Australian technology analyst firms have indicated they are not concerned by the Commonwealth Bank’s unexpected revelation last week that it would pour a further $370 million into its core banking modernisation project, bringing the total investment in what has become one of Australia’s largest ever IT overhauls to $1.1 billion.
One week ago on the occasion of the release of its half-year financial results, the Commonwealth Bank announced it would increase by $370 million the spending on its core banking modernisation. The actual investment was thus brought up to about $1.1 billion, an amount which is almost twice as high the original planned spending of $580 million.
In its results briefing pack, CommBank stated core banking modernisation was the group’s largest single investment and was past the halfway stage, having achieved the successful migration of all retail transaction and savings account to the new system, based on SAP software and implemented with the assistance of IT services group Accenture.
The project is led by executive general manager, core banking, Dave Curran, reporting to the bank’s group executive of enterprise services and chief information officer, Michael Harte — but the CBA has declined to make either available to comment on the increased budget for the project.
Ovum’s principal analyst of financial services technology Daniel Mayo said the investment has increased as the scope of the project became wider — but would actually save money for the CBA in the long term.
“While clearly a significant amount of investment, this does not seem to have been driven by overrun of project costs, but change in scope to support a multi-brand strategy,” he said. “Certainly, the scale and scope of project is one of the largest in terms of bank renewal in a developed market”.
Mayo said the bank had realised the wider potential of its core platform and process optimisation investment as it went through the project. He concluded this investment should produce wider financial benefits in the future of the organisation.
“While the project was initially focused on core systems, it is now a wider business transformation project to optimise the bank’s manufacturing division on both the IT and operations sides,” he said. “The operations side is actually where banks will save most money in long-term and the strategy makes sense”.
Intelligent Business Research Services advisor Jorn Bettin said that although the numbers looked large, they reflected the complexity and the sheer amount of the legacy involved. He also said the investment had to take into account the uncertainty in predicting actual costs for infrastructure replacement.
“The levels of cost and uncertainty (cost and time overruns) are well within the usual range seen in major IT renovation programmes in financial institutions,” he said in a statement. “Costs for replacing hardware and commoditised infrastructure software (operating systems and other off the shelf system management tools) can be estimated with a reasonable degree of certainty”.
Bettin concluded most of the uncertainty relates to the software systems and applications that — he said — constituted the engine of a financial institution.
Last week’s rise is the second time the value of the project has been increased. The project was initiated in April 2008 as a four-year, $580 million initiative to overhaul the bank’s ageing legacy systems with the aid of Accenture and SAP. But in August 2009, CBA tipped another $150 million into its budget to bulk up some sub-systems, as well as extending the platform to subsidiary organisations.
Rival banks such as Westpac, ANZ and NAB have not yet committed to core banking overhaul projects of the same magnitude as the CBA — although NAB has its own modernisation program, it has not yet ramped up to the same extent that the CBA’s has.