Treasury resiliency: emerging from the financial crisis.

• Author: Jeffery, Craig
• Position: TREASURY

One result of the ongoing financial crisis has been the enhanced visibility of the treasurer's role. More than ever, treasurers are depended upon to ensure a level of readiness to protect the organization from simultaneous threats. A resilient organization must have a resilient treasury.

Since the onset of the financial crisis and related turbulence, the view of an organization's treasury function has changed dramatically. No longer will treasurers be able to labor in obscurity, being called on only to secure new financing or to discuss the need to hedge the foreign exchange exposure of a planned acquisition.

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Treasury must ensure that the organization is resilient and able to survive in the face of multiple simultaneous hits. Such situations are no longer viewed as theories to be analyzed during some infrequent war-gaming activities performed for training or just fun. If nothing else, today's treasurers have learned that multiple, significant business-altering events can indeed occur at almost any time. The organization must be prepared to survive and ready to act.

An organization can be resilient only if it has a resilient treasury.

Not only is "treasury the easiest place to make money and the easiest place to make your company fail," says Timothy Hart, senior vice president and treasurer of First National Bank of Nebraska and an FEI member. It's also uniquely positioned to increase organizational resiliency.

Some common threats to treasury's resiliency might include bank failures, counterparty challenges, interest rate fluctuations, commodity price swings, investment issues, government action or regulation changes.

A War with Multiple Fronts

In this enhanced role, treasury must plan, act, analyze and be able to execute on multiple fronts concurrently. If an army can only support a single front in a battle, it is often overcome or overrun. Being able to fight broadly is essential for survival and crucial if victory is to be achieved.

The requirement for treasury to be able to handle simultaneous assaults--while the board of directors is clamoring for information--can be far more gracefully achieved if the proper preparation and work is done before the situation worsens or events befall the organization. But things are not as easy as merely being prepared.

Generals, it is said, prepare for the previous war. The problem with that theory, of course, is that the next war will be unlike the last one. However, the general's ability to historically analyze what went well and what turned out badly contains a tighter set of parameters and options than the next conflict will inevitably have. This will make the past far easier to analyze.

In war, as in financial situations, some events will follow a fairly predictable pattern. For sure, many situations arise that might not be predictable, let alone preventable. How can treasury prepare for unknown or unpredictable events since, by definition, what to expect is unknown?

Consider these preparations for potential events (the last war) and for unpredictable events (the next war):

* Plan for predictable events. Listing the various situations that can arise and creating action plans. Running stress tests and war...