Rukmini Banerjee speaks about moving from simply managing expenses to improving processes. There is a fairly decent correlation between assets per member and operating expenses/assets. But you can be operationally efficient at low asset per member. Over the last 10 years banks have reduced operating expenses while credit unions have increased. Banks have a 60 – 70 basis point advantage now. Credit union’s under $250 million are at the highest cost, while small banks have very similar efficiency of the larger (but not largest banks).

Drivers of operating expenses…delivery channels (branch, call center, web), people – processes – technology (account opening, lending, collections) and products (deposits, loans, insurance, investments). Can use available metrics to compare your members or asset per FTE, assets per branch or % of member who use online channel, etc.

Look at the process as what the inputs are, what impacts the process and what goes out. Then look over a certain time period what inputs occured (number of applications, number of bad apps, etc.), what throughputs (level of staff knowledge, speed of processing, number of touches per application, number withdrawn, number rejected, etc), outputs (dollars loaned, member satisfaction).

Lean Six Sigma is about measuring performance against customer expectations and solving problems with data. Has been used by FIs to reduce operational expense, reduce operational risk, increase revenue and maintain a consistent customer experience.

Six Sigma

This is a methodology that gives you informed choices, it is not a magic bullet. It is a measure of the capability of a process against a customer defined target (how long does it take to close a loan). The higher Sigma of a process the lower number of defects in the process (6 Sigma is 3.4 defects in a million opportunities). Not every process needs to be at 6 Sigma levels. The review process is where the value in, not the level.

Example, airline safety s at 6 Sigma (.5 defects per million flights). Lost baggage is at 3.5 Sigma (35,000 to 50,000 lost items per million). Which would we rather they spent the effort on? Which is more critical to the customer.

Difference in levels depends on volume and importance of the process. Example: 99% good = 20,000 lost mail pieces per hour vs 99.9997% (6 Sigma) of 7 lost pieces of mail per hour. Credit unions need to look at each process and decide what level of accuracy you need to manage balance between cost and risk (lost customer or money).

Until you know what your customer expects and the cost of poor quality you can’t measure your Sigma level. That is what helps you determine what you invest and where you invest.


Lean is a discipline that reduces the time taken from customer request to service delivery by reducing “waste” in a process. Waste is anything that does not add value to the customer. Lean is used to streamline a flow and reduce bottlenecks.

Successful Lean Six Sigma Deployments

To be successful the process must:

  • Be lead from the top down, encouraging efforts and being involved.
  • Employee engagement, where it is okay for employees to raise issues and ask questions.
  • Have accountability reside at the highest level. Even if teams do the work, the executive or business line leader needs to be the decision maker.
  • Don’t expect instant results. It will take time to gather data to measure the impact changes happen. You may also need to evaluate why a change did not have desired results, fix the problem and gather data again.
  • Eliminate. Identify steps that do not add value to the customer and work to eliminate, reduce, or automate those steps.
  • Consolidate/collaborate. Identify homogeneous processes and build scale by consolidating internally or externally. Example, combining inbound and outbound collections call centers.

Take the practical problem (define), determine the statistical problem (measure), build a statistical solution (analyze) and implement the practical solution (improve and control).

Example: regional banks wanted to improve loan officer productivity (define). Turned out that loan officers were spending less than 60% with customers (measure). Analyze: 32% of time was spent on administrative tasks, 15% on getting missing information, 24% answering service questions, only 29% of time spent selling products. Improve and control by splitting role into three with one person shared by branches for admin, one in branch to handle service issues and third to prospect and originate loans.