Securing an IT Budget for a Corporate Actions Project

Guest Blogger: Kevin Cullen, Communications & Marketing Director at Information Mosaic

Since the financial downturn, getting budget for any project seems harder than ever.  With the renewed emphasis on regulation, risk mitigation, and data standardization, the focus may have turned away from front-office and trading to the middle-office and post-trade areas.  In the case of corporate actions, however, with projected volume increases, new standard initiatives, and the focus for transparency in post-trade processing, this may be one of the best times to justify the development and implementation of an automation project.

At the center of any successful budget approval process is the creation of a compelling business case, one that contains a realistic Return on Investment (ROI).  With corporate actions, the ROI should include risk mitigation (Tower Group once put the risk of corporate actions as 12% of operating profit); increased operational efficiencies through the automation of manual processes; and reduction of overhead due to the reassignment of resources.  What can be added to these, however, is the new evidence that automating corporate actions processes can actually add to a firm’s bottom line.

Long thought to be an expense center, the corporate actions back-office, through the advancement of technology, can now help financial firms achieve alpha portfolio performance.  This is not an entirely new idea as a study conducted by Oxera Research (and funded by the DTCC) in 2005 introduced the concept of “sub-optimal” trading conditions which can place, based on Oxera’s estimate, €1.6 to €8 billion at risk each year in lost opportunity.  Investment managers who have access to better quality and more timely corporate action announcement notices, as well as the facility to continuously compare election options to the market price in real-time, can build these advantages into their investment strategy.  Along with risk mitigation, improved efficiencies, and cost reductions, the possibility for optimal trading conditions can also feed a business case for a corporate actions process.

Many times, it is the business case itself that defeats the effort to get budget approval.  While post-trade experts and corporate actions practitioners may be well-versed in all aspects of operations, very few have had experience in writing business cases.  In addition, there are the day-to-day tasks that must be addressed so extracurricular activities, such as the writing of a business case, may not be a priority.  The writing of business cases may be considered a discipline in itself, requiring the ability to create a persuasive argument using both quantitative as well as qualitative reasoning.  At a high level, the objectives of the business case should align with the long-term goals of the firm, so an in-depth understanding of the institution’s corporate aspirations is essential.  Creating a business case requires the skills to define and graphically represent current processes against projected improvements.  It also necessitates researching current costs and calculating accurate estimates, (again, a realistic ROI) post-automation.  In some instances, depending on the firm, it may also entail project management skills to indicate resource and effort requirements.  It is also good to know how the IT department  incorporates new in-house or third-party applications.  A general understanding of IT’s SDLC  (Software Development Life Cycle) would be helpful.  In addition, knowing all the integration points – and in corporate actions, there are several – and identifying these in the document would be advisable.

If these skills are not available in-house, it may be prident to contract a third-party consultancy firm to build a business case for a particular project.  One way to expedite the process would be to choose a consultancy that is familiar with the area targeted for automation.

To reiterate, this may be the best time to build a business case for automating corporate actions due to the industry initiatives currently taking place and with the availability of new technologies.  The key to securing funding is making a strong enough case so that the project receives priority when a firm is assembling its annual budget.

To speak with Information Mosaic and learn more about this topic, come to FTF’s 6th Annual Corporate Actions Processing Conference, October 3, 2012 in NYC.

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3 Responses to Securing an IT Budget for a Corporate Actions Project

  1. Adam Stern says:

    Kevin – you raise some interesting points relating to a subject close to my heart (I atually presented on this particular subject at the SWIFT Corporate Actions Conference in London this September)

    As most firms have already executed extensive efficiency saving initiatives, it is hard to identify massive opporutnities in this particular area. Accordingly, the focus must therefore be on risk reduction, trading optimisation, reduced system maintenance costs and also improvements in client service levels – leading to higher client retention rates or the ability to attract new clients.

    These are not easy areas in which to quantify benenfits in monetary terms.

    In my experience, those controlling the purse strings will not really take into account the type of market level information disclosed in the Oxera reports. They want to know the details of risk reduction and trading optimisation opportunities for their own firm. Detailed analysis of the potential benefits within each organisation is required and this can be time consuming and technically difficult to identify and quantify.

    These are just some of the reasons why it can be difficult to create a viable business case that meets the high return on investment demands required to gain funding for any project at any time – let alone in the current environment, with reducing overall budgets and the high number of mandatory regulatory projects that are on the horizon.

    As you quite rightly point out “it may be prudent to contract a third-party consultancy firm to build a business case for a particular project. One way to expedite the process would be to choose a consultancy that is familiar with the area targeted for automation”.

    For any Ops or IT managers that have struggled to develop a feasible business case, that may well be the best way to finally secure the funding required to improve the Coporate Actions processing optimisation levels – as well as reduce risk exposure, increase client service levels and improve trading returns – within their organisations.

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