A quiet $240 million Savings Bank determined it wanted to become a profitable and stable Commercial Bank.  It choose organization and product profitability techniques to guide it to a before tax ROA of 2.65 over a five year perod.

The Bank sold the Board of Directors on restructuring the Mortgage loan portfolio based upon the use of organizational cost accounting and profitability analysis.  Senior Management showed what the product mix and profitability were at that time and the quarterly effect on the profitability over time.  The same format was used to report progress.

 Senior Management also eliminated an unprofitable “investment services” venture and kept and expanded their consumer loan division.  Senior Management “thought” that the Consumer Loan Division was unprofitable, but the analysis showed it just needed a slight increase in volume.  Consumer lending has continued to be a profit contributor over the years.  When FASB 91 came along, they used product costing to maximize the amount of loan production cost deferred, thereby minimizing the negative impact on profitability when deferring fee income. 

 Senior Management used the organization profitability analysis as the basis for their Management Performance Bonus system.  Each manager up to the CEO received a bonus based on their ability to meet the planned contribution to profit.  A budget was developed and converted to an Organizational Profitability analysis.  After several iterations of approvals and final Board approval, the Profit Plan became the benchmark for the bonus next year.  If a manager’s business unit met their goal they got the bonus.  If they exceeded the goal they got more, and if they failed to meet the goal they got nothing.