3. Crystal ball training. Loan process

Summary

This example model is an overview of a loan application process. This transactional process, from the initial customer inquiry through to the loan disbursement, takes an average of 91 hours. Given a performance target of 96 hours of cycle time, the process would seem to be solid. However, the loan specialists have complained that quite often it can take over 130 hours and should be a project for process improvement. As a Six Sigma practitioner, you will apply simulation to better understand what is driving the variation around this business process and quantify the process capacity and Six Sigma quality level.

Step 1: Customer Inquiry This step can be via a phone call, an office visit, the Internet, or a home visit by a mortgage officer. It includes the creation of an initial rate quote for the customer. Historical data indicates this cycle time is lognormally distributed with a mean of one hour (standard deviation 0.25 hours).

Step 2: Loan Application With the inquiry completed, the applicant must complete all of the necessary forms. The staff who oversees the distribution of blank forms and the collection of completed forms estimates that this step takes no more than one week (40 hrs) and no less than one day (8 hrs), and most often takes three days (24 hrs).

Step 3:  Document Verification and Processing The completed application is reviewed by a loan specialist, who contacts the applicant to verify the information, present the best loan alternatives, and help the applicant to decide which option is best for his or her situation. The loan specialist will obtain other information, such as credit score and history, directly from the credit bureaus, and will independently verify the information in the application. This step of verification and processing usually takes between two and four days (16 to 32 hrs), but two out of ten times the step takes between four and six days (32 to 48 hrs). The latter situation occurs because of suspended loans, which require additional reviews and documentation.

Step 4: Loan Underwriting Here the application is sent directly to an underwriter for review.  The underwriter either approves it outright, approves with conditions to be met, or declines it. In most cases, the loan will receive a pre-approval in no more than 8 hours but no less than one hour.  All values between one hour and eight hours have the same likelihood of occurrence.

Step 5: Loan Closing The closing of the loan includes the preparation of the final documentation, the locking in of the interest rate, and the arrangement of where to deposit the funds. You have historical data (100 sample values) for this step that indicates a mean of two days, but you have not yet fit a distribution to the data.

Step 6: Loan Disbursement Moving the funds to the applicant's bank usually takes 2 days (16 hours). Disbursement time is normally distributed with a standard deviation of 4 hours. Using Crystal Ball, you can create a simple Excel model that describes and sums these steps. You can also calculate the Sigma Level of the process. Solution According to crystal ball there are 73.66 % chance to get less than 96 hours, which is the performance target. So, How can I improve this percentage? Using the sensitivity analysis we find that the document verification has an important weight in the total. Therefore if we modify this value we will get a much better result. Changing the 80% by 100% our chance to get less 96 hours increase drastically.