Auto Origination: An approach to identifying business process improvements.
By: Nasir Muzaffar, Senior Consultant
Financial institutions are facing increasing pressure to meet financial targets due to shrinking interest margins. In an effort to become more profitable, institutions are examining their business processes and searching for potential efficiencies that can help the organizations reduce costs. The auto lending portfolio is an integral component of many financial institutions. During 2005 auto lending comprised 34.8 % of the total loans for credit unions with at least $1B in assets. This means that a $1B+ credit union on average will close approximately 29,000 auto loans per year. The reliance on auto loans is an important reason why re-engineering the auto lending process is worth the investment. This article will examine the approach that can be used to identify process improvements for both the organization and the customer.
It is important to begin the process of any redesign project by ensuring alignment with the organization’s strategic direction. For example, a financial organization we worked with wanted to search for potential efficiencies; however it also wanted to create a more customer friendly experience. The organization is very customer centric; consistently searching for ways to improve the customer’s overall banking experience. Keeping the institution’s core values in mind throughout the process will help to identify and prioritize improvements worth implementing.
After you become familiar with the values of the organization you can go to the next step, which is to thoroughly model the current auto loan process. The model should include detailed operational flowcharts and business process attributes such as inputs and outputs, departments that are affected, tools and technology (systems) used, and the average duration and activity times. This detail should be documented for each step in the auto loan origination process and serves as a baseline against which all future recommendations are measured. Depending upon the objectives of the project, a separate model may also be prepared to demonstrate the customer’s perspective as they participate
in the origination process. The customer experience model may include the customer’s flow through the direct and indirect auto lending process and include details such as required customer inputs, outputs delivered, departments that must be contacted, customer’s time through the process, and contact channels.
It is important to map out the different contact channels in the customer experience model because each contact channel can possess different expectations for the member. For example, if a member were to fill out an auto application online, they would expect a decision quicker than if they were to fax the application. The typical channels for a direct auto loan are: online, branch, telephone, fax, and mail. A detailed understanding of the existing process yields findings such as areas of redundancy, non-value added activity and inconsistency across channels. An example of inconsistency between channels would be if the telephone channel utilized a different underwriting process than the online channel.
The next step upon completion of mapping the processes and customer experience is to review each process for efficiencies. This can be done through the scheduling and execution of redesign sessions. We have found that redesign sessions are most successful when broken into manageable topics. For instance, the auto origination process can be broken into the pre-approval process, underwriting, gathering of information, etc. It is essential to conduct the process redesign with the active participation of managers and employees directly involved in the processes on a daily basis. For auto origination, this means involving individuals from the front line staff, managers and other individuals with a stake in the process (in some cases, the team will need to leverage external resources, like support professionals from application technology vendors). Using the findings as a guideline, the team can work through the process in each channel to identify recommendations to achieve a higher level of efficiency. One of our recent re-design efforts resulted in the identification of approximately 500 phone calls per month to the contact center regarding the status of an auto loan application. The average call duration was 5 minutes, meaning the call center was spending approximately 45 hours per month addressing questions such as, “did you receive my fax?” or “what is the status of my
loan?” Members would call for these inquiries because the telephone was the only channel available to the member. We analyzed the situation and helped the institution develop and implement an online loan application status tool that is expected to reduce the volume of inquiries to 200 per month, saving approximately 25 hours of time per month, while improving customer service.
It is important to note that not all recommendations will make business sense. This is especially true for recommendations that are centered on improving the member’s experience. Therefore, it becomes important to conduct a high-level business case discussion around each recommendation.
Once all of the potential opportunities have been identified, it is important to create a new process and customer experience map that incorporates all of the identified opportunities and to discuss the new processes with the managers and day to day employees to obtain their feedback. These process models illustrate the business process assuming implementation of the recommendations and when used in conjunction with the “as is” models, should demonstrate a material change in the efficiency of the origination process. During this process it is also important to identify performance metrics and to prioritize the opportunities. The performance metrics will help the organization measure and monitor the performance of the auto lending department and the prioritization of opportunities can be made by examining the return to the organization and the effort required to implement.
The next step usually involves taking the list of opportunities and returning to a steering body (often made up of executives) that assist in aligning the recommendations with the allocation of organizational resources. The organization should now possess a list of prioritized recommendations.
The final step is to take the prioritized list and create an action plan and execute the action plan. During the action planning, a person is given the responsibility of taking a recommendation and breaking it apart into manageable steps to implement. A milestone
date is paired to each step and a regularly scheduled meeting (usually weekly) is held to ensure that the implementation is on track.
At Tshibanda & Associates, LLC, our professionals understand not only the auto origination process, but also how to conduct a business process review that yields measurable results for your business. Contact Nate Rocco, a Senior Manager at Tshibanda & Associates, LLC at 816-914-6540 or nrocco@tshibanda.com to discuss your needs or to learn more about how we can help you obtain measurable results.