Cash & Liquidity ManagementCash ManagementPracticeTreasury KPIs: A Powerful Management Tool

Treasury KPIs: A Powerful Management Tool

The generation of a timely set of management reports has for many years been an important and onerous duty for corporate treasury departments. Typically, management reporting includes such elements as treasury accounting results, cash positioning and forecasting information, future funding projection and market exposure analysis. Today’s financial environment has seen treasury elevated to new levels of prominence, as companies’ senior management has appreciated the substantial importance of well-managed, transparent treasury operations for corporate financial health – and even survival.

Key performance indicators (KPIs) have been an important component of management science for several years; and today, treasury KPIs are being increasingly adopted in corporate treasuries as powerful management tools that complement and enhance treasury management reporting by providing structured and objective analysis of treasury performance. The evolution of treasury KPIs offers both a new challenge and a great opportunity for treasury management, as an effective implementation provides objective proof that treasury is being creatively, efficiently and effectively managed using an emergent best practice technique. Perhaps most significantly, treasury KPIs can confirm the application of treasury policy to actual operations.

Selecting KPIs for your Organisation

Corporate treasurers are increasingly being encouraged to adopt a KPI programme, under the direction of the senior management, often at board level. A KPI programme is typically delivered through the implementation of an enhanced treasury policy, and manifests as a new set of mandatory processes, integrated with the treasury workflow.

The choice of the optimal set of KPIs for a particular treasury can be an exacting exercise, as the wide-ranging objectives include streamlining management reporting, improving the quality of all kinds of treasury operations, and measuring, analysing and documenting operational compliance with treasury policy.

The set of KPIs ultimately selected for a particular treasury will not only reflect the specific treasury policy and workflows that are in place; it must also reflect the business policies and priorities of the whole organisation. The KPI selection that works best for a given treasury will have been chosen through detailed analysis of those features of treasury operations that correspond to the highest levels of risk exposure. For example, a company whose revenues are significantly based on a diverse global sales operation is likely to focus on foreign exchange (FX)-based KPIs, whereas a highly leveraged organisation will probably look first to the measurement and analysis of areas such sources and costs of funds, and funding requirement projections versus forecasted demand. KPI selection therefore requires the active participation of all stakeholders, both within and beyond treasury, to achieve optimal results. The involvement of external experts may be helpful in the planning and review of a new KPI adoption programme. An effective selection of KPIs will help:

  • Treasury staff to better understand and monitor their daily tasks.
  • Treasury managers to oversee critical tasks and to track process accuracy and improvement.
  • Management and auditors to enjoy a more accurate, objective and dependable insight into treasury.

The value of different KPIs is best understood by analysing a range of examples, to investigate some KPIs that support different areas of treasury; this general appreciation can then lead to the selection of the KPI set that offers the right implementation for a given treasury organisation. The analysis used classifies KPIs into a series of groups that mirror the division of treasury into coherent business areas. The KPIs chosen are not intended to represent an exhaustive set; they are intended to give some ideas of what can be done.

It should be kept in mind that individual KPIs may be useful at multiple levels of an organisation. For example, some cash management KPIs may be useful to the cash managers to assess their own performance, to group treasurers, overseeing the whole cash operation, to senior management, tracking trends in liquidity surplus and shortfall for the enterprise, and to auditors looking at the control, robustness and accuracy of this critical part of the business. The KPI groupings used in this analysis are:

  • Liquidity and cash management KPIs, which support the core objective of cash management operations, to ensure that the organisation has the cash that it needs, at the right place, and at the right time.
  • Funding and investment management KPIs, which address the availability of funding, effective liability portfolio management and the protection of financial assets.
  • FX, commodity and interest rate exposure management KPIs, which measure the protection of future cash flows and earnings against market volatility.
  • Treasury operations and accounting KPIs, which support the operation of controlled, transparent and efficient treasury transaction workflow management.Risk management and policy compliance KPIs, which monitor the effectiveness of financial risk management versus policy requirements, and provide transparent audit assurance.

Liquidity and Cash Management KPIs

This group of KPIs spans the related disciplines of cash visibility and control, cash forecasting and liquidity management, and cash mobility and in-house banking.

Percentage of account balances reported daily: supporting the objective of monitoring and measuring the effectiveness of the daily bank account balance reporting mechanism.

