Written by Chris Busbee Monday, April 19 2010
A few years ago, we conducted a survey among 264 Oracle Applications users in order to get a better idea of how businesses that use Oracle were financially structured, whether they had attempted a restructure in the past, and if so, the reasons, problems, and costs associated with fundamentally changing the underlying financial structure. Some selected results from that survey include:
- 82% of companies had attempted to restructure one or more charts of accounts (accounting flexfields)
- 57% of the chart of accounts changes were a direct result of new company initiatives or mergers and acquisitions
- Problems encountered during a chart of accounts change included:
- Difficulty retaining transactional history
- Too complex
- The process required extensive conversion and training resources
- Companies that tried to change their chart of accounts internally spent an average of 6,700 person-hours, costing an average of $1.7 million.
As a follow-up to this study, we developed another survey to dig into the financial operations of accounting and finance departments that utilize Oracle E-Business Suite as their current enterprise resource planning (ERP) system. Over 40 organizations spent a significant amount of time gathering detailed and anonymous information about the fundamentals of their financial operations. They provided a wide array of data, some as accessible as company revenue and some as granular as the number of hours per year required to resolve supplier and invoice issues and respond to supplier inquiries. Outliers were removed.
Responses came from a variety of industries, including:
- Construction
- Manufacturing
- Entertainment
- Water
- Telecommunications
- Energy
- Defense
- Healthcare
- Aerospace
- Computers: Software & Hardware
- Insurance
Some high-level averages and percentages distilled from the data include:
| Average Annual Revenue | $1.883 billion |
| Average Number of E-Business Suite Instances in Production | 1.72 |
| Average Size of Finance and Accounting Staff (in FTE) | 170 |
| Percent of Companies Operating a Shared Services Center (SSC) | 44% |
Interestingly, none of the companies that responded to the survey are currently running E-Business Suite Release 12. Most are on 11.5.10, with the breakdown displayed in the chart to the right.
The first section of the survey asked respondents to provide organizational headcount for the following departments:
| Headcount | Total Average | SSC Average | No SSC Average |
| General Accounting / General Ledger | 69.72 | 24.25 | 106.10 |
| Accounts Payable | 46.39 | 15.13 | 71.40 |
| Accounts Receivable | 33.06 | 19.88 | 43.60 |
| Purchasing | 21.08 | 7.13 | 32.25 |
The remainder of the survey was broken into sections by department:
| Survey Question | Total Average | SSC Average | No SSC Average |
| General Accounting | |||
| How long is the close cycle (in days)? | 6.67 | 5.63 | 7.50 |
| Hours per year to close the books and report | 42,664.35 | 22,582.29 | 58,730.00 |
| Approximate number of accounts | 3,504.44 | 2,793.75 | 4,073.00 |
| Hours per year to maintain accounts, hierarchies, cross-validation rules, and security rules | 15,747.22 | 12,546.88 | 18,307.50 |
| Manual journal entries per year | 14,550.00 | 4,275.00 | 22,770.00 |
| Hours per year to enter manual journal entries | 18,172.22 | 3,200.00 | 30,150.00 |
| How long is the formal budgeting process in work days? | 34.94 | 35.50 | 34.50 |
| Hours per year to create formal worldwide budgets | 5,015.00 | 2,231.25 | 7,242.00 |
| Accounts Payable | |||
| Number of supplier invoices processed per year | 75,694.44 | 75,500.00 | 75,850.00 |
