Making credit analysis simple

If the mantra of the movie Field of Dreams was, “If you build it, they will come,” then the mantra for credit policy should be, “If you make it simple, they will do it.” This is not to say that credit analysis is simple. Rather, processes that effectuate credit policy should be easy to follow. An institution can and should set employees up for success by making expectations clear and readily accessible.

Clear Expectations

Consider an analyst who recently joined a financial institution. He knows he needs to save important documents to the credit file, but he does not know exactly which documents are required, how they should be organized, or the nomenclature to use in file names. He will waste time and resources as he decides how to treat each document and cause potential issues for future retrieval. Inconsistencies may raise questions with external parties about documentation standards.

Contrast his experience to an analyst who works for an organization that uses a document checklist. The checklist takes the guesswork out of what needs to be saved, where to put it, and what to call it. The financial institution benefits from efficiencies in filing and retrieving documentation.

Readily Accessible

Consider an analyst who works for an institution that regularly tweaks the risk rating scorecard and emails out updates. She is likely to waste time looking for the latest one in her inbox every time she needs it and risks using the wrong one because it is not made readily available. Worse, she may download a template to her hard drive and miss an update altogether.

Contrast her experience to an analyst who works in an institution that has systematized its scorecard, such as with Risk Rating. When updates are required, they are made by a master user in the system and automatically pushed to each user.

In both cases, the analysts who are at the second institution are set up to succeed in meeting the policy requirements of their institutions.

Setting expectations takes more effort than simply telling people what to do once. Despite the best of intentions, an analyst is simply unlikely to internalize this information. Three steps can help instead:

1. Develop job aids: Job aids are checklists, templates, and the like. They enable someone to do their job efficiently and consistently and reduce performance differences between individuals. The document checklist noted above is an example of a job aid. Job aids are one of the most efficient ways to ensure analysts know what they are expected to do. They should be systematized wherever possible to improve accessibility.
2. Enlist managers: Managers reinforce the importance of policy compliance through their own actions and approval reviews. For example, if a manager approves a rating for on an old form for expediency, the analyst will assume using the correct scorecard is unimportant. Managers are also a support mechanism for analysts to ask questions.
3. Engage with training thoughtfully: Training on policy can be tricky. Someone standing in front of a room of analysts and talking at them for an hour or a day isn’t training. And if the goal is simple information transfer, then self-study reading or other methods could be more effective and efficient. A plethora of books have been written on how to design effective training, and there’s not space here to recap them all. What you need to know for policy implementation — focus on areas that need practice, such as how to use spreading software, or expert judgment, such as determining appropriate adjustments to EBITDA.