Table of Contents # Topic Slides 3 4 Objectives of this - - PowerPoint PPT Presentation

Table of Contents

2 Iran Core Banking Conference

# Topic Slides

Objectives of this Presentation 3 – 4 Core Banking Evolution 1980 – 2015 5 – 7 Complex IT Project Implementation: Lessons Learned 1990 – 2015 8 – 14 International Core Banking Projects: Lessons Learned 2005 – 2015 15 - 22 Thailand Core Banking – A Roadmap for Iran Not to Follow 2015 – 2xxx 23 – 30 Questions, Comments, & Answers 31 Appendix – Anatomy of A Failure 32 – 41

Objectives of this Presentation

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3

Goal of this Presentation

CBS …We’ve come a long way in 25 years …A CBS is Just Another Complex Piece of Software …Banks have learned much since 2000 …Iran can learn from Thailand …and apply the key to transformation

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The Evolution of Core Banking

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CBS Solutions – 40 years of evolution

Technology 1975 – 1995 1995 – 2010 2010 – 20xx Platform IBM Mainframe or IBM System 32 / 38 Unix Agnostic Architecture Centralized Client – server Agnostic – SOA Operating System DOS / VSE, AS/400 HP/UX, AIX Agnostic Mode of operation Batch Real-time, batch accruals Real-time, true 24x7 File Structure VSAM flat files ISAM flat files Relational database Relational database Language COBOL RPGII C, C# Java Modules Silos Integrated modules Components Client ‘Dumb’ terminal ‘Fat’ Client – Windows xx ‘Thin client’ – browser Integration Point-to-point Messaging EAI/ESB Industry trends Leading edge 5 years behind the trends Back to early adoption

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Banking Solution Panorama as at 2015

Technology US Europe Asia Small banks Core iSeries / Unix Unix Unix Channels Omni-channel Omni-channel Multi-channel Operating Model Outsourced In-house In-house Mid-size banks Core Unix Unix Unix Channels Omni-channel Omni-channel Multi-channel Operating Model Outsource & in-house In-house In-house Large Banks Core zSeries mainframes Mixed Unix / zSeries Mixed Unix / zSeries Channels Omni-channel Omni-channel Multi-channel Operating Model In-house In-house In-house

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Risk Factors in Complex IT Project Implementation

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Risk Factors in Complex IT Projects

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In 1994, the Standish Group conducted a survey of

• rganizations who had complex IT projects

The participants included:

• IT executive managers (CIO’s)
• Large, medium and small companies
• All sectors
• Banking
• Securities
• Manufacturing
• Retail
• Wholesale
• Healthcare
• Insurance
• Services
• Government

The survey sample included:

• 365 organizations
• 8,380 IT application projects

The Study is updated every year – the latest is 2013

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16% 53% Challenged 31% Cancelled Success The 1994 Standish Scorecard for IT Complex Project Success

Risk Factors in Complex IT Implementations

Cost / Time Overrun Write-off

16% 31% 30% 10% 9% 4% 14% 18% 20% 36% 11% 1%

0% 5% 10% 15% 20% 25% 30% 35% 40%

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Cost overruns Time overruns

0% 5% 10% 15% 20% 25% 30% 35% 40%

Feature & Function Fulfillment

Complex IT Project Implementation Challenges

Iran Core Banking Conference

Success Factors – IT Project Implementations

7% 8% 10% 17% 17% 18% 24% 0% 5% 10% 15% 20% 25% Sufficient Resources Competent Staff Realistic Expectations Proper Planning User Involvement Executive Support Clear Requirements

Success Factors

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Progress in IT Project Implementation – 1994 – 2013

16% 53% 31% 39% 43% 18% 0% 10% 20% 30% 40% 50% 60% Success Challenged Cancelled ١٩٩۴ ٢٠١٣

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Progress in IT Project Implementation – 2004 – 2012

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40% 50% 60% 70% 80% 90% ٢٠٠۴ ٢٠٠۶ ٢٠٠٨ ٢٠١٠ ٢٠١٢ Time Cost Features

Time Cost Features 2004 84% 56% 64% 2006 72% 47% 68% 2008 79% 54% 67% 2010 71% 46% 74% 2012 74% 59% 69%

International CBS Implementations

• Trends in the last decade

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50% 55% 55% 60% 65% 70% 70% 80% 0% 20% 40% 60% 80% 100%

Increase cross-selling Increase penetration Provide unified customer experience Improve customer satisfaction Improve time to market Launch innovative payments products Speed up loan approval Improve operational efficiency

General themes and trends globally

Sources: Ovum study of European banks; IDC study of Asian banks.

