Geb Carter Case

Ocwen 1 Running head: Ocwen Financial Corp.

Ocwen Financial Business Case Christina Carter Florida Atlantic University, MAR 6815 Professor David Georgeoff June 20, 2006

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Table of Contents I. Project Overview / Management Summary II. Introduction A. Purpose B. Definitions, Acronyms, and Abbreviations C. User Details D. User Hierarchy III. Project Definition A. Problems – Overview B. Problems – Detailed B. Objectives IV. Alternative Solutions A. Solution 1 Description Cost Analysis Impact Analysis Benefits Risks B. Solution 2 Description Cost Analysis Impact Analysis Benefits Risks V. Recommendations VI. References

3 4 4 4 5 5 6 6 6 8 9 9 9 9 10 10 10 11 11 14 18 18 18 19 20

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I. Project Overview / Management Summary Background: Ocwen Loan Servicing prides itself on being on the “cutting edge of technology.” In that respect, Ocwen needs to upgrade current technology in order to stay ahead of competition. Ocwen is the leader in outsourcing and has a global advantage of working 24 hours a day (OSW Team, n.d.). Thus, obvious deficiencies must be improved in the investor accounting department in order to maintain competitive advantage. Ocwen is a quick responding and fast-paced company. Documentation and instruction creation has been overlooked in the past in order to get a project into production. All documentation and instructions must be created to reduce future training and maintenance time. Finally, Ocwen has a significant amount of turnover in the investor-reporting sector and must maintain the knowledge of those lost through attrition. Recommendation: To add Investor Accounting databases and functionality to the current Intranet to avoid global connection and compatibility issues. To add a Knowledge Management database to the Investor Reporting Section of the new Intranet. While transitioning over to the Intranet, remove outdated software and replace it with Oracle procedures and tables using PHP for functionality. Also, create proper documentation and instructions; in the event that the creator/programmer leaves the company, all will not be lost. Project Sponsor: Brian Laforest Project Cost: $245,000 Tangible Benefits: Savings of $176,184 per year in training Intangible Benefits: Increase in revenues due to operating efficiency. Payback Period: 17 months Start/End Dates: January 2007 – December 2007 Risks: Opportunity cost of time spent upgrading.

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II. Introduction A. Purpose Ocwen’s core competency includes using technology to increase operating efficiencies and can be demonstrated in a direct quote from a company representative, “Ocwen is one of the top technology vendors serving the mortgage and real estate industries. OTX has created advanced e-commerce and software solutions that automate time-consuming mortgage and real estate processes, thereby enabling their customers to increase operating efficiencies, reduce overall costs and enhance revenue streams” (Ocwen Technology xhange, n.d.).

Ocwen Loan Servicing LLC, specifically Investor Accounting, requires a tool to efficiently, timely, and accurately complete daily tasks. Up to this point, the process has been manually intensive with potential for human error and required timely advising from supervisors and management. Time is money and advising results in lost revenue from opportunity costs. The purpose of the project proposed by Investor Accounting is to ease the transition from outdated technology into a user-friendly front-end tool in a single location using an Intranet. Along with this updated documentation, instructions, and knowledge databases will be implemented. All employees need access to previously resolved questions that other analysts have encountered for troubleshooting and instructions. The programmer needs access to all documentation regarding a procedure in order to make necessary changes as the company grows. This document will discuss the current problems with the system in detail. It will also describe a possible solution and address the result if the system is left unchanged, including cost and impact analysis.

B. Definitions, Acronyms, and Abbreviations In this document some acronyms are used and need to be defined to the reader for clarity. Abbreviations and Acronyms OLS MDB CSV RS DB IIS Investor Accounting ICP

Description Ocwen Loan Servicing, subsidiary of Ocwen Financial Corp. Microsoft Database Comma Delimited File Real Servicing Database Internet Information Services Refers to Loan Setup, Cashiering, and Investor Reporting Incentive Compensation Plan

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C. User Details This list includes all the people that would be directly impacted by this project. User Name Christina Carter

Role Director of Loan Servicing Automation / Documentation Author Testing in UAT – Loan Setup Testing in Production – Cashiering Manager Cashiering Director Investor Accounting / Approver Manager Investor Reporting Manager Loan Setup

