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What’s new at TIPCO?

  • A new dimension in FX risk management
    Interview with Frank Freitag

    The medical and safety technology group Dräger has set up an automated FX risk management process. Senior Controller Frank Freitag reports in an interview with TreasuryLog on how the company streamlined calculating its exposure and cut costs by optimising its hedging portfolio.

     

    TreasuryLog: Dräger recently received the AFP Pinnacle Award for Excellence in Treasury and Finance, beating the internet giant Alphabet (Google) and others in the process. How did you manage this and what makes treasury at Dräger so outstanding?

    Frank Freitag: Even before the award, we were convinced that our project in the previous year had elevated FX risk management at Dräger to a new level. Being in finance, however, we didn’t communicate this actively. Our application for the award was originally the suggestion of TIPCO, the treasury software specialists with whom we jointly implemented the project. The fact that we were ultimately able to win this award in the USA shows that this issue and its implementation are obviously also extremely relevant for other companies.

     

    TreasuryLog: Why is this excellence award so important to you?

    Freitag: This excellence award is an extremely prestigious and important confirmation of the work we do. Particularly in area of finance, it doesn’t often happen that we receive awards for further developing our processes. This however demonstrates that even finance professionals can strive for process excellence and that we, at Dräger, are able to establish state-of-the-art processes.

     

    TreasuryLog: Which processes did you design to become state of the art and deserve an award? What was the context in which you had to re-evaluate these processes?

    Freitag: This project aimed to further develop our operational FX risk management process and transfer this to a stable system environment. The goal was to calculate and forecast the group’s FX exposures at the press of a button. Based on this, the intention was to quantify risk by means of the cash flow at risk method and, ultimately, we wanted to calculate an efficient and lowest-cost hedging portfolio for a defined target risk.

    In the past, our entire FX risk management process relied entirely on Excel. The processing of huge volumes of data to calculate exposures however was soon more than Excel could handle. If we wanted to flexibly analyse this volume of data and based on this, generate a forecast and manage a hedging portfolio, a lack of stability and susceptibility to errors would mean incurring a serious process-related risk. What’s more, we aimed to calculate risk using an ‘at-risk’ method and perform a portfolio optimisation analysis based on this. All in all, a process with a very high degree of content-based and technical complexity for which Excel didn’t represent a solution with a rosy future.

     

    FX risk management webinarTreasuryLog: How did you tackle this problem? Did you exchange Excel for another software solution?

    Freitag: We didn’t immediately start with the aim of implementing a software solution; the first step was to develop a blueprint of our future FX risk model in Excel, with TIPCO acting as a consultant. We then used this blueprint to pre-test the practicality of our model and find out if the outputs were accepted by our top management. The second step involved us determining which software environment we could implement everything in. The key question here was initially whether to buy in or develop in house. Should we develop our own solution in the SAP Business Warehouse environment or rely on the expertise of an external partner with a specialised solution? Due to the project-related risk of in-house development, on the one hand, and our past experience with TIPCO in designing the blueprint, on the other, we decided to opt for the TIP RiskSuite and the computation module developed by SLG for risk calculation.

     

    TreasuryLog: From an Excel dilemma to a database solution: How would you describe the current situation?

    Freitag: We set up an automated FX risk management process. We increased the transparency of our existing FX exposures in the TIP software environment and now get the information we need for the group at the press of a button. And all this works by means of an automated data upload from SAP to TIP and we then rely on the existing reporting tools in TIP to get the reports we need immediately, whenever we need them.

     

    Treasury system landscape at Dräger | Seamless integration between TIP and SAP. All underlying data are automatically imported from various SAP modules and then compiled in TIP. Planned exposures are then derived and the risk calculation performed, with both processes being highly automated.

     

    TreasuryLog: How often does this happen?

    Freitag: The reporting and the hedging of the net exposure take place monthly. That’s why this frequency in terms of the exposure transparency is enough at the moment. But the flexibility to implement shorter intervals is there if we ever need it.

     

    TreasuryLog: What is your risk exposure and which positions does it consist of?

    Freitag: Essentially, our FX risk management strategy aims to limit operational FX risk and, as a result, the volatility of the impacts on earnings. Based on netted accounts receivable and payables, we calculate and forecast our group-wide cash flow exposure in each foreign currency.

    Although our SAP landscape only covers around 75% of external revenues, following an analysis of the remaining business operations of group subsidiaries we are able to capture over 90% of the group’s exposures. The data therefore provide a sufficient degree of accuracy in order to forecast exposures.

     

    TreasuryLog: Aren’t future exposures also estimated, i.e. future cash flows even before these have been recorded as receivables or payables?

    Freitag: Exactly. Our hedging process concentrates not only on hedging exposures on the balance sheet but also explicitly takes commercial exposures into account, in other words, future cash flows are forecast on the basis of historical cash flows and then form the basis upon which the hedging portfolio is determined. The aim is to minimise EBIT volatility vis-a-vis our forecasts on the grounds of FX rate impacts.

