Accounting information system

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An accounting information system (AIS) is a system of collecting, storing and pr
ocessing financial and accounting data that are used by decision makers. An acco
unting information system is generally a computer-based method for tracking acco
unting activity in conjunction with information technology resources. The result
ing financial reports can be used internally by management or externally by othe
r interested parties including investors, creditors and tax authorities. Account
ing information systems are designed to support all accounting functions and act
ivities including auditing, financial accounting & reporting, managerial/ manage
ment accounting and tax. The most widely adopted accounting information systems
are auditing and financial reporting modules.
Contents [hide]
1
History
2
An example of architecture
3
Advantages and implications
4
Implementation
5
Career
6
See also
7
References
History[edit]
Traditionally, accounting is purely based on manual approach. Experience and ski
lfulness of an individual accountant are critical in accounting processes. Even
using the manual approach can be ineffective and inefficient. Accounting informa
tion systems resolve many of above issues. AISs can support an automation of pro
cessing large amount of data and produce timely and accuracy of information.
Early accounting information systems were designed for payroll functions in 1970
s. Initially, accounting information systems were predominantly developed "in-ho
use" as legacy systems. Such solutions were expensive to develop and difficult t
o maintain. Therefore, many accounting practitioners preferred the manual approa
ch rather than computer-based. Today, accounting information systems are more co
mmonly sold as prebuilt software packages from large vendors such as Microsoft,
Sage Group, SAP AG|SAP and Oracle Corporation|Oracle where it is configured and
customized to match the organization s business processes. Small businesses often
use accounting lower costs software packages such as MYOB and Quickbooks. Large
organisations would often choose ERP systems. As the need for connectivity and c
onsolidation between other business systems increased, accounting information sy
stems were merged with larger, more centralized systems known as enterprise reso
urce planning (ERP). Before, with separate applications to manage different busi
ness functions, organizations had to develop complex interfaces for the systems
to communicate with each other. In ERP, a system such as accounting information
system is built as a module integrated into a suite of applications that can inc
lude manufacturing, supply chain, human resources. These modules are integrated
together and are able to access the same data and execute complex business proce
sses. Today, Cloud-based accounting information systems are increasingly popular
for both SMEs and large organisations for lower costs. With adoption of account
ing information systems, many businesses have removed low skills, transactional
and operational accounting roles.
An example of architecture[edit]
An AIS typically follows a multitier architecture separating the presentation to
the user, application processing and data management in distinct layers. The pr

