DESIGNING THE LOAN ORIGINATION PROCESS:
A RENEWED CALL FOR EVOLUTION
Jennifer Fortier, CMB, Principal
STRATMOR Group
Metrics and Rewards
Metrics, or measurements, and rewards are key drivers of behavior and must be in line with the process design. It is relatively simple to create a fairly long list of metrics and ‘key performance indicators’ but it is more difficult to align with management objectives and process design. And it is surprisingly easy to undermine process objectives with numbers that focus on the wrong things.
A typical example of metrics undermining process objectives is underwriting-file submission deadlines. Imagine this scenario: The lender has implemented a process change aimed at improving file quality and resolving problems associated with incomplete, poorly organized, or haphazardly reviewed files submitted to underwriting. However, in the past, management placed prominent focus how quickly a loan moves through the process. Performance indicators measure how fast the processor submits to underwriting. The indicators are widely distributed within the company and the processors’ incentive bonuses are reduced if they fall below a certain threshold. In this example, the processor has very little incentive to focus on quality; speed trumps quality. This process initiative is very likely to fail.
Rewards tied to metrics will most certainly drive behavior; but informal rewards can have a dramatic impact on process execution. Praise and encouragement and social norms are powerful motivators. Imagine a process design project aimed at standardizing procedures to eliminate variation in how work is performed. If management continues to praise the processor for going out of the way, and outside the standard procedures for that special originator or demanding borrower, any interest in standardization will fizzle out quickly.
Recently, there has been progress in technology that helps lenders track and monitor key performance indicators. Real time data is available on simple interfaces. People in different positions in the company have access to see information related to their goals. However, because the technology exists and is fairly simple to deploy, lenders must be cautious that the data actually supports management’s objectives.
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