Currently, Katie White (retail customers manager) and Jules De Martino (corporate customers manager) have their performance assessed based on how much profit/loss is made with their customers' loans and savings activities, but this has led to many disagreements. Based on figures from the previous year, the corporate customers' loans and savings activities have generated a profit of $124 million whereas the retail customers' loans and savings activities have generated a loss of $84 million. Jules is very happy with this outcome, but Katie argues Jules is lending money from her retail customers to his corporate customers.

RRB board is discussing implementing fund transfer pricing (FTP) for addressing Katie?s concern about her customers funding Jules? activities. However, Jules argues implementing an arbitrary FTP rate will make the retail and customer managers performance evaluation too subjective. There has been some discussion in RRB board regarding implementing a Balanced Scorecard (BSC).

Required

a) Based on the figures from the previous year, what would be the adjusted profit/loss with retail customers and corporate customers if RRB set an FTP rate of 8% and which manager would benefit from this decision and why?

b) Is Jules correct on his statement that implementing an FTP rate will make the retail and customer managers performance evaluation too subjective? (Subjective performance evaluation3,?

c) If the RRB board implements a BSC, recommend a measure for each one of the four perspectives and justify why you have selected such measures.

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Table 5 - RRB loans and savings activities Values in million dollars Retail Customers Corporate Customers All Customers Assets Loans to customers Liabilities Deposit from customers Interest income Loans (8%) Interest expense Deposits (6%) Profit/Loss with customers $75 $1,500 $6 $90 ($84) $ 1,925 $500 $154 $30 $124 $2,000 $2,000 $ 160 $ 120 $40 Table 5 - RRB loans and savings activities Values in million dollars Retail Customers Corporate Customers All Customers Assets Loans to customers Liabilities Deposit from customers Interest income Loans (8%) Interest expense Deposits (6%) Profit/Loss with customers $75 $1,500 $6 $90 ($84) $ 1,925 $500 $154 $30 $124 $2,000 $2,000 $ 160 $ 120 $40

Answer rating: 100% (QA)

a 8 FTP Value in Mn Retail Corporate Total 1925 Loans to Customers Deposits from Customers 75 1500 1... View the full answer