CASE ANALYSIS

:
Pacific National Bank

In partial fulfillment of the
Requirements in MSC530M
Quantitative Methods

By:
GROUP 3
Marjorie Carreon
Rochelle Castillo
Ryan Colao
Ann Margareth Joquico
Kim Mirasol
Mary Rose Pacis
Kristine Patron
Benedict Sandejas

Submitted to:
Mr. Enrico Cordoba

April 15, 2016

SYNOPSIS

Pacific National Bank (PNB), a medium-sized bank with 21 branches, has been relying
on outside vendors to operate their automatic teller machines. This makes 90% of their
customers use non-Pacific Credit cards for cash advances, therefore Pacific does not
make much profit from this service. Pacific National Bank through its Operations Vice
President Maria Perez, would like to offer a broader mix of banking services to its
clientele by operating its own ATM's tied to their data-processing network.

The installation of ATM would do the following:
● It would provide essential banking services at all hours (24 hours ATM).
● It would increase its market share by targeting those who are inconvenienced by the
normal banking hours.
● It would minimize the cost for human tellers.
● It would lessen the waiting time for over-the-counter transactions as customers would
have the convenience of using ATMs at the more preferred time.

POINT OF VIEW:
MARIA PEREZ, Operations Vice President

STATEMENT OF THE PROBLEM:

How can Ms Perez attract customers and at the same time reduce costs?

OBJECTIVES:

1. To be able to utilize resources: reduce customer waiting time and minimize cost of
operational expenses
a. to determine the minimum number of human tellers needed in each station as
well as the mean customer waiting time
b. to determine the average queuing system necessary to service the bank’s
customers both for human tellers and ATMs.
c. to be able to determine the cost of the bank’s operation with or without ATM
d. to determine the minimum number of tellers required with an ATM at the least
amount of cost per period.
2. To be able for PNB to provide banking services at all hours

The industry consensus is that the ATMs appeal to customers because it minimizes the amount of waiting time. 50% of this traffic is during normal operating hours.50 Queuing cost only applies to waiting time on tellers. the bank loses P0. We will only consider the addition of only 1 ATM unit for Pacific National Bank 3.ASSUMPTIONS 1. The bank’s current setup only has human tellers · The bank opens at 10 A. AREAS FOR CONSIDERATION 1. P0. For the estimation of the ATM use. We will only include all transactions that occur between 10AM to 3PM from Monday to Thursday and from 10AM to 6PM on Fridays.50. when it closes at 6 P.M. and closes at 3 P. · ATM supplier claims that based on his/her experience with other banks. 4. not on ATM.M. 2.M. we will consider the recommendation s of the supplier for the ATM equipment 5. There is also a 2% increase in overall traffic directed towards the ATM.. except on Friday. Costs involved in the purchase and operation of the PNB ATM will not be included in the cost comparison. 2. · ATM busy period arrivals – Single Poisson process · Mean Service time is ½ minute · Individual service time is exponential FRAMEWORK . · Customers arrive randomly at a stable mean rate – Poisson process is Valid · Mean time required to complete customer transaction – 2 mins · Individual service time is exponential · For every minute a customer is waiting in line. there is a 30% diversion on regular business of teller to ATM.

QUEUING THEORY Components in the Queue 1. Arrivals or input 2. the following notations would be used: μ mean service rate (number of calling units served per unit of time) λ mean arrival rate (number of calling units per unit of time) 1/μ mean service time for a calling unit s number of parallel (equivalent) service facilities in the system P(n) probability of having n units in the system server utilization factor (that is. Service facility (server) In order to determine the queuing statistics. the proportion of time the server can be ρ expected to be busy) expected or mean length of the queue (number of calling units in the Lq queue) expected number of calling units in the system (number in the queue plus Ls number being served) Wq expected or mean time spent waiting in line expected or mean time spent in the system (including waiting time and Ws service time) Given the bank’s current setup. the formula to be used for the use of human tellers shall be as follows: Multi-Channel Queuing Model: . Queue discipline 3.

