Productions and Operations Management - Example

Running Head: Analytical Report-‘Productions and Operations Management’ Productions and Operations Management Your Name Your School March 18, 2011. Table of contents Executive summary Introduction New service blueprint showing how the overall process can be improved. Different stages of loan approval A Re-designed Loan Approval Online Process A Redesigned Loan Approval Offline Process Problems caused by the former Process Reason for the design of the process Causes for the Customer complaints Conclusion Figure 1: Different stages of loan approval Figure 2: Putting the Service-Profit Chain to Work Executive summary With the persisted growth of the mining region in Central Queensland, the Colonial Savings Bank of Queensland had incurred a major development in all areas of its industry. One area that looked to be booming was the refinancing of home loans. This paper will be looking at the ways in which as the newly appointed manager, i will strategically restructure the loan-approval process for the applicants. This will also include strategizing the lengthy time that is wasted during the loan application and approval process. The paper will be looking at the ways in which this could be substantially reduced. Introduction At the Colonial Savings Bank of Queensland, existing and prospective customers were searching for additional economical loans, and the applications for refinancing were being obtained in escalating numbers. In order to handle the rising volume, the banks build up a new loans approval process. The loan approval process averaged about45-90 days from the signing of an agreement with the customer to the approval of the loan. However, it later affected the banks sound relationship with its customers. New service blueprint showing how the overall process can be improved. Instead of relying with the existing loan approval process, Colonial Savings Bank has opted to devise an absolutely new approach to loan approval, based on advanced infrastructure and technology along with customer focus. While the existing loan approval process guarantees to complete a loan approval application in 45 to 90 days, the new process embarks to make loan approval decisions in only hours and afterwards in few minutes. Colonial savings agent and lawyers will gain from extremely sophisticated information systems that will permit access to third-party files, for instance clients credit history details and refined scoring systems to gauge loan quality. The agents will be supplied with decision support systems to assist them make loan decisions at that moment, shifting irrelevant applications by regulating loan to value rations downward to more favorable stages. Not only will Colonial savings bank new loan approval process provide huge enhancements in customer service, but it will also decrease variable costs for a loan process to a small portion of its traditional competitors’ rates. Colonial savings bank strategy is to turn the quality, cost, and service edge offered by its state-of –art business practices into market management to a nationwide mortgage and loan business. By modifying the structure of the loan approval process, the bank will not only be able to reduce time for loan approval but also improve the quality of the decisions thus improving customer service. The redesigned process will hence advance operational effectiveness and reduce costs by capitalizing on technology and streamlining lending processes (Keene, 2005). To accomplish the level of efficiency that Saving Colonial Bank stipulates; we will eradicate delays by administering all application in online and offline process, from the instant it initially reach our end and across the loan process and enhance productivity and accuracy by offering immediate access to information and automating our existing loan approval process (Heravizadeh, Mendling & Roseman, 2009). For these benefits to be attained, we shall utilize an innovative strategy that can administer the new complex loan approval (online and offline) process and all kinds of associated transactions in a completely quick and digital automated environment. Different stages of loan approval Prequalification stage Documentation stage Recording documents Loan Submission Funding Property information Signing First loan approval Documents are drawn Figure 1: Different stages of loan approval Prequalification stage: this is the complete application and review loan programs are done Documentation stage: credit report and gathering f docents for income and assets Loan submission stage: loan package is assembled and submitted to the underwriter for approval Property information stage: property title search, appraisal, insurance and open escrow. First loan approval: parties are notified of approval and final conditions are met Documents are drawn: loan documents are completed and sent to the escrow for preparation. Signing: Documents are signed at escrow to be sent off to the lender fro funding Funding: lender reviews the loan package and funds are transferred by wire to escrow Recording documents: the title company records the note and deed of trust at the county recorders office and escrow is closed. A Re-designed Loan Approval Online Process The loan application process not only requires being online but should also be automated. For instance Colonial savings bank can produce templates for a range of online applications such as homes in the cost of range A and homes in the cost of range B .Directed by the pull down menus, customers would be able to fill out an online application much more easily than filling it off-line. Internet would assist speed up the process compared to executing similar plans without it (Hsu & Pant, 2000, p. 116) The loan approval process begins with a loan application, where the client utilizes the bank’s webpage to bring in personal details and the amount appealed for. After this, the process implements three actions to come to a decision whether the request is agreed or declined. The first action in the series is a task that calls upon a Web service, which assesses the information offered by the client. This action is based on a set of business rules described by the Colonial Savings bank. For example, if the client income is below 9 % of the requested amount then the loan request is declined; if the amount is below $ 6000 then the loan request is accepted. The second action, which is implemented in parallel with the preceding one, is a sub process that validates