Credit Union Central of Ontario, the wholesale bank and trade association for Ontario credit unions, initially implemented business performance management (BPM) software for use in consolidations and financial reporting. The system has expanded to store more and more disparate types of information. Its benefits now range from better forecasts to a greater understanding of the business that each member credit union conducts with Central -- which enables the organization to identify products and services that can help its member credit unions grow and be successful.

BPM Magazine:As a credit union for credit unions, does your organization have unique performance management needs?

Ron Smith:Yes. We base our revenue projections on banking volumes -- for example, clearings, deposits, and the number of ATM transactions that credit union members clear through our networks. So we use our performance management system heavily to store customer information ranging from banking volumes and total revenues to key performance ratios.

When we first implemented Khalix, it was strictly for financial reporting. The following year, we used it for budgeting and planning. That was in 2002, for the 2003 plan year. Since then, we've been adding more and more information into the database.

Now we put banking volumes into Khalix on a monthly basis, and we use that for planning and budgeting the following year. This encompasses about 20 or 30 different banking transaction streams. Deposit items, clearing items, cash parcel orders -- and there are all kinds of networks, the ATM transactions, point-of-sale transactions, and wires, etc. All these volumes are put in by credit union on a monthly basis. On top of that we load in their total assets and total members, plus various key performance ratios relating to capital, liquidity, asset quality, and profitability. On a quarterly basis, we get that information from the deposit insurer in Ontario via an electronic feed.

BPM:How does your budgeting process work?

Smith: In terms of banking volumes, we can forecast our volumes for the following year by making assumptions based on actuals. We might add 2 percent over the current year for one product and 5 percent for a different product because we know, for example, the number of clearing items and deposit items haven't been growing as fast as the electronic side of the business.

Then we set up the budgets by using various templates. There's a banking-volume template that calculates banking volumes. Once that's done, we can change the price and it will calculate, by credit union, what the revenues will be. Some of the other templates we use have more information around things like depreciation expense, salaries, and benefits. We model how those are calculated based on inputs from the business units. For example, we load the depreciation expense on existing assets for each department from the AXS-One fixed-asset subledger, and then we'll have Khalix calculate depreciation expense on new capital expenditures that they want to add in for their budgets. So they'll say, "Well, I need a new server, so I've got to put in $20,000 in the month of March." We have predetermined asset classes with predetermined depreciation rates, and it calculates the depreciation.

BPM:Do managers put their budgeting information directly into Khalix?

Smith: It's opened up for them to use. They make changes to their budget and then submit those to the database. Once they're at the stage where they think it's ready for review by their VP, they will then go into a workflow tool and change the status of their cost center from "in progress" to "submitted for approval." That generates an e-mail to the VP that says, "You have areas to review." The next time they log into Khalix, they can call up that budget to review it and then reject or approve it.

BPM:What was budgeting like before you got the BPM system?

Smith: It was spreadsheet-based, and budget reviews were in off-the-cuff discussions and one-on-one meetings with no evidence when there had been an approval.

BPM:So now there are better controls over budgets?

Smith: Yes. It's helped us request more specific inputs. For example, one of our requirements is to present to the board a summary list of the capital budget for next year. When business managers were just using a spreadsheet, we would ask, "What's your depreciation expense for next year?" And the details of each capital budget item weren't readily available. It was also hard to verify their depreciation expense calculations.

We also needed more detail with salary and benefits, so we developed a salary continuity template that reconciles their opening FTEs [full-time equivalents] and annual salary to what they are requesting in next year's budget. If there is a vacancy in the department that's going to be filled, that'll increase their FTEs by one, and they'll have to put in the salary dollars for that. We assume that there'll be a 3 percent increase allowed for salaries, for example. Rather than have the departments input that, it's calculated for them. So there's no room for padding. We also have Khalix calculate employee benefits, which are primarily based on annual salaries and/or FTEs. It adds a lot more precision to our projections if we limit the number of opportunities for padding and get the business units to focus on inputting the budget drivers, rather than the costs, as much as possible.