Refinancing at Gold Coast Savings Bank Analytical Analysis - Case Study Example

EXECUTIVE SUMMARY Gold Coast Savings bank is a financial institution, also deling with loans’ financing and refinancing. It has had an elaborate but inflexible service delivery and execution system in place. This report primarily aims to address this issue of growing inefficiency and redundancy in its service processes which have pushed the interest of the customers to an extreme end with no regard to customer satisfaction whatsoever. This report, at the beginning attempts to critically examine the various steps involved in the refinancing service delivery structure of GCS bank. A further probe into the root causes and reasons behind the inappropriate treatment has been found to be the complexity of the service delivery framework. Thus, this report proposes a modified process approach which is more simplified, lean and fully automated to eliminate bottlenecks and reinforce value adding activities. Conclusively, recommendation to also include fail safing techniques such as Poka-Yoke has been made. TABLE OF CONTENTS INTRODUCTION.................................................................................................................. 4 CURRENT REFINANCING PROCESS AT GCS BANK.................................................... 5 PROBLEMS, ISSUES AND ANALYSES............................................................................. 7 PROPOSED NEW REFINANCING PROCESS.................................................................... 9 CONCLUSION....................................................................................................................... 13 RECOMMENDATIONS........................................................................................................ 13 TABLE OF FIGURES FIGURE 1................................................................................................................................. 5 FIGURE 2..................................................................................................................................8 FIGURE 3..................................................................................................................................10 FIGURE 4.................................................................................................................................. 12 INTRODUCTION Gold Coast Savings Bank has seen a sudden spurt in requests for home loan refinancing in the current year. It has in place a very elaborate and detailed refinancing procedure along with separate departments which follow a step by step process of refinancing application evaluation, credit worthiness check of the applicant, closure, inspection system, previous loan payment clearance as well as new payment issue. This detailed and thorough system, although appreciated, brings unnecessary complexity in the entire organization. This in turn has an equivalent effect on its customers who have been at the receiving end of the cumbersome cycle. The effect magnifies itself when there are voluminous refinancing proposals at the mercy of these complex procedures and hence put extra pressure on the already burdened chain of communication and spanning networks. This report addresses the concerns and grievances voiced by GCS bank’s customer and also, the problems involved in following such lengthy and unyielding practices. It has been effectively emphasized that not all the activities in the procedures are trouble generating. There are a few activities which are non value adding and superfluous and therefore need to be trimmed down. This report has been divided into lucid sections starting with an elucidation of the current refinancing process followed by GCS bank. Next, an examination and analysis of problems and issues involved with the refinancing practices of GCS bank as well as the Customer satisfaction account has been undertaken followed by a value chain analysis of the service process at GCS bank and the need for re-designing the same. Thus, a new process chart is proposed in the next section. Finally, the report is concluded with an illustration of several available alternatives and options for GCS bank to improve upon its services so as to have better customer satisfaction level which would ultimately promote long term sustainability for the organization. CURRENT REFINANCING PROCESS AT GCS BANK The procedure of approval for a refinancing proposal at GCS spans across five major steps with a department for institutionalized at every step. These steps can be represented through a ‘Flow Diagram’ (Buffa, Armour, & Vollman, 1964) as shown in Figure 1. Figure 1: Present flow diagram PROCESS CYCLE TIMES FOR EACH STAGE: Stage I Loan Application: Loan officer receives loan application and evaluate the various refinancing options available on the basis of several calculations and in consultation with the customer. Let the process cycle time be approx. 