Management accounting

Vaibhav Bathla
101164061
Case A: State Loan Analysis Department—Process Analysis.
State Loan Analysis Department (SLAD) is a state agency that analyzes loan applications
for other state agencies. Currently, fifteen state agencies are SLAD’s customers. These fifteen
agencies make loans to citizens that meet present criteria. Some of the major criteria
include low income, student support, disaster relief, and business location in special
economic zones. SLAD processes all the loan documents generated by the fifteen lending
agencies and charges them a fee for processing services based on the average cost of
processing all loans.
Background.
SLAD is twenty years old and was originally an offshoot of the student loan agency.
Student loans from this agency still account for a large part of SLAD’s business. When
other state agencies began to make loans, it seemed logical to have a single department
process all loans. SLAD already had the necessary expertise and control systems in place
and was chosen as the state agency to process all loans.
SLAD has always prided itself on the quality of its work. Now, much to the chagrin of
the department’s chief administrator, there are a number of complaints about the cost and
quick analysis of complaints shows that the cost complaints are coming primarily from
student loan agencies and the timeliness complaints from other agencies.
The existing process.
Loan applications typically arrive in the mailroom, which sorts and date stamps them
before delivering them to the recipients. The existing loan application review process has
four distinct activities: Logging; Information check; Eligibility check; and Acceptance/
Follow-up. The main steps in each activity are described below.
Logging. Mail is typically delivered to loan loggers twice a day. Upon receipt of
mail, the loggers log each loan into a computer database, give the application a unique
number, and place it in a storage bin according to loan type. This process takes about 15
minutes per application. The loan applications wait in storage until there are 100 applications
or the first application has been there for one week. The average time to collect a
batch of 100 applications for non-student loans is 3 days. A batch of 100 student loans
stays in the logging area for approximately 4 hours. The primary reason for grouping loans
into batches is that there are different requirements for each type of loan and less mistakes
occur when “information checkers” check for the proper requirements of similar loans.
This insures compliance with legal loan requirements. A runner takes the completed
batches to information checkers. The run time is 15 minutes.
Information check. An information checker reviews each application in a batch to
be certain the data is complete and attaches a checklist noting incomplete data. This
process takes about 2 hours per batch of student loans. Batches of non-student loans
require about 8 hours to check. Student loan agencies have become very good about getting
complete information on applications, but one piece of information is missing on
almost all other agencies’ loan applications. Batches of loans with incomplete applications
are sent to an incomplete facilitator. Run time takes 15 minutes. Facilitators send a missing
items request to the submitting agency. Sending missing item requests and follow up
takes 4 hours per batch. (Remember that student loans do not require this time.) Collecting
answers until all data is complete normally takes 5 days. Completed loan applications are
sent to eligibility analysts. The run time again is 15 minutes.
Eligibility Check. A data entry specialist enters batches of complete loan applications into a
computer system using a template designed for this particular loan type. This
template automatically performs several data checks and identifies questions that require
analysis. Questions about income and other eligibility factors are printed and directed to
individuals trained in these individual areas. There are income analysts, eligibility analysts,
and other issue analysts. This requires 2 hours of computer and operator time and 6
hours of analyst time per batch of loans. While these queries are being completed, the
entire batch is carefully controlled at an in process storage site. This process normally
takes 3 days for batches of student loans, and 7 days for other types of loans due to the
wide variety of questions and credit references that have to be checked.
Acceptance/Follow-up. A runner takes the batch with answered queries to a special data
processing clerk for entry into the computer loan file. This takes 15 minutes.
The computer stores the answers and assigns a loan acceptability number to each loan. A
full analysis of a batch of student loans is completed in four hours. Special purpose loans
from other agencies take approximately twice as much time because there are more variations
in lending factors that must be considered. Finally loan batches are taken by runners to letter
writers. The run time is 15 minutes. Letter writers summarize the loan
findings by inserting the numerical analysis into a standard form letter and adding any
special notations on the loan made by any individual involved in the process. A loan batch
is in this area for about 2 days although each application letter takes only about 3 minutes.
 When a batch completes this process, letters are mailed. The file is then sent to a follow
on analyst.
Required:
a. Prepare a detailed activity flow chart of the loan analysis process for the SLAD using
the activity description provided above.
b. What is “cycle time” for processing student and non-student loans?
c. Explain the definition of “cycle time” that you have used in answering (b).
d. How would you measure “quality” for this process?
e. What improvements in the process would you recommend?
a.
Logging Information check Eligibility check Acceptance/ follow
up
2 deliveries per day Student loans 2 hrs 2 hrs of compute and Running file is 15
per batch and non operator time mins and full anlysis
student batch is 8 hrs 6 hrs of analyst is 4 hrs
15 mins for 1 Incomplete Careful process Loan time 2 days and
application appplications 15v ins storge time of entire 3 mins for letter
run time batch is 3 day sof writer
student loans and 7
days of other types
of loans
A batch of 100 Missing items
request is 4 hrs
Storage time for non Collecting answers is
student is 3 days and 5 days
students is 4 hours

b. cycle time is the total elapsed time to move a unit of work from the beginning to the end of
a physical process.
c. Cycle time = Average time between completion of units. Example: Consider a
manufacturing facility, which is producing 100 units of product per 40 hour week. The
average throughput rate is 1 unit per 0.4 hours, which is one unit every 24 minutes. Therefore
the cycle time is 24 minutes on average.

d. the quality of the process is measurable by:

 Failure or reject rates

 Level of product returns
 Customer complaints
 Customer satisfaction – usually measured by a survey
 Customer loyalty – evident from repeat purchases, or renewal rates