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Transcript of © 2012 Treasury Strategies, Inc. All rights reserved. Presented To Presented By At a Crossroads:...
© 2012 Treasury Strategies, Inc. All rights reserved.
Presented To
Presented By
At a Crossroads: Defining your Future, and Leveraging the Potential of Treasury 3.0SM
September 2012
Dave WexlerPrincipal
Agenda
Assess the Current State of your Treasury
Create a Vision for your Future State Treasury
Define and Execute a Roadmap to Achieve Treasury 3.0
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Why a Treasury Assessment?
Treasury is the Financial Nerve Center
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Treasury 3.0®: Corporate View
4
Treasury Operations is an immature, fragmented or informal function, characterized by manual processes.
Treasury centralizes key roles, improving transparency and controls.
There is greater access to data and computing power and consolidation of competency.
1st GenerationHigh
Treasury is a strategic advisor, more closely integrated with business units, supporting globalization, efficiency, trading partner/supply chain integration and greater sophistication in risk/return optimization.
Data Intelligence
2nd Generation 3rd Generation
Information
Low
Data vs. Intelligence
Technology/Data Architecture
• Full Automation & Integration
• Narrow Executional Focus
• Strategic Advisory
• Expanded Risk Responsibility
Sco
pe o
f Inf
luen
ce
2.0
2.0
3.0
3.0
5
Why a Current State Assessment Can’t Wait
• The recent financial crisis is a call to action for Treasury 3.0®.
• The first step is to assess your current state.
• In the face of uncertainty, 3.0 helps you stay in control.
Internal External
• Cash flow• Working capital• Counterparty risk• Investment• Debt• Fraud
• Regulation• Economy• Government action• Banking turmoil• Political risk
You CAN control these You CAN assess the impact of these
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Key Assessment Elements
Policies & Procedures• Do policies support the goals of the organization, clearly communicate permissions and
account for unique situations?
Organizational Structure• Does our organizational structure effectively support the
business?
Bank Account Structure• Are banking relationships and bank account structures
leveraged to their potential?
Cash Flow & Liquidity• Do we know where our cash is and can we effectively sustain operations?
Technology• Treasury technology must reflect an organization’s need to be extremely nimble and adjust
quickly to the changes demanded by market conditions.
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Key to Success
Do policies support the goals of the
organization, clearly communicate permissions
and account for unique situations?
Policy Considerations:• Investment
• Debt
• FX
• Financial Risk Management
• Counterparty Risk Management
• Bank Account Administration• Business Continuity
Policy Elements: Instrument Types• Monetary Limits
• Durations
• Credit Ratings
• Concentration Limits
• Defined Review Periods
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Assessment: Policies & Procedures
Key Assessment Indicators
• Timing of last policy review
• What has transpired since the last review?
• Authorization
• Access/Distribution
• Sign-offs
Benefits
• Procedural support increases controls
- Segregation of Duties
• Regulatory Compliance
• Standardization
• Risk Mitigation
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Assessment: Policies & Procedures
Key to Success
Does our organizational structure effectively support the business?
Assessment: Organizational Structure
Organizational Considerations
• Recent/Future Actions
- Mergers/Acquisitions
- Spin-offs
• Staffing
- Resource levels
- Experience
- Knowledge/Training
- Authority
• Geographic Footprint
- Tax Implications
- Regulatory
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Assessment: Organizational Structure
Key Assessment Indicators
• Treasury Mandate
• Staffing
- Roles and Responsibilities
- Performance Metrics
• Business Unit/Subsidiary Roles
• Collaboration with Tax Department
- Timing of Review
- Repatriation Strategies
- Operational Support
• Regulatory Awareness
• Local Relationships
• Communication
Benefits
• Financial
- Tax Savings
- Funding Cost Reduction
• Employee Morale
• Compliance
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Key to Success
Are banking relationships and bank account structures
leveraged to their potential?
