Content area
Full text
Alexa Michael analyses the most important factors to consider when making decisions on farming out your firm's accounting processes.
The use of finance and accounting outsourcing (FAO) by organisations of all sizes is increasing across the world and especially in Europe. The number of large contracts (those involving at least five processes and/or valued at more than £25m) has grown by more than 45 per cent since 2005 and the global FAO market will exceed £24bn this year, according to an estimate by the Interactive Data Corporation.
Companies use FAO in order to gain at least one of the following benefits: reduced costs; superior expertise; fewer labour shortages; access to better technology; improved processes and productivity; and the chance to move existing staff to work of higher value. Yet despite the growth of FAO and its supposed advantages, buyers have expressed surprisingly high levels of dissatisfaction with their arrangements. A survey of global chief financial officers by CFO Research Services in 2006 found that 54 per cent thought that FAO didn't deliver its promised benefits. But 73 per cent still declared that they were interested in outsourcing some, if not all, accounting processes. Such contradictory findings suggest that FAO offers valuable opportunities, along with risks and challenges. They also imply that a large number of outsourcing contracts have been mismanaged.
Finance and accounting professionals should be interested in exploring FAO, but they are also the ones who must manage the pitfalls that often accompany it. This is why CIMA has published a new Management Accounting Guideline called "Outsourcing the finance and accounting functions". This focuses on the outsourcing process and is intended to help CIMA members choose the right outsourcing provider and monitor and manage the benefits of FAO.
There are three stages in the FAO process: making the decision; selecting the provider; and managing the relationship. Managing the relationship begins during the selection process when you make a request for proposal (RFP) and start communicating with the provider. This tends to be the most problematic aspect of outsourcing.
Making the decision
At this stage an organisation should conduct four separate but overlapping evaluations (see diagram, opposite page). First, you need to identify the strategic drivers. Why are you considering outsourcing, and do those...