Desicritics Category: BizTech: Management

Risk Manager Role With Afghanistan International Bank

Dr Bhaskar Dasgupta — Thu, 8 Jan 2009 00:45:09 EST

Sometime in the dim and distant past, I had registered myself with an India based job site. This was when my father was ill, and I was considering moving back to India. Anyway, I had forgotten all about it, till today when this email landed in my inbox.

Post Title: Risk Manager
Organization: Afghanistan International Bank
Location: Kabul - Afghanistan
Duration: Permanent
No. of Post: 1
Sex: Any
Nationality Any
Salary: 4000 US $ p.m.+ accommodation + travel+ other benefits.
Background: Afghanistan International Bank (AIB), a commercial bank incorporated in Afghanistan and managed according to international best practices is looking for an experienced Risk Manager for its Head Office in Kabul.
Job Summary: Overall Job Purpose:
Due to rapid expansions of its business and operations the banking is looking for a Risk Manager. The position allows the successful candidate to be part of the senior management team of the bank and play a major role in its continued development.
The successful candidate will be expected to build a risk monitoring systems complying with Basel II requirements thus additional experience in market and operational risk management will be a distinct advantage.
Priority will be placed on credit management and the successful candidate will have had experience in:
1. â€¢ Credit Policies & Procedures
a. Credit policy, review and development
b. Acquisition or development of decision support tools for commercial and retail credit
c. Risk rating framework review
d. Underwriting standards development
2. â€¢ Risk Asset Review
a. Review of individual credit risk ratings
b. Credit quality assessments
3. â€¢ Portfolio Management Unit
a. Profitability and risk analysis
b. Pricing policy
c. Develop predictive dynamic monitoring
Qualification â€¢ Master degree
â€¢ Minimum 10 years experience directly related to risk management where at least 5 years in senior risk management capacity.
â€¢ Fully functional in monitoring of documentation, portfolios & exposure limits of the bank.
â€¢ Excellent analytical, creativity and problem solving skills.
â€¢ Posses good presentation and organizational skills.
Interested candidates can send their CVs with recent photo to this address:

Few thoughts crossed my mind.

The package is a bit low for what is a hardship posting for international bankers, so I am curious to know why would they have selected that compensation level.
Its an interesting job all right, but very ambitious. Candidates for this role with the required background and experience will be relatively few globally.
But it is good to read that they are aggressive, and I wish them luck with their hiring.
I researched the bank on the net and I was not really that comfortable to see that the address of the bank related to some house. Here is the address: House no. 1608 Behind Amani High School Wazir Akbar Khan, Kabul. Reminded me of the addresses I would see in the tiny lanes old Bhopal.
One of the unsung success stories in Afghanistan is the steady development of the banking system. Considering that the Mullah's had effectively eviscerated the banking system, in a matter of 5 months, they have passed a series of banking laws, have presence of many international and local incorporated banks, got some good governmental backing from the Ministry of Finance.
Here is an interesting Afghan review report for the IMF. Gives you hope, no? and no, I am not suffering from the curse of low expectations. Give the country a break, it is starting from near zero.

I further quote some numbers on how Afghanistan has progressed since 2001 from this speech. (even though the verbiage could be a bit optimistic and is after all, coming from a US State Department Employee, the figures, even if adjusted, are noteworthy).

Reconstruction and development work remains on track in most of the country and the Afghan economy continues to grow at impressive rates, with licit Gross Domestic Product more than doubling since 2002. Thanks in large part to our colleagues in the U.S. Government, the lives of millions of Afghans have improved considerably: In 2001, just 8 percent of Afghans had access to some form of healthcare; now, more than 80 percent of the population has access to medical care. Almost 11,000 medical professionals have been trained. More than 680 hospitals and clinics have been built and outfitted. For the first time in 10 years, the grain harvest was sufficient to meet consumption needs inside Afghanistan. In 2001, 900,000 children – mostly boys – were enrolled in school; now, there are more than 5 million and more than 1.5 million of these (34%) are girls and young women. Since 2001, there has been a 22 percent decline in mortality rates for infants and children under 5 years of age – we are saving 85,000 more young lives every year. Two years ago only 35 percent of children were being inoculated against the polio virus. Now more than 70 percent of the population – including 7 million children – are inoculated. In 2001, there was a dysfunctional banking system. Now, Afghanistan has a functioning Central Bank with more than 30 regional branches and an internationally-traded currency. There are now 3 mobile telephone companies serving over 3.5 million subscribers – this is almost 11 percent of the population. In 2001, there were 50 kilometers of paved roadway in the country, now there are more than 4000 kilometers of paved roads.

The main thing which struck me was the sheer banality and normality of this advertisement. A very small thing, but something which gave confidence to me that Afghanistan is improving little by little, despite all the gruesome news coming out of Afghanistan and all the efforts by the Taliban to drag that benighted country back into the medieval ages. Sometimes, its good to see the good side of the story as well. I can only wish the country the best of luck and here's hoping that the Taliban are defeated. And if it keeps on hiring professionals of the type in the advertisement, it can only get better.

