IV. Banrisk Project Components

Students will receive three separate grades in connection with Banrisk Project activities. This section summarizes the content of each graded activity and the way in which each activity will be evaluated.

1. Case Presentations

In Banrisk, you learn about commercial bank management by evaluating the financial impact of your management decisions. At first this task may appear somewhat intimidating, because the simulation provides a large quantity of data for your review. As you become familiar with the computer printouts and financial information that you receive from the simulation, however, you will find that you are able to organize and interpret the data quite rapidly. In short, you will begin to develop the organizational skills and analytical ability that practicing financial managers must possess.

Some of the financial relationships contained in the Banrisk simulation are quite basic and intuitive, and you will recognize these relationships with very little instruction. Other relationships are more subtle, and these require more practice to learn to recognize. The case applications (i.e., mini-studies) contained in the Banrisk Manual provide a wealth of information concerning the finer points of bank management. Each case examines a different financial management problem, shows how to organize the Banrisk data to evaluate the problem, and explains how to interpret the results of your evaluation.

Table 1 identifies each of the 20 cases included in the Banrisk Manual, and lists the specific member of your management team most likely to benefit from the analytical methods described in the case. Many of the cases are self-explanatory, and these can be covered by student bank teams outside the classroom. Cases identified by a "B" in the Coverage Code column of Table 1 should be discussed during team meetings at the start of the Banrisk simulation, while cases identified by a "D" in the Coverage Code column should be discussed during team meetings a few weeks after the initial simulation iteration.

In contrast to the self-explanatory cases described above, some of the Banrisk mini-studies require more detailed analysis. These cases, identified by a "C" in the Coverage Code column, will be presented by one of the student bank teams during class time. Over the course of the semester we will cover nine different cases in class. The presentation dates for these cases are shown in the course syllabus, and the specific bank team responsible for each presentation is shown in the "Presenting Team" column of Table 1. Each bank team will be responsible for one or two different presentations during the 15-week semester.

Leading the class in a discussion of a Banrisk case involves:

1. Summarizing the financial problem addressed in the case;

2. Explaining where the data necessary to evaluate the problem are located within the Banrisk computer printouts;

3. Preparing a financial spreadsheet -- or some other appropriate evaluative methodology -- that addresses the case, and explaining your model to the class; and

4. Responding to questions and comments from the instructor and other members of the audience.

Case presentations will represent 10 percent of students' final course grades. Each presentation will be evaluated according to the following dimensions:

1. The quality of the oral presentation;

2. The quality of the financial spreadsheet or other solution methodology provided to the class; and

3. The logic and validity of responses to questions and commentary from the instructor and members of the audience.

2. Team Report

While student bank management teams compete throughout the semester on the basis of bank financial performance, students' course grades for the Banrisk project are NOT based upon the financial performance of their respective banking firms. Rather, each group is required to submit a formal, written report detailing the goals, operating decisions, and financial performance of their bank.

Authorship of this report represents a group effort, with each respective group member having responsibility for specific sections of the report. The organizational format of the report, the management positions responsible for preparing each section, and approximate section lengths are as follows:

I. Introduction (5 pages)

A. Analysis of the economic and competitive environment surrounding the bank at the start of the contest, followed by interest rate, inflation rate, and GNP growth rate forecasts for the coming quarter (Economist) [1 page].

B. Analysis of the financial condition of the bank at the start of the contest:

1. Leading Area Report (VP - Lending) [1 page].

2. Operations Area Report (VP - Operations) [1 page].

3. Controller's Report (Controller) [1 page].

C. Statement of the team's business definition, the corporate mission of the bank, and specific group financial goals established at the start of the contest (President) [1 page].

II. Iteration #1 (4 pages)

A. Statement of financial objectives for the quarter, the management strategy being used to achieve these objectives, and the expected financial outcome of this strategy (President) [1 page].

B. Statement of area operating tactics implemented this quarter, followed by an evaluation and explanation of the actual financial results that occurred during the quarter:

1. Leading Area Report (VP - Lending) [1 page].

2. Operations Area Report (VP - Operations) [1 page].

3. Controller's Report (Controller) [1 page].

III. Iterations #2 through #5 (5 pages per iteration)

A. Analysis of the economic and competitive environment surrounding the bank at the start of the quarter; a brief review comparing actual and previously forecast levels of interest rates, inflation, and GNP growth; and a new forecast for interest rates, the inflation rate, and growth in GNP for the coming quarter (Economist) [1 page].

