02/02/2018
Insightful lessons learnt from our colleague Martijn Vranken, who spent two months at AccessBank Azerbaijan helping with designing the KPI and reporting dashboards for the entire bank.
Here is what Martijn wrote in his blog:
Throughout my adult life, I have been lucky enough to be able to travel, work and experience other cultures in quite a few countries in Asia, South America, and Africa. Although the Caucasus region isn’t a usual destination for most Dutch people, I got a chance to work on a very interesting project in one of the largest banks in Azerbaijan. I took the opportunity, and man I loved it.
When you hear the word “reporting”, you probably think it is not very exciting, takes a lot of time, or is an end in itself. I have to admit; I also might have had this idea before I came to Azerbaijan. Yet, after spending two and a half months in one of the most impactful microfinance focused banks in the country, it became clear that it is absolutely vital for every bank to have reliable data, structured reports, efficient processes and relevant information that will guide quick decision making. This is particularly the case for a bank that has been a victim of economic decline under two major currency devaluations in 2015, as most financial institutions in Azerbaijan.
The bank is one of the top-performing banks in Azerbaijan in general and is seen as one of the best examples of a socially-oriented financial institution with sound financial results. Similar to most of the financial institutions in Azerbaijan, the currency devaluations and the drop in oil prices took their toll on the heavily dollarized financial sector. Loan repayments decreased, default rates went up and the collapse of demand and income in the economy made banks reluctant to disburse new loans.
So what does all of this have to do with KPIs, reporting, and moving towards a lean business? Although I would love to tell you about the country’s fascinating culture, hospitality, stunning landscapes and great food, I will stick to designing and developing KPIs and improving reporting processes. But why would a bank even care about future strategy when they just need to survive?
Here is how I see it. When a bank is in trouble, it needs to survive. In order to survive, you need to be leaner, more efficient. To be leaner, you need to understand exactly where the inefficiencies are so you know what to improve where. The right KPIs and reports show banks where they need to improve in terms of efficiency, where their business is failing (or thriving), where the opportunities lie in terms of market development, and where they need to adapt/change in order to serve the difficult market. KPIs and reports can help a bank restore positive energy among staff and motivate creativity and ideas on the way forward. This is the approach that the bank took: rebuilding, reinventing a bank while managing the challenges of the current market.
Once the strategy has been designed and the business plan approved, it is crucial to measure whether or not you are going in the right direction. Designing and implementing KPIs can help an institution getting there. Here are some tips for developing a set of KPIs for an organization. KPIs should be:
· Relevant to your institution, operating environment and stakeholders;
· Measured reliably and frequently. There is no use in developing indicators you can’t measure (now), or that take a lot of time and resources to produce;
· Dynamic and evaluated based on circumstances: a growing institution needs to have different KPIs in place than one that is in crisis, and;
· Actionable to the owner. What is the action I need to take to improve the KPI? If you don’t know the answer, then it is just a nice statistical indicator, but it is not going to improve the business.
Here are some steps we took that we believe can be helpful when designing KPIs and improving the reporting. Firstly, you have to identify the KPI owner: the person who is responsible for the performance of the indicator. Secondly, KPIs must have clear definitions. Many times, departments in a bank have different definitions of the “same” indicator, which means they actually measure and report different numbers. Identifying and agreeing on the correct KPI definitions might take some additional time up front, but definitely pays off as it improves clarity, reduces data discrepancies and gets buy-in from the relevant stakeholders within the organisation, especially the KPI owners.
Next step is to identify what you want to measure (numbers, amounts, ratios), how you want to measure it (a trend, variance, bandwidth, etc.) and with what frequency. Keep in mind that the process of defining and adjusting KPIs can take more time than you might expect: be clear what is included in the definition and what you are able to measure given system’s and data warehouse capabilities. If done properly, you get the buy-in from all relevant stakeholders and make sure everybody goes in the same direction.
Last, but not least, you have to look at the entire data flow and reporting process. What are your current and future reporting requirements, what does the data flow look like, which data sources are used and which business processes should be changed to improve both the data collection as well as the reporting output? From an operational efficiency point of view, improvements should always be made at the time the data is entered in the system. This reduces the error rate at the data entry point, and improves the overall data quality and integrity. Additionally, having a centralized reporting unit can increase the efficiency of the reports generation significantly. Such a unit will have the responsibility for developing the KPI measurement and monitoring methodology, data verification and analysis, and reports structure. This can create more structured and leaner processes, and makes sure management information is produced in one place, instead of several islands each producing their own part of the report.
So, in case you are (getting) involved in the development of KPIs and improving efficiency in reporting, here are some valuable lessons I learned during my time in the bank:
· Prepare yourself to be the link between the business (users of KPIs/dashboards) and the data architect, who is going to develop them. Keep the data architect close to you and make him or her your friend (we actually did become friends).
· Do your research: make sure you have your benchmarks, experience and best practices prepared. Think of what the bank needs to measure now and when the crisis is over.
· Get support from Management Board and Executive Management. Developing KPIs might not be the highest priority at first (especially for a bank that needs to come out of an economic crisis), but convince them that the right KPIs can help them knowing where they are and what to do next.
· Defining and agreeing on the appropriate set of indicators takes time and patience. Do it step by step and use people’s input: they are the ones that are going to use them every day.
· First identify the status quo (current set/number of reports), before you can think of how the ideal situation should look like. Then define and agree on a transition period where you move from the old to the desired situation.
· Improving the processes starts with identification and verification. Check (twice) how the process is going now to make sure you know what the issues are when making changes. This does not only hold for reporting processes, but improving processes in general.
· Decide on which processes to improve first. The criteria to be considered can be time required to produce the report, or the processes that have the highest impact on both the quantity and quality of reports produced in the bank.
If you want to talk more about banking KPIs and reporting or are interested in our consulting services for improving the efficiency in reporting/MIS processes, drop me a line at [email protected].
Martijn Vranken
AdVision Finance, The Netherlands
