Approaching technology decisions in the treasury function

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Treasury professional
Treasurers Handbook
Author
Carl Sharman Head of Treasury Technology Advisory, Deloitte UK

Introduction

The world of treasury has changed and evolved significantly over recent years, with external pressures bringing increased and intensifying expectations. Essentially the operational requirements of the treasury function have remained largely unchanged: banking and cash management, funding for the business and managing financial risk. However, in light of changes in the financial environment and internal ecosystem within businesses, the challenges faced by corporates have become more global and more complex, and need a holistic and integrated approach to how treasury functions and delivers beyond operational requirements. Key factors include:


  • The globalisation opportunity: Expansion of businesses into new frontiers and emerging geographies and markets potentially increasing operational and reporting ‘blind spots’ in cash and risk management;
  • The customer-driven economy: Changing attitudes in the end-customer buying profile, patterns and behaviour, with procurement departments and corporate heads requiring clear, quantifiable business cases for investment;
  • The increasing expectations on the corporate treasurer: To be an advisor/strategic partner to the rest of the business;
  • The organisation legacy: Developing organisation structures may lead to treasury finding that its current set-up is outdated, ineffective and in need of investment;
  • Technology innovations: Increasing options for treasury technology promising cost rationalisation and advantage, but requiring commitment and ambition to evaluate, select and deliver on time, to budget, and prior to being considered out of date;
  • The changing landscape of payments: Explosive growth in payments or e-payment transactions which provides growing opportunities in areas such as payment formats, real-time dashboards, bank connectivity and messaging services, where the balance between being a lead adopter, fast follower or a ‘wait and see’ reluctant investor could have commercial impacts;
  • Regulatory backdrop: Increased regulatory and compliance requirements that require richer, faster reporting detail that challenge existing processes and threaten business continuity.


In such an era of flux, organisations need assurances on efficiency, competitiveness, scalability and future-proofing for investment decisions. The modern treasury function is expected to be more strategic, to collaborate with the business it serves, and to be comfortable with the use of centres of excellence to support global operations, including the use of in-house banks (IHB) and shared services centres. However, they are often burdened with poor processes and outdated technology.


Technology and systems integration appear to offer all the answers, promising automation, simplification and a bespoke landscape to consolidate and standardise operational processes and tactical reporting. Yet treasury remains a complex discipline, unique to business and sector, and making those strategic and operational decisions on when and where to invest are not quite so easy.

Investing in treasury technology: right for my business?

As with any business process, if you keep doing the same things then you will generally get the same results. More importantly, if you keep doing the same things in a fast-changing environment, you may suffer more severely on account of increasing regulatory requirements (ie SEPA), potential errors (through manual and in-house Excel-based processes), and security and fraud issues, which could mean losing competitive advantage or, worse, increased operational and reputational risk. So it can often be a challenge to find new ways of doing old things, or to do new things. Technology can be at the core of bringing about this change, although standalone technology decisions can be a recipe for delays and can breed indecisiveness. Developing a business case for investment based purely on measurable, foreseeable benefit delivery can make it difficult to get capital and project costs approved, and an actual treasury technology implementation could be out of date by the time it goes live.


However, technology-led change can undoubtedly be a catalyst for treasury to improve operational processes and drive better decision-making through automation and simplification. Due to the nature of the key disciplines it commands, treasury transformation is certainly multi-dimensional, potentially complex and can be costly and time-consuming. A technology decision can either lead this change or simply be an enabler.


Any investment in change is a big decision. With an investment in new technology, the stakes are even higher because the options move so quickly. There can be a fear of what you cannot clearly explain – but who doesn’t want to ‘press a button’ and get accurate, reliable results? Treasury technology advancement, disruption and innovation continue to bring change at a rapid pace, promising increased efficiency at lower costs. In such an ever-changing environment, with lead times on life cycles shortening all the time, it is becoming clear that you need to evaluate something new to stay still, let alone move forward.

Is it just about the technology, or is there more?

The most important question to ask is: what will new technology add to your treasury function? It can be easy to get carried away by the claims of software providers, banks and consultants. So, as the starting point, you will need a solid and tangible business case for investment in change. Most corporates will face constant challenges from within to deliver year-on-year cost savings and this can only be achieved by looking at new ways of doing things. This is one of the best outcomes of new technology solutions: not only can they help you do what you currently do better, but they can also enable you to expand in new directions. If the investment you are considering would deliver new capability, you need to assess if this is going to be relevant for the core business. Are you positioned to achieve the most out of these new opportunities? Will you need to make further investments – in new staff, for example – and instigate organisational change to fully realise these new possibilities?


