University of British ColumbiaCash Management

CAUBO June 2006

Clint Meyers

Assistant Treasurer

Cash Management

2

Background

• Cash Desk implemented in 1993

• Portfolio balance (March 31, 2006)– Short Term $290M– Long Term $250M– USD $12M

• 571 transactions in 2005

• Total Dollar amount of transactions $2.15B

3

What is UBC Treasury today?

• Guardian of Corporate Cash for Management & Investment

• Maximize Returns associated with Investments

• Risk & Insurance Manager

• Leases, mortgages, non-research agreements, off-campus properties

4

What is UBC Treasury today?

• Faculty Housing, UBC Property tax collection

• Face of UBC Investment Management Trust

• Presentation will focus on the first two points

• Treasury will be synonymous with “Cash”

5

Drivers changing the role of cash management

• Increased data gathering & utilization requirements

• Optimizing cash resources (just-in-time cash) • Improving productivity• Increased regulatory requirements • Greater audit and control standards e.g. SOX• Focus on risk management• Greater competition for limited product

6

How do you manage your Cash information?

• Spread sheets

• Bank software

• Client Server Treasury Management System (TMS)

• Web based TMS

7

Debt InvestmentsOther Financial

Instruments

12 MonthForecast

Daily CashPosition

Accounting

Receipts &Disbursements

Banks

ManualEntry

FaxConfirmation

ManualEntry

ManualEntry

ManualEntry

ManualEntry

ManualEntry

ManualEntry

ManualEntry

ManualEntry

ManualEntry

ManualEntry

FaxConfirmation

SpreadsheetsSpreadsheets

Typical treasury processSpreadsheets Spreadsheets

Spreadsheets

8

Cost of Non-integrated System

9

Cost of non-integrated system

• UBC found the following:– Usage is error prone & complex

• Manual data entry wastes time & leads to errors• Spreadsheets can easily get out sync• Maintenance is difficult, if not impossible

10

Cost of non-integrated system

• Information can be scattered– Segregation of funds can be cumbersome– Control & audit standards are compromised– Ad hoc information request takes too long– No central cash position

11

Integrated System

12

Integrated Treasury Environment

Investments, FX

Long Term Debt

Short Term Debt

Accounting

Daily Cash Sheet

Long Term Cash Sheet

13

What is a Treasury Management System (TMS)?

• Software solution designed to integrate cash management, trading into one consolidated repository of treasury information.– Automate manual tasks; eliminate multiple data

entry– Cash and exposure forecasting– Effective portfolio and disclosure reporting – Risk performance monitoring– Automatic creation of all by products of a single

transaction– Built in controls, segregation of duties

14

Operational benefits of a treasury management solution

• Cash Management– Enhances cash forecasting capabilities– Automates multi-bank balance reporting– Provides a real-time, global cash position

15

Operational benefits of a treasury management solution

• Debt/Investment– Speeds access for product availability for trading– Aggregates positions for efficient management and

reporting– Facilitates audit and control

16

Operational benefits of a treasury management solution

• Risk Management– Allows auditing of investment parameters

e.g. counter party exposure– Improves decision making & “what if” analysis

17

Operational benefits of a treasury management solution

• General– Increases time for value-added activities– Automates interfaces to other internal/external

systems– Facilitates timely access to accurate information &

other ad hoc reporting

18

Summary of Data Sources In Current Position

ForecastRecurring

Items

CRM ForecastERP - A/P & A/R

Float

Financial Deal Flows

Models

Payments

19

20

Efficiencies gained• Reduced morning reconciliation time from 2

1/2 hours to 1/2 hour

• Minimized excess cash/borrowings

• Extended borrowing/lending terms

• Enhanced reporting capabilities needed to disseminate information & measure performance

21

Measuring performance

• Hard financial benefits

• Soft financial benefits

• Soft benefits

• Calculating an ROI for technology investments

• Barriers of an Integrated System

22

Hard Financial Benefits

• Reduces Daily Balances available

• Improves the Timing of Financing Decisions

• Improves the productivity of CORE Treasury Functions

23

Soft Financial Benefits

• More Accurate scheduling of Debt & Maturity• Enhanced Long Term Maturity Spreads• Avoids Sales & Related Losses

24

Soft Financial Benefits cont.

• Reducing dependence of a simple Cash fore-caster

• Improving credibility within organization

• Managing your relationship with other groups in the organization

• Flexibility of utilizing a database system for manipulating data

25

Other Soft Benefits

• Improved Treasury Dept Confidence

• Improved Image

• Improved Forecasting credibility

• Reduced Startup time for new employees

• Reduced number of errors in daily activity

26

Barriers of an Integrated System• IT System reliance

• Specialized training of staff e.g. Crystal Reports

• Non-compatibility with Financial Management Systems

• System crashes

• High Start-up and on-going costs

27

Calculating an ROI

• Increased Investment Revenue

• Redirected Costs

28

Increased Investment Revenue• Reducing the daily forecast variances

= $1M * 5%

• Reduction of collected funds left in bank accounts on a daily basis (idle balances)

= $1M * 5%

• Higher investment yields due to improved timing of trading activity

= $5M * 0.5%

• In-house management of funds

= $290M * .001%

Total Net Revenue Increase of $225,000/yr

29

 Redirected costs

Workload on a treasury analyst reduced by 50% e.g. verifying daily bank balances

Redirected staff effort of 50% of 1FTE (@60K/year) =$30,000

Work load by Treasury Dept is cut by 30%

Redirected Costs: $30,000/yr 

30

Estimated Payback Period

• Conservatively 2 years

• Increased yields of approx. 10 basis points of self-managed funds

31

Conclusions

• TMS does not have to be an expensive proposition

• Payback can be almost immediate

• Minimum float required to offset implementation costs - $50M