Case memo: Loan Processing at Capital One

Executive summary
Capital One was founded on the vision Richard Fairbank and Nigel
Morris had regarding the potential profitability that could be made
from customizing credit card products based. “Capital One now is one
of the largest issuers of master card and visa credits in the world.”
Recently, due to a new marketing campaign, Capital One predicts an
increase in demand for fund loan approval. Based on the current levels
of capacity, the loan department will not be able to accomplish their
targeted goal of 700 applications per month. Our proposed plan is
aimed at accomplishing a higher level of utilization and capacity
through modifications on the current loan approval process. Since the
implied utilization of each step, which is now more than 1(see table 1),
leads to the failure of attaining the final goal of 700 applications per
month, our goal is to decrease the implied utilization for each
procedure to less than 1, thereby achieving the final goal. Our
improvements consist of four modifications as follows.
1) Redistribute tasks among associates
2) Installation of training program/Train the associates of the
interview step to enhance the accuracy and completeness to
decrease the minutes spent on follow-up calls for the
underwriters
3) Control the inventory to reduce the customers wait time,
therefore reducing the withdrawal rate
4) Invest in information technology

Case Analysis
For this case, our group analyzed the current loan approval process
to determine the improvements that could be implemented to increase
overall utilization and level of capacity. Since some procedures within
the process have more affect on the overall process, we’ve identified
three steps that we believed are essential.
We have found out three problems for the process of this
company. First, the current interview process projects an acceptable
implied utilization ratio of 0.86. However, through further analysis,
many issues have derived from the quality of work completed in this
step. Additional time is required of the underwriters to gather
necessary information that should’ve otherwise been gathered by
interviewers. Furthermore, the need to recall certain customers
increased the overall process duration. As a result, many potentially
qualified customers are lost due to self-withdrawal. Second, we’ve
concluded the underwriting process is the bottleneck of the entire
operation. Currently, it takes an average of 40.5 minutes per
application to be put through. By comparing the inflow and outflow
numbers, the yield/throughput results to .33. Two factors contribute to

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the low yield rate. 1) As mentioned earlier, 14.6 of the 100 inputted
applicants withdrew their applications due to the process duration. 2)
Of the remaining applications, 52 of the 100 inputted applicants were
rejected because they were not qualified. Lastly, looking into the
quality assessment procedure, no additional work value is added to the
application. However, accurate information is vital before the
application is passed through. The two associates in this step create a
supply constraint for the overall process. This is evident in that the
implied utilization measures 1.08, meaning the two associates cannot
complete all tasks. After identifying the problems of Capital One’s,
our group has created several solutions to increase utilization and
capacity to process 700 applications per month.

First, we reassign the last two duties of the underwriters to the

workflow associates and the quality assessment associates.
Specifically, we assign the data entry of the underwriting step to the
work flow and distribute the File Prep of the underwriting step to
Quality Assurance (Q&A). This improvement decreases the
underwriter’s implied utilization to 1.08 from the original 1.33. At the
same time it increases the work flow’s implied utilization to .78from
zero. However, simply assigning file preparation to Q&A associates will
actually increase the implied utilization to 1.29. So our group decided
the best resolution is to hire an additional associate in Q&A step, thus
lowering the implied utilization down to .86.
Second, we plan to implement a training program to the
interviewers, aiming at increasing information accuracy and
completeness. The increase in information accuracy and completeness
will in turn decrease the duration of the follow-up calls done by
underwriters. Therefore, we hope to decrease the call duration minutes
of follow-up calls from 11.6 to 9.1(2.5 minutes less). As a result,
implied utilization will further decrease from 1.08 to 0.99.
Third, our group identified inventory control as an important
element of increasing the overall output rate. Better control over
inventory inflow, it may decrease the overall duration of one process
application. In order to do so, the delivery of mail to potential
customers will be sent out according to the levels of inventory on
hand. Rather than distributing a massive amount of applications to
customers and process an unsteady amount of inflow, this method
handles a constant stream of applications. Therefore, it will lower the
individual wait time per application and decrease the withdraw rate
furthermore. Results can be seen in the closing procedure. We assume
that the withdraw applicants will decrease from 0.7 to 0.5. As a result,
the implied utilization in the closing procedure will decrease from 1.03
to 0.90.
Lastly, our recommendation is to invest in better information
technology. A tracking system can be installed that allows applicants

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to track their loan approval process. Allowing the customer to do so in
theory should reduce the withdrawal rate because customers are
aware of the progress made. However, since there is no clear method
of calculating the overall effect, our group did not consider this
improvement in the actual calculations.
In conclusion, we recommend out Capital One to install the four
commendations we have suggested. To reiterate, first we distributed
some of the underwriter’s workload to other steps within the process,
along with an additional hire. Second, a training program that trains
interviewers will hopefully reduce the call back time for interviews if
necessary. Lastly, through an inventory control system, actual duration
should reduce. Therefore, it will lower the withdrawal rate of the entire
system. With theses improvements, the loan approval process will be
able to accomplish the 700-applicant outflow target.