Notes on an Expert System for Capital Budgeting

0 In Summer 1984, a venture capital-backed startup company began the design and programming of an expert system for corporate capital investment decision making. The group building the system included management, financial staff, systems analysts, and programmers, plus several outside consultants. (I was the principal academic expert in finance.) The first version of what I will call "the system" was released in March 1986, after several months' testing in the offices of early customers. An improved, extended version was released in December 1986. The system is a modest commercial success. Roughly 20 companies have purchased it, despite its relatively high cost. (The single-copy price of the first release was $66,000. Moreover, the system was programmed in LISP, and early versions required specialized Symbolics or Texas Instruments computers.) The lessons learned from this system are more about application than theory. We had to design a system that would help and advise, as well as compute. Consequently, we had to teach the system to recognize appropriate relationships, to carry out consistency checks, and to explain what it does. We also had to teach it to acquire information about the basic economics of the user's business, and to feed that information back into the discounted cash flow (DCF) calculations.