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Using Analytics and Creating Intelligence in “The Cloud”

Wednesday, August 19th, 2009

Part three of a continuing series on the changing analytical ecosystems

By Mark P. Dangelo

www.Innovative-Relevance.com

With any new “miracle” idea or innovation, history and experience has taught us to approach it with a fair amount of skepticism. Foundationally, we often retort, “So what and who cares?” However, when highly respected media icons such as the Financial Times, start to consistently publish objective articles on a topic, skepticism for many turns into potentially creating competitive differentiation (see Cloud Computing Sidebar).

Our Heads are Firmly in “The Clouds”

The terminology and capabilities of cloud computing or “The Cloud,” has exploded in the last three years. For some, the expectations will far exceed reality. However, driven by continual technical advances innovatively supported by people and processes, “The Cloud” approaches have found harmonization with profit starved investors and forward thinking strategists.

Equally, the widespread euphoria has morphed into fragmented realities for corporate decision makers seeking robust operating functionality supported by rapid implementation cycles. That is, they have found quick successes, but their larger future is still unclear. In general, the principles of cloud computing are no longer buried in trade journals, presented in an obscure standards brief, or merely debated by technologists over beers.

As a matter of fact, cloud computing, underpinned by new measurements and data integration demands, is increasingly appearing in corporate agendas with an estimated annual spend in the billions and growing at an annual compounded rate of 25% and 40%.

At a time when organizations are questioning everything and dealing with iterative cost cutting programs, these articles and growing implementation successes are beginning to establish a foundation for lasting action.

Yet, we need to ask some very fundamental questions before we redefine the 2010 budgets and open the checkbook. For example, what is the roadmap, and more importantly what does “The Cloud” pragmatically offer? How can quality, “decision intelligence” be developed? What analytical measurements, driven by cloud technology, are now important?

You see, “The Cloud” is as important operationally as it is strategically if we adopt more than a “one-off” line of attack.

A Changing Reality for Decision Making

Analogous to the aftermath of the Great San Francisco Earthquake of 1906, we can foresee lasting corporate and social strife as a result of the prior supply chain practices and decisions encompassing origination, servicing, and securitization processes.

The permanent solutions and regulatory changes will be years in the making. Nonetheless, what is becoming apparent is the fundamental root causes. Our current public flaws architecturally resided with the flawed reasoning models used to confirm co-dependent mortgage decisions.

Yet, with finance and mortgage groups (FMG’s) spending over $14 billion (out of $80 billion globally) on decision driven business intelligence, dashboards, scorecards, planning, infrastructure, and applications, what will the new costs and benefits be when using cloud computing solutions? Sometimes, when dealing with highly complex challenges, historical references can teach us how to avoid a reoccurring fate of excessive spending.

In reviewing a 2007 report by the Economist Intelligence Unit (EIU, “In Search of Clarity, Unraveling the Complexities of Executive Decision Making”), we are able to witness a time capsule of priorities, methods, and challenges internalized prior to the most severe recession in nearly 80 years.

In hindsight, there are several understated findings, within the EIU assessment, which stand out:

1) “Poor data leads to poor decisions,”

2) “Challenges only increase as companies grow,”

3) “Too much art, not enough science?,” and

4) “Decision support tools need to be easier to use.”

Fast-forward two plus years, and we now see how the lack of relevant quantitative criteria fostered one of the greatest wealth destabilizations in three generations. The indicators were all “green,” but the decisioning results wound up to be very, very ”red.”

Layering and Leveraging KPI’s

It was a myopic focus on granular key performance indicators (KPI’s,) without a holistic examination of interrelationships and efficacy, which produced “false positives.” Or stated differently, the use of inelastic, static measurements and monitoring methods to predict future performance was just a disaster waiting to happen. Future decisioning cannot be defined merely by projecting forward historical indicators (i.e., backward focused gauges as a measure of future performance and consumer behaviors). It is akin to driving 65 mph while constantly being focused on the actions in the rearview mirror.

As we know, this was the preferred BAU for analytical predictions before the escalation of cloud computing, and the multi-faceted integration demands implied with the deployment of these new, virtual data sources. Moreover, we now are confronted with challenges of cascading economics and public policies that result in the demand for a series of risk adjusted analytics needed for decision making, compliance, and operational performance. So, what now?

