Academic journal article
By Boucher, Jim
The Journal of Bank Cost & Management Accounting , Vol. 7, No. 2
Bank finance and accounting professionals possess a highly desirable commodity: a set of management accounting tools designed to maximize profitability. If properly used, these tools are extremely helpful not only to better understand the financial dynamics of various bank products and services but also to help identify potential revenue variances and to even help other bank functions meet their objectives. The purpose of this article is to illustrate how management accounting tools can be used to help with human resource management and, based upon the examples and models presented in the article, to also help other bank disciplines meet their objectives as well.
Merging management accounting tools with human resource management is really a "marriage made in heaven." Management accountants are concerned with understanding and analyzing bank profitability, and human resource management involves the biggest profitability component of all -- people. The tools management accountants use everyday to understand trends and product profitability can be effectively used by human resources to help manage sales productivity and revenue generation.
THE OMINOUS COMPETITIVE ENVIRONMENT
Banking has changed drastically over the past few years. Who would have thought ten years ago that General Motors and AT&T would represent serious challenges to banks in acquiring highly profitable credit card customers? Many of these non-bank competitors simply don't have the immense cost structure of traditional banks, which puts banks at a serious competitive disadvantage.
Faced with a new breed of non-bank competitors stealing away the market share of traditional bank products such as credit cards and checking accounts, smart banks have started to focus on ways to maximize sales efficiencies and production. Aside from introducing new technology that helps identify potential sales opportunities, banks must also incorporate old-fashioned sales management techniques to insure consistent sales production. To remain competitive, banks must not only find ways to lower their costs but must also effectively manage the revenue component of the profitability equation.
THE HUMAN RESOURCE LINK
Human resources has a vital role in understanding the issues surrounding sales efficiencies and production trends. If sales production declines over a period of time, human resources will need to recommend some kind of action to bring production back to acceptable levels. This might involve implementing performance correction policies, enhancing sales training, revising compensation programs, or other related actions.
But how does this relate to management accounting? After all, why should management accountants be concerned with sales production? One of the vital missions of bank accounting and finance professionals is to identify opportunities to maximize earnings. Typically, management accounting theories and practices have been predominately directed toward understanding cost related issues such as unit cost, expense allocations, and transfer pricing. Understanding costs is clearly an important function and unquestionably has a key role in helping banks meet their overall strategic objectives. But that's just one application of management accounting. With a little imagination and a touch of creativity, some of the most powerful management accounting "tools of the trade," such as product profitability models along with trend and statistical analysis, can greatly enhance the human resource management process. Here's how.
PRODUCT PROFITABILITY MODELS
Many bank accounting and finance professionals have devoted countless hours toward developing detailed and sophisticated product profitability models. Typically these models are used to track profitability, to identify marketing opportunities, and to analyze price/rate scenarios.
Taken to the next level, product profitability models can also be used for many other bank applications including human resource management. …