Thursday, February 13, 2014

The (High) Total Cost of Inflexibility

Many systems installed in today’s banks have the inherent advantage of being “sunk costs”, in that users and management alike find it difficult to justify the expense of a new system because the system it would be replacing was paid for so long ago that it is fully written off, or at most “we only pay maintenance fees”. This logic holds that, in order to generate the necessary savings to justify installing a new system, the displacement of people and other costs must be so much greater because the current system is essentially cost-free. 

The biggest fallacy in this reasoning (there are many, from an economist’s point of view in doing a completely cost-analysis comparison) is that it doesn’t take into account the cost of the things we’re not doing. The oft-used phrase “because that’s how we’ve always done it” is the flip-side of the single “these are the things we’ve never done” – which are usually the areas of highest cost and greatest opportunity for improvement. Just because something is inexpensive doesn’t mean it doesn’t actually cost us a lot. Some cases in point, from the recent past: 

1)      Banks in England were slammed this week by various ministers and government agencies, demanding that they account for how much they’re doing to help the unfortunate people who were dealing with record flooding of the river Thames.   Inflexible systems mean that merely accounting for who were the effected customers was difficult and required many to resort to manual calculations; politically-motivated promises of special handling and immediate changes to treatments, offers, etc. were made by top management while the operational execs scrambled to find ways to fulfill those promises reliably, repeatably and provably.  The net is that the cost of responding to this weather-created crisis will far exceed the actual benefits announced for victims.

2)      Banks in Australia are dealing with the impending onset of new credit reporting practices that will effectively multiply the number of customer complaints exponentially. The inflexibility of current operational systems renders them a non-option for responding to this new regimen, dictating that they spend large sums on new complaint and dispute capture and resolution processes. Even these new systems must be carefully vetted for adaptability and ease of use, as the growing body of regulations is sure to be modified as experience mounts. In sum, the cost of building entirely new systems arises from inflexibility that could have been avoided, were flexibility valued highly enough from the start.

3)      In the U.S., banks face stiff penalties for failing to adhere to the Servicemembers Civil Relief Act (SCRA) provisions on special treatments for veterans. Flexible systems would be able to add data elements about their customers to capture status data relating to military service, to create automated “scrubs” to mark customer records appropriately, to provide a simple way for customers to inspect their own data and  provide a standardized way for agents in any part of the bank to update a customer’s relevant information in a way that allows the system to automatically ensure compliance with the Act.  Inflexible systems make creating that new infrastructure so expensive an undertaking that some banks have consciously decided to take the risk of enforcement actions for failing to comply.

 
CMC’s CredAgility platform offers one thing above all: the powerful flexibility to adapt your operation’s execution to meet ever-changing needs and demands.

 

 

 

 

 

 

 

 

 

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