Creating the Finance strategy that drives performance

Finance strategy is now more important than ever.  Global competition, cost pressures, sourcing alternatives, global compliance, reporting convergence, acquisition analysis and integration – today’s Finance organization must continue to find new ways to partner with their business to deliver the value-added services required to remain competitive. 

Unfortunately, in today’s complex operating environment it can be a challenge to create and execute the strategy required to accomplish these goals.  A comprehensive and mature Finance strategy should be:

• Actionable.  A strategy must be realistic and detail specific behaviors to bring the strategy to fruition.  Actionable plans at each level of the organization must cascade downwards so that personnel on the front lines understand corporate and financial objectives and how their activities support those objectives.
• Flexible.  In a world marked by globalization and quickly changing opportunities, businesses and their Finance organizations should be characterized by a flexibility that enables them to respond to those new opportunities in a pragmatic and disciplined manner.  This includes establishing the proper cost structure, balancing fixed and variable costs that maintain cost discipline yet enables the flexibility required.
• Scalable.  High performing Finance organizations have the systems, processes, organization and governance structures in place that enable them to scale as their business grows.  Acquisitions are effectively integrated into the organization and anticipated ROIs are achieved on schedule.  There is a defined approach that enables Finance to support expansion into new geographic markets.
• Supportable.  A strategy that cannot be supported by existing or planned resources is worse than ineffective; it will lead the Finance organization down the wrong path instead of generating the value-added delivery capabilities their company requires. 
• Measurable.  A well-crafted strategy has specific and measurable outcomes.  Finance strategy should have an integrated set of key performance indicators that assist in the evaluation of Finance’s effectiveness and efficiency in delivering the services that support corporate objectives.

Ultimately, an organization’s financial strategy must be aligned with the corporate strategy. It is no longer sufficient to be the scorekeeper who reports historical results.  Today’s Finance organization must be an equal partner in the formation of corporate strategy and provide the intelligence, analysis and insight necessary to support the corporate vision for growth and profitability.

Holding outsourcers accountable for service delivery

Over at LinkedIn.com there's a conversation about holding outsourcing service providers accountable for delivering in accordance with the criteria established in the Service Level Agreement (SLA).  While there are differences, there are some similarities with captive service units in terms of maintaining accountability.  Some things that can be done include:

1. Clearly establish expectations up front.  While outsourced service providers should be considered partners, it isn't at the same level as a captive service unit.  Agreements are much more formal and should be treated as such during the negotiation period.
2. The service provider should provide regular reports with metrics showing compliance with the service agreement.  Depending on the report this could be daily or weekly.  This information should be monitored regularly as part of the governance structure as the client company.
3. Establish a formal reporting mechanism at least monthly.  In addition to daily or weekly feedback, there should be a formal report at least monthly that shows all of the key metrics and how the service provider measured up to the SLA.

When the client company expects regular, written information from the service provider showing the actual performance against the Service Level Agreement, they let the provider know that their performance matters and that it's being monitored.  From the client side, it's essential to obtaining the value from the outsourcing relationship that was identified in the business case.  It doesn't have to be confrontational, it's about two partners living up to their responsibilities.

Vietnam modifies accounting rules for financial reporting

Vietnam, like a number of developing countries, has been struggling with a significant decline in Foreign Direct Investment (FDI) due to the global economic slowdown.  According to the source Vietnam Briefing, the country in 2009 experienced a 70% decline in FDI relative to 2008.  It should be noted that 2008 represented a banner year in Vietnam for FDI as it reached $64 billion USD, up from around $20 billion USD in 2007.  All of these numbers represent pledged FDI and not actual capital disbursements.

As a way of strengthening its accounting system and to make the country more friendly to FDI, the Vietnamese Ministry of Finance is allowing foreign companies to choose the currency they use to transact business.  Previously they had to report in the Vietnamese dong and file with the government for permission to use a different currency.  These companies now have more flexibility in the base currency for reporting but the chosen currency must be one predominately used for banking transactions and for price quotations.

