Abstract

The Applicability of Operations Research / Management Science Models in Banking

The present phase of development in bank management theory is characterized by an abundance of model theory approaches, while on the other hand the application of quantitative methods in banks is only very hesitant. A fundamental reason for the comparatively still modest use of operations research/ management science (OR/MS) models lies in the fact that hitherto only marginal attention has been paid to the process of model implementation. This contribution sets out to analyse more closely, from among the host of environmental conditions which influence effective model implementation, the determinant model structures. In order to be able to judge the suitability o£ OR/MS models as planning and decision aids, it is advisable to develop certain criteria with which concrete model characteristics can be qualified. A catalogue adapted to the peculiarities of banking operations proceeds from five groups of categories: (1) approximation of reality, (2) efficiency, (3) degree of flexibility, (4) specific user aspects and (5) cost aspects. First, the various model characteristics assignable to these five groups of criteria are weighted on the basis of a survey made in March 1977 and covering 200 management planners in German banks (response rate 30%). Then, using this catalogue - which was varied from one type of model to the other - the various model characteristics of 6 overall planning models, 9 models for credit planning, 8 portfolio selection models and 5 marketing planning models are examined. The possibility o£ calculating overall suitability values is demonstrated by the example of a linear additive scoring model, although fundamental objections must be raised to this procedure. From the comparison of the requirements profile of potential users with the suitability profiles of the 28 models analysed it may be concluded that the model structures per se can no longer be a serious obstacle to model implementation. Improved preparatory and in-firm vocational training activities, the intensification of empirical decision research, a higher level of information ensured by the setting up of data banks and promotion of management geared to change permit the assumption that in future model implementation will be able to proceed under ever more favourable conditions.