Overpaying For Basic Vendor Services?

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SCOTTSDALE, Ariz.—Are compliance concerns keeping credit unions from paying full attention to the prices vendors are charging and how those partners are performing?

Cornerstone Advisors believes that is taking place at a number of credit unions and says it is an issue CUs must address in 2016.

“As regulators and credit union executives have focused on the compliance and operational risk aspects of vendor management, they have largely ignored vendor costs and performance,” said Managing Director Brad Smith. “This is at a time when technology—enabled by the vendors—drives so much of the success of the CU.”

Smith said that CU executives often “take comfort” in having checked off all the vendor management compliance boxes, but actually miss the biggest risk box of all—overpaying vendors for basic services while starving emerging areas, such as new payments, card payments utilization, or mobile lending.

Unintended Trade-Off

“What can happen is an unintended trade-off, thinking they’re decreasing compliance risk while unknowingly increasing strategic risk,” said Smith. 

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Brad Smith, Cornerstone

Smith outlined steps credit unions making this mistake must take next year.

“First, beyond vendor risk ratings, add cost and performance ratings to vendor assessments and get the right amount of reporting oversight to the board,” said Smith. “Second, stop deferring vendor reviews to lower-level managers and ensure the CEO and CFO are personally involved in major vendor reviews.”

Smith emphasized, too, that CUs should align overall risk management with strategic planning so the right levels of review and risk are understood by management and the board and incorporated into the communication cycle naturally. 

“Vendor performance management is strategic and drives value creation for the membership,” he explained. “From our experiences in vendor performance management and supported by hundreds of data points in our Contract Vault and Insight Vault, these recommended changes can substantially reduce major vendor spending and improve vendor performance.”

Section: Standard
Word Count: 445
Copyright Holder: CUToday.info
Copyright Year: 2018
Is Based On:
URL: http://www.cutoday.info/THE-boost/Overpaying-For-Basic-Vendor-Services