Master'S Thesis: Six Sigma in Swedish Banking

2010:100 CIV
MASTER'S THESIS
Six Sigma in Swedish banking

A case study in the applicability of Six Sigma from improvements
in the loan process
Jonas Karlsson
Luleå University of Technology
MSc Programmes in Engineering

Industrial Business Administration
Department of Business Administration and Social Sciences
Division of Quality & Environmental Management
2010:100 CIV - ISSN: 1402-1617 - ISRN: LTU-EX--10/100--SE

Six Sigma in Swedish banking: A case study in the applicability of Six
Sigma for improvements in the loan process. Jonas Karlsson © 2010
ACKNOWLEDGEMENTS
There is only one author named on the front cover of this thesis. I would not
mind adding a couple more there, as the support I have received at the bank
has been incredible. I would like to thank the consultant team with whom I
worked very close during the initial twelve weeks. Christian, Jan and Ylva
you are the best and I would not have made it without your help and support.
I’d also like to thank my supervisor Helena for finding such an interesting
and challenging project to participate in and guiding me through it. Thanks to
Elisabet for the idea of doing my master’s thesis at the bank, it was a good
one. To my supervisor Peder Lundqvist, thanks for your support and guid-
ance, even though we didn’t see each other until the final presentation.
To the entire community, thanks for the great reception and keep up the good
work.
Jonas Karlsson
Stockholm, June 14, 2010
i
ABSTRACT
Six Sigma is proved to be an effective way of improving the quality of proc-

esses and products in a wide range of industries. At the major banks in Swe-
den, Six Sigma has not yet had a major impact, even though the methodology
has been successfully used in banks in other parts of the world. In this thesis
the applicability of Six Sigma in a Swedish bank is explored using a case
study.
The subject of the case study is the loan process at a major Swedish bank. The
loan process is defined as the activities taking place after the loan has been
disbursed to the customer to ensure the bank’s legal right to seize the securi-
ties used as collateral in the case of a default by the customer. The loan proc-
ess is approached using the DMAIC cycle with the objectives of lower opera-
tional risk, less rework and higher customer satisfaction.
The results of the case study show that Six Sigma can be used at Swedish
banks. There are however problems with the availability of data as well as the
maturity of the organization and the employees’ competences in handling
large data sets. New tools to monitor the loan process and to act on deviations
are developed in the thesis.
SAMMANFATTNING
Sex Sigma är ett bevisat effektivt verktyg för att förbättra processer och pro-
dukter i en rad olika industrier. Hos storbankerna i Sverige har Sex Sigma
dock inte fått något större genomslag trots att metodiken använts framgångs-
rikt av banker i andra delar av världen. Uppsatsen använder en fallstudie för
att undersöka möjligheten att använda Sex Sigma hos en svensk bank.
Fallstudien fokuserar på låneprocessen hos en av de svenska storbankerna.
Låneprocessen är namnet på de aktiviteter banken utför för att säkerställa sin
legala rätt att lagföra de objekt som använts som säkerhet om kunden skulle
upphöra med sina lånebetalningar. DMAIC-cykeln används för att försöka
förbättra låneprocessen ur perspektiven operationell risk, omarbete och
kundnöjdhet.
Resultaten från fallstudien visar att Sex Sigma kan användas på svenska ban-
ker. Dock finns det problem med tillgängligheten av data, organisationens
mognadsgrad och kompetensen hos medarbetarna att hantera stora data-
mängder. Nya verktyg för att öververka och agera på avvikelser i låneproces-
sen har utvecklats under examensarbetet.
ii
LIST OF ACRONYMS
BIW: Business Information Warehouse
CTQ: Critical to Quality
DMAIC: Define, Measure, Analyse, Improve, Control
FTE: Full-Time Equivalent
KPI: Key Performance Indicator
SLA: Service Level Agreement
iii
CONTENTS
1 INTRODUCTION ........................................................................................................... 1
1.1 BACKGROUND .................................................................................................................. 1
1.2 THE CASE STUDY .............................................................................................................. 2
1.3 PURPOSE, OBJECTIVE AND LIMITATIONS ........................................................................ 2
1.4 POTENTIAL SAVINGS........................................................................................................ 3
2 METHODOLOGY ........................................................................................................... 5
2.1 CASE STUDY...................................................................................................................... 5
2.2 SIX SIGMA ......................................................................................................................... 5
2.3 DATA WAREHOUSING...................................................................................................... 6
3 THEORY ............................................................................................................................ 8
3.1 CUSTOMER SATISFACTION............................................................................................... 8
3.1.1 Bank loans and the Kano model ..................................................................................... 8
4 EXECUTION ................................................................................................................... 12
4.1 DEFINE ............................................................................................................................ 12
4.1.1 Define and concretize the problem............................................................................... 12
4.1.2 Identify the customers and their requirements............................................................ 12
4.1.3 Identify CTQs .............................................................................................................. 12
4.1.4 Map overall process ..................................................................................................... 13
4.2 MEASURE ........................................................................................................................ 13
4.2.1 Determine the current state......................................................................................... 14
4.2.2 Current measurement tool........................................................................................... 14
4.2.3 Develop measurement tool........................................................................................... 15
4.3 ANALYZE ........................................................................................................................ 18
4.3.1 Identifying different types of errors ............................................................................. 19
4.3.2 Identifying sources of errors ........................................................................................ 20
4.3.3 Conclusions from the analysis ..................................................................................... 21
4.4 IMPROVE ......................................................................................................................... 21
4.4.1 Closing the feedback loop ............................................................................................. 21
4.4.2 A need for a new branch manager report..................................................................... 22
4.4.3 Developing the new branch manager report................................................................ 22
4.4.4 The process owners lack of data as decision basis ........................................................ 24
4.4.5 Monitoring tool for the process owners ....................................................................... 24
4.4.6 Further development of the measurement tool ............................................................ 25
4.5 CONTROL........................................................................................................................ 26
5 CONCLUSIONS & DISCUSSION............................................................................. 28

5.1 CONCLUSIONS ................................................................................................................ 28
5.2 RESULTS & SAVINGS ...................................................................................................... 29
5.3 DISCUSSION .................................................................................................................... 30
6 REFERENCES ................................................................................................................. 33
APPENDIX ............................................................................................................... 4 PAGES
iv
1 INTRODUCTION
This section presents the purpose and objective of the study and argues for why the
chosen subject is relevant to research. A short description of the empirical project is
delivered as well as the limitations.
1.1 BACKGROUND
Recent economic turmoil has put significant pressure on banks to cut cost and
decrease operational risk while maintaining a high level of customer satisfac-
tion. While events like financial crises are ultimately caused by human behav-
ior, it is still an operational risk and its results need to be dealt with. Opera-
tional risk is defined as “the risk of loss resulting from inadequate or failed
internal processes, people or systems or from external events” (Basel Commit-
tee on Banking Supervision, 2003). Williams, Bertsch, Dale, et al. (2006) argue
that operational risks are best dealt with using quality management tools
since the causes of operational risk lie within the organization and are there-
fore in the organization’s power to eliminate.
The four major banks in Sweden are Handelsbanken, Nordea, SEB and Swed-
bank. All major banks except Handelsbanken have initiated quality im-
provement programs based on Lean to increase the quality of both customer
facing, back office and cross-processes (Andersson & Cornéer, 2009). The
methodology of the three banks share a common base, since they all took help
from McKinsey & Company in developing and implementing the program
(ibid). Lean is, however, not the only methodology available for quality im-
provement. A case study using Six Sigma to improve an internal process at a
US financial service organization by Kumar, Wolfe and Wolfe (2008), showed
an improvement in process throughput time from 20 days to 15 days. Kumar
et al.’s work has demonstrated a significant potential for Six Sigma in finan-
cial services. The applicability of Six Sigma and possibility to co-exist with
other quality improvement programs, such as the ones in three of the major
Swedish banks, is not known.
Six Sigma is a well-established methodology for improving products and
processes. It has been predominately used in the manufacturing industry,
even though many argue, e.g. Keller and Pyzdek (2009) and Hayler and Nich-
ols (2006), that it is just as well suited to be applied in the service industry.
Certain sectors of the service industry, such as banking, have been more eager
than others to adapt the Six Sigma methodology with most of the companies
being from North America (Antony, 2006). The literature available on the up-
take and use of Six Sigma in Swedish banks is non-existing and initiated
sources in the business say that application is scarce at best. Hayler and Nich-
ols’ (2006) list of 31 banks involved in notable Six Sigma application included
only two banks (Holland and Germany) not belonging to the Anglosphere or
Asia. The positive results from Kumar et al.’s case study, combined with the
lack of documented application of Six Sigma in internal processes at Swedish
banks, is an interesting invitation for further studies. Exploration of the appli-
1
SIX SIGMA IN SWEDISH BANKING
cability of Six Sigma alongside other quality improvement programs at a

