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A Treasury Management Perspective on Business Resiliency

A Treasury Management Perspective on Business Resiliency. Craig S (“Sandy”) Saxer Senior Vice President PNC Treasury Consulting Group. “ Building Treasury’s Business Resiliency Strategy ”. Prepared for. May 29, 2013. NY Cash Exchange 2013. The Importance of Business Continuity Management.

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A Treasury Management Perspective on Business Resiliency

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  1. A Treasury Management Perspective on Business Resiliency Craig S (“Sandy”) Saxer Senior Vice President PNC Treasury Consulting Group “Building Treasury’s Business Resiliency Strategy” Prepared for May 29, 2013 NY Cash Exchange 2013

  2. The Importance of Business Continuity Management • “By failing to prepare you are preparing to fail.”– Ben Franklin • "The only thing harder than planning for an emergency is explaining why you didn't.” -Unknown • “While no plan can guarantee success, inadequate plans are proven contributors to failure.”-US Department of Homeland Security, Nationwide Plan Review Phase 2 Report June 16, 2006 • “Business continuity is not a project with a beginning and ending date, it is a program to be managed indefinitely.”-Business Continuity Management • The treasurers we identified as most effective, for example, regularly test the business continuity plans that keep treasury operations running through unforeseeable catastrophic events, -McKinsey & Company ( “Five steps to a more effective global treasury”, McKinsey on Finance # 42, Winter 2012 ) • Natural disaster, IT outage or industrial action are the disruptions that make headline news. But disruption also includes staff illness or local events that affect your supply chain. –TalkingBusinessContinuity.com

  3. Trends for the Treasury Department’s role Companies are calling on treasury departments to do more related to managing risk.. Source: CFO Magazine/2006 AFP Strategic Role Survey Source: 2012 AFP Treasury Benchmarking Survey

  4. Trends for the Treasury Department’s role Source: 2012 AFP Treasury Benchmarking Survey

  5. Trends for the Treasury Department’s role Source: 2012 AFP Treasury Benchmarking Survey

  6. What is Business Continuity Planning? It is a process to ensure the maintenance of critical operations when confronted with adverse events related to: • People • Labor Strike • Infectious Outbreak • Extreme Weather • Transportation Outage • Facilities • Fire • Workplace Violence • Natural Disasters • Hazardous Materials • Technology • Power Outage • IT/Network Failure • Telecom Failure • Sabotage • Supply Chain • Suppliers • Customers • Payment Channels It consists of 4 Components:

  7. Business Impact Analysis (BIA) Prioritizing the recovery of a business and its services through the identification and assessment of potential impacts. Simply put, it is defining what and when the Company’s business should be recovered based on the potential risks and costs of a business disruption.

  8. Business Impact Analysis Business Impact Analysis (BIA) identifies the effects and impacts of interruption on the viability and vitality of operations and critical business functions, especially financial activities, including maintaining collections, processing payments, operating a supply chain, handling payroll.

  9. Risk Assessment Identifying and assessing the likelihood and impact of potential threats to Your Company. Threats include various scenarios that could lead to the loss of technology, human capital, facilities or the Company’s suppliers.

  10. Risk Assessment Source: Federal Emergency Management Agency (FEMA) http://www.ready.gov/risk-assessment

  11. Top Threats to Business Continuity in 2013 Source: The Business Continuity Institute: Horizon Scan 2013 Survey Report

  12. Top Emerging Threats to Business Continuity Which of the following trends or uncertainties are on your radar for evaluation in terms of their business continuity implications? Source: The Business Continuity Institute: Horizon Scan 2013 Survey Report

  13. Distributed Denial of Service (DDoS) Attacks • DDoS is an attack on a computer/server or its resources and thereby making it unavailable to intended users.1 • Massive volumes of data • Up to 70 Gigabytes/second 2 • Equivalent to 1.9 DVDs per second, or • 1,750 iTunes songs per second • Prime Target: Banks 3 • 64% of banks have been attacked • 48% of banks have had multiple attacks • 78% expect continued or increased activity in 2013 • Other Major Targets: 4 • eCommerce sites • Software-as-a-Service (SaaS) Organizations Sources: Wikipedia www.nytimes.com/2013/01/09/technology/online-banking-attacks-were-work-of-iran-us-officials-say.html AFP Fraudwatch: 1-28-2013 Prolexic Quarterly Global DDoS Attack Report Q4 2012

  14. Resiliency Planning and Mitigation Documenting business and technology response and recovery plans. Recovery plans are developed to be flexible to respond to a multitude of different threats. In some instances as gaps in plans are identified, mitigation strategies are developed and implemented to improve the ability to recover.

