Data Warehousing and Business Intelligence

18 June 2016

Domain Knowledge

Filed under: Analysis Services — Vincent Rainardi @ 9:59 pm

In my opinion one can’t be a data architect or data warehouse architect without having good domain knowledge. For example, asset management, the main dimension or reference data is Security (aka Instrument). A security has many attributes, such as

  • Security IDs: ISIN, Sedol, Cusip, Ticker Code, Bloomberg ID, Markit RED, in house ID, etc.
  • Industry/Sector: Barclays, Markit, JP Morgan, Merrill Lynch, GICS, UK SIC, International SIC, IMF Financial Sub Sector, Moody 35, Moody 11, etc.
  • Credit Ratings: S&P, Moody’s, Fitch, house rating, and numerous combination between them.
  • Stock Exchange (where the security is listed)
  • Issuer, Parent Issuer (for derivative use underlying?)
  • Dates (maturity date, issue date, callable dates, putable dates
  • Country: country of incorporation, country of domicile, country of risk
  • Currency: denomination currency
  • Asset class: inflation-linked, treasury, sovereign, IG corporate, CDS, IRS, options, futures, FX swap, etc.

And we have many measures such as valuations (market value, exposure, P&L), analytics (yield to maturity, current yield, modified duration, real duration, spread duration, convexity, etc) and risk (value at risk, tracking error, PV01, IE01, DV01, etc).

If we don’t understand what they means, and how they relate to each other, then how could we design the data structure to store them properly? We can’t. As a data architect we need to understand the definition of each attribute and measures above.

We also need to understand the meaning of each value. For example, one of possible value for asset class attribute is Equity Index Option. What does Equity Index Option mean? What is the difference with Equity Index Swap and Equity Option? We need to understand that. Because by understanding that we will be able to differentiate the difference between Asset Class and Asset Type. And how these 2 fields relates to each other. And whether we need to create Asset Sub Class attribute or not, and the hierarchy between Asset Class and Asset Sub Class.

Of course a business analyst will need to understand the domain knowledge. But a data architect also need to understand it. A data architect who doesn’t understand the domain knowledge will not be able to do their job properly. A data architect who works for a pharmaceutical company for 5 years will not be able to design a database for a Lloyd’s insurance company, without learning the domain knowledge first. And it could be 6 month before they reach the necessary level of understanding of insurance. Like a business analyst, a data architect job is industry specific.

I agree, not all industries are as complex as Lloyd’s underwriting/claim or investment banking. Retail, mining, manufacturing, distribution, and publishing for example, are pretty easy to understand, perhaps takes only 1-2 months to understand them. But healthcare, insurance, banking, finance and investment are quite difficult to understand, perhaps requiring about 6 months t understand them, or even a year.

So how do get that industry knowledge? The best way is by getting a formal training in that industry sector, which can either be a self study or a class. Fixed-income securities for example, can be learned from a book. Ditto trade lifecycle. I don’t belieave there is nothing that one cannot learn from a book. Yes, some people prefer to go to class and have a teacher explain it to them. But some people prefer to read it themselves (myself included).

I agree that a developer doesn’t necessarily have industry knowledge. It is a nice to have, but not mandatory. Be it an application developer, a database developer or a report/BI developer. A project manager also doesn’t need to have industry knowledge. It is a nice to have, but not mandatory. They will be able to do their job without industry knowledge. But a data architect, like a business analyst, need to have it. A business analyst needs the business knowledge to understand the business requirements. A data architect needs the industry knowledge for designing the data model and analyse where to get the data from.

 

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