This piece originally appeared in the November 2022 edition of MReport magazine, online now.
The statements in this article are solely the opinions of George Reichert and do not necessarily reflect the views of Enact or its management.
Worldwide information technology (IT) spend is expected to grow to $4.4 trillion this year, according to a 2022 report from Gartner, Inc. At the same time, many companies are looking for ways to effectively manage IT costs.
The prioritization of tech spend, in general, is a challenge for any company. IT teams have such a wide array of competing priorities that it can feel close to impossible to manage priorities effectively.
These priorities include, but are not limited to, availability and performance management, expense management, run-the-shop initiatives, small and medium projects, security initiatives, upgrades from legacy tech to newer, more innovative technologies, and, of course, strategic priorities.
Taking into consideration that many companies are trying to do more with less, prioritization has never been more important—or more difficult.
Prioritizing tech spend can be especially challenging for mortgage lenders, as the market is cyclical and business needs are shifting all the time. Especially now, as lending has slowed and costs have increased, how can lenders maintain the best level of IT service, integrate effectively with their partners, and innovate while also managing expenses?
IT Focus Areas
To know how to prioritize your tech spend, you need a clear picture of your current expenses. Most IT expenses fit under one of five categories:
Think of this as the basic services for your IT department. Systems must be available, reliable, and perform effectively so that you can do business. The cost of IT resources, software, hardware, and maintenance continue to increase, but the need for these basic services never goes away.
Many lenders and servicers are still using legacy technology in their daily processes and are working to modernize their technology stack to stay competitive in today’s market. Modernizing your technology stack is imperative in order to remain compliant, agile, and innovative. Living in both a legacy world and a modern technology world add additional costs as these technologies require vastly different skillsets. Your agility can be affected, and even smaller projects are often impacted, as technology complexity elongates timelines. While these projects may seem optional, the reality is many of them are critical to the organization’s success and its ability to work efficiently.
Maintaining a strong cybersecurity prowess continues to become more important and requirements are more expansive. Scams and fraud attempts are more sophisticated—and maintaining that prowess is becoming more difficult. Regulations and agreements from third parties can further raise the bar of security requirements, even beyond what the company identifies as appropriate.
Strategic projects focus on new technologies or processes that help grow or diversify the business. These projects can come with heavy price tags, but they are necessary to propel the business forward and increase its profitability.
At the same time, companies still need to find ways to provide innovative and differentiating products and services. Technology innovation is critical to a business’s success and cannot be excluded from your IT prioritization.
With so many different business-critical functions to juggle, it can be difficult to determine where more resources should be dedicated and where expenses can be optimized. Not to mention, costs for hardware and software are steadily rising and supply-chain challenges have created lead-times for technology deliveries previously unheard of—some as long as a year. To top it all off, we are in a competitive job market where good skills are scarce and often lead to higher employee and contractor costs.
The Wall Street Journal reported in April that wage inflation is pressuring some companies to increase compensation for key roles by 20% or more as they try to secure talent.
With today’s considerable expense pressures, companies must ask themselves: how do we manage expenses without sacrificing any business-critical functions?
Companies must ask themselves, first, what is the appropriate level of service for both internal and external customers. Then, what are the areas of service where we can scale back and save?
When finding the answers to these questions, it’s important to know where you can save and where you can’t. Some costs are fixed, like vendor contracts, hardware depreciation, and the amortization of capitalized projects, etc. However, there are areas you can control to keep your IT spend in check while still providing the appropriate level of IT service and innovation.
There may be service levels you provide that can be scaled back. For example, an after-hours help desk can be scaled down to business hours. You also can cut down on the number of projects you work on at a time or scale back on project requirements and focus on the most critical initiatives.
Priorities will be different for every business, so you must understand your company’s strategy and priorities.
Offshoring also helps keep costs down while maintaining a similar level of service. Not every organization will be open to this, but it’s worth exploring when trying to extend your tech budget. Some companies have a “do as I say and not as I do” approach when it comes to outsourcing. They offshore resources but don’t always permit their third parties to do the same. Consider working with your partners to see if there are ways to satisfy their security concerns while also reducing your costs.
Accelerating your digital transformation also can help cut costs in the long-term. While it is a large investment upfront, modernizing mainframe and/or legacy systems also reduces costs and complexity that in today’s technology age are unnecessary.
Another approach to cost-cutting is zero-based budgeting.
Zero-based budgeting essentially forces organizations to justify all expenses for each new budgeting cycle. No expense is automatically approved for next year’s budget.
It’s a time-consuming process, but it makes organizations look at every line item in their budget and decide what stays and what goes.
Looking Forward and Thinking Critically
The bottom line is IT costs are not decreasing. However, even during the “good times,” it’s important to understand how to be flexible and make the most of your IT spend. Also increased automation, which often leads to increased IT costs, must be offset by reduced overall operating costs.
Especially now, as the mortgage market experiences challenges, it’s time to take a closer look at how you can be the most effective with the budget you have.