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.

How?

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.

What CFOs need to consider

While developing an effective response to today’s economic challenges, CFOs can consider actions in two areas that can help support a leaner, more cost-efficient finance function without sacrificing capabilities.

Look at organizational scaling

Another area that can drive significant cost savings: optimizing the workforce. This includes rationalizing management layers and reducing corresponding office space. Review which skills and how many employees are critical to achieving business goals. From there, reset performance expectations at both the individual and departmental level. Consider redesigning and streamlining roles and reporting lines based on spans-and-layers analysis. In addition, leverage offshore resources and outsource operational activities where possible.

What’s the potential value?

KPMG research suggests that improving from the bottom quartile to mean of finance operational costs per full-time employee (FTE) can translate into potential savings of around $7 million for a finance function with 100 FTEs.

Look at process and technology efficiency

Want to reduce cost in an expedited manner? Consider building and adhering to global process standards, leveraging off-the-shelf technology, and applying rigorous performance management. 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.

Use data-driven insights as the foundation for rapid cost optimization. Up-to-date technologies make it possible for finance teams to triage short- and long-term actions and help identify new automation opportunities for accounting functions and reports.

What’s the potential value?

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.

Footnotes

Source: “The hottest U.S. inflation in 40 years shows little sign of cooling off,” MarketWatch, September 13, 2022
Source: “Federal Funds Rate History 1990 to 2022,” Forbes Advisor, September 21, 2022
Source: “KPMG 2022 U.S. CEO Outlook”