Operations Management in Banking

1. Introduction
Operations Management explores the way organizations produce and distribute goods
and services. Everything that we wear, eat, sit on, use or read comes to us courtesy of the
operations managers who organized its production and distribution. Goods such as
automobiles, airplanes, computers and houses, must be produced, as do the services
provided by hospitals, ski resorts, and banks. (Terry Hill 2005) It's the job of an
operations manager to make sure these activities occur when and how they are planned.
This explanation reflects the essential nature of operations management: it is the central
activity in organizing things. Operations Management is the systematic development and
control of the processes that transform inputs into goods and services. The operations
function comprises a significant percentage of the employees and physical assets in most
organizations. Operations Managers are concerned with each step in providing a product
or service. They determine what should go into an operating system, such as equipment,
labour, facilities, materials, energy, and information, to produce the output. Operations
Managers are also responsible for critical activities such as materials management,
capacity planning, purchasing, scheduling and quality. (Terry Hill 2005)

The importance of operations management has increased dramatically in recent years.

Significant competition, shorter product and service life cycles, better educated and
quality-conscious consumers, and the capabilities of new technology have placed
pressures on the operations function to improve productivity while providing a broader
array of high-quality products and services.

An organization that carries out a transformation process to add valve is facilitating good
(e.g. make a cake). In many cases though, there may be no facilitating good refer to these
cases as a pure service (Meridith & Shafer, 2002) as in the case of Banking under
discussion here in.
The scope of Operations Management in the banking sector
Banking was once conducted with the bank in the neighborhood. Today, massive bank
corporations span the country. Consolidation of assets in the banking industry has
allowed rapid technological growth. This growth has put a bank 2,000 miles away at your
fingertips through telecommunications and computers. Banks now have debit cards and
ATMs in almost every location. Whats more, banking on the Internet is growing. Virtual
banks (that is banks that exist only in the computerwith no large buildings and land)
are appearing on the Internet. Many small ones are finding the competition too much,
however, and are closing their doors. How does a business compete when competitors
have significantly more resources?

The operations manager in banking is responsible for providing services to customers and
the bank. It is a challenging job with changing markets and adaptation to new
technologies and products. Three major areas employ operations managers. One area is
the back room operations that the public never sees where people and systems are
processing the information and transactions of the bank and its customers. A second area
is the branch bank manager. This person not only manages the branch but also sells
services and supports customer needs. Finally, senior executives in sales and support
areas such as finance, accounting, law, and other areas are also operations managers who
manage the efforts of their employees.

Bank Muscat strives to differentiate its offering to customer through the process of
experience economy as espoused by Pine II and Gilmore. (Meredith & Shafer, 2002)

Operations management in banking is people intensive. The technology of the bank

systems adds to the challenge. The functions performed by the operations manager
include forecasting work volumes; setting staff and equipment levels to meet that
volume; resolving quality and service issues; identifying new technologies that can
improve services and lower costs; working with customers both inside and outside the
bank to determine ways to better meet their needs; and developing staff so that they can
progress in their careers.

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A major challenge to the operations managers in banking is the need to be able to
understand not only how to do their own job but also how to use new technology to do it
better. Computers and computer programs are in the forefront on this technology that is
driving changes in the industry. The operations manager who can handle both areas is the
Manager who is going to rise to the policy-maker position and set the future direction for
others.

3. Operations Management in my organization

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As a person who is in the regular running of operations in my organization, I can say with
a lot of conviction that operations management has indeed improved a lot of productivity
in my organization. I can at least say that for the Branch I work in. We use a variety of
operation management techniques here to good effect. Some of them include:
3. a. Forecasting:
Banks today are faced with a variety of issues that need to be addressed swiftly and
simultaneously. As more banks enter the retail banking space, there are two issues that
come to the fore: increased competition and an influx of large amounts of data. This data
can be used to understand banking business better and forecast ways in which to counter
competition.

Funding allocations, inventory planning and scheduling, are all based on predictions for
the future. The more accurate the forecasts, the better the decisions, so forecasting is
vital. Lately, banks have been using forecasting for ATM management to check the
optimal amount of cash in the machines to guard against theft. Forecasting is also being
used in stock predictions. Even call centers are using these to predict attrition trends.
Forecasting is becoming increasingly important because this offers prediction of revenues
and allows for better planning exercises.

Our bank has software that is the fastest and most analytically advanced large scale-
forecasting program in the market. This helps transform transactional data into time-
series formats, automatically selects the time-series models that best explain the historical
data, optimizes all model parameters and generates large volumes of forecasts. It
performs forecasting in a batch environment to produce millions of forecasts with speed
and accuracy. It also helps prepare for changes and predict trends as normal part of
business, without requiring companies to re-train or increase their staff to analyze and
update huge volumes of data.

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3. b. Break-even analysis
A calculation of the approximate sales volume required to just cover costs, below which
production would be unprofitable and above which it would be profitable. Break-even
analysis focuses on the relationship between fixed cost, variable cost, and profit. We
determine our total costs with the break up and then we determine as to how much
business we need to have so as to break even and show profits. This helps us to determine
as to where we stand in this regard. This principal is the guiding rule in installing an ATM
machine or a deposit machine in a location. Prime locations that will lead to recovery of
investments are important.

