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GSOE9810 – Process and Product Quality in Engineering Assignment 1: Case Study Manzana Insurance: Fruitvale Branch (Abridged)
Group Number: 13 Team Members: Last Name AKOMEAH BASSAN HE KASIM OROMIEHIE ZHANG First Name Matilda Marco Jie Michael Ebrahim Yan Student ID 3447443 3451903 3469345 3285455 3314896 3352792
Lecturer In-charge: Dr Eric van Voorthuysen Tutor In-charge: Mr James Baulch
Process Flow Diagram
The Process Flow Diagram, or PFD, of Manzana’s Fruitvale branch is shown in figure 1. Some important features of the PFD are as follow: • The coloured arrow is used in order to differentiate the origin of insurance request. As shown in the diagram, the RUN, RAIN and RAP are originated from the customer. On the other hand, the RERUN is originated from the branch record. • The black arrow explains the path that each policy undergoes before being delivered to branch record, customer and agent. • Automatic Renewal System represents the current computerised system to produce RERUN request. • The Branch Record is assumed to store both hard copy and soft copy of the policy, and the data is used as the input for Automatic Renewal System. The elements involved in the PFD are used base on the general convention of process flow diagram, which is discussed by Foster, 2013.
Figure 1 PFD of Fruitvale branch 3 .
that can be verified based on the operational performance. The failure of meeting these criteria indicates the existence of problems. the revenue of a healthy company is more than the expenses.2. 2. otherwise there will be financial losses. Performance of Manzana’s Fruitvale Branch The assessment of the branch performance is conduced based on two key measures. These two key measures are financial and operational performance. 2012).94586 Figure 2 Branch profit 4 .21x + 2257. BRANCH PROFIT 2500 Pro$it in Thousand ($) 2000 1500 1000 500 0 -‐500 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 1989 Year 1990 1991 y = -244. Branch Profit The profit is an accounting measure.7 R² = 0.1. Fruitvale Branch in Exhibit 5 of the case study.1. 2. and therefore profit is generated.1. and the value is obtained by subtracting revenue with expenses (Sullivan. or issues. In general. 𝑃𝑟𝑜𝑓𝑖𝑡 𝐿𝑜𝑠𝑠 = 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 − 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 …  The profit of the branch is shown in the following figure. Financial Performance The data used in analysing the financial performance is taken from the Financial Summary. The key concept in analysing this performance is based on the ability of the branch to achieve satisfactory results or positive trend on some important economic data.
This increase is less significant in compare to the significant drop of gross underwriting result of approximately 56%.98% Q1 1989 (A) 1238 Q1 1991 (B) 1443 Difference (B-A) 205 Increase or Decrease (%) 16.21. There are two significant financial losses in the last two quarters.31% from the first quarter of 1989 to the first quarter of 1991.56% 5 . • • The slope of the trendline is -244. The computation is summarised in the following table. while the ordinary insured losses has been drastically grown over the period. there is minimum variation of net underwriting revenue throughout the period. The reliability of the trend line is assessed based on the R-Squared value. As can be seen in figure 3 below. • • The trend of the profit is assumed to follow linear regression. 3003 1322 -1681 -55. thus the profit has a negative trend. The negative trend and losses are mainly due to the gradual drop of revenue and not because of increase in operating expenses. thus the trendline is reliable. 2013). The operating expenses increased by approximately 16. the significant elements that construct the gross underwriting result are the net underwriting revenue and the ordinary losses.94586.Some key points based on figure 2 are as follow. The R-Squared value of the profit trendline is 0. Financial Data Operating Expenses Gross Underwriting Result Table 1 Revenue and expenses data Furthermore. A reliable trendline commonly has R-Squared value of 1 or near 1 (Microsoft. mainly due to Finance Charge and introduction Salary/Plus program.
GROSS UNDERWRITING RESULTS ANALYSIS $ Value (in Thousand) 10000 8000 6000 4000 2000 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 1989 Year Gross Underwriting Results Net Underwriting Revenue Ordinary Insured Losses 1990 1991 Figure 3 Gross underwriting results analysis 2. or there is a positive correlation.2.00 4. but the market share decreased due to high renewal loss. In the case of Fruitvale branch. The amount of ordinary insured loss is commonly increased if the market share is increased as well.00 2.00 0. Ordinary Losses/Total Policies 10.00 8.1.00 6. This issue can be addressed by analysing the ratio between ordinary insured loss and the total policy. Market Share The drastic growth of ordinary insured loss shows contradiction between market share and amount paid to the customer in term of ordinary insured loss. the ordinary insurance loss increased.00 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 1989 Year 1990 1991 Ratio Figure 4 Ratio between ordinary insured losses and total policies 6 . The analysis is summarised in the following figure.
