What makes a television show stretch on for years and years? The ratings of course, the ROI of television. Did you know that Seinfeld was almost not renewed for a second season? It did not have substantial ratings—the financial numbers to justify the investment. Luckily there was a studio visionary that saw the intangible of “something promising in the future” and took a risk and continued to invest despite the ratings. As they say the rest is well, yada, yada.
Today’s economic environment has forced companies to make technology investment decisions on the financial numbers with an expectation of return in the first season. How many Seinfelds has your company canceled, or better yet never even premiered? ROI should be a combination of financial data and risk analysis. So what cast of characters need to be engaged to create a technology winning series in today’s ever changing mortgage market? I’ll tell you.
Everyone assumes the “easy part” of the ROI analysis is the financial data. If only it was that simple. Most companies struggle with assessing a specific process and its associated cost. While companies track “operational” expenses there is little data associated to a specific process. How can one really measure savings assuming a technology investment is about a better, faster, less expensive process when the baseline data is not available or inaccurate? In addition there is typically a lack of data around the actual “ business process.” This type of data represents the analysis of cycle times, conversion rates, and the exception process. The first re-write in producing a technology winning series occurs when there is basic information that is not available—one must know the current process and cost in order to make future technology investment decisions.
There are so many pieces to the mortgage process and they’re all so disjointed it’s hard to put a cost on any one process. That all changes in an automated world. It’s easier to associate a cost with an electronic process because you can track that process from start to finish. For example, disclosures in the paper world are delivered via regular mail, priority mail, email, courier, fax, etc., which gives you several different points of origin for that transaction. There also could be several different inputs of data based on the output option. How do you quantify cost there? In an electronic process you know down to the second about when the disclosure package was created, sent, received and signed. That is almost impossible to track in a paper world.
So let’s look at the risk analysis portion of the ROI. What are those intangible risk factors? Compliance. A winning series that addresses compliance before a problem has occurred will be sure to bring in the ratings. In an automated process there is less risk of not meeting certain compliance requirements due to better tracking and audit controls. How do you factor that into your ROI? That’s priceless. Intangibles associated with ROI are equally as important to factor in as part of the overall ROI analysis.
Another example of an intangible ROI factor is the competitive gain achieved by automating. You can capture more business and reinforce the strength of your brand with automation. You become a trusted source for the borrower. All it takes is one class action lawsuit to ruin your brand. Everyone’s fear is to be on the front page of the Wall Street Journal being called predatory. That’s what CEOs lose sleep over night after night.
So, where are lenders in understanding the value of both tangible and intangible ROI? There is certainly more awareness. However, it is harder to articulate the intangible ROI to a board or to investors when trying to justify the technology buy and convince them that part of the ROI is based on potential fallout. But think about it, there is a lot of cost associated with a loan that is not saleable. The future cost of non-compliance has to be a part of the technology buying process, it just does. Too often it’s not in the final analysis in front of the deciding committee. People are talking about it but we’re not seeing it in many RFPs or RFIs.
Lenders need to ask themselves: What future risk is offset by this potential technology purchase? Those facts are out there and they are real but they are not used to make technology decisions. What the mortgage industry needs is to understand the value of technology to drive measurable change.
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