In our experience helping clients with compliance projects, we’ve noticed some fundamental aspects in which these regulatory change initiatives are different from other business-driven change initiatives. We thought we’d share 5 of the most distinctive differences, which you might have already considered in Eva’s struggle.

Drop dead dates

Deadlines are fixed and set externally.

In regulatory projects the deadline is fixed by the regulator and individual firms have little influence on implementation dates. There have been instances when the initial deadline has been so tight that no market participants could meet them. In these situations the regulators may be forced to re-consider, but this isn’t commonplace and generally organisations have far less room to manoeuvre timelines in regulatory projects than in business-driven projects.

Poorly-defined requirements

Requirements remain uncertain until late in the game.

The winds of a change in regulation are often felt well before the deadline. But unfortunately the devil lies in the details. After high level drafts, there are consultation periods and it can take years to produce the detailed technical standards. Meanwhile the implementation deadlines remain fixed. Firms can start projects to implement the changes, but until the final text of the regulation is produced the industry can only make assumptions about what the final guidance will state. This is contrary to an ordinary business project where the traceability of requirements is carefully managed and all changes go through an acceptance process before being applied.

Everything is “must-have”

There’s a fixed list of requirements to implement.

Regulatory requirements define a mandatory set of functions. Everything is must-have and this could be a serious hindrance in any project methodology.

But how does it affect the iron triangle of project management? We’ve already spoken about the time and features elements, which are fixed to some extent and this is different from the traditional methodologies.

Figure 2 The regulatory shift in the iron triangle

You might already be familiar with the waterfall and agile versions of the triangle. The regulatory one is probably a blend of the two as you can see from the third picture. The only factors you can really influence are cost and quality. Everyone would like to decrease the former while increasing the latter. But the elements move together, they are inter-dependent. Assuming that the planned solution is optimal, if you reduce the budget, some of the other elements will have to move down with it. Create a partial solution or run out of time and you’ll surely face huge fines. The only viable choice for reducing costs seems to be reducing quality. But whose choice is it?

Who is the business owner?

When no one wants to be.

By interpreting the legal text, Legal or Compliance becomes the “source” of requirements in regulatory projects. But, not every organisation is prepared for that when it comes to project governance. After identifying the affected systems and processes, the impacted department becomes the official owner of the project. But are they truly engaged in this mediator role?

If you think about how regulatory changes usually take the resources from business initiatives, it must be hard for the owners of those shelved business projects to wholeheartedly support the unexpected guests. But these projects desperately need the engagement of business, because compliance can only advise of the final state, but not how to get there. That capability lies in the hands of the business users.

Now how does this affect our project planning triangle? Resources are scarce; the cost has to be minimized. This seems to be reasonable for a project which does not bring direct benefits for the organisation or the investor.

The argument is questionable on two fronts. When we speak about direct benefits, have we considered the fines which we don’t have to pay if the project is successful? This might not be a strategic benefit and as a best result we just maintain the status quo. But avoiding costs is as important as reducing them, not to speak about the reduced risk brought by the regulation. On the other side, with respect to minimising costs, which costs are we talking about? The immediate costs of executing a project until the deadline or the total cost of the change, which potentially includes years of manual work instead of automation? Additionally, what about the costs associated with the maintenance and operation of new systems as well as future changes? And the list continues with the financial consequences of being shut down by the regulators.

If we blindly minimize immediate costs, we’re risking the reduced quality of the solution which will increase costs in the long run.

Quality is the fourth perspective from which the legislation usually doesn’t define how the change should be implemented. Should you use automation or manual processes, develop an in-house solution or integrate a boxed product? There are lots of decisions about quality which can be and must be made carefully in a regulatory project.

Everyone is equally affected 

You might be fooled into thinking that the same regulation affects everyone in the marketplace equally. But are all participants equally impacted? In our experience the depth of the effect on resources and the business can be vastly different. An organisation which has its compliance eye on its processes may be better prepared and can therefore focus more on advantageous projects. Therefore it’s important to watch the regulatory horizon with eyes wide open and to be willing to adopt a culture which supports proactive thinking about the possibilities. Meeting the regulatory requirements should be the consequence, not the driver of a thorough organisational risk culture. Look behind the tickboxes.

