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How to plan and manage profitability in unpredictable times in the Banking industry?

Oct. 7 2020 by Marco Van der Kooij, Managing Director - ForSight Consulting

Performance Management Budgeting & Planning

New regulations and technologies are impacting growth and profitability of banks the last couple of years. Banks are focusing on markets where they can excel and are divesting activities, which are less or not profitable. Also the fast entrance of new Fintech players are impacting traditional core activities as payments, investments, savings and loans. Still, the unprecedented impact of Covid-19 accelerated change in the banking industry on two sides:

  1. Digital and mobile apps services to customers
  2. Digital and enterprise-wide remote working

Without physical contact other means for providing services and interaction with customers were rolled-out, if not available, or improved at a very fast pace. The same applied for all staff. Measures were taken to support remote working and for the office of finance particularly remote closing and providing forecasts faster and more frequent. Various research shows that banks are further speeding up their digital self-services capabilities for on the one-hand side to increase profitability by improving operational efficiencies and through cost cutting, and on the other side by transforming their business model into a digital eco-system with the bank at the center of this platform.

What is the impact for the office of finance?

In this extraordinary time with volatility every day the office of finance needs to provide an accurate forecast based on scenario planning for what-if analysis with clear communicated assumptions impacting the business and financial performance of the bank. This next to the consolidation and reporting for the mandatory compliance to various institutions.

As business models are changing the impact on the value chain must be evaluated and corrected where needed. Profitability analysis by customer, product, sales channel, geography, etc. needs to be at the core of the reporting and analysis provided by the office of finance. An analytic information hub is required to bring together granular operational and financial data for data-driven decision making. This next to applying activity-based management methods for calculating the right outcomes for the cost-to-serve for products via the various and changing channels.

What architecture approach to take?

Being involved in several large projects at banks during my career I have noticed that change in the office of finance when there is a change of software platform can take a while. I remember a project started in 1999 and receiving a call from the project manager in 2005 that the original architecture was finally completely implemented. Several years later at another very large bank with other software we managed to do the first phase in 10 months. In both cases I’ve suggested a central storage for more granular data at the corporate level for finance, but this was rejected.

Nowadays with regulation requiring more granular financial and operational data (e.g. for IFRS 9 and 16) a centralized storage for compliance, risk, financial planning & analysis and profitability management is more evident than ever to act smarter and faster. The size, complexity and distributed nature of data needed for increasingly closer to real-time and optimized decision making, is needed now more than ever, meaning that rigid processes, architectures and tools are breaking down. Now it is time to act and replace your legacy system.

If you want to learn more about the benefits that BNP Paribas is gaining with CCH Tagetik Budgeting & Planning solutions watch the video here!

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