I will admit, the group treasury department often is not the first thing that comes to mind when reflecting on how data-driven analytics can improve your company’s performance... but are we missing a trick? Because when you think of a treasurer as a latent data scientist, enabling the treasury department to perform advanced analytics, the Clark Kent’s of the company transform into Supermen (of course I mean Super-people).
As my colleague Mark Fidler highlights in his insight "No regrets IT investment in the Oil & Gas industry”, over the last twelve months energy companies have focused on weathering the storm caused by the oil price slump and have deployed tight asset and cost management programmes. For the energy companies I work with, cash management and cash forecasting have become strategic priorities for 2016.
A good cash forecasting capability in your organisation drives improvements in key areas such as borrowing costs and working capital optimisation. Furthermore, an accurate cash forecast builds trust and confidence with the shareholders. The key questions I find myself trying to answer are: “What are the process barriers for treasury teams to take up the business partner role in cash forecasting?” and “To what extent can technology help enable this?”
Do you have an effective cash forecasting process?
An important (but slightly blunt) question to ask treasury teams is to what extent do the cash forecast reports and insights currently provided actually drive decision making? In other words, how effective is the cash forecasting process? For me, three key process drivers are worth highlighting:
- Integration: Cash forecasting cannot be an ivory tower activity performed fully at HQ. The process should drive ownership and accountability for timely and accurate commercial forecasting inputs throughout the business.
- Forecasting purpose and horizon: It is important for all those involved in the process to understand the short, medium and/or long term cash forecasting objectives. The horizon needs to be aligned with the required granularity and accuracy of the cash forecast; short term forecasting will focus on more accurate and detailed analysis, long term forecasting will aim to identify risk areas and analyse trends.
- Reliability and accuracy: Good cash forecasting embeds a degree of 'learning' into the process. Are forecasts assessed in relation to actual results? The accuracy of forecasts should be measured regularly to identify bottlenecks, data issues and/or modelling errors.
Can technology help to enable 'treasury transformation'?
The characteristics of cash forecasting undoubtedly fit with an automated, technology-driven solution:
- It deals with a large volume of data, derived from different sources (external and internal) and with a wide range of granularity;
- There is a need for collaboration and coordination, since different roles within the organisation contribute to the forecasting process;
- It requires a strong calculation engine;
- Outputs of the process need to be visible, available and drive strategic decision-making.
Of course, any technology brought in to facilitate this process needs to deliver. It needs to provide functionality to enable collaboration and workflow, have a user-centric and process-driven approach to forecasting, and be able to integrate a variety of data sources – both internal and external. Finally, such a solution provides analyses and reporting needs that are timely, easy and visually effective.
What is SAP’s latest offering?
SAP Cash Management powered by SAP HANA has been in general release since March 17, 2015. SAP Cash Management powered by SAP HANA provides financial departments with real-time visibility into an organisation’s cash position. The SAP Fiori Launchpad provides easy, immediate access to the information that matters most.
SAP describes the solution as: “SAP Cash Management powered by SAP HANA integrates data from SAP and non-SAP systems into one single source of truth. It provides real-time, drill-down analysis into global bank balances and cash positions, facilitates dynamic liquidity forecasting including cash flow analysis, and enables treasurers to take immediate action with integrated bank account management. Or, in one simple sentence – the solution can help cash managers tackle challenges in the near, mid, and long term with one single system."
Thoughts and considerations
For me, re-thinking and improving the effectiveness of your cash forecasting starts with defining the purpose and objectives you would like to achieve. Making these explicit will create an enterprise-wide purpose to the forecasting process. I do not think there is a 'one-size fits all' best practice here – you will need to make key decisions to facilitate the organisational levels involved (i.e. how centralised do you want to run the process?), forecasting data availability and granularity, and finding the right balance between timeliness and accuracy.
Once you have agreed the forecasting requirements around horizon, frequency, granularity, data availability and key analysis reports, the next step is to look at your existing financial systems and assess to what extent you are experiencing technology-related 'blockers' to effectively manage and forecast cash.
SAP’s Cash Management powered by SAP HANA solution is certainly powerful since it provides a single platform which combines multiple sources, has a user-friendly Fiori front-end interface and offers a process-driven solution allowing coordination and collaboration across the business. However, similar to my thoughts on process design, when it comes to technology the 'one-size fits all' message does not apply.
Depending on your existing IT landscape and future roadmap, there are a variety of SAP tools available that can help improve your cash forecasting effectiveness and consequently drive shareholder value. When paired with an effective process, I strongly believe technology can empower treasury teams in fulfilling their roles as strategic business partners and trusted advisors to the business.
Faster than a speeding bullet,
More powerful than a locomotive,
Able to leap tall buildings in a single bound,
It's a bird!
It's a plane!