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SaaS Cost of Outsourcing

Appetite among investment managers for SaaS (Software as a Service) solutions has exploded exponentially over this decade. However, as cost pressures continue to trend upwards for the industry, some firms are looking to extract efficiencies by re-thinking their approaches to both SaaS and the cloud.
Sumit Mahajan, CAIA, FRM
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Digitization as a means to contain costs

Appetite among investment managers for SaaS (Software as a Service) solutions has exploded exponentially over this decade. However, as cost pressures continue to trend upwards for the industry, some firms are looking to extract efficiencies by re-thinking their approaches to both SaaS and the cloud.

Most experts anticipate that year ahead will be a challenging for asset managers, with many openly predicting that the industry will need to make substantive cost savings – either through staff reductions or product streamlining, offsetting potential heavy outflows, unsettled performance, and declining margins due to competition.

To support digitization and the drive for efficiency, many firms have sought to rein in their operating costs by leveraging cloud-enabled SaaS solutions to help them with various middle and back-office functions, including client and regulatory reporting - together with centralised data management strategy. By partnering with SaaS providers, managers have been able to obtain meaningful cost savings, allowing them to deploy resources to more revenue generating areas of their businesses. Although the SaaS model has netted cost benefits for cash constrained managers, some believe additional synergies can still be obtained.

Maximising SaaS efficiencies

The first to conduct any budgetary savings s for firms to conduct a thorough audit of their eco-system including SaaS providers, along with what is outsourced. From this, they can then extrapolate what each of the products they use effectively and whether there is the opportunity to reduce licences and exploit any unharnessed capabilities.  In some instances – especially if asset managers operate in silos – there may be replication insofar as different SaaS solutions are providing similar services but to different branches of the business. In such circumstances, it would be prudent for asset managers to consolidate SaaS suppliers, as this will help them eliminate any redundant costs.

Re-examining the existing cloud model

Cost pressures are also prompting managers to review how they use the cloud. For example, some managers have opted to leverage the private cloud, which despite being highly customisable and flexible, is very costly and requires substantial IT capacity to support ongoing maintenance.

In contrast, public cloud is seen to be more scalable, and offer extensive cost efficiencies. As a growing number of managers look to digitalize their businesses and expand, many are becoming increasingly receptive to the idea of the public cloud. Security is no longer one of the key concerns, even those handling client data are comfortable with public cloud model.

As with any strategic decision in technology, asset managers should engage with partners who are well versed in IT, cloud, security, and data management, and who can provide tailored solutions while consulting with the clients.

As firms navigate an increasingly complicated market ecosystem, they will need to rationalise costs. A re-evaluation of their current outsourced operating model and cloud systems could bring unexpected operational efficiencies to help support this process.

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