Author: Cheryl Wondrasch, CWondrasch@profitstars.com
Very early in my career, my professional mentor and manager frequently made the comment “banks make money in spite of themselves”. I was in my mid 20’s, a financial analyst, and just learning about banking. To me, it seemed the opposite, we used complex concepts like funds transfer pricing, and credit allocations. How could smart people, that understood these topics, lose money?
Twenty years later, I’m beginning to see the wisdom of his comment. Hopefully, I have not upset my fellow finance managers in the industry. I have built my career around financial reporting and analysis. I have had the opportunity to be a financial manager in large and small institutions. The last eight years have been spent consulting on and installing customer, organizational, and product profitability systems.
So, what made me realize the wisdom of the comment? A great example is the recent trend in the financial services industry to evaluate the branch channel. Per a recent survey by Celent 55% of financial institutions were going to significantly change their branch structure. Here are the most important questions you need to ask yourself before changing your branch structure:
Do you have the resources or tools to model this type of change to your branch or fee structure?
There are many FI’s that are asking these questions, purchasing these systems, and trying to develop the resources to answer these questions, but again, fail to successfully install or make use of the information provided. Typical pitfalls for installing a profitability measurement system are:
Don’t get me wrong, I’m not implying that all institutions fall in this category. I’ve worked and consulted with several very good institutions that “get it”. What does “get it” mean? They have a clear plan of what they want to achieve, they know what they are going to do with the results, they have clearly communicated how they are going to use the results, and most important, they follow through!
Our industry is going to continue to change and you need the tools and resources to understand how these changes will impact your institution. Can you ensure your FI doesn’t “make money in spite of itself”?
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