Technology project plan for Long Beach Mortgage FlashQuote development

Technology Project Plan

Long Beach Mortgage Technology Project Plan

The intent of this document is to define the Technology Project Plan for the development of the Long Beach Mortgage Broker Front Office Tool (LBM-BFOT). Included in this plan are definitions of hardware, software, and integration requirements for completing the BFOT development as defined in the Business Requirements Analysis. Specifically focusing on the critical functionality of support in FlashQuotes for loan modeling and pricing data in real-time from the Loan Origination Systems (LOS), with a secondary requirement of uploading loan quotes from FlashQuotes to the LOS so they can be tracked electronically as to their status being transformed into loans are held for future reference in subsequent sales cycles.

The Business Requirements Analysis defines the integrations necessary for the FlashQuote system to deliver best practices-level of performance as a selling strategy within Long Beach Mortgage.

Technology Project Plans: FlashQuote Application Development and Real-Time Integration for Loan Modeling and Pricing Data

Programming

The primary design goal of both of these projects is to create thin client-based applications that can easily be delivered through a browser to any Long Beach Mortgage sales representative at any time. The reliance on J2EE programming standards for integrating application logic to the graphical interface is undergoing a significant change today with the widespread use of AJAX programming as well. While this emerging programming standard is admittedly complex, the essence of it is that only the changed parts of a web page or web application are propagated to the user interface via the browser. For both systems to be truly thin-client and deliver the level of performance necessary even in dial-up and slow DSL connections, the use of AJAX is a requirement for this project.

Additional programming standards include the use of XML for the integration of loan status and specifics regarding the loan applicant, loan modeling parameter, loan pricing and terms, and loan status applications that Long Beach Mortgage loan representatives can use in the context of the FlashQuote portal. In the context of the relationship between quoting and pricing, loan modeling, loan terms and rates analysis, and the loan close rates of business development, FlashQuote acts as a platform for unifying applications into a single strategy.

This is a critical point regarding the programming aspects of FlashQuote; the integration of all systems that are called upon to set and keep accurate commitments with Long Beach Mortgage prospects and customers hinge on a scalable and sustained quoting business strategy underscored with real-time integration between systems. Integration makes the setting and keeping of complex commitments to prospects and customers possible.

The approach of using XML for linking these quoting, loan modeling, interest rate calculations and projections, and pricing applications to back-end ERP, internal pricing, loan and policy systems is based on the XSLT style sheets that XML uses to define its approach to creating sustained links to internal systems. Figure 1 shows how Asera Corporation (2005) has consistently used this approach of integrating with their databases through XML and XSLT style sheets. Asera specializes in Oracle integration solutions.

Figure 1: Integrating systems using XML

Databases

The database design specifically for integrating quoting, pricing and interest rate analysis at a minimum needs to share a common architecture that can quickly allow for streamlined price and availability queries from Long Beach Mortgage's pricing, loan modelling, and customer management systems.

The specifics of the database for the combined approach of quoting need to include the following key attributes and applications. First, there's the need for selecting a database that supports the ability to create multiple loan, interest rate, and pricing, and quoting scenarios. In short all these requirements are typically called a databases' support of multiple taxonomies. This is a critical first requirement as multiple taxonomies are clearly resident in many of the transactions Long Beach Mortgage accomplishes today in the course of a normal day of business.

Second, the database selected for these combined strategies of quoting management and pricing need to support record locking and write-one verification, which is part of any database being ACID-compliant. Simply put, these are databases that have assurance of atomicity, consistency, isolation of data, and durability, hence the acronym ACID-compliant.

This is a critical issue for Long Beach Mortgage from the compliance perspective as well, as they are publicly held and must report their earnings through the Sarbanes-Oxley (2002) registration process. Born out of the massive amounts of fraud and earnings misstatements of Tyco, Enron, and others, the Sarbanes-Oxley Act was passed into law in 2002, and has since revolutionized the approach to reporting, compliance and the use of databases for selling, reporting on, and servicing products. The need for the database selection and design to support compliance and high levels of data reliability (ACID levels of support) is critical.

Finally, the database must support high levels of integration and support for dynamic pricing, greater control over product taxonomies and hierarchies, and proven security and compliance design features than many of the open source alternatives available on the market today.

The networks required for the systems and applications center on the security requirements of Long Beach Mortgage users who will be using a Virtual Private Network (VPN) connection to gain access to FlashQuote. While many of these loan professionals will be using Internet connections within the company, just as many will be outside the company, accessing the application through a web browser. As a result, the VPN connection is essential for ensuring security across the Internet. The focus on authentication over the network is a high priority concern, as the pricing and product availability data is highly confidential, and of great competitive value.

A secondary concern is the ability to keep each sales reps' area secure from all other sales representatives' areas, as each sales rep's responses to prospects and customers could have variations in pricing, service, maintenance, and product selling levels or quotas. The need for creating highly secure authentication on FlashQuote is critical, and the use of Kerberos technologies included in Microsoft Windows Server products in addition to 128-bit encryption and password aging is critical.

Internal and External Stakeholders

AMR Research (2003) has stated that fully 70% of the cost of implementing any quoting or customer-facing system is in changing the behaviors of existing users. Called change management, this area focuses on getting both users internal and external to the company to change how their jobs are done daily. This is admittedly no small task and requires significant effort.

