What does a great finance function do differently? It spends 17% less time collecting data and 25% more time analyzing it. It churns out forecasts and budgets in less time than it takes average finance departments to do so. The best finance functions also cost 40% less than the average (measuring cost as a percentage of revenue).
And while the better finance functions aren’t necessarily paying more to recruit people for short-term requirements, they are looking ahead to determine what sort of skills they will need in the future and working out plans to develop those skills within the business.
But here’s a surprise: the best finance functions don’t overburden their businesses with an excessive number of controls. Rather, the controls they have in place are integrated and more likely to be automated.
PricewaterhouseCoopers has benchmarked the finance functions of more than 200 companies (three-quarters of the participants are headquartered in the United Kingdom and most of the rest are U.S.-based) and published the key findings in a report entitled “Putting Your Business on the Front Foot: Finance Effectiveness Benchmark Study 2012.” The firm’s findings are based on finance operations in some 2,500 separate locations in 90 countries. “It’s based on a number of specific benchmark projects that we run,” explains PwC director Andrew McCorkell, who leads the firm’s functional-effectiveness benchmarking program. “For each of the clients whose data we’re quoting, we’ve probably run a six-week project to really get under the skin of what they’re doing.”
McCorkell says there are few differences between, say, European finance functions that are part of U.K. parent companies and those that are part of U.S. corporations, though the American-owned operations have more “focus around specific areas of process. Clearly things like Sarbanes-Oxley are one of the things that drive the difference.”
There is a bigger difference, he says, between finance functions of the very largest FTSE 100 and U.S.-equivalent companies and those that don’t have that sort of scale. “Organizations are very often asking us, ‘What are the requirements of a FTSE 100 or equivalent company and how do we need to develop our finance function to respond to those requirements?’”
The best finance functions — those in the top quartile — have a 90-day budgeting cycle, compared with 120 days for the median. Forecasting cycles are 7 days for the best, 19 days for the median.
These cycle times at average companies “are far too long to have much validity in today’s fluctuating conditions,” the report says. Data is obviously critical: 80% of companies said they rely on the accuracy of their forecasts, and yet only 45% believe they are “materially correct.”
For the better companies, finance-function time in 2011 was split evenly, while the breakdown was 60 to 40 between data gathering and analysis at the median that year. The best companies also produce significantly fewer reports: by regularly reviewing the management information that is actually needed by the business, they churn out about one-third of the number produced by the median.
The best companies have 19% of their finance staff engaged in “business partnering roles,” compared with just 13% for the median. But there is clearly still much more to achieve: “More than 80% of participants are actively promoting partnering with the organisation, but only around 50% feel that the finance function plays an active role in influencing business strategy,” the report says. “The remainder see their primary role as providing analytical support to the business.”
Talent management is a key strategic priority for 80% of the business leaders interviewed for the report, but top-performing participants spent more than twice as much on “learning and development.”
While virtually all the companies studied have dedicated risk-management functions, only around half (typically FTSE 100 companies) have frameworks in place to monitor, manage, and communicate firmwide risks effectively. Moreover, only 17% of key controls have been automated in the best companies — a figure that falls to just 10% at the median. This difference means, however, that the best firms have, for example, accounts-payable processing-error rates that are 45% lower than the median.
Andrew Sawers is editor of CFO European Briefing, a CFO online publication.