and it cancels out the revenue generated by the new policies.2.1. 2. Customer Satisfaction The performance measures in regard to customer satisfaction in this case study are the turnaround time.2. The revenue generated by the renewals is shown in the figure 5 below. late number and renewal loss rate. The revenue generated by the renewal starts to decrease from the first quarter 1990. Thus. performance of the agent and the company’s underwriting standard. These measures include customer satisfaction level. The renewal loss has a significant impact toward the profitability of the branch.2.The increasing ratio in figure 4 indicates the existence of problem in regard to the quality of the customer. it has a direct effect toward the profitability of the branch. Operational Performance The operational performance of the branch is assessed based on three main measures. These issues will be addressed in the later section of this assignment. Renewal Loss The lack of ability of the company to maintain their existing customer is represented by the high renewal loss. 2.1. Renewal $ Value (in thousand) 7300 7100 6900 6700 6500 6300 6100 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 1989 Year 1990 1991 Figure 5 Renewal (Dollar Value) 2. employee attitudes toward company’s strategy and day-to-day operation performance. 7 .
The summary in Exhibit 6 shows that the late figure of RUN and RAP is zero. mainly due to the opportunity for obtaining commission earlier or selling more policies.90 99. The high late figure on the RERUN indicates poor service toward the current customer. Thus. Late Number Pareto Analysis is conducted in order to justify that the RERUN has the most significant affect toward the total late figure. has decided to implement a guaranteed TAT of one day.70 99. while RAIN and RERUN increase throughout the year.00 99. Manzana’s main competitors. The data for the analysis is taken from Exhibit 6. the reason behind the high renewal late is due to the priority that is given to new policy. This is a significant competitive disadvantage for Fruitvale branch knowing that agents typically send their clients to the company with the shortest TAT. business. It is clear that in the insurance industry the TAT is a key item. The result shows that RERUN contributes to more than 80% of the total late figure. a significant change toward improvement of TAT is necessary if Manzana want to stay competitive in the Pareto Analysis on Late Policy 3000 2500 2000 1500 1000 500 0 RERUN RAIN RUN RAP Type of Policy Frequency Cummulative Frequency Number of Late 100. This issue is strongly related to the profit generated by new policy and the employee attitude 8 .Turnaround Time (TAT) As indicated in the case study.60 Percentage (%) Figure 6 Pareto analysis in late policy Furthermore. and the result is shown in the figure 6 below. and thus it lead to poor customer satisfaction level. The situation is worsens due to the fact that Golden Gate.80 99. the TAT has increased from three days to more than five days.
Request Summary RERUNs Renewal Lost Total Renewal Rate (%) 1989 5166 849 6015 85. while the standard deviation is 9 . is 15%. Uncontrolled Day-to-Day Operation The data on policy processing time in Exhibit 4 shows that there is a lack of standardisation in performing a task.2. The worse case scenario is taken from the processing of RERUN in the underwriting department. However.3. 2.9% and it decreases to 69. Inconsistency in Following Company Policy The company has used first-in-first-out (FIFO) system as a policy for considering requests. losing some market share each year is a major problem. In 1989.39% 1991 (6 months) 2081 926 3007 69.7. which includes the cause and the affect. Although renewals do not generate high profit for the company. The lost of market share can be measured quantitatively by analysing the renewal rate figure.21% Table 2 Summary of renewal rate 2. renewal rate was 85.2. which will be discussed in detail in the later section of this assignment. The mean in performing the tasks is 18. this policy is not support by employees.89% 1990 4987 1717 6704 74. The computation is summarised in the following table. the renewal loss rate of Golden Gate. which mean there is a significant variation in performing a task. the renewal loss rate increased from 33% in the second quarter of 1990 to 47% in the second quarter of 1991. Manzana’s main competitor. As mentioned before.toward the implementation of Salary/Plus system. will be included in the next section of this assignment.2. As shown in the case study. Renewal Loss Rate The high number of renewal late leads to high renewal loss rate.2% in 1991. the employees tend to give priority to new policy. The discussion of the violation of company policy. On the other hand. This issue is justified based on the high number of standard deviation. which is derived from the data given in Exhibit 7.
