Chapter 11Enterprise Resource Planning Systems

TRUE/FALSE
1. The primary goal of installing an ERP system is reducing system maintenance costs.
ANS: F
2. The recommended data architecture for an ERP includes separate operational and data warehouse
databases.
ANS: T
3. A closed database architecture shares data easily.
ANS: F
4. ERP systems support a smooth and seamless flow of information across organizations.
ANS: T
5. OLAP stands for on-line application processing.
ANS: F
6. The primary goal of installing an ERP system is achieving business process reengineering to improve
customer service, reduce production time, increase productivity, and improve decision-making.
ANS: T
7. Day-to-day transactions are stored in the operational database.
ANS: T
8. Data mining typically focuses on the operational databases.
ANS: F
9. Companies are more likely to modify an ERP to accommodate the company than to modify company
processes to accommodate the ERP.
ANS: F
10. If a chosen ERP cannot handle a specific company process bolt-on software may be available.
ANS: T
11. Core applications are also called OLAP.
ANS: F

12. The client/server model is a form of network technology in which user computers, called clients,
access ERP programs and data via a host computer called a server.
ANS: T
13. A data warehouse is a relational or multi-dimensional database that may require hundreds of gigabytes
of storage.
ANS: T
14. Drill-down capability is an OLAP feature of data mining tools.
ANS: T
15. Supply-chain management software is a type of program that supports efforts relative to moving goods
from the raw material stage to the customer.
ANS: T
16. In two-tier architecture, the database and application functions are separated.
ANS: F
17. Slicing and dicing permits the disaggregation of data to reveal underlying details.
ANS: F
18. Data entered into the data warehouse must be normalized.
ANS: F
19. OLAP includes decision support, modeling, information retrieval, and what-if analysis.
ANS: T
20. Efficient supply-chain management provides firms with a competitive advantage.
ANS: T
21. The big-bang approach involves converting from old legacy systems to the new ERP in one
implementation step.
ANS: T
22. In a two-tier architecture approach is used primarily for wide area network (WAN) applications.
ANS: F
23. Data cleansing is a step performed by external auditors to identify and repairing invalid data prior to
the audit.
ANS: F

MULTIPLE CHOICE
1. Goals of ERP include all of the following except
a. improved customer service
b. improvements of legacy systems
c. reduced production time
d. increased production
ANS: B
2. Core applications are
a. sales and distribution
b. business planning
c. shop floor control and logistics
d. all of the above
ANS: D
3. Data warehousing processes does not include
a. modeling data
b. condensing data
c. extracting data
d. transforming data
ANS: B
4. Which of the following is usually not part of an ERPs core applications?
a. OLTP applications
b. sales and distribution applications
c. business planning applications
d. OLAP applications
ANS: D
5. Which of the following is usually not part of an ERPs OLAP applications?
a. logistics
b. decision support systems
c. ad hoc analysis
d. what-if analysis
ANS: A
6. Which of the following statements is least likely to be true about a data warehouse?
a. It is constructed for quick searching and ad hoc queries.
b. It was an original part of all ERP systems.
c. It contains data that are normally extracted periodically from the operating databases.
d. It may be deployed by organizations that have not implemented an ERP.
ANS: B
7. Which of the following statements is not true?
a. In a typical two-tier client server system, the server handles both application and database
duties.
b. Client computers are responsible for presenting data to the user and passing user input back
to the server.
c. In three-tier client server architecture, one tier is for user presentations, one is for database

and applications, and the third is for Internet access.

