When I hear the phrases “Data Processing” and “Best Practices”, each has such a different connotation than it had ten years ago. Back then, the community banking industry wanted reasonably priced and fast (comparatively speaking) customer record accountability and transaction processing. The most significant issue was cost and whether or not such services were better controlled by implementing an in-house computer operation or to outsource to a data center. Costs, security and staffing issues typically drove this decision making process. In today’s environment, the management focus has shifted from processing accountability, which is now assumed, to one regarding the need for profitability measurement, sales and marketing databases. Because of increased competition for additional market share, and the strategic objective of meeting existing customer needs, organizations today must rely more than ever on core application databases to give them reliable information about their products, customers and service offices. The starting point to achieve such a strategic objective rests with the product and core application service providers and their systems that are selected.
With the significant advances made regarding delivery systems such as real time transaction processing tellers, telephone banking, debit and credit card POS, ATMs, Internet banking, and remote deposit capture, a core data processing and archiving system must be able to either accommodate a variety of third party vendor applications or come from a service vendor that offers a suite of quality integrated applications. I am going to present the method I have used with great success in performing a current core application vendor product and service review, comparison and selection process.
Every four years, or approximately eighteen months prior to the service contract expiration, management should review the ability of their current data system and service provider to meet their business needs. If a decision is made to investigate the feasibility of converting from the current core application system and vendor to another, a formalized information gathering process should occur.
The following risk management process is beneficial in building a comprehensive and effective approach to support management’s due diligence and decision made.
Phase I – Fact Gathering
1.) Each key area of the company must be represented on the project team. This will help in getting internal end user as well as customer needs identified, keep all personnel in the loop, and minimize the risk of key issue omission. For example finance, compliance, deposit and technology operations, branch network, loan production, personal banking, trust, marketing and executive areas should be represented on a system evaluation project team.
2.) Identify your current system computer hardware, ancillary processes such as item and document imaging, optical storage, system and application software, personal computers, LANs, telecommunications, business resumption impact and ongoing maintenance coverages.
3.) Identify staff “internal customer” needs. Allow your personnel to openly indicate issues, both positive and negative, with the current systems and service provider. Issues such as vendor support, customer and product data availability, information report flexibility, regulatory compliance needs, security, manual vs. Automated processes, and staff training must be identified.
4.) Circulate a user PC and core system satisfaction survey among key operating, customer service and administration personnel. Perform follow-up interviews with selected individuals as necessary to confirm and expand on user needs and concerns identified.
5.) Compile statistical information regarding current system processing and storage capacity levels. Examples of statistical information needed would be; average transaction volumes by account type, total customer accounts and concentrations of multiple account arrangements, and check clearings. This information is critical in determining a pricing structure for a possible service bureau contract, or in acquiring the appropriate computer hardware for an in-house system.
Now your are ready to select core application systems for comparison. Try to limit your potential vendors. Too many options could prevent you from making a decision. I have seen situations where a management team compiles a significant amount of information about particular application systems and gets lost in the numbers. To make the situations worse, the systems were all sales demonstrated on site, and each one was found to be comparable in its “ease of use, menu driven screens and management reporting options. Decision gridlock occurs, and with each passing day the fear of Selecting the wrong application system grows.
Phase II – Vendor RFP Process
Your initial contact with a potential vendor should not be to line up an on-site software demonstration. Instead, express your interest in their product and request an introduction meeting where a request for proposal (“RFP”) document will be distributed for completion.
1.) Always start with the resume of the vendor. Evaluate the vendor’s background. Look for evidence to support industry specialization, financial stability, and service reputation.
2.) Consider whether the vendor’s products are being kept current with new technology trends. PC driven client / server technology has become the standard in the smaller (less than a $ billion in assets) financial institutions.
3.) The RFP will include a list of customer references. Select comparable size or larger customers to your company for site visits and telephone interviewing. The vendor will supply you with their best user sites, which is really to your advantage. I have found that these sites are open and candid in answering questions regarding the conversion process, software features and functionality, user groups, vendor service quality, software enhancements, and any other questions or concerns you may have.
4.) After a well planned site visit, and a compliment of user bank conference call interviews, the next step is to identify your vendor and core application system finalists.
5.) Ideally, the two or three finalists should be requested to setup on a computer lab to allow your personnel to try out their software applications with vendor help onsite at your location.
6.) Review and compare each finalist vendor’s site visit and reference contact results, and their other RFP information, such as software features and functionality, third party partnerships and software compatibility. A diligent detailed analysis is necessary. Your goal is to be able to evaluate vendor proposals on an “apples to apples” basis.
7.) A five year financial / investment analysis should then be completed. The projections cover initial conversion, ongoing operation costs, and investment options such as lease or purchase. Make sure the vendors are quoting costs and capital investment requirements on the key items such as appropriate computer hardware, communication media, application software, and maintenance options.
Phase III – Additional Best Practice Procedures
Other basic project issues that must be addressed as a part of any decision process include a risk management assessment, by critical risk factor, updating of policies and procedures, business resumption needs, and staff education and training needs. In addition, physical site availability, physical and logical security needs, operational internal controls, and staffing qualifications and size round out the remainder of the issues that must be addressed.
Phase IV – Action Plans And Project Implementation Schedule
Action plans and an implementation time line must be developed. Project sponsors (Those identified at the beginning of this project) will work initially with the vendor and the company’s Technology Service department in documenting the chronological order of action steps.
This should help getting a more formalized approach to supporting management’s understanding of business risk associated in the computer core systems selection process or even what many believe is just a basic service renewal decision.
Article Note: I am willing to share my excel and word templates that were designed for an internet banking core system and vendor selection process, but can be tailored to fit any system selection project. Simply email your contact information to me and any questions you may have.