PS: then I read something like this and feel very depressed.

Technorati Tags: Afghanistan,Banking,Risk Management

Disjointed Questions on the Bombay Blasts and Its Aftermath

Kim — Fri, 28 Nov 2008 12:11:12 EST

Being in a distant country while Bombay is under siege, is nerve wracking at best.

My first long stay in Bombay was for my first job, with MBA degree in hand. The first weekend trip we took together as Management trainees was a local train ride from Andheri to South Bombay. We caught up with other batchmates in town for a movie at Metro Cinema and headed over to Cafe Mondegar for a drink and later carried onto Cafe Leopold because we had heard so much about these Bombay favourites. We then walked over to the Gateway of India and gazed at the iconic Taj Palace and towers. Gathering courage we felt we could project enough confidence to walk in and use their washrooms, which we managed.

Since this was the late 90's, B-School salaries weren't as astronomical as they were at the turn of the millennium and we obviously couldn't afford to eat in there, so we headed over to Bademiyan's for more affordable fare.

All these locations were under the media spotlight for the last 48 hours, for reasons one would never have dreamed about.

Personally, this attack was very hard hitting because of the sheer numbers of family and friends who live in the area, who were working late in the area, or were eating in the area after work. As is usual after every such attack in India, we started calling and smsing, then emailing and scrapping (when the phone lines were jammed and over loaded) and everyone we knew in the location to check on their status. This time it was a much, much longer list of people we were checking on.

Some were barricaded inside their houses and offices in the area while their lifts were shut down and they were advised not to leave the premises. Many spent that first night in the office while the rest of us helplessly spent the night hoping and praying for their safety and that the violence wouldn't spread to the surrounding buildings.

We stayed glued to the television and kept refreshing news sites on our computer screen and anxiously followed the sequence of events. Coherent thought was not easy and plenty of questions and inconsistencies kept popping up in my mind.

First of all: kudos to our NSG, army, hotel staff and police for their heroic efforts.

Why/How did this happen:

Intelligence failure is something the foreign media has been harping about in relation to these attacks, but as someone else mentioned: weren't 9/11 and the London Subway attacks, intelligence failures too.

Could we have done anything more to secure the locations?

How many locations will you secure? We have a country of a billion+ citizens, so I don't think it is about securing locations. Terrorists target any and every location. The only way every place can be secured is if citizens take responsibility of being aware of their surroundings and people around them.

We need to stop cribbing about and finding innovative ways to avoid security measures at malls, cinema halls etc. They are there for our security.

Our government should focus on stemming the problem at its roots: training camps, poverty, education, unemployment.

The terrorists were armed with AK47's while a lot of the police and railway police were equipped with nothing more than a lathi. Do they even stand a chance?

Why were 3 top cops traveling in the same vehicle?

Rescue efforts:

The staff at the hotels responded admirably and heroically. Some even lost their own lives while saving the guests. I am not sure if they receive training drills for terrorist situations, but they did their best.

Politicians have no business being anywhere in the area when such situations are ongoing. Having them around, means that security and armed forces are forced to divert their attention to the "security of the politician"

What business did Gopinath Munde have to be at the Nariman House today?
Same problem when they visit hospitals were the wounded are taken. Doctors and nurses are forced to stop tending to their patients and clear the area so the politician and their entourage of news crews and security personnel royally stroll through the area and promise tax payer funds (other peoples money) as remuneration.

Media:

While NDTV was the most restrained of the lot, our media still behaved as irresponsibly as always.

People whose family members were stuck inside, is it fair to thrust microphones at their faces and ask them how they are feeling?

Rescued people being brought out of the hotel after a horrifying ordeal, is it fair to thrust microphones at their faces and ask them how they are feeling?

While Right to Information is a wonderful act, some lines should be drawn when it comes to National Security. Broadcasting the immediate moves of the security forces, dissecting their rescue maneuvers, having ex army personnel describe helicopter rescue operations in detail - this only gives more intelligence to the terrorists holed up inside who could be in contact with anyone with a cable connection outside the location, even if cable connection at the hotels had been cut off.

Broadcasting false reports of the operation being over when it isn't because they see a thumbs-up being exchanged between two NSG personnel.

We need an appointed official spokesperson who is the only authority allowed to speak to the media when an operation is ongoing. This person needs to receive reports from all relevant sources and be advised on what news can be released and what cannot. Press should only be allowed at this location and not crawling around the affected area causing more security hazards or getting caught in the cross fire. This should give controlled information and hopefully control the rumour-mongering too.

If the press are controlled in one location, it will also prevent the crowds who were at the locations today not to show solidarity or out of concern but were there for the sole reason of getting their face on camera. (This is a reality in India)

Role of Politicians:

They haven't done anything to prevent the situation, they should stay away from the situation as mentioned above.