The second thing to consider is the real cost of your investment. Inevitably it is measured as price paid, but what about the delays, the disruption and the impact of not fully mapping out the change programme? Technology-led transformation requires preparation and planning to realise its potential – ‘out of the box’ rarely works. Begin with the end in mind, and you are more likely to benefit from broader business change. Think broader again to reach for more: how many steps might your new technology eliminate from your current processes? How much more quickly would that enable you to deliver insight? How much better will your processes and reporting be? How much of an edge will these factors give you in terms of performance, and how can these be demonstrated as providing value to finance and the business as a whole?

Can I afford not to invest?

Having examined the potential costs and whether there is an appetite to invest, you also have to consider whether you can afford not to invest. The common challenge for investment is to find ways to reduce costs or save time. Technology that delivers either – or both – of these will give you an edge which in turn could lead to better judgement, accuracy and certainty that more than justifies your investment. Therefore you need to assess the costs to your business of not investing in new technology.


Recent economic and financial environments have enabled treasury functions to prioritise risk reduction and improved access to liquidity as well as to cost efficiencies. This highlights wider enterprise risk concerns, ie counterparty risk management; cash visibility and liquidity access; cash-flow forecasting; real-time reporting; IFRS 9 and other accounting and governance adherence considerations. Once expected benefits have been mapped to these objectives, the risks in not making the technology investment can overshadow financial cost savings. Making suboptimal financing decisions or not being able to provide timely financial reports could cost your organisation more than the cost of the capital investment in technology.

What common variables might influence a technology decision?

Once you make the decision to evaluate investment, there are several factors that can impact, influence and drive decision-making. While the ‘writing on the wall’ is clear that technology is the first step for treasury transformation, the actual adoption of technology can be complicated, simply because there are several factors (both internal and external) which influence the decision-making. Some of the common factors that can play a role in treasury technology decisions are:

The company vision, goals and strategy

The founder/CEO/board play a critical role in outlining the company vision, goals, corporate strategy and overall risk appetite, which directly or indirectly will play an important role in outlining the expectations and responsibilities of the treasury office. In companies with a ‘high-risk appetite’, the expectations are for the treasurer to maximise profits, and hence play an active role in the trading market. Consequently, there is a recognised need to invest in technology, systems or processes to enable these functions on a daily basis. On the other hand, if the treasury mandate is on financing or optimal cash utilisation, the kind of technology solutions that are required will be significantly different.

The company profile

Broadly, this includes the industry a company is part of; its size and scale (in terms of overall revenues); its operations (in terms of geographical coverage); the currencies under active management and the offerings and solutions that are provided. For example, if a company is in the retail sector, its business cycles and cash flows will be very different from those of a B2B services or logistics company. Governing treasury principles may remain the same, but its day-to-day operational dynamics and complexity could vary significantly – which determines the choice of treasury technology solutions that can be leveraged.

The organisation history and legacy

How has the organisation evolved and grown? What was the M&A (Mergers and Acquisitions) landscape? And how did the technology landscape evolve over time? These key questions will help determine what kind of treasury technology solutions will be required for future-ready treasuries. There may be multiple legacy platforms to consider, and this could be a potential for catalyst for change.

The treasurer’s role, responsibilities, focus and priorities

The treasury office usually houses good accountants – that is to say, people who eat, breathe, sleep, think and work well with numbers. In many instances, treasury technology decisions are made by technology experts who don’t necessarily understand how treasury functions. The wrong choice of treasury technology solutions could actually take the treasury office several years back in time, resulting in the office having to undo (or re-do) a lot of things. A strong treasurer makes an attempt to understand and learn the nuances of technology, and will sit at the table when the technology decisions are being made.

The treasury policy

Most organisations (especially large ones) have well-defined policies and processes in place in terms of software/IT decisions. Some businesses have constraining IT policies that limit the investment in third-party applications in favour of ERP development. Some might mandate that all new solutions should be SaaS (software as a service) based, with software licensed on a subscription basis, and hence that will greatly influence which treasury technology solutions can even be considered for evaluation.

The ambition for treasury technology

The reason that a treasury is looking at new or next-generation technology will frequently determine which option it eventually chooses. Is it for improving operational efficiency? Is it to enable and empower business decision-making based on real-time data? Is it to reduce IT costs? Is it to create a future-ready enterprise? Or is it to manage risks effectively? All of the above are variables that drive the decision-making process. However, the top business priority for the treasury office will usually determine the final choice of treasury technology.

