Project managemnet decisions

A New CEO Within two weeks of accepting the position of CEO of Providian Trust Company, Stephen Walsh, a lawyer by training, faced an unusual corporate conflict and he would have to play the role of judge. There was an extraordinary difference of opinion between Providian Trust’s internal auditor, Peter Storey, and the leaders of a major information technology (IT) project in the trust division. “Peter’s extremely vocal point ran to the issue of documentation, that it was incomplete and should be brought up to speed,” explained Walsh. The conflict reached a climax during an Audit Committee meeting on May 13, 1995, when members of the committee, who were all on the Providian Trust board of directors, expressed to Walsh that they had lost confidence in the internal auditor and recommended that the external auditor, Steinman & Smith, do an analysis of the project documentation prior to implementation. The purpose of the project was to convert the trust division’s outdated information system into a more efficient system using Access Plus, new trust and custody management software made by Select One. The project had been initiated in 1993 under a former CEO, who had been dismissed by the board, and had continued under an interim CEO. By the time Walsh arrived on the scene, over two-thirds of the $18 million budget had been invested in the implementation of the IT project and Providian Trust had built up expectations among clients that the new system would dramatically improve service. Though the company had experienced transitions in leadership at the CEO level, the Access Plus project had stable leadership under the direction of senior vice president of Trust, Investment & Treasury Michael LeBlanc. It was LeBlanc who had argued before the board in April 1994 that the information technology project was critical to the business future of the trust division, winning its unanimous approval to move forward with the plan. Storey, who had criticized the project from day one, was regarded by some Providian Trust executives as having a tendency to “cry wolf.” Walsh, working on a five-year strategic plan for Providian Trust, emphasized that he did not have time to become intertwined in a political knot. I’m the new CEO. I have no credibility yet with this board other than my C.V. It’s the Audit Committee that’s expressing reservations about this project. So, in addition to satisfying myself about whether or not this is a go, who better than the external auditors to satisfy the Audit Committee in terms of the appropriateness ofcontinuing the project? My solution was to have Steinman & Smith send in one of their people and I asked that person to join the Implementation Committee, to be involved in the project and tell me what the story was here. Transforming Tradition The trust profession is an old and noble one. Its origins go back centuries and are based upon some of the highest values known—trust, integrity, and honesty. It was built upon a foundation of taking care of the grantor’s needs and providing the services that he or she wanted. To put it in modern day language, it was about customer service, customer service that meant doing the right thing, at the right time, in the right way for the customer. — Trust & Estates1 Providian Trust, headquartered in New York, delivered financial and fiduciary services through a network of 216 branches. The company’s lending products—including residential and commercial mortgages and consumer and corporate loans—were the principal source of its revenue (Exhibit 1). Intense competitive pressures and client demands were driving the need for improvements in the quality of trust services. In 1994 Providian Trust managed $49.4 billion in trust assets with a staff of 840 full-time employees (FTE). Sixty percent of the company’s fee income and 9% of gross earnings were generated by its fiduciary business that year. All three areas of the trust division—Pension and Institutional Trust Services [“PITS”], Personal Trust Services, and Trust Operations—reported to Michael LeBlanc (Exhibit 2). #Full-Time Employees (FTE) 840 300 240 300 The Pension and Institutional Trust Services business had $42.7 billion in assets in 1994. “We were the tenth-largest provider and we were losing money. We had outdated reporting systems as far as our clients were concerned,” explained LeBlanc. The institutional custody business was becoming extremely technology-intensive, with some of the larger players outsourcing their entire backroom function in order to make large operations more effective. Personal Trust Services managed $6.7 billion in assets for 10,000 clients and was only marginally profitable, observed LeBlanc: “It wasn’t the stuff that 15% return on equity [ROE] was made of.” Personal Trust Services included the administration of estates, trusts and agencies, will and estate planning, self-directed registered savings plans, and dealer trustee services. Investment management services were provided through Kaye Whitney Investment Management Limited, the company’s investment counsel and portfolio manager. Management regarded the trust division as the most isolated and change-resistant area of the company. The majority of trust officers had 20 to 30 years of experience with Providian Trust and had always managed their clients’ affairs on a personal level, calling them regularly and generating and Providian Trust: Tradition and Technology (A) 398-008 3 correcting financial statements with the help of administrative support staff. Trust officers often compensated for late or inaccurate statements by discounting or waiving fees, costing the company an estimated $2 million to $5 million per year, according to LeBlanc. Every statement that was prepared for our 10,000 Personal Trust clients had to be reviewed by a trust officer, corrected by the trust officer, and then mailed out to the client. They had total control over what went out. The clients were relatively happy, although there were some grumblings about having to wait two or three months for a statement. Our research on