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Review Topic 4

The document discusses enterprise resource planning (ERP) systems, including their core modules, applications, configurations, risks, and implications for internal controls and auditing. ERP systems integrate key business functions through a shared database and aim to facilitate information flow across the organization.

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24 views8 pages

Review Topic 4

The document discusses enterprise resource planning (ERP) systems, including their core modules, applications, configurations, risks, and implications for internal controls and auditing. ERP systems integrate key business functions through a shared database and aim to facilitate information flow across the organization.

Uploaded by

kite
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Problems with non-ERP System

• In-house design limits connectivity outside the company


• Tendency toward separate IS’s within firm
• Lack of integration limits communication within the company
• Strategic decision-making not supported
• Long-term maintenance costs high
• Limits ability to engage in process reengineering

What is ERP?
• Enterprise resource planning (ERP) refers to a type of software that
organizations use to manage day-to-day business activities such as accounting,
procurement, project management, risk management and compliance, and supply
chain operations.
• It is an end-to-end business application supported by multi-module application
software that help a company manage the important parts of the business in an
integrated fashion.

• Key features include:


• Smooth and seamless flow of information across organizational boundaries
• Standardized environment with shared database independent of application
and integrated applications

Two Main ERP Applications


Core applications
• a.k.a On-line Transaction Processing (OLTP)
• Transaction processing systems • Support the day-to-day operational activities
of the business
• Support mission-critical tasks through simple queries of operational databases
• Include sales and distribution, business planning, production planning, shop
floor control, and logistic modules

ERP CORE MODULES


- Financial Management
- Sales & Service Management
- Supply Chain Management
- Project Management
- Operations Management
- Reporting & Analytics

Two Main ERP Applications


Business Analytics Applications
• a.k.a. On-line Analytical Processing (OLAP)
• Decision support tool for management-critical tasks through analytical
investigation of complex data associations
• Supplies management with “real-time” information and permits timely
decisions to improve performance and achieve competitive advantage
• Includes decision support, modeling, information retrieval, ad-hoc
reporting/analysis, and what-if anaylsis

OLAP
• Supports management-critical tasks through analytical investigation of complex
data associations captured in data warehouses:
• Consolidation is the aggregation or roll-up of data.
• Drill-down allows the user to see data in selective increasing levels of detail.
• Slicing and Dicing enables the user to examine data from different viewpoints
often performed along a time axis to depict trends and patterns.

ERP System Configurations:


Client-Server Network Topology Two-tier
• common server handles both application and database duties
• used especially in LANS

ERP System Configurations: Client-Server Network Topology


Three-tier
• client links to the application server which then initiates a second connection to
the database server
• used especially in WANS

ERP System Configurations:


Databases and Bolt-Ons Database Configuration
• selection of database tables in the thousands
• setting the switches in the system Bolt-on Software
• third-party vendors provide specialized functionality software
• Supply-Chain Management (SCM) links vendors, carriers, thirdparty logistics
companies, and information systems providers
What is a Data Warehouse?
• A relational or multi-dimensional database that may consume hundreds of
gigabytes or even terabytes of disk storage
• The data is normally extracted periodically from operational database or from a
public information service.
• A database constructed for quick searching, retrieval, ad-hoc queries, and ease
of use.
• An ERP system could exist without having a data warehouse. The trend,
however, is that organizations that are serious about competitive advantage
deploy both. The recommended data architecture for an ERP implementation
includes separate operational and data warehouse databases.

Data Warehouse Process: Stage 2 •


Extracting data from operational databases
• The process of collecting data from operational databases, flat-files, archives,
and external data sources.
• Snapshots vs. stabilized data:
• a key feature of a data warehouse is that the data contained in it are in a
nonvolatile (stable) state.

Data Warehouse Process: Stage 3


• Cleansing extracted data
• Involves filtering out or repairing invalid data prior to being stored in the
warehouse
• Operational data are “dirty” for many reasons: clerical, data entry, computer
program errors, misspelled names and blank fields.
• Also involves transforming data into standard business terms with standard
data values

Data Warehouse Process: Stage 4


• Transforming data into the warehouse model

• To improve efficiency, data is transformed into summary views before they are loaded.

• Unlike operational views, which are virtual in nature with underlying base tables, data warehouse
views are physical tables.

• OLAP, however, permits the user to construct virtual views from detail data when one does not
already exist.

Data Warehouse Process: Stage 5


• Loading the data into the data warehouse database
• Data warehouses must be created & maintained separately from the
operational databases.
• internal efficiency
• integration of legacy systems
• consolidation of global data

Risks Associated with ERP Implementation


• Pace of implementation
• 'Big Bang'--switch operations from legacy systems to ERP in a single event
• 'Phased-In’--independent ERP units installed over time, assimilated and
integrated
• Opposition to changes to the businesses culture
• user reluctance and inertia
• need of (upper) management support

Risks Associated with ERP Implementation


• Choosing the wrong ERP
• goodness of fit: no ERP system is best for all industries
• scalability: system's ability to grow
• Choosing the wrong consultant
• common to use a third-party (the Big Five)
• be thorough in interviewing potential consultants
• establish explicit expectations

Risks Associated with ERP Implementation


• High cost and cost overruns
• common areas with high costs:
• training
• testing and integration
• database conversion
• Disruptions to operations
• ERP is reengineering--expect major changes in how business is done

Implications for Internal Control and Auditing


• Transaction authorization
• Controls are needed to validate transactions before they are accepted by other
modules.
• ERPs are more dependent on programmed controls than on human
intervention.
• Segregation of duties
• Manual processes that normally require segregation of duties are often
eliminated.
• User role: predefined user roles limit a user's access to certain functions and
data.

Implications for Internal Control and Auditing Supervision


• Supervisors need to acquire a technical and operational understanding of the
new system.
• Employee-empowered philosophy should not eliminate supervision.
• Accounting records • Corrupted data may be passed from external sources
• Loss of paper audit trail

Implications for Internal Control and Auditing


• Access controls
• critical concern with confidentiality of information
• Who should have access to what?
• Access to data warehouse
• Data warehouses often involve sharing information with suppliers and
customers.
Implications for Internal Control and Auditing
• Contingency planning
• how to keep business going in case of disaster
• key role of servers requires backup plans: redundant servers or shared servers
• Independent verification
• traditional verifications are meaningless
• need to shift from transaction level to overall performance level

ERP Products
• SAP: largest ERP vendor
• modules can be integrated or used alone
• new features include SCM, B2B, e-commerce, XML

• J.D. Edwards
• flexibility: users can change features; less of a pre-set structure than SAP’s
• modularity: accept modules (bolt-ons) from other vendors

• Oracle
• tailored to e-business focus
• Internet based vs. client-server-based applications

• PeopleSoft
• open, modular architecture allows rapid integration with existing systems

• Baan
• use of “best-of-class” applications

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