it's time to upgrade the way banks plan · despite these shortcomings, many banks have left...

IT’S TIME TO UPGRADE THE WAY BANKS PLANFINANCIAL RESOURCE MANAGEMENT

AUTHORS

Eric Czervionke

Ugur Koyluoglu

Jared Levinson

Copyright © 2019 Oliver Wyman

EXECUTIVE SUMMARY

What if your institution could significantly improve

the quality and efficiency of planning and budgeting.

Your planning cycle is reduced from weeks to days

and becomes a continuous activity rather than a

cumbersome and static annual effort. Analytics are

accessible from a single online platform that replaces

offline models. Planning teams distribute forecasting

efforts and yet retain transparency into the underlying

drivers of business performance and constraints under

which the bank operates. And ultimately, information is

provided to management that is more timely, accurate,

and insightful, yielding better decisions and outcomes

for the organization. Well, that’s the idea behind

Continuous Integrated Planning (CIP).

For institutions combating resource intensive, and

often disconnected manual planning processes,

implementing CIP can save considerable time and

money. For those institutions already beginning to

upgrade their capabilities, CIP can be used to accelerate

the transformation of the planning function, eliminating

large swaths of low value activities and introducing more

modern forecasting practices aligned with the bank’s

broader digital strategy. Regardless of starting position,

once implemented, CIP provides management with

the necessary information to more confidently manage

scarce financial resources and ultimately improves

enterprise profitability. Banks that have invested in these

capabilities will have a significant competitive advantage

over those that still rely on disconnected and largely

manual capabilities.

At Oliver Wyman, we have been helping clients

re-examine their end-to-end strategic planning

efforts—spanning people, processes, capabilities and

infrastructure. Our paper talks about our lessons learned

and perspectives on how banks can modernize their

strategic planning and budgeting capabilities. We

highlight the challenges facing the planning functions at

most banks, provide the “must haves” when upgrading

to CIP, and offer perspectives on the organizational

and technological transformation needed to help your

institution successfully get there.

THE CHALLENGES

The strategic planning and budgeting processes at

many financial institutions have not kept up with the

times, even as these processes have taken on increased

importance given market headwinds and tighter

regulatory requirements. Existing processes consume

substantial resources and often depend on a host of

disconnected analytics and manual efforts that obscure

transparency and reduce nimbleness. The results of

these efforts are often static, accounting-oriented, and

rely on assumptions that may no longer hold by the time

planning efforts wrap up.

At the same time, financial planning and analysis (FP&A)

functions are facing increased pressure to produce

greater insight through the planning process, with

greater efficiency, accuracy, and speed as well as more

attention to regulatory and internal constraints, and

legal entity detail. With a proliferation of constraints to

manage against and without proper instrumentation

and visibility into the impact of planned actions on these

constraints, bank management teams are increasingly

at risk of “flying blind” if they do not more urgently

upgrade their planning capabilities.

THE TRANSFORMATION—WHAT BANKS CAN DO TODAY

Oliver Wyman believes that Continuous Integrated

Planning (CIP) is a better way to plan. At its highest

level, migrating to CIP entails two fundamental shifts

in the way banks plan. First, it requires a shift from a

linear, static planning process to a continuous planning

process—where forecasts are “always on” and refreshed

with limited manual intervention. Second, it requires a

shift from disconnected to integrated planning. Here all

forecasting models and calculations are brought online

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and are connected to the planning infrastructure—

enabling nearly autonomous forecasting, insight

generation based on drivers of business performance,

‘what if’ analyses, and real-time transparency into the

impact of actions on enterprise profitability measures

and regulatory constraints.

THE REWARDS—EFFICIENCY AND COST SAVINGS

Modernizing the planning function is not a trivial

undertaking, but the rewards are substantial. We

estimate with changes to both infrastructure and

processes, annual planning aggregation times can be

reduced from the typical 8–12 weeks to approximately

5–10 business days at most institutions, and monthly

updates and sensitivity analysis can be completed over

2–3 business days.

Associated direct and indirect cost savings will vary by

institution but can be substantial for larger banking

organizations who often have hundreds of employees

tied up in the planning and budgeting exercises during

annual cycles and refreshes.

THE REWARDS—IMPROVED PROFITABILITY

Operational efficiency gains, while sizeable, are only a

small part of the equation. The integration of forecasting

activities on a common platform across treasury, tax,

capital, risk, business, and support functions can

lead to better decisions being made that improve the

enterprise’s return on equity (ROE). Such improvements

are possible through a better understanding of how

business decisions and activities affect binding

constraints and a more optimal usage of capital and

liquidity resources across the enterprise.

We conservatively estimate that it is possible with the

help of CIP to improve ROE by 2–3 percent through

improved decision making, active management of

the business portfolio, and ultimately better financial

resource management. Additionally, we estimate

incremental ROE improvements of approximately

0.5–1 percent due to enhanced transparency into cost

drivers and initiative performance.

THE REWARDS—UPGRADING THE FINANCE FUNCTION

Beyond enabling better decision making, upgrading

the planning function to CIP shifts the activities of the

finance function from lower value tasks such as data

collection, reconciliation and manual ad hoc analysis, to

higher value activities related to forecast improvement

and insight generation. Ultimately, efforts to upgrade the

planning process can be used by CFOs to both pilot and

accelerate the needed transitioning and upgrading of

employee skills within the finance function.

WHAT’S NEEDED TO STAY COMPETITIVE

Banks should take more aggressive action to:

• Assess the current maturity of their planning capabilities,

• Accelerate and create greater urgency around upgrading planning capabilities, and

• Ultimately begin the journey to transform the way planning is conducted.