Assessment: Bank Account Structure
Bank Account Considerations
• Materiality
• Visibility
• Complexity
- Number of Bank Relationships/Accounts
- Drivers
• Administration
• Oversight
• Fee Analysis
• Relationship Review
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Assessment: Bank Account Structure
Key Assessment Indicators• Optimized Structure Effectively Supporting
Business
- Identify Redundant Services
- Duplicative Bank Accounts
• Review of Bank Relationships
- Periodic: RFP for Services
- Geographic
• Fee Analysis
- Frequency
- Mechanism
- ECR
• Oversight
- Centralized/Decentralized
Benefits
• Costs
• Efficiency
• Control/Risk Mitigation
• Income (Investment, etc.)
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Assessment: Cash Flow & Liquidity
A typical billion-dollar company spends approximately $27 million annually for unnecessary working capital and inefficient processing functions because they lack visibility into the financial supply chain and receivables.*
*Source: Killen Associates
Global VisibilityThe capability of an organization to have timely and comprehensive information on all positions and exposures.
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Key to Success
Do we know where our cash is and can we effectively sustain
operations?
Cash & Liquidity Considerations• Cash Positioning
Process– Mechanisms– Sources
• Cash Flow Forecasting– Methodology
• Accounts Receivable/Payable– Mechanisms: External– Systems: Internal
• Cash Concentration/Pooling
• Intercompany Transactions/Loans– Purpose
• Credit Access
Assessment: Cash Flow & Liquidity
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Key Assessment Indicators
• Cash Positioning- Automation- Consistency- Completeness- Timelines
• Cash Flow Forecasting- Precision- Relevance (Timing)- Consistency
• Accounts Receivable/Payable- Timing- Velocity
• Cash Concentration/Pooling- ZBA Structures- Physical/Notional Pooling
• Intercompany Transactions- Settlement Timing- Currency - On Behalf Of
• Credit Access- Planning/Coordination
with Corporate Finance- Syndicate Participants- Sources
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Assessment: Cash Flow & Liquidity
Benefits
• Optimize idle cash balances
• Lower borrowing costs
• Lower cost of capital
• Netting Opportunities
• Greater investment income
• More favorable FX rates
• Early warning system
Assessment: Cash Flow & Liquidity
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Assessment: Technology
Key to Technology Success
Treasury technology must reflect an organization’s need to be
extremely nimble and adjust quickly to the changes
demanded by market conditions.
Technology
Considerations• System Types
- Older Treasury Workstation Systems
(TWS)- Bank Online Systems- Spreadsheets- Best-of-Breed
• License expiration, migration, “sunset”
• Upgrade timing• Deployment Mode• Costs• Integration/Interfaces• Enterprise accessibility• Information workflow• Controls
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Assessment: Technology
Key Assessment Indicators• Percentage of Manual Processes
• Timing of Last Upgrade
• Interfaces to Promote STP
- Banking
- ERP (GL, AR/AP)
- Trading
• System Access
• Auditability
• Security
• Reporting
• Costs
- Internal
- 3rd Party
Benefits
• Enable Treasury Best Practice
• Automation + Efficiency
• Standardization
• STP
• Controls
• Scalability
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Treasury Management System
Functions used:• Bank Polling• Cash Positioning• Cash Forecasting• Bank Account Administration• Payments (& Payment
Factory)• Short-term Investments and
Debt• FX, Commodities & Risk
Management• LT Debt & LT Investments• In-house Bank &
Intercompany Loans• Multilateral Netting• Accounting & Reconciliation
Analysis & Pricing
Bank Account Administration
In-house Banking, Intercompany Loans &
Netting
Payment Factory
Bank Communication via SWIFT
Financial Transactions
Accounting & Reconciliation
Centralized, Integrated & Real-Time System
Dashboard & Reporting
Technology & Treasury Applications
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Create a Vision for Your Treasury Organization’s Future
5. Roadmap Planning & Development
4. Reporting Protocols
3. Opportunities for Improvement
1. Gap Analysis 2. Benchmark Reporting
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1. Gap Analysis
Controls Deficiencies
Material Weakness
Process Inefficiencies
Inconsistencies
Completeness
Creating the Future Vision: Essential Elements
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Creating the Future Vision: Essential Elements
2. Benchmark Reporting
• General Best Practice
- Operation/Function
• Industry Best Practice
• Substantiated and Credible Best
Practice Standards
- Source
- Metrics
• Local/Regional Practices
• Regulatory Implications
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Treasury Function Metric
Cash Management • Bank fees vs. budget and historical trends • Number of bank accounts, historical trends• Days payables outstanding (DPO)• Accuracy of cash forecast• Transaction error rate• “Trapped” cash balances
Foreign Exchange • Trade performance vs. market rate at time of execution• % exposure to counterparties• Number of FX spot transactions per month• % hedge effectiveness
Investments • Yield and return vs. established benchmarks• Trade performance vs. market rate at time of execution• % exposure to counterparties and issuers
Debt • Total short-term debt outstanding as a percentage of credit availability
• CP rate vs. Federal Reserve Non-Financial CP rate for A2/P2 companies
• WACC • Timing of cash call requirements versus uses of internal time• Interest expense vs. budget and historical trends
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Sample Treasury Metrics
1. Formally define and document global Treasury policies and procedures:
- Dependent upon business: Debt, Short-Term Investments, Bank Account Administration, Cash Forecasting, FX Risk Mgt.
