WHAT IS A TREASURY MANAGEMENT SYSTEM?

DEFINITION:

A “Treasury Management System”  (also known as a Treasury Workstation) is a term for a treasury-oriented system or software package that specializes in the automation of manually-intensive, repetitive steps needed to manage a company’s cash flows.  The system allows a company to efficiently and effectively communicate with financial institutions in order to manage cash, transactions, forecasts, FX, and even investments and debt.   The Treasury Management System can seamlessly interface with a company’s general ledger offering an instant financial dashboard.  The financial crisis has heightened the need for better transparency into a company's cash positions as the traditional lines of credit have become increasingly scarce.  Through the proper selection and implementation of a Treasury Management System corporate treasurers can efficiently respond to the financial needs of the company. 

WHY UTILIZE A TREASURY MANAGEMENT SYSTEM?

WHY A TREASURY MANAGEMENT SYSTEM:

Over the past two years our global economy has experienced a meltdown.  The financial markets are fraught with uncertainty and caution.  We have witnessed several large financial institutions collapse, experienced the scarcity of tightened credit, stressed over increase of liquidity risk, lost sleep over tanked investments, and were burned by the exposures to fluctuating currencies.  All this sheds light on the need for better controls, quicker access to information, and better transparency.  As this transformation has taken place the corporate needs continue to emerge.  They need real-time access to information, system integration, and consolidated global reporting capabilities with the ability to create on demand reports for senior management.  Excel spreadsheets have their place but are manual and risk prone.  Companies must open their eyes to the need for treasury solutions.  In short, to remain competitive companies need to ensure optimal use of treasury technology such as a Treasury Management System.          

SELECTING A TREASURY MANAGEMENT SYSTEM

SELECTION PROCESS:    

With a large variety of Treasury Management Systems and vendors available today (over 40), the selection process can be a daunting challenge for a treasurer to navigate.  To further complicate matters the market is maturing, meaning the available systems currently meet the functional needs of most companies.  So a treasurer must look into the future and select a vendor whose Treasury Management System will be flexible enough to evolve with the rapidly developing technologies that surface. 

As you can imagine there is corporate (and personal) risk involved in selecting a Treasury Management System.   This risk is derived from cost and time.  The cost can be from $20,000 to $250,000+ plus while the resources and time spent on selection and implementation can range from 5 month to 1 year. 

Whether you are selecting a bank-offered system, in-house installed application, the treasury module of an ERP, or an Application Service Provider (ASP) system you can see the importance of utilizing a structured and disciplined selection process that ensures all requirements are met. 

My approach is quite simple and intuitive but it helps to have a website where you can come back and review the steps again and again.   Here we go….

STEP 1 - BUILD THE TREASURY MANAGEMENT SYSTEM SELECTION TEAM

Step 1 – Build the Treasury Management System Team

First and foremost - ensure that you have executive support.  The CFO or Treasurer must understand and believe the need for the new system is critical.  They need to understand the complexities of the project and the critical nature of its success. Once on board, you can lean on him or her for support and resources.  What you do not want, is to be in the process of selecting or implementing and at the same time explaining to the executives what you are doing.   Get support before you move on.  The lack thereof can be career-ending.   

This is a large undertaking at best.  It is critical that you get a solid project manager on board right from the beginning.  The best project managers are those that bring a combined skill set of project management methodologies and treasury knowledge. As IT, Treasury, Accounting and other departments will be stakeholders you will need someone to manage the players to ensure timelines, approvals, and issue resolutions are met. 

You will also need a proficient IT person who has an understanding of treasury concepts and a good grasp of technological advances.  This will be a lengthy project, so secure someone who is solid. 

Lastly, ensure that there is representation from each of the stakeholders.  This would involve Treasury, IT, Accounting, Investor Reporting, etc.  Make sure every and any department that will be touched by this project is represented.  This involvement assures that the selection and implementation process will be clear, approved, and disciplined.

STEP 2 - DEFINE THE TREASURY MANAGEMENT SYSTEM PROJECT

Step 2 – Define the Treasury Management System Project

From the beginning, the project should be clearly defined. At a minimum a proper project definition should include:

1-     A task list - which includes forecasting start and completion times and dates.

2-     A list of resources - details what is needed for the completion of these tasks.

3-     A list of dependencies among the tasks.

4-     Project milestones - allowing the tasks to be assessed and the progress be noted.

The milestones should be realistic so that the defined project can be strictly adhered to.  A clearly defined project that is communicated from the onset will ensure that the stakeholders are clear as to what their responsibilities will be and time frames associated with those responsibilities. 