Swedish bank will be conducted in this thesis using a case study.
1.2 THE CASE STUDY
Selecting the right project to conduct using Six Sigma methodology is crucial
for its success (Heckl, Moormann & Rosemann, 2010). Insufficient quantity
and quality of data are named as major causes of failed projects (ibid; Antony,
Antony & Kumar, 2007). Several authors, including Keller and Pyzdek (2009),
have developed extensive evaluation models for Six Sigma project selection.
Antony, Antony and Kumar (2007) provide a scaled down checklist for the
characteristics of good six sigma projects. They are, in selection, as follows;
• The problem is recognized to be of major importance to the business in
terms of cost, quality and customer satisfaction.
• The project is do-able in less than six months.
• Quantitative measures of success before and after the project should be
available.
For the case study, a process fulfilling these criteria has been chosen. The case
study will try to reduce the average throughput time of the loan process at a
major Swedish bank. The loan process is defined as the activities taking place
after the loan has been disbursed to the customer. The purpose of the loan
process is to ensure the banks legal right to reclaim its money, should the bor-
rower default. The bank ensures this ability by acquiring securities, such as
the pledge to a house, and keeping it as collateral. In Sweden, securities for
loans are not acquired before the disbursement of funds. The Swedish design
exposes domestic banks to a higher operational risk and it is therefore crucial
that the process of acquiring securities is operating correctly and swiftly. Fail-
ures in the process of acquiring securities require additional non-value add-
ing contacts with the customer, which have a significant negative impact on
customer satisfaction. Quantitative data on the process is available for analy-
sis in the bank’s IT systems. The case study will be conducted concurrently
with an improvement project within the bank’s lean program.
1.3 PURPOSE, OBJECTIVE AND LIMITATIONS
The practice of Six Sigma as a method of improving internal processes at a

Swedish bank is largely undocumented. A study documenting the application
on a similar process at an US financial service organization has demonstrated
great potential for the Six Sigma methodology (Kumar et al., 2008). Can the
same methodology be used without modification to improve another process
in another country? Is Six Sigma the preferential methodology to drive im-
provements at a Swedish bank? Is it at all useful or should certain parts be ex-
tracted and integrated with the current lean-based methodology? Several
questions are of interest for further research in this area; however, the pur-
pose of the thesis has been defined as:
Explore the possibilities of using Six Sigma methodology to improve an internal proc-
ess at a major Swedish bank.
2
INTRODUCTION
The answers to these questions will be of great value both for the bank at
hand as well as for other organizations in the banking industry looking for
ways to improve various processes whether the goal is efficiency, cost, cus-
tomer or all of them. Answers to the questions posed in the purpose will be
answered by conducting a case study of the loan process at a major Swedish
bank. The objectives of the case study, and likewise the thesis is to:
Achieve cost savings in the loan process by recommending and implementing im-
provements to decrease the throughput time. Resulting in increased customer satisfac-
tion, a reduction of operational risk and rework using the Six Sigma methodology.
The thesis will be limited to the activities taking place after the credit decision
has been made, i.e., it will not involve the process of deciding which custom-
ers are credit worthy and which are not. This limitation is made since it would
make the scope of the thesis too large and because the credit decision is not a
problem area. While the case study has support of management, the financial
resources available to spend on development in IT systems are limited. Since
the loan process is largely a manual process, it inheritably provides obstacles
associated with measuring humans instead of machines. The ability to im-
plement changes in the process is also somewhat limited because of two fac-
tors. Number one; purposed changes to the design on the process need to
pass through the process owners in order to be implemented. Number two; a
major cause of variation is thought to originate from the advisors who sell
loans to the customers at one of almost 200 branches all over Sweden. Chang-
ing the behavior of such a large and geographically diverse group of people
will be a challenge even with adequate resources.
1.4 POTENTIAL SAVINGS
The savings that are possible in this project are:

• Man-hours saved because of less rework.
• Decreased value at risk due to less unfinished loans.
• Less negative impact on customer satisfaction as a result of not having
to contact customers as often.
For each error committed, an extra 20 – 60 minutes is needed to correct the
error. Very few loans default, especially for mortgages since your home
would likely be among the last things you stop paying for. However, defaults
do happen and when they do, the bank needs to have acquired the securities.
The fewer loans circulating in the process, the less value is at risk incase of a
default. With less work in progress in the process, the probability of docu-
ments going missing is likely to decrease which means the bank does not have
to contact customers to re-sign documents. Thereby an unnecessary contact is
avoided and the customer will not become dissatisfied with the service of the
bank.
3
4
2 METHODOLOGY
In this section, the methods for achieving the objective and purpose are presented as
well as an argumentation for why the specific methods have been chosen.
2.1 CASE STUDY
Case studies are a frequently used research method in social sciences in di-
verse disciplines as psychology, political science and business (Yin, 2003). Yin
argues that a case study should be used when “how” or “why” questions are
being posed. The purpose of the thesis can easily be formed as a “how” ques-
tion by rephrasing it as “How can Six Sigma be used to improve…”, provid-
ing argument that a case study is a suitable research methodology. Yin rec-
ommends that the case study should have a multi-case design to improve
chances of reaching more generalizable results. As the time and resources for
this thesis are limited, only one case study will be conducted. Parallels will
however be made to a previous case study in a similar setting conducted by
Kumar et al. (2008). Using case study as the research method seems to match
up well with the requirements, but is there not other methods that could have
been used? A literature study is not possible since there is not enough written
on the subject of Six Sigma in Swedish banks. There are virtually no practitio-
ners to interview for a survey study (GE Money Bank being the exception, but
they are rather small in Sweden) and conducting research as an experiment is
not feasible. A case study is therefore deemed as the most appropriate
method of research. Baxter and Jack (2008) argue that a case study is a re-
search methodology that facilitates exploration of a phenomenon within its
context. One could argue that the context (major Swedish bank) is more inter-
esting than the phenomenon (Six Sigma as a way of improving quality) since
the latter has already been thoroughly studied in other settings.
2.2 SIX SIGMA

Six Sigma is “coupled with the use of facts and data to reduce process varia-
tion, thereby enabling organizations to deliver consistent, high-quality serv-
ices to customers” (Hayler & Nichols, 2006). According to Keller and Pyzdek
(2009), Six Sigma is “a rigorous, focused, and highly effective implementation
of proven quality principles and techniques” while Sörqvist and Höglund
(2007) see Six Sigma as a “concept to continuously improve an organization’s
processes and products”. Even though the authors use different wordings to
describe Six Sigma, they are not contradictory and are in large harmonizing
with each other. There are basically two major project models in Six Sigma,
DMAIC (Define-Measure-Analyze-Improve-Control) and DMADV (Define-
Measure-Analyze-Design-Verify) argues Keller and Pyzdek (2009). DMAIC is
used when improving an existing product or process whereas DMADV is
employed when developing a new product or process. There are several dif-
ferences, but also similarities between the two projects models (ibid), but also
in how organizations use them. General Electric has taken the generic Six
Sigma methodology and tailored it to their needs while Honeywell has devel-
5
oped their own proprietary Six Sigma approach (Kumar et al., 2008). An
overview of four authors’ view on DMAIC is shown in Table 1 in Appendix.
By studying the views expressed in Table 1 in Appendix, it can be concluded
that on an overall level the different authors have quite a harmonizing opin-
ion of what the different phases of the DMAIC cycle mean. Six Sigma consists
of a whole range of tools and techniques that are deployed in one or more of
the phases of the DMAIC cycle. No standard exists as to which tool should be
used in which specific phase, rather the best suited tool should be used. In
Heckl et al.’s (2010) survey on which tools Six Sigma patricians in the financial
industry found most useful, emphasis was put on the more basic quality tools
(Pareto charts, Ishikawa diagrams) rather than on more advanced statistical
tools such as calculating process capability, sigma value and design of ex-
periments. The tools need to be adjusted to the problem at hand as well as the
industry. The Six Sigma methodology outlined by Keller and Pyzdek (2009)
will be used in this thesis since it is very comprehensive and provides discus-
sions as well as examples of when and how to use a tool.
2.3 DATA WAREHOUSING
In order to explain the complexities involved in getting access to data at the

bank, the concept of data warehousing is explained. Using a data warehouse
is a rational way of making data accessible, because other units within the
bank could potentially reuse the data. The common way to distribute data in
the bank is through the use of data extracted from source systems to Microsoft
Excel-files. This method of dealing with data makes analysis and automation
less flexible and more manual. Data made available through data warehous-
ing is stored on database servers that are readily available and not requiring
any manual handling for the end user.
Most corporations generate large amounts of data through the use of IT sys-
tems. For example, when a customer places, pays or signs for an order, this is
usually recorded in one or several computer system. Lately corporations have
identified the benefits of making data from these systems available to end us-
ers within the company (Keller & Pyzdek, 2009). The practice of making
transactional data readily available is called data warehousing and is illus-
trated in Figure 1.
Figure 1. The principle of data warehousing adapted from Keller and Pyzdek (2009).
6
METHODOLOGY
The major components of data warehousing are (ibid):

