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Multipronged Approach to Process Improvement

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Process Improvement

3 minute read – Strategic initiatives that include process improvement as a key component are highly prevalent.  Some institutions set out to use process improvement to build a more efficient organization, better customer and staff experiences, or higher loan funding ratios.  In addition to improving specific processes and metrics, more and more organizations are working to create a culture of continuous process improvement so the efficiencies, experiences, and ratios they’ve achieved continue to improve into the future.   

Attaining an organizational culture that is focused on ever-better processes requires more than a few isolated efforts toward process improvement.  Teams that are working to establish the practices that will lead to a culture of continuous process improvement should consider consistently using a combination of the approaches below to gain the most traction, rather than a singular approach: 

  • Incremental Improvements – When processes need obvious tweaks, isolated improvements can be made without reviewing the entire process if vetted carefully for unintended domino effects to the upstream and downstream parts of the process.  The ideas for these tweaks are often the result of someone identifying a pain point, either through the normal course of business or by polling employees for their ideas, which is a good way to uncover previously unknown process weaknesses and give employees a voice.  Improvements that are suited for the quick wins approach are simple changes that are welcome or won’t invite resistance.   
  • Strategic Improvement – This is a more holistic approach that includes reviewing and improving an entire process from beginning to end.  This is most effective as a collaborative effort that brings in people involved in all phases of the process to pool their knowledge, identify issues, design creative solutions together, and champion the resulting improvements.  Viewing an entire process reveals a bigger picture that makes it easier to accomplish the objectives of the process improvement, and will often lead to more and higher impact improvements than when doing bits and pieces.  This approach requires good facilitation led by in-house personnel or consultants.   
  • Transformative Improvement– This is a variation of the comprehensive approach that is used when truly new thinking is called for, such as when an entirely new process is being created or an existing process is opened up for a complete redesign.  The team is asked for not only creativity, but altogether new ways of thinking about the process in order to meet identified objectives.  Good candidates for the transformative approach are processes surrounding a new core system, to avoid projecting old thinking onto the new system.  This is also an ideal approach for newly digitized processes, instead of simply adjusting the old process and missing potential gains from the new technology. 

Consistent efforts and consciously choosing and using a combination of approaches as appropriate for various circumstances will improve the chances for success.  It will help build a mindset where employees think about processes from new perspectives and are always looking for ways to strengthen them.  When talent throughout the institution embodies this mindset, they will embrace and help drive a culture of continuous process improvement and the organization can realize all the benefits that come with it. 

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5 Practices to Be a Better Peer

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5 minute read – There are countless references today to the “lone wolf” – the person who stands alone and doesn’t need anyone else to be successful, individualism marked as the key characteristic to success.  But the “lone wolf” is a temporary status because even the powerful and intelligent wolf depends upon the pack for survival.  It isn’t the lone wolf, but the pack who trusts each other, that survives and flourishes.   

It can be easy to silo ourselves and fall into the dangerous, “I’ll do it myself” mindset or the belief that it’s a sign of weakness to not have all the answers.  These challenges often stem from a more basic issue – lack of trust.  Perhaps we (unintentionally) fail to trust someone else to complete a task to our standards or we choose to not share ideas because we do not trust the reactions of our peers.  Here are a few tips for breaking out of singularity and embracing the power of collaboration and unity by focusing on the importance of trust:  

  • Build a foundation of trust.  Trust is a feeling that follows actions which demonstrate sincerity, competence, and reliability.  It can be helpful to shift your thinking about trust beyond the narrative of ethics and morality to a more grounded definition.  Approaching the idea of trust with curiosity may enable you to dig into why you trust or don’t trust yourself or a peer.  What biases or assumptions are influencing your evaluation of trust?  How can you get to the root of an issue in order to form a stronger foundation?   
  • Developing trust isn’t only about relationships with others.  Being consistently competent and demonstrating reliability requires honesty with oneself.  When we are used to being fiercely independent, we risk saying “yes” even if we do not have the capacity to meet the request.  This does not mean you shouldn’t push yourself to grow your skills and capacity!  More so, pause and consider resource allocation and get clear on a person’s request.  Are they really asking that you personally need to fulfill the request?  Or can you use your resources to ensure the request is fulfilled, on time, and with quality?  There are also moments when you may need to counteroffer on the timing and/or scope of the request.   
  • Clarify expectations.  In the process of building trust and moving out of your silo, it is important to be clear about expectations around roles, both yours and others’.  We often think we have mutual understandings but walk away from meetings with different interpretations.  Develop a common language.  Asking questions helps to close any gaps.  Provide and/or seek clarification.  If there is an expectation of a deliverable, make sure you agree on the date.  Unspoken expectations or assumptions can unintentionally result in unmet expectations, and ultimately chip away at trust.  Repeat back what you heard, checking that it is in alignment with what the speaker intended.  Taking small steps to establish more clarity in communication can mean fewer breakdowns or blunders across departments and stakeholders.   
  • Keep self-accountability top-of-mind.  It is one thing to set clear expectations around roles, it is another to create an environment in which people can assess the process and performance to determine how to be better going forward.  As a team, determine how to address accountability;  Incorporate opportunities to debrief and evaluate takeaways that fit with your values.  This includes self-accountability, stepping back and asking yourself how you could have shown up different.  Focus on accountability as a tool for growth and learning, not as a “gotcha” – you have a common goal of the betterment of the company, and helping individuals show up as their best selves adds up to this GOAL.    
  • Assume positive intentions as you champion discomfort.  Building trust around expectations and accountability often flies in the face of how we have learned to speak with our peers.  It will probably be a bit uncomfortable as you institute working agreements and norms around communication with the intent of building trust, self-accountability, and peer accountability.  Embrace the discomfort.  Like most skills, when we are beginners, we are often pretty bad – think of the first time you rode a bike.  If we give up because it’s hard or uncomfortable, we risk never growing our skills.  Be brave together and assume positive intentions as you grow your capacity for trust, expectations, and accountability.   