International Trends in Core Banking Replacement

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Global drivers for changing core banking system, from IBS study 5% 5% 5% 7% 7% 9% 11% 16% 16% 23% 25% 27% 0% 5% 10% 15% 20% 25% 30%

Bank merger/acquisition Improved risk management Manual processes Obsolete technology Legacy system not supported Start-up bank High costs of legacy system Scalability Support for new products Support future strategy Centralization/standardization Broader functionality

Sources: International Banking Systems Intelligence. “Core Banking Systems Case Studies Online”. IBS: 22 August 2011. Updated July 2013.

International Trends in Core Banking Replacement

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80% 75% 65% 45% 20% 28% 0% 20% 40% 60% 80% 100% Europe North America Asia/Pacific Replacement Necessary Replacement Planned

Sources: North America: Oracle, The Impact of the Financial Crisis on Core Systems Replacement, July 2010, page 3 Europe: Ovum, “The Business Case for Core System Transformation”, February 2012 Asia: IDC, Financial Insights, “Core Banking Renewal Strategies of top 150 Asia/Pacific Banks, 2011-2014”, 2011.

Many banks view core banking replacement as necessary, but a smaller percentage have definite plans to replace International Trends in Core Banking Replacement

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Why is there such a gap between necessity and actual core banking replacement?

• Three factors account for reluctance to changing of core banking systems

1. High cost – minimum of $30 million for a medium-sized bank 2. Long timeframe – minimum of 3 years, average 4 years for a replacement project 3. High risk – core banking replacements have a high failure rate

• Three common core banking replacement trends around the world

1. Banks are being driven to undertake core replacements by market pressure 2. Cost and customer demands for agility are key drivers of replacement 3. Vendor core banking products have matured enough to overcome fear of change

Sources: Forbes. Groenfeldt, Tom. “Why Core Banking Replacement Remains Locked in the Future”. Forbes Report 10 September 2013.

• Celent. Greer, Stephen and Daniel Latimore. “Global Core Banking: Steady but Unspectacular Growth”. 23 July 2013.

International Trends in Core Banking Replacement

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Bank transformation follows a path from (1) product innovation, to (2) sales innovation, to (3) market share innovation, and finally to (4) customer service innovation

China

Bangladesh Sri Lanka Vietnam Indonesia India Malaysia / Philippines Korea Hong Kong Singapore Australia Taiwan Private Banks

International Trends in Core Banking Replacement

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Lesson learnt from 63 case studies of CBS transformation Retail Banks Universal Banks Vendor selection time 10 months 13.5 months Implementation time 19 months 22.3 months Total transformation time 29 months 35.8 months Level of satisfaction for completed transformation projects High High Select a solution that is already successful in the country 85% 80% Banks are split between ‘big bang’ and ‘phased’ implementation 45% ‘big bang’ 45% ‘big bang’

Sources: International Banking Systems Intelligence. “Core Banking Systems Case Studies Online”. IBS: 22 August 2011. Updated July 2013.

Lessons Learned in 63 case studies of core banking transformation, from IBS

International Trends in Core Banking Replacement

Iran Core Banking Conference

Sources: The Asian Banker. “Retail Banking Innovation Report”. AB: Sept. 2010, page 56

Risk Factor Risk Mitigation

• 1. Managing the interface between business and IT
• 1. Establish a joint IT-business implementation team, with

KPIs based on successful collaboration.

