If your investment firm suffers from inefficiency in its middle- and back-office processes, those struggles illustrate why documentation is important.
Whether you’ve lost key operational staff, or your reconciliation and reporting processes are disorganized, having good documentation can help eliminate some of the problems you’re facing.
Do you have any documented procedures? If so, when was the last time you and your team looked at them?
Whether or not you have any, and whatever your operational issues you face, proper documentation makes a difference.
Why Documentation Matters for Your Operations
Mitigate Risk from Employee Turnover
If you have no documentation, operational risk will increase when a talented member from your back-office leaves the firm, as the departed employee will take their portfolio accounting know-how with them.
As a result, you and your staff are left haphazardly scrambling to finish the daily reconciliation reports.
Documenting all procedures from start to finish will reduce risk when turnover occurs, and following process documentation best practices, as mentioned in our last blog, will have you feeling more secure the next time someone leaves your organization.
See Your Operations Process from a Fresh Perspective
When documenting the step-by-step processes, you see things differently from when you’re executing the steps according to memory and years of experience.
If you’re creating documentation from scratch, you’ll notice how it could take several hours to produce a thorough, step-by-step operations processing guide. Transferring knowledge from your head into a hard copy or online document is not a simple task.
Taking screen shots, then documenting all of the side notes, scenarios, exceptions to the rules, and warning messages takes a lot of time, but having a detailed guide is necessary if you’re serious about reducing future operational risk.
If you already have documentation, albeit outdated or inaccurate, you might realize the workflow is inefficient:
- Tasks can be automated.
- Some steps are no longer necessary.
- You’re not fully utilizing all of the features and functions in your portfolio accounting system.
In addition, by looking at everything, you might realize steps or details were left out because:
- the workflow changed, and it’s been a long time since you’ve last updated the document.
- you simply forgot to add the steps and details.
- the knowledge residing in your head, as a result of experience and expertise, made you assume that what you know is already understood by others, and therefore is not necessary to document.
Execute Reporting Processes More Consistently
When performing tasks relying solely on memory, there is always the possibility of forgetting something. For example, you might not remember to create backup files, or you’ll forget to remove or edit certain data points.
We’re human, and we make mistakes, but if you have process documentation that reminds you not to ignore the aforementioned missed points, then you’ve taken another proactive step to mitigate risk.
By having that guide, all someone has to do is follow the instructions, and there will be a consistent and predictable outcome every time: accurate, error-free reports that are ready for the client, performed in the way you want them done.
Give Your Operations a More Professional Image
Having documentation not only promotes consistency in your processes, but it also sets a standard. Documented procedures indicate a clear goal to be achieved and the steps to achieve that goal.
Having standards in print and/or electronic form shows you have control over the work, and it conveys to others a sense of confidence, authority, and trust in your operations.
When you set standards in documented format, it enhances your credibility and professionalism to those that matter most:
- The clients will feel secure knowing a system is in place to deliver timely, accurate reports.
- Executive management will see you’re taking charge.
- Your back-office staff will further recognize your competency, and by you taking the processes seriously, they’ll follow suit and meet the standards.
Use as a Training Tool for Future Hires
Not only does a good documentation help prevent operational risk in case of turnover, but it serves as an excellent resource to train new members of your organization.
A straightforward, easy-to-follow set of instructions for your processes will save you time, effort, and resources in getting the new hires up to speed.
In turn, you’ll see how effective the documentation is when someone uses it for the first time. If they struggle with your instructions, you’ll learn how to improve the document so that when the next new hire arrives, things will be easier.
Err on the Side of Compliance
Having documentation should be considered following best practices. Not only have you set standards and step-by-step instructions to meet the goals, but you’re increasing the transparency into your back-office operations.
Should your investment firm be audited, documenting your reconciliation and reporting processes is one more way to show your organization takes protocol and compliance seriously.
Section 404 of the Sarbanes Oxley Act (SOX) requires management and auditors for publicly traded companies to establish internal controls and reporting methods on the adequacy of those controls. Even if the provisions in SOX do not apply to your firm, let the regulations serve as a guide for broader and stricter reporting rules to come.
With the advent of GDPR and regulatory reporting changes, the trends point to more, not less, “scrutiny” on asset management and hedge fund operations reporting and data management practices. Erring on the side of compliance is just another reason why documentation is important.
Operations directors can clearly see why documentation is important.
By 1) mitigating the risk 2) having a fresh perspective of the work 3) staying consistent 4) showing professionalism 5) having a training tool and 6) being compliant, you are reaping all the benefits of what good documentation can bring to your operations.
Recording the procedures shows the maturity of your operations, and it shows that you as the operating director know what you’re doing.
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