Opp Risks Chapter6

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Chpt 6 Pyb Workfow DocumentationToP 10 oPeraTional risks A Survival Guide or Investment Management Firms

Risk Area #6

PLAYBOOKSWorkfow Documentation

Documenting processes and procedures is such a undamental and

obvious requirement or eective operations management that one might

question the need to call it out. Yet, non-existent, obsolete or incomplete

documentation is implicated in so many operational snaus that it deserves to

be singled out as a risk area in its own right.

An operations department without workows is like a traveler without a set o maps or a community without a zoning

plan. Even i your rms documentation is useul, comprehensive, up-to-date and readily accessible in an emergency,

you may still nd the topic worth revisiting. I, on the other hand, the state o your documentation is less than

adequate or even worrisome, you may wish to use this chapter as the basis or dialogue and planning within your

rm or department.

Not only will well-documented workows help you avoid mistakes and miscommunication, they make it much easier

to train new employees. Reviewing workows is a perect way or new hires to occupy themselves during idle

periods when no one is available to train them. As an added benet, you will get helpul eedback on the clarity and

eectiveness o your documentation.

Avoiding Common Pitalls

A total lack o ormal workows

Extreme as this may be, having no ormal set o workows is unortunately the case at some organizations, especially

but not only, at emerging rms. In such situations, teams are managed on what might be called the whack-a-mole

model, with predictable consequences or the quality o work lie. When the entire rm lacks a playbook, the resulting

chaos oten resembles a game o soccer as played by a team o unruly six-

year-olds who race ater the ball with little concern or their assigned positions

or even the goalposts. (Some parents call this swarm ball.)

Without established workows, it is impossible to ensure that operational

controls are in place, sta are perorming all necessary tasks, and all systems

involvedespecially mission-critical spreadsheetshave been identied.

When there is a total absence o workow diagrams or documentation,

operational due-diligence reviews may be over beore they have even started.

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To be proactive:

Develop a plan and timeline or developing and documenting workows. Dont try to tackle

every process at once, or you will be overwhelmed. Start with the simplest and most basic

unctions, and build rom there. The swim-lane and system diagrams discussed in Chapter 4

(Dropped Batons) can be invaluable in this eort.

As you embark on any documentation project, remember that workows necessarily go hand-in-hand with

policies and procedures. In act, its impossible to properly develop and document workows and controls

without a thorough knowledge o the policies and procedures in place. Make sure to consider all potentially

relevant itemsrom compliance policies and expense report procedures to inormation security policies,

escalation procedures and business continuity plans.

Workows that are out o date

Firms should revisit their workows with the occurrence o any meaningul changee.g., reorganizations,

systems implementations, product launches, new reporting requirements, changes to system access levels

and new instrument types. Yet many operational teams seem to lack the time, expertise, or motivation to

do so.

To be proactive:

Establish and enorce a regular schedule or reviewing and updating workows. Even when

rms are well-established and relatively unchanging, managers should take a resh look at

their workfows at least annually.

Documentation that is either too vague or too detailed

Neither type is as useul as it should be. Overly vague documentation leaves sta members to ounder in a crisis.

On the other hand, excessively detailed documentation generally has such a short shel lie that the material loses

its value by the time it is critically needed. While those with disciplined, analytical minds may insist on exhaustive,

step-by-step documentation, complete with screen shots and keystrokes or every task, otentimes such

perectionism is rarely worth the considerable eort and expense it entails to create and maintain.

To be proactive:

Get eedback rom managers and employees to help identiy the right level o detail. The

appropriate level o documentation is a matter o individual judgment, taking into account

the rms and the departments operational risk appetite, training requirements, and overall

preparedness or disaster recovery. Firms can oten achieve a good balance by developing

reasonably inormative, but not exhaustive, documentation and supplementing it with

extensive cross-training.


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No escalation procedures

Escalation procedures are worthy o special mention. When things go wrong, as they sometimes will, it is

important to have established the criteria and protocols or elevating an issue to a higher level o management.

Heads o operations, or example, neednt be inormed about every individual reconciliation break or ailed

trade as it occurs. (They do need to see error logs on a regular basis.) I managers in larger rms were notied o

every single issue, they would be so inundated by small, manageable items that they would be unable to identiy

whether a major problem is lurking in their inboxes.

To be proactive:

Dene which incidents should go up the chain o command, and when. The most eective

escalation procedures use both size/impact and time as decision criteria. For example, a

small ailed sell transaction may not initially merit escalation due to its inconsequential size,

but it should get escalated well beore the counterparty issues a buy-in notice. On the other

hand, a similar trade that is very large might be escalated immediately based on its size alone,

especially i it is material in relation to the overall portolio.

