COLUMBIA, S.C. – Autumn is in full swing, and the sound of crunching fills the air – from leaves underfoot and on the desks of IT managers around credit union land as they work the numbers of their 2002 budgets in preparation for approval by their bosses and their boards. So what kind of year is it overall? Will spending be up or down? Will unusual powers of persuasion be needed this time around to convince reluctant board members of the need to spend on technology? How much has security concerns impacted budgets? And will they be doing Windows? Those questions were posed by Credit Union Times to eight different credit unions around the country, and to two experts who make their living talking to CU's about these things. The answers were as varied as the organizations themselves. Here's a brief look at what each had to say: Ron Amstutz, vice president of information technology at Desert Schools FCU in Phoenix, says his proposed budget calls for a 50% reduction in 2002. That's because in 2001, Arizona's largest credit union spent about $4 million on new LAN/WAN and massive EMC storage solutions. "We're still looking at spending $3 million next year, but the big push will be on branching," Amstutz says. "We have 18 branches now and are looking at adding seven more in 2002. This year we concentrated on putting up the infrastructure to support things like that." Measures such as security audits and penetration tests also show up on the ledger, "but that's just a norm for us," Amstutz says. "We don't ever want to be the credit union that shows up in the newspaper as the first one that's been hacked." But the $1.5 billion CU, a Summit Information Systems client, will be among the first using Windows XP. "We are upgrading, but I'm not sure I can say exactly when," Amstutz says. "We're very methodical. We usually skip a version. We never loaded Windows 95, but we did 98. We didn't load Windows 2000, but we will XP." He adds: "For a credit union our size (660 employees, 225,000 members), changing operating systems, and in this case the network as well (from Novell to Microsoft) is as big a job as converting your core data processor." Selling the work to the board is not problematic, Amstutz adds. "I work closely with our CEO and senior vice president to get ready for this and we do what amounts to an FAQ for the board in advance, so they have a lot of information already. "And they want to be on the forefront, too." Dick Bastiansen, senior vice president of operations and MIS at Brockton Credit Union in Brockton, Mass., says 2001 was an expansion year for his $830 million, 70,000-member organization. "After building four branches this year – including handling all the new equipment and network connections – and going aggressively into new markets as part of our continued growth, we'll take it a little easier next year and go back to reviewing basics and solidifying our new market penetration," he says. Those basics also include solidifying security, "which for us largely costs us more in human time than money, with penetration testing and reviewing those results and monitoring vendors," Bastiansen says. As far as Windows XP goes, Bastiansen was unequivocal: "We're avoiding it like the plague as long as we can. We're a Novell shop so we don't use NT to any great extent anyway, and a change like that for an organization our size requires a huge amount of time, effort and planning. I just quite frankly don't see any business benefit in XP right now." Brockton CU is a co-owner of its own core processor, Connecticut Online, Bastiansen says. "In some areas we feel we're pretty cutting edge, while in others, we're pretty much old fogies," he says of his credit union. "For instance, we were into frame relay very early on, but still occasionally sit down and write a program in COBOL." And as far as getting next year's IT spending plan through the upper echelons, Bastiansen says he doesn't anticipate any serious problems. "We don't have any trouble selling our budget. We have a very strong, cohesive team and we build our budget together. It's a collective effort, not a techie wish list." Juan Batista, network systems and support manager at Campus FCU in Baton Rouge, La., expects his budget to remain static in 2002 but not his department. "We feel we have enough resources to maintain the level of service our members deserve, and because of this our IT budget for next year will remain about the same," he says. "We will be introducing some new technologies we identified as necessary, such as check imaging, member e-signature and automatic receipt capture." The $215 million, 35,000-member CU, which primarily serves the Louisiana State University system, is an XP Systems client and a Microsoft shop. "We already have purchased Office XP but haven't deployed it yet. We have plans to move to Windows XP, but not until sometime next year so we can allow our IT staff to get proper training," Batista says. On the security front, Batista notes that the battle often begins at home. "How to talk to people into guarding their passwords is a continuous fight," he says. "I also must say that staying on top of all the security patches for Microsoft also is a real challenge." He adds that he doesn't blame the software giant. "The issue is that being the market leaders, they are the primary target of hackers," he says. As for "selling" IT to the Campus FCU board, Batista says its members work with technology themselves and understand the need. He notes, for example, that they already have approved the purchase of a new mainframe computer and software upgrade to be delivered and expensed in the 2002 budget. Bill Cheney, CEO of Xerox Federal Credit Union in El Segundo, Calif., says he expects to see his IT spending go up a bit in 2002 "as a combination of enhancing our Internet banking strategy and increasing security." With 17 branches in nine states, "online strategies are pretty important to us if we want to be convenient" to the far-flung 75,000 members of the $564 million CU, says Cheney, whose CU is a re:Member Data core processing and ViFi Internet banking client. On the security front, penetration testing and consulting costs make up much of the tab. "Obviously, we take security pretty seriously. Our members trust us to protect their information and funds, and as the people who would compromise our systems get more sophisticated, we have to, too," he says. As far as Windows XP goes, that's not on Xerox FCU's radar right now, Cheney says. On another issue – hiring and retaining good IT help – Cheney, like the others in this informal roundup, says his CU has been fairly successful in building a good team and that he thinks the softening economy may help in that regard going forward. And as far as selling his IT plans to his board, Cheney notes that its membership is pretty tech savvy to begin with, "but we want to make sure we're investing in technology for the right reasons. If we are, there's no hesitancy to spend the money on what's necessary." Carl Faulkner, managing director of technology services at M ONE Inc. in Phoenix, Ariz., spends his time consulting with credit unions and banks on such matters and says he doesn't anticipate technology spending increasing this budget year. "Two factors are driving my guess," he says. "One is the events surrounding Sept. 11 and its