Sorena Sodupe Jason Snyder James Melton Brian Laforest Justin Henry Jason Jastrzemski

D. User Hierarchy The chart explains the hierarchy of decision makers and personnel that will be utilizing the new tool. C E O - B ill E rb e y

P r e s id e n t R o n F a r is

V ic e P r e s id e n t S c o tt A n d e r s o n

D ir e c to r o f A u to m a tio n C h r is tin a C a r te r

M a n a g e r C a s h ie r in g J a m e s M e lto n

D e p a rtm e n ts A ffe c te d

I n v e s to r A c c o u n tin g D ir e c to r - B r ia n L a fo r e s t

M a n a g e r Lo a n S e tu p - J a s o n J a s tr z e m s k i

M a n a g e r I n v e s to r R e p o r tin g - J u s tin H e n ry

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III. Project Definition An Intranet is a secure, private computer network or internal website. “Increasingly, Intranets are being used to deliver tools and applications, e.g.: collaboration (to facilitate working in groups and for teleconferences) or sophisticated corporate directories, sales and CRM tools, project management, etc, to advance productivity. (Wikipedia, 2006)” This document’s purpose is to explain the business case for implementing an Intranet for Ocwen Loan Servicing Investor Accounting department.

A. Problems – Overview The following is a brief list of problems that Ocwen has been experiencing. The list includes only some of the problems at Ocwen, but all of the problems that will be addressed in the project. •

Scattered File Locations

•

Inadequate Applications

•

Outdated technology

•

Global connectivity issues

•

Insufficient Documentation

•

Minimal Instructions

•

High Turnover rate

•

Slow learning curve

B. Problems – Detailed For those parties interested in more information about the problems at Ocwen, the subsequent text contains descriptions of the problems. No central location for files Due to the existence of global offices and hundreds of thousands of folders on the network, searching for a database or file is very difficult. Outdated Technology and Global Connectivity Issues

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Ocwen has expanded across many territories including Bangalore, Mumbai, Orlando, West Palm Beach, Chicago, and soon Atlanta. With this growth has come a lack of consistency between application usage and connections. Numerous ODBC connections exist on employees’ computers. Since every business sector is a profit center, costs are strictly managed. The cost structure leads directors of business units to cut costs by not upgrading software. Over 75% of the computers contain outdated software including Microsoft Access ’97 and Microsoft Excel ’97. Access and Excel ’97 are not compatible with their comparative tools in versions ’00 and ’03. Therefore, outdated procedures/macros in the ’97 version are written so that they are compatible for all users. Archaic procedures are highly ineffective and will soon be extinct. At that point, all procedures will need to be re-written. Ocwen has an SQL Server with Oracle that is not put to as much use as it could be. The system works well in that the Progress production tables are copied over daily into staging (reporting) tables. The automation that gives Ocwen its competitive advantage is written in PL/SQL and resides on this SQL server. Numerous other procedures have been written, but without a proper front end tool, they are not utilized effectively. Minimal Documentation and Instructions Due to Ocwen’s fast paced growth, little or no time has been spent documenting programs or creating instructions on how to use these tools. An individualized program can exist for a single employee. When that employee leaves, the new person may not have been trained on how to use the tool. At this point, the program ceases to be used and months will go by before management realizes. Then, the creator of the process, if still at Ocwen, must explain to the new user how to use it. Medium-High turnover Rate and Slow Learning Curve Typically, when a new analyst comes in to investor reporting, training takes an average of 6 months in order for him or her to understand how to completely perform a remittance or reconciliation report. Even then, training takes at least 6 months to 1 year for the new analyst to be able to complete reports without the guidance of a supervisor. Throughout any month workload can be extremely high or nonexistent. In a typical month on the job, analysts have two weeks where they are very busy meeting deadlines and two weeks where they have almost nothing to do. Wasted time is unproductive for the employees and could be used learning.

