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"Ontologically-Driven Standards Development for Business Process Systems Bill McCarthy, Michigan State University An accounting systems teacher An IT practitioner.

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Presentation on theme: ""Ontologically-Driven Standards Development for Business Process Systems Bill McCarthy, Michigan State University An accounting systems teacher An IT practitioner."— Presentation transcript:

1 "Ontologically-Driven Standards Development for Business Process Systems Bill McCarthy, Michigan State University An accounting systems teacher An IT practitioner and standards wonk An accounting scholar ?? An enterprise ontologist and computer scientist?? An accounting practitioner ?? 1

2 Warning Label –The version of accounting you are about to hear is not the received view –The REA (resource-event-agent) accounting model is based on modeling of the economic primitives of a business process (exchange or conversion) –The ALOE (assets = liabilities + owners equity) accounting model is based on accounting reporting structures (double entry) 2

3 The REA ontology – Theory & Standards Use ontology = categories of interest in a domain and the relationships among them REA is a business enterprise (economic & accounting) ontology with: –Exchanges (in green) –Policies (in yellow) –Plans (in purple) REA is both a positive (descriptive) and normative (prescriptive) accounting theory For interoperability, REA is used: – in ISO Open-edi (ISO 15944-4) –UN/CEFACT – as specialization module for the UMM For enterprise system, see Workday model Standards use follows academic work of Geerts and McCarthy Interoperability use needs to move up the Obrst scale, but frame-based semantics enable collaboration state machine 3

4 M2 Level -- Elementary REA model Economic Event Economic Agent stockflow duality Economic Resource participation 4

5 Cookie-Monster (the customer) and Elmo (the entrepreneur) meet in the (real or virtual) marketplace, thus setting the stage for an Economic Exchange 5

6 Cookie-Monster (the customer) and Elmo (the entrepreneur) engage in a SHIPMENT (transfer of Cookie Inventory) 6

7 Initiating Terminating Economic Resource provide receive stock-flow Economic Event Economic Agent Economic Resource duality Economic Event stock-flow provide receive M1 Level -- Elementary REA model for exchange process 7

8 Cookie-Monster (the customer) and Elmo (the entrepreneur) engage in a PAYMENT (transfer of Cash) 8

9 Initiating Terminating Economic Resource provide receive stock-flow Economic Event Economic Agent Economic Resource duality Economic Event stock-flow provide receive M1 Level -- Elementary REA model for exchange process 9

10 Product#DescriptionPriceQOH P-1Chocolate Chip 1.05200 P-2Chocolate.95205 P-3Peanut Butter 1.0097 P-4Pecan1.10257 Invoice # Payment Timestamp Amount Applied I-12JUL083014.75 I-23JUL08002.00 I-25JUL080018.00 I-38JUL11459.90 I-48JUL11459.20 C-999E-12363JUL9.90I-3 C-999E-12375JUL9.20I-4 C-888E-12352JUL20.00I-2 C-987E-12341JUL14.75I-1 Customer # Entrepreneur# DateDollar Amount Invoice# Product#Invoice# Quantity P-2I-15 P-3I-110 P-3I-220 P-4I-39 P-1I-44 P-3I-45 COOKIES SHIPMENT COOKIES-stockflow-SHIPMENT SHIPMENT-duality-PAYMENT Story of why this invoice amount to $14.75 ?? M0 Level – (partial) REA model for exchange process 10

11 Who ? taxonomy What ? taxonomy When ? The REA Model (ISO Open-edi accounting & economic ontology) is a pattern for a business process 11

12 Subtypes (possible) for ECONOMIC RESOURCE Economic Resource composition Economic Resource Type typify structure Services Rights Goods Intellectual Product (IPR) Real Estate Regulatory Service Transport- ation Services Materials Human Services FundsRight of Way WarrantyInsurance 12

13 Subtypes of Economic Agent for an Exchange Economic Agent MediatorGuarantorNotaryEscrow Third Party Regulator Partner SellerBuyer Economic Agent Type typify 13

14 Who ? What ? When ? Over what time period ? –Past and near present –Policy future –Scheduled future The REA Model (ISO Open-edi accounting & economic ontology) is a pattern for a business process 14

