Operational Transformation in Banking Operations

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  • @kanovich
    Dimitri,
    First, my apologies for this delay in responding; I hadn’t checked in to slideshare for a while. My views in response to your questions are:
    1. who is supposed to be doing all of what you are offering: For any transformation project to be successful, executive sponsorship is critical. In this case, the head of O&T (Director Ops, COO, EVP Operations & Technology, etc.) would be my choice because that position is responsible for virtually all elements of the transformation matrix. When it comes to areas that are cross-functional, I believe the COO must take the lead because the incumbent will be in the best position (since almost every transaction – financial & non financial -- in a bank must touch O&T in some form or the other) to do so.
    2. what is target Retail Operations Organization: In a universal commercial bank, most organisations in the developed economies and many in the emerging markets have moved to a centralised operations structure and function as shared services centres. Unless a bank is just starting its retail operations, all ops must be part of the shared services centre (serving corporate, retail, treasury, wealth mgmt, and correspondent banking). I would not suggest that each line of business set up its own operations centres (like a Retail Operations Organisation). The only exception would be where consumer banking was in start-up mode, and for a fixed period only, before dovetailing it with centralised operations.
    3. how do you allign major Business Process under each function (Level 2): I may have misunderstood this question but am assuming that we have a business process that runs through different divisions (money transfers, credit card processing, and account maintenance for example). First, the business process will have been mapped and documented end-to-end so that every division is aware of its responsibilities in the service supply chain. Second, the end goal will be common to all: in terms of turnaround time, error rates, and any other KPIs that may have been established. Third, they will all be “performance managed” through similar performance indicators and adjudged on the basis of the end result (rather than individual mid-process indicators). And finally, if the organisation has sufficient volumes to warrant it, a SQ unit is always a good idea.
    4. what are a few examples of the underlying IT Solution Architecture: This one I’m afraid has me a little stumped. I wouldn’t expect anything more than a good core banking system, a good data mining capability, and an add-on for the enterprise risk part.
    I hope this has been of some help.
    Best
    Rajeev
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  • Rajeev,
    This is an interesting material. As a former COO you probably can explain the following, which is completely unclear - who is supposed to be doing all of what you are offering. More specifivally - what is target Retail Operations Organization (Functional responsibility Level1 - COO, CFO, CR.VP Risk Management, etc.), how do you allign major Business Process under each function (Level 2) and what are a few examples of the underlying IT Solution Architecture. Thank you, Dmitri Kanovich (www.it-candid.com)
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  • Impressive presentation.
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  • Pamoli01 - thanks for your comment. Unfortunately I don't have the original ppt with me to give you, but you could access the presentation with a VOICE-OVER at http://rajeevderoy.homestead.com/index.html
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  • Hi Rajeev,

    This is really a good piece of presentation. Would it be possible for you to make it available for download?
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Operational Transformation in Banking Operations

  1. 1. op⋅er⋅a⋅tion⋅al   /ˌɒp əˈreɪ ʃə nl/ <br />– adjective <br />trans⋅for⋅ma⋅tion   ˌtræns fərˈmeɪ ʃən/<br />– noun <br />
  2. 2. Operational Transformation<br />Productivity<br />Zero-based Budgeting<br />Regulatory Inspection<br />Facilities Management<br />Network Expansion<br />Cost Management<br />Operational Risk<br />Key Risk Indicators<br />Market driven SLAs<br />Operating Policies Manual<br />Update SOPs<br />Disaster Recovery<br />Performance Management<br />Process Re-engineering<br />FTE Reduction<br />Vendor Management<br />Reporting Requirements<br />Service Orientation<br />Complaints Resolution<br />Change Control<br />Staffing Issues<br />Business Continuity<br />Cash Insurance<br />Business Conflicts<br />Organisation Alignment<br />Product Launches<br />Project Prioritisation<br />ATM Management<br />Training<br />Key Performance Indicators<br />Technology Uptime<br />Internal Audit<br />MIS<br />Capacity Planning<br />
