MSc Computing for Financial Services

1
MSc Computing for Financial Services

• COM717
• Financial Services Information Systems
• Dr Sandra Moffett
• Revision Slides

2
Financial Services Sector?

• Financial Services (FS) is a term used to refer
  to the services provided by the finance industry.
  
• Also used to describe organizations that deal
  with the management of money, includes
  organizations such as banks, credit card
  companies, consumer finance companies, government
  sponsored enterprises, insurance, investment,
  actuarial and brokerages services.
• FS is the largest industry (or industry category)
  in the world.

3
Changing industry

• Mainly due to four emerging factors, namely
• The globalization of financial markets
• The impact of technology
• The deregulation of the Financial Services
  industry
• The importance of product innovation

4
Types of Financial Markets

• Money market deals in short-term assets that
  can be quickly transformed into money
• Securities market deals with the raising of new
  capital and trading of existing shares and bonds
• Foreign exchange market differing currencies
  are trading for one another
• Derivatives market future obligations to
  buy/sell, or options to buy/sell, underlying
  financial assets are traded
• Distinction can be made between primary and
  secondary markets

5
Primary Markets

• Deals in the issue of new securities such as
  government bonds, local authority bonds and
  shares in newly public corporations.
• Active market participants are merchant and
  commercial banks and investment firms provide
  advice on the terms and timing of an offering,
  might underwrite the issue and assist in
  marketing the offering

6
Secondary Markets

• Deals in financial securities that have already
  previously been issued user of the asset does
  not receive any proceeds from the sale of the
  security, however price of issuers shares
  indicates value of company.
• Screen-based market trading is undertaken by
  geographically dispersed market participants
  linked via telecommunications systems ie
  International Stock Exchange in London
• Call market orders are batched together at
  certain intervals (once or more a day) and
  market-trader holds auction for the stock either
  orally or in writing auction determines market
  price ie London gold bullion market
• Continuous market prices quoted continuously by
  market-traders throughout the trading day ie
  London Stock Exchange or Paris Bourse. New York
  Stock Exchange uses mixed system, call technique
  determines opening prices and continuous trading
  techniques employed throughout the day

7
The Efficiency of Financial Markets

• Financial markets are informationally efficient
  if the current market price of a security
  instantly and fully reflects all relevant
  available information (Fama, 1970, p.383)
• Three levels
• Weak-form efficiency if current prices of
  securities instantly and fully reflect all
  information of the past history of security
  prices it should not be possible to make
  consistent excess returns on securities by
  looking at past history of their price movements
  and using this as basis for future trading
• Semi-strong-form efficiency if current prices
  of securities instantly and fully reflect all
  publicly available information it should not be
  possible to make consistent excess returns on
  securities by using publicly available
  information as basis for future trading
• Strong-form efficiency if current prices of
  securities instantly and fully reflects all
  information, both public and private. In other
  words, even traders, directors or analysts with
  access to privileged inside information should
  not be able to make consistent excess returns on
  securities by using inside information as basis
  for future trading

8
Types of FS organizations

• The Central Bank
• The Banking Sector
• Credit card companies
• Consumer finance companies
• Insurance
• Investment
• Actuarial Services
• Brokerages services
• Conglomerates

9
Regulation of the Financial Sector

• Regulation has a major impact upon the operation
  and developments of financial markets, often
  revised and adjusted in response to changes in
  market structure, market development, new
  financial instruments and occasional financial
  scandal or crisis. Seen as a means of exerting
  some degree of control over markets and means of
  maintaining confidence and stability in the
  financial system.
• Government intervention rationalised on grounds
  of market failure, left to itself market would
  produce a sub-optimal outcome
• Four instances of market failure frequently cited
  as needing government intervention to correct
• The externalities problem
• The problem of asymmetric information
• The moral hazard problem
• The principal-agent problem

10
The externalities problem

• The financial system provides a payments
  mechanism for the entire economy, and financial
  institutions play a pivotal role of linking both
  users and lenders of funds. This means that
  problems in the financial sector can potentially
  have a disastrous effect on the entire economy
• The failure of firms that produce goods or
  services, or even whole industries, is less
  likely to have devastating effects throughout the
  entire economy for most countries than the
  collapse of a leading bank or the financial sector

11
The problem of asymmetric information

• Directors and managers of companies as well as
  financial institutions have available to them an
  information set on the soundness of their own
  company or institution and its likely policies
  that is superior to those that earlier lend to or
  invest in that company or institution. This could
  lead to problems such as insider trading and the
  concealment of relevant information from
  investors. For this reason, many countries have
  adopted insider trading laws prohibiting trading
  in shares on information that is not publicly
  available. A further set of regulations imposes
  disclosure requirements on companies to make
  public a great deal of financial information to
  potential and actual investors.

