Branch-Network Location Decision Problem for Consumer Banking

Hu Rong

Abstract

Nowadays, almost all private and public sector enterprises have been faced with the problem of locating branches or facilities at one time or another in the their development history. Also how to set resource level for different branches, and how to evaluate the performance of branches in different demographic setting are not easy questions to answer. While most of previous researches tend to use statistical methods such as multiple regression analysis and stepwise regression method, not much emphasis is given to optimization location models. This thesis tries to provide the reader with formulation of the branch location decision making problem, taking into consideration of the demand, budgetary constraints, capacity constraint, competition intensity, geographic conditions of the location and demographic conditions of population in a certain area. This problem is originated from a real branch location selection decision faced by a local bank with multiple branches all over the Singapore Island. In the formulation of the mixed integer programming model, we try to take into consideration of all the practical constraints faced by the decision maker, in order to simulate a scenario which is close enough to reality. On the other hand, we also have made a list of assumptions on various factors and situations in the model, so as to make the model meaningful. Although the model is derived from a real problem in the banking industry, this model can be used to solve similar location problems faced by financial institutions in a different context also. A framework on an effective decision making process is presented with the help of a model developed and described.