Competence-based training sounds attractive because it sees developing practical knowledge as the main purpose of education, not just developing theoretical knowledge, which cannot always be applied in practice. The intention is to first take inventories of which skills are required for certain functions, then investigate how these skills can be learned effectively and lastly how to implement the findings in courses. That is all. There is no assumed need for additional theoretical background or other topics of interest.
It may seem modern, but in itself there is nothing new about competence-based training. To give an example, in most countries, getting a driving license is just competence-based training. Another example, in the professional world, is when airline pilots and air-traffic controllers must learn standard English phrases for their professional conversations. There is no question that pure practical training in radio telephony will prevent accidents.
Therefore, at first sight, introducing large-scale competence-based training in the professional environment seems to be a logical choice. However, the manner in which this kind of education is offered may prove dangerous to the business. First of all, the idea of giving exemptions to students who have acquired expertise by training on the job can involve quality risk. In every day practical education, it is extremely difficult to check if students have enough expertise to justify an exemption if no formal test is used. It is therefore not surprising that many providers of exam courses in treasury or finance are reluctant to give exemptions.
Lacking Theorectical Education?
Focusing on competence-based training can bring with it another risk. When all modules of an exam-based programme are offered as competence-based training, a real danger emerges that more fundamental and conceptual ideas disappear from the programme. The risk is even larger in programmes with a traditional emphasis on learning many detailed facts using efficient organised manuals without classroom teaching or tutorials. A crucial question has to be asked: will a lack of fundamental theoretical knowledge create a problem in the financial world and the world of corporate treasury? The answer is yes.
Of course, necessary competences may be imparted to employees of a dealing room or corporate treasury relatively rapidly. Training on the job gives a lot of possibilities when practical skills are completed with a professional certificate in the field of risk management, cash management or other relevant fields. This can be sufficient in many situations.
However, in complex environments where risk and difficult strategies play an important role, more expertise and knowledge may be necessary. For example, entering into a fast deal against a market conform price may be done based on pure practice specific hands-on expertise and knowledge. But assessing complex financial positions during a credit crisis is another story. Risk management is always difficult, but in the current credit crisis there is a real chance that the whole problem will not be recognised without deep theoretical knowledge, with insight into the markets and the business of the company.
In another example, many treasury employees may handle quotes for popular financial instruments and vehicles without any problem, but trading the spread between Euro Interbank Offered Rate (Euribor) and Eurepo interest is not regular business for most of these professionals. Assuming these employees outside the daily practice have never made the effort to understand why this spread could be a good indicator for the mutual trust between the banks, you can’t be surprised if these professionals don’t know how to look at the current situation.
The last example looks at the dangers of traded mortgage portfolios and complex credit instruments, which cannot be understood without some theoretical knowledge. The history of the recent credit crisis, which originated through dangerous transactions in these types of products, is a good illustration.
Choosing the Right Programme
There are many reasons that full-fledged treasury educational programmes, such as programmes approved by the International Group of Treasury Associations (IGTA), attach growing importance to combining work experience and part-time education in practice and theory. In addition, most of these programmes offer up-to-date expertise and knowledge on management and control. Not all treasury professionals will immediately apply the additional content, but it will help to position the treasury in the right place and level in the organisation. And for some professionals in competition with the controller, it will make the next step to the CFO position more feasible. The conclusion is simple: competence-based training alone is not well-rounded enough for a fully-fledged programme of education for treasury.