Sourcing of Risk & Compliance functions Results and insights of an international Financial
institutions Benchmark study
May 2016
160513 Study Sourcing in risk and compliance functions.pptx 1
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Executive Summary
• Sourcing emerges towards a key strategic lever in order to improve effectiveness and efficiency in Compliance
and Risk functions. It helps banks to stronger focus on elements of the value chain that drive differentiation,
enables to reduce cost of up to 30 %, helps driving consistency and quality of the overall framework and
enables the organization to quicker respond towards and implement regulatory requirements
• Key prerequisites for sourcing Risk & Compliance functions are an adequate financial attractiveness of the
business case, transparency on the structure of the current Risk & Compliance functions and that proposed
sourcing measures are in line with legal and regulatory requirements
• We observed that most banks tend to implement in most cases a nearshoring model for their Risk &
Compliance functions. Many banks have already undertaken sourcing measures for Risk & Compliance
functions and some are planning to take further measures in the upcoming months
• There are strong regional patterns – given the significant differences in average margins by global regions, we
observe a distinct tendency for sourcing Risk & Compliance functions in European and North American banks.
In other global regions the trend is not or not yet distinct
• The sourceability by functions strongly differs. Examples of functions with high degree of sourceability are: risk
models development, maintenance and testing, and transaction decisions for standardized products in retail
(mortgages), private banking (lombard) and corporate business (loans), Compliance monitoring, Compliance
tools and infrastructure
• Success factors for implementing Risk & Compliance sourcing measures are: detailed functional analysis and
feasibility, focus on effectiveness improvements without triggering uncalculated risks and development of a
forward-looking transition plan
Source: BCG
160513 Study Sourcing in risk and compliance functions.pptx 2
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Key contacts
DR. MARC D. GRÜTER
PARTNER AND MANAGING DIRECTOR
Phone: +41 44 388 8768
Mobile: +41 79 373 8768
Email: Grü[email protected]
ANDREAS BÜRKLI
PRINCIPAL
Phone: +41 44 388 8849
Mobile: +41 79 373 8849
Email: [email protected]
LAURIN FROMMANN
PRINCIPAL
Phone: +41 44 388 8925
Mobile: +41 79 373 8925
Email: [email protected]
160513 Study Sourcing in risk and compliance functions.pptx 3
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Agenda
1. Sourcing as a strategic lever in Risk & Compliance functions 4
2. Status quo in international banks 11
2.1 Current and planned sourcing activities in large banks
2.2 General source ability of Risk & Compliance functions
2.3 Sample case
3. Success factors for sourcing of Risk & Compliance functions 20
160513 Study Sourcing in risk and compliance functions.pptx 4
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Agenda
1. Sourcing as a strategic lever in Risk & Compliance functions 4
2. Status quo in international banks 11
2.1 Current and planned sourcing activities in large banks
2.2 General source ability of Risk & Compliance functions
2.3 Sample case
3. Success factors for sourcing of Risk & Compliance functions 20
160513 Study Sourcing in risk and compliance functions.pptx 5
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Sourcing in R&C functions is an attractive strategic lever Strategic drivers for sourcing of Risk & Compliance functions
Drivers for increased importance of
sourcing of Compliance & Risk functions Impact
Stra-
tegic
• Reduced time to adapt to new markets
• Increase of management capacities to focus on higher
value areas
1 Net cost reduction estimate
10–30%
Risk,
Quality
and Cost
• Improve risk effectiveness
• Quality improvement due to stronger centralisation
• Factor cost advantage and improved cost
transparency
2
(depends on level of existing
sourcing degree, the footprint
and the business portfolio
complexity)
Regu-
latory
• Reduced time to implement new regulations
• Complexity reaction in the context of TBTF regulations 3
Functions with the most signi-
ficant cost reduction potential
• Operational Risk Control,
Compliance
• Risk Reporting
• Credit Risk Control and
Portfolio Mgt.
160513 Study Sourcing in risk and compliance functions.pptx 6
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Nearshoring: Ideal sourcing strategy for know how processes Definitions: Onshore, Nearshore, Offshore
Sourcing Strategy
Key characteristics:
• Exclusivity
• Legal structure (captive entity)
• Low cost location
• Business proximity
• Language and cultural proximity
• Time zone difference
Onshore
YES
YES
NO
HIGH
YES
NONE
Nearshore
YES
YES
YES
MEDIUM
YES
2–3 HOURS
Offshore
YES or NO
YES or NO
YES
LOW
NO
>3 HOURS
1
2
3
4
5
6
160513 Study Sourcing in risk and compliance functions.pptx 7
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Several prerequisites for sustainable R&C sourcing strategy Selected key Prerequisites for sourcing of Risk & Compliance functions
Key prerequisites
for sourcing of Risk
& Compliance
functions
• Potential additional risks are in line with risk
opposite
• Target footprint is in line with local/legal entity
reg. requirements
Limitation of
Sourcing risks in
line with regulatory
requirements
3
• Significant re-ocurring efficiency improvements
that compensate for on/off investments and
transaction cost, risks and tax effects
Financial
attractiveness
of business case
1
• Transparency on FTE's, footprint and cost from
a functional perspective
Transparent
functional view on
risk an Compliance
management
2
160513 Study Sourcing in risk and compliance functions.pptx 8
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Trend towards functional risk org. enables stronger sourcing Risk type driven versus functional risk organization
Risk organization by risk types
Corporate Center
Cre
dit R
isk
Ma
rket R
isk
Op
. R
isk
Liq
. R
isk
...
Risk organization by functions
Strategic risk management
and business enablement
Risk steering and reporting
Risk operations
Banks are moving towards more functional risk organization
90%
60%
40%
10%
Risk organisation
by risk types
Today
Risk organisation
by functions
In 5 years
160513 Study Sourcing in risk and compliance functions.pptx 9
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Significant risks related to sourcing need to be addressed Major risks related to sourcing of Risk & Compliance functions
People
• Cultural impact – loss of engagement
• Survivor guilt and morale impairment
• Impaired ability to cross train staff – less attractive career tracks
• Less experienced staff at provider – high turnover, low industry knowledge
Flexibility and
control
• Inability to redirect resources to emerging priorities
• Erosion of in-house capability – become beholden to suppliers
• Higher charges for exceptions / ad hoc demand
• Contractual obligations (minimum spend / utilization etc)
Vendor issues
• Vendor failure / relationship failure
• High degree of supervisory burden and cost
• Misaligned incentives (cost versus quality / revenue)
• Bait and switch "suppliers trap"
Trends in Nearh-shoring.pptx 10
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Number of banks that successfully sourced R&C functions Real examples from large international banks
Institution Scope of GRC near shore activities
Near shore
vs. Off shore
• Off and near shoring of the compliance function with major hubs in China, India and Sri Lanka (~1600
FTEs)
• Off- and near shoring of credit risk function with major hubs in Malaysia, Indonesia, Hong Kong and
India (~1800 FTEs )
• Off- and near shoring of market risk function with major hubs in India and Hong Kong (~80 FTEs)
• Off shoring of Fraud Operations (~700 FTEs)
Global Universal
Bank
Combined GRC off and on shore model
Global Universal
Bank
• Credit risk modeling team off shored to India, which is about 40% of overall credit risk management
(~25 FTEs)
• Development of stress testing scenarios off shored to India which is about 50% strategic scenario
analysis, (~40 FTEs)
GRC off shore model
European
Universal Bank
• Modeling and validation near shored to Slovakia, Romania, and Czech Republic (~60 FTEs)
• Compliance functions near shored to Slovakia
• Risk and regulatory reporting near shored to Slovakia
GRC near shore model
Large US
Investment Bank
• Large near shoring center in Salt Lake City including compliance, transaction decision and risk
analysis (~1800 FTEs)
• Off shoring center in India for risk methodology, risk control, risk analysis, and transaction
decision related to hedge funds and institutional clients
Combined GRC near and off shore model
European
Universal
Bank
• Near shoring center for more complex activities within the country where the head quarter is located.
This includes credit risk, market risk and operational risk (~550 FTEs)
• Offshoring center in India for less complex activities of the second line of defense in credit risk and
operational risk (~300 FTEs)
Combined GRC near and off shore model
Source: BCG
160513 Study Sourcing in risk and compliance functions.pptx 11
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Agenda
1. Sourcing as a strategic lever in Risk & Compliance functions 4
2. Status quo in international banks 11
2.1 Current and planned sourcing activities in large banks
2.2 General source ability of Risk & Compliance functions
2.3 Sample case
3. Success factors for sourcing of Risk & Compliance functions 20
160513 Study Sourcing in risk and compliance functions.pptx 12
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Agenda
1. Sourcing as a strategic lever in Risk & Compliance functions 4
2. Status quo in international banks 11
2.1 Current and planned sourcing activities in large banks
2.2 General source ability of Risk & Compliance functions
2.3 Sample case
3. Success factors for sourcing of Risk & Compliance functions 20
160513 Study Sourcing in risk and compliance functions.pptx 13
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Share of banks that are sourcing Risk & Compliance
functions
Did you successfully
implement any sourcing
measures for your 2nd line
of defense Risk &
Compliance functions?
Nearshoring
Offshoring
Do you plan for any
additional sourcing
measures for your
2nd line of defense risk &
compliance functions
(upcoming 3 years)?
