Implementing an Investment Accounting System Lessons from the Trenches

Transcription

1 Fall 2015

2 Few implementatins can cmpare t that f an investment accunting system in terms f size, cmplexity, and ptential risk. Have yu been invlved in an Investment Accunting System implementatin as an accunting replacement prject r at the heart f a Middle Office utsurcing slutin? If s, yu prbably have sme f yur wn stries t tell. Venture published its first Implementing an Investment Accunting System: article in 2004 after cmpleting its 4 th majr accunting sftware evaluatin and implementatin. We realize that many f the lessns we learned back then, are thse that we still emply tday t myriad frnt, middle and back ffice engagements. We decided t update thse cllective lessns learned and practical guidelines that Venture emplys and share them t help the next generatin f investment accunting implementers ensure a successful prject delivered n time and within budget. As firms migrate frm legacy platfrms r t utsurcing mdels, r perhaps nbard clients t a new platfrm, charting the right curse is mre critical than ever. Once a decisin has been made, ptimizing the many tasks t be cmpleted thrugh t cnversin and the impact f a new slutin t business flws is challenging and requires a well thught ut apprach twards all aspects f the prject with particular attentin twards: Prject Management; Data Management; Cnversin; Accunting ; Re-engineering Trade Operatins Wrkflws; Reprting; and, Testing, Training, & Rllut. Venture FSG has devted the last 22 years helping ur clients successfully achieve their business and technlgy initiatives thrughut the Investment Management Vertical frnt back ffice. We wrk with ur clients thrugh Slutin Evaluatins, Prf f Cncepts (POCs), Cst Estimates, Resurce Requirements, Full Lifecycle thrugh Cnversin and Training. We ve dne this by develping true partnerships with clients by sharing gals, mitigating risk and aviding ptential pitfalls upfrnt; hiring peple that have a high degree f business intelligence, true dmain experts with business and technical backgrunds that have cme frm the asset management space; rlling up ur sleeves and getting int the details, where the devil lives; and emplying Lessns Learned. 2

3 Few system implementatins can cmpare t the implementatin f an investment accunting system in terms f size, cmplexity, and ptential risk. Successful implementatins will include plans t address the challenges and mitigate risks thrughut the prject lifecycle. Prject Management D nt underestimate hw large and cmplex an accunting system implementatin can be and hw imprtant it is t emply experienced and disciplined prject management that includes an effective risk assessment and sund cntingency planning. Data Management T ften firms implementing a new accunting system underestimate the effrt required t establish cnsistent cre reference data. Cnversin strategies need t carefully examine reference data requirements. They need t take int cnsideratin the surces f reference data, hw much histrical data will need t be cnverted, and the amunt f data cleansing that will need t be dne during the cnversin prcess. Establishment f firm-wide standards fr cnslidating, translating, validating and disseminating quality reference data can result in reduced peratinal cst and risk. Cnversin Cnversin strategy and prcess are critical cmpnents t a successful implementatin. The ability t leverage autmated cnversin tls will help reduce risk and ptimize resurces inclusive f cnversin strategy, business requirements, thrugh t testing, and cnversin. Accunting Re-engineering Trade Operatins Wrkflws Reprting Testing, Training, & Rllut Identify hw new functinality may change accunting methds and be prepared t deal with thse changes (e.g., crdinating with auditrs, addressing price r yield issues n cnversin date, bking lump sum catch-up accruals, etc.). Enhanced functinality t custmize business rules t supprt new and cmplex security types, supprt cmplex and evlving fund structures, and address new accunting regulatins and tax cde changes, will require apprpriate training. Any majr system implementatin must be accmpanied by a review f current prcesses, careful refinement f wrkflw, quality prcesses, perating prcedures, and even human resurce practices. Implementatin f a new accunting system will likely require redefining sme business prcesses and getting peple t wrk differently. Careful attentin must be applied in rder t successfully ptimize the benefits f the new system. Mst systems are delivered with a standard set f reprts and the ability t create custmized calculatins, reprts, and queries t meet specific client requirements. A gap analysis shuld be cnducted t determine the system supplies all reprts required by the business units ut f the bx. Analysis shuld include examining business and system prcesses t determine whether the new system, inclusive f all dependent prcesses, can generate, apprve, and distribute reprt packages within the alltted windw f time. A new accunting system cannt be deplyed successfully withut significant testing, training, and a thrugh rllut plan. Testing, training, and perfrmance tuning are bvius areas where, with additinal time, mre can always be accmplished t make an implementatin g mre smthly. Hwever, n matter the testing perid, sme issues will remain in a large applicatin upn cutver. The nly true test cmes when hundreds f users begin stressing the system in prductin. The same bservatin hlds true fr training and tuning; there is n such thing as t much f either. A prper assessment f when enugh has been accmplished t make the g-live decisin is critical. 3

