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Treasury Management

Breaking down Performance Indicators

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December 08, 2015

KPIs are critical to managing global cash. Here are thoughts on how they can be conceived and implemented.

Abacus SidewaysAs corporates continue their quest for efficiencies, there is increased emphasis on finding the right key performance indicators (KPI) to measure effectiveness. In a session on KPIs at a NeuGroup Global Cash and Banking Group meeting, members discussed their current approaches to reporting and how to define best practices in selecting KPIs for a global cash management organization.

One of the first consensus conclusions was that cash groups are centers of excellence and risk management, not cost centers. Most members track cash operations across three main categories:
  1. Cash operations (95%) —e.g., # bank accounts, cash balances, % cash visibility, % pooled cash, STP
  2. Bank relationships (80%) —e.g., counterparty limits, bank fees
  3. Cash and liquidity forecasting (65%)—e.g., % forecasting error
When looking at the data being reported, treasury managers also focus on what the facts say about operational efficiency and risk associated with the operations. The implication is that, even though they do not focus on reducing cost, they achieve it indirectly via operational efficiency and risk management.

As for reporting metrics, they come in many shapes and forms. Among members and depending on the activity being monitored, reporting frequency varied from a daily to a monthly, quarterly and even annual basis, but most operational measures were assessed monthly. The main user of the information was usually treasury itself.

However, some metrics were geared to keep the CFO, the finance committee and board of directors apprised of the state of treasury operations.

But not all metrics are KPIs. A KPI is a relevant performance metric that is benchmarked against a specific target. Although all members manage some metrics around their operational performance and compliance, just a few actually benchmark those numbers against a target.

There is no “one‐size‐fits‐all solution.” A KPI is best when aligned with the goals of the organization, so it can help drive the operations toward achieving those goals. In that spirit, KPIs will differ from company to company. They are also heavily impacted by the operational structure and the systems and processes in place. For example, companies whose operations are significantly automated will be more prone to measure and benchmark straight‐through‐processing metrics than a company with less automated processes.

In all of this, sometimes less is more. Even if there is value in tracking several metrics for day‐to‐day decision making and compliance, not all metrics should be KPIs. At their best, KPIs will drive projects and process improvements geared toward achieving treasury’s goals. If there are many organizational goals, resources would be spread too thin to be able to make a significant impact.

When choosing KPIs or metrics, make sure they provide actionable information. The information you compile should allow users to make decisions; if it is easy to compile but not actionable, it is a waste of time. For example, don’t only show total cash but show cash split in different buckets that allow understanding how easily it can be mobilized for corporate use. Is it totally trapped due to FX controls, available but at a high cost, or easily available at low cost?

As corporates continue their quest for efficiencies, we will see more attempts to find the right KPIs to measure effectiveness. The challenge will be to not get carried away by the effort to measure everything, losing sight of the ultimate goal – to benchmark with the objective of improving processes. If the measurement does not provide actionable information, then it’s useless. Also, there has to be a cost‐benefit balance between the time it takes to prepare reports, if they are not automated, compared to how that time could otherwise be used.

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