The Treasury Update Podcast by Strategic Treasurer

Episode 219

The Strategic Treasurer Series: Mastering the Operational Role (Part 3)

Our previous episode on treasury roles covered the differences between the strategic and operational roles. Today, we will continue the discussion by looking at mastering the operations side. Your daily operational responsibilities are the financial backbone of your business. Craig Jeffery and Paul Galloway discuss the most common operational roles and activities, what mindset to have to succeed in these roles, and what you need to know to maintain efficiency.


Craig Jeffery, Strategic Treasurer

Craig - Headshot


Paul Galloway, Strategic Treasurer

Craig - Headshot

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Episode Transcription - Episode #219 - The Strategic Treasurer Series: Mastering the Operational Role (Part 3)

Announcer  00:04

Welcome to the Treasury Update Podcast presented by Strategic Treasurer, your source for interesting treasury news, analysis, and insights in your car, at the gym, or wherever you decide to tune it.


Craig Jeffery  00:18

Welcome to the Treasury Update Podcast. I’m your host today. My name is Craig Jeffery, I’m the managing partner of Strategic Treasurer. This is part of a series on treasury roles and development. This is the third section. When we think about treasury roles, operational effectiveness and strategic excellence are two key pillars of what occurs in treasurer group and this short series on the treasurer update podcast explores different types of roles within treasury. Some responsibilities are by nature, highly operational, necessary and important for treasury to fulfill its mission. And other responsibilities are more strategic in nature, and require foresight, and excellence in planning and relationship management. While each position tends to be oriented heavily in one direction, there are positions that are hybrid, what can we learn about these different activities and roles? In order to be more effective in our careers working with others, and more helpful to our organization? What assumptions should we challenge? How do we leverage our strengths and develop some of our weaknesses? This is part three in our series on treasury roles, and it’s titled Treasury Roles:  Mastering the Operational. Today we’re discussing the operational roles of treasury, and I’m joined in the series by Paul Galloway. Paul is a senior advisor with Strategic Treasurer. Welcome back to the series, Paul.


Paul Galloway  01:38

Thanks, Craig, good to be back. This is gonna be a good topic today. Looking forward to the discussion.


Craig Jeffery  01:45

I’m assuming people know your background, that they have listened to at least one other session in the series. And if you haven’t done that, in your listening, feel free to jump on and download the others and listen to them. But Paul, maybe we begin with a quick overview of the most common operational roles and activities in treasury. And we can go back and forth or you can list them all start with cash position and cash forecasting are two very core roles in treasury. Most of those are, they tend to be heavily operational.  Forecasting can sometimes be a little more expanded on.  Payment management is another one that tends to be on the operational side of the ledger. Paul, maybe could help fill out the rest of the major roles here.


Paul Galloway  02:32

Yes, Craig. Some of the other roles that we typically see on the operational side include bank account management, fee and relationship management. And in particular, relationships with banks is a key component of the operational function of treasurer unit and treasures maintain those relationships on a regular basis. The other is liquidity management, short term investments, capital management, which when you think about the relationship side with banks, liquidity management and capital management, are important components of that relationship. And the last is risk management, how do you manage the risks associated with moving cash around or keeping outside parties from making someone within the organization make a transfer that is not legitimate transfer of funds, and the company could potentially lose, or have a financial loss associated with that? You know, Craig, when you think about this, this long list, I mean, there’s a lot of operational roles. And so you’ve got to have a very diverse background as a treasurer or somebody that’s a leader of a treasury unit, to effectively manage all these, when you think about these, as is the one or two of these that we listed that stick out as ones that are, you know, key to be an effective on the operational side of things.


Craig Jeffery  03:17

When something stands out as a key operational activity. If we look at the functions here that you and I had talked about, you know, cash positioning, certainly is a key operational areas. So as payment management, these are items that are that require a certain level of care and detail and you don’t want to be overdrawing accounts, at certain banks or across banks or in certain countries or jurisdictions that gets extremely costly and cause failed trades. So there’s a level of care that’s required to support that. Certainly on payment security and payment management, making sure items are accurate, that the controls are put in place. Those are let’s say extraordinarily important to be done with care and accuracy. There’s usually time pressures with and bank account management, you know, often falls into that operational area, if that’s if that’s answering the question that you had on those, I did have something to say on the risk management, capital management to the side too.


