32 Transaction Processing

Dr. Ashish Saihjpal

1. Learning Outcome:

After completing this module the students will be able to:

• Develop an understanding of Transaction Processing Systems.
• List various features and characteristics of TPS.
• Discuss the Transaction Processing Cycle and its components.
• Understand various types of Transaction Processing and requirements of transaction processing.
• Understand how TPS differ from MIS and ESS in terms of application.
• Discuss various industry vide applications of TPS.

2. Introduction

Any enterprise that exchanges goods or services in lieu of a payment performs a transaction. It refers to the monetary exchange of money in lieu of a tangible product or intangible service (Exhibit 1). One may purchase a new shirt based on his/her choice and take it to the checkout, hand over some cash, and leave the store with the purchase in a bag—that’s a transaction. A similar process may be undertaken while shopping from a virtual store, where the transaction is processed online or offline but the items can only be seen and touched when the goods reaches the buyer’s doorsteps.

With the increasing popularity of e-commerce applications and mobile computing, the importance of transaction processing continues to increase. In simplest terms, a transaction is interaction among two or more parties for the conduct of business. How a company wants to utilize this transaction information depends on its competence. It is important to note that the analysis of transaction data should be as simplified as possible. This way it can be put to use for business related decision making. Exhibit 2 shows electronic transactions in process such as making a payment using credit/debit cards or making an online reservation for a hotel, movie, bus or a train.

Fundamentally, the basic function of a Transaction Processing System (TPS) includes capturing transaction logs on the server side. The system is responsible for storage and archival of this transaction load and utilizing it for business analysis. The main purpose behind capturing this transaction data is to support day to day routine operations. Secondly, to feed the management reporting system and produce performance reports about the efficiency of operations.

Transaction Processing Systems support organization’s activities at three levels i.e. operational, managerial and strategic. TPS forms the backbone of an organization’s information system. The data captured act as input data to organization’s functional information system applications like Customer Relationship Management, Enterprise Resource Planning, and Decision Support Systems. Common examples of transaction processing systems include point of sale terminals, automatic teller machines, railway ticketing systems, payment gateways and web check – in kiosks etc.

Primarily, the goal of TPS is to enforce compliance with the law and organizational policies to keep the business running properly and efficiently. The purpose of installing a TPS is to keep a constant track of the records about the state of an organization and to further process the transactions that affect these records. The reports are then generated based on the transactions that have already occurred.

Transaction processing systems are so critical for business that its failure for a few hours can lead to loss of business for the firm and those linked to it. It could be disastrous for the likes of Blue Dart and FedEx if their consignment tracking systems stopped working for even few hours! In same way railways ticketing is affected if their computerized reservation system fails. Managers need transaction processing system to monitor how a firm functions and interacts with its allies and TPS are the major source of information for the other types of systems.

3. Features of Transaction Processing Systems

It is of paramount importance for any firm to build a robust transaction processing system. It should be scalable to meet the growing business requirements from time to time. The success is determined by its ability to process transactions and rectify them in case of an error. This support is provided by a competent transaction processing system. At the same the organization requires a team of system experts and analysts to monitor the performance of the system.

A TPS shall exhibit the characteristics as stated in Figure1. These are discussed below in detail:

• Rapid processing – Business transactions are interconnected and cannot be processed at the whims and fancies of the business owner. They need to be processed in real-time to ensure the business is up and running. At all times, the system should be able to fetch essential information as the manager demands.
• Reliability – Business cannot afford to make mistakes, hence, the stakes on business transactions are high. TPS systems, are therefore, designed to incorporate comprehensive disaster recovery nodes in situation of a system failure. The back-up and recovery of data must be agile and accurate.
• Standardization – The system should be able to replicate the transaction ‘n’ number of times the business user demands. Hence, standardization is a key feature that should be present. The applications should be interfaced so as to produce identical data for every transaction regardless of the customer or time.
• Controlled access – The transaction data logs are confidential to any organization and should not be made public. It is important to note that access should be with executives who require these for business use. Controlled access implies the restriction to access transaction data without validated login credentials. This secures the internal working of an organization.

Moreover, the transaction processing infrastructure should be able to qualify an ACID test for optimum functionality. The parameters of ACID test are mentioned in Figure 2 and are explained below:

1. Atomicity – Atomicity refers to a situation where either the transaction is completed and settled, or it has not occurred at all. It does not settle for any other state. An atomic transaction is an indivisible and irreducible series of database operations. For example, if funds are transferred from one account to another, this only counts as a bone fide transaction, if both the withdrawal and deposit take place. If one account is debited and the other is not credited, it does not qualify as a transaction.
2. Consistency – Transactions are to be processed within a framework of rules and limiting factors. These limiting factors are also referred as constraints. The transaction is acceptable only if it converges to a desired state of output, any value that is a mismatch needs the transaction to be reversed or reconciled.
3. Isolation – Transactions are processed in a way that a change of state should be visible. It is important for the system to be isolated so as to ensure concurrent execution of the transaction. In an account entry if one account is getting debited then a corresponding credit entry in the other needs to be reflected. Only this shall validate the transaction.
4. Durability – The transaction processing system maintains its durability by creating a transaction log for every event on the server. Even in event of a failed transaction, the activity leaves a trace on the system and the relevant information can be retrieved.