  3. 3. Operational Transformation<br />Productivity<br />Zero-based Budgeting<br />Regulatory Inspection<br />Facilities Management<br />Network Expansion<br />Cost Management<br />Operational Risk<br />Key Risk Indicators<br />Market driven SLAs<br />Operating Policies Manual<br />Update SOPs<br />Disaster Recovery<br />Performance Management<br />Process Re-engineering<br />FTE Reduction<br />Vendor Management<br />Reporting Requirements<br />Service Orientation<br />Complaints Resolution<br />Change Control<br />Staffing Issues<br />Business Continuity<br />Cash Insurance<br />Business Conflicts<br />Organisation Alignment<br />Product Launches<br />Project Prioritisation<br />ATM Management<br />Training<br />Key Performance Indicators<br />Technology Uptime<br />Internal Audit<br />MIS<br />Capacity Planning<br />
  4. 4. Cost<br />Control<br />Revenue<br />Lean Process Transformation<br />Operational Policies<br />Business Partnerships<br />Unit Cost based pricing<br />Productivity Enhancement<br />Operating Procedures<br />Resource Rationalisation / Optimisation<br />Control Checklists & Risk Indicators<br />Service Excellence in Production Centres<br />Operational Transformation Matrix<br />
  5. 5. Lean Process Transformation<br />Cost<br />Control<br />Revenue<br />Lean Process Transformation<br />Operational Policies<br />Business Partnerships<br />Operational Policies<br />Business Partnerships<br />Unit Cost based pricing<br />Productivity Enhancement<br />Operating Procedures<br />Unit Cost based pricing<br />Productivity Enhancement<br />Operating Procedures<br />Resource Rationalisation / Optimisation<br />Control Checklists & Risk Indicators<br />Service Excellence in Production Centres<br />Resource Rationalisation / Optimisation<br />Control Checklists & Risk Indicators<br />Service Excellence in Production Centres<br />
  6. 6. Lean Process TransformationLeanfocuses on three key elements<br />Management Infrastructure<br /><ul><li>Performance management
  7. 7. Organisational design
  8. 8. Capability building infrastructure
  9. 9. Support functions
  10. 10. Continuous Improvement Infrastructure</li></ul>Operating System<br />Behaviour & Capabilities<br /><ul><li>End-to-end design of core processes
  11. 11. Efficient, customer oriented</li></ul> operational units<br /><ul><li>Relentless waste elimination
  12. 12. Leadership – aligned and committed sr. team
  13. 13. Focus – compelling purpose , clear direction
  14. 14. Skills – People work effectively in their roles
  15. 15. Improvement – relentless drive to do better</li></li></ul><li>Lean Process TransformationFour typical steps in the transformation process<br />Setting Aspirations & Planning<br />Diagnostics & Process Design<br />Implementation<br />Monitor & Sustain<br /><ul><li>Set goals based on corporate strategy and business plans
  16. 16. Team selection
  17. 17. Project charter
  18. 18. Diagnose current state to ascertain key levers for improvement
  19. 19. Prioritise processes for transformation
  20. 20. Set future state point-of-arrival
  21. 21. Design processes to achieve future state
  22. 22. Pilot new processes
  23. 23. Establish measurement criteria
  24. 24. Coach staff on new dynamic (process & measurement)
  25. 25. Communicate progress and targets
  26. 26. Full implementation rollout
  27. 27. Monitor and report progress through established dashboards
  28. 28. Create environment conducive to continuous environment</li></li></ul><li>Lean Process TransformationAddresses four typical challenges in banking operations<br />Insufficient time / resources for Sales & Relationship personnel<br /><ul><li>Low front office productivity
  29. 29. Too much time on administrative jobs</li></ul>Typical <br />issues <br />addressed<br />High Operational Risk levels<br /><ul><li>Error rates
  30. 30. Inconsistent procedures (& outcomes)
  31. 31. Poor quality</li></ul>Customer dissatisfaction<br /><ul><li>Long wait times (operational TAT)
  32. 32. Inconvenient procedures
  33. 33. Operating errors</li></ul>High cost to serve<br /><ul><li>High product & service unit cost
  34. 34. Excessive re-work and waste</li></ul>Suite of tools used to address these challenges & provide solutions<br />
  35. 35. Lean Process TransformationSamples from the toolbox<br />MIFA: Materials & Information Flow Analysis<br /><ul><li>Process mapping
  36. 36. Elimination of non value added activities</li></ul>Overproduction<br />Transportation<br />Intellect<br />Inventory<br />Motion<br />Waiting<br />Waste Analysis<br />Takt Time Analysis (for Capacity Balancing)<br />WhereT   = Takt time, e.g. [minutes of work / unit produced]Ta = Net Time available to work, e.g. [minutes of work / day]Td = Time demand (customer demand), e.g. [units required / day]<br />Rework<br />Processing<br />Touch-time analysis<br /><ul><li>Elimination of non value added time in a process</li></li></ul><li>Lean Process TransformationRecent benefits in regional banks<br />