• Source systems are where the data comes from.
• Data transportation is the process of moving data from one system to
another.
• Central repository is where all data is stored.
• Metadata describes what information is available.
• Data marts contain tables with specialized extracts of data from the cen-
tral repository.
• End users are the ones who act on the data delivered and the reason
that the data warehouse exists.
Of the data available in the source systems, not everything is transported to
the central repository. Only data requested by the end users are transported
from the source systems to the central repository. Depending on the age of the
source system, the transportation of data will occur with different frequency
and with different levels of automation. A central repository, called the Busi-
ness Information Warehouse (BIW) is available at the bank where the case
study is conducted and is potentially a great source of information. Data from
the central repository is delivered to end users in the form a database table
that can be accessed from common applications such as Microsoft Excel or
Access.
2.4 VALIDITY & RELIABILITY

The primary data source in this study is the quality log, where reviewers log
errors committed in the loan process. Errors in the process have a large im-
pact on the process time of the loan process and are as such interesting to
measure. The validity can thus be considered as high. For the reliability, this
is unfortunately not the case. As humans log the errors, there are several is-
sues with how errors are measured. Firstly, according to Annelie (personal
communication, April 12, 2010) only about 40 % of all discovered errors are
logged. Secondly, what one reviewer regards as an error another might not.
The errors that are logged in the quality log are most certainly generated by
an actual error, but a lot of errors do not end up being logged. This uncer-
tainty in reliability needs to be taken into consideration when analyzing the
data in the quality log. By analyzing data over a longer time span, the affects
of uncertainty from the reviewers’ logging can be reduced. If one branch
month after month rank amongst the top ten committers of errors, this is
more likely an affect of them making a lot of errors rather then a skewed log-
ging process.
7
3 THEORY
Herein, the theoretical framework underpinning the empirical parts of the study are
presented.
3.1 CUSTOMER SATISFACTION
Satisfied customers are one of the most important factors in running a suc-
cessful business today. There is a strong correlation between customer satis-
faction and positive effects for the business (Anderson, Fornell & Lehmann,
1994). These positive effects are for example increased customer retention,
customers recruiting new customers through word of mouth and increased
repeat business. All of which boils down to increased profitability for the or-
ganization. Johnson, Nader and Fornell (1996) argue that “the degree to which
customers are satisfied with their loan experience plays a central role in their
loyalty to the bank and its profitability”.
Acquiring new customers is more expensive than retaining existing ones;
therefore, maintaining satisfied customers is a main objective for many orga-
nizations (Ahmad & Buttle, 2001). In order to be successful organizations
need to be aware of what is affecting the satisfaction of their customers and in
what way. According to Johnson et al. (1996), conventional models for de-
scribing customer satisfaction are not valid for explaining customer satisfac-
tion when selling loans. They argue that since customers generally have lim-
ited experience with the loan process, customer satisfaction cannot be de-
scribed using the disconfirmation model i.e. the difference between expecta-
tions and performance. Johnson et al. (1996) argue that customers’ expecta-
tions are an artifact of the service production process and do not affect satis-
faction. Instead perceived performance should be considered the predomi-
nant determiner of customer satisfaction. However, perceived performance
must co-vary with the customers’ stated expectations (ibid). Giving the cus-
tomer such a pleasant experience as possible is thus a way of creating satisfied
customers.
3.1.1 Bank loans and the Kano model
As stated by Johnson et al. (1996), customer satisfaction is largely dependant
on perceived performance, but must also co-vary with the customer’s stated
expectations. In practice, this could mean that the customer expects to be of-
fered a loan with a competitive interest rate, but will not have any expecta-
tions how long time the process will take.
How can banks make sure that the perceived performance is as high as possi-
ble? The answer is by avoiding pitfalls and designing customer centric proc-
esses. Pitfalls include not fulfilling stated expectations and failing in funda-
mental areas (not disbursing the loan in time). A model for understanding
how fulfillment of expectations affect customers satisfaction is the Kano
model, developed in the 1980’s by Japanese Professor Noriaki Kano.
8
THEORY
The Kano model, as seen in Figure 2, classifies customers’ expectations and

demands into three different categories:
1. Basic factors
2. Performance factors
3. Excitement factors
Basic factors are the customer’s subconscious expectations and demands on
the product or service, things that are taken for granted. If the organization
fails to fulfill basic factors, the costumer satisfaction will decrease immensely.
An organization cannot make a costumer satisfied by fulfilling basic factors,
they can only make costumers dissatisfied by not fulfilling them. An example
of a fulfilled basic factor is a car door designed not to hit the curb when
opened.
Performance factors are outspoken customer demands where customer satis-
faction increases linear with fulfillment of demands. A mortgage loan with an
interest rate of 15% would make the customers dissatisfied and chose another
bank, while 0.5% makes them very satisfied.
Excitement factors are product or service features that the customers didn’t
knew existed or that they wanted. Since the customers do not expect these
features, not fulfilling them will not cause the customers to become dissatis-
fied. However, fulfilling excitement factors can produce very satisfied cus-
tomers. In mortgage loans an excitement factor could be providing SMS noti-
fications about an upcoming interest rate review meeting.
Customer satisfied
Performance
Excitement
Non- State of
fulfillment fulfillment
Basic
Customer dissatisfied
Figure 2. The Kano model adapted from Keller and Pyzdek (2009).
9
What was once an excitement factor will not remain so forever. The trend is
that customers get used to a higher level of service or quality and will start
taking it for granted. Something that was once an excitement factor becomes a
performance factor and over time a basic factor. The ability to take a photo-
graph with a mobile phone was considered an excitement factor a couple of
years ago. Today, in 2010, one could make the argument that it has become a
performance factor or even a basic factor.
In the case of bank loans, the customer has few expectations on the service
since they are created on the fly. The expectations that do exist will be either
basic factors or stated performance factors. Performance factors will need to
be fulfilled in order to gain the customer, while basic factors must be fulfilled
not to hurt customer satisfaction or trust.
10
THEORY
11
4 EXECUTION
This section presents a recollection of the actions taken in the Six Sigma project,
which constitutes the empirical part of the thesis. The structure follows the phases of
the DMAIC-cycle.
4.1 DEFINE
The goal of the define phase is to thoroughly define the problem at hand. By
doing so the chance or realizing halfway that the problem is incorrectly stated
can be reduced.
4.1.1 Define and concretize the problem
The throughput time of the loan process is too high, meaning that it takes too
long from the disbursement of funds until the securities are acquired. Several
factors are thought to have an affect on the throughput time, such as the qual-
ity of the documents used to acquire the securities or documents not submit-
ted on time. Whatever the cause of the high throughput time is, the goal is to
decrease it.
4.1.2 Identify the customers and their requirements
Banks generally offer a vast range of financial services to its customers; a ma-
jor portion of the revenue is however created by the basic products, for exam-
ple selling loans (Shostack, 1977). Loans are sold to private and corporate cus-
tomers. The mechanisms are similar for both types of customers; though cor-
porate loans are usually of larger volume and with more complex securities.
Johnson et al. (1996) argue that customers hold weak expectations at best
when it comes to loans. Translating this statement into one of the three types
of expectations in the Kano model, classifying them as basic factors would be
the most appropriate. Executing the loan process impeccably will not produce
satisfied customers, however, failing to do so will hurt customer satisfaction
immensely.
There have been cases where the bank, as a result of a poorly functioning loan
process, has lost documents signed by the customer. The bank then has to ask
the customer to visit a branch office to sign new documents. It would not be
to far of a stretch to say that the common notion is that banks keep good track
of their documents. Proving the customer wrong on this point will not only
hurt customer satisfaction but also the customer’s trust in the bank. Heffer-
nan, O'Neil, Travaglione, et al. (2008) have identified a correlation between
decreased trust and lowered financial performance. If a bank fails in fulfilling
basic factors, they may be punished twice through decreased customer satis-
faction and trust. Both of which lead to money lost for the bank.
4.1.3 Identify CTQs
Critical to Quality (CTQ) are factors of the product or service that the cus-
tomer regard as critical to his or her overall quality experience. By identifying
12
EXECUTION
the CTQs, customer requirements can be separated from internal require-

