I
There's
No Such Thing as a Free Lunch
As any investor will tell
you, you can't accumulate unless you speculate. And when it comes to financial
technology, the same rule applies. In other words, there will always be some
kind of economic risk involved when you invest in new technology, or enhance
your existing systems.
Minimising this risk has
always been an important objective for the financial services industry. But
it is now more critical than ever at a time when investment and securities banks
are under increasing pressure to control costs while delivering enhanced services
in an increasingly competitive marketplace.
One of the most effective
ways of protecting your IT investment is to ensure that your systems can scale
efficiently in response to changing requirements in different areas of your
business. In fact scalability has risen to the top of most banks' list of priorities
for a number of reasons. The rapid increase in merger and acquisition activity
has hit banks hard at the system level. Many now find themselves in a position
where they need to manage a sudden increase in the number of accounts, trades
or similar transactions.
At the same time, transaction
margins have fallen. The only way to cope with this situation is to increase
the volume of transactions passing through the bank. Again, systems need to
scale to meet this increased activity. In the past, many organisations, not
just banks, have taken a relatively blunt approach to this challenge throwing
expensive processing power at the problem. As a result, they have saddled themselves
with additional costs including support and the total cost of ownership associated
with hardware. This leads to the classic scalability model familiar to most
people (see diagram).
Ideally, there should be
a constant relationship between the cost and performance of your systems. But
in reality, it is extremely difficult to achieve such a smooth relationship.
Cost and performance increase in clumsy steps; it's rather like putting your
foot down on the gas and lurching from nought to 60 at intervals of 10 miles
per hour.
As a result, the majority
of banks err on the side of caution, setting their performance limits at a safe
threshold but failing to achieve the most efficient investment in technology.
Most banks are now frantically trying to tune the performance of their IT engines
so that they can achieve smooth acceleration in every area of the business.

Scaling for success
The first thing to remember when it comes to scalability is that there is
no such thing as a free lunch. Every further increase in performance requires
a disproportionately larger increase in investment. The costs associated with
each system will also vary and establishing these figures is essential. Total
cost of ownership, implementation effort, support and training all need to be
clearly determined.
At the same time, performance
metrics must to be identified and then prioritised according to the needs of
the application in question. For example, there is an obvious trade off between
throughput, which is more important in areas such as batch processing, and latency
which is more critical for areas such as an interactive user interface.
The next step is to establish
the maximum performance level for each chosen metric and the costs associated
with these levels. This needs to be based on the exact business requirements
and a clear understanding of the business, technology and operational risks
of setting the performance level too high or too low. As part of this process,
banks need to ask the following questions:
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What are the initial business needs?
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What are the projected growth rates?
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What's the initial cost?
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What's the initial performance?
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What's the return on initial investment?
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What's the initial system capacity utilisation?
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What's the incremental cost?
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What's the incremental performance gain?
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What's the cumulative ROI?
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What's the time between incremental improvements?
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What are the business, technology, and operational risks associated with the
scalability path?
By asking all these questions,
banks can get a firm grasp on all of the issues that will help achieve a constant
relationship between cost and performance.
Scalability in action
Equipped
with all this information, what specific actions can banks take to improve the
overall scalability of their systems? The most important rule is to continue
applying well-understood techniques and best practices, but to manage scalability
in the same way that you manage your core business.
Customers who have implemented
FTI's StreetEnterprise solution are already starting to see the benefits of
this new approach. StreetEnterprise is a complete suite of products including
a single integrated operating platform and applications for reference data,
portfolio accounting and global corporate actions. These customers anticipate
a tenfold increase in transaction volumes as they migrate their transaction
processing to StreetEnterprise.
To achieve the increased
performance, they could have increased the power of their hardware by a similar
factor. While this might have solved the technical problem, it would have been
hugely expensive in terms of kit, maintenance, floor space and other elements
that contribute to hardware TCO. Instead, they can deploy FTI's Street Accelerator
software, which can deliver anything between a 10 and 30 increase in transaction
throughput. The lesson here is simple: when it comes to scalability, software
is often the better solution.
Looking forward
Scalability
will remain an issue for financial services organisations for some time to come.
The pace of change in the marketplace is set to accelerate further, while the
number of new market entrants with leaner transaction models is set to rise.
Mergers and acquisitions have yet to run their course, and banks must be capable
of managing an ever increasing number of transactions.
The good news is that in
comparison with two years ago, there are many more proven tools and techniques
to hand that bring the performance/cost constant closer than ever. In particular,
software now offers a far more cost-effective route to true scalability. By
working with some of the guidelines; and the software solutions - described
above, banks can maximise the performance of their systems, while protecting
their investment more safely than ever before.
Dr.
Mohan Patel, PhD
CTO & SVP
Strategy
& Business Development
FTI
