Production Control for Financial Operation v4
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Transcript of Production Control for Financial Operation v4
Production Control in Financial Operations
November 2015
No one would think of running a manufacturing operation without a production control process to control the flow of raw materials, coordinate operations of specialized fabrication and assembly
workstations, and efficiently load of manufacturing resources. But that is exactly what many financial operations attempt to do. It would be as if a manufacturing manager expected his lathe
operators, welders and assembly teams to plan their own work schedules, manage their own raw material queues, expedite supply chain issues that arise and provide for their own quality control, all
while efficiently performing complex operations in the production of a complicated product with exacting quality requirements. How can banks, insurance companies and other financial organizations expect all of that from their middle and back office analysts and
administrators?
Application of manufacturing production control techniques and technologies to financial operations can lead to improved productivity, quality and customer service.
© All rights reserved, 2015 Jon LaBerge 2
Production Control and Quality Control functions
have effectively been delegated to the analysts
and administrators who are performing the
required tasks. This is neither fair to the
employees nor an effective way to manage
an operation.
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Admittedly, the operations required to process information
in the middle and back offices of financial organizations do not generally require special-
ized equipment like those found on a manufacturing shop floor, but they do require
specialized knowledge, and the sequential steps required to assess data quality, manipulate data to produce analyses or
reports, reconcile accounts, or update accounting records are actually quite analogous to a
manufacturing process. Perhaps there are lessons to be learned from the transformation
in manufacturing controls and product quality that have taken place over the past three decades that can be applied to financial operations.
In some cases, typically large-scale operations like insurance claims processing, it could be argued that this has already
been done using sophisticated work flow tools, but not every financial operation can afford
the high overhead cost of implementing and maintaining these applications. And the
specific tool used is not as important as the organizational implications of the separation
of duties between those resources who perform the work and those who plan, control, monitor and record the
status of the work being done. Without this separation of duties, production control and
quality control functions have effectively been delegated to the analysts and administrators
who are performing the
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required tasks. This is neither fair to the employees nor an
effective way to manage an operation.
So how do the analysts and administrators cope? Most develop and maintain their
own ‘checklists’ of tasks to be done at the end of each day, week, month or quarter, and
other ‘checklists’ for event-driven procedures such as on-boarding of a new client,
opening of a new account, or the addition or removal of an employee. Problem is that the information contained in these
checklists could be a valuable resource to help management to set priorities, identify and
proactively respond to poten-tial bottlenecks, schedule selected key resources, and
avoid the seemingly inevitable last minute fire drills.
Production Control Requirements
The requirements to implement
a production control function within a financial operation are relatively straightforward and
consist of Informational Require-ments and Organizational Requirements.
Informational Requirements As described previously, the
primary informational requirement consists of the ‘checklists’ that might currently be maintained in some form by
each administrator or analyst. It is important that this infor-mation be collected and
standardized and that the
© All rights reserved, 2015 Jon LaBerge 3
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maintenance of these lists be
controlled centrally, but it is equally important that the users who will be responsible for
performing these tasks have the ability to add notes and submit changes to these checklists.
Otherwise the centralized checklists will simply become a bureaucratic headache and the users will continue to
maintain their own ‘unofficial’ checklists.
The minimum information required for each checklist should include:
• Checklist Code • Checklist Name • Checklist Owner • Checklist Type (routine or
event-driven) • Checklist Cycle and
Frequency The information required for
each task on a checklist should include: • Task Checklist Code • Task Code • Task Sequence • Task Responsibility • Task Backup Responsibility • Task Offset • Task Duration • Task Detailed Description • Task Precedent(s) • Task Reference(s) (to a
regulation, corporate policy and/or client requirement to facilitate audit support)
With this information, a Production Schedule can be generated with a detailed list of tasks, start dates, due dates
and responsibilities explicitly defined. As a functional area matures, additional data
elements can be defined to facilitate additional automated
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analytic and reporting
capabilities. Organizational Requirements As described previously, it is important to organizationally separate the performance of
the tasks that make up a checklist from the oversight and control to schedule and ensure that tasks are being
accomplished on a timely basis. The organizational group tasked with the oversight
function will: • Maintain procedural
checklists to incorporate incremental improvements, eliminate redundancies, incorporate new require-ments, etc.