12
The moral hazard problem

• Moral hazard means that insuring against an event
  occurring will make the event more likely to
  occur than if the event was not insured against.
  For instance, a deposit insurance protection
  scheme will guarantee investors their funds
  should a deposit-taking institution get into
  difficulty. However, this may encourage
  depositors to channel more of their funds into
  risky financial institutions which are more
  likely to run into problems and thereby lead to a
  higher loss of deposits than if no deposit
  protection insurance policy existed. This will be
  even more the case of financial institutions take
  on more risk than they otherwise would, knowing
  that investors will be protected if the
  institution encounters problems

13
The principal-agent problem

• Directors and managers of financial institutions
  act as agents for the shareholders and investors
  in the institution (the principles). There is a
  potential problem that the directors and managers
  will pursue their own interests at the expense of
  the shareholders and investors. For example, the
  managers may have performance-related bonuses
  that encourage them to high risks which imperial
  the funds of shareholders and investors. For this
  reason, they are obliged to disclose information
  on the financial performance of the company and
  are subjected to rules on their dealings

14
Types of Government regulation

• Structural regulation covers the different
  types of activities, products and geographical
  boundaries within which financial institutions
  can operate
• Prudential regulation covers the internal
  management of a financial institution ie the
  setting of ratios to ensure that the institution
  has sufficient capital to absorb possible losses,
  and sufficient liquidity to meet obligations
• Investor protection covers measures designed to
  protect investors from mismanagement of funds,
  malpractice and fraud

15
Statutory versus self-regulation

• Statutory regulation is part of the law and is
  usually supervised by the authorities
• With self-regulation supervision and enforcement
  is left to market participants/practitioners
  usually in the form of various regulatory bodies
• Self-regulation is more flexible and can be
  quickly adapted to fast changes in FS industry
• Market practitioners more effective at spotting
  breaches of regulations leads to higher
  professional standards and rooting out fraud as
  practitioners are better able to judge what
  constitutes unacceptable standards
• - Dependant upon members for funding hence
  judgements can favour members opinions rather
  than general consumers
• - may impose too onerous requirements on new
  entrants proposing innovative fashions, members
  have vested interest in preserving status quo

16
Regulation in the UK

• Deregulation
• Abolition of exchange controls 1979
• Government legislation only enforceable at
  national level, globalisation so option to
  operate in alternative country
• At beginning of 80s feeling that London was
  losing too much business to USA and other
  countries, prompted big bang in 1986 (covered in
  next slide)
• Legislation largely ineffective and caused
  distortions in financial markets
• Regulation
• Prompted by innovative products such as options,
  junk bonds, swaps, etc. legislation required as
  response to market developments
• Three major pieces of legislation
• Big Bang, 1986, the Financial Services Act 1986
  and Banking Act 1987 led to creation of
  Financial Services Authority (FSA) in 1997

17
Financial Services Authority

• In May 1997 the Government announced major
  reforms to the regulation of financial services -
  nine different financial Regulators into a single
  body
• The FSA (Financial Services Authority),
  officially launched on 28th October, was formed
  to regulate all banks, building societies, life
  assurance and general insurance companies,
  stockbrokers, investment managers, financial
  advisers and more besides
• The legislation to be established in two parts
• first changes to the Banking Act (early part of
  1998) to transfer responsibility for banking
  supervision from the Bank of England to FSA
• followed by a major bill to sweep up the existing
  legislation such as the 1986 Financial Services
  Act into a new and comprehensive Act the
  Financial Services and Market Act 2000
• http//www.opsi.gov.uk/Acts/acts2000/20000008.htm
  

18
The role of FSA

• In discharging its general functions the
  Authority must, so far as is reasonably possible,
  act in a way -   
• (a) which is compatible with the regulatory
  objectives and 
• (b) which the Authority considers most
  appropriate for the purpose of meeting those
  objectives
• The regulatory objectives are -   
• (a) market confidence 
• (b) public awareness 
• (c) the protection of consumers and 
• (d) the reduction of financial crime
• http//www.fsa.gov.uk/

