WHY HASN'T FINANCE EMBRACED AI FOR FORECASTING YET?
Jason Dobbs, Senior Manager & Kyle Olovson, CTP, Senior Consultant Treasurers and CFOs will feel increasing pressure to adopt AI technologies, such as machine learning and big data analytics, to facilitate financial forecasts. But with the available software tools, enriched data and, most importantly, the need for such initiatives, why isn’t this something that everyone is doing? It is irrational that humans refuse to relinquish more control to AI when running data analytics to produce a cash forecast. When any structure is employed to design a forecast, there is always improvement over an unstructured funding amount based off sparse, random e-mails or bits of data. AI takes this structure to the next level. Humans have the ability to recognize just a few patterns. For instance, if a transaction called “payroll” appears every Friday for a certain amount, a human will pick up on it, remove the term “payroll,” and put in a random sequence of letters and numbers and it will be overlooked. This is where a machine will be able to find the repetition in different attributes of the payment. Ultimately, we are looking to have AI pick up where humans can no longer recognize the patterns. The recognition of certain patterns does depend on humans to get things started, and this poses a risk to the model. When a human designs the model, there can be biases that affect the outcome, sometimes latent and sometimes for good reason. There may be an intercompany funding transaction that occurs quarterly, but for the sake of analysis, a treasurer may put in place parameters restricting the computer model to only the receiving side of the intercompany. When the funds are received, a flurry of payments will likely go out the door to meet top priority obligations, a pattern a computer will recognize. The corporation’s buildup of cash from operations will be unknown to this analysis, so the computer model will not be able to see how any of this cash going out the door benefits the company. This analysis may have other uses, but this human behavior, though a requirement, depicts how the human setting the parameters for AI forecast analysis may result in a flawed model. USING AI Once your data is collected and you have your software, use machine learning to analyze the data. The technical formula for AI has only four main parts:
Now that you have taught the machine all that you know, the analysis will pull valuable insights. But this lesson does not stop here. Some very advanced programs will use the trends to find more trends and repeat this process to build an optimal business model. Most of the software available will present a resulting trend analysis and use predictive analytics to forecast a company’s activity. You can use the insights derived from this analysis to drill deeper into your data by redefining the four parameters above. If you notice a relatively flat trend, but you know one account in a company has large balance fluctuations, do a separate analysis on that individual account as the data cluster. Or if you do not see the spike in business from Black Friday, make sure you set your intervals to the day or week, not quarter or year. FURTHER USE CASES Aside from the core benefits already discussed regarding a quality forecast, we need to think of extraneous benefits when we have the power of AI in our office. In addition to identifying typical historical trends, using AI is excellent at identifying transactional patterns, which is useful for isolating transactions that do not align with those patterns. Many times, these atypical transactions are business as usual that can be explained by a quick call to a colleague in procurement, but other times they are fraudulent or mistakes that somehow made it through your approval workflow. When your forecasting is operating as it should be, these outlier transactions are easily identified. In addition to pattern recognition, AI and machine learning are powerful tools for identifying relationships between data sets. For instance, if you’re a global retailer that needs cash on hand, you’ll want to choose an optimal amount to keep on premises. A decision to keep too much cash on-hand might not be an issue if it happens at a few stores, but if the mistake is being made globally, we could be talking about large sums. With machine learning, you can input data such as the geographic locations of your stores and the products being sold at each to see if the amount of cash on hand is warranted. These complex relationships would be near impossible to predict as an individual, but machine learning makes it possible. Jason Dobbs, senior manager, and Kyle Olovson, CTP, senior consultant, are experts in corporate and international treasury at Actualize Consulting. For more information visit actualizeconsulting.com. They can be reached at jdobbs@actualizeconsulting.com or kolovson@actualizeconsulting.com
0 Comments
Irving Goldfinger, IT Director, Treasury & Capital Markets
