Chapter 9

Transaction Processing and Management Reporting Systems

9.1 Functions of Transaction Processing Systems

A transaction is an elementary activity conducted during business operations. Transaction processing systems (TPS) process the company's business transactions and thus support the operations of an enterprise. A TPS records a non-inquiry transaction itself, as well as all of its effects, in the database and produces documents relating to the transaction.

TPS are necessary to conduct business in almost any organization today. TPSs bring data into the organizational databases, these systems are also a foundation on which management oriented information systems rest.

System Charts [Figure 9.1]

Systems charts are well-established tools which are used to describe TPSs. These charts show the sources of input into the system, major processing steps, data storage, and systems outputs.

Transaction Processing Modes [Figure 9.2 & 9.3]

Transaction processing may be accomplished in one of two modes:

1. On-line mode

2. Batch mode

Characteristics of on-line transaction processing:

1. Each transaction is completely processed immediately upon entry.

2. OLAP is the most common mode of used today

3. More costly than batch processing

4. Database is always up to date

5. Require the use of fast secondary storage such as magnetic disks

Characteristics of batch transaction processing:

1. Relies on accumulating transaction data over a period of time and then processing the entire batch at once.

2. Batch processing is usually cyclic: daily, weekly, or monthly run cycle is established depending on the nature of the transactions

3. Cheaper than on-line processing

4. Easier to control than on-line processing

5. Database is constantly out of date

6. Batch processing is now being captured using disk files

9.2 Transaction Processing Subsystems in a Firm [Figure 9.4]

Overall transaction processing, also known as data processing, reflects the principal business activities of a firm. The principal transaction processing subsystems in a firm are those supporting:

1. Sales

2. Production

3. Inventory

4. Purchasing

5. Shipping

6. Receiving

7. Accounts payable

8. Billing

9. Accounts receivable

10. Payroll

11. General ledger

9.3 Transaction Processing Activities

The processing of individual transactions, of course, depends to a degree on their nature. The general elements of transaction processing include:

1. Data capture and validation

2. Transaction - dependent processing steps

3. Database maintenance

Date Capture

Direct data entry is commonly employed through source data automation. Increasingly, transaction processing systems rely on electronic data interchange (EDI). By replacing paper documents with formatted transaction data sent over telecommunications networks, these systems provide for computer-to-computer communication without repeated data entry. Although used internally by some firms, EDI primarily serves the needs of intercompany communication.

Data Validation

Typical validation tests include checking for missing data items, valid codes, and valid values. More extensive validation may entail authorization of the transaction based on the customer=s record and available inventory.

Processing Steps Dependent on the Transaction and on Processing Mode

Depending on the nature of the transaction and on whether the system operates in on-line or batch mode, the following processing steps may be performed:

1. Classification The system classifies incoming transactions to select further processing steps.

2. Sorting Transaction records are arranged in order of the value of the data item(s) that uniquely identifies each of them.

3. Data Retrieval The purpose of an inquiry transaction is retrieval of data from the database. Other transactions may involve data retrieval as well.

4. Calculation The calculations required depend on the nature of the transaction.

5. Summarization Usually performed to obtain simple reports offered by TPS, this step computes summaries across all or some of the transactions.

Database Maintenance

After transactions other than inquiries, system files or databases must be updated. The data accumulated by TPSs thus serve as a source of detail for management oriented components of information systems.

9.4 Outputs Provided by Transaction Processing Systems

The outputs provided by TPSs may be classified as:

1. Transaction documents

2. Query responses

3. Reports

Transaction Documents

Many TPSs produce transaction documents, such as invoices, purchase orders, or payroll checks. These transaction documents produced by TPS may be divided into two classes: action documents and information documents.

1. Action documents direct that an action take place. Turnaround documents initiate action and are returned after its completion to the requesting agency. They therefore also serve as input documents for another transaction.

2. Information documents confirm that a transaction has taken place or inform about one or several transactions. Transaction documents require manual handling and, in some cases, distribution of multiple copies. The process is costly and may lead to inconsistencies if one of the copies fails to reach its destination.

Query Responses and Reports

TPS offer certain querying ad simple reporting capabilities, albeit much less elaborate than those of management reporting systems. Most queries produce a screenful of information. However, reports are also often produced as a result of inquiries.

Unlike management reporting systems, TPSs typically provide a limited range of preplanned reports. The content and format of such reports are programmed into the TPS software and the reports are produced on schedule. The TPS reports are often quite long.

The following report types are produced by TPS:

1. Transaction Logs - are listings of all transactions processed during a system run and include purchase order manifests or sales registers.

2. Error (Edit) Reports - error reports list transactions found to be in error during the processing. They identify the error and sometimes also list the corresponding master file or database records.

