Using BPM to Meet Today’s Investment Management Industry Challenges

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Editorial Director and current Faculty Member,
Tom Dwyer is the Editorial Director and current Faculty Member of He writes, presents and consults on topics that include Business Process Management, Business-to-Business, Enterprise Application Integration, and Service-Oriented Architecture. Mr. Dwyer has conducted primary research and published extensive reports on the Application Software Infrastructure markets. Before becoming an industry analyst in 1998, Mr. Dwyer spent 28 years in the computer industry in various engineering, marketing, professional services, and sales functions. He was a co-founder and general manager of a new software venture at Xerox, which became a wholly owned subsidiary. Mr. Dwyer has held senior management positions in marketing and engineering at Wang Laboratories and Prime Computer and has developed and launched more than 15 software products.

In today’s demanding business environment that rewards flexibility, speed, quality, efficiency, effectiveness and innovation, a strategically competitive middle- and back-office strategy and its operational execution can be a roadmap to achieve sustainable competitive advantage. Business Process Management (BPM) helps an asset management company achieve these characteristics in the components of its value chain.  Applying the BPM discipline achieves measurable process improvements that lead to organizational performance improvements in the middle- and back-office.

Middle- and Back-Office Challenges

  • Aligning Middle- and Back-Office operational execution with strategic business initiatives for growth and profitability
  • Increasing operating efficiency in order to support growth targets
  • Improving Middle- and Back-Office design and execution to help strengthen the company’s competitive position in its target markets
  • Minimizing errors and speeding up processes to save time and money – and to avoid incorrect investment strategies
  • Improving the prioritization of the allocation of critical resources
  • Monitoring if resources are actually being allocated and deployed as suggested
  • Satisfying the customers’ desire to get what they want, where and when they want it

Aligning Middle- and Back-Office Process Performance to Business Strategy

Middle- and Back-Office processes are identified and targets are set for each process.  The key process metrics are in terms of time, quality, cost, and productivity.  Performance targets are established during workshops with investment management employees, intermediaries and clients.  Industry benchmarks are used to define best-in-class targets.  Cause and effect relationships are then established for each process so that the achievement of that process performance target can be mapped to the achievement of a particular business strategy – either a customer target or a financial target.  Leading indicators are defined for each process target so that an early warning can be provided to indicate when a desired performance target is in danger of not being met.  Root-cause analysis is used to identify the underlying reason for not achieving the process performance target.  Process improvement initiatives are defined and implemented and subsequent assessment is done to identify the process improvement achieved.  The cause-and effect relationship is then examined to determine the quantitative impact that the improved process had on the customer and financial metric.  New process improvement targets are then set to achieve the desired customer or financial target.

Increasing Operating Efficiency in Order to Support Growth Targets

In Investment Management, like many other industries, operations managers have been asked to do more with less to support the firm’s Assets Under Management (AUM) growth targets. Since the financial crisis managers have asked staff to take on more tasks, work longer days and increasingly risk the likelihood of mistakes – Increasing headcount in order to meet business targets for AUM may still not be a viable solution. Instead, managers must look at technology platforms to deliver information between systems and people in a more efficient and timely manner.

Take for example a team of analysts responsible for the daily publishing of performance returns. Instead of manually reviewing every return, a platform can be configured to capture exceptions based upon rules and thresholds which route the offending return to the resource most capable of resolving the issue. These exceptions can be re-routed if appropriate to additional resources or an automated system solution could be defined so that the data could be automatically corrected and revalidated. Once the analyst is removed from the mundane task of checking every return and focused on the exceptions, their productivity is increased significantly. If automation can be created to support the resolution of a percentage of these exceptions the analyst can be focused on the high value exceptions where specialized knowledge is required.

A variety of BPM tools and techniques are used to discover insight into current performance. Process analysis identifies bottlenecks, duplicate efforts, causes of defects, and sources of waste.

For example, account onboarding is a complex process for all Investment Management firms. From the time that a new account is announced there are a multitude of tasks that need to be performed to assure that the account will be able to be funded and trading can start. Almost every organization in the firm is a stakeholder and will either need to enrich the data that is being captured for the new account or at least be made aware of data that the new account contains. Managing the hand offs of data between systems and people is paper intensive and lacks managerial oversight to the process. Through the use of a platform to control the onboarding process, the account can be systematically set up on sub-systems, documents can flow to the proper departments, delays can be monitored and escalated so that resolution times can be reduced and errors greatly reduced.

