Evaluating ALM Models
Even though the process of purchasing an ALM model for your institution is a major undertaking, doing your due diligence in several key areas can speed up the process, help you make the right decision, and ensure you spend your precious budget dollars wisely. First, you should look at the most common costs associated with any ALM model, such as:
- UP-FRONT COSTS: Up-front costs are typically any cost your institution will incur to get the software functioning. Costs include initial software that needs to be downloaded or installed or mapping of your data files into the model. These costs may also include processor costs to create a specific file you need to download into your model. Your processor may have a file format already created or you may be charged for a custom download of data. Up-front costs for ALM models can range from $500 to tens of thousands of dollars.
- TRAINING COSTS: There are really only two different options to consider here. Do you pay for initial training or is it included in the model costs? Some vendors charge their clients at least $350 for initial training. This amount may seem low until you factor in travel costs and the lost productivity of your employees attending training.
A second level of training is customer service. Does the ALM model provider deliver timely responses to questions? Is there on-going training provided, not only on the model or general ALM topics, but other topics as well? Look for models that can help you above and beyond ALM.
- ON-GOING MAINTENANCE: On-going maintenance costs can be broken down into two different categories: model maintenance and model update costs. Model maintenance is the cost an institution pays to keep the model running month after month. Model update costs are only assessed when the model is updated and your organization needs to purchase another version of the software.
An additional point to consider is how flexible an ALM model is relative to updates. Can the model be updated for new regulations without a major disruption to your organization?
SS&C's PALMS is an Internet-based solution, with updates included in the monthly or quarterly fee. Higher monthly fees do not necessarily mean one ALM model is more expensive than a competitor's solution. When you consider the other costs involved in running a model, a higher monthly fee may be cheaper.
- EMPLOYEE COSTS: One factor that many institutions rarely consider is the incredible amount of time some vendors' models take to generate. Employees spend considerable time sending data files, updating the model, and distributing the reports to ALCO members. In addition, IT time is used installing new releases. The time from data file to reports should be short to save the most in employee costs. One solution on the market actually needs a dedicated person to run the model. For smaller to mid-sized institutions, that person could run over $30,000 annually and, with the special skills required, may be difficult to find. Model maintenance for the PALMS model takes less than 15 minutes to update. In addition, reports can be emailed to committee members and the model is automatically updated using the Internet. When looking at models, be sure to investigate the exact amount of time employees will routinely need to work with the model. Obtaining references from other users is key.
Changing ALM models can be a complex decision. Understanding the different costs involved in any model can help your institution find a model that fits your needs and your budget. Technology has dramatically changed the way business is done in financial institutions. Newer ALM models, like SS&C's PALMS, are Internet-driven models that can provide you with lower costs, greater efficiency, ease of use and additional functionality.