19
European Regulation

• EU is common market ensuring free trade for goods
  and services and free movement of factors of
  production (capital and labour)
• White paper of 1985 created single European
  market paved the way for free internal market
  in FS within a common regulatory structure
• The principle of mutual recognition e.g.
  British bank able to sell product range in Italy
  regardless of whether Italian banks are allowed
  to sell these products/services
• Agreement on what constitutes the minimum of
  reasonable standards to be applied European
  Commissions overall approach has been to achieve
  liberalisation through the passport principle
  a licence obtained in one EU member state should
  be sufficient to qualify licensee to sell its
  products/services in all EU countries
• Two key EU legislative pieces affecting Banking
  sector are First and Second Banking Directives
• http//www.hm-treasury.gov.uk/documents/financial
  _services/eu_financial_services/fin_eufs_index.cfm
  
• http//www.fsa.gov.uk/Pages/Library/Communication
  /Speeches/2004/SP178.shtml

20
International regulation the Basle Accord 1988
(1)

• Failures of Bankhaus Herstaatt and Franklin
  National in 1974 led to increased interest in
  prudential supervision at international level
  questions impact of foreign bank failure on
  domestic banks, ensures that foreign subsidiaries
  do not escape regulatory controls
• Basle Committee on Banking Regulation and
  Supervisory Practice, consisting of senior
  central banking officials from G-10 countries,
  created Basle Accord 1988 with overall aim of
  ensuring soundness and stability of international
  banking system
• To ensure greater consistency of capital adequacy
  ratios between banks of different countries
• To try and improve capital adequacy standards to
  reflect the risk profile of different banks

21
cont (2)

• Bank capital in two tiers
• Tier 1 core capital consists of common stock
  equity, certain preferred stock, net reserves,
  minority interests in consolidated subsidiaries
  (4)
• Tier 2 supplementary capital consists of
  loan-loss reserves, certain preferred stock,
  perpetual debt (no maturity date), hybrid capital
  instruments, subordinated debt and equity
  contract notes (8)
• Implemented from Jan 1994 all banks are expected
  to maintain a capital ratio that is risk-weighted
  on basis of their assets, so if they have to
  write off some assets, the bank would not be
  endangered. Five category credit risk 0, 10,
  20, 50 and 100
• Refer to example in main slides

22
MSc Computing for Financial Services

• The role of Technology in Financial Services

23
Functions of an Information System
24
Interrelationships among Systems
TPS Transaction Processing System DSS
Decision Support System ESS Executive Support
System MIS Management Information System or ERP
Enterprise Resource Planning KWS Knowledge
Work (Management) System OAS Office Automation
System
25
Purpose of IT in FS Sector

• Technologically advanced information systems and
  networks provide Financial Service institutions
  with a competitive edge. They assure an
  interactive link to serve markets more
  efficiently. They facilitate managements
  control of the business, thereby enabling it to
  compete under better terms.
• Need for progression change, as a function of
  time, market driven forces and technological
  developments

26
History of On-line system development

• Four decades ago, just after 2nd World War,
  larger banks relied on punched-card equipment and
  accounting machines for information handling
• Three decades ago, introduced computers to slowly
  replace punched cards
• FS products and information systems started to
  merge in mid-60s
• First online installations in banking environment
  - connected the teller to mainframes to link
  current accounts to product(s) it supports,
  multi-drop facility
• 4 generations of on-line systems (GOLS) Refer
  to main notes for details

27
Network components (1)

• Any network can be both physically and
  conceptually decomposed into four basic
  components
• Text and data transport (datacommunications)
  carries text, data, image, programs and voice
  from point of origin to point of destination and
  point of storage i.e. broadbroad by optical
  techniques using glass fibres and lasers, radio
  links and satellites
• Text and data processing (TDP) is concerned with
  use of computers for processing information.
  Concerned with transmission of semantic content,
  interactive graphics, voice input, image
  character recognition, e-mail and voice mail

