Most financial institutions know that their lending processes need improvement. Unless the current lending process is automated from start to finish, there will always be room for process improvement.
One of the first steps to improving processes includes a detailed understanding of your Current State workflow. Current State is the starting point to break down your existing current processes step by step. However, before you start the Current State break down, the institution needs to determine the Value Proposition of what you are expecting the process improvements will result in.
Starting a process change project is daunting but if you want to achieve a successful project, the positive results accomplished by the process change will become your Value Proposition. Here are a few Value Proposition areas to consider:
1) Redesigning processes to reduce costs and improve margins
This is where the Current State process decomposition will come into play. Several things there you want to consider. Do we automate some or as many processes as possible? Automation will certainly improve processes but you will want to identify each manual process that takes place throughout the manual lending cycle to determine the cost of manual vs. automated processes.
2) Operational Improvement
Operational Improvement is directly aligned with process improvement but has more to do with personnel morale. A high morale is a significant component to the success of the overall value proposition as there will be less turnover in staff and a willingness to support the bottom line of customer satisfaction.
3) Product rationalization
Through the redesign of your current processes, you may find there are loan products that may need review. There may be loan products that are more expensive to originate, products that may be expensive to monitor or products the institution is no longer interested in making.
4) Improving Pricing & Profitability
This value proposition goes hand in hand with product rationalization. If a specific loan type is expensive to originate and monitor, pricing needs to be adjusted to compensate for the time and effort required.
5) Migrating customers to less expensive delivery channels
Less expensive delivery channels speaks to potentially segmenting your loan portfolios. The age old why are you underwriting a $50,000 loan the same as a $10,000,000 loan. By segmenting your portfolios to allow for a more streamlined process for smaller deals, you are not only saving money in time spent underwriting but are also giving a segment of those customer a more satisfying interaction based on expediency of their loan request.
6)Eliminating/reducing/reallocating existing excess capacity
You may end up with excess capacity through your process improvements. The first line of thought should be reallocating to another position within the institution. If that is not possible, then the hard decision to eliminate or reducing capacity must take place.