UK debt management office enhances key financial software

The UK Debt Management Office, an Executive Agency of Her Majesty’s Treasury, relies on a range of tools to analyse certain aspects of the country’s finances.  Tessella have been helping the DMO to maintain and enhance this important simulation software.

Background and challenge

The UK Debt Management Office (DMO) is responsible for debt and cash management for the UK Government, lending to local authorities and managing certain public sector funds. It was established on 1 April 1998 when management of the gilt market was transferred from the Bank of England to the DMO. The DMO’s remit is to carry out the Government’s debt management policy of minimising financing costs over the long term, taking account of risk, and to minimise the cost of offsetting the Government’s net cash flows over time, while operating in a risk appetite approved by Ministers.

In order to analyse large quantities of financial market data, the organisation depends on a number of MATLAB applications. Since 2006, the DMO has been using three specific tools initially developed by MathWorks Consulting Group: Portfolio Simulation, Yield Curve and Strategic Debt Analysis.

These tools play an important role in helping the DMO to analyse the impact on the Government’s debt portfolio of decisions concerning the instrument and maturity split of future debt issuance. In addition, the Yield Curve programme is one of the DMO’s core operational systems. Towards the end of a rolling support contract, MathWorks introduced the DMO to Tessella in order to ensure these important tools were supported in the long term. Founded in 1980, Tessella is a leading provider of technology and consulting services, which combines science, engineering and sector expertise to deliver innovative solutions to complex real-world commercial and technical challenges. MathWorks has a long history with Tessella and was confident that it would be reliable and have the expertise to handle these complex mathematical simulation applications. Tessella also has an existing framework agreement with the government which was an important consideration for the DMO.

Solution and benefits

The first priority was to establish a new support arrangement that would ensure any production problems were dealt with quickly. Tessella also had to ensure that the tools would be upgraded as and when new versions of MATLAB became available, and carry out any changes necessitated by changes in other DMO systems. Tessella put in place a two man team that monitored system behaviour and resolved any incidents in a timely fashion.

Tessella also helped the DMO to enhance the existing tools. The Portfolio Simulation tool in particular was in need of further development to improve its speed and to extend its functionality. This tool is used principally to provide data that feeds into the UK Government’s consideration of the annual debt management remit and simulates the process of auctioning government bonds; the more accurate its simulation, the more valuable it is for helping to inform the UK Government’s debt management policy.

The DMO had got to the stage where it had identified 15 different improvements that it wanted to make to the Portfolio Simulation tool. With the Tessella team in place, the DMO were in a position to make those changes.

Over a period of three months, Tessella and the DMO worked together to refine and enhance the Portfolio Simulation tool. The changes mean that the simulations better model what might happen in the real world, and the outputs have been changed to help the DMO to produce better, clearer information.

One of the key requirements was to speed up the simulation so that the DMO could run it multiple times in the period leading up to when the DMO’s annual debt management remit is set. The DMO wanted to run it up to 100 times which would have been impossible with the previous version. As a result of the enhancements made by Tessella, the Portfolio Simulation tool’s runtime is now a third of what it was previously.

The advantage that Tessella brings to supporting and enhancing highly technical tools is in being able to understand the software, but also function as business analysts. Traditionally, analysts are needed to provide a bridge between in-house software development teams and the end users, but Tessella takes away that need for an intermediary. Tessella provides added value in the way it thinks about solutions from both a software and business perspective.

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