Outsourcing (mainly IT-
related functions)
30%
70%
Yes No
28%
72%
35%
65%
18%
82%
65%
35% 34%
66%
160513 Study Sourcing in risk and compliance functions.pptx 14
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Trend towards sourcing of Risk & Compliance functions
mainly in North America and Europe
• Many large international banks have successfully implemented sourcing measures in Risk & Compliance
functions
• Banks who successfully sourced selected functions in the past tend to further increase the sourcing degree in
the upcoming 3 years
• Know-how driven Risk & Compliance functions are pre-dominantly nearshored – where more standardized
operations and IT-related functions are offshored or even outsourced
• The current and future sourcing degree is strongly driven by regional patterns. We observe that sourcing in
Risk & Compliance functions is mainly relevant for North American and European Banks
Key insights on current sourcing activities
160513 Study Sourcing in risk and compliance functions.pptx 15
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Agenda
1. Sourcing as a strategic lever in Risk & Compliance functions 4
2. Status quo in international banks 11
2.1 Current and planned sourcing activities in large banks
2.2 General source ability of Risk & Compliance functions
2.3 Sample case
3. Success factors for sourcing of Risk & Compliance functions 20
160513 Study Sourcing in risk and compliance functions.pptx 16
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Most functions in risk mgmt with significant sourcing potential Range of sourcing degree: Risk function
Risk functions Range of sourcing degree Comments
0% 100%
Risk Strategy and Oversight Strategic relevance, limited
sourceability
Risk Policy Management Strategic relevance, limited
sourceability
Risk Analytics High sourceability
Risk Data Management and IT High sourceability, mainly near-
shoring due to data confidentiality
Risk Reporting High potential for nearshoring,
offshoring
Transaction Decision Contribution Limitations due to data confidentiality
30% 60%
20% 50%
30% 70%
10% 50%
160513 Study Sourcing in risk and compliance functions.pptx 17
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Compliance functions with approx. 40 – 50% sourcing potential Range of sourcing degree: Compliance function
Risk functions Range of sourcing degree Comments
0% 100%
Regulatory development and
coordination
Sourceability of regulatory
intelligence activities (tracking) and
partially impact analysis
Subject Matter Compliance Advise
to business, education and
training
High centralization of advise in
selected globally aligned subject
matter areas
Compliance Policy determination
and standards -
Monitoring, Surveillance and
testing
Significant sourceability of
Surveillance functions, limitations in
areas of more qualitative monitoring
Compliance Reporting
High degree of source ability for
report generation (if global standards
are established), limitations for report
analysis and interpretation and
alignment
Compliance Tools and
Infrastructure
High degree of sourceability
(offshoring) to operate compliance
infrastructure
40% 50%
50% 70%
40% 30%
10% 30%
20% 40%
160513 Study Sourcing in risk and compliance functions.pptx 18
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Agenda
1. Sourcing as a strategic lever in Risk & Compliance functions 4
2. Status quo in international banks 11
2.1 Current and planned sourcing activities in large banks
2.2 General source ability of Risk & Compliance functions
2.3 Sample case
3. Success factors for sourcing of Risk & Compliance functions 20
160513 Study Sourcing in risk and compliance functions.pptx 19
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Case study
Baselining and definition of
strategic targets for sourcing
Development of sourcing
strategy and business case
Alignment and approval of
business case / development
of transition plan
• Functional assessment of current
Risk & Compliance organizational
units (incl. footprint)
• Definition of guardrails for the Risk
& Compliance sourcing model
• Defining overall targets to be
achieved and scope of functions in
scope
• Defining set of potential Near and
Offshore locations, pre-evaluation
of locations
• Detailed Sourceability analysis for
every function in scope based on
defined set of criteria (e.g.
proximity to business activities)
• Detailed and function specific
evaluation of location set
• Business case (incl. cost benefit
analysis and ideal footprint)
• Alignment of key elements of
business case with key
stakeholders
• Finalization of business case and
facilitation of Steering Committee
discussion and decision
• Development of transition and
retention plan
Activities &
results
BCG Tools
Case study: Sourcing Strategy for Risk & Compliance of a large international bank
Functional assessment of Risk & Compliance functions (BCG functional model)
Functional scope of
sourcing strategy
Targets of sourcing
strategy (qualitative,
quantitative)
Location assessment
Sourceability analysis
Business case
Stakeholder alignment
Retention plan
Transition plan
Support
activities(exempl.)
Governance &
ControlStrategy/ Policy Decision support
Execution /
Transactional
Regulatory reporting &
group accounting
Tax & insurance
Legal
Compliance
Internal audit, revision
Risk management
Monitoring & reporting
Accounts payable
Accounts receivable
Fixed assets accounting
Cost accounting
HR administration &
payroll processing
Strategic procure. &
order mgmt.
Real estate
Health & safety
Infrastructure & general
services
Corp. strategy,
organization &
development
HR strategic planning &
measurement
Compensation & benefits
Purchase strategy &
support
Planning/ budgeting
M&A
Corporate financing &
investing
First level
support/general HR
Recruiting, retiring &
redeploying
Training & people
development
External communication
Investor relations
Internal communication
Corporate responsibility
& sustainability
"Core""Expansion"
622,9 14,816,8
55,5
28,0
192,2
55,9
93,1
23,749,7
93,1
0
100
200
300
400
500
600
Ges
amt
xx xx xx xx xx xxx xx xx xx xx
Anzahl FTE
Mexico
3,000 FTE
Scottsdale
San José
Moncton, Saint John
500 FTE
Salford Quays,Manchester300 FTE
Newcastle
Prague
800 FTE
Szekesfehervar
225 FTE
Prague
500 FTE
Dalian
1,100 FTE
Manila
India
Bangkok
Bangalore130 FTE
Hyderabad,Delhi, Bangaloreand Gurgaon23,000 FTE
Budapest300 FTE
Curitiba SP
São Paulo
Budapest
400 FTE
Kuala Lumpur
Budapest280 FTE
Atlanta
634 FTE
Budapest250 FTE
Budapest
100 FTE
Krakow
100 FTE
Brno
100 FTE
Krakow
700 FTEBudapest
Local account.
Bundled
2.6
14.6 14.6
4.9
19.5
2.2
1.511.0 2.8
8.2(1)
3.1(3)
11.385%(2)
-15%-10%
-25%
Status
quo
Pulled
out
SSC
target
Best-practice
efficiency
Scale
effect
Factor
costs
G&A cost
accounting
(€M)
Efficiency gain ~45%
Efficiency
€8.2M p.a.
2.0
25.0
5.8
Audit etc.
High flight-risk, no
critical talent /
information holder
High flight-risk
individuals, key
information holder
Low flight-risk, no
critical talent /
information holder
Low flight-risk
individuals key
information holder
Flight
risk
High flight-risk
individuals critical to
business
Low flight-risk
individuals critical to
business
Impact of departure
Low High
Lo
wH
igh
Non-essentialKey Information
HoldersCritical Talent
Rest of Population Key Groups
160513 Study Sourcing in risk and compliance functions.pptx 20
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Agenda
1. Sourcing as a strategic lever in Risk & Compliance functions 4
2. Status quo in international banks 11
2.1 Current and planned sourcing activities in large banks
2.2 General source ability of Risk & Compliance functions
2.3 Sample case
3. Success factors for sourcing of Risk & Compliance functions 20
160513 Study Sourcing in risk and compliance functions.pptx 21
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
The success of the sourcing strategy is strongly driven by
the quality of the feasibility and the transition plan
1
• Detailed and criteria based judgment of sourcing potential for each
function in scope
• Consider key limitation (especially legal, IT, data)
• Active involvement of functional owners
2
• Drive sourcing under the clear aim of improving the effectiveness of
the overall function
• Be sensitive of additional risks related to sourcing – ensure
measures are in line with overall risk appetite
3
• Develop a forward-looking transition plan, that actively addresses
potential downsides
• Ensure that productivity gaps in the new set up are limited
Focus on effectiveness
improvement –
transparency on potential
additional risk
Run detailed functional
feasibility in close
collaboration
with functional owners
Forward-looking transition
plan
160513 Study Sourcing in risk and compliance functions.pptx 23
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
141020 GRC TOM Proposal BCG projexp.pptx 10
Copyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All r
ights
reserv
ed.
A Shared Services concept needs to be validated via
business case
Business case elements
Specific optimization levers, e.g.
• Cross-location harmonization (e.g., of reporting
formats, ...)
• Process optimization (e.g., through implementing
best practice processes)
• Factor cost reduction (e.g., through relocation)
Quantified operational savings in target state
("run rate")
• Effect of process optimization (e.g., FTE savings)
• Scale effects through bundling in SSC
• Effect of factor cost reduction
Required investments, e.g.
• Personnel costs (e.g., severance payments,
double salaries through required "work
shadowing")
• IT costs
• Other (e.g., relocation costs)
Breakeven-analysis
• Timing of implementation
• DCF-analysis
Quantified levers Total savings
Required investments /
Ramp-up costs
Breakeven-analysis
Local account.
Bundled
2.6
14.6 14.6
4.9
19.5
2.2
1.511.0 2.8
8.2(1)
3.1(3)
11.385%(2)
-15%-10%
-25%
Status
quo
Pulled
out
SSC
target
Best-practice
efficiency
Scale
effect
Factor
costs
G&A cost
accounting
(€M)
Efficiency gain ~45%
Efficiency
€8.2M p.a.
2.0
25.0
5.8
Audit etc.