• 2. Employees’ behavior
• 2. Establish employee KPIs based on project success
• 3. Technology bottlenecks
• 3. Select the most scalable technology
• 4. Managerial attitudes
• 4. Establish managerial KPs based on project success
• 5. HR if training and management is insufficient
• 5. Provide intensive training for project team
• 6. Flexibility of IT systems
• 6. Select the most flexible IT system
• 7. Huge level of hierarchy
• 7. Establish horizontal project team structure
• 8. Lack of adequate technical expertise
• 8. Provide in-depth technical training to project team
• 9. Lack of support from IT vendors
• 9. Structure the project contract to guarantee support
• 10. Regulations and compliance
• 10. Streamline internal bank regulations

The most common risk factor is the interface between business and IT

International Trends in Core Banking Replacement

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Case Studies of 6 Banks in Thailand

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Snapshot of Three Thailand Banks that Succeeded

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Bank CIMB KTB SCB

Transformation Year 2012 - 2013 2008 2009 Legacy IT System SAFE II SAFE II SAFE II Transformed System SIBS 10 Profile Systematics Total Assets $114.9 bn. $80.7 bn. $81.7 bn. Loans $62.7 bn. $53.3 bn. $54.0 bn. Deposits $82.2 bn. $60.7 bn. $58.8 bn. Branches 1,041 1,146 1,173 Customers 13 million 17 million 15 million

Lessons Learned in Thailand Bank Success Cases

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# Success Factors SCB KTB CIMB A Clear vision and mission

Yes Yes

B Strong management support

Yes Yes

C Effective communication channels

Yes

D Reward and recognition

Yes

E Project implementation consultant

BCG None

F Bank-wide support

Yes

G Project governance

Yes

H Proejct organization

Yes

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# Facts and Figures SCB KTB CIMB A CBS Replacement Time

15 months 24 months 18 months

B Dedicated staff

155 250 20 IT, 60 Biz

C Testing and go-live staff

800 900 1,600

D Platform

zSeries mainframe HP Superdome iSeries

E Operating System

zOS HP/UX AS-400

F Database

dB2 Oracle dB2

G Branch Channel

Thick client, Winxx Thin client, browser Thick client, Winxx

H CBS Software

FIS Systematics FIS Profile Silverlake v. 10

Lessons Learned in Thailand Bank Success Cases

Lessons Learned in Thailand Bank Success Cases

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# Benefit from Transformation SCB KTB CIMB A Faster time to market

Yes Yes Yes, by 50%

B Increased customer retention

Yes

C Increased customer acquisition

Yes

D Increased fees from retail services

Yes

E Product profitability increased

Yes

F Efficiency of internal processes increased

Yes, by 30%

G Open architecture

Yes

H Reduced IT cost

Yes

I Product Bundling

Yes

J Retail banking income increase

40 – 60% N / A NYA

Lessons Learned in Thailand Bank Failures

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Three Banks Selected TCB – a mainframe software solution from Spain

• BAAC – 900 branches, 12 million customers, 15 million accounts
• kBank – 850 branches, 11 million customers, 12 million accounts
• Bank Thai – 100 branches, 2 million customers, 2.5 million accounts

IT Project Timelines at Each Bank

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

BAAC BankThai kBank

Critical Success Factors Assessment – Bank’s Failures

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Critical Success Factors Assessment – Vendor’s Failures

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Success Factor Chennai Software Development Issue for Three Banks

Management Support Ineffective support from TCB mgmt. No control or input in strategic plan Clear requirements Good quality in recent kBank work No issues Proper planning Plan changed 3 times Corporate and project plan mismatch Competent staff Competent in TCB functional specs Competent, but insufficient for 3 projects Competent in technical specs Competent, but insufficient for 3 projects Competent in coding No issue No competency in proper function testing Testing is manual and ad hoc No performance testing of customization Absolutely no focus on performance Low competency in mainframe Difficult to find and recruit experienced mainframe staff in India Available resources Insufficient staff to manage 3 banks, test release 7, and do other projects Will Temenos management provide sufficient staff? No mainframe technology competency to ‘shrink- wrap’ the product Technology support group in Hemel must create a ‘shrink-wrapped’ product that is documented for delivery Clear vision Chennai has clear vision re release 6 and 7 impact Chennai does not have resources for both tasks

• Top mgmt. does not understand impact of release

7 on delivery of functionality to Thai banks

• Does not understand that it will divert

resources with no benefit for Thai banks

Iran Core Banking Conference

Questions, Comments & Answers

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Appendix – Case Study of a Failure

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General Description of the Project 1. The project was to deliver a working Islamic core banking system in a 10 month

• period. The project budget was US$ 25 million.