4 Prject Management - D nt underestimate hw large and cmplex an investment accunting system implementatin can be and hw imprtant it is t emply experienced and disciplined prject management that includes an effective risk assessment and sund cntingency planning. Prject Structure & Scpe Plan, Timeline & Budget Ensure befre the prject begins that yu have defined staffing requirements fr the prject. The team shuld be dedicated cre staff that stay n frm testing thrugh prductin t ensure cntinuity. Yu will require a strng Prject Manager with the finesse t navigate yur internal rganizatin as well as the vendr rganizatin. The prject team must als include staff with strng knwledge f the firm s accunting practices, as well as staff knwledgeable f system integratin requirements, staff experienced with any new technlgies t be intrduced with the system, and staff wh can intrduce new wrkflw and prcess infrastructure. Institute a frmal review and apprval prcess t manage scpe creep and cntainment. Establish and sign ff n a cmprehensive implementatin Prject Plan that includes specific and realistic milestnes. The plan shuld utline all the steps needed t cmplete the migratin, including training and testing plans. Risk Management Identify ptential risks and plan fr their ccurrence. Regularly mnitr yur risk list and execute yur cntingency plan as necessary. Implement change cntrl prcedures in rder t ensure that the intrductin f system and wrkflw prcess changes are as transparent as pssible. Changes shuld be apprpriately authrized and apprved, thrughly tested, sufficiently dcumented, and implemented at an apprpriate time. Cmmunicatin Standards Regularly and practively cmmunicate prject status, issues, and successes. A crdinated cmmunicatin plan is a gd way t reinfrce prject gals, timelines, benefits, and cnstraints. Implement a prcess fr tracking issues, leveraging any existing in-huse defect tracking system if available. Implement prcedures that require that cmplete infrmatin be tracked fr each issue such that develpers can understand the prblem, get an idea f its severity, and reprduce it if necessary. Define what cnstitutes critical vs. nn-critical issues and priritize issues. Regularly review the status and reslutin f issues with the vendr and yur end users. Service Level Agreements (SLA) Establish a prcess t regularly assess the status f vendr deliverables and manage vendr deliverables as a ptential prject risk. Ensure the vendr fcuses n critical issues f quality and supprtability f the current versin as well as the bells and whistles f future versins. Clearly articulate prject assumptins and cnstraints t ensure that the expectatins f business spnsrs, end users, peratins staff, and even the vendr are aligned. 4

5 Data Management T ften firms implementing a new investment accunting system underestimate the effrt required t establish cnsistent cre reference data. Cnversin strategies need t carefully examine reference data requirements. Strategies need t take int cnsideratin the surces f reference data, hw much histrical data will need t be cnverted, and the amunt f data cleansing that will need t be dne. Establishment f firm-wide standards fr cnslidating, translating, validating and disseminating quality reference data can result in reduced peratinal cst and risk. Reference Data Requirements Data Mappings Data Scrubbing Security Master Prtfli/Accunt Setup Prices, Exchange Rates, & Crprate Actins Wrk backwards frm required reprts and calculatins t identify required data, data surces, and timing. Identify data that is required t supprt new functinality but is nt currently tracked r easy t get t. Each data vendr shuld be evaluated t determine if it prvides the best data t meet the needs f the firm. A data vendr shuld nt necessarily be chsen just because it is currently being utilized by anther system in the firm. Data shuld be leveraged as much as pssible acrss the rganizatin t maximize business efficiencies and minimize csts. Prepare specificatins and data mappings fr each interface t reference data, leveraging data vendrs as much as pssible t prvide data definitins fr each field, as well as sample data fr currently held securities. Plan fr the need t be prepared while clsely examining existing reference data in preparatin fr the new system, yu may ptentially discver anmalies in histrical infrmatin, requiring that data be cleaned up and imprved as part f the cnversin prcess. New and changed data shuld be tested against validatin rules and nly distributed t dwnstream systems nce it passes all validatin edits. Failed edit checks shuld be reviewed and scrubbed by a business/data analyst. Avid creating duplicate recrds r updating the wrng recrd by clearly defining the matching criteria fr inserting a new recrd and updating an existing recrd (e.g., cash securities, dually listed securities, issuers, etc.). Data scrubbing lgic shuld include an effective date and/r system date s that crrected vendr data will update the relevant master recrd. Cnsider segmenting the scpe f the prject by asset type such as dmestic equities, freign equities, crprate bnds, gvernment bnds, municipal bnds, mrtgages and derivatives. If the new accunting system supprts a better prtfli/accunt structure, determine hw best t leverage that structure t allw fr prper client reprting as early as pssible. Determine which business units will be respnsible fr supplying the required accunt reference data and make sure each business unit buys int this strategy. Prices and freign exchange rates typically are laded after the security reference data is successfully laded. Des yur system require that prices and exchange rates be laded prir t cnversin f accunting data? Ensure that prcesses are established t detect missing r incrrect security price infrmatin, price tlerance failure, and missing crprate actins, all f which can cause pricing errrs. 5