2. Policies should be approved by company’s Board of Directors.
3. Create written global treasury procedures, tailored to individual countries to reflect regional/country nuances and systems
4. Formally document a Treasury Disaster Recovery Plan:
- Periodically test plan to verify its effectiveness.
5. Continue to document and refine country treasury process maps
Guidelines: Policies and Procedures
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3. Opportunities for Improvement
• Identified
• Quantified
• Fundamentals
- Costs
- Efficiencies
- Strategic
- ROI
- FTE
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Creating the Future Vision:Essential Elements
4. Reporting Protocols
• Consistent
• Detailed Support
• Actionable
• Realistic
• Metrics/Statistics
• Executive Presentation
27
Creating the Future Vision:Essential Elements
5. Roadmap Planning & Development
Prioritization
Dependencies
Timelines
Resources
Milestones
Risks
28
Creating the Future Vision:Essential Elements
The Treasury Roadmap
A treasury roadmap enables organizations to visualize:
Interdependencies of tasks
Critical assets within the organization
Required skills, competencies and
technology
29
Roadmap Benefits
Provides focus and direction
Provides management
control
Links tasks to needs and milestones
Visually represents goals
to employees
Improves departmental
communication
Identifies issues and
interdependencies
30
The Treasury Roadmap Process
Preliminary Design
• Setting the framework, vision, timing & organizational goals
Roadmap Developm
ent
• Priority Sequencing
• High-level timeline
Follow-up &
Implementation
Roadmap Update
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Distribution of time spent on tasks in a “typical” Treasury department
Analytical (30%)
Operational (40%)
Strategic (30%)
Distribution of time spent on tasks in a “best-practices” Treasury department
Operational (80%)
Analytical (15%)
Strategic(5%)
Operational to Strategic Transition
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Never before has Treasury’s contribution to an organization’s survival been so critical:
• Strategic focus
• Rapid and comprehensive response
• Business Continuity Planning (“BPM”)
• Proactive Plan
• Integrated data
• Impact of uncontrollable forces
• Efficiency
• Communication
• Control
• Enterprise Support
Achieve Treasury 3.0®
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About Treasury Strategies, Inc.
Who We Are
Treasury Strategies, Inc. is the leading treasury consulting firm working with corporations and financial services providers. Our experience and thought leadership in treasury management, working capital management, liquidity and payments, combined with our comprehensive view of the market, rewards you with a unique perspective, unparalleled insights and actionable solutions.
What We Do
Corporations
We help you maximize worldwide treasury performance and navigate regulatory and payment system changes through a focus on best practices, technology, liquidity and controls.
Treasury Technology
We provide guidance through every step of the technology process – which includes creating a roadmap, selection, implementation and optimization. Our expert approach will uncover opportunities to optimize the value of your treasury through fully integrated technology solutions.
Financial Services
Our experience, analytic approach and benchmarks provide unique consulting solutions to help you strengthen and grow your business.
www.TreasuryStrategies.com/content/networking-communities
@TreasuryStrat
Accreditations
Connect with Us
Locations
Chicago • London • New York
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