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21^st century London. Seagulls fly around the Shard, light drizzle dampens the pavement and the Waterloo and City line still resembles a tin of sardines more than a tube.

Eva, is a business unit leader at the retail arm of First Compliant Bank (FCB). Her team uses an internal system for tracking customer interactions in the loan collection and recovery process. The software is a bit slow and tedious to use. Eva is eager to change it to more recent technology, so she initiated a project at the last budget planning meeting. The preparation should start next month and Eva is excited because she’s imagining a much better service. The upgrade, if successful, will enable the team to follow customer interactions more easily and the new electronic reports will please management as it will eliminate the need for manual calculations and lots of paper. Relieving pain by improving efficiency and decision making and becoming green at the same time – it would be a shame to miss this.

Black clouds are gathering on the banking skyline

Have you ever heard of the Central Regulatory Authority? Not yet? Don’t worry, it’s fictional anyway. But imagine that it’s responsible for the regulation and enforcement in our fictional financial sector. These guys are serious; when they say something, it has to be that way. And now they say that the way banks handle the regulatory reporting of retail loans must be changed.

Unfortunately the reporting system in FCB also belongs to Eva’s department and it was developed by the same team as the collections and recovery system. This change clearly interferes with any plans she had. Neither the team members nor the department’s budget can sustain two such projects simultaneously. Not even her McDonald’s smile training during high school summers can help Eva to hide her disappointment. More so that she knows this project is going to give neither her team, nor FCB any advantages over their competitors.

As soon as the first draft of the new regulation came out, Group Legal and the Compliance Officer started identify the effects on FCB. By the time Eva had sight of it, they’ve already submitted the high level plans to the project governance committee. The deadline is fixed in about 8 months from today. This binds the bank legally, whereas her improvement project can be delayed; so you can imagine the committee’s decision. The bank is going to start a project to respond to the new legislation as soon as possible. What about the system refresh? Well, that might fit in next year’s budget.

Who’s going to deliver this?

Tim is the only project manager available from the pool. He’s got 8 years of experience in delivery, including 3 years in agile methodologies. The team can start the preparation this month; the problem is that the source of the requirements is only a draft regulation under consultation and so many details might change over the coming months. It is likely that the requirements will be fixed just before the deadline. This is not new to Tim, but in this case it can’t delay the deadline or reduce the scope. The scope is another painful point because every feature derived from it is a must-have requirement. This defines the so-called “minimum viable product” for the project. Tim’s concern is that this could change significantly before the deadline.

 Figure 1 The time – cost – quality triangle of the new project

So the minimal scope and the deadline are fixed, and Eva probably wants to minimize the costs, so that she can hopefully spare some budget for the other project to commence. With both scope and time fixed, a decreased budget will surely have a negative impact on quality.

What can they do to save the situation?

One possibility is for Eva to fight against this project. This would make Tim’s work harder, probably resulting in a low quality solution only finalised after the mandatory deadline. It will probably leave a fair amount of work to be done manually and lots of changes to be developed later. But is there another possible future?

Theoretically there are an infinite number of other possibilities. One of them is that Eva pushes through her project, which in turn frees some of the team members by increasing efficiency. They can create the required new reports manually. Even this option might be feasible if the automation involves high costs.

Another possibility is that Eva and Tim, together with Group Compliance, identify the required functions and the possible changes which could come from the regulator before the deadline. The business team, when familiar with the problem, should be able to prioritize the functions. Consider what would be the easiest to do manually in the short-term if the software was not ready to perform at the deadline. The IT team can implement a model based solution which can later be configured according to the changes. That reduces the running cost and can save some work for Eva’s team to focus on other duties. But with limited resources it is unlikely that the team will be able to address many of Eva’s original concerns in the scope of the new project.

Can you imagine other solutions? Have you ever been in a similar situation? What did you do? Tell us in the comments.

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