Unlike the lone wolf, the pack relies on its strength in numbers to face even the harshest conditions.  Lean into your team, embracing strengths and acknowledging weaknesses.  Compassion and empathy towards each other and yourself go a long way in developing trust, clarity, and a culture of collaboration.  And, while the financial institution may not quite be the tundra, leaning into the power of a well-developed team can take you to the next level. 

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Decay Rates – A Critical ALM Modeling Issue That Can’t Be Ignored

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5 minute read – As rates have increased materially, and liquidity pressure continues to build, leaders are faced with hard and timely decisions.  We feel reposting our blog on decay rates will help decision-makers keep critical ALM modeling issues top of mind.  The weight of important decisions is always present – don’t lose sight of it in this crazy environment.

This blog on decay rates is the first in a series addressing critical ALM modeling issues.  There is a lot of information here, so pull it up on the big screen for a better view.   

Problem:  When conducting EVE/NEV simulations, the focus on the relative rate environment is overrated.  This focus can result in a misinterpretation of how assumptions are being applied, and heavily influences the results. 

Solution:  Dig deep into your decay rate assumptions to ensure that the actual current rate environment, which changes over time, is being considered.  This is a hard, yet critically needed, shift in ALM modeling mindset and is only one of many examples regarding assumptions that need to be reviewed.   

This concept can be a little harder to visualize so we have added some tables to help.  Tables A and B are simple examples of the format we often see when doing model validations. 

Are the assumptions consistent?  

No.  While on the surface they look the same, if you dig deeper, they are not.  Keep in mind that as of December 2021, the current 3-Month Treasury was about 0.1%.  At the end of December 2022, it was around 4.40%.  This fact is easy to miss because there is no statement of what the current environment actually is.   

To illustrate why the actual rates do matter, we added a row of information to Tables C and D that most models don’t address.  The inconsistency becomes much clearer. 

Focus on the highlighted lines to see inconsistencies in the assumptions.  

  • For example, the December 2021 simulation shows the assumed decay rates for money markets in a +300 is 30%.  The +300 in this simulation is short-term rates at 3.10%. 
  • In December 2022, current rates were around 4.40%, which is materially higher than the simulated 3.10% rate in December 2021. 
  • Even though actual current rates are much higher, the decay rates don’t reflect the potential impact that higher rates could have on a member’s advantage to withdraw funds.  In this example, the December 2021 simulation is using a 30% decay rate for money markets in +300, but in December 2022, when rates went up more than 300 bp, the model is still using a 15% decay rate for money markets. This view helps to highlight inconsistencies. 

Just a few considerations as you review your assumptions for reasonableness: 

  • To help correct the flaw in traditional shock tables, shift the assumptions over.  Notice the red arrows in Tables E & F.  This isn’t an exact science but it will show the impact of keeping comparable assumptions that don’t contradict each other for the similar levels of rates. 
  • Liquidity pressures are increasing: take a look at FHLB advances through Sept 2022.  This is one of many indications that there is a potential for increasing decay rates in the current environment.  This potential should be factored into simulations.   
  • New assumptions should be developed as new shocks are taking rates to 5%, 6%, or 7%.  Imagine how desirable a 7% CD would be to many consumers and businesses.   
  • Don’t forget that in 2019, prior to the pandemic, a top source of concern was funding – cost and access. 

Problem:  Many decision-makers think that the decay tables used for EVE/NEV apply when simulating risks to earnings and capital.  Unfortunately, many models do not link the decay rates when simulating risks to earnings and capital, which can understate the risk.  This approach is essentially saying that the consumer does not care what rates they are paid.  This does not make sense.     

Ask yourself:  What is the rationale to incorporate decay rate assumptions when doing EVE/NEV simulations, and not when simulating risks to earnings and capital?  Remember, liquidity has become a bigger topic in many C-Suite and board discussions.  It is important to clarify for stakeholders which ALM results that you review incorporate the risk of withdrawals/decays and which results do not.   

As we said in the beginning, reliable financial decision-information is critical to thriving in this type of environment.  We run thousands of risks to earnings, capital, and EVE/NEV simulations and what-ifs each year.    

