Costs are rising across the board as the US economy continues to emerge from a short but deep recession, and labor costs are no exception to this trend. Many employees who kept their jobs in 2020 were happy to stay, but 2021 is a new year and the job market is much more competitive. While you should be prepared for rising labor costs, savings can be made in other areas while ensuring finance employees deliver value through the work you do. they perform.
Allocation of Finance Staff Costs
Personnel costs include employee compensation costs (salaries and wages, bonuses, overtime and benefits) as well as company contributions to pension, workers’ compensation, insurance and employee stock purchase. Incidental expenses also include special allowances, such as moving expenses and car allowances.
APQC finds that across industries, staffing costs for finance FTEs can range from around $45,000 per finance function FTE to over $108,000 per finance function FTE at the high end.
These numbers vary slightly by industry. The median staff cost of a finance FTE in the banking industry is approximately $3,000 lower than that of the same FTE in the automotive industry. As always, we recommend benchmarking costs against your industry peers and organizations with similar revenues to put expenses into context. Regional differences, as well as worker knowledge and experience levels, will also be a factor for the benchmarking context.
With labor costs rising, it’s more important than ever to ensure you’re getting the most out of finance FTEs. Generally speaking, this is a group of highly qualified and highly skilled professionals. Spinning them on high-volume, transactional tasks does them and the organization a disservice, especially because disengaged and dissatisfied finance employees will likely seek better work elsewhere.
While maximizing the value of the work done by finance FTEs, you’ll want to offset rising labor costs by finding potential savings in other finance areas. Some of the most effective approaches involve reducing or eliminating process bottlenecks, rework, redundancy, and other inefficiencies, and automating manual processes wherever possible.
Seek process improvement
Even the most skilled finance professionals will be hampered by interrupted processes, confusing transfers, or multiple versions of the truth for data. Large organizations work continuously to document, streamline, standardize, and provide governance for financial processes. Standardized and properly documented processes, a standard chart of accounts, and common definitions of financial data can all help finance save time and money.
Transaction processing easily consumes most of the finance function’s time allocation. Fortunately, there are at least two paths organizations can take to free up space for higher value work.
First, we have found that large organizations (especially those that are larger and operate in multiple countries) often set up shared service centers to carry out transactional finance processes like accounts payable.
Shared service centers help reduce redundancy, standardize processes, develop expertise and provide higher levels of service. Sending these processes to shared services allows internal finance talent to spend more time on activities such as scenario planning, data analysis, and business partnerships, which help leaders make better decisions and increase the value of finance to the business.
A shared services model isn’t right for all organizations, but almost any business can benefit from some form of automation. Automated solutions now exist for many financial processes, from accounts payable to cash to travel expenses and beyond. When finance employees do not manually enter data to perform these processes, cycle times decrease while efficiency and productivity increase.
Reduce system complexity
In addition to people, processes, and the service delivery model, it’s important to look at the systems environment to ensure these costs don’t spiral out of control. For example, it’s not necessarily “bad” to have more than one enterprise resource planning (ERP) system, especially when a single ERP can’t meet the diverse requirements across multiple business units. But there are costs associated with every ERP system the organization runs, which include implementation, training, and IT overhead costs.
System complexity is often difficult to avoid in the case of mergers and acquisitions. For this reason, it’s wise to have a roadmap for integration and a game plan for retired systems. Working to avoid a proliferation of systems will reduce costs, keep data cleaner, and reduce the likelihood that finance teams will spend time bringing together data from multiple disparate systems.
It is more likely than not that staff costs related to finance, as well as costs in other areas of your business, will soon increase if they haven’t already. Finding opportunities for improvement will help you better manage costs and also give finance employees more time so they can give you more value in return.
Perry D. Wiggins, CPA, is Chief Financial Officer, Secretary and Treasurer of APQCa nonprofit benchmarking and best practices research organization based in Houston, Texas.