Follow the recipe, but add your own touches

 

Chef: Responsible for the menu, ingredients, flavors, presentation — the result

Cook: Executes the cooking process based on a prescribed recipe and procedure

 

I’m a bit of a foodie. Well more than a bit; I love really good food! Unfortunately, I am by no means a chef, not even close, but I do know my way around the kitchen. I have several go-to favorite recipes, but enjoy trying new recipes and meals as well — I just made grilled lobster, ribeye, twice-baked potatoes and parmesan-crusted grilled asparagus…challenging, but fun!

The approach I take to cooking is to start with a recipe, but then diverge a bit based on what I think will taste good. I never stick to the recipe 100%; my focus is not on the exact ingredients, measurements, or the process (thinking like a cook), but on the desired outcome — the tastes, textures, and occasionally, even the presentation (thinking like a chef).

While cooking is a passion, my day job for 25 years has been in the banking industry’s financial performance management space. Based on my experience in both areas, I think there is a correlation between the chef’s approach to cooking and the approach we should use in measuring and analyzing profitability. Instead of focusing on every microscopic detail of the profitability calculation process (as a cook might precisely follow a recipe), we should take a chef’s approach and focus on the desired outcome— how we will use the results to drive performance for the organization. We should focus on WHY we are calculating profitability. The why should be driving our profitability processes, decisions, and analysis.

Many profitability initiatives at financial institutions have failed because stakeholders across the organization — from finance and accounting personnel, to executives and individual department managers — got caught up in the minutiae of how profitability is calculated, such as:

  • Is the costing process accurate enough? 
  • Should we be adding transfer rate adjustments for prepayment risk? 
  • Are the drivers for my overhead allocations correct?

These points of contention often lead to indecision, an unwillingness to look at the data, distrust in the results, or even stakeholder animosity.

I say, stop the madness! Think like a chef, not a cook! Start with a solid foundation, but don’t let the specific recipe and ingredients override what will allow you to achieve your end goal.

As you think about the time, energy, money, and tools needed to measure and analyze profitability, stay focused on the “why” ― how your organization will use the results and what decisions to make based on the information. Yes, you do need a strong profitability measurement process, a solid “recipe,” but focus more on the outcome than the process. 

Top-performing financial institutions use the results of the profitability measurement and analysis process to:

  1. Steer customer interactions
  2. Drive product strategies
  3. Manage portfolios more effectively
  4. Determine pricing strategies and decisions
  5. Guide marketing plans
  6. Improve operational efficiencies
  7. Align team / individual behaviors to organizational goals
  8. Support channel / branch analysis and decisions
  9. Understand geographical nuances and differences
  10. Analyze product and transaction usage

In my next blog, I will dive deeper to discuss the value and mechanics of using profitability results for each of these analyses. In the meantime, happy cooking!

Meet the Author
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Bryan Ridgeway

Bryan Ridgway

Bryan Ridgway is a Senior Solutions Engineer in the Financial Institutions practice of Syntellis. His responsibilities include assisting financial institutions of varying sizes and complexity in the development of solutions to analyze and improve their financial performance, utilizing the Axiom Software Suite.
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