Information Technology (IT) cost is of course one of the significant operational overheads that companies are continually seeking to limit or reduce. Equally, corporate treasuries are dependent on IT for obtaining and managing a range of essential information and business functions: for daily bank balance and transaction statement uploads, for executing hedging transactions and payments, for communicating with accounting, for cash forecasting, pooling and netting, for risk management and analysis, and for generating timely and accurate management reporting.
A reliable, efficient and cost effective IT infrastructure ideally supports treasury so well that treasurers can concentrate on their core professional duties without even being consciously aware of IT operations – but all too often, budgetary realities or IT failures intrude, and demand the treasurer’s intervention.
“Today, treasurers see all of this information as time critical, so the technology solution supporting the treasury ecosystem should be fully integrated and operate in real time, to ensure fully effective operations such as timely hedge execution,” comments Paul Bramwell, senior vice president (SVP) of treasury solutions at SunGard AvantGard.
In this article, I will focus on a couple of relatively new technical approaches that are designed to reduce IT costs and risks, and I will examine their practical application in the context of corporate treasury. The topics covered are the optimisation of existing technology resources, and the diametrically alternative IT efficiency solution of outsourcing technology to a third party hosting organisation, often delivered in the form of Software-as-a-Service (SaaS). I will take the treasurer’s rather than the technologist’s perspective, suggesting how the alternatives can be compared and evaluated.
The issues discussed here may not reflect a treasurer’s primary expertise or responsibility, but they do reflect two fundamentally different approaches to technology deployment. Some up-to-date knowledge of these issues will help treasurers understand critical IT decisions that will directly affect them, and will help them contribute effectively to the evaluation and decision-taking processes in this area.
It is clearly good practice to make the most efficient use of a corporation’s existing technology resources. Most users of technology (namely, virtually everybody) will be instinctively aware that they are not really taking full advantage of their personal technology’s capacity, for example the unused space on today’s multi-gigabyte hard disks, the full transmission capabilities of broadband, and the advanced facilities of Word, Excel and other Microsoft Office tools. A similar situation has been found to exist in many businesses’ IT environments, and it is the unused local drive disk space and communications facilities that are exploited in a technology management solution called Storage Area Optimisation (SAN) that I believe could be especially helpful to treasurers. This is a well-known technology but it hasn’t always been applied in the treasury.
Storage Area Optimisation has been successfully applied in the banking environment, and in some large corporations, for some time. SAN offerings by specialist organisations such as Adaptiva and E1 demonstrate that SAN is a robust and effective methodology for achieving substantial IT efficiency-related cost savings, and opportunity cost gains via the elimination of down time. In outline, SAN eliminates server infrastructure by utilising unused technology capacity right across the enterprise. It is sometimes referred to as grid computing and large corporates often use virtualisation technology from VMWare and others in their data centres to aid this optimisation. Smaller firms might just go straight to an external provider in the cloud to provide extra computing power as needed.
SAN itself is a software solution, which marshals and allocates unused space, and harvests unused bandwidth. This enables redundant servers at corporations to be decommissioned, which can lead to dramatic cost savings. E1 states that they have helped their 1,600 plus customers to achieve $1.4 billion in efficiency savings via this technique, including $800 million in energy costs and a 6.4 million tonne carbon dioxide (CO2) emission reduction, which can avoid ‘green taxes’ in certain countries.
Adaptiva founder and chief technology officer (CTO) Deepak Kumar summarises some key SAN benefits: “Our clients, which include two of the world’s top three banks [and by extension some treasuries], have secured substantial real savings, by eliminating thousands of servers, with cost savings of about $10,000 each – plus the human and license fee savings.”
The elimination of a substantial number of servers cuts out a substantial chunk of IT components that sometimes do fail, and therefore leads directly to the establishment of a more robust IT environment, with significantly less risk of service interruption. Kumar explains: “Adaptiva’s protocol effectively eliminates the wide area network (WAN) through the creation of micro private clouds. It senses and captures bandwidth availability, and it automatically prioritises tasks, so that new high priority items jump to the top of the queue. This behaviour leads directly to high levels of client satisfaction.”
The banking community has seen significant levels of SAN technology adoption. The largest global banks may own or lease hundreds of thousands of computers, in huge global branch networks and data centres. They are required to perform with 100% mission criticality to respond to some client demands, such as constant automated teller machine (ATM) availability, or for the execution and settlement of large financial market deals. The SAN solution carries the additional benefit of helping to assure the availability of up-to-date applications and services for the whole organisation, helping to eliminate large scale distribution and synchronisation issues. Some larger corporates have followed the banks’ lead, and companies with an IT (and risk management) policy that mandates the deployment of in-house technology solutions are naturally attracted to pursuing SAN efficiencies. The scale of corporate activity may not approach that of the largest banks at present, but the cost effectiveness and service availability benefits are of obvious interest to corporate CTOs and treasury end users.
