To ERP or not to ERP? Optimising Treasury IT infrastructure
By taking advantage of technology enhancements, software vendor consolidation and changes in the financial industry, treasurers have plenty opportunities to improve their treasury operations by upgrading their treasury IT infrastructure and utilising new tools. Many of these opportunities are related to connecting separate specialised systems together through interfaces and to using inter- or intranet solutions in order to reach Straight Through Processing (STP) to a certain extend.
In an ideal world the full treasury process, ranging from exposure identification and deal capture to payment, accounting and reporting, is supported or even facilitated by integrated systems. Too often procedures and processes are customised to the systems rather than the other way around. The challenge for the treasury organisation is to implement an IT infrastructure that holds the right balance between required functionalities, flexibility, security, efficiency and costs. Using an ERP system, including the treasury related modules, or using specialised treasury systems seems to be an important choice in this respect.
These days there is a sense of a maturing treasury software market. The differences between the functionalities of the various systems are now becoming less obvious; the systems that are prevalent in selection procedures can meet most of the requirements of corporate treasurers. Features like the compatibility with other systems, the flexibility with respect to internal and external changes, the quality of the supplier and the support organisation and the applied novelties, are increasingly determining selection procedure outcomes.
Designing, selecting and implementing the right IT infrastructure starts with understanding the existing treasury organisation and its tasks and goals. The ultimate goal of the IT infrastructure is to make the treasury processes more efficient and effective. An infrastructure that facilitates STP can support these goals the most.
Nowadays various software solutions create possibilities for STP for treasury processes by offering electronic trading platforms, payment & settlement-, reconciliation-, confirmation matching- and general ledger systems that can be linked to each other. It is possible to deal via single- or multi-bank trading platforms, match deals with confirmations (both internal and external), use CRM and general ledger information for risk management and forecasting purposes. All fully automated and in real time. If managed well, a substantial part of the treasury operations can be executed hardly without any personal interference of staff. At the same time, operating risks can be reduced and the activities and results can be made more transparent.
Many corporate treasury departments use specific treasury software, i.e. not a module of an ERP system, to support the treasury operations. Sometimes more than one treasury system is used to cover the specific needs in for instance cash flow forecasting, advanced risk management or deal capture of complex derivative products or structures. The use of the treasury and/or payment modules of an ERP system, sometime extended by specialized treasury-software, has become increasingly popular. In general, by selecting the best suited software from the best providers on the different areas within the treasury process – amongst which deal capturing, paying, accounting and reporting – a company has the ability to determine the IT infrastructure that best fits its functional needs. The question is whether this results in an optimal situation ‘locally’, but a suboptimal situation for the company as a whole? Data has to be transferred from one system to one or more others, either automatically by an interface or manually. This creates new and/or higher costs and potential operational risks. Can ERP systems result in a better infrastructure seen from the corporate perspective?
The choice for either an ERP module or specialised treasury systems depends on a number of factors.
In both cases, the safeguarding of data integrity will be of utmost importance. The use of specialised treasury software triggers the need for interfaces, with leads to an increased overhead on security and an increase in operational risk. To a lesser extent there is also the need for interfaces between modules of an ERP systems, and these too have related costs and risks.
The issue of matching functional requirements has already been mentioned. A few years ago, ERP treasury module clearly showed their accounting background. Today, a lot of improvement has been realised, putting some of the ERP systems at equal level with specialised systems. As a result, ERP vendors have acquired a market share within the ‘plain vanilla’ treasury software solutions. However, given their broad scope and relatively limited R&D activities for the development of the treasury related modules, part of the market will probably remain serviced by specialised treasury software vendors from a functional perspective. Perhaps the ongoing consolidation here might change this.
Selecting the module from the ERP system in place seems to be a favorite policy guideline of the IT department; all systems, or modules in this case, based on one platform, in one language, using the same standards. Although this sounds fair, the practical relevance is often outdated. Specialised treasury systems are based on the same standards as well, and solutions for specific interface problems are already available.
Price is for most corporates another important issue. In general it can be stated that the ‘out of pocket’ expenses for implementing and maintaining and ERP infrastructure are higher than an infrastructure with stand alone systems linked by interfaces. This is mainly caused by the complexity of the ERP systems. It depends on the expected economic lifetime of the system, the stability of the organisation (i.e. the need for expensive interim adjustments) and the value allocated to the reduction in certain types of risks, whether the bottom line conclusion is still that the ERP solution is more expensive. Often, emotional rather than rational arguments are effecting the selection process.
Today, treasury software vendors are providing more technical and functional opportunities than ever to meet corporate treasury needs. Whether standalone or integrated, web-based or not, outsourced or for own use, these software tools allow companies to choose the best fit for their treasury operations.
Focus shifts from individual functional requirements for the treasury front office, to an integrated process approach aiming for STP. The selection of an integrated ERP system or a structure of interlinked specialised systems depends on issues like security, functionality, flexibility, risk management and costs.
Former dogmas like the lack of functionality of ERP systems on the one hand, and the ease of working within one integrated ERP platform on the other, seem to disappear over time. The individual, actual and expected future circumstances of a corporate with respect to the organisational structure, the treasury activities and ambitions, the systems currently used, the financial position and the risk policy will push the corporate in either direction.
‘To ERP or not to ERP’, does remain a question, and in the long run might still be a rational versus emotional decision.