AFP's Annual Treasury Benchmarking Survey Highlights Benefits of Best Practice in Cost Management

Earlier this month, the Association for Financial Professionals (AFP), in conjunction with IBM, Deutsche Bank and gtnews, released the results of its second annual treasury benchmarking survey – comparing the performance of organisations’ treasury operations against those of their peers. The Benchmarking Survey gathered data from over 800 organisations, more than double the respondents from last year. This year the survey was expanded to survey European corporates as well as those in North America. 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.

“By extending the survey to Europe, we allow treasury professionals around the world to learn from each other,” said Jim Kaitz, AFP’s president and CEO. “The survey data ultimately shows that benchmark performance levels in treasury operations are fairly consistent regardless of the region in which a company operates. As a global resource and advocate for the profession, AFP seeks to illuminate the practices that will ultimately lead to successful treasury departments.”

The 2009 survey, which explores the impact of treasury systems and service delivery models on critical treasury processes, presents performance levels achieved by the survey participants, defines top performing (80th percentile) benchmark targets, analyses performance levels by peer groups and provides a basis of comparison that organisations can use to identify performance gaps and evaluate opportunities for improvement.

Treasury costs

The survey reveals that typical treasury operations cost 69 cents per US$1,000 of annual revenue, with costs for the 80th percentile at 26 cents per US$1,000 of annual revenue. This cost can vary depending on company size and industry type. For example, corporates with annual revenues between US$6-10bn spend 29 cents per US$1,000 of annual revenue on treasury operations (with a benchmark performance of 15 cents) while smaller corporates with annual revenues between US$100-499m spend US$1.50 per US$1,000 of annual revenue (with costs for the 80th percentile at 78 cents). So, the smaller the company, the more intensive the investment for treasury operations is, relative to revenue.

Treasury full-time equivalents

The typical corporate has 4.2 full-time equivalents (FTEs) for every US$1bn in annual revenues. This is reduced by more than half in the benchmark corporate, which has 1.7 FTEs for every US$1bn in annual revenues. As with costs, the number of FTEs deployed to serve treasury differ, depending on the size of the corporate. The typical corporate with annual revenues between US$6-10bn has 1.6 FTEs per US$1bn of annual revenue, while those with smaller annual revenues of between US$500-999m use 5.5 FTEs.

Treasury staffing levels are also significantly different across industry types. The highest usage of FTEs, per US$1bn of annual revenue, are in the following sectors:

• Finance/insurance (10.0).
• Government (8.0).
• Services (5.5).
• Information/communications (5.4).

Comparatively, the industry sectors of manufacturing (3.1) and energy (2.0) use considerably fewer FTEs.

Treasury cycle times

The wide variety of responsibilities in treasury, usually combined with minimal resources, means that a major focus for today’s treasurer is to complete tasks as efficiently and effectively as possible. This year’s benchmarking survey examined the cycle times of the following critical treasury functions:

• The typical corporate develops a short-term cash flow forecast in four hours, while the benchmark corporate does this in two hours.
• The median corporate needs two hours to concentrate/physically pool cash and to establish the daily position, a task that takes the benchmark corporate one hour.
• It takes the typical corporate one hour to produce a treasury accounting entry. In contrast, the corporate in the 80th percentile takes only 0.3 hours.
• The average corporate takes three days to resolve bank account discrepancies, while the benchmark corporate needs one day.
• The median cycle time for a corporate to process an internal fund transfer is one hour, compared to the benchmark corporate’s 0.3 hours.
• The typical corporate spends two hours to process a borrowing decision, while the benchmark corporate spends one hour.
• On average, corporates spend one hour to process investment elections, but the corporate at the 80th percentile spends half an hour.

Clearly there is considerable room for many corporates to enhance their cycle time efficiency. This can vary depending on the industry that the corporate operates in, but when the results are broken down into the size of the corporate and the region it is based in, results are consistent.

Delivery Method of Treasury Services

Treasury operations can be structured in a variety of different ways, depending on the company’s size, location and industry. Some corporates decentralise their treasury operations so that each subsidiary – or even each location – has its own operation. Others choose to consolidate treasury operations into a single location, while in other cases certain operations are outsourced to a third party.

Overall, this year’s survey shows that corporates typically conduct most treasury operations within a single corporate treasury operation. If a corporate places a high level of importance on a particular process, there is a strong possibility that this will be completed at a centralised location. On the whole, survey respondents indicate that they believe their company’s current method of delivering treasury services are at least ‘somewhat effective’, although the percentage rating them as ‘very effective’ is not always above 50%, depending on the treasury process in question – action around bank fees and cash flow forecasts perform particularly badly here.

Looking at how the survey has benefited from the expansion to survey European corporates as well as those in North America, Marilyn Spearing, global head of trade finance and cash management corporates, Global Transaction Banking, Deutsche Bank, said: “Deutsche Bank is pleased to support the further expansion of this important peer group survey. We looked to obtain data on a cross-regional level after receiving very favourable responses from those US corporates who participated in the initial survey. In today’s market, treasurers are seeking opportunities to compare performance of organisations’ treasury operations against those of their peers.”

To download a pdf of the complete results and analysis of the 2009 AFP Treasury Benchmarking Program, click here.