OPERA^® Invest — Operations Improvement and Risk Reduction Case Study

Assessment (one month)
An investment management and mutual fund complex subsidiary of a major financial services firm initially retained the Basis Point Group (BPG) to assess the scope, magnitude and risk implicit in the investment management firmÕs daily operations. BPG was asked to determine the cause of the processing errors, and to design a framework that would allow line managers to recognize, find and correct potential errors.

BPG began the initial assignment by meeting with executive, senior and mid-level management to understand their perceptions of the quality and integrity of the entire operational processing environment of the firm's investment operations.

Based on statements made in these meetings and discussions, BPG recommended a series of OPERA^® measures utilizing data already available within the firm to quantify and validate the qualitative statements made in these meetings and discussions.

Working with the firm's operations and technical staff, this data was summarized into executive level quantitative measures of quality and processing risk including:

• The integrity of information provided to or available to clients;
• The accuracy of securities positions and cash balances used by the investment managers when deciding to buy, sell or rebalance a portfolio; and
• The reliability of the "investable cash balances" received from external parties as an accurate representation of available cash.

BPG reviewed the quantitative findings with the staff prior to a presentation to the Executive Management Committee. The Executive Management Committee presentation provided an understanding of how viewing errors through the prism of standard qualitative best practice measures, the staff could conclude these errors were random. Further, they could also conclude that the errors were not likely to reoccur after additional checks and control procedures had been put in place to address each unique occurrence.

BPG then presented the OPERA^® metrics the staff had agreed were valid measures to quantify operations quality and risk. BPG demonstrated that the small cluster of errors the firm encountered might also be warning signs of greater process risk, because these process quality and risk metrics were not utilized in the normal course of business.

BPG further demonstrated the use of absolute quality measures that allowed the firm to quantify not just internal performance, but also the impact external organizations had on the firms processing environment.

The Executive Management Committee was interested in understanding how these consolidated metrics could be unbundled to identify individual process quality or risk "hotspots", particularly where they might affect the quality of the investment management decisions.

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