Source: BCG case experience; BCG analysis
In € Mio. (G&A)
Business case SSC accounting Madrid
2006 2007 2008 2009 2010
Savings
One time costs
Aggr. disc. CF after tax
Savings
One time costs
Aggr. disc. CF after tax
2011 2012
Break-even
-4.1
-14.5
-3.0
3.9
9.3 9.7 10.0 10.4 10.8
-3.0
-9.2
-5.8
-0.9
3.8
8.5
12.9
B
141020 GRC TOM Proposal BCG projexp.pptx 4
Copyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All r
ights
reserv
ed.
622,9 14,816,8
55,5
28,0
192,2
55,9
93,1
23,749,7
93,1
0
100
200
300
400
500
600
Ges
amt
xx xx xx xx xx xxx xx xx xx xx
Anzahl FTE
BCG with proven approaches along all dimensionsExample: Vision & strategy
Vision
& strategy
People &
behaviors
Vendors &
contractors
Process
& systems
Org
design &
locations
Mandate & governance
1
2
3 4 5 6
Baselining of current
activities & resources
Low High
High
Low
Payback potential
Implemen-
tation effort
Approach
opportunisticallyQuick Win
Little use pursuing Long running project
12
6
7
9
1112
1413
15
16
17
1 23
4
5
7
9
1112
1314
15
1617
88
10
= number of FTE
1 Expatriate support
2 Processing standard labor/social law questions
3 Environmental analyses of personnel/social policy
4 Performance of health management/company sport
5 Conception of health management
7 Performance of PE/Q. (not mgrs.)
6 Supervision of intragroup labor market
8
9
Human resources administration
10
Answering employee enquiries
11
Payroll accounting
12
Reporting2
14
Performance of labor/environmental protection13
Personnel recruiting
15
Discharge of personnel1
16
Support with salary/bonus determination
17
Coordination of training activities
Travel expense accounting
Potential Shared Services ProcessesCase example
Assessment of shared
service potential
• Collect, analyze, and present
employee data
• Forward data to agencies, board
etc.
• Responsible for most of processes
concerning salary and taxes
• Manage pensions
• Support external assessments
Reporting
Expatriates
Adminis-
tration
Outplace-
ment
Develop-
ment
Support
Payroll
• Employee f irst level support
• Coordination of support within
dif ferent level of expertise
• Organize and conduct trainings
• Specialize on dif ferent target
groups and skills (Executives, IT-
Trainings, languages)
• Handle all administrative tasks of
outplacing employees (account
compensations, write references,
placement support
• Collect and cultivate employee
data (standardization)
• ESS (Employee-Self -Service)
• Support of foreign assignment
(application for visa, work
permission, insurances)
• Support of return
• Collect, analyze, and present
employee data
• Forward data to agencies, board
etc.
• Responsible for most of processes
concerning salary and taxes
• Manage pensions
• Support external assessments
• Employee f irst level support
• Coordination of support within
dif ferent level of expertise
• Organize and conduct trainings
• Specialize on dif ferent target
groups and skills (Executives, IT-
Trainings, languages)
• Handle all administrative tasks of
outplacing employees (account
compensations, write references,
placement support
• Support of foreign assignment
(application for visa, work
permission, insurances)
• Support of return
Example HR
External best-practice
comparisons
Support
activities(exempl.)
Governance &
ControlStrategy/ Policy Decision support
Execution /
Transactional
Regulatory reporting &
group accounting
Tax & insurance
Legal
Compliance
Internal audit, revision
Risk management
Monitoring & reporting
Accounts payable
Accounts receivable
Fixed assets accounting
Cost accounting
HR administration &
payroll processing
Strategic procure. &
order mgmt.
Real estate
Health & safety
Infrastructure & general
services
Corp. strategy,
organization &
development
HR strategic planning &
measurement
Compensation & benefits
Purchase strategy &
support
Planning/ budgeting
M&A
Corporate financing &
investing
First level
support/general HR
Recruiting, retiring &
redeploying
Training & people
development
External communication
Investor relations
Internal communication
Corporate responsibility
& sustainability
"Core""Expansion"
Definition of final
functional scope
B
P-UBS Proposal location assessment-BCG-DRAFT 16-10-23h20.pptx 13
Co
pyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All r
ights
reserv
ed.
Presentation-SAS Geno Tag-30Mar12-KOM-HAM-v09.pptx 40
Copyr
ight
© 2
011 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All r
ights
reserv
ed.
Source: BCG analysis
Risk/Finance
categories
IT layers
Scenarios
and analysis
Models and
calculations
Data
availability
(persistence)
Data
availability
(sources)
Reporting
Archiving and
versioningVI
I
II
III
IV
V
Operational Risk Liquidity RiskMarket RiskCredit Risk Other RisksFinance
Risk
Archiving and Versioning
FO System 1 (Derivatives)
FO System 2-...
Loss DB
Scenario Calculations
Risk Aggregation
CR Analysis MR Analysis OR Analysis LR Analysis IFRSOther Analysis
Local GAAP
RBC/ICAAP
Data Storage
Management Cockpit/Reporting Tool
Analytical Cockpit/Ad Hoc Reporting
Information Map/Business Metadata
ETL
Unique Function LibraryCF PV
Unique Parameter Library
PD LGD
MVaRCVaR ...AMA
...
... ...
PV01 VaR-MCMC VaR-ANA ...
Concentration Risk ... ...
Result data of layer II & III
Market Data/Reference/Master Data/Transaction Data/Collateral Data
Solutions for a well-structured risk IT need to focus on
horizontal integration across Risk/Finance categories
Move to more transversal Risk IT to better fit functional
organization and also new regulation requirements
Move from complex vertical architecture...
...towards horizontal integration
along IT layers
Case study
Wilfred Nagel deck-BF-V3.pptx 26Draft—for discussion only
Copyr
ight
© 2
012 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
1. Investment BankingSource: BCG project experience
Risk/Finance
categories
IT layers
Scenarios
and analysis
Models and
calculations
Data
availability
(persistence)
Data
availability
(sources)
Reporting
Archiving and
versioningVI
I
II
III
IV
V
Operational Risk Liquidity RiskMarket RiskCredit Risk Other RisksFinance
Risk
Front-to-back
solutions in silos
Fragmented IT
landscape with
over 120 data
sources and
applications
No horizontal integration between risk categories
Reporting
inconsistencies
due to missing
result
integration layer
Data
inconsistencies
due to missing
meta-data layer
Today's risk IT architectures often characterized by high
complexity and vertical front-to-back integrated solutions
Realistic landscape defines compromise between vertical
and horizontal structure
IT layer architectureC
P-UBS Proposal location assessment-BCG-DRAFT 16-10-23h20.pptx 10
Co
pyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All r
ights
reserv
ed.
Detailed Risk TOM defined across sub functions and regionsOverview on organizational and governance dimensions that were defined
Risk strategy
Market risk
Wholesale /
retail credit risk
Operational risk
Risk operations
Wholesale risk
management
Retail risk
management
AM risk
management
Insurance risk
management
Ris
k t
yp
es a
nd
op
era
tio
ns
Group
Bu
sin
ess r
isk
ma
na
ge
me
nt
Region Country
Client example
Head of credit
approvals
corporate
Head of credit
approvals FI
...
Head of traded
credit
Head of
wholesale credit
risk
...
• Org structure for head of function and
one level below
• Character of reporting lines (solid /
dotted), accountabilities
• Tasks, responsibilities and
accountabilities per function
• Committee structure
• Processes per function
• Location, accountability, automation
• Interfaces between risk and other
function (e.g., operations, finance)
• Interfaces within risk
Org structure and location Interfaces
Responsibilities Processes
Organizational entity
Global risk function setupC
P-UBS Proposal location assessment-BCG-DRAFT 16-10-23h20.pptx 4
Co
pyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All r
ights
reserv
ed.
Selection of examples of centralization of processes
observed in the market – not all players successful yet
Models and
Analytics
Global universal bank centralised analytics and reporting in
two hubs in India and Eastern Europe
Leading investment bank has ~1,000 employees in Utah,
including risk analysis
Major US universal bank has certain risk analysis activities
in Florida and simpler tasks in Mumbai and Bangalore
Major credit card company moved risk modeling to
Singapore, after talent issues in lower cost locations
Cost pressure has led many banks
to offshore also risk activities
Experience shows, that not all
players have been successful and
some even relocated their risk staff
Bottom line seems to be that
banks successfully offshore risk
activities if...
– ... the task is simple enough
that it can be written down, in
its entirety, unambiguously; or
– ... or: a clear understanding of
individual activities exists and
interfaces are minimized (tasks
made separable)
– ... or: enough scale in offshore
operations – e.g. BNY has
~10,000 employees in India,
20% of the total populationOther activities
Global UK bank established center for high-value risk
activities in Singapore
Major financial analysis corporation offshored some risk
activities but then reshored from India
Reporting
Large French bank built up 'Reporting-Factory' in Vietnam
– shared for Risk and Finance
Large Asian bank moved operational risk reporting to India
Credit risk
management
Major European retail bank outsourced capturing and
tabulation of balance sheet data, verification of salary
statements and contracts to a captive provider
Global automotive captive centralised contract administration
Large Austrian bank discussed centralisation / set-up of rating-
hubs – not yet implemented
Large Asian bank moved credit analysis for multiple lending
businesses to India
1
2
3
Source: BCG Project Experience
B
P-UBS Proposal location assessment-BCG-DRAFT 16-10-23h20.pptx 2
Co
pyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All r
ights
reserv
ed.
