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Meeting the Eight Challenges of Financial Regulatory Compliance with Business Decision Management A White Paper
July 2015
Jan Purchase, Lux Magi Ltd
Tom Debevoise, Signavio, Inc.
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Table of Contents1. ExecutiveSummary..............................................................................................................3
2. TheEightChallengesinRegulatoryCompliance...........................................................4
3. WhatisDecisionManagement?........................................................................................6
4. HowDecisionManagementAddressesOurChallenges.............................................7
5. InstitutionalizingDecisionManagementtoInvestmentFinancialRegulatory Compliance............................................................................................................................10
6. PrerequisitesandBenefits................................................................................................12
7. ExampleApplicationsofDecisionManagement..........................................................13
8. DecisionManagementandCompliance–ASuccessStory.......................................17
9. Summary................................................................................................................................19
10.AboutUs................................................................................................................................20
10.1Signavio......................................................................................................................20
10.2LuxMagi...................................................................................................................20
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1. ExecutiveSummary
Therapidlyevolvingworldofregulatorycomplianceismakingheavydemandsonfinancialinstitutions.Newcompliancemandatesarereleasedatarapidpaceandoftenoverwhelmcorporations’abilitytorespond.Whatisneededisameansofmanagingtheserequirements,structuringtheircomplexity,unambiguouslyexpressingtheirlogicandfacilitatingrapid,auditedandsafechangetocompliancesystems.Thesesystemsrespondtocomplianceissuesthroughmonitoring,decidingandrespondingtothedataandconditions,bothwithinandoutsidethecorporation.Increasinglycompaniesarerecognizingtheimportanceofthesecompliancedecisions.
Fromtimepressuresthroughdataquality,theseregulatoryenforcementspresenteightspecificchallengesthatcorporationsneedtoovercome.Whenbuildingapropercomplianceframework,companiesmustdevelopadeepunderstandingofhowtheirarchitecturalchoicesaddressthesechallenges.We believethatacriticalchoiceistoadoptBusinessDecisionManagement(BDM).Thismethodfullyad- dressesthescaleoftoday’scompliancechallenges.Aswithanynewpractice,BDMwillrequireadjust-mentsincompanies’currentmethodsandapproaches.
DecisionmodelingwiththeopenOMGstandardDecisionModelandNotation™(DMN™)isakeyenablerofthebenefitsofBDM.Thedetailsofdecisions’data,logicandknowledgearerevealedinDMN™. Decisionmodelingsimplifiesthisdetail,allowsittobereusedacrossprocesses,andsupportsitscreationandrapidevolutionbybusinesspersonnel.
Inthiswhitepaper,wewilldetailspecificstepsthatacompanycantaketoaddressalltheidentified challengesbyimplementingBDMasakeyelementofafinancialcomplianceframework.Wewilldescribethebenefitsofthisapproachwithreferencestoconcreteexamplesandprojectsthathaveadopteditforliquidityriskmanagement.Furthermore,wewilldescribetheprerequisitesforbring- ingtheseadvantagestoyourorganization.
Fortunately,overadecadeofindustryexperienceinthefieldsofbusinessprocessmanagement, businessrulesapproaches,complexeventprocessingandanalyticshasbeguntosettleontechniquesandapproachesthatvastlysimplifythepathofcompliance.
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2.TheEightChallengesinRegulatoryCompliance
Regulatorycompliancedirectivesimposeaseriesoftoughchallengesfororganizations.Althoughthesetrialsarenotnew,togethertheypresentacombinationofmutuallymagnifyingdemandandrisk.Theeightmainchallengesfacingimplementersofcompliancesystemsare:
Challenge ExampleRegulations
Description
1. Time Pressure FED5G Newcomplianceregulationsoftennecessitateaverybroadandheavychangedemandoninstitutions’infrastructures.However,theenforcedtimelinesforthesechangesaretypicallylessthanayear,someamend-mentshavedeadlinesofonly3-4months.Manyregulationsassumea maturearchitecturethatonlythemostadvancedcompaniescanprovide.
2. Scale and Complexity
Asset LiquidityCharge
Withnumerousdependencies,exceptionsandlocalization,newregula- tionsarebecomingprogressivelymorecomplexandinter-reliant.Organizationsneedtocaptureandsimplifythiscomplexityquicklyandaccurately.Anewstructuringmechanismshouldmanagethiscon- volutedlogic–itscomplexityshouldnotoverwhelmusers.Rather,thismechanismshouldpromoteunderstandingandenablechangewith- outunwantedconsequences.
3. Transparency and Business Ownership
RiskWeight,VolatilityBuffer
Often,businesssubjectmatterexperts(SMEs)andanalystshandle capturing,reviewing,testing,maintainingandimprovingtheaccuracy ofcomplianceruleswithinanorganization.Thereisaneedtoensurethattheycanseeandmanagebusinesslogicontheirownterms.That is,toensurethatthemeaningoftherulesiscapturedunambiguouslyinaflexible,expressive,business-oriented,sharedformatwhichisalwaysconsistentwiththeimplementedsystem’sactualbehaviour.
4. Error Prone Specifications
FEDEligibility Giventheerrorrateofrecentlyissuedregulatoryspecificationsand thepunitivefinesfornon-compliance,SMEsneedhelptoensuretheintegrityofthisdocumentation.Specificationsarefrequentlylarge,verbose,anddifficulttointerpret.Analystsmustensurethatthebusi-nesslogicdefinedwithinisfreefrominternalinconsistencies,omissi- onsandunwarrantedassumptions.