“The Cloud” adoption, coupled with the crystal clear failures of the past, represents a waterfall opportunity to redefine and rebuild how decision making for the next decade should be done. The opportunity is with not just technology, but the integration and compartmentalization of multi-polar sources into intelligent and self correcting decision approaches.

The future of analytics begins to mirror a federated model of interconnected KPI’s that not only assesses past performance, but provides adaptability of forward-looking indicators that are properly vetted and cross-matched against multi-polar requirements. After all, analytics is more than data – it must deliver intelligence.

Sound impossible? Too Complex? Too futuristic? Think again. What I’m representing in this thumbnail began in earnest back in 2007-2008 with their seeds planted nearly a decade prior.

Analyzing and Anticipating Tomorrow

As the siloed technology discussions of SaaS, SOA, virtualization, and web services converge and confront fluid business pressures, standard operating processes and decision making breaks down and becomes dysfunctional. Business leaders struggle with innovation and consumer behaviors without sufficient analytics, intelligence, and predictability on “what’s next?”

Moreover, changing market conditions have created voids in reporting and compliance systems, internal skill sets needed for adaptation and the budgets needed to implement change. There is a need for clarity to avoid layers of cascading hazards, but uncertainty and risks have created institutionalized frustrations. In essence, we need to unwind the legacy, but be mindful of the disruptions and chaos that can be introduced.

In several of my prior 2009 articles, we examined the foundational strategies of analytics. In this article, we introduced the new variable of cloud computing and touched on the benefits and challenges it creates for severely strained IT departments and business personnel. However, what is the answer? What are others doing? What are the implications of adoption or redefinition?

To assess and begin anticipating viable solutions for the use of analytics, we invite you to participate in a brief survey. The survey can be found at www.Innovative-Relevance.com/analyticsurvey/. We anticipate releasing select findings of “Using Analytics and Creating Intelligence in ‘The Cloud’” industry report, starting in October 2009 in subsequent MBA articles.

* * * * * * * * *

In closing, there is a strange reader reaction that happens when a writer looks into the future and attempts to ascertain strategy – go figure, not everyone agrees on how to read the aggregated indictors for positive and profitable results. Earlier in 2009, when I holistically examined analytics and the likely impacts on operations and markets, there were many doubters. Now after another $5 plus billion in new M&A actions, perhaps those ideas don’t look so crazy after all?

But, whether you agree or disagree, we cannot deny our predicaments both domestically and globally. As printed in the Financial Times on August 13, 2009, “Foreclosure filings, which include default notices, scheduled auctions and bank repossessions, hit 360,149, an increase of 7 per cent from June and 32 per cent on the year. One in every 355 US homes received a foreclosure notice in July, according to the online marketplace for foreclosure properties.”

There is a need for change and how we responsibly and ethically define “success.” New and relevant analytics will help us determine our performance and models of operations – before others make those decisions for us.

Posted in Analytics, Architecture, Cloud Computing, Dashboards, Data, Financial Services, Measurements, Mortgage, Orchestration, Outsourcing, Strategy | No Comments »

Analytics – The Great Equalizer or Marketing Hype?

Monday, June 22nd, 2009

By Mark P. Dangelo

www.Innovative-Relevance.com

We seemingly measure everything. We define control limits. We assess correlations and assign statistical significance. We examine process cycle times, and we do it using robust methods (e.g., Six Sigma, scorecards, dashboards, EPM), investment frameworks and measurements (e.g., budgets, forecasting, IRR, NPV), and a host of internal and industry KPI’s (key performance indicators). We pay for third-party data sources that track mortgage products, consumers, securities, and other benchmarks similar to the sports announcers who flaunt encyclopedic baseball statistics.

Our pervasive technological platforms are able to create and track infinitesimal quantitative artifacts within broad categories including; borrower contact, document management, workflows, workouts, and default management demands. During this time of crisis, we are justifiably obsessing over performance, and our ability to do it better than our competitor. It also appears that our market providers never fail to remind us of this age-old competitive axiom at every event – all underpinned by a decade of very significant corporate spending on BI (business intelligence), reporting, and aggregation toolsets.

Most recently, objective analytical assessments have been brought to center stage by an angry public, opportunistic politicians, and “late-to-the-party” regulators (e.g., Stress Testing). Analytics represent a horizontal collection framework for understanding our vertical “As-Is” states and iterating ourselves to the “To-Be” operating and strategic goals – that is determining not just measurements for the sake of siloed measuring, but interconnected department causalities (e.g., EPM).

