Use Case: Apply DMAIC in the Finance Industry

DMAIC lets a bank redesign a slow process in five disciplined stages, define, measure, analyze, improve and control. In the personal loan case below, a manual approval that took about four hours and passed first time in only 30% of applications is redesigned into a digital flow of roughly 40 minutes, with controls that keep the gain in place.

Picture the head of retail banking on a Monday morning, reading a weekly report that shows a familiar pattern. Personal loan applications are arriving, but a growing share never turns into a disbursed loan. The sales team blames pricing. The operations team blames volume. The customers, when they are asked, say something simpler. They waited, and another bank answered first. This is the kind of problem that DMAIC was built for, because it forces everyone to stop arguing about opinions and look at the process.

As in the retail or manufacturing industry, the financial sector does not escape having a high volume of daily transactions. Each transaction is data that will become information for the business, and it has to be organized by processes for excellent and efficient management. Business processes must be mature, innovative and in favor of continuous improvement to guarantee a better customer experience. For a financial institution, applying methodologies such as the DMAIC cycle, which ensures a step by step team review of the process to be improved, becomes key.

The day to day can immerse us in urgent tasks and make us lose sight of the essential processes. For this reason, this article follows the example of a banking institution where the five stages of DMAIC are used to solve one of the biggest pains and nonconformities reported by its customers.

What is the DMAIC methodology?

DMAIC is a continuous improvement methodology made up of five stages. Define identifies the current process that has an opportunity to improve. Measure sets the indicators that show how the process is doing. Analyze finds the root cause of the problem in that process. Improve executes the changes in the process. Control keeps the new changes and adjustments in place so that the improved process does not drift back to its old habits. The first stage is explained in detail in DMAIC Methodology, Define Stage.

It is part of the Six Sigma family of tools. Each step is designed to follow a logical sequence in search of continuous improvement for a given process, and the sequence matters, because skipping a stage usually means that the team improves something it has not yet measured or understood.

Why use DMAIC for a financial process?

When we think about an effective way to make our business processes more agile without letting them out of our hands, DMAIC is very attractive for several reasons. It guides how you should approach the process improvement opportunity. For each step, you get results. It is easy to understand for different areas in the organization. It allows innovating. And it adapts to all processes. For regulated sectors such as banking, where every change has to be justified, documented and controlled, a method with a built in measurement and control stage is especially valuable.

What is the use case in a banking institution?

Today's use case is about a bank that offers several products. One of them, the one reviewed here, is personal loans for customers and potential customers. This type of loan should be approved within a couple of hours, and unfortunately it is not generating the results established by the institution. The bank has also received multiple complaints from clients about the approval time of the application, about 4 hours. Many of these customers get frustrated and switch to a competitor, since other banks take less than 2 hours to approve loans. Bank staff say they do not know how to streamline the process because it is lengthy, complex and lacks clarity of execution.

In the figures of this case, only 30% of personal loan applications pass on the first attempt, and processing the information takes up to 4 hours. To address this issue, the bank uses the DMAIC methodology hand in hand with its step by step tools.

The external context supports the direction. McKinsey, in its analysis The lending revolution, how digital credit is changing banks from the inside, reports that leading banks have cut time to yes to five minutes and time to cash to under 24 hours in some lending segments, and that personal loan applications can be submitted on a mobile phone with time to cash as short as a few minutes. The same article says one large European bank cut small business lending time to yes from 20 days to under ten minutes and increased its win rates by a third. Those cases are in different segments from the personal loan in this example, but they show what customers are learning to expect.

1. Define

In the beginning, the whole team should meet and establish which process will be reviewed, what objections there are, the bottlenecks, the pains of the client and of the staff, and the scope. The team questions why this process should be attacked and defines the As-Is process, in this case the Personal Loan Approval Process. With the help of a SIPOC, you place the process with its inputs, outputs, suppliers and customers. You may also be interested in the SIPOC service from ICX.

Below is a flow chart of the As-Is process with the description of each current stage.

