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> Article
This week’s
Guest Gonzo comes from the bean-counting, Excel-cranking, finance
hacking Consulting Associate at Cornerstone Advisors, Greg Noonan.
Greg’s run every facet of bank finance groups and he even had to
merge two $35+ billion banks management reporting environments in 9
months. He’s got the battle scars to help other GonzoBankers out
with the world of management reporting.
Management Reporting: Tough But Not
Rocket Science
By Greg Noonan
In the past fifteen years, bankers have survived a never-ending
slew of “revolutionary” software solutions that promised to improve
the world of management reporting – tools that were going to make it
easy to know how much money the bank was making on its products,
markets, business lines, branches, and customers. These systems
promised the ability to view high level performance trends and then
drill down to actionable information within seconds. At least that’s
what happened in vendor presentations – implementation proved a lot
tougher. Think of all the terms we’ve come to love and hate:
-
cost accounting
-
ad hoc reporting
tools
-
profitability
management software
-
funds transfer
pricing systems
-
the balanced
scorecard
-
data warehouses
and data marts
-
activity based
costing
...and the
biggest buzzword these days: business intelligence
The buzzwords have changed but has reporting really improved at your
bank?
One reason that banks still struggle with management reporting is
that the “what” to report and “how” to report is changing constantly
for financial professionals. Just think of the typical life of a
Gonzo bean counter over the past 10 years:
-The bank converted its core systems once…and then twice
-Four major bank acquisitions have occurred that caused hair-pulling
changes to the general ledger
-Bank charters were consolidated, usually during the fall right
during budget time (wonderful!)
-Every year like clockwork, the bank goes through some
reorganization
-Executive management decided to centralize a function and then
decentralized it 18 months later
-The Accounting Department was instructed to put commercial deposits
in the branches, then was told to pull them back to the commercial
cost center – the same situation happened two years later with
consumer loans.
It’s no wonder why poor finance folks are usually met with ho-hum
approval when presenting reports to senior management:
“These numbers look buggy”
“I’m not sure I buy how you are calculating that figure”
“This can’t be right – we’re doing better than that”
“I’m not going to pay attention to this report until I have
confidence it’s actually correct”
Because management reporting is still struggling for credibility in
many organizations, banks find themselves left with a strange bazaar
of “black market” reporting. Reports come from everywhere:
accounting, operations, I.T., marketing, commercial,
retail…sometimes even the janitorial staff (average toilet paper
rolls per stall is a common metric). All these reports have
different formats and inconsistent data and calculations. A board
package may report total non-accrual loans at $8.9 million on page
15 and $11.2 million on page 21. The act of managing at the bank
becomes a continuous debate and disagreement about what the TRUTH
really is.
TIME OUT!
Management reporting is not rocket science – it just takes the
patience, tenacity and resources that many banks haven’t been
willing to give.
So GonzoBankers, let me share with you a 4 – 6 month project plan
for your bank to take a fresh look at your management reporting and
finally get to a more consistent approach. With the right focus and
energy, it can be done – I’ve seen it happen. The project plan
centers in four key areas:
Step 1: Executive support
Step 2: Resource allocation
Step 3: Common report design
Step 4: Effective report delivery
Step 1: Executive Support
The first few weeks of the project start by winning the hearts
and minds of the big wigs in the executive suites. There’s an easy
way to win support: treat management like prospective customers for
your services and find out what they need from the Finance team.
Schedule some personal face time and ask each executive to define
the critical information they would want on a 1 – 2 page dashboard
to run their business. See how they access information today and
what the pain points are in trying to manage the business.
Once the executive specs are gathered, it’s important to quickly
build prototypes of each of these dashboards. This keeps management
excited about a new reporting process. With the prototypes designed,
hold a pow-wow of senior management and present a vision of how the
dashboards could be built, detailing data sources, resource
requirements and examples of what managers will receive. Data
consistency challenges should be identified and accepted by the
management team before moving forward. For instance, if initial
funds transfer pricing is not going to be based upon each account at
the time of origination, this should be understood by management up
front and the less accurate method of FTP blessed. Before time and
resources are spent building anything, it’s important to literally
get senior management sign-off on the methodologies that will be
used to calculate profitability reporting, potentially using
departmental roundtables to educate key staff. This will help avoid
the undermining of these reports down the road.
At this meeting, the executive team will need to commit resources
(people and systems) and direct business units to assist in solving
data challenges. Finance has to be stubborn here – don’t commit to a
management reporting revolution if there is no commitment to the
resources (even if it’s temporary help) to get it done.