d. The database and application functions are separate in the three-tier model.
ANS: C
8. Which statements about data warehousing is not correct?
a. The data warehouse should be separate from the operational system.
b. Data cleansing is a process of transforming data into standard form.
c. Drill-down is a data-mining tool available to users of OLAP.
d. Normalization is an requirement of databases included in a data warehouse.
ANS: D
9. Which statement about ERP installation is least accurate?
a. For the ERP to be successful, process reengineering must occur.
b. ERP fails because some important business process is not supported.
c. When a business is diversified, little is gained from ERP installation.
d. The phased-in approach is more suited to diversified businesses.
ANS: C
10. Which statement is true?
a. ERPs are infinitely scalable.
b. Performance problems usually stem from technical problems, not business process
reengineering.
c. The better ERP can handle any problems an organization can have.
d. ERP systems can be modified using bolt-on software.
ANS: D
11. Auditors of ERP systems
a. need not worry about segregation of duties.
b. may feel that the data warehouse is too clean and free from errors.
c. find independent verification easy.
d. need not worry about system access since the ERP determines it.
ANS: B
12. Legacy systems are
a. old manual systems that are still in place.
b. flat file mainframe systems developed before client-server computing became standard.
c. stable database systems after debugging.
d. advanced systems without a data warehouse.
ANS: B
13. A data mart is
a. another name for a data warehouse.
b. a database that provides data to an organizations customers.
c. an enterprise resource planning system.
d. a data warehouse created for a single function or department.
ANS: D
14. Most ERPs are based on which network model?
a. peer to peer

b. client-server
c. ring topology
d. bus topology
ANS: B
15. On-line transaction processing programs
a. are bolt-on programs used with commercially available ERSs.
b. are available in two modelstwo-tier and three-tier.
c. handle large numbers of relatively simple transactions.
d. allow users to analyze complex data relationships.
ANS: C
16. Supply chain management software
a. is typically under the control of external partners in the chain.
b. links all of the partners in the chain, including vendors, carriers, third-party firms, and
information systems providers.
c. cannot be integrated into an overall ERP.
d. none of the above
ANS: B
17. The setup of a data warehouse includes
a. modeling the data
b. extracting data from operational databases
c. cleansing the data
d. all of the above
ANS: D
18. Extracting data for a data warehouse
a. cannot be done from flat files.
b. should only involve active files.
c. requires that the files be out of service.
d. follows the cleansing of data.
ANS: C
19. Data cleansing involves all of the following except
a. filtering out or repairing invalid data
b. summarizing data for ease of extraction
c. transforming data into standard business terms
d. formatting data from legacy systems
ANS: B
20. Separating the data warehouse from the operations databases occurs for all of the following reasons
except
a. to make the management of the databases more economical
b. to increase the efficiency of data mining processes
c. to integrate legacy system data into a form that permits entity-wide analysis
d. to permit the integration of data from diverse sources
ANS: A

SHORT ANSWER
1. Define ERP.
ANS:
Enterprise resource planning systems are multiple module systems designed to integrate the key
processes in an organizationorder entry, manufacturing, procurement, human resources, etc.
2. Define the term core applications and give some examples.
ANS:
Core applications are those applications that support the day-to-day activities of the business, e.g.,
sales, distribution, shop floor control, logistics.
3. Define OLAP and give some examples.
ANS:
On-line analytical processing (OLAP) includes decision support, modeling, information retrieval, ad
hoc reporting and analysis, and what-if analysis, e.g., determining sales within each region,
determining relationship of sales to certain promotions.
4. What is bolt-on software?
ANS:
Bolt-on software is software produced by third-party vendors which can be added onto an ERP to
provide function not built into the ERP.
5. What is SCM software?
ANS:
Supply-chain management software is designed to manage the activities that get the product to the
customer. This software typically handles procurement, production scheduling, order processing,
inventory management, etc.
6. What is a data warehouse?
ANS:
A data warehouse is a relational or multi-dimensional database that serves as a central archive of
inactive, completed data from both ERP and legacy systems. It is created to permit extensive access
capability, including data mining.
7. What is the Big-Bang approach?
ANS:
The big-bang approach to conversion to an ERP is the approach which converts from old legacy
systems to the new in one step that implements the ERP across the entire company.
8. Describe the two-tier client server model.
ANS:

