INSIGHT SURVEY - Treasury management...pany needs and pricing imperatives. The way treasury is structured may be another success factor for effectiveness. More respondents who judge

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INSIGHT SURVEY

PROCESSES AND STRUCTURES THAT WORK BEST IN ASIA

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CFO INNOVATION INSIGHT SURVEY THE EFFECTIVE TREASURY © JANUARY 2012 QUESTEX ASIA LTD

CONTENT

03 Key Takeaways

04 Adequate Versus Effective

06 TMS and Other Best Practice Processes

08 Strong Interest in Software-as-a-Service

10 Treasury and Cash Structures

12 Hedging

13 Drivers of Effectiveness

14 Challenges and Solutions

20 Conclusion

21 Sponsor’s Perspective

22 About This Report

©2012 Questex Asia Ltd. All rights reserved. All information in this report is verified to the best of the publisher’s ability. However Questex Asia Ltd does not accept responsibility for any loss arising from reliance on it.

Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means electronic, mechanical, photocopying, record-ing, or otherwise, without the prior permission of Questex Asia Ltd.

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KEY TAKEAWAYSCONTENT

A substantial proportion of respon-dents – 44% — rate their company’s treasury and cash management as effective or very effective. Not one says it is very ineffective while a minuscule 6% grade the treasury and cash pro-cesses as ineffective. The majority (51%) rate the way their treasury and cash function operates as ‘adequate,’ indicat-ing that the challenge in Asia is to move the treasury and cash management dial from being merely adequate to being truly effective.

The use of a treasury manage-ment system (TMS) appears to be a success factor in treasury effec-tiveness. Respondents who describe their treasury and cash management as effective/very effective say their company has an internally developed TMS (56% vs. 49% who self-rate as ‘adequate’) and/or has a vendor-pro-vided system (44% vs. 31%).

Interestingly, only 25% of local organ-isations have a vendor-provided TMS (vs. 42% of multinationals), although 49% have an internally developed one (about the same as MNCs on 52%). This implies that at least 26% of local firms do not use TMS to manage trea-sury and cash processes.

There is strong interest in Soft-ware-as-a-Service as a delivery platform for TMS going forward. SaaS is the most cited technology plat-form (45%). Client/server is a far sec-ond on 18%, with server/Application Service Provider (ASP) on 13%. A fifth of respondents express no preference, an indication that they are open to any technology platform that meets com-pany needs and pricing imperatives.

The way treasury is structured may be another success factor for effectiveness. More respondents who judge their company’s treasury and cash management to be effective or very effective say there is a coun-try treasury unit for all in-country businesses (55% vs. 47% for those rated only adequate) and a global treasury centre that makes all deci-

sions across the group (49% vs. 41%).

The widest divergence is in the pres-ence of a regional treasury centre. Thirty eight percent of respondents who say their treasury function is ef-fective/very effective say their com-pany has set up a regional treasury centre. Only 24% of those who rate their company’s treasury function as adequate have such a facility.

The most significant obstacle to effective management of treasury operations is the tendency to view treasury as an operational func-tion, rather than a strategic one. Nearly six out of ten of the executives surveyed (58%) point to this attitude as the main hindrance to truly effec-tive treasury management. Three oth-er challenges are clustered together as secondary reasons: currency and regulatory restrictions (44%), inade-quate visibility across the organisation (43%), and staff who lack experience and expertise (43%).

Most respondents plan to focus on improving treasury and cash processes. Nearly seven out of ten (68%) will embark on this key initia-tive. Coming second is acquisition of new technology (40%), specifically ERP installation/upgrade (46%) and improvement of risk management tools and processes (38%).

These findings appear to be inconsis-tent with the strong interest expressed by respondents in TMS as Software-as-a-Service. It may be that respon-dents do not regard SaaS as a “new technology” per se, but as part of im-proving treasury and cash processes.

Only 30% will implement or upgrade the company’s TMS, broken down into 33% of MNCs and 24% of local compa-nies. These low numbers may be an is-sue going forward for local companies, given the finding that at least a quarter of them have not installed a treasury management system – and that those who have a TMS are more likely to self-rate as effective/very effective.

