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A First Step Toward Improved Profitability
Service Quality Processes
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The Nolan Company is a management consulting firm comprised of highly experienced and exceptionally knowledgeable industry experts. As trusted advisors to our clients, we frame, simplify, and solve complex and multi-dimensional operational and technical challenges.
July 2014
Nolan BPS: A First Step Toward Improved 
Profitability Views
Mike Meyer, Principal Consultant


We have yet to work with a bank or credit union client who has mastered the art and science of establishing clear, accurate, multidimensional views of cost and profitability. Most organizations strive for it but never fully achieve it. Some larger banks have set up elaborate cost systems and approaches designed to achieve this elusive goal, only to struggle to keep the information current, simple enough to understand, and relatively accurate. The profitability views typically desired can include any or all of the following:

  • By customer (account, relationship, etc.)
  • By product (loans, deposits, insurance, investment, etc.)
  • By distribution channel (branch, small business lending, corporate banking, ATM, web banking, etc.)
  • By functions or business processes (end-to-end lending, sell/open new business, maintain/service existing business, close business, process transactions, etc.)
  • By line of business (retail banking, middle market lending, CRE lending, mortgage lending, information technology, etc.)

In attempting to better understand various aspects of profitability, some banks invest heavily in technology, analytics, and other overhead, and they develop elaborate cost-accounting and allocation methodologies. It is always a balancing act between how much can be invested, the degree of accuracy perceived to be needed, and obtaining and keeping buy-in from key stakeholders. For most small and mid-size banks that aren't in a position to make big investments, it is an ongoing struggle, and they settle for educated guesses.  

 

Nolan's Bank Performance Study is a step toward a better grasp of bank profitability at the line-of-business level and beyond. Nolan guides study participants on breaking down enterprise-level income and expense data horizontally across various lines of business and functional areas, and vertically within these areas. Apples-to-apples comparisons can then be made between participants across more than 700 resulting ratios. Funds transfer pricing methodologies can also be applied in order to provide a more precise view by allowing for charges and credits between lines of business (for example, expense and income generated by deposits or other liabilities associated with a given loan type). With the inclusion of other key components − such as volumes, balances, and FTEs the ratios are calculated and compared to the averages and benchmarks for peers.

 

Although the Nolan Bank Performance Study is no substitute for an elaborate cost-accounting or allocation and profitability program, it provides a new perspective and is a great starting point in striving for that ever-elusive goal of multidimensional profitability views. First-time participants find that assembling the data is more than worth the effort because of the new insights gained into profitability and productivity. Repeat participants, having already created a framework for the data, find the ability to see year-over-year trending invaluable. We welcome your ongoing feedback and participation.

 

This year's data is being tabulated now. Even if you did not submit your data for the study, you can still submit it now and we can provide you with a comparison of your results against the benchmarks. If you would like additional information on Nolan's Bank Performance Study, please contact me at mike_meyer@renolan.com and visit our website at www.renolan.com/bank-benchmarks.  

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ServiceQuality The 
evolution of technology has ushered in a period of radical change in the banking arena. Not only are customers demanding greater functionality and convenience from Internet banking and mobile solutions, they are also finding it easier than ever to switch banks when financial institutions fail to offer the choices they're looking for. The Nolan Service Quality Process equips banks with relevant insights and proven processes to stay in step with changing customer preferences. By structuring the banking experience around the things that are most important to the customer, financial institutions can look forward to:

  • Reduced operational expenses due to enhanced accuracy and efficiency
  • Faster cycle times, driven by proactive process management
  • Solving problems on the spot using a "one and done" approach to customer service
  • Invaluable word-of-mouth marketing from delighted customers
  • Increased retention and growth

To learn more about our approach to Service Quality Process, click here

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