B.A.Sc. Thesis Abstracts - Year 2007

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Electronic Statements to the Bank Account Users: A Case Study for Canadian Banks

Stephanie Amoako-Adu

raditionally, customers rely on paper statements distributed via mail to track and reconcile their financial transactions. Currently, the Bank studied here provides only paper statements for their customers but would like to offer electronic statements, also known as e-statements, in 2008. This thesis uses bank data and results from the literature to determine the potential number of customers who will adopt e-statements, their distribution among different age cohorts and the impact of an incentive program on adoption rates and cost savings. Using linear extrapolation, the number of online banking customers in 2009 and 2010 was predicted; the number of e-statement adopters was based on adoption rates provided by a Forrester Research study. Demographic trends were examined to predict the largest market segment that will sign-up for e-statements. Lastly, an incentive program was developed to increase the adoption rate of the target market for the first two years. Results in this study show that about 450,000 online customers will have enrolled for e-statements two years after introducing the service. The Gen X-ers, ages 35-54. will be the largest demographic group to sign up. Results of this study also shows that the Bank can save about $350,000 after two years if they provide customers with a $5 financial credit to sign-up for e-statements as opposed to $240,000 with no incentives. In conclusion, e-statements should be provided by the Bank and a financial incentive introduced with the service. The number of online banking customers is growing and most will likely sign-up for e-statements once notified of the benefits. In addition, e-statements will save the Bank millions of dollars in the future if they are able to fully truncate paper statements once a customer enrols in the e-statement service.

Bank Branch Network Expansion: Business Process Improvements

Andrew Au and Ashwini Kumar

This document discusses a Business Process Improvement initiative at a leading Canadian bank. The Bank has found that the process used to initiate, plan, and implement the development and construction of new bank branches to be complex and not as efficient as desired. As a result, the Bank takes longer to reach their target markets than is acceptable to management. The objectives of the initiative were to develop Business Process Improvement solutions that would reduce process cycle time, improve information flow, and minimize project cost overruns and their impact on the process. After defining the key stakeholders and the current process, a set of key performance indicators (KPI) were developed to assess the current process and to gather data for comparison after the implementation of the recommended process improvements. The lack of a formal project tracking system and a heavy reliance on e-mail meant that data mining e-mails was the primary means of collecting data on past projects. It was soon found that not all e-mails for an individual project were retained and it would not be possible to collect all of the KPI measures. Although incomplete, the available data was still useful in identifying key issues within the process. The lack of available data led the improvement team to identify and apply generally accepted process design heuristics to develop new solutions. The solutions developed through the data and heuristic analysis were used to drive recommendations based on the primary objectives.

A Financial Well-Being Study of the Chinese Baby Boomer Generation in Canada

Ricky W. K. Cheung

While there are over 350,000 Chinese Roomers living in Canada, few studies have been conducted on the financial behavior of this group. The goal of this thesis is to examine the financial well-being of Chinese Boomers as they plan for their retirement. Surveys and extraction of micro-data files from the Statistics Canada's 2001 Census were used to collect data for this study.

Based on these findings, the similarities and differences in the financial well-being of Chinese Boomers compared with Mainstream Boomers were examined. Even though Chinese Boomers have a lower average employment income, the percentage of Chinese Boomers who own a home that is worth more than $170,000 is twice as high as the percentage of Mainstream Boomers. Chinese Boomers are more optimistic about their prospects on retirement than Mainstream Boomers. Due to the Mainstream Boomers' affinity towards traveling, they might require a higher retirement income than Chinese Boomers, who are more family-oriented and plan to spend their retirement with family and friends. Trust and knowledge are the two key qualities Chinese Boomers look for in an advisor, and about 30% of Chinese Boomers currently seek the advice of a professional financial advisor. Also, the majority of Chinese Boomers plan to finance for their retirement through personal savings and investments, and about half hold pensions. Finally, though they have a higher home ownership rate, very few will consider taking a home equity loan.

The Technological and Business Case behind Automatic Speech Recognition and Interactive Voice Response in a Banking Environment

Eric Chung

This paper presents the technological and business case behind using automatic speech recognition (ASR) in an interactive voice response (IVR) system in a banking environment. The Bank, as a service-oriented business, deals with many different clients every day. For example, through branch and self-service interactions, users complete transactions, withdraw and deposit money, discuss wealth management, and/or activate accounts among many other activities. One of the more popular self-service interactions is with the call center and subsequently through the IVR system which allows users to navigate through its menus. This IVR system allows users to access information about their accounts or the directory through a touch tone keypad without the aid of a customer service representative (CSR). Moreover, recent technological advances now allow speech recognition software to interact with the user at the menu level, using speech to navigate their IVR flowchart. However, this technology has not been widely accepted by the public. This paper attributes the lack of customer acceptance to the three conflicting perspectives of speech recognition and IVR design. As the problem is multidimensional, this paper divides the analysis into three distinct contexts, one of the developers, the users, and finally, from the administrators. This paper proposes that this problem cannot be tackled by just one of these perspectives, but must be addressed from all three. Since there is no single way to tackle the problem, this paper provides options, viewpoints, and possible venues for investigation to make ASR a more sustainable and effective technology in the banking environment.

