Treasurers should have a performance management plan that sets out principles and targets. The plan should define how outputs are measured and how any divergences acted upon. It has become accepted over the last couple of years that measuring the performance of the treasury department is an essential control in ensuring the effectiveness of treasury policies. The annual Treasury Operations Survey underlines that fact1.
The key element in designing and maintaining performance measures is to strike a balance between managing risk and contributing to the financial results of the company. The measures in place have to be in line with the objectives of the department. Performance measures have to be kept up to date and relevant to reflect the changing circumstances under which treasurers operate. When the objectives of the treasury department change, so should the performance measures. Think for instance how few treasury departments are now profit centres but how risk management and compliance now impacts significantly on the daily work of the treasurer.
There are some obvious areas that any treasurer would expect to be measured on: dealing, hedging and cash forecasting would provoke little debate. Other elements which might be harder to set up and maintain could be compliance with inter-company service level agreements and value for money performance. However as the use of performance measurements becomes more pervasive, it appears that the satisfaction among treasurers with those measures is falling significantly.
The Operations Survey suggests that measures are becoming too complicated to comply with and difficult to develop. This is a worrying trend. At a time when the finance department – including the treasury department – is under increasing pressure, not only to perform but to be seen to perform, treasurers need to be able to demonstrate their worth. And that means being measured against clear but relevant targets. It seems more work is needed in this area.
Whatever else is on the treasurer’s agenda this is not the time to give up on performance measures.
1. The Annual Treasury Operations Survey conducted by Ernst & Young’s Financial Services Risk Management Practice in conjunction with the Association of Corporate Treasurers, see p40.
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