Armada Consulting Announces Cost Management Benchmark Survey Findings
Armada Consulting is pleased to announce the completion of the inaugural Cost Management Benchmark survey for Financial Services companies. The survey achieved the objective of providing current information on the state of cost management in Financial Services companies representing a cross section of participants including commercial banks, community banks and credit unions.
Participants ranged in size from well over a Trillion in assets to under $300 million. Regardless of asset size, respondents were fairly advanced in cost analytics with the vast majority rating their capabilities as intermediate or advanced. Despite the respondents being fairly advanced, the vast majority at best had only doubled their investment to date in cost analytics.
We believe Strategic Cost Management is one of the most controllable components of the profitability equation for many industries and survey results suggest many Financial Services companies are challenged to deliver an effective return on investment for their efforts. The survey also confirmed that a successful Cost Analytics framework is one that drives business value and is highly correlated with unit cost methodology, capacity analysis and a standard management reporting approach. The integration of cost management information into the reporting and planning process was also a strong contributing factor to the success of the overall performance management effort.
The survey confirmed our belief that a successful Cost Analytics framework is not correlated to size of cost analytics investment, use of a dedicated system or asset size of the institution. Shared Services and IT chargeback mechanisms also contributed to a successful Cost Analytics framework for the majority of companies surveyed.
Many industry contacts and a majority of the respondents indicated an interest in more detailed cost management benchmarking efforts leveraging a standardized approach. Branch economics were the most desired topic for potential further benchmarking efforts along with IT cost transparency and shared services. Armada Consulting will continue our effort to be a premier provider of Strategic Cost Management solutions by expanding our Financial Services research and potentially leveraging our experience across other service oriented industries.
If you have any questions or if you are interested in participating in current or future survey efforts please contact me at Brad.Anderson@Armadaconsulting.com.
Achieving Strategic Cost Management for Profitable Growth
Market challenges driving increased need for cost analytics
As economic uncertainty continues to drive demand for advanced cost analytics, Finance is now faced with the challenge of providing front line management with detailed business analytics that will enable increased expense control, improved operational efficiency and more effective pricing strategies. Many organizations are taking a renewed interest in expanding cost management beyond the confines of Finance by engaging the enterprise on a collaborative effort for cost control and accountability.
Adding to the challenge is the fact that most Finance teams were hit hard with headcount reductions over the last couple of years and now lack the resources and capabilities to meet current demands. Finance professional are anxious to move from the daily firefighting role thrust upon them by resource constraints and re-engage on more strategic initiatives for cost and profitability measurement. As the demand continues to grow, I am often asked “How do we get started to quickly deploy a better cost solution at our company”? I have found that starting is the hardest part, but below I have outlined four critical components to successful Strategic Cost Management and one shameless plug on why you should engage Armada to help.
How to get started
Re-evaluate Cost Assignment Methodologies and Assumptions
Move away from legacy expense allocations and towards more consumption based cost assignments by leveraging operational statistics captured in core applications and data warehouse facilities. Focus efforts initially on traditionally non-controllable or indirect expense allocations from back office and shared services to foster the productive cost dialogue around consumption and accountability of shared costs. We recommend performing a thorough assessment of internal capabilities against Armada’s Cost Modeling Maturity Matrix both from a data and a resource perspective to examine internal capabilities to deliver value to the enterprise.
Design an Integrated, Sustainable Framework for Strategic Cost Management
Most organizations fail to advance cost management beyond modeling and measurement, stuck in a perpetual production environment of unit cost data often ignored across the enterprise. Armada’s SCM Blueprint focuses on enterprise adoption by integrating centrally governed cost information into continuous improvement, planning & forecasting, predictive modeling, and multi-dimensional profitability analytics. Our framework provides a structured approach for navigating beyond finance through collaboration with operations, product management and executive leadership, creating a sustainable program that balances current capabilities with future incremental improvements.
Leverage ABC for Modeling Business Economics and Realizing Immediate Operational Improvements
Organizations cannot achieve true cost transparency with subjective management surveys of high level operational processes. Gain credibility by avoiding finance centric “ABC Lite” cost studies, leveraging Armada’s Cost360™ approach for conducting thorough operational cost analysis and modeling. Prioritizing areas of urgent cost concern will gain management support and provide immediate operational improvement to self-fund continuous improvement initiatives.
Invest in Technology and Enterprise Governance
Methodology should drive technology decisions. Strategic Cost Management is a complex endeavor for any organization, requiring careful examination of requirements and thorough design documentation before investing in software. Armada supports our client’s selection of supporting software by conducting Rapid Prototyping of their subscribed methodology to uncover obstacles and drive a better set of business requirements. Armada can quickly deploy our Acumen cost analytics software as a proof of concept for evaluating business requirements or as a permanent solution for advanced cost analytics.