Read the full article on Vietnam's accounting rule change for financial reporting.

Quotable Quotes

People ask me, how is managing in the New Economy different from managing in the Old Economy? Actually, it's a lot the same. It's about the financial discipline of the bottom line, understanding your customers, segmenting your customers by their needs, and building a world-class management team.

             Meg Whitman - Former CEO of eBay

Business unit accountability: Partner in continuous improvement initiatives

As the Business Units engage in the Shared Service Organization (SSO) and gain experience with the new model, they're in a position to give feedback to the SSO.  One way they can do this is through the formal Shared Service governance process.  Representatives of the Business Units can work with their counterparts in the SSO and in Corporate to further refine the quality and timeliness of the service delivery as well as expand the delivery capabilities of the SSO.  The feedback that Business Units are giving the SSO can feed into the continuous improvement efforts.

Here are some of the issues that can be the focus of continuous improvement efforts:

1. Process maturity.  Processes can always be made more efficient.  What is the current error rate compared to best-in-class companies?  How effective is the service delivery in cycle time?  What additional activities within these processes can be moved into the Shared Service Organization to create additional economies of scale? 
2. Technology maturity.  What are the current efforts to further optimize the supporting technology?  Are there multiple instances of the same software that can be consolidated.  Are there any manual inputs that can be automated with interfaces?  Are there data extracts that can be automated?  Can any activities be moved from the Shared Service Organization to a self-service model for customers, suppliers and employees?
3. Organizational maturity.  Are there still resources in the Business Units that can be moved to Shared Services?  Are there Business Units who are still out on their own and could be brought into the SSO?  What are the current skills sets of the SSO employees?  Can they be improved with additional training or job rotations? Do the policies and procedures of the organization reflect the current business environment?
4. Information maturity.  What's the quality of information currently being delivered?  How about the level of granularity?  Is your company's management information mostly financial and historical in nature?  Or are you producing rich operational data that provides a forward look into the operations?  Is the current delivery mechanism electronic or paper?  Does information get pushed onto end-users or does the technology enable end-users to pull their own data when they need it?

By focusing on process, technology, organizational and information maturity, the Business Units and the SSO can work together on their journey to high performance.

Business unit accountability: Provide timely and accurate feedback on performance

As business units capture performance data on the company's Shared Service Organization (SSO), they'll be able to provide timely and accurate feedback on performance.  I previously covered the collection of performance data in this post.  What are the correct forums to provide feedback?

1. Informal feedback.  There should be a good working relationship between the SSO and the Business Units.  In the ordinary course of business there are opportunities to address specific issues and identify solutions.  And remember, timely and accurate feedback is not only about problems.  Try to catch people doing something right and let them know.  Positive feedback and encouragement can go a long way.
2. Process councils.  As part of the governance structure, there should be periodic meetings (typically quarterly) to discuss the effectiveness of a process (i.e. procure-to-pay).  A written report of the activity that quarter and the related performance metrics should be reviewed and discussed.  Any deficiencies in the delivery of that service relative to the Service Level Agreement should be covered.  An actionable plan to address the deficiencies should be developed and assigned to specific individuals.
3. Advisory council.  Consists of representatives of the Business Units, Shared Services, Finance and IT.  Used to discuss high-level issues that are not process specific.  As with the process councils, the Advisory should review a written report that covers the quarterly performance of the Shared Service Centers and identifies any issues that requires remediation.

New survey shows support for Finance outsourcing

A new survey by WNS, a provider of Finance outsourcing services, shows that senior Finance executives support outsourcing.  Shocking, I know.  Seriously though, the survey backs up what I've seen in my own consulting work - that Finance organizations are rapidly shifting to a global delivery model that incorporates resources beyond their own direct organization.  Finance chiefs are looking for stronger talent, a competitive cost structure (read: offshore) and a more flexible cost structure to create a more nimble Finance organization. 

