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process efficiency review

  1. 1. Process Efficiency and Organization ReviewTake the right steps - A pragmatic approachfor pragmatic results .SynthesisJune 13th 2012Advisory & Consulting Services
  2. 2. Agenda Objectives of the meeting 1. Explain where we stand 2. Provide key results of our analysis on: • Organization • Processes • Branch and unit network • IT governance and project management 3. Validate IT organization structure option 4. Next steps 2 Kapital Bank Process Efficiency and Organization Review © 2012 Deloitte Tax & Consulting S.à r.l.
  3. 3. Table of content 1 Approach – where we are 4 Key recommendations for Organization and Process 2 6 Efficiency 3 Branch and units network analysis results 10 4 IT Stream review: approach and key findings identified 12 5 Timeline and next steps 15 3 Kapital Bank Process Efficiency and Organization Review © 2012 Deloitte Tax & Consulting S.à r.l.
  4. 4. The approach can be summarized in the following 4 steps We are here26/03 26/06 III Synthesis IV Roadmap Recommendations Definition of a Roadmap for II Universe Definition recommendations • Re-classification of implementation in line with pre- identified issues around 2 agreed prioritisation criteria Information I main resolution themes and Gathering • Classification and 5 relevant work streams for formalisation of all Streams, except for IT identified issues • Re-classification of • Spell out of actionable identified issues around 2 • Interviews analysis recommendations and main resolution themes and • Documents and data related benefits 7 relevant work streams for analysis IT Stream • Understanding of Kapital • Draft list of identified • Validation and agreement Bank business model and issues, recommendations on the number of organisation and attended benefits determined • Identification of pain points classified on the basis of 6 recommendations‟ themes • Identification of necessary axes: and related work streams & follow-up analysis e.g. 1. Loans operational review of customers‟ 2. Plastic cards recommendations accounts, loan origination, 3. Customer accounts plastic cards processes; 4. Cash management skills matrix; prioritisation 5. Organization correlation etc. 6. IT Processes • Process flows formalisation and review 4 Kapital Bank Process Efficiency and Organization Review © 2012 Deloitte Tax & Consulting S.à r.l.
  5. 5. Table of content 1 Approach – where we are 4 Key recommendations for Organization and Process 2 6 Efficiency 3 Branch and units network analysis results 10 4 IT Stream review: approach and key findings identified 12 5 Timeline and next steps 15 5 Kapital Bank Process Efficiency and Organization Review © 2012 Deloitte Tax & Consulting S.à r.l.
  6. 6. Mission statements of a sound Organisation Workstreams • Build strong organization and governance to support business activities and Organisational contribute to the objectives of risk reduction, process efficiency improvement and review control environment set upOrganisation Competency • Give human resources the proper tools to develop in order to support activities & Human building & effectively and contribute to grow business Capital sharing • Change mentality and push a culture of : Process & • Ethics Control • Control ownership • Efficiency • Risk 6 Kapital Bank Process Efficiency and Organization Review © 2012 Deloitte Tax & Consulting S.à r.l. Source: Kapital Bank, interviews, Deloitte analysis and best practices review
  7. 7. REMINDERRecommendations for Organisation & HumanCapital can potentially lead to 15 FTEs savings and significantsoft benefits Workstreams Summary of key recommendations Potential savings • Creation of Head of Markets position and function integrating marketing department in charge of branch and product performance • Creation of a Risk and Compliance department and CRO position • Creation of a COO function (Chief Operating Officer) responsible for all Organisational back-office activities • 15 FTEs identified review • Reallocation of “Control and Work with Structural Units” activities to original owners (e.g. compliance, human resources, etc.) • Integration of strategic planning division within budget preparation division in Financial Management department • Integration of IT Security under CRO in Risk Management departmentOrganisation & • Professionalize trainings through training programmes (bothHuman Capital technical, e.g. FlexCube, and soft skills, e.g. English courses), Competency welcome onboard package and career development plan set up building & sharing • Identification of High Potentials within the Bank and retention programme • Set up a mobile training workforce for remote regions • No hard savings identified • Clear allocation of responsibilities and ownership through defined governance Process & Control • Alignment all procedures with processes ownership • Identification of KPIs to monitor performance and procedure complance • Increase awareness of staff for controls and risks 7 Kapital Bank Process Efficiency and Organization Review © 2012 Deloitte Tax & Consulting S.à r.l. Source: Kapital Bank, interviews, Deloitte analysis and best practices review
