Republic of the Philippines
LAGUNA STATE POLYTECHNIC UNIVERSITY
Siniloan, (Host) Campus
In Partial Fulfillment for the Requirements in
Management Information System
Ms.Susie Dainty B. Rivera
Mannilou M. Pascua
System Analyst User
Step 1. problem
Step 2. Define the problem
Step 3. Specify the rule set
Need to redesign
Step 4. Test the prototype
Step 5. Construct the
Step 6. Conduct
Step 7. system
Step 8. Maintain the system
Figure 16.10 Prototyping is Incorporated in the Development of an Expert System
Expert System Maintenance An expert system must be maintained just as any other CBIS subsystem,
and this is accomplished in Step 8. Changes are made that enable the expert system to reflect the changing
nature of the problem domain and to achieve greater efficiency.
Sample Expert System
Expert system activity in business began in the early 1980s. Since that time, the systems
have been developed for a wide variety of application areas. As shown in Figure 16.11, the financial
area of the firm has seen the highest level of activity. A sample of such a financial expert system is
the credit approval system developed by professors Venkat Srinivasan of North Eastern
University ,Boston and Young H, Kim of University of Cincinnati, who were working with a
Fortune 500 company, which we will identify as SRR.
SRR’s credit policy consists of two activities: (1) setting credit limits for new customers and
reviewing them once a year, and (2) handling exceptions on a daily basis. Srinivasan and Kim
interviewed credits managers and observed credit analysts making the credit decisions. A senior
credit manager served as the expert.
The Knowledge Base
The knowledge base of the expert system consists of two components: (1) rules that reflect the
credit approval logic, and (2) a mathematical model that determines the credit limit.
The User Interface
As the interface engine proceeds through the rule set in a forward-chaining manner, the credit
analyst is asked to make pair wise comparisons. For example, the interface engine might display the
What is the relative importance of Customer Background over
Payment Record if the objective is to improve overall credit
The credit analyst enters a code that reflects the comparison, and the forward chaining proceeds.
When the chaining is completed, the output appears as a series of screens.
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
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.
If Sales trend is Improving
And Customer’s net profit margin is Greater than 5%
And Customer’s net profit margin Improving
And Customer’s gross margin is Greater than 12%
And Customer’s gross profit margin Improving
Then Customer profitability is Excellent
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
If Sales trend is Improving
And Customer’s debt net worth ratio Less than 0.30
And Customer’s debt net worth trend Decreasing
And Customer’s short-term debt to Less than 0.40
total debt is
And Customer’s short-term debt to Decreasing
total debt trend is
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
Figure 16.12 Sample Rules
The credit analyst is able to display such screens as these, which explain the logic followed
by the expert system in making the credit decision.
CREDIT ANALYSIS FOR : Ace Toys ,Inc
3001 Silver Hill Road
Existing Line: $ 0
Pay Experience Good
Customer Background Good
Financial Strength Poor
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
Rule: If Pay to SRR is Good
And Pay to trade is Excellent
Then Customer’s pay experience is Good
(AHP intensity value = 7)
Figure 16.13 Output Screens
Advantages and Disadvantages of Expert Systems
As with all computer applications, expert systems offer some real advantages, but there are also
disadvantages. The advantages can accrue to both managers and the firm.
The Advantages of Expert Systems to Managers
Managers use expert systems with the intention of improving their decision-making. The
improvement comes from being able to:
Consider More Alternatives. An expert system can enable a manager to consider more
alternatives in the process of solving a problem. For example a financial manager who has
been able to track the performance of only thirty stocks because of the volume of data that
must be considered can track 3000 with the help of an expert system. By being able to
consider a greater number of possible investment opportunities, the likelihood of selecting
the best ones is increased.
Apply a Higher Level of Logic. A manager using an expert system can apply the same logic
as that of a leading expert in the field.
Devote More Time to Evaluating Decision Results. The manager can obtain advice from the
expert system quickly, leaving more time to weigh the possible result before action has to be
Make More Consistent Decisions. Once the reasoning is programmed into the computer, the
manager knows that the same solution process will be followed for each problem.
The Advantages of Expert Systems to the Firm
A firm that implements an expert system can expect:
Better Performance for the Firm. As the firm’s managers extend their problem-solving
abilities through the use of expert systems, the firms control mechanism is improved. The
firm is better able to meet its objectives.
To Maintain Control over the Firm’s Knowledge. Expert systems afford the opportunity to
make the experienced employees’ knowledge more available to newer, less experienced
employees and to keep that knowledge in the firm longer---even after the employees have
The Disadvantages of Expert Systems
Two characteristic of expert systems limit their potential as a business problem-solving tool.
First, they cannot handle inconsistent knowledge. This is a real disadvantage because, in business,
few things hold true all the time because of the variability in human performance. Second, expert
systems cannot apply the judgment and intuition that are important ingredients when solving semi
structured or unstructured problems.
