Capacity planning in Banking

Introduction The key to efficiency and fast customer service in the service industry is the correct and dynamic matching of demand and capacity. Given the seasonality and unpredictability of the various types of banking services and transactions, this process may be difficult but not insurmountable. The important step is to separate the bank's factory-like transactions which are more or less standardized, like check encashment, withdrawals, and check deposits, from the personalized ones like opening accounts, loan application, or marketing a new service. It should be recognized that the former constitute the bulk of banking transactions. Factory-like transactions are fairly predictable in terms of duration or cycle time, and occurrence. Their seasonality or peak-and-low periods during the day, week, and month can also easily be discerned from a careful study of past data. By matching the demand and capacity of its factory transactions, a bank can decongest its lobby or ATM booths, improve over-all customer satisfaction, and provide its staff with ample time and better composure to attend to the more personalized transactions. Capacity planning during the initial stages are difficult because of the unpredictability of the demand. Elements of capacity planning 1. Number of employees required a. Frontline employees b. Back end employees 2. Space required a. Customer space b. Operational space 3. Size of the branch a. Frontline space b. Back end space 4. Security requirements 5. Storage space requirements 6. Requirements of value added service based on the status of the bank or type of customers.

Long-term capacity planning Long-term capacity planning is a critical task of bank management. No plan or a wrong plan is planning for failure or bad service which leads to customer attrition. After the right the capacity is set and installed, whether tellers, verifiers, or ATMs, there is a need to dynamically match capacity to a changing demand pattern. In manufacturing, this short-term process is called production control. Both long and short term capacity matching has to be done carefully and adapted to the bank's particular environment. Tellers in a branch are added or subtracted from the front-line, according to across-the-board head office guidelines which are not consistent with local realities or demand pattern. Moreover, the branch manager may request head office for more personnel after overtime has become unmanageable or customer complaints due to long queues have mounted. In many banks, capacity planning is done by the total dollar value of the business. The head office will set a productivity index by dividing the total value by the head count. This often leads to over capacity or under capacity and long queues. And the time taken for different transactions cannot be matched with the value of the transaction. For example, for a transaction of INR1000 and for a transaction of INR 2000, it takes almost same time for a teller or an ATM machines and it is not the twice time. So there is no direct relationship between the value of the transaction and the amount of resources used to do the transactions. To correctly match capacity to demand, it is important therefore to derive the total volume of factory-like transactions and translate these to teller time or man hours, or machine hours for automated services. Thereafter, these hours can be translated to the number of tellers or ATMS required to meet the expected demand. . Tellering, whether manual or automated, is transaction driven, not client or value driven. The best way to determine teller deployment is to use the number of transactions - regardless of number of clients or value of transactions - and translate these to transaction hours, and then to headcount. With the increasing power of computer technology at the disposal of banks, getting an accurate count of transactions should not be difficult. If a service transaction is done in one station, then it is comparatively easy to do the capacity planning, but if the transaction should pass through several stations to be completed, then all the activities and timings should be synchronized to find out the exact capacity requirement. Usually

in these kind of processes, there will be a bottleneck activity or a slowest process that controls the overall flow of the activity. . It is a waste of resources and money if a front-line capacity like tellering is increased to match demand when the bottleneck capacity is determined by a slower backroom operation, like signature verification or computer processing. In this case, system capacity will remain lower than demand in spite of the investment. Both front-line and backroom capacities have to be adjusted to meet the demand. The last step in capacity planning is fine tuning for unplanned activities that decrease capacity. These are machine downtime, and errors and rework. Machine or computer breakdown can slow down other albeit efficient processes. The normal response is to provide for an allowance in capacity planning to account for this, say 5%. The better response of course is to do preventive maintenance to eliminate downtime. Clerical errors, especially teller mistakes, and their correction consume a lot of man-hours and can significantly cut capacity just like downtime. Providing an allowance for these abnormalities is tantamount to tolerating them. It is much better to enjoin everybody to do his job right the first time.