TRADITIONAL APPROACHES:

USER-VIEW ORIENTATION
•WHEN DATA-MODELING AND IS DESIGN IS TOO ORIENTED
TOWARD THE USER’S VIEWS, PROBLEMS ARISE:
• MULTIPLE INFORMATION SYSTEMS
• DUPLICATION OF DATA
• RESTRICTED USER-VIEW LEADS TO POOR DECISION-MAKING
• INABILITY TO SUPPORT CHANGE
RESOURCES, EVENTS, AND AGENTS MODEL
• REA IS AN APPROACH TO DATABASE DESIGN MEANT TO OVERCOME PROBLEMS
WITH TRADITIONAL APPROACHES:
• FORMALIZED DATA MODELING AND DESIGN OF IS
• USE OF CENTRALIZED DATABASE
• USE OF RELATIONAL DATABASE STRUCTURE
• COLLECTS DETAILED FINANCIAL AND NON-FINANCIAL DATA
• SUPPORTS ACCOUNTING AND NON-ACCOUNTING ANALYSIS
• SUPPORTS MULTIPLE USER VIEWS
• SUPPORTS ENTERPRISE-WIDE PLANNING
RESOURCES IN THE REA MODEL
Resources – the ‘assets’ of the company
things of economic value
objects of economic exchanges able to generate revenue
objects that are scarce and under the control of the organization
can be tangible or intangible
Does not include some traditional accounting assets:
artifacts that can be generated from other primary data
for example, accounts receivables
EVENTS IN THE REA MODEL
•EVENTS ARE PHENOMENA THAT EFFECT CHANGES IN RESOURCES.
• A SOURCE OF DETAILED DATA IN THE REA APPROACH TO DATABASES
•EVENTS FALL INTO TWO GROUPS:
• ECONOMIC – INCREASES OR DECREASES RESOURCES
• SUPPORT – CONTROL, PLANNING, AND OTHER MANAGEMENT ACTIVITIES;
BUT DO NOT DIRECTLY AFFECT RESOURCES
AGENTS IN THE REA MODEL
• AGENTS CAN BE INDIVIDUALS OR DEPARTMENTS.
• PARTICIPATE IN EVENTS
• AFFECT RESOURCES
• HAVE DISCRETIONARY POWER TO USE OR DISPOSE OF RESOURCES
• CAN BE INSIDE OR OUTSIDE THE ORGANIZATION
• CLERKS
• PRODUCTION WORKERS
• CUSTOMERS
• SUPPLIERS, VENDORS
• DEPARTMENTS, TEAMS
ELEMENTAL REA MODEL
Participates
External Economic
Agent

Stock Flow
Economic Economic Event
Resource

Duality Internal Economic

Participates Agent
REA MODEL
•ANOTHER KEY FEATURE OF THE REA MODEL IS ECONOMIC
DUALITY.
•EVENTS OCCUR IN PAIRS
•REPRESENT THE GIVE EVENT AND RECEIVE EVENT OF AN
ECONOMIC EXCHANGE
ER DIAGRAMS (ERD’S) VERSUS REA DIAGRAMS (READ’S)
• CLASSES OF ENTITIES
• ERD’S – ONE CLASS
• READ’S – THREE CLASSES (RESOURCES, EVENTS, AND AGENTS)

• ARRANGEMENT OF ENTITIES
• ERD’S – DETERMINED BY CARDINALITY AND READABILITY
• READ’S – ORGANIZED INTO CONSTELLATIONS BY CLASS

• SEQUENCING OF EVENTS
• ERD’S – STATIC
• READ’S – CHRONOLOGICAL SEQUENCE OF BUSINESS PROCESSES

• NAMING CONVENTIONS
• ERD’S – ALL NOUNS
• READ’S – NOUNS (R’S AND A’S) AND VERBS (E’S)
VIEW MODELING: CREATING AN INDIVIDUAL REA DIAGRAM

