RMPI Consulting, LLC – Your Risk Management & Process Improvement Specialists – Tel: 617-973-5742
Strategic Thought Leadership for Community Banks

Who is Your Partner?
(posted: 9th January 2010)

By David Brown – RMPI Consulting LLC

In today’s highly competitive and highly regulated banking environment, institutions are facing many strategic issues. With the flat yield curve, resources to address these issues are limited. Acquisitions, market expansion, product expansion, technological improvements, personnel retention, loosening credit standards and increased compliance to regulatory demands are all taxing today’s banking industry. Banks generally deal with these matters in one of three ways: 1) ignore the issue, 2) form an ad hoc committee to address the problem, or 3) hire a qualified partner. We will disregard the first response, and instead focus on the second and third approaches.

Many banks handle performance improvement measures by forming an ad hoc committee with selected members of its credit and lending department. This committee generally meets for 6-18 months and recommends a plan of action that is delivered to senior management for implementation.

The results from an ad hoc group vary from one organization to the other. For the most part, outcomes are positive or helpful, yet rarely extraordinary. Often, committees fail to achieve their goals and either end up outsourcing the work or abandoning the project all together after investing significant resources. Why are there such inconsistent success rates associated with organizations that utilize the ad hoc approach? Most can be traced back to one of three reasons: 1) increased opportunity costs; 2) conflicting priorities; or 3) lack of expertise. With results like these, why do so many banks approach project management this way? The answer is simple – perceived financial savings. Since the banks already have a staff of industry experts, their first instinct is to save money by tapping in-house expertise. While this approach makes sense at the outset, in the long run it is not always the best solution.

The most proven approach is to hire a qualified external advisor for your organization. The critical task, that can make or break the project, is ensuring the right expert is hired. If selected properly, a good consultant should ultimately be a cost savings as compared to the costs associated with ignoring the issue, a new regulation, or a failed ad hoc committee. Further, the consultants have the depth and expertise in the targeted areas that range beyond those of in-house staff. The consultant will leverage the bank staff’s assets but will not tax their time, which results in an opportunity cost savings.

For many institutions it is difficult to stay current with the competitive landscape. A consultant can assist the bank in assessing its position relative to competitors and recommend changes in products, services, and rates. The results are opportunities to meet customer needs before the competition, thereby increasing customer loyalty and retention.

It is easy to ask inside personnel to solve business problems, but you run the risk of “robbing Peter to pay Paul.” Asking staff to split time to deal with regulatory or organizational issues takes them away from critical daily operations. A qualified bank consultant should be used as a sounding board, providing industry best practices and tactics. A consultant should be used as a strategic partner to help develop the company according to the Board of Directors’ plans.

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