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Treasury Systems Selection www.riskworx.com. Agenda. RiskWorX Background The Technology Response Selection issues Implementation Issues. RiskWorX. Risk Services Company Valuation-oriented technology services Consulting services: risk measurement & management Niche data providor - PowerPoint PPT Presentation
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RiskWorX
• Risk Services Company– Valuation-oriented technology services– Consulting services: risk measurement &
management– Niche data providor
• A PricewaterhouseCoopers partner in The Riskhouse– Offering holistic treasury implementation services
SA Background
• Opening up of markets in early 1990’s
• Environment denoted by rel. high interest rates, high volatility, declining spreads, & increasingly pervasive electronic trading
• Investment banking developing, but behind the first world
• Tax loopholes closing or less obvious: Need to look for more creative trading opportunities via complex structured products
Key Drivers
• More complex structures in the market– Credit derivatives, asset-backed securities etc
– New instruments typically handled in spreadsheets
• Multiple systems – IRD, Equity, FX/MM, Risk
• Costs of those multiple systems, esp staff and operational risk
New challenges
• Connectivity (e.g. tie-up of JSE & LSE: IT and related issues) issues
• Regulatory and goverance issues, esp post -Enron
• International banks with world-class technology
Vendor Environment
• Large installed base required to keep up with pace of change (finance and technology)
• Maintenance costs often don’t cover it
• Vendor consolidation and product rationalisation
• SA not a big market
• Implications: long term contracts only feasible with major vendors, despite benefits of currency fixing
• Vendor risks (esp. stagnation and lack of support)
The Technology Response
• SA banks aiming to compete locally and grow internationally
• Soft currency makes “sweating” the technology important
• Searching for more efficient technology to – Drive transaction volume growth and maintain margins
– Ensure local and international exchange connectivity
– Provide trade analysis and real-time integrated info (esp.p&l and risk management)
– Provide stp either individually or in coordination with other systems
Additional benefits of the “right” technology
• Cap technology capex spend
• Minimise IT maintenance spend
• Maximise use of infrastructure (middleware, database technology etc)
• Optimize Euro-based training costs
• Reduce operational risks
• Reduce integration focus and enhance information impact on decision-making
The build-buy debate
• Typically the first issue encountered
• Build is tempting, given– Costs
– Initial small requirement
• Build only when you are sure that– Your needs are and will remain very modest
– You have a bottomless development budget
– You can do a better job than a specialist development house
– You can commit many staff to requirements definition and testing
– The cost savings/functionality benefits definitely outweigh the risks
Architectural Issues - Integration
• Total solution from one vendor is unlikely
• The client should establish where/how they will integrate
• Replacement cycle on front office technology typically much shorter than back office
• Typical integration challenges:– Across asset classes
– Front office <-> rest
– Treasury <-> accounting and cash management
Architectural Issues - Integration
• Integration Methods– “Dumb” flat file transfer (scheduling?)
– Middleware routing/messaging
• Integration impacts severely on processes– Reconciliation and Control Issues e.g. dealing with
mis-booked trades, back-dating transactions etc
• Integration severely increases costs and risk
Integration Costs- Example
Front
Office
Back
Office
General Ledger
M.I.S.
Even with middleware, integration is challenging!
Architectural Issues
• Scalability– Will the system be sufficient in 5 years’ time?
– Potential new users of the system (costs?)
– What new risk measures will develop?
• Multi-site distribution– Systems should allow for multiple sites without losing the
ability to consolidate
• Real-time– Overnight limit reporting and risk figures are increasingly
insufficient
Architectural Options
• Client-server versus host– Costs and benefits of each, esp. scalability, security, support
and general cost of ownership issues
• Open architecture versus black box– Black boxes reduce information benefits
• Integration and flexibility– Decide where you are prepared to integrate
– Integration across instrument types with the use of good middleware allows continued use of legacy systems
– Key is the ability to use proprietary pricing functions and risk models
Desk Risk
• Desk risk increasingly critical– Closer to “real time” than the enterprise risk system
– Less chance of integration problems
– Allows for consolidated risk reporting and trader P&L
• Desk risk includes– Pre-deal limit checks
– Simulation of risk, hedges and P&L before trading
– Value at risk (market risk) and potential future exposures (credit risk) now an essential component of any desk risk offering
Wrong Approaches to System Selection
• Looking at systems before reviewing requirements
• Failing to clarify the future direction of the business
• Failing to agree the level/type of integration required
• Expecting a 100% fit
• Expect the vendor to do 100% of the implementation without client input
• Obsessing on minor areas of functionality
• Forgetting that you get what you pay for
• Overlooking the financial strength of the vendor and/or his commitment to the treasury system market
Key Aspects in Vendor Selection
• Proven track record in your region
• Financially substantial
• Dependence on Treasury systems
• Local support presence and/or implementation partners
Some other hints
• Develop an evaluation approach that– weights issues appropriately
– is consistent
• Don’t be over-awed by gimmicks - manage expectations
• Push purchase as far down the selection path as possible
• Accept that even with the “best” system, you will still follow the standard emotional cycle (euphoria, disillusionment, acceptance)
Key Issues
• When designing the plan, understand that time, cost and quality are often trade-offs
• Define the deliverables up-front– Utilise standard project plans and specify
milestones
– Have a joint project plan for all stakeholders
– Agree viability of plan and vendor deliverables with vendor
Vendor should provide
• Local support• Quicker turnaround time with face to face communication and
hands-on support than via help desk and video conferencing
• Adaptation/customisation to South Africa• Has the vendor done it?
• Does the technology facilitate this?
• Commitment to Implementation• Vendor should contractually agree deliverables
• Where required, this should include turn-key solutions
• Check the local track record!
Key Internal Issues
• Implementation Scope– Important to keep scope as narrow/focused as possible so as to
• Obtain maximum benefit from the project team
• To minimise disruption to the business
• Secure and commit resources – Internal resources need role clarity and focus, esp. wrt.
performance measurement
– External resources can assist in several ways, esp. speed and in better approaches, often reducing re-work
– Clarify roles and responsibilities
– Lock in for appropriate period
Environments
– Ensure resources available for multiple environments
– Ensure multiple environments (including disaster recovery) are in place ASAP
– Implement robust change management protocols
– Test EVERYTHING, including vendor releases, prior to moving intoproduction, regardless of ISO certification etc!
Focus on Project Outcomes, not just Project Deliverables
– Outcomes are user acceptance, exploitation of new system benefits, total switch-off of old systems, ongoing vendor relationships, project perception ex post etc
– Many outcomes occur post-delivery!
– Are the key test of the success of the project, and of the key sponsors
– Need to be planned and managed, just like any aspect of the formal project
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