| Hours per year to process and pay invoices | 20,953.97 | 4,958.17 | 33,750.61 |
| Number of expense reports processed per year | 15,504.17 | 27,784.38 | 5,680.00 |
| Hours per year to process and pay expense reports | 6,638.89 | 3,937.50 | 8,800.00 |
| Number of active suppliers | 18,632.81 | 17,069.88 | 19,883.15 |
| Number of disputed invoices | 3,513.89 | 4,131.25 | 3,020.00 |
| Hours per year to resolve supplier and invoice issues and respond to supplier inquiries | 5,248.11 | 2,355.00 | 7,562.60 |
| Accounts Receivable | |||
| Number of customer bills issued per year | 46,996.47 | 51,650.00 | 42,860.00 |
| Number of statements mailed per year | 34,661.94 | 37,387.50 | 32,481.50 |
| Number of payments received per year | 100,045.56 | 62,525.00 | 130,062.00 |
| Number of active customers | 21,681.78 | 20,806.25 | 22,382.20 |
| Number of questions on payments, statements, bills, and past due accounts | 7,660.91 | 6,592.50 | 8,271.43 |
| Hours per year to ask customers about payments received, and pursue past due accounts | 17,002.86 | 16,360.00 | 17,360.00 |
| Purchasing | |||
| Number of purchase orders issued per year | 60,529.64 | 85,170.00 | 46,840.56 |
| Number of requisitions issued per year | 60,736.92 | 93,960.00 | 39,972.50 |
From this data, and assuming an average burdened salary of $83,300.00 (including management), we obtained the following results on organizational expenditure on accounting and finance operations:
The results show that, on average, organizations that use Oracle E-Business Suite spend over $5 million annually on running the core financial sides of their businesses. We then looked for trends by analyzing the data according to whether or not each of the companies operates a shared service center:
| Cost Category | Total Average Cost | SSC | No SSC |
| General Accounting / General Ledger | |||
| Annual cost to close the books and report | $1,708,625 | $904,377 | $2,352,024 |
| Annual cost to maintain accounts, hierarchies, cross-validation rules, and security rules | $630,646 | $502,478 | $733,180 |
| Annual cost to enter manual journal entries | $727,763 | $128,154 | $1,207,450 |
| Annual cost to create formal worldwide budgets | $200,841 | $89,357 | $290,028 |
| Accounts Payable | |||
| Annual cost to process and pay invoices | $839,166 | $198,565 | $1,351,647 |
| Annual cost to process and pay expense reports | $265,875 | $157,689 | $352,423 |
| Annual cost to resolve supplier and invoice issues and respond to supplier inquiries | $210,177 | $94,313 | $302,868 |
| Accounts Receivable | |||
| Annual cost to ask customers about payments received, and pursue past due accounts | $680,932 | $655,187 | $695,235 |
| Purchasing | |||
| Annual cost to issue purchase orders and requisitions | $346,166 | $322,101 | $364,882 |
| Total Annual Cost of Accounting and Finance Operations | $5,610,190 | $3,052,222 | $7,649,736 |
After looking at the costs of finance operations by whether or not the organization operated a shared services center, we broke out the data into three different structural categories that are good indicators of the existence or absence of barriers and silos in the different information systems. These structural categories include companies that operate with:
- a single instance and a single chart of accounts
- a single instance with multiple charts of accounts
- multiple instances with multiple charts of accounts
The data is indicated in the table on the following page, where values in green mark the structural category with the lowest cost in that cost category, and values in red mark the structural category with the highest cost in that cost category.
