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.