An HML White Paper: Business Process Management Generating efficiency and service improvements in financial services

© HML All rights reserved. 2 ABOUT THIS PAPER CONTENTS Page 2: About this paper Page 3: Introduction Page 4: The challenge facing financial services Page 5: The solution: Business Process Management Page 6-8: BPM in action: CREWS Page 8: What next for BPM? Page 9: Contact details The purpose of this paper is to give an insight into the ways in which business process management (BPM) can be used to generate efficiency and service enhancements in UK financial services companies. The paper is based on HML’s own experience of using BPM over the course of the past 4 years and includes details of a credit management project (CREWS), in association with IBM. The successful implementation of CREWS has resulted in HML being shortlisted for a global award for BPM excellence, alongside organisations such as Toyota, Audi and the US Navy. “Introducing BPM has allowed HML to improve processes that have a direct impact on our clients. Applying BPM to the CREWS process for example has significantly reduced the volume of manual tasks at a crucial stage of the pre-litigation process. In turn, it has quickened the process, reduced operational risk by limiting the scope for manual error and allowed HML’s consultants to spend more time communicating with clients’ customers to deliver the kind of experience our clients desire. “Furthermore, when applying BPM, we have designed it with the flexibility to comfortably absorb change, so clients have control over how their work is administered, now and in the future.” Ian Cornelius, Commercial Director, HML

© HML All rights reserved. 3 INTRODUCTION The objective behind BPM is to maximise the efficiency and cost effectiveness of processes within an organisation, resulting in faster processing, reduced wastage and re-work, higher and more consistent quality output and lower production costs. Business Process Management (BPM) is not a new technique. It’s history stretches back to the early 20 th century when American engineer Frederick Winslow Taylor’s management theories were first published. BPM is simply a way of analysing and then optimising processes which are present in any organisation. These can be either production or administrative processes. The objective behind BPM is to maximise the efficiency and cost effectiveness of processes within an organisation, resulting in faster processing, reduced wastage and re-work, higher and more consistent quality output and lower production costs. Most BPM projects involve the following key steps: - Analysis - Re-design and modeling - Implementation - Monitoring - Management - Automation BPM is not a one-off exercise. It involves the continuous analysis and evaluation of a process, so that it can be enhanced and improved on an ongoing basis. BPM started to establish itself in the financial services industry in the 1980s, when computer and image scanning technology was first deployed to improve business processes. The precursor to BPM was ‘workflow’ (the person-to-person routing of scanned documents through a pre-determined process). Although BPM is well understood and its benefits have been realised for many years in manufacturing, the UK financial services market has not yet fully embraced this methodology.

© HML All rights reserved. 4 THE CHALLENGE FACING FINANCIAL SERVICES A number of existing administrative processes are labour intensive and depend on manual intervention. Not only is this slow and expensive, but it also makes it difficult to deliver a consistently high quality service. The UK financial services industry has undergone a period of radical change following the onset of the credit-crunch. Banks and building societies are facing a number of challenges including the need to: -restructure their balance sheets -rebuild their capital positions -reduce their cost bases and restructure their businesses so that they are ‘right-sized’ for slower markets - improve operational efficiency and ensure the delivery of a high quality service - be able to respond to new market opportunities as they arise The sector also has to accommodate the constantly changing requirements of the regulatory regime in which it operates. For example, the UK mortgage market is already heavily regulated but will nonetheless have to implement the requirements of the Mortgage Market Review. Many banks and building societies use legacy computer systems and operational infrastructures that have been developed piecemeal over the course of several decades. This makes harmonising existing procedures very difficult and introducing new processes both expensive and slow. A number of existing administrative processes are labour intensive and depend on manual intervention. Not only is this slow and expensive, but it also makes it difficult to deliver a consistently high quality service. Financial organisations need to improve staff productivity and flexibility by removing non-value adding processes. By releasing staff from mundane and repetitive tasks, they can apply their skills to enhancing the customer experience and also responding to changing business requirements. Banks and building societies are constantly looking for ways to prevent problems such as arrears from developing, rather than having to respond to such problems when they do manifest themselves. Faster and more accurate business processing means management information can be provided in a timely fashion, which enables preventative measures to be put in place.

© HML All rights reserved. 5 THE SOLUTION: BUSINESS PROCESS MANAGEMENT By streamlining end-to-end client management processes, financial institutions are often able to reduce human intervention by as much as 80% and be better able to target and serve their customers. BPM enables financial organisations to automate processes such as account opening, payment processing, credit management and arrears and possessions management. This not only reduces costs and wasted time, but also ensures consistency of delivery. By streamlining end-to-end client management processes, financial institutions are often able to reduce human intervention by as much as 80% and be better able to target and serve their customers. Analysing, mapping, re-engineering and implementing new processes means that firms have a clearer understanding of their existing procedures and are better able to make future enhancements without needing to make wholesale changes to existing processes. BPM also enables organisations to take a more holistic view of their client relationships and better understand where issues are likely to arise and how they can best be resolved. BPM systems, once implemented, mean that a financial institution can react to situations and new business requirements in real time and make any changes immediately. BPM does not, however, provide an overnight solution. To analyse, map and develop replacement processes takes time (many months) and the implementation programme may involve a similar period. However, the benefits, both in terms of improved efficiency and cost savings, can be great (see results of project CREWS). Staff need to be taken on the BPM journey and engage with the process. Their co-operation is essential and it’s important they understand the benefits that will accrue from the changes being made.

