With the cautionary tale of Silicon Valley Bank (SVB) dominating news sites and social feeds and uncertainties about other major financial institutions still lingering, the need for financial modeling and treasury planning moves into greater focus.
How can your financial modeling toolset show your organization’s exposure to this risk? A flexible, customizable, and scalable planning and reporting process can give you real-time visibility on potential scenarios and outcomes—a key pillar of a strong planning foundation.
You can’t see the future, but with extensive what-if scenario planning, you can see potential cash flow results across a multitude of economic environments. One approach: employ an outcome range or outcome distribution model. Determine what your company’s cash flow guardrails are—at what point in key variable distributions, low and high, should your cash position be flashing a warning sign?
Once you’ve determined your guardrails, you can apply what-if scenario planning for thousands of possible scenarios and identify the situations that would cause negative outcomes before they happen. This allows you to plan for and avoid issues proactively, not reactively.
Seeing these challenges before they happen can be a major benefit: Customers who pulled their funds from Silicon Valley Bank even a few hours earlier were able to secure their funds, while those who waited to see what would happen wound up unable to access their cash until a solution was found. While SVB’s clients will avoid losses, there’s a big opportunity cost to having your cash tied up for days or weeks.
Doing what-if scenario planning at this volume within a set range can be difficult, but it is possible with data lake tools like Snowflake, or CPM and forecasting tools.
Operating cash flow isn’t the only domino that can lead to a financial crisis when not monitored appropriately. Asset and liquidity management is key to keeping your business solvent.
Just like guardrails for your forecasted cash flow from operations, you can include impacts of the value and liquidity of investment holdings, the diversification of your company’s portfolio, and what risk factors to set alerts for in your investment modeling system. You should have insight into the types of risk facing each of your assets and when each asset environment becomes too volatile for your predetermined investment principles.
It’s clear that common definitions of risk need to evolve. Assets like treasury bonds can still pose a systemic risk under the right circumstances (as we all learned well this month). Seeing a clearer picture of your holdings means thinking not just about your assets but about how they’ll fluctuate under stress, and how quickly you can get to liquidity from each one. Which leads to another important point…
Successful investment modeling requires accurate asset valuation data. How current is your data when it comes to asset value? If you rely on periodic updates, you risk being caught out between valuations with inaccurate data that throws off your investment modeling. Enabling real time insight into the value of your holdings is necessary for both accuracy and agility. After all, you can’t prepare for a problem you don’t see.
An ability to see your portfolio day-by-day gives you confidence that, no matter how fast the market is moving, you’re right there with it.
There are multiple ways to get to a robust, agile, and actionable financial planning strategy: Cloud data solutions, corporate performance management software, and more. But the benefits of building a strategic solution remain the same: Know when trouble’s coming before it hits. Having holistic insight into your company’s financials enables you to make contingency plans for myriad scenarios and allows you to leap into action the second your system sounds the alarm. Insight, foresight and agility are the key ingredients to successful treasury planning.
Choosing and implementing the right solutions for your company, having the right goals and outcomes for technology, and ensuring widespread adoption requires expert knowledge and trusted, personalized service.
Spaulding Ridge offers top-tier cloud technology solutions and unwavering support to optimize your financial planning processes and expand your data and analytical capabilities. Dedicated to personalized service and efficient outcomes, Spaulding Ridge is the partner you need to help you advance your financial modeling toolset. To learn more about what treasury management options are right for you, contact us at [email protected] and [email protected].