15 What actually occurred What could be or should be RtypeEtypeAtype Resource EventAgent Color-coded time expansion 15

16 R Operational Level – What Actually Happens; What is -- Policy Level -- What Should, Could or Must be -- Integration EA TG ENTERPRISE SYSTEMS INPUTOUTPUT Observation Planning & Control Inference, Validation, Discrepancy Analysis Policy-Level Specifications in REA Enterprise Systems Extended Enterprise Model Facts Knowledge-Intensive Descriptions, Validation Rules, and Target Descriptions (Standards & Budgets) 16

17 type images for business process components Typification is a conceptual abstraction of a business process component (REA) that indicates its ideal or grouped properties the Archetypal Essence of a business object 17

18 Economic Resource Economic Event Economic Agent stock-flow participation Economic Resource Type Economic Event Type Economic Agent Type policy typify policy M2 Level -- REA model of Exchanges & Policies 18

19 meronymic 0..* 1..1 PK receive duality provide 0..* stockflow {incomplete, disjoint} «EventType» ExpeditionType - expeditionTypeName PK - expedExpectedTimeLength - standardUndiscountedSlotFee - expeditionTypeCapacity «EconomicResource» SupplyItem - supplyItemTypeNumber PK - supplyItemPrice - supplyItemQOH - «EconomicResourceType» SupplyItemCategory - supplyItemCategoryName PK - monthlySaleAmountOfSIC «EconomicAgentType» EmployeeType - employeeType PK - startingWageForEmpType - countOfEmployeesForType «EconomicEvent» Expedition - expeditionNumber PK - slotsFilledForScheduleExped - actualDuration - scheduledExpeditionDate «EconomicEvent» ExpeditionTicket - ticketNumber PK - discountedSlotCharge - total$AmountOfSupplyItems - countOfSlotsOnThisTicket «EconomicResourceType» AircraftType - aircraftTypeName PK - aircraftSeatingCapacity - aircraftFuelCapacity «EconomicResource» Aircraft - aircraftEngineNumber PK - dateAircraftManufactured - aircraftName CK - «EconomicAgent» Employee - employeeNumber PK - employeeName «EconomicAgent» ExpeditionWorker - employeeNumber PK «EconomicAgent» Guide - employeeNumber PK - dateQualifiedAsAGuide «EconomicAgent» BookingAgent - employeeNumber PK - bookingAgentCommRate «EconomicAgent» Pilot - employeeNumber PK - dateOfInitialPilotLicense «EconomicAgentGroup» People - peopleName PK - approximatePopulation «EconomicAgent» Client - clientNumber PK - clientName «EconomicEvent» Payment - remittanceAdvceNum PK - $AmountOfRemitAdvice - clientCheckNumber «BusinessLocation» Location - locationName PK - locationMapCoords CK distance - distanceBetween policy-sequence - sequenceOfLocationOnTour policy- qualifies - hoursFlown stockFlow - quantityOfItemOnThisTicket policy-count - countOfEmployeeType «EconomicResource» Cash - cashAccountNumber PK - cashAccountBalance receive provide participate stockflow participate policy typify 0..* 0 0 site 0..* 0 0 0 0 0 0 0 0 1..1 0..* 0 0 0 0 0 0 0 0 0 0 0 1..* 0..* 0 0 0 0 1..1 0..1 1..1 0..1 0..* 0 lead group 0..* 0 0..1 0..* typify 0..1 startfinish M1 Level – Typed REA model for NAAE revenue process 19

20 What actually occurred What could be or should be RtypeEtypeAtype Resource EventAgent Color-coded time expansion What is planned or scheduled CommitEvent Rtype Etype Atype 20

21 commitment reciprocal fulfills commitment fulfills economic event duality economic event M2 Level -- REA model of Scheduled Exchanges 21

22 Commitment specifies Resource Type specifies Event Type specifies Agent Type Abstract Specification of Commitments 22

23 Economic Event Economic Resource Economic Agent stockflow provide receive Economic Commitment reciprocal fulfills duality Resource Type typifies specifies Event Type Agent Type specifies typifies participate policy 1.Green – What has occurred – REA, duality, stockflow {consume, produce}, participation {provide, receive} 2.Yellow – What could be or should be – TYPES, typify, policy 3.Purple – What is planned or scheduled – COMMITMENTS, specify, fulfill, reciprocal, triggers M2 Level – Extended REA model (simple & symmetric) 23

