The invisible treasury

Treasury departments function very much as the heart of a company: they "pump" financial resources through the veins of the organization, control cash flow, minimize risks and manage capital efficiently. In the same way, however, that we are often unaware of the heart until it stops functioning as usual, Treasury's value proposition is often only recognized when financial challenges arise. While treasurers are aware of this vital function, the department's contribution to the organization's overall success often goes unnoticed by other departments and management.

In the same way that preventive measures and exercise can strengthen our hearts and keep us healthy, targeted investments can strengthen Treasury's efficiency and resilience. To achieve this, transparency about what treasury is doing and contributing is essential. As with heart health, it's about showcasing what's happening behind the scenes to more fully demonstrate the importance and value of the treasury function.

Yet that transparency is often inadequate; why is that, and how can companies improve it?

Part of the reason for this is the very nature of treasury activities: they are typically complex, technical, and difficult to grasp in their finer details for outsiders. As most of Treasury's work is done behind the scenes, understanding the exact scope and impact of their activities can be difficult. For instance, Treasury collects and processes information to do with foreign currency exposure, which is largely invisible to the value-creating and, in some cases, even administrative units.

A further issue is the challenge of quantifying Treasury's value contribution in tangible terms. While other divisions can show their performance through revenue figures, sales figures or customer feedback, Treasury's value contribution is so often indirect and tends to be reflected in the avoidance of risks and the safeguarding of financial stability. It's like trying to quantify referees' contribution to a soccer match: their presence and decisions are key to a hitch-free game, but they can't be easily translated into goals or points.

As a result, there is a disconnect between Treasury's actual value contribution and how it is perceived within the company. Even as Treasury safeguards the organization's financial health and stability, its work remains largely invisible to others. This chasm can result in an undervaluing of treasury and prevent it from receiving the recognition and resources it deserves and needs.

In light of the inescapable reality of the relevance of software and data, any reservations about touching them are of little benefit. So it's not a question of 'if', but 'how' treasurers must adapt and keep up with current trends to meet challenges and seize opportunities.

Indeed, data is the raw material used to gain insights. In the treasury context, such insights are key to efficient liquidity management, risk mitigation and capital management. But the sheer quantity of data is not what matters, but rather its quality and the ability to analyze and transform this data into actionable information.

This calls for effective data management that ensures the continuous flow of accurate, timely and relevant data. Poor data management can cause a wide range of problems, from inaccurate forecasts to poor decisions. That's where data integration solutions play an important role by helping to collect, cleanse and consolidate data from multiple sources.

When it comes to treasury data management, there is no one-size-fits-all solution. The most suitable solution hinges on a number of factors, including the corporate structure, the number and type of existing data systems, the Treasury's specific requirements as well as the company's strategic goals.

While a small company with just a few data sources can make do with a simple solution, a large, global enterprise with numerous financial systems and departments will require an advanced data integration solution that can handle the complexity.

What's also important is that the chosen solution is sufficiently flexible to accommodate change. Companies are dynamic systems, and chances are that their data requirements will change over time. So a good data management solution needs to be able to grow with the business and adapt to new requirements.

Ultimately, effective treasury data management aims at not only ensuring a high-quality flow of data, but also creating an environment in which this data can be leveraged to make the Treasury's value contribution visible and strengthen its role in the company. In other words, efficient data management is both a technical and a strategic task.

Targets and performance indicators (KPIs) are fundamental tools for measuring and managing treasury performance. Through defining clear goals, Treasury can sharpen the focus of its strategy and activities so as to direct attention to the areas that are most important for the company's success.

KPIs provide tangible metrics for evaluating the achievement of targets. The KPIs should be carefully chosen to ensure that they are a true reflection of the aspects of Treasury that are critical to the success of the business. Beyond that, it is crucial to strike a balance between quantitative and qualitative KPIs so as to reflect both financial performance and other aspects such as risk management, process efficiency, and employee satisfaction.