  8. 8. Recommendations to improve process efficiency canpotentially lead to significant risk reduction and 34 FTEssavings Workstreams Summary of key recommendations Potential savings • Define pre-determined settings and mandatory fields for all products and restrict modification possibilities (i.e. commission rates, interest rates, repayment schemes, collateral requirements, start/end date, • No hard savings can be Setup allowance) quantified modification • Enable mandatory 2nd level of authorization embedded in system for prolongation of loans, loan status, cash reception, rate modifications and in Kapkart • Automate payments for loans (direct debit) • 12 FTEs (direct debit) • Centralization of client register, implementation of data warehouse to Technology • 3 FTEs (reporting in develop reporting capabilities and improve monitoring through dashboard on business activities based on centralized processes IT), 1.5 mln (loans) Interfacing • Automate reconciliation capabilities between Kapkart and Flexcube • 3 FTEs by enhancing interfacing (e.g. GL account postings, settlement and Process interbranch settlement, movements, positions, etc.)efficiency • Automate all loan and deposit contracts generated by configuration • 12 FTEs (direct debit) of reporting module 14 FTEs (loans), 2 • Implement workflow management system and document Module FTEs (deposits) management system to better monitor interactions between Head optimization Office and branches • Enable cash and teller module to better monitor and automate cash • 4 bln AZN turnover management process • Define and harmonize risk and performance criteria within the bank • 68% NPL (65 mln AZN) policy and impose to branches. Align branch and staff incentives with credit book performance Risk control • Implement a procedure for setup and maintenance of user profiles improvement and access rights • Implement encrypted or automated communication flow for plastic • 4 bln AZN turnover card data 8 Kapital Bank Process Efficiency and Organization Review © 2012 Deloitte Tax & Consulting S.à r.l.
  9. 9. Table of content 1 Approach – where we are 4 Key recommendations for Organization and Process 2 6 Efficiency 3 Branch and units network analysis results 10 4 IT Stream review: approach and key findings identified 12 5 Timeline and next steps 15 9 Kapital Bank Process Efficiency and Organization Review © 2012 Deloitte Tax & Consulting S.à r.l.
  10. 10. We have identified 607 FTEs potential savings (37% of total) by combining BAKU –analysis on performance and branch current structure A ABSHERON OTHER I. II. B ECONOMIC REGIONS ANALYSE HEADCOUNT REQUIREMENTS ANALYSE HEADCOUNT REQUIREMENTS REORGANIZE STRUCTURE OF PER BRANCH PER BRANCH BRANCHES • We have identified best performing branches • Based on option selected by Kapital Bank: based on staff workload and capacity to A perform functional responsibilities Identification of branches to transform into units • We distributed results of top performing branches for all in the region (Baku-Absheron Identify possible branches to be transformed and other economic regions ) into operational units based on performance indicators (e.g. loan portfolio volume and • We estimated the required number of staff for: performance, deposit portfolio, commission income and expenses) and geographical Description of density and align commercial and sales approach  Credit specialists  Accounting staff messaging and strategy  Customer servicing staff  Cash desk specialists B  Deputy heads and secretaries CORPORATE vs. RETAIL Based on share of corporate loans in branch portfolio identify regional centers for corporate loans. Ensure existence of center for corporate loans in each economic region of Azerbaijan. Current FTEs A 276 A 17 branches; 8 units 1,672 69 Savings • 8 branches in 7 regions as regional TOTAL identified B 262 B 0 centers for corporate loans Expected • 56 retail profile branches savings Only split of activities performed TOTAL 538 TOTAL 69 607 10 Kapital Bank Process Efficiency and Organization Review © 2012 Deloitte Tax & Consulting S.à r.l.
