Process Efficiency A holistic view to back, middle, and front office process improvement

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Process Efficiency A holistic view to back,
middle, and front office process improvement
J David Dunmire, CTP December 3rd, 2007

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Agenda Efficiency Improvement

• Functions
• Back Office
• Middle Office
• Front Office
• Overall Improvements
• Banking Connections/Electronic Banking Platforms
• System Usage
• Optimization of Personnel
• Use of Systems
• ERP Systems
• Treasury Software Applications
• Banking Systems
• Integration
• System Integration
• Cash, Treasury, and Risk Functional Integration
• Banking Information Integration

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Functions Back Office
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Functions Middle Office
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Functions Front Office
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Accounting and Treasury to Bank Process
Where are the processing efficiency
possibilities?
Deal Execution
Statement Data
Investment Positions
Transaction Execution
Delivery and information exchange
Validation and Routing Systems
Processing Systems
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Achieving Process Efficiency
To take a holistic view for process efficiency
improvement, it is necessary to step back and
view the parts first. WHERE TO START?!?
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Overall Improvements
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Understand what you have

• The first step to processing efficiency is to
  understand what you have and how it is used in
  your back office
• How many banking systems are used?
• Goal for back office improvement streamline
  banking systems
• How many different connections are in place with
  banking partners?
• Goal for back office improvement minimize
  number of banking connections
• How is the data captured?
• Goal Centralize and automate data capture
• Are there other systems in place?
• ERP / Treasury / Investment Systems For
  Optimal back end efficiency, the banking systems
  should be integrated with these and they should
  be integrated with each other

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Understand how you use it

• The next step to processing efficiency is to
  understand how the systems in place are used
• How is data captured and positioned in your
  treasury?
• To optimize back office efficiency, software
  should be employed and automated file feeds
  should be implemented between banking partners
  and the treasury
• Where there is a significant number of banking
  relationships, consider multi-banking services
• How many different connections are in place with
  banking partners?
• Goal for back office improvement minimize
  number of banking connections
• How is the data captured?
• Goal Centralize and automate data capture

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Understand who uses it

• The third step is to understand how your staff
  uses systems and what they do with the
  information once they have it
• Are they manually running reports in multiple
  electronic banking systems?
• This requires significant time investment and
  manual/duplicate entry of information
• It does not utilize the staff of the cash and
  treasury departs to their fullest capacity
• Is data passed via paper reports, spreadsheets,
  and electronic mail?
• Again, the members of your treasury staff could
  utilize their time analyzing data versus entry
  pass re-entry pass enter yet again.
• Does your staff spend significant time chasing
  information?
• Goal Optimize your staffs usage of time

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Use of Systems
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Three Primary Categories of Systems

• ERP Systems For managing the total operations
  of your organization. These typically support
  back and middle office function in your
  organization.
• Treasury Systems For managing cash, treasury,
  and risk management in your organization. These
  typically support middle and front office
  function in your organization
• Other Systems These include budgeting
  platforms, investment and debt management
  platforms, and transaction execution platforms.

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What is an ERP system?

• ERP stands for Enterprise Resource Planning.
  These type of systems integrate the operations of
  companies.
• This includes procurement, logistics, inventory,
  human resources, budget, a/p a/r, financial
  reporting, general ledger, and in some cases,
  treasury modules.
• Investment in and implementation of an ERP system
  is a major undertaking by your organization. A
  complete implementation these systems can take a
  year or more depending on the complexity of your
  organization.

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What is an TWS/TMS system?

• TWS/TMS systems integrate the treasury management
  function of companies.
• This includes cash management, treasury
  management and risk management. These systems
  will also integrate with ERP systems for GL
  reporting.
• Investment in and implementation of a TWS/TMS
  system is a fairly major undertaking by the
  treasury group of your organization. A complete
  implementation these systems can take 6-12
  months.

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Other Types of Applications
Budgeting Applications support the management
of budgeting and relate cash activity to
allocated funds Investment/Debt Applications
Supports management of FX exposures, dealing, and
risk. Will support FAS133/IAS39. Risk Management
Applications Will support risk management
(yield curve analysis, mark-to-market, what if
scenario analysis, option pricing analysis,
FAS133/IAS39 hedge accounting.

