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Measurements Matter

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By Michael Cochrum
Suppose you or your significant other go to the local haberdashery looking for a new suit.  Instead of the assistant taking waist, hip, neck and chest measurements, they simply ask for weight.  How likely do you think it is that the correct fit would be selected based only on that information?  It’s not very likely.  While weight is a measurement of size, it is not very helpful in measuring fit.  Among financial institutions, we may be guilty of the same misconceptions, and susceptible to the same error, related to our Key Performance Indicators (KPI’s).  Using the wrong measurement can be all the difference between making sound business decisions and making mistakes that are only discovered after it is much too late.
One key measure that is used in financial institutions is delinquency rate, or the percentage of account balances that have payments that are sixty days or more past due.  Because delinquency can be a precursor to default, loan portfolios with relative…