Leveraging Technology in Hedge Management 16 … · •Business blueprint for standard ... •Detailed gap analysis and identification of solution gaps. ... Banking Vision & Pricing

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Hot topics treasury seminarLeveraging Technology in Hedge Management

16 June 2016

PwCPwC

Agenda

Project Management & Implementation approach

PwC’s project management approach

Introduction to SAP Treasury

Exposure and hedge management process

SAP’s hedge accounting functionality

16 June 2016Hot topics treasury seminar

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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 - transformPwC 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.

Structure

Strategy

Process

People

Technology

ProgrammeDelivery

Change Management

Dr

ivin

g

Ch

an

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De

liv

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Ch

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•Business consulting on design

•Business blueprint for standard functionality

•Conceptual design of custom functionality

•Data requirements and design of interfaces

•System set-up and implementation of modules

•Integration testing

•End user training and user acceptance testing

•Pre Go-live activities

•Go-Live

•Post Go-live support

•Roll outs

•Detailed requirement analysis

• Solution assessment

•Mapping business requirements to system features

•Detailed gap analysis and identification of solution gaps.

Project Preparation

Business Blueprint Realisation

Final Preparation

Go Live and Support – Roll

outs

Assess Design Construct Implement Operate and Review - Rollouts

•Development of custom functionality

•Development of interfaces

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Construct

Assess

Design

Implement

Operate and Review -Rollouts

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• Functional and technical specifications• System set-up and implementation of modules• Development of custom functionality• Development of interfaces

• Integration testing (SDC)• End user training • Test plan and test scripts (PwC or client)• User acceptance test execution

• Pre Go-live activities (migration, etc.)• Cut-over and Go-Live • Post Go-live support• Roll-outs

Blueprint and Design

Implement

Testing

Go-live, Post Go-live

Support & Roll-outs

Approach adapted for client PwC’s Transform methodology

Our proposed approach and deliverablesMapping and adaptation of our approach

A. Requirements analysis• Detailed requirements analysis (functional and technical) • Solution assessmentB. Gap analysis• Mapping business requirements to system features • Detailed gap analysis and identification of solution gaps

• Solutions for gaps and documentation of solutions (functional specifications)• Business blueprint for standard functionality• Conceptual design of custom functionality• 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

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Approach: Blueprint and Design PhasePwC 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

AssessmentMap SAP Treasury

functionality

Map user roles and transactions

Prepare and design master

dataBuild prototypes

Validate prototypes (pilot

users)

Validate prototypes (hub

users)

Finalise designBusiness Blueprint

The business users from the pilot project will validate the prototypes by performing tests

The prototypes will be tested by selected hub users (roll-out) for hub specific requirements

Based on the outcome of tests and functional design, we will draft the detail business blueprint

The business blueprint will be signed off.


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Approach: Implement phaseWith 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

Understand IT policy and standards

Functional specifications and

configuration

Technical specifications

Master data set-up

Build solution

Build interfaces Unit testsTechnical review

by client’s IT

Prepare transport lists – Testing

phase

After the basic configuration set-up, the interface build phase starts in parallel

We will perform units tests on the build

We will get the solution validated by client’s IT

After the validation is finalised, we will prepare the transport lists for the Quality environment


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Approach: Test phaseWith 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 Cases & Test

Plans

Prepare trainings

materials and user guides

User Training

Issue tracking system

Execute all the end-to-end

scenario test cases

Perform integration

tests

Perform regression

tests

Test completion and signoff

Prepare transport lists – Testing

phase

After performing end-to-end solution tests, integrations tests are performed to check compatibility with external systems

The previously working scenarios are retested after new fixes or changes are done in the solution

No remaining high or medium priority defects and users signoff on all the scenarios as ready for go-live

After the tests are finalized, we will prepare the transport lists for the production environment

The following exit criteria should be passed for test phase completion:

Pass quality gate for user acceptance testing

Final preparation outcomes have been satisfactorily achieved

All defects and change requests are tracked and followed up in weekly meetings.

Users execute longer end-to-end process scenarios which will be executed after go-live by different users / departments .

Users are assisted on-site and remotely to execute the test cases .

The test cases executed in implement phases are updated and more detailed for the users to start testing.

Detailed user manuals with step-by-step process execution for all the scenarios and prepared and used during training.


