Operational Improvement: A Penny Saved Is a Penny Earned

Operational improvements are key to the mortgage servicing market. Today their business practices are being scrutinized like never before, yet robo-signing issues and regulatory compliance concerns only add to the basic need of being efficient.


A family friend recently shared her experiences with grocery store “couponing.” She sparked my interest when she bought $55 worth of groceries for only $5. After conducting some research I found this smart mom was using business process improvement, key performance indicators and “lean” tactics to save money for her family. It took some time and it took some effort, but the results were impressive. After all, as quoted by Ben Franklin, “A penny saved is a penny earned.”

These lessons in savings can also apply to operational improvements for banks and other financial services providers. While the percentage of operational improvement savings may not be as dramatic as the couponing example above, the total value can be substantial.

There are likely sizeable savings opportunities for product, process and operational areas at your organization. And unlike coupons, which typically expire, operational improvements yield recurring annual benefits. As such, operational improvements are critical for all financial services executives.

The five key areas that will be discussed in this white paper include:
• Operational Cost Reduction
• Increasing Operational Capacity
• Leveraging Operational Improvements to Drive Revenue
• Outsourcing and Offshoring
• Focus on the Customer

As you evaluate operational improvement opportunities you may find multiple areas that could be worth further investigation. Consider the benefits for your customers, employees, executive management team and shareholders. With more demands on operational areas from the ongoing and increasing burden of new and existing regulatory compliance, any savings are helpful. Everyone wins when you eliminate waste.

Operational Cost Reduction

The goal of operational cost reduction is to lower costs by eliminating nonvalue added activities through business process improvement. Each operational area must drive a high level of productivity, quality and output for each dollar spent. This includes all internal and external expenses such as technology, staff and third-party vendors. The key is to identify and eliminate waste by measuring and defining changes that reduce cost, improve service, or both.

Business process improvement initiatives may include a business management strategy such as Six Sigma that identifies and removes errors and reduces process variability. In addition, many firms employ lean manufacturing. Often referenced as simply “lean” this concept focuses on cost reduction while also creating customer value. A study by the Corporate Executive Board on lean manufacturing for financial services firms identified that at least 40% of operational expenses result from items “that add no value to the customer and therefore should be eliminated.” Lean operational cost reductions are not focused on specific employees or departments but rather helping organizations become more efficient. The report indicates that institutions that leverage lean techniques report cost reductions of 20% to 40% within 18 months.

Banks and other financial services providers must plan for the future since cost reduction is and will continue to be a key issue. As a result, institutions need to rethink operational infrastructure, business strategies and methods of delivery. It may be helpful to solicit ideas from both internal and external stakeholders to identify opportunities to reduce overall operational costs.

To create a sustainable and meaningful cost reduction initiative, executives must consider items such as staffing expenses, facility management, information technology and the costs of various vendor partners. Some institutions may handle this process internally, but many incorporate independent third-party experts possessing a combination of industry best practices and project management to lead these key initiatives. Whether these efforts are managed internally or externally, the results can be impressive.

Increasing Operational Capacity

The first impulse of many individuals is to think of business process improvement as a tool designed only to reduce cost. However, it can also be used effectively to increase operational capacity. In the simplest terms, a more efficient operations area can achieve a higher volume. Engaging in increased operational capacity initiatives will pay solid dividends, particularly during periods of growth.

You may also reap benefits from increased capacity if you are able to consolidate sites or perhaps better support marketing campaigns and other sales efforts.  Instead of reacting with overtime, part-time resources, or new hires, consider instead how operations could be redesigned to do more with less. What actions can you implement to work smarter instead of just harder?

For many firms part of the solution is a comprehensive operational capacity management plan.

Understanding the impact of changes in demand can allow for proactive measures when volumes are increasing or decreasing. Capacity models may also identify potential constraints and bottlenecks. Real savings occur with business process improvements resulting in shorter cycle times and sustainable reduced costs.

An added benefit is the ability to more effectively adjust to peaks and valleys of demand via an optimized process flow. For example, a collections staff that makes calls only during a typical 8:00 a.m. to 5:00 p.m. workweek will not generate the same success as a team calling during “prime time” hours. A small change such as this can provide a significant impact and allow firms to drastically increase effectiveness and capacity.

Another way to increase capacity is to engineer a process that minimizes hand-offs and allows an item to be worked and resolved efficiently. Preventing rework cannot only increase operational capacity, but can also have a positive impact on employee and customer satisfaction.

Finally, consider the operational work environment itself and better utilizing the space available. This can include considerations such as team configuration, workflow patterns and nonessential task prioritization. One simple illustration is an employee walking to the fax machine versus using an electronic fax solution available on his or her desktop.