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A Primary Matters Total Cost of Ownership/ROI Analysis . . .

The Impact of an Inter-Departmental CRM Solution on Large Retail Banks with Multiple-Lines-of-Business

December 10, 2001

Primary Matters, Inc.
(902) 794-7095
www.primarymatters.com

Executive Summary
Contact Center Impact: Contact Center Savings and Cash Flow
Contact Center Impact: Time to Break Even on Contact Center Cost Savings
Business Unit Impact: Increase in Revenue and Profit Due to CRM Solution
Business Unit Impact: Revenues, Contact Center and Product Costs, and Profits
Summary of Assumptions and Methods
Summary of Credit Card Business Line Revenue and Product Costs
Summary of Retail Banking Revenues and Product Costs
Summary of Commercial Banking Revenues and Product Costs
Contact Center Impact: Annual Operating Budget for the Three Bank Divisions - Credit Card, Retail and Commercial
Contact Center Impact: Baseline (Before Implementation) Operations Budget
Contact Center Impact: Scenario (After Implementation) Budget
System Investment, Systems Integration, Maintenance and Operations Personnel Expense Details
Contact Center Impact: Headcount Comparison for the three divisions of the Bank
Business Unit Impact: Change in the Installed Base of the Retail Banking Product Line
Business Unit Impact: Change in the Installed Base of the Commercial Banking Product Line
Details of the Process Model

Executive Summary

CRM solutions can have a major impact on the bottom line of banks' multiple business units, especially if the business units have some customers in common. This analysis focuses on only one benefit of an inter-departmental CRM solution - providing a summary to the service representatives of a bank's contact centers of a customer's issues across different business units.

As can be seen in the chart below, product revenues increase dramatically. This is due to an increase in the customer life cycle. In addition, the productivity gains in the contact center provide significant cost savings. The productivity gains justify the acquisition of an inter-departmental CRM solution, even when ignoring the revenue increases. The Bank's product costs increase but this is because there are more customers, which is the source of the increased revenue.

Contact Center Impact: Contact Center Savings and Cash Flow

This chart focuses on the total of three contact centers. It shows the Total Cost of Ownership (investment, expenses, operations and personnel costs) associated with implementing an inter-departmental information solution in the three contact centers compared to the savings. A CRM investment is recovered quickly based only on the savings enabled by the productivity improvements. Break even is accomplished in only a few months. The increase in revenues, not accounted for in this cash flow and breakeven analysis, is the most important benefit. The increase in revenues does not need to be considered to justify the investment.

Contact Center Impact: Time to Break Even on Contact Center Cost Savings

The investment in CRM reaches break-even within 3 to 4 months of going into production based solely on the cost savings in the Contact Centers. Noting that the CRM solution does not go into production until Q2, breakeven is in a couple of months after the production date. This chart does not include the benefit of the revenue increases, which provides an even more compelling case for the inter-departmental CRM solution for a bank with multiple business lines sharing customers.

Business Unit Impact: Increase in Revenue and Profit Due to CRM Solution

These charts show the annual revenue and profit increases due to the CRM solution's impact on the customer life cycle. A major part of the revenue increase is turned into profits since adding small increases to the customer life cycle leverages the current expense structure.

Business Unit Impact: Revenues, Contact Center and Product Costs, and Profits

This chart shows the percentage change in the total revenues, total costs (including contact center costs and the costs of maintaining the credit card, retail and commercial customers), and profitability of these lines of business. An inter-department CRM solution has a major impact on these metrics, especially profitability. This is due to both cost savings in the contact centers and the longer customer life cycle extending the profitable portion of a customer's relationship with the bank.

Summary of Assumptions and Methods

The model used in this document is of a generic bank. Specific banks may differ, but such differences can easily be accounted for to better understand the specific impact of inter-department CRM features on an individual bank.

In providing this Total Cost of Ownership Analysis, Primary Matters has:

Analyzed the Inter-Departmental CRM impact on a typical bank;
Modeled the impact of a CRM solution on the customer contact centers and the potential impact on the customer base;
Linked this to a simple revenue model of each of the Bank's lines of business;
Created a Baseline and Scenario that mirrors the before and after situation.

The Bank has three separate business units - Credit Card, Retail and Commercial. The inter-departmental CRM solution affects these businesses in several ways. These businesses, although independent, have customers in common. These customers call the wrong division and need to be transferred, or call one division but have questions that apply to the different business groups. These customer satisfaction and efficiency issues are addressed by the CRM solution.