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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.

Prepare Cutover documentsTechnical

go-liveMigration

Functional go-Live

Hypercaresupport

Assess and Design for

Hub rollout

Develop and test for specific Hub scenarios

Test and train the

Hub users

Go-live and Hypercare

support

Interview and demonstrate the implemented solution to Hub users. Gather specific requirements and design them to fit in current solution.

Develop the specific scenarios and execute unit tests for them.

Hub users are trained and supported on-site during testing. Defect tracking and resolution process followed.

Users supported for a month after they start using the new system. Extended support for users possible 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

The users start using the new system.

User are supported on high-priority till a month after go-live and high-speed defect resolution in production system .

Master data and market data creation in production system. Perform migration steps for active deals etc.

Cutover documents are prepared to highlight all technical and functional steps to be done in production before functional go-live

All the developments and system configurations will be transported in production system.

Prepare and Go-live at all hubs

Perform cutover tasks and go-live at the all the hubs. Provide support till the solution is used globally.


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Typical project timeline

165432

Elapsed time (Weeks) – estimated

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Assessment

Phase

Solution Design and Data requirements

Recommendations

Business blueprint

Implement Exposure

management

Accounting in business

units

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2

3

4

5

Milestones

3 4 5

Business Blueprint

Requirements Implemented Solution

Solution design and recommendations

Implementation Hedge

Management in SAP

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Elapsed time (Months) – estimated

6

Post Go-live support

UAT


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Building blocks of Change management

PwCPwC

Change management approachWhat 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

6 building blocksof

Change Management

1. Transformation

vision

2. Leadershipalignment

3. Stakeholder

Management6.

Training

5.Communication

4. Change Impact

&Readiness

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Tools & accelerators

PwCPwC

PwC tools and acceleratorsCash and Liquidity, Risk, and Project Leadership and Change Management

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Cash and Liquidity Management

Design Workshop Templates

Banking Vision & Pricing D’base

Selection ModelCash Flow Forecast

ModelOrganizational

Structure

Treasury and Risk Management

Risk PoliciesBusiness Req’s

DocumentsBlueprint Designs

Std. Op. Procedures (SOPs)

Process Maps

Project Leadership and Change Management

Project PlansActions/Issues/Risks

TrackersRACIs Change Assessment Governance Model

Leading

Practice

Risk Rating/

Change Focus

Summary of Findings

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

• Entity autonomy and silos, and emphasis on keeping stakeholders “happy”

• Acknowledged “culture of silence”

Workforce

Enablement• Long-tenured employees will see significant day-to-day changes – new system, new

processes, and need for greater analytical skills • Existing training infrastructure for system-wide training appears limited

• Heavy historical desire for classroom training and reliance on on-the-job training

Business

Case and Transform-ation Vision

• Leaders appear to agree generally that change is necessary, but not upon the degree

of transformation needed• No simple, unifying vision and case for change yet created that will resonate across

all organization levels

• Absence of quantifiable objectives and metrics beyond “on time/on budget” makes

decision making harder

Leadership

Alignment & Mobilization

• Leaders express high degree of confidence in project success

• Potential and perceived gaps in leadership alignment may make it difficult to mobilize the organization in support of MARS

• Leader mobilization is complicated by high degree of entity autonomy

Significant

Moderate

Significant

Readiness assessment scorecard shows areas of concern and promise Rating Low risk Moderate risk High risk

Focus Low Moderate Significant

Low to Moderate

PwCPwC

PwC tools and acceleratorsSAP 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

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

Test case overview FX tool

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

PwCPwC

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

PwC SDC – 7 SAP treasury

experts 50 Development and reporting

experts

PwC Switzerland,

Germany, Spain, Belgium – 20 SAP treasury

experts 10 Development and reporting

experts

PwC North America – 6

SAP treasury experts


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Pointers………

PwCPwC

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)21


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Additional Slides

PwCPwC

Change management – Illustrations

Stakeholders Mapping

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Key stakeholders – Level of commitment

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Key stakeholders – Impact analysis

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Treasury Transformation – a focus on Hedge management implementation in SAP

PwCPwC

SAP Treasury - Solution Architecture

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Currency Risk Management process

Gather data from various source systems

Classifyexposure as forecasts and balance sheetand classify exposures in maturity buckets

Risk dashboard combining operational and financial exposures

Monitor market risk and performance of hedges

Manage hedges and monitor hedge ratios. Generates entries for Cash flow and Fair value hedge

Create deal requests from the exposure position and transfer it to trading platforms or front office system

Risk Identification

Build Exposure Positions

Deal Request

Hedge ManagementandAccounting

NPV/VaRCalculation Risk Dashboard

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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.