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C. Objectives The next outline contains a summary of the objectives for the project. In depth objectives can be found later on in the paper. •

Improve Efficiency

•

Provide accurate and timely remittance files and accompanying wires for 99.75% of investors

•

Support future compatibility / Upgrade Technology

•

Reduce Connection failures

•

Reduce Servicing costs by 5% over previous year

•

Improve the learning curve

•

Add consistency and easy file access

8

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II. Alternative Solutions A. Solution 1 Description Since the proposed project is not, at this point, a critical issue, the choice to upgrade to current versions of applications could be delayed. Cost Analysis The project costs include all measurable costs association with Solution 1. Since Solution 1 means doing nothing, these include the current costs associated with leaving the system as is. 1. Project Cost per Year

In house Personnel* Managers Consultants Hardware Software Support Total

2007 0

2008 $50,000

2009 $55,000

2010 0

0 0 0 0 Overhead 0

0 $300,000 $5,000 $100,000 Overhead $50,000

0 $200,000 0 0 Overhead $255,000

0 0 0 0 Overhead 0

Explanation of Costs: * 2008 is an estimation of when Microsoft ’97 applications will no longer be supported, it could be 2009, but the costs would remain the same in the long run. In house personnel – A liaison between the consultants and business units would be necessary and it was adjusted for inflation. Managers – No additional management should be required Consultants – Estimation based on current rate of $150 hour. Hardware – Necessary hardware to keep the redundant data housed on servers. Software – Estimation of licenses to upgrade all users to Office 2003.

Total Tangible Cost of Project = $305,000 2. Payback Analysis Total Cost of Project = $410,000 over 4 years Total Cost Savings of Project = $176,184 year Cost Savings

Payback time: 3 years

2007 Cost Left 305,000 0

2008 Cost Left 68,816 176,184

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Impact Analysis As with any project, risks and benefits are associated to the different choices that can be chosen. The following lists all the risks and benefits of choosing to do nothing. Risks As the volume of loans boarded increases, the problem will continue to grow worse. •

Lack of efficiency

•

Increased untimely reporting

•

Difficulty in upgrading/ fixing systems

•

Connection failures

•

Extended learning curve and training cost

•

Lack of consistency and integration

•

Expensive to fix later

•

Could result in loss of competitive advantage

If key management and/or the automation teams leave Ocwen, the recovery will be very difficult. Many procedures will have to be entirely rewritten. Also, when Microsoft decides that it will no longer support Access ’97, which is definitely foreseeable in the near future, Ocwen will need to upgrade just to get patches and updates for auditing purposes. Microsoft currently does not support Office ’95. Presently, ’97 code is not compatible with 2000 or 2003, so Ocwen will need to rewrite all of the programs at once to avoid system down time. At that point, multiple consultants will have to be hired to complete the project in a timely matter. Consultants are very expensive, on average $100-$150 an hour. Benefits Very few benefits can be associated with taking this course of action and they are listed below. •

Short term cost savings

•

Opportunity cost of programmers’ time

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Better/Cheaper future technologies

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B. Solution 2 Description The solution that should resolve all of the previous issues is a centralized Intranet using PHP to connect to already existing network drives and Oracle Database. PHP was chosen because it is a very robust programming language with a ton of functionality. The details are specified in the technical document that will be submitted after approval. As the use of the website is transitioned from the existing format, a knowledge database should be implemented. The knowledge database will house all documentation, instructions, and comments regarding all business aspects and will be indexed for keyword search retrieval. An Intranet exists that houses mostly HR data and is used very infrequently. In this same environment, executives will be able to use saved queries for continuous monitoring of projects and metrics. This proposal is to suggest that the “Business Units” section be expanded to include Loan Setup, Cashiering, and Investor Reporting. 1. The following picture shows Ocwen’s Intranet Home Page

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2. Ocwen’s Business Unit Home Page

The functionality that already exists that will be utilized is: •Location where intranet files are stored •Intranet Infrastructure •Intranet Design and Format •IIS and Connectivity •Security •Firewall All local tables will be moved into Oracle tables. Each process will have a link on the Intranet that can run the procedure and convert the output to any format necessary. Because all the process will be linked and stored in the same location, retrieval will no longer be difficult. Since all global employees already have access and connectivity to the Intranet, the connectivity issue will be resolved. Also, seeing that

