What and how to pay for Finance Accounting Outsourcing (FAO)?

December 16, 2009

Because the offshoring trend is still so new, buyers are in a fix determining how much to pay for what service. In this context, I read a very insightful article by Alexa Michael in Financial Management, that discussed among other things, how services are priced in the financial/insurance sector. Although some of his suggestions may be specific to the FAO industry, a bulk stands true for any kind of outsourcing.

Here is a brief synopsis of the article:
Increasingly, buyers are moving away from traditional pricing models such as cost-plus, fixed price and fee for service to more variable pricing mechanisms and “shared-risk-reward” pricing arrangements so that both parties can spin equal profit from the deal. A fitting example that the author gives here is that of a debt collector, who besides being paid a fixed retainership by the bank, also earns a percentage of the debt that he manages to recover from the defaulter. This extra revenue incentive is great for quality assurance and prompt deliveries.
In addition, says Michael, The SLA should clearly state how changes in the execution of the contract would affect the pricing structure, so that there are no cost overruns, during the time, the contractors’ fails to deliver on the promised day.

Further, “A change in delivery may affect the scope of the contract–e.g., new processes may be added or existing ones deleted from a multi-process arrangement if the buyer decides to take them back in-house”. Likewise, change in the volume of the work can also affect price, as could ownership changes in either the buyer or the supplier company. External changes, such as the passage of a new legislation, such as the TARP restraints imposed in the US recently, can also spell trouble for both the parties, that may later require significant changes to the SLA. Obviously, the SLA will have to scope even for these non-foreseeable changes.

paying For F&A Outsourcing
Other suggestions which apply across the outsourcing industry are:
• Select providers with care, those with the necessary skill and expertise to deliver on set parameters
• Track qualitative and quantitative measures as stated in the SLA to monitor the process
• Set up formal review processes
• Establish clear points of contact and grievance to nip problems in the bud
• Agree on a process for changing the SLA, if need be
• Last and most important, discuss an exist strategy
If things are not working out as planned its better to part ways amicably rather than head for an acrimonious divorce.


Comments

2 Responses to “What and how to pay for Finance Accounting Outsourcing (FAO)?”

  1. WP Themes on December 31st, 2009 6:50 pm

    Good brief and this fill someone in on helped me alot in my college assignment. Thank you for your information.

  2. Mathangi on November 19th, 2010 7:20 am

    Hi,

    I am looking for companies who wishes to outsource their Finance and Accounts processes to India. If interested please reply to my mail id.

    I work for a $5.5 billion leading global technology and IT enterprise comprising two companies listed in India – Technologies and Infosystems. Founded in 1976, is one of India’s original IT garage start-ups. A pioneer of modern computing, which is a global transformational enterprise today. Its range of offerings includes product engineering, custom & package applications, BPO, IT infrastructure services, IT hardware, systems integration, and distribution of information and communications technology (ICT) products across a wide range of focused industry verticals. The team consists of over 77,000 professionals of diverse nationalities, who operate from 29 countries including over 500 points of presence in India. We have partnerships with several leading Global 1000 firms, including leading IT and technology firms

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