For decades, it was practically chiseled in stone. Smallercredit unions gravitated toward a service bureau (a.k.a.outsourced) data processing model, while larger credit unionsfavored in-house processing. In-house processing carries higherup-front costs and is more labor-intensive over time, so it makessense that institutions that can pay more would be willing to paymore. In exchange for that extra effort and expense, these largercredit unions were able to exercise a level of control over theirdata processing environments that simply wasn't available from aservice bureau.

Fast forward to the last few years, and we see an increasingnumber of larger credit unions migrating to one flavor or anotherof outsourced data processing. They seem willing to give up thecontrol afforded by in-house processing for the benefits, real orperceived, of service bureau processing. When I ask credit union ITexecutives what accounts for this shift in thinking, the threebenefits of outsourcing that I always hear are: Lower complianceburdens, more predictable expenses and fewer staffingrequirements.

The compliance argument seems to make sense at first blush. Moveall that hardware from your data center to your core processor'sdata center and you'll be moving a heavy compliance burden out thedoor, too. But how true is that?

Your core processor is responsible for keeping its software incompliance regardless of where the software is running. Sure,regulations regarding the physical security of your data maychange, and you'll bear responsibility for those regulations, buthow much of your total compliance effort does that reallyrepresent? I'm guessing not much.

It's absolutely true that an outsourced processing model bringsa more stable, predictable monthly expense. When you're runningyour core in-house, you're faced with inevitable periodic expensessuch as server upgrades, storage expansion and the like.

While predictable is one word that can be used todescribe the monthly cost of outsourced data processing,hefty is equally accurate, especially for larger creditunions. Compared to the monthly maintenance costs for in-houseprocessing, a credit union that migrates to outsourced processingmight see its monthly bill from the data processor increase by afactor of two, three or more. That's a high price to pay for theconvenience of not having to plan for server upgrades. When youcompare the total cost of ownership for in-house and outsourced,outsourced might not be the bargain you expect.

This brings us to staffing, and this issueappears fairly clear-cut. If your IT workers aren't occupied doingthe mundane tasks required to keep an in-house system running,they'll be free to focus on more strategic initiatives. That's acompelling argument in favor of outsourcing, to be sure. If you canrefocus your entire IT staff from being tactical to strategic, thatmay very well be worth giving up the flexibility and control ofin-house processing.

There's just one question that many credit union executives seemto overlook: Is outsourcing really the only way to relieve your ITworkers of those mundane, repetitive tasks? The answer is quitesimply no.

Before you make the leap from in-house to outsourced, you needto carefully consider how much of your IT operation has beenautomated and, more importantly, how much of your IT operationcould be automated. If your credit union has neverexplored automation software, you'd probably be shocked at what itcan do for you.

For example, at one point, TruWest Credit Union, a $900 millioninstitution in Scottsdale, Ariz., had a seven-page run sheet – alist of daily IT “chores” that had to be performed bysomeone. Tired of being held hostage by this run sheet atthe expense of various strategic initiatives that were forced tothe back burner, the credit union decided it was time to automate –and automate, it did.

TruWest Credit Union reduced its run sheet from seven pages tohalf a page. That's about a 93% reduction in manual work. And thatwas just to get things started. They're truly an automation successstory.

If you feel that market forces are pushing you toward outsourceddata processing even though you really don't want to give up allthe control and flexibility of in-house processing, you owe it toyour credit union and your members to fully explore the automationoption. You just may find that a new piece of software can solvemost of the issues that you need to address.

Kathy Hooker Burress is president of SMA Solutions. She canbe reached at 281-446-5000 [email protected].