Thursday, March 14, 2013

Community Bank and Credit Union Branch Performance Metrics Lead to Consistent Success

What are your goals for 2013? Most banks set them, but do you have a way to track your progress toward meeting those goals? Quest Analytics works with dozens of banks in analyzing and measuring progress toward goals in a wide variety of performance measurements. So, now that we are over one month into the new year, what are you tracking in 2013? Do these measurements support the larger goals of your bank, or in consultant-speak, are they aligned?

Progress towards your goals should be measured throughout the organization. So, for example, if a push is on for new customers, then your branches should be measured on new customers also. However, finding the right way to fine tune your performance goals to more manageable goals at the branch or even officer level can be tricky.

Most institutions still use a traditional set of performance measures including number of households or customers, number of accounts, average number of services per household or customer, total balances, average balances, fee revenue, profitability, etc. Not all core vendors make tracking and reporting on your metrics easy. Many institutions use data warehouses coupled with business intelligence or reporting tools, or even MCIF or other systems to help them track, report, and manage progress on their measures. What is the accuracy of these measurements? The truth is, in general, you are really looking at trends so the exact numbers are somewhat less important than the trend. However, incentive plans often are tied to these measures so the measurement itself is still important.

The most important thing about the measurement is that it must be made consistently over the measurement period so that trending can be monitored. This is the only way that trends can be meaningful. You must have a baseline or starting value for each performance measure to compare progress against. This means you should have setup and tested your reports and measuring processes prior to the start of your measurement period. If you have not, though, you are not alone. It is not unusual to see institutions continuing to adjust what they measure and their target goals throughout a year or other measurement period. This makes it very difficult to see progress, but is often caused by changing bank priorities or changes in executive leadership.

What is important is an enterprise-wide understanding of the overall goals and how the goals of each branch, sales team, and individual employee contribute to meeting them. This is the aligning of goals throughout your organization. For example, say your bank had a goal to increase total loan balance by a certain percentage. Then, each branch should have goals for increasing their loan percentages as well. In addition, loan officers should also have goals to increase loan balances across all of their relationships and other staff should have goals for making loan referrals. It is here where expectations for performance levels are set. Employees should be rewarded for performing beyond expectations, not for meeting them.

This scenario is only possible when the entire organization has the same vision and is directed by strong leadership from the top down. There is great power in having everyone understand their own personal role in helping the organization meet its goals by meeting their own goals. Many employees believe their goals are haphazard and, as such, they do not feel driven to meet those goals because they can’t see the larger connection or understand the reasoning behind them. By ensuring that everyone understands their role in the larger program, they feel part of the organization’s mission for the year.

The second part is that the goals must be easy to understand and each individual should be able to understand the calculations used for measurement. The goals must also be reasonable since they set a bar for the expected level of performance. If employees believe that a goal in unachievable, they may not even attempt to reach it, thus defeating the purpose.

Banks and credit unions should always include measures that consider customer acquisition, relationship expansion or cross-sell, and retention. Branches, officers and other employees all have a role in helping a bank meet goals in these areas. For acquisition, consider the number of new customers or new accounts at a branch perhaps even broken out by type (e.g., checking, line of credit, loan, etc.). When measuring relationship expansion, many banks will compute an average number of services per customer or household while others simply use the number of new products sold to existing customers. Retention can be measured by looking at the number of customers who close their last active account, or the number of transactional accounts closed so that loans and time deposits are not included. There are many ways to measure, but the key is to make sure everyone is focused on gaining new customers and retaining and expanding relationships with existing customers. Examples include increasing teller referrals and actively pursuing all sales leads.

Many organizations know exactly what they need or want to measure, but struggle with how measure or report on those items. Quest Analytics’ team has over fifteen years of experience working with banks and credit unions in this area. Our consultants have created automated reporting solutions for dozens of clients using multiple databases and reporting systems. We have also helped many of our clients define the types of items to measure as well. Contact us if we can help you establish or refine a key performance indicator solution for your institution.

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