A typical calculation would be:

(?daily reported cash balances)/(estimated total balance)×100%

The estimated total balance reflects the sum of today’s reported balances plus the last reported balances of accounts which were not reported today.

Percentage of cash transactions reconciled automatically: this KPI measures the degree to which treasury cash book transactions are properly accounted for, and also helps to minimise the necessary effort if it is used to set goals for process improvement, and to track progress.

A typical calculation would be:

(number of automatically reconciled items)/(total number of reported transactions)×100%

Percentage of business units/businesses/regions that miss forecast submission dates: this KPI provides a valuable tool at operational and management levels to monitor the forecasting performance of the operation, helping treasury departments to achieve the elusive goal of receiving accurate and dependable forecasting from the entire global enterprise.

A typical calculation would be:

(number of forecasts not received at deadline)/(total number of forecasts expected)×100%

Funding and Investment Management KPIs

Since the financial crisis first struck, the senior management of corporations has been increasingly focused on assurance that a dependable funding flow is as certain as is judged to be reasonably practical, and that valuable financial assets are deployed according to policy requirements.

Weighted average credit default swap (CDS) spread of credit line providers: this KPI uses one of the available market sensitive creditworthiness indicators to monitor the overall non-performance risk of the organisation’s funding providers.

A typical calculation would be:

(?CDS_i×F_i )/(?F_i )


F_i = Funding available from provider i


CDS_i = CDS spread of provider i (or other risk indicator)

Maximum percentage of investment exposure by counterparty / issuer: this KPI helps to ensure that the value of assets at risk with any one provider does not exceed the maximum that is specified in treasury policy.

A typical calculation would be:

max{A_i/(?A_i )×100%}


A_i = Assets invested with counterparty/issuer

FX, Commodity and Interest Rate Exposure Management KPIs

The general purpose of this set of KPIs is to provide an objective set of measurements and analysis to help ensure exposures are protected against market volatility, in line with the requirements of treasury policy.

Hedge ratio: helping to ensure that a pre-defined percentage of FX or commodity exposure (balance sheet and/or anticipate cash flow) is hedged within the boundaries of treasury policy.

A typical calculation would be:

(Hedge amount in maturity period)/(Exposure amount in maturity period)×100%

Hedge gain/loss deferral ratio: this KPI helps to ensure that the P/L impact of the hedge is deferred until the underlying (hedged) items impact the income statement, providing a means to manage hedge accounting effectively.

A typical calculation would be:

(Accumulated balance deferred in equity (OCI))/(Total fair value of hedge)×100


OCI = other comprehensive income

Treasury Operations and Accounting KPIs

These KPIs provide objective confirmation that treasury workflows are secure and controlled – and that they are clearly seen to be so.

Time taken to confirm deals with the counterparty: this KPI helps to ensure that all treasury transactions are confirmed with the counterparty within a specified timeframe, providing a powerful control over treasury process integrity and straight-through processing (STP) workflow management.

A typical calculation would be:

time that deal details are confirmed with the counterparty – time that the deal was initialy executed or registered

Time taken to create month-end accounting journals for all treasury transactions: this KPI ensures that month-end accounting closes are efficiently supported by treasury accounting.

A typical calculation would be:

date that the treasury subledger is closed – end date of the period being closed

Risk Management and Policy Compliance KPIs

These KPIs provide assurance to risk managers, auditors and others that the risk exposures of treasury positions and transactions are compliant with policy.

Portfolio sensitivity as a percentage of market value: ensures that the total portfolio sensitivity does not exceed the limit set in treasury policy.

A typical calculation would be:

(portfolio sensitivity)/(fair value of portfolio)×100%


This article has introduced the concept of treasury KPIs, and has used a few examples to illustrate how KPIs can be put to work to catalyse and manage constructive change, by measuring the outcomes of different aspects of treasury operations. KPIs clearly provide a means for implementing treasury policy, and to monitor actual compliance with that policy. There is some effort required to determine the correct set of KPIs that will add value to a particular treasury operation; and it’s also appropriate to mention that strong supporting treasury technology is needed to support the implementation and operation of effective, value-adding KPIs. The end result should be enhanced treasury policy compliance and efficiency, at all levels.

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