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12 July 2020

Key Performance Indicators (KPIs): A simple matter of survival for treasury

Written by Paul Tawel

For a variety of reasons, it is often difficult to evaluate the performance of treasury departments. First, the responsibilities entrusted to treasury departments can vary greatly from one company to next. Aside from corporate financing and cash management, treasury departments can provide a multitude of services (e.g. risk management, investor relations, mergers and acquisitions, negotiation of insurance coverage, taxation, etc.). Each one of these roles have different criteria for success, making performance tracking extremely difficult. The treasury’s influence has grown and expanded into businesses in recent years. More than ever, the treasury’s work is intimately interlocked with that of other departments. This makes identifying its specific contribution harder and, assessing its contribution more complex. In the case of treasury, all the excellence parameters must be defined. This is not the case for other functions or business units. Targets and KPIs are already well known in the financial community, with attractive income, purchasing, perception of receivables and issuance of disbursements. However, things are beginning to change. Ever-increasing competition and recent financial crises have led the senior management of most organizations to question the efficiency and effectiveness of their business and demand more from their treasury department. In this context, treasurers are required to address their responsibilities under the aegis of progress and advancement. And, obviously, what is not measured cannot be improved. Therefore, they have the duty to implement the information systems that will allow them to track their operations rigorously. The activities that are critical / strategic to their organizations deserve special monitoring at periodic intervals. It is a matter of control. To be effective, they must know at all times the probability that objectives are met, make the right decisions to re-engineer processes and make adjustments when something is wrong. Choosing the right KPIs is not an easy task. This exercise involves identifying parameters that really matter, and demonstrate beyond any doubt the benefits generated by cash. Using inappropriate measures may provide an incomplete representation and erroneous or biased reality likely to undermine the credibility of a treasury department.

Performance indicators are numerous and can cover the following areas:

  • Money market
  • Cash management
  • Risk management
  • Forecast cash flow
  • Working capital management
  • Operating budget

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