A number of years ago Deloitte (UK) released a white paper titled “Financial Planning and Analysis – The Next Frontier of Business Process Outsourcing?” which explored the possibility of outsourcing critical finance functions such as planning, budgeting and analysis, functions usually synonymous with FP&A (financial planning and analysis) activities.
Since then the debate over the outsourcing of FP&A functions has continued to be top of mind for many companies as they look for ways to maximize in-house resources and compete on a global scale.
According to Deloitte, outsourcing began gaining popularity for several reasons:
1. Potential substantial cost savings in the finance organization, where FP&A functions are usually performed by experienced, highly paid employees.
2. Additional opportunities for centralization of FP&A functions and delegating them to outside, specialized vendors.
3. Streamlining the various processes and leveraging the specialized talent employed by these outsourcing vendors.
That said, 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 established practice, Deloitte and others admit the hardest part is the actual transition of these FP&A functions to the vendor. This is particularly true for organizations with complex structures, spanning large geographical areas and fragmented information technology systems. The project complexity, coupled with initial high costs and time requirements, add a new level of uncertainty that few CFOs are eager to embrace. And yet, the allure of more accurate reports, better analytics, and faster turnaround time is hard to ignore.
But what about smaller enterprises?
From my experience working with smaller organizations I believe outsourcing FP&A functions generally is not viable for smaller enterprises and SMBs. Complexities in the transition, high up-front costs and on-going expenses that cannot be justified are significant roadblocks. This is especially true for those organizations that employ a small finance organization, or where the finance functions are performed by accounting personnel or solely by the controller. Yet paradoxically, it is these smaller companies who can benefit most from additional help with finance functions, and at a reduction to overall cost.
In short, the challenges that large enterprises are facing when making the decision to outsource FP&A functions are only magnified in smaller organizations. Taking on such a massive project and then maintaining it is not feasible for such companies.
Fortunately, SMBs now have excellent options maintaining FP&A in-house and even have the opportunity to make the process more robust, streamlined, and insightful as they gain access to meaningful data on the company’s financial health—both present-day and future.
To aid in the decision to keep all FP&A functions in-house, there are corporate performance management software solutions targeted at SMBs that integrate with the company’s ERP or accounting software. Outsourcing FP&A functions may be a viable option for certain organizations, but only after performing a careful needs analysis and developing a realistic plan and roadmap of transitioning specific FP&A and perhaps other finance related functions to a contracted service provider. In smaller organizations, the answer to the question, “Should FP&A functions be outsourced?” is usually no, reinforcing the idea that new applications designed to streamline and refine the financial process are the only viable options.