The Big Business of Big Data in Liquidity Management –How Big Data Can Revolutionize Your Cash Forecast

Mid Atlantic Association for Financial Professionals (MAAFP)

Mark O’Toole

@MarkDOToole

Big data?

Process of using technology to turn large amounts of data into actionable insight

Descriptive

analytics

Diagnostic

analytics

Predictive

analytics

Prescriptive

analytics

“WHAT HAPPENED?”

“WHAT WILL HAPPEN?”

“WHY DID IT HAPPEN?”

“WHAT SHOULD I DO?”

What is Big Data?

VISIBILITY

TIME

Technology Trigger

Trough of Disillusionment

Slope of Enlightenment

Peak of Inflated Expectations

Plateau of Productivity

Big Data is now beyond the “trough of disillusionment”…

Data Analyst Platforms

Data Science Platforms

VisualizationBI

Platforms

MachineLearning

Speech& NLP

HorizontalAI

Computer Vision

Search LogAnalytics

SocialAnalytics

Web/Mobile/

CommerceAnalytics

Data & Analytics – Cause & Effect

• Mobile

• Social Media

• Internet of Thing (IoT)

• Cloud

• Big Data

• Millennials as Agents of Charge

• Marketplaces & Sharing Economy

• Visualization & Gamification

SOCIALISATION OF

FINANCE

CONSUMER

EXPERIENCE

OPERATIONAL

EFFICIENCY

NEW BUSINESS

MODELS

FS PRODUCT &

SERVICE

DISAGGREGATION

Big data? - Applications

Source: Experience UX

pre-hurricane consumption prediction

Source: Kellogs.com

GPS based on (real-time) distributed data

Big data? - Applications

Logistics prediction & optimization

Source: UNIglobalunion.com

Big data? - Applications

Data-infused production(association rule learning)

An organisation typically uses less than 1% of the collected data to make decisions

Source: Unlocking the potential of the internet of things, 2015 McKinsey & Company

Cash flow forecasting remains a treasurer’s priority

Source: PwC The virtual reality of treasury 2017

Big data in finance & treasury

Identifying fraud through irregular patterns

Big data – The Four V’s

Source: IBM datahub

VOLUMEScale of data

VARIETYDifferent forms of data

VELOCITYAnalysis of streaming data

VERACITYUncertainty of data

BIGDATA

Cash forecasting

Do you use a lot of data? (more than 65536

transactions)

to predict cash forecasts?

Cash forecasting

VOLUMEScale of data

How many data sources do you use to make a cash flow

forecast? (ERP, CRM, Bank statements, trend analysis,

manual data…)

Cash forecasting

VARIETYDifferent forms of data

How often do you refresh your short-term/mid-term cash

forecast?

(Daily, Weekly, Monthly, Quarterly, I don’t make a cash forecast)

Cash forecasting

VELOCITYAnalysis of streaming data

How do you ensure no mistakes happen in your data

capturing/consolidation?

Cash forecasting

VERACITYUncertainty of data

Challenges in Cash forecasting

What does treasury look like today?

ACCOUNTING

Monthly Reconciliation & Closings

FP&A / PROCUREMENT

Working Capital. Liquidity, FX & Price Volatility

Hedges

ERP Subledgersystem

Cash System & Bank Portals

FX system

ExcelRisk

System

Finance/ Excel

TREASURY

Cash Management Risk Management: FX & IR Hedges

Treasury today – unintegrated systems & spreadsheets, siloed by group or region, with a lack of visibility…

High IT Support

TMS

Cash Management in global & complex businesses is challenging

ERP

¥$€

£

Multi - Entity

Multi - Bank

Complex ERP

Multi - Currency$

ERP

ERP

Less time left for actionsLow accuracy, so more buffers

Absence of targetsOnly yearly

Few people involved & no corporate cash flow

awareness

Banks

Number crunching & data analysesTime-consuming processes

XLSERP

Challenges in Cash flow management & forecasting

Admin & Analysis

ActionFollow-up

Forecast accuracy is a for 75% of treasury professionals

How do we tackle these challenges?

A well-thought-out process! –And Technology!

The key to an accurate and efficient cash forecast?

01 02 03 04 05 06

Understand your working capital drivers

Understand your cash flow drivers

Define your Cash forecasting horizons

Define your Cash forecasting sources per time horizon

Integrate and consolidate the data

Define your cash forecast logic / assumptions

Effective Cash Flow Forecasting in 6 steps

00

Know WHY you are forecasting

01Understand your working capital drivers

01… taking into account all historic invoices per individual customer

01… taking into account all historic payments per individual customer

01… taking into account your full supply chain

02Understand your cash flow drivers - “What’s eating or feeding your cash”

02Understand your cash flow drivers - “What’s eating or feeding your cash”

General Ledger vs MT940 rule-based allocation methodology

• Not granular (Opex vs Capex)

• High maintenance due to an ever-growing set of rules

MT940 rule-based General Ledger-based

• Uses the existing Accounting entries & the strength of the Accounting capabilities of the ERP system

• Far less rich information

• Low maintenance: a Chart of Accounts mapping, which is easier to understand and maintain than a MT940 mapping structure

Time horizon

Liquidity Planning / Rolling Forecast

Liquidity ForecastCash Flow Analysis

Cash position

History Short term Mid term Long term

03Define your Cash forecasting horizons

Business data from systems (ERP / CRM / HRM /

Budgeting systems...)

Order-to-Cash transactionsPurchase-to-Pay transactionsForecast-to-Fulfil transactionsPayrollBudgets...

(External) Market data

Credit ratingsPayment behaviourTax rules / restrictionsGrowth expectationsCost price indices...

Treasury data Loans, Deposits, Hedges...

Banking dataMT940, MT942BAI2...

Manual dataCapexProjects

Calculations & Trend analysis on all of the above

i.e. Payment behavior, scenario analysis

04Define your Cash forecasting sources per time horizon

Not all data users (or their needs) are the same

HIGH

TECHNICAL

SKILL

TACTICAL

LOW

TECHNICAL

SKILL

STRATEGIC

ANALYSTWhat the Analyst need the data for

Identify patterns Highlight key eventsCustom analytics Run reports

“I would like the ingredients and granular data.”

• Consolidated data repository• Key insights tool

SCIENTISTWhat the Scientist needs the data for

SUBJECT MATTER EXPERTWhat the Expert needs the data for

EXECUTIVEWhat the Executive needs the data for

Strategic Growthinsights opportunities

“I want to measure how our decisions are impacting the business.”

• Health of the business dashboard• Headline to root cause analysis• Tool to take actions quickly

Growth Marketing Productopportunities improvement

Save money Product targeting

“I’d like insights and reportsrelevant to my role.”

• Identifies trends• xxx

Summarize Solutioninsights development

“I’d like aggregated variables andInsights that support strategy.”

• Simplifies data• Identifies strategic insights/solutions

TYPES OF DATA USERS

Let’s bring it alive!

Contact:

Mark.OToole@cashforce.com