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A new management style.

A New Management Style

Monitoring the pulse of a company is essential, and the newest enhancement to walk-around management is a system of computerized reporting.

QUICK, LOOK BUSY. Here comes the boss," Sam Clerk whispers to his co-workers as Mr. Bigshot enters the area on his daily managing-by-walking-around (MBWA) tour.

Mr. B prides himself on his MBWA management philosophy. He spends almost half of each day visiting with his staff in the work place, and he is confident that the resultant open lines of communication keep him abreast of pertinent activities and problems in the company.

The department supervisor cheerfully greets Mr. B as heads are suddenly buried in loan files. "Is there anything I need to know about today?" Mr. B asks. "No, sir. We're just really busy," the supervisor replies. "Ah, this place runs like a well-oiled machine," Mr. B says to himself as he observes the fully staffed underwriting department hard at work. "I wonder, though, how we survived this spring's refinance flurry without adding another underwriter. We must have done it with overtime."

Mr. B passes through the management information systems (MIS) department as he heads back to his office. Reams of unanalyzed reports are neatly filed in chronological order with appropriate destroy dates marked on each drawer. "Management information systems," Mr. B muses. "How did we ever keep track of all this data without them?"

After lunch Mr. B meets with the senior officers of the company. "I sat with I. M. Bigger, president of Mortgages R Us, today at the mortgage bankers' luncheon. He said his servicing cost per loan is $40 and his net production cost is 15 basis points. I told him our costs were in that general neighborhood." The production manager and the servicing manager exchange glances. "We need to bring our costs down. If Bigger can do it, so can we," Mr. B concludes.

"I wonder what Bigger isn't including in his costs," the servicing manager mutters to the production manager.

"I don't know, but I feel a major project coming on. Maybe MIS can help us pull some numbers together that will justify our costs," the production division manager responds.

Mr. B launched into a discussion of the monthly statement of earnings. "This is a great report, but I have two questions: First, if our origination volume is growing, why are we making less money? Second, if the supervisors are using our corporate salary administration matrix, why are salary increases above budget?"

The chief financial officer begins taking notes as he responds: "Mr. B, we'll have someone research those questions for you right away," while thinking to himself: "We never have all the answers."

As the meeting adjourns and the other senior managers depart from his office, Mr. B turns to his mail basket. He is shocked as he reads a letter from Coopers & Lybrand notifying him that his company has 38 uncertified Ginnie Mae pools more than one year old. This is a formal notice that he may be required to post a letter of credit if these pools are not certified within 60 days. "How can this be? Our shipping manager hasn't mentioned any backlogs in finalizing these pools." Mr. B sinks into his chair as he suddenly realizes that something may be lacking in his managing-by-walking-around approach to keeping his finger on the pulse of the company.

Managing by walking around

"Managing by walking around" was the highly touted executive management technique for the 1980s. The 1960s and 1970s were the decades of computerization of routine manual tasks. Productivity and efficiency were greatly improved through automation, and by the early 1980s, the daily output of detailed reports had given birth to entire MIS departments that analyzed the details and created more usable management reports.

Executives in the early 1980s studied their management reports and said, "This is a great report, but what about...?" They could either ask the MIS department to spend several days creating another report, or they could walk out of their offices and into the work place and see for themselves what was taking place.

Tom Peters, who coauthored In Search of Excellence and A Passion for Excellence, identified inspiring examples of companies who practiced MBWA. Dr. Kenneth Blanchard, in the One Minute Manager, gave anecdotal, practical instruction in the art of managing human behavior. Many mortgage company executives studied this new, people-oriented style of managing. They decided to manage by being visible to the staff and by giving positive reinforcement, while the use of computer reports was left with managers who supervised the daily operations that generated the reports.

As computer hardware became more affordable during the 1980s, additional software programs were designed to automate entire processes in all facets of the business. Because the use of computer reports had been left to the "first-level" managers, that is, those who managed the daily operational functions, new reports generally continued to be too detailed for use for mid-managers and executive management. And, although the systems could now keep track of which employee was processing each transaction, the few productivity reports that did exist were still being produced manually, by physically counting the number of items.

By the end of the 1980s, computers stored more information and created more output than ever before, but there remained a dearth of management reports.