B. Analysis of overall financial performance from the preceding quarter; followed by a statement of financial objectives for the coming quarter, the management strategy being used to achieve these objectives, and the expected financial outcome of this strategy. This report should identify and explain any changes in the bank's business definition, corporate mission statement, or goals occurring since the last iteration; and link these changes to the financial objectives and operating tactics planned for the coming quarter (President) [1 page].

C. Statement of area operating tactics implemented this quarter, followed by an evaluation and explanation of the actual financial results that occurred during the quarter:

1. Leading Area Report (VP - Lending) [1 page].

2. Operations Area Report (VP - Operations) [1 page].

3. Controller's Report (Controller) [1 page].

IV. Conclusions (5 pages)

A. Summary and analysis of the bank's overall financial performance during the simulation (President) [1 page].

B. Description of best management decisions (i.e., those actions which contributed most directly to the attainment of group goals) executed during the simulation:

1. Economic Forecasting and Market Analysis (Economist) [½ page].

2. Leading Area Report (VP - Lending) [½ page].

3. Operations Area Report (VP - Operations) [½ page].

4. Controller's Report (Controller) [½ page].

C. Description of worst management blunders (i.e., those actions which prevented the attainment of group financial goals) during the simulation:

1. Economic Forecasting and Market Analysis (Economist) [½ page].

2. Leading Area Report (VP - Lending) [½ page].

3. Operations Area Report (VP - Operations) [½ page].

4. Controller's Report (Controller) [½ page].

The team report required from each group represents 20 percent of each group member's final course grade. This report is to be typed, double-spaced, approximately 35 pages in length, and conform to the structural outline provided above. Research reports are due in my office by 5 p.m. on the date shown in the syllabus. Late papers will not be accepted, resulting in a project grade of zero for all members of the group.

While the Banrisk paper requires a group effort, individual student grades for this project may vary across different members of a given bank team with the quality of each student's contribution to the paper. Each member of the Banrisk team is assigned specific position responsibilities (see the job descriptions shown below) and specific authorship responsibilities (see above). The position responsibility of each student within the group must be disclosed on the title page of the Banrisk report to facilitate the assignment of student project grades.

The financial performance of simulated banks will not affect students' grades for this assignment. Rather, student grades depend upon the quality of the group's written report. Many student teams that do poorly in the contest learn more about bank profitability, capital adequacy, liquidity, etc., than teams exhibiting superior financial performance. Hence, poorly performing teams often receive higher project grades.

The quality of the Banrisk written reports will be evaluated according to the following dimensions:

1. Students' ability to establish clear, measurable financial objectives; and define operating tactics that support these objectives;

2. Students' ability to evaluate accurately the financial position of their simulated banks and the economic environment, and explain why specific simulation outcomes occurred;

3. Students' ability to integrate the different position responsibilities within the project into a coordinated effort to reach collective group objectives; and

4. Students' ability to communicate clearly in a formal, written manner the results of their simulation experience. In other words, writing skills count.

3. Peer Evaluation

The Banrisk simulation requires a collaborative effort. Similar to the business world, students must work together to achieve a collective goal, where the performance of the group depends upon the sum total of each individual team member's contribution to the group. Thus, each team member bears a responsibility to the group for the outcome of the project, and a single team member who fails to meet the group's expectations can ruin the performance (and affect the grade) of the entire group.

In this circumstance, personnel management becomes an critical component within each Banrisk team. Coordinating the activities of different group members, resolving disputes between various individuals, arranging appropriate times and locations for team meetings, sanctioning group members who do not meet the performance expectations of the group, and rewarding members who surpass group expectations represent some of the activities that each team must manage. These personnel management responsibilities are controlled by student bank teams -- the instructor will not interfere in the organization, structure, and management of the Banrisk teams.

As personnel managers, however, you must also have the authority to discipline and/or reward members of your group based on individual performance differences. In order to give you this authority, the contribution of each group member will be jointly evaluated by other members of the group. This evaluation, submitted with the Banrisk written report, represents 10 percent of students' final course grades. Peer evaluation instructions are provided in the Joint Assessment of Individual Performance form, shown in Exhibit 1 below.

