CIBC banks on ABM to enhance branch performance

When the CIBC decided to implement an activity-based management (ABM) system it was looking to better assign revenue and expenses to different units within its business.

Once in place, however, the system offered the bank another quite unexpected payoff: the ability to identify existing inefficiencies as well as best practices.

This, says CIBC executive Carl Griffiths, was made possible by examining each branch’s residuals (the difference between actual expenses and service fees). A senior director in CIBC’s consulting services group, Griffiths was addressing a SAS Canada-sponsored seminar on ABM in Toronto on Tuesday.

ABM is a management control method that identifies the cost for each business activity within an organization by isolating the activities and determining the cause of each.

At CIBC, the ABM project provides the bank with better insight into the performance of its business units. Some units generate revenue while others provide services to other units, incurring expenses.

“We’ve built an internal market that somewhat reflects the outside market of the real world,” said Griffiths.

To create a model representative of more than 1,100 branches, Griffiths’ team visited 12 average branches.

They figured out the average time per transaction for services such as opening an account or making a deposit, and this then became the standard.

Customary branch costs – on staffing and rent, for instance – were factored in to create a service fee for each transaction. When the service fee is multiplied by transaction volume, the difference between that figure and actual expenses is the residual.

“We stumbled across this residual information, which we’ve been able to use to look at the business from a management point of view and improve our performance,” said Griffiths.

Some factors responsible for poor residuals are out of a manager’s hands. For example, a few months after they ABM system was online, all the Maritime branches showed adverse residuals.

“We [wondered if] they were all drinking the local liqueur too much?” joked Griffiths. “It turns out there had been a really bad patch of weather in the Maritimes and branches [had] to close.”

Other factors, however, are within a manager’s control. Analyzing the data, Griffiths said they were surprised to see many poorly performing branches were near universities. These branches were more likely to hire students who would only work a few hours a week.

“(Tellers) have to know all sorts of things, and if you’re only there for a few hours a week you can’t pick it up, so they weren’t operating efficiently,” said Griffiths. He said the bank revised its hiring practices for university students, and set the minimum number of hours they would be required to work each week.

On the flip side, best practices at over-performing branches are identified and shared across the organization.

CIBC took a year to get its project up and running, using ABM software from SAS to power its system, complemented by internally developed programs. Griffiths said building the models within SAS software was simple; what took time was pulling the volume data for each transaction from the bank’s legacy platform.

At their core, ABM systems help companies identify the resources needed to implement their business directives, according to Michael Tinkler, vice-president of knowledge management at Synerma Inc., a management-consulting firm in Longueuil, Que.

Tinkler, who also spoke at the event, said ABM is the most rational way to do budgeting. “Also, when you have a better handle on your costs you can do a lot more competitive pricing.”

He said planning is the key to a successful ABM implementation. Every deployment, he said, must begin with a proper planning phase that identifies the goals and then creates a work plan. All stakeholders must be at the table, from the finance and managers to IT.

“There has to be significant participation on the project team from the people that are going to be running this later on,” said Tinkler. “It’s very important to not just let this be a consultants’ exercise.”

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