University of d

Faculty of Management
Business Management 3rd year

Strategic Management Accounting

Authors:
Piotr Bartenbach
Bartomiej Staszczyk
Dominik Wolski

AIMS Case Study

Accounting

Questions 1-7
Value in the question:

Revenue
$2,173

This value is taken from the position "Development &

Retention" (Cost Driver) in Exhibit 2.
Costs for Current Customers
Value in the question:
$1,382
This value is calculated by deducting from the total costs
($1 645,6) the costs of the set up of new accounts ($48)
and the costs of acqusition of new households ($216,3).
Calculation:
$1,381.3
Profit per Current Customers
Value in question:
$792
This value is calculated by decucting from the Revenue
($2173) the Costs for Current Customers ($1382).
Calculation:
$792

Value in question:

Current Customers
3880000

This value is calculated from the sum of all the

households in the presentation of types of households
that are customers of AIMS (page 3 of the case).
Calculation:
3880000

Value in question:

Average Profit
$205

This value is calculated by dividing Revenue ($2173)

minus Costs for Current Customers ($1382) by number of
Current Customers (388000).
Calculation:
$204

Question 8
After analysing Exhibit 3 we can conclude that the company should have
several categories of customers that are in majority (more than 50%)
unprofittable for them. Those are Young Professionals (82%!), Boomers
(59%), Retirees with less than 100K of assets and others, not specified
from Core Category (56%).
Basing on the Pareto rule top 10% of households made the company a total
of $444M pre-tax profit and the next 40% roughly $299M. The bottom half
was, however, not profitable with the total of $248 of loss.

From our perspective the company should change their strategy towards
the unprofittable customers to make them less unprofittable or even
profittable. However, the unprofittable customers are our customers, thus
they are important base and are an important marketing trigger (selfpromotion of the company by word of mouth) but the situation where
majority of some category is unprofittable should not take place.
Taking closer look at the overall profitability, we can see that four types of
customers combines both high percentage of profitability and high income
per customer. Those are both categories High Net Worth clients (2M+:
$62,2 of profit with 88% of households being profitable; .5 to 2M: $96,6 of
profit with 86% of profitability), Retirees with 100-500K of assets ($45,4 of
profit with 91% of profitability) and Core customers with 100-500K of
assets ($80,5 of profit with 88% of profitability).

Question 9

LOSS PER HOUSEHOLD

branch visits
rep assisted calls
automated calls
online visits
online quotes
transactions
number of accounts
COST TOTALS
Assets (000)
Mutual Funds
Investment Securites
Revenue per Household
Mutual Fund Fees
Brokerage Fees
Revenue Average basis Points
Mutual Fund Fees
Brokerage Fees
Total Revenue
Total Assets
PROFIT/LOSS

HNW

HNW

2M+

0.5 to 2M

5.16
1,270.80
136.80
90.30
108.00
2,122.68
147.36
3,881.10

15.48
2,118.00
228.00
258.00
752.00
292.41
122.80
3,786.69

460
3,282

546
378

1,381
1,404

1,415
1,586

30
4
2,819
3,742
2,679.90

26
42
3,069
924
206.31

AT

Retirees

Core

Core

Avg.
Customer

60-200

100-500K

YP

Boomer

0.00
1,027.23
478.04
285.09
520.00
812.25
98.24
3,220.85

2.58
402.42
60.04
43.86
1.14
43.32
73.68
627.04

1.29
455.37
55.48
408.93
54.64
173.28
49.12
1,198.11

3.87
847.20
226.48
148.35
487.10
129.96
49.12
1,892.08

0.30
148.26
14.52
25.93
3.70
51.98
65.33
310.02

27
116

74
114

13
35

32
26

91
80

192
1,452

335
155

120
275

420
269

320
240

71
125
1,840
143
(1,237.85)

45
14
549
188
109.96

92
79
566
48
(584.11)

131
103
923
58
(911.08)