Several large, complex banking institutions have already

begun the multi-year journeys required to upgrade their

capabilities, placing these institutions at a competitive

and strategic advantage. For those institutions that are

not underway or are still attempting to crystalize their

vision for planning—the time to begin is now.


The strategic planning and budgeting

processes at many financial institutions

have not kept up with the times. Existing

processes are resource intensive, rely on

disconnected and often manual efforts,

depend on a host of assumptions that would

benefit from stronger centralized oversight,

and tend to lack the strategic information

and nimbleness that management teams

crave for decision-making purposes. The

results of these efforts are often single-

scenario, static, accounting-oriented, and

rely on assumptions that may no longer hold

by the time planning efforts wrap up.

WHAT CAN BE DONE?

In the face of substantial uncertainty, bank

executives must identify and react rapidly

to changing business conditions and make

complex and value-maximizing decisions.

However, executives are finding that historic

strategic planning and budgeting processes

are ill-equipped to provide the critical

information needed to support robust and

rapid decision making. Management teams

tend to rely on manual, ad hoc exercises to

inform decision making. These efforts are

often time consuming and yield outputs that

are static and in some cases imprecise.

Despite these shortcomings, many banks

have left these processes largely undisturbed

since before the financial crisis, choosing to

allocate scarce resources on more pressing

post-crisis regulatory implementation and

remediation efforts. The technical debt

incurred from this decision has now caught

up with many institutions. Many banks have

planning functions, to quote one executive,

that are “still stuck in the late 1990s.”

We recently surveyed more than a

dozen large financial institutions on

the challenges and pain points they are

facing with their planning and budgeting

processes. Exhibit 1 illustrates the generally

resource intensive, fragmented planning

infrastructure many banks are currently

relying upon.

CURRENT STRATEGIC PLANNING EFFORTS

Many banks rely on an annual planning

process that is highly linear, fragmented, and

reliant on end-user analyses, often initially

completed in spreadsheets. Those analyses

that require more powerful analytics,

such as credit loss forecasts aligned with

business segment revenue forecasts may

leverage more sophisticated tools, but

often rely on cumbersome systems that are

often not directly integrated into the core

planning infrastructure used for aggregation

and reporting.

Constraints modeling and treasury

calculations are frequently completed

late in the planning process, even though

their early introduction helps to ensure

consistency and alignment across revenue,

THE CURRENT STATE OF AFFAIRS— ARE INSTITUTIONS STUCK IN THE 1990s?

THE CHALLENGES

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balance sheet, capital and liquidity forecasts.

The result is a single-scenario, static plan

that is difficult to adapt as conditions

change and which does not effectively

support decision making. By the nature of

its construction, this approach makes agile

and internally consistent planning virtually

impossible by construction.

LIMITED, STALE INSIGHTS

Under such conditions, many firms eke

out annual plans and monthly outlooks,

but do so often with heroic manual efforts

and understandably with less time to

focus on value-added analytics and

insight generation. In the case of annual

planning efforts, it is not uncommon for

the process to consume a large percentage

of the finance function’s resources for

8–12 weeks, only to produce plans that

are single-scenario, static, and lacking

transparency into business drivers. Plans

in some instances may rely on inconsistent

internal assumptions stemming from a lack

of connectivity across functions prior to plan

aggregation. This status quo is untenable

and represents an extraordinary opportunity

to both improve efficiency and create

better decision-making capabilities at most

financial institutions we have surveyed.

COMMON PAIN POINTS

• Fragmented data without a Planning Data Model (PDM)• Data feeds are not automated, requiring manual data collection

DATA

• Many planning models often sit outside the planning system, often in Excel or other End User Computing (EUC) tools

• More granular models (e.g. for Credit Losses) typically run o�ine• Forecasts are often accounting-oriented and omit business drivers• Limited use of stress-testing infrastructure• Impact of initiatives not fully integrated

PLANNING MODELS

• Banks often have an aggregation system to consume plan inputs• Constraints, funding, capital, and tax added ex-post• Legal-entity view typically limited or created ex-post

PLAN AGGREGATION AND REPORTING

• Most banks create a single static plan for operating plan purposes• 'What-if' capabilities are limited and require a full manual forecast

SCENARIO AND ‘WHAT IF’ ANALYSES

Multiple manual hando�s

Fragmented data model

Planning data & models siloed

Business drivers omitted

Limited alignment with CCAR

Initiatives not fully integrated

Limited view of legal entity

Constraints modeled ex-post

Limited, manual 'what-if'

Single-scenario, static plan

Multi-week, linear process

Business Revenue & B/S

Expenses Credit Losses

Tax/DTA Capital/RWAs

IT IS NOT UNCOMMON FOR A BANK’S ANNUAL PLANNING EXERCISE TO BE AN 8–12 WEEK EFFORT YIELDING A SINGLE, STATIC PLAN

ExHIBIT 1: HOW STRATEGIC PLANNING WORKS TODAY AT MOST BANKS

The typical current state of planning across banks surveyed - Fragmented infrastructure and linear process


BOX 1 NEW PRESSURES ON THE FINANCIAL PLANNING & ANALYSIS (FP&A) FUNCTIONThe expanding role of FP&A and its implications

Chief Financial Officers are facing several herculean tasks with little margin for error. They must increase the bank’s return

on equity (ROE), return capital to shareholders, reduce costs and digitize core finance processes, and at the same time

urgently upgrade the agility and digital fluency of their workforce.

FP&A functions support these efforts by producing the strategic and operational plans against which performance is

measured, monitored, and assessed. Yet most functions surveyed continue to rely on legacy processes, fragmented data,

and off-line models to do so.