Four main themes typically support rationale for a new
sourcing strategy...
Cost benefits
• Makes cost and consumption transparent and addressable
• Factor cost advantages through lower labor costs, share systems
• Scale effects of external provider – leverage outside volumes
Provider leverage
• Potential to achieve change measures and efficiency gains in a shorter time frame,
due to reduced resistance to change
• Access to scale, best in class systems, thinking and experience
Quality benefits• Quality improvement due to professional specialization and expertise
• Access to best in class processes and service levels – effectively benchmarked
Strategic• Potential for reduced time to adapt to new market / industry regulations
• Frees management capacity to focus on higher value areas
Source: BCG project experience
Theme Example
B
BCG project experience and insights structured along 5
dimensions
Project
references
Broad relevant strategic project experience in
defining risk target operating models and
sourcing in the financial services industry
A
Key trends in
sourcing along
client examples
Sample client examples illustrating the key
trends in sourcing and transformation of
global risk functions
Source: BCG
D
Industry insights
and lessons lear-
ned on sourcing
Valuable insights and lessons learned from
other companies in the financial sector
C
P-UBS Proposal location assessment-BCG-DRAFT 16-10-23h20.pptx 1
Copyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All r
ights
reserv
ed.
BCG has more than 300 relevant credentials in financial
industries in the context that UBS requested
Source: BCG
A
Selection of relevant project experience in financial services industry
Client
Global Universal bank
European Universal bank
Large Nordic bank
International US Bank
Indian Bank
International US Bank
German financial institution
Major Australian bank
French Universal bank
Top 5 US bank
US Investment bank
International UK Bank
Major bank in APAC
US bank
UK bank
Topic
Transformation and sourcing of group risk functions
Excellence initiative in support functions
Outsourcing of support functions
Transformation/Sourcing of group risk management (off
and near shoring)
Excellence initiative in support functions
Sourcing strategy and model for finance & risk
Location strategy for support functions
Outsourcing of support functions
Outsourcing of all major support functions
Location strategy for group risk management
Location/sourcing strategy for support functions
Sourcing strategy and transformation support for group
risk management
Sourcing strategy development (Risk, Finance)
Location assessments for support functions
Location assessments for finance, risk and compliance
Location
assessment
Sourcing
strategy
Transforma-tion
business case
Transformation
Management
✓ ✓ ✓
✓ ✓ ✓✓ ✓
✓ ✓
✓ ✓ ✓
✓ ✓
✓
✓
✓✓
✓
✓
✓
✓
✓
✓ ✓✓ ✓ ✓✓ ✓ ✓✓✓ ✓
✓ ✓
✓ ✓✓✓
P-UBS Proposal location assessment-BCG-DRAFT 16-10-23h20.pptx 5
Co
pyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All r
ights
reserv
ed.
Industry analysis indicates mix of offshoring and near-
shoring activity, but challenges still exist
Deutsche Bank offshored
corporate credit analysis
employees to India, but
partially reshored
1. Other examples of financial services companies to recently reshore from India include HSBC, Lehman Brothers.Note: Reshoring is the act of taking a job that has been offshored and bringing returning them to a higher-cost location. Nova Scotia has seen significant investments in middle and back office jobs (~1000 FTE) from 2008 – 2010, unclear what functions are being performed. Sources: BCG Research and Analysis, Nova Scotia Business Inc.
Standard Chartered
established center for
high-value risk activities in
Singapore
Next wave expected to be more successful given experience
and cost imperatives
Amex moved risk
modeling to Singapore,
after talent issues in lower
cost locations
JP Morgan1 has risk
analysis in Mumbai and
Bangalore
Ireland, Czech Republic,
Poland among choices for
European banks
Goldman has ~1,000
employees in Utah,
including risk analysis
ANZ moved credit analysis for
multiple lending businesses and
operations risk reporting to India
JP Morgan has certain
risk analysis activities
done in Florida
Moody's offshored some risk
activities but then reshored
from India
TD Insurance has mid/back office
ops in Nova Scotia; significantly
increased footprint since 2008
Backup
P-UBS Proposal location assessment-BCG-DRAFT 16-10-23h20.pptx 11
Co
pyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All r
ights
reserv
ed.
Risk functions bundled in European center
• Outside of financial centers to achieve lower labor costs
– client proximity less relevant
• Separate legal entity to avoid existing cost structure and
collective labor contracts
More extensive functions bundled
Cost reduction of near shoring is substantial1
• Near-shoring potential: ~20-30% of total FTE in CRO-
function
• ~<60-70% cost saving on near-shored FTE
=> 15% to 20% overall CRO-FTE cost reduction
Global bank achieved significant costs savings through
bundling and near-shoring of risk tasks
Client situation
Client is a leading multi-region, multi-division bank
Client had already an established off-shoring program
to Asia for risk tasks in place
• In place for several years
• Relevant tasks focused on daily market risk
controlling and components of credit approval, i.e.,
rating, documentation, IT
• Off-shoring to Asian low cost countries
• Low labor costs partly offset by high travel expenses
• Extremely high attrition rate in off-shored functions
caused loss of efficiency and knowledge – continuous
training of new staff required
• Significant number of risk FTE remaining in high-cost
locations, i.e., global financial centers
• Total FTE ~68K thereof 5-7% in CRO-function:
~3.500 – 5.000 FTE
• Near-shoring potential: ~1.000–1.500 FTE
or €100-150 mn2
Levers and Impact
Client example
New legal
entity
Credit approval (except largest customers)
Daily operations risk controlling
Compliance
Legal
IT partly remains in low cost location
Near-shoring of risk tasks
1. Outside-in estimation 2. All-in cost per FTE ~€150K in-house vs. 50K near-shore
Potential cost savings for CRO function1
C
P-UBS Proposal location assessment-BCG-DRAFT 16-10-23h20.pptx 16
Co
pyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All r
ights
reserv
ed.
Shared Services is a performance journey with global market
leaders pushing towards "Full Service Solution Provider"
Transactional
Service Factory
High Performance
Service Engine
Full Service
Solution Provider
Value
• Functional Excellence
• Bundle & Standardize
• Optimize & Automate
• Relocate & Outsource
• Multi-functional excellence
• Optimize & Improve/Innovate
• Expand & Integrate
• Develop & Scale-up
• Transactional business services
• Analytics to drive insight /
decision support
• Consult & Market
• Support & Take-over
• Decide & Take responsibility
Scope Four corporate functions
(Finance Ops, HR&A Ops, IT,
Procurement & RE)
Add'l corporate functions
(Legal Ops, Compliance
Ops, etc)
Some business functions
Partnership Transactional with individual
functions
Transactional across
functions
True value-add partner
with BUs
Performance Cost efficiency Operating effectiveness Decision support
Standardization Basic support processes Extend across BUs, geos Extend to fit-for-purpose
processes
Capability Business transformation
(vendor mgmt, engineering)
Lean processes (E2E)
across functions
Data and analytics, BU-
value added services
Maturity
dimension Time
Source: BCG
D
P-UBS Proposal location assessment-BCG-DRAFT 16-10-23h20.pptx 17
Co
pyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All r
ights
reserv
ed.
Full Service Solution Providers of global market leaders
exhibit common key features
Ambitious
functional scope
End-to-end
process ownership
"Service hubs"
model
Strong customer
focus
Continuous
improvement
Business-like
steering
1
2
3
Long-term
continuous effort
1
2
3
4
5
6
7
Source: BCG
D
Innovation and
Excellence in
Shared Services
E
The journey towards Excellence in Support
Functions (ESF) – best-practice Shared
Services
P-UBS Proposal location assessment-BCG-DRAFT 16-10-23h20.pptx 15
Co
pyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All r
ights
reserv
ed.
The journey to excellence: shared services drive efficiency &
effectiveness in support functions
Valu
e / E
ffecti
ven
ess
Cost / Efficiency
"Excessive" "Truly excellent"
"Bureaucratic" "Minimalistic"
Source: BCG
The opportunity: Break the paradigm of
value VS. cost
• Excellence is about both
• Shared services can deliver both, one
reinforcing the other
The approach: De-average delivery
• Differentiated delivery
• More specialization, yet strong overall
orchestration and capability building
The value: cost and value impact
• Cost out: 1-3 ppt improved cost ratio
• Value: Enable your organization, be able
and credible to best steer and service your
business, drive growth and profitability
D
BCG framework
for shared serv.
operating model
B Our proven BCG framework for the target
operating model of shared services
addresses all key elements
141020 GRC TOM Proposal BCG projexp.pptx 3
Copyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All r
ights
reserv
ed.
