BUSINESS PROCESS MODELLING USING REA ONTOLOGY

Transcription

1 BUSINESS PROCESS MODELLING USING REA ONTOLOGY Josef Kašík 1, František Huňka 2 1 VŠB-Technical University of Ostrava, Czech Republic, josef.kasik@vsb.cz 2 University of Ostrava, Czech Republic, frantisek.hunka@osu.cz Abstract Enterprise information systems (EIS) and enterprise resource planning systems (ERP) at operational and management levels are often based on standard planning and accountancy tools. Standard structure of these systems leads to existence of subsystems with insufficient crosscut functionality. The paper describes and presents business process modelling focused on utilizing the REA enterprise ontology, which was introduced by William McCarthy in 1982 and which gets rid of the traditional double entry book-keeping system, well-known in accountancy, by focusing on the primary business data derived from real conversions and exchanges. The REA enterprise ontology uses three the most fundamental REA entities (economic resources, economic events and economic agents) and several relationships between these entities (e.g. provide, receive, outflow, inflow, use, consume etc.). There are also two different but interconnected modelling levels (operational and policy level) in the REA model. While at the operational level we model the economic events that happen or have happened the policy level gives answer to the questions: what could, should or must occur. In general the policy level also gives the answers to the questions: what is planned or scheduled. The main advantage of the REA model in comparison to other modelling frameworks is its ability to comprehensively capture the real economic activities that take place in a company, the economic resources that are received or provided and the economic agents who are accountable for the economic activities and who owns or are in possession of the economic resources. Hence the REA enterprise ontology links together business process modeling with the underlying economic phenomena. The traditional business process models do not depict property rights, resource control and value flows. However the REA enterprise ontology is based on value oriented perspective of resources using value chain concept, developed and introduced by Michael Porter, because a resource flow is created by the REA resources and business processes are modeled by the REA exchange or conversion business processes. The REA value chain is a network of business processes, whose purpose is to directly or indirectly contribute to the creation of the desired features of the final product and to exchange it with other economic agents for a resource that has a greater value for the enterprise. Therefore the fundamental idea of the REA model is that if an enterprise wants to increase the total value of its resources, it has to usually decrease the value of some of its other resources. An enterprise can increase or decrease the value of its resources either by exchange processes or by conversion processes. While the business processes are linked together by the duality relationships, the value chain model is weaved by resource inflow and outflow relationships. After explanation of the basic entities and relationships of this modelling framework, four levels of abstraction of the REA enterprise ontology are explained i.e. the value system level, the value chain level, the business process level and the task level. All these levels of the modelling are documented on an example of cash sale business process. The main objective and contribution of the paper is introducing a dynamic aspect (dynamization) of this framework. This aspect is modelled using the UML activity diagram that can be used both for consistency checking of the whole REA model and for the task level of the modelling. Achieved results in this area are illustrated in the included figures and diagrams. Keywords: REA model, resource, event, agent, business process modelling. JEL Classification: L15, L23, M11, O21. Introduction Enterprise information systems and enterprise resource planning systems are often based on standard planning and accountancy tools. These tools or at least some of their parts are formed by traditional means bringing adequate results. Despite of their proliferation and commercial success, traditional systems have their limits. The main problem is their increasing complexity. It is more and more difficult to process and retrieve the relevant data for the enterprise management (Vymětal et al., 2008). Information systems in many enterprises are not integrated enough and the functional areas are rather isolated and form the stovepiped system (Dunn et al., 2004). Decisions based on information obtained from within just one functional area are usually made from a narrow perspective. Therefore it is recommended to focus on workflow processes that are in most cases cross-functional. Enterprises should carefully examine every step in their business processes and question the necessity of each step (Hammer, 1990). Moreover it is difficult to find an application design that is concise and easy to understand for the users of software applications, for consultants and for application developers. Solution could be the 1047