STEP 3 - DEFINE THE PROJECT REQUIREMENTS

Step 3 – Define the Project Requirements  (Build Your Wish List!)

Correctly defining the Project Requirements is critical to the project's success.  This can take anywhere from a week to a few months to complete depending on the complexities involved.  It is important to draw up the requirements before any vendor presentations are given.  This way you will stick to defining the core features needed by your company and not get caught up in the bells and whistles of the vendor presentations.  Also, through defining your requirements in this manner, you may find that all you need is an additional module or change in process rather than a new Treasury Management System. This process will also help you highlight the weaknesses in the existing system in relation to the required core functionality.  Properly documented requirements facilitate the creation of a benchmark by which a comparison to proposed solutions may be evaluated.  This document must describe in sufficient detail the treasury features and the environment in which it will operate.  There are many ways to obtain the requirements but I suggest the following steps:

1-     Capture What You Know.  This step must be provided by the users of the system.  Review your current system and detail each feature you use.  Define the weaknesses if any.  Note the functionality and features you want to retain from your old system as well as the required improvements from the new system.  Add this to your list.

2-     Automation.  Analyze the treasury processes.  Break them down into step-by-step tasks to identify where a new system could improve efficiency through automation.  Add this to your list of requirements.

3-     Dependencies and Integrations.  In detail, list out how your old system integrates with other systems, i.e., banking, general ledger, reporting and market data.  What dependencies do you have and what is the timing of those dependencies?  Are there other departments that utilize your old system for balances or transaction information?  Does investor reporting utilize the BAI download for transaction information that you were not aware of?  Add this to your list of requirements.

4-     What Is The Plan.  Understand your company’s strategic plan.  The selection of your Treasury Management System must be in harmony with the plans of the company.  Is your company going from a decentralized to a centralized treasury group next year?  Is there significant growth planned for the future?  Is your company diversifying into other product categories?  This will help you in the selection process as to whether you need a moduler (scalable, flexible, deployable) solution or a canned solution (one that will not change over time). 

5-     Your Wish List.  List all the treasury features you would have in a perfect world.  In addition to balance reporting, cash positioning, and payment processing this may include:

a.       Real-time information consolidation

b.      Elimination of multiple banking cash management systems

c.       Fraud detection

d.      Bank Fee Analysis

e.       Market updates

f.        System interface with A/R, G/L, A/P

g.       Intracompany

h.       FAS 133 compliance

i.        Timely and accurate exposure identification and reporting

j.        SOX Compliance

k.    Forecasting

l.    Remote Access

By correctly defining the project requirements you will be able to quickly appraise the value of the future vendor presentations.  If nothing else, you have defined the core features that are required by your treasury group, created a wish list, eliminated any inefficiencies, and understood the true need (or lack thereof) for a Treasury Management System. 

STEP 4 - DEFINE THE REQUEST FOR PROPOSAL

Step 4 – Define the Request for Proposal (RFP)

Once the project requirements are defined the RFP can easily be created. There are critical questions related to security, vendor strategy, clientele, financial strength, and vendor history that need to be addressed. The RFP should be thorough and all encompassing but the responses should be limited to simple YES/NO or a short description. This will make the evaluation of the responses much easier and more consistent. The RFP will be sent to the selected “short list” of vendors with specific instructions on how to complete and return it.

STEP 5 - IDENTIFY TREASURY MANAGEMENT SYSTEM VENDORS

Step 5- Identify Treasury Management System Vendors

At last count there were over 40 Treasury Management System vendors.  The vendor choice is critical as they will be a crucial business partner going forward. The choice of vendors is as important as the choice of Treasury Management System. Questions like corporate strategy, office locations, plans to expand, market preference, and system architecture are important.  One of the most critical questions to ascertain is the financial stability of the vendor.  What happens if the vendor merges or goes bankrupt?  Will there be support for your new system?  Below are some key factors to look for in identifying a vendor:

           

1-     System Features – Obviously the vendor must provide you with the features you require.  You  will find that there is a wide variety of functionality offered.  Here is where you must look into the future.  You must select a vendor who can meet your needs now as well as anticipate your future functional requirements. 

2-     Years in Service - The number of years in production is generally a good indicator of how well the system is performing and how stable it is.  You do not want to be the beta tester.  

3-     Number of Clients – In addition to a long history, a large client base is generally an indication that the vendor has matured past all the growing pains that come with a new product or service.

