The Co-Operative Bank

5. Resource cost pools can be defined as different sources/nature of costs (based on the financial data available in the general ledger) that can be directly allocated to the activities performed by the bank.

As for the List of activities presented in Exhibit 5, we understand that additional items could be considered, such as: supervision and monitoring of activities/employees working for the Personal business (for instance, related to the managers or heads of regional teams in this segment) and customer relationship management. In addition, it could also include other HR-related activities directly associated with the business, such as specific training provided so employees can perform their job. Another set of activities that could potentially be considered in the list would be related with the IT for this particular segment (either maintenance or even development). Finally, from the list presented, it is not clear if some of the activities that are directly related to the Personal segment operations are somehow included in Exhibit 5, such as: maintain customer accounts, accept checks, process transactions (other than VISA), process loan applications, among others.

It is our understanding that some of the activities mentioned above might be currently considered under sustaining costs (especially the ones related with management or supervision activities) and could perhaps be re-directed to the specific segment, to the extent that they have a direct causality link with the products offered/sold by the bank.

As for the data used to populate the cells in Exhibit 5, we understand that the managers in charge of the project asked the different teams (from the different areas of the bank) to match resource costs with activities, based on previously selected cost drivers (such as staff costs’ allocation based on time sheets, computer costs taking into account computer time required, among others).

6. We understand that the cost driver for Marketing and Sales activities (Number of accounts opened) is not adequate. In our opinion, this activity could perhaps be part of the centralised sustaining costs due to its difficulty of establishing a direct link between ‘product’ and ‘cost’. But, in the event that it is to be kept in the Personal segment for product allocation, its cost driver could be broader, such as ‘number of new products contracted by customers’ (this would include not only new clients that the bank attracted but also cross-selling to existing customers).

In addition, Customer inquiries is based on ‘telephone minutes’. We believe that there could be inquiries that are performed directly at the branch or even by mail. By using the metric presented in Exhibit 6, these inquiries would not be taken into account.

As for the Open/maintain Handyloans and Open/close accounts we understand they should be segregated between ‘Open’, ‘Close’ and ‘Maintain’, in order to make the allocation easier and ensure consistency. For instance, in Exhibit 6, ‘Open/maintain handyloans’ is driven by ‘number of handyloans’ (which is perhaps more suited for ‘maintenance’ alone – open accounts should be related with the number of new accounts created in the period).

Finally, for the Hours of advice given (for the Advise on Investments and Insurance activity), it would be important to clarify whether this measurement only took into account the time actually spent by employees providing advice/selling products provided by other financial institutions (this is particularly relevant since in Exhibit 7 this expense is fully allocated to the ‘Independent Financial Advice’ product and, if it includes services or counselling related with Co-operative Bank’s products, this amount should be spread by some of the other columns).

In order to determine the Quantity of each cost driver, from the data available in the case, we understand it was obtained by measuring the number of times each cost driver was observed over the sample period (Mar-May 1993). It is important to note that different sample periods might bring different averages (the longer the average period, maybe the more accurate the estimate). However, by analysing Exhibit 6, we believe that there might be further inconsistencies in the data collected.