Technology Evaluation and Selection

In recent months industry vendors and financial services executives —especially mortgage lenders and servicers —have shared a renewed focus on technology evaluation and selection.

Business executives seek technology solutions that will automate manual processes and enable their employees to be more productive. Financial services vendors are eager to develop and deploy new solutions and are naturally seeking new clients.

Forrester Research has indicated information technology software and infrastructure spending will increase by over 9% in 2010. Gartner Inc. also predicts more IT spending this year by financial services firms.

While it may be simple for banks to meet with one vendor and sign the agreement over coffee, most technology decisions need a bit more effort.

Often for technology purchases, there is a formal decision process managed by an external consultant. In this document, we will review some components of that decision-making process with emphasis on the impact to the business line manager or executive. Benjamin Franklin summed it up in this comment, "By failing to prepare, you are preparing to fail."

Project Scope

The initial consideration is to define the project scope addressing a business problem or opportunity so it supports the firm's strategic direction. The scope may be narrow or broad, but should be well defined to minimize the chance for misunderstanding. It also needs to be concise and define the products and operational areas impacted.

As part of the project scope, a timeline should be developed for the technology evaluation and selection process. Establishing this timeframe upfront will assist all participants in understanding the overall project, identifying critical milestones and holding various stakeholders accountable. In addition, if there is a high-level inventory of existing technology solutions, it should be taken into consideration how it may be impacted by this selection process.

Finally, there must be a business return or business case for moving forward. A return on investment analysis should provide a compelling reason for moving forward. Often business process improvements can be included in the business case. The entire technology selection process can be time consuming and expensive for both banks and vendors. No one wants to get to the end of the process only to find there is no funding to support the initiative.

Current and Future State Workflows

Once the project scope is defined, it is helpful to create current and future state workflows. These can be high-level or more detailed. Workflows will typically include both operational and system inputs, as well as the alignment of people, process, technology and policy. Part of this process is detailed documentation on current technology and associated interfaces. If the desired technology will support new functionality, the future state workflows can help define critical need areas.

While the actual future state workflows will be dependent upon the vendor selected, firms who take the time to complete this process will often identify redundancy and inefficiencies. Furthermore, this future state vision will help avoid a common request of employees who want the new system to "work just like the old system." It is highly recommended to meet with your current vendor(s) and share the current and future state workflows to verify accuracy of the information and determine potential options. Existing technology may support productivity gains with little or no investment.

Detailed Business Requirements

The process of defining your detailed business requirements often starts with outlining the capabilities of the current platform and overlaying additional needs that are not met. This information can often be obtained through interviews and conversations with various stakeholders of the process and current users of the existing technology.

After finalizing the detailed business requirements, the next step is to identify the appropriate weighting of each requirement.

Since there are multiple stakeholders there could be various different weightings for each requirement based on the input from operations, technology, risk, product, marketing and other representatives. Taking the time to prepare the detailed business requirements will pay solid dividends as you proceed through the selection process.

Request for Proposal

Some banks prefer to avoid the RFP process, since it can be difficult to manage. Naturally many vendors would also like to avoid this time-consuming process and move straight to the onsite presentation or perhaps selection. However, for most situations an RFP is going to help the bank make a more educated decision and provide the vendor with more information on the actual need.

Once an RFP has been created, an important consideration is determining which vendors should be included. Typically any existing vendors would be included as a courtesy unless there are mitigating factors. The bank will identify the remaining vendors and the resource coordinating the RFP effort. It is generally wise to include all leading vendors in the space in the initial RFP process and then use the responses to "short-list" a group to be invited to present onsite based upon their responses.

The vendor should deliver RFP responses in a timely manner in the format requested. For easily comparing documents side-by-side some banks request hard copies while others prefer electronic versions. It is advised to require an appropriate format, which allows for easy comparison for responses between vendors.

Primary benefits of the RFP process include:

• Allows multiple respondents.

• Encourages competitive process that demonstrates vendors' best efforts.

• Requires the bank to clearly outline the proposed purchase.

• Ensures standardized responses tied to identified requirements.

• Typically provides one contact person for questions, clarifications and coordination.

• Demonstrates impartiality by a structured evaluation and selection process.

Onsite Vendor Presentations

Once the RFP process is completed, the responses are generally "graded" against the detailed business requirements and associated weighting. Those firms who substantially meet the requirements and responded on time would be included on the short list and invited to provide onsite presentations. The meetings will allow bank executives to clarify any items from the responses received and should also allow the vendor to ask questions. An onsite demonstration can help facilitate solid communication.