Paul Galloway  05:20

And what one of the areas that sticks out as a component that’s rising, in terms of importance, it is forecasting, I’m seeing, you know, and I’ve seen it with our current clients, I’ve seen it with organizations that I’ve worked for in the past. And forecasting is becoming more and more important. And so there’s becoming more of a integration of treasury with FP&A and the company budget to ensure that forecasting is more accurate. And then it’s it’s tie in to what expectations are of, of the management team and the business units within an organization. So I see forecasting, rising in its level of importance, which kind of means that basically everything we’ve listed as really important stuff. I’d like to hear more about your comments on capital management and risk management, which, you know, I would agree these are these are components that deserve some attention.


Craig Jeffery  06:26

As they look at this spectrum, from operational to strategic risk management and capital management have components, you know, in terms of design that tend to be more strategic in terms of execution, daily, weekly, or monthly management, tend towards the more operational side of things. So you mentioned risk management, what are all elements of risk management, determining, you know, what business you’re in, of course, is part of your overall risk management activity. But there’s also this concept of what’s our risk capacity? What’s the most we could bear to lose? Or have an impact down to what’s the risk appetite? What kind of volatility Are we willing to suffer from without paying to eliminate some of the natural swings of cashflow or, or income that occurs? To me, those are very strategic oriented decisions, as well as what are your strategies and plans for putting financial instruments in place or exiting businesses or taking on businesses that reduce risks more systematically, that seems that seems to be much more strategic. But then there’s also the side of risk management in terms of, hey, we’re doing FX trades, whether they’re spot transaction to settle something immediately, or whether they’re forwards or futures for some date in the future, and amount certain to handle, let’s say in the case of an FX situation to transfer funds from one currency to another to settle some exposure to make some payment. And that tends to be more you’re following the strategy. There’s care in executing that and a need to comply with it. But that tends to be it follows the strategy. And so I think of risk management itself as a bit of a hybrid, there’s a key strategic element. And then the operational area has to be well tuned to that to make sure that they’re doing effectively because you can break and I’ll give you an example. Let’s say you have a financial instrument, and you have a floating floating bond in your investment portfolio, you have some some liability on their side, that’s, that’s fixed. And so you put a financial instrument in place to change your floating asset to fix to match your liability. If you go ahead and sell the asset, you sell the investment or the bond or whatever the example is that I gave, and you and you’ve left the financial instrument there. Now it became a speculative hedge in this case, it no longer match and it did what you wanted. You can write your strategy documents and plans. But if operationally, there’s not a discipline to make sure, you know, the underlying exposure and the financial instrument that matched up with that didn’t get transacted on at the same time, you broke what you’re trying to do, and you can’t succeed with great strategy. Without great operational, you know, compliance, effectiveness and understanding.


Paul Galloway  09:27

What do you think’s needed for success? You know, is it accuracy? Speed is at a mindset, if it’s a mindset, you know, what, what kind of mindset is necessary for somebody in these kinds of roles.


Craig Jeffery  09:42

Accuracy, and speed coupled together are almost always needed in an operational way. There has to be a certain level of care, but you can’t drag things out forever. If you’re making if you’re really slow and putting your cash position or forecast together. You have excess money to invest. You’re getting lower Quality, you’re making lower quality investments, it tends to have lower yields on what you’re investing in. And that’s a, that’s a, that’s a bit of a trade off, usually think of, do you want to good? Or do you want to fast? Well, we don’t want to make it. So it’s one or the other. We want both of those to be the case. And so that’s those are some of the skill sets. But to the core of your question about the mindset, I think there’s a couple things. One is really a contextual understanding whatever the operational function is, that whoever’s doing that understands the broader picture, and the reasoning behind the strategy. So that if there’s any type of variance or anomaly, that they can call it for, to bring other resources to bear or to make some type of decision or call for help to to address that. And so I think that mindset is not just I just want speed, I just want accuracy, or I just want speed and accuracy. I want all those things to fit in with what we’re trying to do. So that contextual understanding is crucial. If you don’t have both of those. You’re far less functional and valuable to your organization. If you don’t have all those coupled together the mindset with his ability to move quickly make decisions promptly according to predetermined plan. I know you when you think of the military think the OODA Loop the the ability to reorient make decisions quickly and do that rapidly. That’s really, really crucial on the operational side. Your thoughts on that?