     

    TreasuryLog: With regards the process, where does this start and how are the exposures forecast?

    Freitag: The process is based on actual historical cash flow data. The starting point for the forecasting is always a complete calendar year in the past. The actual cash flows are analysed in the forecasting process and, when necessary, adjusted manually to eliminate any extraordinary items and events. Cash flows which shouldn’t be recognised in this period are automatically corrected; these include overdue payments and internal postponements of payments in a following year. The resulting ‘standardised’ cash flow exposure is then extrapolated using the country-level growth rates from the business plan so that we obtain a new annual exposure volume for the forecasting period. The forecast exposure is ultimately broken down to the level of individual months based on their historical distribution to deliver forecast cash flows on a monthly basis. All of this takes place largely automatically in TIP. Distributions, growth rates and other data relevant to the forecasting can be imported via interfaces to TIP.

     

    Fully automated derivation of exposures in 5 steps | Actual cash flows form the basis for planned exposures.

     

    TreasuryLog: What happens downstream in the process after you have these cash flows?

    Freitag: The next step involves the risk calculation for the new forecast exposure and optimisation of the hedging portfolio. During this process step, TIP and the computation module from SLG can show off their performance and calculate a curve for the cost-optimal hedging portfolio for a defined risk spectrum by performing numerous simulations. In other words, TIP automatically calculates the relevant cost-minimised hedging portfolio for a defined number of target risks (cash flow at risk after hedging). Depending on the risk tolerance, this delivers us the hedging portfolio with the lowest hedging costs, supporting us in reaching a fact-based decision weighing up the associated risk and costs.

     

    Efficient hedge portfolios | Based on a freely selectable range of the target risk (horizontal axis), TIP calculates the optimal combination of risk and hedging costs (yellow line) to provide a sound basis for hedging decisions. The ‘costs’ resulting from every target risk level are presented in the form of interest rate differences based on the relevant optimal hedge portfolio (blue line). (sample data)

     

    TreasuryLog: How do you define your risk tolerance?

    Freitag: We try to limit the remaining risk in terms of the revenues to less than one percent. In this context, we aim to achieve the most efficient degree of hedging relative to the cost of carry. This can actually result in a global minimum, as in the prior year, but depends on the constellation of the exposures and the cost of carry. The optimisation runs this year delivered a nearly linear progression of the optimal hedging portfolio. The issue here was to reach a decision on risk preference. In other words, how much risk do we want to eliminate and how much money are we willing to spend in terms of the cost of carry for mitigating this risk?

     

    TreasuryLog: How often do you consider optimising your hedging portfolio?

    Freitag: We optimise our hedging portfolio in the course of an annual forecasting process and then recognise the hedge transactions in our IFRS hedge accounting. The hedging takes place applying a so-called rolling layered approach with a maximum hedging horizon of 18 months. The hedging ratio of 75% is stacked in quarters based on a rolling horizon between 12 and 18 months. This is one of the reasons why we don’t have a lower frequency for redefining the portfolio. This would mean too much work and may also mean we have to close out many hedge transactions and de-recognise the transactions again in our accounting. The closing out of hedge transactions relating to other periods would also lead to unforecast volatility in terms of our earnings.

    In situations, like in 2020, when extraordinary, unforecast exposures arise more often, these are hedged individually by means of a special process. As such, the hedging portfolio remains the core of our FX risk management and we just make minor changes when these are necessary.

     

    TreasuryLog: You have a defined target risk. What do you do when markets become more volatile months after you have hedged, when the correlations change, and when you exceed your target risk as a result?

    Freitag: This can definitely happen. But we don’t have any benchmarks for this yet. We see the problem more in terms of the forecastability of the exposure volume rather than in the development of volatility in markets. COVID has taught us that our subsidiaries can be affected differently. Some have seen their exposures drop, while others have may significantly higher exposures. This is by far the more important factor for us.

     

    TreasuryLog: Has the use of the software, as well as going through your risk management process in the Excel blueprint before this, led to a change in your decision-making process as a result?

    Freitag: Yes. A significant change. The portfolio optimisation has added a new dimension to the quality of our decision making. In the past, we had statistical criteria for selecting currencies which might need hedging; for example, a maximum tolerated cost of carry per year. This meant that, when we had exceeded a defined value, these currencies weren’t hedged. The portfolio optimisation on the basis of cash flow at risk, as we do it now with TIP, means that we have currencies in the portfolio which we wouldn’t have hedged relying on the criteria we applied in the past. This past year in particular, one in which various emerging market currencies have taken a nosedive, has proven that our current hedging portfolio is very effective.

  • Payment services with TIP
    powered by MultiCash

    Zahlungsverkehr mit TIP powered by MultiCash

    Omikron and TIPCO establish a partnership for payments services

    For around 20 years, the treasury information platform TIP has been supporting corporates with top-notch solutions to make their treasury activities particularly efficient and transparent. This year we decided to add payment services, allowing us to fully meet our clients’ requirements. For this, we opted to work with strong, experienced partners who know exactly what’s what in the payments business.

