Selecting a Treasury Management and Modelling Tool at PPL
Featuring Linda McDonald, Manager, Financial Settlements and Controls, PPL
During 2009, PPL embarked on a selection process for a new treasury management system (TMS) to provide treasury front-office capabilities for deal capture, risk analysis and cash management.
PPL has centralised its domestic financial activities into a treasury centre in Pennsylvania. Its European operations are managed through a centre in the United Kingdom which reports back to the head office but has a separate processing and technology environment. Our treasury centre is responsible for all the domestic treasury and cash management requirements across the United States. Payments and collections are managed in a central treasury operations group and over the past 10 years the processes have been consolidated but each group uses different systems.
Financial processing optimisation
Around five years ago, encouraged by requirements under Sarbanes-Oxley Section 404 and our own desire to increase financial and process efficiency, we completed a business case for a new system to combine payment and collections processing. We recognised the similarities between these two areas, and wanted to realise the potential synergies in processing and internal controls. Based on this business case, we established a single set of business processes. This was a particularly important element of our overall strategy as we maintain our own internal lockbox and process a very high volume of utility payments. This settlement centre incorporates imaging software and effectively acts as a digital mailroom. Payments and collection advices are generated within the business, approvals are conducted through front-office systems managed by the relevant departments, and approved instructions are then passed electronically to the settlement centre.
Front-office technology requirements
While the settlement centre has proved very effective for processing our payments and collections, we also need a more robust front-office system for managing our treasury activities, which would then be integrated with our settlement centre for transmitting treasury payments. We have an existing treasury management system (TMS) that we acquired in 2002. Although this system met our requirements for a number of years, we need additional functionality for our current portfolio.
Although cash management may typically lead most treasury system selection projects, our debt requirements were more significant for our technology choice, as we are a capital-intensive business with a large asset base. We have a very substantial, complex debt portfolio with a variety of structured deals. Just as our options for a new system were limited in 2002, it was evident that while our cash management needs could be supported, most TMS currently available would not be capable of managing our debt modelling and risk analytic requirements, which include Value at Risk (VaR) and Cashflow at Risk modelling. We briefly considered building our own TMS, based on our experiences with our settlement system, and built a requirements specification for a bespoke system in parallel with sending requests for information to potential third party TMS vendors. However, one of our objectives is to maintain our systems environment according to industry best practices and we recognised that the resource and investment requirement to achieve this with an in-house system was likely to be too high.
System selection process and decision-making
We initially reviewed three alternative systems in detail, as well as looking more widely at systems available in the market, but in many cases these vendors needed to propose combined solutions involving multiple systems. We decided that a multi-system solution would not be sufficiently integrated or cost-effective for our needs; in addition, we considered the treasury module provided by our ERP vendor, but this module was not able to meet our requirements either.