One of the most challenging tasks during any project is managing difficult conversations. Cultivating positive conversations under pressure, or when delivering less than desirable news, requires preparation, experience and skill. The following techniques can be used to approach a difficult conversation. 6 Techniques to Optimize Your Conversation 1. Use the Correct Words - Speak to “our partnership,” “our challenge,” “our project,” and “we share common goals.” - Use terms like “important for project success,” “critical path to go-live,” and “in the best interest of all parties.” - Point to positive historical milestones “as you know, together we achieved all of our goals during the first phase of the project,” and “we have been a great team for a long time now.” - Praise the entire team’s commitment and contribution to the project “…and the members of project team, from both organizations, have been amazing.” 2. Take Ownership - Own up to the problem. Remember that there is no such thing as “not your fault”, even when it is not your fault. Take ownership of the problem at the start of the meeting. This pre-emptive strike will help disarm the audience, who may have been prepared for a battle. - “As the Project Manager, I am completely accountable” are often the magic words that the audience is desperate to hear. - Engage the audience’s assistance - “We need YOUR help to address our current challenge.” 3. Listen Before You Speak - Allow the audience to verbally release frustration at the start of the conversation. - Do not interrupt the initial volley of complaints. Let the speakers get their frustrations off of their chests. - Allow everyone to confess their sins, and then, confess yours. “There is enough fault to go around...” - Take notes to show that their feedback is very important to you. 4. Show Compassion, Humility, Sincerity, and Understanding - Start with “I completely understand your frustration.” - Admit to “we definitely need to improve our performance in this area, and very soon…” - Start sentences with “as you correctly pointed out, we are not where we all expected to be, at this point in the project.” - Show that the situation is disturbing to your sense of professionalism and accomplishment. 5. Bring “Friends” to the Meeting - Identify others (friends) who can “help” with the conversation and ask them to participate. - Invite senior management when addressing a more junior level audience. - If the audience is a big fan of a particular member of your team, bring him/her along. 6. When Possible, Dictate the Meeting Venue - Find a neutral venue away from the office. A meeting at Starbuck’s, over a cup of coffee, will usually be less hostile. - Remove the audience from their comfort zone where they are usually “in charge.” Even the most experienced professional can feel nervous entering a difficult conversation. Preparing yourself ahead of time and using these proven techniques will maximize your chance to achieve a favorable outcome. For more information contact Irv Goldfinger (Actualize Consulting) LEVERAGING AUTOMATION TO ENHANCE TREASURY FUNCTIONS GLOBALLY
Priscila Nagalli, CFA, CTP, Director of Treasury and Capital Markets As your company expands and evolves globally, so should the automation of your Treasury Management System. A comprehensive strategy is needed on many levels covering everything from learning local regulations, requirements and identifying how operations differ since often regional offices have more focus on general finance matters than overall company liquidity and risk analysis. Entering the international market with a growth agenda designed to support the complexity of a global business with special emphasis on leveraging automation is paramount. Consider the "why" behind deciding to roll out TMS.
Gaining internal and external support Internal:
External:
Establish an implementation plan Realistic expectations in treasury and finance are dealt with all of the time and we are experts on this topic. Yield and FX curves, stock prices, liquidity management, earnings expectations, tight controls are part of our daily jobs and we intimately know what happens when expectations aren’t met in these areas. Implementations are no different. Set the right expectations up front with stakeholders, project participants, the vendor and YOU. As your company evolves, so should your systems. By enhancing your global treasury functions, you simplify bank connectivity, improve payment security, lower implementation fees, and achieve optimal long-term structure designed to accommodate your global expansion. The goal is for technology to be used as an integral part of your liquidity and risk management, not just functionally implemented. About Actualize With offices in the US, UK, and Canada we service a global client base. Our deep expertise is in Treasury, liquidity, risk management, payment and accounting solutions. We focus on delivering high client satisfaction and ensuring our client’s need are met. For more information regarding our services, please visit our website (www.actualizeconsulting.com/treasury.html) Reach out to me directly to schedule a meeting pnagalli@actualizeconsulting.com. THE BENEFITS FROM INVESTING IN A TREASURY MANAGEMENT SYSTEM (TMS)
Priscila Nagalli, CFA, CTP, Director of Treasury and Capital Markets The implementation of a Treasury Management System (TMS) provides an organization with many benefits. Traditionally, corporations have utilized spreadsheets and manual processes to maintain cash visibility. These methods bring about many challenges. The Accounting department can face challenges, including manual and time-consuming cash reconciliation and General Ledger posting, Accounts Payable may incur costly wire fees due to bank limitation on utilizing different transmission options, or no direct feed from the Enterprise Resource Planning to the bank system. The Treasury team suffers manual and time-consuming data compilation for cash application and multiple sources of delayed information. The Tax department may come across a cumbersome Foreign Bank and Financial Accounts (FBAR) reporting process, intercompany loan, and foreign exchange activity. A Treasury Management System (TMS) can remediate these issues and provide greater timely analytics. Within the Accounting department, a TMS greatly reduces operational risk on automated General Ledger posting and reconciliation. It delivers a centralized source of information for cash, inter-company, Foreign