How One CFO Cut His ERP Costs by 35 Percent

Did a Kansas bank discover a new "gold" standard for application hosting?
Jennifer CaplanJuly 11, 2001

Not all CFO job descriptions include managing and overseeing a software overhaul. But that is just what Rick Tremblay, CFO of Gold Banc, a Leawood, Kan.-based commercial banking company, is doing.

By September, Gold Banc will have finished the first stage of replacing its legacy financial applications with SAP’s mySAP Financials.

The general ledger, accounts payable, fixed assets, and accounts receivable modules are scheduled to go live in the September rollout. After that, the $2.7 billion- asset banking company will install a banking-specific profitability module and an asset and liability module (ALM) by December. In 2002, Gold Banc also plans to roll out SAP’s human resources and payroll applications.

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But why is Gold Banc replacing applications it’s had for years with new ones to be managed by an external party?

“We have traditionally been getting multiple feeds from different systems, including general ledger, loan, and deposit systems, and making sure that it all balances up,” says Tremblay. But that process is manual and error prone. It was only a matter of time before the company sought a replacement.

“With SAP, we’ll have one common database, so when I’m ready to close out the reports, they’re going to balance because I’ll be pulling information from one common system,” Tremblay explains.

SAP’s profitability application will allow financial managers to determine the profitability of individual lines of business, customers, and products. “We would like to know, for example, what percentage of profits are generated by commercial banking, by the bank card department, by product, and by branch when the books are closed at the end of the month,” says Tremblay.

In addition, Gold Banc is currently beta testing SAP’s new ALM, and it will be the module’s first licensee when it is introduced late this year or early next year.

“The ALM will help us manage our assets and liabilities. We have to be able to very carefully balance the flow of deposits with loans so that we don’t end up with a mismatch,” he says.

“Once we have the ALM, we’ll have one complete system, close out the books at month end, and generate profitability and asset and liability models from one database,” Tremblay says.

Gold Banc will access the SAP applications via Sun Microsystems servers hosted by Electronic Data Systems Corp. (EDS) at a Dallas data center.

Icons on employees’ PC desktops will link them to Gold Banc’s server in Kansas City, which is connected via a phone line to EDS.

The decision to host the applications was a no- brainer, says Tremblay, who maintains it was the best option, given the prohibitive costs of purchasing the hardware and hiring the programmers to manage the applications internally. Still he would not quantify the actual cost of his firm’s contract with SAP.

“It was not a hard decision to make,” he comments. “It was just a matter of figuring out the cost of the alternative. I felt it was probably 35 percent cheaper to host than to buy the hardware and hire all the necessary staff.”

Tom Melchiore, vice president for SAP Hosting, tells that customers pay an initial per-user fee for software licenses plus a monthly hosting fee of $100 to $400 per user. The final price depends on the total number of users and customers’ configurations. The more users, the lower the fee per user.

Melchiore says, “The customer can pick and choose the pieces of functionality they would like to implement for each application, and that has some effect on the monthly fee.”

Gold Banc purchased 200 licenses total with access to mySAP Financials and the bank specific profitability and ALM modules. Not all 200 employees, however, will have access to the same level of functionality, says Tremblay. “We’ve got 25 high-end users, mostly in finance and accounting, and 175 low-end users that will be inputting budgets, purchasing requisitions, and personnel requisitions.”

Tremblay is confident that Gold Banc will see a return on investment in less than one year. “Most companies like to see a return on investment in approximately two years, but I expect that SAP will deliver a payback in less than one,” he says.

The Web-based nature of SAP’s applications will cut paper costs. Improved float management of accounts payable will also help the banking company save money.

The SAP system will also allow Gold Banc to reduce staff, Tremblay says. “We have accounts payable in 41 different locations. SAP will allow us to consolidate all that to one local function.”

In addition, Tremblay contends the profitability module will help pinpoint the lines of business, products, and customers that are not contributing to the bottom line, and allow his company to either invest more staff and money in its more profitable business segments and cut back on areas that aren’t producing an adequate return.

“The savings can be tremendous from that standpoint,” says Tremblay.

Gold Banc is hardly the first company to use an application hoster, and given the current drive to slash information technology budgets, it won’t be the last. For CFOs whose companies may be about to sign up with a hoster, Tremblay has pointers they should follow.

“Make sure you size your hardware needs appropriately,” Tremblay cautions. Part of the contract negotiation with SAP and the hosting partner is determining the cost of the hardware that will be necessary to host applications. “The price you pay is contingent on your hardware needs and how much hardware space you will require,” he comments. “Be sure you have a good idea of how many daily transactions you will need to process, how much history you will need to maintain, and how your needs may evolve in the future.”

Tremblay also suggests that CFOs actively participate in marketing the new system to senior management and the board of directors. “As CFO, I am ultimately the end user,” says Tremblay. “I am the one that has to make sure that the applications produce the results I require.”

But he cautions, “Do your due diligence to make sure you understand the pluses and minuses yourself before you try to sell the concept to others.”

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