Yet, what call to action is provided within and across these hundreds of data points routinely gathered and aggregated? Who has primary or implication accountability? Who is directly and indirectly responsible for what is measured? What does it all mean within an industry or organization struggling to survive? Who within our operations are trained and educated to unlock the hidden “secrets,” while understanding the “checks and balances” within the frameworks?

In reality, the volume of disconnected atomic-level analytics gathered within some organizations exceeds 8,000 distinct metrics. With a new obsession for measurements not seen since Edward Deming’s statistical control disciplines were finally accepted in the 1990’s, analytics in all its emerging forms are fast becoming a “great reawakening” for FMG (finance and mortgage group) decision makers as they struggle to link outcomes, accountabilities, and responsibilities.

By Design, a Confusion of Subtleties?

The next decade of FMG leaders will be enthralled with the definition and usage of analytics. Why would they not? Every week, new press releases tout new-fangled features and acronyms all in an effort to gain “enterprise performance,” “top investment,” “better decision making,” and of course, “electronic, resilient, and reliable data sources.” All laudable goals on the surface albeit somewhat cliché and increasingly ubiquitous.

However, the extensive public relations for analytics has a potential to derail its lasting benefits, as vendors advertise solutions and product repositioning over the need of changing industry usefulness. A current Twitter search finds dozens of analytics, BI, data mining, and dashboard vendors all trying to gain 140 character “leadership” in a rapidly growing seller marketplace.

Whereas, tools and their visually predictive capabilities are wonderful additions to an arsenal of corporate software, there are some prerequisites which must be addressed before those first RFI’s hit the street. To properly frame the challenges and confusions within the markets, an informal outreach to decision makers produced the following snappish reactions:

  • How does the inclusion of analytical frameworks and measures improve the performance of high-value / high return processes and those personnel within these operations? What about delegated decision making and due diligence or discovery? Can it help with the hidden risks and changing credit skills that demand knowledge – not just tools?
  • If our organization utilizes innumerable spreadsheets for decision making, does the adoption and adaptation of an enterprise solution require a cultural shift (e.g., the prohibition of “dueling” spreadsheets and / or localized data marts)?
  • If we are already using scorecards, BI tools, dashboards, reporting, mining tools, databases, and content consultants, how does the adoption of a “new analytical framework” make this any simpler – or cost effective? Is this yet another net add to the base budget?
  • How can a strategy of programs and underlying project actions be really tied to results and profits driven by the aggregation of “new fangled” analytics? What is the measurable bottom line impact?
  • How can we permanently change the underlying processes using adaptable analytical solutions? Don’t we first have to reengineer our enterprise using PPT (people, process, and technology) in that order?
  • What keeps me awake are our disparate solutions, the ability to state with 100% confidence the integrity of the results, the STP of informational sources, various “systems of record,” regulatory confidence, and the auditability of ever changing analytical aggregating teams. How is that for a start? Will another layer really help me gain the confidence and overcome the internal political challenges?
  • Is there really anyone who has a better answer or real world centers of excellence that help deal with my problems today – loss mitigation, REO, foreclosures, workouts, government oversight, and more as I try to make a profit? Will analytics really help? How and when?

Indeed the aforementioned, paraphrased reservations may be daunting for those who are passionate about the future of analytics. Regarding the decision makers, they have historically heard business and technological boasts over the years, and for now, analytics merely represent a new chapter in a familiar book. Whereas, the on-going 26 month global financial crisis has left many of corporate competitors in declining decay, there are FMG visionaries who truly believe analytics may provide a conduit for rapid redefinition or elimination of antiquated SOP’s. They are thinking big – but starting small.

Iterate, While You Orchestrate

As a senior finance person recently stated, “I don’t have time to build an ’end-all’ analytical roadmap. We have operational actions that are far more important to our financial health and delivery performance. We can’t spend months building a comprehensive and detailed design or architecture that is supplanted within the next 45 days.”

It should be noted that the finance person was very positive on the use of analytics to help assess and improve their current priorities – customer retention, product satisfaction, M&A post-deal integration, BPO / KPO enterprise initiatives, and yes, financial reporting and soundness. It is just that the tolerance for another intellectually stimulating plan was beyond their ability to support its traditional academic creation (potentially resulting in large binders of expensive approaches), if it could offer no pragmatic and direct assistance for today’s complex realities.