the loan feasibility by associating the risk connected to the requestor. This sub process requests advice from a credit unit and legalizes the legitimacy of the data supplied by the client. The third action combines the outputs of the preceding two actions and confers with a loan expert who describes the approval resolution, which is stored in a variable titled request State. When the model can be interpreted into an executable process then the loan process can be automated (Abramowicz, 2009, p. 159). A Redesigned Loan Approval Offline Process The loan approval process remains extremely controlled and efficient. Further, through the Colonial savings bank practices, all processes have been recorded, allowing management and staff to recognize and eradicate process inefficiencies, and drive process enhancements. Each loan application collected by the bank moves through a queue-based, six-segment processing series: prequalification, application capture, credit decision, contract production, contract delivery, and settlement. Distinct business units administer each phase of the automated loan-decision process. Different authority levels grant staff limited access to diverse parts of the workflow phases, facilitating internal control of processes. Faults are easily traced and resolved manually in the initial case and, where essential, adjustments to the workflow queue can be done to make sure that the problem is not replicated. Colonial savings bank online application system permits for an automatic shift of data from the customer’s loan application to the loan approval processing system. The mortgage managers and bank staff have access to Colonial savings bank system, allowing them to execute instant loan approvals. Applications obtained through Colonial Online Application System (COAS), are those that are manually faxed to the bank then automatically generated as document images by the imaging software within the loan approval processing system, therefore incorporating the front-and back-end flows (Esty, 2005). Once a loan application is obtained, individual documents are marked independently, with a distinctive barcode, identified as a LOAN number that is apportioned to each sheet of the loan application. This barcode allows an application to be directed to the suitable queue of the workflow process. Naming conventions and standard marking are fitted into the document-imaging system to uphold uniformity across the servicing platform. The completely automated loan decision by the bank’s loan-processing system is extremely efficient. In addition, the use of computerized assessments will assist to lessen costs and loan application turnaround instances. Complete valuations are prepared on loans with high loan to value ratios as well as on all low documentation loans. Hence the new loan approval process will run data processing and validation. The system will track any alterations that are made to loan applications and automatically produce reports that are used internally by bank loan processing personnel and externally by mortgage administrators to help in the management of processing problems. Furthermore, an internal quality team will execute regular hindsight appraisals of loans to ensure conformity with the bank’s policies. Each result will be recorded in a compliance database to establish monthly trends. The bank’s loan processing center will have a distinct operational unit that offers cost-effective, timely and perfect services. These units will incorporate the bank’s business partners together with brokers and mortgage managers, retail branches as well as customers. The loan center will highlight on continuous process upgrading through standardizing processes, quality management system, and proactively administering operational and business risks to ensure these objectives are fulfilled (Reid, 2007). The centralized, semi-integrated, tracking and loan-processing system builds a key strength of the bank's loan-servicing policy. The front and back end processing system efficiently gives automatic data transfers across all phases of the loan approval process. A workflow imaging system documents loan application documents as images (Reference). The above new loan approval process will guarantee that; All loan status updates are available in the location; a client has an internet connection. All loan updates are automatically communicated, via email, text and in real time, to all parties engaged. This substitutes all other outdated loan status updating method. Clients will observe each loan documentation during the mortgage process effectively whilst communicating all terms and conditions, hence lessening the anxiety and pressure usually related to a mortgage transaction. The new loan processing software will flow efficiently from the start of the application to the end with minimal effort. Consequently, it will prevent tension for the client and facilitate the bank to double the quantity of volume that can be processed in the equivalent amount of time. Reasons for Loan Process Delay Partial documentation is the most common cause of loan approval delays. After a carefully analysis, some of your documents were submitted after a long period of time. These documents included personal and outstanding net worth statement, credit exposure and outstanding balance, as well as credit facility letter from your existing banker .We missed your most recent bank statement, plus pay stubs, W-2 forms and other proof of employment and salary, to assist the loan agent verify your finances. This application forms were one of the causes of delay to your loan approval process (reference). The discrepancies on your employment and deposit verification raised queries and also hindered the approval of your loan. They were differences on your records on the areas of employment history and dividends obtained from investments. You did not present a written justification for the employment gaps in your employment records due to unknown circumstances such as layoffs, illness, or for any other causes (reference). We also recognized that you had a property you did not include, even though it was clear and free of any mortgage. As per our terms and conditions, we have to factor insurance, property taxes and additional costs into the debt to income allotments. We had issued a notice and persisted caution towards borrowing due to the economic crisis. In the start of 2008, the real estates markets highly reduced as interest rates increased. The recent months have observed