esentation layer manages how the information is displayed to and viewed by funct
ional users of the system (through mobile devices, web browsers or client applic
ation). The entire system is backed by a centralized database that stores all of
the data. This can include transactional data generated from the core business
processes (purchasing, inventory, accounting) or static, master data that is ref
erenced when processing data (employee and customer account records and configur
ation settings). As transactions occur, the data is collected from the business
events and stored into the system s database where it can be retrieved and process
ed into information that is useful for making decisions. The application layer r
etrieves the raw data held in the database layer, processes it based on the conf
igured business logic and passes it onto the presentation layer to display to th
e users. For example, consider the accounts payable department when processing a
n invoice. With an accounting information system, an accounts payable clerk ente
rs the invoice, provided by a vendor, into the system where it is then stored in
the database. When goods from the vendor are received, a receipt is created and
also entered into the AIS. Before the accounts payable department pays the vend
or, the system s application processing tier performs a three-way matching where i
t automatically matches the amounts on the invoice against the amounts on the re
ceipt and the initial purchase order. Once the match is complete, an email is se
nt to an accounts payable manager for approval. From here a voucher can be creat
ed and the vendor can ultimately be paid.
Advantages and implications[edit]
A big advantage of computer-based accounting information systems is that they au
tomate and streamline reporting, develop advanced modelling and support data min
ing.[1] Reporting is major tool for organizations to accurately see summarized,
timely information used for decision-making and financial reporting. The account
ing information system pulls data from the centralized database, processes and t
ransforms it and ultimately generates a summary of that data as information that
can now be easily consumed and analyzed by business analysts, managers or other
decision makers. These systems must ensure that the reports are timely so that
decision-makers are not acting on old, irrelevant information and, rather, able
to act quickly and effectively based on report results. Consolidation is one of
the hallmarks of reporting as people do not have to look through an enormous num
ber of transactions. For instance, at the end of the month, a financial accounta
nt consolidates all the paid vouchers by running a report on the system. The sys
tem s application layer provides a report with the total amount paid to its vendor
s for that particular month. With large corporations that generate large volumes
of transactional data, running reports with even an AIS can take days or even w
eeks.
After the wave of corporate scandals from large companies such as Tyco Internati
onal, Enron and WorldCom, major emphasis was put on enforcing public companies t
o implement strong internal controls into their transaction-based systems. This
was made into law with the passage of the Sarbanes Oxley Act of 2002 which stipula
ted that companies must generate an internal control report stating who is respo
nsible for an organization s internal control structure and outlines the overall e
ffectiveness of these controls.[2] Since most of these scandals were rooted in t
he companies' accounting practices, much of the emphasis of Sarbanes Oxley was p
ut on computer-based accounting information systems. Today, AIS vendors tout the
ir governance, risk management, and compliance features to ensure business proce
sses are robust and protected and the organization's assets (including data) are
secured.
Implementation[edit]
Many large and SMEs are now adopting cost effective cloud-based accounting infor
mation system in recent years.
Looking back years ago, most organizations, even larger ones, hire outside consu
ltants, either from the software publisher or consultants who understand the org

anization and who work to help select and implement the ideal configuration, tak
ing all components into consideration.
The steps to implement an accounting information system are as follows:
Detailed Requirements Analysis
where all individuals involved in the system are interviewed. The current system
is thoroughly understood, including problems, and complete documentation of the
system transactions, reports, and questions that need to be answered are gathered.
User needs that are not in the current system are outlined and documented. Users
include everyone, from top management to data entry. The requirements analysis
not only provides the developer with the specific needs, it also helps users acc
ept the change. Users who have the opportunity to ask questions and provide inpu
t are much more confident and receptive of the change, than those who sit back a
nd don't express their concerns.
Systems Design (synthesis)
The analysis is thoroughly reviewed and a new system is created. The system that
surrounds the system is often the most important. What data needs to go into th
e system and how is this going to be handled? What information needs to come out
of the system how is it going to be formatted? If we know what needs to come ou
t, we know what we need to put into the system. The program we select will need
to appropriately handle the process. The system is built with control files, sam
ple master records, and the ability to perform processes on a test basis. The sy
stem is designed to include appropriate internal controls and to provide managem
ent with the information needed to make decisions. It is a goal of an accounting
information system to provide information that is relevant, meaningful, reliabl
e, useful, and current. To achieve this, the system is designed so that transact
ions are entered as they occur (either manually or electronically) and informati
on is immediately available online for management.
Once the system is designed, an RFP is created detailing the requirements and fu
ndamental design. Vendors are asked to respond to the proposal, to provide demon
strations of the product, and to specifically respond to the needs of the organi
zation. Ideally, the vendor will input control files, sample master records, and
be able to show how transactions are processed that result in the information t
hat management needs to make decisions. An RFP for the information technology in
frastructure follows the selection of the software product because the software
product generally has specific requirements for infrastructure. Sometimes, the s
oftware and the infrastructure is selected from the same vendor. If not, the org
anization must ensure that vendors will work together without "pointing fingers"
when there is an issue with either the software or the infrastructure.
Documentation
As the system is being designed, it is documented. The documentation includes ve
ndor documentation of the system and, more importantly, the procedures or detail
ed instructions that help users handle each process specific to the organization
. Most documentation and procedures are online and it is helpful if organization
s can add to the help instructions provided by the software vendor. Documentatio
n and procedures tend to be an afterthought but is the insurance policy and the
tool used during testing and training before launch. The documentation is tested d
uring the training so that when the system is launched, there is no question tha
t it works and that the users are confident with the change.
Testing
Before launch, all processes are tested from input through output, using the doc
umentation as a tool to ensure that all processes are thoroughly documented and
that users can easily follow the procedures: They know it works and that the pro
cedures will be followed consistently. The reports are reviewed and verified, so
that there s no garbage in-garbage out. This is done in a test system not yet ful
ly populated with live data. Unfortunately, most organizations launch systems be
fore thorough testing, adding to end-user frustration when processes don't work.
The documentation and procedures may be modified during this process. All ident
ified transactions must be tested during this step. All reports and online infor

