End To End Workflow Applications

Over the next few years most banks will be investing strategically in both business operations and technology to position themselves for gaining market share. This investment is on top of the significant investment many large mid tier banks have already invested to improve process efficiency and customer service. An early start provides the momentum to take market leadership. Even though retail branches continue to make significant contributions to bank revenue, many institutions did not attach high importance to branch banking in the past. With the current recognition of the value of customer service for account capture and retention, that trend is changing. Many institutions are putting considerable investment into creating scalable new customer service oriented branches for gaining market share. The often conflicting objectives of lower costs and increased sales have forced banks to make difficult decisions and reconfigure branch networks often with limited or inaccurate data and tools. These decisions have involved a combination of: creation of de novo branches, mergers and acquisitions, branch consolidations and branch downsizing. As a result, service delivery models have to be updated with effective tools to cope with changes in customer services and service level requirements. Profitable products have to be vigorously and effectively marketed, and once captured, served in a customer focused quality environment to meet retention targets and provide competitive advantage. To meet these new service levels while maintaining controls on costs, cost efficiency improvement methods have to be implemented. An end-to-end workflow analysis tightly coupled with a dashboard reporting approach provides management with a capability for quick assessment of a changing environment and the ability to achieve the highest payback levels. In addition, the service facility can be organized around customer segments, as dictated by customer profitability guidelines. An end-to-end workflow defines, illustrates and graphically demonstrates how retail banking operations quantitatively supports numerous productivity improvement ideologies.

- Activity Based Unit Costing & - Customer Profitability

End to End WorkFlowDatabase (Channels & Back Office)

Customer Relationship Management

- Capacity Planning - Branch Staffing and Scheduling

- Network Restructuring - Denovo Branch Planning

- Cost of Repairs

- New Acoount Origination

- Reengineering - Automation - Outsourcing

Double arrows represent built in feed back loops of End to End Workflow database. Or changes made by the applications are constantly updated in the database

Process Reengineering: Streamlining workflow to achieve superior service delivery system For many years, management has used a Process Reengineering approach to understand the retailbanking environment and determine their productivity related tactical action plans. One of the fundamentals of Process Reengineering is to improve customer service and process efficiency by breaking down the barriers that obstruct process flows. Process Reengineering brings branches and back office operations closure together. Processes to be reengineered are prioritized according to their importance. Certain activities, no matter how efficient, have little impact on branch profitability and have lower priorities. Internal benchmarking techniques are commonly used for categorizing major and minor activities. These techniques are built upon key measures such as processing time, revenue, product cost and customer satisfaction. Process reengineering begins with the documentation of end-to-end workflows. The purpose is to describe processes visually and relate associated data such as stochastic volume, linking systems, roles of people and business rules. It ties together work performed in other silos and departments. End-to-End workflow provides detailed information about process performances. It reveals problems such as prolonged cycle time, resource intensive processes, error prone activities and obsolete systems that are addressed as part of reengineering initiatives. Process Automation Improving overall productivity and customer service quality Without an End-to-End process reengineering approach, automation efforts are forced on isolated processes without understanding the impact on the overall retail banking operation. Often systems analysis focuses on technology and end up selecting technology first and then processes are manipulated to fit the technology. This approach results in costly automation efforts that dont fully realize the gains for which they were intended. Any technological change made to a retail banking operation needs to begin with an end-to-end workflow followed by productivity improvement projections and cost justifications of investments. A technical

solution should only be selected after a feasibility study (based on the end-to-end workflow analysis) guarantees improvements in business processes.
A systematically documented end-to-end workflow is an obvious tool for streamlining processes. End to end workflow is not only a means to understand processes; it also provides a comprehensive view of the entire operation. Where resource intensive operations or redundant processes or service quality problems slacken productivity, an automation program presents opportunities. The end-to-end workflow process has been used for many years but it has become more prevalent after disparate systems started confusing decision makers with conflicting data sets. It now enables the business analyst to bring disparate systems together to work synergistically. Process Outsourcing: Contracting out HR intensive activities to an external process specialist Many banks are outsourcing routine low priority back office activities to focus on mission critical issues. Outsourcing is contracting out processes to an external entity who is a specialist to lower the cost of operations. What processes to outsource, how to reconfigure process flows and how to achieve continuous improvement? are the main questions answered in an effective outsourcing program. A major concern that holds back many managers from outsourcing appears to be the fear of drastic change A major concern that holds back many managers from

outsourcing appears to be the fear of drastic change, and unknown impacts to service levels and quality. For effective outsourcing, end-to-end workflow analysis and engineering is required to identify, how and where the outsourced process components interface with non-outsourced components of the workflow, and in addition the service levels that must be met without affecting the customers. After outsourcing, the end-to-end workflow spans beyond the back office into the vendor s operations. It is critical to maintain a smooth end-to-end workflow after outsourcing processes. After outsourcing, end-to-end workflows span beyond the organizations back office into the outsource suppliers operations. A well-defined end-to-end workflow encompasses the bidirectional communications link between the outsourcer (vendor) and client establishes an effective communication link to guarantee transparency of the vendor organization. With an endto-end workflow based approach, a pilot of a well defined and uncomplicated workflow can be leveraged to prove out the outsourcing process. The pilot is helpful to refine success criteria and to significantly reduce costs associated with outsourcing. Once experience is gained in outsourcing one process, other processes can be pursued.

