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
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