competitors showed that we were hopelessly behind in terms of number crunching. The trust officers working in PITS and Personal Trust were considered “front office” people because they were client-driven and managed clients’ accounts. The 250 personnel in the Trust Operations Department, or the “back office,” were responsible for handling, settlement, and record keeping for securities. “The administrative functions were being done both by the front and back offices,” explained LeBlanc. “We had an environment where everybody could point a finger at everybody else if something went wrong. The trust officers blamed the operations people and the operations people blamed the trust officers. It had been running this way forever.” LeBlanc believed that intense client demand, especially on the part of Pension and Institutional Trust clients, dictated that Providian Trust quickly upgrade the trust division’s old legacy mainframe systems. He also believed that the lack of control in the trust division had persisted for too long and that it was time for the company to remove control of clients’ accounts from the trust officers’ hands. An improved computerized trust system would enable management to centralize and control the numbers, thereby forcing the discipline that had been lacking in the division for decades. In the proposed new environment, the operations people, who were generally experienced with computers, would assume the trust officers’ administrative duties, including the generation of client statements. Not only would trust officers lose control of their clients’ financial information in the new environment, they would also have to learn how to use the new software system in order to access the computerized data. Few of the trust officers had ever touched a personal computer (PC). “Your average trust officer was covered in 17th century cobwebs,” said one executive. “They’re completely averse to technology, uncooperative, and they leave at five to five.” The Business Impact Report I’m sort of a bull-headed person and the only way I could see this not getting lost in a quagmire of internal politics and bickering was to run and run and run it as hard as I possibly could. — Michael LeBlanc, Senior Vice President of Trust, Investment & Treasury In April, 1994, LeBlanc argued before the Providian Trust board that the capabilities of trust and custody management software provided the technological precondition for the redesign of business processes. He estimated that the installation of hardware and software, the conversion of all trust financial data, and the transformation of the operating environment could be achieved by December 1995 through a phased implementation process. Total project costs were estimated at $18 million. Once fully implemented, annual savings of approximately $9.2 million were expected to result from reengineering the business processes and capitalizing on the new system’s functionality, while reducing FTE from 840 to 660 (Exhibit 3). The board unanimously approved the implementation of the new operating environment for trust defined in the Business Impact Report. 398-008 Providian Trust: Tradition and Technology (A) 4 A year-long review of 12 software vendors had resulted in the recommendation that Select One’s Access Plus asset management system be acquired. Customizing a proven, off-the-shelf system was viewed by LeBlanc as the quickest way to get the most advanced technology for the bank’s trust operations. Ten financial institutions, including one competitor, were using the Access Plus software at the time. LeBlanc chaired the project Steering Committee, which originally included vice presidents from Corporate Services, Finance, Trust Operations, and Audit Services. Internal auditor Peter Storey said that he repeated “like a broken record” at both Steering Committee and Audit Committee meetings that the proper management controls were not in place to ensure the project’s success. The fact that the senior vice president of Corporate Services, who headed up Providian Trust’s force of 240 IT personnel, was not asked to help lead the Access Plus project had served to intensify tension on the Steering Committee. (The company had two IT departments: a group of 240 IT personnel who supported retail banking, and an additional 30 IT personnel in the Operations Department.) Being riddled with political tension, the Steering Committee had little effect on the Access Plus rollout. With the Steering Committee disintegrating, it fell to the Implementation Committee, which was also chaired by LeBlanc, to provide a guiding and protective hand for almost all of the project team’s activities. The Implementation Committee included vice presidents from each of the departments upon which the Access Plus system implementation was expected to have an impact (Exhibit 4). LeBlanc decided that forceful and decisive management was required to make changes in a change-resistant environment. Certain that the historically antagonistic front and back office divisions would not cooperate in the reengineering of business processes, he selected the back office to drive the project. LeBlanc designated Todd Benari, the vice president of Trust Operations, to lead the Access Plus implementation. The project managers and project management team reported directly to Benari. The team included 15 representatives, 10 from Trust Operations, 2 from Personal Trust Services, and 1 each from Pension and Institutional Trust Services, Kaye Whitney Investment Management, and Audit Services. The Business Impact Report emphasized that collectively the core project team had over 70 years of trust experience. “I wanted people in this group who had been in the trenches, in the lines dealing with clients, and who could look at the project from a relationship manager’s perspective,” explained LeBlanc. He guaranteed that team members’ positions would be made available to them again at the end of the project and that they would lose no seniority. Although LeBlanc was known for his keen knowledge of the trust market, he had no project management