• VIEW MODELING IS A MULTISTEP PROCESS FOR CREATING AN INDIVIDUAL REA

MODEL.
• THE RESULT IS A SINGLE VIEW OF THE ENTIRE DATABASE.
• THE FOUR STEPS INVOLVED ARE:
1. IDENTIFY THE EVENT ENTITIES TO BE MODELED
2. IDENTIFY THE RESOURCE ENTITIES CHANGED BY EVENTS
3. IDENTIFY THE AGENT ENTITIES PARTICIPATING IN EVENTS
4. DETERMINE ASSOCIATIONS AND CARDINALITIES BETWEEN ENTITIES
 STEP 1: IDENTIFY THE EVENT Arrangement of
Order of Events
Events Entities in
ENTITIES Events
Order of
Occurrence Verify Availability

• IDENTIFY THE EVENTS THAT ARE TO BE INCLUDED

IN THE MODEL
• INCLUDE AT LEAST TWO ECONOMIC EVENTS Take Order

(DUALITY)
• MAY INCLUDE SUPPORT EVENTS
•
Ship Product
ARRANGE EVENTS IN CHRONOLOGICAL SEQUENCE
• FOCUS ON VALUE CHAIN EVENTS Receive Cash

• DO NOT SUCH INVALID EVENTS SUCH AS:

• BOOKKEEPING TASKS
• ACCOUNTING ARTIFACTS, E.G., ACCOUNTS
RECEIVABLE
STEP 2. IDENTIFY THE RESOURCE
ENTITIES
• IDENTIFY THE RESOURCES IMPACTED
BY EVENTS IDENTIFIED IN STEP 1
• EACH EVENT MUST BE LINKED TO AT
LEAST ONE RESOURCE.
• ECONOMIC EVENTS DIRECTLY AFFECT
RESOURCES
• SUPPORT EVENTS INDIRECTLY AFFECT
THEM
STEP 3. IDENTIFY THE AGENT
ENTITIES
• EACH ECONOMIC EVENT ENTITY IN AN REA
DIAGRAM IS ASSOCIATED WITH AT LEAST
TWO AGENT ENTITIES.
• ONE INTERNAL AGENT
• ONE EXTERNAL AGENT
• IT IS POSSIBLE TO HAVE ONLY AN INTERNAL
AGENT WHEN NO EXCHANGE OCCURS, AS
WITH CERTAIN ‘INTERNAL’ MANUFACTURING
PROCESSES.
Resources Events Agents
Customer Services
Clerk

Inventory Verify Availability

Customer

Customer
REA Model showing
Take Order
Events and Related
Inventory
Sales
Resources and Agents
Representative

Shipping Clerk

Inventory Ship Product

Customer

Customer

Cash Receive Cash

Cash Receipts
Clerk
STEP 4. DETERMINE ASSOCIATIONS AND CARDINALITIES BETWEEN
ENTITIES

• ASSOCIATION – REFLECTS THE NATURE OF THE RELATIONSHIP BETWEEN TWO ENTITIES

• REPRESENTED BY THE LABELED LINE CONNECTING THE ENTITIES
• CARDINALITY – THE DEGREE OF ASSOCIATION BETWEEN THE ENTITIES
• DESCRIBES THE NUMBER OF POSSIBLE OCCURRENCES IN ONE ENTITY THAT ARE ASSOCIATED WITH A
SINGLE OCCURRENCE IN A RELATED ENTITY
• CARDINALITY REFLECTS THE BUSINESS RULES THAT ARE IN PLAY FOR A PARTICULAR ORGANIZATION.
• SOMETIMES THE RULES ARE OBVIOUS AND ARE THE SAME FOR ALL ORGANIZATIONS.
• SOMETIMES THE RULES DIFFER, E.G., WHETHER INVENTORY ITEMS ARE TRACKED INDIVIDUALLY OR AS
QUANTITY ON HAND.
 Respond to Customer Customer Services
Clerk

Verify Availability
Review Items Available

Request

Related Customer Associations and

to
Places Order Cardinality in REA
Process Order
Diagram
Reserves Sales
Inventory Take Order Representative

