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Table of Contents
2Iran Core Banking Conference
# Topic Slides
Objectives of this Presentation 3 – 4
Core Banking Evolution 1980 – 2015 5 – 7
Complex IT Project Implementation: Lessons Learned 1990 – 2015 8 – 14
International Core Banking Projects: Lessons Learned 2005 – 2015 15 - 22
Thailand Core Banking – A Roadmap for Iran Not to Follow 2015 – 2xxx 23 – 30
Questions, Comments, & Answers 31
Appendix – Anatomy of A Failure 32 – 41
Objectives of this Presentation
1
3
Goal of this Presentation
CBS …We’ve come a long way in 25 years
…A CBS is Just Another Complex Piece of Software
…Banks have learned much since 2000
…Iran can learn from Thailand
…and apply the key to transformation
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The Evolution of Core Banking
25
CBS Solutions – 40 years of evolution
Technology 1975 – 1995 1995 – 2010 2010 – 20xx
PlatformIBM Mainframe orIBM System 32 / 38
Unix Agnostic
Architecture Centralized Client – server Agnostic – SOA
Operating System DOS / VSE, AS/400 HP/UX, AIX Agnostic
Mode of operation Batch Real-time, batch accruals Real-time, true 24x7
File StructureVSAM flat filesISAM flat files
Relational database Relational database
LanguageCOBOLRPGII
C, C# Java
Modules Silos Integrated modules Components
Client ‘Dumb’ terminal ‘Fat’ Client – Windows xx ‘Thin client’ – browser
Integration Point-to-point Messaging EAI/ESB
Industry trends Leading edge 5 years behind the trends Back to early adoption
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Banking Solution Panorama as at 2015
Technology US Europe Asia
Small banks
Core iSeries / Unix Unix Unix
Channels Omni-channel Omni-channel Multi-channel
Operating Model Outsourced In-house In-house
Mid-size banks
Core Unix Unix Unix
Channels Omni-channel Omni-channel Multi-channel
Operating Model Outsource & in-house In-house In-house
Large Banks
Core zSeries mainframes Mixed Unix / zSeries Mixed Unix / zSeries
Channels Omni-channel Omni-channel Multi-channel
Operating Model In-house In-house In-house
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Risk Factors in Complex IT Project Implementation
3
8
Risk Factors in Complex IT Projects
9
In 1994, the Standish Group conducted a survey of organizations who had complex IT projects
The participants included:
• IT executive managers (CIO’s)
• Large, medium and small companies
• All sectors
- Banking
- Securities
- Manufacturing
- Retail
- Wholesale
- Healthcare
- Insurance
- Services
- Government
The survey sample included:
• 365 organizations
• 8,380 IT application projects
The Study is updated every year – the latest is 2013
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16% 53% Challenged 31% CancelledSuccess
The 1994 Standish Scorecard for IT Complex Project Success
Risk Factors in Complex IT Implementations
Cost / Time OverrunWrite-off
16%
31% 30%
10% 9%
4%
14%18%
20%
36%
11%
1%0%
5%
10%
15%
20%
25%
30%
35%
40%
11
Cost overruns
Time overruns
0%
5%
10%
15%
20%
25%
30%
35%
40%
Feature & Function Fulfillment
Complex IT Project Implementation Challenges
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Success Factors – IT Project Implementations
7%
8%
10%
17%
17%
18%
24%
0% 5% 10% 15% 20% 25%
Sufficient Resources
Competent Staff
Realistic Expectations
Proper Planning
User Involvement
Executive Support
Clear Requirements
Success Factors
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Progress in IT Project Implementation – 1994 – 2013
16%
53%
31%
39%43%
18%
0%
10%
20%
30%
40%
50%
60%
Success Challenged Cancelled
١٩٩۴
٢٠١٣
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Progress in IT Project Implementation – 2004 – 2012
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40%
50%
60%
70%
80%
90%
٢٠٠۴ ٢٠٠۶ ٢٠٠٨ ٢٠١٠ ٢٠١٢
Time
Cost
Features
Time Cost Features2004 84% 56% 64%2006 72% 47% 68%2008 79% 54% 67%2010 71% 46% 74%2012 74% 59% 69%
International CBS Implementations- Trends in the last decade
415
50%
55%
55%
60%
65%
70%
70%
80%
0% 20% 40% 60% 80% 100%
Increase cross-selling
Increase penetration
Provide unified customer experience
Improve customer satisfaction
Improve time to market
Launch innovative payments products
Speed up loan approval
Improve operational efficiency
General themes and trends globally
Sources: Ovum study of European banks; IDC study of Asian banks.
