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

● The organization must document preventive action to define requirements for:

• Determining potential nonconformities and their causes.


• Evaluating the need for action to prevent occurrence of nonconformities.


• Determining and implementing the needed preventive action.

30.3. Ford 8D Problem Solving Process

The 8D process (8 Disciplines) is a team-oriented, problem solving method that can be

applied for trading/investment system and development process improvement. We have

already seen the 8D process in K|V 4.4, but here we add the problem solving or kaizen

team to the structure.

1. Establish a problem solving team.


2. Describe the problem.


3. Contain the problem. Which is to say, protect investors from the effects of the
   problem.


4. Investigate the root cause, in K|V 4.4.


5. Choose corrective action. A corrective action to a working trading/investment sys-
   tem will require a reversion to Stage 1 and rebacktesting in Stage 2.


6. Implement corrective action and verify its effectiveness. These are K|V Stages 3
   and 4.


7. Prevent recurrence, with SPC in Stage 4. We recommend sharing corrective actions
   with other product teams. This should be part of firmwide, best practice deployment.


8. Recognize the 8D team.

30.4. Continuous Improvement and Innovation

Robert E. Cole, in his paper “ From Continuous Improvement to Continuous Innovation, ”

identifies the primary benefits of continuous improvement:

● Continuous improvement mobilizes large numbers of employees.

● Small wins, occurring in parallel and serially, in large numbers magnify results.

● A series of small wins often precedes and follows large changes.

● Many revolutionary changes are based on a series of small ones.

● Small wins encourage learning that is rooted in daily work routines.

● Small wins by different groups are uncorrelated.

● Small wins are not easily recognized and imitated by the competition.

The common assumption is that improvement is continuous and small scale while innova-

tion is discontinuous and large scale. In reality, continuous improvement and innovation are

complementary concepts. The trading and money management industry, though, often gives

incentives to traders and portfolio managers for one or the other—improvement or innova-

tion—which then draws ability and attention to one or the other. This is a problem.

30.4. CONTINUOUS IMPROVEMENT AND INNOVATION 273