Computer in Financial
Decision Making
Objectives
You will be able to:
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Define financial decision making
Describe decision making process steps
Explain the roles of computer in financial decision making
Describe different types of decision making computer systems
Explain the advantages of computer in financial decision
making
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Table of Contents
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Financial decision making
Decision making process
Intervention of computer in the decision making process
Types of decision making computer systems
Benefits of computer in a decision making process
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Financial Decision Making
Decision making is choosing between several
possible courses of actions related to an issue.
Financial decision making involves decisions
concerning financial related issues such as:
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determining the proper amount of funds to employ in a firm
selecting projects and capital expenditure analysis
raising funds on the most favourable terms possible
managing working capital such as inventory and accounts
receivable.
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Decision Making Process
The steps in decision making process are:
• 1)
• 2)
• 3)
• 4)
• 5)
Gathering information,
Recalling knowledge and prior experiences,
Understanding the various sides of the issue,
Imagining the various possibilities of actions,
Comparing, weighing and evaluating them
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Decision Making Process
• 6) Making a choice between those alternative
solutions / actions
– 6b) If the course of actions is
complex, preparing a planning.
• 7) Implementing the decision.
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Decision Making Process Work Flow
GATHERING
INFORMATION
MAKING A CHOICE
AND PREPARING A
PLAN
RECALLING
KNOWLEDGE AND
PRIOR EXPERIENCES
COMPARING,
WEIGHING AND
EVALUATIING THEM
UNDESTANDING THE
VARIOUS SIDES OF
THE ISSUE
IMAGINING THE
VARIOUS
POSSIBILITIES OF
ACTIONS
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IMPLEMENTING THE
DECISION
Intervention of computer in the decision
making process
Ø Gathering information
Information comes from a variety of sources through a variety
of means.
Reports generated by different computer systems assist
management in making decision. Examples are sales report,
productivity and costing reports, trend analysis e.t.c from
various application software.
The Internet is a source of on-line information and has grown
rapidly over the years; it is the most widely used means of
transferring information. Examples of information search
engines are Google, Wikipedia, Ask.com and Yahoo.
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Intervention of computer in the decision
making process
Ø Recalling knowledge and prior experiences
Computer systems can store information and
retrieve them as long as the systems are available.
Several Database Management Systems (DBMS)
manage data efficiently for easy access and
retrieval. Examples of DBMS are MYSQL, Microsoft
Access, Oracle, RDBMS e.t.c
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Intervention of computer in the decision
making process
Ø Understanding the various sides of the issue
Advances in the area of computing have made it
possible to have systems that attempt to reproduce
the performance of one or more human experts,
most commonly in a specific problem domain. Such
systems have the capability to learn because it is
constantly being given cause and effect, thereby
understanding various sides within its knowledge
base.
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Intervention of computer in the decision
making process
Ø Understanding the various sides of the issue
Applications such as Microsoft Excel can be deployed
as an expert system to aid decision making.
It can be utilized to plot line of best fit and graphs
which are used to forecast market analysis.
An example is seen below;
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Intervention of computer in the decision
making process
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Intervention of computer in the decision
making process
Ø Comparing, weighing and evaluating
Computer systems aid in formatting and
manipulating data. Several tools with different
capabilities can be interfaced to provide users with a
single easily used language to present data in a way
that will best support the end-user to compare,
weigh and evaluate data.
Examples are bar chart, pie chart, graphs e.t.c Data
analysis tools such as Audit Command Language
(ACL), Microsoft Access e.t.c are also useful.
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Intervention of computer in the decision
making process
Ø Implementing the decision.
Depending on the nature of the decision to be
taken, there are computer aided tools that can
facilitate the implementation of the decision.
There are various tools available such as;
Computer aided software engineering (CASE)
Computer aided recording tools (CART)
Computer aided summarisation tool (CAST)
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Intervention of computer in the decision
making process
Ø Implementing the decision.
