Transcript of "Moving Financial Planning and Analysis to the Next Level"
• Cognizant 20-20 InsightsMoving Financial Planning andAnalysis to the Next LevelTurning over contextual tasks to a trusted partner can freefinance professionals to work on key strategic imperativesand contribute to business growth. Executive Summary focused on operational tasks, such as days-to- close and journal entry accuracy and timeliness. Many finance organizations are still fighting the These narrow definitions of effectiveness only age-old battle to optimize efficiency and effec- tiveness. In today’s dynamic global economy, Finance Organization Costs however, agility and performance are challenges that finance must now conquer. as a Percent of Revenue Truth be told, many finance organizations have 1.6 become more efficient than ever. In just the last 1.4 1.35 few years, the average company has reduced total finance costs from an estimated 1.35% of revenue 1.2 to 0.93%, and leading companies are approach- 1 0.93 ing one half of one percent (see Figure 1).1 0.78 0.82 0.8 It is now time for finance to demonstrate how it can support business strategy, competitive 0.6 0.54 0.56 analysis, overall enterprise performance planning 0.4 and management, and drive revenue and profit growth. This white paper charts a course to help 0.2 finance departments accomplish these goals. 0 2008 2009 2010 Effectiveness Redefined Top Quartile Median Effectiveness is as important as ever, but the effectiveness expected of the finance department Source: PricewaterhouseCoopers Finance is much broader than ever before. Much of what Benchmark Study, 2011 finance has traditionally called effectiveness Figure 1 cognizant 20-20 insights | august 2012
indirectly translate to true business outcome Leading FP&A organizations2 are moving beyondeffectiveness. their historic scope of supporting a narrow set of financial measures and are expanding toToday’s enterprise must respond to a host of accommodate broad enterprise performancenew challenges and opportunities. The most management needs, such as business perfor-disruptive challenges facing enterprises today mance reporting and analysis, profits forecasting,are the increases in volatility and the emergence planning cycles, risk management, operationsof a new master IT architecture that we call the analysis and expanded analytics on both internalSMAC stack, comprising integrated social, mobile, and market data. In addition, they are also digginganalytics and cloud technologies. The SMAC stack into an expanded scope of detailed line itemis changing the way that enterprises engage their expense analysis in an effort to leave “no stoneemployees, customers and suppliers, from slow, unturned” in their search for immediate expensestructured, infrastructure-heavy interactions to reduction opportunities.rapid, infrastructure-light, unstructured and morepersonalized interactions. What’s Next for Finance Increasing FP&A activities, while shrinking theIncreased volatility can be seen, felt and measured overall finance function budget, will require ain many ways, and it demands an increase in large reduction in non-FP&A finance activities, asenterprise agility. It can be measured in unem- well as a more cost-effective way to deliver FP&A.ployment data, GDP data, corporate revenues Finance and accounting outsourcing (FAO) is oneand profits, personal incomes, commodity prices, effective way to accomplish the required transfor-consumer sentiment and a long list of other mation while improving agility (see Figure 3, nextmeasures. One example is the S&P 500 stock page).price index, which is a broad measure of the stockmarket’s price level. One glance at a chart of the All finance transaction processing (e.g., AP, AR,S&P 500 Index shows an unprecedented level of GL, FA) can be outsourced, as well as selectvolatility over the past dozen years (see Figure 2). compliance activities (e.g., routine statutory filings, audit support). Transaction processingA new set of challenges and opportunities and compliance outsourcing yields significantexist for financial planning and analysis (FP&A) savings (typically 30% to 50%, we have found)groups, thanks to the increased volatility of the as a result of provider scale, consolidation,world’s economies, currencies, stock markets increased automation, process reengineering andand regulatory environments, combined with cost arbitrage from relocating work to lower costelements of the SMAC stack, such as the prolif- locations.eration of ”big data” and associated analytics.S&P 500 Index: Market Volatility 1.60K 1.40K 1.20K 1.00K 0.80K 0.60K 0.40K 0.20K 0.00K 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010Source: Yahoo Finance GraphsFigure 2 cognizant 20-20 insights 2
Finance Transformation: From Cost Reduction to Profitability Phase IV B Low • Freeing up FP&A resources to partner with businesses to enhance enterprise Phase IV A performance and impact the bottom line. • Offshoring/outsourcing – management reporting, audits, analysis, risk 30-50% management, actuarial analysis, internal consulting, Phase III project management. Time • Offshoring/outsourcing – transaction processes 30%-50% Phase II • Centralization of analytics, budgeting, audit, etc. • Centralization – transaction 10%-15% Phase I processes • Shared services • Process standardization centers onshore • Headcount reduction • Process improvements, 10%-15% Cost Reduction High re-engineering • Technology & automationFigure 3In addition to cost reduction, FAO provides as well, including scale, technology, cost arbitrageadditional process improvements, such as tighter and access to skills. The reduction in expenditurecontrols from the separation of duties, up-to-date on transaction and compliance work derived fromprocess documentation, more comprehen- outsourcing, combined with selective outsourcingsive metrics reporting, better audit trails and of FP&A work, will enable an expansion of FP&Aheightened transparency. activities while shrinking the overall F&A budget.Another significant lever to pull is the outsourc- Leading companies have already started out-ing of portions of FP&A. With 25% of finance’s sourcing FP&A processes, such as balance sheetbudget taken up by FP&A,3 there is considerable preparation; competitor analytics (includingscope for cost savings. Of course, some portions segmentation and SG&A benchmarking); auditof FP&A should always be kept in-house, such as support and reporting; implementing ABC modelsassigning a finance leader to each unit to partner for activity-based costing, along with analysis andwith the business, explain results, lead the budget reporting; and decision support. These companiesprocess, etc. have