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Hot topics treasury seminar

Leveraging Technology in Hedge Management


16 June 2016

Discover and unlock


your potential…
Agenda

Project Management & Implementation approach


PwC’s project management approach

Introduction to SAP Treasury


Exposure and hedge management process
SAP’s hedge accounting functionality

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Project management & implementation approach

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PwC’s approach

PwC’s approach is powered by the following tools


• PwC’s Transform methodology
• Change management approach
• PwC’s tools and accelerators
• PwC’s global delivery model (with service delivery centers)

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Our methodology for system
implementation - transform
PwC has a global Transform methodology that is used in transformation projects. Our project methodology builds on numerous
template documents (design documents, standard requirements, test cases etc.) allowing for an efficient approach and lower
number of consulting work-days needed.

1 2 3 4 5
Assess Design Construct Implement Operate
Strategy
and Review
Delivering Change

- Rollouts
Structure •Business
•System set-up
consulting on
•Detailed requirement and
design
Process analysis implementati •Pre Go-live
on of modules activities
•Business blueprint
• Solution assessment •Development
People for standard •Go-Live
of custom •Integration
functionality
•Mapping business functionality testing
•Post Go-live
Technology requirements to •Conceptual design support
system features •Development •End user
of custom
of interfaces training and
functionality •Roll outs
•Detailed gap analysis user
Change and identification of acceptance
•Data requirements
Driving
Change

Management solution gaps. testing


and design of
interfaces
Programme
Delivery
Project Business Final Go Live and
Preparation Blueprint Realisation Preparation Support – Roll
outs
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Our proposed approach and deliverables
Mapping and adaptation of our approach
Approach adapted for client PwC’s Transform methodology

1 A. Requirements analysis
• Detailed requirements analysis (functional and technical)
• Solution assessment
Assess
B. Gap analysis
• Mapping business requirements to system features
• Detailed gap analysis and identification of solution gaps
Blueprint and
Design 2 • Solutions for gaps and documentation of solutions (functional specifications)
• Business blueprint for standard functionality
• Conceptual design of custom functionality
Design • Data requirements, design of interfaces and master data
• Accounting integration to GL
• Solution prototypes (solution prototypes to demonstrate usability of solution)
• Prototype testing by business users
• Business blueprint sign-off
3 • Functional and technical specifications
Implement Construct • System set-up and implementation of modules
• Development of custom functionality
• Development of interfaces
4
• Integration testing (SDC)
Testing Implement • End user training
• Test plan and test scripts (PwC or client)
• User acceptance test execution
5
Go-live, Post • Pre Go-live activities (migration, etc.)
Operate and
Go-live • Cut-over and Go-Live
Review -
Support & • Post Go-live support
Rollouts
Roll-outs • Roll-outs
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Approach: Blueprint and Design Phase
PwC has structured the approach. The approach focuses on:

• Providing the business users with confidence in the solution – by way of prototypes and solutions to cover functionality
and bridge key gaps
• Bridging the solution gaps through workarounds, add-ons or third party tools
• Use of PwC’s accelerators and add-ons to achieve faster implementation

Map SAP Prepare and


Map user roles
Assessment Treasury design master Build prototypes
and transactions
functionality data

Validate Validate
Business
prototypes (pilot prototypes (hub Finalise design
Blueprint
users) users)

The business users from The prototypes will be Based on the outcome of The business blueprint
the pilot project will tested by selected hub tests and functional will be signed off.
validate the prototypes by users (roll-out) for hub design, we will draft the
performing tests specific requirements detail business blueprint

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Approach: Implement phase
With solution prototyping, it is easier and faster to implement the solution in the client’s environment. The implement phase starts
with functional and technical specifications and ends with a configured development environment. PwC uses its Service Delivery
Center (SDC) for the development of interfaces and custom reports, to speed up the build of solution. The delivery center approach
provides the following benefits:
• Extended work days – as our delivery center is in India, we gain implementation time and the work day is extended to
15 hours
• Access to latest technologies in implementation of interfaces and custom functionalities – our delivery center has 500+
skilled resources in SAP technologies
• Create multipliers for global roll-out – in large international projects, our delivery center acts as a hub for roll-out and
support
Functional
Understand IT policy Technical Master data set-
specifications and Build solution
and standards specifications up
configuration

Prepare transport
Technical review
Build interfaces Unit tests lists – Testing
by client’s IT
phase

After the basic We will perform units We will get the solution After the validation is
configuration set-up, the tests on the build validated by client’s IT finalised, we will prepare
interface build phase starts the transport lists for the
in parallel Quality environment
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Approach: Test phase
With a “test-driven implementation approach, the solution is being continuously evaluated and tested during the implement phase.
During the testing phase , the test suites are continuously updated as new failure conditions and issues are discovered, and they are
integrated with any regression tests that are developed. The solution comes out with good quality and tested with other related
systems and solutions during integration testing.