mation must be verified and traced through the audit trail so that management is
ensured that transactions will be handled consistently and that the information
can be relied upon to make decisions.
Training
Before launch, all users need to be trained, with procedures. This means a train
er using the procedures to show each end user how to handle a procedures. The pr
ocedures often need to be updated during training as users describe their unique
circumstances and the "design" is modified with this additional information. Th
e end user then performs the procedure with the trainer and the documentation. T
he end user then performs the procedure with the documentation alone. The end us
er is then on his or her own with the support, either in person or by phone, of
the trainer or other support person. This is before data conversion.
Data Conversion
Tools are developed to convert the data from the current system (which was docum
ented in the requirements analysis) to the new system. The data is mapped from o
ne system to the other and data files are created that will work with the tools
that are developed. The conversion is thoroughly tested and verified before fina
l conversion. There s a backup so it can be restarted, if necessary.
Launch
The system is implemented only after all of the above is completed. The entire o
rganization is aware of the launch date. Ideally, the current system is retained
and often run in "parallel" until the new system is in full operation and worki
ng properly. With the current mass-market software used by thousands of companie
s and fundamentally proven to work, the "parallel" run that is mandatory with so
ftware tailor-made to a company is generally not done. This is only true, howeve
r, when the above process is followed, the system is thoroughly documented and t
ested, and users are trained before launch.
Tools
Online resources are available to assist with strategic planning of accounting i
nformation systems. Information systems and financial forms aid in determining t
he specific needs of each organization, as well as assigning responsibility to p
rinciples involved.[3]
Support
The end users and managers have ongoing support available at all times. System u
pgrades follow a similar process and all users are thoroughly appraised of chang
es, upgraded in an efficient manner, and trained.
Many organizations chose to limit the time and money spent on the analysis, desi
gn, documentation, and training, and move right into software selection and impl
ementation. If a detailed requirements analysis is performed with adequate time
being spent on the analysis, the implementation and ongoing support will be mini
mal. Organizations that skip the steps to ensure the system meets their needs ar
e often left with frustrated end users, costly support, and information that is
not current or correct. Worse yet, these organizations build the system three ti
mes instead of once.
Career[edit]
Many AIS professionals work for consulting firms, large corporations, insurance
companies, financial firms, government agencies and public accounting firms, amo
ng other types of companies. With technological advancement, traditional account
ing practice will shift to accounting information systems practice. Both account
ing and information technology professional bodies are working on the new direct
ions of accounting programs and industry practices. System Auditors is one of th
e top choices in the past two decades, they look at the controls, data processin
g, data integrity, general operation, maintenance, security and other aspects of
all types of information systems used by businesses. A lot of the companies wil
l deal with software and finding a software that is right for the company, or ma
intaining a software for a company. If you are interested in the career, you mig
ht have the choice of working in the financial department of any type of busines
s, or of working with a financially oriented company or a programming-oriented c
ompany that specializes in AIS. Some job titles in this field of work include fi
nancial manager, financial examiner and chief financial officer. You could also