Vision,
& strategy
Vision
& strategy
People &
behaviors
Vendors
& sourcing
Systems
& tools
Proces-
ses
Org
design
Mandate & governance
Effectiveness
(Value)
Efficiency
(Cost)
Source: ESF
Our Framework for the Target Operating Model of shared
services addresses all key elements
Input
Dimensions
Output
Dimensions
Excelle
nce
Sharp vision & clear value
creation ambition through
priority setting in corporate
strategy
Right mix of
functional &
soft skills,
combined with
right mindset
& high
motivation
Flat hierarchies,
right centrali-
zation, clear roles
Vision/Strategy-consistent
mandates, minimal regulation &
"good enough" mindset
Lean processes,
minimizing waste
& rework
Effective use of
external providers &
leverage of external
workforce
Effective tools,
methods, dash-
boards & IT
Value added in high priority issues,
high quality service interactionsHigh speed at reasonable cost ,
no low-value service activities
B
160513 Study Sourcing in risk and compliance functions.pptx 24
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
BCG has more than 300 relevant credentials on sourcing in
financial institutions
A
✓ ✓ ✓
✓ ✓ ✓
✓ ✓ ✓
✓ ✓
✓
✓
✓ ✓ ✓
✓ ✓ ✓ ✓
✓ ✓ ✓
✓ ✓ ✓
✓ ✓
✓
✓
✓
✓ ✓
✓
✓
✓
✓ ✓
✓
✓
✓
✓ ✓ ✓
✓ ✓
✓ ✓ ✓
✓ ✓ ✓
✓
✓ ✓
✓
✓ ✓
Client
Global universal bank
International US bank
International UK-based bank
French banking group
International US bank
International bank
Regional German bank
Global German-based bank
European bank
Portuguese bank
European universal bank
German financial institution
International UK bank
Major bank in APAC
French universal bank
Topic
Transformation and sourcing of group risk functions
Transformation/Sourcing of group risk management (off- and
nearshoring)
Re-engineering of global risk function
Definition of target organization and governance for the risk function
Sourcing strategy and model for finance & risk
Transformation of risk organizational design
Comprehensive transformation program for the CRO function
Target Operating Model blueprint for operational excellence program
Operational excellence strategy for corporate functions
Redefinition of Operating Model for support functions to optimize cost
structure
Excellence initiative in support functions
Location strategy for support functions
Sourcing strategy and transformation support for group risk
management
Sourcing strategy development (Risk, Finance)
Outsourcing of all major support functions
Location
assessment
Sourcing
strategy
Transformation
business case
Transformation
management
Risk Target
Operating Model
Selection of relevant project experience in the financial services industry
Source: BCG
160513 Study Sourcing in risk and compliance functions.pptx 25
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Vision,
& strategy
Vision
& strategy
People &
behaviors
Vendors
& sourcing
Systems
& tools
Proces-
ses
Org
design
Mandate & governance
Effectiveness
(Value)
Efficiency
(Cost)
Source: ESF
Our Framework for the Target Operating Model of shared
services addresses all key elements
Input
Dimensions
Output
Dimensions
E
xc
elle
nc
e
Sharp vision & clear value
creation ambition through
priority setting in corporate
strategy
Right mix of
functional &
soft skills,
combined with
right mindset
& high
motivation
Flat hierarchies,
right centrali-
zation, clear roles
Vision/Strategy-consistent
mandates, minimal regulation &
"good enough" mindset
Lean processes,
minimizing waste
& rework
Effective use of
external providers &
leverage of external
workforce
Effective tools,
methods, dash-
boards & IT
Value added in high priority issues,
high quality service interactions High speed at reasonable cost ,
no low-value service activities
B
160513 Study Sourcing in risk and compliance functions.pptx 26
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
622,9 14,816,8
55,5
28,0
192,2
55,9
93,1
23,749,7
93,1
0
100
200
300
400
500
600
Ges
amt
xx xx xx xx xx xxx xx xx xx xx
Anzahl FTE
BCG with proven approaches along all dimensions Example: Vision & strategy
Vision
& strategy
People &
behaviors
Vendors &
contractors
Process
& systems
Org
design &
locations
Mandate & governance
1
2
3 4 5 6
Baselining of current
activities & resources
Low High
High
Low
Payback potential
Implemen-
tation effort
Approach
opportunisticallyQuick Win
Little use pursuing Long running project
12
6
7
9
1112
1413
15
16
17
1 23
4
5
7
9
1112
1314
15
1617
88
10
= number of FTE
1 Expatriate support
2 Processing standard labor/social law questions
3 Environmental analyses of personnel/social policy
4 Performance of health management/company sport
5 Conception of health management
7 Performance of PE/Q. (not mgrs.)
6 Supervision of intragroup labor market
8
9
Human resources administration
10
Answering employee enquiries
11
Payroll accounting
12
Reporting2
14
Performance of labor/environmental protection13
Personnel recruiting
15
Discharge of personnel1
16
Support with salary/bonus determination
17
Coordination of training activities
Travel expense accounting
Potential Shared Services ProcessesCase example
Assessment of shared
service potential
• Collect, analyze, and present
employee data
• Forward data to agencies, board
etc.
• Responsible for most of processes
concerning salary and taxes
• Manage pensions
• Support external assessments
Reporting
Expatriates
Adminis-
tration
Outplace-
ment
Develop-
ment
Support
Payroll
• Employee f irst level support
• Coordination of support within
dif ferent level of expertise
• Organize and conduct trainings
• Specialize on dif ferent target
groups and skills (Executives, IT-
Trainings, languages)
• Handle all administrative tasks of
outplacing employees (account
compensations, write references,
placement support
• Collect and cultivate employee
data (standardization)
• ESS (Employee-Self -Service)
• Support of foreign assignment
(application for visa, work
permission, insurances)
• Support of return
• Collect, analyze, and present
employee data
• Forward data to agencies, board
etc.
• Responsible for most of processes
concerning salary and taxes
• Manage pensions
• Support external assessments
• Employee f irst level support
• Coordination of support within
dif ferent level of expertise
• Organize and conduct trainings
• Specialize on dif ferent target
groups and skills (Executives, IT-
Trainings, languages)
• Handle all administrative tasks of
outplacing employees (account
compensations, write references,
placement support
• Support of foreign assignment
(application for visa, work
permission, insurances)
• Support of return
Example HR
External best-practice
comparisons
Support
activities(exempl.)
Governance &
ControlStrategy/ Policy Decision support
Execution /
Transactional
Regulatory reporting &
group accounting
Tax & insurance
Legal
Compliance
Internal audit, revision
Risk management
Monitoring & reporting
Accounts payable
Accounts receivable
Fixed assets accounting
Cost accounting
HR administration &
payroll processing
Strategic procure. &
order mgmt.
Real estate
Health & safety
Infrastructure & general
services
Corp. strategy,
organization &
development
HR strategic planning &
measurement
Compensation & benefits
Purchase strategy &
support
Planning/ budgeting
M&A
Corporate financing &
investing
First level
support/general HR
Recruiting, retiring &
redeploying
Training & people
development
External communication
Investor relations
Internal communication
Corporate responsibility
& sustainability
"Core""Expansion"
Definition of final
functional scope
B
160513 Study Sourcing in risk and compliance functions.pptx 27
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
BCG with proven approaches along all dimensions Example: Mandate & governance
Vision
& strategy
People &
behaviors
Vendors &
contractors
Process
& systems
Org
design &
locations
Mandate & governance
1
2
3 4 5 6
Steering logic –
cost vs. profit center
Obligation to
Contract
Free Decision
R
• Essential weakening of
demand side
• Internally subsidized
growth
• Problematic
prioritization of
customers
G
• Enabling of highest
efficiency and
effectiveness (ready for
market)
• Loss of bundling effects
• More complex company-
wide steering
G
• Compensation of
possible inefficiencies
through price mechanisms
• Minimization of the danger
of an unwanted
company-wide increase
of supply
Y
• Strengthening of market
powers
• Price vs. cost problems
if bundling is not possible
• Wrong incentives on the
demand side
G
• More Focus on cost
reduction while demand
remains stable
• Increase of efficiency
due to higher pressure
for justification by
internal demand side
Y
• Uncertainty for planning
due to uncertain
demand
• Problems with offering
adequate offers
• Yet, possibility to
reallocate earnings and
losses internally
With Obligation to
Contract possible center
type
With Obligation to
Contract possible center
type
With Free Decision possible
center typeEvaluation
Contracting
model
Steering logic
Cost centerControlled
profit centerProfit center
Service KPIs
Purchase-to-
Pay
• % of items processes within 4 calendar days
• ø query resolution time
• % of customer service availability
• % of customer service first time resolution
Service
Invoice-to-
Cash
• DSO on target
• % cash allocation
• % of calls answered
Account-to-
report
• % of on time submissions to system
• % of unprocessed orders
Tax• % of VAT return delivered on time
• % of Intrastat submissions delivered on time
KPIs
Customer interaction
model
Corporate center
SSC
Customers
Contracting model – obligation
to buy vs. free choice
Option 1:
Obligation to Contract
Option 2:
Free Decision
Services that can be bundled on a company-wide level, HAVE to be
