Costs are rising across the board as the U.S. economy continues to move forward 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 put, but 2021 is a new year and the labor market is much more competitive. While you should prepare for rising labor costs, it’s possible to find savings in other areas while ensuring that finance employees are delivering value through the work they carry out.
Breaking Down Finance Personnel Costs
Personnel costs include employee compensation costs (salaries and wages, bonuses, overtime, and benefits) as well as company contributions made toward the employees’ retirement, workers’ compensation, insurance, and stock purchase plans. Fringe costs also include special allowances, such as relocation expenses and car allowances.
APQC finds that across all industries, personnel cost for finance FTEs can range from about $45,000 per finance function FTE on the low end to more than $108,000 per finance function FTE on the high end.
These figures vary slightly by industry. The median personnel cost of a finance FTE in the banking industry is about $3,000 less than the same FTE in the automotive industry. As always, we recommend benchmarking costs against industry peers and organizations with similar amounts of revenue to put spending in context. Regional differences, as well as worker knowledge and experience levels, will be a factor for benchmarking context as well.
With the costs of labor going up, it’s more important than ever to make sure you’re getting the most value from finance FTEs. Broadly speaking, they’re a highly skilled and highly credentialed group of professionals. Having them spin their wheels on high-volume, transactional tasks does a disservice both to them and to the organization, especially because disengaged and dissatisfied finance employees will be likely to seek more engaging work elsewhere.
While maximizing the value of the work finance FTEs carry out, you’ll want to offset increasing labor costs by finding potential savings in other finance areas. Some of the most effective approaches involve reducing or eliminating process bottlenecks, rework, redundancies, and other inefficiencies, and automating manual processes to the extent possible.
Look for Process Improvement
Even the most skilled finance professionals will be hampered by broken processes, confusing hand-offs, or multiple versions of the truth for data. Leading organizations work continuously to document, streamline, standardize, and provide governance for finance processes. Standardized and adequately documented processes, a standard chart of accounts, and common finance data definitions can all help finance save time as well as money.
Transaction processing easily consumes the largest share of the finance function’s time allocation. Fortunately, there are at least two pathways that organizations can take to clear space for more value-added work.
First, we’ve found that leading organizations (particularly those that are larger and that operate in multiple countries) often set up shared service centers to carry out transactional finance processes like accounts payable.
Shared service centers help to reduce redundancies, standardize processes, develop expertise, and provide higher service levels. Sending these processes to shared services lets in-house finance talent focus more time on activities like scenario planning, data analysis, and business partnering, which help leaders make better decisions and increase finance’s value to the business.
A shared services model isn’t right for every organization, but nearly any business can leverage some form of automation. Automated solutions now exist for many finance processes, from accounts payable to treasury to travel expenses and beyond. When finance employees aren’t manually keying in data to execute these processes, cycle times go down while efficiency and productivity go up.
Reduce Systems Complexity
Along with the people, processes, and service delivery model, it’s important to scrutinize the systems’ environment to make sure that those costs aren’t spiraling 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 diverse requirements between multiple business units. But there are costs associated with every ERP system the organization has running, which include the costs of implementation, training, and IT overhead.
Systems complexity is often difficult to avoid in the case of mergers and acquisitions. For that reason, it’s wise to have a roadmap for integration and a game plan for retiring systems. Working to avoid a proliferation of systems will bring costs down, keep data cleaner, and make it less likely that finance teams are spending time pulling together data from multiple disparate systems.
You’re more likely than not to see the personnel cost of finance — along with costs in other areas of your business — increase soon if they haven’t already. Finding improvement opportunities will help you better manage costs and also give more time back to finance employees so that they can give you more value in return.
Perry D. Wiggins, CPA, is CFO, secretary, and treasurer for APQC, a nonprofit benchmarking and best practices research organization based in Houston, Texas.