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Lending & Credit Risk Portfolio Risk & CECL Loan Review and Due Diligence

Building a business case for loan review automation

Abrigo
April 7, 2023
Read Time: 0 min

Making a case for greater efficiency

Loan review automation eliminates manual processes, saving time and reducing human error. Here's what to say when presenting a case for software at your institution.

You might also like this whitepaper: "2022 Loan Review Benchmark Survey Results."

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Takeaway 1

Loan review automation can help reduce or eliminate common efficiency problems that financial institutions face.

Takeaway 2

Bank staff should emphasize these five points when presenting a case for loan review automation to decision-makers.

Takeaway 3

Abrigo staff can partner with your institution to present a customized business case for loan review automation.

Reduce manual processes

Making a case for loan review automation software

Building a business case for most software purchases can feel like a daunting task. The process of identifying business needs, evaluating vendors, considering a buy-vs-build perspective, and calculating ROI while considering other factors as well can seem like an overwhelming challenge. Additionally, the process of translating all this information into a persuasive business case is often a new or unfamiliar endeavor for a Loan Review Manager.  

 

At Abrigo, we understand how difficult this process can be. The good news is we have helped many clients develop a strong and ultimately successful business case for loan review software.  The following points make for a strong business case to help you acquire the tools needed to optimize your loan review function: 

  • Return on Investment (ROI) isn’t just about efficiency gains 
  • It’s rarely cheaper or faster to internally develop a system 
  • While it can seem like the safer path, there are risks in doing nothing 
  • Increasing headcount can mask inefficiencies 
  • There are huge advantages to being part of a user community 

Calculating ROI

Most clients report a 20% efficiency gain in their loan review process after implementing loan review automation. This is a great place to start, but the most significant impact on ROI is often associated with what can be accomplished with the additional efficiencies. Some of the other areas of business value include: 

  • Increased penetration leads to improved risk identification 
  • Better access to data and deeper analysis drives more impactful findings 
  • Improved summary reports to executives and board members 
  • Smoother regulatory exams 

Internally developed systems

According to the 2021 DiCOM Industry Benchmark Survey, 44% of banks use a vendor-supplied automated loan review system. However, many clients evaluated an internally developed system before ultimately acquiring loan review automation. The cost associated with the typical multi-year effort to develop a customized system is usually far more expensive than the acquisition cost. Furthermore, loan review software can be implemented in a fraction of the time, which means your organization can start achieving an ROI much sooner. Sometimes, loan review software replaces an aging system developed years prior and has become technically obsolete and unstable over time. This illustrates the often-underestimated challenge of maintaining internally developed software. 

The risks of inaction

At the beginning of any evaluation, Abrigo works with the prospective client to uncover the business drivers and primary pain points leading up to the assessment of loan review software. These pain points are often process inefficiencies and error-prone activities, such as: 

  • Manual data entry throughout the loan review process 
  • Dissatisfaction with reports and the reporting process 
  • Disorganized or non-standardized loan review workflow 

All of the above can impact credit quality and, ultimately, the organization's return on risk. While it’s difficult to monetize, the risks of manual processes have a significant impact on the bottom line, which should be noted in the business case. 

 

The question of headcount

The need for additional personnel is a necessary byproduct when a business encounters organic growth. However, efficient organizations are scalable and require less additional headcount to accommodate the same amount of organic growth as a less efficient organization. 

If your institution is looking to improve its loan review processes and the discussion becomes a choice between hiring more staff or purchasing a system, try to reframe the question.  Improving systems is about leveraging your financial institution's processes to get the most out of its personnel. If the system is not efficient and manual data entry contributes to increased risk, a greater headcount is not the solution. 

 

The benefits of a user community

Businesses always pursue growth and improvement. This often means hiring talent based on direct experience in solving challenges presented to the organization. Abrigo clients have the distinct advantage of being part of a larger “talent pool.” Loan review automation customers have access to one another for understanding best practices, identifying emerging risk factors, and even learning unique ways to better leverage loan review software to improve business processes. 

Prioritize your portfolio

A proactive and productive approach

While there is no guaranteed formula for developing a perfect business case, the above information is meant to help your department take a high-level approach when presenting your case to a board or other decision-makers. These points can help add focus and clarity to your case for loan review automation. If your department is seeking support in presenting its case, Abrigo personnel can partner with your organization to help articulate a business case that is custom-tailored to the needs of your organization. 

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About the Author

Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo’s platform centralizes the institution’s data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth. Make Big Things Happen.

Full Bio

About Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

Make Big Things Happen.