- Single-family offices with small teams should weigh the opportunity cost of handling tasks in-house
versus outsourcing - Delegating complex tasks to internal staff can lead
to loss of efficiency and hidden costs, while
outsourcing can improve efficiency and quality. - Automation offers long-term benefits but requires
careful planning, training, and justification of costs.
Service Area
High net worth families understand that there are significant opportunity costs associated with how they choose to manage their daily schedules. Time-consuming matters related to administration and household finances, while critically important, tend to fall significantly below the ROI threshold versus a multitude of competing considerations. As such, these affairs are typically conducted by an in-house staff or outsourced to 3rd parties with specific domain expertise.
The recently released UBS Family Office 2024 report determined that over half of all single-family offices are supported by a staff of less than ten employees. Furthermore, roughly a quarter of them employ less than five on their full-time staff. These teams are composed of highly efficient operators, typically called upon to support multiple functions within the organisational structure.
Acute attention to detail on mission-critical tasks, balanced with the ability to effectively implement and oversee non-core processes, are crucial components to earning increased responsibility within the family office.
Below, Panchee Advisory provides a contextual framework for considering the costs and benefits of certain approaches to solving key pain points facing the industry:
Q: How do you approach project management in terms of delegating or outsourcing certain processes?
Most CFOs typically implement the concept of opportunity cost when determining a project’s ROI. From this perspective, we think that any evaluation should start with three simple questions: (1) What is the hourly or total value that I assign to my team’s finite time? (2) How much of this time could they otherwise be spending on higher value tasks, and (3) what is the total value of the task that I am considering delegating internally or externally? With these questions answered, you have the basic framework for assessing project payback potential.
Q: Can you give us a practical example of how to apply this framework within a family office?
Sure. Let’s suppose that, as the CFO of a single-family office, you assign $500 per hour of value to your team’s time on priority tasks (to be clear, this is not based on their salary but on a charge-out rate). However, your team also needs to spend time on non-priority tasks; for example, three hours per week collecting data for compliance and reporting purposes, another two hours on K-1s, and five more managing the family foundation, totalling ten hours per week.
So, let’s say that you only assign an hourly value of $100 to these three tasks, based on your research of the cost of hiring temporary support. Using this example, the cost of not redirecting 100% of your team’s newfound capacity to $500 per hour projects works out to $200,000 per year, which is the total size of the opportunity. From there, you need to evaluate and quantify the alternatives, such as delegating these projects either to junior staff or to an external provider.
Q: What factors should family offices consider when deciding whether to delegate a task internally or outsource externally?
For a majority of cases, the internal delegation of certain non-core tasks is the appropriate solution where there is discernible bandwidth to take on incremental, manual processes. However, in certain cases, there may be a significant degradation in efficiency in terms of the direct labour required to perform the tasks (e.g., 10 hours per week becomes 15 hours).
Additionally, for more complex tasks, project management costs should be modelled to ensure the consistency of quality standards. Therefore, we would recommend taking a conservative approach to evaluating employee capacity requirements and estimating indirect hours to oversee project efforts, particularly as the number of functions given to any one junior employee increases. From our experience, both efficiency degradation and soft costs are typically underestimated when transitioning more complex processes to junior staffing.
Q: What should family offices focus on when outsourcing to ensure added value and mitigate risks?
The outsourcing option doesn’t require any modelling changes from the process of evaluating internal alternatives, although, certainly, both productivity and deliverable quality have to demonstrably improve to justify switching costs. The primary risk to your project ROI estimate is embedded in the variable cost assumptions in any proposal that you receive from a viable third party.
From a single-family office perspective, I think the key here is to mitigate this exposure through either pricing adjustments or contractual caps for labour costs. There are certainly other considerations as well that need to be contemplated when evaluating third parties: cybersecurity, cultural fit, and prior experience, to name but a few.
Q: What about tech-enabled solutions – how can family offices incorporate them?
Our methodology for evaluating potential single-family office software solutions is applicable in almost any context. But, let’s use the previous examples of grantmaking, K-1 collections, and compliance reporting. First, we recommend having your operations team fully map out each of these existing processes from end to end and then assign the labour required for each step.
Next, we would overlay a map of the new process via the automated approach to understand and quantify the areas of efficiency improvements. Then, the only question becomes whether these savings are sufficiently larger than the total costs of licensing, one-time and training.
Q: How should family offices weigh the time and the costs involved with automation?
The amount of time it can take to develop the “muscle memory” to become proficient in managing certain family office software solutions that are available on the market can be significant. Training alone can take as much as three months and becoming a “super user” can take years. Take Salesforce, for example. From our perspective, the explosive growth of the Sales Operations function over the last decade is directly attributable to the need for dedicated corporate resources to the implementation and optimization of these types of CRM systems. The point we are trying to make is that you may want to contemplate some sort of yearly ramp in efficiency gains in your calculations. It’s an anomaly when full synergy occurs day one.
Second, typically some sort of project scale is required to justify the fixed costs of an annual license agreement. It’s very difficult to make the numbers work for automating the K-1 process if, for example, you are only collecting a handful of K-1s each year. Ultimately, there are certain threshold requirements to cost justify process automation.
Q: So, how does Panchee Advisory add value to these use cases?
Our approach is twofold. First, we’ve already developed the muscle memory to efficiently automate and manage a specifically defined set of single-family office administrative processes within grant management, data collection and compliance reporting, which accelerates the productivity ramp.
Second, our partnerships with premium family office software vendors provide a procurement advantage that we incorporate into our pricing assumptions, which can then be leveraged to drive down overheads.
