Measuring up: metrics for method in the madness.
But a revenue or recovery number alone is far too gross a measurement to be of much use. Such a measurement encompasses many factors for many individuals and processes. It may tell you whether you and your staff are doing well or poorly, but it doesn't tell you what's working and what isn't. For that you have to "drill down" much deeper.
The real power of measurement is in the details. A good collection manager knows how to use quantitative analysis to improve his processes and his staff. He knows how to find the details he needs, analyze them and act on what he's learned.
These detailed measurements are commonly referred to as key performance indicators (KPIs) or metrics. Generally defined, metrics are quantitative, comparative assessments of any aspect of performance over a given period of time.
Metrics tell a manager everything he needs to know about what a staff member can do, wants to do and is doing. But what are they? How are they applied? What do they mean? What actions should they prompt on your part?
This article discusses only one category of metrics--those that track a collector's performance during a month or a collection cycle. There are several of these "results-oriented" metrics that inform the work of the collection manager on a daily basis. This article defines these metrics, providing formulas for each, and gives you some insights as to how they can be used.
These metrics should be published daily. That is, they should be given to staff members in an easy-to-read format that allows ready comparison to others. The mere act of publishing results-oriented metrics can be a subtle way of applying a "silent motivator" to bring out the best in people. After all, no one wants to finish last in any category.
The Daily Performance Report
Your department should be using some kind of daily performance spreadsheet or report, handed out to all collectors at the start of each work day. This is a document that compares every aspect of a collector's current performance to every other collector. Overall revenue month to date is broken down into a number of smaller metrics, giving you the power to drill down into the hows and whys of your teams' performances.
Daily measurements of revenue results typically employ business days. Since just about every collection or accounting software program calculates statistics like these during an automated end-of-day process, the results from the business day before are the ones distributed to the staff in the morning. That means that if a daily performance report shows results for business day 18 of 20, it's actually distributed on the morning of business day 19 of 20. Likewise, results for business day 20 of 20 (or what you might know as EOM day) are published on business day 1 of the new month summarizing the first day of the month to the last day of the month.
Some creditors or collection agencies use a different posting cycle, for example, from the 15th to the 14th of the following month. Therefore, bear in mind that "month" below is interchangeable with "posting cycle" In any case, the posting cycle will have a number of business days associated with it, and each day of that cycle will have a business day number. The first business day is number 1, the eighth is number 8, the 21st is number 21, and so on. It's the current business day that allows you to calculate current performance in any category (percentage wise) against overall goals for the month.
A daily performance report should be broken down by the collection teams. This is very important because it creates competition among the supervisors who oversee the teams. Collection supervisors have the power to impact their teams' performances profoundly through coaching, motivating and training. Don't miss the chance to get the best out of these folks.
There are 16 important bits of information on a daily performance report: collector number, collector name, goal, MTD, PDC, PTP, PPA, in hse, promsd, total, MTD goal, % MTD, % goal, projection, run rate and daily. Each is explained below.
1. Collector number and name: These uniquely identify the staff member, both within the collection software package and on the daily revenue report. The collector's name is included so that all the other collectors know whose results he's looking at, and as a reminder that a collector is more than just a number to you.
2. Goal: This metric is the minimum revenue expectation for that collector for that month. While many agencies and departments pay little attention to how they assign goals, the importance of this detail shouldn't be underemphasized. How you set goals is very important both to your organization and to your collector.
3. MTD: This is the "month to date" metric. It's a measurement of how much revenue (either fee or gross, depending on your organization) the collector has put on the books already this month. In other words, this is only money that has gone to the bank. In the early part of the month, it can be a measurement of how effective the collector is at negotiating immediate balances and "good faith" payments.
4. PDC: This is the "postdated check" metric. It's an indication of how much revenue, either fee or gross, the collector has scheduled to run in postdated checks between this morning and the last day of the month. It's a good indication of your collector's ability to demand a tangible commitment on borrowers who need more time.
5. PTP: This metric tells the manager the total dollar amount of "single-promises" that the collector has scheduled to run between this morning and the last day of the month that are not already represented by postdated checks. A "single-promise" is differentiated from a "recurring promise," or a PPA (see below.) In other words, this is the total amount of all commitments from the debtors in a given file to send a single payment of some amount, but not necessarily anything further. These may be promises for the full balance, a settlement, or even just a promise for a single $100 payment. It's the average promise amount that guides you in determining whether the collector is negotiating as effectively as possible with your debtor.
