Benchmarking the Strategic Role of Treasury

Publication: Global Treasury Briefing, Volume 3 Issue 4

The expanding role of the treasury department, with little or no additional resource to support this expansion, has been one of the key treasury issues of the past 18 months. This article presents a selection of results from the AFP Treasury Benchmarking Survey 2010, focussing the strategic role of treasury and the investments made in treasury staff.

Now in its third year, the Association for Financial Professionals (AFP) Treasury Benchmarking Survey is the result of a partnership between AFP, gtnews and the IBM Corporation underwritten by Deutsche Bank Global Transaction Banking. Its goal is to provide benchmark data for financial professionals so they can compare the performance of their organisations’ treasury operations against that of comparable organisations. 

Strategic Role of Treasury 

The 2010 survey focused on both the strategic role that organisations’ treasury department play and the investments organisations make in their treasury staff. The goal was to gain a better understanding of the role that both play in the treasury department’s performance. This analysis is based solely on data collected as a part of the 2010 survey. 

Maturity 

Just over half of participants in the 2010 survey characterise their treasury department as being an 'established department' that still has to change processes and procedures to meet new challenges. One out of five organisations have 'very mature' treasury operations that are able to address new challenges without needing to review/update processes, while just over a quarter of participants characterise their treasury department as being 'relatively new', with few established processes and procedures. Respondents from large organisations are far more likely than those from small ones to characterise their treasury operation as 'very mature'. A third of participants from smaller organisations characterise their treasury operation as being 'relatively new'. 

Figure 1: How Would You Characterise Your Treasury Department? 

Source: AFP Treasury Benchmarking Survey 2010

Functions 

Different organisations rate different activities as important in achieving the objectives of the treasury department. At least seven out of 10 organisations consider managing and reconciling cash positions, managing and overseeing banking relationships, managing financial risk and developing cash flow forecasts as important functions in meeting the treasury’s objectives for the organisations. 

In addition, at least half of organisations consider the following functions as also being critical: 

• Managing debt. 
• Processing and overseeing electronic fund transfers (EFTs). 
• Managing treasury policies and procedures. 
• Managing short-term investments. 

While the differences are not particularly substantive, organisations have a tendency to place more staff (in terms of full-time equivalents (FTEs) on a normalised basis) on functions that are rated as being important. This relationship is noted in the following treasury functions: 

• Managing financial risk. 
• Developing cash flow forecasts. 
• Managing debt. 
• Processing/overseeing EFTs. 
• Managing in-house bank accounts. 
• Analysing, negotiating, resolving, and confirming bank fees. 
• Managing intermediate and long-term investments. 

Figure 2: Importance of Function in Achieving Objectives of Treasury Department (percentage of participants rating the importance of the function as either a '4' or '5') 

Source: AFP Treasury Benchmarking Survey 2010

The definition of 'treasury' can differ significantly by organisation. Treasury currently incorporates a number of non-traditional treasury functions as organisations take advantage of the department's unique skill set. Treasury operations in large organisations - those with annual revenues of at least US$2bn - take on an average of 4.9 additional functions. They are more likely than those in small organisations to manage debt and corporate funding, act as an internal consultant to other departments, manage the organisation's financial risk activities, manage counterparty risk and support the organisation's merger and acquisition (M&A) activity. 

In what may initially seem counter-intuitive, treasury operations that manage a number of non-traditional functions tend to have fewer FTEs per US$1bn in annual revenue than those that perform only traditional functions. When treasury departments take on at least six of the eight 'additional' functions listed below, they typically have just over 2.0 FTEs in treasury operations per US$1bn in annual revenue. The median number of treasury FTEs in departments that perform no more than three of the non-traditional functions is 10.0. The relationship, however, reflects the fact that larger organisations tend to use fewer treasury FTEs on a normalised basis than do smaller organisations, but tend to have their treasury departments take on more non-traditional treasury functions. 

