Planning is method of thinking ahead and formulating a set of activities which we’ll execute in future. Due to the changing business scenarios like:
Economic and social uncertainty
Fast changing consumer demands
Planning play a key role in maintaining any financial status of any business. Thus involves the future business activities and finance management which help to flourish a business.
Business planning for banking is slightly different from other industrial sectors. This paper include the various insights of reporting and planning activities which are carried out in some of the global banks using SAP Business Planning and Consolidation.
Planning is method of thinking ahead and formulating a set of activities which we’ll execute in future. Once the current factors and the historical statistics are calculated, the banking sector looks for the scenarios which can be included into to plan the finances of any bank.
Why scenario planning is done? In times of high uncertainty, planning executives often choose one of two paths: They panic like a deer caught in headlights, or they simply make low-information, “gut” decisions. Scenario planning offers a more disciplined approach.
Thus scenario planning is used to guide strategies. The strategies are guided into:
SCENARIO 1: BUSINESS AS USUAL
Business as usual points to incremental change rather than dramatic change, thus the order of business is not disturbed and plan is constructed to foresee the future.
SCENARIO 2: FINANCIAL ISSUES
Financial Issues anticipates a world in crisis – for the developed world and for emerging markets – with new financial bubbles, burdensome regulations and rising protectionism.
SCENARIO 3: NEW MARKETS
New Markets expects a big shift in emphasis from the developed world to emerging markets, aided by stiffer regulations in developed markets. It foresees new champions from emerging markets that will dominate their home turf and also other regions.
To evaluate new markets, look at the economy, the appeal for other global companies and what is most important to your customer base. The ability to set high margins is also important.
SCENARIO 4: CHANGE, CHANGE, CHANGE
In this scenario, banks in the developed world lose traction because of more competition from emerging market banks and also from new business models led by telecommunications companies and retailers. Thus developed banks have to keep in mind the rising stars in the banking sector and should pull up their socks to be in competition with them.
SCENARIO 5: LONGITIVITY OF A SCENARIO
Scenario plans can remain valuable over the long-term because they are not intended strictly to predict the particular future. Rather, the exercise is about putting a bank through a number of different scenarios, and seeing how it performs under each. That discipline better prepares a bank for a wide range of possible, uncertain futures
SCENARIO 6: STRATEGIC PLANNING
With so much uncertainty, bank CEOs need to rethink where their institution adds value to customers, who those customers are today and who they might be in the future.
SCENARIO 7: NEW REGULATIONS
Avoid putting the various initiatives into pockets. Instead, create an over-arching program for managing regulatory change. This can help in reaching to an innovative ideas which works amazingly the new change in business.
SCENARIO 8: LOCAL PARTNERS
During the times of high volatility, such as today, collaboration with local partners is an attractive path for market entry and to stay in the competition with the bigger firms.
CAPITAL AND RISKS
Banks face a number of risks in order to conduct their business, and how well these risks are managed is the key driver behind profitability, and much capital a bank is required to hold. This is done by SAP BPC. It helps any banking group to achieve a unified process that will allow them to better plan, manage and improve performance. The key benefit of BPC covers the better alignment of objectives, plans, improved decision making and finally better execution of any bank’s objectives.
The key risk factor of any banking sector includes-
Credit Risk: risk of loss arising from a borrower who does not make payments as promised.
Liquidity Risk: risk that a given security or asset cannot be traded quickly enough in the market to prevent a loss (or make the required profit).
Market Risk: risk that the value of a portfolio, either an investment portfolio or a trading portfolio, will decrease due to the change in value of the market risk factors.
Operational Risk: risk arising from execution of a company’s business functions.
Reputational Risk: a type of risk related to the trustworthiness of business.
Macroeconomics risk: risks related to the aggregate economy the bank is operating in.
The capital requirement is a bank regulation which sets a framework within which a bank or depository institution must manage its balance sheet.
INTEGRATED BUSINESS PLANNING FOR BANKS
Using the services of BPC, banks control and initiate there financial planning which is divided in three folds-
CAPITAL AND RISK PLANNING
The bank specific capital and risk planning include-
The banks planning activities goal is to get all the activities to be integrated in order for the projected financial plans are reflecting the underlying Sales, Operations and Capital/Risk plans. There is a core operational planning element that involves Asset Liability planning that required in Capital & Risk Planning area.
DIFFERENT CYCLES OF PLANNING
Sales and operation
IT/ project planning
FINANCIAL PLANNING (BALANCE SHEET, P&L, CASH FLOWS)
Business planning and Budgeting
SAP BPC increases the accuracy of compensation data across the bank groups. The solution allows administrators to automate certain processes, saving time and allowing for more analysis.
Data is exported into the BPC application, Bank’s year-end bonus, stock grant or merit increase information into BPC’s input templates, and after the final budget/ forecast is complete, and the updated information is transferred back.
Currency conversion capability and high level security with internal controls over compensation information is also critical to the banks which can easily be implemented using BPC.
Employee based drill-through function that allows banks to see items such as year-to-date bonus and salary details within BPC as it relates to each employee. Administrators can easily add new business models, accounts or departments. Security allows banks to view there data only, without compromising the integrity of another department.
PLANNING OF BALANCE SHEET
The crux of the planning is Balance sheet planning that derives the P&L. Loans are Assets and Deposits are liabilities for Banks. Essentially the planners go and define the average margins and FTP rates by different product lines (asset types) that would derive the income. Similarly on the liabilities side, users would go and define the rates for liabilities and the movements, that can derive the interest expended. Planning these at every branch level and deriving and consolidating is a huge value for Banks to get the full single version of truth and especially with familiar Microsoft Excel user interface.
In addition to the crux of Balance sheet planning, banks operate is a very distributed manner. So it’s important to bring a standard approach to getting all their sales teams and branch operating with respect to the planning. BPC can play a very effective role in getting these plans together, consolidating them and providing a view that can help decision making at consolidated level or down the hierarchy – regions, countries, territories or branch levels.
The below planning methodology demonstrates how banks can really benefit from planning with BPC.
Advantages of BPC in banking
Consistency of data: All compensation information is converted at the same rate. With BPC we are able to take away the variables. Now banks can calculate the compensation in local currency and have BPC automatically calculate and convert to any other currency in mere seconds.
Better communication/ increased retention: There is no miscommunication regarding compensation, and the data is consistent on what is measured as compensation across the entire organisation. The accuracy and timeliness of communication has definitely helped the banks retention rate.
Transfer of knowledge: The Company also uses BPC to consolidate and report financial information from their general ledger. By combining the consolidated financial data with the detailed HR information, the CFO can accurately determine how their human capital affects the entire bottom line.
The report is automatically generated without compromising the security of data, and banks can now clearly see the effect human capital has on their business outcome.