TORONTO – The Canadian Imperial Bank of Commerce is in the process of applying the same software and strategy it has used to improve the performance of its branch locations to the shared services at its corporate headquarters.
SAS Institute Inc. on Tuesday hosted an executive from the bank as part of a seminar on the benefits of activity-based management (ABM), which involves isolating the costs and expenses involved in various business processes and reallocating resources as appropriate. CIBC began using activity-based costing to get more insight into the operations of its branches, telephone banking, online banking and other channels about three years ago. Although ABM involves some fairly standard methods, the data processing and calculations can be performed through the kind of software SAS provides.
Carl Griffiths, senior director of CIBC’s consulting services group, said applying activity-based management to shared services such as human resources, IT and legal is important because the expenses from these departments are typically passed on to various business lines.
“It’s a politically sensitive subject,” he said. “No one likes the word ‘allocations.’”
CIBC gathers much of its analytical data by studying what Griffiths described as the “residual.” This is calculated by looking at the actual expense involved in an activity – such as opening a bank account for a customer, setting up a mortgage and so on – and then deducting the service fee associated with that activity. Since CIBC operates approximately 1,073 branch locations, the team decided to take a representative sample of the 12 average branches and tried to determine the residuals for each activity performed.
Identifying which branches had the highest residuals lead to some unexpected insights, Griffiths said. For example, some of the more poorly performing branches tended to be located near university or college campuses. As a result, those branches tended to hire more students for teller positions, though in many cases they only worked a few hours a week.
“We tend to think of tellers as being one of the lower jobs in the bank, but in fact it can be incredibly difficult,” Griffiths said. “If you’re not there more than a few hours here and there, you can’t pick it up.”
CIBC has since instituted a minimum number of hours required for some teller positions at those banks, Griffiths said.
Michael Tinkler, an ABM expert with consulting firm Synerma Inc., said getting a handle on the costs of activity can help organizations better understand who their most profitable customers are, and who are causing more trouble than they’re worth.
“Does that mean you fire the customers, or drop the (unprofitable) product line the minute you get the report? Maybe not,” he said. “Maybe you can get more small orders. Can you generate more revenue from those customers? (ABM) is supposed to start the process of analysis.”
Tinkler acknowledged that much of the raw data involved in ABM is fairly soft – it is often based on interviews with staff responsible for an activity who estimate how long it takes them to complete it. In some cases, he added, these estimates can be supplemented by estimates from other people within the same department, as well as hard data such as the volume of transactions associated with an activity that may be recorded in a database. Other organizations may opt to compare those numbers with last year’s recorded volumes.
Enterprises who have started down this road find the real benefit in the planning and budgeting, Tinkler added. “Think about it – do you want to know what your costs and expenses are now, or what they will be?” he said.
Chris Redmond, an executive who works in IBM Canada’s public sector consulting division, said the results of ABM tend to surprise senior management. IBM, for example, is helping build analytical models to assist Ontario’s Shares Services operation in becoming cost recoverable by next year.
“They didn’t realize they had 28 different types of invoices,” he said, adding that the models underscored the difference in cost between paper-based invoices and electronic ones. “They won’t be allowing paper-based expenses any more.”
Griffiths said ABM doesn’t always take into account unexpected variables, like weather. CIBC couldn’t understand why volumes in its Martime branches were lower than expected, which meant fixed costs were not recovered. “It was a season of terrible weather and snowstorms,” he said. “They were having to close, so obviously that affected their operating costs.”
SAS will be bringing its ABM road show to Montreal on Thursday.
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