Offshoring accounting and finance processes has become increasingly popular in recent years. Many companies are turning to Offshoring as a way to reduce costs and improve efficiency. However, measuring the return on investment (ROI) of Offshoring can be challenging.
In this article, I will discuss how to measure the ROI of offshoring accounting and finance processes. But before that, let’s quickly go through the meaning of ROI.
What is ROI?
ROI stands for return on investment. It is a measure of the profit or loss that is generated by an investment. ROI is calculated by dividing the net profit by the investment cost. ROI is usually expressed as a percentage.
Now that we have an idea of ROI, let’s learn why it makes sense to measure ROI for offshoring accounting and finance processes.
Why Measure ROI for Offshoring?
Measuring the ROI of offshoring is important for several reasons. Firstly, it helps you to determine whether offshoring is cost-effective for your business. Secondly, it allows you to identify areas where you can improve efficiency and reduce costs further. Finally, it helps you to make informed decisions about future Offshoring initiatives.
How to Measure ROI for Offshoring Accounting and Finance Processes?
There are several steps involved in measuring the ROI of offshoring accounting and finance processes. These steps are outlined below:
Step 1: Determine the Costs of Offshoring
The first step in measuring the ROI of accounting offshoring is to determine the costs of offshoring.
Determining the costs of offshoring for a CPA/Accounting firm can be a complex process that requires careful consideration of several factors. Here are some key steps that can help firms determine the costs of offshoring:1. Identify the tasks that can be offshored:
The first step is to identify the tasks that can be offshored, such as data entry, bookkeeping, tax preparation, and other back-office tasks. This will help firms to determine the potential cost savings that can be achieved by offshoring.2. Research offshore providers:
The next step is to research offshore providers and compare the costs of offshoring with the costs of keeping the work in-house. It's important to consider not only the labor costs but also the costs of training, management, and communication.3. Consider the costs of setup:
When considering offshoring, firms should also take into account the costs of setting up the offshore team, including recruitment, training, technology costs, and infrastructure. These costs can vary depending on the location of the offshore team and the complexity of the work.4. Factor in the cost of quality control:
Offshoring can lead to quality control issues, which can result in additional costs for the firm. These costs may include additional training, monitoring, and communication to ensure that the work is done to the firm's standards.5. Evaluate the cost of communication:
Communication is critical when offshoring, and firms should consider the cost of communication when determining the cost of offshoring. This may include the cost of phone calls, video conferencing, and other communication tools.6. Calculate the total cost of offshoring:
Once all the costs have been identified, the firm can calculate the total cost of offshoring. This should include all the costs of offshoring, including setup costs, labor costs, quality control costs, and communication costs.
Step 2: Determine the Benefits of Offshoring
The second step is to determine the benefits of offshoring. Determining the benefits of offshoring for a CPA/accounting firm requires a systematic approach that considers both the qualitative and quantitative factors. Here are some steps to help determine the benefits of offshoring that are measurable and can be used to calculate ROI:1. Define the objectives:
Clearly define the objectives of offshoring and how it aligns with the firm's overall business strategy. This will help identify the key performance indicators (KPIs) that will be used to measure the benefits of offshoring.2. Identify the cost savings:
One of the most significant benefits of offshoring is cost savings. Identify the specific cost components, such as labor, infrastructure, and technology, that can be reduced by offshoring.3. Calculate the cost savings:
Once the cost components have been identified, calculate the cost savings by comparing the costs of performing the same tasks in-house versus offshoring. This can be done by comparing the hourly rates, productivity levels, cost of infrastructure, rental space, and other relevant factors.
a. Measure the quality of work: Quality is a critical factor in offshoring. Identify the specific KPIs that will be used to measure the quality of work delivered by the offshore team. These can include accuracy, timeliness, and customer satisfaction.