Causes Ships
Shipping Clerk

Reduces
Ship Product
Receives

Customer
Duality
Remits

Increases
Cash Receive Cash Cash Receipts
Clerk
Processes
Remittance
MANY-TO-MANY ASSOCIATIONS
•MANY-TO-MANY (M:M) ASSOCIATIONS CANNOT BE DIRECTLY
IMPLEMENTED INTO RELATIONAL DATABASES.
•THEY REQUIRE THE CREATION OF A NEW LINKING TABLE.
• THIS PROCESS SPLITS THE M:M ASSOCIATION INTO TWO 1:M
ASSOCIATIONS.
• THE LINKING TABLE REQUIRES A ‘COMPOSITE PRIMARY KEY’.
 Link Tables in REA Diagram

Inventory-Verify
Verify Availability
Link

Customer
Places Order

Process Order
Sales
Inventory Inventory- Take Order Representative
Order Link

Causes Ships
Shipping Clerk

Inventory-Ship Ship Product

Link Receives

Customer
VIEW INTEGRATION: CREATING AN ENTERPRISE-WIDE REA MODEL
• VIEW INTEGRATION – COMBINING SEVERAL
INDIVIDUAL REA DIAGRAMS INTO A SINGLE
ENTERPRISE-WIDE MODEL
• THE THREE STEPS INVOLVED IN VIEW
INTEGRATION ARE:
1. CONSOLIDATE THE INDIVIDUAL MODELS
2. DEFINE PRIMARY KEYS, FOREIGN KEYS,
AND ATTRIBUTES
3. CONSTRUCT PHYSICAL DATABASE AND
PRODUCE USER VIEWS
STEP 1. CONSOLIDATE THE
INDIVIDUAL MODELS
• MERGING MULTIPLE REA MODELS REQUIRES
FIRST A THOROUGH UNDERSTANDING OF
THE BUSINESS PROCESSES AND ENTITIES
INVOLVED IN THE MODELS.
• INDIVIDUAL MODELS ARE CONSOLIDATED OR
LINKED TOGETHER BASED ON SHARED
ENTITIES.
• FOR EXAMPLE, PROCUREMENT (EXPENDITURES) AND
SALES (REVENUE) BOTH USE INVENTORY AND CASH
RESOURCE ENTITIES.
STEP 2. DEFINE PRIMARY KEYS,
FOREIGN KEYS, AND ATTRIBUTES
• IMPLEMENTATION INTO A WORKING
RELATIONAL DATABASE REQUIRES
PRIMARY KEYS, FOREIGN KEYS AND
ATTRIBUTES IN TABLES.
• PRIMARY KEY – UNIQUELY IDENTIFIES AN INSTANCE
OF AN ENTITY (I.E., EACH ROW IN THE TABLE)
• FOREIGN KEY – THE PRIMARY KEY EMBEDDED IN THE
RELATED TABLE SO THAT THE TWO TABLES CAN BE
LINKED
• ATTRIBUTE – A CHARACTERISTIC OF THE ENTITY TO
BE RECORDED IN THE TABLE
RULES FOR FOREIGN KEYS
• PRIMARY KEY  FOREIGN KEY:
RELATIONS ARE FORMED BY AN
ATTRIBUTE THAT IS COMMON TO BOTH
TABLES IN THE RELATION.
• ASSIGNMENT OF FOREIGN KEYS:
• IF 1 TO 1 (1:1) ASSOCIATION, EITHER OF THE
TABLE’S PRIMARY KEY MAY BE THE FOREIGN KEY
• IF 1 TO MANY (1:M) ASSOCIATION, THE PRIMARY
KEY ON ONE OF THE SIDES IS EMBEDDED AS THE
FOREIGN KEY ON THE OTHER SIDE
• IF MANY TO MANY (M:M) ASSOCIATION, CREATE A
SEPARATE LINKING TABLE WITH A COMPOSITE
PRIMARY KEY
ATTRIBUTES
• FINANCIAL
• CUSTOMER NAME CUSTOMER ADDRESS
CUSTOMER TELEPHONE NUMBER
• AMOUNT OWED BY CUSTOMER
• VALUE OF TOTAL SALES TO DATE
• TERMS OF TRADE OFFERED
• NONFINANCIAL
• CUSTOMER CREDIT RATING
• DAMAGED GOODS RECORD
• ON-TIME PAYMENT RECORD
• CUSTOMER VOLUME RECORD
• EDI ACCESS
• INTERNET ACCESS
STEP 3. CONSTRUCT PHYSICAL DATABASE
AND PRODUCE USER VIEWS
• THE DATABASE DESIGNER IS NOW READY TO CREATE THE PHYSICAL RELATIONAL TABLES USING
SOFTWARE.
• ONCE THE TABLES HAVE BEEN CONSTRUCTED, SOME OF THEM MUST BE POPULATED WITH DATA.
• RESOURCE AND AGENT TABLES
• EVENT TABLES MUST WAIT FOR BUSINESS TRANSACTIONS TO OCCUR BEFORE DATA CAN BE
ENTERED.
• THE RESULTING DATABASE SHOULD SUPPORT THE INFORMATION NEEDS OF ALL USERS.
• SQL IS USED TO GENERATE REPORTS, COMPUTER SCREENS, AND DOCUMENTS FOR USERS.
 USER-VIEWS

