The Accounting REA Model as an Information Engineering Interaction Model

1. Slides 5 The Accounting REA Model as an Information Engineering Interaction Model

2. A model is a representation of reality Systems analysts seek to understand an organization by building a representation of the business and its workings, called a business model (also conceptual or logical model) An IE business model includes three primary types of models: (1) data models, (2) activity models, and (3) interaction models Review of Modeling

3. Analysis Tasks with REA Interaction Modeling AHD, ADD Activity Analysis REA Preliminary Interaction Analysis 1 ERD PLD, ELC Formal Interaction Analysis 2 Data Analysis Systems Design Planning

4. Activity models: Record the activities of interest to the business (i.e., the things the business does or should do). Involves decomposition of business processes from the highest level (AMP of Resources, Conversion Processes, MSC Processes) to the lowest (elementary processes) - template Also involves the specification of process dependency events, to refine decomposition of the processes. Types of Models

5. Customers Suppliers Requestinput resources Pay for input resources Supply goods and services Receive payment HEART OF ORGANIZATION AMP Processes ConversionProcesses MSC Processes Finished Goods and Services to Customers Input Resources to the Organization Activity Models: Template for Decomposition of Business Processes (IPSO) - REPEAT Adds value RBMS Source: Hollander, Denna & Cherrington (2000), adapted

6. Business Processes AMP Processes Conversion Processes MSCProcesses Human Resources Financial Resources Supplies Inventories Property, Plant and Equipment Operations Varies widely depending upon the industry Marketing Sales Collection and Credit

7. Activity Model: Business Function Decomposition

8. Interaction models: Define how things the business does (activities/events) affect things of interest to the business (data) The REA model is an interaction model We have combined the IE notation of an interaction model with the accounting REA(L) model Types of Models

9. REAL Model of A Business Event: The Event and Surrounding RALs Location Internal Agent Event Resource External Agent • What happened? • When did it happen? • Who was involved? • What resources were involved? • Where did it occur? Source: Hollander, Denna & Cherrington, 1996

10. REAL modeling is an aid in analyzing an organization and its activities (helps develop activity models by identifying lowest level of decomposition) Helps decide what data to collect (helps develop data models) Enhances your ability to evaluate business processes and identify processes and events that are not valuable, not competitive, and/or not meeting the objectives of the organization

11. Process and Events Take customer order Ship goods Business Process: Simple MS

12. REA Template With Two Events Internal Agent Location Event 1: Take customer order External Agent Resource Internal Agent Location Event 2: Ship goods External Agent Resource

13. Those who understand the details and objectives of the business process and events being modeled should perform the validation. Validation sessions should result in either the confirmation of the model’s accuracy or modification of the model. Validate The REAL Model With Business Persons

14. Data modeling term that indicates an association between tables: How the things of significance are related (A FK must match to an existing PK, or else be NULL) This controlled redundancy allows linking of tables (hence “relational”) Entity-Relationship Diagram (ERD): A data model (at the conceptual level) that shows the relationships enforcing business rules between entities (tables) in a database environment Relationships

15. One-to-One (PK ---> PK) - Generally indicates that your data model has two entity types that can be collapsed into one One-to-Many (PK ---> FK) - Most common Many-to-Many (FK ---> FK) - Not enforceable by RDMS; generally indicates that a modeling error has occurred - this type of relationship means that your model is missing an entity type Connectivity or Cardinality

16. Mandatory - an instance of an entity in one table does require a associated record in another table (as defined by a relationship) Optional - an instance of an entity in one table does not require a associated record in a another table (as defined by a relationship) Cardinality of Relationships

17. Different Notations to Represent Relationships Cardinalities (could even be on opposite sides of the connecting line – a mirror image) - handout (1,1) (1,N) (0,1) (0,N)

18. Most events are easy to identify because the business records data on forms or files. Events are characterized by the fact that they happen or have duration For activity and REAL models, they are characterized by at least a verb and a noun, but could have an adjective, take customer order, deliver customer order, pay supplier For data models (converting REAL to ERD), they are characterized by a noun, e.g., Order header, Order detail, Sales header, Sales detail, Cash receipt Events

19. Salesperson Department Sell Goods Customer Inventory Receive Payment Store Cashier Cash A REAL Interaction Model for MSC Function Note: Use of verb/noun

20. AGENTS Entity types that describe roles played in a system. They usually represent people or organizations. APPLICANT, BORROWER, CLIENT, CREDITOR, EMPLOYEE, EMPLOYER, INSTRUCTOR, MANAGER, SALESPERSON, VENDOR Surrounding RALs

21. RESOURCES Entity types that describe tangible things. EQUIPMENT, INVENTORY, CASH, MACHINE, MATERIAL, PART, PRODUCT, VEHICLE, but they can also be Informational Resources, e.g., PRODUCT CATALOG Surrounding RALS

22. LOCATIONS Entity types that describe locations BRANCH, BUILDING, CAMPUS, CITY, COUNTRY, COUNTY, SALES REGION, WAREHOUSE, STORE, FRANCHISEE Surrounding RALs

23. Data model: ERD with Normalization