6 Cnversin Cnversin strategy and prcess are critical cmpnents t a successful implementatin. The ability t leverage autmated cnversin tls will help reduce risk and ptimize resurces. Single r Multiple System Cnversin Autmated/Manual/ Hybrid Cnversin Histry Perid-Ends Reference Data Tax Lts, Average Cst Lts, Shrt Psitins Settled & Unsettled Trades Incme Receivables Cash & Ledger Balances Crprate Actins Recnciliatin Cnversin frm a single system is clearly mre manageable than cnverting frm multiple disparate systems, including the migratin f any manual r ffline prcesses. When cnverting frm multiple systems, standardize cnversin prcedures as much as pssible and carefully define a phased migratin strategy t easily islate the cause and surce f prblems. Are vendr tls available? If s, experiment with vendr cnversin utilities t explre their features and file frmats supprted (fixed width, CSV, Excel, Tab Delimited, ther) and determine whether they require tweaking t meet specific cnversin requirements. Mving thusands f recrds t a new envirnment is a majr milestne, and the prcedures must be extensively tested befre the actual cnversin prcess begins. Determine hw easy it is t re-cnvert if prblems are encuntered during the testing phase. A significant benefit f early data cnversin testing is the pprtunity t demnstrate new system features using actual histrical data t brader audiences as part f the training and cmmunicatin cycles. Hw much histry is required, and available, t migrate? Wrk with business users and systems teams t determine histrical data requirements and migratin limitatins, if any. When will each fund cnvert t the new system? When establishing cnversin dates fr each prtfli, cnsider fiscal year-end reprting. Cnversin effrts will differ whether cnverting within a fiscal year, cllecting data frm multiple investment accunting systems r cnverting n a fiscal year-end and clsing ff the year n the ld accunting system(s). Cnversin f accunting data will assume that reference data (e.g., security master, prtfli master, etc.) is crrectly stred in the applicable database tables prir t cnverting the accunting histry. Ensuring the integrity and cmpleteness f all reference data prir t cnversin will ensure the prject is mre efficient. Will tax lts be cnverted r summary hldings utilized? Are there any special cnsideratins fr cnverting average cst lts? D quantity and cst fields fr shrt psitins need t be in abslute value frmat as ppsed t negative amunts? Settled and unsettled trades may need t be cnverted separately in rder t prperly establish a receivable/payable fr the unsettled trades in the new system. Be sure t understand the new system s requirements fr cnverting pen incme receivables (e.g., dividends, cupns, paydwns, etc.). Can the system set up pen receivables independent f the trade lts cnverted? Can pen interest amunts be cnverted at either the lt level r psitin level? What are the new system requirements fr cnverting cash and ledger balances? Can/shuld ledger prcessing be enabled during cnversin? Are there specific system requirements t ensure that crprate actins are cnverted prperly and nt duble psted pst-cnversin? Recncile all cnverted data (e.g., units, cash, incme, market values, etc.) t yur prir bks f recrd. Nte and review exceptins and, t the extent reasnably feasible, crrect them prir t mving int prductin mde with the new system. Wherever pssible, emply autmated recnciliatin tls vendr prvided, ther cmmercially available recnciliatin tls, r in-huse prprietary recnciliatin tls. Set agreed upn tlerances. 6

