Treasurers need to be able to measure performance on a wide scale in order to maintain efficiency.
It’s a popular refrain in treasury: “What gets measured gets done.” And getting it done is important for ensuring the efficiency of the operation and to highlight the value of treasury. This requires treasury leaders to not only measure for the purpose of efficiency, but also for marketing.
This was something members of The NeuGroup’s Assistant Treasurers’ Group of Thirty discussed in a late 2014 meeting. One member related to the group how his company measures different functions, and how that data gets reported throughout the organization.
One of the first takeaways of the session was that measuring treasury performance is driven in part by the nature and culture of the company. The unique qualities of a company have a big impact on what measurements may look like from one company to the next. This is exemplified by the complexity of the company presenting, which has a large shipping infrastructure.
Also, driving performance measurements are the “ever-changing demands” of the business and marketplace this company – and many others like it – deals in. Some of these include:
- Vendors, banks and other counterparty risks
- Multiple tax-jurisdiction requirements
- On-demand data needs and other technology enhancements
- Regulatory environment
In relation to these, the three primary focus areas for measurements are (1) Global treasury; (2) Capital markets and (3) Electronic payments, each with its own set of measurements. As was explained in the presentation, the ultimate goal is to drive down costs and invest back in the business. Tech plays an important part, too, and a number of different systems feed the data for reporting treasury performance, and the reporting frequency varies depending on the measurement. Two finance committees, an executive and a financial risk management level, are the key recipients of the treasury performance reporting.
The company also prides itself in being champions of working capital. One of the most important measurements for any company is the accuracy of the cash forecast, which allows treasury to be more cash efficient. For those members with sizable cash movements, forecasts are updated on a daily basis.
And measurements against a performance benchmark also are common. Many members measure quantitative value by looking at hedge effectiveness, reduced volatility, and by comparing hedge/no hedge actions, while others look to “beat the market.”
This goes for measuring the company’s decision-making, too. The more elusive question raised in this session was how to measure quality. How well do you make key decisions and how can that value be derived and highlighted to others? This idea resulted in some healthy debate among members.
Management decisions and ultimately performance are also driven by risk preferences. This is yet another variable in measuring value-added.
To some degree, treasury continues to struggle with showing its effectiveness, and members often have “a hard time getting management to see how well treasury did.” Although treasury has come a long way in proving that they are more strategic thinkers and doers and not just transaction processors, performance measurements and other marketing to highlight treasury value and effectiveness will continue to evolve and be shaped by the company culture in which you operate.