52 CHAPTER ◆ 4 Managing Design and Development
Of course, a trader or portfolio manager who works to help other team members may
not have as much revenue to show for his year-end bonus as he would if he had worked
alone. What is the incentive? Short-term, me-first or long-term, team-first? Teamwork is
a risky business, yet it is the only way to succeed. With respect to incentivizing financial
engineers and IT professionals, we recommend a three-year bonus structure, where:● 50% of the bonus is based upon the profitability of new trading/investment systems
where the individual was a product team member.
● 30% is based on the current year profitability of trading/investment systems built in
the previous year.
● 20% is based on the current year profitability of trading/investment systems built
two years prior.(Many engineering firms use a similar structure to ensure that engineers and team mem-
bers have a continual stake in long-term success. If something breaks, the original prod-
uct team members have a strong incentive to fix the problem.)
Additionally, organizations find they must be in a constant state of learning to survive.
Top management must promote ongoing training and education; process improvement
correlates highest with employee training. Success in learning whets an appetite for more
learning. Product team members who succeed at seminars and industry conferences are
motivated to continue learning and innovating at work.
Given product teams and a commitment to quality, management ’ s responsibility is to
understand the step-by-step inputs and outputs of trading/investment system development
processes (using a mapping model like K|V), identifying the processes themselves and the
support resources that result in successful systems, as well as determining the necessary
organizational skills. Successful organizations think lean, starting with defining value
in terms of specific trading/investment strategies with specific performance attributes
managed at a specific cost.3 M employed a “ dual ladder ” approach that allowed senior, technically inclined
individuals with attractive career opportunities to advance, without having to switch
to top management. In addition, the company held internal showcases for products
and ideas to help encourage interdepartmental cross-pollination or “ bootlegging ” of
discoveries. As a result of these steps, 3M employees tended not to move to other
companies.^134.3.2. Forecasting Team Velocity
After completing a few working systems, management will gain a feel for product team
velocity and be more able to forecast future projects and how much effort each step and
each timeboxed loop will actually take. Velocity measurements are significantly more
accurate tools than scope-based controls, because they measure how much time it actu-
ally took to deliver a complete (and tested) trading/investment system. After only a few
steps on a new project, management will have a highly reliable early prediction of project
performance. (One way to visualize progress is with burn-down charts.)^14 A continuous
flow of new trading/investment systems requires a reduction in variation of the design and
development process through an even arrival rate of new strategies and parallel processing,
that is, multiple projects and multiple teams. Managing multiple systems, both working
and in development, requires a portfolio perspective and a portfolio management process.