Quantitative Methods for Management
Case Study 4.2 – Delinquent Accounts at GE Capital
Shanoah Ward
Quantitative Methods for Management
Instructor: Roger Preece
04/10/2022
Table of Contents
Executive Summary
Introduction/Problem Statement
Methodology
Analysis/Results
Conclusions
Executive Summary
Case Study 4.2 poses the problem of how to allocate employees time to maximize income for GE Capital. GE Capital has 50,000 accounts to collect from. Employees are assigned to follow up on past due accounts with either a phone call or letter; current accounts receive no contact. A phone call and a letter both take a specific amount of time to complete and both have varying degrees of results. Using given delinquency movement matrices, and an optimization model in excel, included in this document are the ideal allocations of employee time to maximize overall collection revenue. Subsequent sensitivity analysis of both changes in available employee time and time spent on each contact option indicate that increases in available employee time and decreases in the amount of time spent on each contact method increase revenue.
Introduction/Problem Statement
GE Capital provides loans to small and medium companies. They fear they are losing large amounts of cash due to delinquent accounts and would like to review how the accounts are being handled to minimize that loss and increase revenue. By using an optimization model in excel, we can input data about the number of accounts, their past due status, methods of contact for past due accounts, and how much revenue is generated based on the contact methods. We can also enter the constraints for time required for each contact method and overall employee availability. We can figure out which contact method and how much time to spend on it for each past due account to optimize the revenue generated for GE Capital over the course of four months.
Methodology
For this case study, I created an excel optimization model to find the optimal strategy in allocating employee time to maximize revenue for GE Capital over the course of four months. I used the following data:
Total Accounts: 50,000
0-Due Accounts: 40,000 (no contact needed)
1-Due Accounts: 4000 (either Phone Call or Letter)
2-Due Accounts: 4000(either Phone Call or Letter)
3-Due Accounts: 2000 (either Phone Call or Letter)
Bad Debt: 0
Methodology Cont.
Phone Calls take 40 minutes
Letters take 20 minutes
The overall time available for contacting accounts is 5000 hours
The average monthly payment is $10,000
Using excel, and given delinquency movement matrices, I calculated a specific number of accounts each month that should be contacted with each method. I used the delinquency movement matrices to determine where the accounts would be the following month – whether they would be at 0-due, 1-due, etc.
Methodology, Cont.
Delinquency Matrices:
Optimal account contact each month
Methodology Cont.
Using these calculations and the delinquency movement matrices, the max income within the constraints given is $2,009,988,625. Alternatively, if no contact at all were to be made, income would be only $1,601,238,750, a difference of $408,749,875.
Methodology, Cont.
I completed a sensitivity analysis to determine the effect of increasing employee time and decreasing the amount of time spent on each contact method.
Using a one-way table, and increasing available employee time by increments of 100 hours, I calculated that the largest jump in revenue would actually occur with the first 100 hours. Total revenue would continue to increase with additional hours, but the amount of increase in revenue decreases with hours past the first 100.
Using a two-way table, and decreasing the amount of time spent on both letters and phone calls by 5 minute increments, I determined that there would be no increase in revenue with less time spent on letters, and no increase would happen once time required with a phone call decreased past 30 minutes.
Analysis/Results
From the above data, it is useful to strategically allocate employee time spent as indicated in the excel spreadsheet.
We would need additional information about expenses for employee time in order to conclude how much additional time would be worth allocating to contacts. While revenue does increase with more hours, we would need to know how much the expense also increases.
The previously stated data regarding additional revenue with decreased time spent on each contact method seems to indicate that the optimal time is 20-30 minutes on each contact method.
Conclusions
The case study analysis concluded that revenue would increase if employee time is spent strategically between making phone calls and sending letters to delinquent accounts. If no contact is made at all for any account, it would result in a loss of $408,749,875 as compared to following the strategy suggested. Revenue would also increase with additional employee time, but additional information on expenses would need to be provided to determine the best amount of additional time. Reducing the time spent on a phone call would increase revenue, but only to about 30 minutes, then revenue would remain constant.
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