IFPS: The Interactive Financial Planning System – A Historical Overview
The Interactive Financial Planning System (IFPS) stands as a pioneering force in the realm of financial modeling, developed in the late 1970s by Professor Gerald R. Wagner and his students at the University of Texas at Austin. In the years following its creation, IFPS would make significant waves in the world of financial and strategic planning, ultimately playing a role in shaping the tools that businesses and analysts use today. However, despite its groundbreaking nature, IFPS eventually saw its decline in the face of rising competitors and shifting industry practices, paving the way for the dominance of spreadsheet software. This article seeks to explore the development, features, and lasting impact of IFPS, delving into its significance in the history of financial modeling and the factors behind its eventual obsolescence.
Origins of IFPS
In the late 1970s, Professor Gerald R. Wagner and his students at the University of Texas at Austin embarked on the creation of a financial modeling language that would serve as an innovative tool for the simulation of financial scenarios. Known as the Interactive Financial Planning System, IFPS aimed to provide users with a highly intuitive, yet powerful tool to model and plan financial decisions. With an emphasis on simplicity and clarity, IFPS would distinguish itself from its contemporaries by utilizing a language that closely resembled natural English, making it accessible to users who may not have had a background in programming or advanced mathematical modeling.
The system was initially designed to run on a variety of platforms, including IBM mainframes (specifically VM/CMS), DEC VAX, and various versions of Unix. In addition, IFPS was available on personal computers and Macintosh systems. The version for PCs and Macintosh computers, which was branded as “Mindsight,” was especially notable for being able to run on two floppy disks, offering users an easy-to-use yet highly capable financial modeling system.
Key Features and Capabilities
One of the most distinctive features of IFPS was its separation of the logical model from the data. While spreadsheet software such as Lotus 1-2-3 and Excel later adopted similar approaches, IFPS was a pioneer in this regard. In IFPS, the model logic—the connections between variables—was separated from the data, which allowed for greater flexibility and easier manipulation of the model. This was a key feature that made IFPS particularly powerful in creating long-range financial and strategic planning models, where users needed to run different scenarios without altering the underlying structure of the model itself.
Unlike traditional spreadsheets, which often required users to create complex formulas that incorporated both logic and data, IFPS allowed users to define variables and their relationships in a more straightforward, declarative manner. For example, a user could define a variable such as “earnings” as the difference between “sales” and “costs,” allowing the system to automatically calculate and update the value of “earnings” whenever the values for “sales” or “costs” were changed. The simplicity of this approach made it accessible to business analysts, financial planners, and even laypeople, who could easily understand and manipulate the relationships between variables.
Moreover, IFPS was capable of handling stochastic events and simulating random variables using a range of probability distributions. This capability allowed users to model uncertainty and explore different scenarios, adding an important layer of sophistication to financial models. It was this combination of intuitive, English-like syntax and advanced statistical capabilities that made IFPS so appealing to businesses in the 1980s, especially those involved in long-term strategic and financial planning.
Commercialization and Evolution
As IFPS gained traction, it was marketed by Execucom, a company founded by Professor Wagner in Austin, Texas. Execucom began offering IFPS as a commercial product, making it available to a wider audience. The system quickly gained popularity, particularly in industries that required complex financial modeling, such as energy companies, utilities, and manufacturing firms. The tool’s user-friendly nature allowed non-technical personnel to participate in the financial modeling process, making it a highly attractive option for business decision-makers.
In 1991, Execucom was acquired by Comshare, a larger player in the financial and business software space. This acquisition allowed IFPS to be marketed more widely, but it also marked the beginning of the software’s decline in popularity. As businesses became more accustomed to personal computing and spreadsheet software, IFPS began to lose ground to the emerging dominance of programs like Lotus 1-2-3 and Microsoft Excel, which offered similar financial modeling capabilities but were more widely adopted and easier to integrate with other business applications.
Despite its commercial success, IFPS was eventually overshadowed by the increasing sophistication and accessibility of spreadsheet software. While spreadsheets lacked some of the advanced features of IFPS, such as the separation of logic from data or the ability to model stochastic events, their simplicity, widespread use, and continued improvements made them the default choice for many financial analysts.
The Influence of IFPS on Modern Financial Modeling Tools
While IFPS ultimately lost its place as a mainstream financial modeling tool, its influence can still be seen in many of the financial modeling systems that followed. For example, IFPS introduced the concept of separating model logic from data, a feature that was later incorporated into tools like Lotus Improv, which was developed in the early 1990s. Improv’s approach to separating data from model logic was influenced by the concepts pioneered by IFPS, which laid the groundwork for modern spreadsheet systems that rely on clear distinctions between data and formulas.
In addition to influencing spreadsheet software, IFPS also played a significant role in shaping the way financial models are constructed and communicated. The system’s use of a natural-language-like syntax made it easier for business executives and managers to understand complex financial models, even if they lacked a deep understanding of mathematics or programming. This emphasis on simplicity and clarity helped shift the way financial analysis was conducted, making it more accessible to a wider range of business professionals.
Furthermore, the stochastic modeling capabilities of IFPS were a precursor to the more advanced financial modeling techniques that are now commonly used in industries such as banking, insurance, and energy. The ability to model uncertainty and simulate different scenarios has become an essential component of modern risk management and financial forecasting.
The Decline of IFPS
Despite its early success and lasting influence, IFPS eventually faded into obscurity. The rise of spreadsheet software, which was more user-friendly and widely adopted, played a significant role in IFPS’s decline. Spreadsheets, while lacking some of the advanced features of IFPS, provided an all-in-one solution for financial modeling, data analysis, and reporting. They were also more flexible and easier to integrate with other business systems, which made them more attractive to businesses that were looking for a comprehensive software solution.
Another factor in IFPS’s decline was the shifting landscape of financial modeling and risk management. In the 1980s, IFPS was widely used for long-term strategic planning and financial forecasting, but by the 1990s, businesses began to place more emphasis on risk management and modeling techniques that focused on uncertainty and variability. As the need for assumption-based techniques like long-range planning waned, IFPS’s approach to financial modeling began to seem outdated in comparison to newer methodologies.
Despite its fall from prominence, IFPS remains a notable chapter in the history of financial modeling. Its contributions to the field, particularly its emphasis on separating model logic from data and its use of natural language syntax, laid the groundwork for many of the financial modeling tools that followed. Although it was ultimately outcompeted by more flexible and widely adopted software, IFPS remains an important part of the legacy of financial planning and analysis.
Conclusion
The Interactive Financial Planning System (IFPS) was a groundbreaking tool in the history of financial modeling. Its user-friendly, English-like syntax and ability to model complex financial scenarios made it a popular choice for businesses in the 1980s and 1990s. Although it was eventually overshadowed by the rise of spreadsheet software, IFPS’s influence can still be seen in many of the financial modeling techniques and tools used today. It served as a bridge between the early days of financial modeling and the sophisticated, data-driven tools that businesses use in the modern era. While IFPS may no longer be in use today, its legacy remains a testament to the innovative spirit that drove the development of financial modeling systems.