An Experiment Using Abc-Based Value Indexing for Bank Services (Manuscripts‪)‬

CHANGES IN BANKING THAT CREATE A NEED FOR BETTER COST DATA Significant changes in the banking industry in the last fifteen years have created a situation in which banks are now faced with many of the same cost analysis problems traditionally faced by manufacturing firms. The reduction in spreads and the increased competition, both among banks and between banking and other financial services organizations, have produced an environment where bankers must now face the perils and pitfalls of management of the income statement in addition to management of a balance sheet. Banks are deriving more and more of their income from fees for services offered to ever growing customer bases. Bank managers in a previous day may have faced asset management as their primary management activity. Today, however, these individuals increasingly face management of the relationship between service fee revenue and the cost of producing that revenue and may be forced to apply somewhat unfamiliar cost management models to bank operations. However, there is at least one major shortcoming of the traditional models that bankers should avoid in this new endeavor.