The value of the CenterSphere solution for a financial services organization is compelling in terms of both cost savings and increased efficiency and control.
Reduction in the number of "formal" systems requiring maintenance. Dedicated groups of IT professionals are generally required to run and maintain individual systems used for accounting, market risk management, credit risk management, reference data management, customer relationship management, etc. With CenterSphere, these systems are consolidated into a single platform requiring only a single IT support effort. Such increased efficiency results in dramatic cost savings.
Reduction in the number of "informal" systems. "Informal" systems are usually spreadsheets or desktop database (e.g., MS Access) programs that have evolved ad hoc and are relied on throughout the organization. They serve to summarize data at departmental and functional levels, and their data content is usually an aggregation of data from other source systems. Cost savings, in this case, results from no longer having to support these informal systems as well as from eliminating the constant reconciliation efforts that such ad hoc solutions create.
Reductions in internal software development costs. Development of both large and small internal software initiatives is a very expensive proposition and often has considerable risk of failure. The industry's track record for the development of large-scale, cross-disciplinary enterprise systems, in particular, is poor; conflicting agendas, or priorities, and high turnover of project sponsors often contribute to failed development efforts. The result is typically an extremely high cost base per unit of usable and installed application software. Outsourcing with established software that has already gone through the development cycle is a more cost-effective endeavor.
Reductions in internal and external audit expenditures. Larger capital
markets organizations have as many as hundreds of internal auditors and
require large-scale, annual, external audit engagements. CenterSphere addresses
the auditing challenge with its integration of functionality across trading
position and P&L, financial, and risk reporting and its on-line CenterFlow
workflow module with audit trail functionality. Public accounting firms
have suggested that a CenterSphere solution could reduce the internal audit
challenge to one third of current levels. We believe that 50% reductions
are certainly achievable.
Reductions in reference data management costs. Organizations that have a multitude of formal and informal systems also spend considerable time maintaining, and, sometimes, separately purchasing the required reference data. A CenterSphere solution can thus lead to cost savings by reducing the reconciliation efforts that occur when reference data is not centrally managed in a flexible way for all users to utilize.
Reductions in IT infrastructure investment and maintenance. Under the ASP model where data center hosting services are outsourced, significant reductions in IT infrastructure investment and maintenance can be realized. The level of savings will vary from firm to firm, depending on the differential between the outsourcing contract price and fully-costed internal expenditures. However, surveys of companies in other industries that have implemented enterprise systems suggest that an average 30% reduction in administrative expenses is quite typical. The typical return on investment is high and the payback period is relatively short—the system typically pays for itself within six to twenty-four months.
Increased Efficiency and Control
A more coherent risk and financial control environment. In addition to cost savings, a primary concern of a firm's management is the level of control that exists over its organization. CenterSphere has achieved a level of integration and coherency with respect to risk management that is unique to the industry. The benefits to the control environment are substantial, and thus are as much a part of our valuation proposition as are the potential cost savings.
Reduction in the risk of financial losses resulting from internal control weaknesses. It is fair to estimate that every capital markets firm has suffered losses at some point related to one or more control related problems. These include losses due to operational mistakes, lack of segregation of duties, analytic model and/or infrastructure problems that have led to adverse portfolio revaluations, or fraud by traders or other employees. In some cases, these control weaknesses have led to losses in the hundreds of millions of dollars, and, in some cases, $1 billion or more. Quite often, these problems have caused the demise of the entire firm, or led to a mass restructuring and/or wholesale change in management. More notable examples of these losses have occurred at: Barings, Drexel, Sumitomo, Metalgesselschaft, Kidder Peabody, Bankers Trust, Salomon Brothers and Daiwa. While no system can guarantee an error- or fraud-free operation, we do believe that CenterSphere represents a much needed, enterprise-oriented approach to reducing the likelihood of serious risk management failures.
A better balance between decentralization and control. The trading businesses within capital markets organizations are typically decentralized with respect to operational and systems infrastructure while, at the same time, the demands of enterprise management and control require large amounts of data to flow from the local groups to the center in an organized way. CenterSphere is designed to address all of the enterprise level requirements, while coexisting with a large and complex set of existing product specific systems. It is designed to reduce duplication, ensure synergy, and accurately present risk and performance information for all business units within the organization.
Efficient links to clients, partners and suppliers. CenterSphere enables a firm to have a coherent and efficient strategy with respect to granting its clients access to their relevant information, allowing efficient integration of data content providers, and providing on-line access for external auditors to facilitate a more efficient audit and assurance process. Firms devote considerable time and effort to preparing information requested by clients, auditors and regulators; there are oftentimes entire teams focused on this activity. CenterSphere can reduce the amount of resources spent on such requests.