Enterprise

Resource
Planning
Systems

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 Objectives
• Understand the general functionality and key elements of ERP
systems.
• Understand the various aspects of ERP configurations including
servers, databases, and the use of bolt-on software.
• Understand the purpose of data warehouses as a strategic tool
and recognize the issues related to the design, maintenance,
and operation of a data warehouse.
• Recognize the risks associated with ERP implementation.
• Be aware of key considerations related to ERP implementation.
• Understand the internal control and auditing implications
associated with ERPs.

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• Traditional model employs closed database architecture
which is similar in concept to the basic flat-file model.
– Problems include redundancy, lack of communication and
incompatibility between systems.

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• ERP systems are multi-module application software packages
that integrate key processes of the organization so that a
single computer system can serve needs of each area.

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 ERP Core Applications and Online Analytical
Processing
• Core applications operationally support day-to-day
activities.
– Includes sales and distribution, business and production planning,
shop floor control and logistics.
– If these fail, so does the business.
– Also called online transaction processing (OLTP) applications.

• Online analytical processing (OLAP) includes decision

support, modeling, information retrieval, ad hoc
reporting/analysis and what if analysis.
– A data warehouse is a database constructed for quick searching,
retrieval, ad hoc queries, and ease of use.

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 ERP System Configurations
• Most ERP systems based on client-server model in which a
user’s computer accesses ERP programs and data via a host
computer (server). Two basic architectures.
• Typical two-tier model, server handles both application and
database duties.
– Used for local area network (LAN) applications for which server
demand is restricted to a small number of users.
• Database and application functions are separated in the
three-tier model.
– Typical of large ERP systems that use wide area networks
(WANs).

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 OLTP Versus OLAP Servers
• OLTP supports mission-critical tasks through simple queries
of operational databases.
• 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 disaggregates data to reveal underlying details.
– Slicing and dicing enables user to examine data from different
viewpoints to uncover trends and patterns.

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 ERP System Configurations: Databases and Bolt-
Ons

• Database Configuration:
– ERP systems composed of thousands of database tables.
– Specific database tables and processes selected by setting
switches in the system.
• Bolt-on Software:
– Specialized functionality provided by third-party vendors.
– Least risky is software endorsed by the ERP vendor.
– ERP systems and supply chain management (SCM) systems are
now on converging paths. Links vendors, carriers, logistics
companies, and IS providers.

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 Data Warehousing
• Multidimensional database often using hundreds of
gigabytes or even terabytes of disk storage.
– When organized for a single department or function often called a
data mart which only has tens of gigabytes of data.
• Extracting, converting and standardizing operational data
from ERP and loading into the data warehouse.
• Five stages of the data warehousing process:
1. Modeling data for the data warehouse
2. Extracting data from operational databases
3. Cleansing extracted data
4. Transforming data into the warehouse model
5. Loading data into the data warehouse database

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 Data Warehouse Process: Stages 1 and 2
• Modeling data for the data warehouse:
– Because of the vast size of data warehouse, data is denormalized.
– Relational theory does not apply to a data warehousing system.
– Normalized tables pertaining to selected events may be
consolidated into denormalized tables.
• Extracting data from operational databases:
– Process of collecting data from operational databases, flat-files,
archives, and external data sources.
– Changed data capture can reduce extraction time by only
capturing newly modified data.
– Key feature of data warehouse is that data are in a non-volatile
(stable) state, loaded in only when transaction is completed.
– Extracting operations data in slices of time provides snapshots of
business activity.
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 Data Warehouse Process: Stages 3 - 5
• Cleansing extracted data:
– Filtering out or repairing invalid data prior to storing in warehouse.
– Operational data are “dirty” for many reasons.
– Also involves transforming data into standard business terms with
standard data values.
• Transforming data into the warehouse model:
– Data transformed into summary views before being uploaded.
– Unlike operational views, which are virtual in nature with underlying base
tables, data warehouse views are physical tables.
– OLAP permits users to construct virtual views from detail data.
• Loading data into the data warehouse database:
– Data warehouses must be created and maintained separately from the
operational databases for : internal efficiency, integration of legacy
systems and consolidation of global data .