5. Safe Agility ECBEligibility Manycomplianceruleschangeonaquarterly,monthly,ormorefrequent cycleaspartoftheirevolutionortocorrectmistakes.Importantamendmentsrequireswiftredress.Thispaceofchangerequiresaspeedyamendmentprocess–theabilitytoquicklylocalizethelogictobe
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altered,ensurethatthechangesmadeareconsistentwiththat specified,supportstrictgovernancetoensuredueprocessisalways followed,andexplainalterationsafterthefact.Thespeedwith whichtheserulechangesmustbeimplementedshouldnotcompro-misetheiraccuracy.
6. Enterprise Consistency
AssetandProductClas-sification,DoddFrank
Somefoundationlevellegislationmustbeappliedconsistently,acrosstheenterprise,inthecontextofwidelydifferingbusinessprocesses.Despitethespecificsofeachapplication,thebehaviourofallinstancesmustbecoherentandnotleadtoanyinternalanomalies,shouldthe outcomesbecombinedlater.Anychangetothelegislationmustinflu-enceallthesesystemsidentically.
7. Auditability (Traceability)
All Allcompliancelegislationmustbeobeyedandbeseentobeobeyed.Therefore,regulatorysystemsneedtoshow,infinedetail,howtheysupportaspecification.Theyalsoneedtosupportatracehistory–an “explain”functionthatcanjustifycounterintuitivebehavioursanddeterminethedifferencebetweendataqualityissues,implementationflawsandunexpected,butcorrectbehaviour.
8. Data Quality All Allregulatorysystemsrequirehighdataqualitytomakesafeand reliabledeterminations.Evenmilddataqualityissueswillcompromisetheaccuracyofcompliancedecisions,riskerrantbehavioursand ultimatelyattractfinesortradingsanctionsbyregulatoryauthorities.
Therecentproliferationinregulatorymandatesismakingcompliancechallengesmoreacute.Thecostanddisruptionofimplementingtheseinitiativesissecondonlytothecost,andlossofreputation,resultingfromamistake.Whatisneededisameansofmanagingtheserequirements,structuringtheircomplexity,unambiguouslyexpressingtheirlogic,andfacilitatingrapid,auditedandsafechangetocompliancesystems.
Thelogicrequirementsofcompliancesystemsarecontainedinthedecisionsthatdirectresponsestotheevents,dataandconditionswithinandoutsideofthecorporation.Increasingly,companies arerecognizingtheimportanceofthesedecisionsandareseekingwaystomanagethemeffectively.DecisionManagement,asweshallsee,meetstheseneedsandshouldbeacriticalcomponentof anycomplianceframework.
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3.WhatisDecisionManagement?
AsshowninFigure1,corporationsuseBusinessDecisionManagement(BDM)toidentify,catalogue,modelandimprovedecisions.Obviouslythedecisionswewillfocusonarethosethatmustbemadeforcompliance.Inthediscoveryphase,decisionsareidentifiedthroughtheanalysisofbusinessobjectives,processmodelsandusecases.Inaddition,modelingthepropertiesofthedecisionsiskey.Thisdescribesquestions,inputdata,logic,externalmandates(authorities)andbusinessknowledge.Theobjectiveofthemodelingisforallanalysts,subjectareaexpertsandmanagerstocreateasharedunderstandingofthecompliancedecisions.
Figure1,theBDMlifecyclediscovers,modelsandimprovesdecisions.
OnekeyenablerofBDMisthenewopen,standardnotationratifiedbytheobjectmanagementgroup (OMG):theDecisionModelandNotation™(DMN™).ThisspecificationhasbeendevelopedbytheleadingconsultingandsoftwarebusinessrulesvendorsincludingIBM,Oracle,TIBCO,FICO,andothers.Concepts ofDMN™havebeeninfluencedbyTheDecisionModel(TDM),apatented,proprietarydecisionmodelownedbySapienssoftware.ThepurposeoftheDMN™specificationisto“…provideacommonnotationthatisreadilyunderstandablebyallbusinessusers.DMN™createsastandardizedbridgeforthegapbetweenthebusinessdecisiondesignanddecisionimplementation.”DMN™isbeingadoptedbymanysoftwarevendors.AnewreleaseofDMN™,version1.1iscurrentlybeingdeveloped.
ThegoalofBDMisforthedecisionstobecomefirstclasscitizensamongstaninstitution’sresources–thatis:anassetfortheinstitutiontomanagejustlikecapital,processesandintellectualproperty.Sincenon-compli- ancecanbeacostlyissue,clear,accuratedecisionmakingismostcertainlyavitalasset.Asaresult,organi-zationsareempoweredtocontrol,manage,automateandimprovetheircritical,repeatabledecisions.Pre- ciselymodeledbusinessdecisionscreatespecificcomplianceneedstowhichtherespondingprocessmustconform.Asaresult,BDMenablesthedevelopmentofsimpler,smarter,andmoreagilebusinessprocesses.
