CECL is an accounting requirement. But it may be the best tool you have to get your organization on the same page and focused on boosting overall performance.

Answering this question honestly can be hard. The answer may differ based on perspective or what you want to be the case. Best case the likely answer is that cooperation could be better.

Why is this true? In most organizations Marketing and Risk are adversaries rather than partners. This is often due to:

For Marketing managers the main objective may be the total number or balances of loans. This has the benefit of combining both new account acquisitions with customer/balance retention. Of course, the downside of this is that Marketing is focused solely on growth. The easiest loan accounts to acquire are the riskiest ones. So Marketing will push to focus on higher risk products and segments. This will very likely lead to higher charge-offs down the road. But this will occur well after bonuses are paid for growth today.

For Risk managers the main objective may be the absolute amount of losses. This overly simplistic measure encourages risk avoidance. This may translates to booking fewer loans even though the vast majority of new declines may be very profitable loans. At a somewhat more advanced level the main objective may be loss rate. Combining the amount of losses with total loan amounts tries to balance risk (loan losses) with portfolio growth (loans outstanding). Under this scenario if losses are growing risk managers may be encouraged to grow balances in the short run to bring the coincident loss rate down even though some of those new loans may prove risky over the long term.  Again, bonuses may be paid today while risk manifests itself years down the road.

Data is often kept in organizational silos and is not shared. This encourages argument over whether accounts should be booked. Marketing may focus on acquisition cost as the primary measure of performance. The data is 'owned' by Marketing. Risk may focus only on delinquency and loss metrics without regard to revenues or the cost to acquire a new customer. This can lead to competing analyses where the same set of customers are described as 'good' by one group and 'bad' by another.

This is where CECL comes in as long as you do it properly. The keys to getting Marketing and Risk on the same page are to create a shared set of objectives based on a shared understanding of how different accounts are likely to perform.

CECL requires that you pull together quite a bit of data. At a minimum you might say we only need risk data. And if you are doing this on your own and facing time pressures this may be the best short-term solution. But once you identify data sources pulling 12 pieces of data from the source is not substantially different effort wise from pulling 10. The bigger effort is identifying the data sources and ensuring quality data.

CECL should lead to a single source of data that you can use for all analyses, not just CECL. It should drive credit policy changes as well as driving business/marketing strategies and tactics. The analyses should make it clear to all why changes make sense and what the implications are. CECL should rely on hard, quality data to drive changes in your business.

Your CECL implementation should deliver tools that will make it easy for all users -- Marketing and Risk -- to see how accounts perform over time to determine whether it makes sense to book different types of accounts. Key metrics including revenues and balance persistency should join risk metrics so that risk can be viewed in context. Ideally you will include profitability, monthly and cumulative, to show which account types will contribute to your organization's financial success.

CECL won't eliminate differences of opinion. But it can ensure that those opinions are based on the same set of facts. The CECLNow solution has been designed to collect and present your data to improve decision-making. You can Contact Us to discuss CECL and its challenges or Schedule a Demo of our tools to gauge how we can help. The implementation date is fast approaching. We look forward to working with you to have CECL improve your business results.