The Anatomy of a System Selection

by Jimmy Sawyers

Why Do Banks Change Systems?
What are some of the reasons given by financial institution management for leaving their current system?

• Lack of confidence in system
• Poor, unresponsive vendor support
• Mistrust in vendor
• Financial instability of company
• Planned obsolescence (discontinuing/sunsetting a system)
• Vendor arrogance
• Proprietary system that will not allow third-party interfaces
• Unreasonable prices for third-party interfaces
• Vendor was acquired
• Vendor is losing more customers than it is gaining on an annual basis
• Financial institution requirements not being met by system
• Vendor not keeping pace with technological innovations
• Significant increase in maintenance fees
• Vendor pricing is penalizing the financial institution for growth

If you can identify with five or more of the above reasons, it may be time to plan the following project, which should begin at least one year prior to your contract expiration date.

System Selection Tips and Techniques
The scope of a typical system selection can be summarized as follows:

• Define project
• What system is needed for what function?
• Is there a budget for the project?
• What are some of the goals related to a system selection?
• Improve delivery systems
• Enhance customer service
• Grow efficiently
• Maintain personalized service and community focus
• Achieve better systems integration
• Enhance financial institution profitability
• Turn data into useful information
• Increase technology utilization
• Interview consultants (if using outside assistance)
• Select the financial institution's system selection team
• Ensure adequate representation from various departments
• Communicate the goals to the project to the team
• Define financial institution requirements for system
• What does the financial institution want in a system?
• What interfaces are required?
• What is the current technology environment?
• Gather financial institution statistics (e.g., account volumes, current configuration)
• What does the financial institution's technology environment look like now?
• What are the financial institution's current account and item volumes?
• What are the financial institution's five-year growth projections?
• Review vendor choices
• Which vendors are available?
• Who are the industry leaders?
• What are other financial institutions using? (Learn from other's successes and failures)
• Attend trade shows and conferences
• Select the field of vendors to be evaluated
• Which vendors seem to be the best fit for the financial institution?
• Which vendors have the best reputation?
• Develop RFP (Request for Proposal)
• RFPs range from the brief and succinct to the complex and voluminous (seek outside assistance when feasible)
• The main purpose of the RFP is to communicate your requirements to the vendor in an organized manner
• The RFP will also help each vendor propose based on the same information
• Compile vendor profiles
• Obtain information regarding each vendor
• President?
• Headquarters?
• Business structure of company?
• Parent company?
• Number of personnel?
• Sales rep contact information?
• How long in business?
• How many financial institution clients?
• How many total installations of the system being proposed?
• How many installations in the past year?
• Name of system?
• Hardware platform?
• Operating system?
• Programming languages?
• Source code provided?
• Contact information for last five installations
• Send RFPs to finalists
• Review proposals received from vendors
• Vendor proposals can be very complex with much proprietary language. Be prepared to translate into plain English, a difficult task.
• Did the vendor comply with the RFP?
• Require line item pricing so you can clearly compare vendor pricing. Some vendors will attempt to disguise pricing by aggregating several system components into one price.
• Selected criteria used in the evaluation of vendor proposals can include, but is not always limited to:
• Ability to meet system requirements
• Management's comfort level with the vendor (e.g., company, people, systems, support)
• Vendor presentations
• User references/Site visits
• Vendor's financial stability
• Commitment to financial institutions of this size and market
• Cost and value (two different issues)
• Commitment to future product development
• Ability to execute a smooth conversion
• Complete investment analysis/vendor comparison
• Understand that this is rarely an "apples to apples" comparison as most systems vary greatly
• Consider the fact that some systems contain more standard features than others (e.g., Is accounts payable standard or an option?)
• Ensure that the comparison has integrity and is fair
• Avoid unrealistic cost saving projections
• Narrow the field of vendors
• Don't waste the time of vendors who do not have a chance to win the business
• Focus your efforts on the viable systems and vendors
• Schedule and facilitate vendor presentations
• Contact vendor representatives
• Secure a venue for presentations
• Set the agenda for the presentations
• Allocate the same amount of time for each vendor
• Complete vendor evaluation forms
• Evaluate each vendor after each presentation to "freeze" the presentation in time and document your thoughts
• Have each member of the system selection team complete an evaluation
• Plan site visits / reference checks
• Call references
• Schedule site visits
• Compile questions for site visit
• Conduct site visits
• See "20 Questions for Vendor References" in a future installment
• Develop system selection compilation
• Document the system selection from A-Z
• Should anyone question the decision later, simply produce the documentation which will tell the story and support your decision
• Make a final decision
• Begin Contract negotiation
• See "20 Rules of Vendor Negotiation" in a future installment
• Have contract reviewed by legal counsel
• Submit contract modifications (if necessary)
• Discuss contract modifications with vendor
• Sign contract
• Begin conversion planning
• Allow adequate time for conversion planning
• Prepare your staff for the work ahead
• Communicate the plan!

All of the above steps are not necessarily executed sequentially. This is just one of many structured approaches. Your approach will depend on your financial institution's culture and the system being reviewed.

Installments will include:

1. System Selection: Strategies for Success
2. The Anatomy of a System Selection
3. 20 Questions for Vendor References
4. 20 Rules of Vendor Negotiations
5. The Outsourcing versus In-House Debate Settled Once and For All

First published on BankersOnline.com 5/27/02