Murphy Choy

Bad definition + Silly analyst = disasters!

In Uncategorized on June 14, 2011 at 6:06 am

Looking at the list of possible bad definitions makes one wonder why on earth are there so many bad customers who cannot manage their credti facilities? We have one that has 6 times X DPD for the last 12 months. Another one with 3 times 90 DPD for 3 months (By the way, this is not possible.) !?!? Wow, 13 months consecutive X+ DPD qualifies you as well. How about this one – 3 consecutive years of annual fees non payment? Why are there so many funny bad customer definitions around?

The key to this is the analyst creating the definitions. Very often, analysts have little or no experience in the operational aspects of credit operations leading them to think of all the funny types of customer that sounds bad without actually understanding the meaning of or context of bad. This is commonly encountered in business environment where there are many junior staffs without senior staffs’ guidance. In recent years, it seems like many staffs are not aware of the importance of definitions.

Good definitions should be something that is clear and easy to use. It is not designed to be a catch all program and definitely not designed to be one. The definition should be something that matches the needs of the organization especially banks.

One important aspect is to train the staffs to be aware of the kind of definitions that they should be using. Some implement this as a policy while others conduct informal training to achieve the goal. To be able to fully realize the objective in educating the staffs. Nothing beats a good simulation game where students are actually build models around the different definitions and understand the impact of all these definitions on the business as a whole. 


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