The Potential Benefits and Challenges in Implementing Business-Performance Management Systems in Corporate Treasuries
By Xiao Sun
Introduction
A key role of a business’s management is, quite simply, the monitoring and management of the business and its performance. In the past, key metrics management monitored were the various financial indicators of a company, such as revenues, costs, stock price, and market share. While these are important and relevant metrics, management has also realized the importance of monitoring the operations and processes that drive the financial metrics, namely the core business operations of a company. For some companies, notably GE and Toyota, operations techniques and strategies such as six sigma and lean management have proved to be extremely beneficial in improving financial metrics. Consequently, many management teams are now examining their own business operations as a source of cost-cutting and efficiency to improve the bottom line. Given the complexity of the operations of the modern corporation, examining the ground level process can be a daunting challenge for top management.
In this void, business performance management (BPM) has emerged as a potential solution to enable the operational management sought in this new environment. BPM can be described as the next evolution in the concept of business intelligence, commonly defined as the technology and practice of applying information to make decisions. Two of the leading providers of BPM solutions, Hyperion and Cognos, describe BPM as the “processes, methodologies, metrics, and systems” needed to “measure, link, manage, and drive” the strategy and performance of an organization. Quite simply, BPM is a bridge between a business’s operational metrics and management, efficiently and effectively consolidating the business data from business sources and delivering the relevant and manageable metrics to management to drive strategic decision making.
One potential function that can greatly benefit from the application of BPM is the management of the corporate treasury. The corporate treasury can be considered the financial hub of a company, charged with the management of a company’s financial assets and liabilities, risk exposure, liquidity, cash management, and the raising of debt and equity. Within each of these different functions, there are many different particular types of operations involving different financial instruments and metrics. In addition, given the influence of external market forces on financial instruments and operations, many functions are time-sensitive as well. The management of these different instruments and metrics often requires specialized systems that can most effectively meet very specific requirements. Consequently, corporate treasuries are often saddled with 80+ different systems on different platforms, while effective in their individual functions, can be a huge burden and inefficient in a management and reporting function. The large amount of available data and the incompatibility of the various system platforms require a large amount of time and effort to generate the metrics management needs for strategic and reporting purposes. Consequently, BPM would be an ideal application to automate and more efficiently manage and retrieve the relevant data from the various systems.
Utilizing BPM in treasuries would enable companies to maintain the use of current systems which are already developed for their specific functions, while utilizing BPM systems to centrally manage the data. Specifically, the BPM system would pull the data from the various systems and store it within its own data warehouse. Management can then access the treasury system data in one centralized location through the BPM reporting tool.
While using BPM as a common platform to consolidate data from various treasury sub-systems may sound like a very obvious and simple in theory, the actual implementation of the solution is a much more daunting task. Implementing a BPM system requires detailed understandings of the technical and operational aspects of the current systems.
Technical Challenges
One of the first challenges encountered in the implementation of a BPM solution is the technical challenge in the building of the BPM system’s data warehouse. In order for the current treasury systems data to be properly pulled and stored into the data warehouse, an understanding of the existing technological infrastructure is needed to ensure that the warehouse is compatible with each of the existing systems. Given the number of systems that exist in treasuries today, this aspect can be a time-consuming and difficult task for the IT teams charged with the system development.
However, an even more challenging exercise is the planning and development phase of the system architecture needed to drive the data collection process. As each individual treasury system can potentially house thousands of pieces of data captured in multiple different fields, the BPM data warehouse will need to be able to capture each of these unique pieces of data, properly categorize it within the data warehouse, and then store it for easy access from the reporting tool platform when needed. This process ultimately requires not only a technical understanding of the individual systems, but also an operational and strategic understanding of what the different data fields mean and the role of the data within the specific treasury operation. Thus, this phase requires collaboration between both the IT and finance teams to define each of the data fields, identify its role and significance, and fit it into the system architecture. Once this phase is complete, IT can better understand how to integrate the existing systems into the data warehouse.
While both of these challenges require significant effort and time, there are some exercises and actions that can expedite the process. One such exercise is to map out each of the systems, in effect documenting the sources, recipients, and flow of data within each system. This form of documentation not only creates a visual representation of each system, but it also facilitates an understanding of how data is used and ultimately in the creation of the system architecture.
Operational Challenges
In contrast to the more technical challenges of building the data warehouse, a keen understanding of the operational functions in treasury is the challenge in building the BPM system’s reporting tool. While the data warehouse will contain every piece of data generated by the individual treasury systems, the appropriate data must be pulled from the warehouse and appropriate method of analysis must be applied to the data in order to accurate and relevant outputs for reporting, strategic planning, forecasting, or other functions.
Consequently, an understanding of each of the treasury functions that will be handled by the reporting tool is required. Again, this sort of development requires the collaboration of both the IT and finance teams. The finance team will need to identify the relevant input data and the exact analysis used to generate and manage the different functions and reports in treasury, from cash forecasting to interest rate exposure. The IT team can then use this information to program the system to pull data and develop the reports.
Again, mapping out each of the processes is an effective way to document the sources, recipients, and flow of data. This form of documentation captures the relevant data sources and fields used in each treasury function, and can help create the framework for each report.
Benefits of Implementing BPM
There are many benefits to implementing a BPM system within corporate treasuries. Two of the most appealing benefits include increased speed in generating reports on financial positions and risks and the ability to continue using existing systems.
One of the key features offered by a BPM system is the speed at which it can generate standard reports and pull specific data. The automated data collection process and reporting tool enables the real-time generation of reports detailing the financial positions of the company across different levels. Being able to quickly see the company’s financial positions and risks enables management to quickly react to market conditions, as well as allowing more time to be spent on analysis. In addition, as many of the financial risks treasury manages are determined by external market forces, such as foreign exchange exposure and interest rate exposure, timely management in a constantly changing environment is important to minimize the risks. Having the timely access to this data enables management to utilize the data for strategic planning and forecasting purposes.
The second benefit of utilizing a BPM system is the continued use of the current treasury systems for operational purposes while using the BPM system for reporting and management purposes. This way, the specialized functions built into the individual treasury systems can still ensure that the requirements of the particular function is met, and the personnel trained on those systems will not require training on new platforms. By tying together the BPM system to the treasury systems for reporting purposes, a stronger control environment is also created. Drawing the data straight from the treasury systems and into the report ensures data integrity, as there is a high level of transparency and accountability in determining the source and accuracy of the data.
Conclusion
Ultimately, the application of BPM has a great deal of potential in improving the efficiency and effectiveness in corporate treasuries. BPM can help consolidate data from the multitude of systems often found in treasuries, and use the data to more efficiently drive functions such as forecasting, reporting, and tracking. Given the time sensitive nature of the treasury, and key role it plays as the financial hub of a company, timely access to accurate and relevant data about the company’s financial positions and risks is an important tool in management’s strategic decision-making process. While the implementation of a BPM system does involve many operational, technical, and strategic challenges, the potential benefits offered by BPM warrant serious consideration for BPM to be a part of every corporate treasuries technical systems.
Acknowledgements:
I would like to thank Sundeep Ruia, who had given me the invaluable opportunity to see the challenges of implementing a BPM system first-had, as well as Sara Choi, Vikram Kaul, John Mehalakes, Anne Wang, and everyone else in the GE Corporate Treasury for sharing their time and expertise to help me better understand how the treasury and a BPM system work.
References:
Horcher, Karen A. Essentials of Managing Treasury. New Jersey: John Wiley & Sons, Inc, 2006.
www.cognos.com
www.hyperion.com
Xiao Sun •