Cost of Repair: Minimizing errors through root cause analyses Errors can be the fault of customers or the bank, but irrespective of their cause, they are highly visible and expensive to correct. Customers generally have no tolerance towards bank errors and expect quick turnaround time for repairs. To understand the issues and measure effectiveness,

banks conduct surveys to track errors and error corrections. Many banks hire outside consultants to establish customer focus standards (customer expectations) and to determine the acceptable level of customer service quality according to customer segments. However, there are no established industry-wide standards to establish a baseline for best practices. Without end-to-end process benchmarks, it is difficult to set objectives on error preventive actions.
Banks spend approximately 12-15% of their total operational cost on correcting errors. The cost of correcting an error amounts to 200 to 250% of a normal transaction. Most banks absorb the cost of errors as if it is part of doing business. Consequently, the transaction or product costs are inflated by the cost of repair. The cost of repair is an added cost that needs to be segregated and reduced. Error preventive methodologies such as Six Sigma and TQM are practiced by many institutions. These systematic, integrated and continuous error prevention programs tend to move banks through cultural shifts. End to end workflow provides a baseline in identifying root causes of errors and facilitates the continuous improvement of error rates. The recognition of business process flows cuts down the repair time by breaking down barriers between silos and departments. Branch Network Consolidations: Eliminating overlapping operations of branch networks One of the benefits of bank mergers is achieved from consolidating overlapping operations and processes. The synergies on the cost side are outstanding. The consolidation of operations, channels and administration reduces the fixed cost. Successful mergers have their focus on the details of network consolidations and integration of operating system platforms.

One of the challenges in retail banking mergers is consolidating two networks without negatively affecting customers of merging banks. Prior to merging, the individual branch network systems have to be maintained in parallel to avoid any disruption in customer service. The best practices are chosen to replicate an efficient and customer service focused branch-banking system. Without thorough analyses of end-to-end workflows, finalizing a branch banking system can be disastrous. Quite often the retail banking industry has experienced delays in merger timelines, affecting speculated merger savings. Banks are focused on centralizing multiple delivery channels such as: Branch banking, ATMs, Internet-banking and Home banking to reduce the cost per transaction. Also a centralized database can instantaneously update customer accounts irrespective of the channel used by the customers. End-to-end workflow is the basic tool for joining disparate systems that support channels and allow them to promptly exchange data.

De novo Branch Planning: Forecasting and planning de novo branch resource requirements A de novo branch is a high-tech, compact branch consisting of a relatively small staff that provides banking products in high traffic commercial centers. The conservative concept behind opening de novo branches is to grow organically and to gain market share in a desirable geographical areas. However, even a well-planned de novo expansion can only be sustained by appropriate methods of implementation. The complexities of processes involved in a de novo branch make it a challenge to deal with all delivery channels. In order to achieve an efficient process flow, the de novo activities have to be discretely defined. The end to end workflow is an ideal planning tool for determining: resource requirements, optimal product mixes, branch layouts and customer service quality. End to end workflow can help management to focus on objectives such as: a deposit growth of 20% a year for next five years and cash flow break-even of three years. Usually productivity of a de novo branch is maintained in the top quartile of the network. Capacity Management: Minimizing excess capacities of branches and back office One of the essential challenges in retail banking is to maintain the right balance between productivity and customer service quality. In this light, customer centric and production centric strategies can only succeed if there is synergy between both branches and the back office business processes. In some cases, non-customer related back office functions are performed in the branches. A capacity model can determine the precise amount of back office work that should be performed in the branch. Too many operational activities in a branch may affect branch sales, likewise centralizing too many customer service activities may affect customer satisfaction. For example, a Check Book Order can be done by a CSR at a branch or by the Call Center. Capacity management objectives are established by optimizing productivity and service quality by disregarding the extremes of employee productivity and customer satisfaction to gain a comfortable middle ground. End to end workflows comprised of branch and back office activities can shed light on sorting activities between branch and back office. A capacity model takes into consideration customer

satisfaction prior to suggesting staffing levels in branches. Even though the excess capacity is additional cost, it is necessary to avoid poor service, staff fatigue, low morale, high turnover and missed opportunities to cross-sell. However, with end-to-end workflow, the optimum level of excess capacity can be determined. If you operate your branches without a staffing and scheduling model you expose yourself to unnecessary risk. You risk being understaffed, which leads to poor service, staff fatigue, low morale, high turnover and missed opportunities to cross-sell. You risk being overstaffed and diminishing profits. You risk being out of touch with important customer trends. You risk not adequately measuring the performance of your branch staff. Long range planning for branch staffing becomes no more reliable than reading tea leaves without a reasonable staffing and scheduling model to reveal your future staffing needs and expenses.

