Technology Risk & How to Manage It -

What Business Am I In?

Treasury is in the risk management business, a business that demands forward looking solutions to such questions as:
- It is 10AM, where in the world my company's cash is located?
- Should the company invest or borrow, when and in what currencies?
- What is the company's global, after tax cost of funds or other costs associated with its banking network?

Therefore, the last thing the treasurer needs to worry about is whether the types of business tools he or she is using to can supply them with the "horsepower" needed to  answer the above. Inability to provide timely and satisfying answers to treasury's "customers" (CFO, Controller, operating units, etc) can expose a Treasurer to another type of risk called "career risk".

Despite all these risks, companies continue to plan and operate with last century technology or tools to produce out of date, incomplete and, in many cases, just plain wrong results or information. No organization actively seeks to employ tools that allow them to make mistakes faster; yet, many continue to operate with tools that present conflicting or inconstant results.

What follows are some suggestions about how treasurers and their organizations can manage to control a type of risk that if often overlooked, namely "technology risk"

What is  Technology Risk?
Technology risk has two components. The first is closely aligned with operational risk (i.e. the risk that the actual amount of output produced will verify in quantity or quality from what was expected) and is the risk associated with selecting, developing or implementing the "right" tools necessary to produce the desired output.

The second component of technology risk is "information risk' which is  the ability or inability to know when the desired result has been achieved. In other words, "good" technology must be capable of not only producing actual results, but have the ability to compare the quantity and quality of the desired results to predefined targets. The best technology can also display and communicate these differences and even suggest how management can reduce these differences or conflicts to acceptable levels.

Define the Problem
As a first step in managing technology risk it is helpful to ask the question, "What are my problems today and will they be the same ones in the future?" A second step is to establish limits on how much of your problem can be solved by acquiring and using technology. Example, today's state of the art treasury workstations do not care how many banks accounts, credit facilities you possess, but having too many "moving parts" makes any implementation more costly and increases technology risk.

The next step is to seek out others who have had / solved similar problems to understand whether technology was the solution or was part of the problem itself. As the confederate general Nathan Bedford Forrest observed "getting there firstest with the mostest" is the key to success. Therefore, acquiring a tool that does not contribute to success will most likely create additional, unacceptable levels of technology risk despite what the vendors promise.

Before taking on any more (new?) risks it maybe helpful to look at the sources of existing technology risk. For most companies this process starts by looking at the use of stand alone spreadsheets. Ask yourself " How many spreadsheets does it take to operate my treasury?" If you know, then you will probably wonder why so many; the more there are the greater the risk that one or more will fail, be out of date or wrong.  If you don't know, then you are taking on too much information risk, increasing the probability of making a bad decision.

Spreadsheets are not bad tools even if they are the product of 1980's technology. Their biggest failure is that they do not play well with others; their inputs and outputs are not standard, there is no history of changes made or who made them or when. Mr. Sarbanes and Mr Oxley would not be amused. Therefore, reducing the number of spreadsheets maybe another step in managing technology risk.

Additional control over technology risk can come from standardizing the inputs and outputs from the remaining spreadsheets, allowing  them to be linked to inputs and outputs from other processes . Example, why transcribe cash management information from a bank's system to a treasury spreadsheet only to have it transcribed once more by Controllers to produce accounting data when both users can download the same data? If this risk reduction effort is rigorously followed the end result is the realization that many spreadsheets are unnecessary as long each users can store and retrieve data from a central, reliable data source.

Managing Technology Risk
Employing more databases and fewer spreadsheets allows treasury to take the next step in reducing technology risk, namely the use of a comprehensive and integrated series of databases usually known as a treasury workstation.

Arguably, taking this next step can actual increase technology risk in the short run (i.e. lack of resources can lead to a rush to judgment and the selection of the wrong technology tool for the job), but the stay-where-you-are alternative dooms treasury to a future plagued with operating processes and technology designed for the past.

The process of changing technology is eminently survivable if certain guide lines are established upfront:

- Select a system to not only do what you do today but make sure it can do what is NOT being done today.
- Change is a full time job requiring full time resources and the maintenance of project  momentum over the project's life. Don't start until the resources are available
- A system vendor's responsibility is to make sure their system works; your responsibility is to make sure it produces results
- Your system's output is another system's input; make sure your results are compatible and don't end up creating problems for someone else. Inputs and outputs must all hang together (or everyone shall all hang separately, with apologies to Benjamin Franklin)

Bruce Lynn
Managing Partner
The Financial Executives Consulting Group, LLC
Darien , CT 06820

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