The document summarizes an expert system developed for credit approval at a Fortune 500 company. The system was developed by interviewing credit managers and having a senior credit manager serve as the expert. The knowledge base included rules reflecting credit approval logic and a mathematical model for determining credit limits. The system would ask credit analysts pairwise questions to determine credit ratings. It would then output the credit decision and explanation. While early expert systems had mixed success, following best practices in development can help ensure success, such as aligning with business needs and understanding the problem domain.

1. Reporter: Mannilou M.Pascua TITLE Chapter 16

2. Step 7. Step 8. Step 6. Use the system Conduct user tests Maintain the system System Analyst User Step 1. Step 2. Study the problem domain Step 3. Define the problem Step 4. Specify the rule set Step 5. Test the prototype system Construct the Interface Need to redesign Figure 16.10 Prototyping is Incorporated in the Development of an Expert System Need to redesign Expert

4. Table 16.1 Weightings of the Information Categories The expert system then explains how it arrived at its conclusion. The second screen in Figure 16.13 shows how the Good rating on pay experience was derived. The AHP Intensity Value is a score computed by the mathematical model. Category $5.000-$20.000 $20.000-$50.000 Financial Strength 0.65 0.70 Payment Record 0.18 0.20 Customer Background 0.10 0.05 Geographical Locations 0.05 0.03 Business Potential 0.02 0.02 Total 1.00 1.00 Source: Venkat Srinivasan and Young H. Kim, “ Designing Expert Financial System: A Case Study of Corporate Credit Management,” Financial Management 17 (Autumn 1988): 41,Used with permission.

5. Figure 16.12 Sample Rules Profitability If Sales trend is Improving And Customer’s net profit margin is Greater than 5% And Customer’s net profit margin trend is Improving And Customer’s gross margin is Greater than 12% And Customer’s gross profit margin trend is Improving Then Customer profitability is Excellent Liquidity If Sales trend is Improving And Customer’s current ratio is Greater than 1.50 And Customer current ration trend is Increasing And customer’s quick ratio is Greater than 0.80 And customer’s quick ratio trend is Increasing Then Customer’s liquidity is Excellent Debt Management If Sales trend is Improving And Customer’s debt net worth ratio is Less than 0.30 And Customer’s debt net worth trend is Decreasing And Customer’s short-term debt to total debt is Less than 0.40 And Customer’s short-term debt to total debt trend is Decreasing And Customer’s Interest coverage is Greater than 4.0 Then Customer’s debt exposure is Excellent Overall Financial Health If Customers profitability is Excellent And Customer’s liquidity is Excellent And Customer’s debt exposure is Excellent Then Customer’s financial health is Excellent

6. Figure 16.13 Output Screens Figure 16.13 Output Screens CREDIT ANALYSIS FOR : Ace Toys ,Inc 3001 Silver Hill Road Natick,MA 01760 Credit Need: $ 38,000 Existing Line: $ 0 Suggested Line: $ 0 OVERALL CONCLUSIONS: Pay Experience Good Customer Background Good Bank Good Financial Strength Poor NARRATIVE: PAY EXPERIENCE Customer’s pay habits are good. Pay to SRR has been mostly within terms, and pay to trade is excellent. Focus on collection efforts to bring pay to SRR up to par with trade pay Rule: If Pay to SRR is Good And Pay to trade is Excellent Then Customer’s pay experience is Good (AHP intensity value = 7)

13. W 2 W 3 W n-1 Y W 1 y n-1 y 3 y 3 Y 1 Figure 16.15 A Single Artificial Neuron