Recommendation

Memo to: Nancy Rodriguez Subject: Improvement of the loan application process As you requested, Team Blue 4 conducted a comprehensive study of the application process and analyzed the data form the first quarter of 1996. The average time for an application to pass through the current process was around 12.2 days. There are many bottle necks in the current system and we recommend changes to the current process and increase efficiency. Our team recommends removing the separation of regions and combining them as a single unit. In addition, we recommend consolidation of the Evaluation and analysis steps with the Interest rate determination steps as well as the loan terms and the final issue steps together. Our analysis suggests that these changes would reduce the average total time of the application to less than 4 days. We can thereby improve the efficiency of the current process by 70%. This improvement will allow the Bakersfield office to compete with its west coast competitors and also enable them to satisfy the 10% increased demand easily.

Objectives and Problem statement

The Bakersfield office of Global Financial Corporation currently processes loan application for the west coast region of the firm. They process two types of applications News and Standard. They are currently facing challenges processing Loan applications efficiently. Global Financial Corporation has the goal of reducing loan processing time to 10 days or less in order to compete with the processing time of their closest competitor. In addition the firm as a whole has implemented a new sales initiative which they believe will increase applications by 10%. The Bakersfield office needs to improve the efficiency of their process to meet the current demand to process loan applications and be able to process the increased loan applications because of the Sales push. The firm will explore the regionalism of the current process, the consolidation of steps within the process and separating the two different types of applications. If the Bakersfield office is not successful in restructuring their loan process they will lose market share to their competitors and thus negatively impacting their revenue.

Scope and Decisions

We will perform an analysis of the current process and determine the impacts to several variations of future state. We will look at regional impacts, changes to the stages, and separation of the types of loans. The scope of this analysis will consist of: Documenting the current loan processing system. Evaluating the bottlenecks in the system. Determining average days per job for the current system

Evaluating the impact of: 1. Removing the regions 2. Combining Stages in the process 3. Separating the News and Standard

We will prepare a model to quantify the current and future states and determine which changes will improve the performance of the Bakersfield office. Based on the results of the model we will recommend the changes to be made to the Office loan processing. We will not consider adding additional people to the process as this is not currently an option. We will not consider maintaining Current regional structure in combination with additional changes because the initial analysis identifies this as being a great area for improvement of efficiency.

Existing system

The current loan process passes through four stages Evaluation and Analysis This step involves looking at the financial feasibility of the equipment loan from the buyers perspective in order to determine the borrowers ability to repay. It also involves a credit analysis of the borrowing firm. This step is performed by three teams of two persons each. On an average, the new applications take roughly twice as long as standard applications. However, there is a great deal of variability because of some loans being simple and straightforward while others quite complicated involving lease back and other arrangements. Interest rate determination This is the second step of the process where interest rate for the loan is determined. There is just one resource and he devotes half of his time to this task. Loan terms The step is to determine the exact loan and agreement terms and is performed by three individuals. Final Issuing This step involves the actual preparation of the paper work for the loan. This step is performed by two individuals and there is no regional separation at this step. GF Loan application processing and is sub optimal with its inefficient resources utilization and is unable to commit to meet GECs objective of promising its customers 10 business days or less processing time for

loan approval. The objective of this case study is to analyze and recommend optimal loan approval process for GF analyzing capacity and bottlenecks in the system. Bottlenecks in the system The applications received at the first step are segregated into different regions based on their arrival. Because of the variability in their arrival rates, the utilization of resources in each of the sub regions is different. The applications processed in different regions take processing times in the system ranging from 8 to 16 days. Also, further analysis of service rates, we find that the service rates of interest rates processing processes is much higher than the service rate of evaluation and analysis step and loan terms and issuing processes. Clearly processes 1 and 3 and 4 are unable to meet the demands of processes 2 making them the bottleneck processes. The available capacity in processes 2 is underutilized making the overall process sub optimal resulting in the decrease in the total number of applications processed. Based on the analysis in the spread sheet, the current average number of days in the system is approximately 12 days and the averaging time of the job in the queue was approximately 10 days. As stated earlier, the re-structuring of the current process in imperative. The performance measure that we propose to use and which would be used to evaluate the efficiency of the new systems is the average days per application in the system.

Model
Our analysis is based on three re-structured networks. 1. The network in which we remove the division of resources based on regions. 2. Combine the steps Combine Evaluation & Analysis and Interest Rate as one unit. Similarly, combine the loan terms and Final Issuing steps together. This step is combined with the strategy on removing the regions. 3. Dedicated resources for Standard and New applications. Removing regions

In order to remove the bottle neck caused by the processing in different regions, we removed the regions and combined them in one single step. Based on this model, we completed the analysis (Please see attached the excel file). The average waiting time of the applications in the system reduced from 12 days to 6.28 days. Also, the waiting time in queue reduced from 10 days to approximately 4 days. Removing regions and combining steps

Continuing from the above step, we identified that the process can be further improved if we combine the steps 1 & 2 and steps 3 & 4 in order to remove further bottle necks and improve our performance measure. Our analysis suggests that by doing so, the average time for applications in the system reduced from 6.28 days to 3.78 days. The average time in queue reduced from 4 days to 1.49 days; thereby improving an overall efficiency by approximately 70%. Dedicated resources for Standard and New applications

With the hope of improving the process further, we conducted our analysis by dividing resources for the new and standard applications separately. Here, the average time of applications in system came out to be 7.2 seconds while average time of applications in the queue was 4.86. To summarize our analysis, the best outcome in terms of our performance measure was achieved when we removed the regions and also combined steps.

Queuing Analysis
Based on the current processing model and the three models analyzed, the summary is as follows Average time in system( in days) 12.26 6.28 3.78 7.16 Average time in queue(days) 9.98 3.99 1.49 4.68

Current model Removing regions Removing regions & combining steps for Standard and New applications

Attached Analysis file

Final Analysis
The output of the Qmacros provides us with the throughput and average number of days per loan application process. The delivery time for the loan application process has been reduced. The new process will enable us to meet future increase of 10% in demand. It will also enable to compete with competitor to process loan process well before 10 working days. However, there are other factors that should be considered such as Is there any region specific expertise required for evaluation and analysis of the loan application? If yes, then, the expertise should be shared before discontinuing the resources dedicated to each region. The training required to enable resources share the work between Evaluation & Analysis and Interest Rate and between Loan Terms and Final Issuing. The quality of the loan application process should not be compromised. The cost of implementation including the cost of merging the system and cost of training. The infrastructure availability for combining different steps.