Engage Armada Consulting to Develop the Right Strategic Strategic Cost Management Solution for Your Organization
Armada has assembled the best and brightest individuals focused on maximizing our client’s return on enterprise Strategic Cost Management project investments. Our team works closely with clients to better understand their unique cost challenges and provides experienced professionals to assist in the design, development and delivery of substantial cost improvements. Armada differentiates itself against other consulting firms by providing clients with:
Convenience Is Key to Increasing Bank Profits in 2013
Adapted from the American Banker 1/3/13
by Brad Anderson
Have you ever caught yourself paying a $3 ATM fee to avoid driving across town to your own bank’s ATM? Add up the value of your time, gasoline costs, the need to complete a necessary task and it’s easy to justify that $3.
Convenience is king for many of today’s consumers, and banks should adjust to this changing behavior. Customers are flocking to online, mobile and ATM banking like never before. By the end of 2013, the Federal Reserve expects 42% of bank customers to use their smartphones for banking. Rapidly changing technology and demographics are going to accelerate these trends.
For financial services companies, the transition to mobile and online banking is a paradox. To stay competitive, they know they need to offer popular online conveniences, such as depositing a check with a smartphone from any location. They also know every time a customer doesn’t enter a bricks-and-mortar bank branch to make a deposit, they may be missing a face-to-face sales opportunity.
A decade ago, new bank branches were popping up on corners seemingly overnight. This trend was driven by customers choosing banks based on location. But the Internet is changing the traditional model. Customers are now able to choose a provider based on their product needs, and this may or may not be their local branch. Many banking products and services are commodities and, thus, customer behaviors are driven increasingly by price and convenience.
Because of dwindling foot traffic in bank lobbies, the leaders in banking are closing more and more branches every day. Branch economics are expected to be a major focus for banks and other financial services companies in the years to come, especially in light of the Fed’s announcement that low interest rates will continue into 2015. Sales and asset origination opportunities for many institutions will likely not return to levels seen prior to the financial crisis until then.
Additionally, you’re seeing more prepaid debit cards. Customers like them as an alternative to checking accounts and credit cards and banks like them because they can charge transactions fees that they can’t with a regular debit card. This trend will also allow some non-traditional players to enter the banking marketplace. The recent partnership between American Express and Walmart is only one example.
What does this mean for banks? In an increasingly competitive marketplace, they must continue to innovate to compete in the new online banking market and properly engage and build loyalty among customers.
Using data collected from debit and credit cards transactions, banks can better target customers and sell them financial services products that are customized based on the particular customer need.
Based on the earlier ATM example, it would seem that banks could capitalize on customers who are willing to pay for convenience. Other tactics include image-enabled ATMs, automatic bill pay, online and mobile bank services and large ATM networks.
However, banks must set prices accurately because customers generally hate fees. Last year, when several large banks tried adding debit card fees to non-ATM transactions, customer backlash caused many banks to abandon the idea. Also adding to the challenge is the fact that banks are generally not very well perceived by customers for service and value.
With all these innovations becoming available, it’s important that we put ourselves in the shoes of the bank customer. What do they value most? Is it personal service? Security? Convenience? Chances are it’s all of the above.
In this changing landscape in banking, it’s important to realize our own preferences as consumers can help shape the products offered at financial institutions. It also will be increasingly important to understand the economics of those products and services to price them appropriately.
Acumen 2.0 News
BROKEN ARROW – Over the past two decades, banks have taken measures to ensure they remain profitable while responding to increasingly changing market conditions, said Scott Wise, CEO of Armada Consulting.
Rising costs and falling margins are driving the demand for more detailed cost information, said Wise, partner at Broken Arrow-based Armada. The cost management company provides insight on company costs and how to maximize profits.
In November, Armada Consulting released its Acumen 2.0, a cost modeling software that is an upgrade to its cost analytics software, Wise said.
“The upgrade delivers improved performance management by delivering strategic cost management capabilities to their clients,” Wise said this week. “The latest release allows users to model costs in less time.”
Armada has 10 employees in Broken Arrow and offices in North Carolina, Atlanta and Philadelphia, Wise said. The company is poised to double the number of employees by next summer.
Wise launched Armada as a consulting company in 2002. In 2008, the economy collapsed and Wise shuttered the company. He reopened its doors this year and said he expects to see Armada earn $1.6 million.
“We finished the first version of Acumen in 2008,” Wise said.
Now, with the latest version, Wise and Armada are looking to license the software.
