Deloitte: Client Selection

CHARMI NAGADA -140 | NIKITA YADAV-163 | RITVIK DINESH170 | RAJ AGNIHOTRI-169 | AMAN GARG-128 | GURU
RAGHAVENDRA SRINATH-148

Group 3D

ITT

Solutions:
Question 1: Which clients should the bank migrate over
and why?
Bank should retain 116 clients. The following conditions should be satisfied:
Client with security risk <= 5
Clients with total revenues greater than total cost
The mean growth rate for the bank is 8.02% (after generating the data
table with 1000 random variables)
After analysing the total profits at the end of three years using Excel Solver,
the maximum profit for the bank was generated when the clients satisfied the
above two conditions.

Question 2: How much do you expect the bank to profit

from this acquisition?
Year 1: The bank suffers from loss ($56,47,933.48) in the year of acquisition
after migrating over the clients with security risk <=5. This is owing to the fact
that Regency Bank had to bear an acquisition cost of 8 million USD for the
professional card business.
Year 2 & Year 3: The bank would end up into profit of $27,09,429.70 and
$26,01,906.49, respectively. This profit calculation is based on 10% attrition
rate and 8.02% of growth rate (with standard deviation of 1%).
Year 4: The bank makes a profit of $26,13,252.41. Owing to this, it overcomes
its net loss of past three years to achieve a net profit of $22,76,655.13 with the
attrition and growth rate of 10% and 8.02%, respectively.

Question 3: What are the possible outcomes of the

acquisition?
Various outcomes when the security risk cut-off is varied
Security
Risk
Cutoff
Profit

1
($67,98,270.
55)

2
($56,70,188.
91)

3
($18,59,92
4.88)

$12,94,208.79

$22,76,655.13

$20,92,715.13

$17,74,475.13

This suggests that when security risk cut-off is less than 3 or greater than 7,
the company ends up in net loss while clients with security risk cut-off of
4-6 result into net profit with profit for security risk cut-off of 5 being
maximum.

If the annual spending of the clients is increased (greater than 8.02%)

keeping the attrition rate constant, the bank would achieve its break-even
before the 4th year.
If the attrition rate is increased keeping the annual spending by the client
constant, the bank would take longer to achieve the break even
If the number of cards held by the client increases by greater than 10%,
client would achieve its break-even before the 4th year.

Question 4: Which of the variable factors are more

significant?
Annual spending: This is because 1% of the annual spent is the revenue
generated from each client
Complexity Level: Higher number of level 1 clients would have resulted
into better profits for the Bank
Number of cards: Increase in the number of cards by higher percentage
(>10%) would change the net profit for the bank as each card results into
$85 for the bank

Question 5: What could the bank do to improve the

possible outcome?
If the bank reduces the card issuance and card service cost, it can attract
most customers. This may result into increase in the profitability for the
client
If the bank conducts the migration of clients holding both travel card and
professional card at the same time, it may save the bank the migration
cost that would be involved in the travel card at the later stage

Group Contributions:
The group members sat together to brainstorm and find out the possible solution
for the case. The case analysis and its recommendation were framed after
understanding and interpreting different perspectives from the group. Below is
the special contribution by each member of the team:
Ritvik: Apart from designing the model, Ritvik suggested using
simulation model to determine the average growth rate and security risk
factor. Based on this suggestion, we can easily calculate the profits when
the clients with varied security risk factor are considered.
Charmi and Aman: Designing the framework for the solution, performing
security risk analysis
Srinath, Raj, and Nikita: Performing the solver analysis, suggesting the
variable factors affecting the bank, suggestion to improve the possible
outcomes

Assumptions
The additional migration cost for Level 2 and Level 3 has been added to
both types of clients based on the information given in the case:
Additional $3000 for Level 2 clients and additional $5000 for Level 3
clients, respectively
The additional annual service cost for Level 2 and Level 3 has been
added to both types of clients based on the information given in the case:
Additional $500 for Level 2 clients and additional $1500 for Level 3
clients, respectively
The card issue and card service cost is borne by the Bank and not by the
clients
The spending growth has been averaged using simulation wherein the
probability of 7%,8%,9% growth is considered equal