1.7 Databases and Business Information Systems
In most business systems, the database provides the underlying foundation for business applications that support the daily operations and activities of the business. Most business systems are created to support either direct business processes, such as taking orders and making sales, or indirect business processes, such as payroll and human resources. Since both types of business processes capture and store information, a database is required. In order to better understand how database technology is used within a business, the following table identifies three ways to categorize business information systems and describes how the database enables them.
| Information System | Purpose and Examples | Database Requirements |
|---|---|---|
| Transaction Processing System (TPS) | Are used to support the daily activities of the business. A business will have many TPS systems, including:
|
The database must capture every transaction. It must also present detailed information to the user as necessary. For example, a point of sale system must present prices item by item and then record the sale of a quantity of that item. |
| Management Information System (MIS) | Are normally used by middle management to supervise and verify the efficiency of daily activities. | Data for MIS is usually extracted from the TPS and summarized into a set of management reports. Sometimes additional database tables are used to record and provide historical data to forecast future trends. |
| Decision Support System (DSS) | Are designed to do sophisticated modeling and analysis to help executives make strategic decisions. | A DSS is heavily dependent on data provided by both internal and external database sources. In addition, sophisticated modeling and analysis tools are used to extract and manipulate the data. |
As you learned in a previous section about the database approach, an information system consists of the front end application, the DBMS or database engine, and the data itself. In the above table, the three basic types of information systems include all three components—front end, DBMS, and data. It is also possible to consider only the method used to organize the data in the database apart from the front end application.
If the data is organized in a manner that facilitates the rapid processing of business transactions, it is called an Online Transaction Processing (OLTP) database. OLTP types of databases are designed and optimized to allow quick reading of the data and quick updates of individual pieces of data. For example, an OLTP database can rapidly display account information about a particular customer and quickly update that customer's account with immediate sales transactions. This type of database structure, OLTP, is very useful for TPS and MIS, which need to summarize daily transactions. OLTP databases are designed and built to be fast and efficient in supporting active business processes.
On the other hand, DSS usually require in-depth analyses, such as trend analyses or correlation analyses between different items. DSS require a different type of database structure and organization. Databases that are organized to optimize data analysis are called Online Analytical Processing (OLAP) databases. For example, a data analysis that looks at trends in purchases of different types of automobiles from year-to-year and then correlates that information with stock prices or interest rates would require a very different type of database structure. In this situation, it is unnecessary to rapidly extract individual customer information or even identify individual customer purchases. In other words, an OLAP database is designed to support data analysis.
Table 1.2 summarizes some of the differences between these two types of databases.
| OLTP Database (Day to Day operations) | OLAP Database (Data Analysis) | |
|---|---|---|
| Purpose of Database | To support day-to-day business processes | To support strategic planning and decision making |
| Source of Data | Daily transactions | Consolidation of internal operational data and externally acquired data |
| Organization of Database | Structured and normalized tables | Not normalized; other designs such as star or snowflake |
| Queries (retrieve data) | Standard SQL with small datasets returned | Complex queries and combinations of data. Results are often aggregations. |
| Inserts/Updates | Frequent, limited data, must be rapid | Very few |
| Space Requirements | Small to medium to enable rapid response | Can be very large |
| Time Frame | Usually weeks or months | Long time series, often years |
Although some businesses, especially small businesses, may not utilize Decision Support Systems, all businesses require Transaction Processing Systems and some level of Management Information Systems. Can you imagine trying to run a business without transaction processing systems and databases to keep track of the information about the day-to-day operations? Databases and information systems are the lifeblood of virtually every business, large or small.