CFO Innovation surveyed 191 CFOs, finance directors, treasurers and controllers across Asia. The key findings include the following:

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Adequate Versus Effective

Total respondents: 191; MNCs: 124; local companies with 500 and more staff: 41; local companies with fewer than 500 staff: 26. Totals do not add up to 100% because of rounding.

How effective is your treasury and cash management?

If the euro implodes, as some analysts think is a likely scenario, will your corporate treasury and cash management function be able to cope? Is it strong enough and effective enough to deal with another credit crunch, panic in the financial markets, a global double-dip recession?

As we learn from this survey, the default position of the treasury and cash function is adequacy. At the minimum, it must do the basic things it is supposed to do.

But as crisis after crisis hits the global economy and individual businesses, being merely fit for the purpose is no longer good enough. Finance and treasury are being called upon to go beyond operational adequacy to being strategically effective. As respon-dents of this survey indicate, the challenge is to make treasury a strategic function, not just an op-erational function, and thus help transform it from being merely adequate to being truly effective and value-adding.

0%

4%

58%

38%

0%

0%

5%

59%

32%

5%

0%

6%

48%

31%

15%

0%

6%

51%

33%

11%

Very ineffective

Ineffective

Adequate

Effective

Very effective

Total respondents MNCs Local company (≥500 staff) Local company (<500 staff)

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This dynamic is made clear by the findings of this survey of CFOs, finance directors, treasurers and controllers in China, Hong Kong, Malaysia, Singapore and other countries in Asia. Asked to rate the effectiveness of their company’s treasury and cash function on a 1-5 scale, with as ‘1’ as very inef-fective and ‘5’ as very effective, no one gave a rating of ‘very ineffec-tive.’ Only a few – 6% – complain that their treasury and cash man-agement is ineffective.

The majority (51%) say treasury and cash management in their company is adequate. A third (33%) grade the function as ‘effec-tive,’ with another 11% even giving a strong vote of confidence and judging it very effective.

Multinational corporations appear to have a slight edge over their local counterparts when it comes to treasury and cash effectiveness. Fifteen percent of MNC respondents rate their treasury and cash function as very effective, compared with just 5% of respondents from local companies with 500 or more staff who say the same, and none from local companies with fewer than 500 staff.

Large majorities of respondents from local companies rate their treasury and cash function as merely adequate ( 500 staff = 59%; < 500 staff = 58%).

=>

6


TMS and Other Best Practice Processes

MNCs Vs. Local Companies: How do you currently manage your treasury processes?

So what are MNCs doing right and local companies perhaps not doing well enough? When asked how they manage their treasury and cash management processes, both set of respon-dents say they have an internally developed treasury management system (MNCs: 52%; local com-panies: 49%) and/or a vendor-provided treasury management system (42% vs. 25%).

This implies that at least 26% of local firms do not use TMS to manage treasury and cash pro-cesses (MNCs: 6%).

It is interesting to note the disparity in usage of vendor-provided TMS between MNCs and local companies. Multinationals are evidently more willing to engage with vendors rather than do things on their own when it comes to TMS, which may be one reason why more of them rate their treasury function as effective/very effective compared with local companies.

A similar differentiation is evident in the utilisation of a bank platform (MNCs: 53%; local companies: 34%) and reliance on Excel spreadsheets (MNCs: 56%; local companies: 73%).

MNC respondents: 124; local companies: 67. Totals may not add up to 100% because multiple answers are allowed.

52%

42%

53%

56%

19%

49%

25%

34%

73%

6%

Internally developed treasury management system

Vendor-provided treasury management system

Bank platform

Excel spreadsheets

Bloomberg/Reuters terminal

MNC Local company

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Adequate Vs. Effective: How do you currently manage your treasury processes?

The importance of TMS as a deter-minant of treasury effectiveness is confirmed when the findings are analysed according to effective-ness ratings.

Nearly six out of ten respondents (56%) who describe their treasury function as effective/very effective say they have an internally developed TMS, compared with just 49% of those who rate their treasury function as merely adequate.

Forty four percent of effective/very effective respondents say their company has a vendor-provided TMS, compared with only 31% of respondents who grade their trea-sury function as adequate.

Effective/very effective treasury and cash functions are also more likely to utilize bank platforms (51% vs. 43%) and are much less reliant on Excel spreadsheets (49% vs. 69%).