contracted via SSC
Subgroup/
BUSSC
External
Provider Optional special rights for
service unit possible:
"Last call"-Rule
Right to be informed about
bid-invitation to external
providers
Right to takeover a contract
for same condition
Subgroups/BUs can freely choose to contract a provider
Subgroup/
BU
SSC
External
Provider
"Last-Call"-
Rule
B
160513 Study Sourcing in risk and compliance functions.pptx 28
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
BCG with proven approaches along all dimensions Example: Organization design & locations
Vision
& strategy
People &
behaviors
Vendors &
contractors
Process
& systems
Org
design &
locations
Mandate & governance
1
2
3 4 5 6
Overall Shared Services
organization
Decentralized setup
Corp. Center
BU
SS
BU BUBU
SS SS
Functional setup
SS
BU BU BU
Corp. Center
SS SS SS
Multi-service setup
BU SS BU
Corp. Center
HR
F&
A
P
Interface to
business units
Business
unit 1
Business
unit 2
Business
unit 3
Business Partners
& HR Supports
BU Business PartnersTransversal Processes
Payroll / Administration
Areas of Expertise
Employee
Relations
Impats/
Expats
Comp./ Benefits
and Projects
Platforms
Management Shared HR
Career
Management
Recruiting
Training &
Development
Define Define
Define /
supportAdvise
Provide/
Adapt
Define
needs
Individual service setup
HR Management SSC
Payroll
accounting
Health
Management
HR
Management
Retirement
Provision
Assistant
Location choice
Mexico
3,000 FTE
Scottsdale
San José
Moncton, Saint John
500 FTE
Salford Quays,Manchester300 FTE
Newcastle
Prague
800 FTE
Szekesfehervar
225 FTE
Prague
500 FTE
Dalian
1,100 FTE
Manila
India
Bangkok
Bangalore130 FTE
Hyderabad,Delhi, Bangaloreand Gurgaon23,000 FTE
Budapest300 FTE
Curitiba SP
São Paulo
Budapest
400 FTE
Kuala Lumpur
Budapest280 FTE
Atlanta
634 FTE
Budapest250 FTE
Budapest
100 FTE
Krakow
100 FTE
Brno
100 FTE
Krakow
700 FTEBudapest
B
160513 Study Sourcing in risk and compliance functions.pptx 29
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
BCG with proven approaches along all dimensions Example: Processes & systems
Vision
& strategy
People &
behaviors
Vendors &
contractors
Process
& systems
Org
design &
locations
Mandate & governance
1
2
3 4 5 6
Service processes
Service level
agreements
Employee
services
Business
services
Stakeholders involved Services delivered
Service
Level
Agreement
GBUs
MDO
Corporate
functions
GBS
Input Owner
Transfer pricing
schemes
"Direct cause-
and-effect"
"Indirect cause-
and-effect"
IllustrationPrinciple
BU 1
BU 2
BU3
BU4
BU n
BU 1
BU 2
BU 3
BU 4
BU n
1. Rechnungserfassung und -archivierung
2. Rechnungen prüfen
3. Kosten-/Aufwands-buchungen durchführen
4. Rechnungen begleichen
TK 1 SSCRechnungs-
prüfung
Andere Abteilung
Operative Einheiten,
Einkauf
Rechnung
SSC
Rechnung sachlich, vertraglich und rechnerisch
prüfen
SSC
• Rg. buchen, ggf. korrigieren/ Anschreiben erstellen
• Gesperrte Rechnung klären
SSC
• Maschinelle Zahlung
anstoßen/
Überwachen
Zahlung
= Schnittstelle
Einkauf
Ggf. Preisprüfung
Wareneingang
Ggf. Warenein-gangsbuchung
Lagerort
Ggf. Anerkennung Menge und WE-Buchung
Anforderer
Ggf. Anerkennung Menge und ggf. WE-Buchung
Finanzpartner
• Prüfung/ Kontierung• Ggf. Umbuchung über
Kontrolllisten
Scannen
Validierung
Rechnung (Work-Item)
Empfang
SSC und Vorberei-
tung
Scannen
Systems and enabling
technologies
IT-systems
BU 2
BU 4
BU1
BU ...
Units
B
160513 Study Sourcing in risk and compliance functions.pptx 30
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
BCG with proven approaches along all dimensions Example: People & behaviors
Vision
& strategy
People &
behaviors
Vendors &
contractors
Process
& systems
Org
design &
locations
Mandate & governance
1
2
3 4 5 6
Retention management
High flight-risk, no
critical talent /
information holder
High flight-risk
individuals, key
information holder
Low flight-risk, no
critical talent /
information holder
Low flight-risk
individuals key
information holder
Flight
risk
High flight-risk
individuals critical to
business
Low flight-risk
individuals critical to
business
Impact of departure
Low High
Lo
wH
igh
Non-essentialKey Information
HoldersCritical Talent
Rest of Population Key Groups
Transfer of capabilities
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
201220112010
24
79
112
143
184 184 184 184
55
33
31
41
24
89
139
167
203
206
192184
24
184
Career paths in-/outside
Shared Services
SSC(desirable and soon mandatory for all HR careers)
CoE 1 CoE 2
HRBP(experience in SSC and 2 CoEs mandatory)
HR leadership(experience in all three departments desirable)
Bu
sin
ess
exp
eri
en
ce
High-potential attraction
MeasureStrategy-based HR planning and value proposition
OpenNew pools of talents or resources
MarketNew channels and credibility
SupportAppropriate tools and organizations
Current
talent portfolio
Future
optimal target
SSC mgmt.
Key positions
Key position
potentials
Potentials
x10
x3
x3
Challenge: Fueling growth of Shared Services
How to adjust Shared Services
for growth
B
160513 Study Sourcing in risk and compliance functions.pptx 31
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
BCG with proven approaches along all dimensions Example: People & behaviors
Vision
& strategy
People &
behaviors
Vendors &
contractors
Process
& systems
Org
design &
locations
Mandate & governance
1
2
3 4 5 6
Sourcing strategy
BU Intern. serviceprovider
ExternalInternal
Lo
ca
l
Re
gio
na
l/
glo
ba
lO
ffsh
ore
C
3A B
2a 4
1a 5
67
1c
1b2b2c
Vendor selection &
transition
III IV V
Sizing the opportunity
I II
Vendor scoping, RfI/RfP & due
diligence
Design ofretained org. &
contractingTransition Transformation
Vendor management
Operational
board
Strategic
board
Quality manager
Project manager(s) OtC/PtP/general ledger
Operational manager
Head(s) of OtC/PtP/general ledger
Process deliverymanager
Contract owner,e.g., CFO
Key Accounter
A
B
CHelp Desk
Business
units
OtC team
PtP team
General ledger team
B
160513 Study Sourcing in risk and compliance functions.pptx 32
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
A Shared Services concept needs to be validated via
business case
Business case elements
Specific optimization levers, e.g.
• Cross-location harmonization (e.g., of reporting
formats, ...)
• Process optimization (e.g., through implementing
best practice processes)
• Factor cost reduction (e.g., through relocation)
Quantified operational savings in target state
("run rate")
• Effect of process optimization (e.g., FTE savings)
• Scale effects through bundling in SSC
• Effect of factor cost reduction
Required investments, e.g.
• Personnel costs (e.g., severance payments,
double salaries through required "work
shadowing")
• IT costs
• Other (e.g., relocation costs)
Breakeven-analysis
• Timing of implementation
• DCF-analysis
Quantified levers Total savings
Required investments /
Ramp-up costs
Breakeven-analysis
Local account.
Bundled
2.6
14.6 14.6
4.9
19.5
2.2
1.511.0 2.8
8.2(1)
3.1(3)
11.385%(2)
-15%-10%
-25%
Status
quo
Pulled
out
SSC
target
Best-practice
efficiency
Scale
effect
Factor
costs
G&A cost
accounting
(€M)
Efficiency gain ~45%
Efficiency
€8.2M p.a.
2.0
25.0
5.8
Audit etc.
Source: BCG case experience; BCG analysis
In € Mio. (G&A)
Business case SSC accounting Madrid
2006 2007 2008 2009 2010
Savings
One time costs
Aggr. disc. CF after tax
Savings
One time costs
Aggr. disc. CF after tax
2011 2012
Break-even
-4.1
-14.5
-3.0
3.9
9.3 9.7 10.0 10.4 10.8
-3.0
-9.2
-5.8
-0.9
3.8
8.5
12.9
B
160513 Study Sourcing in risk and compliance functions.pptx 33
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Business case based on clear guidelines and assumptions
including optimization levers and ramp-up costs
Not relevant • Currently, only limited use of external vendors
• Therefore, no potential assumed
Procurement
optimization
5% • Conservative assumption: processes at business unit A already largely optimized
• By rolling out business unit A process, learning effects largely realized
• Yet, limited future learning effects through use of employee interaction center for employee requests
Learning curve
effects
Costs for payroll
system migration
• Implementation costs of € X Mio. for migration of current payroll processes and data to systems of
business unit A
• Further implementation costs of € Y Mio. to set up employee interaction center
• Recurring yearly IT costs of € Z Mio. in steady state
IT costs
1,2 x personnel
costs • Overarching assumption for severance pay, based on BCG know-how, client experience and
existing labor agreements Severance pay
Op
tim
iza
tio
n le
ve
rs
Ra
mp
-up
co
sts
100% of activities • Bundling of entire function HR payroll
• Activity scope includes: payroll, HR administration, employee requests, payroll reporting
Functional
scope
Bundling in two
clusters
• Currently, very decentralized set-up, differing degrees of efficiency
• Yet, due to high complexity of underlying tariff structures, complete bundling not feasible
• Bundling in two clusters, business units A, B, C and D in cluster 1, business unit E to form cluster 2
Degree of
bundling
Increase to internal
best practice
• Increase of productivity to current internal best practice (business unit A)
• Furthermore, use of scale effects through bundling and migration to two payroll systems
(assumed scale curve: 10%)
Productivity
increase
€ 5.550 • Overarching assumption based on benchmarks, BCG know-how and client experience Relocation
costs
Source: BCG case experience
Case example
B
160513 Study Sourcing in risk and compliance functions.pptx 34
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Four main themes typically support rationale for a new
sourcing strategy...