In a two-tier architecture, the server handles both application and database duties. Some ERP vendors
use this approach for local area network (LAN) applications. Client computers are responsible for
presenting data to the user and passing user input back to the server.
9. What is the client-server model?
ANS:
The client-server model is a form of network topology in which the users computer or terminal (the
client) accesses the ERPs programs and data via a host computer called the server. While the servers
may be centralized, the clients are usually located at multiple locations throughout the enterprise.
10. What is scalability?
ANS:
System scalability refers to the ability of a system to grow as the organization itself grows. This can
involve four factors: size, speed, workload, and transaction cost.
11. What is data mining?
ANS:
Data mining is the process of selecting, exploring, and modeling large amounts of data to uncover
unknown relationships and patterns.
12. Why do ERP systems need bolt-on software? Give an example.
ANS:
Depending on the unique characteristics of a company, an ERP may not be designed to drive all
processes needed, e.g., supply chain management software is a common bolt-on.
13. How can a firm acquire bolt-on software? What are the options?
ANS:
When a firm needs additional function not provided by the ERP, bolt-on applications may be available.
These can often be obtained from third-party vendors with which the ERP provider has a partnership
arrangement. The more risky alternative is to seek an independent source.
14. Why does data need to be cleansed?
ANS:
Data cleansing involves filtering out or repairing invalid data prior to its being stored in the data
warehouse. It also involves standardizing the format.
15. What are the basic stages of the data warehousing process?
ANS:
modeling data for the data warehouse,
extracting data from the operational databases,
cleansing the extracted data,
transforming data into the warehouse model, and
loading the data into the data warehouse database
16. Describe the three-tier client server model.
ANS:

The database and application functions are separated in the three-tier model. This architecture is
typical of large production ERP systems that use wide area networks (WANs) for connectivity.
Satisfying a client requests requires two or more network connections. Initially, the client establishes
communications with the application server. The application server then initiates a second connection
to the database server.
17. Why must a data warehouse include both detail and summary data?
ANS:
Many decision makers need similar information and need it regularly. Prepared summary data and
standard reports can take the pressure off the data warehouse and speed up the provision of regularly
needed information.
18. How does a data warehouse help the external auditor perform the audit?
ANS:
One of the key procedures performed by the audit team is analytical review or procedures designed to
gather evidence relating to assertions made by management in the financial statements. The functions
available in searching a data warehouse make the examination of data to determine trends, etc., fairly
easy, permitting the auditor to examine large quantities of data easily.
19. What is the closed database architecture?
ANS:
The closed database architecture is similar in concept to the basic flat-file model. Under this approach
a database management system is used to provide minimal technological advantage over flat-file
systems. The DBMS is little more than a private but powerful file system. Each function has a private
database.
20. What is meant by the OLAP term - consolidation
ANS:
Consolidation is the aggregation or roll-up of data. For example, sales offices data can be rolled up to
districts and districts rolled up to regions.
21. What is meant by the OLAP term - Drill-down?
ANS:
Drill-down permits the disaggregation of data to reveal the underlying details that explain certain
phenomena. For example, the user can drill down from total sales returns for a period to identify the
actual products returned and the reasons for their return.
22. What is meant by the OLAP term - Slicing and dicing?
ANS:
Slicing and dicing enables the user to examine data from different viewpoints. One slice of data might
show sales within each region. Another slice might present sales by product across regions. Slicing and
dicing is often performed along a time axis to depict trends and patterns.
ESSAY
1. How are OLTP and OLAP different? Give examples of their use.