As a result, an oxymoronic situation is created where you have to measure to improve, but you don’t have time to overtly determine what to measure. So frequently organizations measure everything and trust the answer will fall out from the atomic elements. Sound familiar? Will consistent organizational results be established with disjointed approaches and products?

The solution? The answer fundamentally resides with the repurposing of existing business planning methods, leveraging of predefined industry analytical profiles, and the detailed techniques contained within agile software frameworks – aka leverage what works and augment. The keystone of success is how all the segments are assembled to meet the needs of the organization, and the requirements dictated to any analytical roadmap developed. Like the conductor of an orchestra, it will be up to the organization to determine the “who, why, where, what, and how.”

This new leader, a Chief Analytics Officer (CAO), will have to balance theory and vendor promises with their organizations’ (i.e., orchestra) ability to produce measurement results. Simply stated, if the orchestra cannot do scales, then it will be unable to perform Beethoven’s Symphony No. 5 with any skill regardless of how new and shinny their instruments may be.

The CAO embodies a new role within the enterprise transcending the traditional IT functions, while representing an unwavering responsibility to meet tactical and strategic operational mandates. As a conductor, the CAO role involves strategy, financial understanding, market and competitive prowess, and technical abilities to manage the often competing internal groups and external vendors.

More will be written about the CAO in future articles. But rest assured that a new leadership role and “musical score” is being carved out of the traditional FMG corporate granite. It is a role that will have a lasting and rising impact on the industry for the next decade. The CAO is the only one that can bring trust to the enterprise and validation to a growing set of constituencies all seeking to influence business models and industry behaviors. The industry skepticism will be driven out with success and a cost-effective approach that meets the constantly changing enterprise needs.

Posted in Analytics, Dashboards, Data, Financial Services, Innovation, Mortgage, Orchestration, Process, Regulations | No Comments »

Knitting a Robust Quilt of 21st Century Regulations

Thursday, April 16th, 2009

By Mark P. Dangelo

www.Innovative-Relevance.com

It was the Bible that said it was a “foolish man who built his house on the sand.”  For nearly 75 years, a patchwork of regulatory and oversight foundations flexed against macro financial strains — all the while gradually eroding the substrate holding the footings in place. 

In 2007, the structural underpinnings linking together complex, arcane, and “innovative” financial products reached a structural failure across globally interconnected financial products.  Tens of trillions of dollars have been lost – trillions more to come.  Curious, that the government predictions of potential losses just two years ago is now over 30 times its original estimate – and growing.

The architectonic financial disasters have highlighted the shortcomings of many domestic regulatory / oversight bodies each with a distinct role and mission – OTS, FDIC, Treasury, Federal Reserve, OCC, SEC, FHFA, and FINRA.  Furthermore, there are other influential committees and organizations which also contributed to recent financial events including FASB, ISAB, IMF, and BIS / BASEL.  Finally, there is varying levels of accountability and oversight at the state and local level.  And, this is just a thumbnail of the primary committees, special interest groups, associations, and consumer advocacy demands squaring off against the rebirth of financial and mortgage groups (FMG).

Is it any wonder that those who knew the industry systems were able to find the “gray areas” among the eight decades of cumulative, patchwork guidance and committees?

Do We Really Need More Regulations?

With international, federal, state, and local business rules estimated to be in excess of 16,000 discrete regulations, opponents of increased or “super” regulatory efforts ask, “how much more can we viably sustain?”  Proponents of more regulation point to, and rightfully so, the recent two-year global financial debacle that has significantly damaged U.S. FMG reputations and cost millions of jobs. 

Notwithstanding the polarization discussions, recent unraveling of FMG practices clearly highlights: a) gaps in regulatory coverage and approach, b) too many conflicting and historical rules, c) political opportunists, d) lack of enforcement, e) failure to understand regulatory implications, and f) unfocused and fragmented statutes and g) regulators disassociated with today’s market’s (e.g., product offerings, unassigned risks, interconnected systemic fault lines, system risk of innovative complex instruments).

It is this latter challenge, unfocused and fragmented statutes / regulators, that has negatively influenced the loss of brand name icons during the last 12 months – conservatorship, bankruptcy, acquisition, and on-going “assistance” (including TARP, TALF, TAP).  As the current and former Treasury Secretary have stated, the foundational architecture of regulation and oversight requires significant rebuilding.  However, can nearly 500 elected officials in Washington come together for material revisions or will political expediency and retribution contribute to cosmetic spackling of a condemned structure?