become a computer systems analyst, a computer information systems manager or a c

omputer software engineer or programmer specializing in financial software.
If you are working with a financially oriented company, your job duties could ra
nge from analyzing an AIS for data integrity to managing the entire AIS. In a pr
ogramming-oriented company, your focus may be directed towards developing new so
ftware in AIS or fixing bugs in an AIS. In both cases, you may also have the opt
ion of consulting, which requires travelling to different companies to provide a
nalysis and advice concerning the company's AIS.
There are industry associations offer certificates that related to AIS area incl
ude CISA, AIS, CISSP, CIA, AFE, CFE, and CITP.

Enterprise resource planning

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v t e
Diagram showing some typical ERP modules
Enterprise resource planning (ERP) is a category of business-management software t
ypically a suite of integrated applications that an organization can use to collec
t, store, manage and interpret data from many business activities, including:
product planning, purchase
manufacturing or service delivery
marketing and sales
inventory management
shipping and payment
ERP provides an integrated view of core business processes, often in real-time,
using common databases maintained by a database management system. ERP systems t
rack business resources cash, raw materials, production capacity and the status of b
usiness commitments: orders, purchase orders, and payroll. The applications that
make up the system share data across various departments (manufacturing, purcha
sing, sales, accounting, etc.) that provide the data.[1] ERP facilitates informa
tion flow between all business functions, and manages connections to outside sta
keholders.[2]
Enterprise system software is a multibillion-dollar industry that produces compo
nents that support a variety of business functions. IT investments have become t

he largest category of capital expenditure in United States-based businesses ove

r the past[which?] decade. Though early ERP systems focused on large enterprises
, smaller enterprises increasingly use ERP systems.[3][need quotation to verify]
The ERP system is considered a vital organizational tool[by whom?] because it in
tegrates varied organizational systems and facilitates error-free transactions a
nd production. However, developing an ERP system differs from traditional system
development.[4] ERP systems run on a variety of computer hardware and network c
onfigurations, typically using a database as an information repository.[5]
Contents [hide]
1
Origin
2
Expansion
3
Characteristics
4
Functional areas of ERP
4.1
GRP
5
Components
6
Best practices
7
Connectivity to plant floor information
8
Implementation
8.1
Process preparation
8.2
Configuration
8.3
Two tier enterprise resource planning
8.4
Customization
8.5
Extensions
8.6
Data migration
9
Comparison to special purpose applications
9.1
Advantages
9.2
Benefits
9.3
Disadvantages
10
See also
11
References
12
Bibliography
13
External links
Origin[edit]
This section needs additional citations for verification. Please help improve th
is article by adding citations to reliable sources. Unsourced material may be ch
allenged and removed. (April 2015) (Learn how and when to remove this template m
essage)
The Gartner Group first used the acronym ERP in the 1990s,[6][7][third-party sou
rce needed] where it was seen[by whom?] to extend the capabilities of material r
equirements planning (MRP), and the later manufacturing resource planning (MRP I
I),[8][9] as well as computer-integrated manufacturing.[citation needed] Without
replacing these terms, ERP came to represent a larger whole that reflected the
evolution of application integration beyond manufacturing.[10]
Not all ERP packages developed from a manufacturing core; ERP vendors variously
began assembling their packages with accounting, maintenance, and human-resource
components.[citation needed] By the mid-1990s ERP systems addressed all core en
terprise functions.[citation needed] Governments and non profit organizations also
began[when?] to use ERP systems.[11]
Expansion[edit]
ERP systems experienced rapid growth in the 1990s. Because of the year 2000 prob
lem and the introduction of the euro that disrupted legacy systems, many compani
es took the opportunity to replace their old systems with ERP.[12]
ERP systems initially focused on automating back office functions that did not d
irectly affect customers and the public. Front office functions, such as custome