Figure 3: Additional Contributions, Beyond Traditional Functions, Where Treasury Makes a Significant Contribution (percent of organisations) 

Source: AFP Treasury Benchmarking Survey 2010

Personnel 

Many organisations rely on treasury and financial professionals with many years of experience to fulfil critical treasury responsibilities, although experience appears to be tied to certain function areas. Nearly half of organisations have staff with at least 10 years of experience managing the debt and funding needs/investments of the organisation and in financial risk management. 

Forty-four percent of organisations have staff with at least 10 years of experience serving their companies in cash management and treasury policies and procedures. There is little relationship between the experience of treasury personnel and performance when measured by cycle times. AFP analysed cycle times by the number of major treasury functional areas in which the average tenure in the role (for the employee's career, not just at the company) exceeded 10 years. For virtually all cycle times analysed, there is no difference for organisations that had personnel with average experience exceeding 10 years in at least five of six functional areas versus those that had similar experience in two or fewer functional areas. The lone exception is for the cycle time (in terms of hours) required to concentrate/physically pool cash and establish a daily cash position. Companies with a more experienced staff tend to complete the task in half of the time. Companies with experienced staff, however, tend to have fewer FTEs on a normalised basis than those with a less experienced staff. 

A significant share of organisations report that such experienced financial professionals have worked for the same company for many years. A third of organisations indicate that the staff working in financial risk management and in the debt and funding needs and investment area have been working in those positions at the organisation for at least 10 years. 

Companies with long-tenured employees tend to utilise a third fewer FTEs per US$1bn in annual revenues. Similar to the results on staff experience, there is not much of a relationship between the tenure in the position and the level of performance as measured by cycle times. AFP analysed cycle times by the number of major treasury functional areas in which the average length of time during which an employee has had responsibility for the function at the company exceeded 10 years. For virtually all cycle times analysed, there is no difference for organisations that had personnel with average tenure exceeding 10 years in at least five of six functional areas versus those that had similar experience in two or fewer functional areas. Again, the lone exception was for the cycle time (in terms of hours) required to concentrate/physically pool cash and establish a daily cash position. Companies with the longest tenured staff members tend to complete the task in half of the time. 

Most financial professionals hold at least a bachelors degree. In many cases, they have furthered their education to earn a MBA or some other graduate degree. At least half of organisations have at least one person who serves the organisation in the following treasury functions that holds a MBA or some other graduate degree: 

• Financial risk management (57%). 
• Debt and funding needs and investment (55%). 
• Treasury policies and procedures (51%). 

Companies with highly educated staff - in terms of the number of major function areas with at least one FTE that has either a MBA or some other graduate degree - tend to have fewer FTEs on a normalised basis than those that do not. Organisations with at least one employee with a MBA or graduate degree in at least five of six tracked treasury functional areas have nearly half as many FTEs per US$1bn in annual revenue than do organisations with MBAs (or holders of other graduate degrees) in two or fewer functional areas. 

Organisations with a greater number of MBAs/and graduate degree holders reconcile bank account discrepancies a half day sooner than do organisations with fewer (if any) MBAs. However, the latter group complete borrowing decisions a half hour sooner. There are no other reported differences in cycle times for the two groups. 

Professional certifications - such as AFP’s Certified Treasury Professional (CTP) - allow financial professionals to demonstrate their knowledge of and competency in the critical functions of their jobs. Three out of five organisations have at least one person in their treasury policies and procedures area who holds a professional certification. Fifty-four percent of organisations have at least one person who holds a professional certification in the cash management function area. 

Organisations with certification holders in at least five of six treasury functional areas have 3.0 FTEs per US$1bn in annual revenue. Organisations with certification holders in two or fewer treasury functional areas have 4.5 FTEs per US$1bn in annual revenue. Organisations with certification holders in more functional areas of treasury have shorter cycle times for developing cash flow forecasts and for concentrating/physically pooling cash and establishing a daily cash position. 

