Quantifying the cost savings of Shared Services

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There is one thing you can be sure of when you're building the business case for shared services, and that is the committee reviewing and approving the move to shared services will be looking for hard numbers on the estimated cost savings.  To that end, it's necessary to benchmark your operations to estimate the cost savings.  There are actually two distinct phases: 1) Baselining and 2) Benchmarking.

Baselining is nothing more than quantifying the performance of your current operations.  That means gathering information on both how effective your organization is as well as how efficiently it operates.  Effectiveness measures ask questions such as:

  • How quickly do we close the accounting books each month?
  • How quickly does it take to distribute financial infomation to the organization?
  • How many days does it take to apply cash to open receivables?
  • How many days does it take to process a vendor invoice?

Efficiency measures are focused on cost and automation.  They answer questions such as:

  • What is our overall Finance cost as a percent of revenue?
  • How much does it cost to process a vendor payment?
  • How automated are our systems?
  • How many FTEs per billion in revenue to we have?

By baselining your current state effectiveness and efficiency, you're now ready to compare yourself to high performing organizations.  Ideally, you'll be able to obtain benchmark information specific to your industry, but even it you can't, using a database with companies across industries is still incredibly useful.  For many back-office processes like general accounting, it makes sense to compare yourself to the best out there, regardless of industry, as there are not that many unique differentiators between companies and industries.  You can typically find this benchmark data either through an industry trade group or through a consulting organization.

Baselining and benchmarking your operations will allow you to quantify the estimated savining you'll achieve by moving to shared services.  And in doing so, you'll have added to the credibility of your business case.