Introduction:
The Bank of America is one of the highly reputed banks
in America in 1970’s. There was a time for Bank of America that it has a
business that served about two and a half million customers. The Bank was going upwards day by
day. Due to some change in higher management and some wrong decisions the bank
has a huge loss. To continue to the way of success the bank started a new
system called Master Net system also called as Trust Plus .The system is for
automation and having online system for customers. After having a huge loss in this
system a rick assement is made to analyze the problems our mail focus is on the
after failure matters and risk factors that are neglected during development of
system.
History Of Master Net
Master
Net system is developed for taking the lead in market after huge losses in the
decade of 70’s these losses are named to the president of Bank Tom Clausen. The policies of Tom are far
different from his preccders. He emphasizes on the big loans that are not for
common man. The other mistake by him is that he orders his staff to make a
progress of 10% every year. To fulfill his commands his staff make cheap loans
plan that are not feasible in business point of view.
1981,
Sam Armacost took over as president of Bank of America he wants to make his
bank in the state of earning of good profit so he Armacost decided to make
technological involment in bank sytem.In early step Armacost called Clyde
R.Claus executive vice president in charge of the trust department to make a
software system or close the trust business. So the internal staff tries to
develop a system but they failed badly having wastage of both money and time
they bare the loss of about 6 Million Dollars and One year. After such failure
Claus do not depend on his staff and go for some vendor of software
At
that time Claus know about Stephen Katz of. Premier Systems He is a very famous
and young man and recently leaved the SEI corp. after developing software on
its own MBA thesis to many banks. At some party Katz’s meet some bank of
America officials. Katz’s got settlement for developing system for Bank of
America
Development of Master Net:
After
having the project Katz and Premiere started working on project .The proposed
name as Master Net or Trust Plus. The system consist of one large system and 8
small systems .The main purpose of system after developing system is to provide
services to small banks . The initial budget set for the system is of 420
Million Dollars and the end date is 31 December 1984.
The
development of system started with rapidly and in well organized method. The
meetings of stake holders are arranged at the start of each month to gather
requirements and to know about the
development of system. This system is well appreciated from all other banks and
got a donation of 1.5 Million Dollars from California state.
When
the initial date of 31 December passed the management and Katz are relaxed and
confident about the development of system and they are not worried.
At
the same time Armcost hired Ichak Adizes
as a consultant. In the result of that a department is formed called
BASE (Bank of America System Engineering) BASE was headed by Max Hopper from
American Airlines.
From
the formation of BASE Katz has lost his authority at the bank’s technological
progress. Despite of that he keeps working and in May he thinks that the system
is ready for the public and the transformation to the system
So
the two day party is organized to demonstrate the system to the clients. The
cost on that party exceeds 75 Thousand Dollars.
Transformation to Master Net
Katz’s and his workers
think that it is the time for the transformation to Master Net and to make it
functional. So the first step called for the movement of the $38 billion worth
of. Institutional trust customers first. The department made several attempts
to insert data but failed due to poor response time and very long system
crashes. The system is so large that every single client asset had to be
classified into128 asset types. At the same time the president Armocast was
removed by his post
Failure Of Master Net:
After having the failure in data
transformation Bank of America sold trust to Wells Fargo for 100 million
Dollars the staff of the system is working continuously to restore the system
in working condition. About half of
the customer’s data are transferred to Master Net and problems are occurred
about 21 of 25 prime disks are replaced to continue to system. T the result of
that many key employees of bank quit their jobs . In result of that Bank was on
Hold for three months. To gain the lost reputation the consultants are hired.
The
master Net is having big problems with account status report to solve that Bank
of America publicly announced that the problems would be solved. In October of
1987, both Claus and Mertes resigned due to problems. After that bank
immediately formed a seven member committee to handle the Master Net problem.
Michael Simmons, formerly in charge of computers and telecommunications was
hired in July of 1988 to work as a head of BASE.
Risk Assesment of Master Net
This part of report will assess the risks that
Bank of America was gets by MasterNet
project in first part the work of
Kemerer and Sosa's work will be reviewed then the MasterNet project will
be analyzed using Clemons' five-point risk.
Review
of the work of kemerer and Sosa Their thesis states that “Tthere
exist significant systems development challenger, that present risks or even
barriers to some org4nizations'attempts to use IT strategically, and that
executives and systems developers who are considering an SIS development must
plan carefully to avoid these. Pitfalls and increase the likelihood of a
successful SIS”.
The
Five-Risk Analysis
The following
explains the Master Net Project by Clemons’
five-risk framework
1. Financial Risk
2. Technical Risk
3. Project Risk
4. Functional
Risk
5. Systemic
Risk
Now
we will discuss each of them in detail
1.