The number of arrivals per unit is described by Poission distribution. Service times are described by an exponential distribution 3. 4. The number of arrivals per unit is described by Poission distribution. Queue discipline is first come first served. The waiting space available for customers is finite 1 P ( 0 )= s −1 n s −1 (λ / μ) ( λ/ μ) ∑ n ! + s ! 1− sλμ ( ) n=0 λ ρ= sμ P(0)( λ /μ)s ρ L q= s !(1− ρ)2 Ls=Lq + (λ / μ) Lq W q= λ 1 W s =W q + μ As for the current setup/consensus for the ATM. Queue discipline is first come first served. The waiting space available for customers is finite . 1. The mean arrival rate is less than the mean service rate 7. The calling population is finite 5. Service times are described by an exponential distribution 3. 4. There is ONE channel 6. 2. The calling population is finite 5. The mean arrival rate is less than the mean service rate 7. 2. the below formula would be followed: Single Channel Queing Model: 1. There are multiple channels 6.

λ P ( 0 )=1− μ 1 Ws= μ−λ λ W q= μ( μ−λ) λ Ls = μ− λ P(0)(λ / μ)s ρ Lq = s !(1− ρ)2 Other concepts: Relationship between Waiting Costs and Service Costs Cost of waiting time Increased Service .

Cost of of providing service Increased Service .

00 per hour Labor cost = P50. of customers) Wq → expected or mean time spent waiting in line (in hours per customer) Ws → expected or mean time spent in the system (including waiting time and service time) (in hours per customer) DQC → Daily Queuing Cost (in Pesos) WQC → Weekly Queuing Cost (in Pesos) DMC → Daily Manpower Cost (in Pesos) WMC → Weekly Manpower Cost (in Pesos) WTOC → Weekly Teller Operation Cost (in Pesos) Given: Queuing cost = P0. of customers) Ls → expected number of calling units in the system (number in the queue plus number being served) (no.ALTERNATIVE COURSES OF ACTION ** All of these are used in all ACA’s Notations: s → number of parallel (equivalent) service facilities in the system (no. of tellers) ρ → server utilization factor (that is.00 per hour Additional Formula Used: P 30.50 per minute = P30.00 hours customers DQC= hour ( × Wq ¿ customer ) ( ×λ ¿ hour ) × number of hours∈a period WQC =DQC ×5 . the proportion of time the server can be expected to be busy) P(0) → probability of having 0 units in the system (%) Lq → expected or mean length of the queue (number of calling units in the queue) (no.

The use of 3 tellers resulted in a queue waiting time of approximately 3. Based on our figures.78 pesos (155 customers * 3. the minimum number of tellers for the 10AM to 12NN banking period is 3. Adding this to labor cost of 1500 (3 tellers x 2 hours x 5 days x P50) results to a total weekly expense of P2893. P 50.50).00 DMC= × s ( number of tellers ) hour WMC=DQC ×5 (Note: Only for Periods 1-3) WTOC=WQC+WMC ACA 1: Only use the minimum number of tellers needed to operate the bank and don’t invest in an ATM machine.60 minutes.6 minutes. This results in an expected queue waiting time of 3. .60 minutes * 5 days * P0.78. This resulted in an overall WQC of 1393.

This results in an expected queue waiting time of 11. This results in an expected queue waiting time of 1.01 minutes.74. the minimum number of tellers for the 1PM to 3 PM banking period is 5. The use of 5 tellers resulted in a queue waiting time of approximately 11. This resulted in an overall WQC of 873. Adding this to labor cost of 2250 (9 tellers x 1 hours x 5 days x P50) results to a total weekly expense of P3123.74 pesos (290 customers * 11. the minimum number of tellers for the 12NN to 1PM banking period is 9. Based on our figures.013 minutes * 5 days * P0. This resulted in an overall WQC of 7984. Adding this to labor cost of 2500 (5 tellers x 2 hours x 5 days x P50) results to a total weekly expense of P10484.44 minutes.50). Based on our figures.44 minutes * 5 days * P0.50). .85.01 minutes.85 pesos (242 customers * 1.44 minutes. The use of 9 tellers resulted in a queue waiting time of approximately 1.