  11. 11. Table of content 1 Approach – where we are 4 Key recommendations for Organization and Process 2 6 Efficiency 3 Branch and units network analysis results 10 4 IT Stream review: approach and key findings identified 12 5 Timeline and next steps 15 11 Kapital Bank Process Efficiency and Organization Review © 2012 Deloitte Tax & Consulting S.à r.l.
  12. 12. Dashboard, IT stream - 13/06/2012 Overall status: GREEN Project Tracking Indicator* Project on target so far – Main achievements: • All interviews completed (15 people) 100% • All the processes in the scope of the mandate have been discussed (22 processes), mapped and benchmarked % completion of overall • Gaps identified and grouped in 2 dimensions - IT operations and IT project effort governance and management. 50% Next steps / Current Priorities • Prioritize and analyze identified gaps. Development of SOD matrix. • Develop recommendations and implementation roadmap for identified gapsDecisions to be taken Due Date OwnerSelection of options on organizational structure 20 June 2012 Deloitte & PashaKey risks and issues Resolution Owner• No risk or issues identifiedMain achievements up to dateInterviews sessions are achieved Review of FlexCube, Tranzware (Processing) and SWIFT applicationsIT policies, organization, budgeting, planning process are analyzed Performed IT Maturity Assessment based on Deloitte proprietary toolInformation security review (running services, file permissions, patchmanagement, database administration, firewall configuration,password settings, antivirus settings, physical security)Tasks behind schedule * Measure of the Owner % of completion of activities due atDue date the time of publication of the dashboard. Rev. date 12 Kapital Bank Process Efficiency and Organization Review © 2012 Deloitte Tax & Consulting S.à r.l.
  13. 13. Key themes identified for next steps are the result of 74 issuesobserved Average maturity level of IT processes is 1.36 out of 5, that is below industry average of 3 Themes Work streams Summary of highlights1 A Organization structure does not reflect current job responsibilities of IT Staff IT B There is no systematic approach on development of IT Organization Structure Organization 1 and Capacity, C Segregation of duties between IT and IS division is not clearly defined Budgeting D There is no common approach on IT budgeting development and control IT Governance and Planning & Management E Prioritization of IT expenditures is not based on cost benefit analysis A Only 6 out of 37 implemented IT projects were approved by the IT IT Project Committee 2 Management B Partial utilization of IT projects by business2 A Due to technological complexity 53% of IT employees time is spent on support and maintenance activities Support & 1 B Configuration management is performed on ad hoc basis Maintenance C Existing infrastructure has significant spare capacity IT Operations Application A Functionality of Core Banking application is underutilized 2 architecture B Business requests and technical specifications are not formalized. A IT infrastructure is prone to security vulnerabilities Information 3 Security B Weak security management of critical applications & key infrastructure 13 Kapital Bank Process Efficiency and Organization Review © 2012 Deloitte Tax & Consulting S.à r.l.
  14. 14. We are proposing 2 different scenarios on future organizationalstructure of IT Separate processing & BI and outsourced Processing & BI within IT and internal “As Is” organizational structure development (To be option 1) development (To be option 2) • Segregation of IT and IS functions • Better SoD between IT and Processing • Processing as a separate unit within IT+ • Quick response time to issue resolution • Lower SoD risks due to outsourcing of • BA as a separate unit within IT • Relatively low number of FTEs development • Shorter implementation time than • Separate BA unit provides better translation Option 1 of business needs to IT and vice versa • Separate PMO provides more efficient • Separate PMO provides more efficient project management capacity project management capacity- • Development and operations are performed by the same employees • Higher personnel expenses due to introduction of new units • Higher risks than in Option 1 due to keeping processing and development • Responsibilities are not assigned in • Higher development costs due to under IT accordance with the positions held outsourcing • Less influential BA functionality • Organizational structure is based on • Increased response time on issue historical development rather than resolution functional principles • Less knowledge on application • High reliance on key individuals development due to outsourcing • Lack of project management and strategy • Longer implementation time than Option 2 development capacity 14 Kapital Bank Process Efficiency and Organization Review © 2012 Deloitte Tax & Consulting S.à r.l. Source: Kapital Bank; interviews & Deloitte analysis
  15. 15. Table of content 1 Approach – where we are 4 Key recommendations for Organization and Process 2 6 Efficiency 3 Branch and units network analysis results 10 4 IT Stream review: approach and key findings identified 12 5 Timeline and next steps 15 15 Kapital Bank Process Efficiency and Organization Review © 2012 Deloitte Tax & Consulting S.à r.l.