International Trends in Core Banking Replacement
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Global drivers for changing core banking system, from IBS study
5%5%5%
7%7%
9%11%
16%16%
23%25%
27%
0% 5% 10% 15% 20% 25% 30%
Bank merger/acquisition
Improved risk management
Manual processes
Obsolete technology
Legacy system not supported
Start-up bank
High costs of legacy system
Scalability
Support for new products
Support future strategy
Centralization/standardization
Broader functionality
Sources: International Banking Systems Intelligence. “Core Banking Systems Case Studies Online”. IBS: 22 August 2011. Updated July 2013.
International Trends in Core Banking Replacement
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80% 75%65%
45%
20%28%
0%
20%
40%
60%
80%
100%
Europe North America Asia/Pacific
ReplacementNecessary
ReplacementPlanned
Sources: North America: Oracle, The Impact of the Financial Crisis on Core Systems Replacement, July 2010, page 3Europe: Ovum, “The Business Case for Core System Transformation”, February 2012Asia: IDC, Financial Insights, “Core Banking Renewal Strategies of top 150 Asia/Pacific Banks, 2011-2014”, 2011.
Many banks view core banking replacement as necessary, but a smaller percentage have definite plans to replace
International Trends in Core Banking Replacement
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Why is there such a gap between necessity and actual core banking replacement?
• Three factors account for reluctance to changing of core banking systems
1. High cost – minimum of $30 million for a medium-sized bank
2. Long timeframe – minimum of 3 years, average 4 years for a replacement project
3. High risk – core banking replacements have a high failure rate
• Three common core banking replacement trends around the world
1. Banks are being driven to undertake core replacements by market pressure
2. Cost and customer demands for agility are key drivers of replacement
3. Vendor core banking products have matured enough to overcome fear of change
Sources: Forbes. Groenfeldt, Tom. “Why Core Banking Replacement Remains Locked in the Future”. Forbes Report 10 September 2013.Celent. Greer, Stephen and Daniel Latimore. “Global Core Banking: Steady but Unspectacular Growth”. 23 July 2013.
International Trends in Core Banking Replacement
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Bank transformation follows a path from (1) product innovation, to (2) sales innovation, to (3) market share innovation, and finally to (4) customer service innovation
ChinaBangladesh
Sri Lanka
Vietnam
Indonesia
India
Malaysia / Philippines
Korea
Hong Kong
Singapore
Australia
Taiwan
Private Banks
International Trends in Core Banking Replacement
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21
Lesson learnt from 63 case studies of CBS transformationRetail Banks
Universal Banks
Vendor selection time 10 months 13.5 months
Implementation time 19 months 22.3 months
Total transformation time 29 months 35.8 months
Level of satisfaction for completed transformation projects High High
Select a solution that is already successful in the country 85% 80%
Banks are split between ‘big bang’ and ‘phased’ implementation 45% ‘big bang’ 45% ‘big bang’
Sources: International Banking Systems Intelligence. “Core Banking Systems Case Studies Online”. IBS: 22 August 2011. Updated July 2013.
Lessons Learned in 63 case studies of core banking transformation, from IBS
International Trends in Core Banking Replacement
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Sources: The Asian Banker. “Retail Banking Innovation Report”. AB: Sept. 2010, page 56
Risk Factor Risk Mitigation
1. Managing the interface between business and IT 1. Establish a joint IT-business implementation team, with KPIs based on successful collaboration.