ments. As a customer centric organization you should prioritize improve-
ments that affect the CTQ before improving strictly internal factors.
For the loan process, the CTQs have been identified in collaboration with the
internal consultants working on the projects as:
• Title registered
• No non-value adding contacts with the customer, from the customer’s
perspective
4.1.4 Map overall process
The process of lending money starts with the customer requesting a loan and
ends with the loan documents being secured in a vault. The scope of this the-
sis starts with the process step “Disburse loan” and ends with “Close errand
and put documents in archive”. The comprehensiveness of the process map is
needed in order to describe how different process steps link together and il-
lustrate dependencies. A process map is available in Appendix.
There are four major stakeholders in the overall process of lending money.
The customers who receive the loans, the divisions merchant banking and re-
tail that sell the loans, loans production who produce the loan contracts and
loans review who acquire the securities. The customers contact an advisor at
either merchant banking or retail to get a loan. The advisor then either pro-
duce a loan contract through a system called “Säljstöd” if the loan is uncom-
plicated, or orders a contract from loans production. After the loan contract
has been signed by the customer and required documentation to acquire the
securities have been provided to the advisor, he or she sends it to loans re-
view. The documents are then checked from a legal and formalities perspec-
tive by loans review and if everything is correct it gets placed in a vault and
the case is closed, otherwise it is returned to the advisor to be complimented.
4.2 MEASURE
This step focuses on two questions; what should we measure and how should
we measure it? It also presents what data is currently available and what can
be made available through development in the Business Information Ware-
house (BIW).
Figure 3. Screenshot of the fronted used by loans review to record errors in loan documents in the qual-
ity log.
13
4.2.1 Determine the current state

At present loans review record around 1 700 errors per month and ------ loans
are older than 60 days and not yet archived. The average time from disburse-
ment to archiving is not measured; it is although regarded as being too long.
The post queue for incoming documents for review varies between six and
twelve days depending on the day of the month and season.
4.2.2 Current measurement tool
There is already a system in place for measuring the quality of the submitted
loan documents. The system is called The Quality Log and consists of a data-
base stored on an SQL-server and a front-end, see Figure 3, which the review-
ers use to record errors.
The quality log is used by two different functions, loans production and loans
review. Loans production’s objective is to produce contracts for the customers
to sign. They mainly use the quality log to record requests for contracts from
branches that violate the Service Level Agreement (SLA). In the SLA it is
specified that loans production have got three days to produce a contract after
the branches order it. Quite often though, the branches will demand the con-
tract in less time and loans productions will then record it as an “Urgent mat-
ter” in the quality log.
Table 1. List of information logged in the quality log.
Field Explanation
Profit center The profit center of the branch disbursing the loan.
Name of advisor The name of the person responsible for the loan.
Error descrip- An explanation of what is wrong with the case on a high
tion level one level. The error description is picked from a drop-down
list.
Error descrip- A more detailed explanation of what is wrong. The level
tion level two two description is linked to the level one description, e.g.
level one “Documents missing”, level two “Missing
pledge”.
Risk level Each error description has a risk level associated with it on
a scale from 1–5 with regards to the bank’s ability to sue
the borrower for the money lent.
Logged by The name of the administrator in loans review or loans
production that logged the error.
Department The department that the administrator belongs to. It can be
either Production Stockholm/Malmö or Review Stock-
holm/Malmö.
Date The date when the error was logged.
Credit number Unique number used by the bank to identify individual
loans.
Customer National identification number or corporate identity num-
number ber of the customer.
14
EXECUTION
Figure 4. Fishbone diagram of possible sources of deviation on process time.
Loans review records a much larger variety of errors in the quality log, see
Table 1 for an explanation of each of the fields. The quality log has been in use
since 2004, and was intended as a feedback tool for the branch managers.
Gaining knowledge on what kind of errors are the most or least common can
also be useful in initiating education or clarified instructions for branches.
So far though, the quality log has failed to reach its full potential, partly due
to low awareness and being hard for branch managers to interpret (C. -------,
personal communication, April 8, 2010). The process owners of the loan proc-
ess could benefit from the information in the quality log, but have so far failed
to act upon the information because it has been to time consuming the ana-
lyze (ibid).
Using the data available in the quality log enables some interesting analyzes
to be made such as; which branch makes the most errors? Does error-
proneness fluctuate over time? Further development will however be needed
in order for the tool to be effective for one-off measures as well as continuous
monitoring of the process.
4.2.3 Develop measurement tool
Given a set of data, you can usually calculate a whole range of different
measures. To be successful in developing a measurement tool, you need to
answer the following questions:
Why and what do we want to measure?

The problem statement is “The throughput time of the loan process is too
*
long”, and helping to solve this is the raison d'être for the measurement tool.
Therefore, we need to measure how long time it takes to process the loan
documents.
The problem can be stated mathematically as f(X1,X2,X3…Xn) = Y, where Y is
the time it takes to fully process a loan. The X's are the factors having an affect
*
French for ”reason for being”.
15
on the process time and will also have to be measured. Figure 4 shows a
fishbone diagram of the possible sources of variation on the process time.
Each of the factors needs to be evaluated by asking; can it be measured? Why
should it be measured? A summary of these questions with corresponding
answers is shown in Table 2.
Knowing what should be measured and why, the next step is to determine
how it should be measured.
What data is needed?

In Table 2, three factors are identified as measurable: Errors in review cases,
Documents not submitted on time and Reviewer competences.
Table 2. Evaluation of measurability of sources of variation.
Factor Measureable? Why should we measure it?

Errors in review cases Yes To understand what kind of errors are
most common and what branches have a
particularly high error rate.
Documents not Yes To be able to identify branches having a
submitted on time culture of sending documents to late.
Lost documents No Lost documents mean a lot of rework and
are a serious error in the process.
Mail handling No To gain knowledge on when an external
supplier is not delivering adequate serv-
ice and understand sources of variation
beyond the banks control.
Reviewer compe- Yes The speed with which the reviews can
tences process documents is highly dependant
on their skills.
Table 3. Sample table data as stored in the BIW.
Field Sample value

Profit center 12345
Disbursement date 2010-02-13
Credit number 12345678
Client number 1234567891
Loan amount 10 000
First document scanned date* 2010-02-15 (or N/A if not yet occurred)
Last document scanned date* 2010-03-02 (or N/A if not yet occurred)
Loan finished date* 2010-03-10 (or N/A if not yet occurred)
16
EXECUTION
Errors in review cases will be measured using the quality log database and
the Business Information Warehouse (BIW), see section 2.3 for details on the
BIW. The data in the quality log is readily available and an overview of the
data is shown in Table 1 on page 14. From the BIW, the data in Table 3 will be
needed. Documents not submitted on time and reviewer competences rely on
investments in the BIW and are only presented as ideas for further develop-
ment.
Fields marked with an asterisk are available in the source systems, but are
currently not being transported to the BIW. At the time of publishing this re-
port, a request for quotation has been sent to the IT department to establish
the cost and time required to transport the missing data to BIW and to get ac-
cess to the data already available.
Table 4. KPIs and measures for the loan process.
Measurement Data used Purpose

Processing time Date case closed – Measure the process
disbursement date output.
Percentage of errors Number of errors in the Identify worst and best
quality log/Number of in class branches. Moni-
loans disbursed tor and act on devia-
tions from norm.
Submitting delay Scan date of first docu- Spot branches not sub-
ment – mitting documents on
disbursement date time.
Number of unfinished Count of loans without To estimate the opera-
loans a case closed date tional risk.
Review time Scan date of last docu- Measure the efficiency
ment – case closed date of loans review.
Type of errors Error descriptions level Determine which errors
one and two are the most common.
List of dangerous loans Query database for old To help prioritize what
unfinished loans with a loans in the backlog
high risk level need to be dealt with
first, rather than just
employing the first in –
first out principle.
What Key Performance Indicators (KPIs) should be calculated?

Using the information in the quality log and in BIW, several measures can be
calculated. The ones that are deemed as most interesting and actionable are
listed in Table 4. All measures can be aggregated, starting at employee level
through branch, district, and region up to a global measure for the entire
bank. Using patterns in Client number and credit number it is possible to dif-
17
ferentiate between private and corporate clients as well as mortgage and other
loans. This is important since the branches are usually split organizationally
on corporate and private clients.
Who are the recipients?

