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Benchmarking Finance & Accounting: Scale Your Operations

Author

Eric Liebross

https://www.linkedin.com/in/eric-liebross-2b41242/
eric.liebross@auxis.com

Senior Managing Director of Business Transformation, Auxis

According to benchmarking industry leader The Hackett Group, top benchmarking performers deliver services at 46% lower cost with 52% less FTEs than their lower performing peers. We know that benchmark data can provide insights into your organizational effectiveness, but what kind of conclusions can you really draw from analyzing this information?

Given the post-COVID focus on lean and portable operations, it makes sense to explore which finance benchmarks will give you the strongest insights into the health of your operation, and help you target opportunities to reduce and/or refocus your staff.

In my previous blog, I provided “real-world” examples of how benchmarking data can identify areas of opportunity within your F&A organization, helping to lay out a strategy to increase productivity and automation. In this blog, I will provide more insights into which benchmarks are good indicators of opportunity, and how to “read between the lines” to understand what may be impacting the current performance.

Benchmarking your organization should focus on a number of different performance-based elements which can be summarized under the headings of “Efficiency” and “Effectiveness”. 

Finance Benchmarks: Prophecy or Pretense?

Finance Benchmarks: Prophecy or Pretense? Whitepaper Mockup

Efficiency Metrics

Traditional “Efficiency” metrics focus on the number of FTE’s (“full time equivalents”) performing various tasks, comparing organizations based on their industry and revenue size. Why should industry and revenue size matter? It’s all about volumes and complexity.

It is assumed that higher revenue companies will have a larger number of transactions, necessitating more people to manage them. Additionally, certain industries typically have more complex transaction types, again necessitating more people to perform these tasks. For example, a manufacturing and distribution company selling to “big box” customers will have more operational complexity than a professional services firm selling to the same customers. “Apples to apples” comparisons are important when it comes to benchmarking.

Other Efficiency metrics focus on productivity and performance. For example, in Accounts Payable, the number of invoices processed per FTE is a traditional “Efficiency” metric. Similarly, for General Accounting, the number of Balance Sheet Accounts being managed by an FTE, helps to measure the efficiency of the General Accounting organization. And for Accounts Receivable, the number of receipts processed by an FTE is a good “Efficiency” measure for this function. There are many other examples of Efficiency metrics that can be applied to your organization.

Effectiveness Metrics

Traditional “Effectiveness” metrics focus on the operating cost for the various functions, such as the Personnel Cost to perform the activities within a function, and the Total Cost to perform these activities. Personnel Cost is based on the fully loaded cost of the people within the team, doing the work, so there is a direct correlation to the Efficiency metrics listed above. Total cost includes both the Personnel Cost as well as the cost of the systems infrastructure needed to run the function.

Other Effectiveness metrics focus on the quality of the performance of activities. Examples of quality-based “Effectiveness” metrics include the accuracy of invoice processing and payments for Accounts Payable; Days Sales Outstanding (“DSO”) for Accounts Receivable; and the number of days to close the books and produce financial reports for Accounting. 

The performance differences between organizations can be dramatic. For example:

  • There is an 11% difference in AP invoice processing and payment accuracy between Top Performers and Bottom Performers, according to APQC, one of the world leaders benchmarking, best practices and performance improvement firms.
  • APQC reports a 62% variance in DSO between Top and Bottom performers.
  • There is a 100% delta between Top and Bottom performers when it comes to the number of days needed to close the books!

It is important to understand that benchmarks are data points, used to provide some insights into operational performance, but they do not provide “all the answers.” Some organizations have additional complexities that drive cost or impact operational performance that are not necessarily accounted for in the raw benchmark data.

It is important to understand that benchmarks are data points, used to provide some insights into operational performance, but they do not provide “a