Upfront: Forecasting Improves, While Closing Cycles Suffer

The drive to comply with the Sarbanes-Oxley Act has been a double-edged sword in the battle to improve corporate finance processes. Many companies have increased the reliability of their forecasting. But new research by Atlanta-based The Hackett Group indicates that closing cycles have extended slightly and that most businesses have been unable to reduce their overall finance costs.

Hackett's "2004 Finance Book of Numbers" reports that more than two-thirds of all companies are confident in their financial forecasting and reporting outputs. Only 9 percent of companies classified as average -- and just 33 percent of companies that Hackett considered "world-class" -- made the same claim just a year ago.

That's the good news. The bad news is that the cost of finance is not falling. Organizations that are middle-of-the-road in terms of process efficiencies now spend 1.08 percent of corporate revenue on finance. Although that number has fallen by 44 percent since Hackett began its research in 1992, these companies have seen little net reduction in costs since 2002. World-class companies currently spend 0.74 percent of revenue on finance. That's 31 percent less than their average peers pay, but it's slightly higher than the 0.72 percent best-practice companies spent on the function two years ago.

According to Hackett, businesses are still finding ways to cut costs, but their increased spending on compliance activities is largely offsetting the savings. At average companies, spending on compliance has risen 29 percent since 2003, from 0.07 percent of overall revenue to 0.09 percent.

The research also shows that the long-term trend toward shorter closing cycles reversed in 2004. Both average and world-class companies now need more than a week to close their books each month. For average companies, the typical monthly close time rose from 5.2 days in 2003 to 5.5 days in 2004. Top-tier companies saw an even greater percentage increase, from 4.3 days last year to 5.1 days now.