There are basically two different recipients of the measurement tool, the proc-
ess owners and the branch managers. The level of detail and the purpose of
reporting the KPIs will therefore be different.
The purpose of the measurements for the branch managers is to provide
feedback on the overall performance of their branches. Making the branches
and advisors more aware of errors committed will help foster a culture of
“right from me”. The idea behind the right from me mantra is that advisors
would commit fewer mistakes if they were more aware of how many errors
they are responsible for.
If the purpose of reporting KPIs to the branches is to facilitate grass root im-
provements, the purpose of reporting to the process owners is to initiate high-
level global process improvements. It is the process owners’ responsibility to
make sure that the process is working as smoothly as possible, and the KPIs
are meant as an aid in that work. The measurement tools for process owners
and branch managers were developed by the author in Visual Basic for Ap-
plications and screenshots are available in Appendix.
4.3 ANALYZE
In the analyze phase, different ways to display and interpret the data from the
quality log is presented.
35,0%
30,0%
Percentage of total errors
25,0%
20,0%
15,0%
10,0%
5,0%
0,0%
Promissory Note or Contract
Error in Land Registration

Promissory note or loan
to handle in Säljstöd
Outgoing Payment
Error in conditions

Incomplete matter
IncomingPayment
handled manually
Authority matter
in sales system
Matter handled
file is missing
Incorrect
Incorrect
Possible
missing
Form is
Pledge
Urgent
matter
Matter
Type of error
Figure 5. Distribution of errors in the quality log.
18
EXECUTION
Distribution of types of errors per loan and customer type
35,0%
30,0%
Percentage of total errors
25,0%
Corporate/Loan
20,0%
Corporate/Mortgage
Private/Loan
15,0%
Private/Mortgage
10,0%
5,0%
0,0%
Promissory Note or Contract
Error in Land Registration

loan file is missing
Incomplete matter
Authority matter
Form is missing
Promissory note or
Incorrect
Incorrect
Pledge
Type of error
Figure 6. Serious errors by loan and customer type.
4.3.1 Identifying different types of errors

The time period of study is the entire year of 2009. It is chosen to provide a
large quantity of measures as well as indicate any seasonal differences in the
quantity and type of errors logged. The start date of the bank initiated im-
provement project was set to January 2010 and in order to measure perform-
ance before any improvements were made, the 2009 data is used. In 2009, a
total of 21 248 errors were logged in the quality log. The distribution of the
types of errors committed can be seen in Figure 5.
It can be noted that “Urgent matter” is highly overrepresented, being double
the size of the second most common error. Urgent matter is an error gener-
ated when advisors at the branches tries to rush the process of producing loan
contracts. According to the service level agreement, advisors must order the
contracts at least three days in advance. The process is however often rushed
by advisors who are in a hurry to deliver the contract for the customer to sign.
As such, it is not really an error, rather a measure of incorrect behavior of the
advisors who do not plan their work accurately or customers who urgently
need to get the deal done for one reason or another. The error Urgent matter
will not be explicitly dealt with in this project since it has no affect on risk,
cost and has a positive affect on customer satisfaction.
In Figure 6, the most serious errors with respect to risk, cost and customer sat-
isfaction are shown. The errors are divided on what kind of loan it is and
which category the customer belongs to. A loan is categorized as a regular
loan or a mortgage loan, while a customer is either private or corporate. By
analyzing the graph in Figure 6, the following observations can be made:
19
• The number of incomplete matters is larger for loans than for mort-
gages (for private customers the factor is 13).
• Almost one third of errors in private mortgage loans are because of the
physical file going missing.
• One in five errors in private mortgages is due to incorrect data sent to

*
the Land Registration Authority .
4.3.2 Identifying sources of errors
Simplifying reality, all errors in the process are human errors and either the
advisors or the reviewers are responsible. The data available for study in the
quality log provides a view on errors committed by the advisors, but it gives
no information of possible errors made by the reviewers. This is a limitation,
but argument can be made for the hypothesis that the quality of the overall
process is largely due to the quality of the loan documentation provided by
the advisors. Since the reviewers are specialists in the area of loans while ad-
visors are not, possible errors are more likely to originate from advisors than
from reviewers. The principle of the vital few within the insignificant many
seems to be valid also in this case, as can be seen in Figure 7, with 35% of the
errors being committed by 10% of the profit centers. A profit center is most
often the same as a branch office, but it can also be special institutions within
500 40,0%
450
35,0%
Accumulated percentage of total errors

400
30,0%
350
25,0%
Number of errors
300
250 20,0%
200
15,0%
150
10,0%
100
5,0%
50
0 0,0%
0
0
X1
X2
X3
X4
X5
X6
X7
X8
X9
X1
X1
X1
X1
X1
X1
X1
X1
X1
X1
X2
Profit center
Number of errors Accumulated percentage
Figure 7. Pareto chart of number of errors per profit center.
*
The Land Registration Authority (“Inskrivningsmyndigheten”) is a government body with
the task of keeping track on who owns what property, also known as registering the title of
the property. When a property is sold, the register must be updated with the new owner and
it is the task of the bank to make sure this is carried out. Without a proper registration of title
to the new owner, a mortgage deed cannot be issued and the bank has no security on the
loan.
20
EXECUTION
the bank such as telephone banking or the profit center handling all employee
loans. Since the number of errors is measured in absolutes, a profit center hav-
ing a high number of errors do not equal less competent advisors and is more
likely an affect of the number of loans handled by that profit center.
Studying Figure 7, profit center X1 stands out with its relatively large number
of errors. Profit center X1 is telephone banking and handles a large amount of
loans, which is an explanation of the large number of errors committed. One
of the possible measures to reduce the number of errors is education for the
advisors. The information gathered from Figure 7 gives an indication on
where limited training resources are put to best use, should it be too expen-
sive or not deemed necessary to educate the entire bank. A similar pattern of
the vital few can be found when analyzing the number of errors on advisor
level, but no example of this will be published in this thesis with respect to the
advisors’ integrity and law.
4.3.3 Conclusions from the analysis
By analyzing the data in the quality log, we are able to identify the number
and distribution of errors on advisor, profit center, district and regional level.
Using this information, educations can be initiated, advisor be given extra
support and abnormalities acted upon. The loan process involves all Swedish
branches (totaling at almost 200) as well as the central process owners and it is
in this context that the improvements will take place, and they will need to be
initiated by the bank. The loan process is not as isolated as industrial proc-
esses usually are, since it can start at any time, anywhere. The behavior of the
advisors has a large impact on the quality of the process, and in order to im-
prove the process, you would have to improve each and every advisor. Given
the limitations of this thesis in time and money, improvements derived from
the analysis will be of the nature of giving the bank the tools to improve itself
rather than implementing change directly.
4.4 IMPROVE
One of the key issues in the loan process has been the lack of using data and
facts rather than hunches and gut feeling to monitor and act on issues. The
loan process is complex and geographically dispersed, making it very hard to
get a feeling for the health of the process just by observing it. In this chapter,
improvements that can be put in place immediately as well as improvements
requiring development in IT systems are presented.
4.4.1 Closing the feedback loop
In the quality log’s database, information on the performance of individual
advisors and profit centers is stored. The quality log has been used since 2005
but the information stored within has not been used in an effective way.
When certain errors are committed, a letter asking for correction is sent in the
post to the advisor responsible. In this way, advisors are made aware when
they have made a mistake and are asked to correct or complement the matter.
Not all errors generate a letter, and advisors are therefore not aware that they
have made a mistake and will not have the opportunity to improve. Errors
21
not generating a letter are however logged in the quality log and this informa-
tion needs to be fed back to the advisor in order to help them improve. Deliv-
ering performance feedback to advisors and branch managers will be key in
solving the problem of large numbers of errors in documents submitted for
review.
4.4.2 A need for a new branch manager report
To solve the feedback problem, a new report to branch managers needs to be
developed. There is already a report in place, but it is nothing more than a
raw dump of the quality log database without any visualizations or indication
of trends, since it only shows results one month at the time. Talking to advi-
sors about the report from the quality log, it was clear that most did not know
it existed and those who had seen it did not understand it. The new report
therefore had to be both easy to use and to understand, with the purpose of
assisting branch managers help advisors improve their performance.
4.4.3 Developing the new branch manager report
The quality log information is stored in an SQL database, which is accessible
from all workstations within the bank for users with permission. Having the
data readily available in a database is a prerequisite for developing a report
which can be updated without a lot of manual work. The new branch man-
ager report is developed in Microsoft Excel using PivotTables using a SQL
server as the data source. The PivotTables are used to produce graphs for
visualization and the tables themselves are used for drilling down the data,
viewing it from different angles to give a comprehensive view on a certain
branch or profit center’s performance. The new branch manager report con-
sists of three different views from the same data source, they are:
• Number and type of errors over the last year as a graph
• Number and type of errors over the last 31 days as a table
• Number of errors over the last year per advisor
may jun jul aug sep oct nov dec jan feb mar apr may
2009 2010
Urgent matter Error in Land Registration Authority matter Incorrect Pledge
Incorrect Promissory Note or Contract Possible to handle in sales system Form is missing
Urgent matter Error in Land Registration Authority matter Incorrect Pledge
Promissory note or loan file is missing Incomplete matter
Incorrect Promissory Note or Contract Possible to handle in sales system Form is missing
Promissory note or loan file is missing Incomplete matter
Figure 8. Number and type or errors over the last year for a single profit center.
22
EXECUTION
The graph showing “Number and type of errors over the last year” can be
seen in Figure 8. The graph helps the branch manager to keep track of histori-
cal performance and development of different types of errors. The branch
manager can analyze the graph and note that the “Loan file is missing” error
is particularly common at the time around the turn of the year. The branch
manager can use this information to investigate why this has happened. Are
there any special conditions at this time of year that need to be taken into con-
sideration for the next year?
Figure 9. Screenshot of number of errors for advisor last year.
“Number and type of errors over the last 31 days” provides the ability to do a
deeper dive into the errors committed the last 31 days. The information is
presented to the branch manager as in Figure 10, with the ability to drill down
the data to a more detailed level by double clicking on the error. Doing so
would first reveal the error description on level two and a then the advisor,
allowing the branch manager to follow up on why the error was committed.
“Number of errors over the last year per advisor”, shown in Figure 9, is simi-
lar to the previous PivotTable, but instead of using the type of error as start-
ing point it uses advisor. In this way, the branch manager can see if a certain
advisor is responsible for a large number of errors. By being able to drill
down the data on what kind of error the advisor has committed, the branch
manager can help the advisor improve in that area.
In designing the new branch manager report, emphasis has been put on mak-
ing it user friendly and visual. This is manifested through the use of graphs
and PivotTables, which start at a high level to provide an overview instead of
overwhelming the user with details. Additional features that were not present
in the old version have also been added. The branch manager has the possibil-
ity to filter the data on customer and loan type. For customers the options are
All, Corporate or Private and for the loan type they are All, Mortgage or Loan.
It is important to allocate the responsibility to the correct part within the
branch since they are usually split organizationally on private and corporate
clients. The filtering is set up using standard radio buttons that the users
should be familiar with. The new branch manager report has gone live and
replaced the old version as of June 1, 2010 and is maintained and updated by
loans review.
Error description level one Error level two Advisor No. Errors
Promissory note or loan file is missing 2
Incorrect Pledge 1
Form is missing 1
Grand Total 4
Figure 10. Screenshot of number and type of errors over the last 31 days presented in PivotTable with
drill down features.
23
4.4.4 The process owners lack of data as decision basis

