Cost-effectiveness and risk management Frank Marzilli, CFO Advisor OTP Bank (Russia) SAS Conference - Moscow October 2014
4 basic levers of cost management II. Optimization of business I. Simplify the organization processes / functional optimization • Reduce layers & optimize • Benchmark • Costing activities span of controls • Reduce duplication between • Business process reengineering • Transfer of business process functions and roles • outsourcing III. Rationalization of IV. Spending cuts infrastructure • IT rationalization Spending cuts by using: • Managing demand • Optimizing location • Strategic procurement planning (centralization, relocation, • Management of tax liabilities shared services centers, …) 2
I. Simplify the organization • Reduce layers & optimize span of controls • Reduce duplication between functions and roles
I. Simplify the organization – Span of control Cost efficiency initiative How Risk can contribute? Examples: Span of control • Simplify the structure of the risk management 1 2 division: Management layers 3 – reduce the number of organizational layers between 4 the CEO and the lowest staff 5 – Set / increase the minimum number of staff 6 managed for each level of management 7 – reduce non-management management (eg 8 9 deputies, ...) • Reduction / outsourcing of activities too far from the core of risk management Management layers 1 2 Potential risks & Mitigants: 3 • Real organization is different from the official => 4 analysis of the actual organization 5 6 • Psychological difficulty => top management d ecision 4
I. Simplify the organization – Analysis of activities Cost efficiency initiative How Risk can contribute? Analysis of activities Examples: • Reducing duplication: Total 1 2 3 5 6 ГО – "Shadow activities" (e.g., duplication of HR or IT хх tasks in risk) бухгалтер/От четность – Redundant activities with other departments (e.g., Кред. Админ.. хх Расчет. операции financial reporting, collections performance) Фин. хх • Benchmarking Align staffing to benchmarks (for example, to мониторинг хх Юристы strengthen the score development vs. procedures) хх IT HR / хх рекрутмент HR / Potential risks & Mitigants: хх обучение • Benchmarking: use of similar business model => Риск хх analysis of the actual organization Риск / hard хх • duplication: undocumented tasks, transition => Duplication interviews and tests 5
II. Optimization of business processes • Benchmark • Costing activities • Business process reengineering • Transfer of business process • outsourcing
II. Optimization of processes – Process redesign Cost efficiency initiative How Risk can contribute? Process redesign Examples: • 1 Focus on mass processes (underwriting, Identification of collections) and back-office value • Automation, simplification of procedures, reducing errors and improving methods of operations, 2 6 Map the value Implementation stream reduce complexity in key areas Potential risks & Mitigants: 5 3 Creating a Checking with • Support of staff and management => Change process map Customer and timing Management 4 • Quality of the process => Expertise in Process Optimization of business Improvement processes 7
II. Optimization of processes – Must have vs. Nice to have Cost efficiency initiative How Risk can contribute? Must have vs. Nice to have Examples: • Reduction / outsourcing of tasks too far from the Rating: management of functions + project team core risk management Must keep Mass back • have For other non-core tasks, determine the level of offices / services performance for each major role, and align Must Mixed Tasks keep have • HO employees to the objectives of performance • Branches keep, optimize Should approach have Moscow Could costs vs. benefits have Potential risks & Mitigants: Nice to Would Stop, cut / reassign have like FTE • Support of staff and management => Change Management Criteria: • • income > expenses Quality of the process => Expertise in Process • regulatory requirements Yes / No / Improvement • Unclear & competitive advantage • Why save costs • keep customers happy 8
III. Rationalization of infrastructure • IT rationalization • Optimizing location (centralization, relocation, shared services centers, …)
III. Rationalization of infrastructure – IT rationalization Cost efficiency initiative How Risk can contribute? Examples: • Standardize and simplify the technical architecture of risk (reduce the number of databases, ...) • Determine the fastest reduction of hardware and software maintenance • Standardize key processes to standardize applications Reduce data center Data centers Business General services centers Potential risks & Mitigants: architecture Offshoring • Overlap between the systems and processes => Consolidate databases Business databases Information Standardize processes to IT support databases careful analysis of the processes, expertise in architecture consolidate information process improvement Standardize front offices Business systems Applications / Consolidate applications Business applications • Common understanding among all stakeholders Services Standardize service platforms IT support applications (business and IT) about the benefits => interview Optimize infrastructure Servers management Infrastructure Databases Merge databases 10 Consolidate servers
III. Rationalization of infrastructure - Relocation Cost efficiency initiative How Risk can contribute? Examples: AS IS TO BE • Mass process (Collections platform , large Mass back lower cost H.O. H.O. verification teams, ...) offices location • Support staff (risk technology support, data Verfification support, support for collection, ...) Collections Potential risks & Mitigants: • Capacity to perform remotely => careful analysis of processes, IT systems Others • Protect efficiency => Keep the staff at the Head Office with very high efficiency 11
III. Rationalization of infrastructure – Shared Services Center Cost efficiency initiative How Risk can contribute? Unit, in which are transferred certain business processes Examples: across the organization • Staff in the branches (e.g. underwriters, monitoring, ...) AS IS TO BE • Non-core tasks of risk (e.g. controls, compliance, Back- Services Back- Services Basel, FATCA, ...) offices offices • Support staff (risk technology support, data H.O. H.O. support, collection support, ...) Branches Branches Potential risks & Mitigants: • Differences in processes in different parts of the organization => careful analysis of processes, S.S.C. process improvement expertise 12
IV. Cut expenses Spending cuts by using: • Managing demand • Strategic procurement planning • Management of tax liabilities
IV. Cutting expenses Cost efficiency initiative How Risk can contribute? Examples: • Negotiate the fees credit bureaus • Negotiate license fees • Optimizing the use of telephone by collections • Cut the budget (training, office supplies, ...) • Reduce the number of single / expensive purchases • Combining similar expenses, optimize the supply Potential risks & Mitigants: base • Protect the efficiency (underwriting, collections) => • Verification of taxes paid Tests 14
Thank you
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