4-     SAS 70 – SAS 70 is an internationally recognized auditing standard developed by the American Institute of Certified Public Accountants on service organizations.  This standard represents that a service organization has been through an in-depth audit of its control activities, which generally include controls over information technology and related processes.  Without this recognition you should be wary of the vendor and dig deeper.

5-     Hosting Center – It is critical to understand the availability, security, and location of the hosting center.  Is the vendor's Hosting Center outside its local office’s computer room?  This may be cheaper but also negates the vendor's capacity to obtain the SAS 70 compliance recognition.  Does the Hosting Center have power backup, automatic fail over?  Is it highly controlled?  Is there a disaster recovery plan?  These are questions that need to be understood before a selection is made.

6-     Service Level Agreements – When reviewing a vendor you must understand system up time, data security, issue resolution procedures, the frequency of upgrades, and the hour that support is offered.  It is important to remember that your SOX compliance could be jeopardized by the vendor’s low level of service.

7-     Technical Support – The vendor must provide enough people to ensure all functional and technical needs are managed.  This is even more critical should you choose an ASP (application service provider) as you are dependent on the vendor.

8-     Pricing – Vendors offer a range of pricing and services.  Typically there is a combination of system maintenance fees, monthly maintenance fees, per user fees, flat fees, licensing fees and/or contractual pricing.  Make sure to understand what is best for your company.  Negotiate everything.

STEP 6 - SELECTING POTENTIAL VENDORS AND SENDING OUT RFPs

Step- 6 List Potential Treasury Management System Vendors and Send Out RFP

The RFP is now sent to viable Treasury Management System vendors with specific instructions on how to respond to and return the RFP i.e., date, time, electronic vs. mail.  It should be clear to the vendor that any RFP that is not received by the specified date and time will not be accepted for review.  Include any information that would provide the vendor with insight into the specific needs or operating constrains of your facility. 

STEP 7 - USE A SCORECARD TO EVALUATE YOUR RFP

Step- 7 Evaluate the RFP

When evaluating the responses it is wise to use a scoring system.  The scoring system will allow you to quickly determine which vendors to pursue further.  Below is an example of a scoring system:

Treasury Management System  SCORECARD
	VENDORS
PLATFORM	POINTS	A	B	C	D
ASP (internet based)	3
PC Based (hardware)	0
Secured Remote Access	3
Direct Connectivity with Banks	3
Elimination of Banking Software	3
Interface: Internal Sources
A/R (automated cash application)	3
A/P (reconciliation)	3
G/L (automated journal entries)	3
Interface: External Sources   (Market updates)
Investment Providers	3
Foreign Exchange Trading Platforms	3
File Format
EDI (Electronic Data Interchange)	2
BAI	2
PLATFORM SCORE:	34
INFORMATION REPORTING	POINTS	A	B	C	D
Transactional Reporting	3
Consolidated	3
Real Time Feed	3
Balance Reporting	3
Forecasting	2
Cash Reporting	3
Fraud Detection	1
Variance Analyses (forecast to actual)	1
Bank Fee Management & Analysis	3
Market Updates (real-time data feed)	1
Historical Data Retention
< 1 year	0
>1 year < 5 years	1
> 5 years < 10 years	2
Unlimited	3
REPORTING SCORE:	29
OPERATIONAL	POINTS	A	B	C	D
Foreign Exchange	3
Investment Activity	2
Intercompany Management	1
Positive Pay	3
Payment Transactions
ACH	3
WIRES	3
CHECKS	2
OPERATIONAL SCORE:	17
ADMINISTRATIVE	POINTS	A	B	C	D
Bank Account Openings	1
Documentation Archive	1
FAS 133 Compliant	2
Customer Service (24 Hours)	2
ADMINISTRATIVE SCORE:	6
SECURITY	POINTS	A	B	C	D
SAS 70	3
Secure Hosting Center	3
Data Encryption	3
SOX Compliant	3
Disaster Recover Policy	3
SECURITY SCORE:	15
OTHER	POINTS	A	B	C	D
Net Capital Models	1
Consultancy Provided	2
Bank Relationship/Knowledge	2
Service Level Agreements	3
Allow Reference Checks	2
OTHER SCORE:	10
PRICING	POINTS	A	B	C	D
Free Trial	3
System Maintenance Fee	-3
Monthly Account Maintenance Fee	0
Per User Fee	1
Flat Fee	1
Licensing Fee	-3
Contractual (< 3 years)	3
PRICING SCORE:	2
TOTAL SCORE:
	100