Step 2: Resource Allocation
The management reporting vision should also assign one single
department to be responsible for ensuring that there is a common set
of information or “one version of the truth” for all reports. One of
the biggest mistakes banks make with management reporting is that
they try to make it an “extra credit” activity for already busy
accounting, treasury and regulatory reporting staff. With ongoing
business activity, a wild yield curve and constant change in
regulations, management reporting will always take a back seat. Even
if it is within the Finance umbrella, a separate function should be
dedicated to management reporting, and may include folks from
various disciplines like accounting, finance and database
administration. There are monthly changes in reporting systems, and
a dedicated team is the best option for implementing changes without
sacrificing time.
In addition to the dedicated staff function, banks also need to
commit to an adequate database and information management tools to
keep the information reliable. People who actually do this work can
attest that this involves a lot more than downloading a massive dump
of data into a copy of Microsoft Access or Excel. Many reporting
efforts have failed when banks try to kluge something together that
cannot possibly be scaled up or maintained. Although it comes at a
higher price, more effective software exists to handle ongoing
organizational and product changes and report information for
various organizational levels and business lines. The investment is
worth it! Because of these unavoidable changes that will occur
regularly in your bank, the management reporting group can make sure
data issues are reconciled and information remains as accurate as
possible.
Step 3: Common Report Design
The key to effective management reporting can be summed up by
the phrase “simplicity with the detail to back it.” Good management
reporting has concise, thin reporting packages that are backed by
databases and tools that can drill down very quickly into the how’s
and why’s of the numbers.
There are some best practices in management report design to keep in
mind. First, profit contribution at the customer account level
should include matched maturity transfer pricing, loan risk charges,
activity based operations expense allocation, an overhead
allocation, and a capital allocation. Secondly, it’s important the
system is set up so that all account level information can be
summarized by officer, customer, branch, market, line of business,
bank group or executive. Getting these building blocks right will
make it easier for all reporting to be accurate and useful.
Here are six key report packages that I would strongly recommend you
introduce in your banks reporting environment.
1. Executive Dashboard - 3 to 5 pages
A common set of summary level measurements and reports should be
defined so managers and employees can monitor performance of the
company at its highest level. The key to a great management
dashboard is simplicity: show the restraint not to overcomplicate
the darn thing. These reports should include both financial and
statistical metrics. Specific ad hoc reports can be developed for
analysis of issues or trends identified by the dashboard.
2. Executive Management Package - 10 to 15 pages
For the more in-depth management meetings, it’s important to build
an integrated month end package that delves into financial, line of
business and sales information. The package would include a
strategy, financial, asset quality, and operations dashboard along
with reports that benchmark bank markets in a variety of key income
statement, balance sheet and line of business metrics.
3. Internal Benchmarking Report
This report compares internal business units or bank markets versus
corporate thresholds on any key metric including new business. When
the bank is organized by different regions or areas, the internal
benchmarking report can unlock some healthy competition that
encourages stronger performance. Regional managers will work
overtime to make sure they are never on the embarrassing bottom of
the internal benchmarking report.
4. Line of Business Scorecards – 1 page each
Scorecard of key metrics for each line of business.
5. Operational Scorecards – 1 page each
One page for each functional support area to measure expense
performance along with productivity measures.
6. Supervisor and employee level reporting
At the very lowest level of management reporting, a library of
specific reports should be developed that allows functional managers
to view recent activity and take corrective action, if necessary.
The reports focus on items that managers can control directly in
their department such as fraud reports, exception items, variance
reports, etc.
Step 4: Effective Report Delivery
A best practice reporting environment will deliver monthly
management reports within two days after accounting closes the
ledgers. Additionally, 100% of this report delivery should be
conducted electronically. Banks have tried different methods of
management report delivery, all with limited success. When we first
threw out the paper and moved reports to optical systems, no one
seemed to look at reports online; instead, requests were made that
reports be printed yet again. In the next generation, when reports
were moved to the intranet, the same result occurred: management
found intranet menus too difficult to navigate and so gave up on
finding information. Sending email attachments to everyone’s Outlook
in boxes creates its own share of version control and data storage
issues.
The best practice emerging is to have the management reporting
system send an email alert to the manager that includes a hyperlink
to the new report that has been added to the intranet library. This
process triggers managers to look at reports while keeping
information in one central online source. Putting a specific icon on
each manager’s desktop for their specific dashboards and reports is
also an effective practice. A retail manager can spot “Retail
Scorecard” or will look for “Executive Report Package” versus a
generic label.
No Need for Rocket Science
Despite the buzzwords, new systems announcements and talk, bank
managers today still waste too much time and miss too much insight
with inconsistent and quasi-manual reporting environments. There’s
nothing from a technology perspective holding back improvements – it
all rests in the willingness to tackle the four Gonzo steps I’ve
outlined above and making sure the resource commitment is more than
talk.
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