2 application design based on REA language that ensures unambiguous understanding and communication among all participants of the software development process. As REA software applications store the primary data about economic entities, all reports are always consistent, because they are derived from the same data (Hruby, 2006). There are two main objectives in this paper. The first objective is to introduce a value oriented perspective, represented by the REA modelling framework, into business process modelling. The second one is to demonstrate the utilization of this framework on particular business process i.e. a cash sale process with special attention to introduction of a dynamic aspect using the UML activity diagram that can be used for consistency checking of the whole REA model. The REA ontology The REA model was introduced in 1982 by William E. McCarthy as a general accounting model using three main entities resources, events and agents, whose first letters gave name to this model (McCarthy, 1982). Nowadays the REA model is not only a popular model in application and teaching of accounting information systems, but it is also a significant tool used for modelling and better understanding of real processes in business. Unfortunately the REA model is seldom used in business practice. The reason of this situation is tradition, inertia and necessity to change the way of thinking of accountants and other persons involved in an enterprise and entrepreneurship. The REA model is basically a simple model, which gets rid of some traditional accounting entities and principles. The most important change is cancelling the double entry book-keeping system. Many general ledger accounts (e.g. accounts payable or accounts receivable) also disappear, at least as primary objects. The REA system is able to generate the state of these accounts using primary resource data. The REA system treats the accounting system as a virtual representation of the real enterprise. It creates and uses objects that represent realworld-business objects. Geerts and McCarthy (Geerts & McCarthy, 2000; 2002) presented REA as an ontology for business systems. Ontology can be defined as an explicit specification of a conceptualization (Gruber, 1993) or as a study of the categories of things that exist or may exist in some domain (Sowa, 1999). Nowadays ontologies can be found in many domains and the REA ontology can be categorized as an enterprise ontology. A number of other enterprise ontologies exist e.g. e 3 -value ontology, AIAI enterprise ontology, the TOVE ontology and Osterwalder s ontology (Gordijn, 2004). Especially the e 3 - value ontology shows many similarities with the REA ontology. The REA ontology is based on four levels of abstraction or four levels of granularity (Dunn et al., 2004; Vymětal et al., 2008): 1) value system level, 2) value chain level, 3) business process level, 4) task level. These different levels of granularity are depicted in Figure

3 Source: Hruby, modified Figure 1. Four levels of granularity of the REA models The REA ontological categories are illustrated in Figure 2. As mentioned above, the REA enterprise ontology uses three the most fundamental REA entities i.e. Resource, Event and Agent. Resource is an asset that is scarce and has utility and value for economic agents. Examples of economic resources are products, money, tools, labour etc. Event represents either an increment or a decrement in the value of economic resources that are under control of economic agents. Hence there are two kinds of economic events in the REA models i.e. increment economic events and decrement economic events. An increment economic event increases the value of the related economic resources and a decrement economic event decreases their value. Agents are the providers and recipients of the rights associated with economic resources. It can be an individual or an organization. Commitment is a promise or obligation of economic agents to perform an economic event e.g. to sale or to pay for a product. While Contract is a collection of increment and decrement commitments and terms in trade, Schedule has the same meaning in the area of production. In the REA ontology, every REA entity has an REA type (meaning a type or group of the entities) i.e. Resource Type, Event Type, 1049

4 Agent Type, Commitment Type, Contract/Schedule Type. There is a logical relationship between an entity and its type in the REA ontology. Duality is a relationship that binds economic events together because every increment economic event must be related by a duality to a decrement economic event. Stockflow is a relationship between an economic event and a resource specifying inflow and outflow of the rights to the resource or production, usage and/or consumption of the resource. Therefore stockflow is a common concept for the inflow, outflow, use, consume and produce relationships used in the REA models. Participation is a relationship between an economic event and an economic agent receiving and losing rights to economic resources or receiving and losing physical control over economic resources. Responsibility is a relationship specifying hierarchical structure of economic agents. Each commitment is related to an Resource or an Resource Type by a reservation relationship. This relationship specifies what resources will be needed or are expected by future economic events. Commitments are fulfilled in future by one or more economic events. Therefore the relationship between a Commitment and Event is labelled fulfilment. Each promised economic event consists of at least two commitments: increment commitments, which are expected to increase the value of economic resources, and their related decrement commitments, which are expected to decrease the value of economic resources. The relationship between increment and decrement commitments is called reciprocity. Each Commitment is related to an agent by an involvement relationship. Characterization is a common concept for the linkage type. Although the REA ontology does not have explicit names for the relationships linking REA entities to a Contract or Schedule; and linking REA entities to a Policy (Hruby, 2006), we use the relationship party between an Agent and a Contract and a relationship clause between a Contract/Schedule and a Commitment in the REA models. Commitment Type Contract / Schedule Contract / Schedule Type reservation Commitment involvement reservation reciprocity fulfillment Resource stockflow Event participation Agent linkage duality responsibility Resource Type Event Type Agent Type characterization characterization characterization Policy Source: Hruby, modified Figure 2. REA ontological categories 1050