The loan process has got two process owners. One process owner is responsi-
ble for the front office part of the process, while the other is responsible for
the back office part. The two process owners have monthly meetings with
improvements to the process on the agenda. The process owners are able to
make significant changes to the process and they have resources to spend on
education, IT development etcetera. As the top authority on the loan process,
the process owners enjoy credibility from the business, which facilitates the
implementation of changes at all levels of the organization. There has so far
been a lack of data as decision basis in the monthly meetings, and when data
have been occasionally used, quite rudimentary analyses have been made. In
the following sections, the tool, which has been implemented during the the-
sis, is presented alongside with a concept for further development.
4.4.5 Monitoring tool for the process owners
Just as the report to branch managers, the monitoring tool for the process
owners uses the information in the quality log database to produce graphs
and PivotTables. It allows for the process owners to quickly analyze the per-
formance for a chosen date span and to filter the data on corporate and pri-
vate clients as well as on loan and mortgages. Given these settings a screen of
three graphs are displayed in what is popularly known as a dashboard. The
idea behind a dashboard is to give an overview of different measures while
also providing the ability to drill down the data into more detail. The meas-
ures shown in the monitoring tool are:
• Top 10 profit center by number of errors
• Distribution of errors
• Top 10 advisors by number of errors per district
• Number of errors for the last year
The first three measures are calculated for the time span chosen by the user,
while the last measure always displays the number of errors from today’s
date and one year back. Filtering on the type of loan and client are reflected in
all measures. A screenshot of the monitoring tool is available in Appendix for
reference. As shown in the analyze section 4.3, this information can be used to
draw conclusions on problem areas and give the process owners something to
act upon. As of mid-May 2010, the process owners have been given access to
and education by the author in how the monitoring tool is used. Since being
given the monitoring tools, the process owners have initiated the following
measures:
• Asking branch managers of the ten profit centers with the highest
number of errors to provide a plan on how they will reduce their num-
ber of errors.
• Identifying the advisors who are most frequently responsible for seri-
ous errors and forwarding this information to branch or district man-
agers.
24
EXECUTION
As the process owners get more used to working with the monitoring tool,
they will hopefully find even more measures to be initiated from information
presented by the monitoring tool.
4.4.6 Further development of the measurement tool
In the measure section, we identified possible sources of variation on the loan
processing time, out of which, three (errors in review cases, delay in submit-
ting documents and reviewer competences) were deemed as being possible to
measure. To get access to these measures, further development will be re-
quired by the IT department to make the necessary data available in the BIW.
Please see section 2.3 on data warehousing for a detailed description on the
mechanics of data handling at the bank. At the time of writing, a request for
proposal for development costs and time has been sent to the IT department
who are working on making an offer. The project has been deemed as techni-
cally possible and the bank will need to make a cost-benefit analysis once the
request for proposal is finished. If the bank chooses to invest in the develop-
ment, they will be able to measure factors reflecting the sources of variation as
well as other interesting indicators:
• Documents not submitted on time.
• Profit centers submitting incomplete loan files.
• Reviewer competences (expressed as the time required to review a
loan).
• The number and amount lent of loans not yet finished, i.e. the backlog.
• Percentage of errors of loans disbursed.
• Time from disbursement to finished loan.
• The most dangerous loans in the case of a default.
The advantages with these new measures are not only an increased under-
standing of the process. They are leading instead of lagging indicators and
more accurate since the data are extracted from a computer system rather
than manually logged, as is the case with the quality log. A discussion about
how these measures will be constructed is presented in section 4.2.3. Presenta-
tion of the measures and graphs can be made using the same concept as for
the branch manager report and the monitoring tool for the process owners.
With the additional data from the BIW, process owners and other
stakeholders will gain more insight and knowledge on the performance of the
process. The new data also lends itself to more advanced analysis techniques.
The percentage of errors of loans disbursed could be analyzed using statistical
process control and control charts. Using control charts with specification lim-
its would allow for a passive control of the percentage of errors while allow-
ing alarms to go off in case too many points are outside the limits. All in all,
the BIW data would open a whole range of possibilities for process owners
and others to make initiated decisions.
25
4.5 CONTROL
The number of errors logged in the quality log can be seen as an indicator of
improvements in the process. As the number of errors varies with the number
of loans issued by the bank, it needs to be interpreted with some caution. The
improvement project initiated by the bank started in December 2009 and was
finished in March 2010, while work with this thesis continued into May 2010.
The number of errors per month is presented as a graph in Figure 11, please
note that the data was updated on May 18, 2010. From February onward, a
trend of decreasing number of errors is indicated and by using interpolation,
the trend seems to continue in May as well (approximated to 1 200 errors).
Figure 11. The number of errors per month. Data updated May 18, 2010.
A more robust method of controlling the process would be using processing