19. Outcome The outcome of this analysis is that the branch performance is poor in term of both financial and operational. 10 . 2. the branch profit has a negative trend and there is a significant loss in the last two quarters.8.3. This issue will be further analysed in detail in the next section by using the statistical concepts known as coefficient of variation. the ineffective day-to-day operation and poor attitude of employee toward company policy adversely affects the customer satisfaction level. and the renewal late and loss rate also increase recently which indicates poor customer satisfaction and lost of market share. In term of financial performance. The TAT has increased recently. Next in term of operational performance.
The following figure summarised the issue analysis of the Fruitvale branch. Issue Analysis This section focuses on the issues that have been addressed in the previous section as well as the causes of these issues. Figure 7 Issue tree 11 .3.
the implementation of this policy is considered to be ineffective. the lack of authority and leadership is shown in the attitude of manager of rating department. Inconsistent Implementation of Operational Strategy The original operational policy in each stage of the underwriting process is First-InFirst-Out (FIFO) system in which orders are processed in the same order in which they arrive (Mieghem. The manager recognise the issue and the affect of violating the FIFO policy. or requests. The Causes of High TAT 3. it will lead to lower incoming customer. but the manager could not fix the problem due to the order given by the higher management. Relationship Among Problems 3.1. Furthermore.1. 3. 3. Furthermore. 2005) . thus it will be less attractive to the agents. are processed in order of their arrival. The high TAT leads to competitive disadvantages. The new policy is currently prioritised in different department.1. The FIFO system in Manzana’s operational context can be defined as the documents. while the manager of the policy writing prefers to priorities simple task for the purpose of reducing the backlog.2. The ineffective implementation of FIFO system is caused by the lack of supervision. the shortage of leadership and authority as well as the implementation of “Salary/Plus” system. However. This delay will increase the renewal late. TAT and Renewals The main relation of TAT toward renewal late and loss are mainly the use of TAT to set the due date of new policy.2. thus lowering the profitability of the company. thus the renewal process will be further delayed.2. The manger of each department shows a negative attitude toward correct implementation of FIFO policy.1. The manager in the underwriting department prefers to prioritise RUN and RAP due to its profitability. 12 . TAT and Profit The main relation of TAT and profit is that the agents use TAT as the main criteria to measure the branch’s capability.1. regardless of the importance and the complexity of the requests.3. in which turns out to be renewal loss.
Further.5hrs 73% Table 3 Utilisation rate The significant cause of this problem is the outdated data of processing time required. The large number of backlog affects the computation of TAT. Poor Resource Scheduling and Allocation The poor resource scheduling is justified based on the unbalance workload throughout the period. This activity leads to high backlog number.5hours(75% of daily requests) 37. Distribution Daily Activity Average Time Required Total Time Needed Capacity Available Utilization rate 40 Requests 40min 26. Next. The utilisation rate shows that the rating and policy-writing department are overstaffed. 3. which is sorting the document by priority. and inconsistent processing time will lead to inaccurate SCTs. the affect of poor resource allocation and scheduling is mainly due to the backlog that it creates. which result in low utilisation rate.The second cause of violation of FIFO policy is the company's strategy of giving incentive for each new policy completed and such incentive was not applied for the renewals. Unstandardized Working Procedure The data provided in Exhibit 4 shows that the 95% SCTs are derived based on the policy processing time.5hrs 89% Rating 40Requests 70min 46. and it results in either overtime or idle period.2.7hours 30hrs 89% Underwriting 40 Requests 30min 20hours 22.2.7hours 60hrs 78% Policy Writing 40Requests 55min 27. 3. The computation summary of the utilisation rate is shown in the following table. thus the FIFO policy is violated. the main outcome of this issue is the non-value added activity. The inaccurate data leads inaccurate estimation of the resource and time required to complete the job. Furthermore.3. the poor resource allocation can be analysed based on the utilisation rate in each department.2. which adversely affect the computation of TAT. This quantitative performance measure leads to prioritisation of request. 13 .
1% 105. Furthermore.9% RERUNs 22. The coefficient of variation. 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝐷𝑒𝑣𝑖𝑎𝑡𝑖𝑜𝑛 ×100% 𝑀𝑒𝑎𝑛 Type of Policy RUNs 44.1% 51.5% 21.3% 15.8% 73. and therefore the TAT will be more accurate. and it is computed as the percentage ratio of the standard deviation to the mean. while the processing time in Policy Writing department is relatively in control. The mathematical equation for CV is as below.8% 64. 14 .0% RAINs 21.8% 24. The general interpretation of CV is that data with CV of 30% or more indicates lack of process control (Brown. the uncontrolled process leads to high variation and SCT. The variation of rating department is relatively high. and therefore the TAT will be overestimated.5% RAPs 49.8% 19. the CV for policy processing time in each stage is calculated using the CV equation.4% 27.2% 14. The introduction of standardised procedure may be able to provide better process control.The inconsistent processing time is justified based on the high standard deviation values in some of the process stages. Next. in relation to the computation of TAT. The selected quantitative analysis in order to provide an objective measure of the inconsistency is coefficient of variation. The relation is shown in Figure 1 below.0% 𝐶𝑉 % = Coefficient of Variation Distribution Underwriting Rating Policy Writing Table 4 Coefficient of Variation Result The computation shows that the process variation in Distribution and Underwriting department is mostly out of control with respect of 30% limit as specified by Brown. is the relative dispersion.9% 12. and the result is summarised in table 4 below. 1998). 1998. or CV.
