Transaction Processing and Management Reporting Systems (2024)

Transaction Processing and ManagementReporting Systems

9.1 Functions of Transaction Processing Systems

A transaction is an elementary activityconducted during business operations. Transaction processing systems (TPS)process the company's business transactions and thus support the operations of anenterprise. 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 anyorganization today. TPSs bring data into the organizational databases, these systems arealso a foundation on which management oriented information systems rest.

System Charts [Figure 9.1]

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

Transaction Processing Modes [Figure 9.2 & 9.3]

Transaction processing may be accomplished in one oftwo modes:

1. On-line mode

2. Batch mode

Characteristics of on-line transaction processing:

1. Each transaction is completely processed immediatelyupon 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 asmagnetic disks

Characteristics of batch transaction processing:

1. Relies on accumulating transaction data over aperiod 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 Database is constantly out of date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 diskfiles

9.2 Transaction Processing Subsystems in a Firm [Figure9.4]

Overall transaction processing, also known as dataprocessing, reflects the principal business activities of a firm. The principaltransaction 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 processinginclude:

1. Data capture and validation

2. Transaction - dependent processing steps

3. Database maintenance

Date Capture

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

Data Validation

Typical validation tests include checking for missingdata items, valid codes, and valid values. More extensive validation may entailauthorization of the transaction based on the customer=srecord and available inventory.

Processing Steps Dependent on the Transaction and onProcessing Mode

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

1. Classification The system classifies incomingtransactions to select further processing steps.

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

3. Data Retrieval The purpose of an inquiry transactionis retrieval of data from the database. Other transactions may involve data retrieval aswell.

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

5. Summarization Usually performed to obtain simplereports offered by TPS, this step computes summaries across all or some of thetransactions.

Database Maintenance

After transactions other than inquiries, system filesor databases must be updated. The data accumulated by TPSs thus serve as a source ofdetail 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 asinvoices, purchase orders, or payroll checks. These transaction documents produced by TPSmay be divided into two classes: action documents and information documents.

1. Action documents direct that an actiontake place. Turnaround documents initiate action and are returned after its completion tothe requesting agency. They therefore also serve as input documents for anothertransaction.

2. Information documents confirm that atransaction has taken place or inform about one or several transactions. Transactiondocuments require manual handling and, in some cases, distribution of multiple copies. Theprocess is costly and may lead to inconsistencies if one of the copies fails to reach itsdestination.

Query Responses and Reports

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

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

The following report types are produced by TPS:

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

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

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

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

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

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

EDI components include the following:

1. Transaction standards

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

2. Industry standard for product identification

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

3. Translation software

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

4. Telecommunications systems

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

Beyond direct savings, EDI has significant potential incompetitive and strategic applications of information technology. Among the principaleffects are:

1. Compressing the business cycle by speeding upcommunications

2. Supporting time-based competitive modes, such as thejust in time manufacturing strategy that reduces or even removes inventories, and quickresponse 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 placeand to avoid misunderstandings because of errors, common in the exchanges of paperdocuments.

9.6 Management Reporting Systems [Figure 9.8]

Characteristics of Management Reporting Systems

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

Characteristics of MRS include:

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

2. These systems are build for situations in whichinformation requirements are reasonably well known and expected to remain relativelystable.

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

4. MRSs are oriented toward reporting on the past andthe 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 fromdatabases according to given criteria, and on summarization of the data.

6. MRSs largely report on internal company operationsrather than spanning the company=s boundaries byreporting external information.

Reporting by Management Report Systems

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

1. Avoiding interference and delays in transactionprocessing

2. Maintaining the security of central databases

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

MRSs provide the following types of reports:

1. Scheduled (Periodic) Reports

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

- the format and the informational content of scheduledreports are fixed in advance. However, it is crucial to identify the essentialinformational needs of various managers to facilitate each manager's decision making and to prevent informationoverload.

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

- a hierarchy of performance reports arises, with eachreport 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. Exceptionreporting helps managers avoid perusal of incident figures and concentrate on deviationsfrom the norm and on unusual events.

3. Demand (Ad Hoc) Reports

- the ability of a manager to request a demand reportor screen output as needed enhances the flexibility of MRS use and gives the end user thecapability to request the information and format that best suit his or her needs. Querylanguages 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 andcan ensure rapid and high-quality customer service. Strategic TPSs may become a source ofcompetitive advantage or competitive parity by focusing on the internal or customeroriented processes.

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

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

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

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