Analysis and Commenting

Random thoughts in Working Capital Loan Appraisal Process

Analysis and Commenting

Analysis is a thorough examination of a ‘Complex Whole’ in terms of its constituent elements. In other words, is is nothing but obtaining information about the ‘complex whole’ and studying it by breaking down it into its constituent elements.

Before getting into analysis, it is better to know what goes wrong in analysis. This is important because, if we know how mistakes / blunders are committed, then we will be able to contain them in our analysis although we cannot zero them. It means to say our basic assumptions in analysis should be as much possible objective than subjective. The challenging part of the analysis is to remove the subjectivity.

In removing ‘subjectivity’, one thing to have in mind is that the knowledge about the object (complex whole) does not lie in our brain or mind but originally within the object. Complete reliance on our mind to analyse the given object leads to subjectivity in analysis.

In subjective analysis and taking a decision on such analysis we have every chance of going wrong, but by objective analysis chances of errors are negligible.

The serpent and the rope effect

The subjectivity and objectivity can be best explained with our everyday experience; suppose, going along a street, we see a lady walking a few steps ahead, in close intimacy with a gentleman. The gait and her physical appearance from the back and the seemingly familiar dress she is wearing makes us believe (these are the attributes that are received by our sensory faculty and generally immediately get analysed and synthesized) and conclude that she should be our wife with some other rogue (a gentleman has become a rogue!!). Taking a decision in haste and charging the wife, on getting back home will have the chance of committing a grave blunder. Instead, if the couple are approached / observed at close quarters, it will reveal that the lady is not the wife but some other one! Or a friend coincidently coming from the opposite direction sees us and guides us scolding, “Useless fellow she is not your wife to gaze at that lady, and behave yourself”!

Sometimes it so happens that even in the close proximity of the object, that is under analysis is wrongly analysed due to wrong perception by our mind.

This type of wrong perception of the objects relying largely on our intelligence / mind is known as ‘The serpent and the rope effect’.

Hence the best way to have objective analysis is to approach the idea by all possible ways and analyse its attributes to arrive at a decision.

The subjective analysis can also lead to isolated analysis and decisions because of inflexibility in accepting the information for analysis from various sources (pre-conceptions / delusions). This becomes more clear with the following example.

In the above picture one can observe how a typical blind man’s perception is subjective. Each one is trying to explain how the elephant is. In the above, the analysis and conclusion is based on one’s own perception, an isolated or biased approach. Hence the conclusion is individualistic and subjective.

Instead of concluding in isolated manner as done in the above picture, if all the analysed information are collected, and concluded, it would be something like- the elephant is an animal which has pillar like four legs, a rope like tail, fan like two ears, spear like two tuskers, a snake like nose and a big drum like body. This synthesis gives a proper explanation about the elephant which in other sense is the ‘complex whole’ thus rendering the holistic approach.

While analysing, the individual constituents that are inter related need to be considered and while making comments all ideas have to be tied in a stream to make sense.

The above analysis and commenting apply equally in the case of credit risk analysis in lending.