Some of the key findings include:

• Over 75 percent of the finance executives plan to expand their outsourcing programs in 2010,
• Driving corporate cost cutting efforts and improving internal controls are the two most crucial issues in 2010,
• Forty-four percent of the finance executives believe growing the business will be an organizational imperative in 2010,
• Over 85 percent of the finance executives are satisfied with the benefits from FAO (Finance & Accounting Outsourcing).

Here a link to the press release at the WNS website.

TrendView designed to automate data collection for benchmarking

As readers of this blog know, I think it's important for companies to regularly baseline their Finance organization to understand how effectively they're delivering services and how much it costs to deliver those services.  The challenge is that collecting the necessary data is typically time consuming and fraught with errors and estimates as personnel manually collect the data.

An application highlighted at CFO.com aims to solve those problems.  TrendView, from 3cInsight,  is a Software-as-a-Service solution that captures data from an organization's transactional systems to automate the data collection process.  (Full disclosure: 3cInsight's Director of Operations, Kelly Noto, and I worked together at The Hackett Group).  There are approximately 300 pre-defined metrics that a company can use to evaluate it's performance.

That's the baseline side of the equation.  It's the intention of 3cInsight to aggregate the data from its customers into meaningful benchmark data so that the companies will have access to the data without having to commission a formal benchmark every few years.  As of now 3CInsight has around 20 customers, which isn't necessarily large enough to smooth out outlying data points.  However, as the company grows its customer base this problem will be eliminated.

It sounds like a great idea and I wish 3cInsight the best.

Here's the link to the full story: 

CFO.com article on TrendView application

Business unit accountability: Monitor performance of the Shared Service Organization

In establishing a partnership between the Shared Service Organization (SSO) and the Business Units, the Business Units have the responsibility to monitor the performance of the SSO and provide timely and accurate feedback regarding expected delivery levels.  In my consulting work I sometimes hear Business Units complain that the SSO is not living up to its commitments, but when I ask for the data to support their argument they typically don't have any.  Mostly it's a "gut feel" that the SSO isn't doing what the Business Units want.  If the Business Units are going to live up to their end of the bargain, they need hard data to support their conclusions.

Here are four metrics that the Business Units, and the SSO, should be monitoring:

1. Effectiveness of delivery (i.e. cycle times).  Is the SSO actually delivering the services outlined in the Service Level Agreement (SLA)?  How quickly are they delivering?  Does the quality of the services meet the SLA metrics?
2. Cost of services.  Is the SSO achieving the cost reductions outlined in the business case?  Are costs being allocated back to the Business Units based on the agreed upon cost drivers?
3. Response time to service disputes. Issues inevitably arise in any partnership.  How easy is it to get in touch with the right person at the SSO?  How well is the SSO responding to disagreements?  Is the right level of management at the SSO engaged in the issue as appropriate? 
4. Quality of issue resolution.  It's one thing for the SSO to "check the box" and say that they've responded to a Business Unit concern.  It's another thing to ensure that the issue has been resolved to the satisfaction of the Business Unit.  Is the SSO committed to ensuring that they have a satisfied customer/partner?  And for the SSO, is the issue and resolution being archived in a knowledge repository so that it can be leveraged for future disputes?

By focusing on these four areas of SSO performance, Business Units can gather the information they need to evaluate the delivery performance of the Shared Service Organization.

Business unit accountability: Partcipate in the governance framework

An essential component of business unit accountability is the governance process created as part of the shared services operating model.  The governance arrangement enables the business units and the Shared Services Organizations to jointly decide on the scope of services to be offered by the SSO and the manner in which those services will be delivered.

By participating in the governance of the Shared Service Organization, the Business Units accomplish the following:

1. Ensures that the mission of the Shared Service Organization remains consistent with the company's overall strategy,
2. Establishes agreements between the Shared Service Organization and the Business Units regarding the operation of the Centers and the delivery of services,
3. Clearly establishes the roles and responsibilities of each party, so that misunderstandings between the parties are minimized,
4. Participates in discussions to improve existing services,
5. Participates in discussions on expanding delivery capabilities of the SSO,
6. Resolves any high-level issues that can't be resolved at a lower level.

