

Likely Causes

1. Lost files of employees availing cash advances

2. Ill-received by employees

1.1 Technology breakdown

1.2 Human error

2.2 Natural human tendency to dislike change

2.3 Unfamiliarity with the new system

Contingent Actions for Potential Threats

Preventive Actions for Likely Causes

1.1 Continuously create back up files

1.2 Review all transfers made and make necessary changes if possible

2.1 Create a procedure for providing notices regarding the changes to be made

2.2 Continuous orientation of the stakeholders

1.1 Create back up files

1.2 Systematic transfer of manual records to softcopies

2.1 Immediately inform all stakeholders or people concerned of the impending changes

2.2 Orient all stakeholders, especially employees to the new system and enumerate the benefits of a better system

Table 5.3: Potential Problem Analysis form for VCDI

VI. Proposal Summary

VCDI is currently having problems with its cash advancement system. Guided by the use of the SAPADAPPA approach, the proponents recommend that VCDI develop a structured and formal system for its cash advances. This involves streamlining the procedures and identifying job responsibilities for the processes involved. It is also suggested that the company adopt a form-filing system to facilitate the consolidation of lists of employees requesting for cash advances. This is for the purpose of creating paper trail so that if discrepancies do occur in the computations or tabulation of data management can refer to the documents.

VII. AppendixAppendix A: Interview questions for Mr. Villarosa and Mr. Lipana

Questions for Mr. Efren Villarosa and Mr. Reynaldo Lipana

1. Company profiling

i. What industry does the company belong to?

ii. What is the companys Vision and Mission

iii. When was the company founded and by who?

iv. Customer profile

Which companies are their usual clientele?

From which industries do their clientele belong in?

What services or products do their customers usually avail of?

v. Does the company have a structured or formal hierarchy? (Ask for an organizational chart, if available.)

2. Problems encountered

i. What are their most pressing problems?

ii. What are the current processes involved in the problems?

iii. Who are the people directly involved in the processes?

iv. Why do they think that this problem is encountered?

3. Problems they could trust us to fix

i. Who are the people directly involved in the problem? (Ask for contact information of the aforementioned persons, if available.)

ii. What specific goals or objectives do they have in mind once the problem is solved?

iii. What is the budget range they could allocate for addressing this problem?

iv. How much information are they willing to divulge in order to solve the problem?

4. Opportunities they want to grab

i. What opportunities does the company want to take advantage of?

ii. Why do they think the company should take advantage of the enumerated opportunities?

iii. Which of these opportunities is the top priority of the company?

iv. What objective do they have in mind in grabbing the opportunity?

v. How much information are they willing to divulge in order to take advantage of the opportunity?

vi. What is the budget range they are willing to allocate?

VII. Bibliography

Accounting Coach. (n.d.). Advance to employee [Data file]. Retrieved fromhttp://www.accountingcoach.com/terms/A/advance-to-employee.htmlAmid, M. (2011, February 17). Problem analysis. (G. Florido, & A. Alip, Interviewers)Kendall, K. E., & Kendall, J. (2010). Systems Analysis and Design. Jurong: Pearson Education South Asia Pte. Ltd. Lipana, R. (2011, February 1). Situational Analysis of VCDI. (A. Alip, Interviewer)Silicon Far East. (2005). Ishikawa Diagram. Retrieved March 12, 2011, from Silicon Far East: http://www.siliconfareast.com/ishikawa.htmTobia, P. (2001).Book review: Analytical process for school leaders.Inforum, 2.Retrieved fromhttp://www.kepner-tregoe.com/PDFs/Forum/Analytic_Processes.pdfVillarosa, E. (2011, February 1). Situational Analysis of VCDI. (A. Alip, Interviewer)

Employee approaches Ms. Amid or goes straight to Mr. Villarosa with the request

Receipt of the cash advance request

Mr. Villarosa receives the request

Mr. Villarosa shall give the approval

Consultation with the employee on payment terms

Ms. Amid forwards the request to Mr. Villarosa

Employee is given the cash advance

Recording of details of cash advance

Employee approaches Ms. Amid with the request form

Receipt of the cash advance request form from employee

Mr. Villarosa reviews loan record of employee and

decides whether to approve or not based on cash on hand

Ms. Amid records employee cash advance

Ms. Amid checks database for record of loans by employee

Receipt of the cash advance request form from Ms. Amid

Ms. Amid forwards the request form to Mr. Villarosa

Mr. Villarosa communicates decision to Ms. Amid

Ms. Amid communicates decision of Mr. Villarosa to employee

Ms. Amid discusses payment terms to employee

Ms. Amid gives cash advance to employee

Ms. Amid gives employee a copy of approved cash advance form

On a form

On a database