Conventional stock market wisdom: "buy on bad news; sell on good news." But unlike stock investments, the constant debate on IT investment does not revolve around "when," but "how."

Making purchase decisions and choosing between build or buy is a never-ending debate in the IT shops of Hong Kong enterprises. There may not be an ultimate methodology for finding an answer, but learning from other"s experiences is a good start towards making the ultimate decision.

Aiming to raise its application performance and customer service, Hong Kong-based Tai Fook Securities is currently implementing a comprehensive IT revamp that includes the replacement of its core applications, as well as its server and networking infrastructure.

The firm"s revamp project began in Q4 2003, is still in process and is expected to complete by Q2 of 2006. For each component of its IT system-applications, networking, servers-Tai Fook"s IT team made its decision based on different criteria.

Risk management

As in most major IT revamp projects, the firm began the process with an evaluation of its application layer.

"Our previous system used packaged software," said Nelson Ying, CTO of Tai Fook Securities. "To fit that application with our trading strategy, we had to customize more than 50 percent of the software."

Since the trading applications hold not only the business process, but also the firm"s investment strategy, no off-the-shelf software is able to support the firm"s operation, noted Ying.

Due to the unique business requirements within the application, the firm decided to build a new application under its IT revamp project. With a development cost of HK$20 million (US$2.6 million) and a team of 60 people, including developers, users, business analysts and the testing team, Tai Fook developed a new set of trading applications.

Apart from meeting its trading strategy, another critical element of its trading system is risk management.

"Unlike banks, securities firms bear a much higher risk," said Ying. "Good risk management is critical for us."

Tai Fook managed a total of HK$17 billion in 2004. To better protect its business and its clients" investment, the trading application must also able to show and predict the financial impact of disastrous events like the explosions in London last month or the event of 9/11/2001, said Ying.

"Any [such] incident around the world can bring a significant impact to our business," he said. "We need to know our bottom line and financial status even before the stock market opens."

Since 1996, Tai Fook has been using an application that predicts the business and financial impacts of different external events. As the number of customers increase and their variety of investments diversifies, the new application has extended this analysis to include new angles-like prediction of impact to certain type of clients, a particular portfolio, products or industries.

In addition to the impact from external factors, another major element in risk management system is accounts auditing. Ying said the new system is able to audit all new accounts to ensure a clean credit history.

"For example, if a person is already a client with us, we need to ensure that when his wife or his company opens a new account with us, the system is aware they are sharing the same source of capital," he said. "Being able to audit the accounts in real-time is important to mitigate risk."

To enhance customer satisfaction, the new applications also allow clients to access their account information through the same backend system as the brokers, providing a real time update, as well as a single view for multiple investments.

As the Securities and Futures Commission in recent years, has allowed investors to make multiple investments within a single account, the new system supports clients with that new option and also provides an integrated view of their portfolios.

Server decisions

Following the application development, the server layer was revamped. In the previous system, Ying said the choice of servers was dictated by the applications, thus Tai Fook"s previous system was a multi-vendor environment with boxes from HP, Sun and IBM.

Moreover, since they were installed by system integrators, who did not understand the industry and Tai Fook"s business process, a lot of education was required, said Ying. However, with a high staff turnover among the system integrators, constant re-education and training for the new SI staff often brought delays in projects and upgrades.

"Since our core applications are now home-built and run on a J2EE platform, we have more flexibility in deciding our server systems," Ying noted.

For easier management, Tai Fook went for a more homogeneous environment to run its application. But which server to choose?

To support Tai Fook"s core applications, Ying said the server infrastructure needed to deliver high performance around the clock. It also needs to handle the fluctuating market, which often results in surges of computing power.

To help make a purchase decision, the team developed a benchmarking scheme. Within the three-month testing period, the firm assessed different server brands by running their applications over these systems.

"Assessment of these systems was based on many criteria," said Ying. These included power usage, floor space, support services, commitment and time to response, as well TCO.

After three months of testing, Tai Fook decided to deploy an HP system which includes Intel Itanium 2 processor-based HP Integrity Superdome servers, Integrity rx8620 servers and rx2600 servers, as well as HP 9000 rp3440 servers.

The new system provides a significant improvement in performance by running the applications four to seven times faster, according to Ying.

The HP system was also able to meet the firm"s fluctuating need for computing resources with the instant capacity on-demand (iCOD) option. It automatically turns on the pre-installed CPUs when the existing system is used up to 70 percent, he said.

Outsourcing/insourcing

In terms of system management, instead of deciding between outsourcing or managing in-house, Tai Fook applied a dual approach.

"I personally do not resist the idea of outsourcing," he said. "But outsourcing requires a clearly defined SLAs, QoS, business requirements and policies."

He explained that since outsourcing providers often do not have the industry know-how and understanding of the company"s business process to deal with situations outside the planned framework. The dual approach provides the best combination to handle both the expected and the unexpected.

Under Tai Fook"s dual approach, HP is involved in certain areas, like data center management, PC monitoring, server maintenance and help desk support for users. The in-house IT team remains responsible for projects that involve coordination with users, Ying added.

Another major purchase decision for the firm"s IT restructuring was its networking infrastructure. Under the revamp, instead of hiring an ISP service, Tai Fook decided to run its own network-the firm applied for an ISP license, allowing it to own a gateway to the Internet. This ensured the necessary bandwidth the firm needs for the next three to five years, according to Ying.

Although the firm has only rolled out the first phase of its three-phase project, benefit has already been seen. Tai Fook"s new trading system for both internal staff and customers currently supports 350 staff and 100,000 clients. Ying noted the system can support up to 300,000 users.

Moving forward, Ying said Tai Fook is planning to launch phase two of the project which will extend the trading applications to the derivatives market, which includes futures, options and foreign exchange trading.