Cost benefits
• Makes cost and consumption transparent and addressable
• Factor cost advantages through lower labor costs, share systems
• Scale effects of external provider – leverage outside volumes
Provider leverage
• Potential to achieve change measures and efficiency gains in a shorter time frame,
due to reduced resistance to change
• Access to scale, best in class systems, thinking and experience
Quality benefits • Quality improvement due to professional specialization and expertise
• Access to best in class processes and service levels – effectively benchmarked
Strategic • Potential for reduced time to adapt to new market / industry regulations
• Frees management capacity to focus on higher value areas
Source: BCG project experience
Theme Example
C
160513 Study Sourcing in risk and compliance functions.pptx 35
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
...but common risk drivers should be considered as well
People
• Cultural impact – loss of engagement
• Survivor guilt and morale impairment
• Impaired ability to cross train staff – less attractive career tracks
• Less experienced staff at provider – high turnover, low industry knowledge
Flexibility and
control
• Inability to redirect resources to emerging priorities
• Erosion of in-house capability – become beholden to suppliers
• Higher charges for exceptions / ad hoc demand
• Contractual obligations (minimum spend / utilization etc)
Vendor issues
• Vendor failure / relationship failure
• High degree of supervisory burden and cost
• Misaligned incentives (cost versus quality / revenue)
• Bait and switch "suppliers trap"
Source: BCG project experience
C
160513 Study Sourcing in risk and compliance functions.pptx 36
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Selection of examples of centralization of processes
observed in the market – not all players successful yet
Models and
Analytics
Global universal bank centralised analytics and reporting in
two hubs in India and Eastern Europe
Leading investment bank has ~1,000 employees in Utah,
including risk analysis
Major US universal bank has certain risk analysis activities
in Florida and simpler tasks in Mumbai and Bangalore
Major credit card company moved risk modeling to
Singapore, after talent issues in lower cost locations
Cost pressure has led many banks
to offshore also risk activities
Experience shows, that not all
players have been successful and
some even relocated their risk staff
Bottom line seems to be that
banks successfully offshore risk
activities if...
– ... the task is simple enough
that it can be written down, in
its entirety, unambiguously;
– ... or: a clear understanding of
individual activities exists and
interfaces are minimized (tasks
made separable);
– ... or: enough scale in offshore
operations – e.g. BNY has
~10,000 employees in India,
20% of the total population Other activities
Global UK bank established center for high-value risk
activities in Singapore
Major financial analysis corporation offshored some risk
activities but then reshored from India
Reporting
Large French bank built up 'Reporting-Factory' in Vietnam
– shared for Risk and Finance
Large Asian bank moved operational risk reporting to India
Credit risk
management
Major European retail bank outsourced capturing and
tabulation of balance sheet data, verification of salary
statements and contracts to a captive provider
Global automotive captive centralised contract administration
Large Austrian bank discussed centralisation / set-up of rating-
hubs – not yet implemented
Large Asian bank moved credit analysis for multiple lending
businesses to India
1
2
3
C
Source: BCG project experience
160513 Study Sourcing in risk and compliance functions.pptx 37
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Industry analysis indicates mix of offshoring and near-
shoring activity, but challenges still exist
Deutsche Bank offshored
corporate credit analysis
employees to India, but
partially reshored
1. Other examples of financial services companies to recently reshore from India include HSBC Note: Reshoring is the act of taking a job that has been offshored back to a higher-cost location. Nova Scotia has seen significant investments in middle and back office jobs (~1000 FTE) from 2008 – 2010, unclear what functions are being performed. Sources: BCG Research and Analysis, Nova Scotia Business Inc.
Standard Chartered
established center for
high-value risk activities in
Singapore
Next wave expected to be more successful given experience
and cost imperatives
Amex moved risk
modeling to Singapore,
after talent issues in lower
cost locations
JP Morgan1 has risk
analysis in Mumbai and
Bangalore
Ireland, Czech Republic,
Poland among choices for
European banks
Goldman has ~1,000
employees in Utah,
including risk analysis
ANZ moved credit analysis for
multiple lending businesses and
operations risk reporting to India
JP Morgan has certain
risk analysis activities
done in Florida
Moody's offshored some risk
activities but then reshored
from India
TD Insurance has mid/back office
ops in Nova Scotia; significantly
increased footprint since 2008
Backup C
160513 Study Sourcing in risk and compliance functions.pptx 38
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
High level checklist can provide initial indication on how to
mitigate the risks
• Off-/nearshore standard, non-core, non client facing activities.
• Complex, bespoke activities will remain in the trading hubs
• Do not offshore broken processes
• A variety of factors need to be considered (Government subsidies,
availability of talents, country risk )
• A detailed global blueprint needs to be developed to ensure consistency
and avoid duplications
• Requirement of single point of contact (e.g. front office)
• Continuous effort required to co-ordinate day-to-day interactions with the
regional operations teams to drive economies of scale and process
efficiency
• Level of outsourcing depends on internal ability and acceptance
What to off-/
nearshore?
Where to off-/
nearshore?
How to
manage?
When out-
source ?
C
Source: BCG project experience
160513 Study Sourcing in risk and compliance functions.pptx 39
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Key trends in risk function organization
Global risk function
setup
International leading bank improved efficiency and effectiveness of global risk function by
• Ensuring global consistency of risk strategy, policies, roles, processes, data and IT
• De-layering by removing management layers (12 to 8) and committees (>100 removed)
• Increased use of shared service centers for operational efficiency
• Less and more standardized reporting
Bundling of risk
tasks
Global bank achieved significant costs savings through bundling of risk tasks in non financial hubs
• Achieved lower labor costs for risk tasks where client proximity is less relevant (e.g. daily controlling
operations, legal, credit approval, compliance)
• Separate legal entity to avoid existing cost structure and collective labor contracts
IT layer architecture
Transversal Risk IT set up to better fit functional organization and new regulatory requirements
• Single point of truth for market, master/reference and position data
• Consolidation of models and calculations across Risk, Finance and Front Office
• Dynamic portfolio simulation environment allowing ad hoc and integrated marco-economic scenarios
• Integrated reporting of risk and finance without disconnect between reg. reporting and bank steering
Integrated workflow
management
Large universal bank improved effectiveness with integrated workflow support for credit process
• Capturing and real-time editing of all relevant data while avoiding data inconsistencies
• Value-added analyses based on workflow tool (e.g. definition of warning signals, automated analysis of
existing portfolio, basis for scenario analysis, resource allocation analysis)
D
Client example Description
Source: BCG project experience
160513 Study Sourcing in risk and compliance functions.pptx 40
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Key levers defined to enhance organizational efficiency and
effectiveness
• Spanning across headquarter, regions, countries
• Make Risk function own all its key operations Build a truly global Risk function
• Globally consistent definition of risk strategy, governance,
organization, roles, task splits, policies, processes, data, IT, etc.
Implement globally consistent Risk
Operating Model along a common
Blueprint
• Clear accountability defined between global headquarters,
regions, countries
• Clear interfaces with businesses functions
Align responsibilities and interfaces
globally
• Dual reporting lines on layer 5+ only if required by local
regulation
Define global reporting lines and
remove multiple ones where possible
• Removal of >100 committees/meeting formats
• Clear responsibilities, no duplicate sign-offs
Streamline risk-related
committees/meeting formats
• Reduce from previously 12 management layers to max. 8 layers
• Increase spans of control from below 5 to an average of 8
(between 6-25)
Reduce management layers and
increase spans of control
• Less and more focused/standardized and automated reports
• Re-engineer end-to-end risk processes to apply global standards
• Review of all risk activities – elimination low-value activity
Thoroughly review the way the Risk
function operates
• Merge selected offshore shared risk service centers
• Take advantage of labor cost arbitrage
Increased use of further
offshoring/shared services
Processes
Physical
location
Organization
Configuration
Governance
Global risk function setup
Client example
D
Source: BCG project experience
160513 Study Sourcing in risk and compliance functions.pptx 41
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Detailed Risk TOM defined across sub functions and regions Overview on organizational and governance dimensions that were defined
Risk strategy
Market risk
Wholesale /
retail credit risk
Operational risk
Risk operations
Wholesale risk
management
Retail risk
management
AM risk
management
Insurance risk
management
Ris
k t
yp
es
an
d o
pe
rati
on
s
Group
Bu
sin
es
s r
isk
ma
nag
em
en
t
Region Country
Head of credit
approvals
corporate
Head of credit
approvals FI
...
Head of traded
credit
Head of
wholesale credit
risk
...