BDM LifeCycle
- DMN- Simulation- Decision Logic
- Project Selection
Decision Intelligence
Process Integration
Decision Performance
Improve- ment
Decision Modeling
Decision Discovery
- BPMN- Decision Services- Decision Compliant Processes
- Analytics- Dashboards- Business Intelligence
- Simulation- Targeting- Testing
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4.HowDecisionManagementAddresses OurChallenges
AtraditionalBusinessRulesManagement(BRM)approachmayhelptoresolvesomeoftheeightchallen- geswehighlighted.Manyinvestmentbanksandotherfinancialorganizationsaddressthesechallen- gesusingaBusinessRulesManagementSystem(BRMS)andbydeliveryofautomatedbusinessknow- howthroughdecisionservicesembeddedwithintheirarchitectures.However,asweexplaininthetablebelow,thisisonlyapartialsolution:
Challenge BRMSApproach
BDMApproach
1. Time Pressure
Not Addressed Addressedbytheseparationofbusiness decisionanalysisandinfrastructuredevelopmentsothatsubjectmatterexpertscanmine,analyze,formulateandtesttheregulatorybusinesslogicindependentlyofdevelopmentefforts.Using BDMtools,SMEscanperformearlytestingofcom- plexlogicagainstrealandsyntheticdataintheirownenvironmentandthereforebenefitfrombetterandearlierconsistencycheckingoftheirdecisions.Thisseparationofconcernsidentifiesproblems(e.g., dataqualityoromissions,inconsistenciesinthespecification)muchearlierandavoidslate,nastysurprises.TheexecutabledecisionmodelthatSMEsproducebecomesamoreprecise,lesserror-proneinputtothedevelopmentprocessand,insomecases,decisionmodelscanbeautomaticallydeployedtoaBRMSwithouttheneedforanexpli- citimplementationstep.
2. Scale and Complexity
Partial Solution.Addressedby afewBRMSsthatprovidestrongprinciplestostructureandpromotecohesioninlargerulereposito-ries.However,thesearefrequentlybasedonsequenceofexecution(ruleflow)ratherthantruelogicaldependencysotheyarelimited ineffectivenessandoftenhampersafereuse.Asaresult,mostlargeBRMSrulesets“collapse”undertheirownweight.
Managed bythecleararticulationofinferentialdependenciesbetweenbusinessdecisions,whichstructureslogicandseparatesconcerns.This separationallowsustoscaleourdecisionmodel indefinitelyandinsulatessomelayersofthemodelfromchangesinothers–allowingeachlayertobesimplerthanitwouldotherwisebe(e.g.,theseparationofdatastandardization,validationandbusinesslogic).Therigourofdecisionmodeling alsohelpsusto:maintaintheintegrityoflargemodels; factorizethemtoreducetheirsize;reuselogicacrossthemodelandgainstrongverificationtoensuretheirinternalconsistency.
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3. Transparency and Business Ownership
Partial Solution.Canbemetbytheseparationofbusinessrulesfromcode.Unfortunatelythere isnoagreedstandardwhichdicta- teshowtheserulesshouldbestructured–everyBRMShasitsown meansofdoingthisandsomeprovidemany.ThisrequiresthatSMEsbetrainedtousetheBRMS’sproprietaryrepresentation–onwhichtheiremployerbecomesde- pendent.BRMSoftenblurbusinessmeaningandimplementationdetailandoftendon’tsupportSMEman- agementoftheirownbusinessvoca- bulariesasBRMSconsiderthisan ITfunction.
Addressedintwodistinctways:byvisualizingthebusinesslogicexclusivelyinbusinesstermsandmakingitsexecutionbehaviourtangibletoSMEs.
› Visualizationofdecisionlogicisachievedbytheuseofasingle,shared,business-orientedstan-dardforrepresentationofallbusinesslogicwhichisnottaintedbyimplementationdetail–DMN.Businesslogicisseparatedfromcode,expressedinabusinessvocabularydefinedandmaintainedbytheSMEandwidelydistributedforreviewandrefinement.Businesslogic,unlikethatsupportedbymostBRMS,isnotlimitedtotabulardecisiontables.Itmayberepresentedbyothertypesofmodels,suchasanalyticmodels.Decisionmodelscanrepresentbusinessgoals(throughthedefi- nitionofmetrics)andbeintegratedintobusinessprocesses.
› SimulationandexecutionofdecisionmodelsimprovestheSME’sunderstandingofthelogic’sbehaviour.AsDMNcanassociateadecisionwithbusinessmotivationmodels(suchastheArchi-MateBusinessMotivationExtension),itispossibletolabeldecisionswithbusinessmetricsandusethesetoachieveongoingperformancemeasure- ment.Thisprovidesearlyandongoingconfirma-tionofthebusinessvalueofthedecisionsandper- mitsexperimentationandmeaningfulcompari- sonwithalternativestrategies.
4. Error Prone Specifications
Not Addressed Addressed.Errorscanbespottedearlybecauseoftherigourofdecisionmodelinganditsfocusoncon-sistency.ComposingbusinesslogicinDMNrevealsinternalcontradictions,omissionsandassumptions,notjustwithinindividualrules,butacrossanend-to-endbusinessdecision.Decisionmanagementplatformsalsohavemanyfacilitiesforverifyingtheconsistencyofbusinesslogic.BecauseSMEsdon’tneedtocon- verttheirbusinessspecificationsintoITjargon,afurthersourceoferroriseliminated.
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5. Safe Agility Partial Solution.Supportedby aBRMS,typicallybyallowingSMEstosubmitrulechangesviaITdepart-ments.However,thisofferslimitedagilityasitisdifficultforSMEstoassesstheimpactofachangewith- outextensivetestingregimes(an ITfunction).Inaddition,thebusiness eithercannotdirectlyperceiveanychangeintheirbusinessrules performanceovertimeorisunabletoassociatechangeswithspecificrules.Furthermore,ruleperformancemonitoringistypicallyalignedtoimplementationcon-cerns,ratherthanbusinessgoals.AgilityisalsosupportedthroughtheBRMSprovisionofrulegovernan- cewhichprovidessomesafety inthechangecontrolregime.How- ever,thisfunctionisoftenoptional,onlypartiallysupportedandhardtocustomizetotheorganization‘sneeds.Itisfrequentlydeferredorunderminedduetoconcernthatitmightimpactrapidchangetime-tables.