Update Test Prepare Execute all the


Issue
trainings User end-to-end
Cases & Test tracking
materials and Training scenario test
Plans system
user guides cases
The test cases Detailed user Users are assisted All defects and Users execute
executed in manuals with on-site and change requests longer end-to-end
implement phases step-by-step remotely to are tracked and process scenarios
are updated and process execution execute the test followed up in which will be
more detailed for for all the cases . weekly meetings. executed after go-
the users to start scenarios and live by different
testing. prepared and used users /
during training. departments .
Perform Perform Prepare transport
Test completion
integration regression lists – Testing
and signoff
tests tests phase
After performing The previously No remaining high or After the tests are
end-to-end working scenarios medium priority finalized, we will
solution tests, are retested after defects and users prepare the transport
integrations tests new fixes or signoff on all the lists for the production
are performed to changes are done scenarios as ready for environment
check in the solution go-live
compatibility with
external systems
The following exit criteria should be passed for test phase completion:
 Pass quality gate for user acceptance testing
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 Final preparation outcomes have been satisfactorily achieved
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Approach: Go-Live and Post Go-Live
Support phase
We have extensive experience in implementing treasury solutions for international clients. Through our detailed go-live
preparation and support, the users are very comfortable to use the new system. Our global delivery center works as a hub for on-
site rollout and support.
Function Hypercare
Prepare Cutover documents Technical Migration al go-
go-live support
Live
Cutover documents are All the Master data and The users start User are supported on
prepared to highlight all developments and market data creation using the new high-priority till a
technical and functional system in production system. system. month after go-live
steps to be done in configurations will Perform migration and high-speed defect
production before be transported in steps for active deals resolution in
functional go-live production etc. production system .
system.
Assess and Develop and Test and Go-live and Prepare and
Design for test for specific train the Hypercare Go-live at
Hub rollout Hub scenarios Hub users support all hubs

Interview and Develop the Hub users are Users supported Perform cutover
demonstrate the specific scenarios trained and for a month after tasks and go-live
implemented solution to and execute unit supported on-site they start using at the all the hubs.
Hub users. Gather specific tests for them. during testing. the new system. Provide support
requirements and design Defect tracking Extended support till the solution is
them to fit in current and resolution for users possible used globally.
solution. process followed. based on need.

The following exit criteria should be passed for go-live phase completion:
 Final Preparation Outcomes have been satisfactorily achieved
 No outstanding issues that would prevent system operation are outstanding
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Typical project timeline
Elapsed time (Weeks) – estimated Elapsed time (Months) – estimated
Phase 1 2 3 4 5 6 1 2 3 4 5

1 Assessment Requirements Implemented


Solution
2 Solution Design and Solution design and
Data requirements recommendations

3 Recommendations
Business Blueprint

4 Business blueprint
UAT
5 Implement Exposure
management

Implementation Hedge
6 Management in SAP

7 Accounting in business
units
Post Go-live support

Milestones
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Building blocks of Change
management

PwC
Change management approach
What will we achieve with the Change Management workstream?

Mission statement: Secure the successful on boarding, engagement and


commitment of all the central and local stakeholders to the project

1. 2.
Transformation Leadership
vision alignment

3.
6. 6 building blocks Stakeholder
Training of Management
Change
Management

4.
5.
Change Impact
Communication
&
Readiness

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Tools & accelerators

PwC
PwC tools and accelerators
Cash and Liquidity, Risk, and Project Leadership and Change Management

Cash and Liquidity Management

Design Workshop Banking Vision & Cash Flow Forecast Organizational


Selection Model
Templates Pricing D’base Model Structure

Treasury and Risk Management

Business Req’s Std. Op. Procedures


Risk Policies Blueprint Designs Process Maps
Documents (SOPs)

Project Leadership and Change Management

Actions/Issues/Risks
Project Plans RACIs Change Assessment Governance Model
Trackers Readiness assessment scorecard shows areas of
concern and promise Rating Low risk Moderate risk High risk

