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Section F | Group 4
Manzana Insurance
Submitted by:
NVS Bharat Kumar 1811384
Gautham Krishnan 1811387
Adwitiya Datta Ray 1811392
G.V.Subashree 1811393
Shardul Raut 1811431
Losang Yolmo 1811446
Question 1: Reasons for declining quarterly profits.
The Fruitvale branch of Manzana has been witnessing a decline in its profits since Q1
1989 till Q2 1991 as seen below:
2000
1766 1768
1500
1000 990
Profits
786
500
0
-174 -121
-500
Ist Qtr 1989 2nd Qtr 1989 Ist Qtr 1990 2nd Qtr 1990 Ist Qtr 1991 2nd Qtr 1991
Quarter of the Year
Revenue Ist Qtr 2nd Qtr 1st Qtr 2nd Qtr 1st Qtr 2nd Qtr Revenue
Total
Source 1989 1989 1990 1990 1991 1991 Breakup
New Policies 1485 1523 1635 1684 2024 2172 10523 20.40%
From above table we can see that on an average 78% (=40309/51587) of the total
revenue comes from the Renewal of policies for the Fruitvale branch. But we can
see that the renewals have been declining in the past 10 quarters. We found 2 major
reasons for this decline.
i) Backlog of Policies
From the below table we can see the trend of increasing total backlog over the
past 10 quarters. This backlog leads to higher Turnaround Time (TAT) for
processing of requests. The higher TAT leads the agents to prefer other
competitors for their customers, in turn impacting Fruitvale’s profits negatively.
TOTAL BACKLOG
500
471
450
425
400
387
350
300 310
250 248
221 227
200 205 201
192
150
Ist Qtr 2nd Qtr 3rd Qtr 4 Qtr Ist Qtr 2nd Qtr 3rd Qtr 4 Qtr Ist Qtr 2nd Qtr
1989 1989 1989 1989 1990 1990 1990 1990 1991 1991
Source: Exhibit 6
429
# Renewals lost
414
400 400
800
350
600
300
400
250
232
219
200 205 200
193
150 0
Ist Qtr 2nd Qtr 3rd Qtr 4 Qtr Ist Qtr 2nd Qtr 3rd Qtr 4 Qtr Ist Qtr 2nd Qtr
1989 1990 1991
Request Processed Renewals-number lost
Source: Exhibit 6
We can see above trend showing that for past 10 quarters that total number of
renewal requests are decreasing from 1288 in 1989 to 1063 in 1991, resulting
in a 21% drop. And at the same time the total number of renewals lost is
increasing from 193 in 1989 to 497 in 1991, increasing by 61%.
Hence, we can conclude that loss of renewals is the major contributor towards
the declining profits.
C. Overstaffing in Departments
As given in the case, the rating and policy writing departments have been
overstaffed. Average time required for rating and policy writing is 46.7 Hrs and
27.5 Hrs resp. However, the capacity available with the Fruitvale branch is 60Hrs
and 37.5Hrs for these departments.
We can also see an increase in salary expense from $961k in 1989 Q1 to $1028k
in 1991 Q2, coupled with expenses incurred from the plus program starting in 1990
Q1.
The combination of these factors has an adverse effect on the profitability of the
Fruitvale branch.
Q2. Process Flow Analysis & Identification of Bottlenecks:
Average processing
41 28.4 70.4 54.8
time/request
Capacity
(Total employee minutes/
43.9 47.5 51.1 41
Avg processing time per
request)
Based on the above calculations the capacity of Policy writing is the least. But only
15% of RAP results in new policy. Hence, the effective requests per day for policy
writing is less than the other departments. This necessitates a labour utilization
analysis to identify the bottleneck keeping the revised requests for policy writing into
consideration.
Calculations:
1. Total requests per day: (Number of RUNs + RAPs + RAINs + RERUNs)/ 120
= (350+1798+451+2081) / 120 = 39 requests/day
2. Labour utilization: Requests per Day/Capacity per day
3. Requests for Policy Writing: 39 – 85% of RAP requests per day
= 39 – .85(1798/120) = 26.26 requests/day
From the above table we see that Policy Writing has the least Labour Utilization and
Distribution has the highest labour utilization. Hence Distribution is the bottleneck for
the overall process.
Territory 1:
Formula/ Labour Utilization
RUNs RAPs RAINs RERUNs
Reference
Projects/day Total requests/120 1.35 6.34 1.63 5.3
= Total time
required per day/
Mean time per
Exhibit 4 43.6 38 22.6 18.7 Total available
project
employee minutes
Total time Projects per day *
58.86 240.98 36.91 99.11 = 435.86/450
required/day mean time
Total available
employee 7.5*60 minutes 450 =96.85%
minutes
Territory 2:
Formula/ Labour
RUNs RAPs RAINs RERUNs
Reference Utilization
Projects/day Total requests/120 0.83 4.28 1.04 7 = Total time
required per day/
Mean time per Total available
Exhibit 4 43.6 38 22.6 18.7
project employee minutes
Total time Projects per day *
36.188 162.64 23.5 130.9
required/day mean time = 353.23/450
Total available
employee 7.5*60 minutes 450 =78.49%
minutes
Territory 3:
Formula/
RUNs RAPs RAINs RERUNs Labour Utilization
Reference
Total
Projects/day 0.73 4.37 1.08 5.04 = Total time
requests/120
required per day/
Mean time per Total available
Exhibit 4 43.6 38 22.6 18.7
project employee minutes
Total time Projects per day
31.828 166.06 24.41 94.248
required/day * mean time = 316.54/450
Total available
employee 7.5*60 minutes 450
=70.34%
minutes
Based on the above analysis we find that labour utilization for underwriting in territory
1 is 96.85% which is highest across the process flow. While looking at an aggregate
level, across all territories, the labour utilization of distribution seems to be the highest
at 88.83%. But when seen from a territory perspective the labour utilization of
underwriting in territory 1 surpasses that of the overall distribution.
Labour Utilization
Territories: Bottleneck
Distribution Under writing Rating Policy writing
Territory 1 88.83 96.85 76.32 64.04 Under Writing
Territory 2 88.83 78.49 76.32 64.04 Distribution
Territory 3 88.83 70.34 76.32 64.04 Distribution