© HML All rights reserved. 6 BPM IN ACTION: CREWS "BPM software and services help empower organizations to exceed their customers' expectations, react to and anticipate shifts in their marketplace and keep costs under control. “It takes a process aware organization to achieve this level of agility and HML has raised the bar for companies seeking to streamline and accelerate their business processes. In collaboration with IBM, the CREWS project has enabled HML to deliver an agile application that can be customized rapidly to meet changing regulations and requirements." Phil Gilbert, Vice President, Business Process and Decision Management, IBM Software Group. HML is the UK’s largest specialist mortgage servicer, providing outsourced mortgage administration services to 50 leading financial institutions. HML operates out of three UK locations: Skipton, Londonderry and Glasgow. The company was established in 1988 and manages approximately £43bn of mortgage assets and 400,000 customer accounts. In late 2007 HML embarked on its business process management (BPM) journey to improve, streamline and increase overall control of its credit management processes, in response to rapidly changing market conditions and regulatory requirements. HML’s first BPM initiative resulted in the development of a credit management workflow system (CREWS), which automated processes in the firm’s pre-litigation department. The objective of the CREWS programme was to implement repeatable, efficient, consistent credit management processes across HML’s client base. HML worked closely with IBM, providers of the BPM software used throughout this project. An analysis of existing credit management processes confirmed that HML’s credit management function was heavily focused on manual tasks, which meant that the costs associated with debt recovery were significant. HML is a multi-client environment and its BPM toolset includes approximately 400 business rules and is used by 350 credit management specialists within the business. By automating non-value adding manual processes such as the identification and distribution of work items, employees have more time to spend with customers resolving issues. This has improved staff morale and overall engagement within teams. People also have a greater understanding of how the speed and accuracy of their work impacts on the credit management and arrears process. Training for new and existing employees is much easier because processes are clearly defined, and ‘coaches’ are used to guide employees through the specific task they are working on.

© HML All rights reserved. 7 BPM IN ACTION: CREWS The successful implementation of the CREWS project has resulted in a cost saving of £440,000 a year. Team managers have access to real-time dashboard reporting which gives an instant view of key data, enabling them to make informed resource allocation decisions. With CREWS being the first implementation of BPM within HML, it was decided to develop a ‘centre of excellence’. This comprised modelers, developers and testers who followed documented best practice and upheld strict standards. With this team in place, the subsequent rollout of the project was easier to deliver on time and within budget. HML has fully embraced BPM and sees it as an enabler for further process change throughout the organisation. The successful implementation of the CREWS project has resulted in a cost saving of £440,000 a year. The next phase of CREWS is the implementation of a possessions project. Based on the experience gained from CREWS, the possessions project is expected to reduce the processing time for new possessions by 60 per cent. In addition saving a further £200,000 a year by reducing manual effort. The elimination of manual intervention also means improved compliance reporting and the ability to demonstrate that processes are effective and in accordance with Financial Services Authority regulations. The BPM centre of excellence has improved business support by answering 90 per cent of queries within 1 hour, comfortably within service levels. The key elements of CREWS includes: - IBM Business Process Manager (Standard) software. - HML’s core operating system - Peripheral HML applications, which handle actions such as sending-out letters and automatically dialing customers. These elements have been fully integrated using Web Services, allowing each system to focus on what it does best. The systems exchange information in real time.

© HML All rights reserved. 8 BPM IN ACTION: CREWS The financial services industry is lagging behind other industries in adopting BPM methodology. As financial institutions look for ways to reduce costs, increase productivity and ensure consistency of service delivery, BPM will inevitably become more common throughout financial organisations, both large and small. Credit management processes and associated business rules are held on the IBM BPM system in the form of business process definitions, allowing users to create and make changes using a graphical interface. As a result of the successful implementation of project CREWS, HML has been shortlisted as one of only six European finalists in the prestigious Global Awards for Excellence in Business Process Management and Workflow. The awards, which are in their 18th year, recognise organisations around the world which have excelled in implementing innovative business process solutions. Other finalists include Toyota in Spain, Audi in Japan and the US Navy. WHAT NEXT FOR BPM? BPM is a constantly evolving management science and is a journey that has no defined end-point. More sophisticated and integrated technology developments play to BPM’s strengths and will enable further productivity and cost saving gains to be made. The financial services industry is lagging behind other industries in adopting BPM methodology. As financial institutions look for ways to reduce costs, increase productivity and ensure consistency of service delivery, BPM will inevitably become more common throughout financial organisations, both large and small. BPM is not a ‘passing fad’. It’s based on sound management principles and proven techniques which deliver tangible benefits.

© HML All rights reserved. 9 For further information If you would like further information about BPM and the way in which HML has implemented project CREWS, contact Paul Swinson, Programme Manager at HML on (0044) Further information about HML can be found at or by phoning For more information about IBM’s BPM solution, please call (0044)