Tech Flex

Illustration: Getty Images / Gary Waters

Illustration: Getty Images / Gary Waters

Elastic and nimble budgeting for technology

By Cheryl Winokur Munk

At some community banks, budgeting for technology has become a more important focus over the past several years. But how to find the extra money within tight tech budgets is more of an art than a science.

While many community banks are adept at budgeting for anticipated technology initiatives such as the move toward digital banking, they can be reticent to spend extra money when unforeseen projects come up during the year, some consultants say. Many organizations have the mentality that if funding hasn’t been reserved for a project during their annual planning and budgeting, they should put off the project until particular money is earmarked—even if the project would considerably benefit customers.

Such thinking can be short-sighted, says Jeff Voss, a founder and managing member of Artisan Advisors LLC, a management consulting firm in Barrington, Ill. “Banks should be opportunistic in what they are doing,” Voss advises. “If the project is something that can make a bank more profitable in the short term or long term, the bank should make the purchase, whether it was budgeted for or not.

“Community banks need to be nimble enough to change from their plan when they need to. Don’t just say, ‘This is our plan and we can’t change.’”

Flexible anticipation

State Bank and Trust Co. in Atlanta is one community bank that tries to be more agile with its technology spending. “If the bank decides in January to pursue a new line of business or implement a new product or service, you could miss a window of significant opportunity if you want to wait a year for the funding,” says David W. Cline, the $3.4 billion-asset community bank’s executive vice president and chief marketing officer.

When State Bank makes a budget in September to reflect its expected plans for the year, it takes into account its current run rate, what projects are ongoing and any anticipated initiatives. For the coming year, for instance, one focus is to build out its business intelligence platform to give employees more advanced reporting and quantitative analysis tools.

Nonetheless, the bank’s management tries to be flexible when things come up that haven’t been budgeted for. This could include new customer-centric technology that becomes available, advances in cyberdefense or new tools needed to address regulatory requirements. New business initiatives that aren’t budgeted for have to go through a risk assessment process. Executive officers of the bank set a direction based on a variety of factors, including whether the bank has resources available and capital to commit whether it has to stop doing something else as a result.

“It’s all about prioritization,” Cline says. “It’s about spending your money wisely and managing change effectively.”

Over the past two years, Community Trust Bank in Ruston, La., shifted focus in its budget—which the bank calls a financial plan—because it wanted to invest more in technology for future growth. The bank decided to reallocate funds so it could invest more in network infrastructure, hardware and software upgrades. The bank saw the need for several reasons: risk management, innovation for future growth and to meet regulatory compliance needs.

“It’s all about prioritization. It’s about spending your money wisely and managing change effectively.”
—David W. Cline, State Bank and Trust Co.

“We’re still on track with our overall financial plan, even though our executive team has a flexible mindset when it comes to spending on strategic initiatives. We’ve just shifted resources into technology, knowing we’ll see greater returns on the investment in the future,” says Traci James Canterbury, a senior vice president at the $3.8 billion-asset community bank.

Deliberate deviations

Relyance Bank, a $560 million-asset community bank in Pine Bluff, Ark., also is willing to deviate from its budget and spend more on technology under the right circumstances. Although it tends to stick close to its budget, there are times when unexpected costs—like replacing servers or acquiring new technology to implement regulatory requirements—do come up and the bank asks its board to approve additional funds.

“Not being a public bank, we don’t have quarters that we have to hit. Our board understands that there are times when unexpected technology costs are going to occur,” says Chuck Morgan, the bank’s president and chief executive officer.

Typically, though, when Relyance Bank is considering a new technology initiative, the bank has a chance to budget for it the following year, given all the time it takes to do a thorough analysis. “If it’s a piece of technology that you really need that’s going to pay dividends for your bank, you’ve got time to plan for the cost and the implementation,” Morgan says.

The best-run community banks are those that closely monitor their budget progress toward their actual spending throughout the year and are able to switch gears as needed. This is particularly important when it comes to monitoring a bank’s IT spending, says Bob Roth, managing director, at Cornerstone Advisers of Scottsdale, Ariz.

If a community bank sets aside $1 million for new projects and six months into the year it knows only half of the money has been spent, it has more wiggle room. If, for example, the bank isn’t doing well, management can make intelligent decisions about whether to spend the rest of the money set aside for technology or put it toward other areas of the bank, Roth explains.

Whenever possible, it’s best to spend at least what you’ve allocated for technology, or you risk putting your bank at a competitive disadvantage, Roth adds. “If your peer is sticking to a plan and you keep backtracking on technology because you’re not hitting your targets, that’s where you start having problems.”

Cheryl Winokur Munk is a financial writer in Maryland.