Third-party vs. in-house functions: a CFO checklist
In a perfect world, finance organizations could tackle every function in-house. But that obviously isn’t realistic, so choosing between third-party and in-house teams is a common CFO challenge.
Although there’s no single benchmark that provides an answer to the third-party vs. in-house choice, identifying function-area inflection points can make the decision more straightforward, and that process begins by understanding your objectives, constraints and strengths.
The risk factor
To level-set upfront, there’s nothing off-limits for a CFO when it comes to outsourcing. Even the CFO role itself is fair game. The sheer number of outsourcing options available, no matter what function needs to be filled, means CFOs don’t have to worry about whether competent third-party choices are available. That part of the equation is solved.
However, just because CFOs can outsource any function doesn’t mean they should. Instead, CFOs should consider using risk as the common denominator when choosing what to do. Which approach helps an enterprise deleverage risk most effectively?
Between factors like costs, organizational size and maturity, complexity, and objectives, risk provides the context in which in-house vs. third-party decisions are made. For instance, an acquisitive company always has the option of bringing valuation services in-house. But risk is the reason the vast majority of companies use outside specialists.
First, ramping up an in-house team requires time and money, each posing a risk to the enterprise. Second, unless the company is extremely acquisitive, in-house teams will struggle to stay current with the latest market movements. And third, with the exception of the biggest companies, just keeping those teams busy throughout the year will be hard.
In short, bringing valuation in-house — even as part of a corporate development team — exposes the company to acquisition risk from a lack of timely, relevant market insights. Outside specialists don’t bring that pain point to the equation.
This is an obvious example but the kind of risk analysis that goes into thinking about an acquisition team applies across the finance organization.
Although finance transformation never has an endpoint — technology continuously evolves and processes should always improve — tasks like combining disparate data sources or building a data warehouse are essentially one-off jobs.
For that reason, enterprises typically outsource positions and tasks involved with a transformation. There are exceptions, however, particularly for data-driven enterprises that have consciously developed a robust data culture. In these instances, leadership often opts to bring in-house crucial roles, like the data scientists and engineers who keep the data environment and systems running smoothly.
The office of the CFO, typically managing multiple projects at once, can be one of the busiest corners of any organization. It’s in these offices — the ones juggling M&A, technology implementation, other strategic initiatives and daily operations — that require a significant project management presence.
Since each of those projects typically requires its own manager, keeping a team of in-house specialists is usually beneficial. However, when a company only takes on an occasional project...
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