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Office will no longer be the main tool used, outdate technology will be eliminated. During this transition and rewriting process, documentation will be created for each project along with a set of instructions. The new system would aid in the training of new analysts without the added expense of utilizing scarce supervisor time. The knowledge database would give them something to do in their downtime. The comments will be created by the individual users. Then they will be indexed and stored by the knowledge management administrator. I created a survey and used a 10-person sample from each affected department including West Palm Beach, Cashiering, and India locations. 90% of the employees not only said that they would gladly participate, but were actually excited to know that the database was even a possibility. In order to get some of the users to utilize this new feature, their ICP will be based on them creating valuable comments regarding things they learned. ICP is a balanced scorecard that is based on completing yearly business goals. Investor Reporting Analysts, Automation Programmers, Managers, Directors, and Executive Level employees are already on this plan. Next year, the scorecard would need to be modified to include the knowledge base utilization. Cashiers and loan setup employees do not need to use the knowledge database because most of the slow learning curve exists for the analysts. Many of the cashier and loan setup employees already utilize many forms of automation which require no actual knowledge of the process, just proper instructions.

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Cost Analysis “If you can’t measure it, you can’t manage it” (Pearlson, 2004). This quote is the very basis of risk management and should be applied for researching project decisions and management options. In order to determine whether the project is beneficial, a cost analysis was performed. The following four charts show the cost savings for Ocwen.

1. The following table shows the employee cost analysis before the project in West Palm Beach and Orlando, which are Ocwen’s US locations. The table is derived by calculating the average hourly wage and multiplying it by 40 (week) and then 52 (year). The average turnover rate and training period were calculated based on 2005 statistics provided by Jason Jastrzemski. The cost of training is then calculated based on the average hourly rate multiplied by the training period. The total cost of the new employee is based on the acquisition costs plus the training costs. Department Loan Setup

Avg. Hourly Rate ($) 14

Avg. Weekly Hours Hourly 40 Hourly 40 Salary 40

Avg. Cost Per Year 29,120

Turn over Rate 20%

Acquisition Costs (Fixed Cost) $5,000

Cashiering

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Investor Reporting – Remittance Flow Investor Reporting – Reconciliation Investor Reporting Remittance

20

Avg. Training Period 2 months 2 months 6 months

Avg. Cost of Training

29,120

20%

$5,000

41,600 + Bonus

20%

$5,000

20

Salary 40

41,600 + Bonus

40%

20

Salary 40

41,600 + Bonus

30%

$4,704

Total Cost of New Employee $9,704

$4,704

$9,704

$19,200

$24,200

$5,000

9 months

$28,800

$33,800

$5,000

6 months

$19,200

$24,200

(J Henry and Jay Jastrzemski, personal communication, April 10, 2006)

2. The following table shows the employee analysis after the project is completed in West Palm Beach and Orlando. This takes into consideration the decreases in the training period, which affects the cost of training, which also affects the total cost of a new employee. Employee Avg. Avg. Avg. Turn Acquisition Avg. Avg. Cost Total Cost Analysis After Hourly Weekly Cost over Costs Training of of New Project WPB / Rate ($) Hours Per Year Rate (Fixed Period Training Employee Orlando Cost) Loan Setup 14 Hourly 29,120 20% $5,000 2 weeks $1,120 $6,120 40 Cashiering 14 Hourly 29,120 20% $5,000 2 weeks $1,120 $6,120 40 Investor 20 Salary 41,600 20% $5,000 2 months $6,400 $11,400 Reporting – 40 + Bonus Remittance Flow Investor 20 Salary 41,600 40% $5,000 3 months $9,600 $14,600 Reporting – 40 + Bonus Reconciliation Investor 20 Salary 41,600 30% $5,000 2 months $6,400 $11,400 Reporting 40 + Bonus Remittance

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3. The following table is a duplicate of Table 1, except for the fact that it applies to Ocwen’s India location, which has a very different salary range. The table describes the cost analysis before the project. Employee Analysis Before Project India Loan Setup

Avg. Hourly Rate ($)

Avg. Weekly Hours

Avg. Cost Per Year

Turn over Rate

Acquisition Costs (Fixed Cost)

Avg. Training Period

Avg. Cost of Training

Total Cost of New Employee

$2.20

$4,576

40%

$1,000

2 months

$704

$1,704

Cashiering

$2.20

$4,576

40%

$1,000

2 months

$704

$1,704

Investor Reporting – Remittance Flow Investor Reporting – Reconciliation Investor Reporting Remittance