Achievedbyusingdependencycontroltolocalizechangeimpactandimproveimpactassessment accuracy.ThisisfrequentlynotpossibleinBRMSbe- causetheycombinerulesusingsequentialorderratherthanexplicitdependencies.Explicitdependencieshelpdecisionownerstonavigatetothelogic,requir- ingchangeveryquickly,andensurethereisnocollateral damagearisingfromeachchange.SimulationalsohelpsSMEstodeterminethatthebehaviouralimpactoftheirchangematchestheirexpectations.Businessperformancemonitoringallowsthemtotracktheeffic-acyofanychangestheyhavemade.Thecustomizablegovernancefacilitiesofmanydecisionmanagementplatformsensurethatthemandatedchangeprocessisadheredtoaccordingtotheorganizations’needs.
6. Enterprise Consistency
Not Addressed Supported byestablishingaclearinterfacebe- tween(andseparationof)businessprocessanddecisionlogic.Thisseparationnotonlysimplifiesthemanagementandevolutionofbothprocessmodelsanddecisions,butenablesthesafereuseofdecisionsacrossmanybusinessprocesses.
7. Auditability (Traceability)
Partial Solution.Canbesup-portedinmanyBRMSusingapost- executiontraceabilityforauditpurposes,butmostBRMScanonlyassociatetheresultantoutcomeswiththerulesexecuted.Nonecanpreciselycorrelaterulebehaviourtoaregulatoryspecificationauthor- ity,localknow-howoralegalman- date.
Addressed intwoways.Firstly,everypartofade- cisioncanbeconnecteddirectlytothesentence,clause,sectionorpartoftheregulatoryspecificationthatmandatesit.ThisrationalizestheSME’smodel.Becausearegulatoryspecificationamendmentcaneasilybetracedtotheimpactedpartsofthedecisionmodel,DMNassistswithchangecontrol.Secondly,whendecisionsareexecutedaspartofabusinesspro- cess,thesystemcanjustifyitsruntimebehaviour andoutcomesbyreferringtotheauthorityofsectionsofthespecification.
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8. Data Quality Not Addressed Partial Solution.CanoftenbedetectedearlierthanusualwhenusingDecisionManagementbecauseitforcesastrongdefinitionoftheunderly-ingdatarequirement,itsintegrityandthedefini- tionofasharedbusinessvocabularyfromtheoutsetofthedecisionmodelingeffort.BDMtoolssup- portbusinessvocabularymanagement,unlikemostBRMS.Decisionmodelingisalsoaneffectivemeansofvalidatingandreconstructingdata.
DecisionManagementoffersamorecompletesolutiontoalleightofthechallengeswehaveoutlinedaboveand,inconjunctionwithBRMS,providesanidealplatformforthedevelopmentofcompliancesolutions.
5.InstitutionalizingDecisionManagementtoInvest-mentFinancialRegulatoryCompliance
Adoptingdecision-orientedmethodswithinmaturecorporationsmeansmakingasignificantadjust-menttothewaythatthebusinessandtechnicalinfrastructureforcomplianceisconstructedandmaintained.Matureorganizationsarealreadyveryproficientindevelopingtheirtechnologyinfrastruc-ture.So,analystsandSMEswillneedtoadoptnewwaysofaddressingproblems.Specifically,logicthatisordinarilyincludedinprocessesmustberecognizedasdecisioncomponents,businessrulesapproachesmustnowbemanagedfromadecision-orientedview,andbusinessintelligencemustaccommodatenewdecision-centricdimensionalviewsofthedata.
HereisasubsetofthecriticalthingsthatacorporationcandotoincorporateDecisionManagement:
1. Establish a roadmap to a decision and process enterprise architecture Mature,process-orientedcompaniesarelikelytohaveacoreenterprisearchitecture.Theaddi-tionofdecisionservicesasanelementofthecorewillestablishthefirstclasscitizenshipofdecisions.However,formanycorearchitecturesthismightcreatechange.Atabusinesslevel,thepositionofdecisionsmustbemappedtobusinessprocessesandotherconsumers.Atatechnicallevel,businesslogicelementsoftheprocessmustbemovedintothedecisionservicesforgreateragility.
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Then,forthedecision-processfocusedcorporation,thereareseveralmoreconsiderationsonthisroadmap:
1.1 Decisionsbecomeacomponentofthebusinessintelligenceandanalyticsenvironment.Keyperformanceindicators(KPIs)aredefinedasameasureofthesuccessofabusinessactivity.Assuch,theKPIisacompositeofoneormoreprocesses,whichcontainoneor moredecisions.Decisions,becausetheyusuallyhavenarrowlydefinedoutcomes,canbecomeimportantinstrumentsinthedashboard.
1.2 Decisionservicescanbeexposedtoprocesses,applicationsandotherconsumers.There- fore,companiesthathaveaserviceorientedarchitecturecanincludedecisionservices atasmallerscale.Theinterestinstraight-throughprocessingisenhancedinDecisionManagementwhenhuman-baseddecisionsarereplacedwithdigitizeddecisions.
