Case Study - Retail Bank IT Infrastructure

Client Situation

Our client. a major Australian bank, had underinvested in technology infrastructure over a period in which business and technological complexity expanded dramatically. This resulted in a complex, fragmented legacy IT infrastructure with poor functionality.

A banking infrastructure project was initiated to develop a comprehensive strategy to transform the IT infrastructure from a complex and high cost constraint to a simpler, lower cost enabler of future business.

This had been tried in the past but had never progressed due to lack of a clear economic case and required business support.

Approach

The Banking Infrastructure replacement program was a major initiative which was divided into three workstreams (IT Economics, Business Model, IT Architecture).

Pacific Strategy Partners delivered the IT Economics workstream and worked closely with another external firm which delivered the business model and IT Architecture workstreams.

Solution Development

The key steps in the solution development were:

1. Identify platform upgrade options
2. Define target banking infrastructure model in the context of the overall enterprise model
3. Defined alternative migration paths
4. Quantify cost benefit profile by migration path including impact of key business and technology events
5. Socialise and agree preferred migration path

Economic Analysis

The team developed a comprehensive economic analysis to support the infrastructure replacement decision. The economic analysis included:

• Activity level projection of business volumes for key cost / revenue drivers
• IT cost breakdown for the current state and projected 'do nothing' approach
• Calculated business and IT benefits (cost and revenue) linked to delivery of specific IT capabilities
• Financial analysis of migration path options based on implementation cost profile, timing of capabilities delivered and benefits of each capability.

Design Analysis

After the first phase had obtained in principle approval for the $1b infrastructure investment, the second phase began more detailed analysis of the design. The key steps in this phase were:

1. Undertake workshops with stream leads (5 streams in total) to develop cost profile over 10 years for each - various iterations to refine cost profile and categories
2. Develop economics model to map various roadmap scenarios and their implication on:
   • Cost categories
   • Accounting implication e.g. Capex / Opex
   • Ongoing cost implications of the project for operational technology spend
   • Business change costs
   • Resource Requirements
   • Benefits
3. Quantify cost benefit profile for 2 key streams
4. Socialise and agree roadmap costs and benefits

Investment Portfolio Review

From the comprehensive review of the technology investment portfolio, key findings included:

• Overall project costs of over $1.0B over 5 years is required to deliver the new infrastructure, and is anticipated to generate over $1.0B of annual benefits by FY18, with a payback of approximately 5 years
• An aggressive scenario (all stream starting at the same time) had resource requirements above historical limits which needed to be managed by the mix between internal and external resources. It also had operational IT cost peaks that need to be managed by financial engineering to keep cost under historical targets.
• A scenario could be developed that mitigated the cost and business impacts with a combination of structural and financial adjustments

Impact

The client received approval for a major technology platform refresh and replacement of legacy core banking systems. Key findings from the technology investment portfolio review were endorsed by the respective stakeholders and were submitted to ExCo and the board for funding approval, which was subsequently given.  The team also achieved alignment between Technology and the relevant business units and succeeded in establishing business commitment to the program.

Read more about IT Infrastrucure: Featured Thinking: IT Economics - Getting Large IT Projects Funded

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