Budgeting and analysis Fixed assets accounting Internal audit Tax

The objectives of a highly efficient and effective finance function are to provide users (senior management, board of directors/partners, operations, and outside constituencies) with the right information, at the right time, and in the right format. PricewaterhouseCoopers Global Best Practices® created a benchmark report profiling companies in the $7 million to $486 million range with the average at $195 million. This report attempts to understand the mul-tifaceted characteristics of a finance department through benchmarking. Their report includes the following critical best practices benchmarking data:

Total finance department cost as a percentage of revenue

Total finance head count as a percentage of total

Finance department cost as a percentage of revenue by process

As reflected in Exhibit 2.12, if the percentage is above the benchmark groups median, it may indicate:20

0.0 0.5 1.0

a> 1.5 Ц 2.0 °~ 2.5 3.0 3.5 4.0

1st Quartile

2nd Quartile

;3rd Quartile ?

4th Quartile

Benchmark Group

Min .14% Median 1.57%

Max 3.79%

Exhibit 2.12 Total Finance Department Cost as a Percentage of Revenue

Revenue is disproportionate to the cost.

Compensation to the finance and accounting staff may be high. Excess staffing exists. Processes are highly decentralized. Technology is underutilized.

Exhibit 2.13 represents the most favorable percentage in the benchmark group.21 Firms can improve performance on these measures by reducing costs to operate the departments. Strategies to accomplish this may include redesigning work processes to eliminate the causes of errors and wasted time, implementing technology that speeds the transactions, and addressing excess labor costs.

The measures in Exhibit 2.14 represent the number of finance employees relative to the organization as a whole and whether the finance departments are staffed to adequately address the firms needs. This percentage can be used as an indicator of the departments ability to design and plan work effectively.22

Leading companies improve performance on this measure by increasing the expertise and productivity of the finance professionals, while reducing the total number of finance employees. Strategies to accomplish this may include

Exhibit 2.13 Finance Department Cost as a Percentage of Revenue by Process

2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0

Kwwwv 3rd Quartili I.........I

1st Quartile

2nd Quartile

Quarti e

Benchmark Group Min .43%

Median 3.88% Max 13.89%

Exhibit 2.14 Total Finance Head Count as a Percentage of Total Business Unit Head Count

centralizing the finance functions; implementing technology that reduces routine, repetitious work; and employing fewer staff in total, while elevating the level of expertise for each position.23

benchmarking information technology

Information technology is one area where there is nearly universal agreement: Costs are both mysterious and confusing. Executives generally do not know how to determine what their firms IT costs should be. We provide some guidance to help answer the following questions:

What are considered reasonable IT expenses?

What are the key drivers of IT costs?

What is a reasonable spending level for the IT function?

Measuring Information Technology Expenses* IT expenses in a professional services firm should be considered as a percentage of revenue. For example, in a mid-size firm, IT costs should range from 1 percent to 3 percent of revenue. This is a key metric used in all organizations and is a helpful planning and benchmarking tool. Remember, though, that the range can be significant based on the nature of the users and the type of business. The