Benchmarks For The Finance Function

finance function effectiveness

Benchmarking the finance function is crucial for optimizing performance, improving efficiency, and driving strategic value. It involves comparing your finance department’s processes, performance metrics, and capabilities against those of leading companies or best-in-class standards. Several key areas lend themselves to benchmarking exercises.

Efficiency & Cost: One of the most common areas is operational efficiency. Benchmarks here focus on metrics like the cost per transaction for accounts payable and receivable, the time taken to close the books, and the number of full-time equivalents (FTEs) required per million dollars of revenue. Data from industry associations like APQC (American Productivity & Quality Center) and Hackett Group provides valuable insights into these areas, allowing companies to identify opportunities for automation, process streamlining, and resource optimization. For instance, a company might discover that its invoice processing costs are significantly higher than the industry average, prompting a review of its invoice management system and approval workflows.

Accuracy & Control: Beyond efficiency, accuracy and internal controls are vital. Key performance indicators (KPIs) for benchmarking include the error rate in financial reporting, the number of audit findings, and the percentage of compliance violations. Benchmarking against industry best practices for internal controls, such as segregation of duties and robust reconciliation processes, can help mitigate risks and improve the reliability of financial data. The COSO (Committee of Sponsoring Organizations of the Treadway Commission) framework provides a solid foundation for benchmarking internal control effectiveness.

Technology Adoption: The adoption of technology plays a significant role in finance function performance. Benchmarking the use of technologies like robotic process automation (RPA), artificial intelligence (AI), and cloud-based ERP systems can reveal opportunities for digital transformation. Key metrics to consider include the percentage of processes automated, the time saved through automation, and the impact on data accuracy. Companies should assess their technology stack against industry leaders to identify gaps and prioritize investments in innovative solutions.

Talent Management: A high-performing finance function requires skilled and motivated professionals. Benchmarking talent management practices involves comparing compensation levels, training programs, and employee turnover rates with industry averages. Analyzing employee engagement scores and career development opportunities can highlight areas for improvement in attracting, retaining, and developing top talent. Professional certifications like the CPA (Certified Public Accountant) are often used as benchmarks for staff qualifications.

Strategic Impact: Finally, the strategic impact of the finance function is increasingly important. Benchmarks here focus on the role of finance in supporting strategic decision-making, driving business performance, and managing risk. KPIs include the percentage of time spent on strategic activities versus transactional tasks, the quality of financial forecasts, and the effectiveness of risk management processes. Companies should assess how well their finance function is integrated into the business and contributing to overall strategic goals.

Successful benchmarking requires a clear understanding of your own processes, a commitment to data-driven analysis, and a willingness to embrace change. By comparing your finance function against best-in-class standards, you can identify areas for improvement, drive operational excellence, and enhance the strategic value of finance.