A Very Short Guide To System Selection for Loan Origination Systems. Dave Williamson, CMT

Transcription

1 A Very Short Guide To System Selection for Loan Origination Systems Dave Williamson, CMT

2 A Quick Review of IT Investment

3 A Quick Review of IT Investment The Basics IT investments in mortgage banking can generally be divided into one of four types: Transaction Efficiency Analytics and Information Management Strategic $trategic More reward Analytics & Info M gt. More risk Transaction Efficiency Examples are investments in hardware, network provisioning, and operating system upgrades. This type of investment is usually treated as an expense from an accounting viewpoint. Acquistion of a LOS system is not generally considered an infrastructure cost. Transaction Efficiency This is an investment that is pursued to improve overall employee productivity by making business processes less costly and providing better service to customers. LOS investment is definitely this category. Analytics and Information Management Investments made to increase data integrity and management control. Examples of this would be the implementation of a

4 A Quick Review of IT Investment management dashboard for operational metrics or workflow statistics to monitor the key processes. A LOS investment could be justified on this basis depending on the software product chosen and/or add-ons anticipated for the implementation. Strategic - This type of investment is typically a longer-term payback and is usually done to create unique market positioning; to provide competitive differentiation; and to create innovative services. An investment in a new LOS can be justified for these reasons but not without increased risk. Three Principles for Survival Number One: As one moves up the investment pyramid from to Strategic investments, the risks generally rise as quickly as the rewards for the investment. Number Two: Given the accelerating pace of business cycles and the increased competition in mortgage banking, the true payback period for an IT investment is significantly less today than it was ten years ago. Number Three: After upper management shows you the money for the LOS project, you must continue to watch the money. Corollary for Number One: Beware of your justifications. Corollary for Number Two: Few projects can take months to implement because the benefits usually do not accumulate quickly enough afterwards to justify a payback period that is even longer and this was true ten years ago. Corollary for Number Three: There is no substitute for the proper system selection process and world-class project management for the LOS implemention.

5 Key Best Practices for LOS System Selection

6 Key Best Practices for LOS System Selection Description of Best Practice High-level business requirements and expectations should be documented and validated/approved by senior management. The system selection phase of acquiring and implementing a new LOS should be treated as a separate project from the LOS implementation. Engage a third party to lead the system selection project. Define and finalize the evaluation methodology for the system selection process as one of the first major tasks. Conduct a thorough survey of qualified vendors and their available products not just the usual suspects. Benefit(s) 1. A firm commitment for the project is solicited from management. 2. Everyone agrees on the initial high-level project constraints schedule, staff, cost that are proper for the project. 1. Allows the two projects to run in parallel when possible/appropriate. 2. Provide a focus on identifying and mitigating the system selection risks separate from the implementation risks. 1. The system selection project needs a full-time leader to be successful. 2. This will insure the objectivity of the process. 3. A third party familiar with the industry should have greater knowledge of the capabilities of the candidate vendors. 4. Will have a methodology and scoring system tested in previous engagements. 1. Provides an objective platform for measuring the vendor products before the start of reviews, demonstrations, and interviews begin. 2. Although it can be updated as needed later, the general selection criteria, weight values, and scoring algorithm are agreed upon by all at start of project. 3. With a evaluation methodology in place, team members and subject matter experts can make more accurate evaluations during actual reviews and demonstrations, instead of trying to recall details days or weeks later. 1. This will make sure that you do not miss a viable software solution. 2. Exhibit proper due diligence to management and others.

7 Key Best Practices for LOS System Selection Use a process review to develop the functional requirements for the system selection model. Conduct a functional performance test of each vendor on the short list. Evaluation and scoring should include three perspectives business value; strategic & technical alignment; and project risks. 1. Assures key elements are not missed when documenting the requirements for the LOS evaluation. 2. It will help to scope the software solution being sought by your company. 3. Provides necessary data points for your scoring model. 4. Can expose productivity opportunities available on existing LOS. 5. Provides script for functional performance testing. 1. Will identify features that are actually available on vendor s current release of the LOS. 2. Resulting knowledge from tests can be useful in negotiations. 3. Can be start of gap analysis on your eventual LOS. 1. ROI or cost-benefits analysis will show the financial worth of the LOS project. 2. Opportunity to begin risk mitigation at earliest possible time in the LOS initiative. 3. The three perspectives can vary greatly from vendor to vendor, which can provide differentiation in close competitions.

