Reconciliation & Exception Management – Should You Build or Buy?

Microsoft Excel remains the most widely used reconciliation platform today, but at what cost?  It’s perfect for small businesses or quick fixes: cheap, easy, and flexible.  But what happens when your needs grow in terms of frequency, volumes and scope?  More and more resources are required, and more processes need to be built outside of, or around, all those worksheets to meet needs as broad as audit, tickler lists, or compliance.

And that’s when the debate always starts: should you develop a reconciliation solution in-house, or should you buy an off-the-shelf product.  Often the former appears cheaper, and sometimes even gives the appearance of being quicker or easier; however reality has proven time and time again that looks can be deceiving.  So here are six great questions to ask yourself….

Q1 What is your firm’s core competency?  Are you in the business of building and supporting specialist software solutions, or do you want to focus your energies on growing your revenues?

Q2 Have all the development costs been identified if you build in-house?  Almost all studies focused on the ‘build vs. buy’ software debate have concluded that costs nearly always overrun initial projections as we always miss things first time around.  Do you really want to go back and ask for more budget?

Q3 How quickly will you have your solution fully live?  Just as studies demonstrate consistent cost overruns, they also clearly show projects running late.  The two are tied together.  A fully developed solution such as ReconArt™ can be implemented in as few as a couple of weeks.  As you’re asking for more budget to build internally do you really want to explain why the project is running late?

Q4 Have you budgeted for on-going development?  Internal needs evolve over time, legislative and regulatory changes are forced on us, banks and other third parties change systems and formats.  What will it cost you on an on-going basis to address all of these needs, many of them unforeseen?

Q5 What about on-going support costs?  Even without any functional enhancements, have you estimated all of your internal IT and other support costs.  What happens when your internal resources move on or leave?  What will the true cost of supporting an in-house solution really be?

Q6 How easily can you bring on different types of reconcilements?   So now you’ve developed your in-house bank rec solution, then in 6 months you need a solution to meet period end reconciliation of the balance sheet, or merchant processing, or you need to reconcile fixed assets or inventory.  What is it going to cost you, and how long will you have to wait, to get these developed?

I just did a very rough calculation (which I am sure is a gross underestimate) and figured out we have invested 20+ person years in development effort alone in the last 3 years, and that ignores everything else that goes into building a functional solution.  With fully loaded labor costs anywhere from $40-100K annually, development times even for simple solutions often in months, and uncertainty over how to address future needs is there really any reason to build as opposed to buy, especially if buying gives immediate ROI?