A new report from Greenwich Associates shows CFOs content to keep treasury budgets tight.
What does it say that a 1-3 percent budget increase has to be spun as a positive as Greenwich Associates does in a report released Wednesday? Pretty much that the nature of treasury today is such that it cannot shake the cost-center label; that treasury still needs to justify the need for more resources to cope with forthcoming financial market changes, much less to deliver on a more strategic, value-added role.
CFO.com gets the picture right in summary of the survey results shared in the Greenwich report, “Although treasury departments have taken on a broader set of responsibilities and assumed a more strategic role since the financial crisis, most US CFOs continue to run them lean and mean.”
According to the Greenwich Market Pulse report, “US Corporate Treasurers Opening their Wallets,” which polled 177 finance executives last November, more than a third of companies increased the budget allocated to their treasury department this year (for most, less than $5 million), but the increases cited for both staffing and treasury technology were just 1-3 percent, and that for less than a quarter of companies.
But don’t worry, looking ahead to 2016, the Greenwich survey sees budgets continuing to grow, with 60.5 percent anticipating a rise in treasury’s staffing budget over the next four years and 53.1 percent predicting treasury’s technology budget will be higher at that point. But will they crack 5 percent (or $250,000) increases? The only hope is that the larger MNCs are underrepresented in the Greenwich findings: just 45.8 percent said their treasury organization includes a treasurer.
Financial crisis is over so suck it up.
The trend, which is consistent with CFO.com’s description, is that any additional spend allowed in the wake of the financial crisis is not going to result in a substantial step-up in budget increases going forward.
One lesson from the crisis was that treasurers need to automate what they can to free up resources to focus on 1) the fire drills resulting from recurring crisis waves and 2) mitigating exposure going forward via better risk management and operational flexibility. Based on NeuGroup research, many moved swiftly to use this lesson to make the business case for new technology investments. Part of the business case was that new technology would allow them to do more with the same and forgo making new hires. If they did not get CFO approval, they may be out of luck now. As CFO.com notes: “One reason CFOs may not think beefing up treasury departments demands urgency is that some of the overriding concerns that arose during the financial crisis are now lower down on the worry list.”
Indeed, the most recent survey of the NeuGroup’s Global Cash and Banking Group indicated none had plans to implement a new treasury system in 2013.
Given the changes coming to financial, and especially derivatives markets with new regulation, this is surprising. For example, the costs of implementing solutions to automate and optimize collateral management might easily be justified by the added costs of transacting with broker-dealers that need to make up for the lack of collateral in their quotes. Plus, what about accounting for valuation changes in money market funds, post reforms?
This puts more weight on these words from Greenwich: “Given the limits on their ability to add staff, treasuries have responded to the new demands on their time by relying more on automation to handle routine work. The cost of the technology to enable such automation may be beyond the financial means of the many treasury departments that still face budget constraints, though, leaving those treasuries and their companies at a competitive disadvantage.”
Change treasury priorities to match the CFO.
CFO.com attributes some of the CFO stinginess to a change in priorities, which represent a disconnect with the priorities of treasury departments. CFOs have moved on to economic growth as a top concern and are now less focused on risk management and the financial regulatory concerns that remain priorities for treasurers. “Looming largest for treasury departments, though, and hardly recognized by surveyed CFOs, was regulatory uncertainty in the financial markets. Forty-eight percent of treasury staffers in the Greenwich survey cited this concern, while only 8 percent of CFOs did.”
Deloitte’s Q4 CFO Signals survey is consistent with this view, citing revenue growth as the top concern, which, as it notes is limiting growth in budgets. What Deloitte says about priorities for the finance organization, however, does point to ways treasurers can help bolster their business case for more funds.
Finance organizations, according to the CFO Signals, should be heavily focused on influencing and enabling better business decisions (read cash forecasting and risk-based planning), with a rising focus on financial reporting/controls, and influencing business strategy and operational priorities (focusing on liquidity utilization and risk), plus finance is more focused on ensuring current initiatives deliver results than on selecting/aligning new initiatives (read hedging the downside). So, do a better job making treasury’s case for these priorities and maybe you can beat 3 percent on next year’s budget increase.