8 Selected Samples from Dave s Scoring Methodology

9 The System Value/Alignment/Risk Scorecard Value Categories Value Evaluation Criteria Measurement SVAR mapped to IT Investment Type Business Value Decreased Cycle Time Total decreased cycle time for Strategic, Transactional entire Origination process for POS Strategic, Transactional for Processing Transactional for Underwriting Transactional for Closing/Funding Transactional for Other activities Transactional Decreased Costs Cost per loan Transactional Man-hours per integration project, Transactional Improved Employee Productivity Loans per employee Transactional Time-to-Market Capabilities Loan volume per employee Strategic, Transactional Time to setup and rollout new Strategic product w/pricing Time to implement innovations Strategic Time to setup new customer (B2B) Strategic, Transactional Greater Customer Satisfaction Expected improvement in survey scores Strategic Better business intelligence Availability of real-time reporting Informational Financial Value Costs/Benefits Analysis ROI Payback Period Hurdle Rate

10 The System Value/Alignment/Risk Scorecard Alignment Categories Strategic Alignment Alignment Evaluation Criteria Supports strategic goals which are: Use processes and systems that provide a competitive cost structure How Does System.NET Support Alignment? SVAR mapped to IT Investment Type Using the.net foundation for SOA and Strategic, MISMO standards, System will lower costs Transactional, (time & money) for interface projects and straight-thru processing workflows. Increase builder business Make sensible acquistions Many builders are standardized on MS platforms, which will enable collaboration on business ventures with builders. MS.NET platform will facilitate quicker integrations of acquisitions; due to its popularity, some acquistions will have System platform; Strategic Strategic Become a Top 10 choice for brokers Become a market leader for Hispanic lending Achieve product diversification with Alt A and HELOC product introduction Innovative solutions for brokers made possible by System.NET Use the Hispanic version of System.NET to build Websites and to collaborate with Realtors and brokers serving that community Like its predecessor, System.NET can structure and deploy new products/pricing quickly. Strategic Strategic Strategic Technical Alignment * (continues next page) Supports architecture which includes: Hardware standards Microsoft supported on most servers, desktops, laptops, PDA's, and communications equipment.

11 The System Value/Alignment/Risk Scorecard Alignment Categories Alignment Evaluation Criteria How Does System.NET Support Alignment? SVAR mapped to IT Investment Type Technical Alignment (continued) Operating system standards Dependent on Company's stds; Microsoft products are defacto choice at desktop and server; Network standards Dependent on Company's stds. Programming tools Millions of US developer's and more overseas use VB/.NET; SOA Using MS.NET to implement your SOA and the programming model underlying.net for developing, deploying and running Web Services and apps offers developers of Web Services platforms great productivity gains and an excellent return on investment. Supports technology goals which are: Pursue fully e-mortgage environment Support MISMO standards Use applications that support reusability Deploy n-tiered applications Strategic, Provide Internet connectivity for partners & customers Allow quick integration of best-of-breed components & services

12 Sample - SCORING MODEL SUMMARY Assesment Model Scorecard Section Current Tech Tech Group # Requirement Group (Perspective) Points Platform Option 1 Option Cycle time - business (Value) Cycle time - IT (Value) ROI (Value) Emp. Productivity - Business (Value) Level of Opns. Risk (Risk) Customer satisfaction (Value) Time-to-market improvement (Value) Supports tech architecture (Alignment) Level of Technical Risk (Risk) Technical flexibility (Alignment) Strategic flexibility (Alignment) Employee Productivity - IT (Value) Total Points

13 The End