The focus on change management strategies both during the systems analysis design, programming, testing, quality assurance and launch of both systems is critical. Many quoting, pricing, loan modeling, interest rate calculators and loan tracking systems are launched and achieve only 60% or less use due to the fact that many companies rely on the launch event itself as the pivotal moment for getting their internal and external stakeholders involved and using the system.

The internal stakeholders of sales, product management, service, operations, software engineering, and all other support services need to have a comprehensive understanding of the entire launch process first. In fact these organizations need to be included in the development processes and cross-functional development meetings so the needs not only for their own departments but also to enable them to synchronize their efforts with others are critical. Studies have shown that these internal stakeholders need a minimum of at least 16 weeks of preparation time to enable them to interlock with and maximize the value of the applications' many impacts on their own organizations.

For external stakeholders the need for education is the most critical, and the ability to position and promote both FlashQuote and the related real-time integration and associated applications. The bid for loan prospects and customers loyalty is the need to ensure the applications being launched are more closely aligned with these critical stakeholder groups' needs relative to competitors. To gain external stakeholders' loyalty in other words, the FlashQuote system, related applications, and benefits of real-time integration need to be better aligned with these stakeholders vs. any other manufacturer in this segment. The external stakeholders' percentage of users who actually use the applications is the most telling statistic or measure of performance of any available, as it says what the perceived value of the systems are by users, according to Columbus (2002).

Business and Security Risks

Given the highly confidential nature of the quoting, interest rate, and pricing data delivered to Long Beach Mortgage sales representatives through applications available outside the company through Internet connections, the very center of the company's business model is at risk. The fact that VPNs have proven to be effective security applications, Long Beach Mortgage must constantly improve to keep this critical part of their business secure. It is a significant security risk to have these applications available through a web browser, yet the responsiveness to customers and potential gains outweigh the risks. The bigger risk however is doing nothing at all, and having competitors find an approach that works for serving, gaining loyalty, and eventually maximizing the revenue contribution of the indirect sales channels that both system initiatives are built to serve.

The risks associated with both initiatives center on security, acceptance by partners, resellers, and distributors, and the development of the applications, and the risk of losing key talent in the IT organization before the applications are built. The first risk of acceptance has to be minimized through the use of advisory councils and a strong focus on bringing them a series of applications and broader system they can quickly take ownership of. Accomplishing this starts with a focus on integrating their requirements, thinking through their stated requirements to define what future enhancements are needed given the direction they are going with their channel programs, and most importantly, creating workflows for the managing of special pricing requests. Columbus (2003) states that of all pricing workflows, the highest ROIs are possible when the special pricing request workflows are automated and taken away from being a purely manual process to one where rules engines are used for quickly making decisions.

The business risks of not implementing these two systems have far more significant circumstances vs. The security risks of delivering these applications and their data outside the firewall of the company. These risks can be overcome however through effective use of security and authentication technologies.

Financial Planning

Costs

The following are the costs associated with both programs:

Cost Components

FlashQuote Application

Broker Front Office Tool (BFOT) and Integration

Application Development

Professional Services

Total Costs

Applications (%)

Net Present Value and Sensitivity Analysis

For the FlashQuote system, assuming a 5% discount rate, a 7-year life of the project, and a cash flow of $1M in the first year, followed by $2M in the second year, $2.5M in the 3rd year, and $3M in the 4th and 5th year, and $4M in the 6th through 10th years yields a NPV of $1,951,375. The present value of expected cash flows is $2,331,375.

For the BFOT applications and integration project, assuming a 5% discount rate and a 7-year life of the project, and the a cash flow of $1M in the first year, followed by $2M in the second year, $2.5M in the 3rd year, and $3M in the 4th year, and $4M in the 5th through 10th years yields a NPV of $1,449,727 and a present value of expected cash flows of $2,409,727.

Assumptions

The following are the significant assumptions behind the revenue figures:

Professional services will be highest on loan capture due to the extensive integration required to complete this application development.

The highest dollar figure for professional services however comes from BFOT real-time integration, which includes the most complex programming and services tasks.

Definition of the internal development costs includes outsourcing the development of internal tools and the acquisition of specific tools for the managing of source code and documentation.

Measures of Performance

Evaluating the performance of FlashQuote and the broader BFOT system and including real-time integration to interest rate, loan, and pricing systems requires the following series of metrics to evaluate total system performance. These areas capture the extent and level of performance possible when integrations are in place, and reflect the stronger levels of ROI possible:

The Perfect Loan - Defines the number of loans correctly filled every day from a manufacturing center.

Days Sales Outstanding - This measures the relative level of customer satisfaction as it shows how quickly customers are paying their invoices, and is a reflection of how effective the combined systems are in meeting their requirements.

Loan application escalation ratio - Defines the number of loans that are escalated from applications to closed loans for top-performing sales representatives.

Gross Margin per Loan - This is a critical link to measure the level of profitability per loan and tells how effective interest rate calculations are working in conjunction with pricing.

Usage rate by loan representative - This is essential to find out if the designed systems and applications are meeting the needs of the internal stakeholders they were specifically developed for.