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 Decisions Supported by the Data Warehouse
• Some decisions not fundamentally different from those
supported by a traditional database.
• Other information uses, such as multidimensional analysis
and information visualization, are not possible in traditional
systems.
• Drill-down capability is a useful data analysis technique
associated with data mining.
– Tools are evolving rapidly to satisfy decision maker’s need to
understand the business unit’s behavior in relation to key entities.
• Primary reason for data warehousing is to optimize business
performance.

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 Risks Associated with ERP Implementation
• Big bang method of implementation is the more ambitious
and risky option as organizations switch operations from
legacy systems to ERP in a single event.
– Some advantages but associated with numerous failures due to
opposition and disruptions as employees adjust to change.
– Once the adjustment phase has passed and the new culture
emerges, ERP becomes an effective tool providing competitive
advantage.
• Phased-in approach a popular alternative, for organizations
whose units do not share common data and processes.
– Independent systems installed over time without disruption.
– Can also be used by firms that are not diversified.

• Opposite to changes in the business’s culture.

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 Risks Associated with ERP Implementation
• Choosing the wrong ERP.
– Goodness of fit important as no ERP product best for all industries.
– System scalability issues address the system’s ability to grow and
should consider: size, speed, workload and transaction cost.
• Choosing the wrong consultant.
• High cost and cost overruns.
– Risk comes from underestimated and unanticipated costs.
– Commonly experienced problems in: training, system testing and
integration and database conversion.
– Performance measures should be established and monitored.
• Disruptions to operations.
– ERP implementations involve business process reengineering (BPR)
and major changes in business processes should be expected.
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 Implications for Internal Control and Auditing
• Transaction authorization:
– Controls needed to validate transactions before they are accepted by
other modules.
– ERPs more dependent on programmed controls than human
intervention.
• Segregation of duties:
– Manual processes that require segregation of duties often eliminated
in an ERP environment.
– Organizations must establish new security, audit and control tools to
ensure duties are properly segregated including role assignment.
• Supervision:
– Supervisors need technical and operational system understanding.
– Employee-empowered philosophy should not eliminate supervision.

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 Implications for Internal Control and Auditing
• Accounting records:
– Corrupted data may be passed from external sources and corrupt
the database; imported legacy system data may be inaccurate.
• Independent verification:
– Focus needs to be redirected from the individual transaction level
to one that views overall performance.
– Ongoing verification can only be conducted by a team well versed
in ERP technology.
• Access controls:
– Access security is a critical control issue in an ERP environment.
– Goal is to maintain data confidentiality, integrity and availability.
– Security weaknesses can result in errors, corruption, financial
statement misrepresentation and cyber crime.

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 Access Controls
• Traditional access control models:
– Control typically achieved via an access control list within user’s
application that specifies IDs, resources and permissions.
– Allows for the assignment of privileges, but is inflexible.

• Role-based access controls:

– A role is a formal technique for grouping users based on resources
needed to perform assigned tasks.
– More than one person can be assigned to a role and a person may
be assigned to more than one role.
– Creating a role involves defining role attributes:
• Stated set of business responsibilities to be performed within the role.
• Technical competencies needed to perform the role.
• Specific transactions (permissions) required to carry out responsibilities.

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 Internal Control Issues Related to ERP Roles and
Contingency Planning
• Creation of unnecessary roles.
• Rule of least access:
– Access privileges (permissions) should be granted on a need-to-know
basis but users tend to accumulate unneeded permissions over time.
– Managers fail to exercise adequate care in assignment permissions
and tend to be better at issuing privileges than removing them.
– Policies should require due diligence in assigning permissions.

• Monitor role creation and permission-granting activities:

– Role-based governance systems allow managers to view roles,
permissions and individual assignments; identify violations; and
verify that changes have been implemented successfully.
• Organizations need a contingency plan than can be envoked
quickly in the event of a disaster.
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