At the same time, FP&A functions are increasingly being relied upon to:

• Generate more insight and value from planning

particularly considering the large amount of effort put

into these exercises. Management is craving sharper

insights on emerging risks and opportunities, and

more active monitoring and analysis of key business

and enterprise level drivers of business performance.

• Aid in the construction of scenario resilient plans

by incorporating scenario analysis into the annual

planning process, allowing management to evaluate

and set strategic and operational targets based on a

range of possible outcomes instead of a single static

plan dependent on one set of assumptions.

• Conduct ‘what if’ analyses in a rapid and agile

manner in response to questions by management,

the board of directors, and investor community—as

market and macroeconomic conditions change and as

management evaluates strategic actions that can be

taken in response to such events.

• Track, monitor, and assess the impact of material costs and new initiatives in order to introduce greater

accountability and create better flexibility to assess

the impact of reallocating firm resources in a more

agile manner.

• Leverage investments in stress testing infrastructure and increase the alignment between

forecasting approaches used to generate operating

level plans and enterprise-level results under base and

stress conditions.

• Assess firm-wide profitability and constraints

associated with the plan, what-ifs, and alternative

scenarios, requiring the ability to analyze the impact

of changes to a plan at a granular level to assess the

impact on capital, balance sheet, and funding/liquidity

constraints—many of which are at the legal entity level.

• Provide early warning and forward-looking insights

to the business and management regarding emerging

trends, deviations from the operating plan, and the

impact of planned actions on firm-wide performance.

WHAT’S NEEDED TODAY

The above represents a significant expansion in the role of the FP&A function to include a greater focus on insight

generation. The FP&A function will need to play a role more akin to that of strategic advisor to the CFO and to the

businesses, rather than a role focused on more traditional, mundane activities such as data collection, plan aggregation

and reconciliation, and budget variance analysis. This shift also implicitly necessitates more powerful analytics and

planning capabilities, as well as a change in the way planning functions are organized, resourced, and run.

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There are signs, however, that the times are

changing. Crisis-era regulatory response

programs are nearing their completion,

and CFOs have shifted their attention to

the modernization and digitization of core

finance processes, including planning

functions. Bank management teams are

craving better analytics to detect and analyze

emerging threats and opportunities, and

to better track the impact of new projects

and initiatives on performance. Business

line executives are frustrated by the limited

levers they have at their disposal to impact

profitability and are demanding better tools

to understand how their activities translate

into allocated expenses, liquidity, and capital

costs at the enterprise-level.

Amidst this growing recognition that existing

planning and budgeting infrastructure is not

well-equipped to handle modern demands,

banks are craving more capabilities that

are better suited for day-to-day strategic

decision making. These include the ability to

continuously monitor results, drill into non-

accounting drivers of business performance

(“business drivers”), conduct quick ‘what-if’

analyses, evaluate plan feasibility amidst

financial resource and regulatory constraints,

and assess the impact and resiliency of

actions under a range of plausible scenarios.

There is also extraordinary demand for

better alignment between treasury, capital,

business, and support function planning

efforts, which to this day remain largely

siloed and independently managed.

THE REWARDS—EFFICIENCY AND COST SAVINGS

Modernizing the planning function is not

a trivial undertaking, but the rewards are

substantial. We estimate with changes

to both infrastructure and processes,

annual planning aggregation times can

be reduced from the typical 8–12 weeks

to approximately 5–10 business days at

most institutions, and monthly updates

and sensitivity analysis can be run over

2–3 business days. Associated direct and

indirect cost savings will vary by institution

but can be substantial for larger banking

organizations who often have hundreds

of people tied up in the planning and

budgeting exercises during annual cycles

and refreshes.

THE REWARDS—IMPROVED PROFITABILITY

Efficiency gains, while sizeable, are only a

small part of the equation. The integration

of forecasting activities on a common

platform across treasury, tax, capital, risk,

business, and support functions can lead

to better decisions being made, improved

THE NEED—MAKING PLANNING MORE STRATEGIC

MODERNIZING THE PLANNING FUNCTION


management of financial resources

against binding constraints, and increased

enterprise profitability as measured by

return on equity (ROE). We conservatively

estimate that it is possible with the help

of CIP to improve ROE by 2–3 percent

through improved decision making, active

management of the business portfolio, and

financial resource management. Additionally,

we estimate incremental ROE improvements

of approximately 0.5–1 percent due to

enhanced transparency into cost drivers and

initiative performance.

THE REWARDS—UPGRADING THE FINANCE FUNCTION

Beyond enabling better decision making,

upgrading the planning function to CIP shifts

the activities of the finance function from

lower value tasks such as data collection,

reconciliation and manual ad hoc analysis,

to higher value priorities related to forecast

improvement and insight generation.

Ultimately, efforts to upgrade the planning

process can be used by CFOs to both pilot

and accelerate the needed transitioning

and upgrading of employee skills within the

finance function.

1 CIP is a core component of Strategic Financial Resource Management (SFRM), Oliver Wyman’s framework for modern bank management and decision making, which we have discussed at length previously in other papers. Please visit the Oliver Wyman FRM Hub for more information.

Oliver Wyman believes there is a better

way to plan that is more suited to today’s

demands. We call this Continuous

Integrated Planning (CIP).1 At its highest

level, this entails two fundamental shifts

in the way banks plan. First, it requires a

shift from a linear, static planning process

to a continuous planning process—where

forecasts are “always on” and refreshed

with limited manual intervention. Second,

it requires a shift from disconnected to

integrated planning. Here all forecasting

models and calculations are brought

online and are connected to the planning

infrastructure—enabling nearly autonomous

forecasting, insight generation based on

drivers of business performance, ‘what if’

analyses, and real-time transparency into the

impact of actions on enterprise profitability

measures and regulatory constraints.