  16. 16. Project status and next steps Next steps: I. KPI definition for key activities II. Definition of roadmap based on following prioritization criteria: • FTE savings Should be validated by • Reduction of risk Kapital Bank • Effort required III. Finalised detailed analysis for IT stream Roadmap IT Analysis 16 Kapital Bank Process Efficiency and Organization Review © 2012 Deloitte Tax & Consulting S.à r.l.
  17. 17. Process Efficiency and Organization ReviewTake the right steps - A pragmatic approachfor pragmatic results .AppendicesJune 13th 2012Advisory & Consulting Services
  18. 18. Appendix 1. Detailed project timeline and deliverables 2. Organisational Review 3. Detailed Process Analysis 4. Branch Network Analysis 5. IT Stream: Key Findings 6. Universe of Recommendations © 2012 Deloitte Tax & Consulting S.à r.l.
  19. 19. Appendix 1 – Detailed projecttimeline and deliverables © 2012 Deloitte Tax & Consulting S.à r.l..
  20. 20. Time spent on Task Project timeline – where we stand (1/2) Deliverables Elapsed time April May June 26/03 02/04 09/04 16/04 23/04 30/04 07/05 14/05 21/05 28/05 04/06 11/06 18/06 25/06 Kick-off meeting 1. Current Operating ModelInterviews 2. Process Catalogue 3. Process maps Management interviews 4. Automation Opportunities 5. Intermediary Recommendation report 6. KPIs Operational teams’ leaders interviews 7. TOM (roadmap) STREAM 1 – Processes Review • In-depth analysis of key business activities at KB: customer accounts, loans, cash, plastic cards, management reporting • Determine how to use Flexcube at its full capacity • Gaps analysis • Possible options & scenarios development and validation • Design of TOM • Implementation planning & communication & sign-off STREAM 2 – Organizational ReviewActivities Step 1-”As-Is” Description • Functions, Roles and Responsibilities 1. Current Organizational Map 2. Highlight Risks and overlap • Decision making structure and reporting lines functions in current org. map • Management Reportin tools and KPIs 3. Recommendation report (including • High level business flows recommendations to ensure business agility) • Staff allocation/usage 4. KPIs 5. Roadmap Step 2- Optimization • Overlaps and duplication of functions • Bottlenecks and key man dependencies • Risk and control issues/opportunities • Centralization vs. Decentralization work allocation • Staff workload rebalancing • Timeliness of service delivery • Timeliness of new service launch • Staff skillset requirements and training needs 20 Kapital Bank Process Efficiency and Organization Review Weekly status progress meeting © 2012 Deloitte Tax & Consulting S.à r.l.
  21. 21. Time spent on Task Project timeline – where we stand (2/2) Deliverables Elapsed time April May June 26/03 02/04 09/04 16/04 23/04 30/04 07/05 14/05 21/05 28/05 04/06 11/06 18/06 25/06 STREAM 3 – Design of Target Operating Model • Activities (product sold and service offered) 1. Analysis on branch network • Customer segments and client experience and profile (consistency throughout the network) 2. Recommendation Report • Key operational processes and technology used 3. KPIs 4. Implementation Roadmap • Geographic dispersion • Reporting tools and financial performance • Comparative positioning versus other channelsActivities (internet, mobile, call center, ATM) • Branch performance and overlap report • Automation opportunities within branches • Opportunities to increase the added value of the branch network STREAM 4 – Design of Policies and Procedures • IT/Business alignment capabilities • IT management and governance • IT performance metrics • Project management 1. Current IT Organization 2. Control Environment assessment Weekly status progress meeting 3. IT capabilities and agility assessment 4. Project management and prioritization 5. KPIs 6. Implementation Roadmap Note: Capacity Planning and skillset assessment have not been performed as not applicable to the overall organization (i.e. over-capacity has been identified) 21 Kapital Bank Process Efficiency and Organization Review © 2012 Deloitte Tax & Consulting S.à r.l.