Where has the champion of Bombay, Mr Raj Thackeray disappeared to? Which safe location is he hiding in?

Our Home Minister was ineffectual as always. Surprisingly, our Prime Ministers speech didn't induce confidence either.

Politicians need to rise above their petty politics of deciding whether to hold a bundh on December 1st or not.

They should instead be visiting the homes of the brave security personnel who lost their lives and appreciating the efforts of their husbands, sons and fathers (not to be sexist, but no female personnel casualty has been reported yet in this case) who lost their lives in the service of the country. This is one of the few useful things that they can do at this point of time.

I also pray that they do not use this attack to further communalize our country for their own vote bank politics.

Future Action:

It may seem insensitive to say this at this point, but as a country we should take advantage of the terrorists targeting Americans, British and Israeli citizens.
The US previously tried to restrain India when they spoke about retaliation after the parliament attacks.

This is the right opportunity to use this joint sentiment against these terrorists to take a stand and launch a forceful offensive against terrorist camps targeting India.
Use the Israeli intelligence and their expertise to stem the flow of terrorists into India and destroy their their training camps.

We need a single security network that is pan-country, not disjointed co-ordination between multiple agencies.

We need to make our country safe again. Where people do not flinch at a loud sound, where people do not have to think twice before leaving their houses to catch a train, shop for groceries or watch a movie. We need to feel safe. It is our right as citizens.

Book Review: Hacking VoIP

Ganadeva Bandyopadhyay — Sun, 23 Nov 2008 12:37:48 EST

In a concise two hundred and eleven pages the author has attempted to cover the protocols, security threats and their countermeasures, audit issues related to Voice over Internet Protocol(VoIP). As outlined in the beginning of the book, the audience is the VoIP administrators and other related IT personnel tackling the nitty-gritties of implementation and day-to-day functioning VoIP in an enterprise network.

With a clear primary goal of discussing security exposures and their possible solutions, the book does a good job as it takes through a security specific discussion and labs on signaling via SIP(Session Initiation Protocol) and H.323. There are also discussions on security issues related to media layer as implemented via Real-time transport protocol and security issues for both signaling and media in Inter-Asterix eXchange(IAX).

Some of the interesting topics in the book also include exploiting weaknesses in SNMP utilizing a tool such as GetIf and making free calls using VoIPBuster. The book ends with the topics on countermeasures and audit portions. Major approach presented is the ability to provide security at both the session and media layer.

With a focused audience and a clear goal, the book does justice for a technology moving towards maturity even as it finds a growing acceptance in the enterprise. Only one suggestion can be to include some more developments, solutions and techniques still not implemented in enterprise networks but having good scope.

Book Review: Nagios - 2nd Edition

Ganadeva Bandyopadhyay — Fri, 14 Nov 2008 02:52:39 EST

The book comes across as a wonderful companion for utilizing Nagios- an open source system and network monitoring tool. There are twenty six chapters covering a lot of depth and variety with respect to Nagios.

There are five main sections in the book, viz. Source code to a running installation, In more detail,The web interface and other ways to visualize Nagios data, Special applications and Development. Some of the more unusual topics worth mentioning is the configuration for external notification via SMS and via email, monitoring room temperature and humidity, monitoring SAP systems via plug-in check_sap.sh and via SAP's own monitoring system CCMS and monitoring oracle database with oracle instant client.

The chapters are very concise and readable especially for the system, network or other infrastructure administrator already hard-pressed for time. One of the important facets of this book is that although there is an attempt to present the useful information, it also motivates the reader to go further and explore based on the suggestions and hints that is provided in the book.

To summarize, a highly recommended book for interesting and very useful topics in present-day IT infrastructure.

Expansion of IIMs - Credibility At Stake

Moid — Tue, 21 Oct 2008 15:16:51 EDT

Of late, we have been hearing a lot about government's vote-bank politics entering into the education domain as well... an area which was hitherto left to the scholarly and the academia to sort out.

First came the shocker about the IIT cut-offs which are bound to ensure that an applicant with absolutely no sense of physics would still get into IITs with some remarkable performance in Math and Chemistry... while his classmate who was in the top rung of the class with a balanced and excellent performance in all 3 subjects will still not make it to IIT.

This news was only a precursor of things to come... everyone knew that the other schools of repute would not remain untouched... and so here came the R C Bhargava Committee Report on the IIMs... I understand that there are some very pertinent issues that have been addressed in this report which is always a good thing but then... the mediocre polity also has reared its ugly head in there. The vote bank politics again in play... increasing the number of IIMs and increasing the student intake @ IIMs.

However, being an IIM graduate myself and having experienced the educational system prevalent in the IIMs, I have serious reservations against the recommendation of expanding IIMs... personally, I've myself seen the value eroding through the years with increase in intake. One must understand that IIMs draw their credibility partly from the exclusivity... an eliteness that they bring to the corporate world.

