Viewpoint

Reputation built on results

Insights and opinions from Baringa Partners

Reporting and Data Management: Centre of Excellence

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1 Introduction

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Demand for data

Accounting and disclosure requirements – Several issues have recently attracted scrutiny and increased the disclosure requirements for firms, e.g. conflicts of interest, compensation, tax

Regulatory requirements – Regulation has increased and will continue to increase reporting requirements both on a statutory and ad hoc basis

Other external stakeholders – Rating agencies, debt and equity holders, and not least customers expect firms to demonstrate greater transparency and be able to respond to requests quickly

Internal stakeholders – Internal stakeholders facing increased market volatility are expected to react more quickly within a number of restrictions (e.g. capital) and with smaller margin for error (e.g. decreased profitability)

These trends are forcing an evolution in the mandate of the Risk, Finance and Treasury functions. No longer are these functions simply regarded as being guardians of the balance sheet, they are now charged with delivering the strategic insight that will help drive sustainable profits.

However, whilst many banks acknowledge the importance of facilitating this more strategic role for Risk, Finance and Treasury, to date very few have been able to deliver it. This is a reflection of two challenges:

Two critical challenges1 Defining an appropriate vision and an effective

operating model for strategic control across Risk, Finance and Treasury

2 Creating a fit-for-purpose data management infrastructure to underpin that vision and operating model

In our opinion the first step in addressing Challenge 1 is to confront Challenge 2 as a matter of priority. For as long as banks continue to struggle with the all too familiar legacy of disjointed, inefficient technology and processes, achieving a timely and holistic understanding of performance and control will be compromised.

The collision of these two forces has accentuated the demand for robust balance sheet data that is universally agreed upon across the bank.

Viewpoint – Reporting and Data Management: Centre of ExcellenceIssued 2013

The banking industry currently finds itself in the midst of an era of unprecedented regulatory intervention. Empowered by the financial crisis, supervisory authorities around the world are demanding more information than ever before from regulated firms about day-to-day operations and balance sheet dynamics. At the same time, financial institutions are themselves prioritising the development of more granular internal information to help drive an informed, holistic understanding of performance and control.

4 Viewpoint – Reporting and Data Management: Centre of Excellence

With Risk, Finance and Treasury using inconsistent approaches to data extraction, analysis and reporting, firms will struggle to effectively determine what an optimal model of strategic control could look like.

It is for this reason that Baringa Partners believes that a critical enabler of a more effective relationship between Risk, Finance and Treasury is data and reporting integration. We understand that many banks have been down the road of creating a ‘consolidated data warehouse’ before, with underwhelming results. However, in our view this has been due to a predominant focus on the technology rather than the business objectives. It is our belief that a well-defined approach and clear identification of meaningful business objectives can serve to avoid the mistakes of the past.

This Viewpoint sets out our thinking on how banks can practically establish a phased Risk, Finance and Treasury Reporting & Data Management Centre of Excellence (CoE).

Symptoms of sub-standard data management

‘Data graveyards’ – Previous technology-led data warehouse projects have created large pools of ‘underutilised’ data due to a lack of confidence in data quality by prospective users

‘Data fragmentation’ – Individual optimisation efforts have created fragmented data pools (e.g. Finance data warehouse, Risk data warehouse, etc.) with significant overlaps, however, reconciliation of data remains a challenge and consumes significant resources

‘Resignation’ – It is commonly accepted that a certain data is not available or cannot be retrieved within a reasonable timeframe, hence managers revert to proxies or judgement calls

To cope with the increasing demand for reporting and analytics and to realise efficiencies, firms should look to consolidate all data-driven tasks into a single CoE. The CoE will primarily be responsible for executing recurring reporting and analysis and the associated data quality controls, thereby allowing Finance, Risk and Treasury to focus on their core competencies.

As an independent arbiter of data quality and efficiency across the organisation, the CoE’s objectives would include streamlining reporting processes and improving data quality and availability and be the single driving function behind any associated initiatives. It would also be expected to provide advice on the operational aspects of implementing new reports and analyses and enable a consolidated view on the organisation’s data landscape and controls.

