Financial modeling is generally founded on the premise that financial managers and fiscal policy makers operate 'by the numbers'. Indeed the assumption is so deeply ingrained as to shape much of spreadsheet software to conform with accounting practices. It is the thesis of this paper that there is a qualitative side to financial decision making which translate the mathematical expressions of accounting into the commonsense language of mangers. The research reported in this paper examines the relationship between conventional financial models and the linguistic representations given them by financial managers. The research takes form of a STELLA model of corporate finance with a HYPERCARD interface. In the interface, the authors employ the propositions of fuzzy set theory to incorporate such linguistic hedges as "too high", "way out of line", and others found in common management speech. The resulting model assists financial managers in linking their qualitative judgments to the numerical parameters of a typical corporate financial model. As the model runs, it allows managers to adjust their financial policies on a quarterly time scale - while recording each person's decisions as related to model performance. The authors report the decision making practices of a sample of corporate executives as a set of qualitative propositions. There take the form of statements like, "If market share is falling rapidly, and leverage is fairly high, product line expansion is required." Such propositions take on a dual role; they can be translated into average numerical values to control a Stella simulation - or they can be simulated as a purely qualitative model. The significance of the qualitative thesis lies in the new perspectives it offers to those who study and practice financial management. The thesis offers a clear connection between the arcane world of the analyst or accountant and the complex environment of the working manager. It fosters a dialog across professional boundaries that may well result in more accurate models and more effective practitioners.

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Date created

• 1994

Type

• Document

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• Processing documentation available at: https://wiki.albany.edu/display/SCA/Processing+Ingested+Digital+Files

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• Creative Commons BY-NC-ND Attribution-NonCommercial-NoDerivs 4.0 International

  
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fe35db792b573af835d96e6eba4759cd

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c060552994c1527f70693734935660f1

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Collection

System Dynamic Society Records

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Collecting area

• This collection is part of the University Archives