Many companies have outsourced transaction oriented financial processes such as Accounts Payable and Accounts Receivable. But can a company outsource its FP&A function?
The challenge is FP&A is generally not considered “transactional” at least not broadly speaking. Yet some aspects of FP&A are transactional, some semi-transactional, and others strictly non-transactional. Any company or institution looking to outsource FP&A should evaluate the various aspects of the end to end “plan-to-perform” process and determine to where each piece fits along the continuum.
We’ve outlined some common FP&A activities and how they can be classified (this is an illustrative list, not intended to be comprehensive). This classification of activities might fit your company or institution exactly, or you may want to reclassify some of these activities to reflect your unique circumstances. In any case, you should begin to develop a sense of what aspects of FP&A can be outsourced:
Transactional activities are those that could be considered the most “mechanical” and repeatable. If you provided desktop procedures and enabling technology, these would be among the easiest to outsource.
- Monthly Actual v Plan and Actual v Forecast reporting
- Consolidation of Plan and Forecast data
- Distribution of plan & forecast input templates and instructions
- Creation & dissemination of the plan & forecast calendar
- Maintenance of the FP&A system (e.g., Hyperion, SAP BPC, Tagetik, etc.)
These activities aren’t exactly “mechanical” but could be repeatable and enabled with the right written procedures and training.
- Collection of assumptions for input into planning models
- Maintenance of planning models
- High level variance analysis (such as Volume/Unit/Mix)
- Preparation of standard monthly presentation package for executives
The role of Business Partner in FP&A encompasses the higher order activities that are probably the most challenging to outsource.
- Robust variance analysis, “getting the business story behind the numbers”
- Working with operational managers to debate & develop plan/forecast assumptions
- Business case development for CAPEX and other investments
- M&A Analysis
- Special projects, decision support
Maybe the easiest way to think about the line between transactional and non-transactional is with an illustration. Take variance analysis for example. With the right reporting capability, a 3rd party vendor’s FP&A Analyst should be able to conduct a high-level variance of a 3% shortfall in Revenue. Again, with the proper reporting capability, it would go something like this:
The 3% shortfall in Revenue year-over-year is largely driven by a 5% price reduction partially offset by a 2% increase in unit volume. The price reduction was fully planned for, and in fact we’re showing no variance to plan. However, the unit growth as a result of the reduction in price was less than anticipated. These results are on a consolidated basis, regional analysis shows results were better in some areas than in others. Detailed schedules highlighting these regional differences will be discussed in the next section…
What’s required from a reporting standpoint isn’t really that much. Price and Unit projections compared to actual results, that’s it. Now what isn’t available is the story behind the numbers. Why didn’t we get the lift in volume after the price cut was enacted? Maybe the answer is the marketing program that was to accompany the price cut was delayed because the ad agency fell behind schedule. Whatever the reason, it would take a Business Partner in the Finance organization with well-established relationships and a deep understanding of the inner workings of the company to dig in and find those answers.
Any company or institution looking to outsource FP&A should consider how much industry focus and expertise the vendor has in their industry. This is a very important criterion because each industry has its own business model, drivers, and lexicon. It would be very difficult for a vendor to provide FP&A services on day-one without that knowledge and know-how. Other suggestions include:
- The scope needs to be adequately defined. The guide we introduced above is a good starting point, but the details of what’s in (and out) of scope should be thoroughly discussed.
- Service Level Agreements (SLA) should be put in place to clarify expectations. For example, what day of the month will the vendor provide Plan v Actual reports, how long will it take to turn around a new forecast after the assumptions have bene submitted, etc.
- Start small and work your way up the value curve. It’s best to start with what’s clearly transactional, and let the vendor prove their competency.
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