Deciphering the Alternatives to Spreadsheets
Reliance on spreadsheets almost inevitably leaves a corporation vulnerable to the problems of high costs and high levels of risk, particularly operating risk. Spreadsheets can appear to be a cost effective solution as the initial cash outlay to develop and use them is relatively low. But, the price a corporation ultimately pays for failing to fully automate processes is high:
All these factors add up to a very expensive method to manage treasury operations. Even more significant than the avoidable high costs are the risks associated with reliance on spreadsheets. Multiple data entries almost without exception lead to a high number of errors as well as heighten the potential of fraud. The absence of robust audit procedures means that errors or fraudulent activity are either missed entirely or not spotted early in the process. Moreover, the growth in regulatory and market demands on corporates to be in control and accountable for data they produce is predicated to continue expanding.
Many treasurers believe that spreadsheets are the least expensive option in the marketplace. Spreadsheets are also familiar and some treasurers do not know other choices exist. Others that are knowledgeable of alternative solutions are sceptical because of the high up-front costs associated with software, integration, and ongoing operating expenses.
The inherent problems of using spreadsheets to manage treasury operations can be eliminated by replacing spreadsheets with a fully integrated treasury management system (TMS). Treasury management systems were first introduced by the major cash management banks in the mid-1980s soon after personal computers appeared in business offices. By the 1990s third-party vendors became the dominant source of treasury workstations.
Following the determination of information, transacting, forecasting and integration with other systems, the next step is to consider the three primary delivery choices:
There is no single, universal answer to this question. There are however, strengths/benefits of each alternative which are discussed below.
In-house development provides the treasury office with the opportunity to specify the exact requirements needed for cash management activities. A properly developed in-house application can meet all of the user’s needs. But, the in-house model faces many challenges, which include costs associated with development, implementation, systems, application upgrades, etc. An in-house developed workstation usually requires a dedicated staff of developers plus systems resources to develop, host, and upgrade the application as needed.
The purchase of software most often results in a shorter implementation time than one developed in-house. Treasury management software can usually be modified based on the organisation’s business and technical requirements. Enhancements to the application can include customisation of special reports, modules, functionality, etc. Infrastructure costs, however, both hardware and software can be very expensive and difficult to implement. The compatibility of all elements involved in the end-to-end process must also be considered.
With an ASP-based treasury management system a company utilises an externally developed and hosted application. The ASP provider owns the application and is responsible for all its upgrades and maintenance, infrastructure costs are completely eliminated. Under the ASP model the benefits of a TMS can be delivered at a significantly lower cost than either a software or in-house alternative. A modular service, it enables clients to select the specific applications they need and use them on a pay as you go basis.
ASP systems are designed to be delivered over the Internet enabling users to access their workstation anywhere in the world, with the simplicity of using a browser. ASP delivered TMSs, however, offer less customisation than enterprise or in-house solutions.
The use and availability of ASP services has been growing steadily over recent years as vendors have improved features and functionality – including automation of controls to meet Sarbanes-Oxley and other compliance regulations.
A treasury solution designed from the ground up for web distribution offers a volume-based business model with less implementation time. Enterprises of all sizes can implement the same solution as a Fortune 500 company, tailored to fit their individual needs – paying for only what they use. In addition, the substantial costs in building and investing in a secure and redundant infrastructure are solely borne by the ASP eliminating up front plus future capital expenditures.
With an ASP provider the application resides solely within their data centre (and back up site) and it is their responsibility to ensure it runs smoothly 24/7. Application upgrades do not require any modifications to the customer’s site. The ASP service provider is responsible for the rollout, testing, and distribution of all releases. With software-based application upgrades, the client has more control over timing, but the cost and in-house functional testing is borne by the client.
Running treasury operations that rely on spreadsheets as their platform is often fraught with problems. TMSs are designed to create a safe, secure yet flexible environment for treasury operations. If your treasury operations require a more personalised system than those offered as a web service, your needs would probably be best met by purchasing software from a third party vendor or developing a system internally. For most organisations that seek the benefits of a treasury management system, an ASP-delivered solution offers full functionality at a significantly lower cost.
The key consideration is to make sure you understand the problems you are looking to solve. Once the best solution is found the next step is to fully analyse the supplier’s ability to deliver technical competence and a secure, compliant infrastructure.