Budgeting Tools for Banks


    Budget Accuracy Report Example

    The Balanced Scorecard is finally in place, now what?

    The senior management of the bank came up with twenty-four key performance indicators (KPI’s) that will make up the bank’s balanced scorecard.  Everybody is excited about the new measures and is looking forward to see how they rank.  The first report comes out with a lot of fanfare.  The second report then comes out and nothing changes.  Hmmm.  Everyone thought performance would immediately start to improve.

    What is missing?  Budget planning tools for banks!  Now that the bank knows what measures are important to implementing its strategy for success, it needs to come up with a way to set goals and targets for those various measures.  The first step in this process is to come up with a budget.  There are many approaches and tools for budgeting for banks.  This article will help you sift through the myriad budget tools for banks by coming up with a list of requirements.

    Budget Planning Tools for Banks

    As we learned in a previous article about Balanced Scorecards for Banks, the focus will be on four key perspectives of the bank’s strategy: Finance, Customer, Internal Processes, Learning and Growth.  Let’s take a look at each of these perspectives and see how a good bank budgeting software can be used.


    There are three main components for the financial part of a plan that comprises of the net interest margin (NIM), non-interest income, and non-interest expense.  For the NIM portion, a good budgeting tool will focus on the interest rate spreads of new loans and deposits versus the alternative investment rate coming from the funds transfer pricing module.  The number and size of new loans and deposits has a huge impact on the NIM.  NIM is also affected by the paydown and interest rate repricing of existing loans and deposits.  The budget tool needs to accommodate all of these pieces of the NIM.

    Non-interest income is affected by fees collected on those new loans.  Deposit service charges, trust fees, and many other types of fees are also based on production.  All these income streams have drivers such as loan and deposit production.  These driver-based targets need to be budgeted at the branch and, if possible, at the employee level to be most effective.  The balanced scorecards are already in place to track performance.  This performance of the measures need to be compared against the goals created by the budget tool that the bank is utilizing.


    Without customer growth, any business performance will eventually plateau and then dive.  A good budget tool for banks will track new customer acquisition as well as customer cross-sell ratios.  The solution will need to integrate with the bank’s customer relationship management (CRM) system and be able to track these measures.  The new customer goals need to be set at the branch level at a minimum.  Improving cross-sell ratios from say 1.75 to 2.15 will be very profitable for the bank as selling to an existing customer is much cheaper than acquiring a new customer.

    Internal Processes

    Improving measures such as revenues per full time equivalent (FTE) or cost per teller item are crucial for improving the bank’s overall effectiveness.  Being able to set goals and monitor FTE’s is a must for any budgeting solution for a bank.  Making capital investments in new technology is good, but the payoff will be in how efficiently operations are affected.  If you are going to invest a million dollars in new teller equipment, the cost per teller item should improve.  The budget tool you select will set and track all of these operational measures.

    Learning and Growth

    We all know the adage of Happy Employee equals Happy Customer.  One of the best ways to achieve this is to better train your employees.  Your budget solution should have goals set for the number of training hours for each employee and be able to track their achievement.  You should have goals set for customer satisfaction and a way to track the survey results.  These are sometimes subjective items but objective goals, where possible, need to be budgeted for and tracked.

    What Software Do Banks Use?

    Okay, so we have established that good bank budgeting software will be loaded with financial information, cost drivers, FTE’s, and possibly survey data.  But what about its construction and design.  As a general rule, the budget process for banks is owned and operated by the accounting team.

    Microsoft Excel

    At a young age, accountants start using Microsoft Excel for everything from reporting and analysis to budgeting and planning.  If your budget tool for the bank is to be adopted, it better have an Excel front end.  If not, your accountants are likely to dump everything into Excel anyways to perform all of their analyses and bypass the new system.


    Once the reports and input templates have been designed by the accounting team, the rest of the bank needs to be able to collaborate with the input process and review.  Mailing out printed reports or even e-mailing Excel spreadsheets is very time-consuming.  Publishing the templates to a web-based portal for easy access from the field will be key.  The review process is iterative in nature and changes need to be easily entered, tracked, and communicated to senior management for review.

    Work Flow

    With so much data going back and forth, the accounting team along with senior management needs to know where they stand at any given point in the process.  If raw input from the field needs to be in by September 30 for the first cut, you need to know who has entered their numbers and who has not on Sep 15, 20, and 25 so that you can keep on top of the last minute changes.  Once the first cut has been done, you need to strictly monitor changes.  You need to have a good approval process as well.  No one wants a plan presented to the CEO for review where the numbers are totally bogus and out of line with the bank’s strategy and objectives.

    Security, Integration, Forecasting, Reporting, and Analysis

    There are many other requirements for budget tools for banks that we can delve into.  Does the system have security so that people cannot enter or change someone else’s budget?  Does the budget system integrate with the loan, deposit, CRM, and other data sources of the bank?  As economic conditions change throughout the year, you need a budget tool that has the ability to make forecast changes while keeping the original budget intact.  The best-run banks utilize rolling forecasts at least quarterly if not monthly.  Also, the budget tool needs to have good reporting and analysis capabilities.

    Solver Bank Budgeting Software Solutions

    There are many vendors that offer budgeting tools for banks.  Many of them focus on the finance piece of the budget process.  If you are just getting started with the budget process and want to focus only on financials, Oracle Hyperion Financial Management, SAP Business Planning & Consolidation, IBM - Cognos TM1, and Solver’s BI360 are all good solutions.

    If you are ready to tackle the customer, internal process, and growth and learning perspectives, you will need a data warehouse with a good reporting engine to augment the budgeting process.  You might consider IBM Cognos, SAP BusinessObjects, Oracle Business Intelligence Enterprise Edition, and again Solver.

    Whether you are planning one or all four of the key perspectives in your bank budget, Solver is a solution that will grow with your company and complexity as the solution is very scalable. Solver, Inc. is happy to answer any questions and generally review Solver's easy-to-use, Excel-powered reporting and budgeting solution for banking and finance industry users.  Start improving on your bank’s strategic goals and objectives today by collaboratively budgeting and planning the various measures of your balanced scorecard.

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