Quantitative Management of Business Disbursements by Portfolio Optimization

Abstract

The paper aims to solve the problem of reallocating financial payments between disbursements and outflows by increasing the efficiency of working capital. The reallocation of financial payments is a different case from the reallocation of investments. The disbursements can be regarded as a set of assets, which generate negative returns in comparison with the assets in the portfolio theory. The purpose of this study is to derive a formal model, which gives quantitative solutions for the reallocation of resources between disbursements. Thus, the disbursements can indirectly influence positively the business profit of an economic entity. The reallocation of payments between a set of disbursements can improve the financial outcome of a business entity. Such redistribution plays an important role in the business management of the manufacturing units. The paper derives a quantitative model for the assessment and decision-making payment redistribution between payments. The quantitative solution is based on the application of a portfolio model. The latter is modified by minimizing disbursements in the portfolio problem. The empirical application of this model is applied to dairy farm payment management cases. Comparisons applied to the model with the actual set of payments show that the derived model is better at reducing the total values of the disbursements.