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Costs for Bank of Ireland’s IT revamp program, dubbed Project Omega, could reach €2 billion ($2.3 billion), which is far higher than the €500 million ($566 million) the bank initially planned to invest, per The Times, citing sources close to the matter; the five-year project is set to completely replace the bank’s legacy systems.
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The budget had already been increased to €1.4 billion ($1.6 billion) in June 2018 from €900 million ($1.02 billion) previously, and while the bank insisted last week that costs remain at €1.4 billion ($1.6 billion), sources said senior management is looking at a final price tag of as much as €2 billion ($2.3 billion).
Of note, the investment has produced some results: Bank of Ireland CEO Francesca McDonagh said that, for the first time, there’s a single record of its 2 million customers, while operating expenses registered a 3% fall in 2018.
Sources close to the matter cited the increasing cost of hiring the right IT talent as one of the reasons for the budget pressures. Many banks’ legacy systems are hard to overhaul because they were installed four to five decades ago, leading to a lack of people who understand their coding language.
Additionally, it’s become more difficult and expensive for financial institutions (FIs) to attract talent because they have to compete with big tech companies, such as Amazon, Google, and Facebook, that often offer more attractive office culture propositions.
Although some major banks, such as Goldman Sachs, which has 46% of its staff working in technology, are increasingly looking like tech companies that offer financial services, most FIs are facing significant problems in finding the right talent for their IT transformation projects.
The massive price tag associated with Bank of Ireland’s core system revamp highlights the mounting investment requirements for IT within the financial services sector. For context, Santander recently announced a $700 million five-year global technology agreement with IBM to deepen its business transformation efforts.
Through this project, Bank of Ireland targets a cost-to-income ratio of 50% by 2021, although the ratio stood at 65% in 2018. Investments like this often don’t bring the anticipated results, mainly on the back of budget overruns or significant timeline setbacks. When banks assess the expected benefits of a transformation, the high risks associated with the implementations of core banking changes should also be accounted for.
Further, to reduce those risks, a bank needs to consistently and effectively monitor progress internally as well as with external partners.
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