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Justifying New IT Efforts

In the aftermath of 9/11, many financial firms discovered and sought to remedy serious problems with their IT infrastructure. Some dispensed with the conventional wisdom of slow and deliberate shopping in favor of a quick build-vs.-buy analysis to implement a solution quickly.

But when Accredited Home Lenders, a San Diego-based firm that services loans sold by mortgage brokers, sought to automate the heart of its business in 2003, it conducted a rigorous cost justification for the solution, and decided on WebLogic. "We have a standard formal approval cycle," explains Mike McCoy, enterprise architecture director for the firm, which manages a loan portfolio of nearly $6 billion.

Significantly, when Accredited decided to adopt BEA's WebLogic as the integration, portal, development, and deployment environment for its new loan gateway system, it accounted for the cost of retraining internal staff from Visual Basic and SQL Server to J2EE and Oracle. However, because Accredited's software developers already had been experimenting with .NET, the transition cost was relatively nominal. "We used .NET as our boot camp," McCoy says.

At Accredited, the case for the new loan gateway was to speed approvals for mortgage applications submitted by independent brokers.

Accredited accounted for factors such as the upfront costs of purchasing new software and hardware, implementation, and estimates for ongoing maintenance--and balanced them against the expectation of an increase in sales productivity. The company also assumed that certain costs, such as supporting a new security infrastructure, were required by all enterprise systems, and therefore were not factored into the ROI of the loan gateway project. The costs of retraining Microsoft developers on J2EE proved minor. In addition, by bringing in a third-party solution provider, Wellfound Decade, Accredited's team was mentored in service-oriented architecture design principles.

However, Accredited incurred some marginal costs because it was one of the first in its field to embrace Web services for the core of its business. The strategy, McCoy says, was to stay as close to standards as possible. "With Microsoft, BEA, and IBM all on the same page, we knew that standards were on the agenda," he explains. However, some areas, such as specifications for security or schemas for loans sold to the secondary market, remained moving targets. According to McCoy, that required isolating parts of the code where standards were not yet mature so the code could be updated without disrupting the system. Nonetheless, the costs of those activities were not factored apart from implementation or maintenance.

With the system in production and gradually enhanced since early 2004, Accredited gained benefits rapidly, realizing the first fruits of the project within three months. "We implemented improvements that were pretty meaningful quite rapidly," McCoy says, giving as an example the elimination of most loan status calls. "The value of the business call goes up. If you can get that information out quickly, our clients are not asking calls about status, they're calling the next person to make deals."

About the Author

Tony Baer is principal with onStrategies, a New York-based consulting firm, and editor of Computer Finance, a monthly journal on IT economics. He can be reached via e-mail at tbaer@tbaer.com.

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