Cost management in banks is important for budgeting, planning and decision making. It allows banks to predict expenditures and reduce costs. Cost management techniques include understanding cost drivers, implementing management accounts, using the 80/20 approach to prioritize opportunities, benchmarking against competitors, and adopting continuous improvement practices. Key areas of cost management are managing personnel costs through pay structures and productivity improvements, negotiating supplier costs through consolidation and intelligent bargaining, and reducing overhead costs in areas like rent, utilities, printing and travel. Strong leadership, accountability, and a cost-conscious culture are needed to effectively manage costs in banks.

1. Cost Management in Banks
Sections of this presentation were adapted from Driving Down
Cost by Andrew Wileman

2. Need for Cost Management
• Cost management identifies, collects, measures, classifies and reports
information that is useful to managers and other internal users in cost
ascertainment, planning, controlling and decision making
• Cost management is a form of management accounting that allows a
business to predict impending expenditures to help reduce the chance of
going over budget
• Cost management is the process of planning and controlling the budget of a
business
• Cost management helps in optimizing resources which will improve overall
efficiency of the organization and help the firm to achieve its objectives
• Cost management helps in providing information to the top management for
exploring various alternatives by which cost effectiveness can be improved

3. Cost Leadership
• Strong leadership and tough cost culture is prerequisite for good cost
management
• Use of challenging base case for annual budgeting and cost reviews
• Clear accountability and good reporting: Assignment of specific cost targets
to individual names and tracking of costs effectively
• Continuous Improvement (CI) culture: Embedding CI culture through the
organisation
• Short timeframes: Top management to push for faster results
• Feedback loops: What gets measured quickly and reviewed quickly, gets
managed well and fast

4. Cost Management Techniques
• Understanding Cost drivers and Cost Dynamics
• What creates cost
• Which cost is associated with revenue
• Which cost is associated with headcount
• What are main drivers of all other major costs
• What are the key cost trends
• Management Accounts
• Management Accounts are internal reporting tools for CEO, CFO and line
managers
• Good set of management accounts is important tool for cost management
• Allows management to see what is going right, what is going wrong and
where action needs to be taken

5. Cost Management Techniques
• ABC/ 80:20 approach
• List all cost reduction opportunities in order of potential impact
• Classification of projects based on potential cost impact, expected value of
future cost savings and ease of implementation
• Best practice: Regular sharing of best practices across the organisation
• Competitive analysis: Checking of competitors cost positions and their
cost trend

6. Management of manpower cost
• Hiring
• Capitalise hiring decisions and treat them like capital investments
• Evaluate usage of short-term contracts and part time staff
• Paying
• Increasing the variable component of total pay
• Payment of bonus based on the overall business results and not individual
micro-targets
• Technology and productivity
• Continually look for ways to transform productivity
• Look out for ways for elimination of non-value added activities

7. Management of suppliers cost
• Understand the balance of power
• Understand how important your business is to supplier; What percentage of its
revenues you represent
• Understand how important the supplier is to you; What percentage of your cost
it represents; how easily you can find a substitute
• Consolidate to fewer better suppliers
• Better prices for higher volume per supplier
• Intelligent negotiation
• Understand suppliers economics
• Leave profit for the supplier
• Trade off price and terms

8. Management of suppliers cost
• Avoid lock in
• Have credible alternatives
• Reduce switching cost
• Maintain an active marketplace
• Strong management of services cost
• Central procurement
• Outsourcing

9. Management of other cost
• Rent
• Negotiate with landlords
• Consolidation of branches in nearby vicinity
• Electricity
• Tracking of branch wise consumption
• Switching over to energy efficient technology e.g. solar power, LED bulbs
• Printing and stationery and postage and courier
• Switching over to e-mode
• Objective evaluation of processes which require printing and postage e.g. credit
appraisal processes, branch processes, customer interaction processes etc.
• Evaluation of centralised procurement

10. Management of other cost
• Travel
• Comprehensive travel policy
• Evaluating requirement for travel
• Booking of tickets in advance
• Usage of video conferencing
• Negotiation of rates with hotels and other service providers

11. Thank You
Nupur Bisht
Email: nupur_sis@yahoo.com