The total number of policies is decreasing in this period so the rise of the ordinary insured losses can be explain with the selection of bad customers by the agent. Implementation of Incorrect Strategy The new management implement a new strategy in which the branch was divided into three territories based on the geographic position.3.1. Poor Originating Agent Performance The number of new policy written and the ordinary insured losses are the two main parameters that can be used to measure the performance of originating agent. the net underwriting revenue is relatively stable while the number of ordinary insured losses increases rapidly from $4. The main purpose of this strategy is 15 .176.Figure 8 Relation between process control and TAT 3. the poor relationship and lack of communication between the branch and agents is one of the contributing factors of this issue.4.2. the agents might prefer other propertyinsured company due to lower TAT and result in a rapid increase of ordinary insured losses. 3. 3.453. However. the RERUNS will be released at the last day before the due date which leads to the congestion of RERUNS and less flexibility of process.000 in the second quarter of 1991.1. and this will ultimately cause the high rate of renewal late and losses and long time TAT.000 in the first quarter of 1989 to $6. Based on the financial summary in Exhibit 5. Thus.3. The Causes of High Renewal Late and Losses 3. Unreasonable RERUN Processing and Due Date The renewal losses and late rate are related to unreasonable RERUNS processing and due date.4.4. The Causes of Negative Profit 3. In addition. A computer automatically generated a RERUN 30 days before the anniversary of the policy and the anniversary became the due date.
As a result. 16 . it is clearly shown that from 1989 to 1991. it seems that the geographical restructuring is ineffectiveness and it has a significant impact to the company’s profitability.to improve the responsiveness toward the agent. from Exhibit 7. Nevertheless. the number of lost renewals increased from 849 to 1852 (two times of 926 in first 6 months in 1991) and the Gross premium was nearly constant during two years.
Incorrect assumption of requests’ transfer procedure 4. the utilisation of the old data in the TAT calculation shows that the company does not have a clear strategy in managing their data.4. the utilisation of the 95% SCTs of Rating and Policy Writing Department is not valid. Therefore. or RUN. The calculation of TAT by Fruitvale branch is included on Exhibit 3. Obsolete input data from Exhibit 4 2. and the issuance of a final policy. regardless of the requests that are currently in the queue. Problem in Turnaround Time (TAT) Calculation The Turnaround Time.2. The following are a brief list of the identified problems: 1. 7 RAPs. Furthermore. or in other word the Underwriting Department needs to wait for approximately 0.1. The context of this calculation is based on the ending week of September 6. Incorrect assumption of process start-up 3. the requests in the Underwriting Departments (3 RUNs. is defined as the number of days between the receipt of a new commercial policy. and it leads to overestimation of TAT. 1991. 6 RAINs and 36 RERUNs) cannot be processed until the requests in Distribution Department have been completed. The graphical representation of this issue is shown in figure 9 below. or SCT that is constructed based on the policy processing time in 1986. 17 . or TAT. Obsolete Data The TAT calculation in Exhibit 3 is taken from 1991 context. the process in the next department can only start once the process in the previous department has been completed. These SCTs are considered to be obsolete due to the installation of computer system in Rating and Policy Writing Department during late 1980s and early 1990s. For example. and it utilised the Standard Completion Time.6 days before they can start the process. The installation of computer system has significantly reduced the processing time required to complete activities in these two departments. There are some problems identified in regard to the current calculation of TAT. 4. Inaccurate Assumption of Process Start-up The computation of TAT in Exhibit 3 is conducted based on the assumption that.
This assumption will reduce the estimation of TAT as well as improving its accuracy. It means that each department will immediately process requests that are currently in the queue and does not wait for the previous department to complete their tasks. Figure 10 Parallel process start-up assumption 18 .Figure 9 Sequential process start-up assumption The assumption of the sequential process start-up leads to overestimation of TAT. The alternative assumption that can be used to estimate TAT is by assuming processes in a different department start in a parallel manner. The graphical representation of this assumption is shown in the following figure.