And this "value" that the global economy sees in IIM graduates can erode very easily through this expansion for the following reasons:
1. Skewing up of the faculty-student ratio... we have to accept the fact that we cannot find additional faculty (qualified and experienced) to manage the increase in student intake... so even if we end up with more participants in the program, there wouldn't be any good faculty to teach
2. The lower you go in the merit list to pick candidates for admission, the lower goes the quality of the program participants. And I have seen this happening with the recent batches... the same as what is happening to IITs right now
3. One bad fish can dirty the entire pond... so is the risk that IIM graduates carry. One IIM graduate not being able to deliver adequate value to the industry would tantamount to IIM graduates in general losing their credibility... and that is what happens when lower caliber applicants also make it to the business school... this will be the death-knell... the value eroded would never be reclaimable.

I think a better alternative would be to create new management institutions (non-IIMs) on the lines of NITs in the under-grad domain but keep the IIMs distinctive and untouched. Plus the second issue of governance... should again be kept autonomous for the IIMs... I think that is one of the key factors that have kept the IIMs to maintain the leadership in the industry.

The American Financial Crisis -- Dejà vu?

Moid — Tue, 7 Oct 2008 15:03:45 EDT

No sooner did signs of the crisis dawn upon the "market makers", the blame game started, and with more signs of an economic depression, the game only got messier. However, being a market outsider, if you ask me... who is really at fault, I would say that it is neither the Investment Banks nor the Financial Lending Institutions nor the Federal Government nor the average American nor the global citizen. WTH??? Who would it be then? The Aliens?

Nope, it is a vicious circle and all players in the market are to blame... collectively. So, what we see today as the crisis is a result of the greed and gambling of the investors (through I-Banks), lending institutions, borrowers (the average American) and not the least, the US Federal Government. The lending institutions created the environment. The investors took the bait with some help from the I-Banks - the average American saw his long-term dreams getting fulfilled, and the government decided to keep quiet and not even look their way.

This is precisely what in theory was defined as "neo-liberalism" - a concept which eliminates government regulation and oversight under the pretext of a free market economy with minimum federal intervention. Not that, this phenomenon took roots under the present US regime - it has been followed since the Nixon days but then Bush took it too far.

This economic crisis began in the real estate sector and spread its tentacles to the financial sector which was being its god-father. However, the cycle is not gonna stop there. In my judgment, these problems are gonna percolate into the actual economy - which will then break the insulation for every global citizen. And if u ask me, will the famous seven-o-o bailout stem the tide? NO! not at all. I think it is just trying to push the waste under the carpet.

So, for us as common middle-class people - what happens to our lives?

1. CAREER
Somewhere or the other, the uncertainty in our careers is gonna go up... either by our industry of work directly facing the ire of the crisis or pushing up job seekers in our sectors which are still insulated or worse still pushing the salaries down.

2. PERSONAL INVESTMENT
This is surely gonna be a big mess - after all, even a LN Mittal with his hawk advisers couldn't avoid 16Bn USD getting wiped off his balance sheet. It is high time you evaluate your investment - and best, if you can divert it into a low-risk, low-return bank deposit. However, one question worth asking the US Feds is... who will pay us for the loss we have incurred by investing in the stock markets for no fault of ours? I know what answer you will get - IGNORANCE / at best SILENCE.

3. FAMILY LIFE

The biggest lesson for us is to not rely on "fake" liquidity and always plan our lives based on the "real" liquidity we possess. This reminds me of my dad's advice when I joined IIM - and many banks realizing our future earning potential ran to us offering credit cards and loans - he said one thing, "Never fall into the trap of credit cards. It is not free money which you can use without any accountability. So better pay with what you have in your hand". I did heed his advice albeit having a couple of credit cards years later, but just to manage online transactions. Nevertheless, I would give the same advice to all - avoid credit cards as much as you can and also try to plan your asset acquisitions (house, car, etc.) based on what you can afford and not based on speculation.

As for the US economy, it is in a very dangerous situation - with no disclosure, no oversight, no transparency. The suspicion levels are so high that even a bailout approval couldn't keep the markets from falling. Because, behind the big facade of the financial sector is the real American economy which has been the lifeline for the financial sector and that itself is now reeling in pain.

Book Review: The Ten Commandments for Business Failure

Aaman Lamba — Thu, 18 Sep 2008 14:49:58 EDT

In this time of failing corporate giants, it feels appropriate to review a slim cautionary book called The Ten Commandments for Business Failure, written by the President of a company who has survived quite well so far. Donald Keough was former president of the Coca-Cola Company, and provides us an invaluable how-not-to guide, bolstered by a foreword by Warren Buffett, and reccomendations from the likes of Bill Gates, Rupert Murdoch, and Jack Welch.

As Warren Buffett puts it in the foreword, Mr. Keough is a human personification of the Coca-Cola Company, in all its multi-dimensionality, and has an ability to 'cut to the chase on an issue' and keeps his prescriptions simple, grounded in deep experience, and it is interesting to see how many of the dicta in this book were ignored or outright flouted by recent large failed corporations.

