By Laura Grudzien, Senior Director for Industry Solutions, Linedata
While the initial focus for a loan origination project is typically related to the selection of a software solution and a target oper-ating model, the true key to success is establishing a project management foundation to support the initiative. You can select a best of breed solution and operating model, but if your project implementation fails, the organization is exposed to credit, operational and reputational risk.
The implementation of a loan origination system is more than just a technology project.The impact on the overall lending, credit and operational groups can be extensive from process changes (including potentially re-engineering processes), organizational changes, policy changes, along with technology changes.
Significant benefits and ROI can be achieved when implement-ing a loan origination system which include:
- Risk and regulatory compliance
- Revenue growth and expense control
- Process transformation and optimization to gain efficiencies
- Better data and data access for decision making and adapting to market needs
- Increased customer and employee satisfaction
This document provides insight into the key success factors for the implementation of a loan origination system based on Linedata’s experience with financial institutions of various sizes, geographies and lending lines of business.
To help achieve the objectives of the loan origination project, Linedata has identified several key critical success factors to be considered:
- Establishing a business case
- Executive sponsorship and project governance
- Manageable scope determination
- Enlisting organizational support and empowering the team
- Communication plans and change management
Establish a business case
The business case lays out a framework for the benefits and objectives the organization is planning to achieve and is key to providing the operational blueprint for the project. Establishing and communicating the business case enables the project team to validate business requirements and processing designs against the business case. If a key objective is to provide customer facing employees with additional bandwidth to sell more or; build on existing relationships (thus increasing sales) by freeing up their time from administrative, credit analysis, or underwriting activities, that objective can be used to help drive decisions on who should be doing what activities within the new target operating model.
When an organization is looking to maximize their resource efficiency by reducing the time and touch for lower dollar (thus lower risk) transactions, then the processing design decisions should be more focused on automation of tasks and activities, like pulling credit bureaus and evaluation of the borrower and co-borrowers based on scorecards and ratio coverage criteria, in a manner similar to a consumer loan. In addition, the business case can help drive an overall strategy for the project. If the objective is to adopt best practices from a vendor solution used by other financial institutions and only maintain unique practices where a business or competitive advantage in the market is achieved, this would provide the criteria for evaluating the priority and impact of user business requirements. In doing so, costs, the implementation timeline and risk associated with the project can be reduced.
Executive Sponsorship and Project Governance
A crucial piece of the team is an executive sponsor. The executive sponsor is not only the financial backer of the project, but also the top advocate. The executive sponsor can speak to the importance of the project and how the project positions the organization for growth, improvement and opportunity. While the executive sponsor is a crucial factor in the governance of the project, an encompassing project governance structure is also necessary to provide the framework required for making critical decisions and resolving issues that arise during the project lifecycle. While a well- structured project plan is a critical component of the project, the project governance is key to the execution and evolution of the plan. Resources from both Linedata and the financial institution would play key roles in the project governance and share in the overall responsibility for maintaining scope, schedule and budget, managing risks and issues, resolving conflict, and meeting the documented project objectives.
The project governance structure helps align benefits to the costs and risks associated with the implementation and the processing changes. The key objectives of the governance structure are to:
- Manage and monitor progress (schedule and budget) on a regular basis (weekly, bi-weekly and monthly)
- Help establish and maintain a manageable scope
- Identify and mitigate risks
- Remove obstacles to achieving benefits
- Build partnerships at multiple levels (front line, mid and senior management) to help improve communication and strategic collaboration even after go-live
The governance structure should consist of multiple layers to address day-to-day issues along with overall initiative considerations, including: Project manager; Project team; Program management; Executive sponsorship and Steering committee.
Getting the right balance of scope, enough to achieve a defined level of results in reasonable timeframe and effort, is an important consideration. Adding too much scope, particularly in an initial phase, could delay the organization and user communities from seeing value from the project efforts. An organization can go live with a limited scope to achieve initial benefits that help provide the bandwidth, buy-in and momentum to build on that foundation through subsequent phases and roll-outs. Focus on the most common needs (the 80%) while leaving the least common needs (the 20%) for more manual or process-based procedures. Scoping considerations include:
- Business lines – If there are multiple lines-of-business that are intended for the project, consider doing one or two lines of business to establish a foundation (particularly if the fulfilment and operations processing is the same among multiple lines of business). Using that foundation, common processing, lessons learned, and organizational support (training, help desk and coaching), the remaining lines of businesses can more quickly and effectively be implemented.
- Integrations – Focus on integrations that provide the biggest return on investment by reducing manual work, increasing efficiencies, along with reducing credit and operational risk. Phasing in integrations can help achieve a more manageable schedule and cost. Initial integrations should focus on areas such as:
- Obtaining current bank information available for analysis with a batch integration from the data warehouse to achieve a 360 view of the borrower and their relations
- Passing approved loan information for legal documentation with an integration to a Document Preparation System
- Pulling credit bureaus scores
- Integrating into an Enterprise Content Management system for document retrieval and storage aligning with corporate retention policies
Enlist Organizational Support and empower the team
Implementing a new loan origination process and solution impacts all the groups and departments from the point of the application for credit to the boarding and funding of the credit obligation. The composition of the project team needs to represent not only the organization overall (project governance along with departmental management), but the day to day needs and concerns for all the end-users (front, middle and back office). However, there is a fine line between the right balance of resources to represent these end user groups and having too many participants. Sometimes the thought is ‘what does it hurt to have more people involved?’ however too many resources on the project team can lead to schedule issues due to a lack of timely decisions (as the project moves to ‘decision by committee’) and issues coordinating all resources and their inputs. The team members must also be empowered to make detailed decisions in support of the strategies and objectives defined by the business case. If team members are not empowered to make decisions, the implementation schedule will be extended as the design process has to engage multiple layers for approvals on even small business designs. Also, user adoption may be impacted as users will feel that they had no input on their day to day activities and job performance. The main areas where representation on the project team needs to be considered are:
- Front Office – Relationship managers, their coordinators and sales management
- Middle Office – Credit analysts, underwriters, approvers, and risk / compliance departments
- Back Office – Fulfilment and operations
- Cross-functional departments – Audit, legal, IT, and training
Communication Plans and Change Management
As noted earlier, a loan origination project is not just a technology project and will impact departments throughout the origination process. A critical success factor is preparing the organization and its user communities for this change.
Setting the tone, message and expectations are critical to the buy -in and acceptance of not only the new software but the new policies, procedures, and organization structure.
Key questions to be addressed:
- Why is the change needed?
- What issues are being addressed?
- What are the objectives of the organization in making this change?
- What’s in it for me?
- What are the benefits to individual classes of users?
- When are the changes coming and how will they be implemented?
An effective communication strategy builds throughout the implementation process so that the message can be delivered multiple times through various communication channels with an increasing level of details and specifics. An effective communication plan is more than just application training.
Some frequently used communication and change management options:
- Introduction to the project (benefits, changes and timelines or a quick demo later in the project) at groups meetings.
- Newsletters or a communication website for the project
- Updates from core project team members to their respective groups
- Computer based demos and overviews to provide an introduction and allow users to gain comfort at their own pace
- Executive presence at major project events or milestones (testing, training, etc.) showing support and sponsorship for the project
- Role base training that highlights the benefits of changes being made (how they used to do their job and how the job has changed)