• Org structure for head of function and
one level below
• Character of reporting lines (solid /
dotted), accountabilities
• Tasks, responsibilities and
accountabilities per function
• Committee structure
• Processes per function
• Location, accountability, automation
• Interfaces between risk and other
function (e.g., operations, finance)
• Interfaces within risk
Org structure and location Interfaces
Responsibilities Processes
Organizational entity
Global risk function setup
Client example
D
Source: BCG project experience
160513 Study Sourcing in risk and compliance functions.pptx 42
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Risk functions bundled in European center
• Outside of financial centers to achieve lower labor costs
– client proximity less relevant
• Separate legal entity to avoid existing cost structure and
collective labor contracts
More extensive functions bundled
Cost reduction of near shoring is substantial1
• Near-shoring potential: ~20-30% of total FTE in CRO-
function
• ~<60-70% cost saving on near-shored FTE
=> 15% to 20% overall CRO-FTE cost reduction
Global bank achieved significant costs savings through
bundling and near-shoring of risk tasks
Client situation
Client is a leading multi-region, multi-division bank
Client had already an established off-shoring program
to Asia for risk tasks in place
• In place for several years
• Relevant tasks focused on daily market risk
controlling and components of credit approval, i.e.,
rating, documentation, IT
• Off-shoring to Asian low cost countries
• Low labor costs partly offset by high travel expenses
• Extremely high attrition rate in off-shored functions
caused loss of efficiency and knowledge – continuous
training of new staff required
• Significant number of risk FTE remaining in high-cost
locations, i.e., global financial centers
• Total FTE ~68K thereof 5-7% in CRO-function:
~3.500 – 5.000 FTE
• Near-shoring potential: ~1.000–1.500 FTE
or €100-150 mn2
Levers and Impact
New legal
entity
Credit approval (except largest customers)
Daily operations risk controlling
Compliance
Legal
IT partly remains in low cost location
Near-shoring of risk tasks
1. Outside-in estimation 2. All-in cost per FTE ~€150K in-house vs. 50K near-shore
Potential cost savings for CRO function1
Client example
D
Source: BCG project experience
160513 Study Sourcing in risk and compliance functions.pptx 43
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
IT layer model supports identification of major pain points
along IT layers and across risk/finance categories
Typical pain points of Risk IT landscape
No integrated reporting with risk and finance numbers, disconnection between regulatory reporting
and bank steering and inconsistencies across reports
Ad-hoc reporting not sufficiently supported (e.g., EBA stress testing)
Multiple manual workarounds and long time-to-report
No integrated macroeconomic scenario calculation, no ability to develop and run simulations on
demand
Multiple valuation engines (E.g. front office, Risk, Finance)
Long computation time for risk numbers
No single point of truth for market, master/reference and position data
Limited data accessibility and transparency; data inconsistencies
Scenarios
and analysis
Models and
calculations
Data
availability
Reporting
IT layer
IT layer architecture
Case study
D
Source: BCG project experience
160513 Study Sourcing in risk and compliance functions.pptx 44
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Presentation-SAS Geno Tag-30Mar12-KOM-HAM-v09.pptx 40
Co
pyr
ight
© 2
011 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All r
ights
reserv
ed.
Source: BCG analysis
Risk/Finance
categories
IT layers
Scenarios
and analysis
Models and
calculations
Data
availability
(persistence)
Data
availability
(sources)
Reporting
Archiving and
versioningVI
I
II
III
IV
V
Operational Risk Liquidity RiskMarket RiskCredit Risk Other RisksFinance
Risk
Archiving and Versioning
FO System 1 (Derivatives)
FO System 2-...
Loss DB
Scenario Calculations
Risk Aggregation
CR Analysis MR Analysis OR Analysis LR Analysis IFRSOther Analysis
Local GAAP
RBC/ICAAP
Data Storage
Management Cockpit/Reporting Tool
Analytical Cockpit/Ad Hoc Reporting
Information Map/Business Metadata
ETL
Unique Function LibraryCF PV
Unique Parameter Library
PD LGD
MVaRCVaR ...AMA
...
... ...
PV01 VaR-MCMC VaR-ANA ...
Concentration Risk ... ...
Result data of layer II & III
Market Data/Reference/Master Data/Transaction Data/Collateral Data
Solutions for a well-structured risk IT need to focus on
horizontal integration across Risk/Finance categories
Move to more transversal Risk IT to better fit functional
organization and also new regulation requirements
Move from complex vertical architecture...
...towards horizontal integration
along IT layers
Wilfred Nagel deck-BF-V3.pptx 26Draft—for discussion only
Co
pyr
ight
© 2
012 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rig
hts
reserv
ed.
1. Investment BankingSource: BCG project experience
Risk/Finance
categories
IT layers
Scenarios
and analysis
Models and
calculations
Data
availability
(persistence)
Data
availability
(sources)
Reporting
Archiving and
versioningVI
I
II
III
IV
V
Operational Risk Liquidity RiskMarket RiskCredit Risk Other RisksFinance
Risk
Front-to-back
solutions in silos
Fragmented IT
landscape with
over 120 data
sources and
applications
No horizontal integration between risk categories
Reporting
inconsistencies
due to missing
result
integration layer
Data
inconsistencies
due to missing
meta-data layer
Today's risk IT architectures often characterized by high
complexity and vertical front-to-back integrated solutions
Realistic landscape defines compromise between vertical
and horizontal structure
IT layer architecture
Case study
D
Source: BCG project experience
160513 Study Sourcing in risk and compliance functions.pptx 45
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Implementation of integrated work flow tool
• End-to-end support for credit process
• Capturing of all relevant data, e.g., client, collateral,
transaction, in one system
• Avoidance of data inconsistencies
• Standardization of processes
• Real time editing of data
Enabling of analyses based on workflow tool
• Automated analyses on existing portfolio
• Definition of warning signals (e.g., behavioral data) to
trigger manual interventions
• Basis for scenario analyses
• Refocus of resources to value-adding tasks (80%)
Large universal bank achieved effectiveness gains by
implementing integrated workflow support for credit process
Client situation
Client is a large universal bank with significant retail
and SME portfolio
Traditional focus on risk costs but operating costs
higher for selected segments, e.g.,
• Retail, in particular mortgages
• SME
• Mid Cap
Due to missing integrated workflow tool resources
not employed effectively
• Focus on manual reconciliation tasks (80%)
• Less focus on value adding analyses (20%)
Levers and Impact
Integrated workflow management
Client example
D
Source: BCG project experience
160513 Study Sourcing in risk and compliance functions.pptx 46
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
The journey to excellence: shared services drive efficiency &
effectiveness in support functions V
alu
e / E
ffecti
ven
ess
Cost / Efficiency
"Excessive"
"Truly excellent"
"Bureaucratic"
"Minimalistic"
Source: BCG
The opportunity: Break the paradigm of
value VS. cost
• Excellence is about both
• Shared Services can deliver both, one
reinforcing the other
The approach: De-average delivery
• Differentiated delivery
• More specialization, yet strong overall
orchestration and capability building
The value: cost and value impact
• Cost out: 1-3 ppt improved cost ratio
• Value: Enable your organization, be able
and credible to best steer and service your
business, drive growth and profitability
E
160513 Study Sourcing in risk and compliance functions.pptx 47
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Shared Services is a performance journey with global market
leaders pushing towards "Full Service Solution Provider"
Transactional
Service Factory
High Performance
Service Engine
Full Service
Solution Provider
Value
• Functional Excellence
• Bundle & Standardize
• Optimize & Automate
• Relocate & Outsource
• Multi-functional excellence
• Optimize & Improve/Innovate
• Expand & Integrate
• Develop & Scale-up
• Transactional business services
• Analytics to drive insight /
decision support
• Consult & Market
• Support & Take-over
• Decide & Take responsibility
Scope Four corporate functions
(Finance Ops, HR&A Ops, IT,
Procurement & RE)
Add'l corporate functions
(Legal Ops, Compliance
Ops, etc)
Some business functions
Partnership Transactional with individual
functions
Transactional across
functions
True value-add partner
with BUs
Performance Cost efficiency Operating effectiveness Decision support
Standardization Basic support processes Extend across BUs, geos Extend to fit-for-purpose
processes
Capability Business transformation
(vendor mgmt, engineering)
Lean processes (E2E)
across functions
Data and analytics, BU-
value added services
Maturity
dimension Time
Source: BCG
E
160513 Study Sourcing in risk and compliance functions.pptx 48
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Full Service Solution Providers of global market leaders
exhibit common key features
Ambitious
functional scope
End-to-end
process ownership
"Service hubs"
model
Strong customer
focus
Continuous
improvement
Business-like
steering
1
2
3
Long-term
continuous effort
1
2
3
4
5
6
7
Source: BCG
E
160513 Study Sourcing in risk and compliance functions.pptx 49
Draft—for discussion only
Copyr
ight
© 2
015 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
The services and materials provided by The Boston Consulting Group (BCG) are subject to BCG's Standard Terms and Conditions (a
copy of which is available upon request) or such other agreement as may have been previously executed by BCG. BCG does not
provide legal, accounting, or tax advice. Client is responsible for obtaining independent advice concerning these matters, which
advice may affect the guidance given by BCG. Further, BCG has made no undertaking to update these materials after the date hereof
notwithstanding that such information may become outdated or inaccurate.
The material contained in this presentation are designed for the sole use by the Board of Directors or senior management of the
Client and solely for the limited purposes described in the proposal. The materials shall not be copied or given to any person or entity
other than the Client (“Third-Parties”) without the prior written consent of BCG. These materials serve only as the focus for discussion
and are incomplete without the accompanying oral commentary and may not be relied on as a stand-alone document.
Further, Third-Parties may not, and it is unreasonable for any Third-Party to, rely on these materials for any purpose whatsoever. To
the fullest extent permitted by law (and except to the extent otherwise agreed in a signed writing by BCG), BCG shall have no liability
whatsoever to any Third-Party, and any Third-Party hereby waives any rights and claims it may, have at any time against BCG with
regard to the services, this presentation or other materials, including the accuracy or completeness thereof. Receipt and review of this
document shall be deemed agreement with and consideration for the foregoing.
BCG does not provide fairness opinions or valuations of market transactions and these materials should not be relied on or construed
as such. Further, the financial evaluations, projected market and financial information, and conclusions contained in these materials
are based upon standard valuation methodologies, are not definitive forecasts, and are not guaranteed by BCG. BCG has used public
and/or confidential data and assumptions provided to BCG by the client which BCG has not independently verified the data and
assumptions used in these analyses. Changes in the underlying data or operating assumptions will clearly impact the analyses and
conclusions.
Disclaimer