    The name Omikron is inextricably linked to the brand MultiCash®. This multi-bank electronic banking system is among the most successful solutions on the European market. We are delighted to have brought Omikron on board as an established provider of payment services; a partner with decades of experience working with both corporates and banks.

    Alexander Fleischmann, responsible for partner management at TIPCO: “Over the last years, we have consistently developed and extended TIP into a fully-fledged treasury management system. Until now, payment services had been an exception. Our partnership with Omikron closes this gap and is in keeping with our philosophy of offering our clients the best solution in every area of treasury. Thanks to the fully automated interaction between TIP and MultiCash Transfer®, we have now created a seamless, integrated solution which enables corporates to efficiently, securely and cost-effectively organise their group-wide payments based on all well-established communication standards.”

    Corporates now benefit from the combined strengths of two leading providers in their respective fields – ranging from “one-stop shop” implementation of all services to an integrated and highly user-friendly solution for day-to-day business.

    Gregor Opgen-Rhein, Senior Sales Consultant and responsible for the partnership at Omikron, expects the combined solution to interest a wide range of corporates, from mid-sized companies up to multinationals: “Real-time processing and digitalisation are shaping the future of payment services. Holistic business processes require integrated systems. For mid-sized corporates, this is often about taking their first steps towards digitalisation, but large corporates with international operations also have a pressing demand for improving efficiency and transparency still further. The TIPCO and Omikron solutions complement each other in many areas, providing an ideal fit. Working together, we can take a holistic approach to our clients’ business processes.”

    The major advantages of the cooperation for you as a client:

     

    • Concentrated expertise: Together, Omikron and TIPCO offer more than 50 years of experience in designing and implementing treasury solutions for corporates of all sizes: from SMEs to major multinationals.

     

    • Seamless integration: The solution delivers a seamless, secure and automated interaction for payments between your Internal systems, such as ERP and HR, TIP and MultiCash Transfer®.

     

    • One-stop shop: Benefit from the best-in-breed approach of an ideally integrated solution from two leading providers. At the same time, your contractual partner and main point of contact during and after the project is and remains TIPCO.

     

    Want to find out more about the advantages this cooperation can deliver for you? Then don’t hesitate to get in touch.

     

    About TIPCO

    The Austrian software provider TIPCO has implemented the treasury information platform TIP at leading European players in all major industries. Over 130 clients – including Deutsche Telekom AG, Deutsche Post DHL Group, Fresenius, Merck, REWE Group and STIHL, to name but a few – place their trust in TIP and TIPCO’s expertise when it comes to offering pioneering treasury innovations. The treasury information platform TIP stands for highly flexible, digital solutions in the areas of cash visibility, cash flow forecasting, risk management, guarantee management, bank fee monitoring and reporting. Treasury departments can also rely on TIPCO’s smart workflows to digitalise their processes and avoid time-consuming reconciliation processes via email.

    For more information, success stories and webinars, visit www.tipco.at

     

    About Omikron

    Omikron is the leading provider of e-banking and payment factory solutions for business clients, service providers and banks. Under the MultiCash® brand, Omikron offers national and international clients a centralised platform as a basis for using the new services of the Digital Age. The product line MultiCash Transfer® is tailored to companies who need a uniform, centralised and bank-independent system for the automation of their payment services and cash management which can be seamlessly integrated with their internal accounting, HR and treasury systems. The solution is available both in the cloud and on-premise and is tailored precisely to client specifications. The standardisation, automation and monitoring of cash management processes as well as global cash flows with the aid of embargo checks and sanction screening ensure internal and external compliance requirements.

    More information about the company, solutions and reference projects is available at https://www.omikron.de/en

     

  • Best-of-breed is becoming the “new normal”
    in Treasury Management

    Best-of-Breed: Corporate Payments, Cash Management and Treasury Solutions byTIS and TIPCO

    PRESS RELEASE
    P
    Corporate payment provider TIS (Treasury Intelligence Solutions GmbH) and treasury experts TIPCO formalize their collaboration to best serve their clients’ needs

    Wien, September 29, 2020 – TIS, a leading cloud-based platform for corporate payments, and TIPCO, a best-in-class treasury solutions provider announced today that they have formalized their long-standing cooperation through a strategic partnership agreement.

    Over the past years, TIS and TIPCO have built an impressive track-record of successfully providing market-leading solutions to European clients.

    The two companies are recognized leaders in bank connectivity and payments, cash forecasting, risk management, bank relationship management and analytics. TIS and TIPCO share a joint mission to provide corporate treasurers with the best possible solutions through a seamless end-to-end cash management process. The components are tailored to the clients’ specific needs, without the need of costly IT implementation.

