Financial Planning & Analysis (FP&A) outsourcing is increasingly being used by leading global firms to provide a competitive advantage while others are using the opportunity to uncover additional savings by leveraging a wide range of service delivery options and process improvements to reduce costs and generate additional value.
In the past two decades, we have found that CFOs of large global companies have grown increasingly comfortable outsourcing transactional elements of their finance function; however, many remain apprehensive about outsourcing more complex, Financial Planning & Analysis (FP&A) processes. Nevertheless, some leading companies are exploring FP&A outsourcing as a means to develop a competitive advantage by reducing costs and increasing efficiency amongst a traditionally high cost, skill intensive set of finance activities.
While there are additional complexities associated with outsourcing FP&A, vendors have worked diligently to develop capabilities and tools to make FP&A outsourcing a viable option. FP&A typically requires more judgment and finance experience than other functions and, therefore can provide significant potential for savings from automation, centralization, standardization and outsourcing. Additionally, many of these processes are judgment based, requiring a close working relationship with business users and corporate leadership. Vendors are focusing on developed, highly educated offshore talent with significant functional knowledge and experience in FP&A to support these offerings with marquee clients.
FP&A outsourcing is becoming the next process to outsource for many companies on the leading edge. We expect that over the next few years, FP&A outsourcing will become an increasingly standard offering in the marketplace, as companies seek to achieve additional savings, improve capabilities and reduce cycle times.
This research is based on recent interviews conducted with leading FP&A Outsourcing vendors and Deloitte’s observations from supporting clients. We will explore current vendor offerings, profile two companies’ experi ences with FP&A outsourcing and highlight several important factors to consider when evaluating FP&A opportunities at your company.
Financial Planning & Analysis processes are commonly a level of complexity higher than the traditional, transac tional outsourcing candidate processes. Generally, FP&A activities can be broken down into four categories:
- Planning: Finance is typically heavily involved in building company strategic plans due to its proximity to financial data that drive planning decisions. These activities typically include:
- Budgeting: Financial Analysts are typically heavily involved in both building budgets for business units and support functions, as well as monitoring expen ditures on an ongoing basis.
- Forecasting: Forecasting of future financial perfor mance based on external market variables (inflation, foreign exchange, economic growth, etc.). Business forecasts are critical inputs into both budgets and strategic plans.
- Management Reporting: The creation and updating of management reports is one of the more time consuming and high touch tasks within the finance organization and is thus a key driver of cost.
- Decision Support and Controls: While there is no list of activities that comprehensively defines decision support, it generally refers to financial analyses that are performed to provide guidance on business decisions (e.g. pricing analysis, M&A analysis, activity-based costing and ad-hoc financial modeling).
- Specialized Experience: These activities commonly include specialized services such as actuarial analysis, risk management and specific classes of asset management, such as real estate.
While many FP&A activities are candidates for outsourcing, CFOs generally prefer to retain Strategic Planning, since they generally don’t want to lose a seat at the strategy table. Certain Decision Support activities that require customized analysis stemming from close proximity to, and knowledge of, the business are also strong retain candidates, such as Tax Policy and Acquisitions and Divestitures. However, budgeting, planning, and management reporting are seeing increased outsourcing activity which can often be centralized and standardized, using both process and technology solutions, while reducing traditionally high costs and resource-intensive, long cycle times.