“We relaunched the first of the year,” Wise said. “Right now our business is 90/10 consulting and licensing and we are working toward 60/40 consulting to licensing ratio.”
The Acumen software helps banks identify obstacles to profitability and tells them where to save money, Wise said.
“Banks need to get a better handle on where expenses are and how they line up with their revenue sources,” he said. “Banks have to examine – given the regulatory environment – the products they offer customers and decide which work and which do not.”
Armada is not the only player in the market segment, Wise said.
“To the big players, this cost analysis niche is too narrow and is just another side business for their all-around data mining,” he said. “We separate ourselves by our ability to focus on the cost management.”
The latest Acumen provides clients with a deeper set of cost analytics to drive improvements, establish cost controls and better understand the economics of their business, Wise said.
“For many banks, it is difficult for them to understand their costs – when you look at the diversity of the main bank and their branches – it can be difficult to line up costs with the customer segments and the many variables,” he said.
The goal, Wise said, is to take Acumen and apply it to other industries.
“This release of Acumen represents collaboration with our clients as they provided great feedback and recommended enhancements for improving the product while implementing the software,” Wise said.
Cost management is becoming more relevant, he said.
Press Release found on The Journal Record
December 5, 2012
With the recent announcement from the Federal Reserve of a continued environment of low interest rates into 2015, the question of branch economics will continue to be a major focus for many financial service companies. We believe the announcement confirms our view on the sluggishness of the recovery and also the challenges in the business environment for the near future. Historically, low interest rates and slow asset growth will come together to stress the economics of many branch distribution networks.
A few larger financial service companies are utilizing the branch network in an attempt to deliver on the promise of a financial supermarket. The success of many is up for debate, but the diversification of products and services will help support branch economics. The challenge for many mid-size and smaller institutions that lack diversification is that the branch network has primarily become a mechanism for gathering and servicing deposits.
Because of this, the potential for an extended period of low rates could disproportionally impact many of the mid-size and smaller retail oriented financial services companies. Many distribution networks were expanded in a very different environment of strong asset origination and more appealing deposit economics. We believe sales and asset origination opportunities for many institutions will not return to levels seen prior to the financial crisis.
Understanding economic profitability supported by strategic cost management will be increasingly important in deducing how products and services are consumed, how they are delivered in branches, and by various distribution channels. This will assist companies to more effectively align financial and human capital to business lines, products, and customer segments with the highest risk adjusted returns. Improved performance management will also assist with the rationalization of delivery networks and the appropriate pricing of products and services.
Strategic cost management provides a framework to understand overall capacity and how to more effectively utilize available capacity. Strategic cost management also provides additional insight on how to more intelligently grow or how to reduce capacity as needed in order to better align with the needs of your current and future customer base.
With the economic and rate environment far from certain, strategic cost management also enables an organization to model various scenarios. This prospective modeling capability combined with a more granular economic view of historical results will be essential for creating opportunities moving forward.
In our focus of assisting companies to make better business decisions, it has become apparent that every few years the focus in financial services is centered on the merits of branches as effective sales and service platforms. In our experience, this same discussion around the seemingly constant expansion of financial services stores (branches) could easily be applied as well to various retail businesses and service industries which have a real or perceived need for a physical presence.
As technology and consumer preferences also continue to evolve, we believe one should question the economics and need for an aggressive physical expansion strategy across these varying industries. This analysis can be just as insightful for a retail, healthcare and higher education facility as it is for the neighborhood branch of a financial services company.
It is easy to understand the historical focus on expanding physical presence to drive revenue growth. For most of our collective career experience, this strategy has worked quite well in an environment of declining cost of capital, ample credit, and favorable borrowing costs. Our view is that we are experiencing a paradigm shift in the global economy that will result in higher costs to build (higher cost of capital/borrowing costs) and operate physical locations, coupled with a difficult environment to generate much in the way of pricing power.
Many financial services companies are in the eye of the coming storm with vast physical distribution networks and increasingly scarce revenue growth opportunities. We believe strategic cost management is a necessary capability to not only weather the storm, but to prosper. It will be increasingly important to understand how customers are consuming products and services by various distribution mechanisms. Strategic uses of more effective management information include how to allocate financial and human capital to business lines, products and customer segments with the highest return. More tactical benefits include rationalization of the branch delivery network and appropriately pricing products and services.
Strategic cost management provides a framework to understand overall capacity and how to more effectively utilize available capacity. Strategic cost management also provides additional insight on how to more intelligently grow or reduce capacity as needed to better align with the needs of your customer base. We feel many of the benefits of strategic cost management are applicable to understanding not only the recent question of branch strategy in financial services, but highly valuable in your business as well.