5 Example of application - cash sales business process The sales process is one of the elementary exchange processes and one of creating revenue; hence, every enterprise has a process similar to sales. Cash sales business process is the simplest version of the sales process. In REA ontology a sales process is an exchange of economic resources. Figure 3 illustrates the REA value system model for a cash sale process. Figure 3. Value system level REA model for a cash sale process There are two economic agents involved in this process i.e. an enterprise and a customer. The economic resource an enterprise gives to a customer is a product. In exchange, the customer gives cash to the enterprise. The enterprise is willing to give products to the customers in exchange for cash because they expect to receive an amount of cash that is worth more to them than the products. Figure 4. Value chain level REA model for a cash sale process Figure 4 illustrates the value chain level REA model for a cash sale process. Product as a resource represents an input to a cash sale process and cash exchanged for product is another resource representing an output from the process. 1051

6 Figure 5. A cash sale business process level REA model Figure 5 illustrates the third level of granularity i.e. the business process level. The REA model contains two economic agents (Customer and Enterprise), who exchange two economic resources (Product and Cash) through two economic events (one decrement event Sale and one increment event Cash Receipt). The entity Claim represents the value of the imbalanced exchange duality because Sale does not have to happen at exactly the same time as Cash Receipt. Figure 6. UML activity diagram for a cash sale process Figure 6 illustrates the UML activity diagram for a cash sale process. The UML activity diagram has to be consistent with the business process level REA model and therefore can be used for a consistency check. There are two swim lanes (one for Enterprise and one for Customer) in the activity diagram corresponding to two economic agents in the business process level REA model. In practice a customer 1052

7 usually initializes by his/her sales order providing of a product (which is an economic resource in the business process level REA model) by an enterprise. On the other hand this customer has to provide cash (another economic resource) in exchange for the product and the enterprise receives the cash. It should be stressed that the economic events from the business process level REA model are represented by two frames (Sale and Cash Receipt) in the UML activity diagram with exchange duality relationship between them. Conclusions The REA ontology that can be used for modelling business processes is presented in this paper. The advantage of the REA models is their simplicity and comprehensibility for the users of software applications, for managers, for consultants and for application developers. The REA models are based on a simple but fundamental idea of exchange (or conversion) of economic resources between economic agents through economic events. We presented four levels of abstraction (or four levels of granularity) of the REA models i.e. the value system level, the value chain level, the business process level and the task level and described the main entities and relationships of this modelling framework. Each of four modelling levels is documented on an example of cash sale business process. A dynamic aspect of this framework is introduced on the same example and modelled using the UML activity diagram. The main advantage of creating this dynamic model is its ability to check the consistency of the whole REA model. References 1. Dietz, J. L. G. (2006). Enterprise Ontology: Theory and Methodology. Heidelberg: Springer. 2. Dunn, C. L., & Cherrington, O. J., & Hollander, A. S. (2004). Enterprise Information Systems: A Pattern Based Approach. New York: McGraw-Hill/Irwin. 3. Geerts, G. L., & McCarthy, W. E. (2000). The Ontological Foundations of REA Enterprise Information Systems. Paper presented at the Annual Meeting of the American Accounting Association, Philadelphia, PA. 4. Geerts, G. L., & McCarthy, W. E. (2002). An Ontological Analysis of the Primitives of the Extended REA Enterprise Information Architecture [Online]. Available at 5. Gordijn, J. (2004). E-business value modelling using the e3-value ontology. In W.L. Curry (Ed.), Value creation form e-business models (pp ). Oxford (UK): Elsevies Butterworth-Heinemann. 6. Gruber, T. R. (1996). A Translation Approach to Portable Ontologies. Knowledge Acquisition, 5(2), pp Hammer, M. (1990). Business Process Reengineering: Don t Automate, Obliterate. Harvard Business Review, Jul/Aug 1990, Hruby, P. (2006). Model-Driven Design Using Business Patterns. Heidelberg: Springer. 9. McCarthy, W. E. (1982). The REA Accounting Model: A Generalized Framework for Accounting systems in a Shared Data Environment. The Accounting Review, July 1982, Sowa, J. F. (1999). Knowledge Representation: Logical, Philosophical and Computational Foundations, Course Technology. 11. Vymětal, D., & Hučka, M., & Huňka, F., & Kašík, J. (2008). Production planning model using REA ontology. E + M Ekonomie a Management, 11/4,