Need for management reports

Recent events in the mortgage industry have caused executives to recognize the need for better management reporting. In 1983, when an ailing oil industry caused the beginning of a depression in Texas, Oklahoma, Colorado and Louisiana, many executive-level managers were not aware of the spiralling increases in the number of foreclosure referrals occurring each month in their companies. Supervisors added temporary staff to keep up with the increased volumes. Errors and processing delays were not disclosed to executives until the foreclosures were completed, and the writeoffs were taken some 18 to 24 months after the referrals had begun. A monthly staffing report and a trend analysis of referrals and processing time frames would have given those same executives an early warning about the situation.

The business has become exceedingly unforgiving of internal operating weaknesses that are not caught at the very outset. Not only do lenders stand to lose in the normal course of business from lingering procedural shortcomings, but there can be substantial outside costs imposed for operating errors that go undetected for any length of time.

In 1985, HUD changed its FHA single-family foreclosure-claims payment process by paying lenders' claims at face value upfront, while preserving the right to audit the claims after the fact and get any overpayments reimbursed to the agency. In 1987, Irving Burton Associates, Inc., was hired by HUD to audit lenders' claims. Executive managers were caught by surprise when Irving Burton produced audit reports that showed claims errors amounting to several thousands of dollars per company. Internal company audit reports should have identified these claims errors back in 1985. Such internal controls would have saved these same lenders two- to three-years' worth of incorrect claims.

The refinance boom of 1986 excited many executive managers, until they realized at the end of the year that much of their purchased mortgage servicing had prepaid, and the writedown of the amortization had resulted in a net loss for the year. A monthly report of payoffs by acquisition would have provided the information they needed to manage the profitability of the company.

By 1988, GNMA had grown weary of uncertified pools from the refinance boom and began delivering ultimatums to company presidents. Given a monthly report of uncertified pools, company executives could have proactively managed the project and avoided the reprimand.

In 1987, following the refinance boom of 1986, production offices had built in expensive overhead to carry. Yet many companies did not reduce origination staff until 1988, when they finally realized that the production branches were losing too much money. Productivity and profitability reports showing loans processed and closed per person would have helped these executives recognize the need to cut back sooner.

And finally, effective June 21, 1991, HUD published procedures to impose civil money penalties for improper or unlawful conduct by participants in the agency's programs. Now, more than ever, executives need to know on a timely basis how their companies are performing. Effective management reporting will give them this important information.

"Total quality management (TQM)," the concept of doing things right the first time, has become a hot topic for the 1990s. TQM will enhance customer service, improve productivity and reduce operating costs and penalties; and employees will be recognized for high-quality performance. Company presidents who have been considering TQM implementation have found that management reporting is a key component of quality management. Companies need to have this reporting in place prior to implementing total quality management.

Creating reports

Given the fact that every mortgage company is keeping track of detailed information on a daily basis, creating management reports is now a process of summarizing details into usable information for varying levels of management. Ideally, a company should take a team approach, with members of the team representing each division. The team, then, should define management reports so that formats and levels of detail are consistent throughout the organization.

The first type, or level, of reports should begin with an analysis of the daily processes. Computer reports of daily activity are already being produced for the first-level supervisor. A supervisor's report from the loan setup department might show the following information by employee:

Beginning number of loans to be setup: 30 (from previous period).

Plus: Loans received this month: 400.

Less: loans setup this month: 410.

Equals: Ending number of loans to be setup: 20.

Age of ending loans by range of ages: 1 to 5 days old = 12; 6 to 15 days old = 5; 16 to 30 days old = 3. (Averages are dangerous. Showing the range of ages will reveal older loans that may be problems.)

Number of errors in loans processed: 10.

Number of hours worked by employee: 170.

This first-level management report gives a supervisor of daily operations the information needed to manage the productivity of individual employees. In the example, the supervisor should question why there are three loans that have been in process for more than fifteen days. It is evident that individual performance evaluations become objective when employees are rated according to productivity goals. Also, the tendency to rate the majority of employees "above average" is eliminated, so abuses of salary administration policies are kept to a minimum. Further, error counts help supervisors identify training needs and subsequently measure the results of training programs. As an added benefit, supervisors will find that performance improves when work is measured.

The danger in managing from reports at this level is that supervisors may not have defined all of the functions for the department. And, because people strive to do those things that are measured, functions not included in the report (those not having a specific means of measurement) may be left undone.

The second level of management reports should be for middle managers. These managers oversee multiple departments performing similar functions and manage work through the supervisors of each department. The basis for mid-management reports should be consolidated data from the first-level reports. Item counts and hours worked are shown as department totals rather than for individual employees. These reports give managers the information they need to proactively manage they volumes of work in the departments.

