# Rolled Throughput Yield (RTY): Definition & Formula

Instructor: James Blackburn

James has an MBA from Auburn University and a MA in Humanities from Cal State-Dominguez Hills He writes on leadership, business strategy and finance.

In this lesson we will define throughput yield. We will also explore the different uses of this calculation typically used in manufacturing and apply it to the financial services industry.

## The Problem

To improve bank service at their bank, Simplify National Bank commissioned a customer service survey. At a recent meeting at Simplify National Bank, the bank's managers found the results from their client surveys very concerning. As they read the comments, they found that the electronic bill payment option was not meeting expectations. The number of late fees their clients encountered was higher than expected. The IT director disagreed strongly with the idea the website was at fault. He called the website a digital scapegoat in the survey and he believes the problem lies in the bank's internal processes. He called in a process improvement expert to help find the problem.

### Manual Processes

The teller window is a busy place and full of interruptions. These interruptions increase the risk of an error. When a bank teller takes a deposit, the probability of an error is 5%. Next, the check is entered into the system and the copy of the check is sent to the processing center. Since the processing center doesn't have as many interruptions as the teller, the error rate from this group is only 2%.

As consumers, we often discount the absence of a deposit on our electronic statements and attribute the absence to timing. We pay bills expecting the money to arrive before the check is cashed. The bank estimates 25% of its customers pay bills without consideration of available funds. Ten percent of customers do not have enough funds to pay their bills without the latest deposit. This oversight can cost 10% of the customers a late fee.

Complicating the process, some bills require a physical check to be sent to another party. This process introduces another risk of late penalties. The mail service has a 95% on time rate. When the check arrives late, the customer could incur a late penalty on the actual payment. Often customers attribute late arrival as a bank failure. Let's examine a high level view of the process in three stages: deposit intake, deposit processing, and payment processing.

### Single Process Yield

The single process yield is the measurement of a processes output with respect to its input. If 100 units enter a process and 95 accurate units exit the process, our yield is 95%. Yield can be calculated by subtracting the error rate from 100%. A process with a 3% error rate, would have a single process yield of 97%. Let's take a closer look.

What would happen if 1 of every 100 deposits were lost during the deposit process? The error rate would be 1% and the yield would be 99%. Unfortunately, the bank deposit activity is actually a series of processes, with each process having its own opportunity for error. In this case, single process yield isn't as effective. We need a another method for calculating the total system yield. Rolled throughput yield is often used for calculation.

### Rolled Throughput Yield

Rolled throughput yield is an estimate and probability of an multiple process error-free outcome. In our example, the bank has calculated the probability of an error in the deposit process is .2%. So, the throughput yield is 99.8%. The accuracy rate is high because most of the deposits are made through electronic deposit. However, when a deposit is made at a branch location, the error rate increases dramatically. In the process map above, we see that a manual deposit has an estimated throughput yield of 93.1%. The first step in the process is to convert error rates to yield measurements for use in the formula below.

### Calculating Rolled Throughput Yield

The accuracy outputs (in terms of percentages) are then multiplied to obtain the RTY, the individual single process yield of all of the processes. From the bank perspective, the output of the deposit process is 99.8% accurate. However, when we shine a spotlight on deposits made to a bank teller, the accuracy rate drops to 93.1%. The calculation below shows how this yield was determined.

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