Implementing a "Value-based Management System" to Support Strategic Initiatives
Many banks over the past decade are focused on increasing profitability and a number of acquisitions were undertaken with the aim of increasing market share. As a result they went live basically as the aggregation of banks brought together institutions with differing missions, size, operations and tools.
However, following the recent turning point in its strategy, the new point of view is now focusing on rationalizing its assets and capital mix. In line with this approach the unification of the planning and control (P&C) systems of the banks become a key step toward consolidation.
Project
Before the initiation of this kind of project a Bank must adopt a sophisticated solution which was easy to modify and evolve. The system must be structured to manage complex target segmentation based on customers, products, managers and centers. So on as core components of the new solution should be its "Value Control" and "Asset and Liability Management" packages. Partner of the bank must have strong business reputation based on:
- Core competencies in banking, with a clear vision of market evolution
- Capability to speak the banking language, and the attitudes of consultants
- Capability to manage large size and long lasting projects thanks to financial robustness and vertically skilled resources
The IS department of the Bank faced the integral revision of the planning and control phases. The Top Management was involved from the beginning and defined metrics, processes, tools and motivation systems such as stock options delivery.
The project can be structured along the following phases:
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Model definition. This phase was to define the target model for P&C activities. This model would have been adopted after the migration of all the banks into the common information system..
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Input analysis. During this phase all the subsystems expected to feed the new P&C system were analyzed. This analysis was conducted together with all the banks involved in the project.
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Compatibility analysis. Analysis of backward compatibility especially with regard to all part of the bank ( multi channel) or group
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Package implementation. Implementation of the P&C project's packages.
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Subsystem implementation. Implementation/modification of the subsystems feeding the P&C system in each bank involved in the project.
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Testing. Test and validation and reporting and fine-tuning.
Figure 1- P&C Architecture
Key Achievements and Future Evolution
The fast deployment of the solution was due to the possibility of correct answer coherent with Bank needs.
From the definition of the operative model to its realization, we considered the need to manage the transaction taking care of the processes already operative inside the banks of the group. With this in aim, a gradual introduction of the new P&C model has been designed. In the first phase it will be supported by the pre-existing processes in the group. This approach will enable the banks involved in the project to gradually become familiar with the new model while at the same time adopt a common method to evaluate results. Instead, new P&C system will be operative after one year from the introduction of the model.
The new P&C model is based on a combination of four concepts and allows the group to monitor and provide useful data from taking strategic decisions. The key variables consist of: ·
Financial Rules. The P&C model encompasses the evaluation of internal transfer rates linked to the yield curve. It also provides detailed revenue and costs computation, such as information on maximum overdraft bank charges, or value date, received/paid commissions and value date float recording. Financial rules also aim to enable an integrated vision by customer, account and product, and allow for a dynamic analysis of obligatory reserves and profitability.
Analysis dimensions. In this model, all the dimensions of analysis are computed autonomously and may represent input for multidimensional analysis (e.g. the "customer" dimension could be analyzed by segment, by risk class, by geography and so on).
Financial Products and Financial Services. The model allows for in-depth analysis that can be configured according to the needs of any bank belonging to the group. Moreover, the model is flexible and open to accommodate new products and services.
Benefits
The complete adoption of the new P&C system, the key benefits for the Bank include: · Availability of a P&C model which is more in line with the new strategy of the group. This is particularly true in relation to the possibility to support broader information needs, such as cost allocation, capital allocation, multi-channel distribution networks and risk adjusted performance measurement.
The possibility of managing new business needs and/or specific needs of selected banks in the group, thanks to the flexibility and modularity of the solution;
True integration between the banks in the group.
IDC market evaluation ( from IDC)
Mergers and acquisitions have been among the main instruments used in the recent reorganization of the European banking sector. The scenario of European Banks is common to this, as the strong and rapid growth of the banking group was made possible through multiple acquisitions.
However, after this expansion, currently sees the lack of integration between the different entities belonging to its group as a remarkable limitation to further growth.
For the Banks set the adoption of a single vision across the group for P&C as the first step toward a greater harmonization, providing a strong top management commitment to achieve:
Strategically: growth of value to shareholders
Tactically: improved profitability of distribution networks
This is quite an innovative approach to banking, as P&C activities in banking have traditionally been mostly intended for internal audit purposes and to execute statutory and regulatory demands rather than to help management make decisions. Also, from the point of view of is quite innovative. was able to implement a new and complex P&C system in a short period of time.
The project demonstrates how the adoption of packaged solutions and software combined with modular architectures allows rapid implementations even in highly customized environments. However, the adoption of packaged solutions in banking to cover accounting, reporting and P&C functions is still quite rare, as they are generally provided through custom developed applications (see Figure 4-6 below, which provides results from the IDC primary research).
Figure 2
Enterprise Resource Management Software Adoption at European Banks, 2000
Source image : IDC Global IT Survey, 2000
Abstract of Alessandro Cerboni
Winning Experiences in Planning & Control in Banking