time, the percentage of errors and the size of the backlog. When or if those
measures are available in the future, they should be used as the primary
method of controlling the loan process.
26
EXECUTION
27
5 CONCLUSIONS & DISCUSSION
5.1 CONCLUSIONS
At the beginning of this thesis, the applicability of the Six Sigma DMAIC
methodology on an internal process at a Swedish bank was questioned. What
conclusions can be made after having conducted a case study at the loan
process? With reference to the case study and the results achieved within, it is
most certainly possible to apply Six Sigma in the banking industry. There are
however some reservations and pitfalls which practitioners need to be aware
of. The potential for applying Six Sigma at banks in Sweden is large, but there
are issues regarding the maturity and competences of the studied bank that
are thought to be a problem shared with competing banks. Most importantly,
the availability and quality of data for analysis was a severe problem in the
case study, limiting the array of applicable statistical tools that could be used.
The high costs and time consumed by having to involve the IT department
needs to be taken into consideration when assigning resources to the Six
Sigma project. The outlook at the moment of writing is that the bank will not
follow through on the BIW development due to lack of resources.
Lack of data has been identified as a common problem when using Six Sigma
in the financial services industry by Heckl et al. (2010) and is not a unique
problem for the bank or the specific process. Measuring performance in the
loan process at the bank posed is different from measuring a more traditional
industrial process. While a machine does not operate differently because its
performance is being measured, this is often the case with humans. Catasús,
Ersson, Gröjer and Wallentin (2007) examined if there is any truth behind the
popular management adage “what gets measured gets done”. In their study,
the authors suggested it be rephrased as “what gets talked about gets done,
especially if there are numbers”. As opposed to an industrial process, measur-
ing and talking about a problem at the bank can help reduce it, which adds a
new dimension to measuring a process. The Six Sigma methodology’s strong
focus on measurable bottom line effects is encouraged by the bank’s culture
and would therefore work well as a compliment to the current lean based
methodology. It does however require the right prerequisites such as choos-
ing the right project, having the right competences and access to good quality
data.
In the banking industry, changing a process will most certainly involve mak-
ing changes in the IT systems. Since banks still rely to a large extent on legacy
IT systems (Hayler & Nichols, 2006), changes in IT generally take a long time
and cost a lot of money. For a Six Sigma project to actually implement im-
provements and not just make suggestions, there needs to be an adequate
budget allocated to the project. Otherwise the project will be pinioned by the
lack of financial resources and confined to working with less advanced tools,
thereby missing out on some of Six Sigma’s potential. As identified by Heckl
et al. (2010), the less advanced tools are the ones thought to be most useful by
practitioners of Six Sigma in the financial services. Whether this is due to the
28
CONCLUSIONS & DISCUSSION
nature of the more advanced tools or because of the lack of resources in em-
ploying them is not discussed by Heckl et al. and would be an interesting
topic for further studies.
5.2 RESULTS & SAVINGS
Given the lack of data on the loan process, hard savings will be difficult to
prove since they cannot be measured with the existing data sources. The
measures that do exist, such as the number of errors per month, is influenced
by a lot of factors and to establish a causality between the work in this thesis
and the number of errors is problematic. The hard savings that can be proven
are:
• Four hours per month saved in compiling the branch manager’s report,
as it is now automated.
• Time saved for almost 200 branch managers, as they get readymade
analyzes of the quality log instead of having to make them themselves.
• Time saved for the process owners by making analyzes of the quality
log easier and less time consuming.
Even though the number of errors committed is not a good performance
measure since it deals in absolutes instead of relative measures, it can be used
as an indication of how the process in performing. In May 2010, 800 errors
less were logged as compared to May 2009 which means somewhere between
260 and 800 man-hours less spent on rework. In Swedish krona, the reduction
of time wasted corresponds to between 67 600 and 208 000 per month in sal-
ary costs. This result should be seen as a semi-hard saving as the causalities
and other affecting factors can be questioned as mentioned above.
The potentially substantial savings as a result of this thesis are of a more soft
nature and will probably not been seen earlier than six months from the end
of the thesis. The idea behind the end products delivered in this thesis to give
the people with the power to improve the process the tools to do so. This is
achieved through the monitoring tool and branch manager report that iden-
tify deviations and ensures that problems are brought into the light and gets
dealt with. An internal consultant who has been working with the project
summarizes the results of the thesis as:
What we really appreciated with the approach taken in the
thesis was the strong focus on decisions based on facts rather
than common notions. While we understood that it probably
was possible to do more with the data we had available – we
did not have the time or the competence to pursue it. The de-
liverables of the thesis have been very well received and cre-
ated a pull from business areas not initially covered by the
improvement project. While I can’t put a figure on how much
the thesis will have saved, it made a significant difference to
the project and more importantly it illustrated the possibilities
of using data in a way that people can actually act upon it.
29
5.3 VALIDITY & RELIABILITY

The uncertainties of the data in the quality log has been an issue throughout
the project, but as there were no other data sources available, it had to be ac-
cepted. The analyses from the quality log data are therefore to be thought of
as indicative rather than as absolute truths. The reliability would increase sig-
nificantly if an investment in the BIW would be made, since computers with-
out human interference log the information automatically.
5.4 GENERALIZABILITY
The title of this thesis is Six Sigma in Swedish banking, even though only one
bank has been studied. There are however reason to believe that the result,
that Six Sigma can be applied to an internal process, holds for other major
Swedish banks as well since they operate in similar ways and sell the same
king of producs. The methodology has been successful at banks outside of
Sweden and the problems faced are similar. The greatest lesson learned that a
practitioner wishing to use Six Sigma at another Swedish bank should con-
sider is; make sure that you have got enough data available or an adequate
budget to make it available before you start.
5.5 DISCUSSION
Being able to use a certain methodology requires a lot of prerequisites to be in
place. Having a suitable process as the object of improvement is not enough if
the organization has not reached maturity in its engagement in quality. As
this thesis was carried out within the realms of the bank’s lean based im-
provement program, the same rules and limitations on resources applied,
which in general means nothing more than the consultants’ time. Such a set-
ting is not adequate for a successful Six Sigma project, which has to be able to
use the resources necessary given that the expected return on investment is
good enough.
The high inertia associated with involving the IT department is well known
within the bank and created resistance when seeking buy-in from managers.
On a more personal note, dealing with the IT department sometimes felt like
banging your head in a brick wall and a more visible support from senior
management would probably have helped in making things happen. Never-
theless, this thesis can be seen as a proof of concept in using more quantitative
statistical tools to drive improvement within the bank. As the lean based im-
provement program moves into its fourth year, most of the low hanging fruit
will soon have been picked. Although there is no need to replace lean as the
basis for the improvement program within the bank, there are probably great
benefits to be reaped by investing in training for the internal consultants.
Competences in statistical tools such as statistical process control as well as
handling relational databases and analyzing large data sets would be very
useful but are largely non-existent. The reception of the measurement tools
developed in the thesis got a very positive reception by the business and has
hopefully created a demand for fact instead of hunches.
30
CONCLUSIONS & DISCUSSION
It is not without reason that the words “lack of data” have appeared several
times throughout the thesis. The inflexibility of the legacy IT systems and the
endurance required to get access to data severely prevents the business from
getting accurate information on their problems. The ideas presented in this
thesis are all very simple from a technological perspective – but with a lead
time from order to answer of more than two months for a data request most
people will choose to guess instead of getting facts. DMAIC’s strong focus on
data has been a support throughout the thesis in requesting data from various
stakeholders. Once again, the lack of data is probably hiding problems in a lot
of areas within the bank. The current loan process project was not initiated
because data showed that it was a big problem – it was already so problem-
atic that everyone who worked in the process could feel that it was not good,
data then showed just how big it was. Hopefully, a better usage of the data
available will help in solve the problem for good.
31
32
6 REFERENCES
Ahmed, B., Buttle, F. (2001). Customer retention: a potentially potent market-

ing management strategy. Journal of Strategic Marketing 9(1), 29-45.
Antony, J. (2006). Six sigma for service processes. Business Process Management
Journal, 12(2), 234-248. Retrieved April 26, 2010, from the Emerald da-
tabase.
Antony, J., Antony, F. J., Kumar, M., & Cho, B. R. (2007). Six Sigma in service
organisations. International Journal of Quality & Reliability Management,
24(3), 294-311. Retrieved April 26, 2010, from the Emerald database.
Arvidsson, N., & Cornéer, L. (2009). Lean inom tjänsteföretag. Linköping:
Linköpings universitet.
Basel Committee on Banking Supervision. (2003). Advanced measurement ap-

proaches for operational risk: supervisory expectations. Basel: Basel Com-
mittee on Banking Supervision.
Baxter, P., & Jack, S. (2008). Qualitative case study methodology: Study design
and implementation for novice researchers. The Qualitative Report,
13(4), 544-559. Retrieved May 2, 2010, from
http://www.nova.edu/ssss/QR/QR13-4/baxter.pdf
Gummesson, E. (1991). Truths and Myths in Service Quality. Journal of Service
Management, 2(3), 7-16.
Hayler, R., & Nichols, M. (2006). Six Sigma for Financial Services: How Leading
Companies Are Driving Results Using Lean, Six Sigma, and Process Man-
agement (1 ed.). New York: McGraw-Hill.
Heckl, D., Moormann, J., & Rosemann, M. (2010). Uptake and Success Factors
of Six Sigma in the Financial Services Industry. Business Process Man-
agement Journal, 16(3). Retrieved April 26, 2010, from the Emerald da-
tabase.
This is a pre-print of a paper and is subject to change before publica-

tion.
Johnson, M. D., Nader, G., & Fornell, C. (1996). Expectations, perceived per-
formance, and customer satisfaction for a complex service: The case of
bank loans. Journal of Economic Psychology, 17, 163-182.
Keller, P., & Pyzdek, T. (2009). The Six Sigma Handbook (3 ed.). New York:
McGraw-Hill Professional.
Kumar, S., Wolfe, A. D., & Wolfe, K. A. (2008). Using Six Sigma DMAIC to
improve credit initiation process in a financial services operations. In-
ternational Journal of Productivity and Performance Management, 57(8),
659-676. Retrieved April 26, 2010, from the Emerald database.
33
Nilsson, L., Johnson, M. D., & Gustafsson, A. (2001). The impact of quality
practices on customer satisfaction and business results: product versus
service organizations. Journal of Quality Management, 6(1), 5-27. Re-
trieved April 28, 2010, from the ScienceDirect database.
Shostack, G. (1977, Winter). Banks sell services - Not things. The Banker's
Magazine, 32, 40-45.
Sörqvist, L., & Höglund, F. (2007). Sex Sigma. Resultatorienterat förbättringsar-
bete som ger ökad lönsamhet och nöjdare kunder vid produktion av varor och
tjänster. Lund: Studentlitteratur.
Williams, R., Bertsch, B., Dale, B., van der Wiele, T., van Iwaarden, J., Smith,
M., et al. (2006). Quality and risk management: what are the key is-
sues?. The TQM Magazine, 18(1), 67-86. Retrieved April 28, 2010, from
the Emerald database.
Yin, R. K. (2003). Case Study Research: Design and Methods (3rd ed.). Thousand
Oaks, CA: Sage.
34
Customer
Loan request Loan offer Decision to buy Sign contract