Figure 4: Percentage of Organisations Performing Key Treasury Functions with Personnel Holding a Professional Certification 

Source: AFP Treasury Benchmarking Survey 2010

Figure 5: Key Metric Comparisons by Prevalence of Personnel Holding Professional Certifications 

Source: AFP Treasury Benchmarking Survey 2010

Training 

Most companies encourage/fund/provide regular training so their staff can update and further refine their treasury operations skills. The typical organisation offers between three to five days of training in a year. Just 6% of organisations report their staff receive no treasury operations job training on an annual basis. 

Financial professionals (and their organisations) have a number of resources available to them that provide treasury operations job training. The two most widely cited sources are treasury-related conferences/seminars/forums and bank-sponsored events. Other resources that financial professionals may turn to include regional association meetings and self-paced courses. 

Management strategies 

In its ongoing quest to improve effectiveness and identify efficiencies, an organisation’s treasury department may use a number of formal and informal methods. Nearly four out of five treasury departments invest in reengineering or continuous business process improvement, albeit much of it informal. Fifty-nine percent of organisations use an informal process to streamline treasury processes. Among the most used formal processes are: 

• Lean Management (14%). 
• Business process reengineering (13%).
• Total Quality Management (6%). 
• Six Sigma (6%). 

Organisations using a formal process to improve effectiveness and create efficiencies tend to use fewer FTEs on a normalised basis than do organisations that either use an informal process or make no investment in these areas. However, some of this difference is due to the fact that larger organisations are significantly more likely to use a formal process - and these organisations already use fewer FTEs on a normalised basis than do their smaller peers. 

Further Analysis 

To provide further analysis of the relationship between investments made in treasury staff and performance, organisations were divided into three groups based on cycle times for seven treasury functions. 

• The benchmark group has the lowest average cycle time across seven treasury functions queried in the 2010 survey. (80th percentile or better). 
• The standard performance group has an average cycle time between the 20th and 80th percentile. 
• The least efficient performers have the highest average cycle time across seven treasury functions queried in the 2010 survey. 

Maturity 

Treasury departments that fall into the least efficient performers group are more likely to be relatively new treasury operations that lack established procedures and processes. Thirty percent of 'least efficient' treasury departments are newly established ones compared to just 10% of 'benchmark' treasury departments that are new. 

But the opposite is not true. There is no relationship between a 'very mature' treasury department with well-established procedures and its cycle time performance. Twenty percent of both 'least efficient' and 'benchmark' treasury departments have 'very mature' treasury departments. 

Figure 6: Maturity of Treasury Department by Cycle Groups (percentage distribution) 

Source: AFP Treasury Benchmarking Survey 2010

Experience

The relationship between the level of experience of treasury staff and cycle time performance is mixed. Benchmark treasury departments are more likely than standard or least efficient performers to have treasury staff with at least 10 years of experience in managing debt and funding needs/investments and managing treasury policies/procedures. However, for other functional areas, there is little difference in the professional experience of the treasury staff and cycle time performance, particularly for managing financial risk and managing in-house bank accounts. 

Figure 7: Percentage of Organisations with People Having at Least 10 Years of Experience in the Functional Role by Cycle Groups (percent of respondents by function) 

Source: AFP Treasury Benchmarking Survey 2010

Tenure 

The relationship between experience in the profession and cycle time performance is mixed at best. But for four of the six tracked treasury functions, tenure at the organisation is negatively correlated with efficiency. Benchmark treasury departments are less likely than are the least efficient departments to have employees with at least 10 years of tenure at the organisation fulfilling the management of cash, inhouse bank accounts, financial risks and treasury policies/ procedures. On the other hand, benchmark treasury operations are more likely to have staff with at least 10 years tenure at the organisation managing debt/funding needs/investment than are the least efficient performing treasury departments. 

