Evaluating the finance function

If you’ve been asked to justify the number of staff in your accounts department and want to understand how much value they’re adding, you’ll need to record the time spent by your team on the different finance functions and then put a cost to each role.

Staff log

Any finance function will typically be performing three broad roles. It’s important to understand how each interacts with the other:

• Transaction processing. This includes sales and purchase ledgers, payroll and expenses, bank, nominal ledger accounting and cost or project accounting.
• Control and risk. This includes budgeting, performance management, treasury and cash management and tax planning.
• Decision support. This includes providing advice, analysis and insight in support of strategic decision taking.

Your finance function should be spending time on each of these three broad roles. How the time is split/apportioned will depend on individual circumstances. For staff at junior levels, you should find the majority of their roles relate to transaction processing. At more senior levels, the balance of work should be weighted towards control/risk and decision support.

Ask your staff to log the time taken in a typical week (or month) on each task. Don’t forget that some tasks are quarterly or annual, for example year-end closing. With the results, use our Evaluating the Finance Function interactive spreadsheet to analyse the time spent at each level of your team on each of the three broad roles (Sheet 1). Cost the time spent by reference to the remuneration paid to each team member. Once you’ve done the above, you can calculate the cost of providing transaction processing, control/risk activities and decision support for your team (Sheet 2).

How do you compare?

On average, top performing finance functions typically spend 60% on transaction processing, 20% on control and risk activities and 20% on decision support. If 80% of your resource is spent on transaction processing, it’s likely you have an imbalance and either too many people are on these tasks or they’re too highly paid. Alternatively, there may be insufficient resources at the senior level.

Review your accounts department chart to help identify whether your team’s focus and composition is top or bottom heavy. You can then plan to take appropriate action to remedy any imbalance.