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Modelling your bank top-down

Modelling your bank top-down

Financial Institutions are finding it increasingly difficult to measure performance against their strategic objectives and growth ambitions due to their complexity. Banks have divisional planning heads for each business unit, which consists of multiple products with multiple planning assumptions. The focus has traditionally been on getting the plan right, but how do we assess whether the strategy is realistic before we start the planning process?

Furthermore, how can we effectively challenge the plans that have been provided to us by business units or regions?

The need for a model to accelerate the planning process and challenge submissions effectively

The impact of business plans on the strategic key performance indicators only becomes clear once the planning phase has been completed. In most banks, this is months after the strategic objectives are set, and is the first instance where planning teams understand the viability of management’s strategy. The outcomes of review meetings held at this point may result in the need to change strategy and the plan to be re-implemented, which once again takes months.

To fix the misalignment of strategy and planning, organisations run multiple scenarios that cater to most eventualities through the plan. This then allows management to select a more viable scenario, which is in line with their strategic objectives. However, it increases the Full-time equivalent (FTE) efforts and costs associated with planning, and puts an excess strain on the already overstretched planning systems in large complex organisations where multiple regions and business units plan concurrently. Another consideration is to implement solutions that reduce the turnaround time to develop the plan, such as driver-based planning, which has seen positive results. However, running scenarios is still required to be performed, and consideration needs to be given to capital planning and allocation

How do we move forward? Top-down scenario analytics for the CFO?

The emergence of technology solutions has changed the way planning and performance measurement can be performed in large organisations. Top-down scenario analytics uses technology to develop models and reporting dashboards which enable the senior management to set realistic and effective targets that can be included in the plan and enable effective challenge of the plan that is being set throughout the planning cycle.

Following are current complications which prevent the implementation of this model at banks:

  • There are a cumbersome number of KPIs used across the business, and reports are not completely linked to the strategic vision of the bank.
  • There is no model available to perform a sensitivity analysis that provides an initial view of impact on KPIs which means a lengthy planning cycle is required to be run to assess the strategy.
  • Challenging the plan is difficult, as driver models which are integrated with strategic KPIs do not exist for all products.
  • There is no integrated tool to perform capital action planning, use the plan output, reduce the efficiency of capital retention and increase the cost of capital.
  • Scenario tools are offline in Excel workbooks, which do not allow real-time data refresh, are not linked to reports and have no access restrictions.
  • There is limited governance and control over models produced with multiple versions of spreadsheets used with inconsistent data input and calculations.

Top down scenario analytics solution

KPMG has seen success in solving the challenges faced by implementing the following Topdown scenario analytics frameworkat financial institutions:

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modelling-your-bank-top-down-analytics-solution

Case Study

Client Challenges

A major bank needed support transforming their global finance model into a scenario-based top down model within their existing planning systems.

The client’s systems were heavily manual and lacked appropriate governance and control. As a result, issues arose around their planning model being accurate, trackable, up-to-date, secure and properly governed.

Responses

KPMG responded by:

  • Implementing a framework and target operating model to govern strategic planning models.
  • Incorporating a governance framework in the model.
  • Single version of the truth being used for strategic performance management by the organisations which is clearly linked to its strategy.
  • Ensuring the ability to view impact of KPIs across multiple scenarios.

Outcome

KPMG provided a tailored solution within the client’s existing infrastructure that allowed for dynamic scenario simulations and a quicker response time to managing MI requests.

The additional functionalities implemented through KPMG’s solution led to faster roll-outs of new versions to end-users and an accurate review of the different model use-cases.

Ultimately, the solution improved decision-making abilities. Capital decisions were made which increased efficiency and reduced cost. Strategic KPI objectives were, in turn, achieved.