SAN solutions can be effectively scaled into smaller corporate environments, where operational risk may be exceptionally high because of the increasing demands being imposed on small numbers of IT professionals and their technology resources. Adaptiva’s Kumar comments that the benefits that may be achieved include a valuable broadening of available facilities, eliminating the need to manage local storage, improving performance, and opening unlimited routes to deploying new applications and services.
Corporate treasurers are obviously attracted to the key SAN benefits of cost effectiveness and operational risk reduction through enhanced service dependability, coupled with the facility to prioritise the performance of the most important treasury events. In corporate treasury terms, these will include:
- Processing and releasing payments ahead of cut-off times to avoid the interest penalties resulting from making late payments.
- Deriving accurate and complete cash positions in good time to plan and execute effective cash deployment.
- The detection and notification of important – and potentially costly – risk events such as the approach of limit breaches and the sudden deterioration of a specific counterparty’s creditworthiness.
Companies which optimise existing technology as described above will be organisations whose IT policy recommends or requires total or partial IT insourcing; SAN provides a powerful means of effectively implementing this kind of policy. There may in some cases be pricing advantages in doing this, but the primary driver is likely to be the perceived higher levels of security and control achieved by retaining direct in-house ownership and management of the IT infrastructure and data content. So the decision whether to in or outsource lies ultimately in the field of risk management: the security, availability and performance of in-house IT is clearly the responsibility of an in-house team, which can be measured and managed and held accountable against corporate IT policy and plan. Strong service level agreements (SLAs) may be acceptable to some in an outsourcing arrangement, but not to others.
The opposite view is taken in corporations whose IT policies require a high level – or even 100% – outsourcing of IT facilities and services to expert third parties. Historically, the decision to outsource has been taken because of the escalating costs of maintaining expert in-house teams to design, develop or select, implement and support IT systems, combined with the costs of installing and supporting a suitably redundant hardware and communications infrastructure. There is also an emerging perception among some authorities that outsourcing IT also reduces operational risk by transferring the responsibility for risk management to an expert third party, through appropriate contractual agreement and SLAs.
Technology outsourcing is becoming increasingly popular in the corporate world, including the treasury department. If IT policy generally mandates outsourcing, there are many generalist IT companies, such as IBM and Hewlett-Packard, which offer outsourcing services, and there are also more specialist technology hosting companies such as Rackspace, Savvis and SunGard. The offerings frequently include the provision of managed services, which basically covers the kind of technical support such as helpline services and database administration traditionally provided by in-house IT departments. Major outsourcing companies provide high levels of security through global data centre networks, ‘Six Sigma’ military level hardware redundancy and fully automated data replication and back-up services, plus instantaneous recovery facilities.
More specifically in the treasury field, a range of treasury management systems (TMS) are now offered via SaaS packages, which include outsourced technology hosting and support. SaaS-based treasury technology tends to be packaged so that client payments are made on a periodic subscription basis, replacing the classic TMS perpetual license fee / maintenance fee pricing approach.
SunGard is a vendor whose offerings are grounded in and around high availability and disaster recovery, and now include treasury specific technology outsourcing possibilities. SunGard’s Bramwell adds: “Today, corporations are much more comfortable with the security, accreditation and availability of outsourced technology, which they find significantly cheaper than alternatives. SunGard’s one-stop offering for treasury provides the efficiencies, ease-of-use and risk reduction potential of working with a single vendor in these areas.”
Choosing the outsourcing option can be cost effective for some corporates. Outsourcing treasury technology certainly changes the risk profile, and those evaluating this approach will need to ensure that they achieve satisfactory resolution of such key questions as data security and assured ownership rights, the provision of full facilities management including disaster protection and recovery, technical services and assistance provision, and service availability guarantees.
Historically, corporate treasurers have tended to regard technology as a necessary (and expensive) evil, that best serves treasury’s interest by quietly and effectively performing so well that many may not be conscious that it is actually performing at all. Today, the risks of increasing technology costs, and the consequences of extended technology failures, are alerting treasurers to become better informed about contemporary alternatives for cutting IT costs and improving and assuring services, for example through technology optimisation or outsourcing.
Ken Lillie, Owner of Lillie Associates Treasury Consulting, comments: “Treasurers are particularly careful when considering the budgets allocated to their departments and serious consideration to the options available in the delivery and application of technology are uppermost in their minds. SaaS and hosted software is capable of delivering the necessary technology to meet the contents of a functionally-demanding requirements definition even within a complex group structure. But equally important, the treasurer becomes pretty much independent of his/her own internal IT department; a major issue where such resource is relatively scarce and which faces demands from many areas.”
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