Staf that ignore or are unaware o documented workows

Regardless o the state o a rms documentation, workows do no good i sta do not ollow whatever workows,

policies and procedures have been memorialized.

To be proactive:

Take steps to ensure that staf have not only received copies o workows, and have

them at hand, but have also actually read and understood them. Conrming receipt is only

the rst step. Managers should also consider having periodic meetings to review and explain

policies, procedures and workfows. (Note that this applies to all the policies, proceduresand workfows across the rm, not just those that are compliance-related.) When it comes to

determining whether workfows are actually ollowed, job swapping, operational reviews and

audits can help.

Multiple undocumented variations on the same basic workow

This problem oten occurs when rms develop small teams that are specialized by product, instrument type,

investment strategy or client. Oten these small teams will start out with a single set o workows used by similar

teams across the organization, but then they customize their processes and procedures over time, perhaps

without documenting these renements. The result may be a rm with multiple sets o workows or the samebasic unction, such as trade settlement or reconciliation. When encountered and questioned about such

situations, teams may protest, but were dierent! Its true that one size doesnt t all, but i a rms workows

can only handle one product or one client or one strategy, then it is time or them to re-think their processes.


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To be proactive:

Consolidate and ocus workows as much as possible.As an analogy, consider the simple

workfows or pouring and serving coee. Whether we have one team or our, were dealing

with our workfows: black, with sugar only, with milk only or with milk and sugar. However,

even i we organize our teams to serve coee, they can all ollow one central workfow with

optional steps depending on customers stated preerences.

This approach makes sense or several reasons. First, only one set o workfows has to be

maintained. Secondly, all sta will be amiliar with the overall workfow, even i their team

perorms some o the optional steps and not others (e.g., adding sugar but not milk). Finally,

a single workfow with options is easier to review, update, and explain during audits and

operational due diligence meetings.

Ideally, workfows dene a single, logical set o activities in manageable pieces. In our example

o serving coee, the workfow would intentionally exclude the steps required to make the

coee, secure the ingredients or select a cup. Likewise, it leaves o beore covering coee

consumption or cleanup activities. By documenting in bite-sized chunks, investment managers

get immediate benet rom each unction that is documented. When managers start a newdocumentation eort by ocusing on relatively simple unctions, they can build on the resulting

eedback and experience as they add more complex unctions later in the process. For

example, a trade settlement workfow might be updated to consider trade cancellations, trade

corrections or situations when trades are rst posted ater trade date (or worse still, ater

settlement date).

Individual workfows can then be linked to other workfows to cover longer, more intricate

processes. In addition, users can coordinate with outside service providers to ensure hand-o

scenarios are adequately covered.

Workows that are inaccessible when needed most

In a sudden evacuation, you may not have time to collect those reassuringly substantial three-ring binders rom

your ofce bookshel and take them to an osite location. Likewise, when systems are down and internet access

is unavailable, having access to hard copies may be critical.

To be proactive:

Make sure that updated workows are available both online and in hard copy. During a

business continuity or disaster recovery event, investment managers oten must call upon sta

to discharge unctions they are unaccustomed to perorming on a daily basis. It is in exactly

these situations that clear, concise, well-documented workfows can be a lie-saver.


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A lack o time, insucient expertise and an undersupply o motivation

are all reasons why workfow documentation is so oten pushed to the

back burner. But investing the eort it takes to do the job will pay o in

expedited and consistent training, more eective controls, improved

eciency and a lower rate o errors every single business day.

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This inormation is provided or educational purposes only and is not intended to provide legal or investment advice. SEI does not claimresponsibility or the accuracy or reliability o the data provided.

Inormation provided in the U.S. by SEI Global Services, Inc. Beyond the U.S., this material is provided by SEI Investments - Global FundServices Limited (Reg. in Dublin No. 242309), SEI Investments Trustee & Custodial Services (Ireland) Limited (Reg. in Dublin No. 315393),and their afliates, which are all wholly owned subsidiaries o SEI Investments Company. SEI Investments - Global Fund Services Limitedand SEI Investments Trustee & Custodial Services (Ireland) Limited (Styne House, Upper Hatch Street, Dublin 2, Ireland) are authorised bythe Central Bank o Ireland under the Investment Intermediaries Act 1995. This material is not directed to any persons where (by reasono that persons nationality, residence or otherwise) the publication or availability o this material is prohibited. Persons in respect owhom such prohibitions apply must not rely on this inormation in any respect whatsoever.

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