The Use Of Information Technology In Finance Essay
The Use Of Information Technology In Finance
The world is continuously under the process of change, ever since its inception. This change has resulted into a number of advancements. Science and Technology has been at forefront in bringing these changes with the aim to ease the life of the people. Despite, this being a regular process, the acceleration of the change brought by information technology in the last century is second to none. In the recent history, no other field of science has affected so many diverse walks of life, as the information technology did.
Now, information technology is considered as the lifeblood for any organization, offering any sort of product or service. Information Technology requirement is now considered the part of infrastructure for any sort of business activity. Today, when we recall the spread of computer and information technology few decades down the memory lane, we find the quote of the IBM’s president in 1940’s who said, “I think there is a world market for about five computers.” However, if we see the penetration of information technology in any walk of life, we find our lives miserable without it, no matter to what field of study do we belong.
I have a finance major and the field of finance and its associated fields are no exception and these fields have potential to make the most of information technology resources available worldwide at this point of time. Thus, this article is intended to explore the possible applications of information technology in the field of finance.
To carry out this assignment, four modes of information were explored. These were web search, blogs, job search and articles. The web search was done through Google and Alta Vista. Few of the keywords used are as follows:
- IT and Finance
- Use of IT in Finance
- Application of IT in the field of finance
- Studying Finance using IT
- Financial Softwares
- Features of Financial Softwares
- How IT supports financial decisions
- Financial ERPs etc
In caser of Blogs, a number of blogs were explored. Two of them are:
Following Job Sites were explored.
The job requirements for the accounts manager, director finance, financial consultants, and business analysts were explored.
The sites that were explored are CIO.com, BusinessWeek.com, ComputerWorld.com etc. The key words used were ‘financial solutions’, ‘finance and technology’ etc.
When we look at finance, five discreet fields come to our mind. These are corporate finance, trade finance, personal finance, public finance. Looking from broader perspective, the student of Finance also studies its associated fields like banking, investment, derivatives, risk management, stock trading, financial statement analysis etc.
Each of these subfields also has application of information technology. However, before going into details, first of all, let’s look at the application of information technology in the field of finance, generally. In the field of finance, one of the most sophisticated and crucial, yet important task is to develop financial models to analyze the feasibility of various alternatives from the financial perspective. Previously, these models were used to be developed manually. However, now with the help f sophisticated applications and enterprise resource planning (ERP) softwares like Oracle Financials and the financial modules of SAP provide the capability to develop one’s own financial model within no time.
No doubt, still the logic needs to be created by the professional of finance, but now he does not need to worry about minor calculation mistakes, leading to highly misleading results, all he has to worry about is the logic behind the model, the accuracy and speed that the information technology provides in the development financial model increases the efficiency of that financial professional. This was just one application; there is a whole arena of services that information technology has to offer to the students and professionals of the field of finance.
Even the spreadsheets like Excel can provide the capability of financial functions like scenario planning, what-if analysis and so on. At the professional level, the use of databases, data warehouse and business intelligence helps in trend analysis through application of very advanced algorithms in very large amount of data which is next to impossible manually and totally impossible to be done manually, if required to be done in the same amount of time that is required by a computer for the same task.
However, again, computer is the machine the reliability of the results depends on the logic provided by the operator. But now, advanced computer applications such as artificial intelligence, neural networks etc. have also a limited capability of learning from past and deducing logic. If these systems become reliable and full tested in future, these applications can revolutionize the world of finance as well.
Now let’s have a brief look at the application of information technology in various branches of finance. In corporate finance, two most important goals are to increase the corporate value and reduce the financial risk. Risk analysis and management requires the trend analysis of past data. As already mentioned, through the use of data warehouse and business intelligence tools, this task can be done very efficiently. A data warehouse contains the archived data where as business intelligence tools help to extract meaningful information out of it. Likewise, data mining tools can be used to identify the trends in the past data.
In public finance, the scope is large, resources are very limited and alternatives are very diverse. Thus, it requires using techniques like what-if analysis, goal seeking etc. A range of tools are available to carryout these tasks, ranging from Microsoft excel to custom developed ERPs. In personal finance too, the use of automated tools save time. Likewise, the trade financing needs careful forecasting, a number of tools are available for that too, again ranging from excel to neural networks. Thus, in today’s job market, the more sophisticated the financial task is, the more technical skills are required by the company.
To sum up, the field of finance can leverage upon the opportunities of ease, accuracy and speed provided by information technology in order to increase the efficiency, effectiveness and reliability of financial decision, as these decisions have significant impact on the financial health of the organization in professional life. In this connection, I belief that the student of finance must be well aware and well acquainted with the opportunities that information technology provides to the field of finance.
- Chorafas, D. (2007). Risk Management Technology in Financial Services (Elsevier Finance). St. Louis: Butterworth-Heinemann.
- Financial-i Awards Kyriba the 2007 Prize for Most Innovative Cash Forecasting Solution. (2008, Feb. 26). Business Wire, 23.
- Lee, J., & Trippi, R. (2000). Artificial Intelligence in Finance & Investing: State-Of-The-Art Technologies for Securities Selection and Portfolio Management. Milwaukee: Irwin Professional Publishing.
- (2008). Handbook on Information Technology in Finance (International Handbooks on Information Systems). New York: Springer.