Financial Management and Shared Services

By Webster, Douglas W. | The Journal of Government Financial Management, Summer 2007 | Go to article overview

Financial Management and Shared Services


Webster, Douglas W., The Journal of Government Financial Management


Acting as buyer, seller or facilitator, an organization's financial function is important to the success of shared services arrangements.

Internal shared services can reduce waste and align resources with operations that add the most valuebut only if they have a sensible financial foundation. This is true for all organizations, whether government agencies, government-chartered corporations or private companies.

What are shared services?

"Shared services" refers to an arrangement in which the various parts of an organization obtain a particular service (or family of services) from a single internal provider. Typically, in shared services settings, common processes are taken out of several business units and combined into a separate component of a department, agency or group of agencies.* Some examples of shared services include:

* budget preparation

* engineering

* facility management

* finance and accounting

* human resources or personnel

* information technology (IT) access and technical support

* investigations

* logistics

* printing and reproduction

* procurement

* quality assurance

* security

* training

* travel and transportation

In a typical shared services plan, all components of an organization use an internal seller of a service.

Each component pays a fee to the seller, who uses the money for operating costs and capital investments. For example, under a shared services plan, an organization's components must buy normal IT access and support from a central IT office.

Pros and cons of shared services

In theory, shared services foster economies of scale, higher quality and better coordination to lower the total cost to an organization of the covered services. In areas like IT, a shared services environment helps develop standard processes and common technical infrastructures. At the same time, a good shared services plan enables the flexibility needed by diverse operations without the complication and cost of using separate service providers for each.

At least, that is supposed to happen. Without a sound approach, which includes involving financial managers, problems can be legion. For example, an internal seller that does not depend on fees from internal buyers may not have incentives to deliver excellent customer service. If the seller has a fixed operating budget, but no way to accumulate capital, then it may lack the money needed for customer-pleasing capital improvements. If buyers do not pay for a service, then it is only human nature that they develop insatiable appetites for such free goods. This leads to rationing services, which no one likes. In the end, buyers complain more than compliment, and sellers are mortified at their inability to meet customer needs. Top leaders alternate between lashing the sellers and restricting the buyers - a miserable situation for all.

There is a better way, and it involves accounting and financial professionals.

Three roles for financial management organizations

Typically, an organization's finance and accounting component plays three roles in shared services environments, shown in Figure 1. As buyer, it is a customer of other services such as IT, printing and procurement. As seller, it supplies accounting and financial services to others. As facilitator, the financial component establishes or coordinates the policies, procedures, cost accounting systems, and financial and performance reporting structures that enable shared services to be paid through fee schedules or other reimbursement schemes. Of the three roles, that of facilitator is most important to the organization as a whole. As facilitators, financial managers help internal buyers and sellers - and also top management - answer the following types of questions. (Note that each set of questions has a strong financial, performance and accounting component. …

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