User-View #1 User-View #2

Sales Report
Past Due Accounts
Name Amount
James $500.00 REA Database
Henry $100.00
… …
VALUE CHAIN ANALYSIS
• COMPETITIVE ADVANTAGES FROM THE REA APPROACH CAN BE SEE VIA VALUE CHAIN
ANALYSIS.
• VALUE CHAIN ANALYSIS DISTINGUISHES BETWEEN PRIMARY ACTIVITIES (CREATE
VALUE) AND SUPPORT ACTIVITIES (ASSIST PERFORMING PRIMARY ACTIVITIES).
• REA PROVIDES A MODEL FOR IDENTIFYING AND DIFFERENTIATING BETWEEN THESE
ACTIVITIES.
• PRIORITIZING STRATEGY: FOCUS ON PRIMARY ACTIVITIES; ELIMINATE OR
OUTSOURCE SUPPORT ACTIVITIES.
 PORTER’S VALUE CHAIN
Revenue
Costs

Firm Infrastructure
Human resource management
Technology development
Procurement

Inbound Output Marketing

Operations Service
Logistics Logistics & Sales

Primary Activities
COMPETITIVE ADVANTAGES OF THE REA MODEL
• USING REA CAN LEAD TO MORE EFFICIENT
OPERATIONS.
• HELPS MANAGERS IDENTIFY NON-VALUE ADDED
ACTIVITIES THAT CAN BE ELIMINATED
• INCREASING PRODUCTIVITY VIA ELIMINATION
OF NON-VALUE ADDED ACTIVITIES GENERATES
EXCESS CAPACITY
• STORING BOTH FINANCIAL AND NONFINANCIAL
DATA IN THE SAME CENTRAL DATABASE REDUCES
MULTIPLE DATA COLLECTION, DATA STORAGE,
AND MAINTENANCE.
• USING REA CAN LEAD TO MORE EFFICIENT
OPERATIONS.
• DETAILED FINANCIAL AND NONFINANCIAL
BUSINESS DATA SUPPORTS A WIDER RANGE OF
MANAGEMENT DECISIONS
• SUPPORTING MULTIPLE USER VIEWS (E.G.,
DIFFERENT PERSPECTIVES ON A PROBLEM)
• PROVIDES MANAGERS WITH MORE RELEVANT,
TIMELY, AND ACCURATE INFORMATION.
• LEADING TO BETTER CUSTOMER SERVICE,
HIGHER-QUALITY PRODUCTS, AND FLEXIBLE
PRODUCTION PROCESSES