  22. 22. Appendix 2 – OrganizationalReview © 2012 Deloitte Tax & Consulting S.à r.l..
  23. 23. Organisational Review –Detailed analysis © 2012 Deloitte Tax & Consulting S.à r.l.
  24. 24. Today’s organization can be improved to reduce risks, boost efficiency and support long term actions Review of Committees Review of activities and Review of management composition and key controls performed board composition This review of organizational structure responsibilities needs to be validated by management team Key actions to be performed • Review of Management Board Composition based on requirements and best practices • Review Committees composition and key responsibilities • Review activities and controls performed in Treasury and Cash Management departments • Review activities and avoid tasks duplication within Financial Management, Marketing & Strategic Planning and Control and Work with Structural Units departments • Review Front Office functions and representation in organizational chart in order to add transparency • Review of risk and compliance activities in order to comply with regulatory requirements Identification of Review of activities Review Front Office compliance activities performed and avoid functions and addwithin the organization duplication transparency24 Kapital Bank Process Efficiency and Organization Review © 2012 Deloitte Tax & Consulting S.à r.l. Source: Kapital Bank, interviews, Deloitte analysis and best practices review
  25. 25. 1.1 A Review of Compliance activities performed in Risk Management Department Time split per activity, FTEs 1 FTE in Work with Structural Units Department is also performing compliance task which is preparing reports for corresponding banks Total 7 Key observations Procedures review activities 1 • Risk Management Department is currently in charge of all compliance activities Credit file review & • 1 FTE is dedicated to Compliance function (AML) and Credit Committee does not report to head of Risk but directly to the attendance 1 Management Board • The same team is in charge of monitoring procedures Compliance activities and checking regulatory compliance  no respect of 1 independence principles Reporting activities Key Recommendations 1 • Compliance activities should include AML, Fraud Risk control activities Management and Compliance to Ethics Principles as 1 well • Employees awareness regarding compliance matters Deputy Director/ should be increased thanks to specialized trainings Director 2 • Compliance function must be supervised by Risk Management Department before reporting to the Management Board (Deputy Chairman) 25 Kapital Bank Process Efficiency and Organization Review © 2012 Deloitte Tax & Consulting S.à r.l. Source: Kapital Bank, interviews, Deloitte analysis and best practices review
  26. 26. Typical changes based on best1.1 A We propose five main changes within the current practices Specific changes based on Kapital B Bank structure organizational chart Proposition of organizational structure Key changes 1 • Transparency and clear representation of Front and Back office functions thanks to the creation of a new department dedicated to markets 2 • Regroup of financial and strategic planning functions under the same department and division named budget/strategic planning 3 • Creation of a Risk and Compliance department based on the existing department 4 • Creation of the Chief Operating Officer (COO) responsible of all back office operations 5 • Absorption of “Control and Work with Structural Units” activities to other divisions within the organization: - Problematic loans to legal department - Bank supervision to IT, Human Resources and Risk management - Other activities to markets department Important note: IT Security division has been incorporated in Risk & Compliance Department as a proposition based on Deloitte experience Allocation of certain activities should be submitted to Kapital Bank approval (such as compliance, problematic loans and IT Security) 26 Kapital Bank Process Efficiency and Organization Review © 2012 Deloitte Tax & Consulting S.à r.l. Source: Kapital Bank, interviews, Deloitte analysis and best practices review