experience and would depend to a large extent on Benari’s team to orchestrate the reengineering effort. The Operation Department’s 30 IT professionals would assist in the complete overhaul of the trust division’s technology environment, including the installation of desktop computers in the head and branch offices and new servers to support the intense networking activity planned for the proposed new trust operating environment. Previously, Operations had never attempted an information technology initiative that exceeded a half-million-dollar budget. Reengineering a New Operating Environment I reviewed your update on the trust project. The major issue will be the culture shift inherent in moving to a dramatically different way of managing the business. While extensive training will help, it is my experience that organizational cultures function from very deep-seated norms, values, and attitudes, which are not easily changed despite reengineering efforts. Good Luck! —Senior Vice President of Human Resources Richard Caston, in a memo to Todd Benari copied to Michael LeBlanc, February 17, 1995 Providian Trust: Tradition and Technology (A) 398-008 5 The Business Impact Report stated that “business processes would be revised based on effectively using technology as an enabling mechanism.” The project team sought input from 30 key employees in order to match 17 business processes with Access Plus software functions. The team’s proposed business model for the trust division included detailed diagrams of how the software would streamline information flow for each of the 17 processes (Exhibit 5). The expectation was that cycle time for information processing would be reduced, resulting in faster and improved service for the customer. Administration would be consolidated and centralized in the proposed operating environment. All existing trust information would be converted to the Access Plus system and the Operations group would become the primary caretakers of the data, taking over sole responsibility for trust account administration. As the paper was removed from their desks and filing cabinets, the trust officers’ traditional role would be transformed—they would become “client relationship managers,” providing a full range of fiduciary services and retail banking products to their existing and future client base. LeBlanc explained that while Trust Operations would become centralized, the client relationship managers, sales teams, and portfolio managers would be decentralized to enable them to proactively sell to their clients. We knew that there was no point buying a new trust system or improving the technology unless we concurrently also completely rebuilt the culture and provided the training incentives to customer relationship people to completely revisit how they approach their clients. They needed to be trained in relationship management skills and become more focused on the bottom line, cross-selling products to clients, a whole range of skills upgrading to become more sales and service oriented rather than simply bureaucrats responding to client phone calls. Concerns Communicated In early 1995, as the project implementation picked up speed, Personal Trust managers started raising concerns. According to Personal Trust Vice President David Brown, the project team had decided that it would “drive the project through” with very little time spent getting user feedback. “There was a problem between the back room and the front room,” Brown said. “From the front line perspective, the back room was not listening. The feeling was that the back room knew what the front wanted or needed.” Although the plan seemed to make sense on paper, Benari was beginning to sense a general resistance to change. “We had trust officers with 30 years of experience who had never looked at anything more automated than an adding machine. The process of trying to get people to behave and operate in a different way was almost impossible.” Tensions were heightened when Benari’s original project manager left Providian Trust for a new position midway through the project, in February 1995. As confidence in the project faltered, Benari released an updated project plan and announced that the reengineering requirements would be recommended by Trust Operations, but they would have to be approved by the business unit leaders and the Implementation Committee. Brown, James Knowles, and Robert Case—all vice presidents in the Personal Trust Department and all members of the Implementation Committee—sent a largely negative written response to the updated project plan. The need for dramatic change is fully recognized both from the point of view of efficiencies and competitive pressures. We support the general concepts contained in the document. It is clear that a great deal of work is still required and that an implementation plan is urgently needed if there is to be a realistic expectation that the current schedule for conversion will be met. The biggest obstacle that needs to be addressed is the resourcing of the various workgroups and, in turn, the ability of the 398-008 Providian Trust: Tradition and Technology (A) 6 workgroups to deliver within the required time frames. In a general sense, we found that the document seems to view things from a headquarters perspective and it does not always recognize the nature of the existing relationships with our clients. The vice president of Client and Product Management for Pension & Institutional Trust, David English, also responded negatively to the proposed new operating environment. We need much more analysis before we would feel comfortable that the total centralization of back room functions is appropriate.... While I agree with the concept that client accounting and distribution of reports lends itself to centralization, it is imperative that the trust officer or “relationship manager” be in control of the account. Only the trust officer will know the special requirements that a client will have in terms of their preference for receipt of information from us. In follow-up meetings, project team