By establishing a formal governance framework early in the process of developing a Shared Service Organization, transparency and trust can be developed.  This trust will be necessary if the Shared Service Organization is to effectively perform its mission to deliver high quality services to the Business Units.

Business unit accountability: Establish clear expectations up front

Setting expectations early on is critical for a successful transition of Finance processes from the Business Units to a Shared Service Center.  These expectations should be spelled out in a Service Level Agreement (SLA).  The SLA is not necessarily a legal agreement between the Business Units and the SSC, but rather a written understanding of the rights and responsibilities of each party.  The goals of the SLA are as follows:

1. Set expectations between the Business Units and the Shared Service Center
2. Enable performance monitoring
3. Provide a pricing mechanism for services
4. Provide an escalation path for issues
5. Allow parties to modify as needs change

Listed below are the major components of a Service Level Agreement: 

1. Processes and services provided
2. Key performance commitments
3. Key process and performance measures
4. Transaction volumes and process activity 
5. Service pricing and billing approach 
6. Dispute resolution and escalation clause
7. Roles and responsibilities of each party during transition
8. Roles and responsibilities of each party ongoing
9. Provision for scope changes and renewal

By creating a Service Level Agreement that clearly spells out the rights and responsibilities of each party, the Business Units can remain engaged with the processes rather than turning them over and absolving themselves of any responsibility.  The challenge is making the agreement specific and firm enough to provide clarity but flexible enough that it can be modified as the needs and capabilities of the parties changes over time.

Keeping business units accountable

One of the challenges of moving activities out of the business units and into a Shared Service Organization (SSO) is that the business units sometimes lose a sense of accountability.  They decide that they want to "wash their hands" of the processes since another group is handling them.  The truth is that business units need to manage the relationship with the SSO using many of the same techniques they would use with an outside service provider.  Of course, the relationship isn't exactly the same but many of the same principles apply.

So, what should business units do to stay accountable to the process?

1. Establish clear expectations up front,
2. Particpate in the governance framework,
3. Monitor performance based on expectations,
4. Provide timely and accurate feedback on performance,
5. Partner in continuous improvement initiatives.I

In future posts I'll discuss each of these points in greater detail.

Appointing a lead for the Shared Service Center

In a previous post I referred to a Shared Services and Outsourcing Network article on the Top 10 Mistakes When Implementating a Shared Service Center.  I wanted to add my thoughts around the issue of appointing a lead or "head honcho" for the Center early on.  It certainly makes sense to hire a dedicated Director for the Shared Service Center early on in the process.  Doing so has a number of benefits that are as follows:

1. Dedicated management.  A dedicated lead will devote 100% of his or her time to the task of developing the Shared Service Center.  This involves everything from ensuring a smooth build out of the facility to facilitating a smooth transition.
2. Personnel recruitment.  Ideally the Director will be able to choose their own team.  This can only occur if the hire is made early on.  The alternative is to let a manager who is not the permanent head of the Center to recruit individuals and then the permanent Director ends up leading a team they didn't choose.  This is not a recipe for success.
3. Training oversight.  Once a team is on-board, a permanent Director of the Center can ensure that their team receives the proper training.  For off-shore locations, this can also include language training as well as training around the specific functions and activities handled by the Center.
4. Process design.  An early hire ensures that the Director at least has a hand in the design of processes to be handled by the Center.  Sure there will be the functional experts and potentially outside consultants to handle the details, but the Director should be involved at a high level in the way the processes will be handled.
5. Transition support.  If a Director is hired up front, they have the big picture and can work to ensure that as technology is configured and processes are tested, that there can be a relatively smooth transition of the activities from the Business Units to the SSC.  They should also have the ear of the Director of the global Shared Service Organization when they need someone to run interference.