Focus Low Moderate Significant

Leading Risk Rating/ Summary of Findings


Practice Change Focus
Culture • Significant “can do/will do” attitude
• At cultural center — Leading Medicine, ICARE values, quality patient care, and
patient satisfaction. Opportunity: Tie project to cultural center
Low to • Entity autonomy and silos, and emphasis on keeping stakeholders “happy”
Moderate
• Acknowledged “culture of silence”
Workforce • Long-tenured employees will see significant day-to-day changes – new system, new
Enablement processes, and need for greater analytical skills
• Existing training infrastructure for system-wide training appears limited
Significant
• Heavy historical desire for classroom training and reliance on on-the-job training
Business • Leaders appear to agree generally that change is necessary, but not upon the degree
Case and of transformation needed
Transform- • No simple, unifying vision and case for change yet created that will resonate across
ation Vision Significant
all organization levels
• Absence of quantifiable objectives and metrics beyond “on time/on budget” makes
decision making harder
Leadership • Leaders express high degree of confidence in project success
Alignment & • Potential and perceived gaps in leadership alignment may make it difficult to
Mobilization

PwC
PwC
Moderate mobilize the organization in support of MARS
• Leader mobilization is complicated by high degree of entity autonomy

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PwC tools and accelerators
SAP Treasury

Cash and Liquidity Systems Enablement


Blueprint Designs Prototype/Config. Docs Test Plans & Scripts User Guides

Treasury and Risk Systems Enablement


Business/IT Req’s Doc PwC Add-Ons Roles & Functional Areas Reporting Dashboards
Test case
overview FX tool

In addition, PwC also has a SAP (Treasury) sandbox environment to support configuration, testing and training

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PwC’s global delivery model (with
service delivery centers)

PwC
PwC’s SAP Treasury capabilities – global
delivery with PwC’s SDCs

PwC North
America – 6 PwC
SAP Switzerland,
treasury Germany, Spain,
experts Belgium – 20
SAP treasury
experts 10
PwC SDC – 7
Development
SAP treasury
and reporting
experts 50
experts
Development
and reporting
experts

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Pointers………

PwC
A successful implementation needs…….
Preparation
• Requirements & scoping documents
• Outline process from A to Z
• Identify areas for change during this process
• Make change decisions (wherever possible) BEFORE going forward

Project Sponsorship
• From Director / CFO level is most successful
• Access to project sponsorship for escalation of issues

Strong communication
• Regular (weekly) preferably face-to-face meetings
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A successful implementation team
• Steering committee (once a month/bi-weekly) including project
sponsor for elevating issues / problem resolution / decision making
• Reference group (SMEs) to support project team
• Subsidiaries / accounting / IT / AP & AR departments
• Dedicated, professional project manager
• Can be internal or external
• Works best if the project is that persons only focus
• System consultants (usually working for the provider or in
partnership)
• Key users to provide business knowledge
• Cash manager, treasury manager, analysts, accountants
• IT specialists
• Team members from the bank (if applicable)
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Additional Slides

PwC
Change management – Illustrations

Stakeholders Mapping

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Change management – Illustrations

Key stakeholders – Level of commitment

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Change management – Illustrations

Key stakeholders – Impact analysis

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Treasury Transformation – a focus
on Hedge management
implementation in SAP

PwC
SAP Treasury - Solution Architecture

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Currency Risk Management process

Classify Manage hedges and


exposure as Create deal requests monitor hedge
forecasts and balance from the exposure ratios. Generates Risk dashboard
Gather data from sheet position and transfer it entries for Cash Monitor market risk combining
various source and classify exposures to trading platforms or flow and Fair value and performance of operational and
systems in maturity buckets front office system hedge hedges financial exposures

Build Hedge
Deal NPV/VaR
Risk Identification Exposure Managementand Risk Dashboard
Request Calculation
Positions Accounting

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Manage Global Financial Risk
Process Flow

The Treasury Applications from SAP provide robust functionality that enables companies to
identify and quantify their exposure to foreign exchange, interest rate, commodity price and
counterparty risk and take steps to mitigate them.

