Benefits & ROI of a Treasury Management System

Building a better business case for treasury management systems.

The fundamentals of calculating return on investment (ROI) for business technology initiatives have changed little over the past few decades.

There’s a good reason why the old saw “You can’t manage what you don’t measure” remains a go-to utterance for CFOs. There are equally compel­ling reasons why treasury leaders should recognize the challenges involved in developing a business case that effectively itemizes the ROI a new treasury management system can be expected to generate.

Accurately identifying the benefits of treasury management systems has grown complicated—more difficult, in many cases, than determining the ROI on other types of information systems— due to evolving IT capabilities at banks, ongoing advances in treasury man­agement technology, macroeconomic disruptions, companies’ endeavors to embrace digital transformation, and shifting expectations among finance chiefs in control of organizational purse strings.

“CFOs are really concerned about payments” when evaluating potential treasury management system invest­ments, notes Bob Stark, vice president of strategy for Kyriba. That’s under­standable given that treasury typically handles one of the company’s primary payment streams and that 78 percent of organizations experience payments fraud, according to the 2018 Association for Financial Professionals (AFP) Pay­ments Fraud Survey.

Finance executives are also dis­secting the business case for treasury software investments to determine how the technology and related pro­cess improvements can strengthen foreign exchange (FX) strategies and decision-making in the face of Brexit and other volatility flashpoints. “If you don’t effectively manage FX, it can have an unexpected impact on your balance sheet and your income statement,” Stark says. “Obviously, the CFO cares about that, but so does the CEO, so does the board, and so do investors.”

The treasury function’s growing in­volvement in strategic decision-making also alters how the benefits of its sup­porting technology should be selected and measured.

Addressing the high stakes in­volved in a new treasury management system investment requires treasury leaders to:

It also helps to understand poten­tial pitfalls, in order to avoid them. (See the sidebar 4 Causes of Business Case Breakdowns.) The first step in building a treasury management system business case is to recognize the factors driving the need for tech­nology upgrades.

APIs, AI, and Other Developments, Disruptions, and Drivers

As treasury management systems make significant advancements in the cloud era, they continue to fulfill their core purpose of consolidating numer­ous forms of data to deliver the “single source of truth” that many vendors pro­mote. The systems do so while automat­ing cash management, payments, fore­casting, investment and debt processes, hedging, reporting, compliance, and re­lated treasury activities, notes Michael Kolman, chief strategy officer for ION Systems.

The expansive, cross-functional reach of modern treasury management systems “can introduce efficient, se­cure, and transparent processes that add value across the organization and not just within the treasury and finance department,” notes Allison Flexer, a financial management expert in Grant Thornton LLP’s business consulting practice. Thus, a well-developed busi­ness case for a treasury management system should identify benefits both for treasury and for the rest of the organization.

The highly integrated nature of trea­sury management systems also means that their benefits are influenced by a broad range of factors inside and out­side of treasury, including:

Banking partners’ technology advancements.  Increasingly, banks are installing application programming interfaces (APIs) as a new mode of connecting treasury clients to banking technolo­gy platforms. This behind-the-scenes update replaces previous connectivity protocols, such as file transfer protocol (FTP) and SWIFT, which typically de­liver account and balance information once a day. Using APIs makes possible “more real-time interactions between the bank and your treasury systems,” Stark explains.

This access to real-time account and balance information enables a trea­sury function to enhance the precision of cash management activities and, ultimately, the value generated by cash-positioning decisions. Rather than sitting idle, excess cash can be fully utilized by the treasury team, either to invest or to pay down debt. This pro­spective benefit can be quantified and should be included in the business case’s ROI calculations.

Vendor technology improvements.  In addition to upgrades designed to facilitate information flows with banks’ newly implemented APIs, treasury man­agement system vendors are making other enhancements to their offerings as well. Niklas Bergentoft, principal in treasury with Deloitte Risk and Finan­cial Advisory, reports that vendors are currently focusing on “how emerging digital solutions such as blockchain, robotic process automation [RPA], data visualization, artificial intelligence [AI], and advanced analytics can comple­ment core treasury management tech­nologies to deliver a more automated and data-driven management solution end-to-end.”