In Exhibit 2, we provide a high-level

visual illustration of Continuous and

Integrated Planning (CIP) and the emerging

best practices we are observing across

the industry.

THE TRANSFORMATION— WHAT BANKS CAN DO TODAY

1 CIP is a core component of Strategic Financial Resource Management (SFRM), Oliver Wyman’s framework for modern bank management and decision making, which we have discussed at length previously in other papers. Please visit the Oliver Wyman FRM Hub for more information. Accessible at: https://www.oliverwyman.com/our-expertise/hubs/financial-resource-management.html

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EMERGING BEST PRACTICE: CONTINUOUS INTEGRATED PLANNING

Eliminates manual hando�s

Unifies data model planning

Consistency across models

Inclusion of business drivers

CCAR aligned with planning

Initiatives integrated

Legal entity transparency

Constraints auto-update

What-ifs trivial to compute

Multi-scenario, nimble plan

Plan within 5–10 business daysAlternate scenarios

What-if analyses

Initiatives impact

Driver-based planning models

Model library with fast approximations

Automated assumption-based calculations

BENEFITS WHEN REALIZED

• Single Planning Data Model (PDM) as golden source• Automated data feeds and a controlled process

DATA

• Planning models are "online" and on shared platform• Driver-based planning extends accounting line items• Model library can be called via API “on demand” for planning

and 'what if' analyses• Constraints and other downstream calculations automated and

assumption-driven, requiring review only

PLANNING MODELS

• Plan is "always on" as models refresh in real time• Management obtains transparency into plan as it comes together• Workflow managed centrally• One common platform to maintain

PLAN AGGREGATION AND REPORTING

• Alternative scenarios, 'what-if' analyses, and initiative impacts can be generated

• Connected callable infrastructure allows adjustements to cascade in real time

SCENARIO AND ‘WHAT IF’ ANALYSES

PLANNING EXERCISES CAN BE REDUCED TO 5–10 DAYS AND YIELD A RICHER, DYNAMIC PLAN THAT CAN BE ADJUSTED SUBSEQUENTLY

ExHIBIT 2: AN OVERVIEW—CONTINUOUS INTEGRATED PLANNING Benefits institutions gain through CIP

While we will not review all aspects of the

planning design, we highlight several of the

key conceptual underpinnings that warrant

specific attention and that are common

needs across most banks.

The seven core elements represent a

subset of the capabilities we believe to

be important to Continuous Integrated

Planning (CIP) and common across bank

implementation efforts.


1. PLANNING DATA MODEL (PDM)

Planning with greater efficiency and accuracy ultimately requires high-quality data that can

be collected and reconciled programmatically without manual intervention. Given the size

and complexity of large financial institutions, the development of planning data repositories

is inevitably a challenging undertaking.

However, in recent years, many firms have made considerable progress with consolidating

large volumes of financial data from across their enterprises. While this progress is

promising, we have observed that many of these efforts have yet to achieve total coverage

of all the data required to automate planning. This is particularly the case for non-financial

business drivers that have not traditionally been tracked within the general ledger and the

more granular information needed for capital and liquidity constraint calculations.

RESULTS: Banks can use the journey toward continuous integrated planning as a way to specify

a comprehensive Planning Data Model (PDM) and systematically identify missing data elements.

We have found this approach to be more effective than placing large quantities of information

into a data lake without first specifying the information required for planning purposes.

2. PLANNING BASED ON BUSINESS DRIVERS

Traditional planning at many banks is focused on forecasting accounting line items

stored in the general ledger at varying levels of depth. Such accounting orientation has

historically been (and will continue to be) important for financial control and performance

management purposes.

However, this historical approach has two shortcomings: First, the granularity of the general

ledger items tracked for planning purposes can be so granular that planners are forced to

either make unreasonably precise assumptions or spend a considerable amount of time

producing forecasts at immaterial levels of granularity. Time would be better spent by the

organization focusing on the most material (and uncertain) elements of the plan. Second,

many non-financial drivers of performance (e.g., number of accounts, deposit beta, market

share, or market size) are often not captured or tracked in the accounting ledgers and may

not be fully integrated into the forecasting process. Banks should migrate to driver-based

planning, which incorporates both financial and non-financial drivers of performance

and does so at an appropriate, fit-for-purpose level of granularity—focusing on the most

material drivers.

PLANNING “MUST HAVES”

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RESULTS: Our clients who have implemented driver-based planning find that it generates richer

and more strategic planning discussions, while allowing planning teams to focus on the most

material drivers of performance and monitor them on an ongoing basis. Greater granularity can

be generated automatically using assumptions-based rules (e.g., based on historical actuals or

trends) and can be modified as and if necessary, for ‘what-if’ analyses.

3. CALLABLE FORECASTING MODEL LIBRARY

Planning processes at many banks rely on a large number of disconnected and offline

forecasting tools, including ones requiring a large degree of manual effort and human

judgment. These offline models and calculations should be systematically converted to

models that are accessible programmatically via an Application Programming Interface

(API), enabling the planning system (and other systems) to call these models on demand.

Our experience has found that even manual, judgmental approaches can be systematized

yielding greater transparency into both the underlying approach and assumptions.

The architecture for the library should be modular, such that components can be added,

improved, or replaced, without having to make changes to the overall planning system

or any other applications that exist downstream. Such a library should include constraint

calculations, core-forecasting models for material drivers, fast approximations of

macroeconomic ‘what-if’ analyses, and models which encapsulate logic for calculations

around funding, capital management, and tax, amongst others.

Though this sounds predominantly like a technical challenge to overcome, it will also entail

fundamental changes to both the planning process (i.e., the focus shifts to agreeing on and

improving methodologies, and reviewing forecast and calculation assumptions) and to the

roles and required skills of those involved.

