An Ontology-Based Dynamic Enterprise Model for Managerial Planning and Control

In this paper we propose an ontology-based dynamic enterprise model to facilitate managerial control. Management control systems serve to implement enterprise strategies, and formal management control systems typically include strategic planning, budgeting, performance measurement, and performance evaluation processes (Anthony and Govindarajan 2004). We focus on the portion of the process wherein managers assess complex business environments, changing competitive forces and uncertain futures, and then make significant resource allocation decisions. Managers often rely on traditional capital budgeting techniques, such as discounted cash flow or internal rate of return models, in making these resource allocation decisions (e.g., Accola 1994, Adams et al. 2004). Critics argue, however, that such techniques fail to consider non-linear relationships, discontinuities, and uncertainty (e.g., Accola 1994, Boquist et al. 1998). System dynamics provides an alternative approach that specifically considers business complexities and uncertainties. Since Forrester (1956), system dynamics methods have been extensively applied to business problems, but to our knowledge, there is no general system dynamics model of integrated business processes to support business strategy (see Warren 2005). We therefore propose the use of system dynamics models based on an established enterprise domain ontology to facilitate reuse of and learning from these models in a variety of business contexts. An enterprise domain ontology, such as the resource-event-agent (REA) framework, supports an integrated and holistic view of enterprise processes and risk factors. Such a view would further the development of dynamic models of enterprise processes that explicitly consider process complexity, non-linear interactions, uncertainty, and the consequences of time delays. An ontology-based dynamic model thus allows managers to better assess the consequences of alternative resource allocation decisions and determine appropriate performance indicators. To illustrate the concepts, we use the REA framework to establish a generic system dynamics model and provide an example of how that model could be used to plan internal control procedures.