Computer aided software engineering (CASE)
This is the scientific application of a set of tools and methods to a software which is
meant to result in high-quality, defect-free, and maintainable software products. It also
refers to methods for the development of information system together with automated
tools that can be used in the software development.
Computer aided recording tools (CART)
CART is a tool that converts coordinate information, obtained from any source, into an
intelligent 3D CAD (computer aided design) Model without having to do any manual
drafting at all.
Computer aided summarisation tool (CAST)
Computer aided summarization tool tries to help the human summariser by selecting the
important information from a document. In this way, human effort and time is reduced to
linking the extracted sentences in a coherent way and, possibly, removing the redundant
information or adding missing information.
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Graphical representation of a typical
computer aided loan approval decision
making process in a bank.
Ø
Recalling knowledge
and prior experiences.
Gathering Information
Customer walks into
the bank to apply for
a loan.
Information is stored on the system
database where similar loan data
reside.
Loan application detail
is entered into the
computer.
Understanding
the various sides
of the issue.
Implementing the decision
Computer aided tools help in
deciding the best possible loan
option that suits the customer.
Comparing, weighing
and evaluating.
Data analysis tools or embedded
program algorithm compute the credit
terms, credit limit and repayment
dates for the customer.
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The computer system helps to give
guidance on the credit worthiness of
the customer.
Decision Making Computer Systems
Decision Support Systems (DSS)
DSS are a specific class of computerized information
systems that supports business and organizational
decision-making activities. A properly-designed DSS
is an interactive software-based system intended to
help decision makers compile useful information
from raw data, documents, personal knowledge,
and/or business models to identify and solve
problems and make decisions.
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Decision Making Computer System
Typical information that a decision support application
might gather and present would be:
• an inventory of all of your current information assets
• comparative sales figures between one week and the
next,
• projected revenue figures based on new product
sales assumptions;
• the consequences of different decision alternatives,
given past experience in a context that is described.
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Decision Making Computer Systems
Executive Information System (EIS)
EIS is a type of management information system
intended to facilitate and support the information
and decision-making needs of senior executives by
providing easy access to both internal and external
information relevant to meeting the strategic goals
of the organisation. It is commonly considered as a
specialized form of a DSS.
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Decision Making Computer Systems
EIS allows information to be collated and displayed to the user without
manipulation or further processing. The user can then quickly see the status of
his chosen department or function, enabling them to concentrate on decision
making. It offers strong reporting and data mining capabilities which can
provide all the data the executive is likely to need.
The two main aspects of an EIS system are integration and visualization. The
newest method of visualization is the Dashboard and Scorecard. The
Dashboard is one screen that presents key data and organizational
information on an almost real time and integrated basis. The Scorecard is
another one screen display with measurement metrics which can give a
percentile view of whatever criteria the executive chooses.
There are a number of ways to link decision making to organizational
performance. From a decision maker's perspective these tools provide an
excellent way of viewing data. Outcomes displayed include single metrics, trend
analyses, demographics, market shares and a myriad of other options. The
simple interface makes it quick and easy to navigate and call the information
required.
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Decision Making Computer Systems
Expert Systems (ES)
ES are computer systems which embody some of
the experience and specialised knowledge of an
expert and thereby mimic the expert and act as a
consultant in a particular area. Knowledge is often
represented in an Expert System in a knowledge
base, which is a network of interconnected rules
which represent the human expertise.
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Benefits of computer in financial decision
making
• Information generated from the systems is used in
financial decision making.
• Computer helps to fast track data analysis for
decision making
• Computer increases accuracy and reduce errors and
time required to solve problems.
• Helps automate the decision making process
• Reveals new approaches to thinking about the
problem space
• Generates new evidence in support of a decision
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Benefits of computer in financial decision
making
• Promotes learning and training.
• Information that is provided is better understood
and offers efficiency for decision makers.
• It brings consistency to the decision making process.
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