For some larger and more complex institutions, there are difficult but potentially quite

rewarding alignment issues to resolve related to the integration of Asset Liability

Management (ALM) analytics, enterprise and legal-entity regulatory reporting, and

enterprise stress-testing infrastructure.

RESULTS: Accessing models through a centralized library improves consistency and creates a

more efficient infrastructure for banks. It also reduces model duplications and is less costly to

maintain. Models can be improved or replaced without need for replacing the entire planning

infrastructure. Lastly and most importantly, callable forecasts models not only enable but are a

prerequisite for the automation of forecasts, which is required to reduce planning cycle times and

enable ‘what if’ analyses that do not rely on labor intensive manual efforts.


Use case 2: Driver trees enable tracking and managment of individual driver performance

Illustrative: Comparison of forecast and actual values for individual drivers

WHAT IS A DRIVER TREE?

A driver tree calculates the income statement and balance sheet based on underlying drivers, enabling P&L and

balances to be recalculated dynamically.

Revenue

Net interest revenue

Non-interest revenue

Purchase per account

Accounts

Beginning loan balance

Payments

PurchasesEnding loan

balance

Spread

Transactionalfees

Account fees

Input Calculation Output

HOW ARE DRIVER TREES USED?

Use case 1: Driver trees can isolate the impact of individual drivers on plan results

Illustrative: Breakdown of plan revenue impacts of individual drivers

2019 Revenue 2019 Revenue pre-initiatives

2019 Revenue post-initiatives

Interest rates Accounts Revolving mix Fees Initiatives

395

1,00050

75 20 60 1,165

230 1,395

Driver: Number of accountsThousands

160

155

150

145Actuals Forecast

3.0%

2.0%

1.0%

Driver: Benchmark interest rate

BOX 2 PLANNING BASED ON BUSINESS DRIVERSTraditional planning at many banks is focused on forecasting accounting line items stored in the general ledger at

varying levels of depth by institution. To provide greater transparency into the strategic drivers of performance and

levers that management can act upon, several banks have begun to transition to driver-based planning.

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4. CONSTRAINT CALCULATIONS FOR FINANCIAL RESOURCE MANAGEMENT (FRM)

FRM ultimately requires visibility into the binding regulatory constraints of the enterprise

and material legal entities. For sound and efficient bank management, such visibility is

required not only in reported financials but also in plan forecasts and ideally under a range of

alternative scenarios.

Historically, constraint calculations come ex-post in the planning process—as a last step—

which presents problems when changes to the plan need to be made based on management

review or changing conditions. Moreover, many institutions only focus on a narrow range

of constraints and do not have the ability to quickly evaluate the tradeoffs between multiple

competing (and in some cases complementary) business decisions. Firms without such a

capability are at a material disadvantage, especially when required to make quick decisions

under rapidly changing or uncertain market conditions.

RESULTS: Including constraint calculations concurrently with plan construction provides

transparency into the impact of plan actions and allows banks to manage capital and liquidity

more efficiently—ultimately improving profitability. We conservatively estimate that it is possible

to improve ROE by 2–3 percent through improved decision making, active management of the

business portfolio, and better financial resource management.

5. COST AND INITIATIVE TRANSPARENCY

A tremendous amount of effort is typically put into cost and initiative planning efforts,

but far less effort put into ongoing transparency and monitoring. Technology investment

at many banks is a substantial portion of the annual cost base, and yet there is often little

transparency into the impact of these efforts after initial business cases have been evaluated

and approved.

Banks should have greater transparency into the drivers of costs at a strategic level and

be able to track the performance of approved initiatives and their impact on the plan. In

order to achieve this transparency, banks should develop a baseline plan and incremental,

independently modeled initiatives (including the revenue, cost, and balance sheet impacts).

RESULTS: Driver-based cost and initiative transparency can drive greater accountability

and provide better visibility into trends impacting material drivers of expense. Capital can be

redeployed more nimbly to those projects that are found to be most promising and those not

realizing their benefits can be terminated earlier. Transparency into cost trends can provide

management with more visibility into those areas where cost control efforts should be focused.


6. CONTINUOUS PLANNING

Continuous planning involves the shift from a linear, static plan process to one where

forecasts are “always on” as planning data and forecast models are integrated into one

centrally administered but locally operated planning system. With planning cycles reduced

from weeks to days (with the primary constraint being availability and timeliness of data

feeds), plans can be continuously monitored, evaluated, and, if necessary, updated. The

annual planning cycle becomes just another monthly cycle, with greater attention placed

on emerging issues and on debating and reviewing key plan assumptions, targets, and

performance management implications.

RESULTS: In such a model, the focus is on rapid identification of emerging opportunities and

risks. Planning infrastructure can be used for associated insight generation around the impact of

mitigating actions and leveraged with much greater frequency and impact.

7. ADVANCED ‘WHAT IF’ CAPABILITIES

In order to make planning more dynamic and less static, planning functions need to develop

more powerful ‘what if’ capabilities. Currently, many planning functions rely on manual

refreshes to conduct ‘what-if’ analyses, which can be labor intensive and prone to error.

Plans also tend to be based on one scenario and are often not constructed to be resilient to

changes in the underlying assumptions. This presents inevitable challenges for CFOs, who

are held accountable to targets communicated to investors regardless of whether business

conditions unfold exactly as planned. We recommend that planning functions develop more

advanced ‘what if’ capabilities focused on macroeconomic and business-driver sensitivities.

Doing so requires changes to the underlying modeling infrastructure, in particular,

automation of regulatory constraint calculations and other calculations that normally require

manual hand-offs, such as funds transfer pricing.