Paul Galloway  11:34

Yeah, Craig, some of the other factors that come into play in terms of broadening out from there would be a key one that I found being in these roles is the ability to be flexible. By nature. I’m an Excel jockey. I love using Excel. I gravitated towards being reliant on systems, doing things for me that I could have done in Excel. If I have the opportunity to do something in Excel, I do I do that. However, what I’ve learned over the years is that the ability to be flexible is key. There’s a strong need for someone that’s detail oriented, someone that wants to dive into the data and information. Because the reality is that treasures and treasure units are dealing with 1000s of 1000s of transactions a day, they have to be able to understand that what’s going on, when something breaks down? Why did it break down? Where did it break down at? They’ve got to do do research and had the ability to do that requires somebody that can be detail oriented. apply that into what they’re doing to find what the cause is, where they need to go to make the adjustment to fix the issue. The flip side is like our forecast a discussion earlier. Being able to be detail oriented here will help you improve your forecasting abilities. Even though there are systems that will help with that artificial intelligence or machine learning, I still feel that the ability to dive into the detail will help people understand what they AI and the ML are telling them. This is another important factor or mindset that people need to have.


Craig Jeffery  13:32

What’s the artificial intelligence and machine learning telling them? Right, there’s a there’s a level of familiarity with the details, but also the broader context. That’s really helpful. Paul, as we think through you know, what was needed for success. What else do we need to know about the role and skills for the operationally excellent Treasury groups or people in an organization.


Paul Galloway  13:57

People have to when they come into these roles, they have to understand they’re wearing many hats on the operational side. So it’s very common that the list that we had up above, a treasurer, Assistant Treasurer, or somebody who’s heading up a treasurer unit is covering all those facets. You gotta respect the roles, you may be a keen to one or the other. It’s more comfortable to you. So you can gravitate towards that. You got to respect what’s going on on the other roles. Some of the other things, we’ll be transitioning from one roll into another. And you may have to transition multiple times throughout the day from one role to another, and back to a role you were in earlier to get all the operational aspects completed. The other thing that I think is important is coverage. You know, it’s the day to day vitality of the operational side of treasury. It’s making sure that you’re able to have a team that is in place that can do the things that you need them to do to cover the various areas as you shift from one to another, because as a treasurer, you’re not spending all your time on everything all at once, your move of one thing to the other, probably, you know, one of the most important things, you know, if I’m wearing wearing the hat as a treasurer, or somebody that’s heading arbitrageur unit is fraud and exposures when the watchers aren’t watching, you know, that’s, that’s when somebody’s going to get here. And certainly one of the things in my prior roles prior life that would keep me up at night, is thinking about have I done all I can to ensure that we aren’t exposed? There’s a potential fraud, do I have the right systems and controls in place? You work on that so that you can sleep at night, I like to call it sleep insurance, I don’t have to worry about these things, because I’ve dotted the I’s cross the T’s and reduce my risk to a level that’s acceptable to the organization. So fraud exposures, I think, is something that’s really you got to keep an eye on it.


Craig Jeffery  16:20

Yeah, you know, one of the areas that criminals they seek to exploit organizations learn about them, and they wait for the opportune time to pounce or to trigger their their actions. And they’re waiting for when the watchers are asleep or out. And a lot of the defenses are heavily people centered. Because the the operational excellent people can spot something that’s a variance if an AI tool isn’t in place or isn’t watching, they can spot something anomalous and know that it’s wrong immediately or know that something’s wrong, and it requires more care. And so I think that’s another another thing we need to know about the roles and skills we don’t to be overly dependent on people, though they are extremely skilful unable to manage that. But that also puts us at risk when it’s, you know, people will wait until the good watchers are not there. And you’re looking at a backup watcher. And I don’t know why we’re using the term watcher. But you know what I mean, someone who’s looking and monitoring accounts, activities, the cash position, they’re doing their treasury proof to make sure things are right. They have that ability to spot things. The other element here where I think there’s there’s a lot of risks in organizations is the you spoke to some of this is, when can you take a break, when you’re in a strategic role, there’s might be some deals that are going on or something that’s a crunch time. But there’s also other times where you don’t have hourly, daily, or even weekly deadlines. And so when someone’s on holiday, they’re off for a week or two weeks, there’s not necessarily a major impact if something occurs, but sometimes there’s an over reliance on a particular person or a few people. And if someone’s out, that’s in that group, those people are checking in, or they make sure they’re available by phone to answer questions on a on essentially a daily basis. In some of them get no break. That’s a problem. I mean, I’ll just I’ll just say, you know, we’ve had, you know, in this era of the great resignation, you know, significant amounts of hiring expansion where people are getting hired away from other organizations, where we’ve had to use our, our staffing function to staff, different roles primarily, where you have a person who’s burned out people have left, they’re covering multiple roles. There’s not enough of a bench to cover the daily activities for cash positioning, forecasting, approving activity. We’ve seen that grow quite significantly over the last few years. And so, you know, when we say we see that as an exposure, we see it in multiple data points. Now, this is not from a survey. But just from seeing that pop up again and again. And to me, I think that’s, that’s also people need to think about how do I make sure people can actually take time off, take a vacation, go away for the holidays for a few weeks, without having to dial in every day? People also get sick, they move positions that needs to be factored in as well. We don’t think we as leaders in Treasury, and many organizations are factoring that in properly, particularly where there’s, you know, 10 or less Treasury people in an organization.


