For a group that works with numbers all day, the corporate treasury function is less likely to quantify its own performance than you might expect. Treasuries that don’t put measures in place to demonstrate how well they’re doing are passing up an opportunity to win recognition from their company and bolster their case for additional resources, but many treasury teams seem willing to let that opportunity slide.

“Even among the best treasuries, the one area consistently where there seems to be a gap is around the area of performance management,” said Peter Frank, a partner at PwC and leader of its corporate treasury consulting group in the U.S. “Treasurers in general do a poor job of, at the top, articulating what their objectives are, and then coming up with sets of metrics and using those to guide performance improvement or to communicate internally their value to the organization.”

Bruce Lynn, a managing partner at Financial Executives Consulting Group, pointed to a survey of strategic treasury conducted in 2014 by the Association for Financial Professionals and Oliver Wyman that showed the most popular treasury metrics were reported by just over half of the companies surveyed.

“What it really says is that treasury is not doing a good job at measuring its success,” he said.

Just quantifying what’s going on in treasury isn’t enough.

“There are many different reports coming out from treasury, from controllers, from FP&A,” Lynn said. “But reporting a number is not the same as measuring it against a target.”

Key performance indicators (KPIs) are metrics that incorporate a comparison or goal. A PwC survey of treasury executives in 2014 showed that fewer than 40% of all treasury reports included benchmarking against at least one KPI.

Frank said good KPIs are tied to a treasury objective and provide some sense of the treasury function’s progress toward that goal. “If you just measure something and you have no sense of what ‘good’ looks like for that particular metric, if you don’t know what you’re going for, it wouldn’t be that useful,” he said.

Setting metrics should start with a discussion about treasury objectives that includes treasury, the CFO, and other company executives.

“Best practice is starting with an understanding of the overall corporate strategy—what’s the company broadly trying to achieve—then, in order to support that, what are the specific objectives that treasury has,” Frank said. “It could be providing access to capital, it could be minimizing the cost of capital, it could be efficiently processing transactions, it could be reducing the cost of the treasury function, it could be maintaining good controls around cash.”

Treasury should then devise KPIs that measure how it performs against each of those objectives and compare them with benchmarks, then measure its performance against the benchmarks and report that.

“The final piece, the most critical, is leveraging the results of the analysis to take corrective action to improve performance,” Frank said.


Categorizing KPIs

Frank said some popular measures include the cost of the treasury function as a percentage of total company revenue, how many transactions can be processed in a certain period of time, and the average time during the day at which treasury sets the final cash position, as well as the frequency with which it actually sets the cash position by that time or earlier.

Ron Chakravarti, managing director and global head of treasury advisory and solutions for Citi Treasury and Trade Solutions, divides treasury metrics into three categories: those related to the company’s balance sheet, those related to the income statement, and a third group best classified as “other.”

Ron Chakravarti, Citi

Using KPIs introduces objectivity,
ensures focus, and creates consensus.
What the treasury team is acting on
becomes aligned with what matters
to the CFO as well as the other
business heads.

—Ron Chakravarti, Citi



Metrics related to the income statement include the return on the company’s cash investment portfolio, compared with a benchmark like the fed funds rate, and the company’s interest expense, again measured against some market benchmark, he said. Another would be bank fees, both the total compared with the amount budgeted and the average cost per transaction. As a company grows, bank fees will increase, but the average price per transaction provides a better sense of costs.

Balance sheet measures should include the portion of a company’s cash that is pooled in centralized accounts versus the portion held in local accounts, Chakravarti said, and how that changes year to year. Another common balance sheet metric would be a measure of the company’s total liquidity, including cash, undrawn bank lines, and commercial paper lines, and how that compares with the company’s target.

Examples of metrics in the third category would be the trend in the number of bank accounts per legal entity and compliance with the company’s defined counterparty credit limits.

Best-practice treasury departments should have metrics in place, Chakravarti said, but added that even among best-practice companies “measures evolve with the times.”

For example, compared with even five years ago, treasury metrics now often include the cash conversion cycle. This is because treasury is often working much more closely with the business—helping the company achieve its overall financial objectives, serving as an adviser to understand what is not going well, and helping address the reasons why, he said.

Chakravarti said, though, that a treasury that decided to try to improve its cash conversion cycle by making payments later, pushing out its days payables outstanding (DPOs), would also want to take into account how suppliers could be supported through a supply chain finance program.


Benefits of Metrics

Treasuries that use metrics to track their progress need the resources to manage them, Lynn said. “A treasury workstation or treasury management system is absolutely essential if you’re going to develop and maintain a set of treasury metrics. You really can’t do it with spreadsheets.”

But once the metrics are implemented, the benefits can flow.

Peter Frank, PwC



Investments are harder to make if there isn’t
a clear business case, and it’s hard to have
a clear business case if you don’t have a clear
performance management process.

—Peter Frank, PwC

Using KPIs “introduces objectivity, ensures focus, and creates consensus,” Chakravarti said. “What the treasury team is acting on becomes aligned with what matters to the CFO as well as other business heads.”

Others pointed to the boost KPIs can give to the way the rest of the company perceives the treasury department.

“Treasury has historically been seen as a cost center,” said Bob Stark, vice president of strategy at Kyriba. “Once you can put KPIs that relate to growth and bottom-line performance, or even the top-line performance of the business, it really does help treasury be viewed as a strategic contributor, which is what every treasurer needs for his team.”

There’s also the bottom line of treasury staffers. “Think about the operating areas,” Lynn said. “They get bonuses if they meet sales targets and EBITDA targets. If treasury doesn’t have metrics, how do they get bonuses?”

Frank argued that there’s a link between treasuries’ failure to track how they’re doing and the hard time treasurers say they have accessing additional resources. Implementing KPIs can make it easier for treasuries to convince companies of their need for additional resources.

“We talk to a lot of treasurers about things they feel they need to invest in their function—investments in terms of hiring, investments in terms of technology, investments in expanding the scope of what treasury does,” he said. “All of those investments are harder to make if there isn’t a clear business case, and it’s hard to have a clear business case if you don’t have a clear performance management process because you can’t make a clear case for the impact of the investment on performance.”