b. Calculate the quality benefits: Calculate the benefits of offshoring in terms of the quality of work delivered by the offshore team. This can be done by comparing the quality of work delivered by the offshore team to the quality of work delivered by the in-house team.
c. Measure the productivity: Offshoring can also improve productivity by allowing the in-house team to focus on more strategic tasks. Identify the specific KPIs that will be used to measure the productivity benefits of offshoring.
d. Calculate the productivity benefits: Calculate the productivity benefits of offshoring by comparing the productivity levels of the in-house team before and after offshoring. This can be done by comparing the time spent on non-strategic tasks before and after offshoring.
i. Improved efficiency: By offshoring certain tasks, your team can focus on higher-value tasks, leading to improved efficiency. Calculate the time saved by outsourcing tasks and multiply it by the average hourly rate of your team to determine the potential cost savings.
ii. Reduced staff turnover: By outsourcing lower-level tasks, your team can focus on more engaging and challenging work, leading to increased job satisfaction and reduced staff turnover. Calculate the cost savings from reduced turnover, including recruiting and training costs.
4. Calculate the cost of lost opportunity:
Calculating the cost of lost opportunity involves determining the potential revenue or cost savings that could have been achieved if resources were allocated differently. This can be done by analyzing market trends and identifying areas of growth or improvement that the firm could have capitalized on if resources were freed-up due to the offshoring initiative.
Offshoring is not just about cost savings. It also frees up resources for CPA and accounting firms to focus on value-added services such as Client Accounting Services (CAS). By outsourcing non-core activities, firms can redirect their resources towards high-value activities that can generate new revenue streams and improve client satisfaction.
CAS services such as bookkeeping, payroll processing, and financial statement preparation are time-consuming tasks that can now be performed by the offshore team, allowing onshore teams to focus on more strategic work such as financial planning, analysis, and business consulting.
With more time to focus on these high-value activities, firms can provide better service to their clients and help them achieve their financial goals. This can result in increased client retention rates, as well as opportunities for upselling and cross-selling additional services.
Furthermore, by leveraging the skills and expertise of the offshore team, firms can expand their service offerings and cater to a wider range of clients. This can lead to increased market share and revenue growth for the firm.
To calculate the benefits or cost of the lost opportunity of freeing up resources through offshoring that are measurable, you can consider the following factors:
1. Increased billable hours: With more time available to focus on Client Accounting Services (CAS), your firm can increase its billable hours. Determine the average hourly rate of your CAS team and multiply it by the additional hours available to determine the potential revenue increase.
2. Improved client satisfaction: By having more time to focus on CAS, your team can provide better quality service to clients, leading to improved client satisfaction. You can conduct surveys or gather feedback from clients to measure the impact of improved service on their satisfaction levels.
3. Increased capacity: With more resources available, your firm can take on more clients or expand its services. Calculate the potential revenue increase from new clients or services that you can offer.
Step 3: Calculate the ROI
The final step is to calculate the ROI for accounting and finance offshoring. This is done by dividing the net benefits by the cost of offshoring. The net benefits are calculated by subtracting the costs of offshoring from the benefits of offshoring. ROI is usually expressed as a percentage.
Key Factors to Consider When Measuring ROI for Offshoring
When measuring the ROI of offshoring accounting and finance processes, there are several key factors to consider. These factors include:
- The size of your business
- The complexity of your accounting and finance processes
- The expertise of your service provider
- The quality of your communication with your service provider
- The level of automation in your accounting and finance processes
Connect for Accounting Offshoring Support
Finsmart Accounting, with its 15 years of outsourced accounting space, uses its own proprietary framework called DPPT - Definition, Process, Precision & TAT that has been the success mantra for supporting the firms in the US to stay ahead of the competition.
By partnering with experienced providers of offshore bookkeeping services in India (like Finsmart Accounting), CPA firms can access a team of professionals who are knowledgeable about the latest technologies, up to date with ever-evolving accounting norms, and also domain experts in US accounting.
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