  27. 27. 1.1 B Typical organizational chart in Retail Banking illustrates three changes identified in the current organizational chart of Kapital Bank Organizational structure of Banque de Détail et des Entreprises à Luxembourg (BGL BNP Paribas) 3 Risk & Compliance Key observations Compliance function is performed at a group level and is in charge of all subject matters linked to regulatory compliance Key observations Existence of Chief Operating Office responsible for operations within the Bank 4 1 Key observations Representation of Front Office activities (retail and corporate) within the organization – Those departments are in charge of managing and developing clients market and of the visibility of the Bank 27 Kapital Bank Process Efficiency and Organization Review © 2012 Deloitte Tax & Consulting S.à r.l. Source: Kapital Bank, interviews, Deloitte analysis and best practices review
  28. 28. 1.1 B Review of performing reporting activities shows potential savings of 3 FTEs within the IT DepartmentNumber of developed reports (2011 – Q1 2012) Man days required to develop reports (2011 – Q1 2012) Key recommendations Total 265 Total 1,325 • Develop formal requests Number of Man days per system (requisition form) 88 88 88 441 441 440 different for a change request reports per year year and a new demand Assuming that the development of 1 report To develop 265 reports, maximum 1,325 man days should • Set up priorities of business should take maximum 5 man days, the minimum be needed, which is represent 441 man days per year and demands based on business of developed reports per year should be of 88 2.2 FTEs dedicated to development opinion AND IT Committee decision • Rationalize number of Key observations reports existing in the system (compare to reports used by • Total number of reports (265) represent reports • There are currently 5 FTEs full time dedicated to develop business) currently existing in the system. Some reports reports for business use while, based on the time required to are duplicated and used to compare accuracy of develop a report, 2 FTEs should be enough • Involve business in IT new ones (“legacy reports”) developments by adding an • There is no formal request procedure (email or  3 FTEs could be allocated to other activities “IT representative” in face-to-face) and no priority level between • There is no business analyst to translate business business services business requests requirements into technological request • New demands and change requests are not • Reduce FTEs dedicated to considered separately reporting based on the • Business is not using totality of developed previous observations (Max 2 reports (no tracking) FTEs) 28 Kapital Bank Process Efficiency and Organization Review © 2012 Deloitte Tax & Consulting S.à r.l. Source: Kapital Bank, interviews, Deloitte analysis and best practices review
  29. 29. 1.1 B We have identified a potential savings of 8 FTEs in the Head office through the review of 5 departments or divisions Description of actions Current # of FTEs Potential savings1 • Review of performing reporting activities 5 FTEs 3 FTEs IT Department • Comparison to best practices2 • Review of activities performed 8 FTEs 2 FTEs Human Resources Department • Comparison to Azeri and European banks3 Drivers: 14 FTEs • Review of administrative staff (drivers and cleaning staff) 23 k AZN Support functions • Transformation of contracts into sub-contract agreements Cleaning staff: 9 FTEs4 • Review of activities performed in Marketing & Strategic Planning Department Strategic Planning 3 FTEs 3 FTEs • Reallocation of Strategic Planning activities into Budget preparation division in Financial Management department5 • Review of activities performed Control and Work 15 FTEs 10 FTEs with Structural Units • Reassign activities to original owners (e.g. compliance, human resources, legal, etc.) 29 Kapital Bank Process Efficiency and Organization Review © 2012 Deloitte Tax & Consulting S.à r.l. Source: Kapital Bank, interviews, Deloitte analysis and best practices review
  30. 30. 1.1 B In the current set up of activities performed by Human Resources Department, 2 FTEs could potentially be saved AZERBAIJAN LUXEMBOURGHuman Resources key capabilities Kapital Bank Central Bank BGL BNP Paribas Key observations• HR Administration • Activities dedicated to employee rewards - Perform employee data and salary administration    and satisfaction are not performed within the bank  No reward system to retain - Perform & administer employee benefits N/A  talent - Manage payroll    • No existing proactive system to anticipate - Monitor employee health and safety    job vacancy and facilitate employee• HR Management activities integration- Plan and manage employee resources    • Top-Down decisional & communicative- Manage vacancy and employee integration  approach- Manage employee separation process    • With less HR staff, proportionally speaking, Central Bank