Corporate treasury: do spreadsheets still have a role?

Despite regular predictions of its imminent demise, corporate treasurers around the world continue to make extensive use of Excel in their daily operations. Their usage pattern varies from ad hoc reporting and data manipulations to providing primary supporting technology for some or all core treasury functions.

This issue is regularly surveyed by treasury associations such as the European Association of Corporate Treasurers (EACT), the UK’s Association of Corporate Treasurers (ACT) and the US Association for Financial Professionals (AFP) and results consistently show high levels of spreadsheet usage and surprisingly high levels of dependency. The various results are naturally dependent on the size and sophistication of the sampled treasuries, but they do tell a story about how corporate treasuries are operated. Globally, it is found that spreadsheet solutions still pervade the industry -despite the significant levels of operational and financial risk exposure that are incurred by primary spreadsheet dependency.

The issues resulting from excessive spreadsheet usage are given in How to Get Business Users to Switch from Spreadsheets; an analysis by Ventana Research’s Rob Kugel, who succinctly observes that ‘(Spreadsheets) were not built for collaborative, repetitive enterprise-wide tasks, and this is the root cause of most of the issues that organizations encounter when they use them in such business processes.’ The remedy requires software project managers to design apps and systems which closely replicate the flexible, intuitive and user-friendly features so liked by spreadsheet users.

The risk factors associated with spreadsheet use are summarised in the 2013 article The Perils of Excel,’ https://www.gtnews.com/articles/the-perils-of-excel/ which includes a hair-raising example of a spreadsheet failure impacting an analysis used globally to monitor and adjust governments’ debt management policy. The factors responsible are equally applicable today, which will lead many observers to question why so many corporate treasuries continue to depend on solutions that demonstrably fall well short of best practice. Outright dependency tends to be more concentrated among smaller organisations; but many treasury processes such as cash flow forecasting are frequently supported by spreadsheets, even in large enterprises.

Why should this be so? This article offers an introductory analysis and proposes some solution approaches which take advantage of today’s cost-effective financial technology.

The lure of the spreadsheet

In today’s technically literate world, the use of spreadsheets is universal in treasury. Familiarity has bred acceptance, rather than contempt. Many treasuries have been happy to see spreadsheet solutions grow organically as the department has evolved; while users are comfortable with the high levels of familiarity and flexibility they experience to resist calls for change from auditors and technologists.

The risk of the spreadsheet

It is often only when something breaks that the reality of the underlying risk painfully emerges. Spreadsheet solutions are often not underpinned by the testing and control that is rigorously applied to finance systems such as enterprise resource planning systems (ERPs) and treasury management systems (TMSs).

Spreadsheet solutions tend to fail when confronted with high data volumes, or when formula logic routes into untested pathways. They are also likely to be undocumented, so when their original authors relocate the treasury is effectively flying its primary support system blind. Error repair may be difficult, time-consuming and costly. The effect can be dangerous in key areas such as bank account management, cash positioning, market risk management and hedge transaction administration – and can result in actual financial loss through, for example, the late or inaccurate release of payments, or making wrong market decisions based on incorrect exposure analysis.

Replacement system selection – a matter of scale, scope, and budget

Despite these flaws, the author does not recommend abandoning a spreadsheet solution just yet; they do still have several advantages, such as low volume and low value secondary activities. Each operation should review its level of spreadsheet usage versus a conservative estimate of the underlying operational and financial risks to which it is consequently exposed. Where the risks are significant regarding the organisation’s overall profits, investments, and revenues, spreadsheet replacement is recommended. However, the replacement of spreadsheets for ad hoc actions is not advocated, as that is where spreadsheet solutions can be helpful.

There are strong grounds for viewing the cost of spreadsheet replacement as the payment of an insurance premium, which effectively eliminates some key risks. The cost/benefit analysis should reflect the risk reduction achieved using contemporary treasury technology and also the functionality, transparency, process improvement and integration benefits that will be realised through an ERP or specialist TMS solution – an added bonus beyond risk mitigation.

Today’s solutions are designed, developed, tested, implemented and supported by expert professional teams, involving very substantial structured work efforts. Accordingly, they are highly robust and dependable, while dedicated resources are available to resolve questions and problems – in stark contrast to the loose situation surrounding spreadsheets. The substantial user communities of established ERP and TMSs provide a continual proving ground for the software and are a most valuable source of process improvement and functionality enhancement ideas.

ERP solutions bring the significant operational benefit of full integration since everything is managed in one system. The risk and error-prone operations of importing and exporting data are eliminated, together with the process management overheads. Admittedly, ERPs are not universally popular with treasurers, who can see them as accounting-oriented tools that may not offer some of the forward-looking risk management facilities useful to treasuries.

The best practice approach for those who favor mission-specific TMS technology involves solutions that support high levels of integration. Such solutions minimise operational risk and provide the treasurer with powerful functionality to control and manage treasury operations, working in integrated harmony with the ERP system in support of forecasting and accounting functions.

Conclusion

As pointed out by Rob Kugel, users need flexible, friendly and familiar solutions to be happily weaned away from the risky familiarity of spreadsheets. ERP and TMS vendors are rising to the challenge, offering treasurers highly usable and demonstrably cost-effective and functionally rich alternatives, which provide new levels of treasury efficiency, security, control and quality – and which can, at last, eliminate a dangerous level of risk.

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