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Figure 1: Reporting CoE Operating Model

Insight

Analysis

Information

Data

Data consumers

Business Partnering TeamHead of

CoE

Data Management

Team

Data Analysis Team

Information & Reporting

Reconciliations

Data Validation Team – Monitor, Acquire, Validate, ResolveRepo

rtin

g &

Data

Man

agem

ent C

oE

Data providers: source systems (in FO & Ops)

Polic

ies

& G

over

nanc

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Data Requirements Formalisation

Data Analysis

Report Generation

Reconciliation Preparation

Data Monitoring – Technical Error

Data Monitoring – File Delivery against SLA’s

Data & Reporting Outputs

Data & Reporting Review & Sign off

Data Menu Definition & Modelling

Reconciliation Reviews & Sign offs

Data Issue Tracking & Resolution

Data Monitoring – Validations & Errors

Data Issue Management and Review

Data Quality, Validations, SLA Analytics

Data & Reporting Collation

Manual Correction / Adjustments

Reference Data Maintenance

Data Provider Liaison – Technical & Business

Change Control Management

Data Owner Liaison

Data Validation Definitions

Best Practice Methodologies

Reference Data Management

Data Issue Management

2 Introducing a Centre of Excellence for Reporting and Data Management

Issued 2013

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1 Freeing up specialist resources and management attentionWith Finance, Risk and Treasury building and maintaining their own data sets, valuable resources are spent on basic data management tasks rather than on tangible value-add activities. Indeed, in many organisations, there are entire teams dedicated to data management within the Finance, Risk and Treasury functions. The CoE seeks to address this by consolidating similar data management tasks across Finance, Risk and Treasury into a single functional team which champions data management, allowing specialists to do what they do best.

2 Reducing the effort required to reconcile data and manage exceptionsThe CoE centralises all activities around data cleansing, data reconciliation and investigation of differences. All data is sourced by the CoE and then distributed or made available to the different data consumers. This ensures that only one set of data is used and that reconciliation challenges are consistently addressed. The CoE is the keeper of a ‘golden source’ of data with the mission to resolve all existing data challenges within this data set. The effort to reconcile data and investigate difference should therefore decrease as tasks are only performed once, solutions and ‘fixes’ are applied consistently across Finance, Risk and Treasury and ‘lessons learnt’ are deployed across the entire data set.

3 Cutting redundant processes and increasing process qualityCentralising data-related activities also impacts the processes around data management and basic reporting. Taking a consolidated view across Finance, Risk and Treasury, it will be easier to identify duplicated processes or activities which could be adjusted to reduce the effort required and improve outputs. Given the CoE’s cross-divisional remit, it can leverage good practices already seen in some areas across the entire organisation and ultimately drive the adoption of best practices for data management and reporting.

3 Key benefits

The main benefit of the Reporting and Data Management CoE is that it ensures that specialists in Finance, Risk and Treasury spend less time performing basic, non-value adding data management and reporting tasks and more on providing insight and value-adding interpretations of management reports. The CoE can also deliver efficiency by championing these data management and reporting tasks and reducing waste on duplicated activities.

Figure 2: Current Processes vs. CoE Processes

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4 Improving data availability and responsiveness to data requestsIn fulfilling its task as the main data hub for Finance, Risk and Treasury, the Reporting and Data Management CoE team will develop a thorough understanding of the data architecture and landscape of the organisation. This will enable the CoE to respond to data consumers more promptly by identifying the relevant source systems and existing feeds, exploiting existing relationships with system owners and drawing on previous experience of sourcing similar data. A ‘CoE business partner’ model allows the organisation to identify any bottlenecks as well as prioritise and/or rationalise remediation activities across the bank as a whole.

