Finance-Function Cost: The 0.6% Solution

by Cesar Bacani, 12 January 2010

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Charles Tilley CIMA finance business partners finance function cost shared-services centres world-class organisations

How much is the cost of the finance function as a percentage of total revenues? “The average is around 1.4%,” says Charles Tilley, chief executive of the Chartered Institute of Management Accountants (CIMA). “That of well-run companies is somewhere between 0.6% and 0.7%.”

The CIMA-commissioned report, entitled Improving Decision-Making in Organisations: The Opportunity to Reinvent Finance Business Partners, argues that “leading companies can achieve superior returns if among other variables they have transformed their finance functions and manage enterprise performance rigorously, a discipline which requires effective finance business partners.”

Tilley spoke with CFO Innovation’s Cesar Bacani about the finance functions of world-class companies and other issues.

What did you find out about CFOs in Asia in the study CIMA commissioned?

CFOs are actually the same across the world. The split would not be Asia vs. the UK vs. the U.S. It would be well-run companies vs. the rest, if you like. The well-run may be multinationals, but they also may be the corner shop. This study is much more about those organisations that understand they need to use all of their skills to run [their business] successfully.

World-class companies have driven down costs; everybody else has to do the same. World class companies have business intelligence systems; everybody else needs to do the same.

When you refer to ‘well-run companies,’ what do you mean?

I get to talk to hundreds of companies a year. Two things about them: one is that they look like they have a sustainable future and they’re thinking long term. And secondly, their stock price goes up over time.

The other thing is about cost. The finance function of world-class organisations, their cost is typically about 50% of the cost of the average.

The basis to define that cost is the percentage of the cost of the finance function compared to the total revenues of the organisation. The average is around 1.4%; that of well-run companies is somewhere between 0.6% and 0.7%. A lot of that is because they also invested in the best technology, so a lot of the grunt work, if you like, is being undertaken by intelligent systems.

And also because revenues have shot up, making the proportion of spending vs. the revenues smaller?

Absolutely. In some companies, it’s still very much spreadsheet driven. In the best companies, this is all absolutely systemised and therefore cheaper. It’s also potentially outsourced or in shared service centres in cheaper locations.

What is also very interesting is that the shared-service centres, they started off doing things like payroll, and now they’re getting into some interesting areas. I’ve been involved with a couple of shared-service centres that do absolutely everything in terms of producing amounts of information, managing all the data, producing the finance accounts, doing the tax.

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