3. c. Workforce analysis
Workforce analysis is a vital piece of strategic planning for any state agency or
institution, a comprehensive inventory of all permanent full time employees at a point in
time by race/sex, job classes and occupational category.
(www.oregon.gov/Gov/GovAA/definitions.shtml). Even we do our work force analysis in
the branch and determine the optimum number of staff employed.Balancing act between
lowering operating costs and maintaining superior customer service levels in order to
compete and succeed. A bank that understands its demand tomorrow, next week, or next
month controls a significant advantage over its less sophisticated competitor. As
customers demand better service and shorter wait times, banks must ensure that the right
people with the right skills are available at the right time. While overstaffing a branch is
costly, understaffing destroys customer satisfaction and drives customers to other banks.
Banks with the most accurate forecasting tools and the most optimized staff schedules
will have significantly better operating margins than their competition. This is in thinking
with the needs of the strategy formulation i.e. objectives, plans, and policies for the
organization to compete in its markets (Meredith & Shafer, 2002)

Only the most profitable and efficiently staffed banks, utilizing optimum levels of
resources will eventually win in todays competitive and ever-changing marketplace. The
winners will be determined by improvements to customer satisfaction and reductions in
operating costs delivered by the most cost-effective and easy-to-use technologies.

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3. e. Work Measurement
Work Measurement is a term which covers several different ways of finding out how long
a job or part of a job should take to complete. It can be defined as the systematic
determination, through the use of various techniques, of the amount of effective physical
and mental work in terms of work units in a specified task. The work units usually are
given in standard minutes or standard hours.
In the business world these standard times are needed for:
planning the work of a workforce,
manning jobs, to decide how many workers it would need to complete certain
jobs,
scheduling the tasks allocated to people
costing the work for estimating contract prices and costing the labour content in
general
calculating the efficiency or productivity of workers - and from this:
Providing fair returns on possible incentive bonus payment schemes.

We do have proper work measurement in our bank and there is a standard time set up for
the different activities. Variances are then examined and control processes are set up to
ensure that work measurement schedules are adhered to.

Example, the turn around time of a customer making a deposit or withdraw are important
measurements in banks to satisfy customers on a busy Thursday afternoon or Saturday
after noon how would a branch manager reduce bottlenecks at teller counter is an
important work measurement and operations consideration.

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3. f. Quality tracking
Total Quality Management (TQM) is an important corner stone, making your bank focus
successfully on quality customer service takes more than an initiative from the marketing
department. It takes a commitment from the entire bank, including the CEO and senior
management team, to make quality customer service work. Marketing can play initiating
and coordinating roles but can't play the ongoing leadership, implementation and
reinforcing roles that are needed to succeed on the job and in the competitive market-
place. In addition to TQM, tools such as Bench Marking are important tools in tracking
success; constantly the bank runs quality assurance testing to ensure compliance to
International Standards Organization (ISO 2000). (Meredith & Shafer, 2002)

We start by evaluating our bank to determine if quality customer service is a part of the
broader corporate culture. We learn the importance of quality service in the bank's culture
through employee surveys, interviews and focus groups. .

Most customer service employees (CSEs) know when their customers are satisfied or
dissatisfied with the level of service provided by the bank. CSEs' perception of service
levels tends to predict the level of customer satisfaction.

Structural Elements for Effective Customer Service

There are five structural elements necessary to achieve effective customer service quality:
competitive operating systems; organizational stability; service competent workforce;
intrinsically motivated workforce; and corporate service culture

3. g. Pareto Analyses
Pareto, an Italian, found out that in the old days 20 % of the population earned 80 % of
the national income and the less lucky 80 % of the population earned only the remaining
20 % of the national income. Because of this relationship the Pareto analysis is also
called the 20/80 rule. Also in organizations this rule counts and this analysis is of major
importance to get a proper idea of what the company stands for, e.g.

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it is quite common that of all the different kinds of products a company makes, 20 %
account for 80% of the turnover, also 20 % of the industrial markets (e.g. branches) take
80% of the total turnover. Even we use Pareto Analysis for different activities in our
bank. A tool used in the bank in achieving operational efficiency in sales management.

3. h. Capacity planning
It refers to a forward-looking activity which monitors the skill sets and effective resource
capacity of the organization. (www.pdmamn.org/glossary.htm)
It has other definition too such as:
The process of forecasting system and environment utilization and workloads and then
developing plans to ensure that the system and environment will be able to support
anticipated performance demands Microsoft Operations Framework Glossary The
process of planning, analyzing, sizing, and optimizing capacity to satisfy demand in a
timely manner and at a reasonable cost Capacity Management SMF Capacity
Planning is the discipline whereby appropriately skilled individuals use a collection of
statistical and modeling techniques to calculate, and sometimes guesstimate, resource
consumption at a future date, and probably in a different business and/or technical
environment.

Even we use capacity planning in our bank to optimize our utilization of resources
without causing any redundancies.