r relationship management (CRM), dealt directly with customers, or e-business sy

stems such as e-commerce, e-government, e-telecom, and e-finance or supplier relat
ionship management (SRM) became integrated later, when the Internet simplified c
ommunicating with external parties.[citation needed]
"ERP II" was coined in 2000 in an article by Gartner Publications entitled ERP I
s Dead Long Live ERP II.[13] It describes web based software that provides real time a
ccess to ERP systems to employees and partners (such as suppliers and customers)
. The ERP II role expands traditional ERP resource optimization and transaction
processing. Rather than just manage buying, selling, etc. ERP II leverages informa
tion in the resources under its management to help the enterprise collaborate wi
th other enterprises.[14] ERP II is more flexible than the first generation ERP.
Rather than confine ERP system capabilities within the organization, it goes be
yond the corporate walls to interact with other systems. Enterprise application
suite is an alternate name for such systems.
Developers now make more effort to integrate mobile devices with the ERP system.
ERP vendors are extending ERP to these devices, along with other business appli
cations. Technical stakes of modern ERP concern integration hardware, applications
, networking, supply chains. ERP now covers more functions and roles including dec
ision making, stakeholders' relationships, standardization, transparency, global
ization, etc.[15]
Characteristics[edit]
ERP (Enterprise Resource Planning) systems typically include the following chara
cteristics:
An integrated system that operates in (or near) real time without relying on per
iodic updates[citation needed]
A common database that supports all applications
A consistent look and feel across modules
Installation of the system with elaborate application/data integration by the In
formation Technology (IT) department, provided the implementation is not done in
small steps[16]
Functional areas of ERP[edit]
An ERP system covers the following common functional areas. In many ERP systems
these are called and grouped together as ERP modules:
Financial accounting: General ledger, fixed asset, payables including vouchering
, matching and payment, receivables cash application and collections, cash manag
ement, financial consolidation
Management accounting: Budgeting, costing, cost management, activity based costi
ng
Human resources: Recruiting, training, rostering, payroll, benefits, retirement
and pension plans, diversity management, retirement, separation
Manufacturing: Engineering, bill of materials, work orders, scheduling, capacity
, workflow management, quality control, manufacturing process, manufacturing pro
jects, manufacturing flow, product life cycle management
Order Processing: Order to cash, order entry, credit checking, pricing, availabl
e to promise, inventory, shipping, sales analysis and reporting, sales commissio
ning.
Supply chain management: Supply chain planning, supplier scheduling, product con
figurator, order to cash, purchasing, inventory, claim processing, warehousing (
receiving, putaway, picking and packing).
Project management: Project planning, resource planning, project costing, work b
reakdown structure, billing, time and expense, performance units, activity manag
ement
Customer relationship management: Sales and marketing, commissions, service, cus
tomer contact, call center support CRM systems are not always considered part of
ERP systems but rather Business Support systems (BSS).

