Why do ‘profitability’ and ‘Holy Grail’ often appear in the same sentence? Many bankers attempt to understand their costs and revenues, but definitions and calculations keep them from instilling a bank-wide focus on profitability – which many regard as the Holy Grail.
Southbridge Savings Bank has changed that Holy Grail thinking with an outsourced approach to profitability. The $419 million bank located in Southbridge, Massachusetts, recently partnered with COCC and Profit Resources to install a highly usable profitability tool in just eight weeks.
“This outsourced solution enables our bank to consider profitability throughout our business – from pricing commercial loans to campaigning for new accounts,” says Todd Tallman, President and CEO at Southbridge Savings Bank. “It’s like having a cost accountant on our desktops. The information we need is displayed graphically which simplifies our decision-making process tremendously. It’s a highly effective solution for our bank.”
Southbridge Savings started to apply its profitability capability by examining its commercial loan pricing decisions. The commercial lending area now uses the system’s dashboard displays to visualize each component of an account’s profitability as well as the total profit, ROA, and ROE generated. Lenders are now able to view the customer’s profitability in various ‘what if’ scenarios to understand the potential consequences of making the loan.
This first project enabled Tallman to overcome the two major challenges of profitability systems: simplifying the process and communicating effectively with people who don’t have a cost accounting background. “It has really helped our staff understand how profitable our customers and products are because we can distribute this data throughout the bank.”
The bank is now working on product and branch profitability. Tallman says the system’s dashboard can examine each branch, giving him facts to help him decide whether a successful branch warrants a physical expansion or if an unsuccessful branch should be consolidated into another. Product profitability can be viewed with a few mouse clicks.
Beyond these early projects, the bank has focused on the return on investment (ROI) for prospective marketing campaigns. A staff member simply selects a product, enters the projected marketing expense and projected response rate, and the dashboard projects the bank’s ROI for the campaign.
After using the outsourced solution for several months, Tallman says, “This tool gives us a good place for our people to start working with profitability. It gives us the information we need, doesn’t require a lot of maintenance, and people throughout the bank can understand the results.”
At Southbridge Savings Bank, the Holy Grail is just another day in the office.
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