performs two times- Manage employee rewards system N/A  me activities that Kapital Bank department- Manage career development process N/A - Manage employee satisfaction - Manage internal policies & procedures    Key recommendations- Measure employee performance   • Reduce number of FTEs in HR department to 6 FTEs (compared to best practices)• Recruitment & Mobility- Manage recruitment (internships & events)   • Setting-up a recruitment system to attract and select people• Learning • Develop Induction Programs to facilitate- Manage induction programs   employees integration- Develop and train workforce    • Support high potentials and skills development through career development# of FTEs in HR department 8 14 - pathTOTAL # of FTEs 270 612 - • Develop bottom – up approach to retainRatio FTEs per HR FTE 33.75 43.71 FSI Average talent in the Bank (employee satisfaction Ratio: 90 FTEs surveys, rewards system) 30 Kapital Bank Process Efficiency and Organization Review © 2012 Deloitte Tax & Consulting S.à r.l. Source: Kapital Bank, interviews, Deloitte analysis and best practices review
  31. 31. 1.1 B 23 K AZN annual potential savings could be generated by transforming contracts of support staff into sub-contract agreementsTotal distribution of administrative staff in Head Office (56 FTEs) Key observations TO… 56 100% • There is no clear attribution of staff among divisions (repartition could be different in Head Office and branches) – For example: Dir… 2 4% cleaning staff is classified under supply and services in Head He… 4 7% Office and under building services in branches As… 6 11% Recommendations Ch… 1 2% • Define a clear and harmonized repartition of staff among En… 2 4% divisions Le… 3 5% 2% Key observations Ch… 1 Sp… 2 4% • Transportation division represents 25 % of total staff in Administrative department (14 FTEs) Off… 2 4% Su… 1 2% • Cleaning staff represents 16 % of total staff (9 FTEs) Te… 4 7% Recommendations El… 3 5% 4% • Transformation of support staff contracts into sub-contract Ge… 2 agreements Cl… 9 16% Staff involved # FTEs Salary Dri… 14 25% • Drivers 14 500 • Cleaning staff 9 400 Potential social charges reduction per year: • Drivers:15,120 AZN (6,000*14*18% ) = 22,896 AZN • Cleaning staff: 7,776 AZN (4,800*9*18%) 31 Kapital Bank Process Efficiency and Organization Review © 2012 Deloitte Tax & Consulting S.à r.l. Source: Kapital Bank, interviews, Deloitte analysis and best practices review
  32. 32. 1.1 B Contract amendments for the whole organization can lead to 274k AZN saving in social chargesCurrent number of FTEs Current FTEs Total 1672 • Contract social charges comparison Branch director 97 (for monthly salary up to 2,000 AZN) Deputy director 26 Sub- Potential Contract contract saving Head accountant 99 Employee part 17% 4% Deputy head acc. 34 Leading… 35 Employer fee 20% to 22% 5% Controller 60 Accountant 53 TOTAL CHARGE ~37% 9% 26% Head of division 18 Senior specialist 31 Leading specialist 104 Specialist 245 Operator 84 Head ofdivision 35 Senior specialist 23 Contract conditions review Leading specialist 59 7 Specialist 89 • To subcontract 192 FTEs  drivers (99+10) Senior cashier 91  office cleaners (83) Cashier 140 Operator 14 ~274k AZN • Subcontract conditions will social alow to benefit from social Senior specialist 21 charges charges (~26%*): Secretary 26 savings Cash collector 42 Annual Salary*No.of Employees*26% Driver-collector 99 Cleaner 83 99+83 Other 64 10 32 Kapital Bank Process Efficiency and Organization Review Drivers © 2012 Deloitte Tax & Consulting S.à r.l. Source: Kapital Bank data as of end of March 2012, Deloitte Analysis
  33. 33. 1.1 B Reallocation of Strategic Planning activities into Budget Preparation Division and Marketing Division could generate 3 FTE savings Key observations Strategic Planning Budget Preparation & Control Marketing • Overlap of activities: Development of strategic plan & • Setting-up and develop strategic • Participate in development of • Multi channel analysis budget forecast are performed by 2 goals strategic plan different divisions • Measure product performance • Manage financial reports forecast • Manage and discuss budget • Follow up of action plans is notCurrent forecast • Manage budget forecast & performed in strategic planningactivities allocation • Manage budget allocation to division • Provide macro & micro branches • There is no proper segmentation and targeting strategy environment monitoring • Performance monitoring • No rationalization of products and • Define & develop market approach • Control