Data services : Various "self service" interfaces for customers, suppliers and/or
employees
GRP[edit]
GRP (Government Resource Planning)[17] is an ERP for public sector, and an integ
rated office automation system for government bodies. The software structure, mo
dularization, core algorithmns and main interfaces not differ from other ERPs, a
nd ERP software suppliers manage to adapt its systems to government agencies.[18
] [19] [20]
Both system implementations, in private and public organizations, are adopted to
improve productivity and overall business performance in organizations, but com
parisons (private vs public) of implementations shows that the main factors infl
uencing ERP implementation success in the public sector are cultural.[21] [22] [
23]
Components[edit]
Transactional database
Management portal/dashboard
Best practices[edit]
Most ERP systems incorporate best practices. This means the software reflects th
e vendor's interpretation of the most effective way to perform each business pro
cess. Systems vary in how conveniently the customer can modify these practices.[
24] Companies that implemented industry best practices reduced time consuming proj
ect tasks such as configuration, documentation, testing, and training.[25] In ad
dition, best practices reduced risk by 71% compared to other software implementa
tions.[26]
Use of best practices eases compliance with requirements such as IFRS, SarbanesOxley, or Basel II. They can also help comply with de facto industry standards,
such as electronic funds transfer. This is because the procedure can be readily
codified within the ERP software, and replicated with confidence across multiple
businesses who share that business requirement.[citation needed]
Connectivity to plant floor information[edit]
ERP systems connect to real time data and transaction data in a variety of ways. T
hese systems are typically configured by systems integrators, who bring unique k
nowledge on process, equipment, and vendor solutions.
Direct integration ERP systems have connectivity (communications to plant floor eq
uipment) as part of their product offering. This requires that the vendors offer
specific support for the plant floor equipment their customers operate. ERP ven
dors must be experts in their own products and connectivity to other vendor prod
ucts, including those of their competitors.
Database integration ERP systems connect to plant floor data sources through stagi
ng tables in a database. Plant floor systems deposit the necessary information i
nto the database. The ERP system reads the information in the table. The benefit
of staging is that ERP vendors do not need to master the complexities of equipm
ent integration. Connectivity becomes the responsibility of the systems integrat
or.
Enterprise appliance transaction modules (EATM) These devices communicate directly
with plant floor equipment and with the ERP system via methods supported by the
ERP system. EATM can employ a staging table, web services, or system specific pro
gram interfaces (APIs). An EATM offers the benefit of being an off the shelf solutio
n.
Custom integration solutions Many system integrators offer custom solutions. These s
ystems tend to have the highest level of initial integration cost, and can have
a higher long term maintenance and reliability costs. Long term costs can be min

imized through careful system testing and thorough documentation. Custom integrate
d solutions typically run on workstation or server-class computers.
Implementation[edit]
ERP's scope usually implies significant changes to staff work processes and prac
tices.[27] Generally, three types of services are available to help implement su
ch changes consulting, customization, and support.[27] Implementation time depends
on business size, number of modules, customization, the scope of process change
s, and the readiness of the customer to take ownership for the project. Modular
ERP systems can be implemented in stages. The typical project for a large enterp
rise takes about 14 months and requires around 150 consultants.[28] Small projec
ts can require months; multinational and other large implementations can take ye
ars.[citation needed] Customization can substantially increase implementation ti
mes.[28]
Besides that, information processing influences various business functions e.g.
some large corporations like Wal-Mart use a just in time inventory system. This
reduces inventory storage and increases delivery efficiency, and requires up-todate data. Before 2014, Walmart used a system called Inforem developed by IBM to
manage replenishment.[29]
Process preparation[edit]
Implementing ERP typically requires changes in existing business processes.[30]
Poor understanding of needed process changes prior to starting implementation is
a main reason for project failure.[31] The difficulties could be related to the
system, business process, infrastructure, training, or lack of motivation.
It is therefore crucial that organizations thoroughly analyze business processes
before they implement ERP software. Analysis can identify opportunities for pro
cess modernization. It also enables an assessment of the alignment of current pr
ocesses with those provided by the ERP system. Research indicates that risk of b
usiness process mismatch is decreased by:
Linking current processes to the organization's strategy
Analyzing the effectiveness of each process
Understanding existing automated solutions[32][33]
ERP implementation is considerably more difficult (and politically charged) in d
ecentralized organizations, because they often have different processes, busines
s rules, data semantics, authorization hierarchies, and decision centers.[34] Th
is may require migrating some business units before others, delaying implementat
ion to work through the necessary changes for each unit, possibly reducing integ
ration (e.g., linking via Master data management) or customizing the system to m
eet specific needs.[35]
A potential disadvantage is that adopting "standard" processes can lead to a los
s of competitive advantage. While this has happened, losses in one area are ofte
n offset by gains in other areas, increasing overall competitive advantage.[36][
37]
Configuration[edit]
Configuring an ERP system is largely a matter of balancing the way the organizat
ion wants the system to work with the way it was designed to work. ERP systems t
ypically include many settings that modify system operations. For example, an or
ganization can select the type of inventory accounting FIFO or LIFO to use; whether
to recognize revenue by geographical unit, product line, or distribution channel
; and whether to pay for shipping costs on customer returns.[35]
Two tier enterprise resource planning[edit]
Two-tier ERP software and hardware lets companies run the equivalent of two ERP
systems at once: one at the corporate level and one at the division or subsidiar