• Periodically schedule tasks from checklist templates and update the Master Produc-tion Schedule.
• Identify and monitor past due tasks on the Master Produc-tion Schedule
• Monitor potential upcoming production bottlenecks (i.e., large numbers of tasks currently in-process or with the same due date and with the same ‘responsibility’)
• Expedite past due tasks or anticipated bottlenecks to proactively maximize on-time delivery
• Provide periodic updates to operations management regarding status of operations and recommendations for rescheduling or reassignment of tasks or temporary expan-sion of production capacity to maximize on-time delivery
• Notify downstream consumers of any schedule slippage to proactively manage expectations
• Periodically meet with downstream consumers to ensure that all deliverables
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are still required and that those deliverables still efficiently satisfy the consum-ers’ requirements
• Work with operations to incorporate new tasks required by new regulations, corporate policies, client requirements or new technologies
• Interface with audit resources at the time of an audit to provide procedural documentation and evidence of compliance for every instance of every relevant task within the audit scope and timeframe.
Although the staffing require-ments for this production control function will vary based
on the nature and maturity of the operational processes and staff, a rough estimate is that
one full-time production control resource is required for every ten production resources, with
a minimum of two production control resources. For operations with fewer than twenty production resources, a
company could consider out-sourcing this function to a vendor or to a shared
corporate resource, but it is not recommended that this function be performed on a
part-time or fractional basis.
Applications
A centralized set of checklists
and dedicated resources to administer and monitor a Master Production Schedule
create an opportunity to improve a number of related activities that support
© All rights reserved, 2015 Jon LaBerge 4
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operations, namely reporting, training, reengineering,
incremental improvements, and audit support. Reporting – By maintaining and
monitoring a centralized Master Production Schedule, a wealth of statistics will be available
that would have otherwise been very difficult to collect and track. These statistics can be tabulated and displayed on
concise “dashboard” displays to provide near-real-time visibil-ity into an operation and allow
management to drill into de-tails, anticipate issues, and proactively balance their
operations to maximize on-time delivery. Figure 1 shows a sam-ple format tracking on-time
delivery and Figure 2 shows a sample format to identify potential future bottlenecks or capacity constraints of key re-
sources. (The next two weeks look pretty bad, by the way.)
Training – All organizations need to train and cross-train their employees in order to effi-
ciently assimilate new employees, accommodate employee transfers and organizational changes, imple-
ment new technology and provide for business continuity. By using the same set of check-
lists to schedule the operation and train the staff, training will be directly relevant to the train-
ees’ eventual responsibilities, and the checklists will be continually reviewed and enhanced to make them more
complete, more accurate and easier to understand.
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In addition, once the checklists
and the Master Production Schedule become established as the accepted way to
communicate procedural information within an organization, implementing new or enhanced technology,
making organizational changes, and outsourcing or insourcing functions can all be
communicated by revising the checklists and allowing new task assignments, sequencing
and procedural details to flow through the Master Production Schedule.
Reengineering – The checklists provide a valuable tool in the reengineering of an operation
by facilitating the identification of similar tasks performed in dif-ferent parts of an operation.