    Joerg Wiemer, co-founder and Chief Strategy Officer of TIS, is very excited about the prospect of this new partnership: “TIPCO is a top-of-the-line provider with an excellent solution. Formalizing our partnership is an important step towards building a best-of-breed cash management ecosystem based on cloud and API integration. This will provide our customers with a better experience that includes faster innovation and more strategic agility for future growth.”

    Alexander Fleischmann, Head of International Market Development and responsible for the collaboration on behalf of TIPCO summarizes: “Good systems should save a company time and money. Digitalization, however, can also be at the cost of flexibility if you rely on rigid one-fits-all solutions. The seamless integration between TIS and TIP combines two systems to offer the best of both: state-of-the art technology and extremely high levels of flexibility. We are convinced that we can offer numerous companies a perfect solution as a result.”

     

    About TIPCO

    The Austrian software provider TIPCO has made TIP the solution of choice for some of the leading companies in Europe across various industries. Over 130 clients – including Deutsche Telekom AG, Deutsche Post DHL Group, Fresenius, Merck, REWE Group, STIHL and many more – trust in TIP and in TIPCO’s ability to provide market-leading treasury innovation. The Treasury Information Platform TIP stands for state-of-the-art solutions for cash visibility, cash flow forecasting, risk management, guarantee management, bank fee analysis and reporting. TIP empowers Treasury departments to digitalize their processes and do away with manual data capturing and endless e-mail exchanges thanks to flexible and smart workflows.

    Go to www.tipco.at/en to gain access to case studies and on-demand webinars and to schedule your custom online demo!

     

    About TIS

    TIS (Treasury Intelligence Solutions GmbH), founded in Walldorf, Germany in 2010, is a global leader in managing corporate payments. The Financial Times named TIS as one of “Europe’s Fastest Growing Companies” for 2019 and 2020.  Offered as Software-as-a-Service (SaaS), the TIS solution is a comprehensive, highly-scalable, cloud platform for company-wide payments and cash management. The TIS solution has been successfully used for many years in both large and medium-sized companies, including Adecco Group, Hugo Boss, Fresenius, Fugro, Lanxess, OSRAM and QIAGEN. More than 25% of DAX companies are already TIS customers.

    Your world of Payments. ONE Login.

    https://www.tis.biz

     


    Press contacts

     

    TIPCO

    Sophie Halfmann

    Am Belvedere 8

    A ­– 1100 Wien

     

    Treasury Intelligence Solutions GmbH

    Liang Fang

    Altrottstrasse 31

    69190 Walldorf

  • Cash flow forecasting at Lufthansa:
    How do you navigate through a global crisis?

    Cash Flow Forecasting at Lufthansa

    “If Lufthansa can do it, so can we.” This could be the motto in all treasury departments at the moment given that there is hardly any other German corporate currently facing greater challenges in terms of cash flow forecasting. So, how does Lufthansa forecast its cash flows and how is its treasury department dealing with the new demands?

     

    Europe’s largest aviation group has been using the TIP treasury information platform for the past 18 years and has already established long-term forecasting over a period of 27 months during this time. A very reliable approach under ‘normal’ conditions which nonetheless had to be reconsidered and re-evaluated due to the massive declines in cash flows as a result of COVID-19. TIP is a particularly flexible solution which has been designed to also respond and develop fast to changing requirements. This is one of the reasons why Lufthansa decided to also manage this task with TIP: “The COVID-19 crisis has redefined cash flow forecasting. TIPCO immediately understood the situation we are facing, grasped our requirements and swiftly implemented them. This was extremely important and helpful for us.” summarises Thomas Linnert (Head of Corporate Treasury Operations).

     

     

    We were able to demonstrate just how flexible the software really is in less than two weeks. An impressive performance on both sides given that the goal was not only to set up a short-term, week-by-week, currency-differentiated cash flow forecasting system, but also a significantly more detailed forecasting structure which still needed to be easily understandable in terms of its scope and remain user friendly. Working together with the team at Lufthansa responsible for cash flow forecasting, our treasury consultants developed practical forecasting tools which make TIP a reliable and effective crisis management tool for both the parent company and the subsidiaries.

     

    One of these tools is an Excel upload feature which enables local users to upload data from their own templates into the forecast. This allows the forecasters to easily and quickly import existing data and also avoids manual transfer errors. With the same goal in mind, a mirroring function was also implemented which automatically ‘pre-fills’ internal cash flows on the other side of the equation (sellers’ rule) so that existing data don’t need to be entered twice. Carlos Scheeren, the project lead for the implementation of the week-by-week forecast at Lufthansa: “The quality of the forecasting done by our subsidiaries is extremely important. The forecasting tools in TIP provide us with a way to support the local units in their work and at the same time to improve data quality at the group level.”

