Cost Management
Introduction:
Our case study is on the Columbia City Bank. First of all we would like to talk about the general inner workings of a bank. A bank generates a profit from the differential between the level of interest it pays for deposits and other sources of funds, and the level of interest it charges in its lending activities. In recent history, investors have demanded a more stable revenue stream and banks have therefore placed more emphasis on transaction fees, primarily loan fees but also including service charges on an array of deposit activities and ancillary services. Lending activities, however, still provide the bulk of a commercial bank's income. Beside, Banks make money from card products through interest payments and fees charged to consumers and transaction fees to companies that accept the cards.
To increase its share of the checking account market, Columbia City Bank in Seattle took two actions: It establish a customer call center to respond to customer inquiries about account balances, checks cleared, fees charge ,etc and it paid year-end bonuses to branch managers who met their branch’s target increase in the number of customers. While 80% of the brunch managers met the target increase in the number of customers, Columbia City Bank ‘s profits continued to decline. John Diamond, the CEO ,didn’t understand why profits were declining, even though the bank was serving more customers. The Pierce County branch manager , Rose Perez, noticed that while small retail customers flocked to the bank, the number of business customers was declined. Columbia City Bank’s costing system, develop back in 1988, is straightforward. No costs are traced directly to customers. The bank simply assigns the total indirect costs to customer lines (retail customer line or business customer line) based on the total number of checks processed. The definition of a retail customer is basically any customer other than an institutional customer. ( which are: governments,
Our case study is on the Columbia City Bank. First of all we would like to talk about the general inner workings of a bank. A bank generates a profit from the differential between the level of interest it pays for deposits and other sources of funds, and the level of interest it charges in its lending activities. In recent history, investors have demanded a more stable revenue stream and banks have therefore placed more emphasis on transaction fees, primarily loan fees but also including service charges on an array of deposit activities and ancillary services. Lending activities, however, still provide the bulk of a commercial bank's income. Beside, Banks make money from card products through interest payments and fees charged to consumers and transaction fees to companies that accept the cards.
To increase its share of the checking account market, Columbia City Bank in Seattle took two actions: It establish a customer call center to respond to customer inquiries about account balances, checks cleared, fees charge ,etc and it paid year-end bonuses to branch managers who met their branch’s target increase in the number of customers. While 80% of the brunch managers met the target increase in the number of customers, Columbia City Bank ‘s profits continued to decline. John Diamond, the CEO ,didn’t understand why profits were declining, even though the bank was serving more customers. The Pierce County branch manager , Rose Perez, noticed that while small retail customers flocked to the bank, the number of business customers was declined. Columbia City Bank’s costing system, develop back in 1988, is straightforward. No costs are traced directly to customers. The bank simply assigns the total indirect costs to customer lines (retail customer line or business customer line) based on the total number of checks processed. The definition of a retail customer is basically any customer other than an institutional customer. ( which are: governments,