The reason for the post is a question from a potential customer of ours. After spending an hour or so on our Cash Management Operations Module, a cash manager of a large retail chain told us that they were intrigued by it, believed that the features provided by our product will be very useful to them and wanted like to try the product out. Then he had a question.
"How do I justify the cost of a Treasury Management System? I can hire an analyst and use a spreadsheet to continue daily positioning, it has worked for us so far".
I will make an attempt at looking at the possible benefits in the rest of this post. Hard cost benefits of using an enterprise TMS typically include 3 types of cost benefits (reduction in cost).
Detection of Errors: Detection of errors in forecasted data or in early detection and cancellation of inaccurate electronic payments can result in operational cost savings. Detection of errors in banking data can result in accurate positions.
Reduced reporting costs via consolidation: Reports are run enterprise wide. Ensuring that all data from banks and other internal and external systems are consolidated and reported via an easy to use interface results in efficient reporting and reduces reporting costs considerably. Typically financial institutions charge customers for each generation of a report. As an example, a customer of ours with 8 subsidiaries is currently saving over 15,000 USD a month by not paying the bank for each report run- the data is extracted from the bank once and stored in our TMS, the data (up-to 7 years of historical data) is reported to over 150 users via our reporting tool.
Accurate and timely positions resulting in accurate investible cash sooner: The actual dollar benefits derived varies from one organization to another- the more complex an organization is, the larger the risk of inaccuracy and the better the chances of improvements in accuracy via the use of a system. In typical large implementations, we see improved position accuracy in tens of thousands of dollars almost daily; we also see improvement in predicting tens of millions of dollars of investible cash on a pretty regular basis.
The primary benefit in utilizing an enterprise TMS vs. manual process for cash positioning is the improvement in accuracy and the timeliness of cash positions day after day provided by automated forecasting, bank connectivity, reconciliation and positioning capabilities of an enterprise TMS.
There is more to a Treasury Management System but unfortunately not all of it is visible upfront, when you are making a choice. Let us look at some of the se benefits in a bit more detail.
Accuracy & Timeliness: Reduced manual intervention and increased automation results in more accurate forecasts and positions. Typical spreadsheet errors such as typos, formula errors etc are eliminated. Additionally, automation ensures that data that needs to be collected for forecasting and positioning is collected at the earliest available time - this typically results in automated, systematic positions being available sooner than manual positions. Accuracy results in better-informed investment decisions and timeliness ensures that your investments can be made at the earliest, ensuring that the best available investment options are available to you.
Scalability & Manageability: As the positioning process becomes more and more complicated, say by the introduction of new subsidiaries in multiple countries; it becomes more and more difficult to position cash on an enterprise basis using a manual process/spreadsheets. Organizations that stick to manual positions in such scenarios typically have 2 choices –(1) position each country/subsidiary/currency separately thereby losing visibility of enterprise cash or (2) try enterprise positioning with an excel spreadsheet typically resulting in inaccurate positions.
Consistency & Reliability: Systematic processes eliminate issues with consistency, not matter how complex or simple the cash positioning needs are resulting in reliable, consistent cash positions day after day. Typically, this eliminates the need to double-check each calculation. More importantly, it has been a regular experience for us to find errors reported by banks. If positions were created manually, typically there is limited ability to double check data reported by the banks. Enterprise TMS's typically calculate the CAB, OAB along with floats and compare it to the numbers provided by the banks ensuring that any discrepancy can be identified. Again, the more the number of banks and accounts the more likely an organization will find errors.
Security: An enterprise TMS typically encrypts all confidential data and the use of roles in a system ensures that users with the appropriate privileges see the data. The level of security and access restrictions provided by an enterprise TMS is way better than what can be achieved via an Excel document.
Multi-user Access: Enterprise web based TMS like the Treasury Sciences Suite of Treasury Management products provide unlimited access to multiple users of the treasury and across the enterprise. For example, delegating forecast input and management directly to the departments that are responsible for the forecast can ensure accountability and accuracy of forecasts. Additionally, you can have subsidiaries create their own positions in multiple currencies while having the ability to view consolidated enterprise free cash in a currency of your choosing. An excel system is typically useful for one user.
Compliance & Audit-Ability: Manual approvals and audit are not efficient ways to ensure the enforcement of organization policies and controls. Use of a TMS considerably reduces chances of fraud by tracking and reporting on each action by all users of the system and provides you the ability to enforce organization policies and processes across the enterprise. A system audit is typically much faster than a manual process audit as well.
Who wrote the macros in that spreadsheet?: This is something we have seen in multiple instances - a spreadsheet is created and updated over a long period of time. The person who wrote the macros is no longer with the organization and typically the organization is stuck with it. Even if the author is around, it does not take much for a spreadsheet to get very complex- well, it was never meant to be a treasury management system.
Focus on more important things: There are typically more important things that a cash analyst or a treasury manager can do instead of downloading bank files manually or printing out multiple reports from multiple banks and entering the data into a spreadsheet. An enterprise Treasury Management System makes your life much simpler and lets you focus on how best to manage your cash.
All of the benefits mentioned above have a cost and a cost saving associated with it. What it is depends on your organization, the scale of your operations and your situation. Also note that the improvements in cash positions, cost savings and improved investments via the use of a Treasury Management System are typically not easily predicted upfront as there is an element of unknown-unknown's (manual positioning and related processes over a period of time in an organization typically result in hiding the possibilities of better forecasting and positioning) here.
The only way to find the true benefits for the organization is by trying out an enterprise TMS for a reasonable period of time and by comparing it to an organization's manual process. This has become a very long post. Thanks for reading and do let me know your thoughts at sujith@treasurysciences.com.