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FOCUS 9


Criteria for sustainability


We believe that sustainability of good cash management depends on four ingredients: 1. VISIBILITY


Cash management tends to be strongest in sectors where cash is constrained, not often a problem associated with the cash-rich oil and gas sector. However, tightening cash and working capital management can release signifi cant value; in our work with clients we typically see the release of upward of 10 to 15 percent of the value of working capital, not by aggressively managing cash fl ow cycles but rather by doing the basics well and instilling a ‘cash culture’ within organisations.


Good examples in the industry


We have seen many of the big players in the industry express a commitment to improving cash management, particularly to fund acquisitions in recent years. This has been echoed in our surveys of business leaders in the petrochemicals sector, who see improving cash and working capital management as critical to their pursuit of growth. This is an admirable aim and one that all oil and gas companies should emulate, particularly those thinking of entering into new markets.


Sustaining a cash culture


Good cash management is a relatively basic question of getting the simple things right. But while such measures can improve cashfl ow in the short term, sustaining them and establishing a strong cash culture within a business is a far greater challenge. Even in organisations with a centralised treasury function, control often weakens as processes fi lter towards the outer edges of the organisation. The trick to good cash and working capital management is not the immediate change – it is about making it stick.


That is why we have developed a framework for improving cash and working capital management, one that emphasises sustainability and addresses all aspects of the business that impact cash performance. A successful cash management programme does not happen by accident. It needs the organisation as a whole to think afresh and requires a real understanding of what drives cash and in particular the working capital constraints. No one is suggesting that a business can run without appropriate levels of working capital but the key is optimising what that level is and understanding the implications of too much or indeed too little working capital. It needs leadership and rigorous implementation, and a change in behaviour at almost every level.


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Commitment from the top to good cash management, robust forecasting models and constant and consistent monitoring of KPIs


2. CONTROL


Cash management culture reinforced through incentives and targets, policies and processes, controls and sign-off


3. ORGANISATION


There are clear responsibilities and accountability, all functions are committed to better cash management, and communication is consistent and clear throughout the organisation


4. CAPABILITY The right skills are in place, as well as the necessary training and career development to reinforce in the future.


The most successful oil and gas companies invariably have both higher performance and the lowest operating costs in the sector. They have good operating management systems that spell out the procedures to be followed and provide all the information necessary to make good decisions at all levels of the organisation. This helps build a culture of competence that maximises business performance, and in a new and diffi cult market, that is just what is needed.


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CASH MANAGEMENT


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