Respondents giving ‘adequate’ rating: 98; respondents giving ‘effective’ or ‘very effective’ rating: 82. The number of respondents giving ‘ineffective’ or ‘very ineffective’ rating is too small for meaningful conclusions to be made. Totals do not add up to 100% because multiple answers are allowed.

49%

31%

43%

69%

9%

56%

44%

51%

49%

22%

Internally developed treasury management system

Vendor-provided treasury management system

Bank platform

Excel spreadsheets

Bloomberg/Reuters terminal

Adequate Effective/Very effective

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45%

18% 13%

24%

Web-based (Software as a

Service)

Client/Server Server/Application Service Provider

(ASP)

No preference

Strong Interest in Software-as-a-Service

When you next review your TMS, which would be the most important technology platform?

N=181 respondents

Given the evident importance of a TMS in effectiveness, respon-dents were asked what would be the most important delivery platform they will consider when next they review this system. The platform most commonly men-tioned is web-based Software-as-a-Service (45%), with client/server

a far second on 18% and server-based Application Service Provid-er (ASP) on 13%.

Interestingly, 24% express no preference, whether SaaS, client/server or ASP, indicating openness to any technology that meets com-pany needs and pricing tolerance.

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MNCs Vs. Local Companies: When you next review your TMS, which would be the most important technology platform?

By Country: When you next review your TMS, which would be the most important technology platform?

MNC respondents: 118; local companies: 63. Totals may not add up to 100% because of rounding.

China: 34 respondents; Hong Kong: 37; Malaysia: 19; Singapore: 57. Totals do not add up to 100% because multiple answers are allowed.

When cross-tabbed according to selected countries, China emerg-es as the strongest advocate of the web as TMS platform (56%) compared with Singapore (39%), Hong Kong (38%) and Malaysia (37%).

Respondents from local companies are more likely to say that their company has no preference as to the TMS technol-ogy platform (29% vs. 21% among MNCs), though both groups exhibit the same pref-erence for Software-as-a-Service platforms (43% and 47%).

Hong Kong is the most agnostic about TMS platforms, with 32% of respondents expressing no pref-erence.

47%

21%

19%

14%

43%

29%

16%

13%

Web-based (Software as a Service)

No preference

Client/Server

Server/Application Service Provider (ASP)

MNCs Local companies

China Hong Kong Malaysia Singapore

Web-based (Software as a Service) 56% 38% 37% 39%

No preference 21% 32% 26% 26%

Client/Server 12% 24% 21% 16%

Server/Application Service Provider (ASP) 12% 5% 16% 19%

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Treasury and Cash Structures

50%

45%

31%

27%

2%

55%

49%

38%

26%

1%

47%

41%

24%

28%

1%

Country treasury unit for all in-country businesses

Global treasury centre that makes all decisions across the group

Regional treasury centre that makes decisions for the region

Treasury unit in every subsidiary

Other

Total respondents Effective/very effective Adequate

How would you describe the main structure of your treasury and cash management function?

Total respondents =191; respondents giving ‘adequate’ rating = 98; respondents giving ‘effective’ or ‘very effective’ rating = 82. Totals do not add up to 100% because multiple answers are allowed.

The main structure of the treasury and cash management function is yet another success factor in achieving treasury effectiveness.

The majority (55%) of respon-dents who rate their treasury and cash management as effective or very effective describe the func-tion’s main structure as one where there is a country treasury unit for all in-country businesses. Only 47% of those who give a grade of adequate say the same.

Effective/very effective treasury and cash functions also have a global treasury centre (49% vs. 41% for merely adequate func-tions) and a regional treasury cen-tre (38% vs. 24%).

Having a treasury unit in every subsidiary does not seem to be much of a differentiator of effectiveness – respondents in both groups who describe the structure of their company’s treasury and cash function in this manner are in roughly equal proportions (effective/very effective: 26%; adequate: 28%).

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52%

49%

42%

28%

1%

30%

51%

10%

25%

3%

Global treasury centre that makes all the decisions across the group

Country treasury unit for all in-country businesses

Regional treasury centre that makes decisions for the region

Treasury unit in every subsidiary

Other


MNCs Vs. Local Companies: How would you describe the main structure of your treasury and cash management function?

