| Existing approaches to an integrated analysis of working capital only provide very broad and aggregate guidelines and do not deal with numerous specific issues involved in managing working capital and its components. Additionally, the vast majority of journal articles on the subject deal with the individual components of working capital in isolation, ignoring important interrelationships, and lacking the overall perspective of the firm. Further, almost all of the efforts are attempts to apply computing techniques to problems structured in nature. While these approaches are useful as analytical tools, they do not allow the decisionmaker to view the alternatives and their impact within a more inclusive set of dependencies.;The progress in micro-computer technology has now made it possible to design a comprehensive system to overcome the above weaknesses, that is, in general, termed as a Decision Support System (DSS). A DSS is defined as an interactive computer-based system designed to support and improve the effectiveness of managerial decisionmaking. The overall objective of this study is to conceptualize and illustrate a normative model-based decision support system for working capital management. Working capital management is conceptually decomposed into four components: Cash, Receivables, Inventories, and Payables, to facilitate a comprehensive identification of the underlying decision processes and decision types. Recognition of both direct and indirect relationships among and within the components yields a DSS model base that has three major components: infrastructural, operational and control processes. The normative aspects of these processes are principally supported by various forms of mathematical programming, including mixed integer-linear, goal and dynamic programming. A unique aspect of this study is the attempt to integrate the assessment of qualitative information, using the Analytic Hierarchy Process, with the quantitative data in supporting the decision processes. Additionally, the control processes are supported by a comprehensive set of variance measures.;A third weakness of the existing normative approaches to working capital decisionmaking is that they do not properly facilitate strategic working capital management and appear to be merely reactionary approaches. Finally, it is often found in surveys that there is a wide gap between normative financial theory and actual practice. This is often attributed to the inherent complexity of the suggested decision tools and the difficulty of their usage. |
