1. 16 I AFP Exchange September 2016
GLOBAL TREASURER
Spotlight
Under the
Measuring treasury
performance from head to toe
NUNO FERREIRA
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 and 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’s 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.
KEY TAKEAWAYS:
• The only way to measure
treasury’s day-to-day
activities is by using KPIs.
• To set up treasury KPIs it is
important to consider the
concerns of the CFO and board
members, and how treasury’s
role is increasingly expanding.
• One way to not only improve
treasury operations but
finance as a whole is to have
a set of transversal KPIs.

2. www.AFPonline.org AFP Exchange I 17
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 versus 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?
What should be measured
After reviewing the tasks and categories within treasury, we should look at the
relevance of each activity. A treasury department can be more cash management
oriented, more investment oriented or even more risk management oriented.
Depending on the weight given to each category or segment, the set of KPIs also
should change. Below are some activities and a set of three categories:
Based on these categories what then should we measure? Four areas:
cost, accuracy, efficiency and volume.
Cost will normally measure the external costs—bank fees, interests,
commissions and how treasury is managing them. Accuracy normally
measures the transactional errors or accuracy levels in forecasting. Efficiency
will measure how treasury avoids wasting effort, money and time in producing
a desired result. Volume is how treasury copes with high volumes.
Another way to not only improve treasury operations but finance as a
whole is to have a set of transversal KPIs. This will improve communications
within departments dras-tically as well as set global goals that will see
different areas working in the same direction.
OPERATIONAL
• Bank reconciliation
• Payments
• Receivables
• Bank account structure
• Forecasting
TRANSVERSAL
• Accounts payable
• Management accounting
• Logistics
•Accounts receivable
INVESTMENT/FUNDING
• Short-term funding
• Long-term funding
• Intercompany loans
• Cash pooling
• M/L term forecasting
RISK MANAGEMENT
• FX hedging
• Interest rate hedging
• Commodities
• Policies and procedures
• Compliance

3. 18 I AFP Exchange September 2016
GLOBAL TREASURER continued
Let´s now focus on each KPI area.
Risk management KPIs
This KPI involves, normally there is an issue
of different systems needing to produce
information to provide the KPI measurement.
There are three ways of dealing with it:
1. Having a front office system to interface
all-important information to the back-
office system—and then reporting is
provided only by one system.
2. Having reporting tools that extract info
from both systems, which can be helpful
not only to report KPIs but to validate
consistency of information between
two systems.
3. Do it manually, extracting to Excel from
both system. Of course, this is not the
recommended way as it will take time,
increase reporting errors and require
people to validate data.
Investment and funding KPIs
For investment and funding, we should
focus on monthly/quarterly reporting and
not yearly reporting. We should measure
not only how cash is used but also the cost
of it and how accurate and efficient our
teams are at handling the cash.
We can set KPIs to check compliance
with the policies—like liquidity buffers—that
translate the cash (or credit lines) available
for future use. We should also have KPIs to
check idle cash balances and inefficiencies
in cash usage (as cost). And we can have
KPIs to measure the back office and front-
office efficiency and accuracy (FTE per
number of products).
All will give management and also the
board an overview of how cash is being
used. This set is normally the most relevant
for the board, so in this case they have to be
very aligned with board strategy. Giving an
example, if there is an investment to be made,
the liquidity buffer needs to be readjusted
and a different measure needs to be applied.
Operational KPIs
These KPIs are normally used for a more
cash management-oriented treasury.
They are great for evaluation purposes
and to check that the department is up
and running. They give transparency into
the way evaluation is done within your
department, and they can normally be
benchmarked with cash-management
functions at other companies.
These KPIs also allow us to measure
individual staff members, or the department
itself. And in this transactional level we
should measure:
• How things are done, automatic
versus manually (e.g., bank
reconciliation items). This will push
the team to constantly optimize
systems and processes.
• The cost per transaction (cost per
payment, per rejected item, number of
rejected items). This again will push the
team to reduce costs and manual errors.
6Six 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 burden everyone.
When defining KPIs, 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 need to be created or amended.

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• Bank account structure and FTE versus
bank accounts. This will help reduce
accounts, costs and give a good number of
when you need to increase or decrease the
number of FTEs.
• Measure transactions settled per FTE. This
gives a value of efficiency and internal cost
per transaction, a measure for evaluating
each team member, and also a number to
take into account when deciding about
adding new members to the team or not.
• Idle balances measure. This is a great way to
get the team working with an objective of
streamlining bank structure, optimizing cash
pooling structures and being more careful
with these inefficiencies.
These KPIs are very important for
management to have a clear idea how day-
to-day business is being handled by the cash-
management team. It’s also very important
that KPIs take into account when treasury
functions are centralized, to show to the board
or management the benefits and costs of
Accounts Payable/
Treasury
Accounts Payable/
Treasury
Accounts Receivable/
Treasury
Accounts Receivable/
Treasury
Finance Department/
Board
Finance Department?
Board
Finance Department
Accounts payable/ Treasury/
Accounts Receivable/
Logistics and Supply Chain
Finance Department
Manual Generated Payment
vs. All Payments
Percentage of failed payments
due to incorrect data
Manual Generated Payment vs.
All Payments
Accounts receivable divided
by sales per day
Days to deposit cash/checks
Current Assets /
Short + long term debt
Assets/Liabilities
Time required to complete
monthly financial close
activities vs. Benchmark
CCC = DIO + DSO - DPO
Number of FTE
per Revenue
centralization and why that function will stay
locally or central.
Transversal KPIs
Departmental KPIs essentially force teams
to work more independently; treasury
people will focus on their KPIs, and other
departments will do the same. Staff members
focus only on achieving their own metrics
and objectives. That´s why transversal KPIs
are so important, not only to focus the entire
finance department on the same objectives,
but to leverage communication and help.
It’s important to give a significant weight to
these KPIs.
The KPI set above can help two departments
work towards one objective Just be aware to
always infer that when things go wrong, it is
everyone’s fault; these KPIs, when not achieved,
can easily lead to finger-pointing.
Nuno Ferreira is head of treasury for Pestana
Hotel Group in Lisbon, Portugal.
Category Process MeasureKPI
Ratio of system-generated
payments vs.
manual payments
Percentage of payments
containing errors
Collection period
Collection period
Current Assets to
Total Debt
Debt Ratio
Month end closing
Cash Conversion
Cycle
Number of FTE
per Revenue
TRANSVERSAL
Cost Accuracy Efficiency Volume