MNC respondents: 124; local companies: 67. Totals may not add up to 100% because of rounding.

When cross-tabbed according to type of organisation, the region-al treasury centre gap becomes more pronounced. Four out of ten MNCs (42%) have such a facility. In contrast, only 10% of local com-panies operate one.

It is possible that some of the local-company respondents may operate only within national bor-ders, hence there is no need for a

regional treasury centre. But note that 30% of them say they have a global treasury centre (vs. 52% for MNCs), so it is reasonable to extrapolate that many do have a cross-border presence.

If so, local companies should seriously consider setting up a regional treasury centre, which the survey findings indicate is a success factor in effectiveness.

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Hedging

39%

28% 33%

26% 30%

44%

57%

29%

13%

Yes No Not practice hedge accounting

Total respondents Adequate Effective/Very effective

Will your company be an early adopter of IFRS 9 on hedging financial instruments?

Total respondents =177; respondents giving ‘adequate’ rating = 91; respondents giving ‘effective’ or ‘very effective’ rating = 75. Totals may not add up to 100% because of rounding.

Respondents were asked wheth-er their company will be an ear-ly adopter of the new IFRS 9 on hedging financial instruments. The majority of treasury and cash functions rated as effective/very effective answer in the affirmative (57%). Only 26% of those judged simply adequate say the same.

Engaging in hedging appears to be another success factor in treasury effectiveness. Only 13% of treasury functions rated effec-tive/very effective do not practice hedge accounting. In contrast, 44% of those judged merely ad-equate say they do not practice hedge accounting.

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Drivers of Effectiveness

3.16

3.46 3.67

3.54

3.86

3.26 3.38 3.47

4.15

3.65

Exposure management

Accounting and

Compliance

Risk management

Liquidity management

Cash management

Adequate Effective/Very effective

What are your company’s key business drivers?

Respondents giving ‘adequate’ rating = 98; respondents giving ‘effective’ or ‘very effective’ rating = 82. Respondents were asked to rate importance on a 1-5 scale, with ‘5’ as very important.

On average, respondents who rate their treasury and cash func-tion as effective or very effective give liquidity management a rat-ing of 4.15 (on a 1-5 scale, with 5 as most important). Respondents who judge their company’s trea-sury and cash management to be ‘adequate’ rate liquidity manage-ment at only 3.54. They instead give heavier weight to cash man-agement, at 3.86 (effective/very effective: a lower 3.65).

This does not necessarily mean that ‘effective/very effective’ treasury functions believe cash management is not important, or that ‘adequate’ treasury functions are dismissive of liquidity management. The more likely explanation is that those who self-rate as effective have already taken care of cash management, and therefore are now more focused on liquidity management.

By the same token, those who self-rate as merely adequate may

still be grappling with cash man-agement processes and therefore are not so focused on higher level liquidity management. One can-not really do liquidity manage-ment, after all, without the basics of cash management already in place.

Adequate treasury and cash func-tions also focus more on risk man-agement (3.67) than do their ef-fective/very effective peers (3.47). Again, the likely explanation is that those who self-rate as effective/very effective may already have gotten their ducks in a row when it comes to risk management, as opposed to those who self-rate as adequate, who may still be in the process of putting risk manage-ment structures in place.

There is no significant difference between the two groups in expo-sure management, which is rated as the least important of the five business drivers, and in account-ing and compliance.

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Challenges and Solutions

58%

44%

43%

43%

37%

24%

24%

22%

6%

Treasury is viewed as an operational, rather than a strategic, function

Currency and regulatory restrictions

Inadequate visibility across the organisation

Staff lacks experience and expertise

Inadequate systems/technology

Inadequate budgetary support

No access to appropriate financial instruments and asset classes

Inadequate staffing support

Other

What are the most significant obstacles to effective management of your treasury operations?

N =183 respondents. Total does not add up to 100% because multiple answers are allowed

Respondents were asked to enu-merate the three most significant obstacles their company faces in making treasury operations ef-fective. Fifty eight percent cite the tendency to regard treasury as simply an operational matter, rather than as a strategic function, as a top-three hindrance.

Three obstacles are then clustered together: currency and regulatory restrictions (44%), inadequate visibility across the organisation

(43%), and staff who lack expe-rience and expertise (43%), fol-lowed closely by inadequate sys-tems/technology (37%).

