Terms like Return on Investment (ROI) and Total Cost of Ownership (TCO) are very important in the technology sector, and with good reason. If your credit union is going to commit significant resources to an infrastructure project, you need a clear picture of the financial impact. After all, any technology is only as good as its ability to make a positive contribution to your credit union's operation.
The challenge, of course, is arriving at truly accurate ROI and TCO numbers. The larger the technology project, the more likely your credit union is to experience many small incremental gains-or losses-in efficiency. Individually, these changes may be so small as to seem immeasurable. However, in total, they can have a significant impact on your credit union's operating efficiency. That's why your credit union's efficiency ratio is so important. In a very real way, your efficiency ratio gives you an aggregate look at all those tiny gains and losses.
The larger the technology project and the more areas of the credit union it reaches, the more impact that technology will undoubtedly have on your efficiency ratio. Choose your technology wisely, and you might see significant improvement in your efficiency ratio. A technology mistake can, of course, be costly in many ways.
It's important to realize that what may appear to be a minor shift in your efficiency ratio can translate to major dollars. For example, if you run a billion-dollar credit union, an improvement of only .02 in your efficiency ratio (assuming constant Income and Interest Expense figures) can mean tens of thousands of dollars per month in reduced operating expenses. There's not a credit union out there that shouldn't take this number very seriously.
What's the lesson here? There are all sorts of ways to calculate the financial and operational impact of a new technology project. One wide-angle approach is to consider the anticipated impact on your credit union's operating efficiency and, by extension, its efficiency ratio.
Validating Vendors' Claims
Every technology vendor out there will tell you their product improves efficiency. Whether NCUA data supports that claim is another matter. Especially if you're considering a data processing switch-a technology project that will impact every single employee in every single department-make sure you keep efficiency ratios in mind.
Get a complete customer list from every vendor you're considering and compare the average efficiency ratios of each vendor's customers to your current efficiency ratio. This will give you a good idea as to whether the new technology you're considering is truly an upgrade.
To be sure, many different factors contribute to a credit union's efficiency ratio. Technology is just one of them. Choosing a new technology platform is no silver bullet for an inefficient operation. However, there's no denying that your technology choices play an important role in your overall efficiency.
It's just common sense. A highly efficient credit union drives down operating expenses, which in turn makes for a healthier bottom line. CUs that invest now in superior technology will be well-positioned for the inevitable economic rebound, no matter when it comes.
You've heard the saying that only the strong survive. We're fast approaching a marketplace where only the efficient survive. Make sure your credit union is counted among the survivors.
Kathy Hooker Burress is president of Symitar, San Diego, Calif.