For the contact center cost analysis, it is assumed that:

A percentage of calls do not need to be transferred to another agent due to the additional information provided by the CRM Solution.
A percentage of calls are shortened due to the information provided by the CRM Solution.
A percentage of callbacks will be eliminated since the customer receives all the information they need in the first call.
Cross-selling results in a higher percentage of customers acquiring multiple products from the bank. This results in a longer customer life cycle with the bank.

For the revenue and product cost analysis, it is assumed that the improvements in customer satisfaction from better service will result in:

The average customer life cycle lengthens for each line of business.

The Credit Card Line of Business average customer life cycle increases from 30 to 31 months;
The Retail Banking Line of Business average customer life cycle increases from 36 to 37 months; and
The Commercial Line of Business average customer life cycle increases from 36 to 40 months.

Increasing the average customer life cycle changes each line of business in the following ways:

The installed base of active customers becomes larger since customers are churning at a slower rate.
The revenues increase as a function of the increase in the installed base.
The monthly product cost increases because the installed base of products increases.
Customer profitability (and thus the profitability of the bank) increases as most of the 'per customer' profits are made in the latter part of the customer life cycle (this 'profitable' period is being extended). The 'new customer acquisition' costs are covered in the first part of the life cycle.

Up-selling opportunities have not been included in this example. This refers to the greater ability of the agents to present products from other lines of business to their customers thus increasing the revenue per customer.

Assumptions and Profile of the Bank's Contact Centers for each Line of Business

Summary of Credit Card Business Line Revenue and Product Costs

Summary of Retail Banking Revenues and Product Costs

Summary of Commercial Banking Revenues and Product Costs

Contact Center Impact: Annual Operating Budget for the Three Bank Divisions - Credit Card, Retail and Commercial

This budget comparison shows the pre- and post-CRM contact center budget. The productivity improvements are from the interdepartmental CRM features. There is a material impact on the cost side of the bank's major lines of business.

Contact Center Impact: Detailed Assumptions

The analysis of the impact of the inter-departmental CRM on the Bank's customer contact centers assumes the following:

Each division has its own customer contact center handling mostly incoming calls. The call volume and typical tasks accomplished in a call are shown later in this document.
Credit Card Agents make $14.00 per hour, Retail Banking agents make $16.00 per hour and Commercial Banking agents make $18.00 per hour.
Supervisors in the credit card division make $22.00 per hour, in Retail $24.00 per hour, and in Commercial $26.00 per hour. The ratio of Supervisors to Agents is 10 to 1 in the Credit Card and Retail divisions, and 8 to 1 in the Commercial division.
Managers make $28.00 per hour. There is 1 Manager for every 6 Supervisors.
Analysis costs include an allocation for office space, telecommunications services, ACDs, and PCs. Other contact center technologies have not been included, but the analysis can be easily updated to include other technologies.
There are no fixed overhead personnel assigned in this model (upper management, trainers, analysts, marketing and sales personnel).
For the products (credit cards, retail accounts and commercial accounts), a simple new customer acquisition cost is used as well as a monthly account maintenance cost. These are detailed later in this document. They can be adjusted to equal the actual numbers used by the bank. It is assumed that these costs include the overhead, marketing, and service fees associated with offering these services.
The revenue details for each line of business are also detailed later in this document and can be adjusted to equal actuals.
All systems are depreciated using a five-year, straight-line depreciation method.

Contact Center Impact: Baseline (Before Implementation) Operations Budget

Contact Center Impact: Scenario (After Implementation) Budget

Impact Based Only on Contact Center Cost Savings

This chart shows the ROI for the CRM solution based only on the cost savings in the Contact Centers. The CRM investment is justified solely on the cost savings even though the most important benefits are the revenue and profitability increases to the Bank.

NOTE: For ROI Analyses a Cash Budget is used. The annual and other budget figures differ from others in this document since this is a cash-based budget, and the others are operating budgets where investments are capitalized.

System Investment, Systems Integration, Maintenance and Operations Personnel Expense Details

The follow table details the costs associated with the CRM solution across the three lines of business.

Contact Center Impact: Headcount Comparison for the three divisions of the Bank

This Full Time Equivalent Agent Headcount comparison shows the pre- and post- CRM Contact Center staffing for Agents, Supervisors, and Operations Personnel. Variable personnel headcount (agents and supervisors) is reduced approximately 6%.

Business Unit Impact: Change in the Installed Base of the Credit Card Product Line

These charts compare the installed base of customers in the credit card division before and after the CRM solution is installed. This increase is due to an increased customer life cycle of 1 month from an average of 30 months to 31 months.