24 -manufacturingRunNumber PK -actualTotalT&MCost -toDateRunLaborCost -toDateRunMaterialCost -actualQuantityProduced «EconomicEvent» Manufacturing Run -operationTypeName PK -standardSequence «EventType» Operation Type -employeeTypeName PK -startingWage «AgentType» Employee Type -scheduledOperationNumber PK -scheduledSequence «EconomicCommitment» Scheduled Manufacturing Operation quantityOfRawMaterialPerUnit policyBM -scheduledMinutes specify1 -minutes participate -minutesUsed used -laborMinutesPerUnit policyOL -standardUnitCost -qOH «EconomicResourceType» Raw Material Type -rawMaterialCatalogNumber PK -minutesNeededPerUnit policyTM -dateAcquired «EconomicResource» Raw Material -rawMaterialTagNumber PK -quantityOwned «EconomicResourceType» Tool-Machine Type -toolMachineTypeDescription PK -standardUnitCost -qOH «EconomicResourceType» Medical Equipment Type -medicalEquipmentCatalogNumber PK -standardGramWeight -dateAcquired «EconomicResource» Tool-Machine -toolMachineNumber PK -totalMinUsedSinceAcquis -scheduledMinutes specify -scheduledQuantity specify -productionOrderNumber PK -budgetedTotalLaborCost -budgetedTotalMaterialCost -projectedQuantityProduced «EconomicCommitment» Scheduled Manufacturing Run -budgetedTotalTool&MachineCost -quantityUsed used -minutes participate -minutes participate -initiationTimestamp PK -actualDuration «EconomicEvent» Manufacturing Operation -actualSequence duality participate specify produce participate typify policyBM fulfill 1..1 1..* -medicalEquipTagNumber PK -actualGramWeight «EconomicResource» Medical Equipment -employeeNumber PK -employeeName «EconomicAgent» Employee -wage -dateHired -employeeNumber PK «EconomicAgent» Machinist -employeeNumber PK «EconomicAgent» Assembler -employeeNumber PK «EconomicAgent» Electrician -employeeNumber PK «EconomicAgent» Scheduler -employeeNumber PK «EconomicAgent» Supervisor reciprocal fulfill typify consume participate specify 1..1 0..* 0..1 1..* {complete, disjoint} 0..* 1..1 1..* 0..* 1..1 0..* 1..* typify 1..1 0..* M1 Level – Scheduled REA model for MME manufacturing process 24

25 25 Extended REA model for ISO 15944-4

26 Who ? What ? When ? Over what time period? Why? (duality + sf = value chain) The REA Model (ISO Open-edi accounting & economic ontology) is a pattern for a business process 26

27 A business process takes one or more kinds of input and creates an output that is of greater value to the customer. Conversion Process labor cookie ingredients Acquisition Process cash cookies Revenue Process cash A value chain is a purposeful network of conversions and exchanges aimed at assembling the individual components of a final product (i.e., its portfolio of attributes) of value to the customer 27

28 Who ? What ? When ? Over what time period? The REA Model (ISO Open-edi accounting & economic ontology) is a pattern for a business process How? (through a series of small events that move business processes through to completion) Why? (duality + sf = value chain) 28

29 A business process takes one or more kinds of input and creates an output that is of greater value to the customer. Conversion Process labor cookie ingredients Acquisition Process cash cookies Revenue Process cash A value chain is a purposeful network of conversions and exchanges aimed at assembling the individual components of a final product (i.e., its portfolio of attributes) of value to the customer publish catalog make sales contact negotiate customer order ship goods (ee) send invoice accept payment (ee) Workflow is a series of business events that progress a business process through its phases, leading to eventual completion (ordering is determined by state machine mechanics). 29

