The Role of Treasury in Risk Management

The role of treasury in risk management.

Treasurers around the world have had risk management at the forefront of their minds during the global pandemic and market instability. Where more questions than answers exist, it has become more important than ever for organizations to ensure that they are able to not just survive their fiscal year but thrive into the future. To do this, treasurers have taken on the daunting task of finding the most effective ways to manage their organization’s treasury risk. They do this, by mitigating risk through traditional cash flow analysis, coupled with digitized forecasting, an understanding of market conditions, and factoring all inputs that affect their customers and suppliers.

While treasurers’ goals for risk management haven’t changed much, evolution is necessary. For years treasury teams relied on traditional what-ifs when assessing risk, making intelligent guesses based on information they gathered and calculated themselves. A running joke in the treasury world is that Excel is the #1 Treasury Management System in the world – a system that can demand dozens of hours of manually collected data, treacherous data entry, and the potential of human error. Now, thanks to modernized technology, they can utilize accurately automated projections that enable them to anticipate and manage financials on an all-new level. Treasury technology, such as Treasury Management Systems (TMS) and integrated Enterprise Resource Planning (ERP) systems, allow them to spend more time supporting the calculations, reporting, and databases required for effective risk management.

During this pandemic, organizations have faced heightened concerns around liquidity risk, which involves their ability to convert assets into cash to prevent losses. To manage this, treasurers have utilized treasury technology to gain clear and effective insight into their transactional statements with their respective banking partners. Features like real-time reporting and digitized forecasting tools are two of many benefits that can help give treasurers the time they need to develop strategic plans for optimizing their organization’s financial performance.  With everything feeding into easy-to-read dashboards, treasury technology ensures that they have the cash visibility needed to start thinking of how they can mitigate their liquidity risk through efficient funding and external borrowing. 

With the temporary shutdowns of factories and the subsequently limited supplies, concern around vendor and customer risk has risen. There is a lot of uncertainty around whether suppliers would be able to provide the materials/products that customers were demanding; sales that help organizations maintain sustainable revenue. Treasurers work to try and mitigate this risk by identifying the counterparty risk for each contractual transaction, determining the probability that either party will default and result in a loss. They utilize technology, like a TMS, for data collection, calculation, and reporting so they can spend time analyzing it and benchmarking customers and suppliers against other customers and suppliers. 

As the pandemic has displayed, the world can change on a dime and it is important to be able to assess and manage risk in even the unlikeliest of scenarios. For more information on risk management, treasury technology, and the world of treasury, check out our library of session recordings and content from 2020’s Elire Treasury Experience. Access is password protected. To request access, please reach out to [email protected].

Additionally, we’re excited to announce our upcoming webinar “Engineering a Digital Treasury Strategy in 2021” set for 2:00 PM CT on January 26th, 2021. Registration is now open and available here.