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Gate 1
As with most services, trading/investment systems are candidates for external review to
evaluate the prospects of the product itself and to ensure the product team is following
proper procedures. Such a review, either by management or a peer group, should in total
take no more than a week or two, not a month or two. As Dunham suggests, review, in the
form of a gate meeting, “ done right ... can help teams move more quickly as they enter
the next development phase. ”^1
According to Cooper, Edgett, and Kleinschmidt in their seminal text Portfolio
Management for New Products , gates are quality control checkpoints. Gate meetings are
a forum for making decisions about incremental investments in new trading/investment
system development projects. Good decision-making requires a process for the exchange
of information between the product team and management (or product review board, or
peer group), who understand the portfolio context of the trading/investment system under
consideration. Management (as seed capital provider) decides whether or not the project
will continue to the backtesting stage. Alternatively, management may also instruct the
product team to return to the previous stage with instructions to rework components of
the system before meeting again to make a final decision. Management may also provide
focus, direction, and conditions for the following stage if the project is allowed to pro-
ceed; for example, the team may need to resolve a specific problem as a first priority.^2
Specifically, gates serve to:● Control the burn rate of seed capital.
● Cut off the burn rate. In this way, seed capital commitments have optionality to them.
● Make sure that all ideas are properly vetted, discussed, and approved or rejected
with everyone ’ s input.
● Provide a forum to formally add and remove new trading systems to the list of pri-
orities and to communicate why and what those priorities are.System verification, that is, proving via demonstration, evidence, and testimony at
gate meetings will ensure that design and development outputs of the prior stage have met
the design and development input requirements of the following one. Verification requires
that the input requirements have been tested and that the results have been documented.
Effectively, by Gate 1, concept risk should have been removed. That is, managementCHAPTER ◆ 12