     

    As a result of the action taken in response to COVID-19, the main focus of many large corporates around the world in on the quality of their forecasting data. To ensure that all users capture their data as accurately and reliably as possible, they need to be able to regularly check their forecasting quality in a timely manner. Both subsidiaries and corporate finance therefore have the means to view deviations from the last forecast entered using a data analysis tool based on the TIP database so that they can better estimate their forecasting behaviour and learn from the past.

     

    From the action plan to the implementation and the go-live, all Lufthansa needed was ten days and was already able to forecast its global liquidity at the beginning of April. An impressive performance on the part of everyone involved despite the challenging deadline. We would like to thank Lufthansa for the trust placed in our team and our software, and to wish our client all the very best for the coming weeks and months.

     

     

     

    Cash Flow Forecasting with TIP: Download our Webinar!

    This webinar shows you how cash flow forecasting can learn from your historical data, rely on existing data in your systems and combine both to deliver dependable cash flow forecasts. We will also show you how user friendliness and immediate responses on the quality of cash flow forecasts can win over your subsidiaries. This not only improves the quality of forecasting but also your communication with subsidiaries.

    Webinar Liquiditätsplanung

  • The treasury information platform TIP
    in use at thyssenkrupp Elevator

    Treasury at thyssenkrupp Elevator

    Following the carve out of thyssenkrupp Elevator, this global provider of elevators and escalators also needed an independent treasury reporting system. The treasury information platform TIP was already well established within the thyssenkrupp group and was therefore well received by the new treasury team.

    The flexible structure of the software in particular, which allows specific modifications to be made at any time, was key to convincing this group with annual revenues of around eight billion euro (2018/19). The contract was awarded in March 2020 and the integration of financial status, guarantee and derivative reporting in the new corporate organisation followed just a few months later. In order to also be able to perform its own forecasting in future, the TIP cash flow forecasting module and the Excel Cube were also launched to allow thyssenkrupp Elevator to directly access its financial data and prepare ad-hoc reports for Management.

    Dennis Schwinning, Head of Treasury Front Office at thyssenkrupp Elevator:

    “TIP allows us to set up our treasury reporting to exactly reflect our requirements; from cash flow forecasting to ad-hoc reporting. TIPCO had already demonstrated its flexibility and high degree of customer orientation during the carve out process.”

    We are delighted about the positive feedback, the success of the carve out process and would particularly like to thank our new client for the trust they have placed in us. 

     

    Cash Flow Forecasting with TIP: Download our Webinar!

    This webinar shows you how cash flow forecasting can learn from your historical data, rely on existing data in your systems and combine both to deliver dependable cash flow forecasts. We will also show you how user friendliness and immediate responses on the quality of cash flow forecasts can win over your subsidiaries. This not only improves the quality of forecasting but also your communication with subsidiaries.

    Webinar Liquiditätsplanung

  • Predictive Analytics with TIP:
    A completely new level of cash flow forecasting

    Predictive Analytics mit TIP

    Predictive Analytics with TIP allows you to significantly automate your cash flow forecasting and standardise the underlying assumptions and influencing factors of your forecasts. This provides you with amazingly accurate forecast data and saves a tremendous amount of valuable time.

     

    A new procedure for predictive analytics

    It goes without saying that a computer is capable of processing enormous volumes of data and performing highly complex analyses that you couldn’t manage with Excel alone. Computing power and statistics alone, however, are simply not enough when it comes to generating reliable forecast data.

    That’s why we have developed a multi-level procedure which significantly improves the precision of predictive analytics and therefore makes this concept fit for everyday treasury use. The treasury information platform TIP relies on this procedure to individually determine the best calculation method for every one of your forecasting categories in order to deliver amazing results. In combination with the expertise of your treasury department, this allows you to highly automate your forecasting and to improve the quality of your forecast figures.

    During this process, simply use TIP to define and calculate information about all the influencing factors relevant to your cash flow development (Fig. 2) and therefore digitalise your cash flow forecasting. This is the key not only to flexibly tailoring your forecasting to various requirements throughout your corporate group but also to making it independent of specific individuals. The value of this becomes clear when personnel leave the company or are on vacation or parental leave.

    This digitalisation of the process is the greatest advantage offered by predictive analytics. Why? Because it enables you to simultaneously take numerous influencing factors into account in your forecasting. This is nearly impossible to do manually. Statistical models and machine learning methods, however, can do this and therefore also generally make more accurate forecasts possible. Read the following article to find out more.

     

     

    What is predictive analytics?

    Many treasurers rely on Excel to analyse the cash flows of previous years in order to identify trends and patterns as a basis for being able to predict future developments. Predictive analytics is based on the same principle but on a far more technologically advanced level and with a significantly higher level of automation.

    The most important ingredient for accurate predictions is your historical data. These data are analysed for trends and patterns using a statistical computation model and projected into the future. For this to work, the system needs to calibrate the model in advance so that it can categorise recurring events (e.g. the impact of public holidays) and ignore data outliers (Fig. 1).

