Reporting essential for driving the Treasury

Reporting essential for driving the Treasury

Reporting for the sake of reporting does not create any added value to the organization. Have you ever questioned who is reading your daily, weekly and monthly reports and what they did with the information and data in the reports? Many treasury departments produce regular reports about the companies’ cash and liquidity position, cash forecast, foreign exchange and debt position. This article will provide you with some thoughts about how reporting can contribute to value creation by measuring and reporting the right indicators.

What goes wrong?

One size, does not fit all

A key step in treasury reporting is to get clarity about the needs of your audience and to create tailor-made reports for the different purposes. This determines the topics, but also the level of detail and the frequency of the reports. A ‘one size, fits all’ approach does not work since some readers only want to see aggregate figures and deviations from trends, while others are interested in a full deep dive on individual numbers.

Do not manage by looking through rear window mirror

Decision making requires forward looking information, making estimates and guesstimates. Historical information can support you in this area, but it is not sufficiently and lacking the insight that is already available in the company.

Put figures in perspective

Financials should be reported in relation to your key financial parameters. If EBITDA is one of your key financial parameters, then you want for example to know the sensitivity for FX movements. If your company is highly leveraged, then debt covenants might be breached due to interest or FX movements, so you want to know your debt bearing capacity and report about it.

Silos versus data warehouses

Data is captured in many source systems, such as different ERP/accounting, sales/CRM, Procurement, FP&A and Treasury systems. The challenge is on how to bring the data consistently, timely and accurately together. Data definition is the most challenging hurdle; to get consensus about the same meaning of data and to establish the linkage between data in different sources. Technology supports combining the data in data warehouses or data lakes and making the information available for the different stakeholders via BI tooling or Cubes. Data analytics, machine learning and artificial intelligence can support you in further analysing the data and forecasting.

Key Risk Indicators, Key Performance Indicators and Key Value Indicators

Having the basics right enables you to create valuable reporting that provides insight in the drivers of your business decisions. It also enables you to measure indicators, to report about them and manage them subsequently.

Reducing risk and gaining control is the first area for measuring indicators. This means that complexity will be reduced, and processes and systems simplified. Examples of Key Risk Indicators (KRI’s) in treasury are reduction of number of bank accounts, level of straight through processing, automatic reconciliation ratio, etc.

The next level is to improve performance and reduce costs. Measuring Key Performance Indicators (KPI’s) provides insight in the level of performance. Improve effectiveness and increase efficiency are key drivers, that can be measured. Examples of treasury KPI’s are cash flow forecasting accuracy, hedge performance, level of automatic cash concentration, % FX dealing through dealing portals.

Finally, Key Value Indicators (KVI’s) show the achievement of strategic objectives and value adding services by Treasury. Measuring the added value of hedging for example; how much reduction of Value at Risk (VAR) or reduction of EBITDA volatility is achieved compared to the cost of hedging. Return on investment as a measure for the investment in ‘bots’ (RPA) or artificial intelligence. The decrease in funding costs and time spent, due to improved cash flow forecasting can be compared to the investments made.

Getting access to the right data, in a timely and efficient manner, measuring the right indicators and reporting it to the right audience are the key takeaways of this article. You will gain thorough and accurate insight in the business, better understand the drivers and risks and therefore it will enable you to manage liquidity and risk in the most optimal way.