The need for overtime to prevent backlogs or the need to reduce staff in response to decreased workloads becomes apparent when the mid-management reports are compared over periods of time. At this level, managers should be able to forecast workloads based on trends. The mid-level manager may have to handle complaints from supervisors concerning the creation of management reports if too much of the counting is being done manually rather than by the computer.

The third level of reports belong to the senior officer who manages all of the departments within a division of the company. These reports should contain totals for only the primary functions of each department. At this level, managers should also look at income and expenses per loan and should understand the correlation between the numbers and the profitability of the division. The senior officers might review peer-group comparisons concerning staffing, income and expenses and can identify opportunities for improvement based on those studies.

Because managing by the numbers can become cold and impersonal, senior officers should use the management reports as a supplement to, and not as a substitute for, managing by walking around. Problems that may be encountered with reporting at this level include encountering the frustration of mid-level managers who may believe they are not trusted to manage their own departments. Irritation might also develop if the reports just sit on a shelf in the senior manager's office. Senior managers can overcome this resentment by giving mid-managers personal recognition for improvements that are shown on the reports.

The highest level reports are for the executive officers who are responsible for managing the total company. These reports consist of key ratios and statistics, such as loans closed per person, cost of servicing per loan and underwriting approval ratios and are often presented in graphs and charts. Executives use this information in defining long-range goals and in corporate strategic planning. By reviewing assumptions and goals used in budgeting, executives can analyze the impact of variances in those assumptions as they apply to the bottom line of the company.

The danger of managing by reports generated for this high level lies in losing sight of the details that make up the figures. Executives need to understand that deterioration in other components of the total quality performance may be the tradeoff for achieving goals tied to only one measurement. This is sometimes referred to as "displacement of activities," and it occurs when a specific statistic is used to measure total performance. For example, if improvement in loans per person is the only goal for which the staff will be rewarded, then errors and aged items will probably increase as the loans-per-person goal is met. The executive should discuss the lower level reports periodically with supervisors and managers to maintain an awareness of the underlying details.

Automating management reports

Fortunately for mortgage bankers, some of the computer service bureaus that support this industry have responded to the need for higher level management reports. Some reports for supervisors and mid-managers have either been recently released or are being defined and programmed by these service bureaus. On a daily basis, supervisors are able to generate productivity and open-items reports at the touch of a button. Managers can compare summarized activity reports during a period of time and can create graphic displays of the information. Service bureaus also conduct annual staffing surveys among their clients. These surveys are used by managers to identify opportunities for improvements in procedures.

The next phase of reporting by service bureaus will be the implementation of executive information systems (EIS). An executive information system can be defined as a maturing management information system. A management information system takes the loan-level detail and creates usable summary reports. The MIS looks at every loan record, whereas an executive information system takes summarized information, stores it in summarized form and creates succinct reports for management to easily use--it also allows the user to manipulate the summaries to easily create customized reports. If the executive wants to view the lower level information, those reports are available online through a computerized "drill-down" option. The executive is able to create new summary reports and can graphically display the information on request. An EIS may operate on a micro computer with interfaces to the mainframe system. The PC-based application allows the user unlimited machine time for a fixed cost.

For those mortgage banking firms that are not using a service bureau, executive information systems are also available from PC software vendors. Some programming on the mainframe system is required to download the summary information into the PC>

The actual users of these EIS will probably not be the executive officers. Rather, these systems will be used by middle and senior managers who may be the executive officers in the future. These managers will use the EIS to create and manipulate reports for the executive officers, and they will learn to understand executive management reports in the process.

Thus, while management by walking around remains an effective style, many of today's executives realize that the successful mortgage company of the 1990s should implement a multi-tiered system of management reports to enhance the philosophy of the 1980s. Timely reporting of activities, from the front line up to the head office, is critical to keep supervisors and executives abreast of their company's needs.

Judith P. Kent, CMB, is executive vice president of AmSouth Mortgage Company, Inc., in Birmingham, Alabama. She serves as vice chair of the Loan Administration Committee of the Mortgage Bankers Association of America (MBA) and is a faculty fellow of the MBA.
COPYRIGHT 1991 Mortgage Bankers Association of America
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

Article Details
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Title Annotation:enhancement to walk-around management is a system of computerized reporting of activities
Author:Kent, Judith P.
Publication:Mortgage Banking
Article Type:Cover Story
Date:Sep 1, 1991
Previous Article:Clocking the industry's performance.
Next Article:Emerging from uncertainty.

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