a growth in increase with mortgage interest rates being presented to borrowers both in United States and in the UK. The UK mortgage market was controlled a slow economic growth and increasing inflation (Figueira, Glen & Nellis, 2005). As a result, the higher mortgage payments were as a result of high interest rates that occurred due to a high inflation in the economy. In light of mortgage refinancing, your mortgage payment rose from roughly $ 970 to nearly $ 1975 a month, an expense that was incorporated in the financial statement. The enhanced mortgage payment led to your expenses surpassing income by more than $ 1000 a month. The rates increased quickly, thus adding more interest to your mortgage balance and elevating your mortgage payments (Spader & Quercia, 2009). You originally had a fixed rate loan but transferred to an adjustable rate mortgage loan. While the monthly payments that you make with a fixed rate mortgage loan are moderately stable, payments on an adjustable rate mortgage loan are expected to change. The interest rate changes occasionally, on average in relation to an index. If interest rates increase, the loan mortgage payments also increase. If interest rates collapse, the mortgage loan payment decreases as well. After the preliminary fixed period of your loan, your asset varies once every 12 months for the remaining period of the loan .For this reason, your interest rates changed at particular intervals over the phase of the loan. Your preliminary rate was 5%; it later altered to 7% due to modifications of terms and rates (Himmelberg, Mayer & Sinai. 2005). Regarding withdrawal, you initially permitted us to make withdrawals from your savings account automatically. Reason for the design of the process We designed the existing loan approval process since it fitted with our customer database perfectly. It handled the paperwork, kept the approval process in progress, and gave an ethical, first-class service with comprehensive attention to detail. The process was able to efficiently provide lending capabilities to premium commercial lending clients. The narrowly described loan processing stages was restricted to an overall processing time of 45-90 days. Our loan approval process was valuable since it provided lower interest rates on loans to customers who approved to an automatic withdrawal payment from their checking bank account. We also proposed to cut down the length of the house loan by months if a customer would consent to an automatic withdrawal of partly the payment twice a month. This offer was beneficial and effective for the clients and also for us. By receiving payments with more promptness, the automatic withdrawal reduced our administrative costs. Causes for the Customer complaints After some analysis, I came with various causes of the customer complaints. The number of the loan agents in Colonial Savings had a considerable impact on your loan approval access. Colonial savings bank had less number of loan agents. This was difficult for one agent to deal with various customers. The low number of loan agents was also another factor that led to lengthy loan approval processes. We lacked a wide variety of specialist expertise and resource in order to execute loan workouts effectively. As a result, the transaction was highly prolonged and complex, requiring one loan expertise to both run the process, as well as to perform any business and financial activities effectively. Our new loan committee team will provide effective customer service by resolving problems, delivering answers, responding to questions and other activities in order to sustain prospective and existing customers (Keene, 2005). Figure 2: Harvard Business review, (2008) Putting the Service-Profit Chain to Work According to Harvard Business review, (2008), service-profit chain is also defined by the leadership. As the newly appointed manager, I will emphasize on the importance of each employee and customer. This will assist in supplying information systems and common measurements of customer satisfaction and financial measures. Conclusion A bank is only efficient at commercial lending if the approval process flows through departments in a carefully planned out fashion. A successful loan process is expected to add value to the preceding stages and eventually to the final product. Developing a timely loan approval process results in changed credit policies and provides the loan requirements of the borrower. It has the ability to create and deliver quality products. It also covers aspects such as reliability, accuracy and conformity to specification (Goodman, Broetzmann & Ward, 2006). An automated and restructured system that incorporates customized mixtures of loan features based on the loan requirements and the rules will fit with the bank’s goals. Hence, in order to meet customer demands Colonial Savings Banks has proposed to redesign a loan approval process that is effective on process quality, process flexibility, process cost and process flow time. References Abramowicz, W. (2009). Business information systems: 12th international conference, BI2009.Poznan: Springer. Esty, B.C. (2005). Structuring loan syndicate: A case study of the Hong Kong Disney land project loan. Journal of Applied Corporate Finance, 14 (3): 80-95 Figueira, C., Glen, J., & Nellis, J. (2005). A dynamic analysis of mortgage arrears in the UK housing market. Urban Studies, 42(10): 1755-1769. Goodman, A., Broetzmann, S, M., & Ward, D, S. (2006). Preventing TQM problems: Measured steps toward customer-driven quality improvement. National Productivity Review, 12(4): 555-571. Harvard Business review, (2008) Putting the Service-Profit Chain to Work Retrieved from http://hbr.org/2008/07/putting-the-service-profit-chain-to-work/ar/1 Himmelberg, C., Mayer, C., & Sinai, T. (2005).Assessing high house prices: Bubbles, fundamentals and misperceptions. Journal of Economic Perspectives, 19(4): 67-92. Heravizadeh, M., Mendling, J., Roseman, M. (2009). Dimensions of business process quality (QoBP). Business Process Management Workshops, 17(1): 80-91. Keene, R. (2005). Balancing credit management and relationship building. Commercial Lending Review, 20:5. Spader, J.S., & Quercia, R.G. (2009). Mortgage brokers and the refinancing transaction: Evidence from CRA Borrowers. The Journal of Real Estate Finance and Economics, 42(2): 181-210. Reid, R.A. (2007). Applying the TOC five-step focusing process in the service sector: A banking subsystem. Managing Service Quality, 17(2): 209-234. Read More