Treasury benchmarking--what's getting in the way?

• Author: Newman, Kara
• Position: Treasury

Management gurus are quick to point out that the quickest way to improve performance is to measure it. However, few companies benchmark the performance of treasury departments--even companies that routinely benchmark performance of other key functions.

According to a survey administered earlier this year by Thomson Financial and a treasury management magazine, 77 percent of more than 200 treasurers surveyed said they do not currently benchmark or use formal performance measures for treasury activities.

Why in the world not? What's getting in the way?

Of the three-quarters of treasurers who said they don't benchmark, most are deterred by a lack of time, or because benchmarking simply is not a priority. However, one-third of the survey respondents would change their minds about using performance metrics if shown evidence that performance would actually improve as a result of benchmarking.

It's a shame that more companies don't benchmark, because those that do so claim to see results. Among those engaged in the process for more than two years, 65 percent reported that their performance has improved to some degree.

It is encouraging to see that such a large proportion of treasuries have realized gains as a result of their benchmarking activities--and that should flash a clear signal to treasuries that don't do so. That overall desire to improve and invest in treasury operations is what drove 78 percent of respondent organizations to implement benchmarking.

A distant second motivation is a company-wide mandate to cut costs or reduce resources (35 percent). External factors, such as competitiveness or client expectations, were not highly rated, suggesting that benchmarking truly is an internally motivated initiative.

And in line with the view that treasury benchmarking is an internal treasury initiative, it is interesting to find that 46 percent of the time, responsibility for the benchmarking program lies at the treasurer level. In order to gain the most from their benchmarking activities, 43 percent of survey respondents focus on areas perceived to be of highest benefit.

The top four functional areas likely to be measured are cash management (76 percent), working capital management (51 percent), forecasting (46 percent) and bank relationship management (46 percent). Market-based benchmarks and period-over-period percentage changes are the two most commonly used methods for...