Category Archives: financial planning

Should Financial Planning and Analysis Functions Be Outsourced?

Close-up of businessman explaining a financial plan to colleagues at meeting

See how, with the right tools and control over the process, most organizations don’t have to outsource their FP&A functions

 

A number of years ago Deloitte UK released a white paper titled “Financial Planning & Analysis – The Next Frontier of Business Process Outsourcing?”

In the paper the authors explore outsourcing critical finance functions, such as planning, budgeting and analysis – functions usually synonymous with FP&A (Financial Planning and Analysis) activities.

The authors state that transactional functions have already been outsourced by large organizations to certain service vendors and that the same organizations are currently contemplating transitioning certain FP&A functions to these and other specialized vendors.

According to Deloitte, the argument in favor of outsourcing is gaining popularity among the largest organizations for a number of reasons:

  1. Potential substantial labor cost savings in the finance organization, where financial planning and analysis functions are usually performed by experienced, highly paid employees.
  2. Opportunities to centralize FP&A functions by delegating them to specialized outside vendors.
  3. The ability to streamline processes and leverage the outsourcing vendors’ specialized talents.

Deloitte realizes that not all FP&A functions can reasonably be outsourced.  Among those functions that large finance organizations are likely to keep in-house are:  strategic planning, policies (accounting, tax, etc.) and acquisitions and divestitures.

Although there are many arguments in favor of this newly developed practice, Deloitte admits that the hardest part is the transition of financial planning and analysis functions to the outsourcing vendor.  This is particularly true for organizations that have complex structures, span large geographical areas and that have fragmented information technology systems.  Another concern for the CFO is the project’s complexity, the initial high cost and the time required to make the transition. Another factor is the uncertainty of success, always a factor at the time the decision is contemplated.

In an actual case study in the white paper, certain benefits were identified:

  • Turnaround time was reduced for a significant number of management reports.
  • Higher-level analytics than was possible before the transition.
  • More accurate reports.

What about SMBs (Small and Medium-size Businesses)?

The white paper references only large organizations, not mentioning smaller companies, and probably for a number of good reasons.

From my experience working with such organizations, I believe that outsourcing financial planning and analysis functions is not applicable for SMBs due to complexities in the transition, high up-front cost and on-going expenses that cannot be justified in smaller companies, especially those that employ a small or no finance organization (where finance functions are performed by accounting personnel or solely by the controller).

Fortunately, SMBs have excellent options to maintain FP&A in-house, and even make the process more robust and streamlined, with meaningful insight into the company’s financial health, present-day and future.

A great example is a financial planning and analysis software solution developed and published by Centage Corporation of Natick, Mass.  The application includes Budget Maestro, Link Maestro and Analytics Maestro, which together provide an all-encompassing solution, from planning, budgeting, forecasting to analytics.

The software’s real-time and tightly integrated approach to linking to closed accounting periods and treating budget output as an extension of the actual accounting into future periods allows managements to gain insight into the financial health of their companies, identify potential rough spots and additional opportunities, well ahead of time, and support critical decisions.

I have covered many aspects of the Budget Maestro suite in this blog as a user of the application since it was first released and know with confidence that an SMB organization employing Budget Maestro will never have to resort to outsourcing critical financial planning and analysis functions.