This resulted in an overall WQC of 438.19. Adding this to labor cost of 1050 (7 tellers x 3 hours x 1 days x P50) results to a total weekly expense of P1488.990.58190 minutes.58 minutes.19 pesos (554 customers * 1. ACA 2: Determine the number of tellers required which will lead to the most savings without getting an ATM machine.50).56. the minimum number of tellers for the 3PM to 6 PM banking period is 7.58190 minutes * 1 days * P0. . The use of 7 tellers resulted in a queue waiting time of approximately 1. If we use the minimum number of tellers for each of our operating periods. Based on our figures. our total expenses in terms of labor and queuing will be P17. This results in an expected queue waiting time of 1.

This resulted in an overall WQC of 190. If we add another teller for this period.67191 pesos (155 customers * 0. Adding this to labor cost of 2000 (4 tellers x 2 hours x 5 days x P50) results to a total weekly expense of P2190.50).49 minutes. This results in an expected queue waiting time of 3.49206 minutes.67. it will result in a new expected queuing waiting time of 0. The use of 4 tellers instead of 3 tellers resulted in a queue waiting time of approximately .60 minutes. . Based on our figures. the minimum number of tellers for the 10AM to 12NN banking period is 3.49206 minutes * 5 days * P0.

Based on our figures.44 minutes.50. The use of 10 tellers instead of 9 tellers resulted in a queue waiting time of approximately 0. This resulted in an overall WQC of 265. If we add another teller for this period.50). .43 minutes * 5 days * P0. Adding this to labor cost of 2500 (10 tellers x 1 hours x 5 days x P50) results to a total weekly expense of P2765.43 minutes.5029 pesos (242 customers * 0. This results in an expected queue waiting time of 1. the minimum number of tellers for the 12NN to 1PM banking period is 9. it will result in a new expected queuing waiting time of 0.44 minutes.

This results in an expected queue waiting time of 1.907 minutes. This results in an expected queue waiting time of 11. Adding this to labor cost of 3000 (6 tellers x 2 hours x 5 days x P50) results to a total weekly expense of P3657.91 minutes. the minimum number of tellers for the 3PM to 6 PM banking period is 7. This resulted in an overall WQC of 657.907 minutes * 5 days * P0. Based on our figures. Based on our figures. the minimum number of tellers for the 1PM to 3 PM banking period is 5. it will result in a new expected queuing waiting time of 0.58. If we add another teller for this period.58 minutes.50). The use of 6 tellers instead of 5 tellers resulted in a queue waiting time of approximately 0.01 minutes. If .58 pesos (290 customers * 0.

our total expenses in terms of labor and queuing will be P9.43 minutes. if we add one more teller per period.19 pesos (554 customers * 1. Here are the new values: Excerpt from the problem: The supplier of the ATM equipment claims that other banks of comparable size have experienced a 30% diversion of regular business away from human tellers to the ATM. which produced a further 2% expansion beyond the previous level of overall client transactions – all absorbed by the ATM.58190 minutes. This resulted in an overall WQC of 438.24. Given our findings in this case. If we choose to add an additional teller. it will result in a new expected queuing waiting time of 0.50).49. The . Adding this to labor cost of 1200 (8 tellers x 3 hours x 1 days x P50) results to a total weekly expense of P1318.we add another teller for this period. it may or may not decrease operating costs. The new values of the customers are affected once ATM is installed.58190 minutes * 1 days * P0. ACA 3: Determine the number of tellers required which will lead to the most savings with getting an ATM. half of it outside regular banking hours.932. The use of 8 tellers instead of 7 tellers resulted in a queue waiting time of approximately 1.