Examples of possible KPIs are:

• Net interest expense/income: interest expenses for outstanding debt less interest income from its investments. With a relative reference to a benchmark, the performance picture becomes clearer.
• Risk-based KPIs: these will vary depending on the type of risk that most concerns the company. For instance, a business that heavily relies on foreign currencies could use the percentage of unhedged currency positions as a KPI.
• Process efficiency: this could be quantified by measuring the time taken to complete certain treasury processes or counting the number of manual interventions required in automated processes.

With KPIs, the principle of "quality over quantity" holds true. After all, a historically grown hotchpotch of KPIs and reports is counterproductive, as it results in an overload of information that distracts from the important issues. Treasury is therefore well advised to focus on identifying a limited number of KPIs that are truly relevant and in line with the company's strategic goals. With a focus on the essential KPIs, Treasury can manage its performance more effectively and simultaneously enhance the transparency and traceability of its work for other departments and the company's management.

Visualizing KPIs and data in a way that is appropriate for the target audience is of crucial importance. The way it is presented can have a profound impact on both how information is perceived and interpreted. Understanding and appreciation of Treasury's work throughout the company can be boosted by meaningful, appealing and intuitive reporting. The principle of "you eat with your eyes first" applies here - a carefully designed and appealing presentation of data and KPIs can help direct attention to Treasury's value proposition and underscore its role in the company.

In this, state-of-the-art reporting solutions play a key role. They provide a wide range of options for visualizing data, creating interactive dashboards and automating the reporting process. In case you are not utilizing them already, you may want to assess whether enough has been invested in showcasing your own value propositions. After all, these solutions are widely used today and are no longer considered rocket science.  

If you do not yet have a reporting solution in place, there are several things to bear in mind when selecting and implementing it:

1. Features and functionality of the solution: whatever BI solution you choose, it should be able to perform all the required tasks efficiently. Among them is the ability to integrate data to gather and consolidate information from various sources, perform complex analyses and present the results in a clearly understandable and meaningful form.
2. Integration into your Treasury Management System (TMS): a seamless integration within your existing TMS is critical to ensure a continuous feed of data and consistent reporting.
3. Group-wide strategy: find out if there already exists a strategic BI solution that you should use. A unified platform creates synergies and facilitates internal collaboration.
4. In-house capacity and expertise: make sure you have the necessary in-house skills and human resources to effectively use and manage the BI solution. At the same time, also plan how you can close any gaps that may exist.
5. Independence: having the treasury team actively engaged with the BI solution and gaining the skills to operate and develop it further is critical. Doing so will reduce your dependency on the IT department or external consultants and allow you to react flexibly and quickly to changes.
6. Iterative approach: instead of trying to implement a comprehensive BI system in one go, it is often more effective to follow an iterative approach. Kick off with the most important features and reports that will quickly add value, and gradually develop the system based on user experience and feedback. This yields quick wins, promotes learning and drives continuous improvement.

With this top-down and iterative approach, make sure your BI solution is constantly being adapted to your current and future requirements. But perhaps most importantly, you remain flexible and are able to react quickly to new challenges and opportunities.

Coupled with the other aspects mentioned above, this approach will help you select and implement a BI solution that fits your needs and effectively supports your treasury team. In doing so, you contribute to making Treasury's value contribution visible throughout the entire company.

Treasury plays an essential role in a company's financial health and overall success. Even so, its work and value proposition often remain invisible to other parts of the business.

However, by effectively managing data, carefully selecting KPIs and implementing a suitable BI solution, you can make your own value proposition more transparent. Taken together, these elements are vital to making informed decisions, managing risk and achieving business success.

You can only fully exploit the relevance of data and KPIs when you present them in an easily understandable and meaningful way. This is where modern reporting solutions come into play.

It is equally important, however, to showcase these achievements and make the treasury's value proposition visible. As the saying goes, "Do good and talk about it." Make your successes known and highlight how your team contributes to the company's success.

Identifying challenges, tackling them and investing in suitable solutions are crucial steps towards strengthening treasury performance and building the basis for long-term success.

Source: KPMG Corporate Treasury News, Edition 133, June 2023
Authors:
Börries Többens, Partner, Finance and Treasury Management, Corporate Treasury Advisory, KPMG AG
Alexander Horn, Senior Manager, Finance and Treasury Management, Corporate Treasury Advisory, KPMG AG