RESULTS: With more advanced ‘what-if’ capabilities, management teams can begin shifting

from a single-scenario, static plan mindset toward one that evaluates the plan in the context of a

range of plausible scenarios. Such plans will ultimately be more resilient. Moreover, management

will have the necessary capabilities to evaluate actions in response to inevitable changes in

business conditions.

BEYOND THE “MUST HAVES”

As banks progress along their journey it is also possible to tackle more advanced use cases,

such as connecting planning infrastructure to existing Asset Liability Management (ALM)

analytics, enterprise stress testing, and regulatory reporting infrastructure. Other priorities

that may vary from institution to institution include the linking of enterprise plans to local

Internal Capital Adequacy Assessment Process (ICAAP), improvements to cost, capital, and

liquidity allocation methodologies, and the creation of internally consistent legal entity

views of the enterprise plans.

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FOUR STEPS TO GET THERE— SUCCESSFULLY

At its core, achieving CIP involves a

fundamental change in the way banks

plan from end-to-end. Accordingly, such a

transformation requires improvements that

are both technological and organizational

in nature. Four key elements—processes,

capabilities, infrastructure, and people—

must be addressed to successfully achieve

Continuous Integrated Planning.

MODERNIZE NOW

1. STREAMLINE THE PLANNING PROCESS

Banks must fundamentally transform their

planning processes from a monolithic annual

planning exercise to a live, continuous

planning environment—where forecasts

are “always on” and data is refreshed with

limited manual intervention. Adjustments

in assumptions can be made in response to

changing conditions.

When streamlining the process, it is

important to align top-down strategic

planning to bottom-up operational

planning, and to leverage the same

analytical infrastructure for both to enforce

consistency. Based on our experience with

clients, we believe it is possible to reduce

annual planning aggregation times to 5–10

business days, with further time spent

largely on debating key plan assumptions,

particularly those that are most sensitive

to changing conditions. Monthly updates

can be completed in 1–3 business days,

once data ingestion has been automated.

We believe it is important for management

to introduce the concept of uncertainty

into the planning process, with less focus

on managing to a target outcome and with

greater focus on the plan’s resilience across a

range of plausible outcomes.

2. SELECTIVELY BUILD NEW CAPABILITIES

Developing capabilities that allow for multi-

scenario planning, ‘what if’ analyses, and

ultimately Financial Resource Management

requires building new capabilities into the

planning infrastructure and automating a

number of calculations and computations

that traditionally are done offline in a

disconnected manner.

These capabilities include but are not limited

to profitability, efficiency, and regulatory

constraint calculations, liquidity and funding

forecasts, tax and capital calculations,

amongst others. All of these forecasting

methodologies should be automated

for a given set of assumptions, and

programmatically callable by the planning

infrastructure. Additional capabilities that

we see as essential are driver-based planning

(see Box 1) and associated capabilities to

measure and layer on the impact of single

and portfolio-level initiatives onto the

enterprise plan.


For larger, multi-national Global Systemically

Important Financial Institutions (G-SIFIs)

with binding constraints at the local legal-

entity level, it is essential to simultaneously

construct both an enterprise and legal-entity

view of the plan and associated constraints.

Institutions subject to regulatory capital

stress-testing exercises may also find it

advantageous to have a forward-looking

view of stress-capital requirements, under

a range of plausible future scenarios,

particularly if such stress tests are a binding

constraint and the firm has made capital

repatriation targets. The U.S. Federal

Reserve’s recent proposal to introduce a

stress-capital buffer will further necessitate

investments in such capabilities.

3. UPGRADE THE PLANNING INFRASTRUCTURE

Finally, the above implies an integrated

suite of planning infrastructure. This

infrastructure ultimately begins with and

is highly dependent on the presence of a

single Planning Data Model (PDM), the

term we use to describe both the totality

of data attributes required for planning as

well as the single data asset which houses

this information.

Upon this data lies a suite of forecasting

models (e.g., for revenues, balances,

expenses, etc.), analytical utilities to

generate required historical inputs

(e.g., for loan maturities) and automated

calculations (e.g. for interest rate transfer

pricing, capital attribution, tax calculations,

constraint calculations, etc.). Each should

be programmatically callable and ideally

accessible both within and outside of the

planning ecosystem for other business

use cases.

4. UPGRADE THE WORKFORCE

Planning transformation can and should be

an impetus to upgrade the role of planners

to strategic advisors of the business and

owners of forecast methodologies. These

new activities should replace existing

efforts which tend to be overweight on

more mundane and labor-intensive data

collection, reconciliation, and spreadsheet-

based forecasting tasks.

More emphasis should also be placed on

issue identification and working with the

business to identify and evaluate the impact

of actions that can be taken to mitigate or

yield advantage from emerging issues. Firms

with stronger historical data and analytics

cultures and with planning functions that

are closely integrated with associated

businesses will have less ground to cover in

making this transformation.

17

WHAT’S NEEDED TO STAY COMPETITIVE

Several banks have begun the multi-year

journeys required to transform the way

they plan. Banks that have not begun to

evaluate their ambitions need to act urgently

to crystalize their ambitions or risk falling

behind.

WHO SHOULD TAKE THE LEAD?

While the head of planning ultimately

owns the planning process at most banks,

planning leaders may not be sufficiently

empowered to make the sweeping, cross-

functional changes required to implement

such a vision. Hence, many planning heads

have a tendency to focus on a more limited

and incremental set of improvements that

are within their remit, but which ultimately

are unlikely to deliver a meaningful step

change in efficiency or capabilities.

Material improvements and benefits are

only possible with top of the organization

leadership and a commitment to multi-year

change. Given the many finance functions

(FP&A, business-aligned finance teams, tax,

capital management, liquidity, etc.) that

touch planning, we believe that any serious

attempt to upgrade planning must ultimately

be led by the Chief Financial Officer (CFO).