5 Enabling targeted, cost-effective and value-adding investments in infrastructureThe Reporting and Data Management CoE should not aim to deliver a perfect data structure; its focus should be on establishing visibility across the entire organisation both in terms of data demand and data supply and so prioritise issues according to their importance. This is significantly different from Finance, Risk and Treasury, which all rank initiatives based on the benefits to their particular function. Coordination is only forced upon them once they run into capacity issues discovering that they all need the same key resources to work on the same systems.

Issued 2013

4 Implementing the Centre of Excellence

Phase I: Assign a Head of the Centre of Excellence to drive strategy

The implementation of CoE-type models has been attempted before, usually led by large-scale, capital-intensive data warehousing projects. To date these have been executed with varying degrees of success, largely because programmes have only focused on the end goal.

Instead of trying to ‘solve a single problem’, we recognise that the symptoms of poor data quality, lack of data availability and responsiveness are actually due to many underlying challenges which have been allowed to build over time. We believe it is more important to enable the organisation to respond more efficiently than to come up with a single solution which will be outdated before it is implemented. Additionally, an undertaking of this size cannot be addressed in one fell swoop and past experience has shown the need for granular objectives, balancing longer term objectives with shorter, quicker ‘deliveries’ to build and sustain buy-in and momentum in the business. As a result, Baringa has developed the following phased approach to establishing the Centre of Excellence.

The objective of this phase is to establish central accountability of all data process and chart the strategic direction of the Reporting and Data Management CoE. The strategic direction can be defined by spelling out a clear and robust mandate for the CoE. Once a mandate has been agreed, the task of delivering against it should be given to a dedicated person – the head of the CoE. Introduction of this accountability will likely be the most significant investment in this phase, given we expect this role to be relatively senior in order to work with senior leaders in Finance, Risk and Treasury.

While the reporting processes, systems and data remain unchanged in this phase, the next step is to identify all staff working full or part time on reporting and data remediation and plan resourcing. It is important to note that no additional staff should be required as all tasks are already performed within the organisation and this step only addresses the responsibility for the staff and teams performing the tasks.

In addition to the resourcing, key deliverables of this phase include compiling a list of all reports and data generated and identifying potential data owners for each area. Furthermore, there is potential to identify any known data gaps, fully redundant reports or manual activities. Key benefits of this phase mostly revolve around assigning a single figurehead for data management, sharing the CoE concept with the wider organisation, and building momentum to deliver the strategy.

Phase II: Consolidating processes and outputsA key element of this drive for centralisation is to introduce ‘business partners’ who provide Finance, Risk and Treasury with a single point of contact within the CoE.

Part of Phase II is also the consolidation of reporting outputs. Again, the approach starts with defining and actually producing the outputs, followed by aligning existing processes to better deliver the new outputs. This ensures that the output is fit-for-purpose prior to introducing any significant architectural changes.

The key benefits will be the elimination of duplicative reports, a holistic view of all reporting requirements across Finance, Risk and Treasury, reduced costs and greater efficiency.

Viewpoint – Reporting and Data Management: Centre of Excellence8

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Phase III: Upgrading processes and outputs

Viewpoint – Reporting and Data Management: Centre of Excellence

Phase IV: Aligning data and systems infrastructureThe objectives of Phase IV are twofold: increasing the level of automation within the CoE and aligning the underlying system infrastructure with the new data demand. The latter part will involve addressing issues in the underlying source or core bank systems, though this could be coordinated with other system upgrades or replacements depending on the desired implementation speed. Visibility on which investments will yield the biggest impact on a bank-wide basis is another key objective of the CoE.

From a governance perspective, Phase IV will introduce formalised data requirements for both data consumers and data providers through interface contracts and service level agreements. In addition, some Phase IV activities will also become Business As Usual (BAU) activities for the CoE beyond the end of Phase IV. The CoE will continuously work to align and match data sources, business logic and reporting requirements, creating access for newly introduced systems or rationalising the sourcing of data from systems. It will drive data issue resolution in source systems by establishing clear ‘best practices’ and firm-wide standards for data management. The CoE will work with system owners to implement this across the organisation. Finally, the CoE will host its high-quality data in a controlled environment which allows all Finance, Risk and Treasury to access the data easily.