Financial Forecasting Algorithms Based on Historical Data for Corporate Real Estate Expenses in a Large Canadian Commercial Bank

Jiayun Gu

This report aims to facilitate one of Canada's largest banks (Bank A) in developing a statistical model to trend historical corporate real estate expenses and forecast future expenses. Based on special characteristics summarized from the existing expense data, five forecasting algorithms are proposed. Three distinct testing methods are defined and utilized in the project to select the most accurate algorithm.

The final forecasting model consists of three algorithms. The Seasonal Trending algorithm identities and selects expense profiles with annual and semi-annual trends, and extends the identified seasonal trends to future years. The Special Techniques utilizes some unique features found within the data, and apply corresponding algorithms to prepare the forecasts. Finally, the Average Trending algorithm uses the average expenses found in historical data to predict future expenses.

The combination of the three algorithms achieved an overall accuracy of 81.8%. Bank A is satisfied with the final result, and has implemented the model in the bank's own system to forecast future occupancy expenses.

Developing Better Processes, Tools and Metrics for Business Casing Information Technology Infrastructure Projects

Simon La

Typically, organizations do not have unlimited capital to fund all internal projects. How does the organization select the combination of initiatives that will yield the best returns? In what order should the projects be selected? At what point should they be executed? While there are many methods to prioritize projects and allocate resources, few frameworks utilize the exhaustive list of project prioritization tools that provide justification for IT infrastructure projects. This paper examines a financial service organization's ability to prioritize internal initiatives. Through comparing the organization's current practices with industry standards, gaps are identified in the current process. Moreover, a roadmap is provided for the organization to bridge the gaps in the hope of achieving an objective and comprehensive project prioritization model for the near future.

IT Chargeback in a Distributed Environment

Roman Leifer

Executive Summary

The IT department is transforming itself from a passive gatekeeper of a company’s mainframes to an active partner that meets the business needs of all of the divisions within the organization. One of the key drivers of this change is the way in which IT charges back for its services to the rest of the organization.

Surveying the available literature reveals the inherent correlation between the sophistication of chargeback methodologies, and the resulting level of integration between IT and its customers. If the control of its spending is centralized, IT will not be responsive to the needs of its business units. Charging out for its services by using measurable, understandable, fair and controllable rates necessitates a close working relationship with the business units in order to best match IT’s infrastructure to their business needs.

Traditionally, chargeback has evolved from the mainframe environment, where the key metric charged on was the number of CPU hours an application used. The recent rise of distributed systems has shifted the economics so that for most systems, the labour and support costs outweigh the investment in the hardware.

A Large Canadian Bank (LCB) is used as a case study that illustrates the challenges with distributed chargeback today. The LCB uses distributed servers both as dedicated systems, with one or a few applications per server, and also in specific shared environments, where the hardware is pooled together to host a limited (for now) variety of applications. For the dedicated servers, hardware costs are recovered up-front, and the large labour component of the cost underlines the importance of maintaining an accurate time tracking system. The smaller, yet growing shared environment recovers its total costs using rates for the memory per application, and the number of transactions processed. The difficulty of defining and maintaining the different cost of a transaction for each application implies the need for a more robust metric if the shared environment is to grow to host a wider variety of applications. Recent advances in software have allowed the distributed CPU time to be tracked as well, and it combined with the existing memory metric would be a more flexible general-purpose platform.

One of the largest deficiencies in the LCB system is the way in which the chargeback costs are reported. An opaque total charge does not give enough detail for the business units to understand their costs, and therefore change their behavior. While using a more ideal metric will help enable a better system, chargeback should not become just a financial exercise of allocating costs, but should be a way for the business units to take charge of their IT spending. The best measure of the effectiveness of an IT chargeback system is the quality of the communication between IT and its business customers.

Service Level Agreements In Outsourcing Contracts

Varun Malhotra

The Bank, one of Canada’s largest, which is headquartered in Toronto, has close to 60,0001 employees around the world and offers a range of financial products and services to more than 10 million2 customers worldwide. The Bank outsources several in-house activities such as Information Technology, Communication services, etc. to outside vendors. In order to ensure the best service is obtained from these external vendors, the Bank uses Service Level Agreements (SLA) and Service Level Management (SLM) programs.

The Bank’s strategic sourcing group (SSG) is in charge of designing these SLA and SLM programs incorporating best practices. This thesis proposes best practices that can be used to produce more effective SLA and more efficient SLM programs. These guidelines were designed considering the current procedures used by the Bank’s SSG. The main issues discussed in this report include the value of having a SLM program in place, key characteristic features of SLAs, incorporation of service level metrics and key benefits of incorporating performance incentives such as rewards and penalties to the service provider.