WHAT’S NEEDED

Support from the balance sheet, capital,

and liquidity management teams (in many

cases housed within treasury functions)

are obviously essential and should

ultimately help develop and administer

components of the infrastructure. Business

participation is also critical, given natural

linkages to performance management and

the objective of forecasts and associated

insight generation that is useful for

business decision making. Technology

participation is obviously critical for

implementation and with the initial respect

to the design of the target planning data and

systems architecture.

Given the scale and scope of change

required, it is helpful to establish a cross-

functional team with empowered leadership

to ensure that change efforts achieve the

step change needed and ultimately serve

the broad group of stakeholders who

contribute to and receive outputs from the

planning process.


BOX 3

THE BUSINESS CASEWHY UPGRADE PLANNING CAPABILITIES NOW?

Continuous Integrated Planning (CIP) is ambitious and

requires a long-term vision as well as the leadership

and institutional commitment needed to implement

the infrastructure over several years. Investment is also

critical and requires a clearly articulated business case.

For CEOs and CFOs considering modernizing strategic

planning, here is the return on investment and business

case for upgrading capabilities.

We have distilled this into the following six items:

1. DIRECT AND INDIRECT EFFICIENCY GAINS AND COST SAVINGS

Planning processes are highly resource intensive at

many financial institutions. It is not uncommon for

hundreds of employees to be involved in the planning

process, consuming a massive amount of monthly

finance bandwidth, particularly during annual planning

cycles. We believe that an approximate 10–20 percent

reduction in full time employees (FTE) is a conservative

estimate of the potential FTE savings possible through

a migration to CIP. Moreover, we believe that it is

possible to conservatively reduce FTE hours dedicated

to planning by approximately 40–50 percent in steady

state, with the bulk of the time spent focused on higher-

value activities such as the review and challenge of plan

assumptions, issue identification and investigation, and

ultimately insight generation.

2. IMPROVEMENTS IN ROE THROUGH BETTER FINANCIAL RESOURCE MANAGEMENT

Banks with the advanced planning and forecasting

capabilities we have described are able to make

better-informed decisions at greater speed than

competitors with traditional, more rudimentary

planning approaches. Greater precision and the

ability to evaluate performance under multiple

scenarios increases confidence in decision making and

enables more forward looking and efficient Financial

Resource Management—including reduction in overly

conservative capital and liquidity buffers that are in

place due to forecast uncertainty. We believe that such

tools can provide an uplift in ROE of approximately

1–3 percent conservatively, translating ultimately into

better share price performance.

3. GREATER VISIBILITY INTO AND CONTROL OVER INITIATIVE SPEND

There is considerable variability in terms of rigor around

initiative tracking and spend control. Many firms do a

good job of tracking initiatives and assess business cases

based on their ROI and strategic fit before approving

projects. However, there is less consistency across the

industry in terms of ex-post review of initiatives and

their actual impact on the plan. Driver-based initiative

planning can create visibility into anticipated and

realized initiative impacts across key components

targeted. For example, marketing spend may have

an anticipated impact on number of new accounts

and have an anticipated portfolio composition that

is different from the current composition. As another

example, a technology initiative may have upfront and

recurring expenses, along with anticipated efficiency

gains and cost savings. Tracking such effects and their

19

realization allows management to more quickly assess

the economic impact of the portfolio of initiatives

and dynamically re-prioritize based on realized (vs.

anticipated) impacts and on changing conditions. We

believe increased rigor and control of initiatives can

yield an incremental uplift in ROE of approximately

0.5–1.0 percent, depending on the starting point of the

institution and its existing practices around initiative

control and prioritization.

4. IMPROVED RESILIENCE DURING CRISIS THROUGH INTEGRATED DECISION MAKING

Oliver Wyman conducted a retrospective study in 2011

examining the CFO’s span of control at 47 European

financial institutions and assessing the impact on

performance both during and immediately following

the Financial Crisis of 2007–2008. CFO organizations

that had greater integrated visibility into and control

over balance sheet management, performance

management, treasury, and strategic planning activities

fared much better—both during the crisis and in the

subsequent recovery phase. The difference between

pre- and post-crisis indexed shareholder prices was

roughly 35–40 percent between organizations that

had integrated these functions and those that had not.

While considerable progress has been made post-crisis

at many financial institutions to better integrate these

functions from an organizational perspective, we believe

there remains a sizeable opportunity to further integrate

these functions in the context of strategic planning and

management decision making.

5. BETTER USE OF EXISTING INFRASTRUCTURE FOR STRESS TESTING, SCENARIO ANALYSIS, AND ASSET LIABILITY MANAGEMENT

Banks have invested substantial resources in building

infrastructure for stress testing, scenario analysis and

Asset Liability Management (ALM) purposes. This

infrastructure at many firms remains relatively loosely

connected. There is an opportunity to better connect,

integrate, and leverage these suite of tools for business-

as-usual decision making. Most firms have only loosely

aligned these separate processes, which often rely on

distinct teams and infrastructure. Greater alignment

between this infrastructure will not only produce more

internally consistent results, but also ultimately produce

a more unified infrastructure that is simpler and less

costly to maintain.

6. DEMONSTRATING LEADERSHIP

Regulators have always expected that banks use

adequate systems and processes to make sound

decisions under both business-as-usual and stress

conditions. There has been greater emphasis in recent

years on alignment between planning and stress

testing exercises, which are increasingly being viewed

by both regulators and industry practioners as distinct

exercises that fall along a continuum. There have also

been claims made that some large and complex banking

organizations are “too big to manage.” We believe it

is in the financial institutions’ best interest to show

leadership in the development and advancement of

more sophisticated planning and what-if capabilities, as

these are ultimately tools for better bank management

and decision-making and a strong defense against

claims that large banks are too big to manage.


