Finance and Accounting function outsourcing analysis · Finance and Accounting function outsourcing analysis TPG Advisory Practice srl BB&TP, Building A2, 1st Floor, 42-44 Bucuresti-Ploiesti

Finance and Accounting

function outsourcing analysis

TPG Advisory Practice srl

BB&TP, Building A2, 1st Floor,

42-44 Bucuresti-Ploiesti St.,

Sector 1, Bucharest,

013696, Romania

Phone: +40 (0) 21 36 07 70/71

Fax: +40 (0) 21 361 07 72

Contents

Today’s realities……………………………………………………………..3

Major global trends in the finance and accounting (F&A) function…….6

Why do companies outsource?..............................................................9

What do companies outsource?..........................................................12

Insights from 2012 global outsourcing survey…………………............17

How TPG can help you?......................................................................23

Today’s realities

3

Demands

Company Strategy

Investors

Internal Customers

Competitive Pressures

Regulators

Finance functions are under significant pressure to drive productivity

improvements and maximize the ROI of the organization’s resources and

capabilities.

Trends Impacting Finance Functions

• Business Performance

• Management and Predictability

• Cost Focus

• Risk Management

• Earnings Transparency

• Adaptability

= Finance ROI Value of Finance

Cost of Finance

Today’s realities (1/2)

4

Having a clear vision of how finance and accounting function should

support the business is critical

Business insight

(decision support)

Compliance

&

Control Efficiency

Current view Aspirational

Today’s realities (2/2)

5

Major global trends in the

finance and accounting

function

6

Trends in F&A Function (1/2)

Transaction

Processing

Decision

Support

CFO

Decision Support

embedded in business

Transaction Processing

(outsourced, Shared Service Centre)

Specialist expertise

(Tax & Treasury)

• Finance and Accounting (F&A) account for

business activity as opposed to undertaking it -

but it should be process focused rather than

create transactions.

• F&A support decision making – but is not the

decision maker.

• F&A focuses the business on long term

profitability and shareholder value - but the

business is responsible for making it happen.

• Smaller finance and accounting function (cost of Finance Function moving towards 0.4% of revenue)

• Shifting emphases from 75% Transaction Processing and 25% Decision Support, to 25% Transaction

Processing and 75% Decision Support.

• Decentralise Decision Support and integrate with business team.

• Create shared services or outsource transaction processing.

• Create centre of excellence for tax and treasury.

• Organise around the processes and outcomes: Revenue Cycle

Expenditure Cycle

General Accounting and Reporting

Profitability and Cost Management

Tax management

Treasury Management

7

What are the main trends?

What should be within Finance and Accounting?

• Focus on value creation and business performance enhancement:

focus finance on its internal business customers.

develop business analysis and communication skills.

• Strengthen role in shareholder value creation and decision support. The major elements include:

lead the organisation in developing a shareholder value in decision making.

build business adviser relationships with the business units.

provide additional decision support capacity within treasury and tax to capitalise on their high impact on

shareholder value.

build stronger linkages between treasury and tax.

support a centralised financial strategy capability seeking internal and external major opportunities.

• Strengthen control of policy and standards through:

deliver greater control of policies and standards.

provide stronger control over balance sheet assets.

centralise business planning cycle to ensure consistency of planning.

control standard cost concepts, tax and treasury.

Trends in F&A Function (2/2)

8

• Smaller Finance Function challenging against best practices.

According to the best practices, companies which incur high revenues, operate the finance and accounting

function at a cost that is only a small percent from the revenue and require up to seven times fewer full time

equivalent staff (FTEs) within the finance function than an organisation with smaller revenues.

Why do companies outsource?

9

Benefits of outsourcing (1/2)

Financial

• Generates

shareholder value:

- Up-front premium

- Cost reduction

- Economies of scale

- Fixed to variable

cost

- Release of capital

Technological

• Scaleable

platforms

• Facilitates greater

systems

development and

infrastructure

upgrades

Strategic • Focus on core

competencies

• Better morale

• Defined service

standards

10

Benefits of outsourcing (2/2)

Outsourcing finance and accounting function plays a central

role in the business transformation:

• Catalyst for change

• Source of skills :

– Transformation and other specialist skills

– Secure existing skills

• Delivery of financial benefits :

– Deliver lower cost base

– Share / pass on attrition risk

– Secure investment commitment

– Share / mitigate one off costs

– Secure underwritten economics

11

What do companies outsource?

12

It Depends...

Company Risk Profile

Prior Exposure to Outsourcing

Strategic Aims & Objectives

13

Transaction management

functions such us order-to

cash, purchase-to-pay, etc.

Typically Includes:

Only low risk, manually

intensive, transactional

processes are considered for

outsourcing.

Light Option

14

Light Option

+

• Business risk functions

such us treasury and tax.

Extended scope of processes

considered for outsourcing

including reporting and

compliance functions.

Regular Option

15

Regular Option

+

• Business support functions

such us management

reporting, planning

&forecasting etc.

All finance sub processes

below CFO and core strategic

functions are eligible for

outsourcing.

Deluxe Option

16

Insights from 2012 global

outsourcing survey

17

Which option best describes your company’s current and future

sourcing plan for the following business functions?

Source: Outsourcing, today and tomorrow-Insights from Deloitte’s 2012 global outsourcing and insourcing survey

18

• The expected future state of all

business functions shows an

increase in outsourcing.

• Finance and Human Resources

functions are expecting the largest

percentage increase in outsourcing

activity.

• Information Technology led all

functions categories with a

combined 76% of respondents

partially outsourcing the function. 11%

24%

32%

40%

30%

37%

42%

76%

12%

12%

9%

2%

16%

16%

11%

5%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Sales/Marketing support

Procurement

Real Estate/Facilities

Legal

Huma Resources

Finance

Operations

Information Technology

Currently uses outsourcing Expected future increase in outsourcing

What factors/components do you feel are most critical to a

successful outsourcing relationship?