$3.39

Hourly 40 Hourly 40 Hourly 40

$7,051

40%

$1,000

6 months

$3,255

$4,255

$3.39

Hourly 40

$7,051

50%

$1,000

9 months

$4,881

$5,881

$3.39

Hourly 40

$7,051

40%

$1,000

6 months

$3,255

$2,255

(J Henry and J Jastrzemski, personal communication, April 10, 2006)

4. The following table shows the employee analysis after the project is completed in India. Employee Analysis After Project India Loan Setup

Avg. Hourly Rate ($)

Avg. Weekly Hours

Avg. Cost Per Year

Turn over Rate

Acquisition Costs

Average Training Period

Average Cost of Training

Total Cost of New Employee

$2.20

$4,576

40%

$1,000

2 weeks

$176

$1,176

Cashiering

$2.20

$4,576

40%

$1,000

2 weeks

$176

$1,176

Investor Reporting – Remittance Flow Investor Reporting – Reconciliation Investor Reporting Remittance

$3.39

Hourly 40 Hourly 40 Hourly 40

$7,051

40%

$1,000

2 months

$1,084

$2,084

$3.39

Hourly 40

$7,051

50%

$1,000

3 months

$1,627

$2,627

$3.39

Hourly 40

$7,051

40%

$1,000

2 months

$1,084

$2,084

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5. The subsequent table groups together the information obtained from the four previous tables. The cost savings is calculated by averaging the decrease in cost of training time. Departmental Cost Savings after Project in India, West Palm Beach, and Orlando Cost Savings Analysis per Dept.

% Cost Decrease WPB / India

Actual Cost Savings WPB / India $3,584 / $528

Number of Emp. in WPB / Orlando Dept 12

Number of Emp. in India Dept

Attrition Rate

Loan Setup

37% / 31%

38

20%

Cashiering

37% / 31%

$3,584 / $528

30

30

20%

Investor Reporting – Remittance Flow Investor Reporting – Reconciliation Investor Reporting Remittance

53% / 51%

$12,800 / $2,171

6

18

20%

57% / 55%

$19,200 / $3,254

8

20

40%

53% / 51%

$12,800 / $2,171

6

18

30%

Cost of Savings Per Year WPB / Orlando (.2*12) * 3,584 = $8,601 (.2*30) * 3,584 = $21,504 (.2*6) * 12,800 = $15,360

Cost of Savings Per Year India

Total Savings Per Year

(.2*38) * 528 = $4,013 (.2*30) * 528 = $3,168 (.2*18) * 2,171 = $7,816

$12,614

(.4*8) * 19,200 = $61,440 (.3*6) * 12,800 = $23,040

(.4*20) * 3,254 = $26,032 (.3*8) * 2,171 = $5,210

$87,472

Total savings in training costs per year = $176,184 6. Project Cost per Year

In house Personnel* Managers Consultants Hardware Software Support Total

2007 $45,000

2008 $50,000

2009 $55,000

2010 $60,000

0 0 $15,000 $20,000 Overhead $80,000

0 0 0 0 Overhead $50,000

0 0 0 0 Overhead $55,000

0 0 0 0 Overhead $60,000

*Adjusted for inflation and raises • In house personnel would be hiring one additional employee to help maintain knowledge database. • There would be no additional managers required. • No consultants would be necessary • No additional hardware or software would be required unless employee growth occurs. At this time, Ocwen does not plan on expanding workforce. • Support is allocated by department in overhead costs and would not increase due to this project. • Hardware consists of additional CPUs to handle increased use and storage capacity. • Software consists of the applications and cost of adding to the intranet.

