Best Practice in Business-to-Treasury (B2T): Part 2 - Key Phases of a B2T Project
As a support function, it is uncommon for treasury to have a general development budget and most budgets are applied separately to individual projects. Fortunately, selling a business-to-treasury (B2T) project to management is much easier than other projects because of the indisputable benefits and the fact that it is quick and cost-effective to implement when carried out correctly. The real challenge is that management may not understand treasury operations well enough to be able to understand the need for such a project. And many projects can be rejected because of this very reason – it takes a confident management team to admit that they don’t understand what you’re talking about!
It is vital that treasury highlights concrete, tangible benefits to management when discussing their B2T project plans. An effective way of ‘selling’ the project to management is to divide it into two phases. First, sell the idea of the project and implement a mapping phase. Second, based on the results of the mapping phase, decide whether the project should be carried out or not.
A general change in treasury’s attitude must be included in the project from the very beginning; companies should make sure that treasury personnel adopt a customer-service attitude, which enables them to sell their concept to the whole corporation. Start by considering your business units as internal clients because, just as in sales, success is measured by how much the customers buy. In a B2T project, treasury is selling an operational model and its success is measured by how well the customers, i.e. the business units, adopt it.
A well-known phrase in sales is ‘the customer is always right’. While this might not actually be true, clients should always think they are right! For treasury personnel, this may mean adopting a new attitude – if the representative of the subsidiary can’t understand what treasury is talking about, it’s treasury’s problem, not the subsidiary’s representatives.
Furthermore, subject matter experts in the field are usually the best sales people. You need to have wide expertise in treasury processes in order to simplify them to a level where anyone can understand them. Summarising and simplifying information takes a lot of work but as experts in the field, treasury personnel have the right starting point for the job.
By putting yourself in the shoes of your business units, you can understand why they act in a certain way, and understand why current instructions and communication are failing.
The people responsible for treasury processes in business units usually have very little time available for managing treasury processes because they have so many other responsibilities, such as tasks related to financial administration, salaries and handling of payment transactions. They are also expected to provide a vast number of reports at an ever-increasing pace. The reporting demands of the business and financial administration are usually easy to understand, but this may not always be the case with treasury demands. It may be difficult for business units to understand why treasury should know the business unit’s bank balances and the forecasted cash flows in real-time; it is, after all, the business unit’s money. They may even wonder why all the US dollar exposures should be hedged, when even the local paper says that the dollar is depreciating.
Often, business units don’t have systems for the management of treasury processes at their disposal. The required information is consolidated manually from a number of different sources and the reporting is usually handled by sending spreadsheets as e-mail attachments to treasury. These types of systems don’t help the business units to manage their treasury processes effectively.
Analysing your day-to-day communication with business units requires a lot of self-examination. If terms such as ‘spot’, ‘notional pooling’ and ‘volatility’ are part of day-to-day vocabulary; you risk the chance of miscommunication if these terms are only understood at the treasury level. Avoid the use of jargon and make sure all of your internal customers understand what you’re saying.
The function of the treasury policy is to present the corporation’s treasury strategy in a format that can easily be followed. If the policy is what it should be, any reader should be able to make sense of it. If you ask representatives of a business unit if they understand the treasury policy, the answer will most likely be ‘yes’. This, however, does not necessarily prove that they actually understand it – it can be difficult for people to admit that they don’t understand something they are expected to. It is therefore recommended that you use a party that is not directly involved in the process when testing the treasury policy. It is well worth keeping in mind that the representatives of the business units are not treasury professionals and therefore the test subjects shouldn’t be either.
One good way to test the treasury policy document is to give it to your colleagues in a neighbouring department, such as the communications or the financial administration department, and ask them if they can make sense of it. They probably won’t be as tempted to try and pretend to understand it if they don’t and therefore provide a truthful, reliable answer. If your colleagues cannot understand the document, there’s a high risk that it will remain a mystery to the representatives of your subsidiaries as well – no matter what they say!1
The idea of mapping out the subsidiary’s needs is to get a picture of the know-how, processes and systems used by them. If treasury already has this knowledge, this phase can be skipped, but it is vital for the success of the development project that the mapping, and ensuing requirement specification, is based on facts not assumptions.
One alternative to mapping the project is to meet the representatives of all business units and ask them to engage in an open conversation about the current situation and their possible needs. The challenge in taking this approach is that business units can be located in many different countries, and getting the right information from them can be like pulling teeth! Business units are used to getting rid of people from head office by saying that “everything is just fine;” moreover, this approach also takes a lot of time and money and there’s no telling what the end results will be. This is not to say that meeting representatives of business units is not important, on the contrary, these meetings can be a lot more fruitful when the development project has first been carried out successfully.
