One company’s approach to different ways of measuring treasury performance.
Tracking traditional treasury metrics including liquidity, compliance with debt covenants and debt capacity is essential, but micro metrics—those at the operating level—can help a company to reduce costs and become more efficient, as well as enabling treasury to show its worth.
A treasurer whose team has focused on metrics provided participants at a pre-pandemic NeuGroup meeting with an update on turning from bigger-picture metrics to operating-level metrics.
- “While not rocket science, we’re trailblazing a bit down this path,” he said. “We think metrics can deliver the story about what treasury does and a value link to corporate executives, where we’re in alignment with senior management as well as other operating groups.”
Current and future. The member noted 17 operational metrics his company currently provides in six categories: cash and investments, credit cards, bank account administration, currency, payments, bank fees and insurance. Future metrics may include bank costs, transaction volume and USD processed per treasury employee; FX spreads; intercompany settlements; hedging performance; and cash flow forecasting accuracy.
Activity vs. performance. The member distinguished between activity-based metrics and performance-based ones. The first type, such as interest rates and the number of banks and bank accounts, reflect a point in time. Performance-based ones, such as the number of bank accounts closed, banks eliminated and interest earned, instead explain what has been accomplished and, more importantly, where treasury is headed.
Benefits of performance metrics include:
- Transitioning treasury to a strategic approach, fueling questions about what treasury is doing, what processes are missing, and where new processes are needed, the member said.
- Setting goals and helping treasury align with other departments. “We encourage sharing metrics with those departments, to find areas to help other parts of the company,” the treasurer said.
- Instilling accountability. “Assigning metrics to people and results and what’s expected helps drive accomplishments,” he said.
Lessons learned: Don’t report on everything; use effective graphics to deliver the message; deliver a clear message that’s easy to understand; and don’t get caught in the weeds.
Obstacles and overcoming them. Tracking the source and accuracy of data is key. The treasurer’s team discovered that general ledger data was not 100% reliable because there were too few accounts to handle all the data, prompting the team to add accounts.
- “We try to do sanity checks whenever we can, and we use more than one source of data to make sure the data looks right and is reasonable,” one of the treasurer’s team members said.
- “We love benchmarking and comparing ourselves against other companies, but making sure companies are in the right peer group is a challenge,” he said.
