Transaction Efficiency Analysis

Transaction Efficiency Analysis (TEA) | Identifying opportunities and quantifying benefits of digitalized FX risk management 2 In recent times, corporate treasuries have managed to automate key processes such as consolidating hedging books, rationalizing bank accounts, host-to-host connectivity for global payments, and cash concentration. G10 FX dealing at the HQ level has reached a very high level of automation with only the most strategic deals being conducted over the telephone. One key area that is still ripe for further automation is emerging market FX. Emerging markets are an opportunity for corporates to add efficiencies to their global operations. But such markets are also challenging in their nature. There are a lot of reasons for this, such as regulatory compliance and local market expertise. But more often than that, it is the ease of retrieving information that is often the stumbling block for progress. The initiatives outlined above illustrate the many ways corporates can go when looking to digitalize their FX workflows, but there remains the risk of these being implemented in silos. It is imperative for corporates to start looking at treasury automation in a holistic manner. This involves looking at the FX risk management process not only from a dealing perspective but also by taking into account all peripheral activities from pre- to post-trade. A horizontal analysis of FX reviews the level of automation across the entire journey, including how automated the extraction of information is from a corporate’s ERP or TMS system (pre-trade), the FX execution component (trade), and lastly the confirmations process (post-trade). The vertical top-down analysis enables a corporate to visualize the extent of treasury centralization by providing clarity on the channels and products used by each subsidiary for FX execution. Together, the horizontal and the vertical views of this approach form one’s TEA, which enable a corporate to identify efficiency bottlenecks in their FX processes. This in turn could help corporates prioritize areas of development to help them navigate their treasury transformation journey. Quantifying benefits of treasury automation Most treasury automation projects require investments of time and resources, and it is only natural that treasury departments are keen to get return on their investments on these projects. We have seen examples where clients have used a variety of criteria to assess the success of automation projects. Such standards include reducing manual efforts (or reducing FTE, the full-time equivalent of an employee’s work week), reducing operational errors (and making subsequent savings), simplifying processes, increasing the use of TMS, and seeking more transparency in FX execution. Of these, the easiest to quantify is the direct reduction in manual efforts required by treasury staff. Pre-trade HQ Trade Subsidiaries Post-trade Top-down (centralized treasury) automation Horizontal process automation Transaction efficiency analysis Transaction efficiency index 5-6 minutes per trade 10 trades per day 50-60 minutes lost per day 50-60 minutes lost per day Save 12,000-15,000 minutes per year and use them for value-added activities 250 trading days per year *Note: FTE refers to full-time basis