A cause-and effect relationship for the account onboarding process can be examined to determine the quantitative impact that the improved process had on customer and financial metrics.  New process improvement targets are then set to achieve the desired customer or financial target.  Continuous improvement of the on boarding process lowers overall middle- and back-office costs.

Minimizing Errors and Speeding up Processes to Save Time and Money

One of the characteristics of the middle- and back-office is that end-to-end processes cross multiple departments within and across organizations – a lot of handoffs have to occur.  Improving the management of those handoffs ensures better consistency and timely execution.  This speeds up processes and minimizes errors –optimizing inventory of available trading positions, and saving time and money.  A more complex supply web of financial partners and suppliers is replacing the simple financial supply chain.  This more complex supply web requires continuous information flow and attention to detail at the process level among its members – information suppliers, intermediaries, and clients.  It is this attention to middle- and back-office processes that enables companies to discover errors and time delays at a process level – and use BPM methods to improve them.

There are key middle- and back-office process families such as asset servicing, wealth management, retirement services, retail investment services, investment research, and trade operations and support.  Within each of these process families, processes, sub-processes and activities are executed that accept inputs, update information and create outputs.  BPM enables one to have visibility into the execution of these processes, sub-processes and activities to more precisely manage timely execution, accurate information creation, and quality outputs.  Applying BPM best practices streamlines coordination and collaboration with processes, sub-processes and activities from other middle- and back-office processes, sub-processes and activities.  It is this more precise process, sub-process and activity integration that enables companies to improve speed and quality beyond what they can achieve without intensive process management.

Managing by Process Can Increase Visibility Across Intermediaries and Clients.

Investment Managers have always worked with a network of partners such as custodians, brokers, wholesalers and other service providers. Today’s demands for faster data flows and more outsourced arrangements are forcing today’s managers to have better insight to where their data resides, its state and quality. Without the proper platforms providing visibility of the firm’s data as it flows between parties, the portfolio manager is without the keys he/she needs to make the proper investment decisions. This results in increased risks and costs. In today’s world where accounts are being serviced across multiple providers, assuring that data is reconciled in a timely and consistent manner will assure that the manager can make the most effective investment decisions.

Today, even small- to mid-sized firms will interact with many custodians and potentially several dozen brokers and other intermediaries. Each relationship will have unique requirements for the receipt and delivery of daily information. As a manager, at any point in the day, do you know the state of your data flows? How many trades were executed today? How many have been acknowledged? How many have failed? BPM provides an approach to documenting the processes supporting these relationships in such a way that the firm can easily see the interactions and dependencies.

Process Measurement and Monitoring

Process analysis defines metrics and a management discipline to improve how a process is monitored.  This service puts that design into practice.  It establishes: 1) who is responsible for capturing the metric, 2) who is responsible for responding to the metric and 3) under what timeframe that response is required to be made.  As required, pilot implementations can be run to reconfirm that the redesigned process performed as expected.  A program is implemented to obtain process users’ feedback on the efficiency and effectiveness of the new process. This feedback is used to make any immediate corrections.  An ongoing assessment will be implemented to obtain information about the value, quality and performance of the process and to establish a new baseline for subsequent improvement efforts.

Business Value

Practicing a BPM discipline provides value throughout an organization by:

  • Using process-enabled achievement of strategic objectives
  • Accelerating time to market for accounts and products
  • Delivering improvements in cost, productivity, timeliness and quality
  • Improving customer service levels and increasing customer satisfaction
  • Transferring knowledge to ensure that customer teams achieve the necessary competence and autonomy to maintain and develop future capabilities
  • Simplifying business processes to drive effectiveness, efficiencies and agility
  • Managing risks and meeting compliance regulations
  • Providing greater visibility into your organizational performance
  • Introducing new process designs faster
  • Reducing costs and improving revenue streams

BPM: Middle- and Back-Office Performance

Business process management (BPM) can help Investment Management companies view their middle- and back-office operations comprehensively and optimize them for better performance. BPM can provide those benefits not just throughout an individual enterprise, but to outside suppliers, partners and other key parties as well. Ultimately, BPM can improve efficiency, visibility, control, and accountability throughout the entire investment value chain.

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