This results in an expected queue waiting time of 1.94 minutes. Based on our figures.35 minutes.50). This resulted in an overall WQC of 525. The use of 3 tellers resulted in a queue waiting time of approximately 1.5 minutes and the mean length of queue of customers was decreased. Adding this to labor cost of 1500 (3 tellers x 2 hours x 5 days x P50) results to a total weekly expense of P2025. it will result in a new expected queuing waiting time of 0.M.M.94 minutes * 5 days * P0. If we add another teller for this period. supplier also maintains that the ATM traffic is fairly uniform. when it is negligible. the minimum number of tellers for the 10AM to 12NN banking period is 3 even if the mean service time was increased by 2. . except between 11 P.5 customers * 1.52.. and 6 A.5188 pesos (108.94 minutes.

5 minutes.74 minutes * 5 days * P0.74 minutes.2416 pesos (169. Based on our figures. This resulted in an overall WQC of 217. This results in an expected queue waiting time of 1.74 minutes. Adding this to labor cost of 2250 (9 tellers x 1 hours x 5 days x P50) results to a total weekly expense of P2467. it will result in a new expected queuing waiting time of 0.4 customers * 1. If we add another teller for this period. the minimum number of tellers for the 12NN to 1PM banking period was reduced to 8 from 9. This is a result of the decrease in the mean length of queue of customers and the increase in the service time to 2.50). .24. The use of 9 tellers instead of 8 tellers resulted in a queue waiting time of approximately 1.51 minutes.

If we add another teller for this period. it will result in a new expected queuing waiting time of 0. This results in an expected queue waiting time of 2. The use of 6 tellers instead of 5 tellers resulted in a queue waiting time of approximately 0. the minimum number of tellers for the 1PM to 3 PM banking period is still 5 even if the mean service time was increased to 2. Based on our figures.09 minutes. . Adding this to labor cost of 3000 (6 tellers x 2 hours x 5 days x P50) results to a total weekly expense of P3246.35.49 minutes * 5 days * P0.49 minutes.49 minutes.35317 pesos (203 customers * 0. This resulted in an overall WQC of 246.5 minutes and the mean length of queue of customers was decreased.50).

This is a result of the decrease in the mean length of queue of customers and the increase in the service time to 2. it will result in a new expected queuing waiting time of 0. Based on our figures. This results in an expected queue waiting time of 2. This resulted in an overall WQC of 127.66 minutes.8 customers * 0.5 minutes. The use of 7 tellers instead of 6 tellers resulted in a queue waiting time of approximately 0.66 minutes * 1 days * P0.3811 pesos (387. the minimum number of tellers for the 3PM to 6 PM banking period is reduced from 7 to 6. If we add another teller for this period.99 minutes.66 minutes.38. Computation for 1 ATM . Adding this to labor cost of 1050 (7 tellers x 3 hours x 1 days x P50) results to a total weekly expense of P1177.50).

1801 minutes in Period 1. exclusive of ATM operational costs. The total cost of operations.387 minutes. the scenario with the least cost.49. The use of 1 ATM resulted in a maximum queuing waiting time of 2. in Period 2 and a minimum queuing time of 0. which resulted in a weekly cost of P8916.49 Cost Comparison for 3 ACA’s If you compare all 3 scenarios. . exclusive of ATM related costs. is the scenario where an ATM exist. is P8916.

ACA 1 did not do its best to reduce queuing losses. Although all 3 ACAs allowed the determination of the minimum number of tellers. One of the important goals of the bank is to offer services outside of banking hours.RECOMMENDATION Our recommendation is ACA 3 which provides the best opportunities for Pacific National Bank. while ACA 2 and ACA 3 did. For this reason. ACA 3 is the recommended action for this case. Only ACA 3 would do that since the ATM can operate after office hours. .