28
Cont (2)

• Text and database (TBD) an impressive growth in
  storage capabilities are now used for handling
  global text and database. Basic of functionality
  for modern network made up of communication
  databases and workstations
• Provision of user-friendly interfaces most
  challenging of four components. Graphics, colour
  and menu solutions are key issues for example
  design of expert systems

29
Call for Interactive Systems

• FS industries need considerable communications
  network capability and expertise to serve
  financial purposes effectively
• Professionals want easy-to-use,
  communications-intense solutions provided with
  steady upkeep
• Flow of information must be regulated, resources
  must be shared
• Integration of voice, data, text and image over
  the same network
• Interactivity
• Complete information security

30
Interest in AI

• Artificial Intelligence (AI) reflects both
  theoretical background and polyvalent approaches.
  It is concerned with
• Symbolic reasoning
• Natural language manipulation
• Language translation
• Problem solving
• Artificial vision
• Robotics
• Weapon systems
• Augmentation of human intelligence
• Eventual creation of machine-based processes of
  imagination

31
FS Interest in AI

• In industry such as FS, where product
  differentiation is hardwon and expertise is
  actively sought after, AI constructs can help to
  offer new and better products at lower people
  costs.
• Preserve Expertise
• Create and/or enhance Knowledge Base put
  knowledge and judgement of recognised expertise
  at fingertips of novices
• Mechanism not subject to feelings, fatique,
  worry, crisis
• Eliminate routine/unsatisfying jobs
• Utilise Natural Language Processing for
  user-friendly systems
• Two key elements Expert Systems and Business
  Intelligent tools

32
Expert Systems Group

• Knowledge-intensive systems (software
  applications) capture human expertise in
  limited domains of knowledge experts distill
  their knowledge into a set of laws and enter such
  know-how into the system.
• An expert system is a practical solution able to
  handle complex problems requiring high level of
  human judgment and expertise, able to communicate
  with its user through an effective dialogue.
  Expert systems ask questions, give advice and
  justify it
• AI Shell Programming environment of expert
  system created by knowledge engineer
• Knowledge-based expert system model of human
  knowledge
• Rule-based system AI system based on IF THEN
  statements (Bifurcation) Rule-base collection
  of IF THEN knowledge
• FORWARD CHAINING Uses input searches rules for
  answer
• BACKWARD CHAINING Begins with hypothesis, seeks
  information until hypothesis accepted or rejected
• Knowledge Frames knowledge organised in chunks
  based on shared relationships

33
Layers of an expert system
34

Limitations of Expert Systems

• Often reduced to problems of classification
• Can be large, lengthy, expensive
• Maintaining knowledge base critical
• Many managers unwilling to trust such systems
• Need for man-machine communication through NLP
  user friendly window implementation (voice
  understanding and answer back in desired
  language)
• Need for fast development knowledge
  acquisition, knowledge representation, testing,
  system research and innovation in applications
  are key, guaranteed only by means of leading edge
  applications

35
Examples of Expert Systems

• Blue Cross Blue Shield Automated medical
  underwriting system
• Countrywide Funding Corp. Loan underwriting
  expert system
• United Nations Employee salary calculations

36
Business Intelligence

• IT encourages FS organisations to use Business
  Intelligent tools so employees can quickly spot
  trends within business, financial and market
  data applied to enable better decision-making
• BI tools offer employees to make decision based
  on increasingly complex datasets Offsey, 1997
• Data Warehousing/DataMarts
• Intelligent Miner/Clementine

37
BI Tools

• Digital dashboards also known as Business
  Intelligence Dashboards, Enterprise Dashboards,
  or Executive Dashboards, these are
  virtually-based summaries of business data that
  show at a glance understanding of business
  conditions through metrics and Key Performance
  Indicators (KPIs). Popular BI tool which has
  arisen over last few years, example COGNOS, IBM
  tool
• Online Analytical Processing, commonly known as
  OLAP, a capability of some management, decision
  support and executive information system that
  supports interactive examination of large amounts
  of data from many perspectives.
• Reporting software generated aggregated views of
  data to keep the management informed about the
  state of their business.
• Data Mining extraction of consumer information
  from a database by utilizing software that can
  isolate and identify previously unknown patterns
  or trends in large amounts of data. There are a
  variety of data mining techniques that reveal
  different patterns. Some of the techniques used
  by Financial Sector are statistical methods
  (business statistics) and neural networks as a
  very advanced means of analyzing data.
• Business Performance Management (BPM) software
  used for performance prediction and efficiency
  management such as what if analysis and cost
  reduction.