The most cost-effective way to map out the needs of subsidiaries is to conduct a simple survey. It does not have to be a long thorough investigation; it can be a simple list of questions, such as:
The results of the survey, combined with the needs of treasury, are a great asset in selling the B2T project to the management, as discussed at the beginning of this article.
Treasury should map out all problems and development needs related to B2T processes from their own point of view. These problems are usually related to the transparency of reporting and therefore to problems in hedge accounting and in adhering to the requirements of efficient corporate governance. Treasury must also have the right tools with which to make accurate forecasts and automate the gathering and consolidation of information from subsidiaries.
The demands of management usually set certain limits regarding the budget and schedule of a project but sometimes management may also have other demands related to the concept itself. Due to the current requirements of good corporate governance, management may well be increasingly interested in monitoring how the corporation’s liquidity changes and what kind of open currency exposures exist at the group level.
Clear and concrete treasury work instructions form the backbone of all B2T processes. The purpose of the work instructions is to present the corporation’s treasury policy and the treasury’s operational model as clear instructions. The work instructions should divide into ‘why do I?’ and ‘how do I?’ sections.
The ‘why do I?’ section outlines why it is important to follow work instructions. In this section, the true meaning of treasury is sold to the organisation as well as explaining the benefits of following the instructions and possible consequences of not doing so. The ‘how do I?’ section explains how treasury policy is to be followed in practice, such as how often cash forecasts should be updated, how this is done, what type of anomalies should be reported, etc.
In order for the work instructions to be really useful, they must be available whenever they are needed. The treasury’s own pages on the corporate intranet are a great way to distribute them because business units will always have an up-to-date version at their disposal.
We all have personal experience or have heard of software projects that have spiraled out of control in terms of budget as well as schedule. Typically, these projects have the common objective of broadly configuring or customising a commercial system to match corporate processes and practices. Corporates need to realise that results must override the implementation project in importance – thus the focus is on implementing best practice across operations as well as on selecting the right tools. Quick results can only be achieved with a solution that is quick to deploy and one that supports best practices with minimum customisation.
The fastest and simplest alternative is to implement a ‘software as a service’ (SaaS) solution, which is usually web based, requires no installation on the corporates’ side, and can therefore be implemented very quickly. This speeds up the project and hence reduces expenses. Pricing can be either be based on a pay-per-month model, which is typical of SaaS solutions, or on a traditional license fee model. The advantage of the pay-per-month model for the buyer is that the decision of buying the product is made over and over again, which means that the solution provider is forced to keep their promises.
If there are multiple potential applications available, it is wise to create a standardised request for proposal (RFP) and deliver it to the solution providers, who are then expected to deliver their proposals within the given time frame. The returned proposals can then be rated according to the needs of the corporation, which will help select the most suitable solution provider.
In a RFP, you should ask about the implementation model – does the application need installations in the treasury or in the business units? How long will it take to implement the application? What kind of pricing model does the application have? What kind of support material is available?
It is also important to know how experienced the solution provider is in B2T projects. A strong position in the treasury management systems market does not automatically guarantee strong expertise in B2T applications because the underlying idea behind these two systems is different. It is also advisable to get customer references and ask current customers what their experiences with the application have been.
You might have a vision of an all-encompassing, integrated and automated treasury solution that will immediately solve all of your treasury management issues and while such a system may be imaginable, it could take years to fully deploy and require fairly frequent maintenance. Committing to the implementation of the perfect vision does not, however, mean that issues will stay unsolved until the project is complete.
A solution provided through a SaaS platform can be the perfect intermediate tool because SaaS-based services are typically fast and simple to deploy and cost is based on usage. As soon as the implementation of the perfect vision is complete, the temporary SaaS solution along with the related costs can be discontinued quickly.
After defining the requirements and preconditions for the B2T project, it should culminate in creating the treasury work instructions and selecting and implementing the B2T application.
Clear and concrete work instructions are the most important deliverable within the project, as the instructions define the treasury concept and enable all people involved in treasury processes to follow the rules correctly. This also makes it possible to include new people within the process quickly.
Ultimately, B2T applications can help to make processes at both the business unit level and treasury level as easy as possible.
Part three of this series will present a comprehensive B2T case study.
1This series of articles only comments on the clarity of the policy and not its content. It is extremely important to check that the policy is up to date and that it includes all aspects of risk management that are required by the corporation. If this is not the case, the policy must first be updated. This is where the expertise of the treasury should be used to the corporation’s full advantage and an external consultant can also be helpful.