The very first commandment, 'top of the list' as it were, is 'Quit Taking Risks'. This might seem obvious, but as the examples of Xerox and many other giants shows, often enough, the companies that get complacent and believe themselves to be secure in their business model, stop trying to rock the boat, take risks, and bet the farm on the anti-thesis of their core ideas. This was illustrated efectively by Clayton Christansen in The Innovator's Dilemma, and more recently we have seen all the Indian IT Service majors continue to propagate their low-cost services model, venturing only marginally into alternative business models, purely because the current ones have served them well for so long.

The second commandment, "Be Inflexible" is an even more powerful mechanism for ensuring failure. The resitance of the auto industry to shed existing product lines has meant their return to near-bankruptcy. Other classic examples of inflexibility are the IBM PC, Digital Corporation, and as Mr. Keough acknowledges, Coca-Cola's own inability to move beyond the iconic bottle for years, losing market share to Pepsico. The movie industry's avoidance of television for a long time, and more recently, the music industry's Internet blind spot, are compelling examples of the power of inflexibility to destroy an industry's market positioning and value.

"Isolate Yourself" is equally effective, creating a culture where bringing good news is rewarded, and bearers of bad news excoriated. This ivory tower syndrome was observed most recently in the case of Dick Fuld, CEO of Lehman Brothers, who refused to see reason and sell out when he could have got at least a meaningful value for his firm, instead of pennies on the dollar, which will go to creditors rather than the stakeholders. Bringing bad news early is an invaluable skill that advisors must cultivate, and CEOs/leaders reward. The supporting corollaries to this rule are to only listen to those who agree with you, and take all the limelight for successes. As Mr. Keough puts it, "Watch out for bright lights who surround themselves with dim bulbs!"

"Assume Infallibility" means passing the blame for failure, typically on subordinates, but even more effectively on customers - after all, the boss is always right:) A grand alternative is Warren Buffett, who, as Mr. Keough notes, provides a full accounting of successes and failures in his annual letter to his shareholders, as opposed to CEOs who make their annual report 'an exercise in fingerpointing'.

The next commandment builds on the previous, "Play Close to the Foul Line", by highlighting the assumption that since one can do no wrong, whatever one does, no matter how gray, must be right. This enables effortless flouting of ethical boundaries to achieve one's goals, such as when loans were disbursed to people who patently did not qualify for them, leading, in part, to the subprime crisis. N R Narayana Murthy, the iconic founder of Infosys, is fond of saying that the softest pillow is a clear conscience, a dictum that might be the exact opposite of this one. The American International Group failure could be attributed to some extent to the rampant accounting irregularities in the 2000s, inculculated by then-CEO, Hank Greenberg. Mr. Keough notes the pressure for short term results at the cost of longer term perspectives, or outright fudging of earnings, as a pertinent example of 'playing close to the foul line'.

"Don't Take Time to Think" is another easy path to follow in the frenetic data-driven business stream. The author looks at the costs of such an attitude to business, from the Human Toll to the masking of reality, to finally the dangers and foolishness of not taking time to think about consequences. The volumes of data flowing through the corporate ecosystem do not necessarily contribute to more accurate decision making, and can cause leaders to overlook critical insights.

"Put All Your Faith In Experts and Outside Consultants" is a caution against the millions of con artists who have their own companies' interests ahead of your own. The compelling example used by Mr. Keough is that of New Coke, where the company made a famous and costly misstep, finding out before the Internet-driven meme age the costs of taking the word of consultants to switch the core product that consumers were used to. He notes research that shows 'experts' were 80% confident about their predictions, yet right only 45% of the time. As the old saying goes, we don't know which half was right. Statistics, that favorite tool of the marketer and consultant are counterpoised by the observation of the classical economist Ludwig von Mises, a personal icon, where he said "Statistical figures tell us what happened in a nonrepeatable histocical case."

The author segues into another, perhaps more dangerous constituency than external consultants - the bureaucracy in the organization. He recalls Jack Welch's final letter to General Electric stockholders, where he noted "Hate the bureaucracy in your organization" to coin the counter-intuitive commandment "Love Your Bureaucracy". The support systems and middle managers often enough become obsessed with micro-managing, sustaining their internal power centers, and perpetuating the rituals of their functions. He illustrates how these 'choke points' often become primary causes of attrition, and worse, stifle the company culture, leading to atrophied superstructures of busy workers producing little output.

"Sending Mixed Messages" is an extremely common phenomenon, almost inevitable in large organizations. An interesting example is sending the mixed message "It doesn't matter what you do, you will be rewarded". When a company harps on excellent customer service and delivers piss-poor service through multiple channels, it is sending the worst mixed message possible - that they don't care about their customers. Similarly, the same company, say Coca-Cola, is marketed in different geographies as a low margin, high volume product and at the same time as a high value product in others. A positive example touched on briefly in the book is that of IBM - its shift from a closed organization to an open, customer-friendly society is worth considering, in part, because it entailed the elimination of mixed messages and bringing a consistency to the entire global company on how they approached and engaged with customers.

