banking by the numbers or how to measure what happens between the front line and the bottom line...
TRANSCRIPT
Banking by the Numbers
Or how to measure what happens between the front line and the bottom line
Presented by Gene Fulcher SolutionServices, Inc.
Fact
Most banks do not efficiently track their costs or efficiency except on a “Broad” basis
Ratios & Industry Information hard to come by
Information not specifically geared to the institution (we’re unique because syndrome)
Information, when it is available, is hard to understand
Result
Generally measure against past performanceo Measurements may not be applicable due to
change in technology, environment, customer mix or other factors
o Past performance may not be indicative of capabilities of the bank
o Such measurements only deliver questions… not solutions
Challenge
To find performance indicators that are: Internally generated Easy to track Easy to understand Emphasis on improvement over current
performance (be all that you can be)
Getting Started
Concentrate on controllable costs and activities
Focus on measurable activities that your employees can control
Identify major line items and/or product lines
Create realistic progress goals Deliver the message and spread the
benefit
Tips
Salaries and employment expenses are the single biggest controllable cost to an institution While interest expense may be larger,
rates are determined by the market place
Employees have little control over overhead such as buildings, utilities, etc.
Goal
Reduce cost per transaction or activity Employee cost per teller transaction Servicing cost per Million $ in loans Bookkeeping cost per account Customer service cost for new accounts Etc.
Reward all bank employees for new, more profitable business
Turn Disincentives into Incentives
Current – staff reluctant to do more than their share Pay stays the same Recognition not there for high performers More customers = more work
Reward employees by adding staff and reducing their work load back to “normal” levels Hint - Check your employment cost/assets for
the past 3 years
Determine Base Cost
Base cost is the cost that the bank is willing to pay for each activity In other words, the base cost is the
amount that the bank is currently paying for that function
Use internal data that is readily available
Internal vs. External Data
Easier to get to and understand Available on a “real-time” basis Eliminates the “we’re unique
because” syndrome Immediate goals are clearly defined
and easy to track Employee “buy in” since the data is
under their control
Example #1
Tellers Group measurement Current performance
Quantity measurement - # of teller transactions per day/total teller costs
Quality measurement - accuracy
Example #1 – Calculate Base
12,000 teller transactions per month
Salaries and benefits for tellers of $12,000 Cost per transaction = $12,000/12,000
or $1 per transaction base cost
Example #1 – Improve Base
Reduce cost – i.e. reduce staff, eliminate overtime, utilize part-time
Improve efficiency – i.e. work faster, improve efficiency, utilize technology, streamline
Example #1 - Incentives
Share cost savings with group 1/3,1/3,1/3
Add benefits
Time off, preferred parking
Recognition Awards, dinner with the board, etc.
Example #1 – Sample Results
13,000 teller transactions per $12,000 = $0.92 per transaction
Savings = $.08 X 13,000 or $1,000 less than the cost that the bank would normally incur
Employee incentive using 1/3 method would be $333 resulting in a net savings of $667
Applies to All Departments
New Accounts New vs. cost
Loan operations Cost per loan serviced
Lending Cost per Million $
Less past due Accounting
Cost vs. asset size
Common Goal for Everybody
Every employee at every level has a stake in the performance of the bank More customers = increased volume =
lower cost = greater incentives = $ to the bottom line