also reaped the benefits of FP&A outsourc- ing beyond cost reduction, such as reportingBut many other portions of FP&A — such as cycle-time reduction or increased forecastingvariance analysis, routine and ad hoc reporting, accuracy or productivity.5market analysis and various analytical tasks —can be outsourced (see Figure 4, next page). Just The advancement of technology also requiresby centralizing common FP&A activities (data FP&A organizations to change. Most ERP and con-gathering, data cleansing and data aggregation), solidation software environments now providecompanies can achieve a 30% reduction of FTEs.4 business stakeholders with the ability to drill down and understand finance and accounting data andFrom our discussions with many finance orga- reasons for variances. Therefore, some of the tra-nizations, we have observed that business ditional value provided by the FP&A team has nowanalysts typically spend over 50% of their time been automated (see Figure 5, next page).gathering, aggregating and scrubbing data. Theuse of highly skilled and highly paid business F&A Outsourcing Benefitsanalysts to perform basic data manipulation is The cost savings from transactional finance anda waste of scarce talent. Outsourcing the data compliance outsourcing can be split betweenmanagement tasks provides additional benefits reducing the overall cost of finance and funding cognizant 20-20 insights 3
To Outsource, Or Not • FP&A Processes Processes Extensively Processes Never Processes Increasingly Outsourced Outsourced Outsourced • Real Estate Management • Budgeting and Financial Planning • Strategic Planning • Internal Audit • Acquisitions & Divestitures • Internal Audit • Accounting/Tax Policies • Financial Analysis • Business Partnering • Project Management • Expense/Revenue Allocations • Performance Measurements • Multi-dimensional Reporting • Analytics • Risk Management • Actuarial Analysis • Financial Consolidations • BU Financial Statements • Statement Prep • SEC Filings • GAAP Adjustments • Trial Balance Analysis • SOX Planning • Finance Change Management • Tracking Competitor Financial PerformanceFigure 4the expansion of FP&A into expanded business Example 1: Fleetpartnering, enterprise performance management Many companies provide vehicles to employees,and expanded line-item expense analysis. The primarily the sales force. While policies andincreased analysis of line-item expenses, although procedures exist to monitor and control costs,a tactical initiative, helps make FP&A a self-fund- fleet management becomes a challenge for aing operation. large diversified organization with multiple locations. Fleet cost is a one- or two-line itemThe expansion of line-item expense analysis helps on a company’s P&L. While this is not a materialcompanies focus on expense lines they normally cost and is not significant for a drill-downwould not consider. Companies can expect to save review, a detailed analysis of fleet costs ofbetween 5% and 10% of the costs of these newly major corporations, in our experience, providesanalyzed cost elements, performing the analysis an opportunity to reduce costs by taking aeither in-house or through an external provider.FP&A: Old and New Traditional View The New World Back-office function. Revenue generating/self-financing function. Provide insights into business. Finance business partners, provide insights and help drive decisions and compliance. Fragmented across various departments/ Consolidated/centralized function with ability to drive divisions of the company. standardization and leverage best practices. No significant role in policy decision-making. Ability to influence policy and change by providing insights on business impact. Compliance with policies and established Provide visibility into non-compliance with policies and practices not a major focus area. established practices. 50% to 60% of the individual analyst’s time 70% to 80% of time spent on understanding data, trends spent on data gathering and cleansing. and variances.Figure 5 cognizant 20-20 insights 4
structured approach. Such an approach would • Example 2: Travel and Expense include the following: Most companies have well-established travel >> Compare the fleet cost line items with the and expense (T&E) policies and approval limits, headcount report from HR. including arrangements to audit expenses on a random sample basis. T&E is a significant cost >> Ensure that only active employees have ve- item for almost every company. hicles assigned to them. >> Check whether the employee is entitled to a FP&A can provide insights into T&E expense and company car and is in accordance with the help drive down cost by doing the following: policy. >> Provide visibility into line-level details (com- >> Send an e-mail to all supervisors of inactive mon BI tools, sub-ledger-level analysis, etc.). employees and reconfirm if the employee has left the organization. >> Partner with the operations team. >> Send an e-mail to all employees with mul- >> Identify potential cost reduction areas tiple vehicles or those who are not in com- (e.g., airfare, hotel, phone). pliance with the policy and seek an explana- >> Publish a dashboard to provide details of all tion. travel not in compliance with policy. >> Send a list of all inactive employees or The Bottom Line those not in compliance, along with the vehicle numbers, to the fleet manager to While FP&A outsourcing and refocusing provides ensure vehicles are returned to the leasing almost immediate cost reduction results, the true company and confirmation is obtained. benefit is the ability to increase efforts to support the company’s top-line and bottom-line growth.Taking these steps will not only ensure thatthe charges are accurate but will also help to FP&A outsourcing helps free highly skilled profes-accurately attribute the cost to the correct cost sionals from doing routine work to spend morecenter or company code if the employee has time partnering with the business to managebeen transferred to another location or group and execute strategy. This expands the scope ofcompany. FP&A groups from traditional financial planning and analysis to true enterprise performance management.Footnotes1 “Drifting or Driving? Finance Effectiveness Benchmark Study 2011,” PricewaterhouseCoopers, 2011.2 Examples include Boeing and BBC (Source: “Finance Strategy: Delivering the Partnering Role,” IBM.)3 “Developing a Center of Excellence (CoE) for Financial Planning and Analysis,” Deloitte, 2011.4 Beyond Concierge: Transforming the FP&A Operating Model,” Deloitte, 2009.5 “Financial Planning & Analysis: The Next Frontier of Business Process Outsourcing?” Deloitte, 2010. cognizant 20-20 insights 5