    While this might sound simple, it is actually a complex process during which the system needs to consider numerous variables and parameters and to both review and update these at regular intervals. There are also nearly twenty different statistical models available for the calculations and the suitability of these models varies significantly depending on the forecasting category and data quality. The selection of the right model is therefore equally as important as its modelling and needs to be reviewed just as often so that the calculations can improve, in terms of accuracy, over time.

    The principle behind predictive analytics

    Figure 1 | Patterns in the past provide insights into the future: A drastically simplified explanation of predictive analytics.

    From theory to practice: Start by clarifying the parameters and making the underlying data available

    The first step is for us to jointly analyse which data are relevant for your predictions. These data need to span a period of at least three years if they are to be used for predictive analytics. As soon as the data landscape has been clarified, TIP automatically integrates these data from existing upstream systems into its cash flow forecasting.

    In addition, it of course has to be defined which currencies, over which forecasting horizon (on a daily, weekly or monthly basis) and for which future period the forecasts are needed for every forecasting category.

     

    Defining and modelling general and specific influencing factors

    An in-depth understanding of your group’s business model is fundamental to the analysis. Which external and internal factors influencing your cash flows will you need to calculate in treasury in the future? The assessment of these factors is ultimately the key to reliable and robust forecast data. That’s why our data scientists discuss all known influencing factors (Fig. 2) with you at the outset, how these can be modelled, and everything that needs to be taken into account. This initial step is decisive because statistical methods can only deliver meaningful results if they have ‘learnt’ in advance not only how to identify only one-off data outliers but also regular dependencies on other factors.

    General influencing factors exist which, even if they may be very different in terms of their impact, are felt in every industry and every company. Public holidays, for example, vary not only internationally but also nationally, from state to state, and their impact on the retail sector is completely different from that on the tourism industry. The same of course also applies to seasonal variations and trends. There is one thing however that all of these factors have in common: they are relevant to nearly every company, have massive impacts on cash flow developments and, therefore, have to be modelled before the first test run. While the effects of public holidays can be easily modelled by uploading a calendar, seasonal effects and trends are mainly identified by analysing historical data. This step is handled automatically by TIP in an analysis of whether seasonal effects, trend shifts and catch-up effects after public holidays exist in the various forecasting categories.

    Specific influencing factors impact your industry or even just your company. The data landscape and the preparation of the data for modelling purposes therefore also need to take these factors into account. TIP models external facts using general economic data, such as exchange rates, which can usually be sourced from data providers. We upload internal factors, such as fixed payment deadlines, so that these can be integrated into the computation models. Many specific factors are initially not even known or the data landscape is insufficient in order for these to be modelled. The longer you use forecasting, however, the greater the reservoir of data which can be used for re-adjustments. This means that your forecasts will become even more reliable over time.

    Predictive Analytics & Cash Flow Forecasting – Influencing Factors

    Figure 2 | General and specific influencing factors: Influencing factors give rise to patterns which are identified by the models but which cannot be projected 1:1 into the future. These factors need to be modelled in order to improve the quality of forecast data.

    Which statistical model is right for which forecasting category?

    The key challenge in dealing with predictive analytics is determining which statistical model is suited to every single forecasting category.

    Statistical Model Groups for Predictive Analytics

    Figure 3 | Statistical model groups used by TIP for predictive analytics: There exist numerous statistical models but they are not all suitable for cash flow forecasting purposes. TIP relies on the following eight model groups.

    We currently rely on eight model groups, each of which has different strengths and weaknesses. Regression models, for example, are able to deal easily with missing data, which are a challenge for models based on ARIMA. Neural networks are very good at identifying patterns but require a large volume of data as a starting point; data which don’t exist for a forecast on a monthly basis. An automated analysis of the existing data is all it takes to identify which models can immediately be rejected and don’t even need to be subjected to a test run. This is extremely important since numerous forecasting categories and models, as well as their modelling, require considerable computing power, meaning resources both in terms of computation capacity and money. Minimising the scope in advance to promising models is key to the efficiency of this procedure.

    The data analysis generally delivers a pre-selection of five to six models for the test run. TIP calibrates the models using the influencing factors already identified and then calculates a test forecast for the most recent existing twelve months on the basis of actual historical data (at least three years’ data are necessary for this). Deviations of this third year to the actual data are subsequently analysed for every model and the best model is then selected.

    Historical Data for Predictive Analytics – test run and analysis of best model

    Figure 4 | Test run with historical actual data and analysis of the best computation model: The first two actual years are used to validate the suitable computation model. The model which most closely reflects the results in the third year (red line) is then selected as the basis for calculating the forecasting data.

