When Choosing Transfer Pricing Software You Need to Ask These 13 Questions

Failure to manage operational transfer pricing effectively creates huge risks for organizations, especially in today’s highly unpredictable markets. Trying to keep track of the many moving parts involved using spreadsheets may still be the norm in many multinational companies. This is a painful, manual process that is typically done once a year, and is one of the reasons why we still see so many unwanted, late year-end adjustments. Thankfully, there is an alternative, and it comes in the shape of unique solutions designed from the ground up for operational transfer pricing.

Such solutions improve organizations’ visibility into the performance of all their related entities and subsidiaries throughout the year, so at any point, they know without any doubt how each company is tracking toward its profitability goals.

If progress is off track, operational transfer pricing teams will have the visibility and the confidence to intervene quickly. They can either ask the financial planning team to revise their revenue/loss projections for the year (so the tax team can adjust their effective tax rate forecasts), or make pricing adjustments between the entities to help support existing profitability/effective tax rate forecasts.

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The decision to adopt such a solution may be initially driven by individuals in the finance or tax team, especially those who can see the benefits it could bring to their own working lives. However, the pressure on budgets in the current economic climate means they must first create a convincing argument for internal approval.

Step one: Take stock of your strengths and weaknesses

Where should organizations begin if they have not yet taken their first steps toward adopting software to manage operational transfer pricing? In our experience, there are a number of factors to consider that will make both the selection and the implementation process as straightforward and effective as possible.

First, it’s important to consider the risks and impediments that are currently at play in your organization. Building a business case for internal approval depends on demonstrating the overall value that operational transfer pricing software can deliver.

Questions to ask at this stage include:

• Does your team spend too much time digging through P&Ls to pinpoint the real drivers behind each entity’s performance?
• Does your team ever have lingering doubts about the data it receives or its own subsequent analyses? Does this cause you to delay taking action until later on or at year-end?
• How easily can you work with external auditors and tax authorities? Are you able to easily supply them with the information they request, or is it a laborious and strained process for your team?
• How easy is it for your transfer pricing team to coordinate with FP&A, tax, and business unit colleagues to make final decisions on adjustments?
• Is it a straightforward process to find the story behind the numbers, such as whether it’s low sales or high costs that are most affecting entities’ profitability?
• How easily can your team create scenarios to model the cascading effects of price changes all the way down the supply chain? For example, in the automotive industry, if you adjust the pricing on the rubber used to make tires, then how easily can you model the cascading effects of this adjustment all the way through your different subsidiaries to the final pricing of the finished car?”

Step two: Map out your processes

As you work through such questions, map out your organization’s existing transfer pricing processes while drawing particular attention to the strengths and deficiencies at every step of the way. The result should be a detailed road map of the specific areas your organization needs to improve.

Although personnel training, process improvements, and controls will invariably constitute a large part of those areas you highlight for improvement, many organizations will find that the uniting factor that weaves all these items together is often technology, or more precisely, the lack of. Laying out a road map that catalogs the strengths, weaknesses, and proposed improvements to people, processes, and technology often leads to a compelling case that wins the executive team’s buy-in.

To address technology shortfalls, finding and partnering with an established and trusted software solution provider can be the perfect catalyst for any sort of change management. In fact, many organizations have found that the implementation of a software solution naturally leads them to address the key procedural and personnel-related gaps in their transfer pricing processes. Leading with a business case that focuses on improving the very fabric that weaves together a team’s people and processes is often a winner, and that fabric is technology.

However, it can be a challenge to find the right solution provider to push forward any change management initiative in your operational transfer pricing team. When considering how different suppliers measure up against your requirements, we recommend that you evaluate transfer pricing software vendors against eight key operational and strategic factors outlined in this buyer’s guide.

Step three: Research providers

The checklist below is representative of the types of questions you should be asking the software providers you’re evaluating:

• Walk me through your typical implementation process, and the type and level of support we will receive throughout. How is training provided to our team?
• What type of data sources can we connect to with your product? How do you suggest we handle the different levels of data coming from our different ERPs and other enterprise systems?
• Will our data access be in real time, or will we have to run manual imports and updates?
• We’d like to see fully burdened P&Ls broken down not only by jurisdiction and entity, but by line of business. Will this be possible with your product?
• Are there any limits on the types or volumes of data that your product can manage?
• Is there any workflow management built within your software, and if so, how can it support my team?
• What is the pricing for this product?

As your talks progress with the different software providers, try to match up how their capabilities and features address your internal needs. Based on your level of comfort with the responses given to these questions, and any others that may be unique to your organization, you’ll ultimately find the right provider for your organization.

By focusing on the issues that most reduce risk for your business, you will also be responsible for introducing huge value, both now and in the future.

To discover how Longview Transfer Pricing matches up against your requirements, request a demo.