In last month’s post, I reasoned that mortgage companies who care about profitability need key performance indicators (KPIs) that align with their organizational strategy to set expectations and drive results. Today, I want to talk about how to link your strategic objectives to tangible results by using scorecards.

This can be achieved by combining KPIs with a balanced scorecard. A thoughtful scorecard that uses the right metrics is a powerful communication tool to help your team stay focused, and monitor their contribution to helping the organization achieve its goals. Three key factors to consider in order to successfully establish and implement scorecards for your team are relevance, reliability, and reportability.

Use Relevant KPIs

In order to be effective, a KPI should be relevant to the individual employees’ role. This means that the metric should be something that any individual in a given role can influence. For instance, your underwriters should have different KPIs than those of your loan originators.

Underwriter KPIs

  •  Number of initial decisions
  • Touches per file
  • Quality

Loan Originator KPIs

  • Customer satisfaction score
  • Application pull through
  • Units closed/funded per month

Use Reliable Data

The second factor to consider reliability of the data. Your employees need to trust the data. Measuring performance based on data is a powerful tool, but if the data is unreliable it will create unwanted distractions. To combat this, use a single source truth as the data source for your KPIs.

Use Reportable Data

The third and final factor to consider in order to successfully establish and implement scorecards for your team is ensuring the results are made available to the team on a regular basis. Using reportable and accessible data will keep your team motivated and will give them a sense of how they measure up against expectations.

Having a few specific KPI’s that are relevant to an employee, based on data that they can rely on, and that is reported consistently will determine how successful your scorecards are in driving the right behavior.

Building Your Balanced Scorecards

With these three factors in mind, you will want to begin with identifying your core strategic goals and  connect them to a set of KPI’s that can serve as the foundation for balanced scorecards. Follow these steps to get started:

  1. Write down 3-5 high-level goals that aligns with your organizational objectives and rank them in order of importance. 
  2. Identify the consistent, reliable data source you'll use for each goal; for example, this could be your loan origination system, accounting software, payroll systems, or CRM. 
  3. Determine how you will measure success for each goal.

Here is an example of what your list may look like:

Goal Data Source Measure of Success

Production Growth: Grow funded volume year over year by 10%

LOS Monthly loan volume
Quality: Reduce number of loans with errors or defects by 5% Audit report Percentage of loans without critical defects
Turn Time: Decrease turn time by 2 days LOS Number of days between application and submit to processing
Borrower Satisfaction: Improve Net Promoter Score by 5% CRM Borrower response to closing survey
Pull Through: Increase pull through by 5% LOS App to Fund ratio on rolling 90 day basis

Now that you've established where you are trying to go, you can begin to identify KPI’s for each group of employees that you can leverage to help you to get to where you want to be. In addition to doing this by role, assign weights to the metrics based on the level of importance of that metric and the employee’s ability to influence results. 

Here is an example of what it would look like for loan originators:

Goal Data Source Measure of Success Weight

Production Growth: Grow funded volume year over year by 10%

LOS Monthly loan volume 30%
Quality: Reduce number of loans with errors or defects by 5% Audit report Percentage of loans without critical defects 25%
Turn Time: Decrease turn time by 2 days LOS Number of days between application and submit to processing 20%
Borrower Satisfaction: Improve Net Promoter Score by 5% CRM Borrower response to closing survey 15%
Pull Through: Increase pull through by 5% LOS App to Fund ratio on rolling 90 day basis 10%

Assign Expected Values to KPIs

With the metrics and weightings completed, you will want to then determine the expected value for each KPI. The expected value is what you anticipate can be accomplished by the majority of individuals in a role, over a specified period of time. These should be realistic values based on historical performance data.

Start with the data for the last full year of production. Once you have established the expected value, you will want to determine what the tolerance levels are for each metric. These ranges will help your employees understand your expectations and will also provide context to your results.

An easy way to accomplish this is by using a 5-point scale where 1 is unsatisfactory and 5 is exceptional. For each of the metrics you will need to establish the ranges of results. It might be useful to think about a bell curve here. You want the majority of your employees to fall into the “meets expectation” category or the top of the curve.

Example 5-point scale:

Performance Rating Distribution

Unsatisfactory (1)

5%

Doesn't meet expectations (2)

10%

Meets expectations (3)

70%

Exceeds expectations (4)

10%

Exceptional (5)

5%

By establishing ranges that will roughly fit the employees into one of these categories with the above distribution, you make the scorecard results meaningful. Most people will want to see that their results are exceptional in every category but having a scorecard where everyone is exceptional really doesn’t tell you anything. It also won’t help your employees understand what the organization defines as truly exceptional.

Below is an example scorecard that identifies what is being measured, how it is being calculated, where the data comes from, and ranges which translate to the point scale. 

Example LO balanced scorecard:

Goal Data Source Measure of Success Weight  Rating

Production Growth: Grow funded volume year over year by 10%

LOS Monthly loan volume 30% 1) Less than $250,000
2) $250,000 - $999,999
3) $1,000,000 - $1,499,999
4) $1,500,000 - $1,999,999
5) $2,000,000 +
Quality: Reduce number of loans with errors or defects by 5% Audit report Percentage of loans without critical defects 25% 1) Greater than 7.5%
2) 5% - 7.5%
3) 2.5 - 4.9%
4).1% - 2.4%
5) 0
Turn Time: Decrease turn time by 2 days LOS Number of days between application and submit to processing 20% 1) Greater than 7 days
2) 5 - 6 days
3) 2 - 4 days
4) More than 1 day
5) Less than 1 day
Borrower Satisfaction: Improve Net Promoter Score by 5% CRM Borrower response to closing survey 15% 1) Rating of 1 - Unacceptable
2) Rating of 2 - Poor
3) Rating of 3 - Satisfactory
4) Rating of 4 - Very Good
5) Rating of 5 - Outstanding
Pull Through: Increase pull through by 5% LOS App to Fund ratio on rolling 90 day basis 10% 1) Less than 40%
2) 40% - 49%
3) 50% - 59%
4) 60% - 69%
5) 70% +

Through careful establishment of the right KPI’s combined with the simplicity of a scorecard, you will provide a framework that will help your team stay focused on the goals that matter most to the organization.