    An overview of the implementation

    As soon as the parameters for the forecasting and the necessary data have been defined, the entire process, from the analysis of the data to the pre-selection, calibration and validation of the models as well as the ‘final’ selection of the model and the calculation of the first forecast, is largely automated. Only data outliers need to be considered individually and adjusted for in order to improve the accuracy of forecasts. You can change the selection of the best model automatically based on even minor deviations or adjust this manually based on tactical considerations. This might make sense if, for example, the historical data are dominated by extraordinary influencing factors (e.g. an economic crisis, natural disasters or pandemics) for longer periods and therefore do not represent normal developments. In such cases, it is possible that a particular model performs well while another one would nonetheless be better in the long term.

    Predictive Analytics: From preperation work to the first forecast

    Figure 5 | An overview of the process: from preparation work to the first forecast: The first step involves tasks which the system later performs itself.

    The first automatically generated forecast

    The forecasting data generated provide a sound basis for Treasury to leverage its specific expertise to swiftly prepare a professional cash flow forecast. For some forecasting categories (e.g. salaries), this works so reliably that TIP can even directly generate a cash flow forecast if wanted. For categories which are often dominated by exceptions, it makes more sense to display the calculated figures in the standard forecasting screen as proposals. In this case, the existing data act as a guide for manual fine-tuning and save no end of time (Fig. 6).

    Proposed Figures in Forecasting Module for Manual Forecasting

    Figure 6 | Proposed figures for manual forecasting: Particularly at the outset, manual adjustments are important but they also remain standard in certain categories. In such cases, predictive analytics provides a baseline which can then be adjusted manually.

    Not only the forecast data themselves but also the estimates and observations based on these are extremely important. TIP gathers all of the relevant information in a report which is generated along with the forecast data:

    • Predictions broken down into individual components per influencing factor (Fig. 7)
    • The scale and statistical significance of the individual factors
    • The granulation of seasonal modelling
    • Identified breaks in trends
    • The distribution of residuals (estimation errors)
    • Statistical test results (e.g. heteroscedasticity, autocorrelation, etc.)
    • Automatic pre-identification of potential outliers
    General Influencing Factors broken down by Component for Cash Flow Forecasting

    Figure 7 | General influencing factors broken down by component: A visual illustration of each factor can make sense for evaluating the individual effects

    This information can help every treasurer to quickly understand how the forecast figures were generated. This can be helpful not only in swiftly identifying forecasting errors but also in understanding which factors are responsible for a sudden change. This delivers not only transparency but also makes it easier to perform checks.

    Ongoing optimisation leads to constantly improving forecast data

    The first run still requires some attention and manual tasks but, as soon as these have been performed, the system takes over more and more of these steps itself. And the calculations become increasingly accurate over time as further actual data in the right degree of granularity become available. That’s why TIP checks before every new forecast whether the model selected is still the best option or whether another model would deliver better results. The selection process here essentially remains the same, with the only real difference being that previously modelled influencing factors are applied for the calibration completely automatically which, in turn, means that the test calculations become increasingly accurate over time. It goes without saying, however, that Treasury can calibrate the models with additional or better influencing factors at any time to improve the predictions.

    Predictive Analytics: finetuning before every new forecast

    Figure 8 | Ongoing fine-tuning before every new forecast: The longer the system is in use, the more precise the predictions become. The availability of new actual data compared to the previous prediction means that the data basis for calculations constantly improves.

    Who is predictive analytics right for?

    The more volatile the cash flows of a company become, the less likely it is that the models will be able to identify useful patterns in the historical data. That’s why this procedure is best suited for the B2C sector and for subsidiaries with a broad customer base since the development of cash flows in these cases is not dominated by major one-off payments. Nonetheless, this procedure also offers advantages for small subsidiaries with major B2B projects. Even if the data in such cases need to be carefully checked and manually adjusted, this procedure provides the advantage of digitally documenting known influencing factors and can therefore be easily referred to, making forecasting digital. Even when key personnel leave, their knowledge stays and the quality of predictions is safeguarded.

     

    Any questions?

    The aim of this summary is to as transparently as possible set out and explain the advantages of predictive analytics. We know that the process as a whole is detailed and therefore complex, which is why we would welcome the opportunity to discuss the issue and advise you personally. Hit us with your questions and we can then clarify together whether predictive analytics could also pay off for you.

     

    Contact TIPCO

  • Best-of-breed treasury system landscape:
    Corestate at the 8th Cash Management Campus

    The 8th Cash Management Campus of DerTreasurer was held digitally for the first time as a result of the COVID-19 restrictions but was nonetheless well received by participants. Hardly surprising given that it is currently more important than ever to inform yourself about developments in the market and, not least, about solutions for system-based cash flow forecasting. Our client Corestate was also among the presenters. During his presentation, Tobias Wriedt (Head of Treasury) explained how Corestate has reorganised its treasury system landscape and which factors were important here. Corestate Capital Holding S.A. is a publicly-listed real estate investment manager and co-investor with around €28bn in assets under management and is therefore one of the leading providers of integrated real estate investment solutions in Europe.