In Phase III the objective is to optimise and rationalise the use of data and reporting processes through the introduction of a ‘business layer’. This is an extraction of the underlying source data into a format and structure useful for the business which can facilitate the creation of more complex outputs. The advantage of this concept is that all reports and outputs requiring a specific item of data will be referred to the same source in the business layer.

The CoE will source, transform and deal with any data issues before the data is moved into the business layer. For example, an element in the business layer could be the balance sheet containing data on assets and liabilities. The balance sheet contains key numbers used in Finance reports but will also be of interest to Risk, e.g. exposures, as well as Treasury, e.g. funding ratios. The CoE would first reconcile the data to create a single truth and then

provide Finance, Risk and Treasury with an integrated set of numbers. While it might not be possible to resolve all ‘differences’ in the short-term, the CoE will be able to track any data issues, explain drivers of differences and ultimately work towards fully resolving the underlying challenges ensuring gradual improvement over time. To do this, the CoE will introduce a formalised governance framework with data owners, producers and consumers and commence the definition of a ‘data menu’ and reference data.

With the implementation of the business layer we expect significant benefits from the consolidation of data extraction, transformation, cleaning and adjustments activities. In addition, this also allows the introduction of ‘self-service reporting’ where the functions have a quality-proofed and maintained dataset they can ‘slice & dice’ in ways most useful to them.

Issued 2013

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5 Next steps

Whilst the CoE is a significant goal in itself, in many respects it simply provides a foundation upon which to develop a more strategic model of control for the bank. The precise nature of that strategic model will depend on the particular context of each individual institution but, at the very least, a common understanding and mutual recognition of essential data components will allow the bank to focus on the core capabilities of each function. By doing so, it is then possible to exploit the synergies that are apparent in the analysis of strategic performance and in asserting appropriate control of the business. That is not to say that it is possible to fully consolidate all three functions, but it does pave the way for much tighter operational collaboration.

In the first instance however, the critical point is to recognise the extent to which inconsistent, inaccurate and untimely data is hampering the effectiveness of Risk, Finance and Treasury activity and undertake an assessment to determine the feasibility of moving towards the CoE. This should include:

Base-lining high-level data and reporting requirements (current and known future)

Defining current known data gaps and challenges against requirements (timing, issues, duplication)

Establishing whether technology is “fit for purpose”, including estimates to remediate by system or data set

Evaluating current manual adjustments and quantifying the effort taken to reconcile and remediate

Reviewing current data principles and governance against best practice

These steps will identify key operational blockers to the CoE model, and help shape an efficient change roadmap. Once this is in place, the critical point is to ensure that the organisation focuses on the organic benefits afforded by the phased transition to the CoE. Whilst the ultimate vision remains important to ensure that the scope doesn’t creep out of control, it is the major benefits that are reaped in the interim that provide the necessary momentum to achieve that vision.

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For more information please contact:

risk@baringa.com or

James Nicholls, Director, Risk and Compliance

+44 7414 686 006

Baringa Partners LLP, 3rd Floor, Dominican Court, 17 Hatfields, London SE1 8DJT +44 (0)203 327 4220 F +44 (0)203 327 4221 E info@baringa.com W www.baringa.com

Copyright © Baringa Partners LLP 2013. All rights reserved. This document is subject to contract and contains confidential and proprietary information.

About Baringa PartnersBaringa Partners LLP is an award-winning management consultancy that specialises in the energy, financial services and utilities markets in the UK and continental Europe. It partners with organisations when they are developing and delivering key elements of their business strategy, as well as working extensively with government and regulators providing policy and advisory services. Baringa works with its clients either to implement new or optimise existing business capabilities relating to their people, processes and technology.

Baringa is recognised both in the UK and internationally for its unique culture for which it has been awarded a number of accolades and continues to reaffirm its status as a leading people-centred organisation.