The Rise of Financial Planning & Analysis Outsourcing | Sherpas in Blue Shirts

Posted On December 23, 2010

In the four years I worked as a transition manager for a market leading service provider before joining Everest Group, I led multiple finance and accounting outsourcing (FAO) migrations for global clients. While all of them involved transition of transactional processes such as accounts payable (AP), accounts receivable (AR), or general ledger accounting (GL), very few involved “high-end” processes such as Financial Planning & Analysis (FP&A)

I came to realize that, especially in the past, organizations have hesitated to outsource FP&A processes for several key reasons. First, FP&A is highly complex as it is domain-intensive and requires superior analytical skills. Second, the boundaries of the function are not easy to draw as it much more typically embedded across the organization than handled by a dedicated team. And third, unlike transaction-intensive processes that are easy to document, FP&A function involves considerable ad-hoc and subjective knowledge that resides with individual analysts, and the risk of losing this undocumented knowledge during transition makes companies reluctant to outsource their FP&A scope.

At the same time, FP&A outsourcing is gaining increasing traction in the marketplace, albeit more frequently in contract extensions than in new contracts. Everest Group research indicates that most enterprises start their FAO engagements by first moving transactional processes to their service provider, and then gradually transitioning higher-value processes such as FP&A as the relationship matures and the buyer gains more trust and confidence in the provider’s  ability to deliver quantifiable value.

Buyers’ increased leverage of outsourced FP&A processes results from the multiple benefits it can achieve for them. These include:

  • the ability to monetize data for business insights, strategy design and implementation
  • significant top-line and bottom-line impact from analytical insights into areas such as cost management, product profitability, inventory, and project appraisals, etc.
  • enhanced managerial efficiency, as accessing and extracting data from disparate systems, collating and cleansing data to prepare regular/ad-hoc reports, and data analyses can consume as much as 40 percent of managers’ time
  • 40-60 percent savings in analyst costs due to labor arbitrage
  • transformation-oriented productivity benefits that enable at least two to three percent savings year over year three to five years after transition

While the benefits are many, buyers must still take a cautious approach as the success of FP&A outsourcing largely depends on the transition given the inherent complexities. They must also recognize that robust process documentation is not only a key to the success of FP&A transition but also a means to reduce dependence on in-house analysts over time.

Yes, there are risks to outsourcing FP&A, but the value proposition is strong. And smart enterprises will increasingly evaluate the risk/value equation, whether with their existing or another FAO provider.

To learn more about FP&A outsourcing, please click here to gain access to Everest Research Institute’s just-completed research report, “Moving beyond Transactional FAO: The Rise of FP&A Outsourcing,” which covers topics including market size and buyer adoption, value proposition and contract characteristics, the service provider landscape, and implications for key stakeholders.

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