Process Change |

Successful ROI within Investment Banking

With the economic slowdown, disastrous accounting scandals, and regulatory related changes, company capital expenditures is being scrutinised more closely than ever before. Given the fact that processes for say Straight-Through Processing (STP) constitute the lion’s share of an Investment Bank's operating expenses, CIOs are under the gun to justify every significant expense and demonstrate how the cost will improve the bottom line in the near future.

Even formerly intangible benefits such as customer satisfaction and increased brand recognition are being quantified. Indeed, Return on Investment (ROI) is not a new buzzword or mantra, yet alone panacea for what ails banks and brokerages.
External factors aside, it’s easy to see why the need to prove a healthy ROI has should jumped in priority. A study by the market research consulting firm
Standish Group International found that only 9% of technology investments were
completed on time, on budget, or within scope. The same study found that 29% completely failed. 
And what about the technologies and operating changes that were supposed to revolutionise or improve business processes? This occurred to me recently when consulting for a major Investment Bank client. How often are the triggers for business transformation such as external regulations such as Basel II/I or Six Sigma improvement programs implemented with no tangible notion of how delivery directly relates to the bottom line. 
This of course is not a new problem but has been exacerbated in recent years by  CIOs and CTOs no longer controlling the entire IT budget; each business unit has the ability to buy software to improve its productivity or processes. Moreover, strategic objectives are not always aligned with benefits realisation being divorced from implementing regulatory requirements. The drive for greater transparency for MiFID was a parallel scenario. 
We can see why it is so important to justify IT expenditures, but we don’t
have to look farther than the corporate accounting scandals, Ponzi schemes and inside dealing to know that numbers can be manipulated. Here’s the best case for developing a meaningful ROI: those who thoroughly research the impact of a new IT project and use sound ROI methodology have the highest success rates.
A recent client engagement has helped remind me of how best to identify the critical components of Return on Investment valuations that can lead to:
  • Project success,
  • Greater budget control
  • Increased management and investor confidence, and
  • Ultimately, a healthier bottom line.
This need is particularly acute with the need to avoid potential waste and duplication of effort when implementing new regulatory changes following recent transformation initiatives. Underestimate any one of them and the ROI valuation becomes meaningless. Quantifying financial benefits, and costs, associated with this work is also necessary for sound stakeholder management.
How? Consider using leading tools to simulate impacts on current and target operating models in conjunction with Activity Based Accounting methods. This analysis should obviously be aligned with the Project Plan underpinned by a strategic objectives such as migration from standard markets to truly dark liquidity collected off-market in dark pools. But never underestimate the Human Factor...

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