Finally, "Be Afraid of the Future" is the anti-thesis of "Quit Taking Risks". This refers to the creeping malaise of pessimism that envelops organizations particularly successful ones. Fear-mongering and focusing on failure becomes the norm, leading to decision paralysis and demoralizing the organization.

A hidden eleventh commandment adds a final spice to these recipes for failure. "Lose Your Passion For Work - And Life". This essay goes into more mystical territory, dealing with notions of self-esteem, presentation, and making an emotional connection with one's work and life pursuits. The analogy of any food tasting better in a McDonald's box is an apt one, and tapping into the emotional aspirations of one's people is the critical factor in organizational or individual success.

This slim book is eminently readable and works best if the nuggets are mapped to one's own perspective and experiences. It should come with a handy flash card of commandments of failure. Surprisingly, they work more effectively when worded the way they are rather than in the positive sense.

The CFO-CIO Crossover, Part III

Dr Bhaskar Dasgupta — Sun, 31 Aug 2008 12:30:59 EDT

We spoke about the interesting roles of CFO and CIO and about the development of both roles in the past and the present. In this essay we will look at the future and make some predictions about the cooperation between them.

1. What developments will occur in IT in the next three to five years? If one looks at a standard finance function, then these are the broadly the main chunks: Product Control, Financial Control, Finance Administration, Operations, Mandatory Reporting, Management Reporting, Taxation, ALM, Risk etc. All these areas are going to get impacted by improvements to workflow systems, communication applications, business intelligence systems, reconciliation systems, fraud detection and exception management systems, product control systems, spreadsheet management applications, better reporting cube / data warehouses / data marts, ERM systems, better cost analysis applications, and so on and so forth. One can write a full book on just this question, but those are the application facing bits. There will be huge numbers of finance related changes coming from the internet, the client aspects, the hardware bits, the database bits, the networking parts, the communication channels, the IT people, the service delivery model, and so on and so forth, which is too much to go into now.

2. What issues will arise for finance and accounting in the next three to five years? The main issues which will arise can be divided into the following categories:

(a) future regulatory driven change such as liquidity risk management proposals, contingency funding modelling etc. – this will cause a significant impact, best case scenario – a new regulatory report, worst case scenario – a full-blown Basel II type implementation;

(b) feeding old regulatory changes into BAU such as Basel II – Basel II has been rolled out but it will need more time to bed down and impact BAU aspects such as risk weighted capital allocation and performance evaluation;

(c) hitting barriers to service delivery such as human capacity or process architecture / issues;

(d) sharply increased demands for aggressive capital control and management;

(e) increasing demand for better quality financial intelligence and MIS by the business;

(f) little appetite for errors or operational risk or high emphasis on reputational risk management emanating from financial misstatements or mispricing,

(g) continuing and increasing M&A activity etc.

3. How will these issues and developments impact the CFO/CIO relationship? From a generic basis, as can be seen from the above, the level of technical and technology impact on the CFO is just going to grow and grow and grow. So CFO’s will become much more demanding. Not only that, they will expect CIO’s to take responsibility of BAU activities, something that is not commonly understood and accepted. SOXA approvals by CIO’s have caused a severe issue in terms of how CIO’s see their roles, but if this is going to be extended to other parts of the Finance business, then the CIO will become much more embedded in the BAU Finance Change function. So the impact will be from both sides, pushing each other into each other’s arms. Whether it is a hug or a squish depends upon how open-minded the two executives are.

4. How will the issues change the way IT aligns with business strategy? IT will move up the decision making value chain. Before any changes come down the pipeline, IT will start getting involved, because financial institutions have started to understand the benefit of including IT earlier in the decision making process. The business has started to realise that while they define the strategy, delivery is most often dependent upon IT. So the more they involve IT, the more delivery is improved in lock step. IT has to become proactive as well, in terms of analysing its service delivery model to become far more agile and mobile; in terms of analysing its technology M&A methodology; in terms of its reporting data warehouses; etc.

5. Will IT drive changes in business strategy? Will business strategy changes and external factors (e.g. globalisation) drive changes within IT? Will both occur simultaneously? Will IT drive changes in business strategy? On a corporate level we will see very little of that, but on a line of business level yes we will. I can see and have seen business strategy change because new technology has come forth, such as in trading. For example, expansion of product coverage within the FIX protocol can trigger changes in business strategy by suddenly opening new markets or changing existing markets. Changes in technical market infrastructure, such as addition of a new stock trading platform can trigger and driver changes in strategy. Better risk management and fraud detection technologies can give confidence to managers that they can extend personal loans or credit cards to new customer bases. Will business strategy and external factors drive changes in IT? Of course, completely. And yes, both can and do occur simultaneously.

6. How will these changes play out? Let me bring my tarot card deck, crystal ball and tea leaves cup out. That is to say that anything might be possible.