Branch Staffing and Scheduling: Managing branch resources to meet customer demand Branch staffing and scheduling strategy over the years has expanded beyond expense control. The trend is to staff branches to maintain predetermined service levels. The current technology together with a CRM database enables branches to develop less expensive and more accurate staffing models to deliver desired customer service quality. The customer demand patterns can be easily forecasted from CRMs readily available transaction volumes. The main cost driver of an average branch is human resources expense. A branch invests approximately 45% of its operational cost on staffing. It takes precise calculations to optimize staffing expenses and to deliver a desired level of customer service quality. A branch business expansion is mainly dependent on an effective branch staffing strategy. The existing customer opinion (customer focus standard) of a branch becomes the mind-set of the local community. Branch banking is the main channel that supports other channels and non-banking business such as Insurance and Investment. Branch staffing calculations without cross checking workload imparted to branches from other channels and back office, would be erroneous. The application of an end-to-end workflow database in conjunction with a centralized database is the most effective approach towards managing branch staffing. Teller scheduling whose scope is only limited to teller activities is a subset of branch staffing. A traditional teller scheduling model forecasts customer transactions by time of the day and accordingly projects teller requirements for a desired customer waiting time. Customer arrival forecasting models are supported by CRM and customer service rate calculations are supported by an end-to-end workflow database. Many banks have tellerscheduling models in place to manage teller scheduling, but without accurate end-to-end workflow analysis and transaction forecasting features, controlling the customer waiting time can be disastrous.

Profitability Analysis: Understanding profitability by customers The customer-profitability measurements involve the entire retail bank. All business groups work jointly to reduce costs and improve revenues. Due to the recent technological changes, calculation of customer profitability has become uncomplicated. The Customer Relationship Management (CRM) database maintains transactions by customers. The transactions incur costs and also

generate revenue. The revenue and the costs by customer are calculated to account for customer profitability. Activity Based Costing (ABC) that is based on end-to-end workflow is key to calculating transaction costs. Unit costs from ABC and transaction volume from CRM are used to generate transaction costs. A customer profitability model methodically manipulates the data obtained from end-to-end workflow, ABC and CRM. Compared to customer revenue, the customer cost is more complex to calculate as it involves manipulation of end-to-end workflows. As products are subjected to various processes they change their identity and the units of count with which products are tallied also change. For example, branches count the number of deposits where as the Encoding Department counts number of checks encoded and Help Desk counts number of erroneous checks. It is important that the counting is reconciled to the final product to avoid confusion in costing, pricing and profitability analysis. Retail banks have been employing additional resources for the compilation and translation of data that feed into unit costing and profitability models. Without end-to-end workflow, it is rather difficult to understand and relate interim process outputs to final products. End to end workflow improves accuracy of profitability analysis by tying together the fixed and variable cost incurred by various silos involved in completing a transaction. End to end Database Implementation: The End-to-End Workflow database involves processes performed in all channels and back offices. The end-to-end workflow design varies depending on its developer. Most institutions develop workflow database as needed for accomplishing new initiatives. A separate database for each application such as unit costing, capacity management or process reengineering creates redundant databases causing confusion. DR. Edward Demings Constancy of Purpose principle suggests one database for many applications. The objectives of Constancy of Purpose are: To reduce the cost of maintaining the duplicate databases To eliminate errors and data discrepancy caused by the redundant databases To maintain the most current base line Product Flow LLC, to facilitate retail banking productivity and profitability improvement initiatives, has developed Singular Product Flow Database (SPFD), which is an end-to-end workflow database. SPFD is based on MS Access database or SQL server applications depending on the bank size. SPFD utilizes Visio for the graphical storage of process flows that includes processing times, activity volumes and the human resources data. It is a dynamic database with active feedback loops that promptly updates ongoing changes. The link between SPFD to CRM is vital to the transfer of customer transaction data. The data parity between both databases is critical to the quality of analysis based on SPFD applications. The SPFD data structure is normalized to avoid data discrepancies with its data sources. SPFD is the common platform for all applications that pertain to branch productivity and profitability.

Raj Gaonkar, ProductFlow LLC August 23, 2006