38
Intelligent Support Systems

• Intelligent Support Systems ISS DSS GDSS
  EIS
• DSS used to foster an environment conducive to
  decision making where both introverted and
  extroverted group members have equal opportunity
  to contribute everyone can talk at same time,
  system creates a memory of events
• MIS / ERP / KWS support mechanisms
• Workflow systems - Standardised sequence of tasks
  that occur within a company and have been
  established to improve efficiency Pompili, 1996
• One-stop-shop such as a helpdesk, FAQs, etc.

39
Autonomous Computing Challenges

• Possess system identity detailed knowledge of
  components
• Self configure re-configure adaptive
  algorithm
• Optimise operations adaptive algorithm
• Recover no impact on data or delay in
  processing
• Self protection
• Aware of Environment and Adapt
• Function in a heterogeneous world
• Hide complexity

• Machines become
• Self managing
• Self healing
• Self protecting
• Self optimising

40
The Function of Internal Auditing

• Internal auditing is a management function which
  independently evaluates the adequacy,
  effectiveness and practicality of the systems of
  control and quality of on-going operations
• Systems of control comprise the plan of
  organisation, all co-ordinate methods to this
  plan, and the measures adopted to
• Provide reasonable assurance that assets are
  safeguarded, information (financial and other)
  are reliable, and errors or irregularities will
  be discovered and promptly corrected
• Promote operational control and therefore
  encourage adherance to managerial policies, laws
  and bylaws, regulations of supervisory
  authorities, and sound fiduciary principles

41
System auditing

• All DP/DB/DC functions must be performed with
  auditability and accountability auditor must be
  able to track usage of particular resource by
  audit trail
• For protection against system entry, info system
  should determine who can use computer resources
  and from what mode of entry, ensuring different
  levels of data protection (access and function
  control)
• Through online services the auditor can properly
  identify critical areas, establish weak points in
  the system, procedures and practices, reflect on
  vulnerability and countermeasures
• Auditor should have three specific tasks
• Online auditing of FS organisation books and
  transactions
• Audit of the programs to ascertain that there is
  no computer fraud in the system programming
  library
• Audit of the computers, communications and
  database facilities, including both the central
  and distributed resources

42
Improving controls on computer applications

• Rules and standards needed governing the
  origination, transmission and balancing of
  transactions can ensure detection of
  malfunctions and prevent processing of erroneous
  or altered data
• Main problems in FS industry include potential
  loss from errors and omissions, improper
  controls, inadequate system design, fraud and
  defalcation, potential failure to comply with
  standards and procedures
• Computer abuse and fraud key issues are source
  data entry, data conversion procedures
  (transcription), operations personnel, analysts
  and programmers (development), maintenance
  programmers, processing procedures
• Security relating to physical access is
  problematic, either by bank personnel or that of
  clientele

43
Examples of file-alteration techniques

• Transfer of funds from dormant to active accounts
• Nonexistent accounts on file
• Fraudulent withdrawals/deposits
• Misstatement of loan interest or payment terms
• Falsification of collateral
• Illegal address alterations
• Incorrect payment/credit histories
• Erroneous savings-interest calculation method
• Suppression of service charges
• Insertion of illegal general ledger account
  adjustments
• Modification/deletion from audit trails and trail
  balances

44
Internal computer audit feature

• Will be able to
• Review the contents of computer records,
  determining what the information represents and
  how it compares to auditors understanding of its
  intended meaning
• Extract data for careful analysis of overall
  contents
• Select for testing and evaluate test results
• Test whether the data being reviewed are accurate
  from a computational aspect
• Compare information to determine if similar data
  have been handled in the same manner, and
  discover differences between two groups of
  records as a method of pinpointing areas for
  further analysis

45
Security considerations

• Most security flaws are consequences of design
  shortcuts taking to increase efficiency of the
  system as an operating entity
• Basic control mechanisms are
• Identification determining who or what entity
  is claiming to be
• Authentication verification of claiming entity
• Authorisation capability profile and relevant
  privileges (legal liabilities)
• Not only must online system be secure in global
  sense, but it must seem secure to everybody.
  Intruders will be discouraged from attacking when
  they know system defence is well studied and high
  risk of being electronically traced and identified