Additionally, more and more trea­sury systems are being implemented in the cloud, either as a pure software-as-a-service (SaaS) application or in a private cloud with dedicated cli­ent databases, says EY partner and financial accounting advisory leader Raheel Syed, who leads his practice’s treasury consulting activities. Syed also points out that blockchain func­tionality in treasury technology, while still emerging, has the potential to eliminate float in financial transac­tions between trusted parties. When this functionality is more mature, it may do away with settlement process­ing time, as well as errors in booking, and may support real-time global inte­gration between finance and business operations systems.

Some treasury technology provid­ers have also added supply chain func­tionality to their platforms, Kolman reports. Even in cases where emerging technologies are not yet included in treasury management systems, ven­dors can discuss with prospective cus­tomers how they plan to integrate AI, blockchain, and other emerging func­tionality types into their offerings so that treasury leaders have an idea of what to expect in the near future.

Macroeconomic disruptions.  The Brexit fallout has driven home the need to for effective FX manage­ment, especially inside companies with exposure to the pound. A rising interest rate environment in the Unit­ed States has had a similar impact.

“Different rate environments require different ROI calculations,” says Mike Zack, pre-sales manager for GTreasury. “Companies can start capitalizing on excess money that they have in their accounts and invest overnight. So, the quicker that you get your balances into the system, the better off you are.” As a result, Zack points out, increasing num­bers of business and treasury executives are re-evaluating their existing treasury management systems to gauge those solutions’ ability to address risk and op­portunities sparked by external disrup­tions and trends.

Internal transformations.  The broad digital transforma­tions under way in many companies “can have impacts on investments in treasury technologies,” notes Bergentoft. Some treasury manage­ment systems are, or will soon be, augmented and/or complemented by the same emerging technologies that are driving change in other areas of the business, such as AI, RPA, and the blockchain.

At the same time, a closer-to-home internal shift appears to be driving interest in treasury technology up­grades. Sabina Zaman, partner and financial accounting services leader for EY, reports that awareness of the treasury function’s strategic contribu­tions is spreading across many organi­zations. “In times of growing volatility in global markets, changing regula­tions, increasing complexity, system integration, and technology advances, treasury is taking on a more important and strategic role—in some cases mov­ing from a cost center model to a profit center model,” Zaman explains. As a result, companies and treasury lead­ers are equipping the function with enhanced controls and data security, advanced analytics and productivity tools, and centralized hedging and hedge accounting capabilities.

As these factors drive interest in treasury technology upgrades and investments in new treasury manage­ment systems, treasury leaders need to take a hard look at the benefits of these solutions.

Quality or Quantity?

Treasury management systems can help aggregate data and improve its accuracy, reduce the company’s ex­posure to credit and market risks, and strengthen security. They can also in­crease process efficiency—both within treasury and between treasury and other back-office functions, such as accounts payable—by automating key actions and delivering unified visibility into the orga­nization’s cash position. “Having a trea­sury management system in place frees treasury professionals from mundane tasks and allows them to operate as a more analytical and strategic business partner to the rest of the organization,” ION’s Kolman says.

The benefits that a treasury manage­ment system generates can be catego­rized according to the ease with which they can be quantified. This is import­ant because ROI calculations are a criti­cal determinant of whether a business case will succeed or fail.

That’s not to say the business case should include no qualitative measures. For example, it is difficult to quantify the benefit of having treasury technol­ogy that meets the company’s informa­tion security policies, but policy compli­ance is extremely important given the potential costs of cybersecurity breach­es. Reducing the risk of fraud is another valuable, but difficult to quantify, ben­efit that buyers expect from a treasury management system, Zack reports. “By centralizing data in a treasury risk man­agement system, you can check for pat­terns in your transactions to ensure that there are no duplicate transactions,” he continues. “That’s not an easy return to measure, but it is something that people look for in a new system.”

That said, the business case for trea­sury management systems should prom­inently feature tangible estimates of ROI, asserts Kyriba’s Stark, because CFOs tend to prioritize those measures when mak­ing investment decisions. Benefits that are more easily quantified tend to derive from improvements in cash management and forecasting; cost savings related to bank account reporting and reconcilia­tion; data aggregation and IT-related sav­ings; and efficiency gains resulting from straight-through processing. Commonly cited benefits that are less easily quanti­fied include controls improvements, risk reduction, and fraud prevention.

