Changes in the ranks of Asset/Liability Management (ALM) software providers have led many institutions to re-examine their requirements in this area. Selecting the right solution in terms of the vendor and their application(s) is the cornerstone of developing an effective ALM process. At a minimum, credit unions evaluating new solutions or reconfirming their choice of vendor should critically consider the following factors:
Modeling & Analytics The level of analytical sophistication required
by a credit union from an ALM system really depends on the complexity of their
balance sheet. For a credit union with a high concentration of loan products
with embedded options, or investments with indeterminate cash flows, effectively
modeling the behavior of these instruments is crucial in determining interest
rate risk. Modeling this dynamic requires an application that can run multiple
cash flow scenarios under different interest rate projections. Alternatively,
if the balance sheet is less complex, this type of simulation is not as critical
and a simpler, less costly application is sufficient. The makeup of the
balance sheet is a major driver in the level of functionality required.
ALM practitioners emphasize the importance of data integrity as it relates to their process. If the data going into a system is unreliable, it is axiomatic that the results generated will be ineffectual. One concept to consider here is the “ease of use” of the system, specifically as it pertains to importing historical information and interfacing with your internal systems. The data integration part of an ALM implementation can be the most time- intensive.
In addition to basic system support such as telephone-or web-based help desks, there are additional levels of service and expertise that ALM vendors provide. These include consulting, education, and the complete outsourcing of the ALM process. As a credit union’s balance sheet grows more complex, consulting expertise offered by ALM vendors can be very helpful. This element of the vendor’s products and services should be carefully considered, especially if the credit union has an aggressive growth strategy or is considering new product offerings.