impact on consumer spending. . Two, there is no compelling technology to spend on at this time." Faulkner, whose organization is a partner in the CUES Tech Port advisory service, says the big investments in Internet banking already have been made and that he doesn't anticipate a big migration from Windows 95 or 98 desktops to XP for another couple years. As far as convincing boards on the need for technology investment, Faulkner has this to say: "We have come a long way on this issue. However, on many boards information technology is considered an expense, not part of an overall strategy. "Enlightened boards become so because the management team has educated them on the strategic use of technology. It is not possible to deliver financial products without technology, therefore you must spend money." Joe Grech, senior vice president of retail services at Heritage Trust FCU in Summerville, S.C., says he expects his IT budget to stay about the same from 2001 to 2002. "We're still trying to stay on the leading edge of technology and service, and to do that, you have to make a fairly consistent investment each year," he says. In addition to a state-of-the-art new main branch, the 60,000-member, $300 million CU has been spending much of its technology budget on voiceover IP, Cisco routers and robust UPS backup. In fact, preparing for a hurricane extends to the generator and propane tank and reinforced electrical and computer room that serves as the nerve center for the coastal-based credit union. Security of another kind also is a big-ticket item at Heritage. Hardware and software for firewalls and other intrusion protection costs about $70,000 a year now, and monitoring is another $50,000, Grech says. As far as Windows XP goes, that's not on the agenda right now "because of the astronomical cost," Grech says, especially as the credit union continues settling into its new XP Systems' core-processing environment after switching systems this year. And how does his board feel about all this? "They've been very supportive of our budget even as the economy tightens up," he says. "You just have to be certain that you are balancing your technology and your business needs." Jim Morrell, vice president of information systems at Clark County Schools Employees Credit Union in Vancouver, Wash., agrees that a board that understands technology as an integral part of strategy is one that will approve the investments needed to make that happen. "We have a strategic objective to replicate in the e-commerce world what we have in bricks and mortar, so you have to implement the technology that supports that," says Morrell, who's also vice chair of the CUNA Technology Council Executive Committee. "We don't make decisions just for the sake of the technology." For instance, he says, enhancements will be made in home banking, "to make it more robust, but we don't think our local community is there yet for account aggregation or wireless, so we won't be moving forward on that this year." Morrell does expect IT spending in 2002 to increase about 15% for the $240 million, 33,000-member CU, primarily because of a changeover to Citrix/Windows 2000 thin-client networking operating and electronic communications systems. As for security, the big hit for Clark County Schools ECU was a $20,000 security audit this past summer. In 2002, Morrell expects that effort, including some additional security for remote access, to come in at about $8,000 or less. Dave Plank, chief technology officer for CUNA, says he sees two factors driving IT spending in 2002: A heightened attention to security and cyber-terrorism because of Sept. 11, and "an overall trend in the industry to increase spending on major system implementations as they were before Y2K." He adds: "From a strategic end, CU's may begin to examine the benefits that smart-card technologies have for their members. Also, the market for electronic bill presentment and bill payment is growing among financial institutions as a whole." And on the topic of working with boards, Plank has this to say: "Credit unions have two types of investments: operational, which runs the internal processes of a CU, and strategic, which are technologies that a CU provides its members. "Operational investments should be geared around efficiencies and keeping current (because of vendor support issues.) "Strategic investments should center around sustaining or increasing CU membership. "In both cases, these technologies need to be tied to the credit union's goals and objectives. If this happens, the board and management can better understand the value of the technology in relationship to accomplishing the goal." Mike Scheuerman, business technology officer at First Tech Credit Union in Beaverton, Ore., says he and his bosses and their board like to look at ROI, but in a slightly different way. "To us, ROI means results of investment rather than return on investment," says the technology chief of the $875 million, 85,000-member organization. "That's what's important to us. Did it do what it was intended to do? Did it provide value to our members? "I don't see that emphasis changing, although I do expect some increase in IT spending next year. Not a lot. Like most people, we're expecting a fairly lean year and we're being cautious about how we build our budget and what we're putting into it." One thing First Tech, a Summit Information Systems client, is putting a lot into is security. "We have two people doing that fulltime now," Scheuerman says. "Major initiatives in 2002 will relate to building out our infrastructure and delivery of tools that are part of our trusted resource model," he adds. That will include an aggregation arrangement with Yodlee, an updated online loan application process "and a refreshed version of our public Web site." First Tech's membership is centered on high tech companies in the Pacific Northwest, "and our board has always been supportive of our technology initiatives," Scheuerman adds. "I don't anticipate that is going to change." Annette Zimmerman, senior vice president and chief information officer at Mountain America Credit Union in Salt Lake City, Utah, says she expects IT spending to increase in 2002, and adds: "Of course, with our growth, this increases every year." This year, the CUNA Technology Council Executive Committee member says, "much of the increase can be attributed to additional and upgraded security hardware and software, member relationship management software, an additional jukebox for imaging, and disaster recovery." She said that while two new positions, one for IT security and one for the help desk, are being sought in the 2002 spending plan, what isn't in there is Windows XP. "Not in 2002," Zimmerman says. "We'll wait until it's been on the market for a six to eight months and then see if it's something we want to do in 2003." Mountain America, a Symitar core-processing client, has about $950 million in assets and 153,000 members. "Our board members have the same philosophy as our CEO, Gordon Dames," Zimmerman says. "They trust and empower the senior executive team while holding us accountable. "We justify all technology by proving added efficiencies, reduced expenses, better or increased member services and/or competitive advantages." – [email protected]

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