STERN SCHOOL OF BUSINESS



STERN SCHOOL OF BUSINESSNEW YORK UNIVERSITYOPERATIONS IN FINANCIAL SERVICESCourse Syllabus OPMG-UB-15INSTRUCTOR: Michael Pinedo, Room KMC 8-59Phone: 212-998-0287; Email: mpinedo@stern.nyu.eduCOURSE DESCRIPTIONThis undergraduate elective course focuses on products and processes in financial services. It analyzes the design and the operations of the different distribution channels (branches, ATMs, call centers, www, etc.) of the various types of financial institutions and considers productivity measurements as well as performance measurements. It goes into quality control issues and analyzes operational risk. It concludes with the design and implementation of decision support systems in practice.Requirements and Grading:The grading in this course is based on homework and assignments, a project and an open book take-home final exam.Assignments. There will be 6 assignments during the course. Each assignment has to be done individually and will be a minimum of 1 page write-up and a maximum of 2 pages. A sample of past assignments is given in the last part of this syllabus. Project. The projects have to be done in groups of two. It may be a project at the site of one of the group member’s work or it may be a study of a current operational issue in the financial services industry. A progress report on the project is due by the spring break. (Progress report should be 4-5 pages.) These progress reports will give me some opportunity to give comments and advice on the project. In the last session of the course, each group will give a 10-12 minute Powerpoint presentation of their project. (Examples of final reports of past projects can be found on the website of the course.)Final Exam. Take home and open book. However, it should be done within a time frame of three consecutive hours. You have to find these three hours within 10 days after the last day of class.The grade is based 30 percent on the homework, 40 percent on the project and 30 ?percent on the final.?Required Course Material:"Creating Value in Financial Services'' edited by Melnick, Nayyar, Pinedo, Seshadri. (In what follows this text is abbreviated as MNPS).There is a case packet that you can buy at the bookstore. The cases are listed in the appendix of this syllabusThere is a course packet with additional materials that will be handed out in class. The contents of this course packet are listed in the appendix of this syllabus. Schedule of ClassesThis course consists of 24 sessions that are divided into 9 modules.MODULE I ????Overview of Financial Services and Forces of ChangeSession 1a (Feb. 6): Overview of the types of financial services companies:retail banksinvestment banksbrokerage housesinsurance companiesasset management companiesOverview of types of products and services (consumer products, commercial products). Overview of types of processes. Product-Process Matrix: where do the financial services companies fit in within this matrix.Discussion on the forces of Change in the financial services industry.The following transparencies are from a McKinsey presentation:Operations in Financial InstitutionsThe following paper comes from IBM Business Consulting Services:From Banks to Banking II: The Journey Has BegunSession 1b (Feb. 6): Recent trends in financial services:Mergers and Acquisitions. Objectives of recent mergers and acquisitions: diversification of product offerings, cross-sales, global reach, operational synergy. Success of mergers depends often on the succesful integration of operations. Importance of Operational Due Diligence.Read: Chapters 3 and 4 in MNPS (by Ingo Walter and David Rogers). Read: from the Casebook: Economics of Retail Banking Note (Harvard case) .Prepare case for discussion:Commerce Bank (Harvard Case)MODULE II ????Strategic IssuesSession 2a (Feb. 13): Service StrategiesSelection of products and niches (consumer products, commercial products, scale, scope)Service StrategiesCustomer Relationship Management (CRM)Read Chapter 5 in MNPS (Monahan on relationship management) Read Sections 2, 3, 4 in the Course PacketLink: Bank Deposits gets InterestingAssignment 1 to be handed in. Session 2b (Feb. 13): Process DesignsProcess design (selection of distribution channels).Discussion on potential of cross selling.Discussion on separation versus integration (chinese walls).Read: Chapter 23 in MNPS (Wayne Cutler)Read: Chapter 22 in MNPS (Harker Frei)Prepare case for discussion: FleetBoston Financial - On line bankingLinks:Could Mobile Banking go Global?Will the Banks Control On-Line Banking?MODULE III ????Distribution Channel DesignSession 3a (Feb. 27): Overview of Distribution ChannelsService Process Design matrix (video)channel choice (branches, mini-branch, kiosks, ATMs, call centers, www, sales force)points of accessconvenienceRead Chapter 14 in MNPS (Karmarkar paper)Read Section 6 in Course PacketOptimizing Distribution Channels (IBM)Optimizing Distribution Channels IIFree White Paper: Four Strategies for Fixing DistributionImpact of E-Commerce on Financial ServicesElectronic commerce and financial servicesApplications of queueing in financial servicesRead Chapter 11 in MNPSLink: Banking: The IT ParadoxSession 3b (Feb. 27): Channel Capacity and PricingSetting capacity and prices in various channelsRead: Chapter 11 in MNPS (Dewan-Mendelson paper) Read: Section 7 in Course Packet (Pricing Analysis for Merrill Lynch)Prepare: case for discussion: Charles Schwab Inc. (A) (Harvard)MODULE IV ???Distribution Channel Operations (Front-Office Operations) (Sessions 4 & 5)Session 4a (March 6): Applications of Queuing in Financial ServicesQueueing TheoryNetworks of queues and call center applicationsSimulationPrepare First City National Bank CaseQueueing Analysis of the FCN BankRead Sections 8 and 9 in Course Packet by Kolesar (on ATMs) and Larsen (on psychology of queues)Session 4b (March 6): Queuing in Call Center and Call Center ManagementCall centers and priority queuingSkills-based routingRead Chapters 18 and 19 in MNPS (Pinedo, Seshadri and Shanthikumar paper)Read Sections 10 and 11 in Course Packet (on call center management and skills based routing) Links:Bank of Montreal Managing the Bank of TomorrowSkills Based Routing: A Challenge for Call Centers Skills Based Routing: A Challenge for Call Centers Assignment 2: to be handed inSession 5a (March 20): Call Center Case StudyPrepare case for discussion the Nationsbank case (Insead).Categorization of CustomersTaking advantage of cross sales opportunitiesSession 5b (March 20): Human Resource Issues and Personnel SchedulingRead Chapter 17 in MNPS (Larsen-Pinker paper)MODULE V ??????Internal Business ProcessesSession 6a (March 27): Processing Securities Transactions;On-Line Retail Brokers and Internet BankingTypes of SecuritiesOperations ProceduresBank Brokerage Firm RelationshipsPrepare case for discussion: the Wells Fargo Online CaseSession 6b (March 27): Check-Clearing OperationsRead Sections 12 and 13 in the Course Packet For an overview of McKinsey's view on internal business processes look at this presentation.Assignment 3 to be handed in. MODULE VI ????Productivity Measurements and Performance Measurement (Sessions 7 & 8)Session 7a (April 3): Data Envelopment AnalysisRead the DEA treatise, Section 14 in the Course PacketRead the Harker-Zenios paper, Section 15 in the Course PacketSession 7b (April 3): Productivity of Bank BranchesRead Section 16 in the Course Packet (the Oral Yolalan paper on Bank branches in Turkey)Links:1. Cutler PresentationSession 8a (April 10): Optimization Framework including QualityRead Section 17 in the Course Packet (the Athanasopoulos paper) (The Capabilities, Quality, Performance (C-Q-P) Optimization Framework)Session 8b (April 10): Productivity and Performance Case StudyPrepare case for discussion: London Life Balanced scorecards (Ivey Case)Assignment 4 to be handed in. MODULE VII ????Quality Control in Financial Services - Reliability Design and Optimal Redundancy.Session 9a (April 17): Quality Control in Call Center ManagementRead Chapter 20 in MNPS (Patel paper)Session 9b (April 17): Data bases and credit card operations.Prepare for discussion the case: AT&T Universal Card Services (Harvard) Links:1. Lloyds TSB Transforms its Cards Business and Reaches for Top Slot2. Operational LossMODULE VIII ????Operational Risk Analysis (Sessions 10 & 11)Session 10a (April 24): Operational Risk factorsRead Sections 18 and 19 in the Course Packet Links:1. Report of the Operational Risk Committee of the International Association of Financial Engineering2. Goldman Sachs PresentationSession 10b (April 24): Statistical AnalysisRead Sections 20 and 21 in the Course PacketDistributions for frequency of losses (Poisson)Distributions for severity of losses (lognormal)Link: A Case for QuantificationAssignment 5 to be handed in. Session 11a (May 1): Characteristics of effective controlsPrepare the Allied Irish Bank (AIB) Case.Allied Irish Bank GraphsTransparencies of presentations given at a recent operational risk conferenceCole.pdf Preccia.pdf Sabatini.pdf Sumi.pdf Broderic.pdf Lively.pdf Guldiman.pdf Wilder.pdf Session 11b (May 1): Decision support systems for operational risk analysisLink: Leading Software Contenders(Speaker