Does a treasury management system always fit the bill?

Cash forecasting is a vital, core functionality for treasury operations. In the 21st century, should treasurers use Excel, business intelligence (BI) tools or a treasury management system (TMS) in carrying out this vital task?

According to Greg Person, vice president, global presales and strategic value for tech vendor Kyriba, it’s no contest. “The modern TMS has evolved to encapsulate treasury’s needs in a superior, secure and compliant framework,” he asserts. However, Steven Peterson, senior manager of treasury at the US restaurant chain Chick-fil-A is unconvinced. “The treasury management systems that I’ve seen just don’t provide enough forecasting functionality to justify their cost,” he counters.

Their conflicting views formed part of a recent case study published by treasury consultants Strategic Treasurer. The firm’s recent survey of US corporate treasurers found that for 79% of respondents, forecasting functionality was regularly used, or needed, as part of their ongoing operations. Yet out of those using a TMS, 14% were ‘dissatisfied’ or ‘very dissatisfied’ with the forecasting functionality it offered.

A further 26% of firms said they had stopped using the forecasting module of their TMS as it was either not working properly or ineffective. In the same survey, 31% of practitioners said their organisation used only Excel for managing treasury-related tasks, including forecasting.

Growing pains

As Strategic Treasurer notes, in a company’s early days keeping track of its finances typically requires only a few Excel worksheets, with only a small number of transactions and a handful of accounts that require managing. As the company grows, so new banks and bank accounts are added. Growth means more transactions conducted across more business units and locations and with more clients. Eventually, the company must decide how to go about updating its technology infrastructure to meet its evolving needs.

For treasury, the answer to this question typically involves moving from their primarily Excel-based processes to a solution such as a TMS. This presents no small task for companies that have come to rely on Excel for most of their treasury operations. What’s more, many treasurers are sceptical of TMSs or reluctant to start using them – particularly for processes such as forecasting. This may persuade the company to consider alternative approaches or solutions to fill their technology void.

Chick-fil-A’s forecasting conundrum

Such a dilemma was faced by the Chick-fil-A chain, which wanted to upgrade its Excel-based forecasting operations. Its senior manager of treasury, Steven Peterson, was content to handle the bulk of forecasting operations through Excel, with forecasts regularly refined as fresh sales data was received.

Peterson’s team achieved, on average, less than 10% variability overall between forecast-to-actual, but as annual sales climbed above US$7bn and the chain grew to more than 2,000 outlets, this 10% variability on forecasts was no longer good enough and Peterson sought to reduce the figure to a maximum 5%. The reporting tools available through Excel had also outlived their usefulness. What was required instead was a tool able to easily incorporate a wide range of data points into more accurate forecasts, while also generating automated reports from the data for informative visualisation and effective analysis.

The apparent answer was a TMS with enhanced forecasting capabilities, yet Peterson wasn’t convinced by the products he saw that he’d get greatly improved forecasting ability in return for what would be a major investment. Instead, his treasury department is considering adopting two software solutions being used by other divisions of Chick-fil-A: Alteryx, a self-service data analytics platform and Tableau, a business intelligence (BI) software provider with a focus on visual data.

Peterson is confident that further integrating treasury operations with Alteryx and Tableau to include forecasting is a double winner; not only will cost less than adopting a TMS, but will provide a greater level of benefit for the company.

Kyriba’s response

Not surprisingly, Peterson’s view isn’t shared by Kyriba’s Person although he acknowledges that the “unique level of individualised flexibility” offered by Excel still makes it attractive to many treasury departments.

However, offsetting this is that often the result is complex models that may sacrifice accuracy and workflow efficiency – a particular issue when multinationals share data across email. “The flexibility of Excel is often its Achilles heel, because the inputs and processes can become muddled from user to user and are highly error prone,” says Person.

The challenge is magnified when treasury attempts to manage complex cash flow forecasting programmes within Excel on a global basis. Add to this the problem of variance analysis and measurement of the forecast. Treasurers can spend excessive amounts of time “trying to uncover the reasons for forecast error, scouring through bank statements and accounting entries to determine timing and classification of receipts and disbursements – an exercise that is extremely challenging within a spreadsheet model.”

Person suggests that the superior value that a TMS offers stems partly from the fact that cash flow forecasting is an iterative process, in which inputs are received, trends discovered and assumptions made.

“One certainty with cash flow forecasting is that there will be variances,” he notes. “Based on month-to-month actuals, or updates to cash flow timings, the initial cash flow forecast will evolve into a new version.

“This is where the TMS provides unique value compared to Excel or other reporting and data visualisation tools, given that the bank statement activity is seamlessly integrated within the TMS.”

Added to this, a well deployed TMS will achieve 90%-plus cash visibility on a daily basis while integrating cash flow forecast data from enterprise resource planning (ERP) systems, financial planning and analysis (FP&A) systems, or internal data warehouses with a TMS is dramatically simplified – and often automated.

A further benefit offered by a comprehensive TMS is that it can also house all capital market activity so that investment, debt and currency derivative flows – both principal and interest payments – are automatically included in the forecast. Modern TMS solutions include forecast predictive analytics to leverage historical actual and existing budget plans to produce intelligent, data-driven cash flow forecast versions.

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