Royal Bank Of Canada (Rbc)

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This case discusses a crisis at the Royal Bank of Canada (RBC) that occurred on May 31, 2004. The crises involved a programming change to a vital piece of banking software. An incorrect change to the code led to the failure of the bank’s programs which in turn led to customers that could not check account balances, customers (and non-customers) that did not receive paychecks, automatic payments and bank transfers that were delayed, and duplicate transactions.
The code that was entered incorrectly was quickly fixed, but before that could happen, bad data was sent throughout the banking system that was difficult for RBC to track. As the bad data needed to be corrected from previous days, new data and transactions continued to pile up until RBC could begin processing the transactions again.
In addition to the problems caused by the technology glitch, there were issues with how the company handled the crisis with its customers. At first the bank publicly announced the problem would be resolved in three days. When that day came they needed another three to four days to continue to deal with the problem. The bank’s CEO left the country when he was told that everything would be operating normally three days after the error occurred. As customers continued to experience problems in the days after the initial problem, there was no one single person to manage the public relations with the bank’s stakeholders.
RBC’s problems provided hackers and scam artists the opportunity to take advantage of those that were affected. These crooks sent emails that tricked customers into providing user IDs, passwords, and account numbers.
In all the issue took about a month to resolve and the RBC gave customers 90 days to file claims with the bank. RBC also hired an adjuster to help with losses as a result of the problem and hired IBM to consult with the cause of the problem as well as how to prevent the problem from happening again.
The key flaws of RBC’s controls and actions in this case are:
• RBC’s lack of a quality assurance (QA) control that tests programming changes before being released to production.
• A flawed procedure for managing the back-up computer systems.
• Incorrect assumptions about when the applications would be back online which led to an ineffective public relations and information exchange between the bank and the stakeholders.
• RBC’s failure to warn the customers about potential scam artists.

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RBC had a stated policy that all programming changes should be tested fully before being released to a production environment. Having a policy is not enough to prevent errors from happening with a computer system. The case does not mention the specific QA procedures but assuming that there are not many specific procedures or even personnel to control QA processes, the bank ran the risk of an error corrupting data in its computer systems.
Even the best software developers will make mistakes. Strong QA personnel and controls allow for software to be tested effectively in an environment that replicates the production environment in a testing environment. Companies that implement test environments can copy production data to a test environment to test software changes to see what problems will occur.
Putting the software change to the normal production system as well as the back-up system at the same time may have also contributed to the problem. In this case, both systems were corrupted before the issue was discovered. It is hard to assume how the back-up system is architected but if it was designed to allow for changes to be made to the main system, while the back-up system continued to operate prior to the new changes the bank may have been able to recover data quickly from the back-up system. This could minimize the impact on the customer and the recovery period prior to RBC functioning properly.
The last area that I believe was a flaw was the management of the crises. One assumption is that incorrect timelines were hastily given to fix the problem. This happens in software development where a timeline is given to fix a problem before the problem is fully analyzed and estimates are properly formulated. In times of crises, the first piece of information asked for is the time to fix something so it is understandable that executives want to know exactly how long something will take to fix.
The most important thing to do for these types of problems are to get a complete understanding and replicate what went wrong and to know exactly what procedures are needed to fix the problem from a technology standpoint and business process standpoint. Once those are established, a timeline to fix the problem should be communicated to the stakeholders.
The bank also failed to warn customers about scam artist that would take advantage of those affected by the problem. RBC should have warned customers that the bank would never send emails or call customers soliciting account numbers, user ids or passwords. It is not mentioned in the case study, but did RBC do anything to protect the identity of customers? Would this protection prevent scam artists from contacting customers via email for account and password information?
Given the flaws mentioned above, RBC did work with customers to fix problems that occurred. They gave customers 90 days to file claims and hired an adjuster to handle claims over $100. RBC also hired IBM to consult the bank on its programming and QA control processes.
In summary, the case study shows how problems in technology (no matter how small) can cause a great deal of problems in business processes. It demonstrates that a technology issue that is quickly discovered and fixed can have lingering effects loan after the problem occurred. The case also shows the difficulty in managing a crisis and the costs (like hiring IBM) that occur because of the lack of internal controls and security.

References
Laudon Kenneth, C., Laudon Jane, P.(2006). Management Information Systems (9th ed.). Upper Saddle River, NJ Pearson Education, Inc.


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