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Changing Roles. Changing Rules. Why investment departments and IT have to rethink their roles.

PORTLAND, OR, July 27, 2007 -- Doug Sheehan is a man on a mission. This systems and business consultant has spent over two decades working with investment departments during times of change. Because of this, he says the way IT and business people deal with reports is outmoded, outdated and has to change.

"From where I sit, I see two departments working against each other instead of working together, in spite of substantial efforts by both to achieve a common objective," he says. "The result is dissatisfaction on both sides. The business people tell me they can't get the reports they need to do their jobs and the IT people complain that the business people generate so many different reports that they can't keep control of things. I think it's time we got a whole new model that gets the job done for the business people and takes advantage of the talents and experience in the IT departments."

Doug founded Investment Conversions & Consulting, Inc. in 1993 to solve some of the problems he saw first-hand in 25 years of working with the investment departments of insurance companies, municipal bond dealers, and bond investment departments in banks. "I felt there had to be a better way for institutional investors to implement investment management back-office solutions because things just weren't getting done efficiently and effectively." he says.

The problem, he says, is that the IT and business sides of the house don't see things the same way. "The business people need specific data to do their jobs. They need it to solve a specific problem, but they don't know how to make the system give them the information they need. The IT people think they know how to solve the problem, but they don't. Without the right infrastructure, the business people feel an urgency to create their own solutions, so they create spread sheets. This "work-around" enables them to get the reports they need in a form they can use. Then, as those needs change, they add more columns to that spread sheet. The next thing you know, they have the 'mother of all spread sheets.' It may work for them, but it drives the IT people nuts and makes any system update a complete nightmare."

Sheehan offers these examples:

• An investment manager wants reports that sort investments by his own criteria. The IT department is already giving him reports that include the Moody's, S&P, Fitch, and Duff and Phelps ratings, but some of his bonds aren't covered by those ratings. He needs one set of ratings to encompass everything. He wants to assign his own ratings and see the report grouping them that way. He goes to his IT department with the request and is told it's impossible because the system's standard reports won't allow it.
• An investment manager needs a report that gives her accrued interest. Her system can give her par value, market value, and book value, but that's not what she needs. "I just want to add a column for accrued interest," she says to the IT department. "Sorry," she is told. "The report's already the width of the paper. You can't add that. Where are we going to put it?"
• An investment manager oversees a portfolio that includes a growing number of foreign investments. The report he's getting doesn't show the foreign exchange gain/loss. The report worked fine before the company had foreign investments, but now the investment manager needs to see the foreign exchange rate on the earned income report. He's told by the IT department that this change will take several months. The problem is especially acute in the Investment Department. "The number of data elements they need to track is gigantic compared to other departments and the data elements can change on a daily basis," points out Sheehan. "The information they need to track doesn't stay constant. Companies buy different kinds of investments. They have different strategies, which mean they have to track special things in different ways. Last month's problems aren't this month's. There are ratings, book values, market values, realized gains and loses, deferred gains and losses, and accounting changes. You can't lock everything down. In fact, the investment department needs a system that's built to adapt to change and to make it possible for each business person to get his or her own information."

And what about the IT department? Control is what they do. In fact, the corporation charges them with that responsibility. Recent legislation, like Sarbanes-Oxley, also puts that accountability into their hands. "So, the systems people say, 'I'm responsible for reports. I have things under control. That's my job.' But, in reality they aren't answering the needs of the business person. From the systems' person's point of view, putting the business reporting function in the hands of the business person circumvents the change control process they are responsible for maintaining."

Those are the two sides of the issue. On one side you have the systems person saying "You can't give business people the ability to create their own reports. The whole process will get out of control. We have requirements we have to meet." But, from where the business person sits, they say "You're making it more complicated than it needs to be. All I'm asking for is another column on a spreadsheet."

In Sheehan's view, the whole approach needs to be shifted because IT creates something that leaves the business person with no ability to respond to changing conditions. He offers this example: "We worked with one Midwest insurer where the business people simply weren't using the system's reports. Their software produced canned reports that didn't do them any good because they were hard for the business people to use. Every time they got a report, it had to be reorganized and rearranged. So they'd get the reports and put them into spreadsheets. It wasn't efficient. What they needed was the ability to run a report, get the answer and move on to the next process. When we finished revamping their system, they literally ended up with 400 ways of customizing the reports showing specifically the data they needed to answer the questions they had. Before that they literally had 400 spread sheets that were impossible for IT to maintain and update whenever they had systems changes. Now, they are better organized. Business people can generate exactly the reports they need and maintain them without involving the systems people."

"We're often called in by CFOs and investment managers trying to balance the needs of their portfolio managers with the functions provided by their IT department," says Sheehan. "We'll see frustrated investment managers coming up with their own solutions which are basically workarounds to get around the restrictions imposed by the IT departments. These business people are generating their own reports out of frustration with the IT process. They'll do their own cumbersome spreadsheets to get the information they need. At the same time, they put themselves into a position where they don't take full advantage of the resources of the IT department. In the end, no one's happy. Managers grumble about having to create their own reports and IT people see an administrative nightmare trying to keep control of all the reports out there.

In fact, we did an inventory in one of the companies we worked with and found 270 reports. The CFO told us that wasn't possible, but in fact it was."

What's the answer? According to Sheehan, it's a shift in the way each of the players, investment managers and IT define their roles. "Think of it as a supermarket," he suggests. "The business people want to go up and down well-stocked aisles, picking off the information they need which ends up in a report. Systems people, on the other hand, want to pick information off the 'shelves' for the business people and package them together. Systems people focus on technology, not business. Business people understand the business, but not the technology. We suggest that each rethink their roles."

Sheehan says systems people need to stock the shelves with the latest data and business people should do the shopping. This requires both members of the equation to change the way they view their roles. Business people can no longer sit back and charge IT with solving their problems for them. They have to take an active role. They can't abdicate problem solving to the IT people because they don't understand the business.

"This kind of shift is not easy. Initially, the project of shifting roles loads looks daunting, but the cost of not changing is getting more expensive every year. That's because information reporting demands, especially in the Investment Department, are becoming more and more complicated," says Sheehan. "We use a product we call IRDB® which puts the function of creating reports in the hand of business people. It allows them to query the database, pull the data they need and create their own spread sheets. What we like about it is that it makes it simple enough so the business person can use it as a tool. It puts them in the driver's seat instead of the passenger's seat. It gets business people involved with their own reports and figuring out a way to get them to do it on their own."

Sheehan realizes he's asking a lot of both business people and IT people. "In a perfect world, IT will commit to creating the necessary infrastructure to allow the business people to solve their own problems instead of solving them for them. In other words, the business people would work with the IT people," he says. "The IT person's job would be to provide the infrastructure to allow the business person to solve his own problem. And the business person would change his relationship with IT. He would no longer step back and abdicate the whole reporting process to them; instead they would work together. In the end, both would move the process forward constructively. It won't be easy, but it has to happen."

Doug Sheehan is president of Investment Conversion and Consulting, Inc. ® (ICC). The company helps institutional investors implement investment management back-office solutions. ICC has been called the financial industry's "merger veterans", having created and put into play many of the best practices used today in investment accounting systems integrations. Since 1993, they have integrated the investment systems in some of the highest profile mergers in the industry. The firm also offers systems consulting services support for the investment accounting and operations functions of major insurance companies and other institutional investors. They provide business analysis, technical analysis, software solution recommendation, vendor selection, and improved processes for management and operations. The firm's proprietary software tool, IRDB®, enhances management and operations related reports for clients.

For more information - contact ICC.