19

• The ability to partner and

clearly communicate

expectations are the most

important success factors to

respondents.

• Contracts and the joint

client/outsourcing company

management team are

generally seen as somewhat

important, but ineffective

without the other key

components. 6%

5%

8%

7%

15%

9%

49%

7%

10%

9%

10%

14%

34%

15%

0% 10% 20% 30% 40% 50% 60% 70%

A strong internal management team of the service provider company

A strong account management team of the service provider company

Detailed contract terms and conditions

Consistent client and service provider company communications

Strong joint client/service provider company governance of the agreement

Well engineered service level agreement

A spirit of partnership between client and service provider company

Vey important Important

How effective is the management of your outsourcing service provider

company organization/function in meeting the following objectives?


20

• While most respondents

believe their internal

organizations are competent

across all dimensions, several

areas stand out for

improvement.

• Generally, the management of

the outsourcing services

providers organizations are

viewed as being effective at

“transactional services”, but

fell short when it came to more

strategic, “advisory services”. 32%

41%

43%

49%

51%

54%

55%

55%

56%

58%

66%

48%

39%

48%

42%

44%

38%

37%

34%

37%

33%

31%

20%

20%

9%

10%

4%

8%

8%

11%

7%

9%

3%

0% 20% 40% 60% 80% 100% 120%

Ensure service providers meet process improvement and innovation expectations

Ensure improvement by implementing industry leading practices

Effectively improve collaboration and reduce conflict of interest among service providers

Build service provider governance processes and controls

Manage successful completion of transition

Control scope through structured processes

Ensure service providers' adherence to commitments

Proactively management issues, risks and disputes

Maintain an independent and unbiased approach to service providers

Perform necessary financial planning

Ensure invoicing accuracy

Effective Somewhat effective Not effective

What were the objectives of your most recent outsourcing initiative?


21

• Reduce operating costs is chosen as very important by the most respondents.

• The next important factor is improved customer service, demonstrating there are more drivers to

outsourcing than just cost reduction.

• Overall, actual cost reductions through the most recent outsourcing experience are lower than expected

with 53% of respondents anticipating significant savings (greater than 10% cost reduction), while only 42%

experienced significant cost reductions.

4%

11%

17%

17%

20%

20%

42%

62%

10%

42%

25%

25%

23%

29%

31%

25%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Improve controls

Access more flexible HR models

Desire to consolidate

Leverage new technologies

Gain tax advantages

Gain competitive advantage

Improve customer service

Reduce operation costs

Very important Important

29%

33%

17%

9%10%

1%

37%

25%

19%

4%

9%

6%

0%

5%

10%

15%

20%

25%

30%

35%

40%

0%-10% 11%-20% 21%-30% 31%-40% Greater than 40%

Costs actually increased

Anticipated Achieved

24%

24%

24%

24%

24%

29%

38%

48%

52%

0% 10% 20% 30% 40% 50% 60%

Lack of vendor knowledge of my business

Lack of vendor innovation

Attrition of key resources

Lack of business case attainment

Sub-par vendor resources

Lack of timely project/service request execution

Sub-par vendor performance

Lack of service level attainment

Vendor underestimated scope/effort

Did the most recent outsourcing experience live up

expectations?


22

• Most respondents (76%) are either extremely satisfied or satisfied with their most recent outsourcing initiatives

• Underestimating scope is the most often reported problem with most recent deals, followed by outsourcing

service providers being unable to meet service levels.

7%

16%

23%

69%

Extremely satisfied

Neutral

Dissatisfied

Satisfied

How TPG can help you?

23

TPG provides a holistic view of benefits derived

from F&A outsourcing

24

Promote a holistic view of outsourcing benefits, which includes base

costs plus better practices and accounting and finance management

Main cost of the finance and

accounting function:

Employees’ cost

Processing cost

F&A applications

IT infrastructure

Facilities

Telephony

Better accounting and financial

practices.

Quantifying the additional

business benefits, for example: Avoiding duplicate invoice

payments.

Collection and applying cash more

efficiently.

Capitalizing on negotiated

discounts.

TPG can provide professional accounting and

finance services for F&A processes

25

TPG offers cross-functional

processes for free which can

ensure a smooth outsourcing and

high quality services:

- Finance and accounting

procedures and controls aligned

with global best practices.

- Adequate systems and tools.

- Highly specialized personnel.

Functions Processes Sub-processes

Business

support

Overall finance

function

Transaction

management

Business

risk

Order-to-cash

Purchase-to-pay

Payroll and

personnel

administration

Record-to-report

Performance

management

Tax

Treasury

Order entry - billing

Accounts receivable

Credit & collections

Inventory accounting

Purchasing

Accounts payable

Settlement of payables

Payroll

Benefits administration

Financial reporting

Management reporting

Planning & forecasting

Statutory compliance

Strategy & planning

Market risk

Liquidity risk

Bank relationship management

Settlement, accounting & reporting

Intercompany accounting

Business and KPI analysis

Fixed asset accounting

Phase I

Phase II

Phase III

Key

TPG Advisory Practice srl

BB&TP, Building A2, 1st Floor,

42-44 Bucuresti-Ploiesti St.,

Sector 1, Bucharest,

013696, Romania

Phone: +40 (0) 21 36 07 70/71

Fax: +40 (0) 21 361 07 72

Thank you!

Documents

Finance and Accounting function outsourcing analysis · Finance and Accounting function outsourcing analysis TPG Advisory Practice srl BB&TP, Building A2, 1st Floor, 42-44 Bucuresti-Ploiesti