Vendor Contract Basics to Sidestep “Doctor No” This Budget Season

Posted by Dean Archer on Sep 20, 2018 10:00:00 AM

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Most financial institutions are moving into the heart of budget season, which offers a great opportunity to take a step back and assess business priorities. In many cases, however, budget planning also carries a heavy dose of frustration. As I came to call it over my years in the industry, Doctor No takes up residence in the office – putting the kibosh on a variety of worthwhile and aspirational projects.

Department heads realize that no budget will have room to fund every project, and good managers find ways to free up enough dollars to pursue a select group of long-term initiatives alongside the “keep the lights on” necessities. Nonetheless, by the time the process is complete, it inevitably seems like the belt-tightening has squeezed out too many of the promising ideas.    

The “Easy” Cuts Merely Postpone the Pain

When the time comes to sharpen the pencil, it’s usually the soft costs that wind up on the chopping block. Training programs, technology investments, marketing dollars and community giving are particularly susceptible to cuts. Quantifying an ROI for such items can be difficult, but a more telling common thread across these categories is that their removal rarely causes immediate pain.

Don’t mistake delayed cost for a free ride, however; decisions tailored solely for the near term will inevitably come back to haunt your institution later. Failing to enhance the skill set of your workforce, allowing that technology upgrade to slide for another year, or not reinforcing your bank or credit union’s brand image in a competitive marketplace, all carry consequences down the road.

Another danger in deferring these projects is the rationale that the financial institution simply needs to weather a single year of austerity before green-lighting such investments. Realistically, how often does a pot of new money magically appear in a budget cycle sufficient to accommodate more than run rate items and basic salary increases? Besides, new funding isn’t assigned on a first-come, first-served basis; if investment dollars become available next year, another shiny new object will likely have emerged to stake its claim.

Getting To Yes                                                

So what’s the best way to prevent Doctor No from rearing his head in the first place? One trick is to tackle the run rate costs that are often considered a non-negotiable part of the expense base. Imagine what you could do with $1 million of “found money” over three years. That much-needed member services FTE could finally be approved. Long-overdue capital expenditures could speed the transition of branches into the modern era and/or shore up an aging technological backbone. Perhaps most importantly, that $50,000 request from the Boys and Girls Clubs with clear community benefit need not go unrequited.

 It’s not at all uncommon for SRM to deliver $1 million of savings over three years to a $1 billion asset financial institution by optimizing existing vendor contracts, freeing up much needed funds to pursue critical projects – whether geared toward doing good for your community or doing well for your organization and its employees. Hopefully such realized savings can help to accomplish all three.

For more SRM prescriptions to discuss with “Dr. No” with this budget season, consider these 5 Questions to ask this budget season.

Topics: Vendors & Contracts

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