  37. 37. Productivity Enhancement<br />Cost<br />Control<br />Revenue<br />Cost<br />Control<br />Revenue<br />Lean Process Transformation<br />Operational Policies<br />Business Partnerships<br />Lean Process Transformation<br />Productivity Enhancement<br />Unit Cost based pricing<br />Productivity Enhancement<br />Operating Procedures<br />Resource Rationalisation / Optimisation<br />Control Checklists & Risk Indicators<br />Service Excellence in Production Centres<br />
  38. 38. Productivity EnhancementDefinitional clarity<br />Productivity is a measure of output from a production process, per unit of input.<br />Productivity measures the efficiency of the employees in using the organization’s scarce resources to produce goods and services. <br />Σ Daily Volume Processed<br />Pa =<br />Average Team (Time Out – Time In) x FTE<br />“Productivity is never an accident. It is always the result of a commitment to excellence, intelligent planning, and focused effort.”<br />Paul J. Meyer<br />
  39. 39. Productivity EnhancementI/O of Productivity Augmentation Process<br />Input<br />Activities<br />Process Steps<br />Reference Checks<br />External Services<br />Time<br />Rework<br />Redundancies<br />Errors<br />Wait Time<br />People<br />Organisation Design<br />Span of Control<br />Technology<br />Core Technology<br />Automation Tools<br />Output<br />Products & Services<br />Production Capacity<br />Defect Ratio<br />Processing Time<br />Delivery Time<br />Organisation<br />Span of Control<br />FTE Redeployment Capability<br />Load Balancing Capability<br />Design Validation<br />Management<br />Execution Plan<br />Dashboards<br />
  40. 40. Productivity EnhancementProcess Schematic<br />Capacity Plan & FTE Redeployment Analysis<br />Process Identification & Prioritisation<br />Current Metrics & Standard Processing Time (SPT)<br />Organisation Structural Review & Design Proposal<br />Current Metrics & Standard Processing Time (SPT)<br />Process Transformation Deep Dive<br />End-state Implementation Plan, Targets & Dashboards<br />P1 = A1 + A2 +... An<br />P1 = A1 + A2 +... An<br />SPT >> FTE Conversion & Baseline Metrics<br />Rollout, Monitoring, Measurement, Course Correction<br />E2ESPTP1 = SPTA1 + SPTA2 + ... SPTAn<br />
  41. 41. Resource Optimisation<br />Cost<br />Control<br />Revenue<br />Cost<br />Control<br />Revenue<br />Lean Process Transformation<br />Operational Policies<br />Business Partnerships<br />Productivity Enhancement<br />Unit Cost based pricing<br />Productivity Enhancement<br />Operating Procedures<br />Resource Rationalisation / Optimisation<br />Resource Rationalisation / Optimisation<br />Control Checklists & Risk Indicators<br />Service Excellence in Production Centres<br />
  42. 42. Resource Rationalisation / OptimisationSingle Focus; Multiple Approaches<br />People<br />Performance management<br />Skills inventory<br />Skills utilisation & multi-skilling<br />Team productivity dynamics<br />Service Providers<br />Performance management<br />Vendor evaluation<br />Vendor rationalisation<br />Technology<br />Performance management<br />Project prioritisation<br />Vendor evaluation<br />Project Prioritisation<br />
  43. 43. Operational Transformation Matrix<br />Cost<br />Control<br />Revenue<br />Lean Process Transformation<br />Operational Policies<br />Business Partnerships<br />Unit Cost based pricing<br />Productivity Enhancement<br />Operating Procedures<br />Resource Rationalisation / Optimisation<br />Control Checklists & Risk Indicators<br />Service Excellence in Production Centres<br />
  44. 44. Operational Policies<br />Cost<br />Control<br />Revenue<br />Cost<br />Control<br />Revenue<br />Operational Policies<br />Lean Process Transformation<br />Operational Policies<br />Business Partnerships<br />Unit Cost based pricing<br />Productivity Enhancement<br />Operating Procedures<br />Resource Rationalisation / Optimisation<br />Control Checklists & Risk Indicators<br />Service Excellence in Production Centres<br />
  45. 45. Operational PoliciesDocumented Policy Manual<br /><ul><li>Operating Policies Manual is a dynamic, living document
  46. 46. Facilitates better communication across the Operations organisation
  47. 47. Helps in the development of operating procedures
  48. 48. Removes subjectivity & ensures consistency in interpretation of guidelines
  49. 49. Minimises disputes in the Ops-Business partnership
  50. 50. Empowers employees
  51. 51. Briefing on mission & strategy
  52. 52. Content selection
  53. 53. Review existing documentation
  54. 54. ToC, Format & Layout approval
  55. 55. “Write & Review” plan approval
  56. 56. Production</li></ul>A Policy lays out what management wants employees to do; a Procedure describes how it should be done.<br />
