FIS 431/631 Financial Information Systems: Analysis and Design REA Modeling Joe Callaghan Oakland University Department of Accounting & Finance

REA(L) Model of A Business Event: The Event and Surrounding RALs What happened? - event When did it happen?- sequence Who was involved?-agents What resources were involved? – resource(s) Where did it occur? – loc. Event Internal Agent Resource External Agent Location Source: Hollander, Denna & Cherrington, 1996

REA(L) 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

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

Business Rules Narrative descriptions of policies, procedures, or principles in an organization Simple Examples: –Each purchase order must have only one vendor –Each vendor may have one or more purchase orders

Relationships 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 entity types

Connectivity or Cardinality 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 most RDBMS; generally indicates that a modeling error has occurred - this type of relationship means that your model may be missing an entity type

Participation or Optionality Mandatory - an instance of an entity of an entity type does require an associated entity of another entity type (as defined by a relationship) Optional - an instance of an entity of an entity type does not require a associated entity of another entity type (as defined by a relationship)

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

Events Most events are easy to identify because the business records data on forms and/or files are used. Events are characterized by the fact that they happen or have duration –For activity and REA models, they are characterized by at least a verb and a noun, but could have an adjective, e.g.: 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

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

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

A REA Interaction Model for MSC Function Sell Goods Customer Inventory Salesperson Department Receive Payment Cashier Cash Store

Types of Models Data model: One type is the ERD that depicts data (entities, attributes) and the relationships enforcing business rules between entity types. The primary goal is to accurately portray the fundamental elements of the business information system. The data model is implemented as a (usually relational) database in a developed system (central to the IS)

ERD with Normalization