Comment: What That PC Really Costs, And What You Can Do About It

A recent study by Information Week magazine found that banks spend more money, as a percent of revenue, on information technology than any other industry.

The banking industry devotes 6.6% of its revenues to technology- significantly more than the transportation industry (4.7%) or retail merchants (less than 1%). The average of all industries is 3%.

Why are banks spending so much, and what can be done to reduce costs? The answers may lie as close as the top of your desk.

The personal computer is a cash-eating machine that costs most banks big dollars each time it is turned it on. Computer hardware may be relatively cheap, but the total cost of ownership for all the microcomputers scattered across the industry is anything but.

Gartner Group has published reports putting the ownership cost per PC at $14,000 per year. This figure is composed of a variety of expense items, including software, training, and technical support.

Since personal computers are key gateways to business-critical applications, the challenge confronting financial institutions is how to use desktop computing power more effectively.

There are several ways. One is to make use of network computers.

Network computers, also known as NCs or Net PCs, can provide the best of two worlds-low cost of ownership and the ability to run most applications that currently run on PCs.

In its simplest form, an NC does not store any data or applications. It is a simple device that, like the dumb terminals of old, relies on remote "host" systems for much of its computing power.

When a user logs on to a NC, relevant applications are downloaded from a server. There is nothing to configure and no software to maintain on the NC. If the machine fails it can be replaced in a matter of minutes, unlike a PC, which needs to be loaded with appropriate software.

A second way to reduce the cost of PC ownership is to adapt some NC concepts to the PC. A variety of new technologies allow for this.

Imagine being able to run a Windows branch automation application on one of your old 386 computers. It's possible with technology such as Winframe from Citrix Systems. Such systems do not run on the desktop. Rather they use the PC as an access device for a software application running on a server.

Users still get the familiar Microsoft Windows operating system look and have benefits of "point and click" navigation. But the costs of the computers are much lower.

There are some downsides to these approaches. Network computing requires more bandwidth from a bank's networks. But banks can lower connectivity costs using the Internet.

The explosion of the Internet as a business tool happened in part because of the way computers now talk to each other. Transmission Control Protocol over Internet Protocol (TCP/IP) is a universal translator that enables a bank to move data faster and more cheaply than ever before. Using TCP/IP, computing devices take turns communicating with each other so that no one device ties up network lines.

Under this model, only one data line is required between the main office and the branch. This provides significant savings opportunities.

With new prioritization schemes, it also is becoming feasible to run voice and video over that same line.

First Federal Bank in Denver-a $1.5 billion-asset bank with 26 branches- needed to implement platform automation systems in each branch while consolidating legacy traffic on its local area network.

Using the new TCP/IP protocol, First Federal increased its productivity while keeping costs low. Bob Easterly, senior vice president of operations and administration said, "We were able to move forward in technology while keeping our consumer loan legacy systems active." He added that the move saved $500,000.

For many banks there are good reasons why technology spending is high. Banks move more data around than the average industry, and the technology to support this can be expensive.

But banks like First Federal demonstrate how new tools can help financial institutions build better systems for tomorrow on today's infrastructure.

If the industry is to find the funds to revolutionize the way it interacts with customers and delivers products and services, reducing the cost of desktop computing will be essential.

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