| Cost Category | Single Instance, Single Chart of Accounts | Single Instance, Multiple Charts of Accounts | Multiple Instance, Multiple Charts of Accounts | |
| General Accounting / General Ledger | ||||
| Annual cost to close the books and report | $409,049 | $2,414,732 | $2,970,655 | |
| Annual cost to maintain accounts, hierarchies, cross-validation rules, and security rules | $327,768 | $493,342 | $1,126,018 | |
| Annual cost to enter manual journal entries | $150,681 | $660,793 | $1,541,851 | |
| Annual cost to create formal worldwide budgets | $45,805 | $206,448 | $403,818 | |
| Accounts Payable | ||||
| Annual cost to process and pay invoices | $593,846 | $729,050 | $1,239,670 | |
| Annual cost to process and pay expense reports | $176,212 | $325,391 | $345,748 | |
| Annual cost to resolve supplier and invoice issues and respond to supplier inquiries | $216,460 | $68,402 | $296,316 | |
| Accounts Receivable | ||||
| Annual cost to ask customers about payments received, and pursue past due accounts | $475,971 | $788,947 | $745,562 | |
| Purchasing | ||||
| Annual cost to issue purchase orders and requisitions | $317,524 | $215,258 | $490,989 | |
| Total Annual Cost of Accounting and Finance Operations | $2,713,317 | $5,902,364 | $9,160,628 |
Because the cost of the finance operations is logically proportional to the revenue of a given organization, it makes sense to provide the ratio of cost:revenue for each of these structural categories to get a better sense how the structural differences impact the cost of finance operations:
| Structural Category | Total Annual Cost of Accounting and Finance Operations | Average Annual Revenue | Total Finance Cost as % of Revenue |
| Single Instance, Single Chart of Accounts | $2,713,317 | $1,822,087,500 | 0.149% |
| Single Instance, Multiple Charts of Accounts | $5,902,364 | $1,746,700,000 | 0.338% |
| Multiple Instance, Multiple Charts of Accounts | $9,160,628 | $2,056,233,333 | 0.446% |
Admittedly, our survey focused on four core areas of corporate finance operations: General Accounting, Accounts Payable, Accounts Receivable, and Purchasing. Other areas of finance that were not included as part of this survey include: Banking and Cash Management, Financial Analysis and Management Reporting, Payroll, Credit and Collections, Taxes, Project Accounting, Benefits Plan Accounting, Time and Attendance, Fixed Asset Accounting, Treasury Management, and Internal Audit are a number of finance subfunctions that were excluded from the survey due to the difficulty in obtaining accurate information in a timely manner. Additionally, none of the costs include the costs of systems or the IT infrastructure to support the finance operations. For the purposes of the survey results, we will assume that the four areas for which we collected data account for 60% of total finance operations. Organizations operating a shared services center likely see decreased operational costs in the additional areas as well, so it would be presumptuous to look at a comparison between those organizations that run a SSC and those that don’t after applying the 60% adjustment across the board. However, because the different structural categories regarding numbers of instances and charts of accounts contain a mix of SSC and non-SSC organizations, it is enlightening to adjust for the finance areas not included in the study to get a more accurate projection of total finance expenditure across the different categories. In the following table, we also include a generous adjustment for FTE productivity at 80%:
| Structural Category | Total Annual Cost of Accounting and Finance Operations (Adjusted for finance areas not included and 80% FTE productivity) | Average Annual Revenue | Total Adjusted Finance Cost as % of Revenue |
| Single Instance, Single Chart of Accounts | $5,652,743 | $1,822,087,500 | 0.310% |
| Single Instance, Multiple Charts of Accounts | $12,296,591 | $1,746,700,000 | 0.704% |
| Multiple Instance, Multiple Charts of Accounts | $19,084,641 | $2,056,233,333 | 0.928% |
Compared to the benchmark total finance cost to revenue ratio of 0.67% for a world-class finance organization, you can see that the only organizations that achieved better than benchmark average performance are companies operating with a single instance and a single chart of accounts, coming in at a total finance operations cost that is 0.310% of annual revenue.
Conclusion
As the above survey indicates, companies who operate a shared services center with a single chart of accounts, and a single instance are able to save millions of dollars per year in their cost of financial operations over their counter parts who do not operate a shared service center and who have multiple charts of accounts and multiple instances. Breaking down the detail, companies who have a single global chart of accounts within a single instance save an average of $6.6 million per year over those who have multiple charts of accounts in a single instance. Those who have a single instance and multiple charts of accounts save $6.8 million per year over comparable companies with multiple instances. These costs are strictly finance-oriented and do not consider additional savings in the IT realm of hardware, license fees, maintenance, backup and recovery, patch applications, and upgrades gleaned from consolidating to a single instance.
Thank you to everyone who took the time to participate in this survey. The survey is now closed. Please contact us by clicking here to schedule an appointment to discuss how you can help your organization maximize efficiency and agility by decreasing its Total Cost of Ownership (TCO) of Oracle E-Business Suite.
