Loan officer
Lean Office

Be Careful What You Measure, You Just Might Improve It

Avatar photo By Jon Miller Updated on March 23rd, 2023

A continuous improvement manager at a mortgage processing firm told us how their Risk Assessment team was struggling. The company’s sales force comprises independent mortgage brokers who are responsible for enrolling individuals seeking loans. Once a client is enrolled, the application is handed over to the Risk Assessment team for review. This team strives to either approve or deny the loan application by identifying any high-risk loans that should be weeded out.

Metrics Optimization Across the Value Stream

In essence, the primary function of the Risk Assessment team is to mitigate risk. The company’s success metric is the number of mortgage requests approved, which creates immense pressure to approve loan applications, as volume is critical to the company’s growth. However, this pressure can negatively impact the quality of the loans approved. The rush to turn around applications quickly can make it harder to conduct a proper analysis, resulting in some questionable applications being approved. While a volume-driven metric may seem beneficial, it can come with increased costs. For instance, the high volume of loan applications can place immense pressure on the Risk Assessment team to process them quickly and efficiently. This pressure may necessitate hiring additional staff to meet the demand. While this may increase the volume of approved loans, it also leads to increased costs, which could outweigh the benefits. This is an example of a “push” from sales (overproduction) resulting in loans in process (inventory) at the Risk Assessment stage. This results in poorly analyzed loans (defects). The metrics were optimized across a limited part of the process rather than through the entire Value Stream. The metrics used to judge success, and volume through one process, must be revised to reflect the value through the whole system (profitable loans). This is an example of how expanding Lean thinking into a purely service company can streamline a process, improve customer service, and the quality of work life for the people in the firm.

Expanding Lean Thinking

The case of the Risk Assessment team at the mortgage processing firm illustrates the importance of metrics optimization across the entire value stream. While a volume-driven metric may seem attractive, it can lead to increased costs and decreased loan quality, as was the case with the Risk Assessment team. By expanding Lean thinking into a service-oriented company, the firm can streamline its processes, improve customer service, and enhance the quality of work life for its employees. In doing so, the company can achieve a more comprehensive success metric that reflects the value delivered throughout the entire system, ultimately resulting in more profitable loans.

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Jon Miller

Jon has dedicated his 25+ year career to the field of kaizen, continuous improvement, and lean management. Jon spent the first eighteen years of his life in Japan, then graduated from McGill University with a bachelor’s in linguistics.

  1. john cass

    December 23, 2003 - 4:22 am
    Reply

    Sounds like lean can really help with operational excellance. I recently read a book called FusionBranding by Nick Wreden. He talks about business improvement processes in his book about branding.

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