FinTechSystemsTechnology is Just a Tool

Technology is Just a Tool

Treasury and risk management software vendors offer many types of tools and solutions, some of which are better suited to a particular organisational setting than others. These tools are often designed to capture, measure and monitor risk associated with financial transactions across an organisation with the view to aiding management in better managing its risks.

Identifying, evaluating and selecting the right tools for such a role is often a complicated process, and if this change process is not approached with a methodology that takes a whole-of-firm perspective, this will often result in adopting the wrong technology solution.

The irony of such an outcome is that the technology solution, which was adopted to reduce risk, can actually introduce additional and unexpected risks into the organisation.

The Need for Risk Management Tools

There are many factors that will drive the need to implement new risk management tools in an organisation. For some, this need is driven by external factors, such as an external investor, for example a bank or a new equity shareholder, that has specific governance requirements; by a change in regulation or financial reporting standards, such as the adoption of IFRS; or by an external auditor that has embraced a particular audit methodology and is seeking comfort from management from an assurance perspective.

For many, the need for change in risk management tools is internally driven. For example, the convergence of recent events in the financial markets has uncovered risks that were otherwise unreported and also identified limitations in the spectrum of coverage of current reporting around financial instruments and exposures. Perhaps now there is a heightened diligence on the part of the board to ensure that all risk exposures are well understood and clearly communicated to an increasingly unforgiving share market. Other external drivers include a merging of entities, a change in strategic direction and operations of the business, or, in the worst case, a spreadsheet error or operational risk event that has caused financial loss or reputational damage.

Regardless of the motivation to adopt or change treasury and risk management tools, a proven methodology needs to be adopted. Too often the approach taken by an organisation is to immediately Google ‘treasury technology’ and start talking to vendors, but this is putting the cart before the horse.

Before settling on a technology solution, an organisation needs to know precisely what processes, structures, approvals, and other governance mechanisms will (and won’t) be captured within the ambit of the technology, and have clarity about precisely how and why personnel will interface with the input and outputs defining the solution.

Organisations need to be aware that technology is just a tool and that there are a series of events that need to occur internally prior to engaging with vendors, if they want to have a successful technology implementation experience and avoid exposing the organisation to additional risks.

In many organisations, the responsibility to bring about change across their front, middle and back office environments is delegated to the IT department because the change is presumed to come from a turnkey computer solution. But this assessment is ill founded. Yes, the IT department will play a critical role in bedding in a new IT system, but the IT strategy is only part of the overall solution.

Prior to a solution being prescribed, all areas of change need to be correctly diagnosed. Treasury and risk operations within an organisation can be extremely complex, consisting of hundreds of unique processes touching multiple stakeholders. The decision frameworks regarding execution and timing don’t just require static inputs, rather they require the input of many managers whose ideas must be carefully modelled and thought through with regard to future expectations about market and customer demands versus scarcity of resources – all within the context of emergent corporate strategy. Without first fully understanding the processes and needs of this rich composite environment, interposing any random technology solution over the top will invariably lead to increased complexity, less certainty and greater inefficiency.

A far better approach to successfully implementing change in a treasury environment is to clearly understand the needs of each stakeholder and the processes they work in first, and then choose a technology solution which overlays across all of those requirements.

Understanding the Needs of a Treasury Environment

Once a financial instrument or treasury transaction has been initiated, the corporate treasury function is a process driven function where certain controls and checks and balances should be put in place to reduce operational risk and be able to react swiftly to market risk events.

Understanding the current treasury management environment in terms of a holistic perspective encompassing people, processes and technology is the first step in the process (in change management, this state is often referred to as the ‘as is’ environment). This is an opportunity for all stakeholders involved in the current treasury process to identify all the issues, concerns and risks inherent in the current environment. This could include issues relating to:

  • Inefficiencies and duplication of processes and information.
  • Concerns about the integrity of data.
  • Identification of weaknesses in controls.
  • Inadequacies within current reporting.

A common frustration of many treasury staff when reflecting on the ‘as is’ environment is that they feel they are spending all their time maintaining and updating spreadsheets or databases, and that they have no time to think strategically or perform value-adding or risk-reducing initiatives. Often they feel that the current environment is precluding them from performing the treasury function that they think they should be doing. From this type of feedback, it is obvious that any successful change initiative should ideally address eliminating this negative state of affairs.

