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Treasury Management

Treasury and FP&A: Better Working Together

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November 17, 2017

When treasury and FP&A, and their systems, communicate, management's better aware of the state of things.

football x's and o'sMost treasurers know the drill. Management is about to get on that earnings call and say all is well. But maybe it isn’t, and management needs a sober assessment of what’s happening in the real world when it comes to financing. Bringing in treasury can offer just such an assessment.

Sometimes there can be disconnect between management’s strategic planning and real-world numbers, which highlights the importance of treasury’s strategic role. Often, FP&A’s rosy forecasts must be tempered by treasury’s realism, which stems from actual company results, in order to provide senior management with a warning bell about the need for adjustments before addressing the Street.

NeuGroup Peer Research indicates treasury and FP&A team members spend plenty of time talking to each other, with more than 80% communicating or interacting daily or weekly. Treasurers indicate that there is more collaboration when it comes to issues like cash forecasts, impacts to earnings, share repurchases and M&A.

But the same can’t be said for their systems. In a pre-meeting survey for NeuGroup’s Treasurers’ Group of Mega-Caps, half the group says treasury and FP&A systems don’t speak to one another in terms of shared data or APIs. Of the half that says the systems do speak, just 17% say they do so effectively. Both sides are wasting resources, but FP&A often has more resources to dedicate to something no one likes to do — cash forecasting — so there is a huge upside for treasury in more effective collaboration.

Still, it should be noted that historically, treasury has had a certain lack of trust in the forecasting information provided by others, which often leads it to do its own forecasting. For example, treasury often does a direct or indirect forecast as a sanity check or to create an alternate reconciliation forecast to guide treasury actions. Basing treasury liquidity management or foreign currency cash-flow hedging decisions on forecasts without such sanity checks or reconciliations can prove counterproductive.

One member of tMega who a background in FP&A said the two departments collaborate on forecasts more when cash is stretched thin but less so when “times are good.” He also said reconciling disparate cash forecasts between the two groups can be a “frustrating process” that’s not synchronized and that business units spend an inordinate amount of time on forecasting. Another member complained that getting timely data from business units remains a pain point, saying there can be a six-month lag before treasury is made aware of a change at the affiliate.

All this suggests that better communication, both between individuals in treasury and FP&A and the groups’ analytic tools and systems, will serve the greater good.

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