Inadequate budgetary support (24%), having no access to appro-priate financial instruments and as-set classes (24%) and inadequate staffing support (22%) are not re-garded as major obstacles, indicat-ing that companies in Asia do not face serious problems on at least these basics of treasury operations.

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68%

40%

20%

19%

18%

15%

10%

9%

3%

Improve internal processes

Acquire new technology

Increase the size of treasury (staffing)

Adopt a bank platform

Create a shared services centre

No plans

Contract with a BPO provider

Implement SWIFT connectivity

Other

What changes are you planning to improve treasury and cash management?

N = 187 respondents. Total does not add up to 100% because multiple answers are allowed.

How are the respondents going to overcome the obstacles? Nearly seven out of ten (68%) will focus on improving internal processes. Sec-ond is the acquisition of new tech-nology, an initiative cited by 40%.

The rather wide gap between the first course of action and the second is curious, because re-spondents overall express strong interest in TMS delivered on a Software-as-a-Service platform (45%). But it is possible that re-spondents regard SaaS as part of internal processes and not as new technology, per se.

Software-as-a-Service, after all, is supposedly the antithesis of acquiring costly new technology. You pay only for the computing

power and software that you ac-tually use, and you do not need to invest in servers, software up-grades and other infrastructure as you would need to do with an on-premise solution.

There is apparently little appe-tite for new structures, with only 19% planning to adopt a bank platform, 18% planning to cre-ate a new shared services centre, 10% to enter into a contract with a business process outsourcing provider and 9% to implement SWIFT connectivity (the coopera-tive owned by the world’s banks offers SWIFT for Corporates, a service that allows corporates to communicate directly with banks around the world).

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66%

36%

18%

17%

16%

13%

11%

7%

4%

71%

47%

24%

20%

14%

30%

9%

14%

0%

Improve internal processes

Acquire new technology Increase the size of

treasury staffing

Create a shared services centre

No plans

Adopt a bank platform

Contract with a third-party

Implement SWIFT connectivity

Other


MNCs Vs. Local Companies: What changes are you planning to improve treasury and cash management?

MNC respondents: 121; local companies: 66. Totals do not add up to 100% because multiple responses are allowed.

The picture becomes more nuanced when the findings are analysed according to enterprise type. While both MNCs and local organisations will improve internal processes, local firms are more likely to acquire new technology than their MNC peers (47% vs. 36%).

Asia’s local enterprises are also more likely to adopt a bank plat-form (30% vs. 13%) and to imple-ment SWIFT connectivity (14% vs. 7%).

17


By Country: What changes are you planning to improve treasury and cash management?

China: 34 respondents; Hong Kong: 37; Malaysia: 19; Singapore: 57. Totals do not add up to 100% because multiple answers are allowed.

There are differences as well at the country level. While respondents from China, Hong Kong, Malaysia and Singapore all plan to improve internal processes, there is less unanimity on the other courses of action.

For example, there is a stronger intention to acquire new technol-

ogy in Malaysia (50%), Singapore (43%) and Hong Kong (41%), com-pared with China (just 24%).

Treasury functions in Malaysia are also more likely to create a shared services centre (40%) than those in other countries, while companies in Singapore are more likely to in-crease treasury staff numbers (29%).

China Hong Kong Malaysia Singapore

Improve internal processes 76% 62% 70% 59%

Acquire new technology 24% 41% 50% 43%

Adopt a bank platform 21% 13% 15% 14%

Create a shared services centre 18% 15% 40% 14%

Increase the size of treasury (staffing) 12% 23% 15% 29%

No plans 12% 23% 10% 19%

Implement SWIFT connectivity 3% 3% 5% 14%

Contract with a third-party BPO provider 0% 8% 10% 19%

Other 3% 3% 5% 3%

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46%

38%

30%

27%

11%

3%

ERP installation/upgrade

Improvement of risk management tools and processes

TMS implementation/upgrade

No major technology investment

SWIFT connectivity/payments

Other

What major technology investments are you looking to make in the next two years?

N =.178. Total does not add up to 100% because multiple answers are allowed.

When the time horizon for mak-ing changes is stretched to two years, the majority of respondents indicate that their company will indeed make major technology investments (although a hefty mi-nority, 27%, will not).