Paul Galloway  19:39

What is the opportunity or threat here for automation, you know, what are the what are the things that you see that could either be an opportunity or a threat associated with automation of processes, systems, things that people are doing that are manual, that surprisingly, there are a lot of Oregon physicians out there that are still doing things that they did 20 years ago, these kinds of things, expose them to, to risks that they’re starting to recognize today. And so when we think about these kinds of organizations, they’re in these positions, you know, what, what’s the opportunity, and what’s the threat,


Craig Jeffery  20:22

the opportunity and the threat, you know, are two, two sides of the same coin. And seen what’s happened over multiple decades, in Treasury groups in accounting areas in other parts of organizations. Treasury has always been fairly thinly staffed. But Treasury has a significant operational, bent and focus in addition to the strategic and there’s people that are in roles that are very operational. So there’s a couple of things that I think are a threat or an issue. One is, they get very comfortable doing things a certain way. Why change it, if it’s not broken as the motto, that’s not a very good motto, it’s, it should be, we need to continue to improve the level of automation, our efficiency, our ability to scale. And how we do that should be prioritized based on the level of impact. And this gradual move towards better processes. It doesn’t have to be we have to break everything all the time. But everything should be moving you towards a more automated route. But that idea of if it isn’t broken, we don’t need to fix it, we don’t need to change it or mess with it can lead people to doing things in a very backward way that are 1015 20 years old, that’s very inefficient for the organization more fraught with risk and exposure than is necessary. And that’s presents an undue risk not on any given day to day level. But over weeks, months, and years, that creates a problem. That’s one issue. from a career perspective, that’s also a problem. If you’re very efficient, you know, gathering data moving around doing lots of manual transactions, you may love the endorphins of doing that, of having these deadlines. And having this sense of how excellent, you are getting those activities done. And it is really a great skill. But that needs to be automated. And if you don’t work on automating those items, and approving them, those will be automated, if you’re just resisting that, you will eventually be chased out of the job. And you’ll have to find another job that has a lot of manual tasks to do that. And you will be continually chased by bots, on different automation activities, or across the organization or to other areas to other companies. And that’s not a good long term game plan for your career. So that’s one of them. And you know, some of the skills that make you really successful in operational roles, being able to handle lots of items, analyze them quickly make good decisions with those can also be part of the downfall. I think that’s a, that’s a risk as well, like you talked about being an Excel jockey, you know, you can do kind of all kinds of things like you can create massive Excel files that you know, pull in files, parse them do error checking, crates, export activities, like this is fantastic. Well, you created a dependency on a person, you trap yourself in a role. And ultimately, you’re not optimizing what goes on you’re, you’re creating something that’s acceptable and bought you some time. But you didn’t build something that’s industrial strength, or you didn’t allow the organization to build something that’s more aligned with what a corporation should do. And that’s that’s a risk because you made things significantly better than they were. And then you stopped and you rested on those or you thought that’s all that there is I’ve seen the issue. And I’ve solved it. And I think the biggest issue. And the biggest mindset here is, whatever we’re doing, we need to look and see what what can be done better over time. Operationally, we need to understand that it’s not going to be the final end state. And we can talk about everything from connections to formats to how we do forecasting to variance analysis, error checking scenario. Planning, there is there is a constant set of changes that will occur over your career and you can be early adopter, you can follow fairly quickly. But if you drag your feet that will roll over you and that will be the risk and it’s it’s a disservice to the organization.