2. Realign the compliance framework with a decision inclusive enterprise architecture Mostcomplianceframeworksprovidemonitoring,reportingandcontrols.Monitorsscanforevents–some,suchasmarketabuse,arecomplex.Decisionscanassumetheresponsibilityofidentifyingthese.
3. Use decision compliant processes for monitoring, reporting and enforcement Controlsandreportingalsoinvokedecisions,asdecisionscandecidereportablecomplianceincidentsandprocessescanreacttotheneedforcontrols.Corporationsneedtoconnectdeci-sionstospecificregulationsandguidelinesfortraceabilityandchangemanagement.
Overtime,decisionscanlosetheirtargetingability.Monitoringtheoutcomeofdecisionswillidentifyshiftingpatternsthatcanimprovetheaccuracyofthedecisions.Asthemarketorcon-ditionschange,thecorporationcanchangethebasis,orrules,ofthedecision.
4. Select and implement Decision Management software DecisionsshouldbemodeledwithDMN™andlogicplacedintodecisiontablesoranalyticmodels.DecisionsoftwarethatsupportsDMN™canplayavitalroleinimplementingDecisionManage-mentintheenterprise.Itcanalsoconnectdecisionstopertinentsectionswithinspecificationdocumentswhichsupporttheirdefinition.Thesoftwareshouldsupportasocialmind-setthatpromulgatesandexposesdecisionmodelstostakeholders.Whenadecisionmodelisdeemedcorrect,itshouldbedeployed.Simultaneously,processesandapplicationswillneedtoberefactoredtodecision-centricservices.
5. Adjust process and rules COEs to an interdependent architecture BDManddecisionmodelingareachangeinmindsetforbothBusinessProcessandBusi- nessRulecentersofexcellence(COEs).MostBusinessRulesCOEsaredecisionfocused,whatwillchangewithBDMisthecharacterizationandscaleofthedecisionandthestandardization ofmodelingwithDMN™.InadditiontoBRCOEs,processmodelerswillneedtorecognizewhatrequirementsshouldbemodeledasdecisions.Moreovertheprocessestheydesignwillneed tocomplywithdecisiondirectives.
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6.PrerequisitesandBenefits
CoreconceptsthatcanmakeadoptionofBDMmuchmoreeffective,andwhicharethemselvesenhancedthroughtheuseofBDM,includethoselistedbelow.Notethatthesedon’thaveto beinplacepriortocommencingaBDMprogram–bothcanbeiterativelydevelopedinamutuallysupportingvirtuouscircle:
› Strong Reference Data Sources.Organizationsshouldensurethattheyarefreefromendemicandacutereferencedataqualityissuesbecausemeaningful,reliable,integratedreferencedata isanimportantfoundationforDecisionManagement.Datainference,validationandtranslationareallgoodapplicationsforDecisionManagement.
› Shared Data Concepts.Organizationsshouldalsoensurethatthereisawidelyshared,consis-tentunderstandingoftheirsourceandreferencedata’smeaningandlatency,asthesearevitalforallcompliancemandates.
› Well Understood Business Process.Organizationsthatdonotformallymodeltheirbusinessprocessesshouldconsiderdoingso,asthisactsasavitalcontexttodecisiondefinitionanduse.
› Readiness to Commit to the Approach.Companiesshouldprovidetheirbusinessanalystsand projectmanagerswithformalDecisionManagementtrainingandmentoring,andensuretheyarecommittedtobuildingasharedbusinessvocabularyonwhichconsistentandtransparentdecisionsandbusinessprocessesarebasedandshared.SuccessfulDecisionManagementcannotbeachievedinapiecemealfashionandthebenefitsonlyaccruewhenitisscaledacrossanenterprise.
WhenselectingyourfirstcomplianceprojecttobenefitfromDecisionManagement,chooseonethatbenefitssubstantiallyfromtheapproach.BDMcapturesyourinterpretationofimportantbusinessdecisionlogic,expressingitpreciselyandmanagingitasanevolving,intellectualasset.Itisthereforeadvisablethatyourprojectaddressesdecisionswhichsatisfyoneormoreofthefollowing:
› YieldRealBusinessValue.Ideally,therateofprofit(orsaving)perunittime–thevalueofeach decisionmultipliedbyitsfrequency–shouldpayofftheorganisation’sinvestmentinarea- sonabletimeframe.Ifthedecisionsconveyother,non-financial,benefits(e.g.,riskreduction,reputation,legalcompliance),theseshouldbequantifiedfinancially.Ideally,thesequantifiablemeasuresofbusinessvalueshouldbelinkedtometricsthatDecisionManagementtechnologycanmonitoronanongoingbasis(e.g.,tradingvolumeandvalueofnon-investmentgradeassets,collateralburden,percentageofassetsthatcannotbeclassified).
› Have Real Business Value.Distinctfromthatabove,thisindicatesthatthebusinesslogic“itself” hasaninherentandlastingvalueorconveysanexplicitbenefit.Eitheritisproprietary,repre- sentsaninterpretationofaregulatorymandateintowhichmuchhasbeeninvestedorthatwouldbeexpensivetoreplace(e.g.itcurrentlyresidesintheheadsofSMEswhomightleavethecompany).Decisionscanalsohavevalueiftheirdefinitionis,orcouldbe,contested(e.g.ifmultipleversionsofpolicyexistandweneedtoselectoneandjustifyit).
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› Require Repeatability.Thedecisionmustbemaderepeatedlyand,givencertainprevailingcircumstances,shouldalwaysbehaveconsistently.
