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Under the Spotlight: Establishing Treasury KPIs

  • By Nuno Ferreira
  • Published: 7/29/2016
In the years since the financial crisis, treasury has been under the spotlight. And being under the spotlight means presenting not only quick and accurate information to the board, but also managing typical treasury tasks in a leaner, more efficient and accurate way.

Treasury should not only be measured by looking at P&L statements or balance sheet figures. The best way to measure treasury’s day-to-day activities is by using key performance indicators (KPIs). KPIs provide other departments and the board with a clear view into how treasury is performing.

Establishing KPIs

To set up treasury KPIs, it is important to consider two key variables: the concerns of the CFO and board members, and how treasury’s role is increasingly expanding.
CFOs’ main concerns in recent years still are:
  • Cash and liquidity: Easy access to a company’s liquidity continues to be very important.
  • Funding: Treasury needs to settle and optimize arrangements.
  • Risk management: Hedging risks due to more volatile markets remains essential.
  • Centralization: CFOs want a better overall picture while reducing costs and gaining efficiency.

As for treasury itself, the department is increasingly taking on new roles. In addition to the transactional part of their job, treasury professionals are also becoming more strategic.

So, with this in mind, how can we set up treasury KPIs?

KPI´s are indicators used to track performance. Do not define a huge set of KPIs that ultimately take a lot of time to produce and jeopardize what you want to measure—the performance.

When defining KPIs, see what systems you need to produce them. If you find that it requires a lot of manual input, systems that you don´t have access to or data that is not directly delivered by your team, don´t use them.
Look at your team and review the most time consuming, costly, financially important and transversal tasks. These should be the activities to focus on when determining KPIs.

Set a matrix of activities vs. a treasury category or segment. For example: FX hedging - > risk management. With these segments, you can more clearly check the importance of each task in a category and define in each segment a specific set of KPIs.

Also, bear in mind who will be reviewing the KPIs and for what they will be used. The set can be selected differently depending on the audience and objective.

  • Will these KPIs be presented monthly to the CFO or the board?
  • Are these KPIs treasury tools to measure performance and evaluate resources?
  • Will these KPIs be present among other finance department KPIs?

Six keys to establishing good KPIs

Give bonuses to staff members who achieve KPIs. After testing your KPIs and defining them, they should be linked to remuneration packages and evaluations—but only after implementation and some months of monitoring.

Do not define too many KPIs. KPIs are used to monitor efficiency, not to create more administrative tasks and a burden to everyone.

When defining KPI´s, choose a three-layer set: board, management and operational. This will help the definition of the set.

Look carefully at the main task, the percentage of effort and the cost in each function activity. KPIs should focus on each of these.

Strategically choose the weight of each KPI. This should be based on where you want the team and the department to go.

Look carefully at where the information to report each KPI lives. The reporting of KPIs should be made easy, and interfaces or reporting tools may be needed to created or amended.

Nuno Ferreira is head of treasury for Pestana Hotel Group in Lisboa, Portugal.

A longer version of this article appears in an upcoming edition of AFP Exchange.
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