Identifying the ROI in a Treasury Transformation Project
This article is written by Kyriba How do you truly identify the total value of the Treasury Transformation Project? While some aspects of a treasury transformation project may seem black and white, other value components are difficult to quantify, and many are often overlooked completely. When evaluating the ROI of a treasury initiative, it is important to ensure that all components of the value proposition are accounted for. This blog, which is part of our Value Engineering series, highlights some of the key attributes that are often forgotten when determining the value of a treasury project. Establishing Treasury as a Strategic Partner As a former treasury practitioner, it sometimes posed a challenge to change the view of treasury held by many in the C-suite. Historically, treasury has been viewed as more of a tactical department, serving as a firefighter when things go wrong. However, the view has since expanded to see the value treasury can provide to an organization. With the correct tools at their disposal, treasury can be elevated to a seat at the CFO’s table by providing valuable information to an organization’s global liquidity profile. Investing in an enterprise liquidity platform enables treasury to provide essential insights to ensure an organization’s sustainability and financial longevity. What would elevating treasury to the role of strategic business partner to the CFO do for your team? With a treasury solution in place, what type of analysis and support would you be able to provide your internal customers? Clearly articulating this value is critical to ensuring an accurate and comprehensive ROI assessment. Business Continuity Risk Many organizations have processes in place that inherently live within team members and help establish existing workflows. Although written workflows provide some controls and guidance, they do not always capture the whole picture of the process, are not regularly updated to include recent changes, and often lack the ability to list out all inevitable exceptions to the rules. Standardizing processes and managing repetitive tasks through treasury software helps protect the organization from employee turnover or reductions in overhead expenditure by eliminating reliance on subject matter expertise. Furthermore, overreliance on team members tends to perpetuate the monotonous following of established procedures, rather than encouraging employees to gain a true understanding of the logic and reasoning behind processes and think outside of the box. The systematic enforcement of processes and procedures allows more time for the evaluation of current processes and offers opportunities to establish best practices rather than staying with the status quo. Think about the current structure of your team and the various responsibilities each member has. What would happen if a key employee left the company? Would you be able to continue operations smoothly? Could remaining members absorb and redistribute the workload, or would there be a steep learning curve? Being able to seamlessly provide continued support at the same level of service, as well as the ability to improve the status quo is a vital component of the ROI calculation. Human Capital Optimization Companies work hard to ensure that their treasury team is composed of intelligent, highly educated individuals, often with years of experience. However, without a TMS in place, team members frequently spend their time on manual tasks like data collection and consolidation. The cost of not optimizing the organization’s greatest asset, its human capital, not only leaves missed opportunities for growth—it can decrease employee morale and increase turnover. Additionally, the labor market in today’s economy is increasingly competitive. The ability to include the usage of a TMS or enterprise liquidity management (ELM) platform in a job description provides a strong competitive advantage. This allows the organization to attract top talent. The ROI of a Treasury project must include the value associated with repurposing time spent on tactical activities. And optimizing human capital by leveraging it for more value-added and strategic initiatives. Think about how team members will be able to better use their time. And what the impact of new strategic initiatives will be on the organization. For example, your team could now have time to work with experts to evaluate, create and implement an FX risk management program to mitigate the impact of currency volatility. There may be an opportunity to launch a dynamic discounting or supply chain finance initiative to optimize working capital management. All potential projects that a Treasury Transformation project would enable need to be evaluated and included as part of the ROI calculation. Increased Controls The final value component that is often neglected is the importance associated with the harmonization and centralization of controls. KPMG studied over 642 organizations in 2022. 83% of those surveyed indicated that they had experienced at least one cyberattack over the past 12 months. In addition, 71% of respondents indicated they have experienced some sort of internal or external fraud. And 55% suffered losses due to regulatory fines or compliance breaches. Payments fraud attacks impact not only the bottom line but also pose a risk to the organization’s reputation. Leveraging a TMS or ELM platform would provide the ability to standardize controls and reporting globally. Ensuring auditable enforcement of internal policies and minimizing the opportunity for successful fraud attempts. Without a treasury solution in place, how effectively can you protect your organization, its assets, and its reputation from fraudsters? How would you quantify the reputational impact of reduced sales, lost customers, potential lawsuits, or loss of future business? The value of mitigating this risk is an essential piece of the ROI calculation. Next Steps Evaluating the return on investment for a Treasury Transformation Project is a complex undertaking. Thus, it goes far beyond evaluating productivity savings versus the cost of the solution. Companies need to ensure that they consider all potential value components of a Treasury project and its impact. This is to ensure that a full value assessment is included in the decision-making process. Many intricacies and value components are often neglected. This makes many Treasury teams look for outside guidance in calculating the potential ROI of such projects. In order to ensure that they are comprehensive in their evaluations. Also Read