› Require Traceability.Theprocessshouldbenefitfromthepost-hocabilitytoexplainandjustifyitsbehaviour,asthisisakeypartofthetransparencyvaluethatDecisionManagementbrings.
› Are Volatile.Decisionsshouldbesubjecttofrequentandregularchange(commoninregulatorycompliance).Ifthelogicofadecisionisstatic,themotivetoanalyzeandmanageitandtheabilitytomaintainitwillbecompromised.Italsohelpsifthedecisionlogicitselfrequirescontin-uousoptimization.
› Are Subject to Analysis.Itisvitalthatthedecisionsbeingmodeledareamenabletorationalanalysis,andarenotdominatedbyinscrutableorunconscious“gutfeeling”orexpertisethatcannotbequantified.
› Require Automation.AlthoughDecisionManagementcanbeusedtomodelmanualprocesseswithsomebenefit,itismorevaluablewhenanautomatedapproachissoughtandconveyssomecostorspeedadvantage.
7.ExampleApplicationsofDecisionManagement
Let’sillustratetheadvantagesofDecisionManagementbylookingatafew(simplified)complianceexamples.Manyofthedisclosurepolicies,capitaladequacychecksandriskmanagementstrategiesthatcomplianceregulationsenforcearebasedonadeterminationofassetclass:thetypeofinvest-mentbeingtransactedinaspecificcase(e.g.bonds,cash,equities,etc.).Assetclassificationisapivotaldecision,usedinmanybusinessprocessesthatcontrolcomplianceprocedures.Itisacomplexdecisionbecauseitcanbemadeinmanydifferentways,usingdifferentinformation,dependingontheprevailingconditions.Inagivencase,manyexceptionsanddispensationsexistthatmightalterhowitisdetermined.Decisionmodelingprovidespowerfulmeanstotamethiscomplexity.Itisolatesanddefinesallofthewaysofdeterminingassetclasswhilekeepingtheseseparatefromthetop- leveldecisionthatdetermines“which”ofthesetouse.Thishierarchyofdecisionscanbearbitrarilydeep,allowinganeffectiveseparationofresponsibilities–definingclassificationmethodsandselectingwhichonetouse.Thetechniquealsoallowsustodepictthesharedlogicofthesedecisions.
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Figure2,ExampleDecisionRequirementsGraph(DMN™DRG)
ConsiderFigure2,above,whichrepresentsthelogicofanassetclassificationdecisionmodeledwith DMN™.Decisionsaredepictedasrectangles,dependenciesasarrows(whichdepictinformationflow,pointingtowardsthedependentdecision)anddatainputsasroundrectangles.Thecolorisaddedfor clarityandisnotpartoftheDMN™notation.Thesecondrowof(blue)decisionsinFigure2showsnotonlythatassetclassificationcanbedeterminedinfourways,butalsohoweachofthesedependsonothersub-decisionsandinputdata.Thesecondclassificationstrategy(“CategoryIssuerAssetClassi- fication”)isbasedontheassetcategorythatacentralbankdecreesarerelevant(“AssetCategory”),the issuerclassandconvertibilityoftheinstrument.Thethird(“SecurityBasedAssetClassification”)isdrivenbythecountryclassoftheissuerandthetypeofsecuritybeingissued.Eachofthesesubordinate decisionsdeterminesaclassificationandtheroot(orange)decision(“AssetClassification”)determinesunderwhatconditionstousetheresultsfromeachsubordinate.Decisionmodelingallowsustosepa- ratethesetwoconcernsandgivesusavisualdepictionofthesub-decisionanddatadependencies.Notice,forexample,thattheissuercountryclassisusedbytwoofourclassificationsub-decisions.Beawarethatthearrowsinthisrepresentationdepictonlylogicaldependencies,notsequence.
ThedetailedlogicofeachdecisionisdefinedbyaDMN™decisiontablethathasthesamename(seeFigure3,“CategoryIssuerAssetClassification”).
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Figure3,ExampleDecisionTable(Fragmentof“CategoryIssuerAssetClassification”)
Eachtabledefinestheoutcomeofthedecision(“InstrumentAssetClass”),givenspecificvaluesforitsinputs.Eachrowspecifiesanalternativeresult(thepinkcolumn,secondright)thatoccurswhentheassociatedinputconditions(columns2-5)aremet.Inthefirstexamplefragment,rows4and5depictthepossibleassetclassesforconvertibleandnonconvertiblepreferredstock.Noticethateachrowhasareference(intheannotationcolumn,farright)totheregulatorystandardsectionfromwhichthis behaviourwasderived.Thiscanbeusedtoreferbacktothespecificationifthereisneedforany clarification.Noticealsothatthistableisdependentonthecondition“InstrumentisConvertible”.
Figure4,ExampleDecisionTable(SubordinatetoFigure2)
Thedecisiontableinthesecondexample,inFigure4,illustrateshowthisconvertibilityisdeterminedbythesubordinatedecision.DecisionManagementenvironmentsarecapableofensuringthelogicalintegrityofdecisiontablessuchasthis–bothtoensurethetableyieldsaresultunderallcircum- stancesandthatallpossiblevaluesthatthesubordinateproducesareusedbythedependenttable inFigure3.Inthisexample,ourverificationhasfailedbecausethereisacircumstance(“IssueType”isCVTBONDorCVTPFDand“MaturityType”isUNKNOWN)thatourtabledoesnotcover.