ANS:
On-line transaction processing (OLTP) involves large numbers of relatively simple day-to-day
transactions. For example, this may involve order entry which collects data on customers and detail of
sales.
On-line analytical processing (OLAP) involves large amounts of data used to analyze relationships,
involving aggregate data, that can be analyzed, compared, and dissected.
2. Why does the data warehouse need to be separate from the operational databases?
ANS:
The conclusion that a data warehouse must be maintained separately from the operational database
reflects several issues. The transaction processing system needs a data structure that supports
performance. A normalized database aids users be adds complexity that can yield performance
inefficiency. Data mining systems need an organization that permits broad queries. The data warehouse
permits the integration of data still maintained in legacy systems. And the complexities of modern
business can benefit from the ability to analyze data extensively in ways not permitted in traditional
databases.
3. If an auditor suspected an unusual relationship between a purchasing agent and certain suppliers,
how could drill-down be used to collect data?
ANS:
Drill-down capability permits a user to repeatedly extract detailed data at increasing levels of detail.
An auditor would be able to examine purchasing transactions to determine any pattern of purchases
with the supplier in question that were approved by the purchasing agent and tie such transactions to
other characteristics like price variations relative to other vendors at the same time.
4. Why must an organization expect the implementation of an ERP to disrupt operations?
ANS:
Successful implementation of an ERP requires that many business processes be reengineered. Once
done, everything is different. If the organizational culture is not responsive to the changes, many
problems can arise.
5. Scalability has several dimensions. What are they? What do they mean for ERP installation?
ANS:
Most organizations want to grow. When a new system of any type is installed, it should be expected to
be able to handle a reasonable amount of growth. ERP systems are no different. Several dimensions of
scalability can be considered. If size of the database doubles, access time may double. If system speed
is increased, response time should decrease proportionately. If workload is increased, response time
can be maintained by increasing hardware capacity accordingly. Transaction costs should not increase
as capacity is increased.
6. Distinguish between the two-tier and three-tier client server model. Describe when each would be
used?
ANS:

In a two-tier architecture, the server handles both application and database duties. Some ERP vendors
use this approach for local area network (LAN) applications. Client computers are responsible for
presenting data to the user and passing user input back to the server. In the three-tier model the
database and application functions are separated. This architecture is typical of large production ERP
systems that use wide area networks (WANs) for connectivity. Satisfying a client requests requires two
or more network connections. Initially, the client establishes communications with the application
server. The application server then initiates a second connection to the database server.
7. Data in a data warehouse are in a stable state. Explain how this can hamper data mining analysis?
What can an organization do to alleviate this problem?
ANS:
Typically transaction data are loaded into the warehouse only when the activity on them has been
completedthey are stable. Potentially important relationships between entities may, however, be
absent from data that are captured in there stable state. For example, information about cancelled sales
orders will probably not be reflected among the sales orders that have been shipped and paid for before
they are placed in the warehouse. One way to reflect these dynamics is to extract the operations data in
slices of time. These slices provide snapshots of business activity.
8. This chapter stressed the importance of data normalization when constructing a relational database.
Why then is it important to de-normalize data in a data warehouse?
ANS:
Wherever possible, normalized tables pertaining to selected events should be consolidated into denormalized tables. Because of the vast size of a data warehouse, inefficiency caused by joining
normalized data can be very detrimental to the performance of the system. A three-way join between
tables in a large data warehouse may take an unacceptably long time to complete and may be
unnecessary. Since historical data are static in nature, nothing is gained by constructing normalized
tables with dynamic links.
9. ERP implementations are at risk to extensive cost overuns. Discuss three of the more commonly
experienced problems area.
ANS:
Training. Training costs are invariably higher than estimated because management focuses primarily
on the cost of teaching employees the new software. This is only part of the needed training.
Employees also need to learn new procedures, which is often overlooked during the budgeting process.
System Testing and Integration. In theory, ERP is a holistic model in which one system drives the
entire organization. The reality, however, is that many organizations use their ERP as a backbone
system that is attached to legacy systems and other bolt-on systems, which support unique needs of the
firm. Integrating these disparate systems with the ERP may involve writing special conversion
programs or even modifying the internal code of the ERP. Integration and testing are done on a caseby-case basis; thus, the cost is extremely difficult to estimate in advance.

Database Conversion. A new ERP system usually means a new database. Data conversion is the
process of transferring data from the legacy systems flat files to the ERPs relational database. When
the legacy systems data are reliable, the conversion process may be accomplished through automated
procedures. Even under ideal circumstances, however, a high degree of testing and manual
reconciliation is necessary to ensure that the transfer was complete and accurate. More often, the data
in the legacy system are not reliable (sometimes called dirty). Empty fields and corrupted data values
cause conversion problems that demand human intervention and data rekeying. Also, and more
importantly, the structure of the legacy data is likely to be incompatible with the reengineered
processes of the new system. Depending on the extent of the process reengineering involved, the entire
database may need to be converted through manual data entry procedures.