Last week I had the opportunity to travel to Cleveland, OH and speak at the monthly meeting of NEOTMA. I presented a case study on how the University of California adopted a new SaaS Treasury Management Solution. It was a wonderful experience and I had the opportunity to meet with and speak to some great people. Towards the end of the presentation someone from the audience asked a question and that is what this post is based on. The question (not verbatim, but the basic premise is intact) was
"It is good that the new solution helps increase investments and reduces costs, but what about Return on Investment? When will a treasury adopting a treasury management solution achieve enough ROI to cover the costs of implementing the solution itself?"
I thought that this was a very good question and very relevant considering the current economic situation. The answer lies in the Pricing Model of the Treasury Workstation or Cash Management Solution.
Classical Treasury Workstation implementations would require very high startup costs. This would include multiple things such as licensee fees for software, consulting fees for multiple consultants from the workstation provider, a team of people working on connectivity to banks and of course your internal IT team working with the technology team from the workstation provider installing the new system at multiple locations. A process improvement consultant is of course an additional cost. What all of this translates into is a a multi million dollar investment upfront (not to mention the several months to implement), before you even start using the product. Now, say that all goes well and your improved processes and system helps you invest more cash or save on banking costs. It typically takes you a while, in the order of years to recover your upfront investment.
From a cost and ROI perspective, the solution, as I mentioned above is in the Pricing Model. And this is one of the areas the new wave of hosted, SaaS (Software as a Service) Treasury Workstations are different. They eliminate or considerably reduce upfront costs and allow for month to month contracts that let you pay for what you use. Our solution for example, does not require much upfront investment at all. Yes, there will be costs associated with internal process improvements and we highly encourage you to do that. Factors that add to a workstation implementation cost such as license fees, internal IT team costs and installation costs are completely eliminated. Bank communications cost is considerably reduced because of our reliance on new technology and global standards. We no longer have to create and test software that sends and receives information (payments, acknowledgements, reporting etc) as we already have done that with most major banks. Even if we have to, our software is configurable enough to accommodate these additions easily via configuration and not via new development. In most cases, we are able to get a customer up and running in the order of a few weeks to months with very less upfront cost. They pay on a month to month basis and are not required to sign a long term contract. As you may have noted, newer technology and standards helped create this pricing structure.
Implementing a new cash management solution should result in more invested cash and better processes. Eliminating most of the upfront costs ensure that an organization implementing the solution spends less upfront and does not have to go through an extended period of time trying to recover the cost. Immediate ROI.