Outsourcing: Preparation is vital

A survey of European and US companies has found that less than half consider outsourcing financial functions to be cost-effective.

About 44 per cent of companies that have outsourced financial functions say they have saved a moderate amount, according to a new study from PricewaterhouseCoopers. Another three per cent say they have saved a great deal.

However, 31 per cent of the companies see limited or very little financial benefit to outsourcing; nine per cent believe they are breaking even; and four per cent say they are losing money.

About 77 per cent of US companies say they have outsourced financial functions in the past two years, the survey said, while 72 per cent of their European counterparts have done so.

While companies are finding mixed financial benefits to the practice, they're still interested in outsourcing, the study found.

Nearly 75 per cent of American and European corporations that use outsourcing to support their financial functions will continue to do so over the next two years, according to the survey. About 29 per cent of these companies expect to increase their use of outsourcing of financial functions, with spending likely to be 16 per cent higher than present levels, the survey found.

A PwC representative said the disconnect between the outsourcing push and the financial results is mostly due to lack of planning on the companies' part.

Dan DiFilippo, performance improvement analyst at PwC, said in a statement: "Many multinational companies that outsource financial functions do not find it to be cost-effective. Companies that turn to outsourcing for cost savings should conduct comprehensive feasibility studies to better understand their potential return on investment. Many companies enter outsourcing arrangements without conducting a proper cost-benefit analysis."

The study, done in the third quarter, is based on interviews with 127 chief financial officers and managing directors of European companies and 151 of such executives at US companies.

The study also reported that companies face difficulties in calculating return on investment. A majority of those with difficulty estimating their return said they would have benefited from monitoring process improvement or conducting an initial feasibility study with a cost-benefit analysis.

Dinesh C. Sharma writes for CNET News.com.