leaders addressed the concerns of the vice presidents, resulting in each of their signatures on the following written statement: “The meeting produced a consensus that there exists no obstacles to prevent the project team from proceeding with the implementation towards the new trust operating environment.” Brown, Knowles, Case, and English all reported directly to LeBlanc. A few months later, English outlined the impending changes to the trust environment during a staff meeting in Boston. The New England regional office responded with a memo dispatched directly to LeBlanc. Some difficulties have crept into the process of implementation: directions and instructions are coming from too many sources.... Reactions we are witnessing from employees, although understandable, have created a morale problem and insecurity that may extend itself into other areas. The process leaves us with the impression that the process is not client oriented. There appears to be a lack of consideration of relationships with our client base. As a result of the above, we have decided to create a regional committee to assist in a more harmonious implementation of Access Plus. On July 11, the Implementation Committee decided that the concerns of the Boston managers would be addressed through telephone conversations and that it “would not formally respond to the letter.” Software Training The system license stated that Select One would provide training materials and deliver “onetime training on all systems functions” (Exhibit 6). Project team members and 60 Operations employees attended Select One’s training sessions in March and April of 1995, approximately eight months before the first scheduled conversion of accounts. The project plan outlined a “train the trainer” approach—Select One managers would teach the project team how to use Access Plus and team members would then visit all decentralized departments to deliver instructions. Trust officers would have to be conversant with computers, Windows, and Access Plus’s document management functionality in the new operating environment. The steep learning curve was acknowledged as early as November 1994, when the Implementation Committee discussed a document entitled “New Trust Operating Environment: Training and Strategies and Plans.” The section “Influencing Factors and Assumptions” included the following two points: Providian Trust: Tradition and Technology (A) 398-008 7 The new trust operating environment will require that virtually all levels of personnel possess the required skills in the use of the new Windows-based workstation technology and production applications. Providian Trust’s network of regional training managers and their training centers across the country, as well as the corporate training departments, are staffed exclusively by retail-banking-experienced training personnel. These centers are, however, equipped with CD-ROM training labs for self study on personal computer skills and application software. Project team leaders hired an outside firm to provide training on the Microsoft tool set to trust officers and other front office work groups. In addition, trust officers had access to CD-ROM labs where they could study Microsoft Office, which included Word, Mail, Excel, and PowerPoint. IT support staff, however, were still installing personal computers on the trust officers desktops in the summer of 1995, making it impossible for trust officers to put their training to use on a daily basis. When trained project team members began visiting the decentralized workgroups in the summer of 1995, they found that many trust officers did not have desktop computers, did not know Windows, and were not prepared to learn the functions of Access Plus. An important aspect of the training—in the document management application that would revise the manner in which trust staff stored, retrieved, viewed, and used documentation ranging from original trust agreements to correspondence to daily vouchers—was never accomplished. The Human Resources and Conversion Schedule The board of directors had approved a plan that promised to reduce full-time employees by 180. In the summer of 1995 the project team announced that one-quarter of the trust administration staff would lose their jobs as a result of the technology conversion. A wave of stress moved through corporate headquarters. Job postings for available positions in the new operating environment were made on July 19, with a response date of August 15. Interviewing teams asked applicants three to five standard questions based on predefined skill set requirements for each position. “We went through a two-anda-half-week exercise of 20-minute interviews with all the staff applying to the new positions, just whipping through,” explained an interviewer. “They felt that their entire careers came down to a 20minute interview after they had put in 20 years with the company. It was a very painful experience for them and it certainly affected their pride.” On September 5, 1995, the Implementation Committee reviewed an “Access Plus Project Human Resource Timeline,” which showed exactly how many staff would be dismissed as the scheduled conversions of data proceeded (Exhibit 7). Scheduled Conversions of data to the Access Plus System Phase I Personal Trust (headquarters) November 1, 1995 Phase II Personal Trust Branches December 1, 1995 Phase III Pension & Institutional Trust January 1, 1996 Phase IV Kaye Whitney Investment Management February 1, 1996 The Decision: To Convert or Not to Convert Walsh realized the serious nature of the conflict regarding the Access Plus implementation when he assumed the position of Providian Trust’s CEO. Soon after his arrival, he and Chief Operating Officer Christopher Franks invited the Select One president to their offices and told him that they would like to have an open-door policy and that he should feel free to communicate directly with them if he sensed any problems with the Access Plus implementation. The Select One president indicated that the project was on the right track. Providian Trust’s Audit Services