AFP's First Treasury Benchmarking Survey Reveals Significant Statistics on Service Delivery and Costs
In mid-October, the Association for Financial Professionals (AFP), in conjunction with IBM and Deutsche Bank, released the results of the first in a series of treasury benchmarking surveys comparing the performance of organisations’ treasury operations against those of their peers. The Benchmarking Survey gathered data from over 400 organisations. The results allow participating organisations to compare their performance against the overall survey sample and against top performers, as well as identify opportunities to improve their organisations’ treasury performance.
“Financial professionals have been telling us for years that there are few benchmarks that truly measure the most critical aspects of effective treasury management,” said AFP president and CEO Jim Kaitz. “Now, with the combined treasury management expertise of AFP and IBM, along with the financial support and guidance of Deutsche Bank, we are analysing key treasury operations issues impacting today’s organisations, and helping them focus their efforts on optimising those operations.”
Survey objectives included determining performance levels achieved by all survey participants and defining world-class (80th percentile) benchmark targets. “The treasury profession plays a major strategic role within organisations, and these benchmarking surveys provide treasury and finance professionals with measures for comparing business entities’ performance, pinpointing performance gaps, and evaluating improvement opportunities at a strategic level,” affirmed Katz.
Aggregate results of the initial study were presented at the 2008 AFP Annual Conference in Los Angeles from 19-22 October. Key findings of the study included:
Typical treasury operations cost 97 cents per US$1,000 of annual revenue, with costs for the 80th percentile at 35 cents per US$1,000 of annual revenue. Despite the large and growing array of responsibilities it manages, treasury clearly operates very efficiently, with investment in treasury continuing to be primarily in human capital. Furthermore, nearly two-thirds of treasury expenses cover personnel expenses with third-party/outsourcing and IT accounting for 15% and 9% of overall treasury expenses, respectively.
Forty-five per cent of organisations rely on spreadsheets to manage treasury functions while another 22% use even more manual processes. The combination of ‘manual’ and ‘spreadsheet’ categories reveal that two-thirds of organisations have yet to exploit enabling technologies to streamline operations. That said, among the more widely utilised technological solutions for managing cash are: bank treasury management platform (16% of organisations), treasury workstation (7%), treasury services provider (7%), ERP module (6%), and internally developed technology (4%).
Most treasury departments are very lean and operate with relatively few personnel. The typical participating organisation has 4.3 full-time treasury equivalents (FTEs) per US$1bn of annual revenue, with the 80th percentile treasury organisation having 1.7 FTEs. The median number of FTEs per billion in annual revenues for each specific treasury function is: cash management (1.3 FTEs), treasury policy management (1.0 FTE), in-house banking management (1.0 FTE), debt and investment management (1.0 FTE), and risk management (1.0 FTE).
In terms of treasury duties, the typical treasury department participating in this benchmarking survey reported that they held responsibilities for 10 of the 20 duties listed in the questionnaire. Critical duties for treasury include:
“This study reveals that almost all treasury departments are operating efficiently, yet there is room for improvement,” said William Fuessler, global leader, financial management, IBM Global Business Services. “By incorporating automated tools, which are often pre-built, and proven solutions through a combination of business consulting and software, we can help clients realise faster time to value than ever before.”
As part of the three-year benchmarking effort, AFP, IBM and Deutsche Bank jointly announced the topic of the 2009 survey at the 2008 AFP Annual Conference in Los Angeles. The 2009 survey1 will focus on the ‘Optimal Delivery of Treasury Services’ and identify methods by which organisations deliver key treasury services via treasury workstations, service-level agreements with banks, manual methods and spreadsheets, and centralised versus decentralised treasury operations. It will also compare cycle times and expenses by different models and identify trends in how organisations have changed delivery methods.
For those organisations that changed their delivery method, the survey will query the expected benefits resulting from the change versus those actually achieved, identify gaps that developed (and/or did not resolve) as a result of automation, and identify unexpected benefits resulting from change in the delivery of treasury services.
“In today’s market, corporates and providers are striving to implement best practices in search of greater efficiencies. This is even more challenging as treasury departments are shrinking while they are assigned greater responsibility. Deutsche Bank will use the initial and upcoming benchmarking survey results to help our client base achieve continued process improvement around treasury and cash management,” said Marilyn Spearing, head of trade finance and cash management corporates, global transaction banking, Deutsche Bank. “The 2009 survey will give us the opportunity to drill down even further on optimising treasury delivery, a topic which was identified
as noteworthy in the 2008 benchmarking results and an area that our clients continue to evaluate.”
To read more about the AFP Annual Conference 2008, read the gtnews commentary, AFP Annual Conference 2008: Career Progression and Impact of the Credit Crunch on Treasurers.
1The launch date for the survey is 2 March 2009 and customised peer reports will be released during the summer in 2009. An Executive Summary will be released at the 2009 AFP Annual Conference in San Francisco, where the 2010 survey topic will be announced.