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Inside Hyundai Capital America’s Forecasting Model Upgrade

  • By Staff Writers
  • Published: 12/8/2016

Hyundai Capital America beat out stiff competition to win the AFP 2016 Pinnacle Grand Prize, which recognizes excellence in treasury and finance. The Pinnacle Grand Prize, sponsored by Wells Fargo & Co., was presented at the 2016 AFP Annual Conference in Orlando.

HCA’s entry showcased its improved cash and liquidity forecasting model to better understand its daily cash requirements, ranging from $50 million to $1.5 billion. HCA’s new automated model, which has “AI-like” characteristics, includes metrics, stress tests, variance reporting, and the ability to make funding decisions automatically. The model positively impacted HCA’s P&L with lower interest expense, reduced overtime and enhanced ability to focus on strategic execution.

Out with the old

HCA treasury faced a slew of challenges with its old forecasting model, which was very manual intensive. Treasury had to collect data from various spreadsheets, and then copy and paste it into separate spreadsheets. Additionally, in order for treasury to know its cash position for each day of the forecasted period, it had to go into every single day of the forecast and make decisions based on its different facilities.

Furthermore, HCA treasury regularly performs stress tests, and the old model proved problematic in that regard as well. If a treasury staff member wanted to make an assumption, they would have to copy the model and create a new one. Again, this would be a manual process of trying to gather the information.

Finally, the old model did not have management reporting. So when treasury needed to get key liquidity metrics, it required a manual calculation.

Making an upgrade

Realizing that a new forecasting model was necessary, HCA treasury approached senior management. Fortunately, management was very supportive and wanted to make sure that treasury had the tools and resources it needed to be more efficient.

Treasury was ultimately able to resolve all of the aforementioned issues. First, the data capture process was automated. What used to take about half an hour, now takes one second. Stress scenario forecasting has also been vastly improved; treasury now has a tab that allows it to enter any type of stress scenario it wants, and the liquidity metrics are automatically calculated. Treasury also has monthly, weekly and daily variance analyses; in the original model, these had to be manually calculated.

Perhaps the biggest improvement overall is in the new model’s auto-funding capability. In the old model, it took treasury about two and a half hours to gauge how it was going to fund for each day of this forecasted period. The new model automatically does this by itself; it looks at various costs of debt and makes the decisions appropriately.

Next steps

Given how much the new model has improved the forecasting process, treasury will likely be introducing it to its Canadian affiliate. Further out, HCA treasury will likely address any issues the model still has, and attempt to improve upon them to make sure it’s doing everything in the most efficient manner possible.

Having now been recognized by the AFP Pinnacle Awards as both a finalist and ultimately the grand prize winner, the importance of working together across the entire department and with senior management is not lost on HCA treasury. “When we heard that we were a finalist, and then when we heard that we were actually the grand prize winner, all of us within the treasury team were very happy for the recognition,” said Charley Yoon, treasurer for HCA. “It takes a lot of work on the part of many people to get something like this done, and without the support of our entire team, this would not have happened.”

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