Most lenders would readily agree that originations in 1992 and 1993 have produced record revenues. But profitability should always be a key measurement. Otherwise, what are we in business for?

Lenders are being challenged in this respect, since servicing portfolios have been decimated by refinancings.

Focusing on costs has been the benchmark of many top-performing lenders. Eliminating noncritical costs immediately increases the bottom line. Lower costs also allow a lender to offer better prices. In turn, that picks up volume - which should help build profits.

What Are Competitors Doing?

All too often, the average lender measures progress toward cutting expenses against its own costs in prior months or years. But a more productive approach is to see what the competition is doing.

One can quickly say that responsibility for such activities belongs to "corporate and the accountants." But isn't it in each branch and regional manager's best interest to identify, measure. and compare various productivity and cost standards against their competitors'?

Effective cost leaders realize four things:

* Costs are either critical or nice. Leaders should make sure the largest portion is critical.

* Leaders lead by example. It is as true in the cost area as it is in many other areas.

* Expense analysis must be simplified to ensure that everyone's main efforts remain focused on producing new business.

* Expenditures must be challenged constantly, because the fight to spend will not stop.

Everyone knows that eventually business will quit walking in the door in the form of refinancings.

Actions taken to strengthen businesses today will protect loan officers when production gets tougher to generate.

Get Everyone on Board

Managing our cost structures then becomes a key to survival. And the greatest long-term cost reduction occurs when employees buy into the idea.

This can be accomplished by appealing to both their emotions and their pocketbooks.

Most people want to be with a company they can be proud of Employees feel proud to be part of a winner and will take extra measures to get there and stay there. But first, management must lead them.

People also like to be rewarded for their performance. This is understood in terms of production. But it's generally overlooked when it comes to cost savings. Therefore, cost-saving leaders must reward employee efforts to cut expenses.

No Quick Fixes

We all like the big, quick fix. But in reality, any big cost-saver will soon be copied by the competition. The essence of any low-cost lender is in managing the little things over and over again.

Remember that cost-consciousness is not the same as cost-cutting. The latter related to trimming away fat. Cost-consciousness means avoiding a buildup of fat. It focuses on making regular reviews and conducting constant oversight of business processes in search of that 1% improvement.

Specific cost savings are often unique to each lender's operations. Yet some general actions worth considering are:

* Benchmarking. Compare yourself against both industry standards and your best competitors.

* Outsourcing. Ask yourself: What is it that we are currently doing that could be done more efficiently outside?

* Internal businesses. Other lenders have set up individual departments as internal businesses that contract with various departments within the company. These "clients" have the freedom to go outside for competitive bids.

* Lower-cost locations. Many lenders are relocating their servicing to low-cost towns rather than near corporate headquarters. Indeed, home-office locations are being reconsidered.

* Going to the cookie cutter. Making our operations routine and standardized lets us improve our service while reducing costs.

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