This blog just scratches the surface of considerations facing finance teams today.  Stay tuned for more tips on providing reliable financial decision-information.   

We understand timing is critical and finance teams need to move fast.  Please feel free to call us if you have questions on the information provided in this blog and/or just can’t wait for our upcoming blogs.

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c. myers live – Maximizing Net Worth: Insights for Financial Institutions

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The financial services industry is changing day by day, and the impact of net worth on organizational performance and growth is relevant and top-of-mind for many institutions.  In this c. myers live, we explore the importance of strategic net worth considerations.  We also provide insights on how organizations can maintain optimal net worth levels through strategic planning and decision-making, while aggregating risks and always considering different opportunities.

For access to the interactive tools Rob and Charlene discussed in the podcast, please click here.  These tools are designed to help organize thoughts in order to have productive conversations around strategic net worth and other important topics.

About the Hosts:

Rob Johnson

Rob, one of five c. myers owners, has a reputation for deep, original thinking on asset/liability management and every conceivable modeling methodology, as well as analysis of investments, liquidity, aggregate risk, concentration risk, and other related topics. While Rob is a familiar face to the managements and boards of many of the largest organizations, he has helped financial institutions of all sizes tackle some of their toughest challenges, such as rebuilding capital and navigating safely and soundly with the smallest of margins. He has become quite familiar to many leaders in the regulatory world, both as an educator and a thought leader.

Learn more about Rob

Charlene Leland

Charlene LelandSince joining c. myers in 2004, Charlene has become one of the most diverse facilitators within the industry, especially with regard to helping financial institutions of all sizes address three necessary business objectives: relevancy, differentiation, and sustainability. Over the years, she has honed her skills for facilitating various types of sessions, including Strategic Planning, Strategic Implementation, Member Journey and Experience Improvement, and Strategic Financial Planning.

Learn more about Charlene

Other ways to listen to c. myers live:

listen on google podcasts listen on spotify listen on apple podcasts

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4 Tips for a Growth Mindset

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4 minute read – Imagine you have begun climbing Mount Everest, you reach 24,000 feet and realize you didn’t bring enough oxygen.  Without oxygen, it is nearly impossible to complete the climb.  Do you take it as a failure?  Or do you acknowledge your disappointment and take it as an opportunity to reflect and assess how you can come better prepared next time?  Growing in your personal life and career might not be quite as dangerous as climbing Mount Everest, but we can only achieve our goals when we have the necessary tools.  So, what stops us from being the most successful version of ourselves?  Many of us haven’t taken the time for the introspection required in the process of continual optimization of self to even know what we need. 

Here are 4 steps to help you cultivate your toolbox for achievement: 

  • Have some honest conversations with yourself.  Dig into the root of your situation.  It can be uncomfortable to hold ourselves accountable in moments of disappointment or frustration.  Placing blame externally or identifying surface level fixes might be easier but ultimately leave you worse off because deeper needs are at play.  Make a habit of performing self-assessment:  What are your strengths?  How are you utilizing those strengths in your role?  What are the gaps between your strengths and the demands of your role?  Setting goals around self-accountability or developing a routine check-in process with yourself can help you focus your energies more effectively.  
  • Pinpoint your motivations and articulate your goals.  What are your absolutes and where can you be flexible or compromise in achieving your end goals?  How do you want to show up in your brand?  Clarifying goals and your metrics of success creates opportunity to hold yourself accountable.  Similar to having those sometimes difficult conversations with yourself, this needs to be a continual process, regularly revisiting and adjusting your goals and measures of success as you grow. 
  • Be present and be direct.  A key element to climbing Mount Everest is being ready for the unexpected, and while you might not face a snowstorm inside the office, being open to uncertainty can keep you better prepared to be flexible in situations.  Practice being present.  As humans, we are often thinking about our response to others or the next task on our to-do list rather than being present in the moment, leaving us unable to adapt in moments of the unexpected.  Additionally, practice being direct.  Cutting out filler words, extraneous information, and over explanation when making requests of others can promote more succinct, clearer communication, making sure you get what you need in an effective, timely manner.  
  • Fuel your tank.  Whether it is a quick walk outside between meetings or a week-long vacation to the Maldives, making time to step away from your duties can give you renewed clarity, increased concentration, and revived energy, leaving you feeling ready for the next leg of your climb.  Like the climb itself, creating opportunities for refueling may require some planning – delegating tasks and knowing when to negotiate requests outside your capacity can help you find balance.  In the fast-paced, connected world we live in, it can be tempting to push yourself to physical and mental limits, but growth requires respite from the grind.  

Many of us have gotten to this point in our careers because we get things done, grinding through situations and potentially wearing ourselves out; some of us even fall into that dangerous mentality of “I’ll just do it myself” rather than pause, reflect, and ask for help.   Pushing through can only get you so far; even the most experienced climbers can only get so far without oxygen – 26,000 feet to be exact.  Eventually, we must be willing to let our guard down and ask for our needs to be met, embracing each small step in the longer effort toward becoming our best selves.