Case memo: Loan Processing at Capital One Executive summary Capital One was founded on the vision Richard Fairbank and Nigel Morris had regarding the potential profitability that could be made from customizing credit card products based. “Capital One now is one of the largest issuers of master card and visa credits in the world.” Recently, due to a new marketing campaign, Capital One predicts an increase in demand for fund loan approval. Based on the current levels of capacity, the loan department will not be able to accomplish their targeted goal of 700 applications per month. Our proposed plan is aimed at accomplishing a higher level of utilization and capacity through modifications on the current loan approval process. Since the implied utilization of each step, which is now more than 1(see table 1), leads to the failure of attaining the final goal of 700 applications per month, our goal is to decrease the implied utilization for each procedure to less than 1, thereby achieving the final goal. Our improvements consist of four modifications as follows. 1) Redistribute tasks among associates 2) Installation of training program/Train the associates of the interview step to enhance the accuracy and completeness to decrease the minutes spent on follow-up calls for the underwriters 3) Control the inventory to reduce the customers wait time, therefore reducing the withdrawal rate 4) Invest in information technology Case Analysis For this case, our group analyzed the current loan approval process to determine the improvements that could be implemented to increase overall utilization and level of capacity. Since some procedures within the process have more affect on the overall process, we’ve identified three steps that we believed are essential. We have found out three problems for the process of this company. First, the current interview process projects an acceptable implied utilization ratio of 0.86. However, through further analysis, many issues have derived from the quality of work completed in this step. Additional time is required of the underwriters to gather necessary information that should’ve otherwise been gathered by interviewers. interviewers. Furthermore, the need to recall certain customers increased the overall process duration. As a result, many potentially qualified customers are lost due to self-withdrawal. Second, we’ve concluded the underwriting process is the bottleneck of the entire operation. Currently, it takes an average of 40.5 minutes per application to be put through. By comparing the inflow and outflow numbers, the yield/throughput results to .33. Two factors contribute to 1
the low yield rate. 1) As mentioned earlier, 14.6 of the 100 inputted applicants withdrew their applications due to the process duration. 2) Of the remaining applications, 52 of the 100 inputted applicants were rejected because they were not qualified. Lastly, looking into the quality assessment procedure, no additional work value is added to the application. However, accurate information is vital before the application is passed through. The two associates in this step create a supply constraint for the overall process. This is evident in that the implied utilization measures 1.08, meaning the two associates cannot complete all tasks. After identifying the problems of Capital One’s, our group has created several solutions to increase utilization and capacity to process 700 applications per month. First, we reassign the last two duties of the underwriters to the workflow associates and the quality assessment associates. Specifically, we assign the data entry of the underwriting step to the work flow and distribute the File Prep of the underwriting step to Quality Assurance (Q&A). This improvement decreases the underwriter’s implied utilization to 1.08 from the original 1.33. At the same time it increases the work flow’s implied utilization to .78from zero. However, simply assigning file preparation to Q&A associates will actually increase the implied utilization to 1.29. So our group decided the best resolution is to hire an additional associate in Q&A step, thus lowering the implied utilization down to .86. Second, we plan to implement a training program to the interviewers, aiming at increasing information accuracy and completeness. The increase in information accuracy and completeness will in turn decrease the duration of the follow-up calls done by underwriters. Therefore, we hope to decrease the call duration minutes of follow-up calls from 11.6 to 9.1(2.5 minutes less). As a result, implied utilization will further decrease from 1.08 to 0.99. Third, our group identified inventory control as an important element of increasing the overall output rate. Better control over inventory inflow, it may decrease the overall duration of one process application. In order to do so, the delivery of mail to potential customers will be sent out according to the levels of inventory on hand. Rather than distributing a massive amount of applications to customers and process an unsteady amount of inflow, this method handles a constant stream of applications. Therefore, it will lower the individual wait time per application and decrease the withdraw rate furthermore. Results can be seen in the closing procedure. We assume that the withdraw applicants will decrease from 0.7 to 0.5. As a result, the implied utilization in the closing procedure will decrease from 1.03 to 0.90. Lastly, our recommendation is to invest in better information technology. A tracking system can be installed that allows applicants
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to track their loan approval process. Allowing the customer to do so in theory should reduce the withdrawal rate because customers are aware of the progress made. However, since there is no clear method of calculating the overall effect, our group did not consider this improvement in the actual calculations. In conclusion, we recommend out Capital One to install the four commendations we have suggested. To reiterate, first we distributed some of the underwriter’s workload to other steps within the process, along with an additional hire. Second, a training program that trains interviewers will hopefully reduce the call back time for interviews if necessary. Lastly, through an inventory control system, actual duration should reduce. Therefore, it will lower the withdrawal rate of the entire system. With theses improvements, the loan approval process will be able to accomplish the 700-applicant outflow target.
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