Managing Macroeconomic Uncertainty

An Oracle White Paper

March 2013

Managing Macroeconomic Uncertainty in

a Post-Recession World

Managing Macroeconomic Uncertainty

Executive Overview
Financial services leaders must manage the uncertainty of proposed governmental tax
changes and financial regulations by introducing agility and strategic what-if scenarios to their
project planning.
These uncertain macroeconomic factors require agility - the ability to pick good projects and
execute them effectively and efficiently, as well as to develop methods for going beyond the
reactionary and toward strategic decision-making.

Introduction
The banking world has endured its share of challenges over the last few years. The aftermath
of the financial crisis prompted the creation of one of the most comprehensive sets of new
regulations in the last 70 years.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which passed on
July 21, 2010, is unprecedented in both magnitude and the level of transparency that will be
required. Its 2,300 pages contain at least 400 separate rulemakings and will impact every
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sector of the financial services industry . Basel III, which requires banks to meet certain capital
requirements and maintain proper leverage ratios, also threatens the financial industry
landscape.
While these new rules may reduce systemic risks, they are also driving up the costs of
financial institutions. New requirements for larger capital cushions could reduce banks
2

profitability by as much as one-third, according to one report by The Economist , while pushing
up borrowing costs for consumers and businesses. Financial organizations that can meet
compliance requirements while simultaneously providing their customers with new innovative
products and services will flourish in this environment.

Managing Macroeconomic Uncertainty

In 2012, many institutions took a wait-and-see attitude about these regulations because the
implementation procedures had not been ironed out. More than two-thirds (69 percent) of
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banking industry executives surveyed by KPMG LLC in September 2012 viewed regulatory
and legislative pressures as the greatest barrier to growth over the next year. Still, most
respondents say they are generally optimistic about their banks revenue and growth
prospects.
But 2013 looks to be a year of regulation implementation - at least for U.S. banks, industrywatchers say, as much of the regulatory uncertainty has been resolved and industry leaders
4

take a fresh look at their organizational structures and capabilities, according to Deloitte LLP .
A healthy financial industry is critical to economic vibrancy, providing the essential credit,
capital, and liquidity that supports growth and profit. The financial services industry stands at
the crossroad of new regulations and competitive resurgence. Agility will be the key to
success. Financial leaders must reach beyond the reactionary and toward strategic decisionmaking.
Deloitte points to several independent macroeconomic issues that senior-level financial
services leaders must consider and act upon in 2013.

Managing Macroeconomic Uncertainty

1. From Analysis to Action

What may be different for banks in the coming year is the movement from analysis to action. In the
aftermath of the financial crisis, many U.S. bankers put a hold on making changes to organizational
structure and operational processes. Most were waiting for the new regulations to crystallize to a point
where they could more clearly understand the ramifications to their own business operations. In 2013,
banks are likely to begin a fresh and long-term strategic plan. But Deloitte cautions that its one thing
to simply say that focus has returned. Without execution of these initiatives, these efforts may result in
nothing more than window-dressing.

2. Compliance Issues and Opportunities

As the implications of the Dodd-Frank Act and its focus on bank safety and soundness become more
clear, financial institutions are expected to start making compliance as a business as usual activity,
rather than a series of isolated regulatory responses. Compliance will become part of the everyday
larger effort to improve business and operational performance -- initiatives that have been ongoing for
decades. Transparency will also become a daily operational imperative.
The combination of enforcement actions coming from Dodd-Frank and the operationalizing of
compliance should be viewed by banks as an opportunity to redesign processes and reduce the fire drill
aspects of regulatory compliance, according to Deloitte.

3. Risk Management
Evolving regulation and changing marketplace dynamics have heightened the need for companies to
implement a strong internal risk framework. When asked to identify any existing challenges preventing
the adoption of a formal risk policy, 40 percent of KPMG survey respondents believe that process
integration and operational efficiency pose significant obstacles.
Financial institutions must continue to address weaknesses in their risk management capabilities in light
of regulations and market realities. This is being driven, according to Deloitte, by ongoing regulatory
initiatives regarding stress testing and the development of recover and resolution plans, or living
wills.
Leaders must take the appropriate steps to embed and operationalize a more risk-intelligent culture
throughout the organization, Deloitte says.

4. Mergers and Divestitures

The impact of regulation and resulting repositioning may drive a new wave of mergers and divestitures.
Many financial institutions have acquired assets and even entire businesses over the last 10 years, and
now those same purchasers are re-evaluating the current business value of those acquisitions. Those
considered non-core will be cast off, which may reshape the competitive landscape.
Institutions that have a clear strategy and a strong balance sheet in the midst of these acquisitions and
divestitures, will gain a competitive advantage.