4-5 hrs (for convenience 1 day). Stage II Credit Check and Approval: Loan processor seeks authentication from various financial institutions and employment verification is done. In case of discrepancy, customer is required to explain, otherwise, application goes for approval. Let the average process cycle time be 15 days. (If certain disputes arise over discrepancy in data on the application form and that on the financial institution’s report; further delay is cause due to time spent on re-checking with customer. This increases the cycle time to 21 days). Stage III Closure: This involves a closing officer who schedules a closing date and interest rate. Let the average process cycle time be 4 days. Stage IV Consultation with Customer’s Lawyer: The lawyer is responsible for termite inspection, survey, title search, insurance and closing papaers. Consequently, fees, payment schedules and amounts are verified. Let the average process cycle time be 7 days. Stage V Loan Service and Loan Payment: Previous loan payment verification and new loan is set up by loan servicing specialist. Finally, the issue of payment books, calculation of monthly payments and evaluation of late payments are dealt with by the loan payment specialist. Let the average process cycle time be 3 days. PROCESS EFFICIENCY (Average Capacity to service customer at each stage): Stage I: 30 customers per month per loan officer Stage II: 2 customers per month per processing officer (1 customer in case of disputes) Stage III: 7 customers per closing officer Stage IV: 4 customers per closing officer Stage V: 10 customers per payment specialist Here, the bottleneck activity is evidently, stage II which involves a credit check of the customers and a consequent approval after all clarifications are made. PROBLEMS, ISSUES AND ANALYSES The response of the customers of GCS bank towards its refinancing services brings into the forefront some valid and pertinent issues underlying the refinancing process. For a customer, the value of a service can be captured in the following ‘Value Equation’ (Heskett, W. E. Sasser, & Schlesinger, 1997) : Value =  Where, (a) Results produced in case of GCS bank’s customers is the refinancing of their loans (b) Process or service quality refers to the service delivery quality as perceived by the customers and as was expected; which can be classified as service dimensions or deliverables (Parasuraman, Zeithaml, & Berry, 1988) such as: Reliability (timely, same manner and error free everytime), Responsiveness (unnecessary waiting free, quick recovery from service failure), Assurance (knowledge, courtesy, trust exhibited by employees), Empathy (caring, individualised attention) and Tangibles (Physical facilities). (c) The price of the service in terms of value for money. (d) Cost of acquiring service is the convenience involved and is equally important. For GCS bank, the various problems or delinquencies which lead to lowering the ‘Value’ of the service provided by them can be enumerated as below. These are the customers’ account of the badly managed system at GCS bank. 1. Timeliness of the service provided is seriously questionable (two months more than avarage was the time taken) which leads to higher costs (extra month’s mortgage payments and also, payments for renewal of reports which expired due to the long time taken in the procedure for refinancing) and inconvenience. 2. Time lost due to unnecessary mails and written form filling procedure. 3. Redundant and Ineffective documentation and communication system. 4. Involvement of too many personnel which complicates the process for customers and dilutes the communication effectiveness. 5. Poor treatment to customer (made to wait for re-scheduling services) and no consideration for their inconvenience. To summarize, the process or service quality is seriously poor (it is unreliable as it is untimely and error prone as well as unresponsive) and is highly inconvenient for its customers which drives the ‘Cost for acquiring refinancing service’ at GCS bank very high. Thereby, the ‘Value’ of service provided by the bank is very low and creates a ‘GAP’ in the expected service which was set up by referrals or word of mouth, personal requirements or needs and past experience with GCS bank and the actual or perceived one which is absolutely in contrast to what was expected. This large gap between the ‘Expected service’ and the ‘Actual or Perceived service’ at GCS bank can be represented as in Figure 2 and shows that the service quality (Parasuraman, Zeithaml, & Berry, 1985) there is poor. Figure 2: The above failures on the part of GCS bank can cause a serious credibility issue for it if left unchecked. Thus arises, the need for GCS bank to revamp its service delivery process and redesign it. PROPOSED NEW REFINANCING PROCESS VALUE CHAIN ANALYSIS: Value chain analysis is a very effective tool to evaluate the existing activities of a service process. This evaluation reinforces the contribution of the value adding activities which are an essential element of the rocess’ success. However, it also gives a manager, an insight into those activities which are non value adding, superfluous for the process and thus, need to be curtailed or eliminated. Such activities often act as bottlenecks in the process chain link and reduce the overall efficiency of the process by decreasing its capacity, increasing the processing time and leading to an escalation in costs. Thus, value chain helps in identifying areas that need improvement (Schmitz, 2005). The need for re-designing a process arises when there is an excess of such unimportant activities in the process. For GCS bank’s refinancing process, the various activities which are value adding and very essential are the assessment of loan refinancing options in consultation with customer, credit worthiness assessment of a loan applicant, closing procedure including inspections, surveys, payment scheduling and amount fixture with customer’s lawyer and the issuing of new payment books along with monthly payment calculations. However, several of these steps and some other as followed by GCS bank include a very redundant, time wasting and cost escalating aspects which need to be done away with. These are: (i) An extra personnel for processing loan and credit checking, for loan servicing (checking whether previous loan has been paid or not and setting up new loan). (ii) Credit checking procedure is too time-consuming nevertheless important. (iii) Unnecessary involvement of customer for closure schedule when closing officer and customer’s lawyer are those who actually only need to