Doing a return-on-investment analysis.

One of the "details" to which you should pay attention is how the bank makes money--or, more specifically, how it calculates how it makes money. If your finance department has developed a profitability model, it is very likely that it has mapped the bank's general hedger (or G/L) data into its model. Among other things, this report contains a detailed listing of all of the bank's noninterest expenses and all the sources of noninterest income.

Your bank can map its G/L data in a variety of ways to help it more accurately calculate noninterest expenses and noninterest income at the account level. Because this process is subjective, it is as much an art as it is a science.

For instance, you'll find that only a few noninterest expense G/Ls are related to specific products--one example might be if your bank logged a specific expense for the cost of booking a not-sufficient-funds (NSF) fee every time a customer overdrafts his or her checking account, like a commission paid to a third-party vendor. If this were the case, then the expense could be mapped to the same checking products (which gave rise to the NSF income) so that they could absorb a portion of the NSF expenses.

For other noninterest expense G/Ls, you might find that they are more closely related to processes than they are to specific products. For example, the cost of postage could be related to statement rendering, CD renewal notices, loan late payment notifications or even marketing initiatives. As such, these may require you to collect baseline data, to determine "rules" that would assign every account in the bank a portion of these costs. Sometimes these rules are expressed as weight factors or percentages. Both approaches work.

Finally, you will find many noninterest expense G/Ls that are related to the bank's organizational units (such as branches and cost centers). Chief among these would be salaries and benefits, occupancy and equipment expenses. These expenses tend to be the most difficult to map. In this case, the first step is to determine total expenses related to each organizational unit. Then, you must identify the products with which each unit works so you can map these expenses only to those products.

However, some of those organizational units do not work directly with bank products; instead, they provide support functions. For these, you will have to forgo the "functional assignment" and assign them using other rationale based on their function.

Once your bank has completed this mapping, the total noninterest expenses and noninterest income of all of your accounts will equal the total amounts for the bank.

It is important to know that when you design a pro-forma return-on-investment (ROI) analysis for a marketing campaign, you do not need to include all of the costs of the bank because the bank is not going to add more people or add more buildings as a result of your successful marketing efforts. However, you do need to add the incremental costs such as the cost of the marketing campaign, data processing costs, etc. You can identify these incremental costs when the G/Ls are mapped into the profit model. By using just the incremental costs in your pre- and post-campaign ROI analysis, you can give your management a much more realistic (and profitable) assessment of your marketing campaigns.