How Should Treasury Measure Success?

When benchmarking the effectiveness of the treasury department, a CFO needs to focus on key outputs related to critical functions like liquidity and risk management, not just the size of the staff.

According to the sixth and latest version of the Association for Financial Professional’s Treasury Benchmarking Survey there are at least four metrics that can be used by corporate treasury departments as a starting point to measure their operations and benchmark their performance against others. The survey compares median benchmarks by industry and those from “world class” companies, defined as those in the 80th percentile among the 550-plus companies surveyed.

The metrics in the study are the following:

  • FTE (full-time-equivalent) staff levels. FTEs per billion dollars of sales for key activities such as cash management, debt and investments, in-house bank accounts, financial risks and treasury policies. 
  • Treasury cost. Cost per $1,000 of revenue, including internal and external costs as defined in the survey.
  • Throughput. Units processed per FTE for activities such as payment transactions and bank accounts reconciled.
  • Cycle times. Days required to complete activities such as resolving bank account discrepancies, developing short-term forecasts and generating the daily cash position.

For the first time the AFP also asked a question about corporate “environment,” or use of formal policies and procedures that could contribute to or constrain treasury’s performance.

The survey results show a clear and wide disparity between a median company’s results and a world class one’s. These disparities exist across industries, company sales size and ownership (i.e., public vs. private). The survey suggests that an FTE or cost gap with peers could warrant more investigation by a company.

What is not clear from the survey’s results is whether closing any real or perceived gaps in the four metrics can be equated with treasury “success.”

Great minds may differ, but treasury is in the liquidity and risk business. Its success and the resources required for it should be closely linked to its ability to provide the business units it supports with the “right” amount of funds, at the right time, in the right place (i.e., currency) and at the right (market) price.

The commitment of treasury staff and budget need to be connected to a desired output to learn if a good plan was well executed. Knowing that a median company commits approximately 50 percent of its FTEs to “manage cash” doesn’t tell a CFO whether those resources have successfully managed that cash.   

In reality, treasury’s success depends on how well it accomplishes the following outputs:

Matching sources and uses of liquidity. A business unit without the proper levels of liquidity can neither invest in the future nor pay its liabilities when they come due. Implicit in the liquidity matching process are metrics to measure returns on funds employed, the cost of raising funds and the cost of maintaining a desired capital structure. Treasury must possess the resources needed to meet market, industry and company targets. Using fewer resources may be desirable, but it’s like driving a car without the appropriate safety equipment — you save money but risk serious consequences.


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