Treasury's role in planning for the worst-case scenario.

• Author: Jensen, Jorgen
• Position: Treasury - Business continuity planning

Almost every organization considers what would happen if its CEO suddenly were out of the picture. But many don't consider the impact in the wake of a disaster if the people who run treasury were unable to make payments, manage cash and schedule transactions. Finance, and the treasury department in particular, has a unique role to play in business continuity planning (BCP). At a basic transaction level, treasury is essential to the survival of a business.

Business Continuity Planning Basics

Business continuity planning (BCP) involves assessing threats and analyzing their impact; creating plans to manage incidents and mitigate impact; and implementing longer-term disaster recovery planning. Virtually all companies have backup processes for IT infrastructure failure, however, effective BCP involves four key components: people, processes, partners and technology.

IT-focused plans often make treasury systems a lower priority because treasury often lacks visibility within the business to be considered a "core" operation. Treating BCP as an IT issue will not necessarily ensure treasury continuity. Since treasury generally consists of managing very high levels of operational risk, non-payment following a disaster could have serious consequences, incurring interest, charges, reputation damage and risk of default. Because treasury manages large amounts of information that are critical to daily operations, it should be at the core of BCP.

Michael Rasmussen, vice president of Enterprise Risk/Compliance Management at Forrester Research, describes treasury as a "critical part of overall operations risk planning." In the event of a disaster, the continued functioning of treasury operations is essential, he says, because the department manages processes that impact financial reporting, and, consequently, regulatory compliance.

Maggie Scarborough, research director at Financial Insights, agrees, and notes that despite this serious risk, only 30 to 40 percent of corporate treasuries have business continuity plans in place. Large companies are more likely than medium or small companies to have a proper business continuity plan for cash management and treasury operations

Putting BCP to Work for the Treasury

Rasmussen indicates that only about 50 percent of executives understand BCP as a strategic issue. But for successful plan implementation, executives must define processes and procedures, including a communications plan, to ensure that the right people get...