2. Employees’ behavior 2. Establish employee KPIs based on project success
3. Technology bottlenecks 3. Select the most scalable technology
4. Managerial attitudes 4. Establish managerial KPs based on project success
5. HR if training and management is insufficient 5. Provide intensive training for project team
6. Flexibility of IT systems 6. Select the most flexible IT system
7. Huge level of hierarchy 7. Establish horizontal project team structure
8. Lack of adequate technical expertise 8. Provide in-depth technical training to project team
9. Lack of support from IT vendors 9. Structure the project contract to guarantee support
10. Regulations and compliance 10. Streamline internal bank regulations
The most common risk factor is the interface between business and IT
International Trends in Core Banking Replacement
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Case Studies of 6 Banks in Thailand
5
23
Snapshot of Three Thailand Banks that Succeeded
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Bank CIMB KTB SCB
Transformation Year 2012 - 2013 2008 2009
Legacy IT System SAFE II SAFE II SAFE II
Transformed System SIBS 10 Profile Systematics
Total Assets $114.9 bn. $80.7 bn. $81.7 bn.
Loans $62.7 bn. $53.3 bn. $54.0 bn.
Deposits $82.2 bn. $60.7 bn. $58.8 bn.
Branches 1,041 1,146 1,173
Customers 13 million 17 million 15 million
Lessons Learned in Thailand Bank Success Cases
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# Success Factors SCB KTB CIMB
A Clear vision and mission Yes Yes
B Strong management support Yes Yes
C Effective communication channels Yes
D Reward and recognition Yes
E Project implementation consultant BCG None
F Bank-wide support Yes
G Project governance Yes
H Proejct organization Yes
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# Facts and Figures SCB KTB CIMB
A CBS Replacement Time 15 months 24 months 18 months
B Dedicated staff 155 250 20 IT, 60 Biz
C Testing and go-live staff 800 900 1,600
D Platform zSeries mainframe HP Superdome iSeries
E Operating System zOS HP/UX AS-400
F Database dB2 Oracle dB2
G Branch Channel Thick client, Winxx Thin client, browser Thick client, Winxx
H CBS Software FIS Systematics FIS Profile Silverlake v. 10
Lessons Learned in Thailand Bank Success Cases
Lessons Learned in Thailand Bank Success Cases
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# Benefit from Transformation SCB KTB CIMB
A Faster time to market Yes Yes Yes, by 50%
B Increased customer retention Yes
C Increased customer acquisition Yes
D Increased fees from retail services Yes
E Product profitability increased Yes
F Efficiency of internal processes increased Yes, by 30%
G Open architecture Yes
H Reduced IT cost Yes
I Product Bundling Yes
J Retail banking income increase 40 – 60% N / A NYA
Lessons Learned in Thailand Bank Failures
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Three Banks Selected TCB – a mainframe software solution from Spain
• BAAC – 900 branches, 12 million customers, 15 million accounts
• kBank – 850 branches, 11 million customers, 12 million accounts
• Bank Thai – 100 branches, 2 million customers, 2.5 million accounts
IT Project Timelines at Each Bank
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
BAAC
BankThai
kBank
Critical Success Factors Assessment – Bank’s Failures
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Critical Success Factors Assessment – Vendor’s Failures
30
Success Factor Chennai Software Development Issue for Three Banks
Management Support Ineffective support from TCB mgmt. No control or input in strategic plan
Clear requirements Good quality in recent kBank work No issues
Proper planning Plan changed 3 times Corporate and project plan mismatch
Competent staff
Competent in TCB functional specs Competent, but insufficient for 3 projects
Competent in technical specs Competent, but insufficient for 3 projects
Competent in coding No issue
No competency in proper function testing Testing is manual and ad hoc
No performance testing of customization Absolutely no focus on performance
Low competency in mainframe Difficult to find and recruit experienced mainframe staff in India
Available resources
Insufficient staff to manage 3 banks, test release 7, and do other projects
Will Temenos management provide sufficient staff?
No mainframe technology competency to ‘shrink-wrap’ the product
Technology support group in Hemel must create a ‘shrink-wrapped’ product that is documented for delivery
Clear vision Chennai has clear vision re release 6 and 7 impact Chennai does not have resources for both tasks
• Top mgmt. does not understand impact of release 7 on delivery of functionality to Thai banks
• Does not understand that it will divert resources with no benefit for Thai banks
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Questions, Comments & Answers
731
Appendix – Case Study of a Failure
832
General Description of the Project
1. The project was to deliver a working Islamic core banking system in a 10 month period. The project budget was US$ 25 million.
