Business Process Management (BPM ) Best Practices
Fertile ground for ROI in BPM: Three unlikely areas
By Ronan Bradley, Principal, Lustratus Research
At the moment in financial services organizations, not spending today on an
IT project is often a more compelling option than even a significant return
on the investment tomorrow. This means that the business expects the IT department
to be innovative or accept cost reduction as the only viable strategy. Unfortunately,
investments in software infrastructure -- even for hot topics such as SOA and
BPM -- seem to offer primarily medium-term returns. This makes justifying new
investments and even sustaining current investments in this area challenging.
What this means is technology innovation must be carefully focused on "sweet
spots" where it can pass these more exacting investment criteria. In the
case of BPM, the sweet spots emerging are those where BPM has the ability to
automate complex manual processes, remove human error and handle process change.
To somebody coming fresh to BPM, this idea of looking for very specific problems
to fix may be surprising, as BPM is often positioned as a strategic project
driven from the top down with widespread benefits. While it can be argued that
the returns of a strategic approach may be substantial, the overall costs will
be high and the payback not immediate. Therefore, such an investment is out
of sync with the realities facing most financial services organizations today.
Unfortunately, this perception of BPM as "big concept" may make some
organizations slow to try BPM in a different and more pragmatic mode. To make
matters worse, BPM can be quite confusing, as it is really a combination of
concepts from process re-engineering and an approach to describing and formalizing
ad hoc business processes as well as a set of technologies.
To complicate matters further, BPM technology is actually applied to two types
of problems (and sometimes a combination of the two): the integration of applications
with multi-step business processes, and the automation of human workflows. This
final distinction has mostly to do with the origins of the vendors selling solutions,
who typically come from one or the other camp.
To identify where BPM sweet spots lie, it is useful to boil down what BPM does:
BPM automates well-defined processes. It is true that a BPM project often
includes the creation of the formal process definitions from the informal, and
implicit processes that already exist. However, while much is sometimes made
of the ability of BPM software tools to support the capturing of business rules,
many business processes still require a lot of work to formalize. This formalization
itself forces changes in the way the business operates. And it may be expensive
and hard to justify change for changes sake. Therefore, it is clearly much easier
to start in areas where the processes are already formalized.
Moving onto the second part of the definition: automation clearly can only
occur where there is no discretionary judgment (the decision is defined by the
rules). And automation is worthwhile where you remove cost or reduce risk of
error. While cost savings are always worthwhile, reduction of error equals reduction
of risk, which for high-value or high risk processes is of potentially greater
Finally, BPM solutions also provide software engines which execute the process
definitions. A benefit of the BPM architecture is that it's much easier to make
process changes and deploy those changes, than would be the case with code-based
or even manual alternatives. Combining these dimensions means that BPM sweet
spots are going to be where processes are complex and change rapidly.
On that basis, three areas are emerging as fertile ground for BPM projects:
Keeping up with regulation: Even before the current credit crunch, financial
services organizations were busy with the "scheduled" regulatory changes
from SEPA to Basel II. Today, new regulation is on the way, which will put extra
strain on IT departments to keep up. Furthermore, unlike the post-Enron wave
of regulation which arrived after the crisis, the new regulatory changes seem
likely to appear during this extended credit crunch. This means that compliance
solutions must be built with change in mind. For all the vendor talk, this is
unusual in the enterprise space -- for most applications, the reality of change
never quite lives up to the expectation. Regulation is and will remain the exception.
How does this make BPM a good fit? Regulation is, of course, by definition well-defined,
and hence any BPM-based initiative has a headstart. Furthermore, a feature of
BPM systems (over custom coded solutions for instance) is that they are configurable
through the use of rules. This makes BPM-based solutions inherently more capable
of dealing with change. Therefore, BPM is both well-suited to regulation-related
projects, and addresses the major challenges associated with these systems.
Derivative trade-life cycle: Another area of potential application is
derivative trading. The financial instruments traded in this highly profitable
area continue to grow more complex, and continue to change rapidly as firms
jockey for competitive advantage. Unfortunately, this increased level of customization
and complexity also increases the difficulty associated with managing the trade
lifecycle. In the extreme case, the risk associated with deception becomes harder
to control, as the Irish bank AIB discovered back in 2002, when its rogue trader
hid almost $700 million in loses behind fictitious trades. Even in less extreme
cases, pricing or settling derivatives are complex and often semi-manual processes
(often supported by spreadsheets with all the contingent risk of out-of-date
information and errors). As with regulation, the combination of inherent complexity
and error makes this an interesting application of BPM technology. In this case,
BPM brings a necessary rigor to the process, and hence can reduce accidental
Automation of back-office and support desk function: This may seem a
strange place to look for the final example of BPM sweet spot, as it's precisely
where off-shoring should already have extracted benefits by driving down the
cost base. However, the downside of off-shoring has been the loss of expertise
during the initial transition and due to high turnover of staff in the off-shoring
centres. This loss of expertise increases the risk of error unless the knowledge
and business rules can be captured and preferably automated. Consider the typical
off-shoring activities such as IT help desks, or routine operational activities
such as account opening processes. While routine, the cost of error in any of
these functions can be high both in terms of client satisfaction and operational
efficiency. Furthermore, even what appear to be straight forward processes are
complicated not only by internal operational complexities, but also by the ever-changing
regulatory environment associated with money laundering. All of this makes a
good potential sweet spot for BPM: complex sets of rules to be followed and
automated, and high cost associated with human error. BPM can take leverage
the existing processes and rules and deploy them in a flexible manner capable
These three examples represent only some of the scenarios where BPM can be
effectively used in today's banking environment. When considering BPM, it is
important to balance the big picture version of BPM with the pragmatic approach.
For better or worse, in many cases the pragmatic approach is often more attractive
today and it does not necessarily exclude a more comprehensive BPM strategy
in the future when budgets return and perspectives become less short term.
About the Author
Financial services expert Ronan Bradley is ebizQ's Community Manager for Banking and Capital Markets.
As Community Manager, Bradley will blog and podcast on the latest news and breakthroughs relevant to the financial services industry. He will also publish press releases, cover briefings, write feature articles and source content from other analysts, industry associations and vendors for publication on ebizQ. Each week, Bradley will compile the most important news and views in an e-mail newsletter for ebizQ's ever-growing financial services community. Bradley has spent over 17 years in the software industry and has held senior management positions in a number of international software
vendors with strong emphasis on the financial services sector. As Vice
President for Product Management at IONA Technologies, he was
responsible for products generating over $100 million of revenue.
Bradley also founded PolarLake, which has grown into a leading
Enterprise Service Bus (ESB) vendor.
Currently, Bradley is a co-founder and analyst with Lustratus
Research, a market analyst and consultancy firm focused on software
infrastructure. He is also principal of The IT Perspective, a
specialist IT advisory firm working to help clients align their IT and
business agendas. As a recognized expert on business integration software and its uses in financial services, Bradley has spoken at many events worldwide and has been quoted in publications such as The Financial Times, Banking Technology, and Computer Business Review. He also lectures at The Dublin Institute of Technology.More by Ronan Bradley
About Lustratus Research
Delivering independent and unbiased analysis of global software technology trends for senior IT and business unit management, shedding light on the latest developments and best practices and interpreting them into business value and impact. Illuminatus analysts include some of the top thought leaders in market segments such as service-oriented architecture (SOA) and business integration.