7 Accunting Identify hw new functinality may change accunting methds and be prepared t deal with thse changes (e.g., crdinating with auditrs, addressing price r yield issues n cnversin date, bking lump sum catch-up accruals, etc.). Enhanced functinality that allws custmizatin f business rules t supprt new and cmplex security types, supprt cmplex and evlving fund structures, and address new accunting regulatins and tax cde changes, will require apprpriate training. Accunting Basis Des the new system supprt multiple accunting bases t enable string transactins using different sets f accunting bks and establish a default basis fr each prtfli/accunt? Accunting Perids Are there specific cnsideratins fr establishing accunting perids? Can accunting perids be established t meet client-specific reprting requirements? Exceptin Prcessing Derivatives Prcessing Data Retentin Legal & Regulatry Requirements Methdlgy Differences Define and implement standard prcedures fr quickly and easily reviewing and editing exceptins with minimal manual interventin, and resubmitting the crrectins back t the investment accunting system, which shuld back ut and reprcess the trades and transactins autmatically. Analyze available supprt fr derivatives versus the current system and, where applicable, establish standard peratinal prcedures fr prcessing derivatives n the new system, including wrkflw changes. What data needs t be retained and fr hw lng? Wrk with auditrs t determine data retentin requirements and fully dcument and understand system requirements fr archiving (and retrieving) data. If the new system des nt supprt applicable legal and regulatry requirements, such as Schedule D and Nn-USD Tax Reprting ut f the bx, leverage resurces, internal and/r external, wh are knwledgeable in the specifics f the data and prcedures required t prduce cmplete and accurate reprts. Dcument client methdlgy differences. Client accunting practices acrss multiple asset classes may differ frm the service prvider s accunting practices resulting in cst, incme, r market value breaks. Wrk with client t gain acceptance and sign-ff f these differences t minimize false breaks in cnversin recnciliatin prcess. 7

8 Re-engineering Trade Operatins Wrkflws Any majr system implementatin must be accmpanied by a review f current prcesses, careful refinement f wrkflw, quality prcesses, perating prcedures, and even human resurce practices. Implementatin f a new investment accunting system will likely require redefining sme business prcesses and getting peple t wrk differently. Careful attentin must be applied in rder t successfully ptimize the benefits f the new system. Prcess Flws, Prcedures, & Dcumentatin Exceptins Management Integratin Dcument current prcess flws and peratinal prcedures fr a cmplete picture f the current interactins f data, upstream and dwnstream systems, and peple against which a future perating mdel can be develped. Assess current requirements as well as future requirements, fcusing nt nly n imprving current peratins, but als defining where business and technical peratins need t be t remain cmpetitive in the future (e.g., batch cycles may need t be replaced with intraday updates). Exceptins management is a critical cmpnent t realizing STP. Leverage all pprtunities t eliminate manual exceptin prcessing, and establish an autmated envirnment based n flexible cntent, quality, and integrity checks. Critical t the success f a new accunting system are carefully designed interfaces that fllw industry standards as much as pssible interfaces frm the trading system(s) t the accunting system; interfaces t/frm the pricing system; interfaces t cash management, perfrmance and attributin, client reprting, custdy and mre. Seamless interfaces t and frm all upstream and dwnstream systems are essential t firmwide peratinal efficiency and internal and external STP. Identify all inbund and utbund feeds, and crdinate and estimate integratin effrts with recipient systems r feeding system vendrs. 8

9 Reprting Mst systems are delivered with a standard set f reprts and the ability t create custmized calculatins, reprts, and queries t meet specific client requirements. A gap analysis shuld be cnducted t determine the system supplies all reprts required by the business units ut f the bx. Analysis shuld include examining business and system prcesses t determine whether the new system, inclusive f all dependent prcesses, can generate, apprve, and distribute reprt packages within the service level agreements. Reprting Packages Shuld the existing reprt packages be delivered r shuld reprt packages be enhanced t take advantage f functinality supprted by the new system prviding clients with mre cmplex, enhanced, and custmized reprts? Can third party query and reprting tls be leveraged r is reprting functinality in the new system limited t the vendr s prprietary reprting tl? If the latter, yu will need t identify resurces internal r utside cnsultants with the requisite skill set t specify and develp required reprts. Reprt Distributin What are the distributin needs f the business? D reprts need t be sent via , web, ftp, etc.? What scheduling requirements need t be cnsidered? D clients with extremely tight timeframes within which reprt packages must be prduced, apprved, and distributed, require evaluatin f alternative client reprting slutins? Reprt Management Specify security levels (e.g., by business grup) that define permissins t create and mdify reprts and reprt cmpnents. Cnsider establishing a standard naming cnventin fr reprts and reprt cmpnents t streamline maintenance f the reprts library. 9

