The treasury function in finance departments doesn’t get a lot of attention, but it’s a fundamentally important one: to ensure that all funds are accounted for and that there is sufficient cash on hand each day to meet operating requirements. Keeping track of and managing cash, especially in larger organizations, can be complicated because of multiple bank accounts, complex financing requirements and various methods of receiving and making payments; the complexity deepens when more than one currency is used across multiple jurisdictions, which also can pose regulatory issues.
Many finance executives want to improve their department’s effectiveness in order to play a more strategic role in their company. However, frequently they find at least three serious challenges to achieving this sort of finance transformation. One is that too much time and resources are devoted to purely mechanical tasks. Another is that the information executives need is not always available immediately. A third is that they lack the data (which is unavailable or too difficult to access), the analytic tools or both to do rapid contingency planning. One area in the Office of Finance that needs particular attention is treasury, as I commented recently. Treasury management is a challenge because it’s highly detailed and demands complete accuracy. These requirements make it an area that can benefit from more automation.
Along with other aspects of the finance organization, there’s increasing emphasis on having the treasury function play more of a strategic role in the organization. Typically, Treasury is charged with keeping track of and managing cash. Especially in larger organizations, this can be complicated because of multiple bank accounts, complex financing requirements and many methods of receiving and making payments; the complexity deepens when more than one currency is used across multiple jurisdictions, which also can pose regulatory issues. Treasury’s primary directive is to ensure that all funds are accounted for and that there is sufficient cash on hand each day to meet operating requirements. To accomplish this, finance professionals must perform key analytic tasks accurately to produce a clear picture of cash inflows and cash requirements. Analysis often is challenging because these numbers are constantly changing and because the process of collecting, analyzing and reporting all the data can be excessively time-consuming if done manually. This is a situation perfectly suited for dedicated applications that automatically manage the data needed to orchestrate treasury processes and provide analysis to inform decisions. Yet our benchmark research finds that more than half (56%) of companies with more than 1,000 employees either use spreadsheets exclusively or employ them heavily in conjunction with a treasury application.
Budget season is about to open at most companies that operate on a calendar year, so this is probably as good a time as any to rethink the process. Almost all companies will undertake the construction of a budget this year the same way they did it last year, despite widespread complaints that it is a monumental waste of time. One major reason why budgeting never changes is that it isn’t important enough to be worth serious rethinking. Another reason is that too many vested interests are aligned with the status quo, especially because compensation is tied to budgets. Despite this, I think companies can do better, evolving the process from a finance-centric activity to one that serves the needs of broader business interests as well.
Topics: Budgeting, Business Performance, cash management, CFO, Compensation, Controller, Financial Performance, FPM, Integrated Business Planning, Operational Performance, Planning, Reporting, Sales Performance, Office of Finance, Big Data
For the past several years Ventana Research has focused more on analytics and their importance to improving business performance. We’ve done extensive benchmark research in business analytics, detailing how they are used generally in business and in major functional areas of companies as well as their application in specific industries. We adopted this focus because technology advances are changing the landscape of analytics. Its use in business management, for example, is getting new scrutiny these days because of three important changes in information technology.
Topics: Analytics, best pracices, Big Data, Budgeting, Business Analytics, Business Performance, business value, challenge, Customer & Contact Center, driver-based, Financial Performance, financial planning, In-memory, Modeling, Operational Performance, Performance Management, Planning, Sales Performance, Supply Chain Performance, Workforce Performance, Office of Finance, Human Capital Management, cash management