Metric of the Month: The Cost of General Accounting

Top-performing organizations spend just one quarter of what the poorest-performing organizations spend on total process cost.
Mary DriscollFebruary 13, 2017

In some organizations, general accounting processes run like well-greased machines, and when adjustments to the process model are needed, the changes are not unwieldy. In others, it seems there’s always the need to call in a mechanic to keep the gears moving smoothly. Constantly “fixing” things can get expensive. Toss in business model changes and sizable product line extensions and workflows can get all gummed up, sending costs soaring.

So, who’s in a position to win and who’s not? According to APQC’s Open Standards Benchmarking data on general accounting, top-performing organizations spend just one quarter of what the poorest-performing organizations spend on total process cost.

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METRICOFTHEMONTH2In a sample of 915 companies, the top performers spend 47 cents (or less) per $1,000 in revenue compared to the $1.98 (or more) per $1,000 in revenue shelled out by the laggards. That expenditure includes personnel, systems, overhead, and other items, internal and external, involved in the process. Think of it this way: an organization with $5 billion in annual revenue could save at least $7.55 million per year if it can make it from the bottom-performance group into the top-performance category.

Sample definitions: The top performers represent the best 25% of organizations in the test; the number stated for them indicates the percentile level above which all the winners operate. The bottom performers do worse than 75% of all other survey takers. The median is the middle of the range captured.

It’s Tough to Make Progress

In a complex organization, cost-reduction in general accounting is already a tough nut to crack. Multinationals are typically plagued by a crazy quilt of systems, processes, and data definitions as they wrestle with multiple legal entities. The situation is worsened when strategy-driven change is introduced. All too often, the result is more humans doing more manual data entry.

Some corporate controllers embrace the view that one must never rest when it comes to cutting accounting process costs. But beyond maintaining a constant cost vigil, it’s vital to figure out why you’re burdened by the specter of expensive people doing menial tasks and convoluted work flows that slow things down.

Try studying the accounting process by assessing the manual journal entry line item percentage. The bottom performers in the APQC metric tend to do nearly one-third of all such entries by hand, which requires an army of FTEs. Among top performers, the percentage is 10% or less.

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In this case, a high level of manual processing opens the door for error and fraud, and it’s expensive: Labor-related costs can consume two-thirds of the total costs of running a basic financial process.

Worse, manual accounting tends to become a self-perpetuating cycle of paper-based processes and poorly designed work flows, which lead to even more manual interventions. Manual interventions will never go away, but they should be the exception rather than the heart of your general accounting process.

If your finance organization is trapped in a manual accounting rut, how best to break out? The use of a standardized process framework, common data model, a streamlined chart of accounts, regular process measurement, and automation can go a long way. Ultimately, the CFO may need to bear down and overhaul the infrastructure of general accounting.

Mary Driscoll is a senior research fellow in financial management at APQC, a nonprofit business benchmarking and research firm based in Houston.