Paul Galloway  24:34

I have a great example of an organization our work for this organization. It’s good good company, good leaders. But they got they got trapped Craig in the sense that they built their own homegrown Treasury platform, you know, the real smart IT unit that built this platform for them. If this was some time ago at the time, you know, it worked well for them. However, people in the IT unit started, you know, taking on different roles or, or going to different organizations. And pretty soon it got to the point where they didn’t have folks there to support the homegrown platform. It was starting to break, and there wasn’t a manual anywhere that said, Hey, here’s how you fix it, here’s what you do. So put them in, in a pickle. So they band aid that thing for a period of time before they saw it out, you know, more relevant technology that you see today.  They’re not the only organization that’s been there have gone through this, it’s just, it’s just an example of, you don’t want to get your organization pigeonholed into something where you can’t adapt to improve, you know, that continuous improvement that you talked about earlier. And that’s what happened to him, they got trapped, they had a hard time getting themselves out of it, that took them some time to make a transition. Lots of companies are in that position today, which is, which is challenging. Obviously, automation brings about lots of efficiencies, but the points that you made, it allows you to do the continual improvements, and allows you to change in your roles, the ability to do that, I think it’s really important. I like your analogy to you know, somebody that’s going to lead the change or is going to be a quick adopter, those are the folks that are going to win, you need to win in this area. If you don’t, it’s going to come back to bite you. I think organizations are figuring that out. Based on what I’ve been seeing over the last, you know, 510 years, I think organizations are realizing the value of their treasure unit, the value they bring to the table, not just operationally, but strategically, and how they’re becoming more of an aligner for the future, the business. So I really like what I’m seeing out there. She think about everything we’ve covered, we’ve covered quite a bit. Are there other things that you want to bring up in, you know, closing this session down?


Craig Jeffery  27:26

Well, I think I think I’ll emphasize a couple of things and maybe give another example. So the the contextual understanding for the the Treasury professional who’s has more of an operational role, making sure you understand the context of the business, the cash flows of an organization, where technology is going, that is crucial, even though you might be a person who who can handle putting out you know, three to 20 fires a day, and can do it as calmly as, as anyone that needs to be coupled with this longer term view of what’s changing, and how do I help bring the organization along, even though I’m very busy moment by moment? How do I help that organization move forward? Both conceptually, but also practically, you know, putting in new technology, making different decisions, understanding the structure that goes on? And how do I stay current, you still must stay current on different topics, even if it’s just to know what goes on. But there’s certainly a lot of cases where you should understand what’s happening with technology, with the different risks and volatility that comes at us from macro economic positions, geopolitical machinations that are going on underlying economic challenges by brought about by fiscal policy or monetary policy, there has to be some context for that not just be a response, personnel only respond to certain stimuli. I’m thinking about those I can respond well and quickly and make good decisions. But I’m also thinking about how this is changing over time. That has to be part of the brain of the operational leader in in any Treasury group. Paul, any final thoughts from your side?


Paul Galloway  27:41

This series overall, I think is just I think it’s been good message across the board to talk about these these topics. My hope is that the people that have the opportunity to listen to the series, and if you haven’t listened to the other two recordings, or you’ve only listened to one of the other two, I do encourage you to listen to the other ones that you haven’t heard, there are three of them. I just enjoy seeing the direction that organizations are taking Treasury today. When we see this bifurcation between operational and strategic, it solidifies the reality that treasures today or strategic threat operational and strategic. It takes a unique person to be able to manage and be successful. In these capacities you have to have, you know, as we talked about, we talked about mindset. We’ve talked about flexibility, continual improvement, the use of systems, the ability to focus in a fast paced world, and then turn around and another point in time during the day, to slow down and focus on something that is more strategic in nature and text more thought process, it takes longer. And these are not easy skills to find in a single person. So if what we’ve talked about interests you, I suggest that you listen to all the podcasts, you been up in the areas where maybe you find some gaps or weaknesses, to develop those skills so that you can grow in your current role and expand into some of the other things that Treasury offers.


Announcer  31:13

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Episode 216 - Treasury Update Podcast
Mastering the Strategic Role (Part 2)

In this second episode of our Treasury Roles and Developments series, we will discuss how strategic and operational roles differ. While it may be more practical to have staff members dedicated strictly to one or the other of these roles, many firms with smaller treasury departments need flexible employees who can transition between the two whenever needed. Paul Galloway and Craig Jeffery, of Strategic Treasurer, both weigh in on their previous experiences jumping between the two types of roles throughout the day.