3.1  The Transaction Processing Cycle

The Transaction Processing Cycle is a five step process as shown in Figure 3 and is elucidated below:

1. Data collection – The first step of the transaction cycle involves collection of data. This precedes the occurrence of an activity on the system side, which can be viewed on the server. The transactions are measured in some convenient units for recording like hours for labor, money in case of financial transaction etc. Information regarding the time, date and participants involved is marked and saved in the database.
2. Data editing – It implies checking the validity of data entered. Typical validation tests include, checking for missing data items, valid codes, and valid values. More extensive validation may entail authorization of the transaction based on the customers’ record and available inventory.
3. Data correction – It is implemented if an error is found in the entered data.
4. Data manipulation – Once data about a business activity has been collected and entered into a system, it must be processed. Four different types of file processing are: updating data, changing data, adding data and deleting data. The three approaches to updating files are: batch processing, real time processing and online batch processing.
5. Data storage – It is a crucial step in many data processing procedures. The processed results are stored for use as input data in the future. A unified set of data storage is called a file, which consists of records. A collection of files forms a database. It implies the alteration of databases that reflect the transaction.

3.2 Components of a Transaction Processing System

Exhibit 3 highlights a broad layout of the processes that together make the Transaction Processing System.

The components of a TPS include hardware, software and the people. Thought, the people remain an important component of a TPS. The hardware largely includes the storage devices while the software is required for processing the transactions to get an output from an input that may be through a source document as elaborated below:

1. People –They can be classified as:

– Users are the one who owns the TPS but are not the direct operators of the system. They capture data provided by the TPS and use it in other type of information systems.

– Participants are the people who conduct the information processing. They need to know what to do, how to do it and when to do it. They have an essential role in transaction processing and the success or failure of the system is dependent on them. They largely include the data entry operators, customer service operators, front desk operators etc.

– People from the environment are participants in real-time processing systems as they directly perform validation. For example: one books an online air ticket then one becomes the participant of a TPS or bank account holder withdrawing money from an ATM.

2. Inputs – The source documents such as customer orders, invoices, purchase orders, etc. serves as inputs to the TPS system.

3. Processing – Once the inputs are provided, they are further processed to get an output.

4. Storage – Ledgers serves as a source of storage.

5. Output – It refers to any document generated.

4. Types of Transaction Processing

There are three ways to process transactions: using batches, in real time and online. These different types of transaction processing are elaborated in details as below:

• Batch Processing Systems – BPS collects the transaction data as a group. This grouping is referred to as a batch. The transactions occurring in a batch are than processed as a single unit because it is convenient and economical to do so as large volumes of data have lower processing cost. It is important to note that a time gap occurs between the occurrence of the event and the time taken in processing it further. For example, a supermarket or a doctor’s clinic may reconcile accounts at the end of the day. A bank branch settles the transactions that occur at the cash counter for the day.
• Batch processing is used in utility bills like electricity, water, salary processing, monthly account statements etc. since in these scenarios collected jobs are loaded into the computer and then the computer finishes the processing without human intervention.
• Real-Time Processing System – The biggest problem with batch processing is that the master file is never current. This means that there exists a time gap between the last batch of transactions loaded and the current one that occurs. Hence, lays the need to enable transactions to be processed immediately as they occur without any delay. Real time processing is used in areas such as smoke alarms, intrusion detection, controlling and monitoring aircrafts, burglar alarms, security control etc. In such cases sensors are used rather than human input to obtain data. Real time processing is used along with control systems to ensure there is response to inputs without any delays.
• Online Transaction Processing – In this case, the records in the system always reflect the current status. Online transaction processing (OLTP) is interactive & each transaction is processed as it occurs. The drawback to OLTP is the high costs associated with the necessary security & fault tolerance features.OLTP occurs in scenarios such as purchasing goods on the internet to calculate how many items are left in stock, no of items a person has added to his cart, ATM’s to recalculate how much money is left in the account, booking systems and ticket reservations etc.

Exhibit 5 exemplifies the processing time taken by the three methods and shows online transaction processing to be the fastest. However, while real-time processing is often more efficient and in some cases necessary, batch processing may be more effective.

4.1 Requirements of Transaction Processing

Transactions occur over a computer network depending upon the way computers are connected such as through the internet or the extranet. The different participants involved in the transaction have to be connected at all times. Therefore, the different requirements of a computer-base transaction processing are:

• Executing multiple operations – Considering the purchase of a book from Flipkart. One operation records the payment and another operation records the commitment to ship the item to the customer. This should consider the scalability, reliability and cost involved. Thus, an efficient transaction processing system must be able to perform multiple operations simultaneously.
• Efficiency – It is determined by the transaction throughput i.e., number of transactions processed in a defined unit of time and the complexity of the database.
• Building robust systems – It is imperative for transactions to execute concurrently. Uncontrolled concurrent transactions can generate wrong outputs. While booking for a concert, simultaneous operations are competing to reserve the seats, it’s important that only one customer is assigned to each seat.
• A transaction must run in its entirety – Any retail transaction should either be exchanged for money or not sold at all. A transaction that is not settled should be revered or reconciled. It is very important to receive an acknowledgement in transaction processing.
• Scalability – As organizations grow in capacity their business operations multiply. It is not practical to completely discard the existing infrastructure and replace it with the new one. It is important that procurement is done in a way the system is expandable on the existing hardware.
• Backup – Transaction data is very important to an organization and could also be needed at a later It needs to be time stamped and stored so that fetching data about a previous transaction becomes easier.
• Geo-redundant – Geo-redundancy implies the system to be distributed and spread out It could be integrated over multiple locations. A system must operate in the country where the business is performed. A separate location could act as a backup or failover node in case the system needs to be rectified or halted for maintenance.

• Customer profile – Based on the user profile, a system should be able to customize the online browsing experience on the user interface. This is possible using functionality of business analytics and graphic user interface. For a retail customer, it should identify relevant discounts and advertisements and offer products customized to that user.

5. Difference between TPS, MIS and ESS

Figure 4 illustrates the different levels within organization at which these systems are executed. The difference between TPS, MIS and ESS is discussed as below:

Transaction Processing Systems –Transaction Processing Systems are built on a framework of hardware and software that capture data transmission that occurs on the server and saves it as a log file or a session. Transactions are crucial for business as they help analyze activities at the operational level. This information is relevant for activities at the basic management level who actually process business tasks as desired by the upper levels of management.

Management Information System – This level of information systems is designed for the mid level management. Input from the TPS is fed into the MIS for analysis at the next level. MIS bring together people, processes and the corresponding technology in use. The Management Information Systems (MIS) support decision making across functional departments for planning, controlling, organizing and staffing. Exhibit 8 highlights one such interaction between the two systems. The Order Processing System feeds sales data into corresponding files integrated with the MIS. Similarly, the accounting, production data is fed which is eventually used for a cross functional analysis.

Executive Support Systems – Executive Support Systems (ESS) are developed with inbuilt functionality to analyze data and summarize it with support of pictorial aids like graphs, charts etc. The ESS process information received from transaction and operational process. This can be used for sales forecasting and trend analysis. It provides inputs to take strategic decisions at the upper levels of the management.

6. Business applications of Transaction Processing

Succeeding in today’s competitive world requires architectural innovation, business agility to drive away factors that eliminate inefficiency and extra cost. The underlying aim is to utilize real time information to make better business decisions that Optimize Return on Investment. Let us try to understand the business applications of transaction processing with the help of some examples.

• In the hotel industry, the room occupancy is a clear measure of competitive efficiency. At Taj Group, business intelligence first looks at privileged member status and corresponding pricing models than merely checking the availability of rooms. The terms of stay may quickly reflect what extra the customer may be offered as a privilege or complimentary deal service. For a platinum member, the services shall be upgraded. On the room inventory side, systems also consider room location preferences and in case they are overbooked or undersold. Further, the system intelligence comes in a ‘best yield’, ‘best price’ scenario for the hotel chain and the customer in less than a second. The main aim for transaction processing is to offer newer portfolio of services that attract customers and maintain their loyalty. The hotel reservation system requires the transaction throughput to be rapid and unfailing, 24*7 from anywhere with absolute and swift failover.
• Another example is of a payroll system that is essential for any organization. It is essential to keep track of the salaries/wages paid to employees as per their compensation package and terms of service. A master file holds data elements such as name, employee id, email. When data is fed into the system, the data elements get updated.
• These elements can be combined in multiple ways as per business requirements for reporting and analysis (Figure 5). One example can be to calculate paid leave for each employee. Other can be calculating the total number of extra hours worked outside business hours. The most common example is that of an accounting system. It helps keep account of fixed and incentives for each employee. It can keep track of policies linked, money paid and pay cheques processed.

7. Summary

The concept of transaction processing finds numerous applications across different functional units of an enterprise. Transactions logs are fetched from routine business operations involved in sales, purchase, data connections, logins, database queries to name a few. The Transaction Processing System also links external interfaces with organizational applications. It monitors the exchange of information between various stake holders with its time stamp which could be of business use. Transaction Processing minimizes the organization’s costs by reducing the number of times that data must be handled and by providing timely updates to the database. Transaction processing workloads for both online and batch processing are among the most critical for any organization supported by the IT infrastructure. No hotel wants to lose business because the online reservation system is not available, no bank would stake to lose business because the online reservation system is not available. The bank may suffer huge volume loss if the ATM’s are out of order or the online transaction payment gateway does not respond. Hence, transaction processing systems require the most robust platforms. Transaction integrity is another factor of paramount importance. It is the assurance that the results are being achieved, whether transactions are processed using the laptop or mobile for reserving a hotel room or booking a movie ticket or paying utility bills.

Web Resources

• http://ambarwati.dosen.narotama.ac.id/files/2011/05/FIS-2011-w2.pdf
• http://araku.ac.ir/~a_fiantial/ISR_Lec_[4].pdf