Exchange, Debt and Investments transactions while providing opportunity to reduce bank charges by implementing netting and payment hub for global activity. In addition, the company becomes less sensitive to formatting and connectivity changes related to payments. The entire Finance Department now has one centralized and control-proof source of data for payments, cash, liquidity management, working capital analytics and accounting. The benefits of implementing a Treasury Management System (TMS) don’t end there. The Treasury division will holistically find: • Risk mitigation and enhanced control environment • Connectivity to all banks for statements & payments • Accurate and consistent data • Adoption of world-class processes • Automation and streamlining of processes • Significant time savings to allow Treasury to concentrate on strategic issues • Transformation from operational to analytical • Scalability for future growth • Regulatory compliance support • Stronger business continuity plan • Improved data analysis • International remote capability As you can probably see, there is much to gain by using a treasury management system for your company’s treasury needs. If you would like to learn more about how Actualize can assist you with selecting and implementing a Treasury Management System, I can be reached at pnagalli@actualizeconsulting.com. About Actualize With offices in the US, UK, and Canada we service a global client base. Our deep expertise is in Treasury, liquidity, risk management, payment and accounting solutions. We focus on delivering high client satisfaction and ensuring our client’s need are met. For more information regarding our services, please visit our website (www.actualizeconsulting.com/treasury.html) THINK LINEAR: THOUGHTS AROUND TROUBLESHOOTING NOW THAT YOU'RE LIVE John Kruger, Senior Consultant, Treasury & Capital Markets
From my years in Customer Support, Customer Success and now Consulting with clients, I’ve always tried to keep things simple when troubleshooting. Much of what we are striving for is to add time back into our day as we can never seem to get enough of it. So, when it comes to distance and the amount of time it takes to get from one place to another, it’s much easier to think about it in a straight line with minimal turns and re-routes. Tiger Woods’ advice from his father about ‘putting to the picture’ to envision the ball going into the hole before he even strikes it is a unique way to visualize the route it will take. For my Gen X’ers, envision the 2D video games of yesteryear as you typically start at the left to end at the right. There’s likely to be obstacles along the way but the goal is to try best to create a straight path to limit the amount of time it takes to get from start to finish. For me, it’s always been about the concept of signal flow to troubleshoot a process. I’ve always had a love for music so naturally I wanted to learn how it’s made. My curiosity drove me to pursue a concentration in college for Audio Recording Technology, the study of how to record, mix, and edit audio through the use of various different technologies. From reel-to-reel tape machines, digital audio tape, and the industry standard digital audio workstations of today, the creation of music requires a number of moving parts. Much like a system implementation or daily use of a SaaS platform there is much to learn on how it functions and to fully understand why it’s more beneficial to use it over spreadsheets. However, it’s more important to understand what to do if something goes wrong or doesn’t look right. Where do you start? How do you identify what went wrong? How do you resolve? When you are recording audio, you need microphones which will capture an instrument, voice, or sound effect. This requires you to plug a mic into a panel. When you plug that mic in and something is said/played into a mic, a signal is sent to be received on the other end at the mixing console, and finally out of the monitors (speakers). Much like utilizing a piece of software when you are entering information into a field, or setting up a feed into the software, or even placing a file in a folder that will be swept up by a process, it’s important to stop and think about what you expect to happen on the other end. If I plug in a microphone and hear no signal, am I muting the line? Is it passing through another piece of equipment before it reaches the console? Is my volume turned up enough for me to hear it? Translate that to a SaaS, for instance when my bank statement is integrated do I have the correct reconciliation terms established for the process to properly complete? Does my bank statement have all of the necessary transactions? Is my environment up and ready to accept statements? While thinking of this, try to envision it in a line from left to right noting the possible areas where this process can break down, but all while remembering where it started and where you expect it to stop. Much like a waveform on-screen (created from left to right), you can envision things moving on a straight line. Another key element of this concept is to understand where you currently fit into the process and what the next step will be. Are you the initiating party? In the middle? The last step? This is helpful to understand how you are impacting the data that is being moved and even easier for you to convey where you need assistance if your end result is not to your expectations. Given most processes were created by someone else it’s helpful to have a documented process to follow, but it’s also important to understand where the hand-offs are and why the process was drawn up the way it was. Perhaps this is the opportunity to re-write some changes, all while thinking linear!