Managing Macroeconomic Uncertainty

A Powerful Partner
Amid all of the uncertainties is the growing realization that whats worked in the past may not work in
the future, leading many executives to closely examine how their business is organized, how it creates
products and services, how it manages projects and measures success, and how it grows its top line and
builds revenue. Financial institutions must develop methods for going beyond the reactionary and
toward strategic decision-making.
At the business level, achieving those objectives will require enterprise agility, team productivity,
portfolio predictability and overall project management efficiency. Financial institutions must
introduce strategic what-if scenarios into their project planning, pick good projects and execute them
effectively and efficiently. A Project Portfolio Management system (PPM)for globally prioritizing,
planning, managing, and executing projects, programs and portfolios is one powerful tool that can
provide institutions with vital information that drives the perfect alignment of project strategy,
execution and results.

Providing Transparency
A Project Portfolio Management system connects all the different people and processes in a way that
delivers value, the organization gains business transparency, profitability and project success. The
financial institution that successfully implements PPM will be aligned around corporate strategic
objectives, and will effectively cascade communication to its people, whether the communication is
about shifts in strategy, project performance or resource capacity. Staff will work in a proactive mode,
managing everything that directly impacts the performance and probability of success of the projects
under way.

Aligning Business Strategy

A Project Portfolio Management system allows financial institutions to clearly identify its strategic
objectives and evaluate how well each investment supports those objectives. The system must support
the comparison of multiple portfolio scenarios, and have the ability to identify the waterline, based
on metrics such as funding limits or headcount available, and evaluate the many alternate scenarios
against the waterline. The right PPM system can also analyze all the institutions constraints and key
performance indicators (KPI) to propose multiple viable scenarios for consideration. The system
should also provide a metric and KPI-driven means of comparing, contrasting and deciding which
projects to approve, which ones to postpone, and which ones to drop.

Monitoring Execution and Regulatory Compliance

Financial organizations that can meet compliance requirements while simultaneously providing their
customers with new innovative products and services will flourish in an uncertain economic
environment.5 Unfortunately, few institutions in this industry currently have the project management
maturity to meet project goals with any level of consistency.

Managing Macroeconomic Uncertainty

A Project Portfolio Management system allows financial institutions to monitor projects status and
progress, as well as ensure governance. Based on the business systems that are integrated to share
information, the PPM system ensures processes are followed as designed.
Failure to deal with troubled projects early has the biggest impact on implementing regulatory
initiatives, which are of central importance for financial services executives. Missing these targets can
cause a bank to lose its license and permanently damage its reputation among investors.
Consequently, when these projects flounder, organizations have no choice but to funnel resources
away from other projects to bring them back in lineeven if it means pulling people from more
successful endeavors that offer better returns. This is where organizations with mature project
portfolio management capabilities have a competitive advantage. These high-performing organizations
can more confidently deliver projects on time and on budget, so they are less burdened by regulatory
demands.

Balancing Risk & Opportunities

A Project Portfolio Management system allows the organization to clearly document their projects
risks and anticipated rewards. Risks and rewards provide the basis for calculating many of the KPIs
that institutions depend on to make the right decisions. The basis of estimates must also be captured so
that project execution teams can later make use of this information to create mitigation plans and
create more accurate estimates in cases where the risk events are triggered.
Using Project Portfolio Management technology can also identify opportunities for turning portfolios
into strategic assets that produce measurable benefits. The portfolio can then be viewed as an
investment that can be advanced in different directions as the fundamentals behind a strategy change.

Conclusion
Banking executives maintain a cautious optimism for the near-term business outlook, expecting modest
improvements in revenue, the economy, and hiring in 2013 but remain guarded longer term, not seeing
a complete economic recovery until 2014. As a result, many banking executives are focusing their
efforts on strategies to increase operational efficiencies and reduce costs. Whats more is that an
economic uncertainty due to new regulations requires financial institutions to become more agile and
to move beyond reactionary and towards strategic decision-making.
A Project Portfolio Management solution can help financial institutions become more agile and to
execute on strategy, which will drive down costs, minimize risk and deliver results to key stakeholders.

Managing Macroeconomic Uncertainty

1. The American Financial Services Association

http://www.afsaonline.org/federal_government_affairs/dodd_frank_resource_center.cfm
2. Chained but untamed, The Economist, May 12, 2011

http://www.economist.com/node/18654622
3. 2012 Banking Industry Outlook Survey, KPMG LLC

http://www.kpmgmandamonthly.com/monthly/articles/2012_Banking_Industry_Outlook_Survey.
pdf
4. 2013 Banking Industry Outlook: Moving forward in the age of re-regulation, Deloitte LLP Center

for Financial Services

http://deloitte.wsj.com/cfo/files/2013/01/US_FSI_2013BankingIndustryOutlook_pdf_111212.pdf
5. Proactive response: How mature financial services firms deal with troubled projects, Economist

Intelligence Unit, 2011.

6. Opportunities in Crisis, PricewaterhouseCoopers Financial Research Institute, December 2009.

http://www.pwc.com/us/en/financial-services/publications/viewpoints/assets/fs-viewpointopportunities-in-crisis.pdf

Managing Macroeconomic Uncertainty in a

Copyright 2013, Oracle and/or its affiliates. All rights reserved.

Post-recession World
March 2013
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