The effective use of treasury KPIs can be a great way to track the progress of the department and highlight its value-add to the C-suite. Is your treasury effectively using KPIs?

You can’t manage what you don’t measure, as the old management adage goes. And in the world of corporate treasury there is much to measure. Indeed, research published in 2016 by KPMG found that almost two thirds (63%) of treasurers use a set of key performance indicators (KPIs) to measure the performance of their various treasury activities.

Metrics can be used to measure outcomes in a variety of structures and activities, from capital structure to risk management. “KPIs are there to assess how well the treasury function is performing and how it could improve on that operation,” explains Karlien Porre, Partner, Global Treasury Advisory Services at Deloitte.

Choosing the right KPIs

The KPIs used by treasuries will vary depending on the nature of the business. “In the energy and resources sector, companies may have lots of derivatives and potentially big swings in margin calls on derivatives,” says Porre. “In these organisations there are short-term daily liquidity targets, and KPIs against these will be very critical – whereas in other organisations those KPIs will be less relevant.”

Even within the same company, the KPIs used by treasury can evolve over time. At Hilton, for example, the company’s strategic priorities have shifted somewhat in recent history, resulting in a shift in the treasury’s KPIs. “Looking back, leverage was the number one financial metric we were looking at,” explains Fred Schacknies, SVP & Treasurer. “But going forward, while we’re still very mindful of our leverage – and have identified a target of 3-3.5X – our metrics have shifted to incorporate more free cash flow and the visibility needed to meet these targets.”

KPIs vs management metrics

These are not the only metrics that Hilton focuses on. Schacknies notes that like many treasuries, Hilton also measures operational activities such as forecast accuracy, the number of bank accounts, yield on cash and FX risk.

However, he draws a distinction between operational metrics and KPIs. “At the end of the day the board is less concerned with the efficiency of your bank account structure than with the company’s ability to achieve key financial priorities, such as buying back shares,” he says.

Using KPIs and metrics effectively

KPIs and metrics can and do vary over time – and it’s important to make sure that metrics continue to be a good fit for the company’s goals.

“We’ve got a few different cadences of reviewing these metrics,” comments Schacknies. “In some cases, those might be sit down meetings; in some they might just be emails. In the eight years that I’ve been here, we’ve had a number of major milestones such as the IPO – and for each of those, we’ve sat down and considered what that changes for us and what we need to focus on going forward.”

Communicating the results

It’s also important to know when and how to communicate the information gathered to the rest of the business. “It really does come down to making sure your message is level-appropriate for the intended audience,” says Schacknies. “My goal is to make sure that my boss – the CFO – and everyone else above him knows what they need to know, which is anything impacting those strategic KPIs. Everything else that happens operationally in support of that is part of the ordinary course of business and need not dilute the communication with senior leadership.”

Schacknies says the same applies when his peers across the organisation have demands for information from treasury. “It’s very much on a need to know basis – it’s about respecting people’s time and ability to process information, and giving them information that’s most useful for them,” he concludes.