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News < Back Sarbanes Oxley : Finance : Back Office Finance Costs Rise By 18 Percent
Typical companies now spend 1.26 percent of revenue on the finance function. This is the first time in Hackett's 13-year history of benchmarking that finance costs have risen for typical companies. The first look at Hackett's 2005 Book of Numbers analysis found that typical companies now spend $940,000 per billion dollars of revenue on compliance management, while world-class companies spend 36 percent less. According to Hackett, world-class CFOs rely on standardization and reduced complexity to more effectively manage compliance costs. As a result, leading CFOs have continued to see reductions in the total cost of finance over the past two years. Hackett's research also found that world-class finance organizations now spend 42 percent less in the finance function than typical companies, and have 44 percent fewer finance staff. The Hackett Group is a world leader in best practice research, benchmarking, and advisory services that empower executives to achieve world-class enterprise performance. Hackett offers analysis and insight backed by metrics derived from 3,300 benchmark studies over 13 years at nearly 2,000 of the world's leading companies, including 93 percent of the Dow Jones Industrials. "Clearly, CFOs are being challenged as never before by the demands of regulatory compliance, specifically Sarbanes-Oxley and other global compliance initiatives such as IFRS," said Hackett's Chief Research Officer Richard T. Roth. "For most CFOs, the resources and focus required to comply have turned the tide of more than a decade of efficiency improvements and caused an increase in the total cost of finance. At many typical companies, the bright-line focus on compliance has forced them to put alignment initiatives and support of the business on the back burner. World-class CFOs, on the other hand, have been able to better manage through this period. While they've also seen a rise in compliance costs, they have continued to improve overall efficiency and effectiveness." According to Hackett's research, world-class finance organizations now spend 42 percent less than typical companies overall (0.73 percent of revenue versus 1.26 percent). Typical companies have seen an 18 percent increase in total finance costs since 2003, while world-class finance organizations have seen a 5 percent drop during the same period. Compliance costs have risen significantly for both world-class and typical companies since 2003. World-class now spend 36 percent less on compliance than typical companies (.060 percent of revenue versus .094 percent). For instance we see that the typical company is spending an additional $340,000 per billion in revenues or a total of $940,000 per billion in revenues for additional internal finance and external resources to meet today's compliance requirements. However, these figures are just the tip of the iceberg. Hackett believes that average companies are spending an additional amount, potentially equal to or greater than the compliance management costs on key control activities. These activities would include documenting, testing and potentially remediating key controls throughout the business. World-class finance organizations now operate with 44 percent fewer staff than typical companies (63 employees/billion of revenue versus 112). More than half of the overall spending gap between world-class and typical companies is attributable to lower labor costs, despite the fact that world-class finance organizations pay staff more, with fully-loaded wage rates 11 percent higher than typical companies ($79,345 versus $71,411). According to Hackett, this higher wage rate is an indication that world-class finance organizations are changing their staffing profile, employing more skilled employees capable of delivering higher-value finance activities. World-class finance organizations also spend 63 percent less than their peers on technology. However this is not because they use less technology. Rather, they make better use of technology they have by simplifying and optimized their infrastructure. For example, world-class finance organizations rely on just one enterprise-wide finance platform, while typical companies rely on two. World-class finance organizations also process a larger percentage of their payments electronically, and rely on online systems for T&E submissions more than twice as often as typical companies. Across a range of effectiveness metrics, world-class finance organizations show superior performance. World-class companies are more than twice as likely as typical companies to play a proactive role in decision-making, and 90 percent of all internal customers at world-class firms believe that cost analysis provided by finance is "on target" and makes a positive contribution to the effort of decision-making. World-class finance organizations are also significantly more likely to be viewed as a business partner by executives in other areas of the business. According to Hackett Finance Practice Managing Director Mark Krueger, "The drive towards compliance is by no means over. Sarbanes-Oxley compliance is still very much a moving target. It's possible that the SEC will now begin work on making Sarbanes-Oxley more 'business friendly.' Companies will welcome this, but it may also mean more work. What is also clear is that every firm will need to adopt sophisticated risk-management tools that evaluate risk on the front-end as well as monitor and report control risks and variances in a real-time environment. In addition, companies will also want to continue efforts to streamline close and reporting processes and elevate financial statement review and signoff procedures to the audit committee to reduce the potential for severe financial penalties and even executive indictments for financial reporting lapses, which some companies have already seen. "While typical firms are still focused on driving cost out of transactions, world-class finance organizations are far down the path toward providing better value to the organization as a whole through high levels of best practice utilization, standardization of business processes and practices company-wide and extensive improvements in planning and analysis, compliance and risk management. Their efforts are clearly paying off," said Mr. Krueger. The Hackett Group's research into world-class performance is compiled in its Book of Numbers series, which provides senior executives fact-based performance metrics and insights based on Hackett's extensive database of best practices and process metrics in finance, IT, HR, procurement, and other areas. Hackett Book of Numbers volumes are available to members of Hackett's World-Class Programs -- premium-value, membership-based programs providing a tailored mix of benchmarking services, confidential advisor inquiry, best practices research, and peer learning opportunities. For more information visit www.thehackettgroup.com The Hackett Group, a business process advisory firm and an Answerthink company, is a world leader in best practice research, benchmarking and advisory services that empower executives to achieve world-class enterprise performance. Only The Hackett Group empirically defines world-class performance in sales, general and administrative (SG&A) and supply chain activities with analysis gained through 3,300 benchmark studies over 13 years at nearly 2,000 of the world's leading companies. The foundation of Hackett's benchmarks, transformation services, and membership-based advisory programs is our proprietary database of Hackett-Certified(SM) Practices, approaches which are proven to correlate with superior performance metrics. This unparalleled knowledge repository enables Hackett business advisors to provide data, advice, and strategic insight with a level of integrity and authority available nowhere else. As of this writing, Hackett clients comprise 93 percent of the Dow Jones Industrials, 76 percent of the Fortune 100 and 90 percent of the Dow Jones Global Titans Index. Hackett-Certified and Book of Numbers are service marks of The Hackett Group. This press release contains "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and involve known and unknown risks, uncertainties and other factors that may cause Answerthink's actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward looking statements. Factors that impact such forward looking statements include, among others, the ability of the products and services mentioned in this release to deliver the desired affect to state governments, our ability to effectively integrate acquisitions into our operations, our ability to attract additional business, our ability to effectively market and sell our recently launched transformation advisory product offerings and other new services, the timing of projects and the potential for contract cancellations by our customers, changes in expectations regarding the information technology industry, our ability to attract and retain skilled employees, possible changes in collections of accounts receivable, risks of competition, price and margin trends, changes in general economic conditions and interest rates as well as other risks detailed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2004 filed with the Securities and Exchange Commission. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. 
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