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With solutions such as FiREapps, the role of Treasury within the organization can be more advisory and strategic.

Laurie McCulley | Treasury Strategies, Inc.
I'M A BELIEVER!

Industry: Web Technology

Abstract

A new Treasurer with bold, strategic sight quickly realized that whatever the firm was doing to manage its foreign currency exposure, it wasn’t enough; no matter how many people he threw at the problem, Treasury still couldn’t get the needed data in a timely manner. He instigated an effort to automate all treasury processes including building an FX management solution using extracts and reports, but soon understood that such an FX system would be impossible to update and maintain. During a meeting with IT to justify an external versus internal solution, the head of IT, learning of FiREapps’ functionality, asked, “Why would we want to build this ourselves?” The FiREapps partnership soon began.

The Challenge:

In its pre-FiREapps days, before the monthly FX analysis and translation process could even begin, this company’s Treasury staff closely monitored inboxes, waiting for spreadsheets to arrive from ten individuals in various departments. With the spreadsheets in hand, Treasury analysts finally began their exposure management activities, starting with a week’s worth of labor‐intensive, time‐consuming manual data movements to translate those spreadsheets into usable reports. At the time, Treasury hedged only five or six basic currencies out of close to one hundred. The process was admittedly unsophisticated; the team admittedly lacked confidence in the data, not knowing whether it was complete or accurate, and not being able to drill down into the sources of exposure.

How We Helped:

Using FiREapps’ proprietary data extraction methodology, it took only days to gather the firm’s live Oracle data into the application. However, the team’s newfound visibility into exposure balance data revealed, for the first time, several issues and errors in the general ledger. Treasury, crediting FiREapps as the mechanism for process establishment and Treasury‐Accounting balance and revaluation alignment, worked with Accounting over serveral months to clean the balance sheet, removing errors and extinct currency data while also establishing new processes.



Today, the firm subscribes to FiREapps for balance sheet analysis, using data pulled from their Oracle system, and also creates a currency cash‐flow forecast using a FiREapps‐built solution that extracts detailed income statement results. “We’re much better off from a decision‐making standpoint. We get better data; we get data quicker,” says the Treasurer. “And, in this market, it’s not just a nice to have – it’s a must have,” he adds.

Lessons Learned:

Quick enrollment – As mentioned, FiREapps delivered visibility to the exposure data within days. Were it not for the data clean‐up effort, Treasury was ready to go on the FiREapps application. Of all the systems included in the treasury technology initiative, FiREapps was the last one selected, but, even with the data cleansing, the first system running.



Risk Reduction – Within two months of subscribing, Treasury went from hedging five currency pairs with 50% efficiency to hedging 40 of nearly 100 pairs at more than 90%. The remaining 60 pairs did not need to be contract hedged; instead, along with a clearer and more accurate view of exposure, the team also discovered cash conversion and intercompany settlement opportunities that offered no‐cost, natural hedges.
Confidence Gains – Soon after improving hedge efficiency, the Assistant Treasurer (AT) quickly exceeded his MBO critiera to hedge at 95% efficiency, nudging upwards to 98% and more. The Board and Treasurer, recognizing that the objective was no longer worth measuring when it was so easy to achieve 100%, removed the objective and instead asked the AT to deliver no more than a $10 million FX gain or loss in any quarter. The AT also enjoyed a “high five” from a Board member after successfully navigating 2008’s volatility.

Operational Efficiency – Today, because the team spends just four to five hours on analysis at month’s end, they have found extra time for a second, mid‐month “adjustment only” analysis, as well as for value‐add activities such as determining hedging options, resolving operational issues, and testing and instituting new programs.

Timeliness – By obtaining exposure data more quickly, the team also avoids the volatility of the wait‐and‐translate period, further reducing risk by enabling Treasurers to quickly match the rate used to calculate balance sheet exposure. “Without FiREapps,” the Treasurer explains, “I’d miss that rate.” He further shares his belief that Treasuries without a technology like FiREapps should focus first on reducing risk rather than on creating efficiencies, as even unlimited staff cannot resolve time delays or give decision makers confidence in delivered data. During the recent euro turmoil, the firm was able to hedge within one day of the budget rate date, saving untold millions of dollars as the euro rapidly declined.

Low Total Cost of Ownership – This client, with a “do it ourselves” culture and more computer science Ph.D.s than any university in the world, quickly arrived at a buy over build decision after evaluating FiREapps’s “IT‐lite” SaaS solution. The application’s subscription cost represents nearly the entire cost of ownership, with the company’s IT resources being directed toward helping Treasury move forward rather than supporting existing efforts. The team also relates cost of ownership to speed of results, explaining that they now know more quickly what actions to take and the impact of those actions. “We’re much better at forecasting the impacts of our hedges, at knowing our exposures, and at understanding our cash balances,” the Treasurer says, adding that, “FiREapps pays for itself very quickly.”

Transparency – After pulling live Oracle data into FiREapps, the team learned, for the first time, of issues with the general ledger data. Treasury worked with accounting to clean the balance sheet, removing errors and extinct currency data. FiREapps also acted as the mechanism for process establishment, helping the two departments to set up consistent processes and an infrastructure for balance revaluation.

EPS Protection – This large firm with healthy margins can, theoretically, absorb FX hits better than can most companies. Similarly, its shareholders can, theoretically, not burden themselves worrying about the impact of FX on EPS. Because of this, the firm’s AT believes that companies smaller than his should be even more concerned than he is about protecting against FX risk. “If you have shareholders who don’t care about the impact of FX to EPS, FiREapps is only a nice to have,” he says. “But I don’t know any shareholders like that.”

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