  15. Using the BAI to Build a Plan Source: www.talkingbusinesscontinuity.com

  16. U.S. Postal System: Anticipating Change • The USPS financial problems have been widely publicized and continue to mount • In response the USPS has embarked on an aggressive two year plan to modify service levels and align capacity with demand • 46 plants consolidated by August 2012, 94 more in early 2013 • Reduction of the two day service delivery area from ≈ 500 miles to ≈ 250 miles • Elimination of overnight delivery of 1st class mail in 2014; 89 more plants to close • Remittance Mail to be handled on an expedited basis with prioritized Zip Codes, National Firm Holdout and extended caller services The impact on Lockbox mail in 2012 was limited

  17. U.S. Postal System: Anticipating Change https://ribbs.usps.gov/modernservicestandards/ssmaps/find_map.cfm

  18. U.S. Postal System: Anticipating Change

  19. U.S. Postal System: Anticipating Change • The USPS recently announced it will eliminate door-to-door mail delivery on Saturdays, effective August 5, 2013 • Move will save the USPS $2 billion annually • This may still require Congressional approval • USPS will continue to process mail on Saturdays, it just won’t have its mail carriers delivering it door-to-door • Large lockbox providers like PNC will not be negatively impacted, as we can continue to retrieve mail from the Post Office as we have traditionally done • Clients should not eliminate weekend processing • The float/availability gap between those who utilize a lockbox and those who do not will likely widen as the Saturday change and future consolidations occur.

  20. U.S. Postal System: Anticipating Change General observations of changes to date: • Wednesday mail declining; Sunday mail moving to Monday • Mail arrivals patterns have shifted to later in the day • The two day delivery area is shrinking; more mail moving to three day Expectations related to upcoming changes: • Some businesses might benefit from adding additional lockbox locations • Companies still receiving mail in-house will be impacted more dramatically than those using lockbox • Clients with early final deposit deadlines may wish to consider adding later deposit deadlines • Encourage electronic payments and evaluate invoicing methods

  21. Risk Monitoring and Testing A critical component to the life cycle of resiliency is to demonstrate or validate the Company’s ability to recover at the time of a crisis or event. Recovery plans should be exercised in a testing scenario. It enables the business to identify potential gaps or risks in the recovery plans before an actual incident occurs, thus reducing the risks of a delayed recovery in a live event.

  22. Monitoring and Testing the Continuity Plan According to Forrester Research1: • ≈ 45% of business unit owners are not involved in plan testing • ≈ 57% of business unit owners are not involved in training and awareness • ≈ 44% of organizations do not include business partners (suppliers, providers, etc.) • The top 3 lessons learned from organizations that invoked a Business Continuity Plan: • There had not been enough training and awareness. • Plans didn’t adequately address internal communication and collaboration. • Key staff had not been included in testing and didn’t know roles/responsibilities. Recommendations: Update the BIA to include new threats, processes, systems, partners etc. Test various components in your plan and update based on lessons learned. Meet with stakeholders such as banks, trading partners and vendors to discuss critical components of the plan that require their participation. 1) Source: Disaster Recovery Journal, Winter 2012 “The State of Business Continuity Preparedness”

  23. Parting Thoughts: A Day in the Life of Treasury… Execution (80% of time) • Compile cash position • Retrieve data from bank(s) • Reconcile prior day estimates with actual results • Make liquidity management decisions • Initiate, approve, release wires • Update current day position with new information • Generate management reports • Research payments and cash flow issues • Analytical (15% of time) • Create cash forecast model • Review exposures • Hedge positions Strategic (5% of time) • Enterprise Risk Management; Working Capital Management; Advisor to Business Units; Liaison with Board of Directors Source: Treasury Strategies, Inc.

  24. Questions?

  25. Supplemental Readiness Questions Asking the right questions will enable you to develop contingency plans and actions designed to minimize operational and financial disruptions.

  26. Financial Planning: Contingencies Collections • Lockbox: • Can you receive data for posting? • External Changes…. USPS • Exception management: Post cash and correct issues later? • Electronic Payments • Do you have event notification? • Information reporting: Intraday? • Related data: FED reference number; Expanded remittance, CTX, CCD+ • Physical payments • Security of collected cash? • Alternatives for check deposit? • Card Acceptance?

  27. Financial Planning: Contingencies Disbursements • Demand Accounts (Checking): • Authorized signers/resolutions: Limits, number of signers, physical location: Do you have paper and electronic copies? • Check stock: Accessible? Secure? • Check Positive Pay implications: Pay or no pay? • Wire: • Voice wires: Do you have PIN process established? • Branch origination: Hours of operation; dollar limits; PINs • Deadline of FED wire system • Tokens/Call Back Numbers? • ACH: • Can you create/confirm a payment/file (system availability) • Windows of operation: ACH network and your bank • Dual approval: Access and availability • ACH Positive Pay implications

  28. Financial Planning: Contingencies Information Reporting • Visibility of activity (and of Cash!) • Accessibility to company systems, web and bank systems? Liquidity • Daylight OD limits: For your company? For your bank? • Availability of cash when receipts are interrupted? • Overdraft (overnight) vs. extension of credit Card Programs • Alternative MCC/Spend Limit Profiles? • Emergency Cards? • Prepaid cards? • Travel Related Considerations? • Cardholder Communications?

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