2. This project was part of a larger programme. The programme included
a. EAI – application integration for all the bank systems, to be done by a third party vendor in parallel with CBS;
b. EDW – an enterprise data warehouse with CBS, cards, treasury and trade finance system data
c. Internet Banking – an internet banking system from a 3rd party
d. RMS – a risk management system from a 3rd party
3. Roadmap was designed by one of the ‘Big 4’ consulting firms
4. Programme PMO was managed by the same ‘Big 4’ consulting firms
5. Programme governance structure agreed by all parties – Bank, vendor, consultant
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Case Study of CBS Project Failure
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Programme Governance Structure
Board of Directors (BOD)Board of Directors (BOD)
EAI ….EDWEAI ….EDWCBS ImplementationCBS Implementation …..
Programme Sponsor / Deputy SponsorProgramme Sponsor / Deputy Sponsor
Board IT Oversight CommitteeBoard IT Oversight Committee
Project Structure
Programme Management Office
Programme DirectorProgramme Director
Project Steering Committee
Project Director
Project Manager
Project Team
Project Steering Committee
Project Director
Project Manager
Project Team
RMS…Internet BankingRMS…Internet Banking
Project Steering Committee
Project Director
Project Manager
Project Team
Management IT CommitteeManagement IT Committee
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PMO Steering CommitteeProject Team Leads
Prepare Weekly Status Report for PMC
Project Manager
Project Steering Committee
Review and Submit Weekly Status Report to Project Director and PMO
Weekly Project Team Status Meeting –Chaired by either PD or PM
Prepare Weekly Project Status Report
Review and Submit Weekly Project Status to PMO
Project Steering Committee Meeting
Steering Committee
Board Status Update
Receive and Compile Status Reports
Board of Directors
Project Director
Weekly Status Report
PSC Status Report
Weekly PMO Status Meeting
Board Paper
Programme LevelProject Level
Meeting Frequency -Suggested
PMC MeetingWeekly - Monday
PSC MeetingMonthly
PMO Programme Status MeetingWeekly - Wednesday
MeetingMonthly
Prepare Status Reports for PMO and Programme SC
Programme Communication and Reporting Structure
Case Study of CBS Project Failure
# Bank SOW Issues
1. Company Y failed to deliver, implement and go-live with Islamic Model Bank in 10 months
2. Company Y failed to install a pre-configured and pre-parameterized CBS Islamic solution to enable rapid implementation –minimize customization and lower project risk
3. Company Y failed to install a CBS solution in accordance with the SOW and the Service Agreement.
4. Company Y failed to install and implement a system capable of providing all regulatory reports
5. Company Y failed to provide a comprehensive training, including induction training, OJT, and ‘train the trainer’ for end user training
6. Company Y failed to deliver ‘To-Be’ business process flow
7. Company Y failed to deliver a set of interfaces to internal and external systems
8. Company Y failed to provide complete documentation for the software system
9. Company Y failed to deliver and/or test 198 gaps identified by the Gap analysis
10. Company Y failed to deliver a model bank that produced a bank-wide single customer limit
11. Company Y misrepresented that its solution would target up to 80% functional fit ‘out-of-the-box’
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# Bank SOW Issue Supplier Response to the SOW Issue
1 No go-live in 10 months Failed to go-live in 10 months because Bank failed to adhere to 6 of 11 project assumptions
2 No ‘pre-configured’ delivery Pre-configured Islamic Model bank was delivered and accepted by the bank
3 Did not follow SOWThe company delivered 95% of the items in the statement of work; the balance of 5% were to be completed in an additional 3-month period
4 No regulatory reportsThe company delivered STB reporter, a 3rd party solution with all regulatory reports; Bank failed to deliver the necessary EDW system as per programme.
5 No comprehensive trainingCompany Y delivered training plan in first month; delivered technical training; delivered induction training. Could not deliver ‘train the trainer’ because of project cancellation.
6 No ‘To-Be’ business processCompany Y delivered 32 major business process flows and 50 minor business flows. Also delivered 219 manual with business process ‘to-be’ documentation.
