Quality Money Management : Process Engineering and Best Practices for Systematic Trading and Investment

STAGE 4: Overview

CHAPTER ◆ 25

STEP 2:

Define

performance

controls

STEP 3:

Perform

SPC

analysis

STEP 4:

Determine

causes of

variation

STEP 1:

Plan

performance

and risk

processes

3

2

1 1

2

3

(^33)
2 2
11
FIGURE 25-1
The spiral stage structure of K | V begs two perspectives—one, that of the loops; and two,
that of the steps. One can look at the four steps that comprise a single loop, or the three
loops that comprise each step. We will do both. This chapter will present an overview of
the three loops. The following four chapters will examine each of the four steps and each
pass over each step. The number of loops is not by any means fixed. (We decided that
three iterations were sufficient to cover the commonly encountered substeps.)
Stage 4 is different. Stages 1, 2, and 3 addressed trading/investment system design and
development issues. By Stage 4, the product team has delivered a fully functioning trading/
investment system, a system turned on after Gate 3, assuming financial risks and churning
out performance metrics—metrics that can be measured and risks that can be forecasted.
The product team is no longer involved. From this point forward, risk managers and a kai-
zen (i.e., continuous improvement) team will assume control of the system. Risk managers
will monitor the system ’ s outputs and the kaizen team will make and/or implement con-
tainments, which are short-term solutions, not fixes or corrective actions, investigate root
causes, and make recommendations for long-term fixes of the root cause, that is, maybe
month-long projects. (The long-term projects will be picked up by a newly formulated
product team, which should go back to an earlier stage of K | V and work through the prob-
lem and the fix according to the methodology, adding new knowledge at each stage. This
is consistent with a rapid or agile method because the new team will use all of the old test
cases, as well as new ones to enhance the improved trading/investment system.)
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