Four out of ten (46%) will install or upgrade their enterprise resource planning system, while 38% will improve risk management tools and processes. Thirty percent will implement or upgrade their TMS, while 11% will sign up for SWIFT connectivity.

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36%

33%

13%

35%

32%

2%

65%

24%

6%

42%

18%

5%

ERP installation/upgrade

TMS implementation/upgrade

SWIFT connectivity/payments

Improvement of risk management tools and processes

No major technology investment

Other


MNCs Vs. Local Companies: What major technology investments are you looking to make in the next two years?

MNC respondents: 116; local companies: 62. Totals do not add up to 100% because multiple responses are allowed.

Cross-tabbed according to type of company, the findings reveal that local organisations are far more likely to focus on ERP installation/upgrade in the next two years (65%) than MNCs (36%).

However, MNCs are more likely to focus on TMS implementation/upgrade (33%) than are local com-panies (24%). It may be that local firms believe ERP should come first over TMS, but as the effectiveness data suggests, they should give equal importance to TMS if the goal is an effective treasury function.

20


Conclusion

Success factors associated with treasury and cash management effectiveness

The above table summarises the attributes associated with trea-sury functions that are rated effec-tive or very effective by respon-dents. More of these companies possess the highlighted success factor at an order of magnitude of up to 20 percentage points com-pared with peers rated as merely adequate.

Logically, then, treasury functions that aspire to be effective should work towards achieving these at-tributes, including implementa-tion/upgrading of TMS and adopt-ing hedge accounting.

It is easy, of course, to tell compa-nies to rely less on spreadsheets

and focus more on TMS, for exam-ple, or to treat treasury as a stra-tegic function and not just an op-erational one. The actual doing will require a lot of hard work, rewiring of processes, change management and probably additional spending.

But this does not mean that CFOs and treasurers should not try. Particularly at this time when the global economy once again faces uncertain prospects, a treasury and cash function that’s merely adequate may not be sufficient anymore.

Being rated effective, or prefer-ably very effective, should be the way to go.

Rated 'effective' or

‘very effective’

Rated ‘adequate’

Uses internally developed treasury and cash management systems

56% 49%

Uses vendor-provided treasury and cash management systems

44% 31%

Relies on Excel spreadsheets 49% 69%

Has a regional treasury centre that makes decisions for the region

38% 24%

Does not practice hedge accounting 13% 44%

21


Sponsor’s Perspective

Asian Corporate Treasury Effectiveness — Is Adequate Good Enough?

Greater Market Volatility

Criticality of Cash Visibility and Forecasts

Increase in Compliance Regulation

Complexity of Intercompany Funding

Operational Risk Associated with

Financial Data in Excel

Increased Adoption of Complex Cash

Management StructuresIncreased Globalization Counterparty Risk

Three years after the global financial crisis, Asian Treasurers are faced with another possible crisis driven by the potential collapse of the Euro. But is Asia ready? The findings in CFO Innovation’s “The Effective Treasury,” study suggest perhaps not.

The study found that more than half only rated themselves as ‘adequate’, which Reval finds staggering. In these volatile times, can treasurers or CFOs truly expect that ‘adequate’ is good enough?

Globally, we see the adoption of treasury technology-based solutions being driven by the following factors:

Asia expects to follow this trend with 68 percent of treasur-ies planning to improve internal processes and invest in new technologies. Best Practice Treasury OperationsFrom our research, there is clear evidence that best-in-class treasury organizations are outpacing their peers through the adoption of treasury platforms that address the following:1. Cash Management and Liquidity Planning2. Total Global Cash Visibility3. Cash Forecasting4. Risk management

These are the core practices to achieving effectiveness in treasury operations. In Asia, although there is strong adoption of vendor and internally developed treasury man-agement solutions (TMS) and use of bank platforms, 73 percent of local firms still rely primarily on spreadsheets.

Evidence shows that effective treasuries rely on spread-sheets less, and have adopted a platform approach. Cloud-based solutions are making this achievable and af-fordable for all treasuries, as 45 percent of respondents clearly favour a web-based, Software-as-a-Service (SaaS) solution, which can deliver benefits faster and more cost-effectively.