Each bank will pursue a unique path toward

upgrading the planning function that may

vary depending on the unique circumstances

and priorities of the institution. Some

firms need to make tradeoffs given their

size and scope of operations, while others

may prioritize capabilities that are more

important given their immediate and

pressing strategic issues and business

constraints. But even with these differences,

we believe there are some common steps

that firms can take to get started.

ESSENTIAL STEPS TO GET STARTED

1. ALIGN EXECUTIVE MANAGEMENT

We believe that CFO leadership and

commitment from executive management to

pursue multi-year change is the single most

important success factor. This should be the

first step in any journey.

2. CONDUCT A MATURITY ASSESSMENT

Firms should evaluate the current state of

their planning infrastructure against the set

of ideal capabilities and practices that they

would like to have in 3–5 years’ time and

against emerging best practices across the

industry. This exercise gives management

a better sense of the road ahead and their

collective priorities. Pacing and ambition

levels can be set accordingly.

3. DEFINE THE VISION FOR PLANNING

Armed with a maturity assessment and

clearer vision around the capabilities

and practices that the institution would

like to have, the institution should

lay out a planning vision. This should

comprehensively cover the four elements

discussed—processes, capabilities,

infrastructure, and people. This effort is

most ideally led by the FP&A function with

sponsorship and support from the CFO

given the importance of connectivity with

other finance functions including treasury,

tax, balance sheet management, and capital

management. The Chief Risk Officer (CRO)

may need to be involved depending on

the firm’s level of ambition with regards to

better integration of risk calculations into the

planning process (e.g., credit loss forecasts).

4. GET THE BUSINESSES INVOLVED

Business involvement is essential in the

planning process. In order to effectively

bring offline models “out of the shadows”

any centralized and integrated planning

infrastructure must have the buy-in of

business professionals and ultimately be

RECOMMENDATIONS ON HOW TO START

21

suitable for their needs. For this reason,

engaging the business early on in any

effort to upgrade planning capabilities is

essential. It is particularly important for the

development of business driver trees, which

should reflect the “business view” of drivers

of performance.

5. EVALUATE INFRASTRUCTURE OPTIONS

The planning vision should be agonistic

to the underlying technology platform

implemented. The Enterprise Performance

Management (EPM) vendor landscape

is large and has grown in recent years,

presenting the finance function with greater

choices, but also with more complexity in

evaluating the tradeoffs between available

options. Traditional solutions provided by

IBM, Oracle and SAP are facing competition

from newer entrants such as Anaplan and

OneStream Software. Larger and more

complex financial institutions may also find it

advantageous (and in some cases essential)

to pursue bespoke or proprietary solutions

that are custom built and maintained in-

house. The Chief Technology Officer should

be involved once the institution is in a

position to discuss the implementation and

implications related to systems and data

architecture, so that planning transformation

efforts align with the institution’s broader

technology objectives.

6. GET STARTED. THE MOST IMPORTANT STEP IS TO BEGIN

Beyond the above activities, there are

several areas where we have helped clients

jump start their journey and achieve rapid

progress in the transformation of the

planning function. These include the build-

out of higher-level strategic enterprise

what-if capabilities, the introduction

of driver-based planning, redesign of

capital, cost, and liquidity attribution

methodologies, and development of

constraint and stress capital calculators,

amongst other capabilities. Failing to start is

perhaps the biggest risk, and we encourage

institutions to start modestly with thoughtful

and focused pilots rather than embark on a

risky “big bang” transformation.


CONCLUSION

Many financial institutions have planning processes

and associated capabilities that no longer fit the

purpose given the demands of modern bank

management. Upgrading the planning function will

help to resolve these limitations, but also presents an

extraordinary opportunity to dramatically increase

efficiency in the finance function, improve bank

profitability through better decision-making tools, and

ultimately upgrade the workforce currently supporting

such activities. We also believe that there are material

direct and indirect cost-savings opportunities.

Large, complex banking institutions that do not have

the luxury to wait have already begun the multi-year

journeys required to upgrade their capabilities, placing

several of these institutions at a competitive and

strategic advantage. For those institutions that are not

underway or have not yet crystalized their vision for

planning, the time to begin is now.

ABOUT THE AUTHORS

Eric Czervionke

Partner in the Finance and Corporate & Institutional Banking practices

[email protected]

Oliver Wyman is a global leader in management consulting that combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation.

For more information please contact the marketing department by email at [email protected] or by phone at one of the following locations:

The authors would like to acknowledge and thank Douglas Elliott, Dov Haselkorn, and Jennifer Weitsen for their contributions to this paper.

Ugur Koyluoglu

Partner and Vice Chairman, Financial Services Americas

[email protected]

Jared Levinson

Engagement Manager in Financial Services

[email protected]

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The information and opinions in this report were prepared by Oliver Wyman. This report is not investment advice and should not be relied on for such advice or as a substitute for consultation with professional accountants, tax, legal or financial advisors. Oliver Wyman has made every effort to use reliable, up-to-date and comprehensive information and analysis, but all information is provided without warranty of any kind, express or implied. Oliver Wyman disclaims any responsibility to update the information or conclusions in this report. Oliver Wyman accepts no liability for any loss arising from any action taken or refrained from as a result of information contained in this report or any reports or sources of information referred to herein, or for any consequential, special or similar damages even if advised of the possibility of such damages. The report is not an offer to buy or sell securities or a solicitation of an offer to buy or sell securities. This report may not be sold without the written consent of Oliver Wyman.

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