Modeling System Dynamics
Getting artificial intelligence to work effectively involves understanding how computers work (engineering) and understanding how an area of knowledge works (sensemaking). It also involves communicating detailed information using an approach that is approachable to non-technical business professionals. In my view, that approach is logic. Business professionals have an innate understanding of logic. Logic can be used to create a logical conceptualization that can be described using a logical theory which can be enforced using a logical schema to keep semantic hygiene of a global standard knowledge assembly of the logical system (systems theory) where it needs to be (sigma level 6). Complexity must be embraced. There are no short cuts. Full stop.
An area of knowledge is a highly organized socially
constructed aggregation of shared knowledge for a distinct subject
matter. An area of knowledge has a specialized insider vocabulary or
“jargon”, underlying assumptions (axioms, theorems, constraints, restrictions,
assertions), and persistent open questions that have not necessarily been
resolved (i.e. flexibility is necessary, system changes can occur).
Accounting is an area of knowledge. You can explain aspects of the accounting area of knowledge, such as the nature of a financial report, using a logical theory which explains a logical model. A logical theory can be tested and proven by providing a proof. When all the details are worked out, you have a best practice based proven method.
Knowledge can be represented in human-readable form, in
machine-readable form, or in a machine-readable form that can be effectively
converted into human-readable form. Representing the core knowledge of an area of knowledge in machine readable form takes skilled and experienced members of that area of knowledge. That core knowledge can then serve as training data that helps machine based processes to create even more useful knowledge. Maximizing the perceiving, learning, abstracting, and reasoning takes a lot of hard work.
You can think about an area of knowledge as being
characterized in a spectrum with two extremes: (Introduction to Sensemaking; The Cynefin Framework; Complexity)
·
Kind area of knowledge: clear
information, clear rules, lots of patterns, lots of rules, repetitive patterns,
and typically unchanging tasks. (good practice, best practice)
·
Wicked area of knowledge: obscure data,
few or no rules, constantly changing tasks, and abstract ideas. (emergent practice, novel practice)
An area of knowledge can have aspects of both extremes,
but tends to lean toward one side of the spectrum or the other.
Financial reporting is a rich collection of knowledge developed over hundreds of years. Financial accounting and reporting tend to lean more
toward the “kind” end in many ways, particularly the quantitative aspects
of accounting and reporting. The qualitative aspects may
more in the wicked side of the spectrum.
There is “pressure” that pushes an area of knowledge in both
directions. Some system stakeholders tend to like clarity which allows
the system stakeholders to effectively achieve what the system is trying to
achieve. “Gaming the system” is minimized by the stakeholders of the system to
optimize the functioning of the system, satisfying the purpose of the
system.
Others focus on “gaming the system” or “spinning” things
to take advantage of “cracks” or “flaws” in the system.
For example, things like picking alternatives that provide
for the most favorable tax position, favorable impact on the perception of a
company in the stock market.
This “gaming the system” or “spin” is similar to arbitrage;
taking advantage of the “slack” or “tolerance” or “cracks” in the system to
satisfy one participant’s specific self-interests.
This system of financial accounting and reporting is not
natural, it is a man-made logical system.
Because the system is made by man, it is not perfect. How you perceive the system can be impacted
by the lens used to view the logical system.
Think of the logical system as if it were a game. Every game has rules. When you play the game, you can have the
perspective of whether you are following the rules (right/wrong) or whether you
are achieving the goal of the system (win/lose). The self interest of the system stakeholder
can influence one’s perspective.
Keeping the dynamics which impact the logical system as
clear as possible helps one understand the moving pieces of the logical
system. One needs to be able to
differentiate unintended ambiguity that exists within such a logical system and
the intensions of the stakeholders of the system. Making these moving puzzle pieces clear helps
one understand the system better.
A system has describable patterns of behavior. A system can be describe using principles and/or a system
can be described by rules. The
principles and rules should not contradict one another.
Confusing the system dynamics makes it much more difficult
to model the dynamics of the system. Sensemaking is
the process of determining the deeper meaning or significance or essence of the
collective experience for those within an area of knowledge. Sensemaking is the process of understanding
system dynamics so that the system dynamics can be modeled per the objectives
of the stakeholders of the system. Sensemaking allows you to untangle a system.
A logical theory enables a community of
stakeholders trying to achieve a specific goal or objective or a range of
goals/objectives with some logical system to agree on important logical statements
used for capturing meaning or representing a shared understanding of and collection
of knowledge in some area of knowledge.
XBRL-based financial reporting per the Seattle Method is an example of what is possible. OMG’s Standard Business Report Model (SBRM) could take this to an entirely new level. The Financial Data Transparency Act of 2022 is a massive opportunity in this space. More generally, XBRL + SBRM = an Improved, enhanced BI. Think semantic spreadsheet, a more modern spreadsheet tool.
Artificial intelligence (AI) PLUS human intelligence (HI) equals transformation. XBRL and SBRM will lead to The Great Transmutation of financial accounting, reporting, auditing, and analysis. Just like the transformation from drafting to CAD/CAM and BIM; financial reporting will be transformed.
Additional Information:
Comments
Post a Comment