Financial Services Six Sigma

Did you know that on average 30-40% of financial institutions’ back office cost and infrastructure is spent on catching and fixing errors?  That, in the world of Six Sigma is called hidden cost.  Meanwhile 36% of banking executives, in a recent survey, indicated that narrowing margins and increasing operating costs are of utmost importance.

In our world, branches or retail divisions most often receive the greatest amount of “attention.”  This is understandable given that they are the first point of customer contact and a source of revenue generation.  Conversely, back office transactions or the operations division is the most overlooked unit.  This neglected area is riddled with operational inefficiencies and processes that are not-customer centric.  The end results have been:

1.      High cost per transaction

2.      Operational risk in the millions

3.      Customer service delivery variation

While overlooked, the operations unit represents a key milestone in the overall value chain of a transaction. This unit, while invisible to the customer (as there is no direct interaction with them), delivers equal value via the speed and accuracy with which it completes a transaction.

If the operations unit maintains the status quo and does not engage in process improvements, it will continue to pose great risks - operational and financial - to institutions for the following reasons:

• Inconsistent Service Delivery - The customer experience does not end at the branch.  It ends at the back office where their requested transaction is completed, i.e., opening a new account, performing a wire transfer or an ACH transaction.  Inefficient operational processes lead to inconsistent service delivery.  Just remember that your customers remember “foul-ups” and not average performance.
• High Operational Costs - Process inefficiencies are directly linked to high transaction cost and unidentified operational risk.  Given that most financial transactions are not visible, improving them is difficult. Therefore, the first step to reducing cost is through mapping out the current state of your operations.
• Poor Process Controllership – Sarbanes-Oxely has been the force behind process documentation in order to help institutions identify process failure and risk points.  When processes are inefficient they inherently bear risk.

In the drive to satisfy your customer needs  focus first on improvements in the back office.  Not only has this simple fact been overlooked for decades, resulting in highly customized (read not sustainable) processes, but it is the critical point in the value chain where errors are identified and corrected.

Sheila Shaffie - ProcessArc, Inc.