Upfront: Is Outsourcing Finance Cost-Effective?

A surprising number of companies say no.

Businesses continue to turn key finance processes over to third-party providers, yet fewer than half of organizations that have outsourced all or part of their finance function consider the strategy cost-effective, according to a PricewaterhouseCoopers survey of CFOs and managing directors of multinational companies headquartered in the United States and Europe.

Forty-seven percent of respondents reported that their company has saved either a moderate amount (44 percent) or a great deal (3 percent) by outsourcing finance. Nine percent reported that they are breaking even, and 4 percent said that they are actually losing money but achieving other benefits. Still, nearly one-third of respondents said they see limited or very little benefit from outsourcing.

And for many companies, estimating ROI on finance outsourcing deals remains murky. Only 33 percent of respondents from organizations based in the United States said their company correctly estimates its ROI from outsourcing most of the time. Fifty-three percent said it does so either some of the time or rarely.

"Many multinational companies that outsource financial functions do not find it to be cost-effective," says Dan DiFilippo, PricewaterhouseCoopers' New York City-based global leader for performance improvement and U.S. leader for governance, risk and compliance. "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."