Steps to create a leaner, more cost-efficient finance function
It’s no secret: High inflation, the Russia-Ukraine war, energy market volatility, and supply chain disruptions are fueling the risk of a global financial downturn.
In fact, U.S. inflation is at its highest rate in 40 years.1 Inflation rates are expected to remain elevated for much of the year. And the Federal Reserve is raising interest rates at the fastest pace since the 1990s.2
In the KPMG 2022 U.S. CEO Outlook (released in Q4’22), 91 percent of U.S. CEOs said they’re convinced we are heading toward a recession in the next 12 months.1 Opinions differ about the severity and length of the recession, with only a third of U.S. CEOs surveyed (34 percent) believing that it will be mild and short.
CFO as change leader
It adds up to an opportunity for the CFO to take a proactive role as a change leader focused on business sustainability and transformation. In other words, the CFO needs to “play offense” against recession risk.
By thinking today about cost optimization within the finance function. Set clearly defined goals and individual assignments to help ensure accountability. All the while, continue supporting long-term strategies for future growth that align the company’s core value drivers with business process.
Process and technology efficiency
Building and adhering to global process standards, leveraging off the shelf technology, and applying rigorous performance management can significantly reduce cost in an expedited manner. This includes eliminating duplicate processes and policies that are nice to have, but not critical for finance operations, and identifying efficiency losses due to process variability.
Data-driven insights should be the foundation for rapid cost optimization. Up-to-date technologies can enable finance teams to triage short- and long-term actions and help identify new automation opportunities for accounting functions and reports.
Potential savings: According to KPMG research, moving a finance organization from the bottom quartile to the median in terms of operational costs as a percentage of revenue can translate into potential savings of $5 million for a $1 billion revenue company.
Optimizing the distribution of your workforce can also lead to significant cost savings. This includes rationalizing management layers and reducing corresponding office space. Finance leaders can review which skills and how many employees are critical to achieving business goals and reset performance expectations at both the individual and departmental level. Roles and reporting lines can be redesigned and streamlined based on spans-and-layers analysis. In addition, finance leaders can leverage off-shore resources and outsource operational activities where possible.
Potential savings: KPMG research suggests that improving from the bottom quartile to mean of finance operational costs per FTE can translate into potential savings of around $7 million for a 100-FTEs finance function.