y level. For example, a manufacturing company[who?] uses an ERP system to manage

across the organization. This company uses independent global or regional distr
ibution, production or sales centers, and service providers to support the main
company s customers. Each independent center or subsidiary may have its own busine
ss models, workflows, and business processes.
Given the realities of globalization, enterprises continuously evaluate how to o
ptimize their regional, divisional, and product or manufacturing strategies to s
upport strategic goals and reduce time-to-market while increasing profitability
and delivering value.[38] With two-tier ERP, the regional distribution, producti
on, or sales centers and service providers continue operating under their own bu
siness model separate from the main company, using their own ERP systems. Since th
ese smaller companies' processes and workflows are not tied to main company's pr
ocesses and workflows, they can respond to local business requirements in multip
le locations.[39]
Factors that affect enterprises' adoption of two-tier ERP systems include:
Manufacturing globalization, the economics of sourcing in emerging economies
Potential for quicker, less costly ERP implementations at subsidiaries, based on
selecting software more suited to smaller companies
Extra effort, (often involving the use of Enterprise application integration[40]
) is required where data must pass between two ERP systems[41] Two-tier ERP stra
tegies give enterprises agility in responding to market demands and in aligning
IT systems at a corporate level while inevitably resulting in more systems as co
mpared to one ERP system used throughout the organization.[42]
Customization[edit]
ERP systems are theoretically based on industry best practices, and their makers
intend that organizations deploy them as is.[43][44] ERP vendors do offer custo
mers configuration options that let organizations incorporate their own business
rules, but often feature gaps remain even after configuration is complete.
ERP customers have several options to reconcile feature gaps, each with their ow
n pros/cons. Technical solutions include rewriting part of the delivered softwar
e, writing a homegrown module to work within the ERP system, or interfacing to a
n external system. These three options constitute varying degrees of system cust
omization with the first being the most invasive and costly to maintain.[45] Alter
natively, there are non-technical options such as changing business practices or
organizational policies to better match the delivered ERP feature set. Key diff
erences between customization and configuration include:
Customization is always optional, whereas the software must always be configured
before use (e.g., setting up cost/profit center structures, organizational tree
s, purchase approval rules, etc.).
The software is designed to handle various configurations, and behaves predictab
ly in any allowed configuration.
The effect of configuration changes on system behavior and performance is predic
table and is the responsibility of the ERP vendor. The effect of customization i
s less predictable. It is the customer's responsibility, and increases testing a
ctivities.
Configuration changes survive upgrades to new software versions. Some customizat
ions (e.g., code that uses pre defined "hooks" that are called before/after displa
ying data screens) survive upgrades, though they require retesting. Other custom
izations (e.g., those involving changes to fundamental data structures) are over
written during upgrades and must be re-implemented.[46]
Customization advantages include that it:
Improves user acceptance[47]
Offers the potential to obtain competitive advantage vis--vis companies using onl
y standard features

Customization disadvantages include that it:

Increases time and resources required to implement and maintain[45]
Inhibits seamless communication between suppliers and customers who use the same
ERP system uncustomized[citation needed]
Can create over reliance on customization, undermining the principles of ERP as
a standardizing software platform
Extensions[edit]
ERP systems can be extended with third party software.[48] ERP vendors typically p
rovide access to data and features through published interfaces. Extensions offe
r features such as:[citation needed]
Reporting, and republishing
Capturing transactional data, e.g., using scanners, tills or RFID
Access to specialized data and capabilities, such as syndicated marketing data a
nd associated trend analytics
Advanced planning and scheduling (APS)
Managing facilities, and transmission in real-time
Data migration[edit]
Data migration is the process of moving, copying, and restructuring data from an
existing system to the ERP system. Migration is critical to implementation succ
ess and requires significant planning. Unfortunately, since migration is one of
the final activities before the production phase, it often receives insufficient
attention. The following steps can structure migration planning:[49]
Identify data to migrate
Determine migration timing
Generate data templates[clarification needed]
Freeze the toolset
Decide on migration-related setups[clarification needed]
Define data archiving policies and procedures
Comparison to special purpose applications[edit]
Advantages[edit]
The fundamental advantage of ERP is that integrated myriad business processes sa
ves time and expense. Management can make decisions faster and with fewer errors
. Data becomes visible across the organization. Tasks that benefit from this int
egration include:[citation needed]
Sales forecasting, which allows inventory optimization.
Chronological history of every transaction through relevant data compilation in
every area of operation.
Order tracking, from acceptance through fulfillment
Revenue tracking, from invoice through cash receipt
Matching purchase orders (what was ordered), inventory receipts (what arrived),
and costing (what the vendor invoiced)
ERP systems centralize business data, which:
Eliminates the need to synchronize changes between multiple systems consolidation
of finance, marketing, sales, human resource, and manufacturing applications
Brings legitimacy and transparency to each bit of statistical data
Facilitates standard product naming/coding
Provides a comprehensive enterprise view (no "islands of information"), making r
eal time information available to management anywhere, any time to make proper dec
isions
Protects sensitive data by consolidating multiple security systems into a single
structure[50]
Benefits[edit]
ERP can improve quality and efficiency of the business. By keeping a company's i
nternal business processes running smoothly, ERP can lead to better outputs that
may benefit the company, such as in customer service and manufacturing.

ERP supports upper level management by providing information for decision making
.
ERP creates a more agile company that adapts better to change. It also makes a c
ompany more flexible and less rigidly structured so organization components oper
ate more cohesively, enhancing the business internally and externally.[51]
ERP can improve data security. A common control system, such as the kind offered
by ERP systems, allows organizations the ability to more easily ensure key comp
any data is not compromised.[citation needed]
ERP provides increased opportunities for collaboration. Data takes many forms in
the modern enterprise. Documents, files, forms, audio and video, emails. Often,
each data medium has its own mechanism for allowing collaboration. ERP provides
a collaborative platform that lets employees spend more time collaborating on c
ontent rather than mastering the learning curve of communicating in various form
ats across distributed systems.[citation needed]
Disadvantages[edit]
Customization can be problematic. Compared to the best-of-breed approach, ERP ca
n be seen as meeting an organization s lowest common denominator needs, forcing th
e organization to find workarounds to meet unique demands.[52]
Re-engineering business processes to fit the ERP system may damage competitivene
ss or divert focus from other critical activities.
ERP can cost more than less integrated or less comprehensive solutions.
High ERP switching costs can increase the ERP vendor's negotiating power, which
can increase support, maintenance, and upgrade expenses.
Overcoming resistance to sharing sensitive information between departments can d
ivert management attention.
Integration of truly independent businesses can create unnecessary dependencies.
Extensive training requirements take resources from daily operations.
Harmonization of ERP systems can be a mammoth task (especially for big companies
) and requires a lot of time, planning, and money.[53]
See also[edit]
List of ERP software packages
Accounting software
Business process management
Business intelligence
Cost accounting
Cybernetics
Document automation
Data migration
Economic planning
Enterprise feedback management (EFM)
Enterprise planning systems
Enterprise system
ERP modeling
ERP for IT
ERP system selection methodology
Information technology management
List of project management software
Management information system
Manufacturing operations management
Material balance planning
Operations research
Service management
Software as a service
References[edit]