implementation of budget • Conceive & apply commercial services offering for segments/markets offers • There is no functional support to • Monitor and analyze the costs of branches regarding deployment of Other • Develop Marketing plan the Bank and the financial aspects • Develop Products & Services marketing actions best of activities offering • Manage action plans in practice • There is no process in place consultation with management • Propose tool & methods to activities regarding “voice of consumer” answer client‟ needs • Implementation of sales events • 3 FTEs in Strategic Planning • Manage customer relationships division are mostly dedicated to redundant activities (cf. budget# of FTEs 3 3 4 preparation)Key recommendations • Integrate strategic planning functions regarding development of strategic goals and budget forecast to budget preparation division • Review of activities currently performed and what should be performed according to best practices and activities description provided by the Bank • Marketing functions will be integrated under the responsibility of a “chief market specialist” 33 Kapital Bank Process Efficiency and Organization Review © 2012 Deloitte Tax & Consulting S.à r.l. Source: Kapital Bank, interviews, Deloitte analysis and best practices review
  34. 34. 1.1 B Organizational representation and new roles of Marketing Department and Budget & Strategic Planning Division will be presented as following: Proposed Organisational Chart Marketing Department (Front Office) 4 FTEs under the responsibility of “chief market specialist” • Define strategic goals • Develop marketing plan according to targeting approach • Manage action plans in consultation with management • Monitor and follow-up of branches • Manage delivery channels • Develop Products & Services • Market Products & Services • Manage customer relationships Budget/Strategic Planning Division • Propose recurring reporting of all needs identified to the head office (e.g. IT 3 FTEs under the responsibility of “chief financial officer” developments, recruitments, vacations…) Key activities: • Participate in development of strategic plan • Manage and discuss budget forecast • Manage budget allocation to branches • Monitor and analyze the costs of the Bank and the financial aspects of activities • Performance monitoring ((establish indicators of financial and non financial performance through reporting tools) 34 Kapital Bank Process Efficiency and Organization Review © 2012 Deloitte Tax & Consulting S.à r.l. Source: Kapital Bank, interviews, Deloitte analysis and best practices review
  35. 35. 1.1 B Reallocation of activities of Control and Work with Structural Units Department could potentially generate 10 FTEs savings Analysis, monitoring and Key observations Working with structural units control of problematic loans Bank supervision • Department is currently performing activities that are typically assigned • Market related activities • Credit analysis • IT Security activities to other owners leading to a lack of clear ownership of roles and Performed • Monitoring of problematic loans • Human Resources activities Activities responsibilities regarding key • Determine best solution in order • Compliance activities: activities within the Bank to ensure a reimbursement of preparing reports for the credit to the Bank corresponding banks • 15 FTEs (14 + deputy director) are performing “redundant” activities, only 5 FTEs could be# of FTEs 5 5 4 reallocated: • 2 FTEs to Marketing under Head of Markets • 3 FTEs in Problematic Loans division under Legal department or directly under CRO supervision (to be validated by Kapital Bank) Reallocation of activities Key recommendations • Reassign activities of control and work with structural units department to corresponding divisions within the •Reallocation into markets •Reallocation into Legal •Reallocation into Human organization department (2FTEs) department or as a separate Resources and Risk •Report to Chief Operational division under CRO (3FTEs) departments as well as in IT • Setting up a clear process ownership Security division for those activities that will be Officer •Report to Chief Compliance Officer •Report correspondently to reallocated to other departments Chief Executive Officer, Chief Risk Officer and Chief Information Officer 35 Kapital Bank Process Efficiency and Organization Review © 2012 Deloitte Tax & Consulting S.à r.l. Source: Kapital Bank, interviews, Deloitte analysis and best practices review

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