35
30
625
171
485.98

GRAND
TOTAL
28.68
6,269.28
1,199.36
1,260.46
1,926.58
3,625.88
605.65
14,915.89
1,243
4,031
4,183
5,381
430.00
397.00
10,391.00
5,274.00
749.11

Question 10

1. Charge $15 per rep-assisted call, over 50 calls per year (22,000 10th Decile Households gen
more than 50 calls/year)
2. Charge $.02 per quote over 100 per transaction

3. Charge a minimum annual fee on brokerage assets or mutual fund assets of $200 or 20 BP,
is greater (a fee for the right to trade, even when trading is very inactive)
4. For customers who generate less than $560. Revenue per year (the average), limit access t
and customer representatives
* Charge $100. For branch consultations
* Route all incoming calls to the automated answering service, bypassing account reps
5.. Charge $.75 for automated calls over 300 per year.
6. Charge $1.25 for on-line visits over 10 per transaction.
7. Set a minimum balance for all new accounts of $50000 of assets invested (perhaps exemp
under 35 years old), and a minimum balance of $75000 of assets invested for persons over 45

1.

charge
0.15
PROFIT

HNW
2M+
10.5

HNW
0.5 to 2M
22.5

AT
60-200
7.05

Retirees
100-500K
-

Core
YP
-

Online Quotes
Transactions
PROFIT

HNW
2M+
5400
196
108

HNW
0.5 to 2M
37600
27
-

AT
60-200
26000
75
-

Retirees
100-500K
57
4
-

Core
YP
2732
16
-

charge
0.002
Mutual Funds
Investment Sec.
Total
Indicator
PROFIT

HNW
2M+
460000
3282000
3742000
7484
7484

HNW
0.5 to 2M
546000
378000
924000
1848
1848

AT
60-200
27000
116000
143000
286
286

Retirees
100-500K
74000
114000
188000
376
376

Core
YP
13000
35000
48000
96
200

Mutual Fund Fees

Brokerage Fees
Total
Branch Cosult.
Normal calls
After Auto
PROFIT

HNW
2M+
1381
1404
2785
-

HNW
0.5 to 2M
1415
1586
3001
-

AT
60-200
192
1452
1644
-

Retirees
100-500K
335
155
490
100
462.46
228
334.46

Core
YP
120
275
395
100
510.85
380
230.85

2.

3.

4.

5.

charge
0.750
Automated calls
PROFIT

HNW
2M+
180
-

HNW
0.5 to 2M
300
-

AT
60-200
629
471.75

Retirees
100-500K
79
-

Core
YP
73
-

6.

Charge
1.25
Online visits
Transactions
Trans./Online visits
PROFIT

HNW
2M+
70
196
0.4
-

HNW
0.5 to 2M
200
27
7.4
-

AT
60-200
221
75
2.9
-

Retirees
100-500K
34
4
8.5
-

Core
YP
317
16
19.8
396.25

Assets
APPLY?

HNW
2M+
3,742
OK

HNW
0.5 to 2M
924
OK

AT
60-200
143
OK

Retirees
100-500K
188
OK

Core
YP
48
No

7.

Decile Households generate

ets of $200 or 20 BP, whichever

)
erage), limit access to branches

g account reps

sted (perhaps exempt persons

d for persons over 45 years old.

Core
Boomer
4.5
44.55
Core
Boomer
24355
12
108
Core
Boomer
32000
26000
58000
116
200
10394
Core
Boomer
420
269
689
565.31

Core
Boomer
298
471.75
Core
Boomer
115
12
9.6
396.25
Core
Boomer
58
No

HNW
2M+
1
2
3
4
5
6
7

HNW
0.5 to 2M

AT
60-200

Retirees
100-500K

Core
YP

Core
Boomer

Question 11

Account profitability is also affected by the cost of excess capacity charged to all active households. Kim noted that i
back to 3,000,000 active households and planned on only a 10% excess capacity reserve (for future growth) a large pr
could be eliminated. Estimate how much total cost for 1999 could be eliminated based on "case facts."