46
Risk analysis

• A good information systems defense is
  fundamentally dependent upon security systems
  ability to react to change
• Ensure
• Operational reliability including terminals,
  peripheral devices, nodes/switches, hosts, data
  transmission
• Vulnerability to deliberate fraud PINs,
  software at all computer devices, communication
  lines
• Users of the facilities from organisations own
  personnel (at all levels) to client-based
  references

47
Data Encryption challenge

• Cryptographic techniques range from very
  elementary letter-substitution cipher to highly
  mathematical public-key encryption systems.
  Security levels within these approaches vary
  dramatically trade off between security level,
  simplicity, ease of management
• Problem for FS industry is compounded by other
  regulatory inconsistencies. Encryption is not
  allowed in many countries, particularly those
  with dictatorships, need to transmit in clear
  text hence some financial institutions use
  encryption bypass by means of statistical
  multiplexers (use of built-in error correction
  techniques)

48
Secure node criteria

• As suggested by The National Bureau of Standards
• Confidentiality basic, minimum level
• Integrity value added to assure node line and
  network integrity
• Availability network will be characterised by
  multiple processor states, protection of layers
  of memory, content assurance, privileged handling
  of instructions
• Design features should include
• Multiple communications options
• High speed cryptographic processors
• System independence (hardware and software)
• Secure device and system drivers
• User set keys
• Key management procedures
• Cryptographic and key utilities

49
Word of caution

• Encryption must be integrated into the network
• Must reach all the way to database, including
  disk encryption
• Use of algorithms is not a guarantee of security
  can be deciphered, hence methodology for
  security assistance is important
• Possibilities for system advancement must be
  carefully examined and security decisions made
  requirements for secure communications are
  increasing at a dramatic rate

50
MSc Computing for Financial Services

• Employment in Financial Services

51
FS Growth in Ireland

• In a record year for employment growth, Ireland's
  international financial services (IFS) sector
  created over 3,000 net new jobs in 2006,
  according to the Finance Dublin Yearbook 2007.
  Total employment in the three core sectors of
  banking, funds and insurance stood at 22,177 at
  end December 2006, up by 16 per cent from 19,095
  on the same date a year earlier. The figures are
  compiled annually in a survey conducted online by
  Finance Dublin amongst all Irish international
  financial services (IFS) companies
• During the year, more than 100,000 new jobs were
  created, compared with 25,000 redundancies.
  Ireland's international financial services
  industry made a significant contribution to this
  growth with over 3,000 net new jobs created in
  2006
• Looking ahead, the sector can expect to see
  further growth in 2007, as firms like Depfa Bank,
  Merrill Lynch and BNP Paribas all plan to recruit
  significant numbers of additional staff members
• Finance Dublin Yearbook 2007

52
FS in Northern Ireland

• Employment in FS sector has grown over past
  decade. Most of this growth has been in
  non-traditional area of FS including real estate
  renting and business activities sub-sector.
• Competition in FS sector has increased over the
  past five years with the introduction of
  legislation facilitating deregulation of the
  sector and many building societies becoming
  banks. In recent years several of RoI banks and
  building societies have entered NI market
• Recent years have seen several large
  international FS companies develop operations in
  NI. NI is only part of UK that shares a land
  border with Euro participant, Banking and FS
  sector in NI readily deals with Euros
• Financial Services has grown strongly in recent
  years at a time when rest of UK is experiencing
  some concentration in the sector. Major driver
  of local growth has been call centres
  investment from blue chip companies like Halifax,
  Abbey National and Prudential has served to
  position NI as leading call centre location
  particularly for Financial Services sector
• Northern Ireland Yearbook 2005, Lagan
  Consulting

53
Need for Skills in FS sector

• Wombat Financial Software Case organisation
• UKIERI-KPMG Report Launch press release
• Skills Bill report

54
MSc Computing for Financial Services

• Technical Report Writing and Presentation Skills

55
Technical Report Writing

• The purpose of a report is to convey information
  factually, briefly and clearly. Brevity is
  important a report is not an essay. Clarity is
  achieved by subdividing the report into headed
  sections each with a definite part to play. There
  is no single "best" way to present a report.
• Reports are a way of informing and persuading
  people as well as initiating change. You might
  prepare or contribute to annual, project or
  progress reports. A well-structured report that
  has clear objectives will get more attention and
  is more likely to produce the intended results.