Figure 8: Percentage of Organisations with People with Tenure of at Least 10 Years in Functional Role by Cycle Groups (percent of respondents by function) 

Source: AFP Treasury Benchmarking Survey 2010

Educational attainment 

Treasury departments with highly educated staff tend to have fewer FTEs on a normalised basis. But even if the departments are more efficient in terms of staffing, they are not necessarily more efficient in terms of cycle times. For only one of the six treasury functions studied - managing in-house bank accounts - are benchmark treasury departments more likely than least efficient performers to have an MBA (or holders of other graduate level degrees) performing that duty (27% versus 18%). In fact, there are three treasury functions in which benchmark companies are less likely to have MBAs serving those functional areas: 

• Managing debt/funding needs and investments. 
• Producing treasury accounting entries. 
• Managing cash. 

Figure 9: Percentage of Organisations with People in Functional Role Holding a MBA or Other Graduate Degree by Cycle Groups (percent of respondents by function) 

Source: AFP Treasury Benchmarking Survey 2010

Certification 

Treasury departments - from benchmark operations to the least efficient performers - rely on staff holding professional certifications. Benchmark departments are slightly more likely than the least efficient performing ones to have staff who hold professional certifications. For some functional areas - managing cash and debt/funding needs/investments - benchmark organisations are slightly less likely to have certification holders compared to the least efficient performers. 

Figure 10: Percentage of Organisations with People in Functional Role Holding a Professional Certification by Cycle Groups (percent of respondents by function) 

Source: AFP Treasury Benchmarking Survey 2010

Training

An organisation’s commitment to training its staff to build its treasury operations skills is correlated to cycle time efficiency improvements. However, there are significant diminishing returns from training. The least efficient treasury departments provide a median of 3.2 days of treasury-related training per year compared to 4.1 days of training in 'standard' treasury departments. However, the benchmark organisations provide slightly less training per year - 3.9 hours. 

Figure 11: Average Annual Number of Days of Training to Develop and Maintain Treasury Operations Job Specific Skills by Cycle Groups (percentage distribution) 

Source: AFP Treasury Benchmarking Survey 2010

Key Takeaways Regarding Investment in Personnel 

There is a weak relationship, at best, between cycle time performance and a number of personnel-related characteristics. However, companies that have treasury staff with more professional experience, greater educational attainment, and more certifications and when organisations invest in training, the treasury department has fewer full-time equivalents (FTEs) on a normalised basis in comparison to other companies. 

Again there is only a weak relationship between the professional experience of the treasury staff and cycle time performance. However, companies with staff holding at least 10 years of professional experience have 41% fewer FTEs per US$1bn of annual revenue than do organisations with fewer professionals with similar experience. 

Staff tenure at an organisation's treasury department is negatively correlated with cycle time performance in several key treasury function areas. However, companies with tenured staff tend to use fewer overall treasury FTEs per US$1bn in annual revenue (33% less). 

Educational attainment and certification have minimal impact on cycle time performance. However, organisations with MBAs in at least five treasury function areas have 48% fewer FTEs, on a normalised basis, in their treasury departments than do organisations with MBAs in two or fewer treasury function areas. - Organisations with personnel holding professional certifications in at least five treasury function areas use a third fewer FTEs per US$1bn in annual revenue in the treasury department than do organisations with MBAs in two or fewer treasury function areas. 

There is a positive relationship between the median number of days of treasury-related training offered per year and cycle time improvements. However, there are significant diminishing returns with the investment of staff training. 

Conclusion 

The metrics in the AFP Treasury Benchmarking Survey 2010 provides an insight into current treasury practices and budget allocation that corporates can measure themselves against. However, simply comparing your metric to that of other organisations is not benchmarking. It is not the metric itself that is the driver of change. Rather, it is the practice or process that produces the desired level of performance that is the driver of change. 

Improved business performance is an ongoing goal of all organisations. With competition reaching new heights, companies are seeking new and better ways to enhance their efficiency and effectiveness and to generate dramatically improved levels of performance. 

Benchmarking the practices and performance of one organisation against those of others can be a powerful tool. Its value lies in learning from the success of others and leveraging that knowledge in order to modify actions or behaviour to improve organisational performance.