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Portfolio & Risk Solutions: Build, Buy, or the Best of Both Worlds?

Today’s most successful buy-side firms know the importance of using multi-asset strategies to generate better returns in a difficult climate. However, many are challenged by inflexible technology, including home-grown legacy systems that make entry into new asset classes difficult to impossible.

Traditionally this situation has left firms with two options. Either they could buy a solution from an external vendor, or build one in-house using their own internal resources.

Firms with extensive internal IT departments, in particular large financial institutions, have often tended towards the ‘build’ option for a couple reasons. Firstly, they believe they will end up with a precisely tailored solution that fits seamlessly into their existing IT infrastructure. Also, they like the idea of being able to keep full control over the systems. Unfortunately, internal builds demand significant development and IT resources, and over the long term, often cannot keep up with changing business requirements.

While there is a time and place for custom-built solutions, in most cases organizations will not achieve the results they expected from building and maintaining customized applications. This can be attributed to extended delivery time as a result of time delays, under-planned budgets due to cost overruns and ‘scope creep’ on the project itself due to poorly defined or changing requirements.

Time and time again, studies from companies like IBM, as well as industry analysts such as Gartner Group and IDC, have shown that organizations do not achieve nearly the return on investment (ROI) when building an in-house custom solution versus implementing ‘commercial, off-the-shelf’ (COTS) applications.

These same studies from software industry leaders validate that the ongoing costs to enhance and support customized applications grow exponentially when compared against using COTS solutions, which include ongoing technical support and maintenance, upgrades, enhancements, bug fixes, etc.

On the flip side of the coin, traditional “out of the box” vendor systems may not be a panacea to overcoming your technology challenges either. Many of these solutions are basic, offer limited functionality and are sufficient for firms that trade mainly plain vanilla instruments. While affordable, they are often incredibly difficult to customize, and do not integrate well with other systems.

Then there are the vendor offerings that are highly flexible and provide high out-of-the-box functionality. This category of solution provides a large degree of flexibility and customization. However, they are extremely pricey, somewhat confounding the original cost-saving goals. There’s also a danger that it will offer too much functionality, meaning that a large portion of that expense is unnecessary.

A New Approach to Buy Side Technology

What do you do if none of the traditional technology options are right for you? Well you may want to consider the newest approach in the build versus buy debate. Today there is a better option for buy-side firms that want the best of all possible worlds – including the built-in functionality and ease of use of off-the-shelf software, combined with remarkable flexibility for customization.

This solution approach, embraced by FINCAD, is ideal for those that require a good amount of standard functionality, but that also need the ability to quickly and easily customize the technology to enter new markets, or meet changes in business strategy and regulations.

FINCAD F3 is a proven solution to the build versus buy technology dilemma in that it provides out-of-the box functionality for modeling standard instruments, and unlimited flexibility to customize models and curves for more complex instruments. What’s more, it can be implemented within a matter of weeks (not months or years).

In terms of IT and integration, F3 enables firms to integrate with their existing applications and workflow, and to customize for any future requirements. The solution also provides the speed and accuracy needed by portfolio managers and traders, and the comprehensive reporting and analysis demanded by risk managers.

What all this means is that firms are empowered to move into new arenas and improve returns. They have the utmost freedom to trade what they want, when they want and where they want. 

If you’re interested in learning more about the build versus buy debate, check out our white paper: Build vs. Buy: The Risks and Considerations for System Implementations

About the author

James Church

VP, Product and R&D, FINCAD

James Church is Vice President of Product Management and R&D at FINCAD, and is responsible for the strategic direction of all FINCAD products. He has over 15 years of experience in the software industry. Before joining FINCAD James was Vice President of OLAP Product Management at Business Objects, and prior to that was Director of OLAP Product Management at Crystal Decisions. He studied Computer Science at North Staffordshire University in the U.K.

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