56
Oral Presentations
57
Overall stages

• Technical report writing
• Planning
• Selecting ideas
• Structure
• Content
• Layout
• References
• Editing
• Plagarism
• Conclusion

• Oral presentations
• Aims and objectives
• Research the audience
• Structure
• Preparing the script
• Visual Aids
• Rehearsal
• Delivery
• Handling questions

58
MSc Computing for Financial Services

• COM717
• Managing knowledge within FS organisations
• Dr Sandra Moffett

59
The Evolution of Knowledge

• Knowledge focus not new - Greek philosophers
  Plato, Socrates and Aristole
• Hunter-gatherer
• Agricultural Revolution
• Industrial Revolution - Division of Labour Adam
  Smith, 1776
• Knowledge Revolution - Process and Knowledge

60

• The emergence of the Knowledge economy means that
  companies can no longer expect the products and
  services which made them successful in the past
  to keep them viable in the future companies now
  require quality, value, service, innovation, and
  speed to market for business success these
  factors will become more crucial in the future
• Davenport Prusak, 1998

61

• in an economy where the only certainty is
  uncertainty the one source of competitive
  advantage is knowledge
• Nonaka, 1994
• Knowledge is now the main cost, the main
  investment, the main employer and the main
  product of the knowledge economy
• Skyrme Amidon, 1997

62
Why Knowledge Management?

• Most organisations do not manage their knowledge
  well
• They lose knowledge through downsizing and staff
  turnover
• They buy in expertise they already possess
• They do not know what they know
• Knowledge Management (KM) key for business
  success (Lustri et al., 2007)
• KM now an integral business function (Zhou and
  Fink, 2003) in both traditional and
  internet-based business (Borges Tiago et al.,
  2007)
• KM now viewed as essential for profit (Yang,
  2008)

63
The KM Journey

• Knowledge Management is a journey. It is not
  new. Managing knowledge has taken place ever
  since a cave person passed a tool to their
  partner.
• Whats different today is that were starting to
  develop a language to talk about this fuzzy and
  intangible stuff. We need to develop visual
  frameworks to help people build this language.
  If we can visualize, we can measure and if we can
  measure, we can manage
• Gordon Petrash, Dow Chemical

64
Why the confusion?!?!

• Difficult to define due to heterogeneous range of
  interests, perspectives and issues connected to
  the field.
• KM has received contributions from Computer
  Science (AI, Software Engineering), Business and
  Management (BPR, TQM, Continuous Improvement),
  Sociology, Psychology, Human Resource Management,
  Organisation Behaviour, Accountancy, etc.

65
Is not to...

• The idea is not to give the right answer, but
  to create a framework for people and
  organisations to start the process of finding
  their own questions and answers to understand
  how they learn, how they share and how they use
  their knowledge
• Cope, 1998

66
Knowledge Hierarchy

• Wisdom
• Knowledge
• Information
• Data

67
Knowledge

• Knowledge is justified, true belief
  Plato
• Knowledge is power Francis Bacon
• Knowledge is a fluid mix of framed experience,
  values, contextual information, and expert
  insight that provides a framework for evaluating
  and incorporating new experiences and
  information. It originates and is applied in the
  mind of knowers. In organizations, it often
  becomes embedded not only in documents and
  repositories but also in organizational routines,
  processes, practices and norms
• Davenport Prusak, 1998

68
Dimensions of Knowledge

• Tacit Knowledge
• Tacit knowledge is personal knowledge in the
  form of skills, know-how experience, intuition,
  insights, feelings and beliefs
• Davenport Prusak, 1998
• tacit knowledge cannot be put into words we
  know more than we can tell
• Polanyi, 1966

69
Dimensions of Knowledge (2)

• Explicit Knowledge
• Explicit Knowledge is knowledge contained in
  oral or written language intended for consumption
  or access by others. It is knowledge that has
  been formulated and formalised, and is typically
  found in books, documents, manuals, formulae,
  presentations, lectures, etc.
• Davenport Prusak, 1998

70
Wisdom

• Wisdom is knowledge with insight. The
  combination of experience and knowledge with the
  ability to apply them
• The Antidote, 1998
• the ability to use knowledge sound judgement
• English Dictionary, 1999

