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Why Simulations are Indispensable for the Cash Industry...

Modelling and simulations are the modern business equivalent of the old adage ‘practice makes perfect’: imitating the operation of a real process or system.

What used to be seen as quite a specialised area of business has now become a somewhat standard business practice. Business schools are now building simulations into their curriculum, some organisations model nearly every decision and a new sector of simulation and analytics companies has been created. There is now no excuses for companies not to be using simulations, and in some industries it would be almost irresponsible (to shareholders and clients) not to.

So why all the attention? The benefits of simulations are so wide-ranging that it has led to them creating value for any type of organisation.

Benefits of Running Simulations

  • Financial - The largest advantage of simulations is the financial savings that can be made. While the research and running of a simulation does initially create costs, these are far outweighed by the savings of running trials through simulations rather than experiencing failures through real-life projects.
  • Detail - The granularity that simulations can go into is almost unlimited. Not only can they undertake known or unknown situations but the ability to experiment with certain variables, or add new variables, increases their functionality.
  • Time - People may argue that despite the two above benefits, simulations slow everything down as it adds another stage to a process’ development. However, this is rarely the case as there can be time savings made in development after learning from and optimising the simulated model. It also enables the systems or processes eventually developed to be more efficient without time-consuming bottle necks.

Simulations in the Cash Industry

Thinking more specifically about the cash industry, and wider payments sector, there are endless systems or processes that could be simulated, especially given the numerical, logical nature of what is involved.

At CMS, simulations have become an integral part of our work, not only is it part of our core business operations but we believe that effective modelling keeps us ahead of the curve.

We find that our simulations fulfil the needs of both prospective and current clients. Prospective clients see simulations as more of an overview - they want to know how our modelling compares to their current processes as a benchmark of how efficiently they are managing their cash. Then, when we begin working with a business, and for our current clients, they realise that with mathematicians controlling the simulations all variables are considered and the impact of each is accounted for – this creates understanding on a more operational level, as opposed to just an overview.

Example Simulations CMS use:

Cash Management

The whole basis of any cash management system should be simulation. Creating a model to simulate demand and ensure that your infrastructure (branches, ATMs, FX retailers) doesn’t just cope with that demand but operate at optimal levels. There is a trade-off between availability & controlling costs of cash. Whether to hold greater amounts of cash or increase deliveries is an expensive scenario to play trial and error with, so simulations allow you to study the mix of these variables in advance.

Interest Rate Fluctuations

As we covered in our previous blog, interest rates are currently the cash industry’s ticking time bomb, particularly for ATM cash management. While interest rates have been so low, the cash industry has enjoyed benign conditions. However, as the major economies across the world continue to strengthen it is only a matter of time before central banks react by raising base rates. This rise will cause a multiplier effect to the cost of cash and could risk profitability for many companies.

Through simulations, an organisation would have the ability to stress test their business in order to understand the impact of increased interest rates – something that may not only save them significant costs but ensure their competitive edge.

Start Simulating Now…

Given the benefits that simulations can deliver and the opportunities for insight into your business’ future operations, simulations should be business-essential for an organisation’s analysis toolkit. This is especially so for the cash industry, as the advantages that simulations & intensive modelling have in such stable economic conditions will be significant. This will increase dramatically as we enter a more threatening period with interest rate rises inevitable and the potential for increased volatility.


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