Total Tangible Cost of Project = $245,000

$24,672 $23,176

$28,250

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7. Total Cost of Ownership (TCO) Hardware

Server Training

$10,000 No additional training needed – see training cost savings $20,000 year Same as before $5,000 Same as before Same as before $20,000 $5,000 $20,000 year Same as before Same as before Same as before just different location

Administration Support Storage OS Database Intranet Modification Support Administration LAN Admin Onsite Backup

Software

Network Data

Total Tangible Costs for 1st Year of Project = $80,000 8. Payback Analysis Total Cost of Project = $245,000 over 4 years Total Cost Savings of Project = $176,184 year 2007 Cost Left 245,000 176,184

Cost Savings

2008 Cost Left 68,816 176,184

Payback time: 17 months 9. Timeline G A N T T C H A R T - 2 4 M O N T H T IM E L IN E T asks

Jan

Feb

M ar

A pr

M ay

Jun

J u ly

A u g

Sep t

O ct

No v

Dec

Jan

Feb

M ar

A p r il

M ay

Ju ne

Ju l

A ug

Sept

O ct

No v

Dec

R e s e a r c h A p p lic a t io n A n a ly z e R e s u lt s C re ate A p p ro v a l D o cu m e n t P r e s e n t R e s u lt s t o B o a r d F in a l D e c is io n B u y A p p lic a t io n a n d C o m p ile r C o n v e r t A ll L o c a l T a b le s t o O r a c le C o n v e r t C a s h ie r in g P r o c e d u r e s C o n v e r t IR P r o c e d u r e s C o n v e rt L o a n S etu p P ro ce d u re s C r e a t e In t r a n e t ( O T X t e a m ) M o v e F ile s t o I n t r a n e t F o ld e r s C r e a t e K n o w le d g e D a t a b a s e T e s t in g C r e a t e D o c u m e n t a t io n C r e a t e I n s t r u c t io n

K EY M ile s t o n e m a r k e r s ta rt M ile s t o n e m a r k e r end G a n tt b a r

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Impact Analysis Benefits Many benefits are associated with choosing Solution 2:

•

Improved accurate data

•

Better leverage to adopt future technologies

•

Seamless integration with current system

•

Increased performance and effectiveness

•

Favorable attitude towards solution

•

Resolved incompatibility issues

Risks As with any project, risks are associated to that project. Many risks are unknown so they can not be accounted for. The following risks are mildly probable:

•

Increased incomplete projects

•

Unforeseen intranet compatibility issues

•

Hostility toward knowledge database

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V. Recommendations Ocwen should choose the proactive choice and begin upgrading before it faces consequences and loss of its competitive advantage. The costs to implement the upgrade now versus later are in Ocwen’s favor because it would have time to overcome any potential barriers. As Bill Erbey, Ocwen CEO, has said, “Finally, I think the big difference between our competitors and us is really our global capacity. We can look throughout the world to get the best resources to provide the highest quality, lowest cost product” (Wall Street Reporter, 2004). In effect, this procedure will be doing just that.

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VI. References McKenzie, G. (2003, October 20). Ocwen adds intelligence to servicing call center. Inside Mortgage Technology, 112, 52-54. Ocwen technology xchange (OTX) demonstrable GLBA compliance. (n.d.). Retrieved April 11, 2006, from http://www.vormetric.com/financial_services.html. OSW Team. (n.d.). Ocwen offers due diligence services . Retrieved April 01, 2006, from http://www.oswmag.com/news/viewArticle/ARTICLEID=373. Pearlson, K. E. (2004). Managing and using information systems. Hoboken, NJ: John Wiley and Sons Inc Prime Zone Media Network. (2004, May 5). Ocwen technology xchange licenses realservicing in multiyear agreement. Retrieved April 6, 2006, from http://newsblaze.com/story/2004050512560100067.pz/newsblaze/BANKFINA/Banking-and-Finance.html.

Wall Street Reporter. (2004, May 7). Interview with William C. Erbey Chairman and Chief Executive Officer. Retrieved April 29, 2006, from http://www.wallstreetreporter.com/linked/OcwenFinancial.html. Wikipedia (2006, April 11). Intranet. Retrieved April 11, 2006 from http://en.wikipedia.org/wiki/Intranet . Yahoo! (2006, April 20). OCN – Ocwen Financial Corp. Retrieved April 20, 2006 from http://finance.yahoo.com/q?s=ocn. Zeidman, P. (2004, July 6). Creating a PHP-Based Content Management System. Retrieved April 23, 2006 from http://www.intranetjournal.com/articles/200407/ij_07_06_04a.html\.