Smarter Governance

Combining Compliance and Performance Optimisation

Levine Naidoo – IBM Business Analytics and Optimisation

17 June 2013

Smarter Governance – a new paradigm

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• Finance & IT continue to face challenges, in the public and private sectors

• Past approaches to governance are inadequate in both design and implementation

• Executives get fragmented views of their true business performance, and inefficiencies drive up costs.

• A new paradigm is required, that – takes a value integrator approach to driving finance transformation– uses standards for financial outperformance– reuses common capabilities across risk, compliance and performance

optimisation

The new normal economic environment

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Source: IMF World Economic Outlook Update, European Commission: economic Sentiment Indicator

Liquidity driven crises Real estate bubble burst Failure of collateralized debt

obligations Drop in global commerce Cost reduction pressures Rising unemployment Drop in commodity values Dramatic drop in consumer

demand Increased risk, volatility and

uncertainty

Subdued growth Continued cost pressures Continued high un-

employment Reduced global commerce

and demand End-to-end stimulus and

government hand in business Sovereign debt concerns Industry restructuring and

consolidation Continued uncertainty,

elevated volatility and risk

October 2012 World Economic Outlook (WEO)

March 2013: Economic Sentiment in Euro Area

New Economic EnvironmentGlobal Financial Crises Market Pulse

A CFO study in the midst of severe economic uncertainty

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The impact of the New Economic Environment on the CFO’s role

What can CFOs do to enable timely and informed decision-making?

How can the CFO help the enterprise anticipate and shape its environment?

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?

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What Finance model achieves the optimal mix of capabilities needed to outperform??

CFO Study Provocative Topics

Source: IBM Institute for Business Value, The Global CFO Study 2010

CFOs aspiring to evolve their Finance Model to higher capability should address performance gaps with specific action plans

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Paths to Higher Value

Finance Efficiency

Business Insight

Low High

Low

High

Value Integrators can maintain their advantage through a program of continuous improvement to sustain capabilities and value with Data Standards, Information Integration and Analytics

Constrained Advisors have good business insight, constrained by structural complexity, therefore address process and data standards to improve efficiency, accuracy and speed

High efficiency enabled by process and Finance data standards suggests Disciplined Operators focus on maturing business insight and partnering capabilities

Scorekeepers can attempt a direct path to become Value Integrators. This will involve establishing Finance efficiency while simultaneously building business insight capabilities. Alternatively, a staged approach can be taken

Source: IBM Institute for Business Value, The Global CFO Study 2010

Those who excel outperform financially and are more effective against their agenda

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Finance Efficiency and Business Insight

Source: IBM Institute for Business Value, The Global CFO Study 2010

Corporate philosophy of information standards

Standard Chart of Accounts

Standard processes

Standard data definitions

Driving Integration of

information across enterprise

Managing Enterprise Risk &

Compliance

Measuring & Raising Business Performance

Finance Efficiency

Business Insight

Low High

Low

High

The Scorekeeper’s dilemma

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Warehouses (Relational & OLAP)

Transaction Systems Flat, Legacy or Modern

ExternalSources

Why?What should we be doing?How are we doing?

Scorekeeper to Value Integrator

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Past• Analysis• Reporting• Data Mining• Drill Through• Root Cause Analysis

Present• Monitoring• Variance Analysis• Collaboration• Commentary• Workflow• Guided actions• External Data

integration• Unstructured Data

integration

Future• Statistical Projections• Regression,

Extrapolation• Tolerance, Confidence• Forecasting, Planning• Decision Support• Stress Testing• What-if Modeling• Hypothesis Testing• Scenario Modeling• Performance

Optimisation• Resource Optimisation• Change Management

Risk Models

Balance Sheet Model

Prudential Analytics Model

TradingModels

TreasuryModels

Scorekeeper to Value Integrator

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Past• Analysis• Reporting• Data Mining• Drill Through• Root Cause Analysis

Present• Monitoring• Variance Analysis• Collaboration• Commentary• Workflow• Guided actions• External Data

integration• Unstructured Data

integration

Future• Statistical Projections• Regression,

Extrapolation• Tolerance, Confidence• Forecasting, Planning• Decision Support• Stress Testing• What-if Modeling• Hypothesis Testing• Scenario Modeling• Performance

Optimisation• Resource Optimisation• Change Management

Risk Models

Balance Sheet Model

Prudential Analytics Model

TradingModels

TreasuryModels

BA

NK

EN

TIT

Y

Bank Group

Directorate

Subsidiary

Branch

Company

Parent Company

Economic Sector

Geography

All Contract

Maturity

Product Type

Product Group

All

CUSTOMER OR

OBLIGORASSET OR

INSTRUMENT

e.g. London Branch of Bank for Telecom Customers Risk or Profitability

At each intersection, all configured risk or profitability calculations are performed in real-time

PRUDENTIAL ANALYTICS MODEL

Common capabilities underpinning compliance and performance

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Data Provisioning

Common Definitions & Standards

Internal & External Information Integration

Transformation & Business Rules

Aggregation, Enrichment & Augmentation

Analytics enabled compliance and performance

Interactive & Collaborative across Silos

Real-time and Dynamic Predictive

Business scenarios - optimising decisions & raising performance

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• Operational risk

• Credit risk

• Market risk

• Capital adequacy

• Liquidity

• Customer profitability

Deliver optimal answers at the point of impact

Value integrator approach across the enterprise

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External Financial Reporting

Business Performance Management

Planning, Budgeting, Forecasting

Risk and Compliance Management

Treasury and Investments

Tax Management

Financial Statements

Approval

Financial Statements Preparation

Board Reporting Preparation

Regulartory Reporting Production

Regulatory Enquiries Handling

Business Performance

Review/Impact Assessment

Management Reporting

Business Analysis and Modelling

Scorecard/Dashboard Creation

Business Case Preparation

Budget/Forecast Model Design

Budget Policy Monitoring

Plan Approval

Budget Preparation

Forecast Preparation

Risk and Compliance Monitoring

Controls Monitoring

Fraud Management

Risk Scoring and Evaluation

Risk Reporting

Compliance and Controls Reporting

Bank Account Reconciliation

FX Exposure Management

Portfolio Performance Monitoring

Cash Forecasting

Cash Mgmt Operations

Portfolio Management

Investment Modelling

Equity/Debt Management

Capital Acquisition and Securitisation

Tax Compliance Monitoring

Tax Return Preparation

Tax Enquiries Handling

Reporting Compliance Monitoring

KPI Monitoring

Summary

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• Traditional solutions based on traditional system delivery lifecycles will not rise above the change challenge faced by business today.

• A new paradigm is required. A business owned self service capability to rapidly turn information into insight to enable quality decisions, and ultimately optimise performance.

• Seek to extend investments in compliance solutions to cover performance optimisation– Use standardised data and standardised processes– Integrate information across the enterprise to eliminate silos– Provide a self service data provisioning for business to analyse and

generate compliance reporting with full auditability and controls