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Professional Guidance

Treas ury management

The Treasury

the cas h management and L/ C areas.

Set specific cost targets to focus your
staff on improving operations. Apply
the Japanese production efficiency
concept of continual improvement.

By jeffrey Wa ll ace
Greenwich Treas ury Adv iso rs
Everythin g that ca n be autom ated
sho uld be auto mated, eli minating th e
" pape r inte1iace" between o ne system
and another. Obviously there are ri sks
in auto matin g, but there are a number
of robust sta nd ard packages th at w i II
,......-__...--Few corporations app rec iate the large minimi ze th e pa in and th e impl ementation risk. Treat the pmj ects as typ ica l
positi ve impact a stro ng profess ion al
treasury ca n add to their bottom li ne.
in vestment p rojects, and sho w the
They hamstrin g th eir treasur ies w ith sav in gs in staff tim e and increased effidebilitating heaclco unt restri c ti o ns, c iencies both in your department and
sa lary caps , an d refused in vestm ent elsew here.
Th e latter is im portant, beca use in efrequests for systems. Then in a class ic
Catch-22 , the littl e apparent va lu e ficiencies in treasu ry may ca use backadd ed by treas ury just i fies the low ups in the field o r in Co ntro ll er' s area.
all ocation of resourc es .
Ass i st in g yo ur peers e l sew h e r e
In large part, I be li eve thi s is clue to a in ueases yo ur 1ese rvo ir of good w ill
mi sund erstandin g of th e nature of pro- and profess ion al respect.
fess ional treas ury m anage ment. M ost
A nother foc us is on bank c harges .
of se ni o r m a n age m e nt, in c ludin g Elimin ate pay in g fo r se rv ices in o ne
many CFO ' s, equ ate a stron g treasury a rea by ove rpayi ng for se rvi ces in
with more fin anc ial ri sk takin g. Th ey a n ot h er. Yo u ca n be sure t h at it
do not wa nt Wall Street gun slin ge r always wo rks to yo ur banks' adva ntypes betting the ir business .
tage, beca use th ey w ill co mpl ain if it
0~ co u rse , profess ional treas ur y
isn' t. Remember, you get se nior manman age ment has nothin g to do with age m e nt's attenti o n and 1espect by
tak in g large bets on interest and FX showing how yo u ca n impro ve th e
rates. Th e prob lem is th at mu ch of th e co rporate bottom I in e, eve n if it is at
va lu e a professiona l treasury prov ides the cost of your depa rtm ental budget.
i s in real ized opportunity ga ins and
reclu cecl finilncia l risk-ilctions that do
Reduction in financial risk
not SlOW up dTf ect l'y 1n th e fin anc ial
Th e risk of l oss cl ue to c hang es in
To co un ter thi s fac t, the Treas urer interest and FX rates is not at all qua nshou ld active l y measure- and pro- t if ied in the f in anc ial state m e nts. It
mote - the va lu e acid eel prov id ed by ca n, howeve r, be eas il y qu anti f ied
hi s or her departm ent:
usin g the " va lu e at ri sk" methodology
first w id ely pub li c ized in th e August
P&L cos t savings in ope ratio ns.
1993 Group of 30 report on der iva Redu ction in financ ial ri sks.
Benchm arkin g of FX and in terest.
tives. A ny treas urer, CFO, or se nior
m anager, w ho st ill has no t read thi s
re p ort sh ou ld ca ll th e G30 in
P&L cost savings targets
W as hin gton, DC at 202-331 -24 72.
The fi rst focus must be o n cost sav in gs
Fo r examp le, assu me that your co mgenerated fro m operatin g effic ienc ies. pa ny' s fo reign currency transactiona l
Many treasury acti viti es have a IMge ex pos ure has bee n traditiona ll y left
operational co mpon ent, espec iall y in unh ecl ged . Us ing simple statisti ca l meaNew Year advice for corporate treasurers: improve the impact you have
on you r company.

Intern ational Treasu rer/ January 9, 1995

sures based upo n volatility and correl ation estim ates prov id ed by JP Morgan's
Ri skMe tri cs, yo u ca n m eas ur e how
mu ch potentia l P& L loss is inh erent in
th e posit ions on an unh edged and jud ic io usl y hedged bas is.
Thi s ca n be an eye opening exerc ise
for yo u, yo ur CFO, and the operating
units. If the individu al units still don 't
want to hedge beca use th ey don 't
want to p ick up th e hedge costs, then
you do it o n yo ur books. Let them do
wa nt th ey wa nt, and suffer the consequences. Meanwh il e, you hedge- in
th e beg innin g perh aps o n a shadow
basis to prove the po int - the co nsoli da ted book, usin g t h e risk of l os s
m eth odo logy to m eas ure th e value
added you have provided in red uc ing
canso /ida ted FX ri sk.

Many treasurers are wary abo ut introducing benc hm arkin g their co mpa ny' s
inte rest ex pense or P& L FX because
they are afraid that they w ill not be
ab le to beat th e benc hm ark .
Thi s is shortsighted. Treasurers w ill
not be ab l e to avo id performance
acco untab ili ty for mu ch lo nger. Your
CFO is under pressure to perform , and
in ev itab l y he o r she w ill benchmark
yo u to take th e heat off. After all , the
CFO knows th at it is better to have
you fired for und erperform ance t han
him/ herse lf.
Be p1oactive and co-o pt the process
by developing a beatab\e, fai r benchmark. If the co rp orate FX or interest
rate po li cy is so vague that it ca nn ot
be o bj ec ti ve ly m eas ured, then lead
the charge to rewrite so th at the po li c ies are ob j ec ti ve and m eas u rab l e.
Think through th e issu es first, and then
focus senior m anagement attenti on on
w hat is doab le and poss ibl e in managin g your co mpany's FX and interest
rate ri sk.
It is this kind of lea de1ship ro le that
w ill ca use yo ur se nior management to
begin app rec iating th e va lue of professio nal co rporate treasury manage ment.

M r. Walla ce is reached at (203) 53 7-0835.

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