By Gerard Heinz

For every new technology implementation success story, there are dozens of horror stories from lenders that were not as lucky. Many executives end up relying on luck when choosing a lending platform because they often misuse the tools that are intended to make the purchasing decision a sound one. Instead of a thoughtful exercise in discovery, too many new lender/vendor partnerships are predicated on a dangerous game of Truth or Dare; the Lender asks for the truth and the vendor dares them to take it on faith.

If purchasing executives learn to handle the Request for Proposal process correctly, and understand what information to seek out in the returned documents, they can avoid costly mistakes and ensure the success of their technology initiatives. A careful examination of the information provided on a typical RFP will allow lenders to be more effective in choosing a suitable technology provider.

This article will provide insight into the effective design of an RFP. Later, we will discuss response review and due diligence.

The Gateway Document
Every lender is familiar with the RFP process. While it may appear to be a game played by buyers and sellers, it is actually an opportunity to set the tone and ground rules for a potential partnership. It is often the lender's first chance to directly engage potential vendors and to determine the best possible fit for their specific needs. Not taking this initial step seriously leads to the game of Truth or Dare.

The process begins with the careful construction of a thorough RFP, followed by a comprehensive review of the responses and then due diligence on the company and their responses. Executives must begin to think of the purchasing decision as an exercise in risk mitigation as well as a new technology initiative.

While there are many issues that must be addressed on the RFP, the answers to some questions are more valuable than others. The most valuable responses are those that allow the lender to most accurately predict how well the suggested technology solution will meet the specific needs of the enterprise. That, of course, suggests that the executive needs to have a good understanding of the company's goals for the new initiative.

An examination of the company's internal operations will be helpful in uncovering the functional and operational requirements of the proposed new system and what pain points they are experiencing with their current technology. Knowing how the company expects to use the new functionality and exactly what the executive hopes it will allow the firm to accomplish is very important. Existing processes and workflows, while important to note as they may involve legacy systems that must be integrated into the new platform, are not as important in the evaluation of a new technology.

Too often, lenders expect new systems to mirror existing processes. This can limit the firm's ability to effectively leverage new technologies and lock the company into outdated and inefficient workflows. This can be avoided with in-depth analysis of operational and financial objectives as a whole and on a departmental basis. This analysis should first be done holistically and then filtered through the individual departments separately for comments and additions.

Interdisciplinary teams made up of representatives from the user and IT communities can explore requirements and expected benefits without placing limitations on how the new technology can achieve them. By starting internally, the lender can create a wish list of functionalities and benefits that can be built into the RFP questions. This is more effective than determining needs based upon the promises of available products.

The lender is in a much better position to ask pointed questions regarding system architecture and functionality after this internal survey has been completed. The more detailed and specific the questions, the more value the answers will bring to the decision-making process.

The scrutinizing of market offerings should only begin after the executive gains a thorough understanding of the company's needs and future goals. Once the internal requirements have been ascertained, the Lender can begin seeking out systems and vendors that promise to meet those requirements. During this market research phase and after the baseline of internal requirements has been established, lenders can step outside of the paradigm in which they've been operating and structure the sort of probing, forward-looking questions necessary for a successful RFP.

Building a Better RFP
By crafting a targeted and relevant RFP, the lender is doing a great deal to ensure that the information returned will likewise be targeted and relevant. This goes a long way toward eliminating those vague and general responses that only lead to more time-consuming due diligence and follow-up questions.

A good RFP will typically start with an introduction that describes the lender's existing environment and its current problems in detail. The vendor should be given the information necessary to craft a proposal tailored to those needs and problems. The more information given to the vendor about lender pain points, needs and overall objectives, the more the vendor has to work with to describe and then demonstrate exactly why their system should be purchased.

This introduction should also highlight any future company plans, i.e., new distribution channels, expansion of product set, or changes to the IT environment. This will give the vendor an idea as to how the company expects the solution to scale in the future.

The RFP should thoroughly and accurately describe what the lender is seeking. Yes or No questions can be a component of this, i.e., Does the system use a SQL database? However, questions should generally be structured to require the vendor to describe how a particular task or functionality is achieved.

As some vendors have different iterations of their offerings in the market at the same time, lenders should be clear on which solution they are targeting or make the vendor specify which solution they are pitching. If there are specific functions provided by the lender's legacy system that must also be provided in a new platform, these operations should be clearly described. Questions should be written to determine exactly how the new system will provide the same or better functionality and not just to determine whether the vendor says it is available.

The majority of technology vendors, especially their front-line sales executives, seem to believe that their systems can achieve nearly anything, given enough time, customization, enhancement, and resources. A good RFP will always seek to find out exactly how the vendors will meet the lender's needs in the timeframe that the lender expects. Once the buyer is armed with specific affirmative responses to its questions, a targeted demo can be used to determine that performance actually matches the vendor's claims.

Start With The Right Questions
Vendors spend a lot of time and resources on the sales process. It is in their best interest to seek out those firms that can benefit from their offerings and quickly bypass those they cannot serve. No vendor wants to spend a lot of time and money trying to sell a system that will never meet the needs of the lender. They certainly don't want to be embarrassed during a demo when they can't prove their responses to the RFP were accurate.

Making sure that the lender's RFP questions are highly specific, targeted to the present and future requirements of the company, and open ended is the best way to begin the technology buying process. It's the surest way to get to and validate the truth in the future.

A good RFP will reduce the field of potential vendor partners, easing the due diligence burden. Those vendors that remain in play will all hope to take up significant lender time presenting their demos. To further reduce the field, careful analysis of the responses is required.

Part two of this two-part article will provide an outline of questions and highlight some key focus areas for lenders. It will also provide insight on how to scrutinize responses, so that vendors won't dare to embellish responses.

Gerard Heinz is COO at Mortgage Cadence. The Denver-based vendor can be found on the Web at http://www.mortgagecadence.com.