Project budgets and timeframe

One of the key determinants in the choice of treasury technology solutions is the amount of budget and time earmarked for treasury technology rollouts. This will determine the exact treasury product/SaaS-based solution a company chooses, as well as success it can realistically expect in the treasury technology transformation initiatives.

Stakeholder buy-in

Treasury is a corporate-level function: it cuts across all enterprise functions, geographies and legal entities and business units, and hence it is imperative for the corporate treasury function to know, understand and work closely with different (global) groups and teams to ensure financial well-being of an enterprise. Treasury is multi-disciplinary, functioning at the interplay of business, technology, policy, process, people, procedure, operations and systems. And hence there are several key stakeholders who are affected, directly or indirectly, by the everyday functioning of the treasury. Any treasury technology initiative should have buy-in from key stakeholders if it is to have a fair shot at success.

The existing technology landscape

Treasury operations span front office, middle office and back office, with each office using different systems, products, people and processes. The systems integration across the treasury landscape is complex, and includes trading platforms, bank proprietary platforms, communication, ERP, market data (ie Reuters), derivative valuations and in-house systems. Dealing with different sources of data, multiple product suites and multi-vendor scenarios only compounds the dynamics of how to manage treasury effectively. All these factors significantly influence what technology solutions can be used, and what kind of impact they deliver.

Organisational politics and power play

Sometimes the actual yes/no decisions around treasury technology have everything to do with an organisation’s politics and power play. A technology solution may be competitively priced, futuristic in terms of features, and easy to roll out – but a failure to impress the key decision maker can greatly influence the final choice of treasury technology.


In addition to the above, several external factors such as laws and legal frameworks, global regulations, macro-economic risks, forex/trade policy, geo-political factors and competition may also influence the final choice of treasury technology.


Developing a business case for change

The motivations for building a business case are not always the right ones. They are often deemed to be a tool for keeping the sponsor happy, or a box to be ticked – and once drafted, are frequently forgotten. The business case should be a living document that evolves alongside the project.


There are a number of quantitative business benefits that can be identified ranging from ‘hard’ (reduced hardware/licence costs, headcount reduction) to ‘firm’ (increased productivity through process improvement) and ‘soft’ (better reporting accuracy).


Figure 1: How to evaluate your business case effectively for the board
Articulate the ‘optimise vs invest’ decision Optimising what you already have is the initial challenge: resolving any issues by better utilising your existing IT framework and resources. Your business case must establish that this optimisation is not considered possible and investment in new technology is required.
Identify the business drivers – think through the issues, evidence and impact Business drivers are the reason for investing. Good business cases can articulate the issue of the problem(s) the investment will resolve, and evidence how the problem(s) are currently measured or observed. Impact analysis is key - how will solving the problem helps the organisation, along with the consequences of not solving.
Identify the key stakeholders, and make them accountable (or at least share the accountability) This allocates the ‘who’: who is currently experiencing the ‘pain’; who will provide input during the project; who will benefit; who needs to approve the project; who will be accountable during the implementation, and so on. Accountability instils responsibility.
Identify the critical success factors for the project Ultimately, the business case should be seen as a living document that accompanies the investment through its entire life cycle, and not a document to be parked once the investment has been approved and the implementation commenced. What measures will be used to determine if the project was a success? When (and how often) will measurements be taken? What necessary corrective actions will be made during the measurement period?
Quantify the ‘as-is’ and the ‘to-be’ environment Begin with the end in mind. Building a baseline of the existing environment is essential to the process of developing a vision of the future environment. Typically this involves a quantification of the shifts in capital expense, operating expense, full-time equivalents (FTEs), activity changes, service delivery breadth and expectation, exposure to risk, new benefits, etc.
Quantify the results and make clear recommendations The mission statement: you must make your recommendations clear, and base them on the results of analysis. Quantify the incremental changes (+/-) between the as-is versus the to-be environment, and apply financial metrics to determine the project’s ROI for the sponsor. Illustrate when measurements will be taken, and attribute financial analysis to both business drivers and key stakeholders.


Traditionally, one of the most common business case problems is quantifying the softer benefits, such as more accurate cash forecasting. When you are lucky enough to have hard numbers on your side, you may tend to leave out discussion of the soft benefits altogether. However, this would be a mistake, as you can’t necessarily know in advance which benefits will sway decision-makers. People make decisions based on intangibles as well as tangibles. You may think you have an airtight business case, based on hard benefits, but your sponsors may not agree. Always include qualitative benefits as a potential deal clincher.