6. PPA: This metric tells the manager the total dollar amount of recurring promises that the collector has scheduled to run between this morning and the last day of the month that are not already represented by postdated checks. A PPA (or a partial payment agreement) is made by a debtor who's agreed to a repayment schedule in which he sends periodic installments. It's the average PPA amount that tells you whether your collector is getting the most he can on each arrangement, or whether he's "breaking weak" for small amounts.
7. In hse: This is "in-house" money. Merely MTD plus PDC, this is a metric that represents a total of the money already collected plus the collector's firmest commitments. If the collector didn't collect another dime between this morning and the end of the month, this is where he'd finish (excluding reversals for NSFs or other "back-outs"). This is what a collector will typically refer to as his "number."
8. Prmsd: Likewise, this metric is a total of PTP plus PPA, representing the total amount the collector is expecting his debtors to send before the end of the month as of yesterday's commitments.
9. Total: Total represents four combined factors: MTD plus PDC plus PTP plus PPA. If all of the collector's debtors honored their promises and partial payment agreements, but the collector didn't talk to another debtor this month, this would be his revenue result, again excluding NSFs or other reversals.
10. MTD goal: This is the amount of revenue you'd expect your collector to have "in house" as of this business day. It's a simple calculation: MTD goal = [(goal/number of business days this month) x business day number]. For example, if yesterday was Business Day 18 of 20, and the collector's goal is $20,000, then the collector should have ($20,000/20)18 "in house," or $18,000.
11. % MTD: This metric shows you (and the collector) what percentage of his MTD goal he's achieved so far. Again, this is a simple calculation: % MTD = (in hse/MTD Goal) taken as a percentage. This is in bold print because it's the most important metric on the report. More than 100% means that the collector is on target to overachieve. Less than 100% means that the collector is likely to underachieve unless something changes quickly.
12. % Goal: This is simply the percentage of the collector's overall goal he's achieved as of this day this month: % goal = [(in hse/goal) x 100]. A good collector will have a high % goal in the beginning of the month because of his "backend," or postdated check commitments on his PPAs. A collector who's weak in this area needs training on negotiation, it's as simple as that.
13. Projection: This metric tells you how much revenue the collector is likely to produce this month. It compares "in house" money with business day and adds PDCs as a constant. This calculation is slightly more complex: projection = [(in hse/business day number) x number of business days this month] + PDC. (in hse/business day number) represents how much money the collector has been putting on the books, on average, every day. By multiplying this by the number of business days, we get an estimate of what the collector will post for the month if he continues to collect at the same rate. And then, since any new postdated checks he might take before the end of the month are already accounted for in this figure, the current PDC amount is simply added on. This calculation assumes that none of the collector's PTPs or PDCs will arrive.
14. Run rate: This metric assumes that all of the collector's PTPs and PDCs will arrive. Therefore, it's the same calculation as projection, but prmsd is added after PDCs for a higher total. Here's the formula: run rate = [(in hse/business day number) x number of business days this month] + PDC + prmsd. Projection and run rate should be regarded as the endpoints of the range in which the collector should finish for a given month, provided his efforts remain consistent.
15. Daily: This is simply the amount of new money the collector must bring "in house" today and every remaining day in order to achieve his goal. Daily is calculated by taking the difference between goal and in house and dividing it by the number of business days remaining: daily = (goal - in hse)/(# of business days - business day number.) Note that such a result can be negative. That means that the collector is already over his goal and would actually have to lose money (from NSFs or other "back-outs") in order to finish at less than the goal you've assigned him. By showing collectors their dailies, you'll make it clear to each individual what you expect him to produce today. The best collectors always have a daily in mind, and you can count on them to try to at least double the standard you've given them. Meanwhile, the not-so-good ones will be painfully aware of their underperformance in comparison to their colleagues (indeed, everyone will be aware of it) and they may try to step it up in order to put in a good showing.
As a "silent motivator," the daily performance report can't be beat. One can't argue with revenue results--or the lack thereof. Any collector with even a scrap of self-motivation will study these numbers and try to improve upon them, day to day and month to month.
Creation of the daily performance report should be automated to the greatest extent possible in your collection or accounting software package. Most programs these days allow an SQL query; data can then be exported directly into a Microsoft Excel spreadsheet. From there, an Excel macro that you've previously programmed can put the data into a format similar to this one. Others systems allow the generation of reports like this through third-party vendor programs, such as Crystal Reports.
There is an art and a science to managing a collection staff. Metrics is the science part. By embracing the value of what numbers can say to you about your people and yourself, you will have done what every great artist has done throughout history--become a master of technique.
Christopher Coelho is a top collection management veteran and president of VISTA Consulting Inc. He's also the author of The Complete Collection Manager and States of Confusion: A CD-ROM Guide to State Collection Laws. Visit his website or contact him at www.vistaknows.com.