Gartner Inc. says it has seen the future for investment services firms, and it is not free checking.
According to the Stamford, Conn.-based research firm, business activity monitoring (BAM) and its brainier subset, complex event processing (CEP), have become make-or-break tools in investment services because they can predict, not just do the postmortem, on market data.
The term business activity monitoring was coined by Gartner in 2001 to describe a technology that provides "event-driven and real-time access to and analysis of critical business performance indicators."
"That's a mouthful, I know. We look at BAM as a set of technologies that allow investment services to move from a reactive to a proactive mode of doing business," said Mary Knox, research director at Gartner.
Complex event processing is the ability to look at events and rapidly compute a derived event from the data. Hedge funds that do a high volume of automated trading and need to track differences in pricing across multiple venues are ripe for CEP, Knox said.
Small and big financial services companies need to look at this kind of functionality, Knox said, because the ability to proactively identify opportunities and risks, whether internal or external, is becoming "a competitive requirement."
"It means, for one thing, you are dealing with firms that are more robust and can take advantage of market opportunities. You are also dealing with firms that are more able to identify risks and respond to them, which makes your assets more secure," she said.
Think of Enron, Knox said. "With many investment firms it took them days and days to understand what their full exposure was and take corrective action."
A growing number of vendors have jumped into the field, including Apama, the British vendor now owned by Progress Software Corp.; webMethods Inc.; StreamBase Systems Inc.; and Tibco Software Inc.
The appetite for BAM products goes hand in hand with today's "real-time nature of business," said Alan Lundberg, a marketing manager at Palo Alto, Calif.-based Tibco, maker of Tibco Business Factor and OpsFactor BAM software.
"Traditionally, you had companies looking at a month's worth of data and Ph.D.s figuring out lots of different algorithms to say, 'Yes, we have been defrauded,'" Lundberg said. But a shift is under way. "Companies want to be able to respond to an event when it happens rather than query a database."
A bank using a BAM system to detect fraud, for example, would identify patterns that indicate fraud and then set thresholds for taking action when patterns emerge. "It's akin to a pressure gauge on a boiler. You know the boiler will blow at 300 degrees. You see it at 200 degrees, then 260, 270 and decide when you need to stop it," Lundberg said. "Being able to respond as events dictate is very important."
A recent Gartner survey of midsized to large banks, brokerages and asset managers with $1 billion or more of assets under management showed that 25% had BAM in production and another 25% were piloting or planning BAM projects. Of those that were using BAM, 75% said they were adding BAM projects, "which means they must be getting rewards out of the technology," Gartner's Knox said. Companies reported they were using BAM for trade exception detection and processing, IT system performance monitoring and quality-of-service monitoring.
And BAM will continue to grow as companies move to a more consolidated IT infrastructure, Knox said. The centralized infrastructure allows companies to better monitor events across applications in a more rational fashion.
A BAM solution, whether homegrown or commercial, has three components Knox said:
- An "event-absorption" layer receives massive data feeds coming directly into the system.
- A processing and filtering layer allows the company to identify the relevant events or information coming through the data streams. (Knox said financial firms, for example, might be look at an unusually large or unusually low deposit or withdrawal size for a particular user.)
- The third component is a display layer, or dashboard, that alerts the monitoring organization or automatically triggers a business process management solution.
A Beautiful Mind
IT outsourcing giant Infosys Technologies Ltd. deploys BAM for many of its financial clients, as part of its business process management and data management work, said Mahesh Makhija, senior principal.
Makhija, who heads consulting for Bangalore, India-based Infosys' financial services practice, said BAM isn't really new. "What BAM means to us is a set of concepts and principles which help an organization to monitor business activities for competitive advantage and benefit," Makhija said
Five years ago, though, companies were still struggling with the fundamental challenge of how to abstract the logic from their applications and business processes onto a platform in order to respond to a dynamic marketplace.
"What is happening now is they are moving to the next step. It is not so much about process orchestration. It is about how do I take all of that information which is coming out of my platform and then start improving my process proactively."
Infosys sees companies using BAM to ensure compliance with the industry's many regulations and to improve revenue. In both cases, the amount of data is massive and the event processing logic is very complex. A BAM system used to ensure price protection for investors, for example, is monitoring data coming from traders on the floor, from the stock exchanges and the actual trade executions. The aim is to avoid violations from traders on the floor.
It is about how do I take all of that information which is coming out of my platform and then start improving my process proactively.
Mahesh Makhija, senior principal, Infosys
"There is a significant amount of information in these three different streams of events. Firms we work with take these streams of events and use correlation logic to figure out the connections between these different events. The BAM system tracks the correlations and they pop up on somebody's dashboard," Makhija said.
Firms also use BAM to improve their "trade-through" rates by making sure trades don't fail as they travel through the firm's various systems, from accounting to settlement. "Every failed trade results in a loss of money and operational risk for the bank. BAM technology can make sure you can push the trades through to successful consummation," Makhija said.
He said he believes the next iteration of BAM will employ wireless technology to bypass the dashboard (which requires somebody there to look at it) and send alerts to a personal digital assistant. Eventually, BAM will become part of the applications server platform on one side and integrate with other technologies, like mobile technologies, he said.
Making BAM work today requires close collaboration between the subject expert (e.g., the traders who know what constitutes a violation) and the business analysts on the IT side who can create the set of specs, Makhija said. "The hardest part still in many cases is knowing what the rules are and how to extract the correlation rules out of the application. Today the pattern is often sitting in somebody's mind."
Tibco's Lundberg compares the technologies to the on-the-spot computational power of the Princeton University mathematician depicted in A Beautiful Mind.
"Remember the scene in the movie where all the generals are sitting around a table and data is covering the walls? Nobody can figure it out and then Russell Crowe comes in and turns around and around and these patterns emerge and it runs out it is coordinates on a map," Lundberg recounts. "BAM can give you that vision."
Presumably minus the schizophrenia.
Let us know what you think about the story; email Linda Tucci, Senior News Writer.