Compliance Spending Could Hit $80 Billion in Five Years - Analysts

$15.5 billion in spending seen in 2005 to comply with regulations; leading companies using compliance initiatives to streamline operations, AMR says

$15.5 billion in spending seen in 2005 to comply with regulations; leading companies using compliance initiatives to streamline operations, AMR says

Boston  March 22, 2005  The cost to enterprises of compliance with a growing number of government regulations over the next five years will reach the $80 billion mark, but many companies also are taking advantage of compliance initiatives to streamline their operations, according to a new study by technology consultancy AMR Research.

Specifically, the research firm estimates that organizations will spend close to $15.5 billion on compliance-related activities in 2005. Though an average company will spend approximately $500,000, leading businesses are using these mandates as an opportunity to identify and transform business areas that need improvement.

"Compliance is an all-encompassing set of activities that cross business and IT groups," said John Hagerty, vice president of research at AMR. "Companies that see the big picture will put these mandates to work for them and use them as a catalyst to improve or even rethink many parts of their organizations."

Compliance is forcing businesses to look at what contributes to financial success, not just how to report financial performance. Through compliance mandates, companies are streamlining processes and reducing exposure to financial risk, AMR said.

In order to ensure efficient operations, businesses are moving towards a more structured compliance initiative, according to the analyst firm. "In 2005, over 80 percent of companies expect to have an executive-level compliance officer," said Hagerty. "Centralization of compliance issues under an executive will unify an approach to compliance."

Companies are also rethinking how to fund compliance. The study found that in 2004, 35 percent of companies had a specific budget for compliance initiatives, but almost two-thirds had to pull from other areas to fund these projects. In 2005, more companies (40 percent) will have a specific budget for compliance.

Although technology spending is a major part of compliance investment, ranging from 28 percent of overall Sarbanes-Oxley (SOX) spending to 42 percent of overall HIPAA spending, investment on internal staff is the largest budget item in compliance. SOX remains the most expensive initiative, accounting for 39 percent of all compliance spending.

The AMR study, "Spending in an Age of Compliance, 2005," was based on a survey of more than 225 business and IT leaders on their compliance spending priorities.

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