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Evaluation and Decision Models with Multiple Criteria pp 533–562Cite as

An MCDA Approach for Personal Financial Planning

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Part of the book series: International Handbooks on Information Systems ((INFOSYS))

Abstract

Personal Financial Planning (PFP) is the preparation of target-oriented decisions concerning assets, incomes, and expenses. As people have different preferences for different financial goals, and the goals are flexible, PFP is a Multicriteria Decision Analysis (MCDA) problem that is often addressed by trial calculations under different scenarios. We provide an MCDA model to derive a financial plan that maximizes the value of the expenses for a decision maker with respect to height, time, and type preferences. Specifically, we show how the problem can be solved through a mixed integer programming approach where the weights for the mathematical program are determined with the help of the Analytic Hierarchy Process.

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Author information

Authors and Affiliations

  1. Department of Quantitative Methods for Business and Management, Trier University of Applied Sciences, Environmental Campus Birkenfeld, 1380, 55761, Birkenfeld, Germany

    Oliver Braun & Marco Spohn

Authors
  1. Oliver Braun
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  2. Marco Spohn
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Corresponding author

Correspondence to Oliver Braun .

Editor information

Editors and Affiliations

  1. Faculty of Science, Technology and Communication, Computer Science and Communications, Research Unit, University of Luxembourg, Luxembourg, Luxembourg

    Raymond Bisdorff

  2. Faculty of Economics, University of Coimbra, Coimbra, Portugal

    Luis C. Dias

  3. Télécom Bretagne, Brest Cedex, France

    Patrick Meyer

  4. Ecole Centrale Paris, Châtenay-Malabry Cedex, France

    Vincent Mousseau

  5. Faculté Polytechnique, Université de Mons, Mons, Belgium

    Marc Pirlot

Editors’ Comments on “An MCDA Approach for Personal Financial Planning”

Editors’ Comments on “An MCDA Approach for Personal Financial Planning”

The chapter by Braun and Spohn presents an innovative methodological contribution for adapting an optimal Personal Financial Planning (PFP) approach to specific personal preferences. The PFP optimization problem is modelled as a mixed integer linear programming (MILP) model where the parameters are proposed to be set in interaction with a potential decision maker via a classic Analytical Hierarchy Process (AHP) approach. In this sense, this chapter presents an interesting proposal for using a multiple criteria decision aid approach for setting model parameters when numerically solving a MILP problem.

Main aspect relevant for the purpose of this handbook is the detailed methodological illustration of how a structured and interactive multiple criteria decision analysis like the AHP approach, may indeed be used for adapting a complex generic multiobjective optimization model to individual needs and subjective preferences of an individual decision maker; the objective of the case study being to claim and illustrate feasibility and usefulness of the proposed methodological approach.

The authors do not explicitly give the methodological reasons for specifically using in their decision aid problem the AHP approach. But, one may guess that AHP’s structured and interactive procedure for elaborating a weighted hierarchy of strategic objectives and related performance measuring criteria and subcriteria fits well with the authors’ intention to help a potential user setting correct criteria weights in their PFP multicriteria optimization model.

Other multiple criteria decision aid approaches like the Electre outranking methods (Roy, 1991), do not explicitly provide such an interactive help for elaborating a set of weighted objectives and significant criteria. Only in a value or scoring approach, like in the APH method, may indeed weights of strategic objectives and performance criteria share the same semantics, namely substitution rates. With pairwise weighted majority confirmed preference situations, like the ones handled in an outranking approach (Bisdorff, 2002), the strategic importance of decision objectives and the preference validating significance of marginal performance criteria do not share at all the same semantics.

One may finally notice that the proposed MCDA application appears more scientific and academic than really practical. Only a small didactic PFP problem, with three genuine strategic objectives and/or criteria: economic, social or personal, illustrates a potential practical application. However, the authors have positively validated a software implementation of their MCDA enhanced PFP approach with actual planners from banks and insurance, and with master students knowledgeable in financial planning and information management.

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Braun, O., Spohn, M. (2015). An MCDA Approach for Personal Financial Planning. In: Bisdorff, R., Dias, L., Meyer, P., Mousseau, V., Pirlot, M. (eds) Evaluation and Decision Models with Multiple Criteria. International Handbooks on Information Systems. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-46816-6_18

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