How the Early Expert Systems Fared
Such was the case of the first expert systems that were built during the early and mid-1980s.
The XCON Success Story
The most thoroughly documented expert system success story is that of Digital Equipment
Corporation (Digital) and its expert system called XCON. XCON was one of several expert systems
developed by Digital, and it was used to validate the technical correctness of the orders. The task
was not an easy one, because there were more than 30,000 hardware and software parts that could
be incorporated into a particular configuration. Evidence of the difficulty is the fact that the XCON
knowledge base consisted of over 10,000 rules.
Of all the expert system success stories, XCON provided the best example. The savings to
Digital in the form of reduced manufacturing costs were estimated to be $15 million.
Other successful efforts, although not so well publicized, were Exper-Tax by Coopers and
Lybrand, and Authorizer’s Assistant by American Express.
The Rest of the Story
In an effort to learn the eventual outcome of the early expert systems efforts, T. Grandon Gill,
an MIS professor at Florida Atlantic University, conducted a survey of ninety-seven expert systems,
including XCON, which were built prior to 1988. The survey respondents included managers,
developers, experts, users, and support personnel.
The responses revealed that fewer than one-third of the systems ever achieved widespread
or universal use and that almost one-half had been abandoned. On the positive side, almost three-
fourths achieved some usage during their life span, and, for more than a third of them, the firms are
still making investments in improving or maintaining the systems.
Reasons for Expert System Failures
The survey respondents identified the following causes of failure:
1. The original task that the expert system was designed to perform had changed.
2. The cost of maintaining the expert was too great.
3. The system became incompatible with other computer-based applications in the firm.
4. The firm changed its focus or direction.
5. The developers underestimated the size of the disk.
6. The system was developed to solve a problem that was not considered to be critical to the
7. The system exposed the firm to legal liability.
8. Users resisted a system developed by outsiders.
9. Users refused to assume responsibility for maintaining the system.
10. Key development personnel were lost due to attrition.
None of these reasons was due to inadequate technology. Rather, responsibility can be
assigned to the firms’ executives, information specialists, and users.
Keys to Successful Expert System Development
Using feedback from the survey respondents, Professor Gill identified five areas where the
development projects could be improved.
1. Coordinate expert system development with the strategic business plan and the strategic
plan for information resources.
2. Clearly define the problem to be solved, and thoroughly understand the problem domain.
3. Pay particular attention to the legal (and ethical) feasibility of the proposed system.
4. Fully understand both users’ concerns about the development project and their expectations
of the operational system.
5. Employ management techniques designed to keep the attrition rate for developers within
These are ingredients that should be incorporated in any development project.
Cause for Hope
Viewing this oversight in a positive light, developers of future projects should be encouraged to know
that they can substantially enhance their chances of success simply by doing thing right.
Another reason to expect that future expert systems efforts will be more successful than the
early ones is the fact that the technology has changed in some respects. Not all new expert systems
are being constructed from the same components as the early ones. A big breakthrough has been
something called a neural network, or simply a neural net, which make it possible for a knowledge-
based system to actually improve its performance over time. This valuable ability can provide the
system with a certain measure of the judgment and intuition ingredients that make for good business
A neural network, commonly called a neural net, is a mathematical model of the human brain that
simulates the way that neurons interact to process data and learn from the experience.
Neural net design is a bottom-up approach, since it looks at the physical brain for inspiration
in the creation of intelligent behavior. In contrast are the top-down approaches that have been
developed by proponents of the more traditional AI areas mentioned earlier.
The design of neural networks has been inspired by the physical design of the human brain.
The component of the brain that provides an information-processing capability is the neuron, which
consists of. Dendrites specialize in the input of electrochemical signals, the soma process the
signals, and the axon provide output paths for the processed signals. Figure 16.14 illustrates two
Dendrites form a dendritic tree, a very fine, branch-like region of thin fibers around the cell
body. Dendrites are the input components of the cell. They receive the electrochemical
impulses that are carried from the axons of neighboring neurons.
Axons are long fibers that carry signals from the soma. The end of the axon splits into a
tree-like structure, and each branch terminates in a small end bulb that almost touches the
dendrites of other neurons. The end bulb called the synapse. Each neuron may be
connected to a thousand or more neighbors via this network of dendrites and axons.
The soma is the processor component of the neuron. It is essentially a summation device
that can respond to the total of its inputs within a short time period. The aggregation of
signals is compared to an output threshold, which is the level of stimulation that is
necessary for the neuron to fire or send an impulse along its axon to other connected
neurons. The strength of the synaptic connection between the axon of the firing cell and the
dendrite of the receiving cell determines the effect of the impulse.
Applying the Systems Approach
That the sequence can be described much, or perhaps most, of computing activity---and that
includes human computing as well. The soma in the human brain is the processor. It receives inputs
by means of dendrites and produces outputs by means of axons. In terms of the computer
schematic, the soma is the “central processing unit,” the dendrites are the “input devices,” and the
axons are the “output devices.”
