Archive for the ‘sub-prime’ Tag

Could BPM have saved the World from the Sub-Prime Debacle?

The sub-prime driven economic meltdown has become a global crisis that is on the minds of everyone, including those of us in the business software community. Some of us, enamored by the potential and logic of software, strongly believe that the way to prevent such crisis in the future is through greater investment in software and automation that not only improves productivity but also provides a consistent application of rules. I recently heard the CEO of a major BPM vendor wishfully proclaim that if only the mortgage companies had more and better automated mortgagee processes, the world would have been saved from the sub-prime meltdown. On first blush this sounded reasonable and a good rationale for more investment in BPM. Mortgage applications are excellent candidates for automation as we all know.

Sit back and think about this, however. The sub-prime mortgage problem was created neither because the mortgage processes were inefficient nor because the rules were not consistently applied. The problem was that the rules were bad, and no BPM software that I know of has the capability to detect or correct bad rules. Bad rules, dictated by greed, produced a large number of bad mortgages. If there had been more automated and efficient mortgage processes, the result would have been even more bad mortgages and the problem would have been far worse! In fact in this case, less efficient processes would have been better in retrospect. If you automate something bad, you simply get more of it more effeciently!

This is not a slap on BPM. It is the classical problem of technology. Technology is a double-edged sword. It can do wonderful things if the rules that drive it are designed for a wonderful outcome. However, if the rules are screwed up or are trying to optimize the wrong thing, the consequence is wrong. In the case of the sub-prime mess the rules were relaxed to encourage more and riskier mortgages and that is what we ended up with. Some of you will argue that OK, but only if he processes were agile and the bad rules could have been changed early on we could have avoided the crisis. The problem is that the sub-prime crisis took years in the making, which is much longer than the lifecycle of a typical 3-4 week mortgage process. When the world woke up to the fact that the rules need to be changed the damage was done. The mortgage companies had sold millions of sub-prime mortgages to the banks, who had sold them to Wall Street, who in turn had sold them to the Chinese and Saudis!

My bottom line is that the world cannot depend solely on great technologies such as BPM and BI. Technology must be used wisely, with proper governance and good rules that optimize the outcome for all the stakeholders. The world we live in is very complex. Technologies such as BPM are relatively new. So let us use BPM and related technologies wisely on problems that we can grasp and comprehend before we use it to solve the more complex problems. And when we do solve the more complex problems, the world will have moved on to even more complex problems!