Get the implementation basics right from the start

Strong project management is the key driver of implementation success and can overcome budget constraints, overburdened staff, scarcity of resources and tight timelines. Identifying key implementation roles and responsibilities is essential, including those who can identify and solve problems as they arise; those who have subject matter expertise; those who possess the seniority to allocate internal resources and those who have the capability to oversee the vendor relationship and keep the project on track. Steering committees, if utilised, must meet regularly and have the authority to make decisions and hold the project to account.


Requirements must be prioritised and aligned to the budget provided, and the complexity of each must be understood. Common areas in which technology can enable change include daily cash positioning, payment capabilities and integrated and automated transaction posting to the general ledger or other financial systems, as well as standard and ad hoc reporting capabilities. More complex requirements may support debt management, risk management, cash flow forecasting and global visibility of cash. Different platforms and feeds may be in scope including market data, trading, banking, various forms of ERP and middleware. Whichever areas are targeted, a clear critical path is needed, and interdependencies must be tracked. While a software vendor can provide functionality in any of these areas, it is critical that companies identify process-redesign opportunities to complement and enhance the impact of technology. Defining requirements based on sub-optimal processes can pose a tremendous risk in realising expected benefits, and many failed programmes are unfairly blamed on the technology itself rather than on poor implementation.


Finally, the programme must be flexible enough to be future proof. A technology implementation and systems integration may take six to 18 months, or more, to implement – and at the speed at which technology and market conditions change, this may mean it is out of date before completion. Opportunities for evaluating and deploying emerging capabilities may really set your programme aside and deepen benefits. More automated insight and intelligence analytics, process data enrichment, deeper ERP integration, trend and scenario testing, bank fee analysis, and even a shift to hosted or outsourcing support could evolve within the implementation timeframe.


Delayed timelines are the most frequent cause of project frustration and failure. Often, using experienced external capability to drive the art of the possible, alongside dedicated internal secondment for deployment of resources and the bespoke needs of the business, will provide a good blend of accountability and responsibility. Outsourcing parts of the implementation can give you greater control over costs, greater leverage (ie against delays) and greater experience in terms of having ‘done it before’.

Learning from the investment and creating an ongoing rolling programme

Finally, having taken the leap of faith and invested in the technology that you hope will take your treasury function forward, it is vital at each step to analyse what is working, what isn’t, and what you can learn for next time. The pace of change in treasury technology means no investment should be considered as a one-off; realistically, any investment you make needs to be viewed as the start of a rolling programme. This positions treasury as a market innovator or, at least, as a fast follower.


Using the latest technology in innovative ways, or being at the leading edge, is unlikely to be a smooth process because there is less experience available to guide you, while the complexities of getting layered products such as TMS (Treasury Management Systems), bank and trading software, and valuation and communication services to work together and be ‘right first time’ can be time consuming without access to a combination that has been developed, tried and tested in practice elsewhere. A technology-led change project can also be a great way to motivate your treasury people. Developing a shared vision of a new technology and process landscape, and then sharing the highs and lows of delivering it, can pull together a bonded, focused new team.

Conclusion

To become a true business partner, a treasury function must in effect determine ways of releasing people from transactional work to perform more value-adding activities while maintaining an optimised control environment. This takes a well-thought-through system and process architecture that sets out the key treasury technology and the level of automation required to support that process architecture and organisation structure. Defining requirements based on sub-optimal processes can pose a tremendous risk when it comes to realising expected benefits from a new or optimised technology solution.


‘Do nothing’ is no longer a viable option: not only will it entail missing out on improved efficiencies and lower costs, but failing to consider emerging technologies could mean losing competitive advantage or – worse – increased operational and reputational risk for your function and business. Mistakes within treasury can be catastrophic, and companies cannot afford them. An incorrect foreign exchange settlement, unhedged exposure, a mis-forecast cash position or disproportionately high bank charges – any of these can occur without the proper processes, controls and analytics in place.


Considering a broad spectrum of subscription-based outsourced models and cloud-based SaaS solutions, and a long-term implementation partner, may also bring the rapid pace of change closer and create a future-proof treasury environment. If you want your function to survive, you are going to need to keep up with that change. If, on the other hand, you want your treasury function to thrive, your best opportunity may be to lead and define it.