The Truth of the Matter

Many argue and even condemn the performance of the various regulators and their agencies.  But is this really warranted?  The GAO issued a statement on March 18, 2009, “Review of Regulators’ Oversight of Risk Management Systems,” and implied that many weaknesses were proactively identified – but the regulators were unable to knit them effectively together to determine the potential magnitude of the forthcoming situation. 

Yes, we could therefore blame the regulator and demand a “pound of flesh” as some hearings have deemed appropriate.  Yet, we should also ask where were the media hungry analysts and economists who now parade themselves on national cable programs?  Where were the management teams that paved their own road to ruin?  Where were the auditors and “think tanks?”  Where any of these groups less culpable than the others?  Let us not forget Congress and those in elected offices in the various states and municipalities.  Where was their outrage and proactive solutions before the foundational sands eroded away?  Are new regulations really just about the appalling behavior and greed of corporate executives averaging over $8 million a year in total compensation?

So, let’s ask a pertinent question as the pitch forks and clubs are taken out of the closets.  “Would any amount of regulation, outside of FMG advanced nationalization, really have stopped this decay and catastrophic failure from transpiring?”  Did the world governing bodies and agencies, and not just American ones, step up and say anything material before the FMG structures were beyond repair?  Everyone has blame when it comes to regulation, governance, and oversight. 

Likewise, if draconian and socialist regulations are to be avoided, we need to proactively incorporate the solution sets into the on-going operational and risks processes within the enterprises.  Whereas governance and oversight is important, the lack of robust internal controls aligned with risk-adjusted principles cannot be left to chance.  Using an analogy, think TQM (Total Quality Management) for regulatory compliance. 

As we have subtlety acknowledged, regulators and auditors are implicitly chartered in helping assess and promote improvements with statutory guidelines, internal control compliance (e.g., COSO), technologies and best-of-breed adaptation.  But in their defense, what happens if they are deceived, face “budget / engagement” cutbacks, or conspiracy?  Fundamentally, only if organizations accept internalization of statutes and controls ethically (i.e., adhering to the spirit of the regulation and not just the letter of the law), can the investor and public (e.g., moral hazard avoidance, TBTF) trust be regained. 

Pragmatic Next Steps

Creating a new regulatory framework and underlying architecture is hard work.  There are lots of “jurisdictional wars” yet to be fought by those seeking glory and self importance.  Whatever the outcome, simplicity of approach coupled with adaptability of regulatory principles must rule the outcomes. 

Technological solutions and data reuse will be equally important as part of capturing, storing, and purging data at its source.  Discrete metrics used to measure adherence or conformance, will be rolled into cohesive and interlinked analytical dashboards that assess the implications both in forward and reverse along the custody or lifespan of the process and FMG instrument. 

Compartmentalization and reuse of self-contained front and back-office sub-processes (and associated technologies) will yield interoperability benefits that not only meet an administrative duty, but offer competitive, market, and profit advantages previously unrecognized.  Innovation and money will flow to patch a corporate void created by new regulatory alignments and responsibilities – far beyond mere form completion, reporting, or vendor promises. 

While cohesively knitting a fabric of efficient and effective regulations is a multi-year initiative, what is complicating the discussions today are those that “talk past each other,” and the various groups striving to transform financial survival into personal gain.  To achieve new, pragmatic, and adaptable regulations, a top-to-bottom review of roles, responsibilities, coverage, principles, and jurisdiction must be undertaken.  Dogmatic beliefs must and will be put down.

Even as several Congressional committees are all striving to be the “quarterback” of regulatory reform, it is unlikely that any existing group or department is up to the immediate and on-going reformatory challenges.  A new, innovative series of iterative approaches must be adopted. 

So as Congress and the public think retribution, there are far greater challenges that are before the American and International community – 1) a multi-year holistic, comprehensive rework of regulations that will deliver meaningful insight and oversight, 2) adherence to principle driven governance to meet unforeseen “innovations,” 3) promote national economic growth while avoiding protectionist regulations, and 4) the proper assignment of risk and rewards to meet ethical, capitalistic goals.

 

Posted in Analytics, Compliance, Dashboards, Data, Financial Services, Measurements, Mortgage, Orchestration, Regulations, U.S. Treaury | No Comments »

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