Financial Risk:
During the
MasterNet project period, BofA’s finances can best be described as weak the
main financial risk features of system are the following
Completion
of Work
The system
failure of Master Net pressurizes the bank to perform the intended services
very fatly, usually via manual labor. For example, in 1983, BofA’s investment
Securities Division (BISD) installed a new computer system to handle the volume
of transactions flooding the operation. The new system was started up while the
old system was shut down. Unfortunately, the new system worked improperly,
misreporting thousands of transactions. Teams of auditors were brought in to
sort through every transaction by hand. In this case, a $20 million reserve was
set up to cover losses and audit expenses.
Inaccurate
Transaction Recording
When bank cannot accurately record transactions, it must resort to
"blind settling"-the practice of accepting-the transaction terms that
the counter-party recorded. If the comparison of Banks record and the customer is changed then automatically paid and the-
exception is verified manually.
Inaccurate
Asset Tracking
The Master Net system was designed to track the asset of its accounts.
Since-Bank of America managed $38 billion institutional dollars. The personal
trust business was never transferred to the system, so it was not at risk.
Loss of
Managed Assets
Before the selling of institutional trust the total managed assets had
fallen down from $38 billion to $34 billion. This represents a 10% decrease and
an approximate revenue loss of 10%.
Loss of
Peripheral Business
The above things of the MasterNet
project damaged Bank of America reputation. This event certainly had a negative
effect.
2. Technical Risk
According to Clemons analysis
the Master Net System is not feasible due to lack of technology unavailability.
Most of this functionality was directed at the master trust and custodial trust
business, both of which are significantly more complicated than the corporate
trust business. In fact, six of the eight subsystems were successfully
implemented and used within the bank. Initial designs called for the use of a
single eight megabyte, one MIP Prime processor. As database and functionality
requirements, grew through the development, the system grew to three sixteen
megabyte, eight MIP Prime processors on the conversion date. This shows that
the technical risk is not considered at development phase. The end result of
the project was a system with 3.5 million lines of code, a Large amount by any
standard.
3. Project Risk
According to
Clemons, project risk is the possibility that the firm cannot execute the task.
He cites such possibilities. as the project is too large or complex or the
skills and expertise of the staff do not match the needs of the project.
Project risk has the broadest reach and thus demands detail along many
different dimensions. There- fore, this section will be broken into five
subsections.
a. Management
Philosophy and Vision
As Armacost was the president of Master Net he Makes the steps to hire
the best staff but the staff hired is not of the field of banking and have no
experience in banking so that step was wrong . The people hire should have the
good knowledge of banking.
b. Consultants
Bank of America
made significant use of consultants throughout the MasterNet project. In fact,
the basic design of the system was given to Steven Katz of Premier Systems.
The
selection of Katz was based mostly on his past accomplishments. As a partner
with Alfred West, he successfully sold software systems to small banks through
the 1970s. Premier was a young company that needed to establish some credible business.
A contract with one of the largest banks in the country would give prestige to
the Premier name as well as provide it with an infusion of money.
c. Management
Capability and Continuity
In April of
1981, Sam Armacost became, at age forty-one, the youngest man to run the bank
since A.P Giannini's early days. Armacost was considered charming and
personable. Armacost had moved quickly through the bank's management hierarchy,
never staying at a job for more than two years. He led a charmed career, having
never been affected by an economic downturn, and was pushed to the top. Even he
admitted in early 1981 that it might be too early for him to become president.
Throughout the 1982-1988 periods, Armacost had faced some controversial events.
d. Organizational
Factors
Bank
of America’s staff thinks that it would be difficult to change a system that
had been in place for twenty years. First, there are the problems associated
with any move to a new system. Second, there are the problems related to the
use of such drastically modern technology. The movement of the BASE employees
also put stress on the employees working on MasterNet
e.
Other System Projects
As a large bank, Bank of America participated in many systems
development projects. Directly related to the trust business and previously
mentioned, the bank attempted to develop a new trust System in 1981 only to
lose $6 million and a year's time.
4. Functional
Risk
Clemons defines functional risk as the possibility that the completed
project either does not do what the user wants or users needs have changed
enough to make the system useless. The administration and accounting of a trust
business is a difficult business due to the wide variety of assets, client
needs, and government regulations.
This competition has sliced into profits and made the margin
of comfort slimmer. MasterNet's functionality was additionally complex because
it had to satisfy so many different groups the trust accounting business is a
complex, technology. . In an attempt to satisfy everyone, the project became
bogged down in massive amounts of code that contributed to its downfall.
5. Systemic Risk
Systemic -risk is different in that it implies successful
implementation. Clemons says that systemic risk is the possibility that the
system has such a large impact that it alters the environment and all Assumptions
about costs and benefits. By definition, this type of risk is entirely
unpredictable. Therefore, very little can be done to com- bat it. As for Master
Net's grand functionality, clients stress that accuracy and timeliness of
reports are the most important factor
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