With many areas of large corporates still working in siloes, this article looks at how business intelligence tools and enterprise currency analytics can help treasury and FP&A visualise FX risk across the organisation.
After a decade of currency crises as a result of geopolitical events, trade wars and emerging markets instability, organisations continue to see billions of dollars in negative impacts to earnings as a direct result of currency volatility. And the recent FiREapps Currency Impact Report ™ shows that North American companies reported negative currency impacts to Q3 2018 earnings nearly 12 times greater than what was reported in Q2, proving that companies are still having difficulties managing currencies.
This environment of continuous currency crises and continued spikes in negative impacts has made it extraordinarily difficult and of greater importance to manage stakeholder expectations and explain how the business is performing and what factors are impacting results.
The plight of FP&A
The use of spreadsheets to perform currency analysis continues to plague financial planning and analysis (FP&A), limiting the ability to convey an accurate picture of currency impacts due to the manual, time-consuming nature of the technology available. Adding to that difficult and arduous process, the data that is needed to complete such tasks is siloed within the treasury team or their systems.
Without access to the same detailed currency data that is generally available to treasury, the ability of FP&A to give an accurate picture of how currencies are impacting results is hindered. As such, they are often left scrambling to deliver insight into and answer questions from the c-suite and other stakeholders with inaccurate or incomplete data.
Complementary technologies as the solution
Although the FP&A function lacks the insight and access to accurate, complete and timely data needed to accurately convey the effects of currencies, it is not the only area of the company facing problems of this sort. In fact, even though the data is often siloed within their system, treasury teams themselves still lack insight into how currencies are impacting the business.
To solve this problem, forward-thinking organisations have begun to implement a one-two punch of technologies – business intelligence (BI) tools to visualise risk and enterprise currency analytics (ECA) to walk treasury and FP&A though the income statement.
BI tools simplify the management of currency risk and dashboards and reports help monitor and track KPIs. But this piece of technology alone leaves practitioners with visual representations of their exposure and risk, but no way to explain the results.
To explain those results, enterprise currency analytics are being employed in tandem with BI tools to give a better understanding of currency impacts. Enterprise currency analytics mine detailed currency data – the data previously only available to treasury – and provide intuitive, comprehensive analytical views.
Through enterprise currency analytics, FP&A and treasury have access to a common currency data platform, finally giving treasury the ability to meet risk management requirements and providing FP&A with the ability to explain currency impacts. Not only that, but they are doing so with the knowledge and confidence that they are using the most accurate data available.
This powerful combination of technologies not only provides in-depth visualisations and logic but also gives FP&A an opportunity to take the lead from treasury and answer their own data questions without cross-collaboration difficulties.
A real-life journey to company-wide currency insight
One global company took this idea of merging BI tools and enterprise currency analytics and put it into practice. For the assistant treasurer at one of the world’s leading manufacturers of bearing and mechanical transmission products, his job of managing risk expanded when he was given new FP&A responsibilities. He had previously had access to the organisation’s currency data when managing currency risk, but stepping into the shoes of FP&A made him realise the value of sharing this data.
Although he realised the benefit of sharing detailed currency data with FP&A, the company’s business model made it difficult to run accurate income state currency variance analysis. Even with systems in place, like SAP Business Warehouse and Hyperion Planning, he was unable to clearly show how the business was performing, what currencies were impacting them and where any of those impacts originated.
With his new, unique role, the assistant treasurer had the opportunity to build a more robust program – one that would allow him to fulfill both his treasury and FP&A duties. In his research, he realised that he could solve these issues by employing complementary technologies – BI tools and enterprise currency analytics.
Through this blend of data and logic, he was able to gain access to the missing layer of logic he needed to facilitate more effective analyses and create a newly documented and standardised process that eliminates the data gap between treasury and FP&A. Today, treasury is seen differently within the company. Instead of being viewed as a cost centre, the assistant treasurer turned treasury into a value-add area of the organisation where he is seen as a currency expert that can easily address questions related to currency and business performance.
The bottom line
The industry has long had a need for organisations to provide the same data treasury uses to manage risk to other areas of the organisation as well. In giving all areas of treasury and finance access to a common currency data platform, companies can make meaningful sense of their data in an easily-consumable format with in-depth, interactive visual representations. Beyond the use by treasury for risk management, finance can use the same detailed currency data to automate the process of calculating translation and constant currency impacts, quickly determine the impact of currencies on revenues, and even help make sourcing and selling decisions.
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