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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 »

After near Industry Extinction, Analytics are Questioning Everything

Monday, May 18th, 2009

Accelerating Returns of Mortgage Operations Utilizing Multi-Faceted Indicators and Analytics

By Mark P. Dangelo

 www.Innovative-Relevance.com

For decades, managers and their teams have sought the “holy grail” of decisive and discrete performance indicators that would assess and predict corporate profitability.  As we now know, their inability to cohesively link strategy, operations, risks, and rewards have resulted in permanent industry realignments – M&A’s, failures, oversight, fiduciary breeches, and consumer alienation.  However, the industry’s past predicaments were not just contained within individual products or exotic solutions, but with the downstream implications of their adoption.  Straightforwardly stated, analytical causality across the enterprise was grotesquely misinterpreted.

Additionally, complacency and arcane systems of beliefs led many to rely on irrelevant indicators, practices, processes, and technologies.  Even after billions were spent on SOX, Basel and other regulatory compliance efforts, the recent economic crisis clearly indicates that the global public, not just domestic ones are no better protected than they were in the “Age of Enron.” 

So, with all the theories, vendors, and prior pundits being replaced, we have to ask, “What is next?”  What are the informational governance and regulatory approaches that have efficacy today and tomorrow?  How can agile and adaptable analytics be achieved across the breath of our partners and data sources, including our servicers linked to the programs targeting consumer “workouts?” 

Whereas, proactive business analytics and governance were once the domains of larger lenders and originators, innovative business and technology advances have leveled the playing field regardless of organizational size and budgets.  The questions are many – the answers are evolving.  However, let’s take a “walk on the wild side,” and see what our future holds beyond the anti-climatic stress tests.

Conducting a Diagnostic Assessment

For many organizations, a holistic and critical examination of analytical usage (i.e., business intelligence, dashboards and scorecards, analytical applications, MDM, warehouses, et al) is a time consuming process tainted with internal biases and prejudices.  Often times, analytical evaluation and projections are done across the enterprise using fragmented ROI point-solutions — not the least of which are ignoring the hundreds of siloed “management” spreadsheets lacking little referential integrity or understanding of how they interconnect or influence each other. 

The result of the ensuing analytical chaos are diverse “versions” of operational performance, ROI, risks, regulatory compliance, and worse yet, a false sense of security – until as illustrated recently, the bottom falls out of markets.  Moreover and with great frequency, organizations latch onto “analytical answers” and quickly proceed with allocating resources all in a desperate effort to secure success. 

Yet, is the most convenient analytical answer correct?  As many enterprises discovered during the recent global financial and economic meltdown, it wasn’t the answers that were difficult to achieve — it was the fact that the wrong questions were being asked.  Without the relevant questions and proper alignment with required strategy, managers were ill-prepared to deal with pervasive calamities.  It was as one industry observer said, “Driving with your eyes closed.”

It is this hidden cost of disjointed analytical architectures, spread among the business units and IT, which led AMR in 2008 to estimate that global enterprise expenditures exceeded $57 billion USD.  What is more, according to December 2008 Accenture report[i], only 60% of organizational decisions were supported by analytical insights.  The rest of those tens of billions of dollars worth of corporate investments, well, were not. 

With an average organizational analytical investment consuming between $250,000 and $1 million, depending upon market sub-segment, decision makers have to be wondering, what all this technology was really worth — as budgets are cut, consumer scrimp, and the two year recession lingers into 2010.  This begs the question for many decision makers, “What are the 3-year returns and operating costs for analytical investments in 2010-2012?  Can we afford to sustain what we have and invest in the future?  For every dollar of capital spent, are we looking at another$ 5 to $7 spread over the next 3 years?”