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Process Efficiencies Possible - ERP

• An ERP streamlines the day to day operations of
  your organization
• Supports activities across all state entities and
  municipalities
• Enables cross functional integration in your
  organization
• Enables just in time inventory management
• Streamlines the financial value chain
• Enables automation of collection and payables
  process
• Provides high confidence in validity of financial
  reporting information
• Integrates with bank EDI platforms (i.e. CFS,
  CPS) for payment initiation and information
  reporting
• Provides integrated budgeting capabilities

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Process Efficiencies Possible - TMS

• A TWS/TMS streamlines the treasury functions of
  your organization
• Automation of the gathering and reconciliation of
  end of day bank statements
• Integrated forecasting of ALL cash flows into
  cash positioning screens
• Automated assignment of GL accounting data
• Standard integration to the general ledger
• Investment, debt, derivative, and hedge
  accounting
• Standard interfaces with banks for information
  exchange
• Captures actual transactional activity for near
  real time updates of budget positions

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Process Efficiencies Possible Other Applications

• These applications streamline execution function
  for deal and risk management
• Optimized use of budgeted funds
• Efficient management of liquidity against funding
  requirements and allocated projects
• Full understanding of risk exposure for invested
  cash
• Readily accessible statistics and reporting on
  investment performance

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A streamlined efficient process
Your Accounting and Treasury Group
ERP/Treasury Banking System(s)
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Integration with Treasury and Information Systems
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Integration
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Internal Integration

• To consider a holistic view, these applications
  must exchange data both internally, as well as
  with banking partners and investment managers.
• The ERP will feed transaction data to the
  Treasury platform to update position the
  treasury platform to the bank for Transaction
  execution
• The Bank will feed the data back as information
  to the treasury system which will reconcile
  forecasts and feed data back to the ERP to post
  to GL and update use of cash against allocated
  funds
• The information presented in the statement will
  be validated for accuracy. The aggregate of the
  cash balances will be viewed with debt and
  investment positions to determine the optimal use
  of cash for the day.

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Achievement of Process Efficiency
With a solid understanding of the existing
structure and use of systems it is possible to
begin identifying places for process efficiency
in your treasury.
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Now it is possible to take a holistic view of
your Treasury for process efficiency and
improvement

• The First step is information integration
• Capture of the bank statement in an un-attended
  manner, feeding data through the Treasury,
  reconciling previous days forecasted flows,
  assigning GL account information, and generating
  entries to the general ledger and budget systems.

Bank A
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Information Integration

• Points to consider for higher process efficiency
• Number of banking partners and accounts with
  material balances
• Number of electronic banking platforms/connectivi
  ty solutions in place
• Availability of standardized statement formats
• Use of software for the automated capture,
  reconciliation, and posting of transactional
  activity
• Comparison against budget

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Now it is possible.

• The next step is cash flow and forecast
  integration
• The capture of forecasted flows from various
  entities throughout your state and capture of
  intra-day positions of cash from banking
  partners. Changes of debt and investment
  positions.

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Cash Flow and Forecast Integration

• Points to consider for higher process efficiency
• Automated capture of cash flow and forecasted
  information
• Tight Integration between budget, accounting,
  and treasury applications
• Capture of intra-day positions from banking
  partners
• Use of cash flow forecasting tools for
  predicting future cash in and out flows based on
  historical activity

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Now it is possible.
A third step is centralization and visibility of
all bank accounts, investment instruments, and
debt positions
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Integration of all Data

• Points to consider for higher process efficiency
• Automated capture of investment positions
• Storage and automated updates on debt positions
• A portal to view the data with multiple
  analytical capabilities
• Tools and information on limits and exposures
  across banks, instruments, and dealers

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Now it is possible.
To have all information in a single place, where
those with select needs (i.e. specific bank
accounts) have access to the same information in
a controlled and centralized manner.
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Achieving Process Efficiency
Looking for process efficiencies first requires
you to understand what you have. With this
knowledge, you can determine what you need. Once
you fulfill the need, you can execute a plan a to
achieve process efficiency on a holistic level.
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Questions?