Overcoming Obstacles in Streamlining Profitability Models in Banking

Key Takeaways

  • Building profitability models in banking involves overcoming several obstacles including data integration, regulatory compliance, model complexity, and more.

  • Taking a step-by-step approach, seeking expert help, and communicating the value of profitability management can help overcome these challenges.

  • Making your model robust and adaptable to external changes can help manage economic uncertainties.

  • Ensuring the model is transparent and traceable can help in understanding how profitability is achieved.

  • Proper model governance and change management are crucial for the successful implementation and maintenance of profitability models.

In the banking industry, profitability models are an essential tool for managing the bottom line. However, several obstacles can hinder the process of building these models. This blog post aims to highlight these challenges and offer potential solutions to streamline the process.

Obstacle 1: Data Quality, Availability, and Integration

Building granular profitability models requires a lot of granular data, which is often dispersed across various systems. Mapping out the necessary data for your profitability model is a crucial step in designing your model.

  • Solution: Use a staging database to collect your data or inject it directly using ETL techniques.

Obstacle 2: Regulatory Compliance

Regulatory rules and regulations can make building profitability models challenging.

  • Solution: Avoid using personal data in your profitability models to mitigate GDPR compliance issues.

Obstacle 3: Complexity

Building a granular profitability model is not an easy task due to its complexity.

  • Solution: Take it step by step, aim for progress rather than perfection, and seek help from experienced consultants or tool suppliers.

Obstacle 4: Traceability and Transparency

Ensuring that your model is traceable and transparent is crucial for understanding how profitability is achieved.

  • Solution: Design your model to clearly show the allocation of cost and the cause-and-effect relationships.

Obstacle 5: Expertise and Talent

Attracting and retaining talent for model building can be challenging.

  • Solution: Show the fun and value of being able to manage the profitability of the organization to attract data-savvy individuals.

Obstacle 6: Model Governance

Once your model is built, it needs to be updated regularly, and changes need to be strictly managed.

  • Solution: Establish procedures for changes and request for changes on the model.

Obstacle 7: Economic Uncertainty

Changes in economic factors like interest rates can impact the profitability model.

  • Solution: Make your model robust by treating external factors as parameters that can be adjusted as needed.

Obstacle 8: Change Management

People often find it difficult to adapt to changes.

  • Solution: Communicate the value of managing profitability to those who are not used to it and keep them engaged in the process.

While building profitability models in banking can be challenging, these obstacles can be overcome with careful planning and strategic solutions. Remember, obstacles are there to be overcome, leading to a great bottom line for your bank.

Part of Decoding Cost & Performance Series

Welcome to 'Decoding Cost & Performance,' where we bridge the gap between financial transparency and actionable insights. Dive deep with industry frontrunners as we address tough questions in bite-sized moments spanning 3-5 minutes each. With each episode, we aim to equip finance professionals with the skills and knowledge they need.