7 steps to review treasury operating model risk optimisation initiatives

In any organisation there will be multiple change projects in your treasury operating model, in this article I want to set out a framework to evaluate this portfolio of projects, in order to extract maximum value with an insight into the risks.

1.    Understand the current state treasury operating model.

Capture full documentation on

  • Service capabilities and
  • The systems infrastructure

Then capture the operational controls involved in your treasury including

  • Cash management
  • Liquidity management
  • Funding
  • Risk management
  • Financial accounting, and
  • Middle and back-office processing.

2.    Identify optimization projects

Identify the specific high risk changes being considered within the current state model.

Focus upon Medium to High-Risk categories and issues. These could include

  • process automation,
  • centralization of treasury functions,
  • reduced manual intervention and Excel

3.    Assess potential project risks

Evaluate the potential risks associated with each optimization initiative. Consider both internal and external factors that may impact the success of each initiative.

Internal risks may include

  • inadequate controls
  • data integrity issues
  • resource constraints
  • relevant depth of experience
  • reduced capacity processing and
  • human intervention

External risks may include

  • market volatility
  • regulatory changes
  • service and system provider vendor risks, or
  • security threats

Turn all these into a project risk register on which you can then do a further analysis.

4. Quantify project priority and benefits

For each project you need a clear statement of the costs and benefits, attached to the project risks.  Assess the likelihood of each risk occurring and estimate the size of its impact on cash flows, liquidity, financial performance, and reputation.

Engage with stakeholders to validate the costs, risks and benefits of each project.

5. Cost Mitigation

Develop strategies to mitigate the identified risks. These may involve:

  • implementing robust internal controls
  • enhancing data security measures
  • establishing contingency funding plans
  • deploying system generated enhancements and automation,
  • replacing human manual intervention.

Consider the cost-effectiveness, practicality, and alignment with market best practices of each mitigation item.

6. Measure and review

Establish a measuring and review process to track the progress of the treasury optimization initiatives and evaluate the effectiveness of the risk mitigation steps taken.

Use visual data aids heatmaps to help review and measure overall operating risk exposure including decision making. Visual Aids in Analysing Treasury Operating Models (Part 1) – Prodktr

7. Communicate and report:

Clearly communicate the identified risks, their potential impact, and the mitigation strategies to relevant stakeholders. Make sure you include accountable executives, unit leaders, audit, risk management, and control units. Transparency and documentation are required.

It’s important to involve treasury management accountable executives, and unit leaders with subject matter experts and engage with key stakeholders throughout the review process.

Additionally, consider industry benchmarking, capacity analysis, regulatory requirements, and emerging trends and technology in treasury and risk management to ensure that your review is comprehensive and effective.

Make a clear recommendation assessment for each optimization issue based upon the risk measurement, priority, cost impact and data. Is it worth it? Do you really require the initiative? Or should you consider an operating model modernization?

If you need help with your current state treasury operating model or wish to transform. Prodktr has its own treasury operating model IP framework and toolkit . Simply, reach out