First, the client completes the documentation manually. They fill in the fields on the form and attach the additional personal documentation requested by the bank, which takes 15 minutes. Second, the bank staff receives the form and, in various systems, reviews the customer's credit information, the complete document and the attached information. Each review can take about 30 minutes. Third, within an internal system of the bank, the information submitted by the client is passed manually, and if all the information is complete the first approval is issued, which takes about 40 minutes.

Fourth, the bank executive informs management by email that the application is correct, attaches the files and requests approval. Management takes about 20 minutes to corroborate that all the documentation is in the email and then notifies whether the application was approved. Fifth, once management's response is received, the executive emails the client to notify that the personal loan has been approved, and it can take up to 20 minutes to send the email outlining the conditions and the amount of the approval.

So far, the execution time of each stage adds up to around 2 hours, but the time it takes to move on to the next step is also essential. Being a manual process with outdated systems and assuming a high transaction flow, it is prone to human errors, reprocessing and downtime, which add approximately 2 hours more to the As-Is Personal Loan Approval Process. The total estimated time is 4 hours. For more tools of this kind, see DMAIC and other Six Sigma tools to drive continuous improvement.

2. Measure

At this point the problem is the long duration of the approval of personal loans (and therefore the loss of those customers). The team measures the critical variables and follows them up to validate the problem raised. It is also crucial to consider the values obtained and all the possible variants that feed this problem and give alarming results. Some of the indicators that can be measured are the time of each stage of the As-Is process, the time between each step of the As-Is process, and the percentage of lost applications, which means lost customers.

Measuring the waiting time between steps is where many teams discover the largest part of the delay. In this case, the stages themselves add up to around 2 hours, and the waiting and reprocessing add about 2 more. Without measuring both, the bank would probably have asked its staff to work faster, which would have attacked half of the problem at most.

3. Analyze

Knowing the problem to attack and having the data that supports why it deserves attention, an Ishikawa diagram is constructed with the team, showing the problem and its causes. ASQ describes the fishbone, cause and effect or Ishikawa diagram as a tool for sorting the many possible causes of a problem into categories, such as methods, machinery, manpower and measurement, and recommends asking why repeatedly to find deeper causes. The image and the explanation of this case follow.

The team must attack the causes that generate reprocesses and delays, that do not generate value, and that make the process more complex to execute and therefore result in a bad customer experience. There are three groups of causes. The first is systems. They are old and not updated, so generating tasks in them is confusing, and there are no modules that allow interaction between systems. The second is personnel. The staff is not trained to manage the systems and processes effectively, everyone works in their own way, they cannot listen to the client and know how to help, and communication between areas is complicated and not assertive. The third is processes. There is no standard for carrying out the work efficiently, and staff say the processes are complicated to understand and to explain, resulting in slow execution.

4. Improve

In several work sessions, the team looks for opportunities for improvement and for how they can become a positive experience for customers. Specifically, how can the approval time of personal loans be decreased? With brainstorming, for example, the team can build the To-Be process of the Personal Loan Approval Process. From the ideas generated and the information from previous stages, the issue to improve, change and adapt to new technologies is the manual work from the beginning to the end of the As-Is process. Therefore, it is proposed to invest in a system that manages the flow of the process and takes care of the repetitive tasks, with reminders and alerts, and versatile enough so that the bank's personnel can focus on adding value in their functions.

The To-Be Personal Loan Approval Process would follow this sequence.

The client completes the documentation through a digital form from a computer or a cell phone. The system validates that every field is completed and reminds the client of the information to attach. Completing this information takes 10 minutes, and the application reaches the bank only if all the information is submitted. The bank staff receives the completed application with all the documentation and validates the information in an integrated system, which sends an alert if it detects any anomaly. This should not take more than 15 minutes. Since it is an automated process, the system is in charge of the first approval and generates a message indicating whether this stage is satisfactory and the process continues.