The following ROI measures are frequently included in business cases, according to treasury technology experts:

Cash optimization.  A treasury management system should provide executive leadership with a view of the overall cash position of the company. A solution “should provide specific details on working capital and cash available for immediate consump­tion,” Grant Thornton’s Flexer asserts.

More precise determinations of cash on hand and cash trends can lead to bet­ter spending and investment decisions. There are several ways to quantify these improvements. For example, Stark sug­gests calculating the difference between investing an idle sum of cash overnight (at a rate close to zero) vs. putting the same cash to work in a more productive way, either investing to earn a higher yield for a longer period of time, paying down debt ahead of schedule, or paying invoices early to take advantage of ven­dors’ invoice-discounting programs.

In addition to estimating the finan­cial benefits of such activities at the corporate level, some treasury functions projecting an initiative’s potential ROI calculate how precise and timely visi­bility into different divisions’ cash po­sition could enable groups across the organization to better manage their own excess cash.

FX improvements.  Treasury management systems that improve the visibility and efficiency of FX-related processes can help com­panies more effectively hedge against currency fluctuations. “Having that in­telligence and using it to develop more effective responses can protect finan­cial assets, balance sheets, and/or cash flow, to the tunes of millions per year, if not more,” Stark says. “This area can re­ally drive a significant ROI, and one that will resonate with CFOs.”

Fee reductions and the optimization of banking relationships.  By improving ease of access and visi­bility into multiple banking relationships and products, treasury management systems can help treasury teams boost the effectiveness of their payment and spending decisions, Flexer says.

“Bank fee analysis is a common ca­pability within treasury technology,” Stark agrees, pointing to two categories of benefits: First, conducting a bank fee analysis often turns up errors and pric­ing issues, the correction of which can yield immediate returns. Second, over the longer term, this type of analysis can lead to better decisions concerning the number of banking partners and ac­counts the company maintains. “That’s the kind of project you don’t perform unless you have the data and the time,” Stark adds. “But the benefits can easi­ly be in the hundreds of thousands, to millions, [of dollars] depending on what your bank fees look like.”

Productivity gains.  Improvements in staff productivity are almost always featured in business cases, especially among first-time buy­ers of treasury management systems. However, vendors suggest that treasury executives think carefully before placing too much emphasis on these estimates. It might be tempting to make the case that automation introduced in a new system will “save” the treasury team from a certain amount of manual work per week or month. Such savings are usually expressed as a percentage of a full-time equivalent (FTE) and then mul­tiplied by the average cost of that FTE. The resulting figure may seem enticing. “It’s easy to calculate a cost associated with saving time—but you’re not real­ly saving time, you’re just redeploying it to other work,” Zack explains. Stark agrees, noting that CFOs tend to dismiss these types of ROI measures.

Instead of just equating productivi­ty improvements to time savings, Zack suggests taking the additional step of de­tailing what activities treasury staff will have more time to perform if they’re re­lieved of rote tasks such as manual data collection. Flexer agrees. She stresses that any benefits related to eliminating manual processes require specific de­tails of “how each of these items will positively impact your organization.”

Once a treasury group has identified requirements and begun ROI calcula­tions, they are ready to develop a formal business case for their proposed treasury management system implementation.

Make-the-Case Best Practices

While it is important to identify, prioritize, and calculate the benefits of a prospective treasury management system investment, the business case for the investment should address oth­er considerations, as well. It should describe the stakeholders who will be involved in the purchase decision, pro­vide a timeline for implementation, and detail how and when benefits will be measured and compared against the business case’s ROI projections.

Flexer says a business case docu­ment should lay out the steps the trea­sury team will take to assess and screen vendors, evaluate and select the right system, plan the implementation, and receive final approval for the purchase. For each of these phases of the soft­ware-decision process, the business case document needs to delineate key tasks and outcomes, as well as the time period in which the activities will be complet­ed. The business case should also identi­fy a resource plan, Flexer notes.

Stark encourages treasury teams to take a straightforward approach to designing their business case. Project managers should ask: “‘Do I know what I need—yes or no?’” he explains. “Once you understand your needs and require­ments, it’s a matter of evaluating the value of those requirements.” For exam­ple, improving cash forecasting is a fine objective, but if the project team does not attach a value to that improvement, the business case probably won’t pass muster. It needs to clearly describe how treasury plans to leverage better cash forecasts to increase earnings on excess cash (and estimate by how much), re­duce debt payments, etc.