    Among other factors, it was important for Corestate that the new treasury system landscape be able to ensure the smooth exchange of data both internally and externally. The aim was to integrate upstream systems which were already deployed, as well as third parties, without complex workarounds. It soon became clear to Corestate that neither an SAP-integrated solution nor an all-in-one solution fitted the ticket.

    “We decided against an SAP-integrated solution from the outset because we work with four different ERP solutions and committing to SAP would have excluded the others,” says Wriedt summarising the decisive argument. For similar reasons, they also opted not to go for an all-in-one solution. While one of these might be a good option in the long term, it would have required very carefully conceived and therefore time-consuming specialist concepts during the preparation phase in order to implement all of the requirements in terms of cash flows, forecasting, reporting and credit management in order for the various areas of treasury to be fully integrated. Corestate wanted fast, reliable results, and that’s why they decided to rely on experts in the various areas of treasury.

    The treasury information platform TIP is responsible for reporting and cash flow forecasting and is closely integrated with data captured by TIS. Both systems have ‘known’ each other for several years and are closely aligned. The TIS interface allows Corestate to access its group-wide financial status and cash flows in its forecasting at the click of a button in TIP. Besides this, daily ECB exchange rates can be imported and any cash flows which haven’t been captured in upstream systems can easily be imported via Excel.

    Cloud-based or on-premise solution? Wriedt explains why the cloud-based solutions offered by TIS and TIPCO were important for Corestate: “In addition to issues such as data protection and data security, a major advantage is the fact that a cloud-based solution means that we don’t need to reserve any in-house resources for support, administration or the like.” His assessment is one which many of our clients share and which has been proven in practice many times.

    TIP went live at the end of 2019 and has since been used intensively. A short-term cash flow forecast had already been planned even before the COVID-19 outbreak and was quietly implemented at the beginning of the year.

    Wriedt summarises:

    “From our point of view and in terms of what we need, we opted for the best providers you can get for these three areas of treasury.” A great compliment and one that we are delighted about and happy to share with TIS and our Austrian colleagues at LANG Finanzsoftware.

     

    The full version of the presentation on YouTube:

  • Setting up a short-term cash flow forecast
    in just two days!

    Short-term cash flow forecast

    Most of our clients have been reliably forecasting their cash flows with TIP for years. In stable economic times, all you need for this is long-term forecasting horizons; but in time such as the COVID-19 pandemic, there needs to be a rethink. In this context, increasing numbers of clients are supplementing their previous forecasting with a short-term cash flow forecast covering 14 days and/or 13 weeks.

     

    The volatile economic situation at present leaves little room for manoeuvre and, at the outset of our first such project, it was soon clear that a solution was needed ASAP, and one delivered from home office to home office. Since 16 March, Austria has been in lockdown and we of course have also sent our staff home. The question of how such an ambitious project could work without face-to-face meetings was one we had to first clarify by means of a dry run. The outcome of this was clear: it hardly makes any difference. The only thing that several colleagues missed was the office cookie jar.

     

    But why did it work so well? TIPCO supports over 130 corporates worldwide, the majority of which are based in neighbouring Germany, but also in the UK and even in the UAE there are also group treasurers who enjoy the benefits of TIP on a daily basis. Online meetings with our clients are the rule rather than the exception, which is why we are so well versed here. On top, there are also perfectly configured hosting environments which we not only use internally but which are likewise offered to our clients.

     

    As a result, the first home-office implementation of a short-term cash flow forecast went like clockwork. The parameters were quickly and efficiently defined with the client in an online kick-off meeting, after which a forecasting grid was prepared and immediately made available to the client’s various subsidiaries. These subsidiaries, based all around the world, were able to enter their forecast data just 24 hours later, which the majority actually did, and therefore automatically reported these to the parent company. Even the group treasurer was surprised by the high degree of compliance.

    short-term cash flow forecast

    The current circumstances present major challenges for our clients. The situation is serious and, even if they don’t wear their business outfits when working from their home offices, they are nonetheless fully committed to and concentrated on the task of safeguarding their subsidiaries’ liquidity in the coming weeks and months. That is why we fully understand our client’s decision not to be identified by name in this case study. We are delighted with the success of this project but nonetheless are aware that our software is mainly being used at the moment to manage the ongoing emergency.

     

    We would also like to say a big “Thank You” to all those colleagues who cooperated so well from their home offices. We are convinced that there are many other companies out there that we can help to expand their cash flow forecasting, and working from home offices isn’t going to get in the way. In fact, we are already working on other implementation projects.

     

    If you have any questions on this, please get in touch, we’ll be happy to help.

     

     

    Cash Flow Forecasting with TIP: Download our Webinar!

    This webinar shows you how cash flow forecasting can learn from your historical data, rely on existing data in your systems and combine both to deliver dependable cash flow forecasts. We will also show you how user friendliness and immediate responses on the quality of cash flow forecasts can win over your subsidiaries. This not only improves the quality of forecasting but also your communication with subsidiaries.

     

    Webinar Liquiditätsplanung

     

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