Volume 2 — Governance and ControlsGovernance and Controls © Copyright 2002, All rights reserved 17 discrepancies and invoice the counterparty) and book the appropriate entry in the financial records. The life cycle of a deal is dependent upon proper organizational setup and governance structure (discussed in section I of this document) and also on maintenance of the system infrastructure that supports the business. The processes that support the deal life cycle are illustrated in Figure 2 and described in more detail in the sections that follow. Figure 2. High-level Process Flow 1.1 Deal Execution 1.1.1 New Product Development Process Overview New product development consists of determining commodity offerings, performing market and asset selection, and developing products that are aligned with management’s strategy and risk tolerances. Within this process, the front office performs the research required to understand market rules, risks, barriers to entry, competition, customer needs, logistics, etc. Based on the information gathered, the front office then analyzes the economics, develops a business plan or report, and submits it to the middle office for independent validation of assumptions and measurement of market risks. Once the assessment is complete and senior Governance System Infrastructure Maintenance Reporting Front Office Middle Office or Corporate Risk Management Back Office Yes No Trading, contracts, asset management New Product Development Origination, Structuring, and pricing Approve Deal End Deal entry Price curve development Confirmation Daily risk monitoring Price curve validation Risk control and analysis Actualization Settlement Compliance w/accounting & disclosure requirements Reconciliation Contract management Credit Validate deal Deal Execution Deal Validation Risk Management Settlements & Accounting Logistics Deal management