FranklinFXBEACON: 75 HARD, 100% SMART: CURRENCY HEDGING LESSONS FROM MY “75 HARD” JOURNEY
Imagine that at the beginning of July, you decided to join me on a personal journey. To transform physically and mentally by taking on the “75 Hard” fitness and mental wellness challenge (which I started 66 days ago). For those who are not familiar, “75 Hard” consists of 5 daily challenges: A) Two 45-minute workouts (one has to be outside) B) Stick to a diet of your choosing (no alcohol and no cheat meals) C) Drink a gallon of water each day D) Read 10 pages of a non-fiction book, bonus rule E) Take progress pictures If you skip a day, you start over. Throughout the process each day, I wake up knowing that I’ll face grueling workouts. Couple with mental toughness exercises, and strict discipline requirements. Meanwhile, in the business world, many companies are navigating their own set of daily challenges. Like the hurdles I’ve encountered on my journey. Surprisingly, there’s a striking similarity between a commitment to “75 Hard” and a business strategy called Currency hedging. Hedging or protecting against/mitigating risk. Currency exchange uses the same principles of resilience and adaptability you need to complete “75 Hard.” And each is equally vital for businesses seeking success in an unpredictable world. Think about how important your health is to you. That headache that lasted a little too long, that cramp in your calf, the lower back pain that keeps you from sitting in certain positions. People regularly spend hundreds of thousands of dollars on their physical health. If you ask anyone over the age of 70 if they would rather have the health they had in their 20’s or a few million dollars, they will unanimously choose their health. We can all agree that the financial health of a company is just as important to the longevity of that business as physical and mental health are to humanity. By Currency hedging, businesses are able to reduce the effect of adverse market movement. Such as fluctuations in interest rate differentials or currency exchange rates, similar to the way mental and physical exercise combat the adverse effects of aging. By doing so, these companies can safeguard their profitability and long-term viability. So far, I’ve learned that the daily consistency required by “75 Hard” has created both physical and mental predictability in my life. Although challenging, I know what to expect each day. Without that predictability and routine, there is no way I would have been able to make it this far. Almost identically, hedging strategies provide businesses with stable financial footing by minimizing volatility and eliminating a variable from their business. This stability is crucial for effective planning and decision-making. This enables companies to pursue their strategic and FP&A goals with far greater confidence. Although predictability is the ultimate goal, nothing happens exactly as planned. Because of the unpredictability that life has around every corner, “75 Hard” also emphasizes adaptability. By requiring participants to complete their daily tasks, rain or shine (my run in southern California during Hurricane Hillary can attest to that), it forces participants to stay nimble in the face of uncertainty. Similarly, businesses need to have the ability to adapt to shifting market conditions. Hedging allows them to respond to unexpected changes by providing at least one concrete aspect of the business as a safety net that cushions the impact of adverse events. This protection ensures that companies remain agile in a dynamic business environment. Locking into metaphorical sunshine for the foreseeable future. Kiss those rainy runs goodbye. Every day, companies invest significant resources in various projects and operations. Wouldn’t it make sense for these same companies to do everything in their power to protect those investments? Hedging their currency exposure safeguards these investments, ensuring that they yield returns even in unfavorable circumstances. The ever-changing economic markets have become a nonfactor. In the world of business, competition is fierce, and companies that hedge effectively can gain a competitive edge over their rivals by reducing their vulnerability to market fluctuations. This allows them to focus on strategic growth rather than reacting to external crises. Doing the physical part of “75 Hard” In the same way that I’ve committed to diet, exercise, and mental improvement over the past 66 days, businesses need to demonstrate the same discipline if they stand a chance at surviving our current market. It’s crucial to manage risk so that, regardless of the uncertainties that may arise, these companies are protected. Lifting weights, going on hikes and runs, and daily reading have cultivated the necessary mental toughness, teaching me to push through discomfort and setbacks. This has better prepared me for the unpredictable challenges that life throws my way. In a similar sense, companies that hedge are better prepared to withstand economic downturns, emerging stronger on the other side. Both “75 Hard” and foreign currency hedging require a long-term perspective. The short-term sacrifices that I’ve made each day have led to long-term gains in my personal fitness and learning. In the same way, in order to help secure a company’s long-term financial success, they must practice delayed gratification. Make small sacrifices now, and reap huge rewards later. By taking time now to consider and protect against potential risks over time, companies are protected from whatever the market throws at them. Throughout “75 Hard,” I have strived for continuous improvement in the same way that most businesses that work with GPS do. This improvement mindset is such an important piece to the equation in order for companies to refine their hedging strategies and learn from past experiences to be better equipped to protect their assets and investments. The correlation between hedging in the business world and the principles behind the “75 Hard” regimen, although unorthodox, is striking. These similarities emphasize a strong connection rooted in discipline, resilience, adaptability, and a forward-thinking approach. Just as individuals take on the “75 Hard” challenge to cultivate physical and mental fortitude, companies adopt hedging strategies to safeguard their financial stability and mitigate FX risk. Embracing these fundamental principles can empower both individuals…
Oscar Augustine