Once the project team has assigned a value to each desired improvement, they can prioritize their initiative’s various goals. The prioritized list of project objectives should drive the software selection process.

Several additional practices can help make a business case for a major technology purchase more convincing:

Treat the business case as one component of a comprehensive plan.  Treasury consultants and technology vendors note that the most effective busi­ness case tends to be a key component of a larger improvement plan. GTreasury’s Zack advises treasury executives to de­velop a comprehensive blueprint for the evolution of their function. Implementa­tion of a new treasury management sys­tem and related process improvements may be key components of that plan, but the blueprint that Zack describes should provide a broader view of how the pro­posed initiative fits into the roadmap for treasury within the organization.

“The blueprint should define your current state, your future state, and how you will close the gap between the two,” Zack says. “The first part of the blueprint involves developing a business case. Once a new treasury management system is purchased, you have to follow the blueprint all the way through—in part, to determine if you achieved the returns that you identified in the business case.” (See the sidebar 4 Causes of Business Case Breakdown.)

Zack suggests treating the blueprint as a work in progress during the vendor selec­tion process. As treasury teams learn more about treasury management system func­tionality, they gain a more precise sense of the capabilities that are available and the process changes they will want to imple­ment to achieve their desired future state.

Get commitments from collaborators.  Given the large group of IT systems that treasury management systems pull data from, selection and deployment of treasury software should involve consul­tation with a number of internal stake­holders, to identify any requirements they may have for the technology. Typ­ical stakeholders include finance and accounting, procurement, sales, and IT. Banking partners should also be consult­ed, Flexer notes, to help treasury and IT leaders understand how easily a prospec­tive treasury management system will in­tegrate with banking systems.

“Having other stakeholders sup­port treasury automation can help your business case,” ION’s Kolman says. IT’s involvement is important in addressing cybersecurity requirements, as well as in determining which technology mod­el—on-premises, private cloud, public cloud, or hybrid—the deployment should follow. Some IT functions include a value-engineering team that can assist with calculating benefits and building the business case for technology investments.

“A well-developed business case should outline the expected short- and long-term benefits for the entire organi­zation,” Flexer explains. She also recom­mends that treasury leaders obtain formal buy-in and commitment from a project’s numerous stakeholders prior to finalizing and presenting the business case to senior management.

Include industry benchmarks.  When identifying hoped-for benefits in the business case, treasury managers should include industry benchmarks for additional context, says Kyriba’s Stark. If days payables outstanding (DPO) is an im­provement objective, for example, it helps to point out that the company currently lags behind industry peers in that metric.

“As you quantify the benefits you want to get from new treasury technology, it helps to show the CFO that the technology can help give the company a competitive advantage—or close competitive gaps—from a cost standpoint,” Stark says.

Consider external assistance.  Some treasury functions may not find sufficient in-house assistance for calculating ROI, tracking down industry benchmarks, or understanding the sys­tems integration work that a new trea­sury management system may require. In those cases, it makes sense to seek assis­tance from external consultants and/or technology vendors, who can often help craft strong business cases.

“We have a value engineering group,” Stark says, “and we frequently get asked to help potential clients with aspects of the business case, when they don’t have access to those resources.”

Obviously, the primary purpose of the business case is to prove to senior man­agement that investment in a new trea­sury management system is worthwhile. However, the business case has important secondary uses as well. It sets the stage for the implementation process, and it speci­fies the follow-up measurements that the organization will use after the fact to de­termine whether the investment is meet­ing its value objectives.

As treasury teams compare their ini­tial ROI projections with the actual returns six months or more after the implementa­tion, they will gain a precise idea of how their own business case calculations mea­sure up to reality.

Also from the April 2019 Special Report:

Sidebar:  4 Causes of Business Case Breakdowns

Sponsored Statement—Kyriba:  The Value of a TMS Platform in Transforming Treasury

Sponsored Statement—ION:  Seven crucial tips for selecting the best Treasury Management System for your business

Eric Krell’s work has appeared pre­viously in Treasury & Risk, as well as Consulting Magazine. He is based in Austin, TX.

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