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4 MIN READ
INVESTMENT OPERATIONS

Budget Season: How to Think About Your Investments in Technology

Budget Season: How to Think About Your Investments in Technology

INVESTMENT OPERATIONS

We have reached that time of year again: budget season. For investment managers of all types and sizes, budget planning is an opportunity to take stock of your key tools and vendor partnerships, makes sure you are allocating the right resources for technology in the year ahead, and look closely at what kind of return you get on your technology investments. 

Evaluating the Clearwater Solution 

Over the past three years, Clearwater’s technology and services offering has replaced 50+ legacy solutions. While our clients currently enjoy the advantages of faster recon, reduced errors, better client reporting, and easier-to-use tools for their client billing and composites, each evaluation process involved mutual due diligence and careful consideration of costs and benefits.

When replacing a legacy solution, firms often focus on matching existing functionality, and incrementally adding new improvements. The reason for this simple evaluation is that both the seller and the buyer can, ostensibly, validate the investment. 

However, the problem with this line of thinking is that it makes the status quo assumption that operations is always a cost center. 

For instance, should the value of new improvements really drive the decision to implement a new enterprise solution? Most large purchases are made this way, whether it’s a new car, new house, or even a new phone. The question I encourage you to ask is: “Do these superficial improvements fundamentally change the value I get from my operational approach?”

That is, will a new investment increase client satisfaction, decrease time spent on reconciliation, fundamentally improve client reporting? For investment managers, these are the desired outcomes — but they are challenging to quantify. Add to that the variety of software types available today — SaaS vs. legacy installed vs. cloud — and building an apples-to-apples comparison is even more challenging.

Total Cost of Ownership

To help our clients through this evaluation, we recommend starting with Total Cost of Ownership (TCO).

In its simplest form, TCO looks like this:

Total Cost of Ownership

This calculation is helpful, particularly when weighing a decision to move to the cloud/SaaS, where version migration, onsite IT support, seat licenses, and other characteristics of install software are non-factors.

However, TCO ignores the most crucial outcome — long-term return on investment (ROI). Combining TCO and ROI is not as complicated as you might think. It focuses less on the preservation of functionality and efficiency, and more on the value attached to unfettered growth and scale.

Total Cost of Ownership + Return on Investment

Calculating ROI

ROI is often seen as a “soft dollar” consideration; however, I would argue that it is very much a “hard dollar” factor. For example: what is the value of retaining highly skilled employees? What about avoiding costs around vendor-deployed upgrades and integrations? Or the value in being able to win new pools of assets that utilize private capital or other instruments that aren’t necessarily your bailiwick (pardon my Irish), but key to winning the mandate? These are crucial considerations.  

Continuous Improvement

Finally, I encourage you to ask: “What is the vendor’s plan for improving the solution.” That is, do they plan to do more than maintain their system? And, are the costs associated with those continuous improvements in line with your TCO/ROI analysis above?  

Clearwater Analytics: An Appreciating Asset

At Clearwater, we can confidently claim that our solution is an “appreciating asset.” Our single instance, multi-tenant SaaS solution is constantly improved via ongoing software development updates, new product releases, and the refining network effect of our broad community of users.

Some recent improvements include a solution for private capital; a follow-the-sun reconciliation and servicing model; and myriad applications of Robotic Process Automation (RPA), Machine Learning, and other logic-based tools to ease our clients’ workflows. These are just a few ways in which we add ROI to our clients, often at no additional charge or investment.  

So — how is budget season going for you? Would you like to talk more about your TCO/ROI evaluation, and how Clearwater might tip your scales into the black? Please don’t hesitate to contact me at astrekel@clearwateranalytics.com.

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