Common functions like Reference Data Management, Data Quality Assessment,
Account Reconciliation, and Regulatory Compliance (which in many organizations are cur-rently accomplished through a
hodgepodge of spreadsheets, homegrown databases and manual processes) can be
identified, standardized and automated to improve both the productivity and quality of
the product (data) produced by an organization. Continuous Improvements Continuous improvement is acknowledged to be an effective approach to improve
employee engagement and incorporate incremental im-provements, which, in
Figure 1 – Sample On-Time Delivery Dashboard
Current Period Start: Current Period End:
Tasks Delivered
Tasks Delivered Past Due
On-Time Delivery Percent
Tasks Delivered
Tasks Delivered Past Due
On-Time Delivery Percent
Trade Settlement & Cash Transfers 12 1 8% 60 3 5% 1,380 8 1%
Data Quality 40 4 10% 200 16 8% 4,600 307 7%
Account Reconciliations 58 6 10% 290 12 4% 6,670 505 8%
Journal Entries 15 2 13% 25 2 8% 150 5 3%
Regulatory Compliance 25 1 4% 103 4 4% 2,369 12 1%
Performance Measurement 65 2 3% 87 8 9% 2,001 57 3%
Client Reporting 123 3 2% 25 1 4% 566 2 0%
Totals 338 19 6% 790 46 6% 17,736 897 5%
Monday, November 09, 2015Monday, November 16, 2015
Current Period Year-to-Date
Team Tasks In Process
Tasks Past Due
Past Due
Percent
Current Period Start: Current Period End:
11/9 11/16 11/23 11/30 12/7 12/14 12/21 12/28 1/4
Trade Settlement & Cash Transfers 32 39 19 24 21 16 16 13 28
Data Quality 60 21 40 29 12 36 35 37 22
Account Reconciliations 68 93 57 82 71 27 55 71 59
Journal Entries 16 20 16 12 12 12 14 15 15
Regulatory Compliance 83 54 52 76 57 84 53 74 21
Performance Measurement 86 84 48 51 43 64 74 79 59
Client Reporting 64 103 69 83 96 76 76 54 31
Totals 409 415 300 358 314 315 322 343 235
Tasks in Process - Week of
Monday, November 09, 2015Sunday, November 15, 2015
Team
Figure 2 – Sample Potential Bottleneck Dashboard
© All rights reserved, 2015 Jon LaBerge 5
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aggregate, can add up to sig-nificant savings in cycle time, productivity and product
(data) quality. Currently, an organization might be ignoring some opportunities for
incremental change because it is simply to much effort to rewrite procedures, gain
approvals, and communicate with and retrain employees; all for a simple little change. But with a coherent and concise
set of checklists and an organizational unit responsible for maintenance of those
checklists, the cost of making an incremental change goes way down, thereby
encouraging continuous, incremental improvement and allowing employees take ownership for their areas of
responsibility. Audit Support Audits of all sorts are a cost of doing business in this day and age. Whether driven by
regulatory or financial reporting requirements, corporate policies and ethics guidelines,
or client mandated reporting and controls, support for audit activity is a necessary but increasingly time-consuming
function. Each task on the production
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control checklists described in this article should be the result
of one or more audit requirements, even if the requirement is simply “good
practice” (i.e., a corporate policy). If a task cannot be linked to an audit requirement, then operations management
should really ask the question “Should we be doing this task at all?”
While it is not necessary to explicitly define relationships
between tasks and causal audit requirements in order to use the checklists as a production-scheduling tool,
addition of this information to the checklist database helps to clearly define the scope of an
audit. If, at the audit kick-off meeting, the scope can be clearly defined in terms of a
date range and the regulations, client requirements and/or corporate policies to be
audited, then the checklist database can define every instance of every relevant task and possibly even link to a
document that provides evidence of compliance for each task. Furthermore, the
production control function should have followed up on each task to be sure that it was
completed (and documented)
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on a timely basis. In effect, the production control function will be performing a comprehen-sive, self-assessment audit in
real-time, making periodic external audits much more efficient processes.
Concluding Remarks
A production control function and production control tools
like a checklist database and master production schedule require a commitment from
management, but can provide a number of tangible benefits to a financial operation. It
might seem overwhelming to try to develop and maintain a comprehensive blueprint for your operations, but the
concept can be phased-in (e.g., start with month-end closing cycles and add other
functions over time), and the resources shared (either through outsourcing or use of a
shared corporate resource, possibly internal audit?) to reduce the start-up costs.
The end result of a successful implementation of these
concepts should be a better-controlled and more efficient operation and higher quality deliverables.
Jon LaBerge is a consultant and operations executive with over 20
years of experience applying process engineering and
production control concepts to financial operations.
1223 Westover Road Stamford, CT 06902 Phone: 203-524-8487 Email: [email protected]