Organizations that are serious about setting up a Shared Service Center will make the hiring of a Center lead a high priority.  By doing so, they significantly increase the chances that they will have a successful deployment of the Center.

Why Shared Services is more than centralization of activities

When thinking about Shared Services, there is often confusion about what it really entails.  Of course, many companies are far down the road of creating and managing a Shared Service Organization (SSO) but others really haven't made the commitment to setting up a true SSO.  They may have gathered an activity such as accounts payable processing from the various business units and centralized them in a single location, typically at the corporate office.

One of the problems with this arrangement is that mere centralization of an activity is not a true Shared Service Center.  In centralization, the activity may be all under one roof, but it implies a bureaucratic mindset where the Business Units have to take what they get, there is no collaboration with the Business Units, there is no incentive for the group (in this case the accounts payable department) to continuously enhance service delivery while reducing cost, and costs are typically allocated back to the Business Units in a manner that has nothing to do with the volume and complexity of the services delivered.

In a true SSO, there is close collaboration between the Business Units and the SSO, the Center has the mindset of competing in the marketplace to deliver services at a competitive price, and there is a focus on continuous improvement to enhance delivery and reduce costs.

I believe it's wise to create a separate identity for the Shared Service Organization.  The most successful SSO's I've seen actually create a separate business unit for the group, so there is no doubt that they are in fact a business supplying services to the customers/partners.  They have their own budget and their own mission statement.  They are held accountable for delivering measurable savings  and delivery improvements year over year.  By creating a separate identity, there should be no confusion that this shift represents mere "centralization" but rather a separate business unit in the business of delivering value to its customers.

Should business units be able to "opt out" of Shared Services?

I'm sometimes asked by clients if it's acceptable to allow Business Units the choice of opting out of Shared Services.  My answer is "No" - with a caveat.

Part of the value proposition of Shared Services is the increased delivery effectiveness of standard processes.  It's difficult to get standard processes when some Business Units are going their own way.  Perhaps more importantly, a Shared Service Center requires scale to push down the per transaction cost.  If only some business units are participating then the potential efficiencies of the Center won't be realized.

But Steve, why should Business Units put up with sub-par performance for a greater cost then they could get in the open market?  The answer is that they shouldn't.  A Shared Service Organization that has been operating for at least three years should be very competitive on cost and delivery effectiveness.  My recommendation is that all business units should be compelled to be serviced by the Shared Service Organization for a set period of time, say three years.  This gives the Center time to integrate the processes and achieve the cost savings outlined in the business case.  If after that period of time the Center is still performing inadequately in some of its processes, a review should be undertaken to determine if the processes are better handled back in the Business Units, or if the process should be outsourced completely.

A newly formed Shared Service Organization legitimately requires time to get up and running, and it needs the full cooperation of the Business Units to achieve its goals.   At times this cooperation will need to be enforced from the top of the organization.  Without the full participation of the Business Units, the Shared Service Organization won't live up to its potential.

Technology support for Shared Services

It is often the case that the creation of a Shared Service organization coexists with the implementation or upgrade of an ERP package.  As the thinking goes, there must be an integrated and cohesive technology architecture before we can obtain value from a Shared Service Center.  While it would be ideal to have a single ERP system for the SSC and the business units it supports, it isn't absolutely necessary and a company could lose the benefits of moving to an SSC while it waits to implement a single system.

Deciding on the number of systems a Shared Service Center can and should accommodate will be different for every company.  It's clear that companies that have high performance focus on a single instance of a global ERP.  And yet a company with three or four different systems, or instances of the same ERP could still make the leap to Shared Services using the existing technology.  By doing so, they'll reap the benefits of scale and, to some extent, process standardization.  There are also intangible benefits such as better recruitment and retention of talent within the Center.

The real challenge comes when there are large disparities in the systems of the various business units.  This typically occurs over time when a company has grown through acquisition, but they didn't make the investment to move each business over to a common system in the period after the acquisition.  If a company finds itself in this situation, it could easily make sense to wait to launch a Shared Service Center until there is a merging of the existing technologies.