Department did not agree. Over the course of the project implementation, Storey’s auditing staff had delivered to LeBlanc and Benari a series of reports warning that the Access Plus system implementation was a high-risk project due to the strategic importance of the business line, the significant dollars of assets under administration, and the magnitude of proposed change to the existing operating environment. On July 27, 1995, LeBlanc responded to 13 specific risks detailed in a “Trust Operating Environment Interim Audit Report” (Exhibit 8). Given the Audit Committee’s doubts about Storey, Walsh was more interested in Steinman & Smith’s opinions about the Access Plus project. It was unclear whether any of the audit reports ever appeared on Walsh’s desk. Walsh dismissed Storey on August 1. The CEO continued to study the progress reports on the Access Plus project. According to the senior project leaders, everything was under control. The project team had successfully converted $2.5 billion of internal corporate assets and proprietary mutual funds by July 1995. Robert Strong, who was approved as a senior vice president of Corporate Services in February 1995 and subsequently joined the Implementation Committee, somewhat dampened the congratulatory atmosphere, pointing out that because it did not involve any client accounts and the document management system remained untested, the conversion only measured the base functionality of the system. Also, the project team still did not have experience putting live data feeds into the Access Plus system. The project team answered these concerns by pointing to an upcoming Simulated Work Environment (SWE), which they claimed would test the Access Plus system at a much higher level. The SWE was promoted as a dependable testing methodology that would involve 10 teams of trust officers using 500 Access Plus processes starting in October. Had the test actually been carried out as planned, the system would have been tested in New York headquarters, at 20% capacity with a few live data feeds. Benari later admitted that the trust officers never actually participated in the SWE, in part, because he had no jurisdiction over them. “When the data was made available to me I wasn’t comfortable with it because they hadn’t used the system. So what do you think was going to happen when you entered a live environment?” The Implementation Committee had grown to a total of 20 executives. “Since I was part of a 20-member committee, I thought I had 1/20th of the responsibility for the project,” said Benari. Although he and other executives pondered the possibility, not a single committee member ever walked into Walsh’s office to express his or her fears. “To criticize the freight train that was moving down the path we regarded as an act of corporate disloyalty,” explained Strong. “You say to yourself, well am I here to provide information, ask questions, provide support or am I here to be accountable for the success of this project?” The SWE was under way but not complete when Steinman & Smith issued their “Access Plus Trust System—Control Documentation Status Report” on October 26. The following is an excerpt from the Steinman & Smith report. We note that the project has established a number of criteria, which were reviewed by the Implementation Committee in making the implementation decision. In particular, the results of the Simulated Work Environment tests give an accurate Providian Trust: Tradition and Technology (A) 398-008 9 indication whether the system can be used to support the Personal Trust business commencing in November 1995. This test provides direct evidence that the system and various key controls, such as reconciliations, can be used effectively to manage Providian Trust’s Personal Trust business, first in headquarters and then across the country. Our comments and conclusions which follow relate only to our review of control documentation. Scope of documentation reviewed: Trust Operating Environment Document, Training Modules, Procedures. Conclusions: The Trust Operating Environment document and the training modules are mainly complete and they provide users with the ability to use the new system in a knowledgeable and effective fashion. This is a prerequisite for an effective control environment. The new procedures related to Access Plus which have been provided to date also reinforce directions on how to use the system, but do not focus on control oriented activities. Procedures for a number of areas are still being prepared or enhanced as a result of the Simulated Work Environment test, which is now being completed. An appendix outlines the various procedures which we have requested management to provide prior to conversion to allow us to confirm that control. Each of these items has been communicated to management and we have been assured that, at a minimum, the specific control principles, which will be applied, will be provided to use before the conversion date. Subject to this documentation containing adequate control information, we have agreed with the October 31 conversion schedule. While there is other control documentation which should be updated so that it properly reflects the use of Access Plus reports, we believe these activities can wait until after the Personal Trust conversions without any serious risk to the business, given that the recommended senior management monitoring takes place and responds in a timely fashion, to any issues which may arise. Stephen Walsh decided to approve the first scheduled Access Plus conversion. The Personal Trust conversion for all New York accounts took place on November 1, 1995.

Questions

1. Describe three major project management related problems in the case.

2. Highlight the problem you consider the main issue, and explain why.

3. Identify three points in the project when project management tools and techniques have been applied, or could have been applied more effectively.

4. Explain who should have driven the improvement, the recommended change, when the change should have taken place, and the expected improvement.