Collectively, we are one of the very few service providers with a holistic, best-of-breed tech stack, supported by a team of process-specific experts that significantly lowers the threshold for outsourcing ROI on a defined set of single-family office processes.
Q: What final takeaways should single-family offices know about outsourcing processes to a third party?
Beyond numbers, quality improvements are equally important drivers of client value and can include reporting enhancements, family access, and trustee collaboration, among others.
Business process outsourcing – even to Panchee Advisory – is not a value match for everyone. For example, family foundations that make more than 300 grants per year may find it preferable and more cost-effective to hire a dedicated employee to manage the process on a full-time basis. So, the numbers need to work, security needs to be addressed and there needs to be a “fit,” in terms of the working relationship between parties.
Most CFOs typically implement the concept of opportunity cost when determining a project’s ROI. From this perspective, we think that any evaluation should start with three simple questions: (1) What is the hourly or total value that I assign to my team’s finite time? (2) How much of this time could they otherwise be spending on higher value tasks, and (3) what is the total value of the task that I am considering delegating internally or externally? With these questions answered, you have the basic framework for assessing project payback potential.
Q: Can you give us a practical example of how to apply this framework within a family office?
Sure. Let’s suppose that, as the CFO of a single-family office, you assign $500 per hour of value to your team’s time on priority tasks (to be clear, this is not based on their salary but on a charge-out rate). However, your team also needs to spend time on non-priority tasks; for example, three hours per week collecting data for compliance and reporting purposes, another two hours on K-1s, and five more managing the family foundation, totalling ten hours per week.
So, let’s say that you only assign an hourly value of $100 to these three tasks, based on your research of the cost of hiring temporary support. Using this example, the cost of not redirecting 100% of your team’s newfound capacity to $500 per hour projects works out to $200,000 per year, which is the total size of the opportunity. From there, you need to evaluate and quantify the alternatives, such as delegating these projects either to junior staff or to an external provider.
Q: What factors should family offices consider when deciding whether to delegate a task internally or outsource externally?
For a majority of cases, the internal delegation of certain non-core tasks is the appropriate solution where there is discernible bandwidth to take on incremental, manual processes. However, in certain cases, there may be a significant degradation in efficiency in terms of the direct labour required to perform the tasks (e.g., 10 hours per week becomes 15 hours).
Additionally, for more complex tasks, project management costs should be modelled to ensure the consistency of quality standards. Therefore, we would recommend taking a conservative approach to evaluating employee capacity requirements and estimating indirect hours to oversee project efforts, particularly as the number of functions given to any one junior employee increases. From our experience, both efficiency degradation and soft costs are typically underestimated when transitioning more complex processes to junior staffing.
Q: What should family offices focus on when outsourcing to ensure added value and mitigate risks?
The outsourcing option doesn’t require any modelling changes from the process of evaluating internal alternatives, although, certainly, both productivity and deliverable quality have to demonstrably improve to justify switching costs. The primary risk to your project ROI estimate is embedded in the variable cost assumptions in any proposal that you receive from a viable third party.
From a single-family office perspective, I think the key here is to mitigate this exposure through either pricing adjustments or contractual caps for labour costs. There are certainly other considerations as well that need to be contemplated when evaluating third parties: cybersecurity, cultural fit, and prior experience, to name but a few.
Q: What about tech-enabled solutions – how can family offices incorporate them?
Our methodology for evaluating potential single-family office software solutions is applicable in almost any context. But, let’s use the previous examples of grantmaking, K-1 collections, and compliance reporting. First, we recommend having your operations team fully map out each of these existing processes from end to end and then assign the labour required for each step.
Next, we would overlay a map of the new process via the automated approach to understand and quantify the areas of efficiency improvements. Then, the only question becomes whether these savings are sufficiently larger than the total costs of licensing, one-time and training.
Q: How should family offices weigh the time and the costs involved with automation?
The amount of time it can take to develop the “muscle memory” to become proficient in managing certain family office software solutions that are available on the market can be significant. Training alone can take as much as three months and becoming a “super user” can take years. Take Salesforce, for example. From our perspective, the explosive growth of the Sales Operations function over the last decade is directly attributable to the need for dedicated corporate resources to the implementation and optimization of these types of CRM systems. The point we are trying to make is that you may want to contemplate some sort of yearly ramp in efficiency gains in your calculations. It’s an anomaly when full synergy occurs day one.
Second, typically some sort of project scale is required to justify the fixed costs of an annual license agreement. It’s very difficult to make the numbers work for automating the K-1 process if, for example, you are only collecting a handful of K-1s each year. Ultimately, there are certain threshold requirements to cost justify process automation.
Q: So, how does Panchee Advisory add value to these use cases?
Our approach is twofold. First, we’ve already developed the muscle memory to efficiently automate and manage a specifically defined set of single-family office administrative processes within grant management, data collection and compliance reporting, which accelerates the productivity ramp.
Second, our partnerships with premium family office software vendors provide a procurement advantage that we incorporate into our pricing assumptions, which can then be leveraged to drive down overheads.
Collectively, we are one of the very few service providers with a holistic, best-of-breed tech stack, supported by a team of process-specific experts that significantly lowers the threshold for outsourcing ROI on a defined set of single-family office processes.
Q: What final takeaways should single-family offices know about outsourcing processes to a third party?
Beyond numbers, quality improvements are equally important drivers of client value and can include reporting enhancements, family access, and trustee collaboration, among others.
Business process outsourcing – even to Panchee Advisory – is not a value match for everyone. For example, family foundations that make more than 300 grants per year may find it preferable and more cost-effective to hire a dedicated employee to manage the process on a full-time basis. So, the numbers need to work, security needs to be addressed and there needs to be a “fit,” in terms of the working relationship between parties.
