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Managing the increased risks associated with outsourcing
 

Managing the increased risks associated with outsourcing

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    Managing the increased risks associated with outsourcing Managing the increased risks associated with outsourcing Presentation Transcript

    • 15
      PracticalSuggestions
      Managing the increased risks associated with outsourcingFTF’s 5th Annual OpRisk Conference, 2 March 2011, New York City
      Holly H. Miller, Founding Partner
      Stone House Consulting, LLC
      1
      © 2011 Stone House Consulting, LLC
    • You Probably Outsource Already
      © 2011 Stone House Consulting, LLC
      2
      Office cleaning
      Legal services
      Cafeteria management
      Fund accounting
    • Suggestion #1:Don’t Outsource What You Don’t Understand
      Lack of understanding actually increases risk
      If you are outsourcing out of fear, think again
      Outsourcing is not a fix for a lack of confidence in a department head
      Chances are, their job does not go away
      Ensure you can supervise what is outsourced and manage the vendor appropriately
      3
      © 2011 Stone House Consulting, LLC
    • Suggestion #2:Inventory Your Current Services and Costs
      What services do you provide today?
      Internally
      Externally
      What MUST remain and what can be outsourced?
      What really can go away completely once implemented?
      Can you do an apples-to-apples comparison?
      4
      © 2011 Stone House Consulting, LLC
    • Suggestion #3:Do Your Homework
      Perform due diligence
      Initial and ongoing
      Document it!
      Has the provider ever serviced the kind of business that you manage?
      Asset classes
      Investment vehicles
      Check references
      Consider on-site visits
      Create a scoring matrix
      Gain internal agreement on what is important—and what is not
      Consider size
      Independence
      Service
      5
      © 2011 Stone House Consulting, LLC
    • Suggestion #4:Manage Your Staff and the Rumors
      © 2011 Stone House Consulting, LLC
      6
      Secure signed NDAs from potential providers
      Keep potential providers off-site for as long as possible
      Prepare—in advance—statements for when the rumors start
      For staff
      For clients
      For investors
      For others
      Budget ‘stay’ bonuses
      Prepare for temporary staff
      Discuss contingency plans with potential providers and your consultant
    • Suggestion #5:Consider Hiring a Consultant
      Document your current state
      Give document to all potential providers
      Excellent for evaluating success later
      Document—but maybe don’t share!—your anticipated future state
      Obtain blind quotes from potential providers
      Manage the process
      Gain guidance and support throughout
      Current business heads often viewed as biased
      Let the consultant be the bad guy
      Provide a ‘cloak’ for activity
      7
      © 2011 Stone House Consulting, LLC
    • Suggestion #6:Document Workflows
      Current state
      Helps educate potential service providers
      Aids with identifying what can be outsourced and what cannot
      Helps ensure nothing is forgotten—or replicated
      Future state
      Ensures all parties know what to do
      Educational tool for new staff
      Assists with due diligence reviews
      8
      © 2011 Stone House Consulting, LLC
    • Suggestion #7:Examine Hand-offs Carefully
      Hand-offs are points of considerable operational risk
      Lost information
      Missed deadlines
      Unclear accountability
      9
      © 2011 Stone House Consulting, LLC
    • Suggestion #8:Establish Strong Service-Level Agreements
      10
      © 2011 Stone House Consulting, LLC
      Clearly delineate:
      Responsibilities
      Deadlines
      Turnaround
      Quality measures
      Escalation
      Communication
      Pay particular attention to hand-offs
      Ensure metrics are assigned to each
      Utilize during meetings with providers
    • Suggestion #9:Establish and Monitor Metrics
      © 2011 Stone House Consulting, LLC
      11
      Current state
      Future state
      Particular attention to:
      Hand-offs
      Service levels
      Business volumes
    • Suggestion #10:Consider Timing
      © 2011 Stone House Consulting, LLC
      12
      Timing of:
      Evaluation / selection
      Conversion
      Parallel
      Go live
      Year-end can be a good time for tracking books and records
      Year 1 on existing systems
      Year 2 with outsourcing provider
      But year-end is a busy time
      When are bonuses paid?
      Evaluate phased approach
    • Suggestion #11:Think About Duplicate Effort
      Some firms duplicate effort to:
      Obtain independence
      Improve timeliness of information
      Create checks and balances
      If you don’t trust the outsourcer, then don’t outsource
      13
      © 2011 Stone House Consulting, LLC
    • Suggestion #12:Confirm Record Retention Timeframes
      14
      © 2011 Stone House Consulting, LLC
      Investment managers must maintain records
      Legal and regulatory reasons
      To substantiate performance track record
      Retention timeframe for performance is for entire length of track record
      To substantiate performance, typically retain:
      Investment accounting records
      Partnership accounting records
      Fund administrator records
      Bank / prime broker statements
      Pricing documentation
      Investment management agreements
      Investment guidelines and restrictions
      Client correspondence
      Outsourcing providers often have record retention policies that are shorter than yours
    • Suggestion #13:Evaluate Privacy and Location
      Where will your provider:
      Store data
      Perform services
      Regulatory environment
      Privacy laws
      Client concerns
      Data protection
      Jobs
      15
      © 2011 Stone House Consulting, LLC
    • Suggestion #14:Prepare an Exit Strategy
      Outsourcing is the ultimate roach motel
      What happens if you are not happy?
      Contract language
      Consider a data warehouse
      Build interfaces to/from the warehouse
      16
      © 2011 Stone House Consulting, LLC
    • Suggestion #15:Control the Press Release
      Ensure the ability to review and approve it
      Only allow an announcement AFTER conversion is completed
      Consider agreeing to a case study
      17
      © 2011 Stone House Consulting, LLC
    • Contact Details
      Holly H. Miller
      Partner
      +1 610 358 1791 phone
      +1 917 587 2411 cell
      +1 509 479 1831 fax
      hmiller@stonehouseconsulting.com
      Stone House Consulting, LLC
      Strategic, operational and IT consulting for investment managers and hedge funds
      www.stonehouseconsulting.com
      New York | Philadelphia | Wilmington
      © 2011 Stone House Consulting, LLC
      18