Treasury Visibility: Challenging the Assumptions

Assumptions: External and internal expectations of treasury have risen dramatically over the past few years.

Protect the organization from financial risk. Reduce or eliminate surprises. Respond to new threats instantly. The demands for visibility extend in many directions. Fulfilling these expectations requires a more thoughtful approach than merely detailing the goals. The need for visibility isn’t limited to a single category - it covers many areas, including:

  • Cash & Investments: Where are we exposed by entity or instrument type?
  • Counterparties: Is a bank or trading partner’s credit deteriorating?
  • Country/Regional: What countries represent changing economic and business environments? What clients and customers are impacted by a particular disaster?
  • Currency: What is our current and future net exposure?
  • Capital and Liquidity: What will our working capital and liquidity needs be if commodity prices jump 35% and we face a rising rate environment?

Instead of approaching these and other financial risk issues with a coherent view to all of Treasury’s responsibilities, many address them separately. The “separate approach” is often driven by an emergency, with the perception that it is the most expeditious method. Whether you take the “separate approach,” a linear approach, or a broader, more coherent approach to Treasury’s responsibilities, the challenges continue to emerge rapidly and continuously, much like the rodents in a Whack-A-Mole game. To confidently manage financial risk the following challenges must be addressed. Data Sits All Over the Place. Vital data sits in different systems in Treasury (risk system, TWS), in the firm (various ERPs, spreadsheets), and with outside parties (banks, rating agencies). Treasury is challenged with being a data consolidator—and data does need to be consolidated.

Data Resides in Different Formats. A single currency can show up as YEN, Y, or JPY—and that is oversimplifying the case. Additionally, a single customer or supplier can have numerous codes and names in the various systems that exist, but accessing the data doesn’t normalize it. Normalizing all of the data is extremely timeconsuming. Better methods exist. Dashboards and Alerts Often Require Information From Different Systems. Financial Statement Time works for financial statements. It doesn’t work for foreign currency exposures, counterparty risk management or many other treasury concerns. An alarm needs to go off at the right time to be effective. And, the right information too late is not acceptable.

Analysis Requires Flexibility. Consistent processes and information flow can be established, and they can run perfectly. Given changing conditions, Treasury must be able to respond to new threats and issues, which are often unpredictable. This requires an agile Treasury toolset and information design.

Analysis Requires Enriched Data. Accurately knowing the total exposure one has to a particular counterparty is a great start. Coupling this information with additional enriched data enables Treasury to analyze and react more precisely. Early warning information (from various rating or credit sources) added to your exposure information can provide a significant advantage in the war against negative surprises and results.

Solutions. Solving these challenges involves several crucial steps each organization will need to take, or must at least understand, including:

  • Treasury Information Design. A proper design of the data, systems and tools is essential for understanding and for project success.
  • Detailed Business Needs. Including system flexibility to allow for analytics and decision support is necessary.
  • New Technology. Using old technology can be far too costly in time and money; however, vital advances in services and technology have reduced costs and challenges significantly.

(See this exhibit detailing some of Treasury’s main business needs and related challenges.) Listing several major challenges will help establish a reasonable expectation regarding what lies ahead in your effort to achieve proper visibility. Fortunately, a host of services and toolsets can be combined with a seasoned Treasury group to deliver what is needed—without the multi-year project plans. Excuses worked in the past. Results work now. It is time to give us a call. SPONSORED STATEMENT

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