An organisation approached Challenge Advisory, seeking help in coordinating the relationship of its middle-market line of business with its risk management group.
An organisation approached Challenge Advisory, seeking help in coordinating the relationship of its middle-market line of business with its risk management group. Previously, any work occuring between the two departments was characterised by commercial-credit decisions that were ineffective and inappropriate.
There were also problems with tracking portfolios, and it was found that key performance were either lacking or biased toward one department or the other. Additionally, loan charge-offs exceeded normal expectations, and the client made little to no economic profit on significant portions of its middle-market credit portfolio, after full-loading at all costs.
Challenge Advisory’s risk team came together to discuss the best method of client service. They began by examining the client’s portfolio in order to identify areas of risk, as well as the level of risk at each area. To do this, Challenge Advisory conducted a full analysis of the client’s pipeline in order to understand the client’s attitude towards risk and to assess the credit outlook across each dimension and aspect of the client’s business.
Challenge Advisory then complimented this by delivering a comprehensive report on the end-to-end process across all sites, reporting on metrics such as time, quality and overall cost. To achieve this, Challenge Advisory’s risk team identified sources of variation, and modelled end-to-end economics, which helped them to establish the appropriate tradeoffs, and mapped out the roles and responsibilities of the client’s organisation.
Challenge Advisory also helped the client to improve their Product Lifecycle Management with new software designed to integrate all aspects of their business for leaner operations. The new technology also helped them to improve their labour costs overall, as more work could be done in their own offices, and the need for outsourcing became substantially lower.
After this, the following step was to establish benchmarks among the client’s competitors, assessing current performance against that of their competitors and other likely market entrants. Challenge Advisory then used these results to develop a list of recommendations for the client that identified opportunities for them to manage their risks and costs, in order to gain competitive advantages and enhance their customer satisfaction. As well as this, Challenge Advisory collaborated with the culpable parties, the client’s risk management and middle-market line, in order to clarify the roles and responsibilities for both sections of the client’s business.
Challenge Advisory’s integrated risk and management strategy aligned perfectly with the client’s overall business objectives. As a result, the client’s credit process became much more efficient and streamline, which is projected to save the client around $15 million in the first year of implementation. An improved focus on origination quality and reduced charge-offs was expected to boost capital return by around 3% over three years.