1 2 3 4 5
Capture Implement
and assess Risk- Manage Financial
Risk Reporting
Risk mitigation Hedges Reporting
Exposure strategies

Create Exposure Overview about Assignment of the Effectiveness test Overview about
automatically the Exposure for the Hedge the hedged and
or manually consolidated Positions to Relationships unhedged part
Risk Hedge Plans of the Risk
Split of Positions Documentation of
Positions
Exposures into Creation of the the Hedge
different Risk Decision on Hedging Relationships Risk Reporting in
Positions hedging Instruments Results
strategy and Hedge Accounting
possible (Derivatives) Database
transfer of regarding IAS
Release of the Hedge Items Designation of the or/ and US-
generated to Hedge Hedge GAAP
Exposures Management Relationship
automatically
or manually Risk Reporting
in Results
Database

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Hedge accounting architecture in SAP
SAP Solution (Exposure and Hedge)

Exposure Manager 2.0 Transaction Manager


Planned
Data
cash-flow
data
-feed
Excel Hedge Management and
Market Risk
Accounting

SAP Treasury andSAP


RiskFIManagement (TRM)
Business units accounting postings

Business units SAP / Non-SAP systems

Interfaces to be SAP Standard Modules New modules


built

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Creating of the FX Forward and automatic
designation

Creation of FX hedge
3
instrument and
automatic designation
out of deal

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Define Hedging Relationship (THMEX)

Define Hedging Relationship

At the Hedging
Relationship tab, you
enter the Hedge
Instrument (Deal
Number from
Transaction Manager)
and the volume that is
to be used to hedge the
object.

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Simulate the Effectiveness Test (THM80)

The field Horizon could be appropriate


used for the prospective effective test.
This date is the later evaluation time, on
which all market data is read (e.g.
forward rates, if the horizon is in the
future) and on which interest is
discounted in accordance with all cash
flows.

If you want to carry out a prospective


effectiveness test in our system, you
will need a market data scenario. The
user create scenarios, which represent
market situations you consider to be
possible or probable (for example, a
high interest rate scenario with an
inverted yield curve). You can also use
historical market data.

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Valuation: posting logic with FAS133/IAS39

1 Determine derivative´s fair value


2 Determine value of any free-standing portion of the derivative
3
Determine OCI/Equity target balance and amount to be posted to OCI/Equity
Distribution
4 Post remainder of clearing OCI/Equity distribution account to P/L
(ineffective portion of the hedge)

FX - Balance Sheet Account OCI/Equity - Distribution Account


1 Delta NPV 2 Free-standing 1 Delta NPV
portion
3 Effective
portion
4 Ineffective
portion
5 [
Delta time
value
]
0,00 0,00

P/L OCI/Equity
2 Free-standing 3 Effective
portion portion
4 Ineffective
portion
5 [
Delta time
value
]
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Document the Hedging Relationship (THMEX)

Hedge Documentation IFRS and US GAAP require key information


about the hedging relationships to be
formally documented prior to hedge
accounting treatment being applied. Failure
to establish this documentation will mean
hedge accounting cannot be adopted
regardless of how effective the hedge actually
is in offsetting risk.

Hedge documentation requirements are:

• Risk management objective and strategy


• Identification of the hedging instrument
• The related hedged item or transaction
• The nature of the risk being hedged
• How the entity will assess the hedging
instrument’s effectiveness

Press button ‘Documentation’ to display the


hedge documentation.
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Document the Hedging Relationship

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Highlight of the past projects
A Large tobacco company –
Automation of exposure
identification and capture.
Hedge relationship,
effectiveness tests and
reporting
Tool: SAP Exposure and
hedge management

Exposure management Hedge management

A Large engineering company A US based manufacturing


– Automation of exposure company – Exposure
identification and capture. capture for project hedges,
hedge relationship, dollar
Hedge assignment, hedge offset method. Fair value
relationship and hedge and cashflow hedges
monitoring
Tool: SAP Exposure and
Tool: SAP Exposure and hedge hedge management
management

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Common requirements and pitfalls
Area Requirements Pitfalls

Exposure identification A good tool to identify and capture Manual entry of exposures – no possible
exposure updates if the underlying exposure
Automation of capture process position changes
Exposure management Managing the changes during the If the lifecycle is not handled and
exposure lifecycle automated, this might lead to:
Exposure expiry Overdue exposures
Netting of exposures Expired exposures
If exposure positons are not netted, it
leads to large number of 1:1 hedges
Hedge management Clear definition of hedge strategy If the hedge plans are not clearly defined,
Clear definition of hedge plans and it might lead to large number of hedging
managing the relationship relationships
Hedge accounting Clear definition of GL accounts used If the posting rules are not defined
for postings clearly, it might lead to wrong allocation
Definition of posting rules to OCI and P&L
Release of OCI strategy
Testing A detail testing is required from
capture to effectiveness test
Various test scenarios and cases needs
to be tested

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Questions…

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More information

Trainer:
Aniket Kulkarni
Phone number: +41 (0)79 580 4362
E-mail: aniket.kulkarni@ch.pwc.com

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