1. Cash Management and Liquidity PlanningWas cash ever not king? Globally, counterparty risk and liquidity risk management has seen many treasurers man-aging unprecedented amounts of cash, driving funding diversification and relationship management. This study shows that cash management and liquidity planning are the principle drivers for both adequately-rated and effec-tive treasuries in Asia. Asian corporates and MNC’s in particular, are faced with multi-currency and cross-border cash positions, which are driving demand for complete visibility, pooling, sweeping etc. It follows that a treasury cannot deliver quality liquidity planning and investment decisions without first having strong cash management capabilities in place. Furthermore, managing bank coun-terparty risk demands high quality cash management functions.

Treasurers with good global cash visibility are in a better competitive position to effectively deploy cash, where and when it is needed. While visibility is important, the critical point is how effectively a treasurer uses that information. There are some clear best practices.

2. Total Global Cash VisibilityYou can’t manage what you don’t know. The first step in best–in-class cash management is obtaining a holistic pic-ture of your organization’s world-wide cash balances and transactions. Industry leading treasury operations are le-veraging highly cost-effective technology and services to plug into their daily cash data.

i. Flexible Daily Cash Position View – Now that you have the piping into your bank data, it’s time to organize it for optimized decision making. World-class treasury opera-tions construct a flexible, dynamic daily cash worksheet. The download of bank balances and transactions are au-tomatically scheduled and posted into these worksheets. Then, the worksheet can be instantaneously flexed to create user-defined views by:

a. Organizational / Business Unitsb. Prior Day / Current Dayc. Cash Pooling Structuresd. Currenciese. Cash-Flow Buckets

These dynamic views allow for stronger, more confident decision-making around drawdowns and funding of bank accounts, borrowing, investing and currency hedging.

3. Cash ForecastOnce global bank data is visible and is automatically posi-tioned in dynamic worksheets, industry leading treasuries strategically focus on cash forecasting. These organiza-tions execute and deliver an accurate and confident cash flow forecast through five keys disciplines:

1. Top down initiative – Senior executives need to man-date forecast performance and identify to key staff the strategic value of forecasting for the organization. Otherwise, forecasting is too burdensome and staff will just go through the motions.

2. Identify the best data sources – Garbage in delivers

22


garbage out. It’s crucial that an organization identifies the most relevant data sources that become the inputs to the forecast. Common areas include: Subsidiary / BU forecasts, maturities of financial instruments, his-torical actual transactions, system imports such as AR, AP, Budget systems, Payroll, etc.

3. Automate the consolidation of these data sources – Organizations often spend too much time just trying to bring this information together. This leaves no time for validation and analysis. Automation from many to one is key.

4. Reconciliation and Performance Testing – Creating a forecast is just the first step. You’re far from done. Forecast adjustments are critical and can only be done effectively with good intelligence into how your fore-casting compared to what actually happened. Im-provement can only be made when you realize what moved against you. Eighty percent of your forecast-ing time should be spent on forecast accuracy testing and adjustments.

5. Scenario Testing – After you’ve checked your forecasts against actuals and have honed the adjust process, it’s time to run scenarios. This enables the organization to understand and plan for situations that may arise in the future. Common scenarios used by world-class fore-casters include: FX shifts, interest rate shifts, best case / worst case shifts, seasonal adjustments and shocking large inflows or outflows in and out of your forecast.

4. Risk ManagementThe focus and attention given to risk management across North America & Europe research varies significantly with that in Asia. In overseas markets, we witnessed the adop-tion of a new risk mindset, both in daily planning and long term decision making. Faced with derivatives reform and commodity, interest rate, FX and counterparty risk, these treasurers are seeking a more holistic view.

In Asia, treasuries rated as adequate identified cash man-agement as the primary risk management driver. In com-parison, those rated effective cited liquidity planning as the primary driver. Treasurers understand the need for visibility over their exposures, particularly where those ex-posures can change in either timing or volumes. The reli-ance on Excel-based tools makes this process particularly onerous; however, the increasing focus on SaaS-based ar-chitecture should give business units more access to the treasury function, and in turn, more buy-in to the treasury process.