Not only is the electronic computer a reflection of the systems approach the human brain is
Through this very simple mechanism, input signals from neighboring neurons can be
assigned priorities or weights in the soma’s accumulation process. These weights most likely serve
as storage or memory for the network.
Even though the response time for a single neuron is approximately a thousand times slower
than the digital switches in a computer, the brain is capable of solving complex problems such as
vision and language. This is accomplished by linking together a tremendous number of inherently
slow neurons (processors) into an immensely complex network. The number of neurons in the
human brain has been estimated to be around 10, and each neuron forms approximately 104
synapses with other neurons. This is an example of parallel distributed processing (PDP), which
allows each task to be broken down into a multitude of subtasks that are performed concurrently.
The Evolution of Artificial Neural Systems
Interest in modeling the human learning system can be traced back to the Chinese artisans
as early as 200 B.C. However, most researchers consider the development of a simple neuron
function by Warren McCulloch and Walter Pitts during the late 1930s as the real starting point.
The output from a McCulloch-Pitts neuron has a mathematical value equal to a weighted
sum of inputs.
Hebb’s Learning Law One of the most famous learning rules was proposed in 1949 by Donald
Hebb. Hebb’s learning law states that the more frequently one neuron contributes to the firing of a
second; the more efficient will be the effect of the first on the second. Thus, memory is stored in the
synaptic connections of the brain, and learning occurs with changes in the strength of these
The First Neurocomputers In the early 1950s, Marvin Minsky developed a device called the
Snark, which is considered by many to be the first neurocomputer, or computer-based analog of
the human brain. Although the Snark was technically successful, it failed to perform any significant
information processing function.
In the mid 1950s, Frank Rosenblatt, a neurophysicist at Cornell University, developed the
Perception, a hardware device used for pattern recognition. The Perceptrons, combined with a
simple learning rule. The Perceptron was able to generalize and respond to unfamiliar input stimuli.
The success of Rosenblatt’s work fueled speculation that artificial brains were just around the
corner. However, Marvin Minsky, an AI pioneer, and his colleague Seymour Papert demonstrated
that the perceptrons of Rosenblatt could not solve simple logic problems. Their demonstration put a
temporary damper on neural net research.
The Artificial Neural System
The artificial neural system (ANS) is not an exact duplicate of the biological system of the
human brains, but it does exhibit such abilities as generalization, learning, abstraction, and even
intuition. An ANS is made up of a series of very simple artificial neuron structures or neurodes.
These structures are often referred to as perceptrons because of the influence of Rosenblatt.
However, they are a direct extension of the mathematical model developed by McCulloch and Pitts.
These artificial neurons are the processing elements of the ANS architecture. The neuron
sums the weighted inputs from its neighbors, compares this sum to its threshold value, and passed
the result through a transfer function. The transfer function is a relationship between the output of
the weighted sum and the threshold value of the cell. When the weighted sum exceeds the threshold
value, the neuron “fires.”
The Multi-layer Perceptron these simple neurons are combined to form a multi-layer ANS,
referred to as a multi-layer perceptron. Within each one, the input nodes are linked to the output
nodes through one or more hidden layers, as illustrated in Figure 16.16.
The multi-layer perceptron is a feedforward network, meaning that the flow of data moves
in only Y1simple direction, from the input layer to the output layer. However, the hidden layers permit
an interaction between individual input nodes. This interaction allows a flexible mapping between
inputs and outputs that facilitates their training.
A neural net is not programmed in the traditional sense. Rather, it is trained by example. The training
consists of many repetitions of inputs that express a variety of relationships. By progressively
refining the weights of the system nodes (the simulated neurons), the ANS “discovers” the
relationships among the inputs. This discovery process constitutes learning.
Figure 16.15 A Single Artificial Neuron
Putting the Artificial Neural System in Perspective
The ability to learn based on adaptation is the major factor that distinguishes ANS from
expert system applications. Expert systems are programmed to make inferences based on data
that describes the problem environment. The ANS, on the other hand, is able to adjust the nodal
weights in response to the inputs and, possibly, to the desired outputs.
Because of its learning ability, the ANS is insulated from the shortcomings that plague expert
systems in terms of adapting to changing conditions. During the coming years, more and more
expert systems will be developed that incorporate neural nets, giving the systems combined ability to
provide expert consultation and to improve their own expertise over time based on learning.
Putting Knowledge-Based Systems in Perspective
In 1956, when John McCarthy and his group coined the term artificial intelligence, most everyone
else in the newborn computer industry was struggling to solve well-structured problems like payroll
and inventory. Since that time, computer and information scientists have continually pushed back
the frontiers of knowledge in the AIS, MIS, DSS, and virtual office. Most of those challenges have
been met, and the applications are doing a good job of keeping up with the technology. For
example, when inroads are made in such technology areas as multimedia and compact disks, they
are incorporated into system designs.