2. This project was part of a larger programme. The programme included a. EAI – application integration for all the bank systems, to be done by a third party vendor in parallel with CBS; b. EDW – an enterprise data warehouse with CBS, cards, treasury and trade finance system data c. Internet Banking – an internet banking system from a 3rd party d. RMS – a risk management system from a 3rd party 3. Roadmap was designed by one of the ‘Big 4’ consulting firms 4. Programme PMO was managed by the same ‘Big 4’ consulting firms 5. Programme governance structure agreed by all parties – Bank, vendor, consultant

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Case Study of CBS Project Failure

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Programme Governance Structure

Board of Directors (BOD) Board of Directors (BOD) EAI ….EDW EAI ….EDW CBS Implementation CBS Implementation ….. Programme Sponsor / Deputy Sponsor Programme Sponsor / Deputy Sponsor Board IT Oversight Committee Board IT Oversight Committee Project Structure Programme Management Office Programme Director Programme Director Project Steering Committee Project Director Project Manager Project Team Project Steering Committee Project Director Project Manager Project Team RMS…Internet Banking RMS…Internet Banking Project Steering Committee Project Director Project Manager Project Team Management IT Committee Management IT Committee

Iran Core Banking Conference 35 PMO Steering Committee Project Team Leads Prepare Weekly Status Report for PMC Project Manager Project Steering Committee Review and Submit Weekly Status Report to Project Director and PMO Weekly Project Team Status Meeting – Chaired by either PD

• r PM

Prepare Weekly Project Status Report Review and Submit Weekly Project Status to PMO Project Steering Committee Meeting Steering Committee Board Status Update Receive and Compile Status Reports Board of Directors Project Director

Weekly Status Report PSC Status Report

Weekly PMO Status Meeting

Board Paper

Programme Level Project Level Meeting Frequency - Suggested PMC Meeting Weekly - Monday PSC Meeting Monthly PMO Programme Status Meeting Weekly - Wednesday Meeting Monthly Prepare Status Reports for PMO and Programme SC

Programme Communication and Reporting Structure

Case Study of CBS Project Failure

# Bank SOW Issues

1. Company Y failed to deliver, implement and go-live with Islamic Model Bank in 10 months 2. Company Y failed to install a pre-configured and pre-parameterized CBS Islamic solution to enable rapid implementation – minimize customization and lower project risk 3. Company Y failed to install a CBS solution in accordance with the SOW and the Service Agreement. 4. Company Y failed to install and implement a system capable of providing all regulatory reports 5. Company Y failed to provide a comprehensive training, including induction training, OJT, and ‘train the trainer’ for end user training 6. Company Y failed to deliver ‘To-Be’ business process flow 7. Company Y failed to deliver a set of interfaces to internal and external systems 8. Company Y failed to provide complete documentation for the software system 9. Company Y failed to deliver and/or test 198 gaps identified by the Gap analysis 10. Company Y failed to deliver a model bank that produced a bank-wide single customer limit 11. Company Y misrepresented that its solution would target up to 80% functional fit ‘out-of-the-box’

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# Bank SOW Issue Supplier Response to the SOW Issue

1

No go-live in 10 months Failed to go-live in 10 months because Bank failed to adhere to 6 of 11 project assumptions

2

No ‘pre-configured’ delivery Pre-configured Islamic Model bank was delivered and accepted by the bank

3

Did not follow SOW The company delivered 95% of the items in the statement of work; the balance of 5% were to be completed in an additional 3-month period

4

No regulatory reports The company delivered STB reporter, a 3rd party solution with all regulatory reports; Bank failed to deliver the necessary EDW system as per programme.

5

No comprehensive training Company Y delivered training plan in first month; delivered technical training; delivered induction training. Could not deliver ‘train the trainer’ because of project cancellation.

6

No ‘To-Be’ business process Company Y delivered 32 major business process flows and 50 minor business flows. Also delivered 219 manual with business process ‘to-be’ documentation.

7

No interfaces / integration Original SOW was for integration to be 3rd party EAI. Modified SOW for Company Y to deliver 12 online and 16 batch integrations.