Actual
Year
Active Households
Excess capacity reserve
Costs
Excess Capacity Worth
Reserve

$
$
$

1999
3,900,000
25.2%
1,194,000,000.00
300,944,566.94
893,055,433.06
Eliminated Costs

According to the calculations based on the data from Ex. 1 we found out that this is the best approach. Excess capa
results in 1999 is calculated on the basis of compounded growth rate and result from 1995. The comparison of reseve
AIMS would be able to save up to $66 440 048,44 if they reduced the number of Active Households to 3 000 000
Capacity Reseve to 10%. This estimation predicts the theoretical savings in case when the company decides to reduce

o all active households. Kim noted that if AIMS scaled

city reserve (for future growth) a large proportion of cost
uld be eliminated based on "case facts."

Estimated

$
$
$
$

1999
3,000,000
10%
918,461,538.46
91,846,153.85
826,615,384.62
66,440,048.44

at this is the best approach. Excess capactity in actual

ult from 1995. The comparison of reseves indicates that
mber of Active Households to 3 000 000 and Excess
ase when the company decides to reduce the indicators.

Question 12
The main concern of AIMS should be all of the unprofittable households.
What AIMS can do is to either encourage those households for some
more profittable actions or simply get rid of them. It is up to AIMS what
they are going to do however, they should analyzer all of the long-term
pros and cons of each solutions.
Based on the solution to 10th question, we have come up with the list
of solutions that can be applied to different groups of households in
order to increase their profitability:

Solutions

HNW
2M+

HNW
AT
Retirees
0.5 to 2M 60-200 100-500K

Core
YP

Core
Boomer

1
2
3
4
5
6
7
Summing up, AIMS should focus their actions on unprofittable clients.
Thus, introducing chosen by us solutions to appropriate groups of
househlds.

Implement
Do not Implement

Exhibit 2
$
Interactions
Branches
Telephones (call Center)
rep assisted
automated
Online
Visit
Quotes only
Back office
Set up new accounts
account maintenance
transactions processing
Marketing
Development & Retention
Acquisition
Total

$65,200.00
$574,200.00
$56,200.00
$101,600.00
$14,400.00
$48,000.00
$253,200.00
$200,100.00
$116,400.00
$216,300.00
$1,645,600.00

Driver
weighted interactions
calls
calls
visits
quotes
new accts.
accounts
weighted transactions (trades etc)
% of revenue
new households

Driver Units

Cost/Unit

875,000

$74.51

54,200,000
74,100,000

$10.59
$0.76

78,133,000
718,200,000

$1.29
$0.02

2,424,000
10,300,000
18,467,000

$19.80
$24.56
$10.83

2,173,000,000
600,000

$0.05
$361.00

Exhibit 4
LOSS PER HOUSEHOLD
branch visits
rep assisted calls
automated calls
online visits
online quotes
transactions
number of accounts
Assets (000)
Mutual Funds
Investment Securites
Revenue per Household
Mutual Fund Fees
Brokerage Fees
Revenue Average basis Points
Mutual Fund Fees
Brokerage Fees

HNW

HNW

2M+

0.5 to 2M

4
120
180
70
5,400
196
6

12
200
300
200
37,600
27
5

460
3,282

546
378

1,381
1,404

1,415
1,586

30
4

26
42

AT

Retirees

Core

Core

Avg.
Customer

60-200

100-500K

YP

Boomer

0
97
629
221
26,000
75
4

2
38
79
34
57
4
3

1
43
73
317
2,732
16
2

3
80
298
115
24,355
12
2

0.23
14.00
19.10
20.10
185.10
4.80
2.66

27
116

74
114

13
35

32
26

91.00
80.00

192
1,452

335
155

120
275

420
269

320.00
240.00

71
125

45
14

92
79

131
103

35.00
30.00