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Figure5,BPMNBusinessProcessesReferringtoDecisionActivities
Figure5depictshowthisclassificationtask(“DetermineAssetClass”)hasbeenindependentlyreusedin twodistinctbusinessprocesses(showninorange),therebyprovidingenterpriseconsistency.ThisdiagramusesBPMNtodocumentthebusinessprocesses.Decision-awareactivitiesareshownwitha decisiontableiconinthetopleft.Inthiscase,twobusinessprocessesthathandleinstrumentsfromdifferentconduitsarenowguaranteedtoproduceconsistentresultswithrespecttoassetclassifi- cation.Furthermore,notehowtheuseofdecisionactivitieswithinbusinessprocesssimplifiestheirdefinition(separatingthedistinctideasofthesequenceofbusinessprocessfromthelogicofabusi- nessdecision)andhowtheoutcomesofthesedecisiontasks(e.g.“DetermineAssetClass”inthe topfragmentand“DetermineRatingCategory”inthelower)steerthepathstakenatthesubsequencegateways.
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8.DecisionManagementandCompliance– ASuccessStory
Aclient,oneofthelargestglobalinvestmentbanks,recentlyinitiatedmultiplecomplianceinitiativesacross14separateprojects.MostofthesearosefromasingleFederalFinancialSupervisoryAuthorityregulationforliquiditydisclosure.Theyhadalreadyadoptedabusinessruleapproach(becauseof theneedforagilityandtransparency),buttheorganizationhadlittleexperienceofmanaginglarge,complex,cross-enterpriserulesetsandsomereasonstodoubttheirBRMScouldcope.Further- more,theyneededtominerulesofuncertainqualityfromtheirlegacysystemsandaddressknowndataqualityissueswithsomedatasources.
LuxMagiwasaskedtoassist.Becauseofthehighcomplexityoftherules,thecorrelatedgoalsofthe projects,thefactthattheyintendedtosharemanydatasourcesandtheneedforcross-teamconsistency, transparency,agilityandperformancemeasurement,LuxMagielectedtouseBusinessDecisionManagement(BDM)techniquestomineandmodelthedecisions.Thesewouldbedeployedasdecisionservicestoallowtheirusebyexistingapplications.Thisapproachwasverysuccessfulforseveralreasons:
› BetterParallelismofEffort.TheuseofabusinessSMEenvironmentfordecisionanalysis,documentationandsimulationmeantwecouldfocusonbusinessdecisions(andtheirmotivation)first,withouttheneedforITtoprovidearuledevelopmentenvironment.SMEsandbusinessanalystswereproductivewithdecisionsinamatterofdays.Meanwhile,theintegrationofthe BRMSwiththeinfrastructurecouldprogressatthesametime,andrulescouldbemigratedto theBRMSwhenready.Thisenabledahighdegreeofparallelismbetweeninfrastructuredevelop- mentanddecisionmining,analysisanddevelopment.Thefocusonbusinessmotivationanddecisionsimulationfromtheoutsetallowedmanyfalsepathstobeeliminatedearlyinthepro- jectlifecycle.Furthermore,thebusinessfocusencouragedanalyststoimproveexistingbusinesslogic,notjustre-implementoutmoded,legacylogic.Asaresultofthisapproach,afirstdecisionserviceprototype(witharulecoverageof70%)wasdeliveredinjustsixweeks.
› Improved Rule Quality.Theminingtechniquesimprovedrulequalityconsiderably.Itidentifiedandremovedmanyflaws,inconsistenciesandredundanciesintheoriginalruleslongbeforedevelopment.Restructuringourdecisionspermittedthesamelogictobesupportedwithlessthan15%oftheoriginalrules.Thesizereductionmeanttherulesweresimplertounderstandandmaintain.Therefore,subsequentflawscouldbespottedmoreeasily.Asaresult,theruleflawrateinthefirstroundofintegrationtestingwaslessthan5%.
› EarlyandEffectiveRequirementsValidation.TherigorousapproachtoanalysisandtheabilityforSMEstosimulatelogicwithoutITinvolvementledtotheidentificationofseveralflawsintheoriginalregulatorydocumentation.Thisearlydetectionofflawspresentedanopportunity fortimelyfeedbackontheissuestotheregulatoryauthorities.Inaddition,multipleissueswith instrumentdatawerediscoveredandresolvedearlierthanatraditionaldevelopmentcyclewouldallow.
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› Better SME Engagement.InvolvingbusinessSMEsindecisionmining,designandthebuildingofacommonbusinessvocabularyfromthestarthelpedthemtoappreciatewhatthenewsystemcoulddo.Itwasanexcellentwaytopreparethemfortheirstewardshipofthebusinessdecisions–oneoftheultimateaimsoftheproject.Furthermore,thecollaborativeenvironmentallowedeachSMEtoseehowtheirworkrelatedtothatofothersandtoidentifyconflicts.Theuseofastandard,precise,decisionmodelinglanguageandbusinessvocabularyhelpedSMEsacrossthreecontinents(anddiversebackgrounds)meaningfullydiscussandcollaborativelyovercometherealbusinessissues.Notimewaswastedonmisunderstandingsofthespecifi-cationordiscussionsaboutimplementationdetails.Asaresult,manyofthedecisionmodelsbecamelivingpolicydocumentation,withouttheneedforadditionalverbiage–savingtime forothertasksandfacilitatinganindependentreview.
