Aug 2016

Do Your KPIs Demonstrate Treasury's Value: Building a better report


Are you choosing KPIs that demonstrate value, or just show that your treasury is functioning? The importance of key performance indicators is well known throughout the financial industry. Key (as the name implies) in explaining a company’s progress towards stated goals, KPIs provide both guidance towards, and evidence of its success. Departmentally, KPIs should serve the same purpose – including for the treasury.

However, what makes a good KPI is often not well understood – much less in treasury. What should a treasurer be focusing on, what kind of metric should a treasurer use, and what makes a metric “key”? You need to consider how KPIs are used internally – if they make sense at a group level, or are more useful at a business segment level – and how they will maintain relevance over time.

Marcin Cichon is a consultant on BELLIN’s implementation team and is involved in setting up performance indicators and financial status reports for clients in North America.

Everyone knows that KPIs are important, but people often don’t know what to choose. What are the KPIs most requested by treasurers that you work with?

I’d say the most common KPIs people ask for are cash visibility indicators, like 'sum of reported cash balances' divided by 'estimated total balances', or 'cash balances reported' divided by 'total number of bank accounts'.

For example, we did a scoping session with a client recently who had a whole mess of accounts and so they wanted to get some sort of data on which accounts are being used for what, which are getting transactions, etc. Many treasuries end up focusing on this kind of indicator at the beginning of their processes.

So these are KPIs like 'number of statements coming in'?

Sure, that too. I mean, there are lots of potential KPIs that people ask for. I think a lot of these tend to be hold-overs from the pre-Treasury-Management-System(TMS) days or just a product of treasurers wanting to know how their TMS is performing compared to their old treasury.

How so?

Well, take your example: when are their statements coming in. Back before anyone had TMSs this took a lot of work to gather and input every morning. Because of this, you needed to know how many statements you were receiving to know how well your treasury was running.

Now you implement a TMS and say yeah, this is still an important number because one of the roles of the treasury is to track balances - but if you have a TMS shouldn’t statements be received at a sufficiently high rate anyhow? Then it’s not really a KPI per se.

And now I think of it, statements coming in isn’t even the best metric to optimize. It’s a bit of an “80:20” scenario: as long as you have the statements for your main accounts, say the top 80% of your accounts - or in some cases maybe even just your major accounts – being automated by the system then you’re generally pretty good.

For the remaining 20%, it then becomes a question of whether the effort is worth it. If the accounts cannot be easily automated, then they generally would belong to smaller banks without the capability for electronic statements. These accounts should not have that much activity on them. If they do, then it might be worthwhile to switch banking partners to simplify this data collection process.

What would be a better solution for treasurers looking to define KPIs?

I’d say start looking at value oriented KPIs instead of process oriented KPIs.

A lot of the KPIs people ask for measure how well their “system” (be that the TMS or treasury) is functioning. They tell “how effectively your department is running” instead of “the value your department is bringing to the company”. The whole point of getting a TMS is that you get a lot of those processes automated and operating at near peak efficiency.

Instead, I’d look at value oriented KPIs, metrics that demonstrate the strategic value of the treasury. These are way more fun anyhow, like how treasury is reducing the average cost of funding debt or calculating the accuracy of your forecasts.

And now that you have a TMS, these are much easier to do, since you are no longer spending all your time struggling with visibility.

Are those KPIs that treasurers should be looking at?

That’s the thing, each business is different and the KPIs they’re going to want to focus on are going to be pretty different. Let’s say you’re having to pull on your reserves a lot, or maybe you have a swing-line facility that you keep needing to drawdown on. But swing-lines are expensive, so maybe you use the frequency which you have to use this as a KPI. Or maybe you invest heavily, so you want to use gains from investments as a metric.

Some clients watch how close they come to investment targets for available funds, how often available funds are invested. Other clients take into consideration the funding required based on forecasts and expenditures that they then use for receivable factoring.

How would you recommend that treasury departments proceed if they want to establish KPIs for their department?

Well, a perfect time would be during their treasury management system implementation. It’s really great when a client comes in with a firm idea of what it is they want setup and the goals they’re looking to achieve. Then we can help them define a series of objectives or reports that help them establish exactly what it is they want to do.

In the end, the treasury management system is going to handle a lot of your process-oriented work and that means a lot of opportunities will open up for turning your treasury into a value added center within your company, so you may want to look at what kind of metrics bring value to your company and show the C-suite what your department can bring to the table.

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