  57. 57. Operational Procedures<br />Cost<br />Control<br />Revenue<br />Cost<br />Control<br />Revenue<br />Operational Policies<br />Lean Process Transformation<br />Operational Policies<br />Business Partnerships<br />Unit Cost based pricing<br />Productivity Enhancement<br />Operating Procedures<br />Operational Procedures<br />Resource Rationalisation / Optimisation<br />Control Checklists & Risk Indicators<br />Service Excellence in Production Centres<br />
  58. 58. Operational Procedures<br />The How & Why of SOPs<br />A SOP consists of a set of instructions having the force of a directive, covering repetitive operations that lend themselves to a standardised procedure without loss of effectiveness.<br /><ul><li>Refinement Opportunities
  59. 59. Processor Feedback
  60. 60. Safe Work Practices
  61. 61. Legislative Compliance
  62. 62. Set Expectations
  63. 63. Measurement Benchmark
  64. 64. Decisioning Hierarchy
  65. 65. Eliminates Ambiguity
  66. 66. Workshops
  67. 67. Tests & Quizzes</li></li></ul><li>Control Checklists & Risk Indicators<br />Cost<br />Control<br />Revenue<br />Cost<br />Control<br />Revenue<br />Lean Process Transformation<br />Operational Policies<br />Business Partnerships<br />Unit Cost based pricing<br />Productivity Enhancement<br />Operating Procedures<br />Operating Procedures<br />Control Checklists & Risk Indicators<br />Resource Rationalisation / Optimisation<br />Control Checklists & Risk Indicators<br />Service Excellence in Production Centres<br />
  68. 68. Control Checklists & Risk Indicators<br />Consistency in Control Environment<br />A checklist is an informational job aid used to reduce failure by compensating for potential limits of human memory and attention. <br />
  69. 69. Control Checklists & Risk Indicators<br />Sample: Branch Control Checklist<br />
  70. 70. Control Checklists & Risk Indicators<br />Early Warning Signals<br />“I saw the signs and I was saved. Can you imagine my plight if I had ignored them; or worse, if they had not been there?”<br />
  71. 71. Operational Risk: risk of direct or indirect losses on income or capital, resulting from inadequate or failed internal processes, personnel, systems, or from external events.<br />Control Checklists & Risk Indicators<br />Establishing Risk Indicators in Operations<br />External Events<br />Internal Process<br />People<br />Systems<br />Identify potential risks<br />Select Key Risks<br />Identify Indicators<br />Tracking & Monitoring Mechanism<br />Launch Functional Self Assessment Teams<br />SOPs deep dive<br />
  72. 72. Control Checklists & Risk Indicators<br />Establishing Risk Indicators in Operations<br />
  73. 73. Control Checklists & Risk Indicators<br />Establishing Risk Indicators in Operations<br />
  74. 74. Control Checklists & Risk Indicators<br />Executive Dashboards<br />Answers fundamental questions about the health of the Operations unit.<br />Volumes<br />Productivity<br />Headcount & Attendance<br />Reconcilement outstandings<br />Projects status<br />Budget variance<br />Executive alerts on issues or problems within the O&T space<br />Pre-flights Checklist<br />Defect rates<br />Absenteeism<br />SLA adherence<br />Controls: Audit, Exceptions, Incidents<br />Expense variance<br /> Aids executive decision-making<br />Capacity planning & redeployment<br />Cost control<br />Skills renewal / enhancement<br />Business partnership<br />Project prioritisation<br />
  75. 75. Business Partnerships<br />Cost<br />Control<br />Revenue<br />Cost<br />Control<br />Revenue<br />Lean Process Transformation<br />Operational Policies<br />Business Partnerships<br />Business Partnerships<br />Unit Cost based pricing<br />Productivity Enhancement<br />Operating Procedures<br />Control Checklists & Risk Indicators<br />Resource Rationalisation / Optimisation<br />Control Checklists & Risk Indicators<br />Service Excellence in Production Centres<br />
  76. 76. Business Partnerships<br />Synergies in Integrated Supply Chain<br /><ul><li>There are no “internal customers”
  77. 77. Everyone’s back-office is someone .else’s front-office
  78. 78. Integrate the customer-delivery .supply chain</li></li></ul><li>Unit-Cost Based Pricing<br />Cost<br />Control<br />Revenue<br />Cost<br />Control<br />Revenue<br />Lean Process Transformation<br />Operational Policies<br />Business Partnerships<br />Business Partnerships<br />Unit Cost based pricing<br />Productivity Enhancement<br />Operating Procedures<br />Unit Cost based pricing<br />Resource Rationalisation / Optimisation<br />Control Checklists & Risk Indicators<br />Service Excellence in Production Centres<br />
  79. 79. Unit-Cost Based Pricing<br />(PS x U)-(CV x U)-CF = NI<br />
  80. 80. Unit-Cost Based Pricing<br />Costing Process<br />
  81. 81. Unit-Cost Based PricingLabour cost calculation methodology<br /><ul><li>SWIFT messages received through the day between 8:00 am and 4:30 pm; printed in batches every 15 mins.