8

No complete documentation Company Y delivered 128 user guides and manuals, with full technical and user documentation.

9

No delivery of 198 gaps 150 of the 198 gaps were agreed for delivery before go-live. All 150 gaps were tested and delivered. The remaining 48 were to be delivered after go-live, but project was cancelled.

10

No bank-wide limits The RFP requirement is for customer limits ‘…across modules.’ This is not ‘bank-side’; the card and Treasury systems are excluded because they are not CBS ‘modules’.

11

No 80% ‘out-of-the-box’ fit The RFP had 1,678 specific requirements; the company provided 1,459 as standard ‘out-of-the-box’

• requirements. This is 86.9%, which exceeds the 80% requirement.

Case Study of CBS Project Failure

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#

Bank SOW Issue Supplier Response to the SOW Issue 1 No go-live in 10 months Failed because did not support 6 of 11 project assumptions 2 No ‘pre-configured’ delivery Pre-configured Islamic Model bank was delivered and accepted by the bank 3 Did not follow SOW The company delivered 95% of the items in the statement of work – rest in 2 months 4 No regulatory reports The company delivered STB reporter, full solution; Bank failed to deliver EDW 5 No comprehensive training Company Y delivered technical and induction. Could not deliver ‘train the trainer’ because of project cancellation. 6 No ‘To-Be’ business process Company Y delivered 32 major and 50 minor business process flows; also 220 BP manuals. 7 No interfaces / integration Original SOW was for integration to be 3rd party EAI. Modified SOW for Company Y to deliver 12 online and 16 batch integrations. 8 No complete documentation Company Y delivered 128 user guides and manuals, with full technical and user documentation. 9 No delivery of 198 gaps 150 of the 198 gaps were agreed for delivery before go-live. All 150 gaps were tested and delivered. 48 after… 10 No bank-wide limits The RFP requirement is for customer limits ‘…across modules.’ This is not ‘bank- wide’; excludes Cards and Treasury 11 No 80% ‘out-of-the-box’ fit The RFP had 1,678 specific requirements; the company provided 1,459 as standard ‘out-of-the-box’ requirements. This is 86.9%,

Case Study of CBS Project Failure

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# Bank Governance Issues Supplier Response to Governance Issues

1 Company Y failed to deliver reasonable project management and governance.

• The project management and governance were a bank responsibility;
• The SOW assigned to Company Y the management responsibility for (1) data

conversion, (2) advice on infrastructure configuration; and (3) advice on network upgrade. 2 Company Y failed to carry out services with reasonable care, diligence and skill

• Company Y delivered all contractually committed deliverables;
• A 10 month delivery would necessarily require reasonable care, diligence

and skill. 3 Company Y failed in their role as stakeholders in the project and failed to show commitment to the project.

• The Bank did not include Company as a stakeholder:
• The company was not a member of the PMO
• The company was only an observer in the project steering committee.
• Company Y showed its commitment by continuing to work from Month 4 to

Month 10 even though the Bank had failed to make milestone payments as contractually required.

Case Study of CBS Project Failure

Why was the project cancelled? 1. The Project and Programme structure were set up as per expectations. 2. The supplier delivered according to the contract The underlying reason for cancellation 1. The Bank CIO during the design and selection process was Mr. X. 2. In Month 3 of the Project, the CIO was forced out of the bank. 3. The new CIO, Mr. Y came in with a different agenda:

• In month 5 of the project, the CIO asked the Contracts division to advise the steering committee
• n how to cancel the project;
• Contracts advised that cancellation in Month 5 would contractually require that the Bank pay the

entire amount of the contract 4. Decision was made wait until Month 10 + 1 day, and then cancelled for cause The final outcome of the dispute was: 1. The international court of arbitration ruled in favor of the supplier 2. The bank paid the entire $25 million value of the contract to the supplier

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Case Study of CBS Project Failure

What is the principal lesson learned? 1. Without full and effective support from top management, an IT project will not be likely to succeed. 2. Even when other factors are present – the right programme structure, the right communication process, the right solution – even then, if top management support is not in place, project failure is likely.

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Case Study of CBS Project Failure