Cash Forecasting in the Information Age. New York Cash Exchange 2018

Transcription

1 Cash Forecasting in the Information Age New York Cash Exchange 2018

2 About Us Managed healthcare Hartford, CT Headquarters 50,000 global employees Treasury and banking Technology Jacksonville, FL Headquarters 10,000 clients in 130 countries Treasury, capital markets, risk consulting New York City HQ Domestic and global clients of all industries 2

3 Agenda FIS & Actualize Cash Forecasting Challenges & Best Practices Cash Forecasting Preparation Aetna Cash Forecasting Process & Technology Optimization Open Forum 3

4 What We re Hearing The Practical Treasurer Challenges when it comes to Cash Forecasting Resource Constraints Technology Cash forecasting has a history of under-attention, lack of dedicated staffing Increased demand on Treasury operations results in resource constraints Survey data indicates those without specialized technology have the most trouble Often those with technology have underutilized or an opportunity to improve Competing Initiatives Foreign exchange risk management, in-house banking, multi-lateral netting, and other functional areas often take priority over dedicated cash forecasting projects Bank fee analysis and banking RFPs 4

5 Understanding Cash Forecasting Dependencies TECHNOLOGY Forecasting has been commoditized to some extent Cloud-based adoption on the rise, lowering cost of ownership Treasurers often undertake cash forecasting creation or improvement initiatives without understanding dependencies to a quality cash forecast CASH FORECAST DEPENDENCIES CFO & TREASURER BUY-IN Without this, organizations will have trouble collecting accurate forecasts for business units and getting attention to projects Key for decentralized organizations FARGE RESOURCES To implement, maintain, and improve Technology specialists and quants wanted Not always for your treasury practitioner BUSINESS CASE VALUE Often smaller part of larger treasury tech improvement initiative Liquidity optimization often used as primary business case driver here Budget dependent on this

6 What are Treasurers Looking for in Technology? Standardization Automation Flexibility Precision Single point to consolidate standardized forecast from business units Ability to remotely input cash forecasts/reforecasts by business units, with appropriate user control and audit trails Ability to automatically include (without re-keying data) all pending cash flows for treasury, AR and AP in both cash position and cash forecast Ability to calculate current day and monthly views of forecasted cash positions by country, region, entity, etc. Ability to receive A/P and A/R data from other systems, including ERP, for cash positioning/forecasting Ability to automate variance analysis of cash flow forecast items AI Technology to constantly improve forecasting methodology 6

7 Best Practices Establish a forecasting role with well-defined objectives Cash forecast is rolling, and updated daily Constantly evaluate forecast effectiveness (variance analysis) Change/Modify forecast based on variance analysis Integrate cash positioning and forecasting functions A responsibility of subsidiaries is to provide accurate forecast information to treasury Treasury provides forecast to actual variance feedback to business units Use forecasting technology which simplified and automates forecast creation and maintenance Cash forecasting technology automatically populates known cash flows 7

8 Treasury Short and long term Daily, weekly, monthly Perspective from bank activity Accounting Set at beginning of period Refined with actuals and forecasts monthly/ quarterly Perspective from accounting posting Accounting budget is a good base for cash forecast, but interpretation of timing and discounts is required. Ex: Sales in Jan, may generate a cash flow in March.

9 Typical Sources & Categories

10 Preparation Bank opening balance 1- Today s opening balance 2- Incorporate items that will occur with certainty, ie: interest, prenegotiated debt repayment, dividends 3- Recurring items: payroll, office expenses 4- Subsidiaries forecasts / intercompany 5- Special events: acquisitions, restructuring, marketing, R&D 6- Projection based on historical events vs FP&A data Historical: mature company, steady environment FP&A: balance optimism, adjust periods / rebates In TMS: 1- Integrate forecast with ERP 2- Upload excel sources 3- Leverage tool s capabilities for projection based on historic flows 4- Bank information available for opening and intraday 5- Automated variance analysis Categories granularity: has to make sense when rolls up in the big picture In Excel: Tabs, tabs, tabs, formulas, formulas, formulas, checks, checks

11 Forecasting process has to continually evolve Approach Consensus on the approach to forecasting Info Availability Attain access to required data, particularly at divisional level Company Culture Foster an environment stressing the importance of cash flow management Objectives Objectives of the cash forecast are clear Effective Cash Forecasting Internal Systems Required system infrastructure is critical to success Harmonized Forecasts Ensure that other related forecasts concur Accuracy Ensure reported information is reliable and accurate Communication -Training Provide training and communication around forecast objectives and process

12 Validation It is hard to get accurate as something always happens in the last minute Run forecast vs actual and find out the trend, schedule a meeting, explain your reasons, set recurring calls/ meetings if needed create awareness Communication, communication, communication.. attend meetings, share information Silos

13 The Aetna Forecast Journey Five simple questions for evaluating your forecast process: 1. What s the purpose of creating a cash flow forecast? 2. Who is audience of the data? 3. Who owns / updates the forecast? 4. Who contributes to the forecast? 5. How do you evaluate the effectiveness of your forecast?

14 The Aetna Forecast Journey 1. What is the purpose of your forecast? Understand their purpose Create transparency across the organization Investment team can t hide activity 14

15 The Aetna Forecast Journey 2. Who is audience of the data? Understand their purpose Create transparency across the organization Investment team can t hide activity 15

16 The Aetna Forecast Journey 3. Who owns / updates the forecast? Treasury Treasury Treasury 16

17 The Aetna Forecast Journey 4. Who contributes to the forecast? Treasury owns Business partners contribute Do not trust them 17

18 The Aetna Forecast Journey 5. How do you evaluate the effectiveness of your forecast? Accuracy is great, effectiveness can be better Drive awareness Encourage collaboration 18

19 The Aetna Forecast Journey Elements of a good forecast Sum of Balances Type TypeDescr ValueDate 0 10 Open Balances Forecasts Domestic/InternatioRegulatedFlag ParentBUnit CoventryFlag Company ReportingBUnitFullName 04/13/ /13/ /16/2018 Domestic NON PMMA AHM 001 Aetna Health Management, LLC 56,844,281 (9,241,572) (41,114,279) 005 Aetna Health Management, LLC 70,679,699 69,995,901 70,658,208 AHM Total 127,523,980 60,754,328 29,543,929 PAR 617 Aetna Health Holdings LLC 537,975, ,975, ,975, Aetna Inc. 1,676,224,732 1,817,337,581 1,798,937,581 PAR Total 2,214,200,042 2,355,312,892 2,336,912,892 PMMA Total 2,341,724,022 2,416,067,221 2,366,456,822 NON Total 2,341,724,022 2,416,067,221 2,366,456,822 REG LIFEPOOL AET 427 Aetna Life Insurance Co. 537,018, ,015, ,015, Aetna Life Insurance Co. 26,173,407 28,566,438 32,781, Aetna Life Insurance Company 357,193, ,980, ,952,391 AET Total 920,385, ,562, ,749,787 LIFEPOOL Total 920,385, ,562, ,749,787 REG Total 920,385, ,562, ,749,787 Domestic Total 3,262,109,280 2,898,629,734 2,869,206,608 Grand Total 3,262,109,280 2,898,629,734 2,869,206,608

20 Open Forum 20

21 Do you expect imminent interest rate changes to put a renewed focus on the cash forecast in coming months/years? 21

22 How can I make the business case for specialized cash forecasting technology? 22

23 How have recent government tax and regulatory changes impacted short-term cash management and forecasting practices? 23

24 QUESTIONS