To insure an accurate evaluation for each member in your group, it is important for students to render honest, fair, and objective peer evaluations. Do not treat your power to evaluate one another lightly -- use it to reward those particular students who were especially diligent and capable team members, and to penalize those individuals who contributed little to the group effort. In addition, do not ignore the personnel management function in your early team meetings, acting under the illusion that your team will never encounter any differences of opinion or problems with poorly performing team members. The most successfully managed groups (and business firms) anticipate potential problems before they occur, and formulate explicit policies for handling these problems when they occur.

V. Banrisk Organizational Chart and Job Descriptions

In order to help students save time and organize their simulated banks in an effective manner, the following listing provides a brief job description for each management position required in the Banrisk project, identifies the financial responsibilities associated with each position, outlines the location of financial data in the Banrisk computer printouts of most interest to each position, and identifies the mini-studies in the Banrisk manual that are most relevant to each position.

PRESIDENT AND CHIEF EXECUTIVE OFFICER (CEO)

Duties: To determine general bank objectives; develop, integrate, and implement business strategy designed to achieve bank objectives; monitor overall profitability of bank; monitor bank stock price movement; and coordinate and control all activities of the senior management team.

Major Responsibilities: Balance Sheet Page 1; Income Statement Page 1; Dividend Policy Page 1; Common Stock Price Page 1.

Cases: 16.

ECONOMIST AND AUDITOR/SECRETARY

Duties: To monitor the financial, competitive, and economic environment surrounding the bank, forecast financial trends in the banking environment, assess competitive threats and opportunities within this environment, complete group decision forms on a timely basis, and maintain bank records concerning group decisions and financial performance.

Major Responsibilities: Forecasting Interest Rate Changes Page 7; Forecasting Macroeconomic Conditions Page 7; Forecasting Funds Availability Page 7; Monitoring Other Banks' Position and Strategy Pages 8 and 9; Evaluating Other Banks' Ratios Page 6.

Cases: 19.

VICE PRESIDENT OF LENDING

Duties: To manage all aspects of the bank's loan portfolio, including commercial loans, commercial loan commitments, and commercial letters of credit; consumer installment loans and credit card receivables, and mortgage loans.

Major Responsibilities: Forecasting New Loan Sales Page 2.7; Monitoring Loan Charge-Offs Page 2.7 and 2.11; Monitoring the Loan Loss Provision Account Page 2.7; Establishing Credit Policy Page 2.7; Determining Loan Interest Rates Pages 2.7 and 7; Determining Loan Fees Page 2.8; Determining Letter of Credit Policy and Fees Pages 3.16, 3.18, & 3.19; Monitoring Loan Commitments Pages 3.17 and 3.18; Forecasting Commercial Loan Payments Page 4.21; Determining Credit Card Fees Page 3.14; Determining Credit Card Processing Fees Page 3.19; Determining Mortgage Loan Servicing Fees Page 3.18; Determining Mortgage Loan Initiation Fees Page 3.18; Forecasting Consumer Loan Payments Page 4.22; Forecasting Mortgage Loan Payments Page 4.22.

Cases: 1; 5; 10; and 13.

VICE PRESIDENT OF BANK OPERATIONS (CASHIER)

Duties: To manage all aspects of the bank's deposit acquisition activity, supervise personnel administration; and control bank expansion/contraction activity.

Major Responsibilities: Monitoring Demand Deposit Acquisition Pages 2.2, 2.9, & 7; Monitoring Time Deposit Acquisition Pages 2.3, 2.8, & 7; Forecasting CD Availability Pages 2.10 and 7; Monitoring Required Reserve Position Pages 2.4 and 7; Monitoring Personnel Expenses Pages 3.19; Managing Bank Expansion/Contraction Page 3.20.

Cases: 2; 3; 4; 6; 7; 8; 14; 15.

CONTROLLER/CHIEF FINANCIAL OFFICER

Duties: To manage the bank's investment portfolio, recommend and implement gap management strategy, recommend and implement changes in bank capital structure, supervise trust and accounting activities, and administer corporate banking services (i.e., correspondent banking relationships).

Major Responsibilities: Monitoring Bank Cash Management Activities Page 2.5; Monitoring Bank Securities Portfolio Page 6; Establishing Optimal Gap Risk Factor Page 5; Controlling Purchase and Sale of Federal Funds Pages 2.8 and 7; Controlling Discount Window Borrowing Page 2.8; Issuing Capital Notes Pages 2.6 and 7; Issuing New Common Stock Page 10; Maintaining Trust Portfolio Page 3.12; Controlling Trust Income and Expense Pages 3.18 and 3.19.

Cases: 11; 12; 17; 18; 20.