30 Planning: In the Planning Phase, both the buyer and seller are engaged in activities to decide what action to take for acquiring or selling a good, service, and/or right. Identification: The Identification Phase pertains to all those actions or events whereby data is interchanged among potential buyers and sellers in order to establish a one-to-one linkage. Negotiation: The Negotiation Phase pertains to all those actions and events involving the exchange of information following the Identification Phase where a potential buyer and seller have (1) identified the nature of good(s) and/or service(s) to be provided; and, (2) identified each other at a level of certainty. The process of negotiation is directed at achieving an explicit, mutually understood, and agreed upon goal of a business collaboration and associated terms and conditions. This may include such things as the detailed specification of the good, service, and/or right, quantity, pricing, after sales servicing, delivery requirements, financing, use of agents and/or third parties, etc. Actualization: The Actualization Phase pertains to all activities or events necessary for the execution of the results of the negotiation for an actual business transaction. Normally the seller produces or assembles the goods, starts providing the services, prepares and completes the delivery of good, service, and/or right, etc., to the buyer as agreed according to the terms and conditions agreed upon at the termination of the Negotiation Phase. Likewise, the buyer begins the transfer of acceptable equivalent value, usually in money, to the seller providing the good, service, and/or right. Post-Actualization: The Post-Actualization Phase includes all of the activities or events and associated exchanges of information that occur between the buyer and the seller after the agreed upon good, service, and/or right is deemed to have been delivered. These can be activities pertaining to warranty coverage, service after sales, post-sales financing such as monthly payments or other financial arrangements, consumer complaint handling and redress or some general post-actualization relationships between buyer and seller. SOURCE: ISO FDIS 15944-1 – Operational Aspects of Open-edi for implementation ISO Open-edi Phases of a Business Process 30

31 Negotiation Identification Planning Post-Actualization Actualization Extended Business Process Model (ISO 15944-1 Accounting Model Whole Business Process Model 31

32 BT PhaseExample Business Event PlanningSeller publishes Catalog Buyer sends CatalogRequest to Seller Seller sends Catalog to Prospective Buyer IdentificationBuyer sends AvailabilityandPriceRequest to Seller Seller returns AvailabilityandPriceResult to Buyer NegotiationBuyer sends Offer to Seller Seller sends CounterOffer to Buyer Buyer accepts details of CounterOffer on Shipment and proposes PaymentSchedule Seller accepts PaymentSchedule, completing Contract specification (alternatively, another CounterOffer would loop or a NonAcceptance would suspend or abandon the Business Transaction) ActualizationSeller sends an AdvanceShippingNotice when goods are prepared for shipping Buyer sends ReceivingReport to Seller when inspected goods are accepted Seller sends an Invoice to Buyer after parts are shipped Buyer sends RemittanceAdvice to Seller with information about payment of the Invoice Post- Actualization Buyer sends WarrantyInvocation to Seller An Example Business Process with Business Events Grouped in ISO 15944-1 Phases 32

33 Economic Event Economic Resource Economic Agent stock-flowinside outside Economic Agreement Economic Commitment Economic Claim materializes settles fulfills establish duality Economic Resource Type typify specifies Economic Event Type Economic Agent Type specifies typify reciprocal Business Process governs Business Event Business Process Phases workflow Value Chain networked aggregate 33

34 UMM – the Meta Facts (Huemer & Liegl) Graphical process modeling technique for inter- organizational (B2B) business processes Concentrates on business semantics – is implementation neutral Provides a procedure similar to a software development process from requirements elicitation to process design UMM is defined as a UML profile on top of UML 2.1.1 34

35 UMM Package Structure (Huemer & Liegl) Foundation BusinessRequirementsView BusinessDomainView CollaborationRealizationView BusinessPartnerView BusinessEntityView BusinessChoreographyView BusinessTransactionView BusinessCollaborationView BusinessInformationView 35

36 UMM Business Entity View – Business Process Activity Model (Huemer & Liegl) 36

37 EconomicResourceType Candidate > publishCatalog Planned > sendAvail&PriceRequest Proposed > sendOffer Identified > returnAvailabilityAndPriceResult > acceptOffer Specified > sendReceivingReport Actualized State Machine Diagram for Economic Resource Type 37

38 BUYERSELLER publishCatalog :PlanningPhase [InService] sendCatalog :EconomicResourceType [Candidate] :PlanningPhase [WaitingStart] generateResourceNeeds sendCatalogRequest :EconomicAgent [Candidate] receiveCatalog :PlanningPhase [Complete] 38

39 Business Process Business Process Business Process Enterprise #1 Business Process Business Process Business Process Enterprise #3 Enterprise #2 Business Process Business Process Business Process Collaboration Perspective: Trading Partner vs. Independent Independent view of Inter-enterprise events Trading Partner view of Inter-enterprise events (upstream vendors and downstream customers) Dotted arrows represent flow of goods, services, and cash between different companies; solid arrows represent flows within companies Japan expert contribution to 15944-4, 22 Oct 2001, Victoria BC, 39