3. i. Decision trees
A graphical representation of all possible outcomes and the paths by which they may be
reached; often used in classification tasks. The top layer consists of input nodes (e.g.,
meteorological observations and data). Decision nodes determine the order of progression
through the graph. The leaves of the tree are all possible outcomes or classifications,
while the root is the final outcome (for example, a weather prediction or climate
classification). (amsglossary.allenpress.com/glossary/browse).

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In other words, in decision theory (for example risk management), a decision tree is a
graph of decisions and their possible consequences, (including resource costs and risks)
used to create a plan to reach a goal. Decision trees are constructed in order to help with
making decisions.

We use this in our Bank to make various decisions like giving of loans, investment, credit
control, etc

3. j. Sequencing
The arrangement of orders, jobs or activities at a specific resource based on priority and
process efficiency logic.
We do the same in the bank so that we have a proper arrangement of activities based on
priority.

3. k. Setting Performance Standards

Performance standards are set by staff or managers, by managers and staff, or by
managers with input from employees whose performance is being measured. The last
method is the best because employees believe that line and staff do not have enough
information about the conditions of various jobs to set realistic standards. Bank practices
performance appraisal system very successfully.

Managers should see that objectives and standards are measurable and that individuals
are held accountable for their accomplishment. The level of difficulty should be
challenging but within the capabilities of the employee. Standards set too low are usually
accomplished but not exceeded, while standards set too high usually do not motivate the
employee to expend much effort to reach the goal.

It is important that standards be complete; however, it is difficult to develop a single

standard or goal that will indicate the effective overall performance. For example,
consider the automobile dealer who decided to measure sales peoples performance on

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the basis of the number of automobiles sold. Sales increased impressively, but it was later
learned that many sales had been made to poor credit risks, and too high prices had been
allowed on trade-ins.

The differentiation and success of the bank is in its ability to evaluate performance of
departments, functions groups and individuals.

3. l. Quality Analysis
It relates to the ability to analyze the processes of quality development critically in the
light of ones own experiences and the own situation and context. It is important to
evaluate different objectives of quality development and negotiate between different
perspectives of stakeholders. To analyze critically means the ability of differentiation
and reflection of existing knowledge and experiences with education and quality
development. The Bank is an ISO 9000 certified company in the Sultanate of Oman.

3. m. Fishbone analysis
We use Fish bone analysis in our bank too. Fishbone Analysis is a systematic model for
analyzing and solving problems. It help to separate the course of a problem from
symptoms and can also help us to avoid focusing on only on the symptoms, or taking
actions which dos not solve the real, underlying problem, but causes new ones.
Fishbone Analysis has been widely used for examining quality issues in manufacturing. It
discourages jumping to the obvious conclusions, and can help us to identify multiple
contributory causes of permanent problems.

Fishbone analysis can be used for solitary problem-solving or for tackling problems in a
team.

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4. Conclusion
Thus we find that the techniques used in Operations Management are very useful in any
organization being it manufacturing, trading or service. It yields very positive results due
to the optimum utilization of resources in an effective and efficient manner. It can be seen
that the organizations who rigidly practice Operations Management in their work place
have surely grown big and prospered by leaps and bounds thus paving the way for others
to follow them.

Differentiation is the name of the game to succeed in a market where most goods and
services are commoditized. TQM, Strategic Management Supply Chain Management all
tend to be useless with out effective operations management. Commitment Compliance
effective systems and controls become meaningless terms less important without proper
operations management The many tools used and listed above have become time test
methods to measure performance of organizations,

Ultimately, success is in the hands of the ability to plan, coordinate, control and control
by effective managers at a day to date level.

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5. Bibliography and References
Hill, T. Operations Management, P.11, 2nd Edition. Palgrave Macmillan, 2005
Hill, T. Operations Management, P.11, 2nd Edition. Palgrave Macmillan, 2005
Meredith, J.R. & Shafer S.M, Operations Management for MBAs, Ch1 , P8, 2 nd
Edition, John Wiley & Sons 2002
Meredith, J.R. & Shafer S.M, Operations Management for MBAs, Ch1 , P12, 2 nd
Edition, John Wiley & Sons 2002
Meredith, J.R. & Shafer S.M, Operations Management for MBAs, Ch2 , P23, 2 nd
Edition, John Wiley & Sons 2002
Baird, L. et al.,Management, Harper Collins, 1990.
Griffin, Ricky W.,Management, 3rd ed., Houghton Mifflin, 1990.
Hill, T,Production/Operations management: text and cases, Prentice Hall, 1991.
Needham, David & Dransfield, Robert,Understanding business studies, Stanley
Thornes,1997.
Meredith, J.R. & Shafer S.M, Operations Management for MBAs, Ch3 , P36, 2 nd
Edition, John Wiley & Sons 2002
Stoner, J. & Freeman, R.,Management, 5th ed., Prentice Hall International, 1992.
Taylor, Bernard W.,Introduction to Management Science, Prentice Hall, 1996.
Tersine, Richard J.,Production/Operations Management, North-Holland, 1985.
Waters, C.D.J.,An introduction to Operations Management, Addison-Wesly, 1991.
Waters, D.,A practical introduction to management science 2nd, Addison-Wesly,
1998.

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