Clarity in a World of Complexity

Clarity in a World of Complexity

BPM goes beyond document management by not just automating the document flow but also coordinating the people[…]

(Published in the Financial Times on November 4, 2003. Read the original here. )

A tightening regulatory environment coupled with the drive for cost savings has made business process management (BPM) a hot topic in the financial services industry.

After the excesses of the dotcom years, financial firms are getting back to basics and focusing technology investments on areas that can improve the efficiency of their everyday operations. They have found an ally in BPM, which is increasingly used by companies for tasks such as credit card automation, payment messaging and loan approval.

According to recent research by Giga Research, an IT consultancy, the most common inquiry from its clients in financial services concerns technology to automate business processes. This is an area where the big software vendors are noticeably weak, Giga argues, and so financial firms are looking closely at the offerings of specialist BPM vendors such as FileNet and Staffware.

A key requirement for BPM in financial applications is good integration with document management systems, which are already widely used to automate paper-intensive processes. BPM goes beyond document management by not just automating the document flow but also co-ordinating the people and processes involved in a particular task. BPM has greatest appeal to large financial firms, which may have thousands of employees and a bewildering number of rules and regulations that govern the tasks they perform.


Even the simplest tasks involve many steps and require input from individuals who may be located in different time zones and subject to different regulatory environments. Some processes require a lot of manual intervention, which inevitably leads to errors. “Financial services companies are under enormous pressure to reduce error rates by eliminating manual processes,” says Peter Leichsenring, director for global financial services at Tibco, the financial software house.

Mr Leichsenring gives the example of the Swift payments network, whose users often complain of the large number of exceptions – trades or messages that cannot be processed automatically because of data inconsistencies or formatting errors. “The trade fails but no one knows why and so you have to go through the log file to find the error,” he says. Vendors such as Tibco and Vitria have developed software that tries to identify and automate the handling of certain types of Swift errors, thus reducing the need for manual intervention.

BPM products are finding broad application across financial services and often the driver is the desire to cut costs. Brian Edmondson, vice-president for financial services solutions at FileNet, cites the example of a US mortgage lending bank that has used its technology to cut the time to process a mortgage from seven days to four hours, and transaction costs from $250 to just $40.

Most financial firms already use document management and workflow technologies to reduce the time their staff spend on paperwork. But these solutions typically focus on the needs of a particular department with little thought to the business as a whole. As a result, different technologies get used throughout the organisation.

This fragmentation is not just inefficient – it can also create big problems when the company seeks to impose enterprise-wide systems for risk management or financial reporting. “There is an enormous amount of workflow required just to get a number [for a report] to the CEO,” says Ron Dembo, chief executive of Algorithmics, a Canadian vendor of risk management software.

The growing regulatory burden is obliging financial firms to improve their reporting and risk management systems, and that has led to strong interest in using BPM to overhaul underlying business processes. For example, under the new Basel II accord, financial firms will be required to monitor the workflow required for proper reporting, and to audit, store and recreate any data changes made throughout the organisation.

Although financial firms have long had risk management systems, these have typically operated in isolation, managing risk as it affects a particular business unit. In today’s riskier world, banks have realised they need to take a much broader, enterprise-wide view of risk.

Investec, the UK-listed international specialist banking group, turned to BPM to help it standardise its processes and achieve an enterprise view of credit risk in its treasury and specialised finance business. “Before, different business areas and regions were using different systems to manage the credit approval process,” says Cyril Daleski, head of balance sheet risk at Investec.

Three years ago, the bank decided to standardise on a credit approval system that would allow it to implement a single credit approval model across geographies and business units. The Investec credit approval system, Icas, is an intranet application that automates the workflow associated with the preparation of credit applications and their approval by credit forums – special committees that decide on each application. It is based on a document management system from Documentum.

Once a proposal has been generated, it is routed electronically to the various parties who are required to sign off each task electronically before the proposal can be accepted. Once completed, the proposal gets forwarded – again electronically – for inclusion on the agenda of a credit forum. If the credit facility requested exceeds the mandate of a given credit forum, it can be escalated to a higher forum and automatically placed on its agenda. All credit proposals and their subordinate tasks are tracked throughout the application process, creating an audit trail that can be used to demonstrate compliance with legislation and business rules.

The Icas system keeps a tight control on credit limits and ensures consistency in the manner in which limits are set and monitored. Icas integrates with the bank’s existing credit risk management system, supplied by Algorithmics, thus allowing Investec to get an enterprise-wide view of risk.

Mr Daleski says Icas has benefited customers by allowing Investec to make quicker decisions. For the bank, the benefits have come from the standardisation and improved transparency of the credit approval processes. “There has been a huge pick-up in standardisation of processes and Icas has given us the ability to implement our credit facility rules and models within a robust framework,” he says.

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