Free of charge: Outsourcing the Finance and Accounting Function
Unformated preview of the document: 'Outsourcing the Finance and Accounting Function' (Part 2):
• A significant number of outsourcing agreements have been mismanaged; and
• The outsourcing market is still relatively immature.
The outsourcing market is however maturing, thanks to the discipline's growth, the growing
experience of outsourcing buyers, and the current effort to develop professional standards
similar to those that apply to accountants and lawyers (The Wall Street Journal).These
standards, if and when finalized, may facilitate more effective and valuable outsourcing
relationships. To date, research on the effectiveness and perception of the value of outsourcing
relationships strongly suggests that mismanagement of the outsourcing relationship by both
providers and users of the services represents a primary source of dissatisfaction. This
mismanagement can occur from the initial decision to outsource all the way to the end of the
relationship.
For example, when 120 finance and accounting executives whose North American companies
had entered into large FAO agreements were asked to identify the most challenging aspects of
FAO, the third most frequently cited response (among 14) was "not sure/don't know"
(EquaTerra, 2005). Finance and accounting professionals familiar with the old saw "you can't
manage what you can't measure" would agree that a company also cannot manage what it
does not understand. A more recent and highly detailed 30-page study on the evolution of
outsourcing concludes that three specific areas of the discipline are in greatest need of
improvement:
1. monitoring and managing the benefits;
2. selecting the outsourcing provider; and
3. involving the "right people" and culturally aligning the outsourcing buyer and provider
(KPMG, 2007).
Improving each of those areas, as well as effectively managing the overall outsourcing
relationship from inception through conclusion, can be achieved by understanding and
addressing the challenges and risks that cause mismanagement. The purpose of this guideline
is to provide a framework for guidance on managing FAO's opportunities, challenges and risks,
that is, what might be done at each stage of the FAO lifecycle to enhance the probability of a
successful FAO initiative.
This guidance qualifies as "good practices", because "best practices" have not yet emerged as
modern FAO continues to mature. In fact, given the unique circumstances of each organization,
a clear set of "best practices" may never emerge. These good practices can support the
development of solutions or responses to such unique circumstances.
The target audience of this guideline is buyers of FAO services and those charged with
implementing and managing FAO relationships. This guideline can be applied to the outsourcing
of a single finance and accounting process as well as to multi-process outsourcing.
Although certain forms of FAO have existed for many years, this MAG deals with modern FAO,
which typically involves multiple finance and accounting processes and longer term
relationships (in the range of five-year to ten-year contractual commitments).These FAO
relationships share many characteristics with the large information technology outsourcing
(ITO) and human resources outsourcing (HRO) agreements that have grown increasingly
common during the past 10 to 20 years.
To date, the worldwide use and volume of FAO trails behind ITO and HRO. Much of the
guidance in this MAG is both based on and can be applied to ITO and HRO relationships. As a
North American finance executive at a global software company told a business publication last
year, "Finance executives can walk over to the IT function and ask, 'How did this work for
you?'"
FAO covers a wide collection of processes, ranging from highly transactional activities such as
accounts payable, accounts receivable and payroll, to processes that require greater and more
complex degrees of knowledge and analysis (e.g., treasury, tax strategy, or financial planning
and analysis). Although the same processes can help manage the challenges, risks and
opportunities of both sorts of finance and accounting activities, the risks associated with
knowledge- and analysis-based FAO are greater, and therefore require greater management
discipline.
How well an outsourcing arrangement is managed matters more than where the outsourcing
services are provided. That point has at times been obfuscated by politically charged
discussions and articles that examine the pros
Unformated preview of the document: 'Outsourcing the Finance and Accounting Function': Part 1, Part 2, Part 3