Yes
Application
possible to Control and verify
Credit control Yes Loan contract Disburse loan
handle in loan contract
Passed No sales system?
Mortgage?
No
Front Office Functions
Denied System 1
Register web
assignment
System 2
Mortgage Retrive
complementary
Close case information/signa
ures/documents
System 3
The loan process
Register loan
Post loan
in system
Work flow documents for
management review
system
Bank financing
1
Foreign currency
production
Loans
Assignment Produce loan

Yes
within SLA contract
Figure 1. Process map of the loan process.

No
Registered in
No
The quality log
Post queue Review
6-12 days documets No
APPENDIX
Loans review
Document
formalia and
information
correct
Yes
Close errand and put
documents in archive
Lånetyp Kundtyp
Resultatställe X1
Alla lånetyper Alla kunder
Endast bolån Endast privat
The quality log april-maj 2010 Endast andra lån Endast företag
Endast för verktygsförvaltare
Historisk utveckling Typ av fel senaste 31 dagarna Antal fel per handläggare senaste 12 månaderna
Felbeskrivning Felorsak Handläggare Antal fel Handläggare Felbeskrivning Felorsak Antal fel
Resultatställe: X1 Historisk kvalitetsnivå Handling saknas/Form is missing 3 23
Brådisärende - jämför med ankomsttid i prodkön/Urgent matter 3 17

60
Fel i pantsättning/Incorrect Pledge 3 14
Fel i skuldebrev/Kontrakt/Incorrect Promissory Note or Contract 2 13

50
Matter handled in sales system 1 12
Fel i inskrivningsärende 1 12
40 Kredit- / Låneakt saknas/Promissory note or loan file is missing 1 11
Ofullständigt uppdrag/Incomplete matter 1 10
Grand Total 15 10
30
Figure 2. Branch manager report.

10
9
20
8
10 7
0 6
maj jun jul aug sep okt nov dec jan feb mar apr
6
2009 2010
6
6
2
Brådisärende - jämför med ankomsttid i prodkön/Urgent matter Fel i inskrivningsärende Fel i pantsättning/Incorrect Pledge
Fel i skuldebrev/Kontrakt/Incorrect Promissory Note or Contract Possible to handle in sales system Handling saknas/Form is missing
Uppda t er a t : 2010- 05- 05

Kredit- / Låneakt saknas/Promissory note or loan file is missing Ofullständigt uppdrag/Incomplete matter Matter handled in sales system 5
5
Datum Kundtyp Lånetyp
Från 2010- 05- 01 Alla Alla

Till 2010- 05- 05 Privat Bolån
Företag Lån
Top 10 Profit centers by number of errors
10
0
X1 X2 X3 X4 X5 X6 X7 X8 X9 X10 X11 X12 X13 X14
Profit center
Read more
Urgent matter
Distribution of errors
Form is missing
Incorrect Promissory Note or Contract
Promissory note or loan file is missing
Incorrect Pledge
Incomplete matter
Fel i inskrivningsärende
Possible to handle in sales system

Matter handled in sales system
Egentillverkad kredit/Matter handled manually
Read more
Total number of errors last 12 months
2500
2000
1500
1000
500
0
maj-09 jun-09 jul-09 aug-09 sep-09 okt-09 nov-09 dec-09 jan-10 feb-10 mar-10 apr-10 maj-10
Da t a upda t ed 2010- 05- 06
Figure 3. Monitoring tool for process owners.
3
Table 1. The DMAIC cycle described by four different authors.
Author Define Measure Analyze Improve Control

Kumar et Identify Data relat- The data Eliminate Maintain the
al. (2008) process in ing to the are ana- identified improvement
need of process is lyzed to causes of set in place.
improve- gathered. determine variation.
ment. causes of
defect or
problems
Antony Define the Measure Analyze Improve- Monitor the
(2006) problem. the prob- the data to ment of process to
lem (i.e. discover the process prevent the
defects the root to remove problem
which are causes. root from recur-
responsi- causes. ring.
ble for the
problem)
Sörqvist Thor- Gather Analyze Implement Establish
and oughly de- facts about the data to suitable continuous
Höglund fine the the prob- identify improve- control to se-
(2007) problem lem root ments. cure long
with the through causes. time effec-
intent to data collec- tiveness of
describe tion and the im-
what hap- measure- provements.
pened. ment
Keller and Define the Measure Analyze Improve Control the
Pyzdek goals of the exist- the system the system. new system.
(2009) the im- ing sys- to elimi- Be creative Institutional-
provement tem. Estab- nate the in finding ize the im-
activity. lish met- gap be- ways to do proved sys-
rics to tween cur- things bet- tem.
monitor rent per- ter,
progress formance cheaper
towards and goal. and faster.
the goal.

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2010:100 CIV

Six Sigma in Swedish banking

Luleå University of Technology

MSc Programmes in Engineering

2010:100 CIV - ISSN: 1402-1617 - ISRN: LTU-EX--10/100--SE

Six Sigma is proved to be an effective way of improving the quality of proc-

BIW: Business Information Warehouse

CTQ: Critical to Quality

DMAIC: Define, Measure, Analyse, Improve, Control

FTE: Full-Time Equivalent

KPI: Key Performance Indicator

SLA: Service Level Agreement

5 CONCLUSIONS & DISCUSSION............................................................................. 28

APPENDIX ............................................................................................................... 4 PAGES

cability of Six Sigma alongside other quality improvement programs at a

1.2 THE CASE STUDY

1.3 PURPOSE, OBJECTIVE AND LIMITATIONS

The practice of Six Sigma as a method of improving internal processes at a

1.4 POTENTIAL SAVINGS

The savings that are possible in this project are:

2.1 CASE STUDY

2.2 SIX SIGMA

2.3 DATA WAREHOUSING

In order to explain the complexities involved in getting access to data at the

The major components of data warehousing are (ibid):

2.4 VALIDITY & RELIABILITY

3.1 CUSTOMER SATISFACTION

The Kano model, as seen in Figure 2, classifies customers’ expectations and

the CTQs, customer requirements can be separated from internal require-

4.2.1 Determine the current state

Figure 4. Fishbone diagram of possible sources of deviation on process time.

Why and what do we want to measure?

What data is needed?

Factor Measureable? Why should we measure it?

Table 3. Sample table data as stored in the BIW.

Field Sample value

Table 4. KPIs and measures for the loan process.

Measurement Data used Purpose

What Key Performance Indicators (KPIs) should be calculated?

Who are the recipients?

Error in Land Registration

to handle in Säljstöd

Error in conditions

Type of error

Figure 5. Distribution of errors in the quality log.

Promissory Note or Contract

Error in Land Registration

Promissory note or

Figure 6. Serious errors by loan and customer type.

4.3.1 Identifying different types of errors

• One in five errors in private mortgages is due to incorrect data sent to

Accumulated percentage of total errors

Number of errors Accumulated percentage

Figure 7. Pareto chart of number of errors per profit center.

Figure 9. Screenshot of number of errors for advisor last year.

Form is missing 1

4.4.4 The process owners lack of data as decision basis

A more robust method of controlling the process would be using processing

5 CONCLUSIONS & DISCUSSION

5.2 RESULTS & SAVINGS

5.3 VALIDITY & RELIABILITY

Ahmed, B., Buttle, F. (2001). Customer retention: a potentially potent market-

Basel Committee on Banking Supervision. (2003). Advanced measurement ap-

Brådisärende - jämför med ankomsttid i prodkön/Urgent matter 3 17

40 Kredit- / Låneakt saknas/Promissory note or loan file is missing 1 11