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Representation and Patterns: An Introduction to the REA Enterprise Ontology . Chapter 2. Chapter Learning Objectives. Explain the importance of representation and modeling in enterprise system design and use Identify various types of patterns and recognize patterns in the world around you

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chapter learning objectives
Chapter Learning Objectives
  • Explain the importance of representation and modeling in enterprise system design and use
  • Identify various types of patterns and recognize patterns in the world around you
  • Describe the purpose and the components of the four levels of the REA ontology
  • Describe the usefulness of the REA pattern as a framework for database design
slide3

Representation

  • Depiction of Reality with Symbols
    • People are real things
      • Identification cards represent people
        • i.e., identification cards are symbols that represent those people
      • Can you think of other representations of people?
      • Which of these is likely to be the best representation?
    • Computers are real things
      • What are some representations of computers?
      • Which of these is likely to be the best representation?
slide4

Models as Representations

  • What is a model?
    • A model is a simplification of something in reality
      • Created for a specific purpose
      • Hides details that are not needed for that purpose
  • Models of enterprise systems
    • Help us better understand the system we are developing
    • Most enterprise systems are too large and complex for the average person to comprehend in entirety
slide5

Principles of Modeling

  • What makes “good” models?
    • Resemble their underlying reality as completely as possible
    • Can be expressed at different levels of precision
    • Can be broken down into smaller pieces and/or aggregated
slide6

REALITY

Representation at the type level uses one symbol for multiple instances of a specified type

green

red

Color

blue

yellow

Representation at the token level has a separate symbol for each specific instance in reality

purple

Symbol Representations at Different Levels of Abstraction

Token level SYMBOL

Type level SYMBOL

Source: Professor Bill McCarthy at Michigan State University;based on Geerts and McCarthy, “An Ontological Analysis of the Economic Primitives of the Extended-REA Enterprise Information Architecture” International Journal of Accounting Information Systems. 3:21. 1-16.

slide7

Are the objects below symbols or reality?

Are they “token” or “type” level objects?

Can you match the left-side objects to the corresponding right-side objects?

  • Victoria Memorial Hall
  • Lincoln Memorial
  • Mount Rushmore
slide8

Queen George Theodore Abraham Thomas

Victoria Washington Roosevelt Lincoln Jefferson

Are these objects symbols or reality? Are they “token” or “type” level objects?Can you match these objects to those on the previous slide?

slide9

death

birth

location

name

yr finished

name

Famous Person

Landmark

for

Landmark

Famous Person

How might we represent the “for” relationship at the token level??

slide10

Landmark

Famous Person

Landmark For Famous Person

object patterns
Object Patterns
  • “Stereotypical constellation of entities”
    • a group of entities and relationships between them that we expect to exist in the underlying reality
  • At the business process level, REA is such a pattern
script patterns
Script Patterns
  • Script patterns involve “pattern-based thinking” applied to sequential activities
slide13

Business-Entrepreneur Script

  • Get money
  • Engage in value-added exchanges
    • Purchase raw materials
    • Purchase labor
    • Manufacture finished goods
    • Sell finished goods
  • Pay back money and live off profit
slide14

Meet Frankie

  • 10-year old entrepreneur
  • Big fan of sports trading cards
  • Great idea for making money
    • Buy cards in bulk
    • Buy sleeves in bulk
    • Put cards in sleeves
    • Sell single sleeved cards at a profit to other sports trading card fans
slide15

Frankie’s Dad

  • Doesn’t think Frankie’s idea is good because
    • Frankie has no money
    • Frankie has no time to sort and assemble cards
slide16

Frankie’s Aunt Frances

  • Willing to lend some of it to Frankie
  • Will charge interest to make it a “real” business transaction
slide17

Frankie’s Sister Sally

  • Willing to work for Frankie for 2 cents per assembled card
slide18

Frankie’s Friends

  • Willing to pay fairly high prices to get the cards they want and willing to pay cash
  • Many more potential customers
slide19

Frankie’s Dad Reaction

  • Will be the supplier since Frankie doesn’t have a credit card.
  • Cards will cost $3 per pack if he buys 24 packs at a time. Sleeves will cost $7.50 for a box of 250. Those costs include shipping and sales tax.
  • Must pay for the cards as soon as they arrive.
  • Must pay Sally as soon as she does her work, not after the cards are sold
slide20

And then...At the End of the 3 Months

  • Total revenue generated is $400.
  • Repays Aunt Frances $180 and $4.50 in interest
slide21

What was Frankie’s profit?

Net Sales = $400.00

- COGS $165.60

= Gross Margin $234.40

- Interest Expense $ 4.50

= Net Income $229.90

slide22

Frankie’s Ending Balance Sheet

Assets

Cash $227.86

Inventory $ 2.04

Total Assets $229.90

Liabilities and Owners’ Equity

Liabilities $ 0.00

Retained Earnings $229.90

Total Liabilities & Equity $229.90

slide23

Scripts and the REA Ontology

  • The value chain is a sequence of scenes
    • Each is a business process
    • Each represents a pattern
  • The REA ontology is a combination of script patterns and object patterns to assist modeling enterprises
enterprise ontologies
Enterprise Ontologies
  • What is an “ontology”?
    • An attempt to define what things exist in the world in general; a branch of metaphysics dealing with the nature of being
  • What is an “enterprise ontology”?
    • An attempt to define what kinds of things in enterprises need to be represented
rea ontology levels
REA Ontology Levels
  • Value System Level (object-based pattern)
    • Examines enterprise in context of its external business partners
  • Value Chain Level (script-based pattern)
    • Connects business processes via resource flows between processes
  • Business Process Level (object-based pattern)
  • Task Level (script-based pattern)
    • Many different possible scripts exist
value system level
Value System Level

Places the enterprise in the context of its resource exchanges with external business partners

value chain level
Value Chain Level

Illustrates the enterprise’s internal business processes and the resource flows between them

slide28

Business Process Level

  • Entities
    • Resources
    • Economic Events
    • Agents (internal and external)
  • Relationships
    • Stockflow
    • Duality
    • Control
task level

Task 1

Task 5

Task 2

Task 6

Task 3

Task 7

Task 4

Task 8

Task Level
  • May be depicted in various formats
example data flow diagram

Inventory

data

Customer

data

Order

1.1.1

Receive

order data

from

customer

Order

1.1.2

Check

customer

status

Customer

credit status

1.1.3

Check

inventory

availability

Inventory

availability

Approved

Order

Approved

Order

1.1.4

Record

order

data

Customer

order data

Example Data Flow Diagram
summary
Summary
  • Modeling is a useful tool for minimizing complexity and enabling us to develop enterprise wide system solutions
  • Good models use symbols that represent reality as closely as possible
  • Object Patterns are stereotypical constellations of things and relationships between them
  • Script Patterns are stereotypical sequences of events, and can be thought of in terms of scenes, actors, props, and roles
  • A combination of object and script patterns can be used to model enterprise systems
    • the REA Enterprise Ontology provides such an approach, modeling enterprises at the value system, value chain, business process, and task levels