WHAT are you looking for in your performance measurement software search?

I recently reviewed a client's software search materials. In our preliminary discussion they explained that they were looking for a performance attribution system. However, it became fairly clear during my review that they were actually looking for more, as they referenced the internal rate of return. I later confirmed that indeed they were also wanting to get their performance measurement and reporting addressed, and had assumed that their attribution system would be able to handle these requirements, too. And while this might be the case, to fail to completely flush out the needs of this area could result in a system selection that doesn't fully meet their requirements.


It is often the  case that when a firm begins a search, they focus on one particular area, when they are really looking for more. It is important to know what you're looking for, so that you perform the proper needs analysis, and your review is complete. And while it's true that the "big four" performance areas have some overlap:

each still typically provides less than a system devoted to that area would.


The Spaulding Group's research has found that, for example, most asset managers rely on their portfolio accounting system to handle their rate of return needs, but use specialized software for their other requirements. Yes, attribution systems calculate rates of return, but primarily in the context of attribution.


Performance systems today are analogous to the medical profession; let me explain. A century or so ago, if you were in need of medical attention (because you were pregnant, had a cold, or broke your leg), you went to one doctor, who took care of all your problems; there were no specialists. But, as we know, today it's very different: you go to a cardiologist for heart issues, a dermatologist for skin problems, a pulmonologist for lung issues, etc. Likewise, it used to be that your portfolio accounting system handled all of your performance measurement needs. But today, we find specialist vendors and products, that serve each area as a distinct function, with its own set of needs. In fact, attribution should be broken into at least two areas: fixed income and equity, as some vendors or systems only serve one of these areas. Likewise, other functional areas can be further subdivided.


By understanding what you're looking for, you'll improve the chances of finding it.

Three words of advice if you're planning a software search

I recently reviewed a client's plans and documentation for their software search, and came away with three observations which might prove helpful for you, too, should you be planning a search any time soon.

1. Be realistic about your timing. In a recent blog post I wrote about the "planning fallacy," and how it's quite easy to be overly optimistic in setting schedules. Yes, you'd like your new system implemented quickly, but the process is a time consuming one. And it's best to allow for adequate time for proper due diligence. Rushing to meet an unrealistic schedule can lead to the selection of the wrong system.
2. Get your scope set properly. This particular client is looking for a performance attribution system; however, their requirements clearly indicated that there were needs that went beyond attribution. Often we have clients who say they want one system, when in reality they're looking for more. Clarify what your needs are, so that you select the right type(s) of system(s).
3. Do a thorough needs analysis. Firms often fail to do a complete needs analysis, overlooking important requirements. I recall one client's who documentation once was a small fraction of what it ended up becoming (prior to our involvement), because of the lack of a thorough and complete review. Make sure all of the critical areas and key contacts are included in this analysis.

Software searches are time consuming, and require skills that many firms don't have in house. It also means taking key staff away from their primary jobs, which can have unattractive consequences. This is one reason firms like The Spaulding Group are often asked to participate. While there is no requirement to include a consultant, you may find that even a minimal amount of support from an industry specialist can help you ensure a smooth and successful search.