In the recent past “doing more with less” has been a phrase often used to describe the situation of treasury organizations across industries. In this environment, cash managers have been asked to run the day-to-day activities with fewer resources, while bringing about changes to achieve higher operational efficiencies.
Now another layer of complexity has been added with low- or negative interest rates and a strong dollar. These market conditions have put added emphasis on cash managers’ ability to deliver accurate cash forecasts on a timely basis and find additional efficiencies in their cash structures to minimize idle cash. Before, there was an opportunity cost associated with forecasting inaccuracies and associated cash cushions associated with them. Now, in some markets, this opportunity cost has turned into an actual cost reflected on the financials and this cost is not expected to go away anytime soon.
Cash managers now have more seemingly competing objectives in the short term while trying not to lose sight of the long term. Many corporates try to harmonize these goals by analyzing how they fit with their long-term vision for cash operations. In that way, managers can make sure that every step they take – big or small – gets them closer to their desired objective.
This was a common theme observed during the last NeuGroup Global Cash and Banking Group meeting sponsored by Deutsche Bank. Members discussed several current priorities including implementing treasury management systems, refining cash forecasting processes, evaluating new cash structures and managing around negative interest rates. Looking at different priorities/projects as building blocks of a larger enterprise was a best-practice approach as per the members’ opinion.
In the case of treasury management systems implementations, this is a very common approach. Corporates build up systems in stages, releasing different modules based on the needs of the operating team. Some caveats to this approach are (1) that sometimes these modules are interrelated and a mistake or an oversight on how those relationships are supposed to work can affect the success of the deployment; and (2) that mobility of IT resources can affect the continuity of the project.
Another clear example of using building blocks to achieve a desired future state is the implementation of “on-behalf–of” structures, which are increasingly recognized as an efficient way to manage global cash (see “On-Behalf-Of Structures: Lessons Learned” here).
Finally, this is also an approach that is being use to improve cash forecasting processes, which remains more of an art than a science. While cash-forecasting processes have not followed the automation trend, other functions have, and largely remain in Excel spreadsheets. But there are now better tools to analyze/categorize actuals and extrapolate trends. In this case, corporates are levering these tools as starting points to standardize processes and automate as much as possible, while leaving space in the process to capture the business and “tribal” knowledge needed to generate accurate forecasts. This is however the first step of a much longer term vision.