It is expected that as margins get tighter, Asian organ-isations will employ tighter, more conservative hedging strategies, such that we see in other markets. We will see longer-term hedging beyond the current financial year to lock in cash flows and secure financing on new projects. Best practice suggests this will bring greater emphasis to market risk techniques, such as stress testing and @risk analytics.

Technology InvestmentThe greatest obstacle to achieving technology adoption in Asia is that treasury is viewed as operational rather than strategic (58%) and this reflects the significant amount of

time treasury groups spend performing routine transac-tional functions, which are easily addressed by automation.

Access to budgets was not cited as a significant obstacle. This is consistent with the cited planned improvements in internal processes (68%) and acquiring technology (40%). These two initiatives are intrinsically linked.

ConclusionAsia should not consider itself immune from the next crisis, and more importantly, it must not accept that “adequate” effectiveness means adequate performance when bench-marked against global corporate treasuries. Asian treasury operations need to evolve, and in effect, make the trend their friend, following best practice treasury operations.

As the demand to become more globally strategic increas-es, treasurers will turn to technology that can flip the tra-ditional transactional/strategic focus (80%/20%) and help drive the new paradigm. With the ability for greater auto-mation within the treasury function, Asian treasurers will be able to focus on the more strategic initiatives driving their ability to add more value.

In Asia there is clear evidence that the starting point is vis-ibility of cash and risk, and managing cross-border, multi-currency cash. Only when a corporate masters the manage-ment of its cash can it truly derive the strategic effectiveness and advanced benefits of liquidity management, counter-party risk and overall financial risk management.

This CFO Innovation study demonstrates that while there is a significant amount of positive treasury activity in the region, Asian treasurers do not fully realise the opportuni-ties available to improve processes and efficiency.

With single, integrated solutions that provide the essential tools for mitigating financial risk, making critical strategic decisions, and meeting regulatory requirements, Asian treasuries can seize the opportunity to move beyond sim-ply ‘adequate’ to effective best practice treasuries.

About RevalReval is a leading, global Software-as-a-Service (SaaS) provider of comprehensive and integrated Treasury and Risk Management (TRM) solutions. Our cloud-based software and related offerings enable enterprises to better manage cash, liquidity and financial risk, and includes specialized capabilities to account for and report on complex financial instruments and hedging activities. The scope and timeliness of the data and analytics we provide allow chief financial officers, treasurers and finance managers to operate more confidently in an increasingly complex and volatile global business environment. Using Reval, companies can optimize treasury and risk management activities across the enterprise for greater operational efficiency, security, control and compliance. Founded in 1999, Reval is headquartered in New York with regional centers across North America, EMEA and Asia Pacific. For more information, please visit www.reval.com or contact [email protected].

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Singapore 31%

Hong Kong 21%

China 20%

Malaysia 12%

Philippines 8%

Indonesia 6%

Vietnam 3%

Multinational Corporation (MNC) 65%

Local company with fewer than 500 staff

14%

Local company with 500 to 5,000 staff

17%

Local company with more than 5,000 staff

4%

CFO 34%

Financial Controller 28%

Finance Director 21%

Vice President Finance 7%

Treasurer 6%

Assistant Treasurer 3%

Respondents are personally based in the following markets...

...hold positions with the following titles...

...employed by a company that is a ...

About This ReportFieldwork for this online survey was conducted from 4 to 28 August 2011. Cesar Bacani, Editor-in-Chief of CFO Innovation, devised the questionnaire, analysed the results, and wrote the report. Tony Singleton, Managing Director, Asia Pacific, of Reval wrote the Sponsor’s Perspective. Eric Lam, Art Director, Questex Asia, designed the report.

A total of 191 respondents from Singapore, Hong Kong, China, Malaysia and other jurisdictions in Asia participated in this survey. They are CFOs, financial controllers, finance directors, vice presidents of finance, treasurers and assistant treasurers who work in a range of companies in terms of turnover, employee numbers and industry.

...and engaged in the following sectors:

Manufacturing 19%

Professional services 14%

Electronics/software/telecom 12%

Banking/finance 11%

Property and construction 10%

Energy/chemicals/mining 9%

Health 6%

Travel 6%

Conglomerate 5%

Other 8%

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Documents

INSIGHT SURVEY - Treasury management...pany needs and pricing imperatives. The way treasury is structured may be another success factor for effectiveness. More respondents who judge