› Safer Implementation.Theprecisionofthedecisiondefinitionalsohelpedtopreventerrorsbothduringimplementationandafterwards,asdecisionsevolvedaccordingtoindustrychangeedicts.ThisclarityencouragedahighlyeffectiverelationshipbetweenSMEs,businessanalystsanddevelopers.TheabilityofsomeDecisionManagementtoolstodeploydecisionsdirectlytoBRMSwouldhaveimprovedthisstillfurther.
› MoreEffectiveReuseofLogic.Expressingtheruleswithinadecisionframeworkclarifiedtheirinterdependencies,revealingsomethatwerenotpreviouslyappreciated.Thisinformedthetechnicalarchitectureoftheprojectandallowedthesharingofseveralintermediateresultsof assetclassification,whichbenefitedinstrumentriskassessmentandcollateraleligibility.Italsoreducedtheoverallworkloadandensuredconsistencybetweenthesedifferentaspectsofthe program.Decisionmodelinghelpedthebusinessanalyststoseparatelogicallydistinctissuesthathadbecome(historically)entwined(e.g.thedistinctionandseparationofindustryclassand issuerclassinassetclassification)whichallowedbothtobesimplifiedandrenderedindependentlyreusable.
Thefastertimetomarket,theearlierdetectionandresolutionofissues,theradicallyimprovedquality ofthebusinesslogic,andthetransparencyoftheresultingrules,evenpriortoimplementation,werethemostmarkedadvantagesweachievedwithdecisionmodeling.Withtherighttrainingandconsultancypartner,anyfinancialorganizationcanreplicatetheseresults.
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9.Summary
BusinessDecisionManagementisanewdisciplinethatallowscompaniestomeetthechallengesoftoday’srapidlychangingregulatoryenvironment.BDMnotonlyexposesthedata,logicandknowledgeneededtomakedecisions,itaddressestimepressuresandagilityneeds.BDM’smainbenefitsarederivedbydirectlyexpressingdecisionsinaformthatbusinessanalystsandSMEscaneasilyunderstandandchange.Inaddition,organizationsthatadoptBDM,canmonitorandimprovetheircompliancedecisionsovertime.
DecisionmodelinginDMN™,acriticalpartofBDM,reducescomplexitybyisolatingandseparatingareasofresponsibilitysodesigners,analystsandSMEscanfocusononeaspectofaproblem.Inaddition,DMN™iseasilylearned,anddecisionlogicexpressedinthenotationcanbemaintainedbynon-tech-nicalpersonnel.
Eachdecisionoutcomeprovidesinputtohigherleveldecisions.Thisseparatesconcernsandvisuallydepictsthesub-decisionanddatadependencies.Finally,withrespecttomodeling,decisionmodelerscanreusetheirlogicacrossprocessestoensureconsistency.
WepresentedasuccessstoryonhowoneglobalbankusedDecisionManagementtoconsolidatecomplianceacross14separateprojects.Awiderangeofbenefitswasachieved.
Insummary,therearesixspecificstepsthatacorporationcanusetoimplementDecisionManagement:
1. Establisharoadmaptoadecision,processandeventbasedenterprisearchitecture
2. Realignthecomplianceframeworkwithadecisioninclusiveenterprisearchitecture
3. Selectanappropriatecompliancearea,onethatmatchesthecriteriawedescribed,topilotthenewframework
4. Usedecisioncompliantprocessesformonitoring,reportingandenforcement
5. SelectandimplementDecisionManagementsoftware
6. AdjustprocessandrulesCOEstoaninterdependentarchitecture
Thehingepointforallcompliancemeasuresistheoperationaldecision.Claritycanbeachieved withadecisionapproach–onethatcreatesvisibilityinboththedecisionandtheprocessthatcomplies.Improvingcompliancemeansknowinghowtorapidlyadoptthedecisionortheprocesstotherequirement.AdoptingDecisionManagementisanevolutionarystepforcorporationsseekingasustainablecomplianceframework.
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10.AboutUs
10.1Signavio
Signaviooffersaweb-basedBusinessProcessManagementandBusinessDecisionManagementintegratedsolution.ThisuniquecombinationincorporatesbusinessdecisionsintoprocessmodelsusingDMN1.0,allowinganalysisandstreamliningforimprovedriskandcompliancemanagement,imperativeinfinancialindustries.WithofficesinBerlin,CaliforniaandSingapore,thecompanyhasa fast-growingcustomerbaseandstandsoutthroughtechnicalinnovationandBusinessProcessandDecisionManagementindustryknowledge.
EMEA SignavioGmbH
NürnbergerStraße8 10787Berlin, Deutschland
+49308562154-0 +49308562154-19
TheAmericas Signavio,Inc.
440N.WolfeRd. Sunnyvale,CA94085 UnitedStatesofAmerica
+16503889251 +16503889252
APAC SignavioPte.Ltd.
#10-01/02TheGlobe 100CecilStreet Singapore069532
+6566318334
[email protected] www.signavio.com
10.2LuxMagi
LuxMagihelpsinvestmentbanksandfinanceinstitutionsleveragethepowerofBusinessRules,BusinessDecisionModelingandBusinessDecisionManagementSystemstodevelop,manage,automateandoptimizetheiroperationalpoliciesforregulatorycomplianceandcompetitiveadvan-tage.WetrainandmentorbusinessanalystsandprojectsmanagerstoensuretheygetthebestresultsfromDecisionManagementandModeling.
+447799625144
www.luxmagi.com
LuxMagiLtd
29thFloor,1CanadaSquare, CanaryWharf, LondonE145DY, UnitedKingdom.