To gain a handle on the use of enterprise analytics (EA) and the “questioning of everything” previously deployed within the entity, organizations have begun conducting independent diagnostic assessments to establish an objective baseline and an iterative roadmap for the future.  Organizations are no longer just examining impacts within lines of businesses, but the forward and backward value chains spanning multiple operational segments.  Representative diagnostic categories include:

·         Financial Impact / Financial Integrity

·         Monitoring Methods, Rigor, Techniques

·         Operational and Business Intelligence

·         Visualization, Views, and Meta Data

·         Technology and Infrastructure

·         Performance Management, Reporting

·         Data Warehouses / Marts

·         Security, Privacy, Information Governance

·         Dashboards and Scorecards

·         Regulatory Compliance and Delivery

Underpinning a base of solid financial and performance data, organizations have embarked on their own “analytical stress tests” in an effort to define what and how to frame their indicators – and the methods and sources needed for their accurate delivery.  Even though we hate to admit it, the regulators just may have been on to something.  When examining the data, process, and indicators contained within the stress tests themselves, before the results were subject to change, there are substantial self correcting and regulating diagnostic guidance buried in their approaches. 

In a Financial Times article by Russell Walker on January 30, 2009, he stated, “JPMorgan’s success came from identifying novel data and realizing that it challenged conventional thinking.”  Isn’t that really what analytics and the investments they represent are all about?

Integrating Strategy, Demands, and Success

Analytics taken out of context can yield “false positives” – aka erroneous decisions.  Without proactive linkages to strategy, operational demands, and performance results, analytics are merely bits and bytes spinning on a metallic coated platter.  By making the most of the entire spectrum of corporate analytics and their implications, what led to an industry’s dishonor can be used as its foundation for future growth.

For executives seeking to move forward and identify profitable new markets, what strategies for growth should be defined, deployed, and sustained in the prospective face of onerous government oversight?  What has worked in the past and where should organizations concentrate their resources in the future facing new consumer behaviors?  Finally, how can technology and policy be exploited to create a robust business case for reducing costs, growing profits, and capitalizing on market trends, especially within the rebirthed secondary markets?

Many quantitative organizational analytical approaches are starting over.  After huge CAPEX investments coupled with significant budget increases, the value of insight and governance produced by “intelligence and analytical” tools have yielded a false sense of purpose and security. 

The long held ideas, practices, and techniques of assessing and projecting have proven inadequate for current operating demands.  With historical 20/20 hindsight, what is now apparent is that the conceptual and piecemeal methods deployed were too remedial and the business solutions too abstract.  A new way forward must be developed.

Using the aforementioned diagnostic assessment, progressive organizations are integrating strategy, demands and success into an iterative go-forward roadmap (illustrative list below):

·         Consumer profiles, market usage, and competitor capabilities

·         Orchestrated solution sets built on componentization of best-in-class

·         Advanced multi-dimensional data segments (e.g., OLAP)

·         Predefined and configured software components

·         Forward and reverse “supply chains” across micro and macro sources

·         Auditability, repeatability, adaptability to promote consistency and accuracy

·         Interoperability of decisioning networks and toolsets

·         Vendor capability and product leadership within centers of excellence

·         Reusable libraries of statistical data sources and routines (e.g., ETL, marts, warehouses)

·         Visual and standardized query capabilities and reporting across functional segments (e.g., financial, operations, risks)

 

* * * * * * * *

While there is much more that needs to be written on internalization of agile and adaptable analytics (AAA) into the corporate culture of tomorrow’s finance and mortgage groups (FMG’s), the journey begins with an objective assessment and a new path forward.  For as we now realize, all too painfully, there are “ticking time bombs” still remaining within our existing operations.  They must be rooted out.

The uses of analytics were once about “personal” manipulation and insights – individual, department, or special operational interest.  The survival criteria of organizations are now focused on their end-to-end usage across the enterprise, while proactively integrating isolated components among the channels to achieve relevant macro-micro efficacy. 

A new age of Enterprise Analytics has been launched as it is now questioning everything surrounding past and future indicators.  However, are we ready to embrace new questions and non-conventional insights?  Or will we relegate the new findings to aberrations that are just too painful to accept?

 


[i] “Business Intelligence Software Time is Now,” BusinessWeek, Rachael King, March 2, 2009.

Posted in Analytics, Business Model, Dashboards, Financial Services, Measurements, Orchestration, Strategy | 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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