Top 10 mistakes when implementing Shared Services

The Shared Services and Outsourcing Network has an interesting article on the top 10 mistakes made when implementing a shared service center.  They are:

1. Not measuring costs or service levels before a move to shared services
2. Not documenting processes and work streams pre-implementation
3. Not appointing a full-time head honcho early in the process
4. Not focusing sufficiently on the transition period
5. Not having a robust project plan clarifying employee resources
6. Fighting the battles of yesterday, not those of tomorrow
7. Becoming bogged down standardizing technology and processes pre-implementation
8. Believing that “it’s already a centralized process: there’s nothing we should do”
9. Having no, or inadequate, risk management or monitoring
10. Omitting the "make versus buy" equation

I'll comment on various aspects of this article in future posts, but for now I'd like to discuss the first point - not measuring costs and service levels prior to the move to shared services.  This is a huge mistake because every business case I've ever seen for Shared Services talks about how much cost savings there will be and how much better the service delivery will be.  Unfortunately, if you don't have baseline performance metrics for the effectiveness and efficiency of your delivery, there's no way anyone will be able to substantiate how much cost was reduced or how much service delivery has improved.

I'm a strong believer in regular baselining of costs and comparing that performance to external data as a benchmarking exercise.  This should be a regular part of your operations, but it should certainly be done in advance of a move to shared services.

The article is long and I've only posted a summary here.  Here's the link for the full article:

Top Ten Mistakes When Implementing Shared Services

Shared Services: Customer or Partner?

In developing the framework for shared services in an organization, there are different approaches to how the recipients of shared service delivery should be treated.  Are the groups that receive services via a shared service center considered customers or partners?

As customers, the recipients of services ultimately decide if the services they're receiving are worth the price they're paying.  They can continue their relationship with the service center or they can go outside the company to obtain the services if they're better or cheaper.  From the Center's perspective, they are competing against numerous choices in the market and they need to be better, faster and cheaper than the competition.

As partners, the recipients have a great deal more influence in how services are delivered.  They help shape the service level agreements that govern the behavior of both parties.   They are actively engaged with the shared service organization to craft delivery capabilities and cost structures that will enable the business units to remain competitive.  They are not as concerned with comparing the shared service organization to outside suppliers, although they are mindful of what the market is providing and the cost for providing those services.

So which is it: Customer or Partner?  I believe the choice is a false dichotomy.  The truth is that it's both.  It benefits the company overall when the shared service organization and the business units it supports work together to create the right delivery and pricing model.  It works more efficiently when there is on-going dialogue between the parties to ensure that any issues that crop up are solved quickly and that the long-term direction of the service organization is in line with the strategic goals of the business.

Having said that, it's important for a shared service organization to never lose sight of the fact that the business units are in fact paying for the services and that they deserve to have the best service for the lowest possible price.  To approach it otherwise would be to regress to a bureaucratic mentality that was supposed to be eliminated through the move to shared services.  The most successful shared service organizations are the ones who constantly strive for solid service delivery and a competitive cost structure, while simultaneously partnering with the business units to create a mutually beneficial solution.

Collecting baseline Finance data

In a previous post on the challenges of collecting baseline data for use in benchmarking, I covered five points to overcome in the collection of data.  In this post, I'll capture a few quick points to keep in mind when collecting data.