71
Definitions of Knowledge Management

• Knowledge Management is knowledge creation,
  which is followed by knowledge interpretation,
  knowledge dissemination and use, and knowledge
  retention and refinement
• De Jarnett, 1996
• Knowledge Management is the process of
  critically managing knowledge to meet existing
  needs, to identify and exploit existing and
  acquired knowledge assets and to develop new
  opportunities
• Quintas et al., 1997

72

• Knowledge Management caters to the critical
  issues of organisation adaption, survival and
  competence in face of increasingly discontinuous
  change. Essentially, it embodies organisational
  processes that seek synergistic combination of
  data and information processing capacity of
  information technologies, and the creative and
  innovative capacity of human beings
• Malholtra, 1997

73

• Knowledge Management is the process of creating
  new mindsets, models, skills and technologies
  that capture, organise and employ information,
  experience and knowledge application, to gain
  collective expertise across the organisation,
  which in turn facilitates competitive advantage
• Moffett, 2000

74
Knowledge Management Models

• 3 broad categories of KM models
• Knowledge Category Models
• Social Constructionist Model
• Intellectual Capital Models

75
Knowledge Category Models
76
Knowledge Category Models
77
Knowledge Category Models
Figure No 3 - Knowledge Category Model (Boisot,
1998)
78
Intellectual Capital Models
Figure No 5 Intellectual Capital Model of KM
(Chase, 1997)
79
Social Constructionist Models
Figure No 6 - Knowledge Management Model
Demerest, (1997)
80
Social Constructionist Models
Figure No 7 - Modified Version of Demerests
Knowledge Management Model (McAdam and McCreedy,
1998)
81
Two ways of approaching KM

• As an ASSET
• Knowledge can be extracted from wherever it
  resides and put onto a system as a discrete asset
  to be managed
• As a way of DOING things
• Using knowledge as a means of judgement - this
  approach has the most value and derives the
  fastest benefits, however this approach is more
  difficult to achieve

82
Knowledge-based Organisational Structure

• Scientific and Social knowledge recognised
• Consider themselves as brokers of knowledge
• Emphasise decentralisation and virtualisation
• Exhibit network structure
• Flexible boundaries

83
KM approaches

• Strategy - Considers organisational and
  operational compatibility, symbolised by shared
  philosophies, vision, end-goals across the whole
  organisation, everyone aware of organisation
  mission and the contribution their role makes
• Culture How the organisation is, consider
  elements such as recruitment, education and
  training, leadership, reward and recognition,
  etc.
• Facilitators knowledge roles and specific
  posts, knowledge sharing, dialogue, networks,
  communities of practice (CoP)

84
Collaborative Practices

• If HP knew what HP knows, we would be three
  times as profitable
• Platt, CEO Hewlett-Packard
• CONK - Cost of Not Knowing
• Reduction of Knowledge Silos Offsey, 1997
• Create Corporate Memory Quintas et al., 1997
• Eliminate Re-invention of the Wheel
• Record lessons learned not glory stories
• Facilitate ceaseless innovation Demerest,
  1997

85
Organisational Risks

• Companies focus virtually all training attention
  on developing basic rather than advanced skills
  and little or none on systems or creative skills.
• Members of every profession tend to look to their
  peers to determine codes of behaviour and
  acceptable standards of performance.
• Professionals tend to surround themselves with
  people who have similar backgrounds and values,
  this leads to risk of cocoons which quickly
  become inward-looking bureaucracies that are
  resistant to change and detached from customers.

86
Developing Professional Intellect

• Recruit the best
• Force intense early development
• Constantly increase professional challenges
• Organise around intellect
• Boost professionals problem solving abilities by
  capturing knowledge in systems and software
• Overcome professionals reluctance to share
  information
• Evaluate and Weed

87
New Challenges for Business Leaders

• Take on the Intangibles
• Put people first, technology second
• Audit your knowledge base
• Reward knowledge-sharing
• Build on success

88
Cultural Blockers

• Not Invented Here (N.I.H.)
• Time is money
• Knowledge is Power
• Technophobia
• Valuing Intangibles
• Information Overload

89
Future .

• Where people learn from the application of
  information and share the results
• Where processes are in place to support sharing,
  effective resourcing and people capability
  development
• Providing the most effective collaborative
  environment
• With appropriate management systems, values and
  behaviours