be involved. (iv) Poor and technologically backward documentation, form filling and paperwork. NEED TO RE-DESIGN THE OLD PROCESS: GCS bank needs to re-evaluate its priorities towards customer service, value delivery towards them and hence, a focus on customer satisfaction. For this its operations especially the refinancing process has to be responsive towards customers and free of redundant, wasteful activities. Complex and opaque operational structure is putting excessive pressures on the existing resources of the bank rendering it difficult to manage the growing demand for refinancing. On the other hand, a simplistic, transparent operational structure is one which is lean, automatic and efficient (Swank, 2003). It helps reduce costs on unnecessary activities and reduce the burden on resources and people operating under the network. GCS bank thus needs to re-deploy its resources towards more standardized, simple and LEAN process. Also, it needs to automate the entire system to bring in TECHNOLOGY interface in the service design and delivery system. Technology is an excellect tool which helps achieve accuracy, simplicity or leanness, saves time, cost, effort and provides efficiency to the entire framework. This Role of Technology in the Service Encounter (Froehle & Roth, 2004) has been lucidly depicted in Figure 3. Figure 3: Technology Facilitated Service delivery system NEW PROCESS CHART FOR THE REFINANCING: While designing the new process, special attention has been paid for creating a system which is lean and automated. The following were the tangibles involved: I. Facilitating the process of loan refinancing application electronically. II. Converting all paper documents and customer data and information into e-databases which would aid timely, error free retrieval and record keeping. It also facilitates easy and quick follow up of complaints or queries after the refinancing procedure is complete by making referral to previous records hassle free. III. Eliminating extra personnel for credit check and catalyzing the process with technology for faster information gathering and better collaboration with other financial institutions for verification purposes. This would reduce time, cost and redundancy in the system. IV. Eliminating the need for customer involvement in closure scheduling. Instead, a prior intimation of closing date, interest rate and details of his lawyer is to be ensured so that after loan approval, the system can straight away direct the closing officer to the customer’s lawyer for closing formalities. This eliminates the inconvenience caused to customers. V. Eliminating the ‘loan servicing specialist’ as the responsibilities handled by him are either redundant or can be carried out by the ‘loan payment specialist’. VI. Overall, only one personnel, the loan offier should be incharge of ‘customer interface’ to convey his requirements and concerns to the bank. This representative of the bank would thus be able to customize the process according to this customer as he is involved and aware of the developments since the start to the end. VII. Finally, a steady and strategic attention to customers who come for refinancing should be emphasized as GCS bank’s organizational culture as these are persistent customers of the bank who apart from providing business also spread ‘word of mouth’ information of the bank to other potential customers. The new refinancing process, respective cycle times and the overall time from application to service delivery completion can be estimated to have reduced to the following numbers due to Automated and Simplified (Lean) system. S. No. Stages Activity No. Activity Average processing cycle time (in days) I Initiation 1 Automated loan application 7 2 Credit check (including discrepancy resolution) 3 Approval II Closure 4 Shifting documents to closing officer 7 5 Termite inspection, survey, title search, fees, payment schedule and amount, closing papers III Implementation 6 Setting up new loan, payment books' issue (including activation of automatic withdrawals) 2 7 Monthly payment calculations and payment monitor The new lean and simplified refinancing process can now be depicted below in Figure 4. Figure 4: Proposed New Refinancing Process CONCLUSION This report basically encapsulates the overview of why, where and how does the refinancing service process at Gold Coast Savings Bank needs to be re-looked at and made more compatible with changing times and growing demand. The bank’s service process is quite rigid, inflexible and complex. This process hence carriers several avenues for improvement. Those activities which have been identified as bottleneck, time consuming and cost escalating can be done away with or managed in a better way to make them more productive. This report is an attempt towards enhancing the efficiency of service delivery and hence achieving higher levels of customer satisfaction. Customer satisfaction is one of the major drivers of a business as it leads to retention of customers who turn loyal patrons of the company which treats them fair and consequently attract many more customers towards that company. RECOMMENDATIONS An elaboration of the changes that can be brought about in the refinancing process has already been done in the previous sections of this report. However, GCS bank also neeeds to focus on some other aspects of its operation for gaining a better service delivery framework. Errors in the process can be a fault on part of both the service provider and the customer. Hence proper, error diagnosing and preventing tools should be implemented into the system (Chase & Stewart, 1994). One such tool is Poka-Yoka (Shingo, 1986) which addresses both types of error and uses for instance checklists and manuals to avoid mistakes. Read More