7 No interfaces / integrationOriginal SOW was for integration to be 3rd party EAI. Modified SOW for Company Y to deliver 12 online and 16 batch integrations.
8 No complete documentation Company Y delivered 128 user guides and manuals, with full technical and user documentation.
9 No delivery of 198 gaps150 of the 198 gaps were agreed for delivery before go-live. All 150 gaps were tested and delivered. The remaining 48 were to be delivered after go-live, but project was cancelled.
10 No bank-wide limitsThe RFP requirement is for customer limits ‘…across modules.’ This is not ‘bank-side’; the card and Treasury systems are excluded because they are not CBS ‘modules’.
11 No 80% ‘out-of-the-box’ fitThe RFP had 1,678 specific requirements; the company provided 1,459 as standard ‘out-of-the-box’ requirements. This is 86.9%, which exceeds the 80% requirement.
Case Study of CBS Project Failure
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# Bank SOW Issue Supplier Response to the SOW Issue
1 No go-live in 10 months Failed because did not support 6 of 11 project assumptions
2 No ‘pre-configured’ delivery
Pre-configured Islamic Model bank was delivered and accepted by the bank
3 Did not follow SOW The company delivered 95% of the items in the statement of work – rest in 2 months
4 No regulatory reports The company delivered STB reporter, full solution; Bank failed to deliver EDW
5 No comprehensive training Company Y delivered technical and induction. Could not deliver ‘train the trainer’ because of project cancellation.
6 No ‘To-Be’ business process Company Y delivered 32 major and 50 minor business process flows; also 220 BP manuals.
7 No interfaces / integration Original SOW was for integration to be 3rd party EAI. Modified SOW for Company Y to deliver 12 online and 16 batch integrations.
8 No complete documentation
Company Y delivered 128 user guides and manuals, with full technical and user documentation.
9 No delivery of 198 gaps 150 of the 198 gaps were agreed for delivery before go-live. All 150 gaps were tested and delivered. 48 after…
10 No bank-wide limits The RFP requirement is for customer limits ‘…across modules.’ This is not ‘bank-wide’; excludes Cards and Treasury
11 No 80% ‘out-of-the-box’ fit The RFP had 1,678 specific requirements; the company provided 1,459 as standard ‘out-of-the-box’ requirements. This is 86.9%,
Case Study of CBS Project Failure
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# Bank Governance Issues Supplier Response to Governance Issues
1 Company Y failed to deliver reasonable project management and governance.
• The project management and governance were a bank responsibility;• The SOW assigned to Company Y the management responsibility for (1) data
conversion, (2) advice on infrastructure configuration; and (3) advice on network upgrade.
2 Company Y failed to carry out services with reasonable care, diligence and skill
• Company Y delivered all contractually committed deliverables;• A 10 month delivery would necessarily require reasonable care, diligence
and skill.
3 Company Y failed in their role as stakeholders in the project and failed to show commitmentto the project.
• The Bank did not include Company as a stakeholder:• The company was not a member of the PMO• The company was only an observer in the project steering committee.
• Company Y showed its commitment by continuing to work from Month 4 to Month 10 even though the Bank had failed to make milestone payments as contractually required.
Case Study of CBS Project Failure
Why was the project cancelled?
1. The Project and Programme structure were set up as per expectations.
2. The supplier delivered according to the contract
The underlying reason for cancellation
1. The Bank CIO during the design and selection process was Mr. X.
2. In Month 3 of the Project, the CIO was forced out of the bank.
3. The new CIO, Mr. Y came in with a different agenda:
- In month 5 of the project, the CIO asked the Contracts division to advise the steering committee on how to cancel the project;
- Contracts advised that cancellation in Month 5 would contractually require that the Bank pay the entire amount of the contract
4. Decision was made wait until Month 10 + 1 day, and then cancelled for cause
The final outcome of the dispute was:
1. The international court of arbitration ruled in favor of the supplier
2. The bank paid the entire $25 million value of the contract to the supplier
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Case Study of CBS Project Failure
What is the principal lesson learned?
1. Without full and effective support from top management, an IT project will not be likely to succeed.
2. Even when other factors are present – the right programme structure, the right communication process, the right solution – even then, if top management support is not in place, project failure is likely.
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Case Study of CBS Project Failure