1. Collect data based on a predefined taxonomy.  A taxonomy is simply the classification of activities in an organization.  For example, in Accounts Payable, some of the activties that would be defined include invoice receipt, invoice entry into the A/P system, printing the check or creating the EFT, and sending the payment.  It's important that data be collected in the same way it will be compared to the benchmark data.  Otherwise you'll have an Apples to Oranges comparison.  So it really makes sense to understand the data set for benchmarking that you'll be comparing your baseline data with.  Many industry organizations have benchmark data available to their members.  Many consulting organizations also have benchmark data for use.
2. Define FTEs in terms of activities, not titles.  I touched on this in a previous post, but it can't be emphasized enough that the FTE and cost capture needs to be based on activities, not titles.  If you have an Admin Assistant in a Business Unit that is responsible for opening all the mail and forwarding vendor invoices to the B.U.'s payables group. then that person is a partial FTE for Accounts Payable.  This is a common cause of missing FTE, and the related costs, during a baseline exercise.  Spread over a large organization, these discrepancies can be substantial.
3. Scrub data and perform additional research.  There are certain guarantees in life:  Death, taxes, and that cost data submitted will be incomplete and flat out wrong.  You'll ask for cost data in one format and you'll get it in another.  Departments will combine different categories of FTE and costs that you wanted broken out.  They'll leave blanks when common sense tells you they must have someone performing that activity.  Your job is to identify all of these possible discrepancies and track them down.  In a perfect world you wouldn't have to do it, but hey, we all know how that works.

By keeping these three points in mind, the quality and comparability of the data you collect will be greatly enhanced.

Baselining the Finance cost structure

You would be amazed at the number of companies I go into who have little to no idea what they're spending on the Finance function.  There are several reasons for it but there really is no excuse.  Without understanding what is currently being spent to deliver Finance services across the organization, companies have no idea where they stand relative to high-performing companies or which areas they should focus on first to gain efficiencies and reduce cost.

Some of the reasons for this include:

1. Absence of a mandate to cut inefficiencies out of the Finance organization.  In an era when CFOs are being asked to do more with less, this seems like an unlikely proposition.  And with the poor economy it's even less so.  However, there are still Finance organizations that don't have an ongoing mandate to continuously cut their costs.  Without a mandate, there is little incentive to understand the existing cost structure.  Even if the CFO wants to cut costs, and who doesn't, it won't happen until it becomes a highly visible initiative.  Very few managers want to voluntarily cut costs in their organizations, so it won't happen unless they are pushed.
2. Vague definition of what constitutes a Finance process.  In some organizations the Finance organization is fragmented, with many resources residing in the Business Units.  Even within Corporate, some Finance resources can reside in areas directly outside the control of the CFO. Yes, I know this seems incredible but I have personally witnessed it.  Some organizations consider customer invoicing to be in Operations; most consider it a Finance function.  Is manufacturing costing part of the manufacturing process, or is it part of Finance?  If a company intends to use the cost data it captures for the purpose of benchmarking, and it should, then the company will need to understand which processes are typically captured in Finance benchmark data.
3. Existence of a "shadow" organization.  When collecting cost data on the Finance function, it's not always easy to track every FTE, or partial FTE, that has a role in the Finance function.  Many times people in the Business Units wear multiple hats, and even the most determined effort may miss people who are contributing to Finance.  They often have titles that would indicate they are part of a different organization outside of Finance.  A common example are personnel in the Business Units that actually perform some type of financial analysis but have a non-Finance title.
4. Inaccurate definitions of what constitutes a cost of Finance.  When collecting the cost to deliver Finance services, it isn't enough to look at salaries and benefits.  There are always support costs that should be incorporated into the cost calculation.  If they're not doing so already, CFOs need to think about their operations as an independent business.  If it were truly a separate business, what are all the costs that would go into running it?
5. Political resistance.  Sometimes people don't want you to know what Finance resources exist in their operations (see "shadow" organization above).  Many managers know that the baseline costs you collect can be used to make decisions that impact them.  For instance, the decision to outsource an entire function will be based in part on what you're spending today on that process.  Since not every manager will be completely forthcoming about their staff and expenses, it's important for the individuals collecting the data to review it with a skeptical eye.  Does the data make sense?  If not, it's important to go back to the source and push harder for explanations.

Baselining the cost of Finance should be an on-going process as part of a continuous improvement effort.  Only when costs are accurately tracked can a Finance organization begin its journey to high performance.  In a subsequent post, I'll discuss the costs that should be tracked as part of this effort.