More new contracts for outsourced finance and accounting services are including management reporting and analytics, but outsourcing buyers continue to focus on transactional, ?phase-in? approaches for accounts payable, accounts receivable and general accounting services, according to the Everest Research Institute?s study of Finance and Accounting Outsourcing (FAO) contracts.
The increased preference for a ?phased approach? of F&A services and the rising influence of the middle market buyer group has resulted in a steady decline of contract and engagement sizes in FAO contracts, according to the Everest Institute, a research arm of Everest group, a leading global consulting firm. The average value of contracts between 2002 and 2007 is about $54 million in total contract value (TCV) with a term of 5-7 years. More than $5 billion in contracts are up for renewal over the next three years.
According to Saurabh Gupta, research director, Everest Research Institute and co-author of the report, ?Average size of FAO contracts has been declining steadily from $86 million in 2002 to $35 million in 2007. This indicates that there is an increasing preference of a ?phased? approach over a ?big-bang? approach. It also indicates Increasing adoption by the mid-market, made possible by increased standardisation of the FAO value proposition.? FTE-based pricing remains the dominant model, but business-impact pricing is showing signs of increasing, he adds.
?Interest in utilising business-impact pricing along with a base fee is also rising,? he noted. FAO metrics generally tend to focus on timeliness and accuracy, however, the focus of service levels is shifting from diagnostic metrics to business-oriented metrics. As the FAO market continues to evolve, contracts will evolve and change in tandem; therefore, it?s important that buyers understand the opportunities and associated risks of the differing contract models in order to make an informed decision, he added.
?Renewals of FAO contracts also present significant value opportunities for both buyers and suppliers. Where on the one hand, renewals enable buyers to expand their FAO benefits, on the other hand, they also help suppliers expand the scope of the current engagements. Some suppliers are looking for ?smart deals,? others for ?growth accounts,? while others are looking for ?anchor accounts?,? he said further. In such a scenario, it is imperative that the buyers update themselves about the changing supplier landscape in order to understand the strategic objectives of the different suppliers. The buyer should also have a strong sense about how each supplier would perceive its relationship with the buyer?s organisation.
