A transaction processing system (TPS) supports the monitoring, collection, storage, and processing of data from the organization’s basic business transactions, each of which generates data.

The TPS collects data continuously, typically in real time-that is, as soon as the data are generated-and it provides the input data for the corporate databases.

The TPSs are critical to the success of any enterprise because they support core operations. In the modern business world, TPSs are inputs for the functional area information systems and business intelligence systems, as well as business operations such as customer relationship management, knowledge management, and e-commerce.

TPSs have to efficiently handle both high volumes of data and large variations in those volumes (e.g., during periods of peak processing).

In addition, they must avoid errors and downtime, record results accurately and securely, and maintain privacy and security. Figure below illustrates how TPSs manage data.

Consider these examples of how TPSs manage the complexities of transactional data:

• When more than one person or application program can access the database at the same time, the database has to be protected from errors resulting from overlapping updates. The most common error is losing the results of one of the updates.
• When processing a transaction involves more than one computer, the database and all users must be protected against inconsistencies arising from a failure of any component at any time. For example, an error that occurs at some point in an ATM withdrawal can enable a customer to receive cash, although the bank’s computer indicates that he or she did not. (Conversely, a customer might not receive cash although the bank’s computer indicates that he or she did.)
• It must be possible to reverse a transaction in its entirety if it turns out to have been entered in error. It is also necessary to reverse a transaction when a purchased item is returned. For example, if you return a sweater that you have purchased, the store must credit your credit card for the amount of the purchase, refund your cash, or offer you an in-store credit to purchase another item. In addition, the store must update its inventory.
• It is frequently important to preserve an audit trail. In fact, for certain transactions an audit trail may be legally required.

Regardless of the specific data processed by a TPS, the actual process tends to be standard, whether it occurs in a manufacturing firm, a service firm, or a government organization. As the first step in this procedure, people or sensors collect data, which are entered into the computer via any input device. Generally speaking, organizations try to automate the TPS data entry as much as possible because of the large volume involved, a process called source data automation.

Next, the system processes data in one of two basic ways: batch processing and online processing. In batch processing, the firm collects data from transactions as they occur, placing them in groups or batches. The system then prepares and processes the batches periodically (say, every night).

In online transaction processing (OLTP), business transactions are processed online as soon as they occur. For example, when you pay for an item at a store, the system records the sale by reducing the inventory on hand by one unit, increasing sales figures for the item by one unit, and increasing the store’s cash position by the amount you paid. The system performs these tasks in real time by means of online technologies.