10 Testing, Training, & Rllut A new investment accunting system cannt be deplyed successfully withut significant testing, training, and a thrugh rllut plan. Testing, training, and perfrmance tuning are bvius areas where, with additinal time, mre can always be accmplished t make an implementatin g mre smthly. Hwever, n matter the testing perid, sme issues will remain in a large applicatin upn cutver. The nly true test cmes when hundreds f users begin stressing the system in prductin. The same bservatin hlds true fr training and tuning; there is n such thing as t much f either. A prper assessment f when enugh has been accmplished t make the g-live decisin is critical. Plan Pilt Scale Testing Develp a cmprehensive test plan t validate the acceptability f the accunting system. Test plans shuld dcument bth expected results and exceptins/errr handling. When pssible, negtiate a trial perid r a prttype demnstratin using client data in as realistic a setting as pssible. Executing a pilt r POC test will help t dcument functinality gaps in the target system. T ensure cverage fr business and prduct grwth, test the system s ability t scale t supprt increased vlumes and handle the stress f a large number f cncurrent users. Testing shuld simulate vlumes and numbers f cncurrent users fr a typical prcessing day as well as peak prcessing perids. String Testing Relates t specific functinal testing and test cases. Regressin Integratin/UAT Parallel Prductin Cutver Bug fixes shuld be re-tested t ensure that the prblems have been specifically reslved. Be sure t include baseline functinal checks that can be executed in a minimal amunt f time t ensure that changes d nt adversely impact existing functinality. Prir t mving int parallel, perfrm final testing f the verall system ver sme perid f time t ensure that it meets end-user acceptance criteria, including respnse times. Make sure that any required service level agreements have been reviewed and accepted by all parties. Once the new system is set up, plan fr a certain amunt f time in parallel peratin with bth databases peratinal t ensure nrmal peratins cntinue smthly under the new architecture and t familiarize everyne with the new system. Identify a team t perfrm the parallel (typically it takes twice as many peple during this timeframe). During the initial stages f the parallel, legacy system(s) shuld act as the primary system, with all accunting activity duplicated n the new system. Institute a daily recnciliatin prcedure t ensure that daily data is identical n bth systems. The actual perid f parallel peratin will vary, depending n firm specific requirements. In mst cases, it shuld include at least ne mnth-end date, s that testing includes nrmal mnth-end prcessing. Establish a plan t transitin frm parallel t prductin, making sure that sufficient resurces are available t ensure a smth transitin and that the cutver schedule des nt cnflict with any critical perid-end prcessing t minimize peratinal risk. 10

11 Abut Venture Venture is fcused n the delivery f business and technlgy slutins t the investment industry. A butique cnsulting firm with ver 20 years f delivering successful prjects, Venture staff have years f in-depth investment accunting experience in peratins and system prjects. Prjects include sftware evaluatins, cst estimates and funding requests, prf f cncept executin, strategy dcumentatin fr cnversins, architecture and peratins mdel designs, perfrmance and stress testing, business wrkflws, system flws and lifecycle deliverables thrugh t testing and implementatin In depth knwledge f the Investment Management Prcess frm Pre-Trade Analysis thrugh Settlement acrss a wide range f Investment Prducts Full prject lifecycle experience including business analysis, business prcess mdeling, slutin evaluatins, system integratin, testing, cnversin and implementatin, and enhancements t existing systems Extensive expertise in investment accunting systems and securities and transactin prcessing frm an end-user and technical perspective Venture has perfrmed numerus investment accunting cnversins and implementatins as a stand alne slutin r as part f a platfrm t supprt an utsurcing mdel fr large, cmplex institutins acrss cmplex fund structures Venture has deep expertise in develping, testing, and implementing ETLs fr cnverting and supprting client assets n varius accunting platfrms Venture has extensive experience in develping and implementing strategic and cre functinal enhancements acrss multiple accunting platfrms Venture has led the way in the develpment f tls t autmate cnversin and recnciliatin, reduce risk, and ptimize resurces inclusive f cnversin strategy, business requirements, thrugh t testing, and cnversin Janne Cavallar Partner jcavallar@venturefsg.cm x105 Vincent Manning Managing Directr vmanning@venturefsg.cm x104 11