The Cost of Core Banking Transformation:  5 Myths Debunked

The Cost of Core Banking Transformation: 5 Myths Debunked

Why is it that when people think about core banking transformation programs an image of “Dr. Evil” comes to mind?

There are varied reports for the cost of core banking transformation – I have personally seen smaller investments as well as significant sums allocated to these projects.  Of course, there are various budget sizes for these programs but the cost drivers and sources of overrun are consistent.

These types of programs struggle to find sponsors because they are typically cross vertical enterprise type initiatives that require significant resources and focus.  This part is true, but several myths exist about these programs that need to be challenged:

  1. Core banking transformation is always a mega-project:  While there have been many large-scale projects, these are the ones that also get more coverage and press (especially when struggling) some of the best core banking projects have not had any significant publicity.  I know of several full transformations where the spend and the schedule were maintained within the low double-digit millions in USD.  These investments also included full channels and business transformation.  In larger organizations, I have observed programmes run as small phased initiatives where the end results are transformative and impressive but each phase is quite modest and achievable.
  2. These programs always go over budget:  Not always, but unfortunately often enough this is the case.  The reasons for the overruns I believe are quite simple, however, and can be avoided.  Where the greatest overruns occur there is a disconnect between the major stakeholders on the program and a lack of alignment between strategy, business, technology and the project portfolio.  The main source of cost overruns is when these gaps emerge the program is paused but the costs continue to be incurred without any benefit.
  3. The cost of the software is extreme:  In most cases, the software costs are a small fraction of the total cost.  The greatest costs are usually internal costs of allocating staff.  Too often these initiatives become “pile on” projects within the bank where every internal group seeks to assign costs to the cost centre.  Often these internal costs are unwarranted and not needed but are also not scrutinized like hard dollar external costs.  The cost for services can also be overrun if the services partner does not provide adequate expertise or lean teams.
  4. Benefits are impossible to realize:  Where benefits are elusive they were not clearly defined and tracked to in the program.. where they are attained they were a continuous target.  Quite often other benefits are not clearly articulated such as the benefit associated with complexity reduction or modernizing a legacy platform.
  5. These projects are prone to failure:  There certainly have been some high-profile failures and challenges, yet I would suggest that most of these programs were designed to fail by being created as mega-projects and not having clear alignment at the top of the house.

The recipe for success for core banking transformation includes creating a clear and aligned vision for the target state where all stakeholders are clear and on the same page and then defining small achievable projects to reach that end state goal.  Each of those projects can be kept small enough to be managed and maintained as on-time on-budget initiatives.  With this approach, the funds required for core banking transformation doesn’t need to invoke the images of “Dr. Evil”


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