Create Exposure automatically or manually

Split of Exposures into different Risk Positions possible

Release of the generated Exposures automatically or manually

Capture and assess

Risk Exposure

Implement Risk-

mitigation strategies

Manage Hedges

Financial Reporting

Risk Reporting

Overview about the consolidated Risk Positions

Decision on hedging strategy and transfer of Hedge Items to Hedge Management

Risk Reporting in Results Database

Assignment of the Exposure Positions to Hedge Plans

Creation of the Hedging Instruments (Derivatives)

Designation of the Hedge Relationship

Effectiveness test for the Hedge Relationships

Documentation of the Hedge Relationships

Hedge Accounting regarding IAS or/ and US-GAAP

Overview about the hedged and unhedged part of the Risk Positions

Risk Reporting in Results Database

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Hedge accounting architecture in SAP

SAP Treasury and Risk Management (TRM)

Interfaces to be built

SAP Standard Modules New modules

SAP Solution (Exposure and Hedge)

Exposure Manager 2.0 Transaction Manager

Hedge Management and Accounting

Market Risk

SAP FI

Data-feed

Business units SAP / Non-SAP systems

Planned cash-flow

dataExcel

Business units accounting postings


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Creating of the FX Forward and automatic designation

Creation of FX hedgeinstrument andautomatic designationout of deal

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Define Hedging Relationship (THMEX)

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.

Define Hedging Relationship


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Simulate the Effectiveness Test (THM80)

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.

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.


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Valuation: posting logic with FAS133/IAS39

FX - Balance Sheet Account

1 Delta NPV

OCI/Equity - Distribution Account

1 Delta NPV

3 Effective portion

4 Ineffective portion

0,00 0,00

2

5

Free-standing portion

Delta time value

P/L

4 Ineffective portion

2

5

Free-standing portion

Delta time value

OCI/Equity

3 Effective portion

[ ]

[ ]

1 Determine derivative´s fair value

3

2

4

Determine value of any free-standing portion of the derivative

Determine OCI/Equity target balance and amount to be posted to OCI/Equity

Post remainder of clearing OCI/Equity distribution account to P/L(ineffective portion of the hedge)

Distribution


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Document the Hedging Relationship (THMEX)

Press button ‘Documentation’ to display the hedge documentation.

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


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Document the Hedging Relationship


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Highlight of the past projects

A Large engineering company – Automation of exposure identification and capture.

Hedge assignment, hedge relationship and hedge monitoring

Tool: SAP Exposure and hedge management

A Large tobacco company –Automation of exposure identification and capture. Hedge relationship, effectiveness tests and reporting


A US based manufacturing company – Exposure capture for project hedges, hedge relationship, dollar offset method. Fair value and cashflow hedges


Exposure management Hedge management


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Common requirements and pitfalls

Area Requirements Pitfalls

Exposure identification A good tool to identify and capture exposureAutomation of capture process

Manual entry of exposures – no possible updates if the underlying exposure position changes

Exposure management Managing the changes during the exposure lifecycleExposure expiryNetting of exposures

If the lifecycle is not handled and automated, this might lead to:Overdue exposuresExpired exposuresIf exposure positons are not netted, it leads to large number of 1:1 hedges

Hedge management Clear definition of hedge strategyClear definition of hedge plans and managing the relationship

If the hedge plans are not clearly defined, it might lead to large number of hedging relationships

Hedge accounting Clear definition of GL accounts used for postingsDefinition of posting rulesRelease of OCI strategy

If the posting rules are not defined clearly, it might lead to wrong allocation to OCI and P&L

Testing A detail testing is required fromcapture to effectiveness testVarious test scenarios and cases needs to be tested


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Questions…

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More information


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Trainer:Aniket KulkarniPhone number: +41 (0)79 580 4362

E-mail: [email protected]