At some point in a company’s life cycle,
a decision must be made on whether
or not to build the necessary infrastructure to support growth in various business activities, such as information technology (programming, security administration,
core application development), specific
operations (accounting, human resources/
payroll, back-office support, reconcilement,
customer service) and risk management
(internal audit, regulatory compliance).
Many companies attempt to do this “in-house,” only to find it to be an overwhelming, daunting task. As a result, outsourcing
financial services is becoming an increasingly popular option, for both start-up companies that experience resource constraints relative to their sizes and large public companies searching for more efficient,
effective and cost-reducing solutions.
“Some industries were outsourcing
record retention services as early as 1970,”
says Terry Sherrill, a manager with Briggs &
Veselka Co.’s business advisory services
practice. “With the rapid advancement of
technology, however, today’s business
world has greater opportunities, as well as
reduction of costs, when outsourcing financial services. The decision to outsource is
both a human resource issue and an economic capital issue. On the HR side, you
need to ask, ‘Can the company afford to
hire the person or persons with the necessary skills to perform the functions on a
full-time basis? Can you afford the training
and related overhead costs to maintain
their skills and/or certifications?’ On the
economic capital side, ‘Can the company
expend the necessary resources to build,
support and maintain updated systems to
effectively support information technology
in-house?’”
Smart Business spoke with Sherrill about
outsourcing financial services, how to do it,
and how it can help any company.
What are the benefits of outsourcing financial services?
Cost reduction, better experience and
expertise, less overhead, improved efficiency, effective product delivery in organizations with multiple locations, state-of-theart technology and staying competitive.
What problems or issues can arise from outsourcing financial services?
Lack of control, confidentiality of customer information, communication, contract compliance and business continuity.
How can the problems be solved?
Establish procedures to ensure that outsourced arrangements are managed and
evaluated for risk, just as a company would
evaluate a new product or service prior to
delivery.
What are the consequences a company faces
if this isn’t done?
Unanticipated loss due to nonperformance of vendor contracts and reduction
in the operational efficiencies expected
to be achieved from the outsourced
arrangement.
So, what is the resolution to all this?
Develop processes that mitigate outsourcing risk. The procedures should address the following key elements to
effectively outsource financial services:
- Managing and monitoring the outsourcing arrangements — The board of
directors and senior management must
retain accountability for the outsourced
function, determine the objectives for the
outsourced activity and how it fits with the
company’s overall business strategy, and
provide necessary approval. - Selecting a qualified vendor — Perform
due diligence on the service provider to
ensure technical capabilities, managerial
skills, financial viability, familiarity with the
financial services and a demonstrated
capacity to keep pace with innovation in
the marketplace. - Structuring the outsourcing arrangement — Negotiate a written contract that is
operationally flexible and that clearly articulates the expectations and responsibilities
of both sides. - Managing human resources — Involve
the human resources department early in
the process when staff is to be released or
transferred to the service provider. - Establishing controls and ensuring
independent validation — Clearly define
expected security controls in the outsourcing contract and develop appropriate performance measures to monitor consistent
application of those controls. - Establishing a viable contingency plan
— Ensure that contingency plans are formulated and viable in the event of nonperformance by the service provider.
If a company wants to outsource financial
services, what’s involved with the process?
Submit requests for proposals from at
least three service providers. Ensure that a
team of company representatives evaluates the proposals and obtains the necessary senior management and board
approval. To ensure that long-term outsourced arrangements maintain competitive pricing, I recommend that the company periodically submit the services out
for bid.
TERRY SHERRILL is a manager with Briggs & Veselka Co.’s business advisory services practice. Reach her at (713) 667-9147 or
[email protected].