From the September/October 2012 issue of Treasury & Risk magazine

Gold AHA Winner in Working Capital

Getting a Bead on Cash: Microsoft

Paul Weldon, record global process owner director; Jim Scurlock, senior manager, global cash planning; Michael Armstrong, group portfolio manager Paul Weldon, record global process owner director; Jim Scurlock, senior manager, global cash planning; Michael Armstrong, group portfolio manager

Microsoft takes great pride in running a centralized treasury for its more than 350 legal entities in 118 countries, which have over 1,100 bank accounts at more than 100 banks worldwide. Unlike many companies that forecast operating expenses by regional operating centers, the $70 billion technology company requires its more than 200 subsidiaries to forecast anticipated expenses every month. The result: net variances—forecast to reality—of 20% to 30%.

With more than $1 billion in capital flowing through its system each day, the wide variances resulted in over-forecasting by hundreds of millions of dollars, exposing Microsoft to heightened counterparty, country and fraud risk. “That is a lot of money, and we were determined to identify the issues causing it,” says Jim Scurlock, senior manager of global cash planning at Microsoft.

Scurlock led the project to revamp the cash forecasting process to improve working capital. This was not easy given Microsoft’s multiple subsidiaries and myriad banking relationships. Kickoff meetings with senior leaders ensured support from key stakeholders, in addition to available resources supporting a core project team headed by the leaders of the treasury and finance operations. “Because of our size and structure and the fact we are in so many countries, we needed senior leadership people from numerous organizations to ensure the right resources to effect change,” Scurlock says.

The team identified factors in the cash forecasting errors, including subsidiaries’ use of historical data rather than actual data, the limited visibility of very large direct debits for taxes and other payments, limited visibility of accounts receivable inflows and limited, if any, engagement between those preparing cash forecasts and the payroll, tax and accounts payable teams.

In the year since the project launched in 2011, the team evaluated various ways to remediate the mess it had unearthed. By 2012, it had designed a new cash flow process for the 200-plus actively funded subsidiaries.

The team created two databases using Microsoft technology—one to provide visibility into direct debits so each subsidiary could add them to their accounts payable cash flows, and the other to keep key contact information for the payroll, tax and accounts receivables teams.

With regard to the first database, each subsidiary is required to have an owner responsible for recognizing and recording all direct debits, in addition to ensuring that the database is updated each month to guarantee it doesn’t become stale.

The second database ensures that the person preparing the cash flow forecast at the subsidiary knows whom to interface with each period to receive real-time data and not yesterday’s news.

Finally, treasury created a detailed cash forecasting and subsidiary funding manual that provides answers to questions. “Companywide, we now have a standardized process,” says Scurlock.

That process has yielded a terrific harvest, financially speaking: Worldwide cash forecasting variances have been reduced by 50% to 70% each month, the global cash management team saves 30 hours a month now that it no longer has to repatriate over-forecasted cash, and the accounting group has saved hours because it no longer has to manually post general entries related to treasury intercompany loans. Meanwhile, cash balances in local subsidiary accounts are down by more than $200 million.

“This has been momentous, given the European debt crisis, as we have considerable operations in European countries,” Scurlock says.

George Zinn, Microsoft’s treasurer and corporate vice president, adds, “We not only have made our lives better because the process is more efficient, but we’ve also demonstrated what we believe is the way forward in cash management best practices.”

 

See a slideshow of the 2012 Alexander Hamilton Award winners here.

Read about the Google project that won the Silver in the Working Capital category here. Projects from Sprint Nextel and Stanley Black & Decker tied for Bronze.

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