7. Will these changes have an impact on IT’s influence on the integrity of the financials? Anything that changes IT has a 30-50% chance to impact the integrity of the financials (based very roughly on the proportion of systems impacted by SOXA compared to the non-impacted systems). So that will indicate where we have an issue if any external factor impacts technology.

8. What does the future look like for finance and accounting technology? Very bright. And that is primarily because the finance and accounting arena is and will be hit by a tidal wave of changes from its business clients, regulators, professional bodies (IASB..), and so on and so forth. And massive, rapid and huge change like this is perfect breeding grounds for that perfect storm for technology, it will provide mandatory driven investments, fear, ambition, vagueness, and dreams for results/order where technology loves to breed and innovate

We have spoken about the interesting roles of CFO and about the development of both roles in the past and the present. We have also made some predictions about the developments in the future. One aspect is certain, technology is here to stay. While before a CFO would worry about the professional standards, rules and processes versus the humans who would operationalise them, the CFO has to worry about the technology as well. In many structural ways, technology itself is changing the finance profession and vice versa. The future not only promises to be bright, it promises to be entwined like the proverbial double helix.

Technorati Tags: technology, management, financial institutions

Does Every Cloud Have a Sell Order Lining?

Dr Bhaskar Dasgupta — Tue, 26 Aug 2008 08:35:42 EDT

While my days of sitting in front of a trading screen are now long gone and lost in the dim and distant past, every time I pass a trading screen, the familiar tightening of the chest, thumping of the blood and dampening of the palms still happen. How prices are made in the financial markets is a fascinating phenomenon. The theory is pretty simple. The current price of an asset in the markets is supposed to be the best estimate of all the participants of the future performance of the asset. So if the price drops, then the market (or people like you and me) expect that the future performance will be bad. Of course there is much more to it than this.

We are not all Vulcans; we do not have a straightforward unemotional way of judging the future. Strange things do impact us. If I woke up, toddled off to take a shower and found that the hot water had finished, I would be miffed. My day would not be good after this not so good start and frankly I would not be in a good mood. My performance, my duties and responsibilities, my behaviour towards my family, colleagues and friends, howsoever tiny and picayune, will deteriorate. I will go about my day being grumpy and expect the future to be dark.

If I was woken up by my 4 year old little girl who clambered into bed with me early in the morning and then we spent 15 minutes whispering about frogs, princesses, flowers, babies, naughty elder brother, toys, dresses, boyfriends and so on and so forth, then I get out of bed after getting a big hug and a whispered, “you are the bestest daddy”, that’s it, my day is made. I will go through the day with a spring in the step, a smile on my face, a twinkle in my eye, a song on my lips and heart on the sleeve. My behaviour would be good, and I will do my duties with a cheery smile and it would be a great day. I will think the future will be great and wonderful.

So my mood influences how I feel about how the future will be. And this is why good moods, good news and good feelings/emotions push economies and markets up. People feel good about the future so that they go out and purchase stuff, go take up credit, buy houses, spend money and invest in stocks. When the mood goes bad, they stick the money under their mattress, sell their investments, plonk cash into gold and so on and so forth. Governments therefore constantly try to keep giving good news, putting a positive spin on things. That’s why they love big spectaculars, the 100th anniversary of the country’s founding, the Olympics, the Birthday of the President/Queen, the launch of the first hospital, etc.. Good things, things that make you want to celebrate and feel good about the future. (Also if you feel good, you will re-elect the government…)

Since moods influence our perception of the future so much, it is not surprising to hear that stock prices are sensitive to time. For example, did you know that stock prices move differently on Mondays and in January? Or that they move differently between summer and winter? Yep, not only does time influence trading, the weather influences trading as well. And I was reminded of this when I read a recent paper by Chang, Chen, Chou and Lin in the Journal of Banking and Finance (2008, 32, 1754-1766). These doughty chaps went deeper into the weather and trading relationship to explore how prices moved intra-day. In other words, is there a relationship between the prices on the New York Stock Exchange and the weather patterns during the day? As it turns out, yes Sir, there is indeed a relationship. Stock returns are lower on cloudier days. You have more seller initiated trades during market open if the weather is cloudy (akin to your hot water running out?). When the skies are cloudy, the price jumps about much more and does not settle down as much all through the day. There is a ton of research on this topic already, human bio-rhythms do drive trading and economic behaviour.

Strange, no? You normally would not expect the valuation of your pension fund or your mutual fund to be influenced by something as silly as the weather, would you? Especially when the offices these days are all air conditioned, with scientifically calibrated lighting and all the modern conveniences, and so on and so forth. And after all that, you find that those highly paid traders are being impacted by cloud cover? And you call yourself as BSD’s? Pah, buy some umbrellas, you wimps!