Calculate your own cost of financial operations using our cost savings calculator and see how you compare to those who participated in the survey. Visit the FlexField page to see how to consolidate your chart of accounts or the eprentise Consolidation page to see the business benefits of consolidating E-Business Suite instances.
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January Puzzle
A traveler gets lost on a deserted island and finds himself surrounded by a group of n cannibals.
Each cannibal wants to eat the traveler but, as each knows, there is a risk. A cannibal that attacks and eats the traveler would become tired and defenseless. After he eats, he would become an easy target for another cannibal (who would also become tired and defenseless after eating).
The cannibals are all hungry, but they cannot trust each other to cooperate. The cannibals happen to be well versed in game theory, so they will think before making a move.
Does the nearest cannibal, or any cannibal in the group, devour the lost traveler?
Solution
The short answer is the traveler’s fate depends on the parity of the group. If there is an odd number of canibals, the traveler will be eaten, but if there is an even number, the traveler will survive.
To prove this, we will consider small groups and use mathematical induction to explain the solution for larger groups.
Case n = 1: this is an obvious case. If there is one cannibal, the traveler will be eaten. It doesn’t matter that the cannibal will get tired because there are no other cannibals around as a threat.
Case n = 2: this is a more interesting case. Each cannibal wishes to each the traveler, but each knows he cannot. If either cannibal eats the traveler, then he will become defenseless and the other one will eat him. So each cannibal uses backwards induction to realize that the only strategy is to not eat the traveler. The hapless traveler finds a bit of luck, therefore, and actually survives.
Case n = 3: this is where the problem gets interesting. The best strategy is for the closest cannibal to make a move and eat the traveler. The cannibal will be defenseless after eating, but ultimately he will be safe. Why is that? The reasoning is due to induction: once the cannibal eats the traveler, the resulting situation has 2 unfed cannibals and the 1 defenseless cannibal. But as we just showed above, when there are 2 unfed cannibals, neither will make a move for fear of being eaten by the other! Thus the first cannibal to make a move will be safe as the remaining 2 cannibals block each other.
We can prove the higher cases using mathematical induction. If the number n is odd, then the closest cannibal can safely eat the traveler because the remaining number of unfed cannibals is even (and by induction, with an even number of unfed cannibals no one makes a move). If the number n is even, then no cannibal will eat the traveler, for if he did, the remaining number of cannibals would be odd, meaning he will get eaten by the induction hypothesis.
Success Tips for Oracle Project Management
- Create a standard for documentation at the beginning of your project, and hold team members accountable for completing documentation requirements as well as keeping them at and above the standards required.
- Before promulgating user documentation or training, it’s also a good idea to choose a representative from the among the business users base to review materials first.
- If you are not sure about the resources and budget required, obtain several estimates from people that have experience with the same size and scope of your project.
- Be explicit, before beginning the project, what internal resources are required for execution. This includes people, infrastructure, hardware, and software.
- Help the project champion understand the impact your project will have on the organization and how its successful completion will make him or her an internal hero or heroine for supporting it.
- Break up your project into smaller projects (try for projects that can be completed in 4-6 months, especially early on) to get success and demonstrate momentum.
- Make sure that your testing includes reports, upstream and downstream interfaces, customizations, enhancements, and workflows.
- Ensure that comprehensive transition reports and meetings between departing and incoming personnel are completed.
- Instead of spending time and resources implementing third-party reporting, consider consolidating multiple instances, moving to a global chart of accounts (CoA), and/or standardizing on a consistent calendar.
- Include governance, risk, and compliance management as part of the project plan.
- Finally, celebrate the successes. Too many projects focus on defects, failures, or small cost over-runs without looking at the big picture and what was accomplished.
The Analyst Corner
John Van Decker, Research VP of Gartner, states:
"A single chart of accounts allows consistency in financial reporting across the enterprise by standardizing on common metrics and reporting structures, reduces dependencies on a separate financial consolidation system, and significantly reduces the costs incurred with ongoing, complex conversions and translations."
