Steven Martin, Marcato Advisors
Many larger banks have asked about what it takes to implement a new commercial loan origination system. This article describes a recent project completed from the rationale through post-implementation. The key lessons from the project, found at the end of the article, are worth considering.
Context – what was the vision and rationale for a new LOS?
The bank initially wanted to modernize statement spreading, and tickler management. As the bank reviewed commercially available options, they expanded their scope to create an end-to-end digital (non-paper or email) lending process for new loans and interim reviews or portfolio management. They ran a competitive selection process which was facilitated by an external consultant, and involved representatives from each department, IT, info security, and vendor management. They selected Sageworks.
- Existing state. The bank was using an older version of statement spreading software, combined with individually created Excel models, and Word templates to run their new loan and interim review processes. Workflow was handle by email – just circulating documents to various people.
- Departments involved. The commercial banking division included CRE, larger middle market, sponsored deals, private banking, public sector, nonprofit, branch-based business banking, leasing, and asset based finance. Each department abided by the overall bank policies, but otherwise managed their processes and particular rules differently, as would be required across such a diverse set of businesses.
- People involved in the existing state. 300 + users from originators, credit analysts, portfolio managements, credit review, and workout. The executive sponsor was the senior credit executive.
Project scope
Sageworks modules
The bank decided to acquire Sageworks modules for Credit Analysis, Risk Rating, Loan Pricing, Document Library, Workflow, and Advanced Reporting. These modules supported the end-to-end processes for new loans and interim reviews: statement spreading, credit memo, credit analysis, projections, ticklers, correspondence with borrowers, a secure document upload portal, an electronic credit file, covenant compliance monitoring, exception monitoring.
While the bank committed to use the Sageworks system as it worked out of the box, there were about ten specific enhancements they believed were necessary in order to run their commercial lending shop. These were spelled out in the licensing agreement, and were delivered as part of the implementation.
Configuration
The scope for configuration included building out workflows for new loan originations and interim reviews for each line of business. We also build out credit memos (roughly 75 or so) to support the various credit actions (e.g., new loans, risk rating change, interim review, and administrative actions). We also established user rights for each user, and a variety of minor configurations that are part of the Sageworks platform. Risk rating templates were built, as were loan pricing templates.
Data integration
The data integration for this bank was helped by the existence of carefully managed data warehouse, for which extracts were relatively easy to extract per the Sageworks specifications. Categories of data included loans, customers, guarantors, co-borrowers, deposits, and collateral.
Data conversion
The bank also wished to convert data from the old spreading, tickler and exception systems into Sageworks. This was a more challenging part of the scope, as the data was not as clean or tightly managed as the data warehouse data. The bank agreed to limit the conversion to currently active customers, and to go back four years for monthly, quarterly and annual statements.
Testing
The testing scope was multi-layered, including Sageworks software and functionality testing, third party user acceptance testing, and bank user acceptance testing. Unfortunately the third party acceptance test not as successful as hoped, partly due to lack of knowledge of the bank’s processes and lack of knowledge of the Sageworks platform.
Training, communications, and rollout
After much thought and discussion, the bank decided to conduct line of business specific training as a full day, on site session, complete with training materials, live case studies, and in person instructors at local offices. There were over 50 training events that occurred in the weeks prior to going live.
Post-implementation support
We staffed a two-week war room for people to drop by or call with immediate usage challenges. Later, that support was made more regular through the bank’s Sageworks administrator, the Sageworks project team, and Sageworks support. Along the way the bank has collected FAQ, user guides, videos, and other support resources in addition to all the Sageworks resources.
Decommissioning
The older software was deprecated, after archiving the data. Certain processes, such as credit action approvals, we decommissioned immediately and switched to Sageworks, other processes, such as storing credit file documents in Sageworks were given a generous adoption timeline. The bank also needed to adjust and modernize bank policy, which they have now done. Reports that were redundant or no longer needed were turned off.
Project sequence and timeline
There is a natural order of events that LOS projects may take, and there are opportunities to change the timing and sequence. For this bank, here is what we decided.
- Begin gathering requirement for the ten enhancements right away.
- Also early in the process, conduct all day workflow design sessions, and document the new workflows. Old workflows were not documented.
- Negotiate data extraction from the old statement spreading system with that vendor – this turned out to be a critical path item
- Begin data conversion mapping – this is iterative, and requires loads, testing, re-mapping, and repeated processing.
- Begin data mapping – a similar iterative process that required fewer iterations
- Configuration of workflows and other Sageworks minor configurations
- Configuration of credit memos
- Unit testing of enhancements
- Third party acceptance testing
- Bank acceptances testing
- Training
- Implementation
- Post implementation support
- Reporting – adoption, portfolio, user, customer, trend
Worth noting we decided, at the bank’s insistence, to divide the project into two phases, so as not overwhelm the users.
Adoption
Adoption was greatly aided by the direct involvement of the executive sponsor of the project. His vision, and insistence for using the new system was key. Also key was the system administrator, creating line of business champions, making resources available, weekly best practice and problem solving sessions.
Key lessons
- Executive leadership can ensure success
- Run it like a professional project – status meetings, risks, issues, escalation, timelines, etc.
- Meet weekly / daily with the project team.
- Dedicate champions in each area, and elevate them to have a role on the project
- Foster a culture of problem-solving together (versus hiding problems or blaming)
- Frequent, open, honest dialogue with the project leadership
- Double your testing effort and time
- Budget three times as much time as you thought it would take for vendor management and contracting – not that there are issues, but that it just takes a while to get it right.
