Business process optimization: Thriving amidst the deluge


                                          SWIFT Special Report on Improving Business Performance


An enduring legacy of the financial crisis is the lean operations most banks now run. Cost cutting exercises characterized by reductions in staff have sliced much of the fat from operations. Running in parallel with this trend is another legacy of the crisis – an increasing demand for regulatory compliance. When it comes to business processes, banks are having to do more with less.


There are multiple challenges in today’s operational environment. Many banking hardware and software systems are becoming obsolete, banks need to comply with a growing number of regulations and more emphasis has been placed on reporting and analytics.

In addition, there is an ever-increasing number of market initiatives. Changes such as Target2-Securities (T2S), the CLS Star migration, implementation of ISO 20022 for T2 and funds as well as existing projects, must be executed with military precision if they want to finish on time and on budget.

At the same time, there are new projects that need to be launched as banks have to ensure and improve quality and consistency in customer service, offer a broader range of products and solutions and address new client needs.

“All of these forces are putting a huge strain on IT staff and on operations,” says Kurt Ryelandt, Head of Standards and Technical Services’, Swift EMEA. “The main question is how to do more with less. The answer always boils down to a need for more efficiency; and efficiency means automation. Banks can no longer tolerate high levels of manual processes as business as usual will result in an exponential rise in costs to meet the additional requirements.”

To survive – and thrive – in the deluge of new projects they face, banks are being forced to take tough decisions about which projects to prioritize. “It is very difficult for banks because we hear there is no money for efficiency projects that are not directly related to hardware or software obsolescence,” says Kurt. “Also, market driven or regulatory projects are taking priority over client-driven projects. There is little room left for projects that aim to increase efficiency and, if such projects are considered, the return on investment is often required within as little as 12 months. The key to success is to ensure that projects not only address the technology, regulatory and market changes but also deliver better client service and increased efficiency at the same time.”

Andrew Muir, Head of Standards Implementation, Swift, says initiating a project remains a very difficult task. “The key is not so much the absolute cost benefit of a project, but the relative impact of the investment,” he says. “You could look at 30 projects, searching for the biggest bang for the buck, but often a project also needs the political will of senior management at the bank and endorsement in terms of what peer group banks are doing.”

Andrew says many projects are focused on payments in the Eurozone – driven by SEPA – because senior management find these projects more compelling. “It is still much easier to fund a project linked to a regulatory requirement, than to explore opportunities to derive competitive advantage out of an ISO 20022 migration, for example,” he said.


Optimizing business processes

A typical project comprises six steps: assessment, analysis, design, implementation, the go-live phase and maintenance. Business process optimization (BPO), part of the wider business process management approach, ensures processes are optimized and aligned with the business objectives of projects. BPO integrates tools, analytics and experience to provide more insight into business process. As a result, processes should be easier to automate, standardize and improve at a global level.

By taking a BPO approach, banks can assess and document current processes and model as well as simulate new processes using ‘what if’ scenarios. Banks can govern the entire lifecycle of business processes using policies, standards and guidelines. The deployed business processes can be evaluated against the stated operational and performance objectives to identify areas of potential improvement, and real-time business data can be delivered to senior management.

“Sometimes banks see industry initiatives such as T2S as an imposed change or a burden. However, such projects can also be turned into an advantage by applying a more consistent methodology and implementing processes that match the new reality of their business,” says Kurt.


BPO in action

Andrew says T2S provides a very good example of BPO in action. Initially, banks should measure process performance in order to understand where there is scope for improvement. For example, can more transactions be processed per second, per CPU or per person? “BPO comes down to squeezing more of what you can do out of a shrinking number of resources,” he says. “For example, book entry transfer, one of the main elements of T2S, was the result of process performance measurement of settlement processes in Europe.”

For some organizations, T2S has triggered further process improvements and the development of new products and services, such as collateral optimization and management. “There are process optimization techniques that people are beginning to use to turn T2S into a specific revenue opportunity,” says Andrew.

One of the questions banks face when looking at the raft of projects is where best to focus effort and resources; which projects will create business advantage and yield the best ROI? For some banks, T2S has been identified as a project where doing better than someone else will reap real rewards. Kurt affirmed: “Everyone has to implement the market changes, but the trick is in determining whether you want to use a project to create competitive advantage. By intelligently investing in the right business process improvement projects, banks will remain competitive or create advantage.”

The combination of data modelling and standards can help ease decisions about project prioritization. Andrew says that although standards are sometimes seen as a constraint when banks rebuild back office processes, they can in fact be of enormous help.

“Data modelling can help banks harvest information in order to gauge process performance,” he says. “For example, banks can work out the average value per transaction, measure latency to exchanges, work out how long counterparties have to wait to send instructions, etc. Understanding this data and how it fits within standards and protocols enable banks to identify where their priorities should be and on what their optimization teams should focus.”

Using standards toolkits, banks can model the current and future state of their processes, which will help them to determine how they can reach their ideal future state. Modelling can track information flow to counterparties and also map how that flow will relate to the future state.

BPO, improved modelling tools and consultancy services to help banks choose the projects that will yield the most competitive returns, are beginning to transform project management in the financial industry. Fewer projects are failing than in the past and a new approach whereby processes are tackled in smaller units of work is enabling more agile and rapid development methodologies.


About Kurt Ryelandt

Kurt Ryelandt is Head of Standards and Technical Services at Swift Europe, Middle East & Africa since 2013.

Before taking up this position, Kurt had many other managerial functions including, Head of Consulting, Head of Technical Pre-sales, Marketing analytics and several positions in Customer Support.

Kurt joined SWIFT in 1994. He has a Master’s Degree in Applied Sciences from the University of Leuven.

About Andrew Muir

Andrew Muir is Head of Standards Implementation, Swift. He has been working on financial transaction- automation projects for nearly 30 years. Now a member of the SWIFT Standards management team, he is responsible for some of the behind-the-scenes operations of the Standards department, including its own consulting practice, which enables SWIFT customers to hire specialist expertise directly from the Standards development team.



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