An email is then sent automatically to management, notifying that an approval is pending. From the system, management reviews and approves, which takes 5 minutes. Finally, an automatic notification is sent to the client informing them that the application has been approved. The execution time of the Personal Loan Approval To-Be is approximately 40 minutes. Several manual tasks are automated, and the time between stages is 0 minutes, except for the final approval by management to the customer notification. This is because management has a work queue for the final approval that takes no more than 10 minutes.

The bank's staff can now perform their processes more easily and focus on the activities that add value. As mentioned, the bank executive receives the application only if the form is completed and the client attaches the documentation. The result goes beyond speed. Fewer incomplete applications reach the staff, which reduces reprocessing, one of the root causes identified in the analysis. You can find the logic behind this step in DMAIC Methodology.

5. Control

The new Personal Loan Approval process must run according to the To-Be proposal and be measured, so that the variables and their behavior are controlled. There should also be dashboards with indicators that show how the process is controlled, that it has been implemented, and that the personnel execute it completely. People are part of the control, and for that reason you can check Employee experience design, which explains how to support the teams that live the new process every day.

It is important to emphasize that DMAIC, being a cycle, constantly seeks continuous improvement and therefore invites us to review business processes actively. Once the new flow is stable, the bank can go back to the Define stage with the next bottleneck.

What this means for the C-level

For a bank executive, the lesson of this case is that speed is a design decision, not a matter of effort. The process in the example did not take four hours because people were slow. It took four hours because documents moved by email between systems that did not talk to each other, and because incomplete applications entered the flow and returned for correction. Asking people to work harder would not have changed that. Redesigning the sequence did.

It also shows the value of the first stages. A leadership team that asks for the first pass rate, the time per stage and the waiting time between stages gets an honest picture before approving a technology investment. The investment proposed in the Improve stage, a system that manages the flow, is justified by the analysis and not by a vendor presentation. For a chief financial officer, the measured baseline is what later makes it possible to calculate the benefit. For a chief risk officer, the built in validations and the dashboards of the Control stage give traceability that the manual flow could not offer. McKinsey notes that in digital lending, automated decision engines can be tested against historical applications, in one case predicting default risk better and more consistently than earlier human assessments, which shows that speed and control do not have to be opposites.

What can you do on Monday morning?

Pick one customer facing process that generates complaints, such as an account opening, a loan or a claim, and ask its owner for three numbers. The first is the total time from the customer's request to the customer's answer. The second is how much of that time is work and how much is waiting. The third is the share of cases that go through without being returned for correction. If nobody has these numbers, the first improvement is to start measuring them.

Then ask the team to draw the As-Is process on a wall with the people who execute it, including the handoffs by email. Mark every point where information is typed again, where a file is attached by hand, or where someone waits for a reply. These marks are the first candidates for automation or redesign. For a ready to use format to document and redesign your processes, the ICX Process Transformation Framework toolkit can help structure the work.

How ICX helps

ICX helps financial institutions apply DMAIC from the selection of the process to the control dashboards, combining process analysis, customer experience and the design of the technology that supports the To-Be process. If you want to learn more about this methodology, its tools and how to apply them, visit the ICX DMAIC service page or www.icx.co, where we will be pleased to provide you with all the support from strategy consulting.

Frequently asked questions

Can DMAIC be applied in banks? Yes. Banks process a high volume of transactions through repeatable steps, which is exactly where DMAIC creates value, as the personal loan example shows.

What is an As-Is and a To-Be process? The As-Is describes how the process works today, including its delays and workarounds. The To-Be describes the redesigned process that the team proposes after analyzing the causes of the problem.

Why is an Ishikawa diagram used in the Analyze stage? It helps the team organize the possible causes of the problem into categories, such as systems, personnel and processes, and decide which ones to attack first.

Does improving speed increase risk? Not necessarily. In the example, the new system validates every field, sends alerts for anomalies and keeps the management approval, and the Control stage adds dashboards to monitor the process.

What happens after the Control stage? DMAIC is a cycle. Once the improved process is stable, the team can start again with the next opportunity.

If a process in your institution looks like the As-Is of this case, the next step is a conversation. Request a diagnostic with an ICX consultant to find out where your customers are waiting.