Value Measurement of Enterprise Architecture

Fanyi Meng

Advances in the field of Information Technology have been moving at breakneck speed. This trend intensifies the need for major organizations to adopt complex Enterprise Architecture Frameworks. The increasing complexity of the deployed Enterprise Architectures creates the need for new value production models and value measurement techniques to effectively determine the value created by Enterprise Architectures.

In this thesis, a new value production model is developed along with its supporting theories. The value of enterprise architectural work is defined by this model as the global coherency among all architecture descriptions. A set of graphical manipulation procedures are developed to facilitate efficient and systematic calculation of the Global Coherency Rating. The Global Coherency Rating provides measurements for current values, while another metric, the Relative Percentage of New Focus Vectors, yields forecasts for future value prospects. Together these two metrics provide accurate and realistic measures of the value of Enterprise Architecture. The effectiveness and the validity of the proposed model are demonstrated in a sample implementation.

The major contribution of this thesis is the advancement of the understanding of the value production processes in an Enterprise Architecture. The proposed model enables enterprise architects to fully appreciate all of the environmental conditions, future objectives and current initiatives in an organization. Information gathered using the proposed model could be used to further optimize the value production capability of a target Enterprise Architecture.

In addition to the specific results of the sample implementation, the collection of theories, models and techniques presented by this thesis could provide valuable insights for others in the same area of research.

The Definition of Project Success: A Management Perspective

Niteen Odedra

The relationship between project management and project success has been an important research and discussion topic in the Information Technology (IT) industry. IT projects in the past have not had a high success rate due to being over budget and delays in meeting important deadlines. Canadian banks have been constantly trying to improve on their project management skills in order to filter out the projects with the best chance of success.

This report provides background research on managing successful IT projects and analyzes past projects of a major Canadian Bank. The Bank's ability to achieve their proposed business and financial objectives is studied in detail. The various difficulties that are faced by the Bank arc documented and a process control philosophy is applied to demonstrate methods which help to overcome the hurdles to project success. The study is focused on a particular major Canadian Bank and does not necessarily reflect the trends seen in the IT industry.

North of 60 Financial Services Delivery Model

Mark Sam & Chilton Ng

Personal financial services such as bank accounts, cheque deposits, and cash withdrawals play an important role in the every day lives of Canadians. People depend on these services to budget, manage their money, and save for the future. However, the availability of these services in the small and remote Canadian communities north of 60 degrees latitude is still limited because the unique geographic, social, and market characteristics of the region make it uneconomical for banks to operate branches. Specific challenges include: the small population and high dispersion of communities, the remoteness of Canada's northern geography, the language barriers, and the limited experience of some communities with personal financial services. This thesis sought to study the needs of these northern communities, understand the challenges, and recommend a service delivery model using channels other than physical bank branches. Delivery approaches under consideration include: mobile banking vehicles, PC kiosks, and partnerships with third-party organizations. Three service delivery models are discussed, but the Nominee/Kiosk model is recommended.

How To Select Candidate Projects For Outsourcing

Ada Tsang

Outsourcing can be an effective strategy to increase competitiveness, reduce costs, focus on the core business, and obtain needed capabilities. However, as the outsourcing practice grows, it starts to become more and more complex. In this thesis, a methodology was developed for ClientCo to select candidates for outsourcing, and to prioritize and sequence the projects in a collaborative manner. Based on the results of literature reviews and benchmarking analyses, this methodology involves three steps: (1) Determining whether a project should remain in¬ house or be outsourced, (2) Prioritizing the projects to be outsourced, and (3) Sequencing projects to be outsourced through the help of a centralized system and departmental unit.

Risk/Reward of a Robust Legacy System: an Information Technology Challenge

Yi Jun Frank Zhang

Legacy systems are considered to be software written as long ago as 40 years ago and run on predominately IBM mainframes. They are usually mission-critical to the business in which they operate and are “rock solid” which means they are as bug free as anything possibly can be. However the risk of continuing to operate them has become one of the headaches of IT managers. Keeping legacy systems will result in costs that are often not justifiable, but replacing them will incur huge business risks that are unacceptable. Determining whether such systems are worth keeping requires an overall assessment of the system. An analysis on reasons to keep and reasons to replace legacy systems is provided. The focus of the analysis is on reasons to replace them because while the reasons to keep the legacy systems do not change, the reasons to replace them evolve over time. A qualitative assessment method that examines a legacy system’s current state is proposed. Executives are able to use the questionnaires presented in the assessment section to make better decisions on whether or not or when to replace legacy systems. Through this research, the major factor causing the legacy system dilemma is identified and recommendations are provided.