PERFORMING TREASURY TRANSFORMATION ASSESSMENT TO OPTIMIZE YOUR TREASURY ORGANIZATION TIPS
Chad Wekelo, Principal and Owner at Actualize Consulting. Follow the below steps to perform a Treasury Transformation Assessment in order to optimize your treasury organization: 1.) Define Scope To optimize the treasury initiative, a transformation assessment should be conducted at your organization. The first step in designing this assessment is to define the scope. When developing the scope, all items should be clearly defined and prioritized. Ensure you understand and incorporate the strategic direction of the organization into a plan, obtaining leadership support and commitment from all impacted stakeholders. Create measurable objectives and incorporate them into fabric of the project. 2.) Current State Definition When defining the current state, you should leverage a questionnaire to gather comprehensive and consistent information obtained from a cross section of all groups. Follow up by reviewing the questionnaire responses and tailor interviews based upon the replies. Combining this information with the capability assessment of systems and resources, the current processes can be documented to focus on obtaining data required to drive the key objectives. Finally, actively engage the stakeholders to review and validate these results. 3.) Future State Design Next, the future state should be outlined and designed by first drafting the process flow and creating an ideal future state technology architecture. Include multiple versions to coincide with the roadmap phases. To achieve the desired future state model, the opportunities should be designed to streamline the processes, roles, and responsibilities. Define staffing skill requirements by office and functional area to determine any required realignment of processes or resources to finalize the desired future state. 4.) Prioritized Roadmap A roadmap should then be outlined. A roadmap is a strategic plan describing the steps an organization needs to take to achieve its stated outcomes and goals. It’s important to clearly outline objectives and link tasks and priorities for action in the near, medium, and long term. Create an impact assessment to weigh the benefits versus cost and time required to achieve the desired outcome. Outline the timeline, resources and budget required to achieve the stated objectives and prepare business cases. Metrics and milestones should be defined to allow regular tracking of progress towards the roadmaps' ultimate goals. 5.) Execution and Evaluating Success Finally, ensure firm leadership backs the project and key stakeholders are consistently engaged, participating, and accountable. In the beginning, utilize a phased approach to obtain early wins and minimize project risk. Lastly, incorporate milestones into the project plan to leverage gating criteria including the stakeholder sign-off. If you would like assistance in developing a transformation assessment, you can reach out to me at cwekelo@actualizeconsulting.com. 4 STRATEGIES FOR TREASURY TO PROTECT AGAINST PAYMENT FRAUD
Jason Dobbs, Senior Manager, Treasury & Capital Markets To minimize the increased threat of fraud, it is imperative for treasury controls to match internal compliance, follow risk guidelines, and implement necessary fraud prevention policies. 1. Data Security Host information on an external cloud to ensure treasury data is accessed safely. To determine which cloud to utilize, ask the following questions:
2. System Security Be sure the system remains secure from the start by taking application security into account. Cyber attackers prey on weak login and authentication procedures. Create a strong and "difficult to deduce" identification and password. Establish a combination of password controls as follows:
3. Payment Controls Upgrading payment workflows are an opportunity to increase the controls found in payment policies. A consistent security protocol as well as one single set of limits should be utilized. Once outside the safety-net of the application's security, be sure a streamline and secure process is followed with these key elements: the encryption of data being transferred, arrangement of an automated confirmation of receipt, and a single source of record for the data. Finally, visibility of the payment policies must exist within the workflow and real time visibility of auditable events (such as approvals). It is critical that these controls be standardized across all payments, in all geographies. 4. Screen Payments Screening payments not only ensures regulatory requirements are met, but helps to prevent payments do not fall into unintended hands, but ensures regulator. Review screening within payment systems against the OFAC, EU, and UN sanction/security lists and custom scenarios to determine what the bank will discover. To greatly reduce the chance of fraud, align payment policies with screening rules. These security controls even helped uncover the penetration at the bank of Bangladesh. If you would like assistance in developing a framework for fraud prevention, you can reach out to me at jdobbs@actualizeconsulting.com. I will also be attending the NYCE Conference Jay 30- June 1. Let’s connect. For more information visit http://www.actualizeconsulting.com/treasury.html Priscila Nagalli, CFA, CTP, Director of Treasury and Capital Markets
How to approach forecasting effectively and most important, making it realistic, achievable and transferable leveraging technology. Below are 8 key tips to establish effective cash forecasting: 1. Information Availability Ensure quality data is available to position the project for success. The accounting budget is a good base to develop cash forecasting as long as the timing and discounts are taken into account. There are many areas of the company which provide input into the cash forecasting, these areas include but are not limited to:
2. Company Culture It can be hard to maintain an accurate forecast as something is always happening internally or in the market. It is essential to foster an environment stressing the importance of cash flow management while continuing to communicate and share information throughout the entire process. 3. Internal Systems It is critical to know the system infrastructure. A cash forecasting technology can be utilized to create, simplify, streamline, and automate the forecasting process. Cash forecasting technology automatically populates known cash flows and constantly evaluates forecast effectiveness. This allows modifications to the forecast to be made in real-time based upon a seamless variance analysis. 4. Communication & Training Initially, communication and training around the forecasting objectives and process should be provided to all areas. Then open communication should continue between the business partners. It is the responsibility of subsidiaries to deliver accurate forecasting information to treasury and for treasury to provide forecasts based upon the feedback to the business units. 5. Accuracy It is essential that reported information be reliable and accurate. Since cash forecasting may be updated daily, an evaluation of the forecasts versus the actuals should be conducted regularly. This analysis can identify trends, which can be discussed to ensure the data remains precise and everyone is aware and engaged on the forecasts. 6. Harmonize Forecasts The creation of transparency should span across the organization. This allows various business areas to ensure that all related forecasts concur to generate the central view. 7. Objectives Establish a forecasting process with well-defined objectives and ensure these objectives are clear and understood by all areas. 8. Approach It is important to develop an approach to forecast and gain consensus on this approach with all business partners. Five simple questions provided by Aetna can be asked when evaluating your forecast process: 1. What’s the purpose of creating a cash flow forecast? 2. Who is audience of the data? 3. Who owns / updates the forecast? Treasury 4. Who contributes to the forecast? Business partners 5. How do you evaluate the effectiveness of your forecast? For more information regarding our services, please visit our website (www.actualizeconsulting.com/treasury.html) or reach out to me directly at pnagalli@actualizeconsulting.com Craig Chapman, Manager, Treasury & Capital Markets
To transform your treasury function, focus on the priorities below: 1. Determine what is driving the need for change, and create a blueprint for the future. The need for a change could be fueled by one or more of the following:
2. Develop business requirements, and gain approval for the treasury initiative and sample initiatives. To properly plan for the treasury initiative, a business case should be created and socialized to evaluate the current state and future state business requirements. It should prioritize the future state initiatives in order to align the effort and the impact. A cost benefit analysis can be conducted to efficiently depict the effort and impact of the initiative. The business case should then be presented to management for approval and sign-off on the scope. When developing a business case, you should include work hours, fixed cost for connectivity, bank fees, paper check processing, and maintenance of systems for your total spend on treasury processing. You should also include the costs associated with implementing treasury technology: license fees, maintenance fees, and consulting fees. It is important to measure the potential saving resulting from implementing technology; this includes staff reallocation or elimination, less overall space and equipment and fewer office expenses, as well as the reduction in vendor management and technology maintenance across all business units. The business case will also incorporate the benefits resulting from the technology transformation: improved control over the payment process, elimination of re-work correcting errors, savings from global visibility of company cash flows, transaction processing efficiency that minimizes risk and ensures regulatory compliance, and standardization. 3. Evaluate and select the right vendor (if the initiative involves technology). Once a business case has been developed and approved, a treasury technology vendor can be selected. Prior to requesting information from vendors, a project kickoff meeting should be conducted to review the feasibility and business and technical requirements. The first phase of the project includes requesting information from the various vendors through a Request for Information (RFI), an RFI scoring methodology, vendor demonstrations, and vendor pricing. The second phase entails narrowing the vendor selection to a short list, gathering the use cases, determining the use-case results and validating them, and checking the vendor references. Finally, an evaluation and decision can be made, and the contract can be negotiated. 4. Identify the implementation methodology to follow. Now that you have determined the right treasury technology vendor for the job, you can implement a high-level process plan. This entails mobilizing and planning the project, team structure, charter, and governance. The development requirements, detailed configuration, and environment management are designed, so the system can be built. The system build will entail configuration and unit test interfaces, development, and data migration. The final prep and testing will be done before going live with the technology. Once the system is live and a post-live assessment has been completed, the system will require support for unexpected issues and/or defects, and the project can be closed. 5. Measure the success of the initiative/project. Finally, measure the success of the Treasury Management System. Potential benefits include the following:
Chad Wekelo, Principal and Owner at Actualize Consulting, describes best practices for obtaining deeper clarity on, and confidence in, treasury software decisions.
Click the image above to view the article |
News OverviewLatest release news and tips for your Kyriba implementation. Categories
All
Actualize ServicesArchives
December 2020
|