  82. 82. Start of day SWIFT messages received overnight sorted by ccy, MT, department, etc.
  83. 83. Through the day SWIFT messages collected from printer and sorted as above. Done every 15 mins between 8:00 am and 4:30 pm (i.e. 4 times per hr) with an average of 30 msgs per batch.
  84. 84. For IOPs each SWIFT message checked for correct reference number & no missing data prior to processing on system. On completion the transfer is data entered on screen as per the SWIFT message (7/8 fields).
  85. 85. The Transfer is now live and posted in the system. Two advices are generated, one sent automatically by Right Fax , the second is a hardcopy printed advice. EOD all printed advices are collected, sorted and checked complete address. Prepare pack to be couriered. (Courier collection 4 times a day). Time noted under Documentation. For Vostro accounts, when processing MT103/202 if an alert for "Balance Insufficient", email sent to FI for an OD approval.
  86. 86. Processing of Inward Order Payments ("IOP")
  87. 87. Verification of IOPs
  88. 88. Processing of Notepad Swifts
  89. 89. Verification of Notepad Swifts
  90. 90. Outward Remittance- Retail Applications (15% VOL)
  91. 91. O/R Commercial Applications (35% VOL)
  92. 92. O/R Vostro Applications (20% VOL)
  93. 93. O/R Internet Applications (25% VOL)
  94. 94. Pay Order/ Demand Draft Issuance
  95. 95. Standing Orders </li></li></ul><li>Unit-Cost Based PricingLabour cost calculation methodology<br />
  96. 96. Unit-Cost Based PricingLabour cost calculation methodology<br />
  97. 97. Service Excellence in Operations<br />Cost<br />Control<br />Revenue<br />Cost<br />Control<br />Revenue<br />Lean Process Transformation<br />Operational Policies<br />Business Partnerships<br />Unit Cost based pricing<br />Productivity Enhancement<br />Operating Procedures<br />Unit Cost based pricing<br />Resource Rationalisation / Optimisation<br />Control Checklists & Risk Indicators<br />Service Excellence in Production Centres<br />Service Excellence in Production Centres<br />
  98. 98. Service Excellence in Operations<br />Reliability & Service Recovery<br />
  99. 99. Service Excellence in Operations<br />O&T Personnel: What’s on their minds?<br /><ul><li>Staff Turnover
  100. 100. Overworked and stressed
  101. 101. Remuneration is not at par
  102. 102. Silos
  103. 103. Demotivated middle management
  104. 104. Leadership – immature middle management
  105. 105. High work pressure
  106. 106. Lack of recognition, specially from peers
  107. 107. Lack of interdepartmental communication
  108. 108. Work life balance programmes irrelevant
  109. 109. Severe level of stress
  110. 110. No team work and leadership
  111. 111. Gaps in leadership </li></ul>Bank<br />People & Work Atmosphere<br />Leadership<br />Remuneration & Benefits<br /><ul><li>Lack of appreciation
  112. 112. No walking the talk
  113. 113. No empathy
  114. 114. Serious lack of maturity
  115. 115. Favouritism by line managers
  116. 116. Low salary structures
  117. 117. No performance bonus for lower grades
  118. 118. Salaries do not cover cost of living
  119. 119. No overtime pay, appreciation and recognition </li></li></ul><li>Service Excellence in Operations<br />Two-pronged approach<br />
  120. 120. Operational Transformation Matrix<br />

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