(PS: this has nothing to do with investment advice at all, please do not invest based upon this essay)

Technorati Tags: financial institutions, financial markets, trading

The CFO-CIO Cross-over, Part II

Dr Bhaskar Dasgupta — Sat, 23 Aug 2008 01:14:13 EDT

We earlier spoke about the interesting roles of the CFO and the CIO and what it means to “manage the business” and to “work very closely”? Before we can answer these questions though we have to take a look at the development of both roles. These questions were taken from a workshop arrangement from New Zealand, the answers are mine.

Part A: The past and the present

1. What influence has IT had in getting business to where it is now?

Hugely important, technology has changed the character of financial services, but then, financial services was always at the forefront of adopting technical innovation, whether it was the idea of using wax and clay tablets in Sumerian times to pigeon post in Europe during the middle ages to telegraph during the Victorian and European wars or fax machines or now in terms of global private banking websites, international stock trading electronic gateways, automated insurance quoting engines, offshore call centres linked by CRM systems, intelligent credit risk scoring engines, and so on and so forth.

Technology has allowed firms to gain scale without needing human investment, it has allowed firms to concentrate on their core competitive advantage factor while disposing of all non-core functions and assets.

2. What is the relationship between CFO/CIO at present?

a. What are the positive and negative consequences of the CFO having responsibility for IT?

The main negative consequence is that the CFO, if he is not smart, sees IT as a cost line rather than something that is as important to the bank as the human resources function. Frankly, you wouldn’t put the HR function under the control of the CFO, would you? Then why IT? So the entire IT function starts and stays defensive if treated as a barely tolerated and often thumped cost line. On the positive side, if the CFO is smart and can see technology as a business enabler, then the synergy that the combination of CFO + IT is world beating. IT can benefit from the discipline that a CFO can bring to the table such as demanding business cases for technology investments, driving strategic change, improving technology and delivery sourcing, etc.

b. What are the consequences of having two specific reporting lines into the CEO? Are there any advantages to two distinct reporting lines?

At that level at a big bank, it far too heavily depends upon the three individuals concerned and not on the functions themselves. Because, at that level, the nitty-gritty details of actually running the technology or financial function rarely appears on the radar screen. What does matter at that level is the autonomy given to the two functions, the level to which the finance function is challenging and managing the business to the level to which the technology function has provided value addition to the business. So whether it is good or bad depends upon the three people concerned.

c. How can the relationship between the two be bridged?

Usually it can be bridged with difficulty, because for a good relationship, it requires the CFO to have a forward-looking, change oriented and risk taking frame of mind, while it requires the CIO to be disciplined, talking business, structured, stabilising and think long-term. But some ways that can be useful is for both to write their own visions of where the business will be in five years, then translate that into what it will require their functions to be (people, technology, process, places, etc.) and then get together to dovetail these two plans. Then operationalise by dumping a dollop of agreed governance and investment. Some questions are below which can help you determine if a bridge is needed or some improvements need to be put in:

i. Do the CFO and CIO meet regularly with a set agenda?

ii. Does the CFO challenge the technology plan? And on what basis? Is that besides a cost basis?

iii. Does portfolio management of IT discretionary spend happen? And is that overseen or controlled by the CFO?

iv. Does the IT function provide rigorous business cases which are tracked and followed up?

v. Are there productivity improvement measures which the CFO and CIO agree on the business as usual side of technology?

vi. How involved is the CFO function in the technology sourcing side?

vii. Do you look at purchasing as a stationary and paper purchasing function or is there a strategic sourcing function which has both technology and finance participation?

3. How successful is IT in aligning with business strategy both on an organisational level and specific to the finance department? Is it always complementary or can it end up being at cross purposes?

Generally in financial institutions, IT is well clued-up and successful in aligning with the tactical business strategy, but not the very high-level business strategy levels for obvious reasons. Technology is an enabler of business, not a primary driver of business. You rarely go into a country because your technology allows you to do so, however, you go because of revenue, cost or other strategic drivers and technology makes it happen. On the finance department side, I am afraid IT and Finance are rarely aligned. Reasons are many, because many technology folks are scared spit-less of the finance folks. So the bare minimum is provided and initiative/innovation is frowned upon. Consequently, at best the finance and accounting technology function is outsourced in many industries or ignored at worst. The bright side is there is rarely at cross purposes but that is a poisoned chalice, an ignored function is more dangerous to a firm than a contested function because at least there is more chance of somebody actually noticing that contestation and doing something about it.

4. What influence does IT have on the integrity of financials?

A huge, literally earth-shattering influence. It is a direct relationship, because good IT means good financial integrity. This is the reason SOXA has a deep IT element as well. When I had to sign off SOXA compliance previously, it was clear that the impact was huge and any changes made to the relevant technology systems and processes would have a significant impact on the financials of the firm. Let us put it in another way, 90% of all changes that will hit our finance functions will have some kind of an IT component, and a crucial part of the success of the project will be dependent upon the IT performance and delivery.

We spoke about the interesting roles of CFO and CIO and about the development of both roles in the past and the present. In the last essay we will look at the future and make some predictions about the cooperation between the CFO and CIO.

Technorati Tags: technology, finance, financial institutions, management