Achieving Operational and Risk Management Excellence at Rand Water

by Lucky Ncobela, Group Treasurer, Rand Water

Changing treasury needs

In the past, as a cash-rich business, our treasury requirements were relatively straightforward and mainly involved cash investment. Major projects, such as the Lesotho Highlands Water Project (LHWP), the first phase of which was completed in 1998, and an ongoing investment programme to meet the needs of consumers in South Africa and maintain state-of-the-art infrastructure, have resulted in a distinct change in our treasury requirements, including:

• Cash management has become a greater priority, in particular ensuring complete, accurate and timely visibility of cash across the business;
• As debt levels have increased, financing transactions need to be recorded, managed and accounted for correctly, according to generally accepted accounting principles;
• Risk management, including both interest rate and FX risk have become priorities, necessitating sophisticated analysis and reporting tools;
• Compliance is also a key consideration, facilitating confidence and trust amongst both internal and external stakeholders.

Evaluation and selection

Before embarking on this project, treasury was managed using a database developed in-house and a series of spreadsheets. As our functional needs became more sophisticated, we recognised the need to upgrade our infrastructure and, as a state-owned business, to demonstrate industry best practices.

We operate a formal process for procurement according to the PFMA (Public Finance Management Act, 1999) as required for state-owned businesses in South Africa. This necessitates a thorough due diligence process and objective decision criteria which can be very useful in developing a comprehensive selection framework. We issued an invitation to tender (ITT) but before sending the request for proposal (RFP) to tenderers, we reviewed and documented our IT architecture, short-term functional requirements and longer-term business strategy, including front office, middle office, back office, cash management, hedge accounting and most importantly, compliance and risk management. This ensured that we could determine the suitability of each solution and compare them consistently.

Having evaluated each proposal, we shortlisted three systems and performed thorough due diligence on both the vendor and system in each case. We also sought references from comparable organisations to understand how each system was being used in a real-life situation. Following an exhaustive process, we selected SunGard’s AvantGard Quantum. There were a variety of factors behind this decision:

• The solution supported all our major functional requirements;
• The solution was very user-friendly, and did not require specialist skills to use or maintain it;
• We were able to integrate the solution seamlessly into our wide technology environment, including interfacing with our ERP;
• The references we obtained were very positive, including those from other state-owned entities in South Africa, such as Transnet and South African Airways, so we had a high level of confidence. Furthermore, we could work together through a local user group;
• SunGard had a strong local presence and demonstrable commitment to customers in South Africa, so would be able to access local support and expertise;
• SunGard demonstrated active support of our objective to empower previously disadvantaged individuals, and partnered with us to fulfil this objective.[[[PAGE]]]

Project achievements

We had a clear project timeline for the implementation to which both SunGard and Rand Water were fully committed. As a result, we completed a large and complex project within the project deadline of 18 months. We achieved a wide range of objectives, including:

• Implemented comprehensive functionality to achieve our core requirements, including a high level of control, transparency and automation;
• Significantly reduced our risk of error in either input or calculation, improving our reporting and analysis and the quality of our decision-making;
• Achieved complete visibility over cash across the business, enabling us to manage cash and liquidity more effectively;
• Provided our investors with greater confidence that we have the risk management tools to monitor and manage the risk associated with financing transactions;

There were also some unique benefits to this project that may not have been immediately apparent when we first started it, or may differ from other organisations implementing a treasury management system. For example, the SunGard team offered very valuable input into ways to improve our processes and reporting based on their experience with other customers, so we have been able to increase our process efficiency and improve the quality of information that we produce. Treasury is responsible for Rand Water’s medical and provident fund, for which we use AvantGard Quantum, enabling us to provide a full service from booking through to accounting. The accounting rules for the provident fund (regulation 28) differ from our regular treasury transactions, but we have been able to define and automate the production of account statements according to different accounting rules.

Overcoming challenges

A project of this scale and complexity inevitably brings some challenges, not least as we had to conduct our normal day-to-day activities at the same time as the implementation project. We were very impressed that the implementation team from SunGard gave up a significant amount of their personal time after-hours to ensure that we achieved our project milestones.

Looking forward

Now that we have implemented the core solution, we are focused on refining and optimising its use. One objective is to integrate AvantGard Quantum with the Johannesburg Stock Exchange (JSE) which was a capability we evaluated at the beginning but were not able to include in the initial project due to delays by JSE. By end June 2014, we will have completed and signed off the project, however.

In the future, we are hoping to expand our treasury management solution with AvantGard eTreasury™ to enable our treasury personnel to access functionality from any location. This is particularly valuable for a relatively small department so that we can complete treasury tasks whether or not we are in the office.

Sharing advice

We have had a very positive experience of working with SunGard and implementing AvantGard Quantum. The expertise, commitment and partnership approach that the SunGard team offered us was extremely valuable both in completing the project on time also improving efficiency, transparency and control in our treasury function.

When analysing and documenting treasury requirements, it is easy to take processes and tasks for granted, so they get missed out of the original analysis. This is not an issue if the system chosen has comprehensive functionality, but it would be a far greater issue for a less mature or complete system.

The audit capabilities of a treasury management system are very important. We can now review deals at every stage in their history and understand changes in terms or accounting which has been very valuable, and was not possible when using spreadsheets for transaction management.

Planning is a very important part of the project, and we spent at least 40% of our total implementation time on careful planning. This was a very worthwhile investment and streamlined the implementation itself.

We included IT, internal and external auditors throughout the process and invited them to participate in the steering committee. This meant that all key stakeholders had a common understanding of the project objectives and decisions, enabling us to address queries upfront rather than at the end of the project. SunGard was also represented on the steering committee, and presented the project and solution to the board and offered regular updates, therefore increasing buy-in and commitment to our project objectives.