3. Detail Reports - detail reports are extracts from the database that lists records satisfying particular criteria.

4. Summary Reports - typical summary reports produced by TPSs include financial statements.

9.5 From Electronic Data Interchange (DEI) to Electronic Commerce [Figure 9.6]

A prominent means of source data automation is electronic data interchange. Electronic data interchange (EDI) is the computer to computer interchange of electronic transaction documents, involving at least two trading partners. With EDI, paper transaction documents, such as purchase orders or invoices are eliminated and replaced with standardized electronic communications. EDI underlines much of electronic commerce by enabling companies to conclude commercial transactions over telecommunications networks, and the Internet in particular.

EDI components include the following:

1. Transaction standards

- the messages are exchanged in a standard form, agreed on by the participating partners.

2. Industry standard for product identification

- partners have to agree on the standard way to identify their products.

3. Translation software

- translation software converts the incoming EDI messages into a format that can be used by the owner firm's applications.

4. Telecommunications systems

- EDI can be carried out via direct telecommunications links between the partners, using a value-added network (VAN) from a third-party supplier, or over the Internet. Among other services, VANs supply electronic mailboxes that can hold messages for the addressee.

Beyond direct savings, EDI has significant potential in competitive and strategic applications of information technology. Among the principal effects are:

1. Compressing the business cycle by speeding up communications

2. Supporting time-based competitive modes, such as the just in time manufacturing strategy that reduces or even removes inventories, and quick response retail strategies

3. Intensified relationships between trading partners. This is due to the cost of switching to another EDI system after the given one is in place and to avoid misunderstandings because of errors, common in the exchanges of paper documents.

9.6 Management Reporting Systems [Figure 9.8]

Characteristics of Management Reporting Systems

Management reporting systems are the most elaborate of the management oriented information systems. The main objective of management reporting systems (MRS) is to provide lower and middle management with printed or electronic reports and with inquiry capabilities to help maintain operational and management control of the enterprise.

Characteristics of MRS include:

1. They are usually developed by information systems professionals, rather than by end users, over an extensive period of time, with the use of life cycle oriented development methodologies as opposed to a rapid development by first building a simpler prototype system and then refining it in response to user experience.

2. These systems are build for situations in which information requirements are reasonably well known and expected to remain relatively stable.

3. MRSs do not directly support the decision-making process as a search for alternative solutions to problems and the selection of the solution to be implemented.

4. MRSs are oriented toward reporting on the past and the present, rather than projecting the future.

5. MRSs generally have limited analytical capabilities. They are not built around elaborate models, but rather rely on extraction of data from databases according to given criteria, and on summarization of the data.

6. MRSs largely report on internal company operations rather than spanning the company=s boundaries by reporting external information.

Reporting by Management Report Systems

MRSs may produce reports either directly from a database collected and maintained by a transaction processing system, or from databases spun off from the central database for the purpose. Separate spin off databases may be created for several reasons, such as:

1. Avoiding interference and delays in transaction processing

2. Maintaining the security of central databases

3. Economizing by using local databases accessible to local managers to counter heavy telecommunications costs of working with a central database.

MRSs provide the following types of reports:

1. Scheduled (Periodic) Reports

- are furnished on a daily, weekly, biweekly, or other regular basis depending on the decision-making need.

- the format and the informational content of scheduled reports are fixed in advance. However, it is crucial to identify the essential informational needs of various managers to facilitate each manager's decision making and to prevent information overload.

- the concept of responsibility reporting is generally applied - managers receive reports within their specific areas of responsibility.

- a hierarchy of performance reports arises, with each report including only the items that the manager can control.

2. Exception Reports

- produced only when preestablished Aout of bounds@ conditions occur and containing only the information regarding these conditions. Exception reporting helps managers avoid perusal of incident figures and concentrate on deviations from the norm and on unusual events.

3. Demand (Ad Hoc) Reports

- the ability of a manager to request a demand report or screen output as needed enhances the flexibility of MRS use and gives the end user the capability to request the information and format that best suit his or her needs. Query languages provided by DBMSs make data accessible for demand reporting.

9.7 Strategic Potential of Transaction Processing & Management Reporting Systems

TPS can be enablers of major process innovations. Redesigned business processes, supported by TPS, cut through functional business lines and can ensure rapid and high-quality customer service. Strategic TPSs may become a source of competitive advantage or competitive parity by focusing on the internal or customer oriented processes.

The customer driven nature of many TPSs affords some firms the opportunity to gain a competitive advantage by providing unique systems. Some of the types of information systems based on these capabilities which can be exploited for competitive effect include:

1. Tracking systems - management reporting systems that continuously track the status of a project or a product under development.

2. Locational systems - TPS that monitor the geographic location of materials or vehicles.

3. Asset management systems - TPS and MRS that maintain and report on-line the status of financial inventory, and human resources assets.