40 Where is REA headed ?? One must still have chaos in oneself to be able to give birth to a dancing star. Friedrich Nietzsche The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man. George Bernard Shaw 40

41 SOURCE: Gomez-Perez & ISO 15944-4 41

42 Positioning and Formalizing the REA Enterprise Ontology-- Frederik Gailly, Wim Laurier, and Geert Poels 42

43 weak semantics strong semantics Is Disjoint Subclass of with transitivity property Modal Logic Logical Theory Thesaurus Has Narrower Meaning Than Taxonomy Is Sub-Classification of Conceptual Model Is Subclass of DB Schemas, XML Schema UML First Order Logic Relational Model, XML ER Extended ER Description Logic DAML+OIL, OWL RDF/S XTM Ontology Spectrum: One View (Leo Obrst) Syntactic Interoperability Structural Interoperability Semantic Interoperability 43

44 At this stage we can conclude that the REA ontology can be considered as a semantically rich business domain ontology that needs to be further formalized to make more of the inherent semantics explicit. The bulk of REA design science research to date (see e.g. David et al. (2002)), with some exceptions mentioned in the paper, was aimed at improving REAs content and theoretical background, but has to a considerable extent ignored representational, formalization and operationalization issues. Although we dont question nor criticize the relevance and significance of this work, we believe that equal attention should be paid to ontology engineering aspects that aim at improving the explicitness, preciseness, completeness and formality of REAs specification Positioning and Formalizing the REA Enterprise Ontology-- Frederik Gailly, Wim Laurier, and Geert Poels Where is REA headed ?? 44

45 Where is REA headed ?? Basic ontology theory to be revised and submitted to accounting literature Standards projects: –ISO – done for now –UN/CEFACT – a lot of work needed Formalization initiative –Some being completed by others –Move to common logic Workflow component must be formalized Accounting issues on back burner: –Claims, adjustments, macro-level aggregation and duality, materialization and use of services, internal control specification, other accounting definition issues Others ?? 45

46 REA-Scruffie REA-Neat The world consists of: 1. Classes or objects that are particulars--universals; occurrents--continuants; concrete--abstract; 2. associations between these entities/objects that are of the form e.g. is-instance-of, classification e.g. is-part-of (also u-u), aggregation e.g. isa (is-subtype-of), generalization 3. declarations, procedures, and constraints Need progress towards formal logic that enhances frame semantics with completeness, decidability, etc. 46

47 The Financial Interoperability Summit – May 12-13 2008 Sponsored by the National Science Foundation (Frank Olken) Looked at formal issues associated with accounting and financial interoperability at both the reporting level and the transaction level Three main exemplars: –XBRL-FR and XBRL-GL –REA –SDMX REA needs to move up the semantic expressiveness scale & integrate with XBRL Wiki (Thanks to Brand Niemann): –http://nsfaccountingontology.wik.is/Workshophttp://nsfaccountingontology.wik.is/Workshop –See especially group research issues and individual positions –Summary paper coming by Debreceny and McCarthy The big issue: Tradeoffs between semantic expressiveness, time to implement, and benefits (next slide) –The enemy of the good is the perfect ?? 47

48 A Time Horizon Ontological Expressivity Low High Yr 0 Yr 10 B C 1. First Dimension – Ontological Expressivity (following Leo Obrst): -Low ontological expressivity (syntactic interoperability) with term-based thesauri and taxonomies; - Medium ontological expressivity (structural interoperability) with semantic conceptual models (such as E-R models and UML class diagrams); and - High ontological expressivity (semantic interoperability) with description logic based theories. 2. Second Dimension – Time Horizon for Implementation : The implementation horizon for adoption of higher expressivity and more useful interoperability standards can range over multiple years. For the purposes of the workshop, we are limiting ourselves to an immediate – long-range spectrum of one to ten years (readily conceding that these are only present estimates). 3.Third Dimension – Benefits Accruing to Implementation : Implementation of ontological solutions to business problems occurs because of a suite of perceived benefits to be gained. These benefits can be estimated in a range from low to medium to high, and they may flow from some combination of improved interoperability with other standards and systems, lower transaction costs, and improved functionality for consumers of information. (SIZE of CIRCLE) Benefits measured by size of circle Different implementation scenarios for financial interoperability standards 48

49 SMAPPIE says Any questions?? 49


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