Thus. Furthermore.3. and it also results in overestimation of TAT. This assumption is incorrect since the company does not implement a batch transfer policy. 19 . the individual transfer is preferable and the use of this assumption may improve the reliability of TAT. Incorrect Assumption on Request’s Transfer Procedure The current computation of TAT assumes that the requests are transferred in batch. the utilisation of individual transfer required addition delay period to prevent underestimation of TAT.4.
Lastly. thus the policy is violated. Recommendation to Fruitvale The availability of information ranging from the company’s background. Reduces TAT Improve the net income 20 . The proposed recommendations for solving the identified issues are discussed in detail in this section. operating procedures and the company’s performance is utilised for revising and modifying the company strategy and policy. such as sorting Reduces the renewal late and lost due to the elimination of prioritisation. a matrix diagram is included as the basic guideline on the significance of recommendation toward further improvement. organizational structure. 5. not the premium generated by the policy • Introduce supervision system to ensure the policy is followed. This information serves as roadmap for the recommendation for further improvement. Related issue: Recommendations toward the issue: • • Emphasise the criticality of FIFO policy Emphasise the importance of customer satisfaction. and allocate penalty Effects toward improvement: • • • • Reduces the non-value added activities. The discussions for each recommendation include the related issue. the recommendation proposal and its effect toward further improvement.5.1. • FIFO System and Penalty The teams in different department are currently prioritising the incoming request.
2. 21 .5.4. will overcome the increase in expenses. This action will increase the operating expenses. Related issue: Recommendation toward the issue: • The incentive will be paid for all policy written above quota. Revaluate the input data for estimating TAT. in term of improvement in revenue. • Revaluate Salary/Plus System The introduction of Salary Plus system leads prioritisation of new policy since the incentive will be paid only for each new policy written about quota. Improvement of TAT in term of low TAT and its accuracy Related issue: Recommendations toward the issue: • • The effect toward improvement: • 5. Effects toward improvement: • • Enhancing the FIFO policy Reduces the renewal late rate 5.3. Revaluate the method in estimating TAT due to some issues in the computation that have been addressed previously. The additional information for correct TAT computation can be obtained by benchmarking the computation. • Revaluate Turnaround Time Computation The high turnaround time is a main competitive disadvantage for the branch. • Revise the Agent’s Commission The significant gap of renewal commission (7%) and new policy (25%) motivates the agent to focus on getting a new customer despite of the quality of the client. but the benefits. Related issue: Recommendation toward the issue: • Decrease the gap between the commissions by increasing the commission of renewal policy.
thus reducing the renewal late. 22 .5. Effect toward improvement: • • Even and balance workload for employee Reduce the TAT due to better resource utilisation 5.6. • Revise the Terrorise Strategy The division of territory strategy is introduced to improve the responsiveness. 5. thus it is ineffective. Related issue: Recommendation toward the issue: • Implementation of data management system such that regular update from the main company can be obtained in a real time manner. Related issue: Recommendation toward the issue: • Establish the clear guideline in regard to receiving and processing RERUNs that are generated by the computerised system Effect toward improvement: • Prevent unnecessary delay of RERUN process. thus improving the branch’s profitability. thus a proper data management system needs to be implemented for the purpose of regular data update.Effect toward improvement: • The good quality customer will reduce ordinary insured losses. • Guideline for Computerised System The implementation of computerised system to ensure on time RERUN processing is not effective due to lack of guideline. but this strategy in fact increases the renewal lost. 5. Related issue: Recommendation toward the issue: • Bringing the underwriting teams together in order to centralised the policy processing.7. • Data Management System The out-dated data used in the TAT calculation leads to inaccurate estimation.
• Standardise Working Procedure The large variation of the process in each department leads to high TAT computation. 5. such as flowchart.8. Effect toward improvement: • The low variation of process leads to lower Standard Completion Time (SCT).9. The matrix diagram is shown in the following figure. Related Issue: Recommendation toward the issue: • Establishing a standard working procedure that provides clear guideline of the step-by-step procedures that need to be done for different policies in different department. can be implemented to improve the effectiveness. Outcome The matrix diagram is constructed in order to show the priority of the recommendation and inform the management regarding the significance of each recommendation. The use of graphical representation. Figure 11 Matrix diagram 23 . thus it reduces the overall TAT estimation. 5.Effect toward improvement: • Improve the accuracy and reliability of TAT calculation and other related computation.
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