26 MarHe with the best process wins. How to control the process

Editor’s Note: This is﹟6 in the series on Controls. All that heading stuff looks a bit funny in the emails, so I have dropped it.

If you fancied talking about Process in a scientific way, you would say it is a function of Procedures and Systems. In the previous blogposts on this subject, I have highlighted various characteristics of how to put together procedures and checklists. “Systems” could cover any manner of different applications in any of many asset classes and products, so it would not be practical to start getting into detail on product specific stuff. There are though some design aspects of how any system for any product ought to help you control the business you are doing on that platform.

Let’s start with the Basic Requirements. In next week’s Blog we will cover the advanced class.

As a rule, the software systems found in banks disappoint. That is as true today as it ever was. Even the mighty Goldman Sachs when doing God’s work needs help from mere mortals. Many years ago, in 1994, Goldman had plans with its Zurich office to add private banking. This meant we had to process settlements for multiple entities in Zurich. This was beyond the stand-alone single user platform we had; for the connoisseurs of historic software, this was a fine little tool built on Foxbase with an enquiry system alongside it in coded in Paradox. So, proper tools were called for. As ever, IT did not make any decisions fast, but in early 1994, we ended up with a deadline something like having the Summer Olympics on the radar. Be in ready by October 15th or we would miss the deadline to be allowed on to the Zurich Stock Exchange and be locked out until the new electronic stock exchange, EBS, was up and running. So we were, to coin a phrase, a bit desperate. Eventually, the wizards in Equities IT came up with a good idea; with the emphasis on the eventually. In February, we looked at Gloss from Wilco (then ADP and today Broadridge). Looked like it could do at east 50% of what we needed in Zurich and some things in the rest of Equities. But, and it was a big one, it had no concept of exception processing on-line. Everything was a report; so bad, that I needed to be sure I was not hiring anybody with tree-hugging affinity for Friends of the Earth. So, we needed to build our own user interface, or GUI as our techie friends call it, since the native Wilco product was more yuk than gooey. At that time, there were not yet standards for GUI’s in God’s European Branch office at Peterborough Court and if you asked five tech teams what to use as a GUI you got at least six different answers. In despair, realising we had to do better than paper, we sent one of our IT team to buy a GUI software package. Mark Petronino, quite a young wizard of the systems world literally took the corporate card, went to PC World on Chiswell Street in London and bought something. When he came back and started unpacking, we asked him what he had: “Hypermatrix”. “Why that one Mark?”, “I liked the green screens!” Seriously, that was the extent of the evaluation. So good was the result though, that the company CEO and founder, Terry Williams paid the development team a personal visit to find out what was being done to “his baby.” So impressed was he, that to this day we are friends and all because we challenged the status quo.

The building blocks of what we did are as follows: “One screen.” Everything you need to see to run your business should be visible to you on one screen. That might mean that different people or teams at different points in the process use one screen, but it still means that what they need is on one screen. To do this properly, you need to see just the “exceptions” that apply to your piece of the business. Quite often in banking, the term STP is used. It is supposed to mean Straight Through Processing, which refers to the holy grail of something not being touched by human hands. More often than not most processes are STP alright; Straight to Paper, or its modern day evil twin sister, E-Mail, which is the same thing as paper. Your “one screen” should show you exceptions. Not the number of trades you have booked, or even the STP rate. All you need to see now are “exceptions”. To out this into a common context in a bank. “Unmatched”; this might apply to SWIFT confirms, to bond trades settling in Euroclear or equities settling in a domestic depository (CSD) or even to OTC derivatives trades matching via MarkitSERV. It is the staple diet of daily operational work. At the basic level, you want to know at a glance how many unmatched trades you have and then divide them up between at least today, tomorrow and beyond. Dividing up by into “time buckets” is a sensible bit of fine tuning.

“Score.” How many of each do you have that have not been addressed or actioned? This important, because for your business you will know, or rather ought to know, what is normal at any given time. If at 12:00 noon today you have so many trades unmatched for value date tomorrow that you would run out of fingers and toes counting them, you are probably doing something wrong.

“Action.” Once you are focussed on the exception list or queue you want to deal with next, there are three things you want to do: drill down to the list of items, select one, and perform some action. Typically this means calling the counterpart, agreeing on why there is a difference, and deciding who is going to do what next. At that point, if you started with 12 things to chase, there are 11 left. The “Score” should change too. From a production management perspective, the person in charge needs to know what is left to do. It is that number that she ought to be comparing to her sense of normal. It is also important that you mark what has been done so that when you have multiple team members working on the same thing, you can see what has been done. Recording details is also a powerful way to deal with those things that do not go right the first time. If you have recorded that at 13:15 you spoke to Peter who agreed that your figures were right and he would amend his side of the instructions, then if you have to follow up because something was not done, you are in a very strong position.

Lessons Learned: The 3-step basic concept is an important one. Whilst design really matters, it is not a strong suit of the financial services industry; Sir Jonny Ive over at Apple has nothing to fear. If anything, we ought to get more outsiders into the industry, although they might die of shock at the quality of the processes. Be very grateful that banks are not in charge of cars & roads; this would be something worse than joke about hell where the Swiss are in charge of humour, the Brits are doing the food, the French are in charge of defence and risk management, Pakistani cricketers are n charge of compliance, Jon Corzine in charge of client money, with Bernie Madoff & Sir Allen Stanford in charge of accounting and the Greeks in charge of finance.

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