PHOENIX-There is no quick fix when it comes to reducing expenses at credit unions, but "significant and sustainable" cost reductions can be realized through many small steps, according to one analyst.
Bob Parks of the Financial Institutions Group with the firm Doeren Mayhew in Troy, Mich., told the CUNA CFO Council Conference that incremental reductions with minimal impact on other departments can add up to "substantial" savings.
"Most credit unions have tried to reduce expenses in the last five years, either by reducing headcount or renegotiating contracts," he said. "The challenge is to cut costs without reducing service."
According to Parks, CUs looking to help the bottom line via expense reduction should avoid arbitrary cuts, or trying to hit a specific ratio or numeric target. Too often, he explained, cost-cutting moves that are not well thought out end up having unintended, long-term financial considerations, negative impacts on member service, and impacts on culture and morale-"which, in turn, can have a major impact on productivity."
'Always Done It That Way'
Parks said among the toughest cuts to first recognize and then make are the "sacred cows." This starts with a review of processes and unspoken rules to eliminate wasteful practices.
"Many companies have a fear-based reluctance to abandon what once made them successful," he said. "At credit unions this can be expressed as, 'We have always done it that way.' When you hear that, it is time to ask another question."
In general, credit unions have done somewhat well in reducing salary and benefits costs, but there are some questions that need to be asked, Parks continued. He said job expectations change over time, so measuring employee efficiency is important. Among the things to consider:
* Consider reviewing formal HR job descriptions versus what the employee actually does.
* How much time do employees spend on each activity?
* What is the biggest pain point? "The people know which part of their job really stinks."
Every organization has people who are "less than fully busy." Parks suggested one solution is to assign tasks to those folks to get them fully busy. "Sometimes if people are struggling, it is best to help them find something else," he said.
Another important series of questions to ask relate to voluntary departures: What happens when someone leaves? Is the position automatically filled?
"Some savings can be realized through attrition-other people in the department can take on work," he said. "Credit unions can realign their branch staffing. Member service can be balanced between 'no wait' and 'acceptable.'"
Supervisory functions also can be evaluated and changed. Parks said CUs should be able to reduce hours devoted to supervision 10% each year if duties remain the same and there is minimal turnover.
Process Improvement
Processes are formed ad hoc over time, Parks said, noting at CUs many processes are driven by the core processor and regulations. He noted managers typically are unfamiliar with processes because they are removed from the day-to-day tasks their employees perform. Ideally, the organizational structure, as well as the measurement and reward system, are process independent.
"Most credit unions are not process-oriented, but are focused on results," he said. "By analyzing processes, credit unions can improve efficiency, increase capacity, redeploy their workforce and reduce costs."
CUs should determine the processes they need to review based on pain observed by members or employees, he continued. For example, high employee turnover is a sign of trouble. Other processes to review include areas with a large number of people, or tasks that have come to require several approvals. Parks said credit unions should question "perceived complexity" in all areas of the organization, because sometimes tasks can be simplified.
Process analysis starts by documenting conditions "as is." Parks advised CUs to map out how operations are done.
"Once the mapping is complete, parts of the process can be challenged."
What To Watch For
When improving processes, CUs should be mindful of differing impacts. Parks said "value-added" activities are those required to provide output that meets member expectations. "Business-value added" are activities not noticed by members, but required by the CU. "Nonbusiness value-added" are activities not required by members or the CU.
Typical problems are in the form of gaps in meeting member or internal needs, especially waste in the form of non-value added activities. Parks said causes can include input, people, methods, technology and many others.
CUs can change the people with training programs, written procedures, clearly communicated expectations and accountability, and establishment and monitoring of metrics. In many cases, technology problems can be improved by automating manual activities.
"To change the activities, eliminate unnecessary administrative steps," he counseled. "Some credit unions go overkill on approvals. Question all approval/sign-off steps, inspection/review steps, and sequences of work. This can eliminate a lot of redundancy and rework. Few things waste more time than rework."
