10 Steps to Benchmarking a Finance Function

Benchmarking the finance function of an organisation is a vital step prior to any large scale outsourcing, shared service centre or tranformation programme. In this brief article I would like to share my thoughts on why such an initiative should be considered, what must be done to execute it and finally what are some of the key areas to watch out for.

Prior to proceeding to perform data collection, there must be a clear value proposition as to why such an activity should be undertaken. In any shared services or outsourcing or transformation initiative, these value propositions have to be captured clearly so as to provide direction to the benchmarking effort.

When performing a benchmarking effort, it is important that the benchmarks may not necessarily be to compare it to peers/competitors but also internally amongst business units or companies.

The steps in performing benchmarking is as follows:

1. Select the benchmark provider: the initiative would have no meaning if there was no benchmark data to which the organisation can be measured. Benchmarking data is provided by numerous benchmarking providers with the big ones being APQC and Hackett.
2. Determine the scope of the data collection: It is important to strike a balance between the impact of an onerous data collection effort and the risk of not collecting sufficient data of the right quality to complete the opportunity assessment with confidence. It is critical to define the scope and understand which regions/countries, operating units/divisions/agencies, business processes, and IT functions are to be considered.
3. Determine the type and level of data to be collected: typical data elements that are captured on a finance function benchmarking exercise are costs by function, headcount by function, transaction volumes by function, and transaction volumes by FTE.
4. Develop data collection tools: spend time on creating detailed data collection tools. Avoid ambiguity in the data requested for. Most often than not the business units that are completing the data requests would not have completely bought into the value proposition, hence it is important to ensure that the collection are clear.
5. Define the data collection process: It is vital that the data collection process be designed, documented and shared with all the participants. Consider running a one day workshop to brief all of the stakeholders on the value proposition and the approach for the data collection. Note: it is possible that during the communication, it is determined that a lot of the data that is required may already be available through MI systems.
6. Review the data collection approach: it is important that the data collection plans and approach is shared with the executive sponsors. This is primarily performed to ensure that the initiative aligns with stategic objectives and the value proposition.
7. Pilot or Test the data collection approach: It is important to test the data collection process with at least one unit/function combination to ensure that the instructions are clear, the support function or help desk is working appropriately, and any additional unforeseen issues are addressed before conducting the full survey.
   Key considerations at this stage include:
   o Ensuring the clarity of all data definitions
   o Developing a method for checking data integrity
   o Assessing the time required to roll the benchmarking process out across all the required functions/operating units.
8. Launch and manage the data collection process: here the importance is on constantly monitoring the effort and to prevent business units slacking off. Consider creating a helpdesk to address any questions that are faced by the business units.
9. Analyse Data, Identify Performance Gaps and Prioritise Areas of Focus: Determine the potential for improvement opportunities by calculating the gap between current company performance and benchmark performance. Closing the gap between current and average benchmark performance will result in a different risk/reward profile from a project that strives to achieve first quartile benchmark performance. The Assess phase must evaluate these tradeoffs and recommend a feasible and acceptable path forward. Identified performance gaps should drive specific improvement initiatives. Vague statements of relative performance will not ensure delivery of required improvements.
10. Prepare Final Benchmarking Report: A substantial level of effort is required to interpret benchmarking results and organize the data in a way that can be presented to the organization in an informative and trustworthy manner. The final benchmarking report is a critical component of the Assess phase and will likely have a significant influence on the decision to move forward. Explanation of current performance and alignment to improvement initiatives will bring this to life for key executives.