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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.

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.


Gregory A. Noonan & Associates, Inc.

Toll Free 877.616.4385 In Memphis 901.218.9453


P.O. Box 381433, Germantown, TN 38183-1433