from Goldman)MODULE IX ????ConclusionsSession 12a (May 8): Future DevelopmentsUniversal Banks; Financial SupermarketsRead Section 22 in the Course PacketLinks:Financials Transformations - Delivered GloballyBritannic Money offers customers the ultimate personalized financial one-stop shotAssignment 6 to be handed in Session 12b (May 8): Course ReviewAssignments:Describe what "operational due diligence" implies in the mergers and acquisitions of financial services. How does it compare in importance with other forms of due diligence (e.g., financial due diligence)??Describe financial products and processes in 1980, 2000, and 2010. (Make a distinction between consumer products and processes and commercial products and processes.)?How does the evolution of technology affect the product-process matrix?a. Give a formal (possibly mathematical) definition of the operational synergy between two financial products.? b. Develop a so-called ``operational synergy'' matrix of financial products. An entry in this two-dimensional matrix represents the amount of synergy obtained with marketing the two products simultaneously. Develop a matrix for consumer products as well as for commercial products.?Choose three financial consumer products (e.g., checking account).?a. Describe all the possible customer activities associated with each product.?b. Describe all distribution channels a customer may use with each product. Can you map the activities to distribution channels? Which distribution channels overlap??How does customer loyalty depend on the type of product and on the type of distribution channel??Explain the reasons for the acquisitions in financial services over the last 20 years.?a. How can they be explained from the operational strategy point of view??b. Were the operational synergies being realized??Explain the reasons behind the divestitures in the financial services industries. What are the operational causes and effects of these divestitures??Consider the diagram that indicates the distribution channels as a function of the WEALTH and of the AVERSION TO TECHNOLOGY. Explain all the lines separating the disctribution channels (in your discussion of the lines discuss also the slopes of the lines).?Choose a type of financial institution. List all its products and all its distribution channels.?a. Draw a graph that links each product to its distribution channel(s).?b. Discuss of each link in the graph whether it is suitable for selling the product (e.g., opening the account) or suitable only to service the product.c. Discuss of each link its cost (or profit potential).Case Packet:Commerce Bank (Harvard Case) FleetBoston Financial – Online Banking (Harvard Case)Charles Schwab Inc. (A) (Harvard Case) Nationsbank (INSEAD) Wells Fargo Online (Harvard Case) London Life Balanced Score Cards (Ivey Case) AT&T Universal Card Services (Harvard Case) Allied Irish Bank Case (NYU Case) SmithpThompson Case (NYU Case) Course Packet:1. Operations in Financial Services: Syllabus-Modules I and II2. Chapter 3: Service Strategy3. Designing Services that Deliver4. The Idea in Brief: Loyalty Based Management5. Performance Measurement of CRM in Financial Services6. Switching Cost and Brand Loyalty in Electronic Markets: Evidence from On-Line Retail Brokers-Module III7. Optimizing Distribution Channels: The next Generation of Value Creation8. Pricing Analysis for Merrill Lynch Integrated Choice-Module IV9. Perspectives on Queues: Social Justice and the Psychology of Queueing10. Stalking the Endangered CAT: A Queueing Analysis of Congestion at Automatic Teller Machines11. Call Center Management to Create Performance Analysis12. Skills-Based Routing and Scheduling-Module V13. Optimization of Bank Transit Check Clearing Operations14. A Capacity Planning Model for the Claims Handling Process-Module VI15. What Drives the Performance of Financial Institutions16. Chapter 12: Supplement: Data Envelopment Analysis (DEA)17. Case Study: An empirical study on Measuring Operating Efficiency and Profitability of Bank Branches18. Service Quality and Operating Efficiency Synergies for Management Control in the Provision of Financial Services: Evidence from Greek Bank Branches-Module VIII19. Chapter 13: Managing Operational Risk20. Basel Committee on Banking Supervision: Consultative Document- Operational Risk21. An LDA Based Advanced Measurement Approach for the Measurement of Operational Risk- Ideas, Issues and Emerging Practices22. Made-to-Measure: Operational Risk Capital-Module IX23. mySAP CRM for the Banking Sector ................
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