How to Benchmark Internal Controls

Following my recent presentation at a conference of finance executives, a member of the audience asked, "What is the typical cost of a program for internal control over financial processes?" He continued, "Is there a way to benchmark these costs?"

Benchmarking. An often-uttered word. One that indicates that we are serious executives -- that we are doing what it takes to optimize our programs. But how does it really work and what does it really do for us?

The concept of benchmarking is great, but before we can benchmark we need to define the outcomes that we hope to deliver. By way of example, when evaluating call center metrics, the starting point is understanding customer satisfaction (or some similar indicator). Without this top-level indicator of the outcome we hope to generate, it's impossible to evaluate other indicators such as cost. In a vacuum, spending $100 to resolve a customer problem is superior to spending $200 to resolve the same customer problem. However, the "vacuum" does not exist. If the $200 resolution delivers 95 percent satisfaction and the $100 resolution delivers 50 percent satisfaction, most executives would choose the former.

So what does that mean for us? As financial professionals, we must define the outcomes that we hope to achieve through our internal control programs, as well as indicators of success. Only then can we even begin to benchmark our costs, cycle times and other program attributes in a meaningful way. To engage in a benchmarking effort without taking the time to first establish clear outcome expectations is putting the cart before the horse -- the time and resources spent will be wasted.