The five-year anniversary of the global financial crisis is theperfect time to evaluate what has changed in finance since the fallof Lehman Brothers. One thing is certain: Every crisis that hasfollowed has served as a stark reminder of the interconnectednature of our global financial system. For that reason, regulatorsaround the world have begun implementing measures to improvetransparency and risk mitigation, which are critical cornerstonesof a new, modernized global financial system.

Smart treasury organizations are following suit, putting inplace processes and tools they need to gain a holistic view oftheir risks across cash, debt, and investments. Risk is everywherein treasury, and it is at the heart of why we are seeing afundamental, transformative change in the treasury function. Overhalf (58.8 percent) of respondents in the Aberdeen Group's 2013report Treasury and Risk Management: Top Financial Risks and Tools toManage Them cited financial risks as the greatest marketpressure they face today.

In the survey, Aberdeen defined “financial risks” broadly,including in the category commodity risk, counterparty risk,credit/liquidity risk, foreign exchange (FX) risk, cash locationrisk, cash forecast risk, operational risk, payment risk,settlement risk, sovereign risk, and reputational risk, amongothers. The breadth of risks within the remit of treasury is now sowide that the organization can no longer function properly if itmaintains a singular focus on either cash-related or risk-relatedactivities. Instead, treasury needs to develop a holisticperspective on risk across the enterprise. According to theAberdeen survey, 30 percent of global companies are doing justthat: They're developing the capabilities for integrated treasuryand risk management.

Core Components of a Holistic Process

Gaining a holistic view of exposures begins with understandingthat there is a cause-and-effect relationship between cashmanagement and risk management activities. Any gaps or disconnectsin workflow can create blind spots in how different groups within acompany gather, analyze, manage, and report on information.Consider just some of the areas in which cash and risk areinterconnected:

FX exposures. Given the volatility ofFX rates, unhedged FX positions can lead to massive swings in acompany's P&L, so FX risk management is a cornerstone ofeffective cash management. An organization needs to combine data onits global cash positions, international cash pools, intercompany multi-currencypositions, cash forecasts, balance sheet positions, forecasts of FXexposures, and input and insights from its subsidiaries in order toachieve a holistic view of its global FX exposures. Onceaggregated, an organization's holistic view of FX exposures can beanalyzed and synthesized in order to derive net FX hedge positions.Investing the effort required to consolidate and net this data cansignificantly reduce volatility in a company's P&L, help lowertransaction fees by optimizing FX trades, and strengthen compliancewith FX risk management policies.

Cash forecasting. Inaccurate cashforecasts can have widespread impacts on a company's hedging,liquidity management, capital structure, and strategicdecision-making processes. Cash forecasts that don't take intoaccount the company's FX exposures, liquidity positions, and creditrating indicators are unlikely to be actionable (e.g., forborrowing, investing, hedging) because they are missing keypredictors of the company's future cash position.

Liquidity and credit risk. Lack ofvisibility into the company's liquidity and credit position, andineffective management of its liquidity and credit, could result ina situation in which the company requires reactive and expensivemeasures to secure working capital. For example, a company may haveto pay a premium to secure short-term funding for a project whenbetter management of its liquidity and credit position would haveenabled it to borrow at better rates and terms. By combining dataon the organization's current and forecasted cash positions withinformation on its available credit limits, a company canproactively plan for any potential liquidity shortfalls. Thisenables it to lower its borrowing costs, transaction fees, andborrowing penalties at the same time that it may increase theoverall credibility of the treasury function.

Counterparty risk. This encompassesthe risks associated with improper assessment and mitigation of acompany's exposure to its major counterparties, such as financialinstitutions, trading partners, and key suppliers. To gain aholistic view of its counterparty risk, a company needs toconsolidate data on its exposure to each entity across multipleasset classes. Doing so can build the foundation for effectivedecision-making, lower the impact of any financial loss, and saveon staff time and resources.

Commodity risk. Hedging commodityprice risk is becoming more commonplace. It's an activity thatgenerally falls under the joint responsibility of treasury andprocurement. By introducing commodity risk management practicesinto the treasury function, and improving collaboration betweenprocurement and treasury, a company improves its ability to assessand measure commodity risk and implement best practices for hedgingand reducing price risk. In addition, commodity hedgers may have FXcomponents to their physical settlements. They can analyze thesecomponents using risk assessment tools such as CFaR (Cash Flow atRisk) to define which exposures can be hedged and to prioritizehedge targets.

Transforming Treasury

Companies that are involved in transformative treasuryinitiatives optimize their treasury organizations with the goal ofdeveloping a more holistic approach to treasury and riskmanagement. In one poll conducted by Reval, 56 percent ofrespondents said they are integrating treasury and risk as astrategic action. Industry-leading treasury operations aredeveloping a real-time, accurate global risk profile, incorporatingrisk management techniques that gauge counterparty exposures,hedge-coverage ratios, liquidity positions, short-term investments,and credit line usage and availability within their cashforecasting and cash management practices.

Building a transparent and timely view of cash and risk enablesa treasury team to get one picture that tells all the importantstories for the treasurer, CFO, and board of directors. Thiscapability is critical, as 63 percent of treasurers are facinggreater executive review and reporting in response to emergingrisk, according to a 2013 Risk Surveyconducted by the Association for Financial Professionals (AFP). Itis not surprising, then, that 84 percent of respondents in a Revalpoll conducted earlier this year indicated that dashboards, riskvisualization tools, and software-as-a-service (SaaS) capabilitiesare important technological advancements that companies need inorder to deliver and explain the complete treasury and riskstory.

Five years after the global financial crisis, it is clear thatcorporate treasuries are hard at work, laying the foundation for amore integrated function and ready to deliver the intelligencenecessary for strategic decision-making.

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Jason Torgler is the vicepresident of strategy for Reval. He has deep experience in treasuryand a strong understanding of the power of SaaS-delivered solutionsdeployed across domestic and international markets.