Next Step – Blue Sky

Once the ‘as is’ treasury environment is understood and the risks and issues identified, the next step is to come up with the desired future state (often referred to as the ‘to be’ environment). This is an opportunity to think in a ‘blue sky’ way, as if there were no constraints on how the treasury function could ideally operate within the business environment.

This can be achieved by approaching the opportunity with a blank canvas and striving to design a ‘to be’ environment that:

  • Reduces the risks and eliminates the issues inherent within the existing environment.
  • Assists the organisation achieve its treasury strategy in a well understood and risk free manner.
  • Adheres to regulatory and statutory requirements.
  • Eliminates duplication within the transaction lifecycle.
  • Creates straight-through processing (STP) efficiencies.
  • Improves data integrity and transparency.
  • Clearly illustrates roles and responsibilities of all treasury stakeholders.

Invariably, a corporate realises the ‘to be’ environment will involve changes in people, structure, process as well as technology, the building blocks of a successful treasury environment. Technology will not do everything and sometimes people, processes and structures will need to be changed so that it is not only aligned with market practice but will ensure a smoother implementation and transition to any eventual new technology.

All treasury processes need to be aligned in a way that gives the organisation the most transparency and efficiencies across the treasury transaction lifecycle.

Figure 1. Treasury Transaction Lifecycle

Quite often a lot of the inherent problems that exist within corporate treasury functions are process issues that will not be solved by the implementation of new technology and these process changes should be changed independently and prior to any new system being selected and implemented.

Technology

Chances are the future-state process will require the adoption of new technology across the treasury environment to help facilitate the new process. Now is the right time to speak with treasury software vendors because most will now have a better understanding of what is required from a treasury or risk management solution and are in a better position to develop requirements and ask specific questions to vendors that will ultimately help in selecting the best system.

Some important factors to consdier include:

  • Identify appropriate vendors with solutions that have the potential to deliver against all specific requirements.
  • Develop a vendor briefing document which summarises the technology requirements. This as is an efficient way to speed up the selection process, can help eliminate any ‘pretenders’, and aid in developing a short-list of possible vendors who may be invited to participate in a formal proposal request.
  • Hold a series of vendor briefing and demonstration sessions in the corporate’s environment to establish if their proposed system actually has the ability to meet the high-level requirements as detailed in the vendor briefing document.
  • The final phase is to develop a request for proposal (RFP) to give to the short-listed vendors which should include detailed process maps that illustrate the proposed ‘to be’ environment and should be structured in a way to prompt vendors to comment about their systems capacity to deliver against the future state.

The investment of time and resources in building a robust change management methodology will reduce many of the risks and costs around poor system selection and implementation, and ensure that what is delivered is not just a new IT system but rather a reliable and well understood treasury environment that is capable of adding value to the organisation and most importantly being able to react quickly (through transparent and timely information) to market events that have the potential to adversely affect an organisations value and reputation.

People, processes and technology are the critical building blocks of a successful corporate treasury and risk management environment and need to be thought of as one rather than in isolation if an organisation is serious about staying in business and managing its exposures effectively in an ever increasing volatile market environment.

Related Articles

The problem of legacy tech

Corporate Treasury The problem of legacy tech

4w Nash Riggins
UX design for cash management

Cash Management Regional UX design for cash management

1m Shaahin Mohammadi
Kyriba appoints Paul Bramwell as new Chief Client Officer

Systems Kyriba appoints Paul Bramwell as new Chief Client Officer

2m Austin Clark
Trovata.io broadens senior leadership and releases mobile app

Cash & Liquidity Management Trovata.io broadens senior leadership and releases mobile app

2m Jay Ashar
Corporate treasurers’ risk management priorities and hurdles revealed

Cash Forecasting Corporate treasurers’ risk management priorities and hurdles revealed

5m Austin Clark
Solving the bread and butter challenges of treasury – Part Two

Automation Solving the bread and butter challenges of treasury – Part Two

5m Austin Clark
The value of virtual accounts

Cash Management The value of virtual accounts

5m Aaran Fronda
Aligning corporate values for treasury success

10 Minutes With The Treasury Aligning corporate values for treasury success

5m Austin Clark

Whitepapers & Resources

Transaction Banking Survey 2019

Transaction Banking Survey 2019

2m
TIS Sanction Screening Survey Report

Payments TIS Sanction Screening Survey Report

4m
Enhancing your strategic position: Digitalization in Treasury

Payments Enhancing your strategic position: Digitalization in Treasury

6m
Netting: An Immersive Guide to Global Reconciliation

Netting: An Immersive Guide to Global Reconciliation

9m